Document da42w3EqbY86aQRpZ5rvLO3D5

FINANCIAL HIGHLIGHTS (In Thousands ol Dollars Except Per Share ot Common Stock) Years Ended December 3t Net Sales ........................... Income Before Extraordinary Items............................. Net ................................. Depreciation, Depletion & Amortization ..................... Cash Flow........................... Capital Expenditures.......... Working Capital.................. 1972 $631,599 44,707 49,242 34,815 89,648 31,508 261,959 Percent 1971 Increase $577,058 9.5 38,240 17 34,914 41 32,845 72,27,3 24,383 229.996 6 24 29 14 Per Share of Common Stock Income Before Extraordinary Items ----- Net Income..................... 'Dividends ....................... Shareholders' Equity .... Cash Flow....................... Average Number of Common Shares Outstanding.......... $ 4.03 $ 4.48 88% * $25.17 $ 8.89 10,086,799 $ 3 35 $ 3.03 $21 64 $ 7.13 10,140,533 O CO 20 48 5 16 25 *Current annual rate is 9Ot. CONTENTS 1 Message to Shareholders 4 Financial Results ol 1972 9 Operations Review 20 Financial Statements 24 Notes to Financial Statements 26 Auditors' Report 27 Directors, Officers and Staff 28 Ten-Year Summary 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 26, 1973. Formal notices of the annual meeting, proxies and proxy statements will be mailed on or about March 30,1973. ETC 16037 Message to Shareholders In 1972, Ethyl had all-time record sales and income and earnings per share from operations. This performance continued a long series of growth dating back to the Albemarle Paper acquisition of Ethyl in 1962. Principal factors in the 1972 increases were substantial gains in the plastics, industrial chemicals and aluminum product lines. The year's performance underscores the success of the Company's continuing , diversification program and effective cost control. The 1972 records were achieved despite the federal price freeze. Net sales increased 9.5% over 1971 while income from operations rose 17%. i Per-share income from operations was up 20% over the previous year. Net sales for 1972 were $631.6 million, compared with $577.1 million for 1971. Income from operations for 1972 was $44.7 million, or $4.03 a share, compared with $38.2 million, or $3.36 a share, for the previous year. In the fourth quarter of 1972, Ethyl reported an extraordinary credit of $4.5 million resulting from payment by the Canadian Province of New Brunswick for timberlands it expropriated in 1966 from a Canadian subsidiary. After this extraordinary credit, net income for 1972 totaled $49.2 million, or $4.48 a share. This compares with 1971 net income of $34.9 million, or $3.03 a share, which included an extraordinary charge of $3.3 million for the shutdown of Oxford Paper's mill at Lawrence, Mass. ; We will not attempt to cover all the details of our operations in this letter since they are included in the report, which we hope you will read. This is the fourth annual report in which we have given you the status of the ** lead-in-gasoline controversy. On February 22, 1972, the Environmental Protection Agency (EPA) proposed regulations on which we reported to you in last year's annual report. EPA held public hearings in the spring in Washington, D.C., Houston, Texas, and Los Angeles, Calif. Ethyl's representatives testified before the Los Angeles hear ing. In our testimony, we again stressed our belief that any reduction or removal of lead from gasoline would have serious adverse repercussions on this nation's econ omy, ecology and consuming public. Ethyl's testimony emphasized the invalidity of the EPA charges that lead antiknocks in gasoline pose a health hazard. EPA announced on December 28, 1972, finalization of a regulation to make available one grade of lead-free gasoline by July 1, 1974. This regulation continues > to be based on the assumption that catalytic converters will be installed and working on 1975 model cars. Ethyl has recognized for some time that U.S. motorists would have to accept lead-free gasoline and inefficient low-compression engines as long as the approach by the automobile manufacturers is to attempt to perfect noble metal catalytic converters as a means of removing unburned hydrocarbons from automobile exhaust. On the same date, EPA, citing a re-evaluation of its health position based on public hearings and comments received last year, issued a new proposal for regula tions governing lead in gasoline for present cars. These revised regulations would gradually reduce lead in gasoline from the present average of about 2.25 grams per gallon to 1.25 grams per gallon between 1975 and 1978. This new proposal includes a one-year postponement of the previously proposed deadlines for the reductions. In announcing the reproposed regulations, EPA's administrator admitted that a serious controversy exists among government medical experts as to whether there is any evidence of a health hazard from leaded gasoline. Accordingly, he called for 60 more ETC 16038 I days of public comments on the subject, and asked specifically for analysis and comment by the scientific community on the entire controversy over lead regulations. Presumably, EPA will review its latest proposal in light of the comments to be received, and we cannot predict whether such proposal will be further revised or whether it will ever be made final. EPA has estimated that the regulations now in force and proposed would result in about a 60% reduction of lead antiknocks used in gasoline in the U S. by 1978. Continued penetration of expanding world markets would lessen any such impact on Ethyl's total antiknock sales. Even though lead antiknocks remain an important Ethyl product, our continuing diversification program has lessened the importance of such antiknock compounds. We believe Ethyl's record earnings in 1972--in the face of essentially level antiknock sales--reinforce this point. Strong cash reserves enable Ethyl to continue to be in a position to capitalize on sound future investments. Management is initiating and reviewing opportunities for further expansion and diversification in areas that fit well with Ethyl. These oppor tunities include acquisitions as well as funding of internally generated projects. In 1973, we are appropriating about $80 million for internal capital projects. In short, we are very pleased to report a good, record year for Ethyl. We con fidently expect 1973 to be even better. We remain genuinely appreciative of the con tinued loyalty and support of our employees, shareholders, customers and suppliers. February 26. 1973 ' Floyd D. Gotlwald, Jr Chairman ol the Board. Chief Executive Officer Bruce C. Gottwald President 2 ETC 16039 t Board oI Directors 4 i 4 t Joseph M. Lowry Senior Vice President i Or. Melvin M. Payne President National Geographic Society Washington, D C . Robert T. Marsh, Jr. Retired Chairman of the Board First & Merchants National Bank Richmond, Va. Erwin H. Will Honorary Chairman of the Board Virginia Electric & Power Co Richmond, Va. Andrew M McB'urney Executive Vice President Oxford Paper Company Division 3 Financial Results of 1972 Nt SilM Millions of Dollars 63 64 65 66 67 68 69 70 71 72 Net Sales The following table sets forth Ethyl's net sales represented by each of its lines of business for the period 1968-1972: Net Sales by Lines of Business (in Thousands of Dollars) 1972 Net Percent Sales of Total 1971 Net Percent Sales of Total 1970 Net Percent Sales of Total 1969 Net Percent Sales of Total 1968 Net Pe:ent Sales of Tctai Chemicals: Domestic .; $240,553 38% $229,605 40% $226,843 41% $214,151 42% $203,199 4 >. *' o Foreign ... 85,560 14 75,117 13 71,944 13 64,846 13 65.296 12 Plastics (a) .. 132,108 21 111,038 19 102,748 18 95,461 19 63.034 12 Paper (b) .... 88,185 14 85,666 15 92,283 17 97,783 19 143.020 28 Aluminum (cj. 85,193 13 75,632 13 63.038 11 37,061 7 34.523 7 Total ... $631,599 100% $577,058 100% $556,856 100% $509,302 100% S509.072 1 C?" : (a) Includes IMCO Container Co. from August 1968 when that company was acQuired. (P) Includes Albemarle Paper Company through October 1968 Sales of Albemarle Paper Company were S -. 573,000 or about 9% ol net sales for 1968. (c} Includes Capitol Products Corporation since 1970 The acQuisition ol that company was completed m !.'= - 1970. Profit Contribution The following table shows, with respect to the Company's lines of business, the respective operating profits before income taxes, extraordinary items and certain corporate expenses that are not practical to identify with a particular line of business: Operating Profit by Lines of Business After Identifiable Corporate Expenses (in Thousands ot Dollars) 1972 1971 1970 1969 1966 Percent of Percent of Percent of Percent of Perce*- of Operating Operating Operating Operating Operating Operating Operating Operating Operating Opera: ProfitProfit Profit Profit Profit Profit Profit Profit Profit Prc` ' Chemicals: Domestic .. $ 73,542 60% $ 71,966 66% $ 66,936 68% $ 63,007 69% S 63,459 66:: Foreign .. . 20,627 17 17,649 16 15,345 16 11,664 13 12.943 14 Plastics (a) .. 14,554 12 11,349 10 7,406 8 7,963 9 909 1 Paper (b) ... . 1,921 2 970 1 3,413 3 5,228 6 12,823 14 Aluminum (c), 11.197 9 8,021 7 4,471 5 3,048 3 3.288 3 Total .. . $121,841 100% $109,955 100% $ 97.571 100% $ 90,910 100% $ 93.422 1 00: : (a), (b), (c) Refer to respective notes under table of "Net Sales by Lines ot Business " The operating profits used for purposes of the above table include charges for gen eral and administrative and research and development expenses at the Corpora4,? level which are identifiable with each line of business but do not include charges ths: are not practical to identify with lines of business. The latter comprise financing cost? net of interest earned, and other unallocated charges including research and deve opment expense in new product areas and oil and gas exploration costs, as shown r the following table: Net Financing Costs.................. Other Unallocated Charges--Net Total.................................... 1972 $10,941 24.766 $35,707 (In Thousands of Dollars) 1971 1970 1969 $12,563 $10,208 $ 7,696 23,576 17.132 17.170 $36,139 $27,340 $24,866 I960 $10,64 21.5C S32 32 4 ETC 16041 t Within the chemicals line of business, Petroleum and Industrial Chemicals often utilize joint facilities for manufacture, research and development and in many in stances 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 accurate allocations within the chemicals line of business to determine 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 chemical products, any 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 oi Dollars) The following table sets forth the amounts and percentages of net sales of each of the classes of similar products for the 1968-72 period: Classes of Similar Products 1972 Net Percent Sales of Total 1971 Net Percent Sales of Total 1970 Net Percent Sales of Total 1969 Net Percent Sales of Total 1969 Net Percent Sales of Total Chemicals: Petroleum . $225,993 36% $222,166 39% $229,119 41% $213,840 42% $210,807 42% Industrial .. 100,120 16 82.556 14 69.668 13 65,157 13 57,688 11 Plastics (a) .. 132,108 21 111.038 19 102.748 18 95,461 19 63,034 12 Paper (b) ... 88,185 14 85,666 15 92,283 17 97,783 19 143,020 28 Aluminum (c). 85.193 13 75.632 13 63.038 11 37.061 7 34,523 7 Total ... $631.599 100% $577,058 100% $556,856 100% $509,302 100% $509,072 100% ---- -- (a), (b). (c) Reler to respective notes under table ot "Net Sales by Lines of Business." Lead antiknock compounds (which comprise substantially all of the Petroleum Chem icals sales shown above) remain the Company's principal product and contribute to operating profits a substantially higher percentage than their 34% contribution to net sales. Income and Earnings Per Share from Operations Reach Record Highs Income from operations for 1972 amounted to a record $44,707,000 compared with income from operations of $38,240,000 for 1971. The 1972 income from operations was equal to a record $4.03 per share, based on the average of 10,086,799 shares of common stock outstanding during 1972, treating common stock options and warrants as com mon stock equivalents. It compares with income from operations of $3.36 per share for 1971, on the basis of the average of 10,140,533 shares of common stock out standing during the year, on the same basis. Net Income After Extraordinary Items in 1972, the Company reported an extraordi nary credit of $4,535,000 resulting from payment by the Canadian Province of New Brunswick for timberlands it expropriated in 1966 from a Canadian subsidiary. Net income for 1972 after the extraordinary credit, amounted to $49,242,000 or $4.48 a share compared with 1971 net income of $34,914,000 or $3.03 a share, which included an extraordinary charge of $3,326,000 for the shutdown of Oxford Paper's Mill at Lawrence, Massachusetts. Dividend Increased The Board of Directors increased the regular quarterly dividend on the common stock twice during 1972; from 21 cents to 22 cents per share effective with the October 1,1972, payment and from 22 cents to 22V2 cents effective with the January 1,1973, payment. In addition the directors declared a special year-end divi dend of 2 cents a share on the common stock, payable October 1,1972. This brought 63 6* 65 66 67 68 69 ' 70* 7r 72Before Extraordinary /terns 5 ETC 16042 Total Aiwti Millions of Dollars 63 W 65 66 67 69 70 71 72 dividends on common stock to 881/2 cents per share in 1972 and compares with 84 cents paid for the year 1971. The 1972 dividend was the maximum that the Com pany was permitted to pay under the federal dividend control regulations. The common stock dividend based on the current quarterly rate amounts to 90 cents on an annual basis. Cash Flow Sets a Record Cash Flow, which consists of net income plus depreciation, depletion and amortization and other non-cash charges, amounted to a record $89.6 million in 1972, compared with a cash flow of $72.3 million in 1971. The 1972 cash flow exceeded that in 1971 by $17.3 million and 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, 1972, working capital was $262 million and the ratio of current assets to current liabilities was 4.13 to 1. This compared with working capital of $230 million and a ratio of 4.22 to 1 at December 31,1971. Capital Expenditures During 1972, $31.5 million-was spent on capital projects for new plants, expansions and modernizations compared with $24.4 million in 1971. Internal Revenue Service Examination As noted in the 1971 Annual Report, the Internal Revenue Service completed its examination of the Company's first three tax able periods after the Ethyl-Albemarle merger in 1962. It has now completed two more years through December 31, 1966. The IRS has proposed tax increases of $22 million, including interest, for these five periods, which would total an estimated $38 million if assessed on the same basis through 1972. The IRS position results from differences in the valuation of assets acquired in the merger and the allocation of values between tangible and intangible assets. The IRS valuation of assets was made by a government engineer during the course of its examination. The Company based its asset valuation on an appraisal by independent appraisers made at the time of the merger. 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 might be payable by the Company on the basis of a reasonable asset valuation. The Company does not accept the IRS pro posal and will continue to contest it. How Ethyl Used the Revenues It Received During 1972 (Millions oi Dollars) $638.8 100 0% WAS RECEIVED BY ETHYL from all sources THESE RECEIPTS WENT: $312.0 48.8% To suppliers for materials, services, elc. $163.9 25.7% To employees for payrolls, employee benefits $ 56.0 8.8% For income and olher taxes $ 17.2 2.7% For interest expense $ 13.0 2.0% To Ethyl shareholders $ 76.7 12.0% For use in the business, including expansion, mod ernization, working capital and debt repayments ^ f 6 Etc 9 Long-Term Debt As of December 31,1972, the long-term portion of Ethyl's debt was $223.3 million, equal to 41 % of the Company's total capitalization. Debt repayments during 1972 amounted to $21.6 million. These consisted of pay ments of $2,485,000 on the 5%% Subordinated Notes, due 1972; $1,250,000 on the 47/e % Promissory Notes, due 1983; $17,500,000 in full payment of the Term Promissory Notes due 1972-1975; and $338,000 on Miscellaneous Debt. Dbt Ratio Percent qurty 10C ao Summary of Long-Term Debt I Senior Debt 7.6% Senior Notes ($106 million-due 1974-86) and7'/j% Promissory Notes ($50 million--due 1973-83) .............................. The Prudenlial Insurance Company ot America The Equitable Life Assurance Society of the United States The Northwestern Mutual Life Insurance Company New York Life Insurance Company 47/b% Promissory Notes--due 1973-83 .............................................. Northwestern Mutual Life Insurance Company John Hancock Life Insurance Company ~ New York Life Insurance Company Miscellaneous ...................................................................................... Subordinated Debt 5%% Subordinated Notes--due 1979-82 .......................................... Various Institutional Investors Less unamortized discount (the balance of the amount corresponding to the proceeds of warrants sold with the Notes in 1962), reflecting an imputed total interest rate of 7.4% ............................................ Total Debt at December 31, 1972 .................................... Current Portion of Debt.................................................... Long-Term Debt................................................................ $223,261,000 63 64 66 66 67 68 69 70 71 72 Summary of Debt Maturities to 1982 5'/% Subordinated Notes Due 1979-82 7.6% Senior Notes Due 1986 716% Promissory Notes Due 1983 1973 . . . . 1974 . . . . 1975 .. .. 1976 . .. . 1977 . . .. 1978 . . . . 1979 .... 1980 .... 1981 . ... 1982 .... $ 8,000,000 8,000,000 8,000,000 26,000.000 $12,000,000 12,000,000 12,000,000 12,000,000 22,000,000 3,000,000 3,000,000 3,000,000 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 7,000,000 47/,% Promissory Notes Due 1983 $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 Misc. Debt Maturities to 1992 $275,000 256,000 411,000 656,000 422,000 99,000 106,000 113,000 121,000 129,000 Total Annual Amount $ 4,025,000 16,006,000 16,161,000 16,406,000 16,172,000 25,849,000 19,356,000 19,363,000 19,371,000 37,379,000 7 etc 16044 CHEMICALS DOMESTIC Sales of chemicals in the U.S. in 1972 in creased over 1971 levels, due primarily to gains in industrial chemicals. Domestic chemical sales totaled $240.5 million, or 38% of Ethyl's total sales. Petroleum Chemicals: In 1972, sales of lead antiknock compounds and other pe troleum chemicals continued at about the same level as 1971. Emphasis on products to curb emissions from various power sources is expected to continue in 1973 as more stringent restrictions are imposed by governmental agencies. Industrial Chemicals: Sales continued strong throughout 1972. Profit margins im proved as a result of increased production. Prices held firm in all areas except chlor inated solvents where excess national ca pacity created price erosion. In 1972, the marketing of detergent in termediates both in the U.S. and in foreign markets was emphasized. The objective was to meet changing market needs as new formulations result from shifts to lower phosphate usage and improved biode gradability. This activity included the mar keting by Ethyl of alpha olefins and linear alcohols plus their derivatives. Demands for plasticizer-range alpha olefins and linear alcohols continued strong as polyvinyl chloride (PVC) de mand made a dramatic turnaround in 1972. In addition, a major shift to greater use of linear and near-linear plasticizers occurred in PVC markets. Ethyl's alcohol-olefin complex at Hous ton, Texas, which supplies alcohols and olefins for the plasticizer, detergent and specialty markets, ran near capacity at year-end. Another expansion is underway. Facilities are also being installed to pro duce pure single cuts of both alcohols and olefins for sale to specialty markets. The sale of pesticide intermediates con tinued strong in 1972. The growth of this market led to the installation of a major manufacturing facility at the Houston com plex based on orthoalkylation technology. Ethyl previously had produced these in termediates at its plant in Orangeburg, S.C. Production of other specialty chemicals and developmental chemicals continues at Orangeburg. Increases in aluminum alkyl and alumi num alkyl halide catalyst sales to the poly propylene, synthetic rubber and synthetic wax markets were achieved in 1972. The major new market area penetrated commercially in 1972 was flame retardants for fibers. Considerable market and prod uct development effort continues on flame retardants, based upon both phosphorus and bromine technology. Instruments: In May, Ethyl acquired Inter tech Corporation of Princeton, N.J. Intertech is a supplier of instruments and systems for process control and measure ment of air pollutants from fixed and mo bile sources. It has exclusive rights to the Hartmann-Braun infra-red instruments in this country. As more stringent clean air regulations are imposed, the need in creases for more precise measurement of trace quantities using infra-red instrumen tation. Intertech joins with Ethyl's 1970 ac quisition, Air Monitoring, Inc. (AMI), to comprise the instruments sales area. AMI develops and builds sampling and analy tical systems for measuring automobile exhaust emissions. PLANTS: BATON ROUGE. LA. / DETROIT, MICH. / HOUSTON, TEXAS / MAGNOLIA. ARK / ORANGEBURG, S C, / PRINCETON, N.J PROOUCTS: ALKYL ALUMINUM HALIDES / ALPHA OLEFINS (DETERGENT & PLASTICIZER) / ALPHA OLEFIN SULFONATES / ALUM / ALUMINUM ALKYLS / ANTIOXIDANTS / BROMINE / BROMINE CHEMICALS / CAUSTIC SODA / CHLORINATED SOLVENTS / COMBUSTION IMPROVER / DIESEL FUEL DETERGENT-CORROSION INHIB ITOR / DIESEL FUEL IGNITION IMPROVERS / DISTILLATE FUEL ANTI-STATIC ADDITIVE / ETHYL CHLORIDE / ETHYLENE DIBROMIDE / GASOLINE ANTIKNOCK COMPOUNDS / GASOLINE DETERGENT-DEICER CORROSION INHIBITORS / LINEAR PRIMARY ALCOHOLS (DETERGENT & PLASTICIZER) I LUBRICATING OIL ADDITIVES / METAL DEACTIVATORS l METHYL CHLORIDE / OIL SOLUBLE DYES / ORGANOPHOSPHORUS CHEMICALS / ORTHOALKYLATED ANTIOXIDANTS / ORTHOALKYLATED PHENOLS AND ANILINES / SPECIAL ORGANOMETALLICS / SODIUM / VINYL BROMIDE / VINYL CHLORIDE. < Crews work on the installation o/ a ma/or orthoalkylation facility at Houston, Texas. The new facility initially will manufacture pesticide intermediates etc 16046 Chemical sales in countries other than the United States totaled $85.6 million in 1972, up 14% over 1971 levels. Such sales ac counted for 14% of Ethyl's total sales. The International Division sells and distributes the full range of Ethyl's chemicals around the world, except the U.S. and Canada. Sales in Canada are handled by F'.hy. Corporation of Canada Limited. Increased gasoline sales and minimal impact of no-lead and low-lead gasolines in Canada contributed to Ethyl of Canada's near-record antiknock compound ship ments in 1972. The company maintained its position as the leading supplier of anti knock compounds in Canada. Sales of other products in Canada were somewhat higher during the year. Aluminum alkyl sales were adversely affected by the shut down of a customer plant. Ethyl of Can ada's Sarnia plant continued at a high rate of efficiency with cost reduction programs offsetting raw material cost increases. The International Division in 1972 sur passed the previous year's records. In creases in sales volumes for most product lines and continued improvement in prod uct distribution and manufacturing cost at the Ethyl Hellas plant in Greece were prin cipal factors. Sales of antiknock compounds in 1972 increased in all foreign marketing areas, except the Far East. The addition of new antiknock terminals in 1973 is expected to increase growth and to lower distribu tion costs. In other product areas, 1972 marketing efforts contributed to substantial increases in aluminum alkyl sales and in expanding this product's marketing to 14 overseas countries. Preliminary design and sizing studies for an aluminum alkyl plant in Eu rope were nearly completed in 1972. Loca tion, capacity and start-up date are ex pected to be announced in 1973. Oil and Gas Exploration: Ethyl Develop ment Corporation, a wholly owned subsidi ary, continued participation in oil and gas exploration in Canada during 1972 in co operation with British Petroleum Oil and Gas, Ltd. Drilling resulted in a gas discov ery on a large acreage block in the Prov ince of British Columbia. Drilling in the Province of Alberta resulted in a dual zone gas discovery. Additional drilling near both of these discoveries is scheduled in 1973. The joint venture continues to acquire pe troleum and natural gas leases in western Canada. It currently has interests in 850,000 acres. Plans are to increase ex ploration activities on this acreage in 1973. Ethyl Development Corporation contin ued oil and gas exploration in the Dutch North Sea through the Laura-Tenneco Group in 1972. Ethyl has a one-sixth inter est in the group, which holds 12 blocks to taling 1.2 million acres. Two non-produc tive exploration wells were drilled under Dutch exploration licenses in 1972. One of the wells was drilled in the immediate area of two previously reported discovery wells which had tested significant amounts of oil. This well failed to confirm preliminary estimates of recoverable reserves which would warrant development of the struc ture based on present economics. Addiditional North Sea exploratory drilling is scheduled in 1973. PLANTS: THESSALONIKI, GREECE (ETHYL INTERNATIONAL) / SARNIA. ONTARIO. CANAOA (ETHYL OF CANADA) PRODUCTS: FULL RANGE OF ETHYL'S CHEMICALS. < The BID, one of three specially built ocean-going tankers used by Ethyl, transports antiknock compounds to international terminals. ETC 16048 V Plastics products sales of $132.1 million in 1972 surpassed 1971 records for an in crease of 19%. Plastics sales accounted for 21% of Ethyl's total sales. Plastic bottles and containers, polyvinyl chloride (PVC) pipe products and resins and compounds showed the greatest in creases. New marketing efforts combined with reduced unit costs and increased pro ductivity were the chief factors in the 1972 increases. "IMCO" Container Company recorded uniformly good growth in each of its major product lines--polyolefin bottles, PVC bot tles and specialty injection molded parts. "IMCO's" sales were up substantially over 1971. Gains in the cosmetic, shampoo and specialty food markets for bottles along with a shift in PVC mix to a more special ized, decorated end use assisted the year's performance. Proprietary mechanical in novations by "IMCO" increased produc tivity and complemented sales volume. Sales of customized injection-molded caps, closures, and other parts showed a significant increase over 1971. Expansion of injection molding facilities at "IMCO's" Downsview, Ontario, Canada, plant has been started in order to accommodate growth in this area. Ethyl's new pipe products plant in Col umbia, Miss., was started up in the fourth quarter. The output of this plant, combined with that of Terre Haute, Ind., assisted in sales gains made by the Pipe Products Division. Prices and orders remain strong as the PVC pipe industry continues to ex perience substantial growth. The pipe and fittings are used in municipal, private and rural community water distribution sys tems, turf and farm irrigation, industrial services and sewer-force main systems. Ease of handling and installation are im portant characteristics of PVC pipe. PVC resins and compounds sold by the Polymer Division showed good sales gains in 1972 along with improved product mix and profitability. A new high-barrier acrylo nitrile polymer was produced for internal use by "IMCO" and "VISQUEEN" under the tradename "GUARDIAN." Ethyl signed an agreement in 1971 with Standard Oil Company (Ohio) to supply this polymer for Sohio to market under its tradename Barex. Ethyl is using the resin in its plastic bottles. The resin has excellent character istics in film and in bottles for hardto-contain products such as carbonated beverages. "VISQUEEN" film production made substantial recovery during the second half after soft demand in the first quarter of 1972. Further success was achieved in the upgrading of the "VISQUEEN" product line from commodity-type to special appli cations such as shrink films (uniaxial and biaxial) for bundling and pallet overwrap, disposables--diapers, hospital underpad ding, mulch films--and structured, multi layered films. Full start-up of the Manches ter, Iowa, plant in the second quarter, coupled with conversion of conventional equipment at other locations, aided this effort. Through "VISQUEEN," Ethyl con tinues to be the world's largest polyethy lene film producer. PLANTS: BATON ROUGE, LA. / BELVIDERE. N.J. / CARBONDALE. PA. / COLUMBIA. MISS. I DOWNSVIEW. ON TARIO, CANADA / EXCELSIOR SPRINGS. MO. f FLEMINGTON, N J. / FREMONT, CALIF. / GOLETA. CALIF / HARRISONBURG, VA. { JEFFERSONVILLE, IND / KANSAS CITY, MO. (2) / LAGRANGE. GA. / LAMIRADA. CALIF / LOUISVILLE, KY. / MANCHESTER. IOWA / MISSISSAUGA, ONTARIO, CANADA / ROCKAWAY, N.J / SANDSTON. VA. / SOUTH GRAFTON, MASS. / TERRE HAUTE. IND / TIPTONVILLE, TENN. / UNION CITY. CALIF, / VANDALIA. ILL. PRODUCTS: POLYETHYLENE FILMS FOR PACKAGING AND INDUSTRIAL. BUILDING AND AGRICULTURAL. PALLET AND BUNDLING, DISPOSABLES / POLYETHYLENE SHRINK SYSTEMS / POLYVINYL CHORIDE PACK AGING FILMS / POLYVINYL CHLORIDE SHRINK FILMS ( POLYVINYL CHLORIDE RESINS AND COMPOUNDS / POLYVINYL CHLORIDE CONTAINERS / GUARDIAN CONTAINERS / POLYETHYLENE CONTAINERS / BOTTLE CLOSURES AND OTHER INJECTION MOLDED SPECIALTY PRODUCTS / POLYVINYL CHLORIDE PIPE AND FIT TINGS t POLYBUTENE PIPE. < Polyvinyl chloride (PVC) pipe awaits shipment from Ethyl's new Columbia. Miss., plant. increased pipe sales led to the construction ot this second PVC pipe products tacility. ETC 16050 OPERATIONS REVIEW Sales of the Oxford Paper Company Divi sion in 1972 totaled $88.2 million, or 14% of Ethyl's total sales. This represented an increase of 3% over 1971 sales. Oxford's 1972 experience was typical of much of the paper industry with the 1971 slowdown of sales continuing through the first half of 1972. During the last half of 1972, demand for Oxford's products im proved considerably. Despite this stronger market, it was not possible for Oxford to increase prices in 1972 to offset the rising costs of labor, raw materials, transporta tion and taxes because of applicable price controls. A streamlined paper grade structure, introduced in August 1971, contributed to Oxford's sales and operating profit gain by year-end. This new structure is expected to contribute more substantially in 1973. Improvements also continue to be made in Oxford's profitability through cost re duction efforts and operating efficiency at both mills. Oxford continued to modernize and improve existing facilities during 1972. This effort included a major rebuild of the number 10 paper machine at Rumford, one of Oxford's blade-coated units. Pollution abatement installations are underway at the Rumford, Maine, and West Carrollton, Ohio, mills. A major step in 1972 was the start-up of a $2.7 million bark burner at Rumford. This unit will solve a solid waste problem by disposing of the bark residue from the mill's pulping opera tion and will recover the fuel value of the bark. Engineering plans are progressing for a primary and secondary treatment plant for effluent at Rumford. Current cost estimates for these treatment facilities total approximately $10 million. Nashwaak Settlement: In November, the Supreme Court of the Canadian Province of New Brunswick affirmed an award of $8 million plus 5% interest per year for six years to Nashwaak Pulp and Paper Com pany, Ltd., a Canadian subsidiary of Ethyl Corporation, as compensation for timberlands expropriated by New Brunswick in 1966. (See page 5.) The timberlands were formerly used by Oxford Paper Company as a wood supply in its pulpmaking activi ties. The timberlands involved total more than 218,000 acres and were acquired by Nashwaak in 1916. They had a book value of approximately $1 million. PLANTS: RUMFORD. MAINE / WEST CARROLLTON, OHIO. 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 / COATED AND UNCOATED WEB OFFSET PAPERS FOR MAGAZINES. BOOK PUBLISHING, COMMERCIAL PRINTING / FILM COATED PAPERS FOR BOOK PUBLISHING. COMMERCIAL PRINTING / UNCOATED AND COATED PAPERS '(SHEET AND ROLL) FOR MAGAZINES. COMMERCIAL PRINTING, CONVERTING / CONVERTING PAPERS AND ENVELOPES. BUSINESS FORMS, PAPER MASTERS. This report is lithographed on "LUXCOTE" High Gloss Enamel (basis weight 100 pound text and 80 pound cover), produced by Oxford Paper Company An array of finished Droducts from Oxford Papers' four enduse markets--periodicals, book publishing, commercial prtrung and converting. 15 Aluminum product sales in 1972 totaled $85.2 million, an increase of 13% over 1971 record levels. The sales of Ethyl's two aluminum subsidiaries--The William L. Bonnell Company, Inc., and Capitol Products Corporation--accounted for 13% of Ethyl's total sales. The William L. Bonnell Company, Inc.: Sales of Bonnell products in 1972 again set new records. Demand for products was strong enough to create substantial back logs. The record 2.3 million housing starts for the year were a major factor in the increase. Other strong key markets served in 1972 by Bonnell were transportation, marine, bulk container, advertising sign, automotive and architectural applications. To improve its service to customers, Bonnell in October installed a third extru sion press at its Carthage, Tenn., plant. Additions to the capacity of this plant are planned in 1973. Sales of painted extrusions showed con tinued good growth in 1972. Bonnell has begun construction of a new paint line at the Carthage plant. Start-up of this second Bonnell paint line is scheduled for mid1973. Forecasts for 1973 show that the con struction industry will continue to grow, providing continued strong markets for Bonnell's products. Capitol Products Corporation: Increases in sales and earnings represented a com bination of continued demand for Capitol's products, more efficient manufacturing methods and the opening of a new plant at Kentland, Ind. This extrusion-fabrication plant, with over 132,000 square feet of manufacturing and warehousing space, was completed in the second quarter. Ad ditional manufacturing space is planned at Kentland in 1973 to meet increasing de mand in the midwestern market. Capitol continued in 1972 to strengthen its position as a leading U.S. supplier of aluminum windows and rolling doors to producers of in-plant housing, to builders of apartment complexes and multiple housing projects and to distributors. Sales of fabricated products reached record lev els in 1972. A painted thermal-break window--a prime window on the outside and a storm window on the inside separated by vinyl-- was introduced in August. Available in a variety of electrostatically applied enamel colors, the new window series is expected to become one of Capitol's most popular product lines. A thermal-break rolling door will be offered in 1973. The installation of a second press at the Kentland plant in 1973 will enable Capitol to meet the increasing demand for its soft alloy extrusions. PLANTS: CARTHAGE. TENN. / NEWNAN. GA. (BONNELL) / HARRISBURG. PA. / KENTLAND. IND / NEW OXFORD. PA. / MECHANICSBURG. PA. (CAPITOL PRODUCTS). PRODUCTS: EXTRUDED ALUMINUM SHAPES FOR WINDOWS AND DOORS. STORE FRONTS AND CURTAIN WALLS. BOATS. TRUCKS AND TRAILERS. TUB ENCLOSURES / DECORATIVE ALUMINUM PRODUCTS FOR THE FLOOR COVERING AND HOME BUILDING INDUSTRIES / ALUMINUM WINDOWS AND DOORS / RESIDENTIAL LAWN BUILDINGS. -iuminum window and door ~*Uusions are passed through electrostatic paint line at -z.tol Products' new plant ' <enUand. Ind. This new extru '"'fabrication plant serves f midwestern market. _____ 17 Approximately $20 million was invested in Ethyl's research and development pro gram in 1972. The Corporation received more than 130 domeslic patents, bringing the total to approximately 1,400 unexpired U.S. patents held by Ethyl. The Company also maintains some 800 foreign patents-- 90 ol which were received in 1972. Over 50% of the research and development ef fort during the year was devoted to the new product area. New Producl Research: Intensive investi gation of low-level concentrations of Ethyl's AK-33X, manganese antiknock ad ditive, was continued in 1972. Tests indi cate that the compound can be used with no adverse effects on automobile perform ance or on the environment. On the basis of these test results, management believes its use should be attractive to refiners producing lead-free gasoline. Further tests are being conducted by regulatory agen cies. Effective, new. phosphorus-free en gine cleanliness additives were introduced into the market place in 1972, and the initial response has been good. Other new fuel and lube additives are under devel opment. An extensive effort has been applied to developing additional bromine chemical products based on Ethyl's strong bromine production position. Several new bromine chemical products are well along in proc ess and market development. In addition to marketing vinyl bromide as an interme diate for production of flame-retardant fi bers, new flame retardants for the textile industry, based on bromine and phos phorus, are in advanced stages. A new phosphorus-containing product for flame retarding rayon, meeting all the federal standards required for children's sleepwear, nears completion of development. Other products are under development which appear to provide effective flame1 retardancy for polyester fibers and poly ester-cotton blends. New discoveries have broadened Ethyl's capabilities in selective alkylation reactions. The outlook for an antioxidant in polyethylene film is promising. This agent is an outgrowth of Ethyl's patented orthoalkylation process and reduces yel lowing of the plastic. New markels con tinue to develop for orthoalkylated phenol and aniline intermediates for pesticides. Continued contacts with the major de* tergent producers have resulted in new areas for Ethyl research. Excellent results were obtained in 1972 on alpha olefin sulfonate (AOS), a detergent intermediate Extensive information was developed on AOS formulation and effectiveness, and on production from Ethyl's alpha olefins Other new uses for these olefins continue to be explored. In addition, a number of amine and other detergent chemicals, based on Ethyl's aluminum alkyl-alcohololefin production complex at Houston, are being investigated. And, new alkyls are being developed to continuously broaden this product line to service customers' needs for increasingly sophisticated cata lyst systems. Ethyl leased additional titanium min eral deposits in 1972. Mineral recovery and separation techniques have been fur ther refined in continuing pilot plant work A titanium mineral upgrading process has been developed. Promising technologies have been defined for copper sulfide ore concentrate processing and for ores con taining mixtures of nickel and copper. De velopment of Ethyl's new aluminum proc ess progressed well in 1972. Applicable ore concentrate sources have been identi fied and are being investigated. Metals and minerals will continue to be an im portant R&D area in 1973. Research in polyvinyl chloride (PVC) has added improved products to Ethyl's producl line to take advantage of growth and profit opportunities. Particularly sig nificant have been compounds for the packaging and construction industries. Under development are PVC foam materi als for extrusions that may displace wood in molding and other wood trim applica tions. The Company has continued proc ess and product research on high-barrier resins for packaging. Ethyl researchers currently are developing applications in aerosol bottles, sheet and film and bever age bottles. Automotive Emissions Research: A co operative engine modification program with Chrysler Corporation contributed sig nificantly in 1972 to Ethyl's work to dem onstrate that extremely low exhaust emis sions can be attained with practical, non-catalytic systems without sacrificing the advantages of efficient high-compres sion engines and high-octane leaded fuels. This approach would eliminate the automobile as a significant source of air pollution, involve the minimum increase in the consumption of gasoline and result in the lowest cost to the consumer. Emissions of Ethyl's experimental, high compression, lean-reactor cars have been further reduced Federal hydrocarbon (HC) standards for 1975-76 have been met, and carbon monoxide (CO) control is margin ally satisfactory. Nitrogen oxides (NO-:) have been reduced well below levels re quired for 1975. but not yet to the degree called for by 1976 requirements. Com bined emissions of HC, CO. and NOv have been reduced by 94% compared with cars of the early 1960s. Thus, the 96% reduction required by 1976 federal stand ards would represent a negligible further improvement of air quality. Ethyl's Lean Reactor Car on a two-year loan to the Cal ifornia Air Resources Board for use in general fleet service was returned to the Corporation in November. Performance was excellent throughout the test period, with only minor durability problems which were corrected. The car passed 1975-76 standards proposed by California to solve its unique air pollution problem. Work with lead-resistant catalysts con tinues, and there are indications that ex haust catalysts with satisfactory life on normal concentrations of lead can be de veloped. Development of satisfactory, lead-resistant catalysts for nitrogen oxides control appears quite likely. Ethyl signed an agreement in March with Jensens and Company of Copenhagen, Denmark. The agreement gives Ethyl the right to evalu ate the Jensen exhaust emission control system with an option to obtain exclusive North American commercial rights. Ethyl's work on the Jensen system, which is com patible with lead, has shown that it offers genuine possibilities. It currently can meet the 1976 standards at low mileage It is expected that this evaluation program will continue in 1973 Ethyl's work on particulate traps con tinued to yield significant results in 1972 These simple devices could replace exist ing mufflers on new and used cars. A 50.000-mile test on a small car indicated that 70% of the lead in the gasoline con sumed was retained in the trap-equipped car. In addition, exhausted lead particles small enough to be airborne were reduced by 75%. More advanced devices, now well along in development, retain 95% of the lead burned. R&D FACILITIES: BATON ROUGE, LA. / DETROIT. MICH. / HOUSTON. TEX. t ORANGEBURG. S.C (AUTOMOTIVE EMISSIONS. INDUSTRIAL CHEMICALS. PLASTICS. PETROLEUM CHEMICALS. NEW PRODUCTS) / TERRE HAUTE. IND. (PLASTIC FILM) / KANSAS CITY, MO. (PLASTIC CONTAINERS) / RICH MOND, VA. / RUMFORD, MAINE (PAPER). Bthyl scientist tests biodedabitity otnew chemical prod: to determine the effect they have on the environment. 19 Consolidated Balance Sheets December 31 1972 1971 ASSETS Current assets: Cash and short-term securities........................... Accounts and notes receivable........................... Inventories............................................................. Prepaid expenses................................................. Total current assets............................... $173,837,000 83,108,000 82,658,000 6,064,000 345,667,000 $143,733,000 72.432.000 81.376.000 3,939,000 301,480,000 Property, plant and equipment, at cost: Land and land improvements............................... Development costs, producing properties............ Timberlands and standing timber.......................... Buildings............................................................... Machinery and equipment................................... 24,055,000 5,268,000 10,687,000 81,172,000 405,875,000 527,057,000 23.618.000 5,288,000 10.681.000 77,837,000 387.977.000 505.401.000 Less, Accumulated depreciation, depletion and amortization............................................... Net property, plant and equipment........ 246,617,000 280,440,000 221.723.000 283.678.000 Deferred charges and other assets 8,299,000 13,465,000 Excess of cost of investments over equities in businesses acquired and other intangibles.......... 35,121,000 $669,527,000 35,395,000 $634,018,000 The accompanying notes are an integral part of these statements. December 31 1972 1971 ETHYL CORPORATION AND SUBSIDIARIES LIABILITIES 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: Principal amount............................................... Less unamortized discount............................... Subordinated debt less unamortized discount................................... Deferred income taxes............................................. Provision for employee benefits............................... Minority interest....................................................... $ 57,100,000 3,289,000 409,000 4,025,000 18,885,000 83,708,000 $ 45,062,000 3.158.000 3,000,000 9.202.000 11,062,000 71.484.000 178,495,000 50,000,000 5,234,000 44,766,000 33,019,000 6,214,000 965,000 194,652,000 50,000,000 5.818.000 44.182.000 26.939.000 6.136.000 1.166.000 SHAREHOLDERS' EQUITY Capital stock: Cumulative First Preferred Stock, par $100 per share, 6% Series A..................................................... Cumulative Second Preferred Stock, $2.40 Convertible Series A, par $10 per share (aggregate liquidation price $67,014,000 on 1,595,574 outstanding shares, after treasury stock)............................. Common, par$1 per share................................... Capital surplus......................................................... Retained earnings..................................................... Less, Treasury stock at cost..................................... Total shareholders' equity...................... 3,013,000 3,126,000 19,621,000 10,164,000 43,769,000 265,627,000 342,194,000 19,834,000 322,360,000 $669,527,000 19.621.000 10.136.000 44.041.000 229.359.000 306.283.000 16.824.000 289.459.000 $634,018,000 The accompanying notes are an integral part of these statements. 21 CONSOLIDATED STATEMENTS OF Income & Retained Earnings Years Ended December 31 1972 1971 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, $2.50 per share in 1971..................................... $2.40 Second Preferred Stock, $2.40 per share .. Common Stock, per share, $.88'/2 in 1972 and $.84 in 1971 ............................................... 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 $1.17 per share at ihe annualized present common dividend rate, as against the present $2.40 preferred dividend). Income before extraordinary items.................. Extraordinary items........................................... Net income................................................... $631,599,000 7,187,000 636.766.000 460,803,000 73,870,000 17,979,000 41,427,000 594.079.000 44,707,000 4,535,000 49,242,000 229,359,000 169,000 3,893,000 8,912,000 12,974,000 $265,627,000 $4.03 .45 $4.48 $3.65 .37 $4.02 $577,058,000 5.642.000 582.700.000 419.722.000 70.476.000 18.686.000 35.576.000 544.460.000 38.240.000 (3,326,000) 34,914,000 207.097.000 175,000 44,000 3.974.000 8.459.000 12.652.000 $229,359,000 $3.36 (33) $3.03 $3.09 (.27) $2.82 The accompanying notes are an integral part ot these statements. 22 ETC 16059 Years Ended December 31 1972 1971 Source of Funds: Operations: Income before extraordinary items................... Expenses not requiring outlay of working capital: Depreciation, depletion and amortization ... Deferred income taxes................................. Working capital provided from operations . Extraordinary items............................................... Add: Charges which did not require working capital..................................... Deferred income taxes............................. Working capital provided from (applied to) extraordinary items............................... Other items--net................................................... Total................................................... $44,707,000 34,815,000 768,000 80,290,000 4,535,000 1,134,000 3,689,000 9,358,000 6,050,000 $95,698,000 $38,240,000 32,845,000 1,257,000 72,342,000 (3,326,000) 5,242,000 (1,980,000) (64,000) 2,017,000 $74,295,000 Application of Funds: Additions to property, plant and equipment........ Reduction of long-term debt................................. Cash dividends..................................................... Capital stock reacquired or redeemed.................. Increase in working capital................................... Total................................................... $31,508,000 16,157,000 12,974,000 3,096,000 31,963,000 $95,698,000 $24,383,000 9,508,000 12,652,000 7,480,000 20,272,000 $74,295,000 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.............. $30,104,000 10,676,000 1,282,000 2,125,000 44,187,000 $38,426,000 (1,558,000) (4,475,000) 150,000 32,543,000 12,038,000 131,000 (2,591,000) (5,177,000) 7,823,000 12,224,000 $31,963,000 5,967,000 (86,000) 69,000 (62,000) 6,383,000 12,271,000 $20,272,000 The accompanying notes are an integral pari ot these statements. CONSOLIDATED STATEMENTS OF Changes in Financial Position 23 ETC 160G0 CONSOLIDATED STATEMENTS OF Capital Surplus Years Ended December 31 1972 1971 Notes to Financial Statements Balance at beginning of year................................. Acquisition cost of the final 750 outstanding warrants (equivalent to 36,000 shares of unissued common stock) including broker's commission ..................... .................... 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: 28,040 and 39,077 shares of Common Stock .. 1,163 shares of $2.40 Second Preferred Stock............................................. Excess of par value over cost of 1,129 and 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 shares of $2.40 Second Preferred Stock issued under the Oxford Incentive Compensation Plan ............................. Balance at end of year................................... $44,041,000 (578,000) 279,000 27,000 $43,769,000 $43,562,000 34,000 358,000 30,000 26,000 1,000 30,000 $44,041,000 1. Summary of Significant Accounting Policies: Consolidation Principles The accompanying financial statements include the accounts and operations of all whollyowned subsidiaries, and the accounts and operations of Bromet Company, in which Ethyl Corporation has an 80% partnership interest. Translation of Foreign Currencies Foreign currency assets and liabilities are translated into U.S. dollars at yearend exchange rates except for property, plant and equip ment, accumulated depreciation, and depreciation expense which are translated at exchange rates prevailing at the dates of acquisition. Income and expenses other than depre ciation are translated at average exchange rates for the year. Unrealized gains or losses arising from translation are credited or charged to exchange reserves except that un realized losses in excess of reserves are charged to income. Inventories Inventories are stated at the lower of cost or market with cost determined on the last-in, first-out basis for a major portion of parent company inventories and on either average cost or first-in, first-out for other inventories. Depreciation Provisions for depreciation are based on the estimated useful lives of depreciable property, plant anc equiDment and are computed generally on the straight-line method. Expenditures for renewals and betterments are cap italized and expenditures for ordinary repairs and mainten ance are charged to income as incurred. The costs and accumulated depreciation applicable to assets retired cr sold are removed from the respective accounts, and gains or losses thereon are included in income. Unamortized Discount and Deferred Financing Expenses Unamortized discount and deferred financing expenses or long-term debt are amortized by charges to income c' straight-line bases over periods ending from 1979 to 1983 Exploration Costs Bonus and deposit payments and geo physical costs of active exploration prospects and drilling costs of aclive exploratory wells are capitalized as deferred 24 ETC 16061 costs. Such costs will be amortized if related commercial discoveries are made or charged to income if a related prospect is abandoned. Costs of dry holes (unless valuable in defining active prospects) and annual charges related to propects are charged to income. Intangibles The excess of cost of investments over equi ties in businesses, all acquired prior to November 1, 1970, is not being amortized. Research and Development Costs Research and devel opment costs are generally charged to income as incurred. Retirement Income Plans Annual pension costs are actuarially determined and include amortization of prior service costs generally over periods ranging up to 30 years. The policy of the Corporation and its subsidiaries is to fund pen sion costs accrued. Income Taxes Deferred income taxes arise from timing differences between financial and income tax reporting of various items principally depreciation, intangible drilling and development costs and provisions for termination or write down of plant facilities and provisions for income taxes on undistributed earnings of certain subsidiaries. The investment tax credit is accounted for by the flow through method as a reduction of the provision for income taxes in the year realized. Earnings Per Share Earnings, and pro forma earnings, per common share are computed using the weighted aver age number of shares of common stock and common stock equivalents (common stock options and warrants) outstand ing during the year. Proceeds from common stock equiva lents are assumed to be used to purchase outstanding shares of the Corporation's common stock. 2. Short-Term Securities: Short-term securities, amounting to $165,129,000 at Decem ber 31, 1972 and $133,983,000 at December 31, 1971, are stated at cost plus earned discount which approximates market value. 3. Inventories: ig72 Inventories include: Finished goods............................ $36,248,000 Raw materials and work in process 34,199.000 Stores, supplies, etc.'...................... 12,211,000 $82,658,000 1971 $33,525,000 33.005.000 14.846.000 $81,376,000 Inventories staled on the last-in, first-out basis amounted to $39,201,000 at December 31, 1972 and $37,186,000 at De cember 31, 1971. 4. Deferred Charges and Other Assets: Deferred charges consist principally of unamortized financ ing expenses on long-term debt and capitalized exploration costs.5 5. Internal Revenue Service Examination: The Corporation has received reports of the Internal Reve nue Service proposing additional income taxes for the five taxable periods ended December 31, 1966. See caption "Internal Revenue Service Examination" in the Financial Re sults Section (page 6) of this report for further information. 6. Long-Term Debt: Reference is made to captions "Summary of Long-Term Debt" and "Summary of Debt Maturities to 1982" in the Fi nancial Results Section (page 7) of this report for informa tion concerning the Corporation's long-term borrowings. Term promissory notes of $12,500,000 due 1973 to 1975 were paid in December, 1972. 7. Capital Stock: Transactions in capital stock during 1972 were as follows: Issued Shares Amounts Treasury Shares Amounts Cumulative First Preferred (authorized, 1,000,000 shares): Series A" January 1,1972 ............... Purchases.................. Cancelled .................... December 31, 1972 ... 31.263 $ 3,126,300 (1,129) (112,900) 30,134 $ 3,013,400 2,668 $ 447 (1,129) 1,986 $ 205.191 32,382 (86,145) 151,428 Cumulative Second Preferred (authorized, 10,000,000 shares): January 1,1972 .............. 1,962.059 Purchases.................... ............... December 31. 1972 . 1,962,059 Common (authorized 25,000.000 shares): January 1. 1972 ............... Issued under stock option plan............... Purchases........................ 10,136,134 28,040 December 31, 1972 . .. 10,164,174 $19,620,590 ................. $19,620,590 $10,136,134 28,040 $10,164,174 331,085 35,400 366,485 78,613 50,000 128.613 $14,914,150 1,612,579 $16,526,729 $ 1,704,899 1,451,461 $ 3,156.360 The Cumulative First Preferred, Series A, is redeemable at $101 at the option of the Corporation and is preferentially entitled to par value in involuntary liquidation and the re demption price in voluntary liquidation. Annual sinking fund payments of approximately $114,000 are required for man datory redemption. Each share of Cumulative Second Preferred is convertible into 1.3 shares of common stock. The voluntary or involun tary liquidation value of the Cumulative 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 convert ible. The aggregate excess of liquidation price over par value on shares of outstanding stock is approximately $51 ,058.000 as of December 31,1972. These shares are callable at $75 per share, plus accrued dividends. 8. Stock Option Plans: At December 31, 1971, under the Corporation's restricted stock option plan, there were outstanding options to officers and other key employees for the purchase of 67,399 shares of common stock at prices ranging from $9.42 to $33.12. During 1972, there were no options granted, options for 28,040 shares were exercised, and options for 29,500 shares expired, leaving outstanding at December 31, 1972 options covering 9,859 shares at prices ranging from $11.08 to $32.35 (all of which were exercisable 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. An option to 25 ETC 16062 purchase 29,500 shares at $30.00 per share was granted in January 1973. At December 31, 1971, under the stock option plans as sumed by the Corporation in the merger with Oxford Paper Company, there were outstanding options to purchase 3,000 shares of $2.40 Second Preferred Stock at prices ranging from $34.25 to $59.75, all of which expired. There were no charges to income under the plans. 9. Retained Earnings Restriction: The Corporation's ancles of incorporation and note agree ments contain restrictions, among others, against the pay ment of cash dividends. At December 31,1972, $28,658,000 of retained earnings is free of such restriction under the agreement presently most restrictive. 10. Depreciation, Depletion and Amortization: Depreciation and depletion charged to income amounted to $33,675,000 and $31,700,000 in 1972 and 1971, respec tively. Amortization of intangibles and of deferred discount and financing expenses charged to income amounted to $1,140,000 and $1,145,000 in the respective years. 11. Income Taxes: Income tax expense, excluding amounts applicable to ex traordinary items, is composed of the following: Currently payable: United States............................ State ........................................ Foreign .................................... Deferred ...................................... 1972 $31,689,000 3.050,000 5,920,000 768,000 41^427^000 1971 $25,721,000 3,017,000 5,581,000 1,257,000 JHJ76J000 The provision for U.S. income taxes currently payable was reduced (and net income increased) by investment tax credits of $1,508,000 and $696,000 in 1972 and 1971, re spectively. No provision has been made for additional income taxes that might result from the remittance to the Corporation of undistributed earnings of $5,800,000 of a foreign subsidiary since it is the intention of the Corporation to continue to reinvest such amount of earnings indefinitely. 12. Retirement Income Plans: The Corporation and its subsidiaries provide retirement ben efits for substantially all of their employees, including some employees in foreign countries, under several different plans i jnded with insurance companies or corporate trustees. Plan contributions charged to income, approximating $8,550,000 in 1972 and $8,200,000 in 1971, are irrevocably devoted to the payment of retirement and other benefits for employees Under certain plans, the actuarially computed value of vested benefits for active employees not yet retired, ex ceeded the total pension fund assets allocable to the active group. At the respective plan valuation dates the excess aggregated $7,900,000 with full funding anticipated in the valuation method by the time each employee becomes eli gible to retire. 13. Extraordinary Items: In 1972 a Canadian subsidiary received payment of the award of $10,481,000, including interest, from the Canadian Province of New Brunswick as compensation for the expro priation of certain timberlands. The net gain amounted to $4,535,000 after provision for income taxes of $4,812,000 of which $3,689,000 is deferred. In 1971 a charge of $6,396,000 was made for costs of terminating the Lawrence, Massachusetts, paper mill opera tions, including pension and other benefits for qualified for mer employees and write-down of plant investment to real izable value, less income taxes of $3,070,000. 14. Reclassification: For purposes of comparison, unamortized discount on long term debt, previously included in Deferred Charges and other Assets, has been reclassified as a deduction from the face amount of the Corporation's $50,000,000 Subordinated Notes due 1982. Auditors' Report To the Board ot Directors and Shareholders of Ethyl Corporation: We have examined the consolidated balance sheet of Ethyl Corporation and Sub sidiaries as of December 31,1972, and 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 circum stances. We previously examined and reported upon the Corporation's consolidated financial statements for the year ended December 31,1971. In our opinion, the aforementioned statements present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31, 1972 and 1971, 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, 1973 LYBRAND, ROSS BROS. & MONTGOMERY ETC 16063 Directors Officers and Staff ETHYL CORPORATION AND SUBSIDIARIES Divisions LAWRENCE E BLANCHARD. JR. S. DOUGLAS FLEET Retired Vice President M. F. GAUTREAUX JAMES M. GILL BRUCE C.GOTTWALD FLOYD D GOTTWALD * FLOYD D GOTTWALD. JR ROBERT HERZOG A. B. HORN. JR. GEORGE F. KIRBY President, Texas Eastern Transmission Coro . Houston, Texas JOSEPH M. LOWRY ANDREW M. McBURNEY ROBERT T. MARSH, JR. Retired Chairman of the Board. First A Merchants National Bank. Richmond, Va. CLARENCE M NEHER MELVIN M. PAYNE President, National Geograohic Society, Washington, D.C. W. THOMAS RICE Chairman A Chiet Executive Officer. Seaboard Coast Line Railroad Co . Richmond, Va. E. CLAIBORNE ROBINS Chairman of the Board, A. H. Robins Co., Richmond, Va. SIDNEY BUFORD SCOTT Partner, Scott A Stnngfeflow, Richmond, Va. ERWIN H. WILL Honorary Chairman ot the Board, Virginia Electric & Power Co . Richmond, Va * Member ol the Executive Committee Resigned December 31, 1972 Corporate Headquarters 330 South Fourth Street Richmond, Va. 23219 (703) 644-6081 On June 24, 1973, area code changes trom (703) to (804) FLOYD 0 GOTTWALD. JR Chairman of the Board, Chief Executive Officer BRUCE C. GOTTWALD President FLOYD D. GOTTWALD Chairman-Executive Committee LAWRENCE E. BLANCHARD, JR Executive Vice President ROBERT HERZOG Executive Vice President JAMES M. GILL Senior Vice President- Chemicals Group JOSEPH M. LOWRY Senior Vice President CLARENCE M. NEHER Sen/or Vice President- Plastics Division WALLACE F. ARMSTRONG Vice President--Manufacturing M. F. GAUTREAUX Vice President- Research A Deve/opmenf C. RAYMONDiiAILEY Vice President, PresidentOxford Paper Company Divisipn HOWARD E. HESSELBERG Vice President--Air Conservation A. B. HORN. JR. Vice President- International Division THOMAS M SMYL1E Vice President--Aluminum FREDERICK P WARNE Genera! Counsel and Secretary FRANK J. McNALLY Treasurer JAMES H. KIRBY Controller LLOYD B ANDREW, JR Director--Financial Relations CHARLES E. COLVIN Director--Purchasing & Traffic B D HARRISON Budget Direcfor ARTHUR W HELWIG Secretary--Executive Committee, Director--Planning & Profit Improvement JAMESB LONERGAN Director-Advertising A Sales Promotion C SAMUEL ROBERTS Chief Engineer STEPHEN B RODI Director--Corporate Employee Relations CHARLES H ZEANAH Director--Corporate Public Relations Executive Otlices 451 Florida Street Baton Rouge, La. 70801 (504) 348-0131 100 Park Avenue New York, N Y. 10017 (212) 679-2000 Oxford Paper Company ANDREW M. McBURNEY Executive Vice President RUSSELL H. CHAMBLISS. JR. Vice President--Sales S. D. DILLON Vice President-- National Accounts, West C RICKERT LEWIS Vice President- National Accounts. East HUGH H. BAIRD, JR. Vice President A Controller Chemicals Group Petroleum Chemicals JOHN F. KOEHNLE Divisional Vice President A Genera/ Manager T. E LOCKERBIE General Manager--Product Development A Sales Application 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 HANCELB BONDS Vice President--Operations JAMES W. COURT Vice President-Finance VisOueen HARRY C BYRNE. JR. Genera/ Manager A. T. ROWE Director-- MarkelV^f'-' W W. SABIN Technical Direcfor JOHN K. SHIFFLER Genera/ Sa/es Manager ROLAND E McKENZIE Operations Manager Industrial Chemicals MERLE L GOULD Genera/ Manager ROGER A. MOSER Director--Marketing Management H. WARREN REES Genera/ Sa/es Manager STANLEY A. HARRIS Sales Manager Instruments R J. OSTRANDER Genera/ Manager Polymer Division CHARLES W. MONTGOMERY Genera/ Manager RAY WILKINS, JR Genera/ Sales Manager Pipe Products Division ARTHUR A. SMITH General Manager L RAY McCULLEY Sales Manager Aluminum Ethyl International M WHITLOCK Manager--Operations W. J RUSHER General Manager--Sales L N APPLEGATE Director--Exploration Ethyl S.A, R R DOWNEY Managing Director Ethyl Hellas Chemical Company S.A. M. AMOLOCHITIS Deputy Managing Director J D. SPEARMAN Plant Manager Ethyl Corporation ol Canada Limited KENNETH A. FREBEFIG President JAMES H. MAIN Manager--Petroleum Additives ROBERT H SHANNON Manager--Chemical Products E. MALCOLM HARVEY President A Treasurer The William L. Sonne// Co., Inc. WILLIAM H. MORGAN General Manager--Marketing A Product Deve/opmenr The William L. Bormell Company, Inc. LLOYD L BEYNOLDS Vice President A Genera/ Manager WARREN H BROCKWAY Vice President A Genera! Sales Manager DONALD A. WAGNER Vice President--Manufacturing FRANK DANIELS. JR. Assistant Treasurer Capitol Products Corporation JOSEPH T. COLLIFLOWER President GEORGE S. THUMLERT Vice President A Treasurer WALLACE FREMONT Vice President DONALD G.HORNUNG Vice President 27 ETC 16064 Ten Year Summary* 1 2 3 * 5 Years Ended December 31 SALES AND INCOME Net sales................................................. Income before income taxes and extraordinary items........................... Depreciation, depletion and amortization Income before extraordinary items........ Net income............................................. Cash flow............................................... 1972 $631,599,000 86,134,000 34,815,000 44,707,000 49,242,000 89,648,000 1971 $577,058,000 73,816,000 32,845,000 38,240,000 34,914,000 72,278,000 1970 $556,856,000 70,231,000 31,949.000 35,582,000 37.-f99.CD0 73,917,000 FINANCIAL condition Working capital ..................................... Ratio of current assets to current liabilities............................................. Property, plant and equipment (Net) .... Capital expenditures............................. Long-term debt^t................................. 261,959,000 $4.13 to $1.00 280,440,000 31,508,000 223,261,000 229,996,000 $4.22to$1.00 283,678,000 24,383,000 238,834,000 209,724.000 $4.54toS1 GO 298,771,000 64,190,000 247,757,000 COMMON STOCK Average number of shares outstanding^; Earnings per share................................. Pro forma earnings per share, assuming conversion of the Second Preferred StockW.................. Equity per share (SJ............................... 10,086,799 $ 4.03* $ 3.65* $25.17 10,140,533 $ 3.36* $ 3.09* $21.64 10,138X32 S 3.06- $ 2.85* $19.62 * Before extraordinary items. After extraordinary items, would be $4.48 and $4.02 in 1972, $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 relied the merger ol Oxford into Ethyl on a pooling ol interests basis. (2) Includes a deduction lor unamortized discount on subordinated debt. All prior years have been restated to relied this treatment in 1972. (3) Including common stock equivalents Adjusted lor stock split. (4j II the Second Prelerred Stock were converted, its dividend would become $1.17 a share at the annualized present common dividend rale, as against the present $2.40 prelerred dividend. (5) Reflects a deduction lor the liquidating value ol the Second Prelerred Stock, and is based on the number ol shares outstanding at the end ot each year, treating warrants and common stock options as common stock equivalents. For years prior to 1972, amounts have been restated lo conform with the basis ol the 1972 computation. Adjusted lor stock split. 28 ETC 16065 ETHYL CORPORATION AND SUBSIDIARIES 1969 5509,302,000 1968 $509,072,000 196770 $468,938,000 1966 $465,823,000 1965 $375,837,000 1964 $335,663,000 1963 $292,878,000 66,044,000 29,562,000 33,024,000 29.524,000 57,193,000 61,094,000 31,076,000 31,502,000 31,502,000 65,027,000 51,633,000 30,749,000 29,662,000 29,662,000 62,876,000 62,876,000 28,411,000 37,306,000 37,306,000 68,107,000 48,306,000 25,233,000 27,989,000 27,989,000 55,918,000 41,004,000 22,161,000 21,059,000 21,059,000 46,172,000 32,526,000 19,886,000 16,427,000 16,427,000 39,052,000 '76,499,000 176,302,000 129,757,000 107,244,000 92,840,000 103,194,000 86,267,000 SI 71 to $1.00 293,200,000 53,312,000 223,165,000 $3.47 to $1.00 269,761,000 64,158,000 207,550,000 $3.52to$1.00 301,345,000 26,943,000 198,263,000 $2.83 to $1.00 306,073,000 59,116,000 210,724,000 $3.07 to SI .00 280,112,000 57,654,000 214,315,000 $3.19to$1.00 240,216,000 35,876,000 216,083,000 $3.43toS1.00 227,583,000 33,370,000 215,934,000 '0.169,972 S 2,77* 10,171,893 S 2.61 10.164,357 S 2.41 10,073,508 S 3.21 10,120,773 $2,32 S 2,61* S17.18 $ 2.46 SI 5.73 $ 2.29 $13.88 $ 2.94 $12.12 $2.22 $9.18 9,853,712 $1.68 $1.68 $7.18 9,196,917 $1.30 $1.30 $5.67 ETC 16066 ETHYL CORPORATION 330 South Fourth Street Richmond, Va. 23219 Ethyl Corporation ww Changing ... to Serve a Changing World On November 30, 1962, Albemarle Paper Manufacturing Company of Richmond, Virginia, acquired Ethyl Corporation and took the name of its acquisition. In the decade following the acquisition Ethyl Corpora tion has experienced many changes. Since 1962, Ethyl has diversified into product areas which now include petroleum and industrial chemi cals, plastics and plastics products, aluminum extrusions and shapes, fine printing papers and instrumentation. Worldwide in its operations, Ethyl maintains offices, manufacturing and product distribution facilities on five continents. Ethyl employs more than 13,000 people around the world. The 1962 acquisition resulted in a company with total annual sales that year of approximately $250 million. In the intervening decade, annual sales have nearly tripled in a multitude of product lines. ETC 16068 Ethyl Annual Report /1973 FINANCIAL HIGHLIGHTS (In Thousands ol Dollars Except Per Share oI Common Stock) Years Ended December 31 Net Sales ............................................... Income Before Extraordinary Item .................. Net ..................................................... Depreciation, Depletion & Amortization....................................... Capital Expenditures............................. Working Capital..................................... Per Share of Common Stock Income Before Extraordinary Item......................... Net Income......................................... Dividends........................................... Shareholders' Equity......................... Weighted Average Number of Common Shares Outstanding........................... 1973 $699,002 52,884 52,884 33,235 37,664 268,902 $ 5.02 $ 5.02 $ 1.07% $28.89 9,756,992 1972 $631,599 Percent Increase (Decrease) 11 44,707 49,242 18 7 34,615 31,508 261,959 (5) 20 3 $ 4.03 $ 4.48 $ .88 Vs $25.17 25 12 21 " 15 10,086,799 CONTENTS 2 Message to Shareholders 4 Financial Results oM 973 8 Operations Review 20 Financial Statements 24 Notes to Financial Statements 26 Auditors' Report 27 Ten-Year Summary 28 Directors, Officers and Staff 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. (EDT) on Thursday, April 25,1974, Formal notices of the annual meeting, proxies and proxy statements will be mailed about April 1,1974. ABOUT THE COVER The worldwide nature of Ethyl's business is illustrated. In 1973, chemicals sold In countries other than the United States accounted lor 15% ot the Company's sales. Included in the international activities of Ethyl is oil and gas exploration in the North Sea, in Canada and in the U.S. < An Ethyl researcher coats a specimen with condensed metal vapors before examining it by electron microscopy techniques. This analytical instrument has application in many areas ot the Company's research and development operations. ETC 16070 Message to Shareholders To the Shareholders ol Ethyl Corporation: Sales and income and earnings per share from operations were at record levels again in 1973. The 11% increase in sales, 18% gain in income from operations and 25% rise in earnings per share from operations reflected continued progress in our diversification and effectiveness of cost control programs. These records were established despite price controls, inflation, energy shortages and the continuing controversy over lead antiknock compounds. Net sales for 1973 totaled $699 million, compared with $631.6 million in 1972. Income from operations for 1973 was $52.9 million, or $5.02 a share, versus $44.7 million, or $4.03 a share, in 1972. Net income for 1973 also was $52.9 million, or $5.02 a share, compared with 1972 net income of $49.2 million, or $4.48 a share, after an extraordinary credit. Details of our operations in 1973 are covered in other sections of this report. We hope you will read the full report. Regulations governing the use of lead antiknocks in gasoline have been issued by the Environmental Protection Agency (EPA). In January 1973, EPA promulgated a rule that requires general availability of one grade of lead-free gasoline by July 1. 1974. This regulation is based on the assumption that, beginning with 1975 models, a substantial number of cars will be equipped with workable catalytic converters, requiring lead-free gasoline. In December 1973, EPA made final a second regulation that will gradually reduce the total lead content of all gasoline between 1975 and 1979 on the basis of a finding that lead in air may be a health hazard to certain popu lation groups. Ethyl, other lead antiknock producers and some oil companies have petitioned the U.S. Circuit Court of Appeals for the District of Columbia to review and set aside this phase-down regulation. The Company believes that the EPA's finding of a health hazard is contrary to the scientific evidence and that its regulation fails to meet the legal requirements of the Clean Air Act of 1970. If this phase-down regula tion is not modified on appeal, it would result, by EPA's estimate, in about a 60 to 65% reduction from 1972 volumes of lead antiknocks used in gasoline in the U.S. by 1979. We continue to experience lead antiknock sales gains in world markets since other countries generally have not followed the U.S. restrictions or have altered their earlier restrictions in view of the worldwide energy crisis. Our projections indicate that while antiknock compounds will continue to represent a decreasing percentage of Ethyl's total sales and earnings, Ethyl will continue to have significant worldwide sales of lead antiknocks, certainly well into the 1980s. The domestic and foreign restrictions on gasoline usage due to the shortage of crude oil constitute the most significant potential limitations on Ethyl's antiknock sales during 1974. With the current restrictions on availability of crude oil and gasoline, there is increasing interest in better-performing and more efficient automobile engines. Ethyl's Lean Reactor Car continues to provide these features while meeting 1975 Federal emission standards. Automotive manufacturers are showing a renewed interest in these developments. Meanwhile, new engine developments by others also show excellent promise of meeting emission standards without the use of catalytic converters. 2 ETC 16071 In early 1974, Ethyl bought from Chessie System, Inc., its approximate 27% stock ownership of The Elk Horn Coal Corporation for $25 a share and made an offer to buy the balance of the stock of Elk Horn at the same price per share. As of February 22, 1974, Ethyl had acquired approximately 95% of Elk Horn at a total investment of about $25 million. Elk Horn owns approximately 130,000 acres of coal land, primarily in Eastern Kentucky. It is currently earning about $1.25 million, principally from leasing coal-bearing lands to others. Annual production from Elk Horn's lands is about three million tons per year. Elk Horn's future financial results will be in cluded in Ethyl's consolidated financial statements. We will be required to write off against our part of Elk Horn's earnings appropriate annual amounts (estimated presently as $350,000) based on tonnages of coal mined representing the amorti zation of that part of our investment identified with the coal lands. It is our present intention to investigate carefully the possibilities of expanding production on Elk Horn's property and the acquisition of other coal properties, including operating and sales companies. Our plans are based on the belief that an increasing number of industries will utilize coal for basic fuel requirements and that coal provides exciting possibilities for the future production of petrochemicals. Despite substantial increases in the price of fuel, petrochemical feedstocks and other raw materials in 1973, Ethyl, unlike most companies, was still able to maintain a profit margin approximately the same as that of the base period under the regula tions of the Cost of Living Council. Therefore, Ethyl was not permitted during 1973 to raise prices to pass on its cost increases. With the energy crisis becoming more acute at the end of 1973, and with continuing increases in the cost of fuel and such materials as lead, ethylene, resins and aluminum being permitted, Ethyl has been facing a serious cost-price squeeze since the beginning of 1974. Quite recently, some of our prices have been decontrolled and we have filed a request with the Cost of Living Council for permission to raise certain other prices. In view of the uncer tainties and time lags associated with price controls, it is unusually difficult for us to project with any accuracy the results of our operations in 1974. We are not unique in this regard. We simply will have to meet such challenges and uncertainties with extra effort and imaginative planning. During 1973, Ethyl continued to acquire its own shares of stock. Since 1967, we have invested about $38 million in our common and convertible preferred stock at an average cost of slightly over $30 a share for the common and slightly over $43.50 for the preferred. Under current Board authorization, an additional amount of about $9 million may be spent for similar stock purchases in the future. This program will continue to be reviewed periodically by the directors. Our strong cash position still enables us to seek out other sound investments for future growth--either by acquisition or through the many new programs presented by our various operating divisions. We continue to be very optimistic about the future of Ethyl despite the problems which we and most industries are currently facing with price controls, material and energy shortages and inflation. We believe Ethyl is still well equipped to cope with these problems in a positive way and to continue a planned program of growth. We are pleased to report again another year of record performance. We make special note of our genuine appreciation of the continued loyalty and support of our employees, shareholders, customers and suppliers. February 25,1974 Floyd D. Gottwald, Jr. Chairman of the Board, Chief Executive Officer Bruce C. Gottwald President 3 ETC 16072 Financial____ Results of 1973 750 Net Sales Millions ol Dollars 600 450 300 150 * 0 -* 64 65 66 67 66 69 70 71 72 73 Net Sales The following table sets forth Ethyl's net sales represented by each of its lines of business for the period 1969-1973: Net Sales by Lines Of Business (In Thousands ot Dollars) Chemicals: Domestic .. Foreign ... Plastics___ Paper ........ Aluminum (a). Total .. 1973 Hit Nftikt Balls f Total $248,043 39% 104,761 15 146,323 21 101,957 15 97,918 14 $699,002 100% 1972 Nit Percent Sales of Total $240,553 85,560 132,108 68,185 85,193 $631,599 38% 14 21 14 13 100% 1971 Net Percent Sales of Total $229,605 75,117 111,038 85,666 75,632 $577,058 40% 13 19 15 13 100% 1970 Net Percent Sales of Total 1969 Net Pe*:ent Sales of Total $226,843 41% 71,944 13 102,748 18 92,283 17 63,038 11 $556,856 100% $214,151 64,846 95,461 97,783 37,061 $509,302 42% 13 19 19 7 100% (a) Includes Capitol Products Corporation acquired in 1970. Profit Contribution The following table shows, with respect to the Company's lines of business, the respective operating profits before income taxes, extraordi nary items and certain corporate expenses that are not practical to identify with a particular line of business: Operating Profit by Lines of Business After Identifiable Corporate Expenses (In Thousands ot Dollars) Chemicals: Domestic .. Foreign ... Plastics ___ Paper ........ Aluminum(a). Total .. 1973 Percent el Oparatief Operating Prefit Pretit 1972 Percent of Operating Operating Profit Profit $ 69,951 53% 26,074 20 18,842 14 6,024 5 10,417 8 $131,308 100% $ 73,542 60% 20,627 17 14,554 12 1,921 2 11,197 9 $121,841 100% 1971 Percent of Operating Operating Profit Profit 1970 Percent of Operating Operating Profit Profit 1969 Percent of Operating Operate Profit Profit $ 71,966 66% 17,649 16 11,349 10 970 1 8,021 7 $109,955 100% $ 66,936 68% 15,345 16 7,406 8 3,413 3 4,471 5 $ 97,571 100% $ 63,007 69% 11,664 13 7,963 9 5,228 6 3,048 3 $ 90,910 100% (a) Includes Capitol Products Corporation acquired m 1970. 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 com prise financing costs, net of interest earned, and other unallocated charges including research and development expense in new product areas and explora tion costs, as shown in the following table: 1973 Net Financing Costs............................... $ 2,750 Other Unallocated Charges--Net............ 26,470 Total ............................................ $29,220 (In Thousands of Dollars) 1972 1971 1970 $10,941 $12,563 $10,208 24,766 $35,707 23,576 $36,139 17,132 $27,340 1969 $ 7,696 17,170 $24,866 4 ETHYL CORPORATION AND SUBSIDIARIES I Income 64 65 66 57 65 69' 70' 7i* 72' 73 de:o-'e Eri'ac'omj.-y Hems Within the chemicals line of business, Petroleum and Industrial Chemicals often utilize joint facilities for manufacture, research and development and in many in stances are interrelated 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 ac curate allocations within the chemicals line of business to determine 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 chemical products, any 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 oi Dollars) The following table sets forth the amounts and percentages of net sales of each of the classes of similar products for the 1969-73 period: Clisift f Similar Pradaets 1973 Nat Ptrecat Salts of Total Chemicals: Petroleum . Industrial . Plastics ___ Paper ........ Aluminum(a). Total .. $243,624 35% 109,180 15 146,323 21 101,957 15 97,918 14 $699,002 100% 1972 Net Percent Sales of Total $225,993 100,120 132,108 88,185 85,193 $631,599 36% 16 21 14 13 100% 1971 Net Percent Sales of Total $222,166 82,556 111,038 85,666 75,632 $577,058 39% 14 19 15 13 100% 1970 Net Percent Sales of Total $229,119 69,668 102,748 92,283 63,038 $556,856 41% 13 18 17 11 100% 1969 Net Percent Sales of Total $213,840 65,157 95,461 97,783 37,061 $509,302 42% 13 19 19 7 100% (a) Includes Capitol Products Corporation acquired in 1970 Lead antiknock compounds (which comprise substantially all of the Petroleum Chemicals sales shown above) remain the Company's principal product and contribute to operating profits a substantially higher percentage than their 33% contribution to net sales. Income and Earnings per Share Reach Record Highs Income from operations for 1973 increased by 18% to a record $52,884,000 over income from operations of $44,707,000 for 1972. The 1973 per-share earnings from operations rose 25% over last year to a record $5.02 based on the weighted average of 9,756,992 shares of common stock outstanding during 1973, including common stock options as common stock equivalents. It compares with income from operations of $4.03 per share for 1972, on the basis of the weighted average of 10,086,799 shares of common stock outstanding during the year, on the same basis. In 1972, the Company reported an extraordinary credit of $4,535,000 resulting from pay ment by the Canadian Province of New Brunswick for timberlands it expropriated in 1966 from a Canadian subsidiary. Net income for 1972 after the extraordinary credit amounted to $49,242,000, or $4.48 a share. Dividend Increased The Board of Directors increased the regular quarterly divi dend on the common stock during 1973 from 22V2 cents to 25 cents per share, effective with the July 1,1973, payment. In addition, the directors declared a spe cial dividend of 10 cents a share on the common stock payable November 15, 1973. This brought dividends on common stock to $1.07V2 per share in 1973 and compares with 88V2 cents for the year 1972. 5 ETC 16074 750 6 Working Capital Provided from Operations Sets a Record Working capital provided from operations (refer to Changes in Financial Position--page 23) amounted to a record $90.3 million in 1973, compared with $80.3 million in 1972. This was sufficient in 1973 to provide for reduction of long-term debt, capital stock acquisitions, dividends and provide substantial funds for capital expendi tures. At December 31, 1973, working capital was $268.9 million and the ratio of cur rent assets to current liabilities was 3.82 to 1. This compared with working capital of $262 million and a ratio of 4.13 to 1 at December 31,1972. Capital Expenditures During 1973, $37.7 million was spent on capital projects for new plants, expansions and modernizations, compared with $31.5 million in 1972. In 1973, approximately $2.9 million was spent on acquisitions, including the purchase of the assets of Flex Products Corporation of Carlstadt, New Jersey, a manufacturer of extruded plastic containers, and a partial payment for the purchase of approximately 27% of the stock of The Elk Horn Coal Corporation, a coal land company headquartered in Charleston, West Virginia. Expenditures in 1973 included $3.7 million (of a total of $9 million committed) for pollution abatement and OSHA projects, and over the next several ye?' annual expendi tures in the range of $5 to $10 million can be expected for the same pui'.-bses. Internal Revenue Service Examination The Internal Revenue Service has com pleted its examination of the Company's first eight taxable periods after the 1962 Ethyl-Albemarle merger through the calendar year 1969. The IRS has proposed tax increases of $30 million, including interest, which would total $40 million if assessed on the same basis through 1973. The IRS position results from differ ences in the valuation of assets acquired in the merger and the allocation of values between tangible and intangible assets. The IRS valuation of assets was made by a government engineer during the course of its examination. The Com pany based its asset valuation on an appraisal by independent appraisers made at the time of the merger. 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 might be payable by the Company on the basis of a reasonable asset valuation. The Company does not accept the IRS proposal and will continue to contest it. How Ethyl Used the Revenues It Received During 1973 (Millions of Dollars) $713.7 100.0% WAS RECEIVED BY ETHYL from all sources THESE RECEIPTS WENT: ------------------ $368.4 51.6% To suppliers for materials, services, etc. ------------------ $177.8 24.9% To employees for payrolls, employee benefits working capital and debt repayments ETC 16075 ETHYL CORPORATION AND SUBSIDIARIES Long-Term Debt As of December 31, 1973, the long-term portion of Ethyl's debt was $207.6 million, equal to 38% of the Company's total capitalization. Debt repayments during 1973 amounted to $4.3 million. These consisted of pay ments of $2,500,000 on the 7Vz % Promissory Notes, due 1983, $1,250,000 on the 47/b % Promissory Notes, due 1983, and $545,000 on Miscellaneous Debt. Summary of Long-Term Debt Senior Debt 7.6% Senior Notes ($106 million--due 1974-86) and 7'/2 % Promissory Notes ($47.5 million--due 1974-83)...................... 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 4%% Promissory Notes--due 1974-83 ...................................... Northwestern Mutual Lite Insurance Company John Hancock Life Insurance Company New York Life Insurance Company Miscellaneous .............................................................................. Subordinated Debt 53/*% Subordinaled Notes--due 1979-82 .................................... Various Institutional Investors Less unamortized discount (the balance of the amount corresponding to the proceeds of warrants sold with the Notes in 1962), reflecting an imputed total interest rate of 7.4% .............................................................................. Total Debt at December 31, 1973 ............................ Current Portion of Debt............................................ Long-Term Debt........................................................ $153,500,000 21,500,000 3,225,000 50,000,000 4,649,000 $178,225,000 45,351,000 223,576,000 15,995,000 $207,581,000 Summary of Debt Maturities to 1983 1974 .... 1975 .... 1976 ___ 1977 .... 1978 ..,. 1979 .... . .. 1980 .... 1981 .... 1982 .... 1983 .... 5%% Subordinated Notes Due 1979-82 7.6% Senior Notes Due 1986 T'h % Promissory Notes Due 1983 4 Vt % Promissory Notes Due 1963 Misc. Debt Maturities to 1992 Total Annual Amount $ 8,000,000 8,000,000 8,000,000 26,000,000 $12,000,000 12,000,000 12,000,000 12,000,000 22,000,000 3,000,000 3,000,000 3,000,000 3,000,000 6,000,000 $2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 7,000,000 7,000,000 7,000,000 7,000,000 7,000,000 $ 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 10,250,000 $245,000 399,000 643,000 363,000 83,000 89,000 94,000 100,000 107,000 113,000 $15,995,000 16,149,000 16,393,000 16,113.000 25,833,000 19,339,000 19,344,000 19,350,000 37,357,000 23,363,000 7 Chemicals Domestic Petroleum and industrial chemicals sold domestically accounted for 35% of Ethyl's total sales in 1973. Domestic sales of chemicals were $248 million, up 3/., over 1972. Petroleum Chemicals Division: Sales of lead antiknock compounds in 1973 con tinued at about the same level as 1972. Sales were strong in the first half, but slowed somewhat in the last six months since lower-than-expected gasoline pro duction and consumption resulted from the energy crisis. Growth in sales of antioxidants for petroleum products and middle distillate additives continued at a good pace in 1973. Several new products for use in lubricants and gasoline were introduced during the year as part of a program to broaden the petroleum chemicals Ethyl offers to the oil industry. Your attention is called to the share holders' letter in the front of this report with respect to restrictions on lead anti knocks. Industrial Chemicals Division: Sales were up about 8% in 1973. Demand for specialty chemicals was strong. New markets were developed for antioxidants in plastics and synthetic rubber and growth in sales of agricultural chemical intermediates was especially strong. Although new customers were found for aluminum alkyls, growth in 1973 was modest. Expansion of orthoalkylation production facilities at Houston, Texas, was completed early in the year. ,, Demand for alcohols for detergent mar kets and alcohols and alpha olefins for plasticizer markets was particularly strong in 1973. Construction was completed in the second quarter of an expansion of fa cilities at Houston for production of mid cut alcohols for'use as detergent interme diates. In December, the Company began an expansion of the Houston alcohols plant to meet additional demand in 1974. Ethyl began serving in 1973 a number of special olefin markets with single-carbon number cuts for specific chemical uses. A fire and explosion in the aluminum alkyls section of the Houston plant in the first quarter of 1973 resulted in a shut down of the alcohol production facilities for about six weeks. Most of the loss was covered by insurance. Throughout the year, successful efforts were made to.increase production and minimize the net loss of alcohol production from the shut down. As .a result, by year-end produc tion wasTSily 4% behind 1972. A key development in 1973 was the commercialization of alpha olefin sulfo nates (AOS) for detergents. In coopera tion with a major household products producer, Ethyl provided substantial quantities of AOS for several leading household brands. Programs are under way to extend the use of AOS to addi tional formulations for both liquid and solid detergent products. Demand for all bromine and chlorinebased products was strong in 1973. Flame retardants, commercialized in 1972, con tinued to gain during the year. Raw mate rial shortages somewhat limited the sup ply capabilities for chlorine derivatives. Instrument Division: This area is com prised of two subsidiaries--Air Monitor ing, Inc. (AMI) and Intertech Corporation. AMI develops and builds sampling and analytic systems for measuring automo bile exhaust emissions. Intertech is a sup plier of instruments for process control and measurement of air pollutants from fixed and mobile sources. With the con tinuing emphasis on clean air regulations and precision measurement of emission sources, sales for this area again showed improvement in 1973. PRODUCTS: ALKYL ALUMINUM HALIDES / ALPHA OLEFINS (DETERGENT S PLASTICIZER) / ALPHA OLEFIN SULFONATES I ALUM / ALUMINUM ALKYLS / ANTIOXIDANTS / BROMINE / BROMINE CHEMICALS / CAUSTIC SODA / CHLORINATED SOLVENTS / COMBUSTION IMPROVER / DIESEL FUEL DETERGENT-CORROSION INHIBITOR / DIESEL FUEL IGNITION IMPROVERS / DISTILLATE FUEL ANTI-STATIC ADDITIVE / ETHYL CHLORIDE / ETHYLENE DIBROMIDE / GASOLINE ANTIKNOCK COMPOUNDS / GASOLINE DETERGENTDEICER CORROSION INHIBITORS t LINEAR PRIMARY ALCOHOLS (DETERGENT & PLASTICIZER) / LUBRICAT ING OIL ADDITIVES t METAL DEACTIVATORS / METHYL CHLORIDE / OIL SOLUBLE DYES ! ORGANOPHOS PHOROUS CHEMICALS / ORTHOALKYLATED ANTIOXIDANTS / ORTHOALKYLATED PHENOLS AND ANILINES / SPECIAL ORGANOMETALLICS / SODIUM / VINYL BROMIDE / VINYL CHLORIDE. PLANTS: BATON ROUGE, LA. t DETROIT, MICH. / HOUSTON, TEXAS / MAGNOLIA, ARK. / ORANGEBURG. S.C. / PRINCETON, N.J. < Vinyl bromide, a specially chemical used as an intermediate in tlame retardants, pharmaceuticals, tumigants and other products, is loaded at the Magnolia, Ark., plant lor shipment to customers. ETC 16078 9 Chemicals International Sales of chemicals in countries other than the United States accounted for 15% of Ethyl's total sales in 1973. Such sales totaled $104.8 million, up 22% over 1972's record levels. Ethyl's International Division sells and distributes the full range of the Company's chemicals around the world, except in the U.S. and Canada. Sales in Canada are by Ethyl Corpora tion of Canada Limited. Ethyl Corporation of Canada: Shipments of antiknock compounds were at an alltime high in 1973. Contributing factors were an approximate 10% increase in gasoline sales and minimal impact from no-lead and low-lead gasoline sales. Sales of other chemicals in Canada in creased in all product lines. The Sarnia, Ontario, plant operated at record levels throughout 1973. International Division: Sales and earn ings in 1973 exceeded 1972 record lev els. This growth was a result of increased volume and the improvement of product distribution facilities and practices. Sales of antiknock compounds con tinued to increase in all overseas markets in 1973. To promote this growth, Ethyl International added antiknock bulk termi nals in the Far East, the Middle East and South America. Construction of other terminals in various areas of the world is planned in 1974 and 1975. Industrial chemicals sales and earn ings, which include aluminum alkyls, more than doubled the 1972 record levels. Engineering is underway for an aluminum alkyl plant in Europe. Oil and Gas Exploration: A wholly-owned subsidiary, Ethyl Development Corpora tion, continued Ethyl's participation in this area in 1973. In the North Sea, two exploratory drill ings are scheduled in 1974. Ethyl's par ticipation with the Laura-Tenneco Group in the Dutch Sector (Ethyl has a one-sixth interest) covers 12 blocks representing 1.2 million acres. Oil and gas exploration in Canada in 1973, under a joint venture with British Petroleum Oil and Gas, Ltd., included completion of two oil wells in the Red Earth area of the Province of Alberta. Two more wells are scheduled for drilling in this area in 1974. Additional drilling is planned in the Dowling Lake area of Alberta near a dual-zone gas dis covery made in 1972. Gas pipeline facil ities are scheduled for completion in late 1974 or early 1975 from a gas well dis covered in 1972 in the Province of British Columbia. Twenty exploratory w-- are scheduled for 1974 in British Columbia and Alberta. The joint venture in Canada continued to acquire interests in addi tional acreage in 1973. It currently owns an interest in 936,000 acres, compared with 850,000 acres a year earlier. Ethyl also began drilling in 1973 on a 10,000-acre area in Matagorda County, Texas. A natural gas show was experi enced at 15,500 feet during exploratory drilling on this acreage in December. Commercial significance of this gas show cannot be determined until additional drilling and tests can be conducted in 1974. PRODUCTS: FULL RANGE OF ETHYL'S CHEMICALS. PLANTS: THESSALONIKI. GREECE (ETHYL INTERNATIONAL) / SARNIA. ONTARIO. CANADA (ETHYL OF CANADA). <3 Ethyl's business is worldwide in scope and ranges from the production of chemicals in Greece to oil and gas exploration in the North Sea and in Canada. A Ifeet of ships enables Ethyl to encircle the globe and distribute products to a number of strategically .located terminals. 11 ETC 16080 Plastics PJastics products accounted for 21 % of Ethyl's total sales in 1973. Sales of the Plastics Division were $146.3 million, up 11% over 1972. Although gains were made across nearly all product lines, record growth occurred in polyvinyl chloride (PVC) resins and compounds and in PVC pipe. "IMCO" Container Company had sub stantial sales gains through the first quar ter. There was a leveling of sales, partic ularly in polyethylene containers, for the rest of the year in line with general eco nomic conditions for the plastic bottle and container industry. Custom injectionmolded specialty products and PVC bot tles, however, continued to experience strong sales throughout 1973. A new in jection molding plant was started up in Bramalea, Ontario, Canada, in the sec ond quarter. This facility, which replaced an outdated plant at Downsview, Ontario, operated at full capacity for the rest of the year. IMCO has begun construction of a new injection molding plant at Excel sior Springs, Mo,, to meet needs of grow ing markets. In November, IMCO pur chased Flex Products Corporation of Carlstadt, N.J. This company, which will be operated as the Flex Products Divi sion of IMCO, manufactures extruded plastic tube containers and injectionmolded closures. The purchase of Flex Products marks IMCO's entry into ex truded plastic containers in addition to its blow and injection-molded lines. IMCO ended the year with the largest backlog in its history. The "VISQUEEN" Division's polyeth ylene and PVC film operations reflected good progress in upgrading product lines in several market areas in 1973. Unique polyethylene "taffeta" embossed film was more widely accepted for disposable dia pers, hospital underpads, carpet under padding and agricultural mulch. New film products to replace paper in food pack aging were successfully tested for rice, dog food, bacon board and butcher paper. A catalytic shrink ring used to heat-shrink polyethylene film over prod ucts was introduced in 1973 with encour aging initial results. Polymer Division sales in 1973 set rec ords. Sales of PVC resins and compounds were at capacity levels throughout the year with profits up substantially over 1972. Following a pattern established in previous years, the shift to higher profit margin resins and compounds continued. The production of plasticized (soft) com pounds was discontinued under this pro gram in order to provide additional ca pacity for rigid compounds for molding and extrusion products. Production facili ties at Baton Rouge, La., for dispersiontype resins were expanded in the third quarter to meet a sharp increase in demand for this specialty product. Addi tional resin capacity at Baton Rouge will be completed in the second quarter of 1974. Another compounding line is being added at the Tiptonville, Tenn., plant, with completion set for the first quarter of 1974. Production of a high-barrier acrylonitrile resin for film and bottles for hard-to-contain products such as car bonated beverages continued. The Pipe Products Division continued to experience substantial growth in line with that of the PVC pipe industry. Pro duction levels at the year-old Columbia, Miss., plant reached design capacity and a major expansion was completed in the fourth quarter. The Columbia plant ex pansion included the addition of capa bility to produce Ethyl's new belied sewer pipe for gravity-flow systems. PVC pipe is expected to capture a major share of this market because of its ease of install ation and performance characteristics. Polybutylene water service line was in troduced by Ethyl in 1973. Initial results are good. This product is expected to have continued growth in the municipal and household water service line industry. PRODUCTS: POLYETHYLENE FILMS FOR PACKAGING, INDUSTRIAL. BUILDING, AGRICULTURAL. PALLET WRAP, BUNDLING AND DISPOSABLES / POLYETHYLENE SHRINK FILMS AND SYSTEMS / PVC PACKAGING FILMS / PVC SHRINK FILMS / PVC RESINS AND COMPOUNDS / PVC CONTAINERS / "GUARDIAN" CON V TAINERS / POLYETHYLENE CONTAINERS / EXTRUDED CONTAINERS / POLYPROPYLENE CONTAINERS ! BOTTLES, CLOSURES AND OTHER INJECTION MOLDED SPECIALTY PRODUCTS / PVC PIPE AND FITTINGS / PVC SEWER PIPE / POLYBUTYLENE PIPE. PLANTS: BATON ROUGE. LA. / BELVIDERE, N.J. / BRAMALEA, ONTARIO. CANADA / CARBONDALE. PA. / CARLSTADT, N.J. / COLUMBIA. MISS. / EXCELSIOR SPRINGS, MO. / FLEMINGTON, N.J. / FREMONT, CALIF, t GOLETA, CALIF. / HARRISONBURG. VA / JEFFERSONVILLE, IND. / KANSAS CITY, MO. (21 t LAGRANGE, GA / LA MIRADA. CALIF. / LOUISVILLE. KY. / MANCHESTER. IOWA / MISSISSAUGA, ONTARIO, CANADA / ROCKAWAY, N.J. / SANDSTON, VA. I SOUTH GRAFTON, MASS. / TERRE HAUTE, IND. / TIPTONVILLE, TENN. / UNION CITY, CALIF. / VANDALIA, ILL < Ethyl's plastics serve many different end uses ranging from customized bottles to PVC pipe. 13 ETC 16082 ETC 16083 Paper Paper products accounted for 15% of Ethyl's total sales in 1973. Sales of the Oxford Paper Division were $102 million, surpassing the $100 million mark for the first time and up 16% over 1972. The paper industry in 1973 experi enced a substantial upturn in demand with the result that Oxford had the highest sales for any year and operated nearly all year with full backlogs. Despite this stronger market, it was not possible to increase prices during the year to offset the continually rising costs and short ages of labor, raw materials, transporta tion and taxes. Oxford's prices continued to be controlled under Phase IV regula tions issued by the Cost of Living Council and were substantially lower than those of competitors selling similar grades of paper. However, 1973 profits were sub stantially improved as a result of better product mix. Improvements continue to be made in operating efficiency at both of Oxford's mills, and operations have benefited from vigorous cost reduction programs. Ox ford continued its program of moderniza tion and renovation during 1973. This effort included starting of a major rebuild of the No. 11 paper machine at the Rumford, Maine, mill.- This roll-coating machine is being converted to a modern blade-coated unit with completion sched uled for 1974. Ultimate cost of this project will be over $10 million. Current demand for paper products is significantly over industry capacity. Future demand is expected to be greater than projected industry capacity. However, in dustry performance is slowed consider ably by the shortage of raw materials and chemicals needed for production. In 1973, effluent treatment facilities were completed and started up in the West Carrollton, Ohio, mill. These facili ties will put this mill in compliance with present stream discharge standards. Work has begun on an effluent treatment plant at the Rumford mill which will bring this facility into compliance with present stream discharge standards on a time table consistent with current Federal and state laws. These treatment facilities will cost approximately $10 million. 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 / COATED AND UNCOATED WEB OFFSET PAPERS FOR MAGAZINES, BOOK PUBLISHING, COMMERCIAL PRINTING / FILM COATED PAPERS FOR BOOK PUBLISHING, COMMERCIAL PRINTING / UNCOATED AND COATED PAPERS (SHEET AND ROLL) FOR MAGAZINES, COMMERCIAL PRINTING, CONVERTING / CONVERT ING PAPERS FOR ENVELOPES, BUSINESS FORMS, PAPER MASTERS. PLANTS: RUMFORD, MAINE / WEST CARROLLTON, OHIO. This report is lithographed on "LUXCOTE" High Gloss Enamel (basis weight 100 pound text and 80 pound cover), produced by Oxford Paper. i. m ^ALUMINUM 15 ETC 16084 ETC 16085 Aluminum Aluminum products accounted for 14% of Ethyl's total sales in 1973. Sales of the Company's two aluminum subsidiaries-- The William L. Bonnell Company, Inc., and Capitol Products Corporation--were $97.9 million, up 15% over 1972. The William L. Bonnell Company, Inc.: Record sales and operating earnings were achieved in 1973. These gains were made largely through continued demand from major markets, new facilities and increased production efficiencies. Commercial and residential building construction--together major markets for Bonnell--continued at the high levels of 1972. In the third quarter, a new alumi num extrusion paint line was completed at the Carthage, Tenn., plant. This line provides improved product mix and in creased production efficiencies. Although energy and raw material sup plies were tight in the second half, Bon nell was able to maintain production levels as a result of prior contract com mitments. Supplies are expected to con tinue to be tight in 1974. Bonnell anticipates another good year in 1974, even though high interest rates and inadequate mortgage money are expected to slow construction activity. Building and housing repairs should pro vide strong sales in 1974 and demand continues high from long-standing cus tomers and from potential new customers who could not be supplied in 1973. Capitol Products Corporation: Sales again reached record levels in 1973. Aided by heavy demand from the resi dential construction and transportation industries, extrusion sales increased about 50% over 1972 levels. Forecasts for 1974 show continued strong demand for soft alloy extrusions in the markets served by Capitol. Although Capitol's fabricated products sales rose only moderately in 1973, they did reach record levels. These were achieved despite an approximate 10% decline in residential construction. Con tinued design improvements in thermalbreak windows and rolling doors will broaden market coverage in 1974. New products introduced late in 1973 in Capitol's residential building line included a gambrel roof and barn style "all aluminum" lawn building and a poolside cabana. Although a decline is fore cast for national housing construction in 1974, sales of Capitol's building products are expected to remain strong. Bauxite Exploration: Early in 1974, Ethyl announced the discovery of a large tri hydrate bauxite deposit in the Amazon region of Brazil. Preliminary reports and studies confirm that the deposit could represent a major source of bauxite equal to the quality of the world's better bauxites. Ethyl has been granted exploratory rights on the major tonnage of the de posit and has filed requests for rights on the remaining tonnage. It is estimated that evaluation and engineering studies of the discovery will require about two years. PRODUCTS: EXTRUDED ALUMINUM SHAPES FOR WINDOWS AND DOORS, STORE FRONTS AND CURTAIN WALLS, BOATS. TRUCKS AND TRAILERS. TUB ENCLOSURES / DECORATIVE ALUMINUM PRODUCTS FOR THE FLOOR COVERING AND HOME BUILDING INDUSTRIES / ALUMINUM WINDOWS AND DOORS / RESI DENTIAL LAWN BUILDINGS. PLANTS: BONNELL-CARTHAGE, TENN. / NEWNAN, GA. CAPITOL-HARRISBURG, PA. / KENTLAND, IND. / NEW OXFORD, PA. / MECHANICSBURG. PA. < Aluminum architectural shapes create a tan-like effect as they are unracked from a new paint line at Ihe Carthage, Tenn., plant ot The William L. BonnetI Company. 17 16087 Research & Development Ethyl invested approximately $22 million in research and development in 1973. More than 100 domestic and 9 foreign patents were received. Over h tif of the 1973 R&D effortwas in new product areas. New Product Research: Again in 1973 Ethyl devoted effort to new bromine chemical products based on its strong bromine position. New opportunities include the use of bromine chemicals to disinfect sewage, and as co-catalysts in the production of synthetic fiber mono mers. New monomer systems and addi tives based on bromine and phosphorous for flame-retardance of textiles are under active development. Work on a new phosphorous-containing flame retardant for rayon is essentially complete. Several new products derived from Ethyl's aluminum alkyl-alcohol-alpha ole fin complex at Houston are under active development. Detergent industry interest in alpha olefin sulfonate has intensified. Commercial use has started in some ap plication areas and other potential uses are under consideration. Other detergentrelated research has emphasized new and improved actives, foam boosters, foam suppressants, toilet bar soap in gredients and builders. Economically superior hydrometallurgical processes have been defined for production of high quality metals from copper sulfide concentrates, mixed cop per-nickel ores and ocean nodules. Ethyl's new aluminum process work in 1973 concentrated on confirming a suit able ore reserve. This was accomplished and development of major parts of the process will continue in 1974. Drilling and sampling of Ethyl's titanium minerals holdings confirmed extensive deposits. Mining plans and processing techniques have progressed to the point where com mercial operations can be defined. Improved molding and extrusion PVC materials--including foams--were pro duced in 1973 for use in construction and related applications. New PVC packaging compounds have been developed, espe cially for bottles. Research on nitrile bar rier resins has continued with emphasis on beverage containers and their fabri cation methods. Development for gasoline use of lowlevel concentrations of AK-33X manga nese antiknock compound continued in 1973. Environmental studies by regula tory agencies and by Ethyl indicate no health effects from its use. Road-testing compatibility of the manganese product with prototype models of emission con trol devices planned for 1975-model cars is underway. Ethyl is also test marketing several different consumer automotive products. Automotive Emissions Research: Major efforts in 1973 went into the lean reactor approach--modifying engines so they can operate with air-fuel mixtures lean enough to burn most of the combustibles in the engine itself, followed by thermal reaction in the exhaust system of the small amount remaining. Ethyl lean reac tor cars, fitted with improved carburetion and other modifications, were tested in 1973 in government laboratories includ ing those of the EPA. Results confirmed Ethyl's data showing that the current lean reactor system can lower emissions, not only below the 1975 U.S. interim emis sion standards, but also below the more severe 1975 interim emission standards set for California. These results are achieved with fuel economy improve ments of from 10% to 14% over corre sponding non-modified 1973-model cars. In refutation of EPA's allegation that dust and dirt constitute important sources by which lead compounds from gasoline can affect the health of children, Ethyl demonstrated in 1973 that most of the lead in dirt around houses is due to flak ing paint from the walls of houses. Ethyl also developed data (in cooperative tracer studies with Children's Hospital in Detroit) showing that inner-city children suffering from high blood lead levels did not get this lead from airborne dust. These results confirm that there is no health hazard--present or foreseen--from the use of lead antiknocks in gasoline. RID FACILITIES: BATON ROUGE, LA. / DETROIT, MICH. / HOUSTON, TEXAS t ORANGEBURG. S.C. (AUTO MOTIVE EMISSIONS, INDUSTRIAL CHEMICALS. PLASTICS, PETROLEUM CHEMICALS, NEW PRODUCTS) / TERRE HAUTE, IND. (PLASTIC FILM) / KANSAS CITY, MO. (PLASTIC CONTAINERS) / RICHMOND, VA. / RUMFORD, MAINE (PAPER). < A chemical engineer checks process development work at a detergent intermediates pilot plant at Ethyl's R&D tacililies in Baton Rouge, La. Pilot plant work is a key step in development of new manufacturing processes, lacitities and products. 19 ETC 16088 Consolidated ASSETS Current assets: Cash and short-term securities .. Accounts and notes receivable .. Inventories................................... Prepaid expenses....................... Total current assets.......... December 31 1973 1972 $177,548,000 90,371,000 90,710,000 5,761,000 364,390,000 $173,837,000 83,108,000 82,658,000 6,064,000 345,667,000 Property, plant and equipment, at cost: Land and land improvements............................. Development costs, producing properties.......... Timberlands and standing timber....................... Buildings............................................................. Machinery and equipment ................................. 24.311.000 5,929,000 10.693.000 82.246.000 432.006.000 555.185.000 24.055.000 5,268,000 10.687.000 81.172.000 405.875.000 527.057.000 Less, Accumulated depreciation, depletion and amortization............................................. Net property, plant and equipment.......... 273.805.000 281.380.000 246.617.000 280.440.000 Deferred charges and other assets....................... 8,255,000 8,299,000 Excess of cost of investments over equities in businesses acquired and other intangibles....... 36,769,000 $690,794,000 35,121,000 $669,527,000 The accompanying notes are an integral pan ot these statements. 20 ETC 16089 ETHYL CORPORATION AND SUBSIDIARIES 4 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: Principal amount........................................... Less unamortized discount........................... Subordinated debt less unamortized discount............................... Deferred income taxes......................................... Provision for employee benefits........................... Limited partner's interest ..................................... SHAREHOLDERS' EQUITY Capital stock: Cumulative First Preferred Stock, par $100 per share, 6% Series A ................................................. Cumulative Second Preferred Stock, $2.40 Convertible Series A, par $10 per share (aggregate liquidation price $63,760,000 on 1,518,097 outstanding shares, after treasury stock)......................... Common Stock, par $1 per share..................... Capital surplus..................................................... Retained earnings................................................. Less, Treasury stock at cost................................. Total shareholders' equity ................... 1973 1972 $ 62,551,000 3,390,000 4,000 15,995,000 13,548,000 95,488,000 $ 57,100,000 3,289,000 409,000 4,025,000 18,885,000 83,708,000 162,230,000 50,000,000 4,649,000 45,351,000 37,928,000 6,173,000 1,061,000 178,495,000 50,000,000 5,234,000 44,766,006 33,019,000 6,214,000 965, Cr-D 2,900,000 3,013,000 19,621,000 10,173,000 43,922,000 304,135,000 380,751,000 38,188,000 342,563,000 $690,794,000 19,621,000 10,164,000 43,769,000 265,627,000 342,194,000 19,834,000 322,360,000 $669,527,000 The accompanying notes are an integral part of these statements. 21 ETC 16090 Income &CONSOLIDATED STATEMENTS OF 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 item............. Extraordinary item..................................................... Net income................................................ Retained earnings at beginning of year.................... Deduct, Cash dividends: First Preferred Stock, $6.00 per share .................. Second Preferred Stock, $2.40 per share.............. Common Stock, per share $1.0716 in 1973 and $.88% in 1972 ........................................... Retained earnings at end of year............................. Earnings per share of Common Stock and common stock equivalents: Income before extraordinary item.................... Extraordinary item............................................. Net income................................................... Pro forma earnings per share of Common Stock and common stock equivalents assuming conversion of the Second Preferred Stock. (If the Second Preferred Stock were converted, its dividend would become $1.30 per share at the present common dividend rate, as against the present $2.40 preferred dividend). Income before extraordinary item................... Extraordinary item............................................. Net income................................................... 1973 1972 $699,002,000 14,716,000 713,718,000 $631,599 COO 7,187090 638,786000 518,528,000 76,330,000 16,772,000 49,204,000 660,834,000 52,884,000 52,884,000 265,627,000 169,000 3,759,000 10,448,000 14,376,000 $304,135,000 460,803000 73,870.000 17,979000 41,427090 594,0790 90 44,707000 4,535000 49,242.000 229,359000 169090 3,893090 8,912090 12,974 090 $265,627090 $5.02 $5.02 S4C3 .45 $405 $4.47 $4.47 $305 '2*' $402 The accompanying notes are an integral part ot these statements. i i 22 ETC 16091 Changes inCONSOLIDATED STATEMENTS OF Financial Position Source of Funds: Years Ended December 31 Operations: Income before extraordinary item..................... Expenses not requiring outlay of working capital: Depreciation, depletion and amortization ... Deferred income taxes................................. Working capital provided from operations . Extraordinary item and related charges of $4,823,000 not requiring outlay of working capital .............................................................. Other items--net ................................................... Total....................................................... Application of Funds: Additions to property, plant and equipment.......... Reduction of long-term debt................................. Cash dividends..................................................... Capital stock reacquired or redeemed................. Increase in working capital................................... Total....................................................... 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................ 1973 1972 $52,884,000 33,235,000 4,217,000 90,336,000 $44,707,000 34,815,000 768,000 80,290,000 483,000 $90,819,000 9,358,000 6,050,000 $95,698,000 $34,795,000 16,265,000 14,376,000 18,440,000 6,943,000 $90,819,000 $31,508,000 16,157,000 12,974,000 3,096,000 31,963,000 $95,698,000 $ 3,711,000 7,263,000 8,052,000 (303,000) 18,723,000 $30,104,000 10,676,000 1,282,000 2,125,000 44,187,000 5,451,000 101,000 (405,000) 11,970,000 (5,337,000) 11,780,000 $ 6,943,000 12,038,000 131,000 (2,591,000) (5,177,000) 7,823,000 12,224,000 $31,963,000 The accompanying notes are an integral part ot these statements. Capital Surplus Years Ended December 31 1973 1972 Balance at beginning of year........................... Acquisition cost of the final 750 outstanding warrants (equivalent to 36,000 shares of unissued common stock) including broker's commission..................................... Excess of cash received over par value of 8,859 and 28,040 shares of Common Stock issued under stock option plan ................... Excess of par value over cost of 1,130 and 1,129 shares of First Preferred Stock cancelled ... Balance at end of year ......................... $43,769,000 $44,04': 000 (578 000) 126,000 27,000 $43,922,000 279.000 27.000 $43,769 000 Notes to Financial Statements 1. Summary of Significant Accounting Policies: Consolidation Principles The accompanying financial statements include the accounts and operations of all whollyowned subsidiaries, and the accounts and operations of Bromet Company, in which Ethyl Corporation has an 80% partnership interest. Translation of Foreign Currencies Foreign currency as sets and liabilities are translated into U. S. dollars at yearend exchange rates except for property, plant and equip ment, accumulated depreciation, and depreciation expense which are translated at exchange rates prevailing at the dates of acquisition. Income and expenses other than de preciation are translated at weighted average exchange rates for the year. Unrealized gains or losses arising from translation are credited or charged to a reserve for foreign exchange fluctuations which is classified as a current lia bility. Unrealized losses in excess of the reserve are charged to income. As of December 31. 1973 and 1972 the reserve balances were $478,000 and $494,000, respectively. Inventories Inventories are stated at the lower of cost or market with cost determined on the last-in, first-out basis for a major portion of parent company inventories and on either average cost or first-in, first-out for other inventories. Depreciation Provisions for depreciation are based on the estimated useful lives of depreciable property, plant and equipment and are computed generally on the straight-line method. Expenditures for renewals and betterments are capitalized and expenditures for ordinary repairs and main tenance are charged to income as incurred. The costs and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income.24 Unamortized Discount Unamortized discount on long-term debt is amortized by charges to income on straight-!-^ bases over periods ending from 1979 to 1983. Exploration Costs Bonus and deposit payments, geo physical costs of active exploration prospects and drillrg costs of active exploratory wells are capitalized as deferred costs. Such costs will be amortized if commercial discover ies are made or charged to income if prospects are aban doned. Costs of dry holes (unless valuable in defining active prospects) and annual charges related to prospects are charged to income. Intangibles The excess of cost of investments over equi ties in businesses acquired prior to November 1, 1970 ($34,472,000), is not being amortized. Research and Development Costs Research and deveopment costs are generally charged to income as incurred. Retirement Income Plans Annual pension costs are actu arial^ determined and include amortization of prior service costs generally over periods ranging up to 30 years. The policy of the Corporation and its subsidiaries is to fund pen sion costs accrued. Income Taxes Deferred income taxes arise from timing differences between financial and income tax reporting o: various items principally depreciation, intangible drilling anc .development costs and provisions for termination or write down of plant facilities and provisions for income taxes or undistributed earnings of certain subsidiaries. The investment tax credit is accounted for by the flov. through method as a reduction of the provision for income taxes in the year realized. 24 ETC 16093 Earnings Per Share Earnings, and pro forma earnings, per common share are computed using the weighted av erage number of shares of common stock outstanding dur ing the year including common stock options as common stock equivalents. Proceeds from common stock equivalents are assumed lo be used to purchase outstanding shares of the Corporation's common stock. Shares used in the computation of earnings per share were: Earnings Per Share Pro Forma Earnings Per Share 1973 .......................... 1972 .......................... 9.756,992 10,086,799 11,793.684 12,200,515 2. Short-Term Securities: Short-term securities, amounting to $171,401,000 at Decem ber 31, 1973, and $165,129,000 at December 31, 1972, are stated at cost plus earned income which approximates market value. 3. Inventories: Inventories include: Finished goods.............................. Raw materials and work in process Stores, supplies, etc........................ 1973 $36,377,000 39.006.000 15.327.000 $90,710,000 1972 $36,248,000 .34.199.000 12 211.000 $82,658,000 Inventories stated on the last-in, first-out basis amounted to $39,849,000 at December 31, 1973, and $39,201,000 at December 31, 1972, which are below replacement cost by approximately $7,600,000 and $1,250,000, respectively. 4. Internal Revenue Service Examination: The Corporation has received reports of the Internal Reve nue Service proposing additional income taxes for the eight taxable periods ended December 31, 1969. See caption "Internal Revenue Service Examination" in the Financial Re sults Section (page 6) of this report for further information. 5. Long-Term Debt: Reference is made to captions "Summary of Long-Term Debt" and "Summary of Debt Maturities to 1983" in the Financial Results Section (page 7) .of this report for informa tion concerning the Corporation's long-term borrowings. 6. Capital Stock: Transactions in capital stock during 1973 were as follows: Cumulative First Preferred (authorized. 1,000,000 shares): January 1,1973 ............... Purchases .................. Cancelled.................... December 31, 1973 ... Issued Shares Amounts 30,134 $ 3,013,400 (1.130) (113.000) 29.004 $ 2.900,400 Cumulative Second Preferred (authorized, 10.000,000 shares): January 1, 1973 .............. 1.962,059 Converted into Common Stock ...................... Purchases .................. ............... December 31, 1973... 1,962,059 $19,620,590 $19,620,590 Common (authorized 25.000,000 shares): January 1, 1973 .............. Issued under stock option plan .............. Purcnases .................... Issued upon conversion ol cumulative second preferred......... 10,164,174 8,859 100 December 31, 1973... 10,173.133 $10,164,174 8.859 100 $10,173,133 Treasury Shares Amounts 1,986 $ 151.426 138 9.B24 (1,130) (86,160) 994 $ 75.092 366,485 77 77,400 443.962 $16,526,729 770 2,852,057 $19,379,556 128,613 $ 3,156.360 489.400 '15.578,155 618.013 $18,734,515 The Cumulative First Preferred is redeemable at $101 at the option of the Corporation and is preferentially entitled to par value in involuntary liquidation and the redemption price in voluntary liquidation. Annual sinking fund payments of approximately $114,000 are required for mandatory redemption. Each share of Cumulative Second Preferred is convertible into 1.3 shares of common stock. The voluntary or involun tary liquidation value of the Cumulative 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 convert ible. The aggregate excess of liquidation price over par value on shares of outstanding stock is approximately $48,579,000 as of December 31, 1973. These shares are callable at $75 per share, plus accrued dividends. 7. Stock Option Plans: At December 31,-=$872, under the Corporation's restricted stock option plan, there were outstanding options to officers and other key employees for the purchase of 9,859 shares of common stock at prices ranging from $11.08 to $32.35. During 1973 there were no options granted, options for 8,859 shares were exercised, and options for 1,000 shares ex pired. No further grants may be made under this plan and there are no outstanding options to purchase shares. 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 of grant. An option to pur chase 29,500 shares at $30.00 per share, granted in January 1973, was outstanding at December 31,1973. There were no charges to income under the plans. 8. Retained Earnings Restriction: The Corporation's articles of incorporation and note agree ments contain restrictions, among others, against the pay ment of cash dividends. At December 31, 1973, $22,520,000 of retained earnings (a decrease of $6,138,000 from Decem ber 31, 1972, resulting principally from purchases of the Corporation's common and preferred stock) is free of such restriction under the agreement presently most restrictive. 9. Depreciation, Depletion and Amortization: Depreciation and depletion charged to income amounted to $32,380,000 and $33,675,000 in 1973 and 1972, respec tively. Amortization of deferred charges and intangibles charged to income amounted to $855,000 and $1,140,000 in the respective years. 10. Income Taxes: Income tax expense, excluding amounts applicable to the 1972 extraordinary item, is composed of the following: Currently payable: United States.............................. State .......................................... Foreign ...................................... Deferred ........................................ 1973 S32.947.000 4.380.000 7,660.000 4,217,000 $49,204,000 1972 $31,689,000 3,050.000 5,920.000 768.000 $41,427,000 Deferred income tax expense for 1973 results principally from timing differences resulting from depreciation and pro vision for income taxes on undistributed earnings of certain subsidiaries. 25 ETC 16094 The provision for U.S. income taxes currently payable was reduced (and net income increased) by investment tax cred its of $1,743,000 and $1,508,000 in 1973 and 1972 re spectively. No provision has been made for additional income taxes that might result from the remittance to the Corporation of undistributed earnings of $3,900,000 of a foreign subsidiary since it is the intention of the Corporation to continue to reinvest such amount of earnings indefinitely. 11. Employee Retirement Plans: The Corporation and its subsidiaries provide retirement ben efits for substantially all of their employees under several different plans funded with insurance companies or corpo rate trustees. Plan contributions charged to income, approxi mating $9,168,000 in 1973 and $8,550,000 in 1972, are irrevocably devoted to the payment of retirement and other benefits for employees and their beneficiaries. Under certain plans, the actuarially computed value of vested benefits at the respective plan valuation dates ex ceeded the market value of plan assets by approximately $9,100,000 (an increase of $1,200,000 from 1972 resulting from a decline 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. 12. Extraordinary Item: In 1972, a Canadian subsidiary received payment of the award of $10,481,000, including interest, from the Canadian Province of New Brunswick as compensation for the expro priation of certain timberlands. The net gain amounted to $4,535,000 after provision for income taxes of $4,812,000. of which $3,689,000 is deferred. 13. Lease Commitments: Total rental expense was $10,246,000 for 1973 and $8,468,000 for 1972. Following are the rental commitments under all non-cancellable leases as of December 31,1973: Years Total 1974 $6,255,000 1975 4,793,000 1976 3,548,000 1977 3,041,000 1978 2,435,000 1979-83 7,898.000 1984-88 4,040,000 1989-93 3,667,000 Remainder 7,738,000 Transportation Equipment $3,337,000 2,184,000 1,280,000 1,038,000 938,000 3,592,000 324,000 Office, Warehouse and Plant Space $2,072,000 1,890,000 1,733,000 1,618,000 1,188,000 4,027,000 3,697,000 3,649,000 7.625,000 Othe- $846,000 719,000 535.000 385 000 309,000 279 000 19 000 18.000 113.000 The present value of commitments under non-capitalized financing leases and the effect on net income if such leases were capitalized are not material. 14. Subsequent Event: On January 7, 1974, the Corporation acquired 283,050 shares (27%) of the common stock of The Elk Horn Coal Corporation at $25 per share and offered to purchase the balance of the shares outstanding for the same.p; ~e. As cf February 22, 1974, the Corporation had acquired 'approx.mately 95% of the outstanding shares at a total cost of about $25,000,000. 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, 1973, and 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 31,1972. In our opinion, the aforementioned statements present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31, 1973 and 1972, and the consolidated results of their operations and the consolidated changes in their 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 23219 February 22, 1974 COOPERS & LYBRAND 26 ETC 16095 Ten Year SummarY (In Thousands of Dollars Except Earnings and Equity Per Share) ETHYL CORPORATION AND SUBSIDIARIES Years Ended December 31 1973 SALES AND INCOME Net sales.......................... Income before income taxes and extraordinary items . Depreciation, depletion and amortization........... Income before extraordinary items .... Net income...................... $999,002 102,089 33,235 52,884 52,884 1972 $631,599 86,134 34,815 44,707 49,242 1971 $577,058 73,816 32,845 38,240 34,914 1970 $556,856 70,231 31,949 35,582 37,199 1969 $509,302 66,044 29,562 33,024 29,524 1968 $509,072 61,094 31,076 31,502 31,502 1967(D $468,938 51,663 30,749 29,662 29,662 1966 1965 1964 $465,823 $375,837 $335,663 62,876 48,306 41,004 28,411 25,233 22,161 37,306 37,306 27,989 27,989 21,059 21,059 FINANCIAL CONDITION Working capital............... Ratio of current assets to current liabilities ... Property, plant and equipment (Net)........... Capital expenditures___ Long-term debt ............... Shareholders' equity .... 268,902 3.82 to 1 281,380 37,664 207,581 342,563 261,959 4.13 to 1 280,440 31,508 223,261 322,360 229,996 4.22 to 1 283,678 24,383 238,834 289,459 209,724 4.54 to 1 298,771 64,190 247,757 274,159 176,499 2.71 to 1 293,200 53,312 223,165 252,885 176,302 3.47 to 1 269,761 64,158 207,550 243,896 129,757 3.52 to 1 301,345 26,943 198,263 228,948 107,244 92,840 103,194 2.83 to 1 3.07 to 1 3.19 to 1 306,073 59,116 210,724 200,687 280,112 57,654 214,315 160,187 240,216 35,876 216,083 132,498 COMMON STOCK Weighted average number of shares outstanding!*). Earnings per share ........... Pro forma earnings per share, assuming conversion of the Second Preferred StocKO) Equity per shared)........... 9,756,992 $ 5.02 $ 4.47 $28.89 10,086,799 $ 4.03* $ 3.65* $25.17 10,140,533 $ 3.36* $ 3.09* $21.64 10,138,482 10,169,972 10,171,893 $ 3.06* $ 2.77* $ 2.61 $ 2.85* $19.62 $ 2.61* $17.18 $ 2.46 $15.73 10,164,357 10,073,508 10,120,773 9,853.712 $ 2.41 $ 3.21 $2.32 $1.68 $ 2.29 $13.88 $ 2.94 $12.12 $2.22 $9.18 $1.68 $7.18 ` Before extraordinary items. Alter extraordinary items, would be $4.48 and $4.02 in 1972, $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 relied the merger of Oxford into Ethyl on a pooling of interests basis. (2) Including common stock equivalents. (3) II the Second Preferred Stock were converted, its dividend would become $1.30 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 (he Second Preferred Stock, and is based on the number oI shares outstanding at the end of each year, treating warrants and common stock options as common stock equivalents. ETC 16096 Officers Directors and Staff LAWRENCE E. BLANCHARD, JR. S. DOUGLAS FLEET Retired Vice President M. F. GAUTREAUX JAMES M. GILL BRUCE C. GOTTWALD FLOYD D. GOTTWALD FLOYD D. GOTTWALD. JR. ROBERT HERZOG A. B. HORN, JR. GEORGE F. KIRBY President, Texas Eastern Transmission Corp., Houston, Texas JOSEPH M. LOWRY ANDREW M. McBURNEY ROBERT T. MARSH, JR. Retired Chairman of the Board, First 4 Merchants National Bank, Richmond, Va. JAMES F. MILLER Wee Chairman--Management Committee. Blyth Eastman Dillon Co., Inc., New York, N.Y. CLARENCE M. NEHER MELVIN M. PAYNE President, National Geographic Society, Washington, D.C. W. THOMAS RICE Chairman 4 Chief Executive Officer. Seaboard Coast Line Industries, Inc., Richmond, Va. SIDNEY BUFORD SCOTT Partner, Scott & StrinQtellow, Richmond, Va. ERWIN H. WILL Honorary Chairman of the Board. Virginia Electric 4 Power Co:. Richmond, Va. *Member of the Executive Committee FLOYD D. GOTTWALD. JR. Chairman of the Board, Chief Executive Officer, Chairman--rrecutive Committee BRUCE C. GOTTWALD President FLOYD D. GOTTWALD Vice Chairman--Executive Committee LAWRENCE E. BLANCHARD. JR. Executive Vice President ROBERT HERZOG Executive Vice President M. F. GAUTREAUX Senior Vice President- Research 4 Development JAMES M. GILL Senior Vice President--Chemicals Group A. B. HORN, JR. Senior Vice President- International Division JOSEPH M. LOWRY Senior Vice President CLARENCE M. NEHER Senior Vice President--Plastics Division LLOYD B. ANDREW Vice President, Director--Financial Relations WALLACE F. ARMSTRONG Vice President--Manufacturing C. RAYMOND HAILEY Vice President; President--Oxford Paper Division ARTHUR W. HELWIG Vice President; Secretary--Executive Committee; Director--Planning 4 Profit Improvement HOWARD E. HESSELBERG Vice President--Air Conservation THOMAS M. SMYLIE Vice President--Aluminum FREDERICK P. WARNE Vice President; Secretary and General Counsel FRANK J. MCNALLY Treasurer JAMES H. KIRBY Controller KARL F. CAST Director--Central Systems 4 Date Processing CHARLES E. COLVIN Director--Purchasing 4 Traffic B. D. HARRISON Budget Director JAMES B. LONERGAN Director--Advertising 4 Sales Promotion G SAMUEL ROBERTS Chief Engineer STEPHEN B. RODI Director--Corporate Employee Relations CHARLES H.ZEANAH Director--Corporate Public Relations Corporate Headquarters 330 South Fourth Street Richmond, Va. 23219 (804) 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 Transfer Agents First 4 Merchants Nations/ Ban* Richmond, Va. Chase Manhattan Bank, N.A. New York, N.Y. Registrars ot Stock Bank ot Virginia--Central Richmond, Va. Morgan Guaranty Trust Co. New York, N.Y. General Counsel Wunfon, Williams, Gay 4 Gidson Richmond, Va. Stock Listings New York Stock Exchange Pacific Coast Stock Excrtange Ticker Symbol: EY Number ot Employees Approximately 14,000 ETHYL CORPORATION AND SUBSIDIARIES Divisions Oxford Paper ANDREW M. McBURNEY Executive Vice President HUGH H. BAIRD, JR. Vice President 4 Contro//er RUSSELL H. CHAMBLISS, JR. Vice President-Sales S. D. DILLON Vice President- National Accounts, West C. RICKERT LEWIS Vice President- National Accounts, East RICHARD A. PREMO Vice President-Manufacturing Chemicals Group Petroleum Chemicals JOHN F. KOEHNLE Divisional Vice President 4 Genera/ Manager t: E. LOCKERBIE General Manager--Product Development 4 Sales Application A. T. ROWE Director--Marketing W. W. SABIN Technical Director Industrial Chemicals ROGER A. MOSER General Manager H. WARREN REES General Sales Manager KERRY C. SORRELLS Sales Manager Instruments R, J. OSTRANDER General Manager Ethyl International M. WHITLOCK Manager--Operations W. J. RUSHER General Manager--Sales L. N. APPLEGATE Director--Exploration Ethyl S.A. R. R. DOWNEY Managing Director Ethyl Hellas Chemical Company S.A. E. G AMOLOCHITIS Deputy Managing Director J. D. SPEARMAN Plant Manager Ethyl Corporation of Canada Limited KENNETH A. FREBERG President JAMES H. MAIN Manager--Petroleum Additives ROBERT H. SHANNON Manager--Chemical Products Plastics PAUL E. WEIMER Director--Financial Controls JAMES R. LEES Director--Marketing imeo Container Company RICHARD F. SANDS President HANCEL B. BONDS Executive Vice President ROBERT D. BISHOP Vice President- Sales 4 Marketing MARION HIERMAN President--Imco ot Canada ROBERT X. HAFELE Vice President- Research 4 Development GEORGE E. ROONEY Vice President--Finance ' VisQueen Film Division ROLAND E. MCKENZIE Genera/ Manager HARRY C. BYRNE, JR. Director--Sales JOHN K. SHIFFLER Genera/ Sales Manager Polymer Division CHARLES W. MONTGOMERY General Manager EUGENE R. SCHUTZ Genera/ Sales Manager Pipe Products Division RAY WILKINS. JR. General Manager L. RAY McCULLEY Sales Manager Aluminum E MALCOLM HARVEY President 4 Treasurer The William L.Bonnell Co., me ALBERT H. COPP Genera/ Manager--Mineral Res:~:ces WILLIAM H, MORGAN General Manager--Marketing 4 Product Development The William L. Bonneil Company, Inc. LLOYD L. REYNOLDS Vice President 4 Genera! Manag-r WARREN H. BROCKWAY Vice President 4 General Sales Manager JOHN C DUNN Vice President--Industrial Sales DONALD A. WAGNER Vice President--Manufacturing FRANK DANIELS. JR. Assistant Treasurer Capitol Products Corporation JOSEPH T COLLIFLOWER President GEORGE S THUMLERT Executive Vice President WALLACE FREMONT Vice President DONALD G HORNUNG Vice President 28 ETC 16097 ETHYL CORPORATION 330 South Fourth Street Richmond, Virginia 23219 Ethyl Corporation * Ethyl Corporation, headquartered in Richmond, Va,, has facilities and services which encircle the globe. The Company maintains offices, manufacturing and product distributing facilities on five continents and employs over 14,000 people in activities ranging from the production ol chemicals to oil and gas exploration. Through diversification since 1962, Ethyl has added to ifs chemicals business other product areas and activities including plastics, paper, aluminum, oil and gas exploration, instrumentation, coal and other minerals. 16098 etc ETC 16099 To the Shareholders of Ethyl Corporation: Your attention is called to the fourth paragraph in the "Message to Shareholders" in which we refer to a recent opinion of the U.S. Court of Appeals for the District of Columbia Circuit in favor of Ethyl's position. On March 18, after printing this report and during preparations to mail it, we were advised that the Court has granted a re-hearing by the full nine-judge Court. Meanwhile, it has vacated the prior judgment and opinion. No date has been set for the re-hearing. Ethyl will, of course, continue to defend the position it has taken from the beginning. ETC 16101 MESSAGE TO SHAREHOLDERS To the Shareholders of Ethyl Corporation: Our 1974 sales, net income and earnings per share set new Company records. Sales were up 46% and passed the billion-doilar mark for the first time, net income increased 40% and earnings per share rose 48%. These increases reflected the continued success of our diversification efforts and internally generated projects as well as the intensity of our cost control program. Net sales for 1974 were $1,019,559,000, compared with $699,002,000 in 1973. Net income was $74,297,000, or $7.41 a share, in 1974 versus $52,884,000, or $5.02 a share, for 1973. The 1974 results reflect Ethyl's earlier announced intention to extend the last-in, first-out (LIFO) method of inventory valuation to domestic inven tories previously accounted for on first-in, first-out (FIFO) or average cost. We are pleased to note that 1974 represents the seventh consecutive year of increases in income and earnings per share from operations. Details of our operations are included in other sections of this report, and we hope you will read the full report. Late in 1973, Ethyl and other lead antiknock producers petitioned the U.S. Court of Appeals for the District of Columbia Circuit to review and set aside the Environmental Protection Agency's (EPA) regulations that would have begun the gradual phase-down of lead in gasoline on January 1,1975. In late January of this year, the court issued its opinion ruling in favor of Ethyl's petition and ordered the regulations set aside. Subsequently, EPA indicated it would either seek a re-hearing or appeal this court decision. At this time, we have no way of knowing the final outcome. Naturally, we are extremely gratified that the decision was on the merits of the issue and that the majority of the court has upheld the position Ethyl has taken for many years that medical and scientific evidence does not show that the use of lead in gasoline endangers public health. The majority of the court held that the EPA had misinterpreted its statutory authority under the Clean Air Act and, in addition, that the action by the EPA was "arbitrary and capricious" because the evidence did not support the EPA's findings that auto emissions contributed significantly to blood lead levels in adults or children. Lead antiknocks for more than 50 years have served as energy extenders, and this court ruling would allow these products to continue conservation of our dwindling crude oil supplies. The court ruling does not affect the EPA regulation requiring general availability of one grade of lead-free gasoline. That regulation went into effect July 1,1974, and is based on the fact that most 1975 model cars are equipped with catalytic converters that require lead-free gasoline. Operation of these catalytic con verter cars has not been of sufficient duration to prove their endurance or their octane requirements, and, aside from the penalty of requiring lead-free gasoline, a number of health questions have been raised about sulfate emissions from the converters themselves. While shipments of our domestic and Canadian antiknocks were reduced slightly in 1974, this was offset largely by growing international sales. Most foreign countries have recognized the importance of the role lead antiknocks play in conserving crude oil in this period of shortages. We believe our international antiknock sales will continue to grow. With governmental regulation, our tentative projections indicate that domestic sales of antiknock compounds may decrease in volume and certainly will continue to represent a decreasing percentage of Ethyl's total sales and earnings as a result of our diversification program. However, because of the strength of international sales, we believe antiknocks will continue to constitute a major product of the Company for years to come whether or not there is a domestic reduction in use of lead in gasoline. In 1974, we invested approximately $115 million in two major acquisitions. In the first quarter, we bought Elk Horn Coal Corporation, a coal land leasing company, for approximately $25 million. Elk Horn showed dramatic financial improvement during the year and has potential for significant contribution to Ethyl's operations. (See page 9 of the Operations Review section.) In the second quarter, we acquired VCA Corporation, a diversified manufacturer of plastic and metal products, aerosol valves and atomizer and dispenser pumps, for approximately $90 million. (See page 14 of the Operations Review section and the centerfold insert.) Both of these acquisitions represent significant steps in our continuing diversification program. Ethyl and other producers of vinyl chloride and polyvinyl chloride are being confronted with extremely stringent environmental standards for these products that are being imposed as a result of recent health findings on industrial plant exposures. The Company is making every effort to find feasible ways to comply with these newly issued regulations. Long-range economic feasibility is not yet determined, and it is im possible to assess the potential impact these regulations may have on our chemicals and plastics operations pending further research and development work on methods of meeting the standards. To comply with environmental laws and the requirements of the Occupational Safety and Health Act (OSHA), Ethyl, like many other companies, is having to spend large sums annually. Costs for such projects I were about $4 million in 1973 and about $8 million in 1974, and we estimate that they may run in the range of i $10 to $15 million per year for the next several years. In addition, since our basic raw materials are hydro carbons and therefore derived from crude oil, Ethyl experienced very sharp cost increases in 1974 for most of its major raw materials. Generally, we have been able to pass along most of these costs and those asso ciated with OSHA and environmental projects and have continued to have good operating results. However, the reflection of these increased costs in our prices is of great concern to us since the ultimate impact is on consumer prices and therefore contributes to inflation. Overall, 1974 has been a great year for Ethyl-the greatest in its history. It is particularly pleasing to report another record performance in the light of so many difficulties in the economy. Many observers are making dire predictions about the outlook for all industry in 1975. We recognize that the year is going to be one of new challenges, but we remain optimistic and are still expecting another good year in 1975. We again make special note of our sincere appreciation of the continued support and loyalty of our employees, shareholders, customers and suppliers. ; February 28,1975 Floyd D. Gottwald, Jr. Chairman of the Board Chief Executive Officer Bruce C. Gottwald President ETC 16103 FINANCIAL RESULTS OF 1974 ETHYL CORPORATION AND SUBSIDIARIES Net Sales The following table sets forth Ethyl's net sales represented by each of its lines of business for the period 1970-1974: Net Sales by Lines ot Business (In Thousands of Dollars) 1974 Nat Salas Percent of Total Chemicals: Domestic .. Foreign .... Plastics (a) . Paper .......... Aluminum ... Coal(b) ....... Total.. $ 337,499 149,935 306,076 115,099 100,234 10,716 $1,019,559 33% 15 30 11 10 1 100% 1973 Nat Pareant Salas of Total $248,043 104,761 146,323 101,957 97,918 35% 15 21 15 14 $699,002 100% 1972 Nat Percent Salas of Total $240,553 85,560 132,108 88,185 85,193 38% 14 21 14 13 $631,599 100% 1971 Net Sales Percent of Total $229,605 75,117 111,038 85,666 75,632 40% 13 19 15 13 $577,058 100% 1970 Net Percent Sales of Total $226,843 71,944 102,748 92,283 63,038 41% 13 18 17 11 $556,856 100% (a) Includes VCA Corporation from its acquisition in April 1974. (b) Elk Horn Coal Corporation acquired in January 1974. Profit Contribution The following table shows, with respect to the Company's lines of business, the respective operating profits before income taxes, extraordinary items and certain corporate expenses that are not practical to identify with a particu lar line of business: Operating Profit by Lines of Business After Identifiable Corporate Expenses (In Thousands of Dollars) 1974 1973 Percent of Percent of Operating Operating Operating Operating Profit Profit Profit Profit 1972 Percent of Operating Operating Profit Profit 1971 Percent of Operating Operating Profit Profit 1970 Percent of Operating Operating Profit Profit Chemicals: Domestic .. Foreign ___ Plastics (a)... Paper .......... Aluminum ... Coal (b)....... Total.. $ 78,008 39,427 43,723 11,618 3,362 5,518 $181,656 43% 22 24 6 2 3 100% $ 69,951 26,074 18,842 6,024 10,417 53% 20 14 5 8 $131,308 100% $ 73,542 20,627 14,554 1,921 11,197 60% 17 12 2 9 $121,841 100% $ 71,966 17,649 11,349 970 8,021 66% 16 10 1 7 $109,955 100% $ 66,936 15,345 7,406 3,413 4,471 16 8 3 5 $ 97,571 100% O4O0 (a) Includes VCA Corporation from its acquisition in April 1974. (b) Elk Horn Coal Corporation acquired in January 1974. 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 comprise financing costs (net of investment income), research and development expense in new pro duct areas, exploration costs and other unallocated charges, as shown in the fol lowing table: j V ETC 16104 3 ETHYL CORPORATION AND SUBSIDIARIES 1000 Net Sales Millions of Dollars _(lnl 197; 12.563^:^110^8^ Ufi r i5^3o; "136,1391 ^3W0t|^ ^jusine ^manufactur I3er^ ScReri ^^idleurtr "Cfiemicalfrbftei^C: iiearch:*and irnient andJn^me~ ' iaterlaj^l iediatesanu Dy^c'^uc canl ""`"^TSf'accurateiy^H nagemeq:^ ierflfltr make~accura 3ness tp'detan yetativecontrit tciasses____ , SroductaTl ^chemfcSPsafi irnSrproflts )1ueTntej rajuctioborjelimlri Effect the costs J ?vvall land percent 1970-74 -ofT<X I*TM ?1699,0 -'1631.599: 10 iicomeAJyg KtfLW42naisaIea Incr ?rw|lIriel^oSm^^SalesEfS& acquisitions q^yCAiCorporatrom pfmosldf theCompany's prbdiuc fsupplies! $~eillng%Kl generapBX itsasS^autfdf the aeqir"va orbductoeweloDments hiV nottv^pRSHticts andJ jatad statements jqf& ^prfncipaijy^ SMedsighfflcari tom Coal jborpon^T ting Tromincreaseda'' atlnii974dncreasedj :A"an'dfcH6r S/developrhe <ploration ETC 16105 80 Income Millions ol Dollars 60 -1 ] 40 20 66 66 67 *Bokn Extraordinary ttama 70* 71* 72* 73 charged to operations. Depreciation, depletion and amortization and maintenance and repairs have increased over the years as a result of capital expenditures and generally higher costs. The change in miscellaneous income, net, in 1973 in com parison with the other years resulted from higher interest income from a large cash balance in that year, much of which was expended in cash acquisitions early in 1974. Extraordinary items represent (1) in 1972 the net gain in settlement of expropriated Canadian timberlands, (2) in 1971 provision for cost of shutdown of an obsolete Massachusetts paper mill and (3) in 1970 principally adjustment for liquidation of the investment in the Ethyl-Dow ethylene dibromide plant, gain on sale of an office lease and provision for write-down of a Califomlachemical plant. Quarterly Sales, Net Income and Earnings per Share kNet sales, net income and earnings per share for each quarter in 1974.exceeded those for comparable quarters of any other year in the Compan^s^iiston^^ffifecPme, earnings per share and pro 'forma earnings per share assumfngcom^relSirof the Second Preferred Stock for the first three quarters of 1974-have, beerrrestatedto reflect the extension of the last-in, first-out (LIFO) method of* Inventory valuation to domestic inventories pre viously accounted for on first-in, first-out (FITO)_or average cost. The effect of this change was to reduce net income for 1974^$6;509,000,or68cents a share. (Refer to Item 4 , Notes to Financial Statements, page 250 ----: rNetSal--Net Income (In Thousands of Dollars) 4974 1974 1973 First Quarter.............. . $196,247 Second Quarter.................. .. 263,534 Third Quarter ..... ........ --C298,239 Fourth Quarter ., - "" 261,539 Total Year .77: 7.. .7777^ $1,019,559 $12,225 17,789 22,595 21,688 $74,297 $12,135 14,292 14,539 11,918 $52,884 Earnings per Share ill! C3Dj -1974 . Second Quarter.......... ...... Third Quarter.............. .......... fourth Quarter .....___ Total Year ................ -1.77 28 2.18 '7. $1.12 - =4r i;36 . .'1.15 ;.S3iL$5.02 -: Pro Forma Earnings per Share 1974 1973 $1.06 1.54 1.96 1.89 $6.45 $1.01 1.20 1.23 - 1.03 $4.47 Capital Expenditures and Acquisitions During'1974, about $195 million was spent on acquisitions and capital projects for new plants, expansions and modernizations, compared with $38 million in 1973. Of that amount, approximately $115 million was spent on acquisitions, including $90 million for the purchase of 100% of the stock of VCA Corporation, a producer of plastic and metal packaging products as well as aerosol valves and atomizer and dispenser pumps for such packages; $25 million for the purchase of 95.8% of the stock of Elk Horn Coal Corporation, a coal land company. In addition, about $6 million was spent for the purchase of 12.7% of the stock of Cooper Laboratories, a pharmaceutical company. Expenditures in 1974 included about $8 million for pollution abatement and OSHA projects, and over the next several years it is estimated that annual expenditures in the range of $10 to $15 million can be expected for such purposes. ETC 16106 ETHYL CORPORATION AND SUBSIDIARIES 800 Total Assets Millions of Dollars 600 400 200 65 66 67 68 69 70 71 72 73 74 Common Dividend Increased The Board of Directors increased the regular quarterly dividend on the Common Stock during 1974 from 25 cents to 30 cents per share, effective with the July 1,1974, payment In addition, the directors declared a special --------- dividend of 10 cents a share on the Common Stock payable November 15, 1974. The -^following table shows the quarterly dividends declared in 1974 and 1973: ............................. : ._____ 1974 1973 _ -- - First Quarter.. ..................................................... $.25 Second Quarter.......................................................... 30 -Third Quarter.................................................................. 30 Fourth Quarter (includes special ::r: of 10 cents in each year).......................................40 $.221/2 .25 .25 .35 ... $Ti25 $1.0716 In addition, regular quarterly dividends of 60 cents a share on the $2.40 Cumula: tive Second Preferred Stock and $1.50 a share on the 6% First Preferred Stock were " " paid during 1973 and 1974. ^ Market Prices of Listed Stock The Company's Common Stock and $2.40 Cumulative " Second Prefefred Stock are traded principally on the New York Stock Exchange. The .. .-x -rsu followlng table shows the reported high and low prices of these listed stocks, by and 1974: ' $2.40 Cumulative --- ~ ' Common Second Preferred ' ' High Low High Low . ................ .. Second Quarter.................... Third Quarter........................ .?Cf^3p^a^sC-Fourth' Quarter...................... '^^^WG^^Rnrt'duiwter'..'....................... $32% 30% 35V4 38% 30 $26% 25% 26% 18% 21% $48 43% 48 50% 40 $39% 38% 39% 30% 33% Quarter.................... - :,~^aff^aEH^^-'Thlrd' Quarter......................... Fburth Quarter...................... 28 26% 27% 22% 19 19% 39% 38% 36% 34% 26 27% ' Vfe-f Internal Revenue Service Examination The Internal Revenue Service has completed jts'examlnation of the Company's first eight taxable periods after the 1962 EthylAlbemarle merger through the calendar year 1969. The IRS has proposed tax incranes of $31 million, including interest, which would total $43 million if assessed `dri the same basis through 1974. The IRS position results primarily from differences in the valuation of assets acquired in the merger and the allocation of values between .tangible and intangible assets. The IRS valuation of assets was made by a government'engineer during the course of its examination. The Company based its asset valuation on an appraisal by independent appraisers made at the time of the merger. the opinion of the Company's counsel that the tax increase proposed by the IRS excess of any tax which ultimately might be payable by the Company on the ^ ` ^of 'a reasonable asset valuation. The Company does not accept the IRS osalTand will continue to contest itI I from Operations Sets a Record Working capital provided i(refef to Changes in Financial Position-page 23) amounted to a ii974Xcompared with $90.3 million In 1973. This was sufficient ETC 16107 100 Debt Ratio Percent SO EQuity ..P1 - - fn 1974 to provide for reductionof.lqngjl dends and provide substantial hinds fbr' - -. - cl. At December 31, 1974, working oapi . . assets to current liabilities was 21571 . .. $268.9 million and a ratio of 3.82 tci - .Long-Term Debt As of December ; >^$203.9 million, equal to 34% of thi" gendfturet ^nmljPoland the ratio of current roompared with working capital .-* ^ir:' V^i^londfEthyl'sdebVwas^ sitalization' :v;rS^;pebt repayments during 1974_ ^^^nents of $12,000,000 on the .63jjSBg ^it^Promissory Notes due 1983,. $1,250$ s$3,000,000 on VCA Convertible Debent ; -ft. ' .-rrr ,, n.r,n v ' . i ": .Summary of Long-Term Debt. SeniorDebt . . -- 7.6% Senior Notes ($94 million^____ ... -^Promissory Notes ($45 mlllion^ue;t975ftBl^ I : 'The Prudential Insurance Comp Equitable Ufa Assurance.; : >;;^vl^The Northwestern Mutual Life Insurance! ; > T New York Ufe Insurance Company^ 4%% Promissory Notes--due 197 The Northwestern Mutual Ufe Insurance! -.... ' John Hancock Ufe Insurance Company New York Ufe Insurance Company Promissory Notes--due 1977-81 (variable ffiteresfrate~ - based on the prime commercial rata) -Seven Banks .......... ... -Miscellaneous mit&lFr&ri . Subordinated Debt . T-'5%% Subordinated Notes-rdue 1979 ; -v^^gig^ggyarious Institutional Investors .... .1'`ll Less unamortlzed discount (the balance r --.1 - ;i<l l- correspondlng to the proceeds of warrantssoldi '\Y' Notes In 1962), reflecting an Impute ' 7.4%-' -Total Debt at December 31, Current Portion of Debt. "Long-Term Debt lese consisted of pay-` ..3f2,500,000 on. the^JVi ^Promissory Notes, due^fKL,' 51,000 bn MiscellarieousT)eBr $139,000,000 ek*ki>srs7~?3 20,250,000 0,000,000 -5,439,000 $174,689,0001 l-sS&Ef 4,065,000 45^9351000 220,624,000 . *T6.7T4Ma $203,910,000 'Summary of Debt Maturities to 198A _ . . Ar*KdR: y-. 5%% - Subordinated . Notes Due 1979-82 ;- 7.e% * 7%%'S . Senior Promissoi .Notes Due Note*: -.1886 r< Due 19 1975 $ lU976 ^ . - 1977 ,$12,000,000 $2,500,000 12 000,000 2^ob!' " '12,000,000 2,5001000, -1978 I : 22,000,000 Z,500i ' 1979 8,000,000 3,000,000 7,000,000 . 1980 8,000,000 3,000,000 7.000.000 1981 8,000,000 3,000,000 7.000.1 1982 26,000,000 3.000.000 7.000.000 1983 1984 6.000.000 7.000.1 6,000,000 ^.SSEi igneous f^ebt To -^jfc&Totsl ~E2006 v*^g^Amount 964,000 $16,y4,e 869.000 ,16,419,000 ,25ao0oia82a,ooo -17,628,000 I,00d3r350.000 28,600,000 500',666 J 301,000 22.051.000 500,660 ..'247,000 21.997.000 1,000 ..'253,000 20.753.000 159.000 37.409.000 366.000 23.416.000 173,000 6,173,000 ETC 16108 7 Chemicals sold domestically accounted for 33% of Ethyl's 1974 sales. Sales were $337.5 million, up 36% over 1973. Petroleum Chemicals Division: Sales revenues from lead antiknocks were about 9% higher largely due to infla tion and price increases. Sales volume was down about 8% reflecting the ef fects on gasoline sales of the interna tional oil embargo, lower premium gas oline use and broader marketing of un leaded gasoline during the second half. In January, a Federal court ruled in favor of the Company's petition to set aside regulations to phase down lead in gasoline. (See Message to Share holders.) Sale of "Ethyl" MMT (methylcylo- pentadienyl manganese tricarbonyl) as an antiknock for unleaded gasoline be gan in April 1974. Substantial interest in MMT continues. Sales of petroleum additives for fuels and lubricants continued to improve. Antioxidants were in high demand and new markets were developed for indus trial lubricants. A new gasoline deter gent established a solid market position. Industrial Chemicals Division: Record sales were achieved, up 74% over 1973. Heavy demand was placed on nearly all production facilities. Some sales were limited by either plant capacities or feedstock shortages, including ethyl ene, chlorine and aromatic hydrocar bons. The most severe shortage was for chlorine. Chlorine supplies are ex pected to be adequate in 1975. Production of specialty chemicals in 1974 was at capacity in newly expanded facilities. Additional expansions for specialty chemicals at the Houston and Orangeburg, S.C., plants are under con struction, with completion of some phases scheduled in 1975. Detergent alcohol capacity was in creased modestly in 1974 while a major expansion of long-chain alpha olefin production was completed early in the year. Both Houston facilities operated at high rates. Major expansions of these operations are expected to begin in 1975. Production volume and sales of chlorinated solvents and vinyl chloride were limited for nearly all the year by shortage of chlorine. Instrument Division: While this division continued to operate at a moderate loss, sales improved largely as a result of the emphasis on clean air regula tions and the need for precision mea surement of emission sources. Air Monitoring, Inc. and Ethyl Intertech Corporation are the two outlets. Sales improved for equipment to monitor stack emissions from stationary sources such as power plants, refineries and chemical plants. Added emphasis was given to computer control systems for monitoring industrial production. Consumer Automotive Products Divi sion: Ethyl formed this division in the first quarter to package and market automotive products to consumers. In itial products are two crankcase addi tives--one to prolong engine life, the other for worn engines which burn ex cessive oil--and a gasoline detergent to help clean dirty fuel systems and im prove performance. After test market ing in 1973 and early 1974, sales were expanded to a multi-state area. Elk Horn Coal Corporation: In the first quarter, Ethyl completed acquisition of 95.8% of the stock of Elk Horn. Total investment was approximately $25 mil lion. Elk Horn owns about 130,000 acres of coal land, primarily in Eastern Kentucky. In 1974, Elk Horn's revenue from all sources was a record $10.7 million. Principal revenue came from royalty in come from coal-bearing lands leased to others. Royalty income was up sharply because of greatly increased coal prices and increased coal production. An Elk Horn subsidiary--West Virginia Belt Sales and Repairs, Inc., which makes and markets mine and mill sup plies--had substantial sales gains. Increased demand for coal to meet expanding energy requirements was the primary factor in record coal produc tion levels from mining properties in 1974. Coal production from Elk Horn properties was 4.1 million tons in 1974 versus 3.6 million tons in 1973. PRODUCTS: ALKYL ALUMINUM HALIDES/ ALPHA OLEFINS (DETERGENT 4 PLASTICIZER) ( ALPHA OLEFIN SULFONATES / ALUM / ALUMINUM ALKYLS / ANTIOXIDANTS / AUTOMOTIVE EMISSION TEST SYSTEMS / BROMINE / BROMINE CHEMICALS / COAL MINE SUPPLIES / CAUSTIC SODA / CHLORINATED SOLVENTS/COMBUSTION IMPROVER!DIESEL FUEL DETERGENT-CORROSION INHIBITOR / DIESEL FUEL IGNITION IMPROVERS t DISTILLATE FUEL ANTI STATIC ADDITIVE / ETHYL CHLORIDE / ETHYLENE DIBROMIDE / GASOLINE ANTIKNOCK COMPOUNDS / GASOLINE DETERGENT-DEICER CORROSION IN HIBITORS / INDUSTRIAL TEST SYSTEMS / LINEAR PRIMARY ALCOHOLS (DETERGENT A PLASTICIZER) / LUBRICATING OIL ADDITIVES ( METAL DEACTI VATORS / METHYL CHLORIDE I OIL SOLUBLE DYES / ORGANOPHOSPHOROUS CHEMICALS I ORTHOALKYLATED ANTIOXIDANTS ( ORTHOALKYLATED PHENOLS AND ANILINES / REFINERY BLENDING CONTROLS / SMOKE METERS / SPECIAL ORGANOMETALLICS / SODIUM / VINYL BROMIDE / VINYL CHLORIDE. PLANTS: BATON ROUGE. LA. ( DETROIT, MICH. / HOUSTON, TEXAS / MAGNOLIA, ARK. 1 ORANGE BURG, S.C. / PRINCETON, N.J. PHOTOS: Lett--Chain growth reactors in the alpha olefin production facility in Houston. Top Right--Expanding energy requirements led to record coal production from Elk Horn's leased property. Bottom Right--Industrial chemical dis tillation columns at Houston. II O? mO to Z n r~ 1 n ETC 16110 Chemicals sold outside the United States accounted for 15% of Ethyl's 1974 sales. These foreign sales totaled $149.9 million, an increase of 43% over record levels achieved in 1973. Ethyl Corporation of Canada Limited is re sponsible for sales in Canada. Ethyl Internationa) sells and distributes the full range of the Company's chemicals around the world. Ethyl Corporation of Canada: Anti knock shipments were lower in 1974 although revenue was higher because of increased prices. Contributing factors were reduced refinery output during the international oil embargo, reduced ex port of gasoline and significantly re duced premium gasoline sales because of an increasing number of lower com pression ratio automobiles in Canada. Canadian automotive emission stan tribution facilities at Santos, Brazil, and dards are less stringent than those in Ipras, Turkey. Expansion of customer the U.S. and required levels are being distribution facilities in Peru, Spain and reached with most new cars continuing the Virgin Islands also was completed in to use leaded gasoline. Sales of other chemicals in Canada 1974. Plans for 1975 include the addi tion of major terminals in Taiwan and remained high. The expansion of poly Indonesia--the first such facilities in ethylene and polypropylene plants in Canada is expected to maintain high the Far East. To augment service to the worldwide demand for aluminum alkyls as cata network of terminals, two ships were lysts. The multi-product chemicals unit added in 1974 to the fleet of bulk chem at the Sarnia, Ontario, plant operated at ical carriers available to the Company. record production levels in 1974. Ethyl International: Sales and earnings passed previous-year records and re flected increases in volume and effi ciencies in worldwide distribution. Antiknock compounds experienced sales gains in ail world markets except Japan. Ethyl International continued to aid sales with new antiknock bulk dis The added shipping capacity enables Ethyl to provide the necessary support for increasing international sales. Continues emphasis on industrial chemicals in 1974 was reflected in sales and earnings that were up significantly from the record levels of 1973. Gains are expected for industrial chemicals in 1975. Reflecting confidence in market y growth for these products, Ethyl Inter national plans to begin construction of a multi-product aluminum alkyls manu facturing plant in Feluy, Belgium, in the second quarter of 1975. The plant is scheduled to begin operation during the second half of 1976. Initially, the Bel gian facility will represent an invest ment of approximately $11 million. Oil and Gas Exploration: Seven new discoveries were made in 1974. One well is located in the Dutch Sector of the North Sea, five wells are in the northern part of the Canadian Province of Alberta and the seventh well is in Matagorda County, Texas. Ethyl Development Corporation, a wholly-owned subsidiary, has a onesixth interest in the Laura-Tenneco group, which holds 12 lease blocks in the Dutch Sector of the North Sea total ing 1.2 million acres. The group con tinued its exploration activities in the North Sea during 1974 and plans to drill additional wells in 1975. All exploration in Canada is con ducted jointly with British Petroleum Oil and Gas, Ltd. Exploration was con ducted in 1974 in northern and central Alberta, northeastern British Columbia and in the Northwest Territories near Great Bear Lake. Acquisition of petro leum and natural gas leases in western Canada continued. Ethyl currently owns interests in 3.6 million acres, compared with 936,000 acres at the end of 1973. Oil production has been achieved from three wells in central Alberta. Addi tional wells are planned for 1975. Three earlier-discovered gas wells in Canada will go into production in 1975. Ethyl continued exploration in Texas and Louisiana. The Company has a 90% working interest in 29,000 acres of mineral leases in Matagorda County in southeast Texas, adjacent to Ethyl's gas discovery there. One Matagorda gas well began test production in the third quarter of 1974. Two additional wells were drilled on this acreage in 1974, one of which is being tested. The other well was plugged and abandoned. Further drilling is planned in the area in 1975. Two Louisiana gas wells in which Ethyl has an interest began com mercial production in September 1974. PRODUCTS: FULL RANGE OF ETHYL'S CHEMICALS. PLANTS: THESSALONIKI, GREECE IETHYL INTER NATIONAL) SARNIA, ONTARIO, CANADA (ETHYL OF CANADA). PHOTOS: Left--One of the gas wells drilled in Matagorda County, Texas, during 1974. Right --Mud semple from gas well is weighed to deter mine If additives should be changed during drilling. li li i .V> rx\ 2 r? > Paper products accounted for 11% of Ethyl's 1974 sales. Sales of the Oxford Paper Division were a record $115.1 million, up 13% over 1973. In the first nine months of 1974, the paper industry experienced very strong market demand for pulp and paper and Oxford operated in these first three quarters with full backlogs. In the fourth quarter, there was substantial soften ing of the markets which Oxford serves. Oxford's prices continued to be con trolled under Phase IV regu!?*ions of the Cost of Living Council during the first quarter. The discontinuance of these regulations combined with the demand for pulp and paper enabled Oxford to increase prices to offset con tinually rising costs. In July, the West Carrollton, Ohio, mill was sold to Pentair Industries, Inc., of St. Paul, Minn., for more than $6 mil lion cash, which approximated the book value. West Carrollton is a non-integrated mill, dep.inc.ent on outside pulp sources. Oxford found it increasingly difficult to obtain the fiber necessary to assure its customers of a sustained source of supply and to furnish employ ment continuity at the mill, and the Company determined that it could more adequately serve its customers by con solidating its investment and activity in its integrated mill at Rumford, Maine. Oxford's 1974 sales include those of the West Carrollton mill for the first seven months only. Prior to its sale, West Car rollton accounted for approximately 20% of Oxford's sales. Oxford continued its efforts to im prove operating efficiencies. A cost re duction program to help offset escalat ing costs for fuel, wood, raw materials, supplies, labor and transportation will continue in 1975. The major rebuild of the No. 11 paper machine at the Rumford mill was completed in the fourth quarter. This roll coating machine was converted to a modern, blade coated unit at a total cost of approximately $14 million. The rebuilt unit is expected to contribute significantly to improved profitability of Oxford. Work continued on both air and water pollution abatement at the Rumford mill. The effluent treatment plant, cur rently under construction, is scheduled for completion in early 1976. Additional precipitators and scrubbers are to be installed in 1975 to comply with air quality standards. These environmental improvement projects are now esti mated to cost approximately $15 mil lion. Oxford emphasized in 1974 reorgani zation of its marketing programs to apply its consolidated production cap abilities and other resources to market areas that offer the most promising profitability consistent with long-term growth and stability. PRODUCTS: COATED OFFSET PAPERS FOR MAGAEIRE PUBLISHING, BOOK PUBLISHING AND COM MERCIAL PRINTING / COATED LETTERPRESS PAPERS FOR MAGAZINE PUBLISHING AND COM MERCIAL PRINTING t COATED GRAVURE PAPERS FOR MAGAZINE PUBLISHING AND COMMERCIAL PRINTING / CONVERTING PAPERS FOR ENVELOPES AND BUSINESS FORMS. PLANT: RUMFORD, MAINE. PHOTOS: Left--Worker puts finishing touches on No. 11 paper machine, which was rebuilt in 1974. Top Right--Hardwood chip pile outside Rumford mill. Bottom Right--Steel rods are in stalled prior to pouring concrete tor clarifier walls as pari of a water pollution abatement project at Rumford. Plastics accounted for 30% of Ethyl's 1974 sales. Sales were $306.1 million, up 109% over record 1973 levels. A major development was the acqui sition in the second quarter of VCA Corporation of Greenwich, Conn. (See insert.) VCA has been combined with part of the "IMCO" Container Products Division and reorganized into three divi sions--Dispenser Products, Metal Prod ucts and Molded Products. The Dispenser Products Division is a leader in aerosol valves and plastic ac cessories. Reorganization led to in creased emphasis on new opportunities for aerosol dispensing. Sales increased in each of the product areas. The Metal Products Division had sub stantial gains in sales. This division makes decorative metal fitments and closures for the cosmetic industry and collapsible and rigid aluminum tubes. threaded jar closures, soft drink clo sures, drawn tinplate cans for paste waxes and aerosol valve mounting caps. The Molded Products Division's prin cipal effort is in injection molded plas tics. Molded Products made sales gains, primarily in the toiletries and cosmetics markets, and held previous levels in the declining automotive market. This division provides product and tool de sign capabilities along with facilities for tool manufacture. Additional production was added at Excelsior Springs, Mo., and South Grafton, Mass. The IMCO Container Products Division, whose chief products are polyethylene and polyvinyl chloride (PVC) bottles and containers, had record sales de spite a leveling trend during the second half. The Flex Products Division showed leadership in plastic tubing for packag ing. New sales developed in the pack aging of household products. IMCO products had increasing application in containers for packaging food products such as mustard, frozen concentrated fruit juices, table syrups and flavorings. IMCO increased its bottle-making ca pacity with a new plant at Drummondville, Quebec, Canada, expansion at Goleta, Calif., and added equipment at Pittsfield, Mass. The "VISQUEEN" Film Products Divi sion, the world's largest producer of polyethylene films, had its best year. It expanded application of polyethylene films in the food industry, in the rubber industry for a separator backing, in the agricultural market for mulching pro duce crops and in the disposables area for diapers and hospital underpadding. This development was achieved despite VCA Corporation, acquired by Ethyl Corporation in April 1974, in an approx imate $90 million tender offer and merged into Ethyl during the year, is a major producer of plastic and metal packaging products, aerosol valves and atomizers and pumps. Formed in 1961 as Valve Corporation of America, the company's name was changed to VCA Corporation in 1970. The addition of VCA to Ethyl's Plastics Division significantly strength ened plastics as the Company's sec ond largest product area and addec $94,568,000 in sales since April 1,1974 Shortly after acquisition, VCA was re organized within Ethyl's plastics opera tions into three divisions-Dispense Products, Metal Products and Moldei Products. These three product division employ approximately 4,500 people 26 plant locations in nine states, Can ada and Puerto Rico. There are affiliate in Mexico and Argentina. In additior there are licensees in South Africt England, France, Germany, Italy, Japat Brazil, Sweden, Spain and Australia. VCA's history reveals a steady tren toward consumer-oriented products < wide variety. A recent study indicate that 90% ot American households use; 1 etc 161n least four different products bearing a VCA package component. Thus, Ethyl has taken a significant step in bringing its products closer in touch with most Americans. With the addition of VCA's line, food shoppers now encounter Ethyl products in the form of aluminum screw caps, produced by the Metal Products Divi sion, on COCA-COLA and PEPSI-COLA bottles. A number of S. C. JOHNSON'S cleansers and polishes come equipped with dispensers from the Dispenser Products Division. Household products marketed in Metal Products' package components include LYSOL disinfectant and DRACKETT's RENUZIT. LEVER BROTHERS' DOVE is dispensed through a spout and CLOROX's FORMULA 409 is sprayed through a leak-proof pump, both developed and produced by the Dispenser Products Division. The Metal Products Division manu factures refrigerator door handles, drawers and a host of disposable con tainers found inside. KRAFT cheese spreads and GENERAL FOODS' frozen dishes reach the consumer in containers made by Metal Products. One of the largest product areas served through this new acquisition is the cosmetics and personal care indus tries. Virtually every major marketer of cosmetics and toiletries is a customer for decorated glass bottles, plastic jars, powder boxes, mirrored compacts, makeup applicators, brushes and other dispensers. Such customers include AVON, REVLON, GILLETTE, CHANEL, CHARLES OF THE RITZ, ALBERTO CULVER, ESTEE LAUDER, CLAIROL, WOODBURY, and JOHNSON'S BABY PRODUCTS. Whether it is a customdesigned lipstick dispenser, such as the Molded Products Division's SLIPSTICK, or a catchy marketing package like HANES' "L'EGGS" pantyhose con tainer, these products have demon strated their ability to satisfy the needs of consumers. Metal Products supplies metal closures for BROMO SELTZER and ROLAIDS. PROCTER & GAMBLE'S CREST tooth paste comes capped with a plastic cap manufactured by Molded Products. Molded products makes caps for IVORY LIQUID, valves for NIAGARA spray starch, while plastic caps for BEST FOODS' RIT liquid dyes are another item from Molded Products. I i I In yet another area, the Molded Products Division's caps top the bottles of several major liquor brands includ ing SCHENLEY, SEAGRAM'S, HEUBLEIN and OLD FITZGERALD. This divi sion also decorates a variety of glasses, tumblers, ice buckets and pitchers. MAGIC MARKER pen holders and SANFORD MARKER holders are made by the Metal Products Division. JOHN SON'S KIT CAR WAX, DOW'S DE-ICER and AMERICAN HOME PRODUCTS' DUPLICOLOR paints come equipped with packaging components from Metal Products and this division also makes COLGATE toothpaste tubes in Canada. The Dispenser Products Division manu factures valves which dispense BLACK FLAG, HOT SHOT, REALEX and SHELL'S insect sprays, among others. Metal Products also makes the overcaps for LYSOL aerosol products. etc i 6119 ETC 16120 I Such diversified items as dashboard panels and emission-control cannisters for CHRYSLER, FORD and GENERAL MOTORS come from one of the three divisions formed out of VCA. The AQUAFILTER for cigarettes and GARRITY disposable flashlights are two recent product innovations. Any recitation of the product line es tablished by VCA brings forth familiar brand names. The products added by VCA to Ethyl's plastics operations now enable the Company to offer a complete design, tooling and packaging service to its customers. During 1974, Ethyl has concentrated on consolidation and re organization of VCA. These efforts will enable Ethyl to concentrate on new major growth areas and profit oppor tunities. ETC 16122 raw material shortages. Increased ca pacities aided sales growth. PVC film sales for packaging red meat and pro duce continued at satisfactory levels. An olefin-based film for red meat and produce was developed and success fully test marketed. The Polymer Products Division's sales, primarily of PVC resins and compounds, were at record levels again despite a slowdown in the fourth quarter. A continuing effort to shift product mix to specialty resins and rigid compounds resulted in a substantial rise in earn ings. Additional resin capacity was completed at Baton Rouge and another compound line was installed at the Tiptonville, Tenn., plant during the second quarter. Programs are underway to re duce vinyl chloride emissions at the Baton Rouge resin plant in compliance with new government regulations. (See Message to Shareholders.) Production of high-barrier resins for bottles and films continued at Baton Rouge. The Pipe Products Division also had record sales and earnings, although curtailment of housing and other con struction adversely affected its markets beginning in the third quarter. Major expansion of the Columbia, Miss., plant in late 1973 increased production of "BELL: RING" PVC pipe during the year. PVC pipe is expected to continue to gain a major share of the water dis tribution and gravity-flow sewer mar kets. Polybutylene water service tubing, introduced by Ethyl in 1974, experi enced continued growth in municipal and residential markets. PRODUCTS: POLYETHYLENE FILMS FOR PACKAG ING, INDUSTRIAL, BUILDING, AGRICULTURAL, PAL LET WRAP, BUNDLING AND DISPOSABLES / POLYETHYLENE SHRINK FILMS AND SYSTEMS / PVC RED MEAT PACKAGING FILMS / AEROSOL VALVES I AT OMIZER AND DISPENSER PUMPS / METAL PACKAG ING / DYES AND TOOLING / PVC RESINS AND COM POUNDS / PVC CONTAINERS / "GUARDIAN" CON TAINERS/POLYETHYLENE CONTAINERS/EXTRUDED CONTAINERS/POLYPROPYLENE CONTAINERS/BOT TLES. CLOSURES AND OTHER CUSTOM AND PRO PRIETARY INJECTION MOLDED PRODUCTS / FLEXI BLE TRANSPARENT PACKAGING / PVC WATER PIPE AND FITTINGS / PVC WATER PIPE / POLYBUTYLENE WATER SERVICE PIPE / ENGINEERED PLASTICSMOLDED PARTS. PLANTS: BATON ROUGE, LA. / BEDFORD HEIGHTS, OHIO 13) / BELVIDERE, N.J. / BLUE ISLAND. ILL. / BRIDGEPORT, CONN. / BRAMALEA, ONTARIO, CAN ADA/BRONX, N.Y./CAGUA, PUERTO RICO/CARBONDALE, PA. / CARLSTADT, N.J. / CHICAGO. ILL. (3) / COLUMBIA, MISS. / DRUMMONDVILLE, QUEBEC. CANADA / ERIE, PA. / EXCELSIOR SPRINGS. MO. / FAIRFIELD, CONN. t FLEMINGTON. N.J. / FREMONT. CALIF. / GOLETA, CALIF. / HACKENSACK, N.J.! HAR RISONBURG, VA./JEFFERSONVILLE, IND./KANSAS CITY. MO. It)/LAGRANGE, GA./LAQRANQE, KY./LA MIRADA, CALIF. / LOUISVILLE, KY. / MANCHESTER, IOWA / MISSISSAUGA, ONTARIO, CANADA / NORTH RIVERSIDE, ILL. / NORTH VALE, N.J. t PITTSFIELD, MASS. (3) / POMONA. CALIF. I RICHMOND HILLS, ONTARIO, CANADA! ROCKAWAY, N.J. / SANDSTON, VA. / SCARBOROUGH, ONTARIO, CANADA / SOUTH GRAFTON, MASS. / TERRE HAUTE. IND. / TIPTONVILLE, TENN. / UNION CITY, CALIF. / VANDALIA, ILL. t WATERBURY, CONN. AFFILIATES: VCA DE MEXICO, MEXICO CITY / VCA DE ARGENTINA, BUENOS AIRES. PHOTOS: Left--Aerosol caps are assembled semi-automatically. Top Right--New product development sketches and designs tor air freshener tooling. Bottom Right--Injection mold ing bottle closure machine, built and designed at Ethyl Federal. ETC 16124 Aluminum products accounted for 10% of Ethyl's sales in 1974. Record sales of $100.2 million, up 2% over 1973, were achieved in 1974 despite raw material shortages in the aluminum industry and the slowdown in housing construction. The William L. Bonnell Company: Sales reached an all-time high in 1974. De mand for extrusions serving the resi dential, commercial and trim markets was very strong throughout the first half of the year. During this period a world wide shortage of aluminum and other raw materials limited output from Bonnell's production facilities. Later in the year, high interest rates, tight mortgage money and U.S. infla tion caused a 50% decline in residen tial construction from 1973 levels and adversely affected Bonnell. However, thesales in home improvement and com mercial construction markets remained strong and helped offset the weakness in new residential construction. Bonnell expects continued weakness in its major markets during the first part of 1975. However, assuming the econ omy turns upward and building recov ers, markets for Bonnell's products should improve significantly in the sec ond half. Raw material supplies will be sufficient for 1975 needs. A major new product development, aluminum extrusions incorporating a barrier to reduce heat loss, will be in troduced in 1975. Bonnell expects to become a major supplier of these prod ucts, which are widely sought by fabri cators of residential and commercial windows to reduce the energy required to heat modern homes and buildings. Capitol Products Corporation: Sales in 1974 were slightly lower than the rec ord levels of 1973. Major adverse fac tors were the industry-wide shortage of all forms of aluminum, the decline in residential housing and the sluggish performance of the U.S. economy. Profits were under pressure throughout the f ^ year because of rapidly increasing prices of raw materials and utility serv ices. After extensive research and engi neering, a high performance "thermalized" window was added to Capitol's residential line of products in 1974. The initial product, a single-hung model, is an economical window which dramatically reduces objectionable con densation sometimes associated with aluminum windows in northern climates and conserves fuel required for resi dential heating. In 1975, Capitol plans to broaden this new product line with the introduction of new "thermalized" sliding windows and patio doors. All of Capitol's new window products meet the current standards for thermalized products, which were adopted in 1974 by the Architectural Aluminum Manu facturers Association. Sales of Capitol's residential lawn buildings reached record levels in 1974. Several new models introduced during the year, and new models planned for 1975, should strengthen further Capi tol's sales in this market. Bauxite Exploration: Early in 1974, Ethyl announced the discovery of a large and promising bauxite deposit in the Amazon region of Brazil. Explora tion rights have been granted Ethyl sub sidiaries by the Brazilian government. An extensive evaluation program to confirm the size of the deposits and the quality of the trihydrate-type bauxite in the discovery was started during 1974 and is expected to be completed in 1975. PRODUCTS: EXTRUDED ALUMINUM SHAPES IN X VARIETY OF PAINTED AND ANODIZED FINISHES FOR WINDOWS AND DOORS, STORE FRONTS AND CURTAIN WALLS, BOATS, SWIMMING POOLS, TRUCKS AND TRAILERS/DECORATIVE ALUMINUM PRODUCTS FOR THE FLOOR COVERING AND HOME BUILDING INDUSTRIES/ALUMINUM WINDOWS AND DOORS/RESIDENTIAL LAWN BUILDINGS. PLANTS: BONNELL-CARTHAGE. TENN. / NEWNAN, QA. / CAPITOL PRODUCTS -- HARRISBURG, PA. I KENTLAND, IND./MECHANICSBURG, PA./NEW OX FORD, PA. PHOTO: Aluminum extrusions are slacked at Carthage, Tenn., after they have been cut to proper lengths. About $25 million was invested in re search and development in 1974. Ethyl received 125 U.S. and 70 foreign pat ents last year, raising the total main tained to more than 2,100. More than 50% of the R&D effort in 1974 con tinued to be devoted to new products. New Product Research: Commercial use of low-level concentrations of manganese antiknock compound (MMT) in lead-free gasoline began in 1974. Studies by the Environmental Protec tion Agency and by Ethyl continue to show no health effects from its use. Initial testing of compatibility of MMT with emission control devices for 1975model cars shows no deleterious effect. Ethyl's basic position in halogens is being expanded to include iodine. Rich sources of brine have been found in Oklahoma and could permit early manu facture of elemental iodine. Tests on two wells were conducted in the second half. Design of possible new facilities is in progress for production of bromi- nated products for flame retardant and catalyst uses. Other developments in bromine chemicals include a sewage disinfectant product and system. Con tinuing cooperative research with major pesticide producers has opened new opportunities for chemical intermedi ates based on Ethyl's special technol ogies in orthoalkylation, phosphorus chemicals and bromine derivatives. Continuing research on flame retar dants for rayon, polyester and cotton fibers has yielded possible new com mercial products. A synthetic replace ment for scarce wood rosin is being evaluated for paper. Semi-commercial quantities of a pharmaceutical product are currently being produced for a major drug firm. Research was ex tended in 1974 on microbiology. The family of potential products from the aluminum alkyl-alcohol-alpha olefin complex at Houston continued to ex pand. Detergent applications for alpha olefin sulfonate were broadened. Syn thetic methyl esters and alkyl dimethyl amines are potential new products de rived from Ethyl's chain-growth olefins. Large pilot plants are currently operat ing as the final steps toward commer cialization. These products are impor tant intermediates in the detergent in dustry for foam control. Responding to industry health find ings about vinyl chloride, significant ef fort was directed, with good success, in 1974 toward reducing levels of vinyl chloride emissions in Ethyl s plant at mospheres and in the Company's PVC resins, compounds and fabricated prod ucts. Ethyl now offers PVC compounds for packaging with very low monomer content. Developmental work on Ethyl's heavy mineral holdings in northwest Tennes ETC 16127 see continued during the year. A field pilot plant was successfully operated to define land reclamation techniques and total water recycling as planned for possible commercial operation. Process development on parts of Ethyl's new aluminum process neared completion and planning is under way toward commercialization. Automotive Emissions Research: In 1974, significant additional progress was made on Ethyl's simple and effec tive emmision control system that is compatible with leaded gasoline. The Company has continued development of low emission systems operating with lean mixture ratios {low proportions of gasoline with air). This approach offers improved fuel economy and takes ad vantage of the higher octane numbers available in leaded gasolines. The latest Ethyl development has been named the Turbulent Flow System (TFS). It consists of a special manifold with a standard carburetor adjusted to provide lean air-fuel mixtures. Exhaust gas recirculation is used if required and ignition timing is optimized for low emissions, good fuel economy and driveability. The installation of the TFS on eight test cars with four, six and eight-cylinder engines has, in every case, yielded emission lev jls oelow the 1975-76 Federal 49-state standards. One of these vehicles, a European car with a four-cylinder engine, was taken to Europe and was well received by the automobile industry there. A ninth TFS test car was equipped with insulating liners installed in the exhaust ports of the engine. In tests conducted by the California Air Resources Board this car achieved emission levels below the severe 1975-76 California standards. Work also continued on traps that could be used to remove particulate emissions. Effective traps have been extensively tested on large cars such as the full-sized, U.S. models, and small cars typical of Europe and Asia. Reductions in emissions of lead partic ulates in the range of 65-80% are at tained using simple, inexpensive trap ping systems that replace normal ex haust systems at minimal cost. RAD FACILITIES: BATON ROUGE, LA. / DETROIT, MICH. t HOUSTON, TEXAS / ORANGEBURG, S.C. IAUTOMOTIVE EMISSIONS, INDUSTRIAL CHEMI CALS. PLASTICS, PETROLEUM CHEMICALS. NEW AREAS) / TERRE HAUTE, IND. (PLASTIC PILM) t KANSAS CITY. MO. (PLASTIC CONTAINERS) / RICHMOND, VA. / RUMFORD, MAINE (PAPER). PHOTOS: Left--Detergent research continued to be an important part of R S D activities. Top Right--Multi-purpose pilot plant at Baton Rouge, La. Bottom Right--Coal researcher illustrates that one lump of coal, which has the same mass as two eggs, can produce synthesized fuel gas sufficient to fill five balloons, giving off little residue. mi "V" % RESEARCH A DEVELOPMENT $ ll ;S'i 7 vl? e-0 * ETC 16128 CONSOLIDATED BALANCE SHEETS ASSETS December 31 Current assets: Cash and short-term securities........................... Accounts and notes receivable........................... Inventories............................................................. Prepaid expenses................................................. Total current assets................................... Property, plant and equipment, at cost: Land and land improvements.................. Coal lands............................................... Development costs, producing properties Timberlands and standing timber............ Buildings................................................. Machinery and equipment........................ Less, Accumulated depreciation, depletion and amortization................................... Net property, plant and equipment . Deferred charges and other assets 1973 $177,548,000 90.371.000 90.710.000 5,761,000 364,390,000 24.311.000 5,929,000 10.693.000 82.246.000 432.006.000 555.185.000 273.805.000 281.380.000 8,255,000 Goodwill and other intangibles The accompanying notes are an integral part oI these statements. 36,769,000 $690,794,000 20 ETC 16129 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: Principal amount............................................... Less unamortized discount............................. Subordinated debt less unamortized discount................................... Deferred income taxes............................................. Provision for employee benefits............................... Minority interest (1973,limited partner's interest)... SHAREHOLDERS' EQUITY Capital stock: Cumulative First Preferred Stock, 6% Series A, par $100 per share............................. Cumulative Second Preferred Stock, $2.40 Convertible Series A, par $10 per share (aggregate liquidation price $68,299,000 on 1,518,097 outstanding shares, after treasury stock).............. Common Stock, par $1 per share.......... Capital surplus........................................... Retained earnings..................................... Less, Treasury stock at cost.......... Total shareholders' equity The accompanying notes are an integral part ot these statements. 1973 $ 62,551,000 3.390.000 4,000 15.995.000 13.548.000 95.488.000 162,230,0C-~fl 50,000,000 4.649.000 45.351.000 37.928.000 6.173.000 1.061.000 2,900,000 19.621.000 10.173.000 43.922.000 304.135.000 380.751.000 38.188.000 342.563.000 $690,794,000 ETC 16130 21 CONSOLIDATED STATEMENTS OF INCOME & RETAINED EARNINGS Tears 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....................................... 1973 T e- $699,002,000 14,716,000 713,718,000 ; * > c ' :V 1; 518,528,000 76,330,000 16,772,000 49,204,000 660,834,000 52,884,000 52,884,000 1972 $631,599,000 7,187,000 638,786,000 460,803,000 73,870,000 17,979,000 41,427,000 594,079,000 44,707,000 4,535,000 49,242,000 1971 1970 $577,058,000 5,642,000 582,700,000 $556,856,000 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) 34,914,000 410,973,000 65,804.000 18,285,000 34,649,000 529,711,000 35,582.000 1,617,000 37,199,000 Retained earnings at beginning of year......... 304,135,000 Deduct, Cash dividends: 6% First Preferred Stock, $6.00 per share............................................. 5% First Preferred Stock per share $2.50 in 1971 and $5.00 in 1970 Second Preferred Stock, $2.40 per share . Common Stock, per share $1.25; $1.07 Vi; $.88 Vi; $.84; $.84 respectively................ Retained earnings at end of year.................... 166,000 3,644,000 11,880,000 15,690,000 $ 362,742,000 Earnings per share: Income before extraordinary items Extraordinary items.................................... NET INCOME....................................... $7.41 $7.41 Pro forma earnings per share assuming conversion of the Second Preferred Stock. (If the Second Preferred Stock were converted, its dividend would become $1.56 per share at the 1974 annualized regular dividend rate, as against the present $2.40 preferred dividend.) Income before extraordinary items ... Extraordinary items........................... NET INCOME....................................... $6.45 $6.45 265,627,000 169,000 3,759,000 10,448,000 14,376,000 $304,135,000 $5.02 $5.02 $4.47 $4.47 229,359,000 169,000 3,893,000 8,912,000 12,974,000 $265,627,000 $4.03 .45 $4.48 $3.65 .37 $4.02 207,097,000 182,875,000 175,000 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 S3.22 $3.09 (.27) $2.82 S2.85 .13 S2.98 The accompanying notes are an integral part of these statements. 22 ETC 16131 CONSOLIDATED STATEMENTS OF CHANCES IN FINANCIAL POSITION S_ ource of Fund.s: Years ended December31 1973 Operations: Net income............................................................... $52,884,000 Expenses not requiring outlay of working capital: I Depreciation, depletion and amortization ... 33.235.000 Deferred income taxes...................................... 4,217,000 Working capital provided from operations . 90.336.000 Additional borrowing.................................................... Proceeds from sale of West Carrollton fixed assets............................................................... Working capital of consolidated subsidiaries at dates of acquisition........................................... Decrease in working capital...................................... I Total.................... ...................................... $90,336,000 Application of Funds: Additions to property, plant and equipment........... $34,795,000 < Reduction of long-term debt...................................... 16.265.000 Cash dividends............................................................. 14.376.000 Capital stock reacquired or redeemed.................... 18.440.000 < Acquisition of consolidated subsidiaries net of long-term debt assumed,$5,449,000 ... 566,000 Investment in Cooper Laboratories......................... Other items--net.......................................................... (1,049,000) Increase in working capital........................................ 6,943,000 Total............................................................... $90,336,000 Changes in Working Capital: (Decrease) increase in current assets: Cash and short-term securities $ 3,711,000 Accounts and notes receivable ... 7.263.000 I Inventories........................................... 8.052.000 Prepaid expenses............................. (303,000) i 16,723,000 Increase (decrease) in current liabilities: Accounts payable and accrued expenses Dividends payable........................................ Notes payable............................................... Long-term debt, current portion................ Income taxes................................................. (Decrease) increase in working capital .. 5,451,000 101,000 (405,000) 11.970.000 (5,337,000) 11.780.000 $ 6,943,000 The accompanying notes are an integral part ot these statements. ETC 16132 23 NOTES TO FINANCIAL STATEMENTS a 1. Summary of Significant Accounting Policies: Consolidation Principles The accompanying financial statements include the accounts and operations of all sub sidiaries and the accounts and operations of Bromet Com pany, a partnership. In September 1974 Ethyl Corporation purchased its former partner's 20% interest in Bromet Company. Foreign Operations The consolidated financial statements include net foreign assets, in areas other than Canada, of ap proximately $48,000,000 (including working capital of approx imately S37,000,000) at December 31, 1974, and foreign net income, excluding Canada, of approximately $4,800,000 for the year then ended. Comparable amounts for prior periods were not material. Foreign currency assets and liabilities are translated into U.S. dollars at year-end exchange rates except for property, plant and equipment, accumulated depreciation, and depre ciation expense which are translated at exchange rates pre vailing at the dates of acquisition. Income and expenses other than depreciation are translated at weighted average ex change rates for the year. Unrealized gains or losses arising from translation are credited or charged to a reserve for foreign exchange fluctuations which is classified as a current liability. Unrealized losses in excess of the reserve are charged to income. As of December 31, 1974 and 1973, the reserve balances were S637,000 and $478,000, respectively. Inventories Inventories are stated at the lower of cost or market with cost determined on the last-in, first-out basis for substantially all domestic inventories and on either average cost or first-in, first-out for other inventories. Depreciation Provisions for depreciation are based on the estimated useful lives of depreciable property, plant and equipment and are computed generally on the straight-line and declining balance methods. Expenditures for renewals and betterments are capitalized and expenditures for ordinary repairs and maintenance are charged to income as incurred. The costs and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income. Unamortized Discount Unamortized discount on long-term debt is amortized by charges to income on straight-line bases over periods ending from 1979 to 1983. Exploration Costs Bonus and deposit payments, geophysi cal costs of active exploration prospects and drilling costs of active exploratory wells are capitalized as deferred costs Such costs will be amortized if commercial discoveries are made or charged to income if prospects are abandoned. Costs of dry holes (unless valuable in defining active pros pects) and annual charges related to prospects are charged to income. Intangibles Goodwill acquired prior to November 1, 1970, ($34,472,000) is not being amortized. Research and Development Costs Research and develop ment costs are generally charged to income as incurred. Retirement Income Plans Annual pension costs are actuarially determined and include amortization of prior service costs generally over periods ranging up to 30 years The policy of the Corporation and its subsidiaries is to fund pen sion costs accrued. Income Taxes Deferred income taxes arise from timing differences between financial and income tax reporting of var ious items principally depreciation, intangible drilling and development costs and provisions for income taxes on undis tributed earnings of certain subsidiaries. The investment tax credit is accounted for by the flowthrough method as a reduction of the provision for income taxes in the year realized. . Earnings Per Share Earnings, and pro forma earnings, per common share are computed using the weighted average number of shares of common stock outstanding during the year including common stock options as common stock equivalents. Proceeds from common stock equivalents are assumed to be used to purchase outstanding shares of the Corporation's common stock. Shares used in the computation of earnings per share were: Earnings Per Share 1974 1973 ................................... 1972 ....................................... 1971 ....................................... 1970 ....................................... 9,512,470 9,756,992 10,086,799 10,140,533 10,138,482 Pro Forma Earnings Per Share 11,485.996 11,793.684 12,200.515 12,293.589 12,391.577 i * i | 2. Acquisitions: Effective January 1, 1974, the Corporation acquired for $25,583,000 cash 95.8% of the capital stock of Elk horn Coal Corporation whose principal business is leasing its cca'-bearing lands for mining operations. In other cash transactions totaling $89,304,000 the Corporation acquired 100% owner ship of VCA Corporation, a diversified manufacturer of clastic and metal packaging products, effective April 1, 1974 The total of cash costs and long-term debt assumed was allocated lo the assets acquired as follows: Working capital.............................................................. Fixed assets ................................................................ Coal lands....................................................................... Goodwill of VCA Corporation (amortizable over 40 years on the straight-line method)....................... Intangibles other than goodwill................................ Other non-current assets, net..................................... Total............................................................ VCA Corporation long-term debt assumed......... Cash cbsts ol acquisitions......................................... S 28 ,33 000 41."2 000 16.755 0Q0 24.179 000 3,916 000 S.0~? 000 120.336 000 (5 UU9 000) $114,867 000 24 The acquisitions are accounted for as purchases and, ac cordingly, the results of operations are included in the con solidated income statements from the effective dates of their acquisition. The following pro forma summary, giving effect to purchase accounting and interest income adjustments, combines the pre-acquisition consolidated net income of Ethyl Corporation for the year ended December 31, 1974, with the net income of VCA Corporation tor its fiscal year ended October 31,1974, and, for comparative purposes, combines the consolidated net incomes of Ethyl Corporation and Elk Horn Coal Corpora tion for the year ended December 31, 1973, with the consoli dated net income of VCA Corporation for its fiscal year ended October 31,1973. Net Sales............................................ Net Income.......................................... Earnings per share............................ Pro forma earnings per share . 1974 $1,052,217,000 75,467,000 7.53 6.56 1973 $818,781,000 54,880,000 5.22 4.64 3. Short-Term Securities: Short-term securities, amounting to $30,402,000 at December 31,1974, and $171,401,000 at December 31, 1973, are stated at cost plus accrued income which approximates market value. 4. Inventories: Inventories include: Finished goods................................... Raw materials and work in process. Stores, supplies, etc........................... 1974 $ 57,964,000 71,931,000 19,472,000 $149,367,000 1973 $36,377,000 39.006.000 15.327.000 $90,710,000 Inventories stated on the last-in, first-out basis amounted to $105,601,000 at December 31, 1974, and $39,849,000 at December 31, 1973, which are below replacement cost by approximately $50,900,000 and $7,600,000 respectively. In 1974, the last-in, first-out method of valuing inventories was extended to substantially all the domestic inventories which were accounted for previously on first-in, first-out or average cost. The effect of this change was to reduce net in come for 1974 by $6,509,000, or 68 cents per share, from what it would have been if the former inventory valuation methods had been continued. The change in inventory method was made to minimize the impact of price level changes on inventory valuations and to achieve a better match of current costs with current revenues for determining profits. There is no cumulative effect of this change on prior years reported earnings. The following disclosure is made for the purpose of comply ing with Internal Revenue Procedure 72-29. The application of the principles of APB 16 to the valuation of LIFO inventories of acquired subsidiaries caused consolidated taxable income for the year ended December 31, 1974, to exceed consolidated income for financial accounting purposes by $838,000, and inventories in the accompanying consolidated balance sheet at December 31, 1974 to exceed inventories used for income tax reporting purposes by $520,000. 5. Internal Revenue Service Examination: The Corporation has received reports of the Internal Revenue Service proposing additional income taxes for the eight tax able periods ended December 31,1969. See caption "Internal Revenue Service Examination" in the Financial Results Sec tion (page 6) of this report for further information. 6. Long-Term Debt: Reference is made to captions "Summary of Long-Term Debt" and "Summary of Debt Maturities to 1984" in the Finan cial Results Section (page 7) of this report for information concerning the Corporation's long-term borrowings. 7. Capital Stock: . Transactions in capital stock during 1974 were as follows: Cumulative First Preferred (authorized 1,000,000 shares): January 1, 1974.......................... Purchases ................................ Cancelled ................................... December 31, 1974............. Issued Shares Amounts Treasury Shares Amounts 29,004 $ 2,900,400 (1,130) (113,000) 27,874 S 2,787,400 994 $ 595 (1,130) 459 $ 75,092 46,063 (88.189) 32,966 Cumulative Second Preferred (authorized 10,000.000 shares): January 1 and December 31, 1974 ............... 1,962,059 $19,620,590 443.962 $19,379,556 Common (authorized 25,000.000 shares): January 1, 1974 .......................... Purchases ................................ December 31, 1974 ............... 10,173,133 10,173,133 $10,173,133 $10,173,133 616.013 59,400 677,413 $18,734,515 1,436.846 $20,171,361 The Cumulative First Preferred is redeemable at $101 at the option of the Corporation and is preferentially entitled to par value in involuntary liquidation and the redemption price in voluntary liquidation. Annual sinking fund payments of ap proximately $114,000 are required for mandatory redemption. Each share of Cumulative Second Preferred is convertible into 1.3 shares of common stock. The voluntary or involuntary liquidation value of the Cumulative 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 value over par value on shares of out standing stock is approximately $53,118,000 as of December 31, 1974. These shares are callable at $75 per share, plus accrued dividends.The changes in Capital Surplus are the ex cess of par value over cost of shares of First Preferred Stock cancelled in 1974 and 1973, and the excess of cash received over par value of Common Stock issued under a stock option plan in 1973. 25 NOTES TO FINANCIAL STATEMENTS 8. Stock Option 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 percent of fair market value on the date of grant. No options were granted during 1974. An option to purchase 29,500 shares at $30.00 per share, granted in 1973, was outstanding at December 31, 1974. There are no charges to income in connection with the plan. 9. Retained Earnings Restriction: The Corporation's articles of incorporation and note agree ments contain restrictions, among others, against the payment of cash dividends. At December 31, 1974, $44,762,000 of re tained earnings is free of such restriction under the agreement presently most restrictive. 10. Depreciation, Depletion and Amortization: Depreciation and depletion charged to income amounted to $30,796,000, $31,700,000, $33,675,000, $32,380,000 and $38,784,000 for the years 1970 through 1974. Amortization of deferred charges and intangibles charged to income amounted to $1,153,000, $1,145,000, $1,140,000. $855,000 and $1,392,000 in the respective years. 11. Income Taxes: Income tax expense, excluding amounts applicable to extra ordinary items, is composed of the following: 1974 1973 1972 1971 1970 Currently Payable $57,424,000 44,9B7,000 40,659,000 34,319.000 31,476,000 Deferred $6,459,000 4,217,000 768,000 1,257,000 3,173,000 Total $63,883,000 49,204,000 41,427,000 35,576,000 34,649,000 Currently payable includes provisions for U.S. income taxes of S23,768,000, $25,721,000, $31,689,000, $32,947,000 and S42,977,000 for the years 1970 through 1974. Such provisions were reduced, and net income for the respective years was increased, by investment tax credits of $432,000, $696,000, $1,508,000, $1,743,000 and $2,826,000. No provision has been made for additional income taxes that might result from the remittance to the Corporation of undistributed earnings of $6,700,000 of a foreign subsidiary and a Puerto Rican subsidiary since it is the intention of the Corporation to continue to reinvest such amount of earnings indefinitely. Deferred income tax expense results principally from tim ing differences relating to depreciation and provision for in come taxes on undistributed earnings of certain subsidiaries. 12. Employee Retirement Plant: The Corporation and its subsidiaries provide retirement bene fits for substantially all of their employees under several dif ferent plans funded with insurance companies or corporate trustees. Plan contributions charged to income, approximating $7,000,000, $8,200,000, $8,550,000, $9,168,000 and $11,090,000 for the years 1970 through 1974, are irrevocably devoted to the payment of retirement and other benefits for employees and their beneficiaries. Under certain plans, the actuarially computed value of vested benefits at December 31, 1974, exceeded the market value of plan assets by approximately $18,400,000 (an in crease of $9,300,000 from 1973 resulting from additional benefits and a decline 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. 13. Extraordinary Items: 1972: $4,535,000 net gain from award, including interest, received as compensation for the expropriation of certain timberlands (after income taxes of $4,812,000 of which $3,689,000 was deferred). 1971: $3,326,000 provision for costs of terminating ;* per mill operations, including pension and other benefits and write-down of plant investment to realizable value (after in come taxes of $3,070,000). 1970: $1,519,000 adjustment of 1969 write-down of invest ment in Ethyl-Dow Chemical Company upon liquidation in 1970 (including tax benefit of $819,000); $909,000 net credit from reorganization of administrative and selling operations including capital gain on sale of office lease (after capital gains tax of $604,000 less ordinary income tax reduction of $572,000 applicable to expenses); $811,000 provision for further write-down to realization value of Pittsburg, California plant (after income taxes of $785,000). 14. Lease Commitments: Total rental expense was $7,976,000, $8,244,000, $8,468,000. $10,246,000 and $14,962,000 for the years 1970 through 1974. Following are the rental commitments under all noncancellable leases as of December 31,1974: Years 1975 ..................... 1976 ..................... 1977 ..................... 1978 ..................... 1979 ..................... 1980-84 ............... 1985-89 ............... 1990-94 ............... Remainder.............. Total Office, Warehouse Transportation and Equipment Plant Space $11,035,000 9,629,000 8,303,000 7,108,000 5,900,000 23,033,000 17,851,000 4,963,000 7,756,000 $6,697,000 5,639,000 4,612,000 4,238,000 3,709,000 16,569,000 12,297,000 ' $3,586,000 3,407,000 3,279,000 2.545,000 1,977,000 6,460,000 5,553,000 4,963,000 7,756,000 Other S752.000 583,000 412.000 325,000 214,000 4,000 1,000 The present value of commitments under non-capitahzed financing leases and the effect on net income if such leases were capitalized are not material. 26 ETC 16135 AUDITORS' REPORT To the Board ol Directors and Shareholders ol Ethyl Corporation: We have examined the consolidated balance sheet of Ethyl Corporation and Subsidiaries as of December 31,1974, and the related consolidated statements of income, retained earnings and changes in financial position for the year then ended. Our examination was made in accordance with generally accepted audit ing standards, and accordingly included such tests of the accounting records and such other auditing pro cedures 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, 1973, and the con solidated financial statements for the three years ended December 31,1972, from which the consolidated statements of income for 1972, 1971 and 1970 were taken. In our opinion, the aforementioned financial statements present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31, 1974 and 1973, the results of their operations and changes in their financial position for the years then, ended and their net income and other data for the years ended December 31, 1972, 1971 and 1970, all in conformity with generally accepted accounting principles applied on a consistent basis, except for the change,with which we concur, in the method of valuing inventories as described in Note 4 to the consolidated financial statements. Suite 1000 Seventh and Franklin Bldg Richmond, Virginia 23219 February 10, 1975 COOPERS & LYBRAND How Ethyl Used The Revenues It Received During 1974 (Millions of Dollars) ,027.6 100.0% THESE RECEIPTS WENT: 5B9.0 57.3% 223.5 21.8% 77.9 7.6% 16.3 1.6% 15.7 1.5% 105.2 10.2% working capital and debt repayments. TEN YEAR SUMMARY (In Thousands ol Dollars Except Common Stock Data) ETHYL CORPORATION AND SUBSIDIARIES Years Ended December 31 SALES AND INCOME Net sales........................... Income before income taxes and extraordinary items .. Depreciation, depletion and amortization............ Income before extraordinary items........ Net income ..................... FINANCIAL CONDITION Working capital ............... Ratio of current assets to current liabilities........ Property, plant and equipment (Net).............. Capital expenditures & acquisitions ............... Long-term debt ............... Shareholders' equity........ COMMON STOCK Weighted average number of shares outstanding . Earnings per share ......... Pro forma earnings per share assuming conversion of the Second Preferred Stock. Equity per share!4) .......... Dividends per share.......... 1973 1972 1971 1970 1969 1968 19670) 1966 1965 $699,002 $631,599 $577,058 $556,856 $509,302 $509,072 $468,938 $465,823 $375,83 102,088 86,134 73,816 70,231 66,044 61,094 51,663 62,876 48,30 33,235 34,815 32,845 31,949 29,562 31,076 30,749 28,411 25,23 1 52,884 52,884 44,707 49,242 38.240 34,914 35,582 37,199 33,024 29,524 31,502 31,502 29,662 29,662 37,306 37,306 27,90 27,98 268,902 261,959 229,996 209,724 176,499 176,302 129,757 107,244 92.8! 3.82 to 1 4.13 to 1 4.22 to 1 4.54 to 1 2.71 to 1 3.47 to 1 3.52 to 1 2.83 to 1 3.07 to 281,380 280,440 283,678 298,771 293,200 269,761 301,345 306,073 280,11 37,664 207,581 342,563 31,508 223,261 322,360 24,383 238.834 289,459 64,190 247,757 274,159 53,312 223,165 252,885 64,158 207,550 243,896 26,943 198,263 228,948 59,116 210,724 200,687 57,6: 214,3' 160,1 9,756,992 10,086,799 10,140,533 10,138,482 10,169,972 10,171,893 10,164,357 10,073.508 10.120.773 $ 5.02 $ 4.03* $ 3.36* $ 3.06* $ 2.77* $ 2.61 $ 2.41 $ 3.21 S 2.32 $ 4.47 $28.89 $1.07% $ 3.65* $25.17 $.88% $ 3.09* $21.64 $.84 $ 2.85* $19.62 $.84 $ 2.61* $17.18 $.75 $ 2.46 $15.73 $.63 $ 2.29 $13.88 $.60 $ 2.94 $12.12 $.58 $ 2.22 S 9.18 S.46 Before extraordinary items. Alter extraordinary items, would be $4.48 and $4.02 in 1972, $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 reflect the merger ot Oxford into Ethyl on a pooling ol interests basis. (2) Including Common Stock eguivalents. (3) II the Second Preferred Stock were converted, its dividend would become $1.56 a share at the present common dividend rate, as against the present $2.40 preferred dividend. (4) Reflects a deduction tor the liquidating value ol the Second Preferred Stock, and is based on the number ot shares outstanding at the end ot each year, treating warrants and common stock options as common stock equivalents. 28 ETC 16137 ETHYL CORPORATION AND SUBSIDIARIES DIRECTORS OFFICERS AND STAFF DIVISIONS LAWRENCE E. BLANCHARD. JR. S. DOUGLAS FLEET Retired Vice President M. F. GAUTREAUX JAMES M. GILL BRUCE C. GOTTWALD FLOYD D. GOTTWALD FLOYD D. GOTTWALD. JR. ROBERT HERZOG A. B. HORN, JR. GEORGE F. KIRBY President Texas Eastern Transmission Corp. Houston, Texas JOSEPH M. LOWRY Retired Senior Vice President ANDREW M. McBURNEY ROBERT T. MARSH. JR. Retired Chairman ot the Board First A Merchants National Bank Richmond. Va. JAMES F. MILLER Vice Chairman--Management Committee Biyth Eastman Dillon Co., me. New York. N. Y. CLARENCE M. NEHER MELVIN M. PAYNE President National Geographic Society Washington. D.C. W. THOMAS RICE Chairman & Chief Executive Officer Seaboard Coast Line Industries. Inc. Richmond, Va. SIDNEY BUFORD SCOTT Partner Scott A Stringfellow Richmond. Va. ERWIN H. WILL Retired Chairman ot the Board Virginia Electric A Power Co. Richmond. Va. Member ot the Executive Committee FLOYD D. GOTTWALD. JR. Chairman of the Board Chief Executive Officer Chairman--Executive Committee BRUCE C. GOTTWALD President FLOYD D. GOTTWALD Vice Chairman of the Board Vice Chairman--Executive Committee LAWRENCC 5. BLANCHARD, JR. Executive Vice President ROBERT HERZOG Executive Vice President M. F. GAUTREAUX Senior Vice President-- Research A Development JAMES M. GILL Senior Vice President--Chemicals Group A. B. HORN. JR. Senior Vice President-- international Group CLARENCE M. NEHER Senior Vice President--Plastics Division LLOYD B. ANDREW Vice President. Director--Financial Relations WALLACE F. ARMSTRONG Vice President--Manufacturing C. RAYMOND HAILEY Vice President. President--Oxford Paper Division ARTHUR W. HELWIG Vice President. Secretary--Executive Committee Director--Planning A Profit Improvement HOWARD E. HESSELBERG Vice President--Air Conservation THOMAS M. SMYLIE Vice President--Aluminum FREDERICK P. WARNE Vice President, Secretary and General Counsel FRANKJ McNALLY Treasurer JAMES H. KIRBY Controller KARL F. CAST Director--Central Systems A Data Processing B. D. HARRISON Budget Director G SAMUEL ROBERTS Chief Engineer STEPHEN B. RODl Director--Corporate Employee Relations G. E. SAXON Director--Advertising A Sales Promotion J C. WRIGHT Director--Purchasing A Traffic CHARLES H. ZEANAH Director--Corporate Public Relations Oxford Paper ANDREW M. McBURNEY Executive Vice President RUSSELL H. CHAMBLISS. JR. Vice President--Sales S. D. DILLON Vice President-- N^Uonul Accounts, West C RICKERT LEWIS Vice President-- National Accounts. East RICHARD A. PREMO Vice President--Operations Chemicals Group Petroleum Chemicals JOHN f. KOEHNLE Divisional Vice President A General Manager T. E. LOCKERBIE Genera/ Manager--Product Deve/opmenf A Sales Applications A. T. ROWE Director--Marketing Industrial Chemicals ROGER A. MOSER General Manager H WARREN REES General Sales Manager KERRY C. SORRELLS Sales Manager Instrument R. J. OSTRANDER General Manager Ethyl International Petroleum Chemicals M. WHITLOCK General Manager W. J. RUSHER General Manager--Sales Industrial Chemicals L B. REYNOLDS General Manager Ethyl S.A. R. R. DOWNEY Managing Director A. M. SCHILS Director Ethyl Hellas Chemical Company S.A. E. G. AMOLOCHITIS Managing Director Oil & Gas L. N. APPLEGATE Director Ethyl Corporation of Canada Limited KENNETH A. FREBERG President JAMES H. MAIN General Manager--Sales Elk Horn Coal Corporation ROY A. CUNNINGHAM President Corporate Headquarters 330 South fourth Street Richmond, Va. 23219 804) 644-6081 Executive Offices -5f Florida Street Baton Rouge. La. 70801 504) 387-0131 '00 Park Avenue :iew York. N.Y. 10017 '212) 679-2000 Stock Transfer Agents cir$t A Merchants National Bank Richmond, Ve. Chase Manhattan Bank, N.A. New York, N.Y. Registrars ot Stock Bank ot Virginia--Central Richmond. Va. Morgan Guaranty Trust Co. New York. N.Y. General Counsel Hunton. Williams, Gay A Gibson Richmond. Va. Stock Listings New York Stock Exchange Pacific Coast Stock Exchange Toronto Stock Exchange Ticker Symbol: EY Number of Employees Approximately 18,000 Plastics JAMES R. LEES Director--Marketing ROLAND E. McKENZlE General Manager--Dispensers. Metal Products A Films RAY WILKINS. JR. General Manager--Polymer A Pipe Divisions Imco Container Products Division B.HANCEL BONDS President ROBERT D. BISHOP Vice President--Sales A Marketing MARION HIERMAN President--Imco of Canada Dispenser Products Division STANLEY T. MANDELTORT General Manager SAM F. COPIA Sales Manager Molded Products Division RICHARD F. SANDS President General Managers: HENRY L. DeROCHER. Nymold ERNEST HURST, Canada JACK SHERIDAN, Federal LEONARD A KLEINMAN, Packaging DAVID W LUNDY. Mariand GEORGE P. MACURA, California NICHOLAS MULLER, Closures Metal Products Division PHILLIPS E. PATTON General Manager DOM WILKS. JR. Manager--Sales A Marketing Pipe Products Division L. RAY McCULLEY Sales Manager Polymer Products Division R. M. WOLBER Sales Manager VisOueen Film Products Division RICHARD W GOODRUM Acting General Manager HARRY C. BYRNE. JR. Director--Sales JOHN K. SHIFFLER General Sales Manager J. R. KOPNISKY Manager--Marketing Aluminum E. MALCOLM HARVEY President A Treasurer, The William L. Bonnell Co., Inc. ALBERT H. COPP General Manager--Mineral Resources WILLIAM H. MORGAN General Manager--Marketing A Product Development The William L. Bonnell Company, Inc. LLOYD L. REYNOLDS Vice President A General Manager WARREN H. BROCKWAY Vice President A General Sales Manager JOHN C. OUNN Vice President--Industrial Sales Capitol Products Corporation GEORGE S. THUMLERT Executive Vice President A Genera/ Manager WALLACE FREMONT Vice President DONALD G HORNUNG Vice President 1975 Annual Report . a ~r Corporation FINANCIAL HIGHLIGHTS (In Thousands o( Dollars Except Per Share of Common Stock) Years Ended December 31 F 1S7S Net Sales...................................................................... f*l,029,220 Net Income ................................................................... 81,004 Depreciation, Depletion & Amortization.................... 44,390 Capital Expenditures and Acquisitions...................... 108,856 Working Capital ........................................................... 266,133 Per Share of Common Stock Net Income ............................................................... $ 6.09 Dividends................................................................... Shareholders' Equity............................................... $ 1.30 $38.78 Weighted Average Number of Common Shares Outstanding.......... ................................... ! 9,398,487 1974 $1,019,559 74,297 40,176 195,237 200,004 Percent Increase (Decrease) 1 (18) 10 (44) 33 $ 7.41 $ 1.25 $34.61 (18) 4 12 9,512,470 (1) CONTENTS 1 Message to Shareholders 3-13 Operations Review 14 Financial Results of 1975 20 Financial Statements 24 Notes to Financial Statements 26 Auditors' Report 27 Products and Plants 28 Directors, Officers & Staff ANNUAL MEETING The annual meeting of Ethyl Corporation's shareholders will be held at the Company's corporate headquarters at 11 a.m. (EST) on Thursday, April 22,1976. Formal notices of the annual meeting, proxies and proxy statements will be mailed about April 1,1976. To the Shareholders of Ethyl Corporation: Sales for 1975 again passed the billion dollar mark and exceeded the record established the previous year. However, net income and earnings per share declined from the record 1974 highs. The year's performance reflects the impact of the worldwide recession to a greater extent than originally anticipated. Nonetheless, 1975 was still the second best year in the Company's history. Net sales for 1975 were $1,029,220,000, up 1% from $1,019,559,000 for 1974. Net income was $61,004,000, or $6.09 a share, versus $74,297,000, or $7.41 a share, for the previous year. In 1975, the Company's product areas were affected in varying degrees by economic recession. We anticipated some volume decline in domestic sales of lead antiknock com pounds in view of increasing use of unleaded gasolines. However, foreign sales of anti knock compounds also declined as a result of poor economic conditions. When foreign economies improve, we expect a resumption of growth of antiknock sales in countries which continue to recognize the importance of lead antiknocks and have not substantially restricted their use. Our industrial chemicals sales held up reasonably well during the year, but plastics, paper, aluminum and coal operations all were adversely affected by the economy. Some signs of recovery in all areas except antiknock compounds and coal began to appear in the fourth quarter. As a result, we look for considerable improvement in 1976. For this report, we have changed the format of the Operations Review section, which follows this message. We believe a full reading of the section will give you substantial back ground information on 1975 developments and activities. Detailed information is presented by broad product areas in order to give you a full overview. We call your special attention to page 5 for a description of the Edwin Cooper Division, which Ethyl acquired in July. Edwin Cooper is a worldwide producer and marketer of lubricant additives and its acquisi tion provides Ethyl an important new participation in the petroleum chemicals market. On February 19,1976, Ethyl announced that an agreement in principle had been reached with Boise Cascade Corporation, Boise, Idaho, for the sale of Ethyl's Oxford Paper Divi sion, consisting principally of a pulp and paper mill at Rumford, Maine, and about 335,000 acres of timberland in Maine. Ethyl decided to sell Oxford since the growth of our Com pany in recent years has been concentrated in areas other than paper. The purchase price for Oxford is expected to be about $90 million, subject to adjustments based on a final audit. It is anticipated that the price may result in an after-tax loss for Ethyl in the range of $4 to $5 million. The transaction was approved by Ethyl's board of directors on Febru ary 26,1976, and at the time of printing of this report, a definitive agreement was in prep aration. (See Paper on page 11.) ETC 16141 1 The 1973 suit by Ethyl and other lead antiknock producers to set aside regulations of the Environmental Protection Agency (EPA) phasing down lead in gasoline remained un decided by the U.S. Circuit Court of Appeals for the District of Columbia Circuit at the time this report went to press. After a three-judge panel had ruled that the regulations were invalid, a rehearing before the full Court was granted on EPA's motion, and the panel's rul ing was vacated. The rehearing was held on May 30, 1975, but no decision has been issued. While it is not possible at this time to predict what the future course of this litiga tion may be, we intend to continue our efforts to vindicate the use of lead antiknocks in gasoline. After several hearings during 1975, at which Ethyl and others presented testimony, the California Air Resources Board voted in January 1976 to maintain its strict regulation limit ing lead in the ambient air. On February 19,1976, the Board followed up with regulations requiring a phase-down of lead in gasoline for major refiners to 0.4 gram per gallon over a four-year period beginning January 1,1977. Ethyl intends to appeal the Board's action to the proper California court. Ethyl, like many other U.S. companies, had significant expenditures in 1975 to comply with environmental laws and the requirements of the Occupational Safety and Health Act (OSHA). Ethyl's expenditures were about $19 million last year. It is anticipated these expenditures will continue to run at high levels in 1976 and in succeeding years. Raw material and other costs continued to escalate in 1975, despite intensification of our cost-control program during the year. We have been able to pass along most of these increased costs in our prices. However, we re-emphasize that this approach concerns us because of the ultimate impact on consumers and the economy. Despite decreases in net income and earnings per share, 1975 was a year of which we are proud. In the face of significant worldwide economic problems, Ethyl was still able to record the second best year in its history. With signs of recovery noted in the fourth quar ter and broader indications of improved general economic conditions, we expect to have a better year in 1976. Our sincere appreciation is extended to our employees, shareholders, customers and suppliers for their continued support and loyalty. F. D. Gottwald, Jr. Chairman of the Board Chief Executive Officer February 27,1976 Bruce C. Gottwald President (March 22,1976: After this Annual Report went to press, but before mailing preparations were completed, we were advised that the U.S. Court of Appeals rejected Ethyl's petition and upheld, in a 5 to 4 decision, the position of the Environmental Protection Agency re quiring a reduction of lead in gasoline over the next five years. We are studying the several hundred pages of the opinion, and intend to seek an appeal to the U.S. Supreme Court.) 2 I6I42 Ethyl Corporation-historically known as a one-product, one-industry com pany-today is a diversified manufacturer with facilities around the world. The Company employs approximately 17,000 people and operates more than 60 plants, most of which make products for sale to other manufacturers for use as intermediates or additives in products that reach the consumer in another form. Through a diversification program begun in 1963, Ethyl has added to its basic chemicals business other product areas and activities including plastics, paper, aluminum, oil and gas exploration, coal and other minerals. In 1975, Ethyl's total sales were $1,029,220,000 and its net income was $61,004,000, or $6.09 a share. The Operations Review section which follows reports on activities in Ethyl's various product areas. A summary: Petroleum Chemicals sales were $349(079,000 or 34% of total sales. These sales include the Edwin Cooper Division, acquired in July. (See pages 5 and 6.) Industrial Chemicals sales were $209,722,000 or 20% of total sales. (See page 6.) Plastics products sales were $275,659,000 or 27% of total sales. (Seepage 8.) Aluminum products sales were $86,719,000 or 8% of total sales. (See page 9.) Paper sales were $99,118,000 or 10% of total sales. (See page 11.) Coal-related revenues were $8,923,000 or 1 % of total sales. (See page 11.) Oil & Gas exploration continued in five areas around the world. (See page 11.) Research & Development expenditures were $28,016,000. More than half of Ethyl's R&D effort was devoted to new products. (See page 12.) 3 workers check progress on construction ot additional cnemical reaction facilities at Edwin Cooper's Sauget, III., plant. Completion of these tacilities is scheduled in the second quarter of 1976. Petroleum Chemicals Ethyl makes a wide range of chemical additives for petroleum products. The chief products are antiknock com pounds, which are added to gasoline to increase its octane number and improve its performance. Ethyl also produces special-purpose additives for automo tive and industrial uses. Domestic sales are made through the Petroleum Chem icals Division, based in Houston, while outside the United States products are sold by Ethyl of Canada Limited and Ethyl International. The Edwin Cooper Division manufactures and sells lubri cant additives in the U.S. and in foreign countries. Sales revenues from petroleum chemicals worldwide increased 17% in 1975. The addition of the results of Edwin Cooper -- acquired from The Burmah Oil Company, Limited in July-- represented a major part of this overall increase. Domestically, petroleum chemicals sales revenues were 18% higher than 1974, due to the inclusion of the results of Edwin Cooper and to higher prices necessary to offset increased costs. Shipments of antiknock compounds in the U.S. declined about 11% as a result of increased sales of unleaded gasoline and reduced sales of premium gasoline. Sales of MMT, a manganese additive for unleaded gasoline, increased sharply. Twenty-seven refiners are now using MMT. Approval of its use by additional customers is expected to increase de mand in 1976. Shipments of lead antiknock com pounds in other countries were below 1974 levels but better than expected based on general economic conditions. In 1975, a major new bulk distribution facility was installed in Taiwan and a customer terminal at Izmit, Turkey, was expanded. In 1976, Ethyl International plans to expand its antiknock distribu tion network by the addition of major terminals in Indonesia, the Philippines and Singapore and by expansion of existing facilities in Venezuela. Ethyl manufactures antiknock com pounds at Baton Rouge, La.; Houston, Texas; Sarnia, Ontario, Canada; and Thessaloniki, Greece. A fleet of ships transports these chemicals to interna tional ports. Ethyl's petition to set aside U.S. reg ulations to phase down lead in gasoline remained before a federal court as of February 27, 1976. In December 1974, the court ruled in Ethyl's favor. How ever, a re-hearing was held in May 1975, and no decision has been announced. (See Message to Shareholders.) Most other countries recognize the impor tance of lead antiknocks in conserving crude oil, and while some restrictions are in force in various countries around the world, these restrictions have not had a material effect on the Company's business. Sales of other petroleum additives were down in 1975, although domestic sales increased because of higher prices. Cetane improver and gasoline antioxidant sales were at record levels while sales of oxidation inhibitors for lubricants fell below 1974 levels. Gaso line detergent sales continued to in crease as improved versions of this product line were offered. Ethyl of Canada is scheduled to begin produc tion of this new gasoline detergent line in 1976. Market development of a new middle distillate fuel additive is under way with commercial introduction ex pected in the first quarter of 1976. The most significant development in petroleum chemicals in 1975 was the acquisition of the Edwin Cooper Divi sion from The Burmah Oil Company, Limited for approximately $40 million, including working capital. Edwin Cooper employs about 450 people and operates plants and laboratories in England, the U.S. and Belgium. Its 1974 sales were approximately $77 million. Its additives are sold through a network of 11 offices in Europe, the Far East, Australia, South America, the United Kingdom and the United States. Edwin Cooper is headquarterC. in Bracknell, Berkshire, England. The lubricant additives industry re quires high-technology. Demonstration of performance of products in combina tion with customers' lubricants in in dustry-accepted tests is a prerequisite to sales. Hence, a major emphasis at Edwin Cooper's laboratories at St. Louis, Mo., and at Bracknell is placed on additives testing. Many tests are carried out in engines in which the products actually will be used, while others re quire sophisticated simulation equip ment. The test engines range from twostroke gasoline models to heavy truck turbocharged diesels. In addition to sales service, these laboratories pro vide for development of products result ing from research in the chemical section of the laboratories. Since the performance requirements of lubricants vary significantly in world markets, test ing and manufacturing are coordinated internationally. Edwin Cooper & Company Limited (Bracknell) serves markets in Europe, the Middle East and Africa. It had record sales in 1975 despite lower eco nomic activity resulting in reduced ship ments and level earnings. Overall gains are expected in 1976. Edwin Cooper, Inc. (St. Louis) oper ates throughout the western hemis phere and the Far East. Its 1975 sales were about the same as the previous year, but its earnings declined from the record levels of 1974. The U.S. econ omy, which adversely affected 1975 results, is expected to contribute to 1976 gains with growth in new products developed during the past two years. ETC 16145 Nippon Cooper (30%-owned by Edwin Cooper), like most Japanese chemical and energy companies, had a difficult year in 1975. Although Nippon Cooper retained its market share, con tinuing cost increases and added com petitive pressure reduced earnings. Improvement is expected in 1976 as the Japanese economy recovers. More than $7 million is being in vested in Edwin Cooper's Sauget, III., plant (near St. Louis) to produce new components which will result in addi tional product availability in the second quarter of 1976. Expansion of the Sau get blending facilities is scheduled for completion in 1976. Ethyl's Instrument Division supplies systems for measuring automotive ex haust emissions, air pollutants from fixed and mobile sources, for process control and for laboratory test equip ment. This division continued to op erate at a loss in 1975, mostly as a re sult of economic conditions and the delay of new regulations for emissions from fixed and mobile sources. Consumer automotive product sales in 1975 were disappointing. Based on results of multi-state marketing, Ethyl has decided to discontinue sales of these products at the consumer level. Industrial Chemicals This area includes production of basic and specialty chemicals, many of which have resulted from technology devel oped by Ethyl. Most of Ethyl's industrial chemicals are specialized intermediates for products going into three growing market areas -- detergents, herbicides and insecticides for agricultural uses and synthetic polymers. The remaining products are general chemicals having various industrial uses. In the U.S., the Industrial Chemicals Division, based in Baton Rouge, han dles sales, while Ethyl of Canada sells in that country and Ethyl International is responsible for sales elsewhere in the world. Industrial chemicals sales were up over the record levels of 1974, largely because of price increases. Domestically, major sales gains were in agricultural chemical intermediates and bromine products. A number of these products are based on patented Ethyl technology. Continued growth is expected in these markets in 1976. Aluminum alkyl catalyst sales to the polymer industry, closely allied to the transportation and housing markets, were down in 1975. However, by yearend, sales began to increase, indicating substantial recovery in 1976. Chlorinated solvents sales in the U.S. were down substantially in 1975 due to the slowdown of the economy. Increased costs reduced margins for these prod ucts. In the fourth quarter, Ethyl advised Construction began in September T975 on an aluminum alkyts plant in Feluy, Belgium. The plan-., located on the Charteroi-Brussels canal, is scheduled to open in mid-1976. customers that it would discontinue the manufacture of 1,1,1-trichloroethane, used primarily for metal cleaning. The Company will concentrate on the pro duction of trichlorethylene and perchlorethylene. Ethyl's principal detergent interme diates are linear alcohols and alpha olefins. Volumes from the Houston al cohol/olefin plant were down from capacity levels of 1974, due primarily to a slowdown in the detergent market and a drop in demand for olefins for making plasticizers. However, olefin sales for lubricant additives were strong. Some recovery is expected in alcohols in 1976, while olefin sales be gan to show an upturn in the fourth quarter and are expected to be strong in 1976. The Industrial Chemicals Division be gan the direct sale of mid-cut alcohols in 1975. This gives Ethyl access to new customers who serve the household and industrial surfactant markets. Alpha olefin sulfonates for detergents became fully commercial during the year. Pro duction and sale of bulk chemicals for pharmaceuticals also began in 1975-- representing another new market entry. Early production was made possible by modification of existing facilities in the U.S. and Canada. Additional expansion for these products is planned by mid1976. In Canada, the Sarnia plant operated near capacity in 1975, despite short ages of some raw materials. Aluminum alkyl sales in Canada were stable dur ing the year. Ethyl International's industrial chem icals sales and earnings reached record levels again in 1975. Construction was begun in September on an aluminum alkyls plant at Feluy, Belgium, near Brussels. The plant, representing an initial investment of approximately $11 million, is scheduled to open in mid1976. In addition, planning is underway to use Ethyl's orthoalkylatior, technol ogy in new facilities to be built at Feluy. Construction of two industrial chem ical plants in the U.S. was begun in the fourth quarter. Both units, located at the Company's Magnolia, Ark., manu facturing complex, will utilize bromine chemistry. Total cost of these plants will be approximately $15 million. One facility, to be completed by the end of 1976, will manufacture a specialty chemical intermediate for a new herbi cide. The other, scheduled for comple tion ir, the second quarter of 1977, will produce fatty alkyldimethylamines-- chemical intermediates for the manu facture of germicides, corrosion inhib itors, surfactants and petroleum addi tives. These amines will be derived from alpha olefins from the Company's Hous ton plant. Production processes for the units are based on technology devel oped primarily through Ethyl research. Other activity at Magnolia in 1975 in cluded expansion of brine field drilling to provide brine for an enlarged bro mine plant. An expansion of manufacturing capa bility for phosphorus-based agricul tural intermediates was completed at Orangeburg, S.C., in 1975. Expansion of orthoalkylation facilities at Orange burg is expected to be completed in 1976. During the year, expansion of the Additional environmental control equipment such atijo sour-gas processing unit was installed at the MagncnArk., manufacturing comp** ETC 16146 ETC 16147 brine well is serviced as part ot drilling operations Magnolia, Ark. Houston alpha olefin plant was started with completion set for early 1977. Pro duction facilities for orthoalkylated chemicals also are being expanded at Houston with completion scheduled by mid-1977. Plastics Plastics products are a major business line for Ethyl. They include such diverse items as polyethylene film for packag ing, customized plastic containers, poly vinyl chloride (PVC) pipe, molded parts, closures, aerosol valves, dispenser pumps and PVC resins and compounds. Through acquisitions since 1963, Ethyl has expanded its plastics products line to cover many packaging products. The most recent was the 1974 acquisition by Ethyl of VCA Corporation, a major pro ducer of plastic and metal packaging products, aerosol valves, atomizers and pumps. Sales of most plastics product groups were lower in 1975, reflecting customer inventory adjustments to a lower economic level. The "VISQUEEN" Film Products Di vision's lower sales reduced profits in the more common type products, but the effect was minimized by the special ized nature of the majority of the prod uct line. VISQUEEN continues as the world's largest producer of polyethyl ene film for specialty packaging, indus trial applications and disposable con sumer products. VISQUEEN serves the construction, automotive and food packaging markets, among others. Pro grams to combine selected materials with polyethylene for barrier and other performance properties continued to provide new sales for VISQUEEN in 1975. In 1976, VISQUEEN will continue to emphasize specialized film products. The "IMCO" Container Products Di vision, a major producer of polyethyl ene, polypropylene and PVC bottles and containers, experienced reduced sales through the third quarter. However, fourth quarter performance was strong and, based on these results, IMCO ex pects increased sales in 1976 in all markets. IMCO retained its leadership in the toiletries and cosmetics market in 1975. In food packaging, a solid product position was gained to permit IMCO to capitalize on growing con sumer acceptance of plastics for syrups, edible oils and condiments. The house hold chemical container market is ex periencing growth as a result of the continuing conversion of household cleaners to plastic containers. Pro posed Food & Drug Administration regulations to ban PVC bottles for food would have an initial adverse effect on IMCO, but the Company has the neces sary versatility to substitute other materials. The Dispenser Products Division, a leader in aerosol valves and plastic ac cessories, experienced a slowdown in sales in 1975. Industry concern over the future of certain aerosol propellants depressed development of new con sumer products. While some improve ment is expected in aerosol valve sales in 1976, strong growth is anticipated in newly designed and improved mechan ical spray pumps. Customer interest in these pumps has risen sharply and manufacturing capacity is being ex panded to accommodate expected increases. The Metal Products Division had lower sales in 1975. This division makes decorative metal fitments and closures for the cosmetic industry and collaps ible and rigid aluminum tubes, threaded jar closures, soft drink closures, drawn tinplate cans for paste waxes and aero sol valve mounting cups. Products sold to the cosmetics industry were the most seriously affected in 1975--due to the controversy over the safety of certain aerosol propellants. In 1976, some re covery is anticipated because customer inventories have been reduced. Sales of non-aerosol related items to the household product, toiletry, food and beverage markets were not as de pressed. Emphasis for 1976 includes expansion of the metal container clo sure product lines. The Molded Products Division was reorganized into three units during the year. They are: (1) the packaging group, serving personal care, household products, pharmaceutical and food and liquor markets; (2) the engineering plas tics group for the automotive, appli ance, plumbing and mold designing and building markets and (3) the Canadian group for markets in that country. To offset the negative effect of 197G lower volume, Molded Products began an ex tensive cost reduction program. The Puerto Rican plant, formerly a VCA unit, was closed and its production capability spread among U.S. facilities. To achieve additional cost reduction, it was decided in late 1975 to close the Bronx, N.Y., plant, a former VCA facility. With projected improvement in the economy, an increase in sales is antici pated in 1976. The Polymer Products Division had 1975 sales significantly below the rec ord levels of the previous year because of the recession in the automotive and housing industries. Sales increased in the second half of the year and should reach near-capacity levels in 1976. Added marketing of specialty resins and compounds continued in 1975. Pro gress was made not only in the reduc tion of vinyl chloride emissions at the Baton Rouge resin plant, but also in the supply of resins and compounds for the packaging industry that contain less than one part per million of vinyl chlo ride monomer. A modest expansion of PVC resin capacity is scheduled for a* 8 ETC l6l48 $ >7 km I :^J mi >w 11 :.t; :-* ' v, .- -cX"" - _ _____________________ _____ . __________________________________________ Ethyl produces a wide range of plastics which are used in nationally known products. These samples represent the major markets served by the Plastics Group. Right: Plastic household cleanser bottles go through a final step in manufacture. completion at Baton Rouge in early 1976. The Pipe Products Division had sales lower than the record levels of 1974, largely due to recession in the construc tion industry combined with industry over-capacity and resulting price dete rioration. Ethyl produced a new PVC gravity sewer pipe in 1975, and initial market acceptance was good. This new oroduct is expected to become a strong contributor to 1976 sales. Aluminum Ethyl's aluminum products sales are made by two subsidiaries--The William L. Bonnell Company, Newnan, Ga., and Capitol Products Corporation, Mechanicsburg, Pa. These subsidiaries make extruded aluminum shapes for windows and doors, store fronts and curtain vails, boats, swimming pools and trucks and trailers, decorative products for the floor covering and home build ing industries as well as aluminum windows and doors. The aluminum industry in 1975 ex perienced continuation of a slowdown hi to IL ]j ETC 16149 II that began in 1974, and Ethyl's alumi num products sales declined 13% from 1974. The majority of the sales decrease was in the first half. Substantial slow. downs in the building and transportai tion industries--major markets for Bon nell and Capitol--affected sales. Bonnell's sales showed signs of re covery in the second half with perform ance matching the levels of the last two quarters of 1974. A major effort was , made in 1975 to offset the combined imj pact of higher prices of aluminum metal and fuel and lower sales volume. "Thermalized" aluminum extrusions, a new product from Bonnell for preventI ing heat loss from residential windows | and doors, were introduced in 1975. These extrusions are formed by joining extruded aluminum sash or frame mem bers with vinyl extrusions, which pro; vide a thermal barrier. Capitol Products : first introduced a thermalized single 1 hung window in 1974. During 1975, I Capitol introduced thermalized sliding I windows and doors. In addition to re| ducing heat loss, these thermalized j windows and doors nearly eliminate I frame condensation traditionally asso ciated with aluminum products. In November, Bonnell completed re placement of two open-hearth re-melt furnaces with newer design models to improve efficiency and reduce fuel con sumption in its billet casting operation at the Newnan plant. A similar highefficiency furnace was installed at Bonnell's Carthage, Tenn., plant in late 1974. Despite the 1975 decline in the trans portation, motor home and swimming Lett: A die metier leys out the cep of a hollow alumi num extrusion die at Bcnnelfs plant in Newnan, Ga. Sodom: A Bonnell die maker removes a rack of aluminum tooling from a high heal furnace. Fore ground shows a hollow extrusion die. poo! markets, Capitol's soft alloy extru sion sales were near 1974 levels. Con tinued strength of storm window and recreation vehicle products aided Cap itol's sales along with broader geo graphical coverage. Sales of Capitol's residential win dows and doors were adversely affected by a steep decline in the construction of multi-family housing units. While single family housing starts in the U.S. were essentially the same as 1974, multi-family starts were down approxi mately 40%. Paper Sales of the Oxford Paper Division in 1975 were down 14% from 1974 record levels. The 1974 totals included part of the sales of the West Carrollton, Ohio, mill--sold in July of that year. At the time it was sold, the West Carrollton mill accounted for 20% of Oxford's sales. Oxford's 1975 experience was typical of the paper industry in view of the eco nomic slowdown in the first three quar ters. Low demand and liquidation of customer inventories caused Oxford's operating rates to drop as low as 60% of capacity during the first half. Demand increased substantially in the second half, and the Rumford, Maine, mill ran close to capacity by year-end. Oxford worked on modernization and improvement of facilities in 1975. The rebuilt No. 11 paper machine, started up in late 1974, operated successfully during the year permitting a conversion coater to be shut down in the first quar ter of 1975, thereby improving costs. Additional environmental improvements were made at the Rumford mill. Con struction of an effluent treatment plant, containing both primary and secondary treatment facilities continued in 1975. On February 19, 1976, Ethyl an nounced that an agreement in principle Construction on the secondary treatment portion of Oxford Paper's Rumford effluent plant continued in 1975. had been reached with Boise Cascade Corporation, Boise, Idaho, for the sale of the Oxford Paper Division, consisting principally of the pulp and paper mill at Rumford and about 335,000 acres of timberland in Maine. (See Message to Shareholders.) Coal Ethyl's coal-related activities are con ducted by Elk Horn Coal Corporation, Beckley, W. Va. Elk Horn owns ap proximately 130,000 acres of coal land, primarily in Eastern Kentucky, part of which it leases to others for mining. An Elk Horn subsidiary, West Virginia Belt Sales & Repairs, Inc., makes and markets mine and mill supplies. The 1975 retreat from unprecedented demand and price levels of late 1974 resulted in a decrease in coal produc tion from Elk Horn properties and a decline in revenues. Some stability in both coal prices and production oc curred in the fourth quarter. Coal pro duction from Elk Horn properties was 3.2 million tons in 1975 versus 4.1 mil lion tons the previous year. Oil and Gas Exploration Ethyl's exploration programs are con ducted in cooperation with other com panies in Western Canada, the North Sea and the U.S. (Louisiana, Texas and Oklahoma). In Canada in 1975, Ethyl continued its successful participation in a joint venture with BP Canada Exploration Limited. The Company took part in six commercial discoveries there. In addi tion, three gas wells and two oil wells discovered previously began produc tion. Ethyl currently owns interests in 3.6 million acres in the provinces of Alberta, British Columbia and the North west Territories. Additional develop ment and exploration wells are planned in 1976 in Canada. Ethyl has a one-sixth interest in the Laura Tenneco group, which holds leases in the Dutch Sector of the North Sea totaling 1.2 million acres. In 1975, both a confirmation test north of a gas well discovered in 1974 and an explora tory well were unsuccessful. Additional drilling is planned in the North Sea in 1976. Ethyl has substantial acreage under lease in Matagorda County, Texas, where further drilling is being con sidered. The Company wrote off about $5 million of drilling investment in Matagorda County in the fourth quarter of 1975. Two Louisiana gas wells in which Ethyl has an interest continued commercial production in 1975. In 1975, Ethyl extended its joint ex ploration agreement with Amerada Hess Corporation for drilling in South Louisi ana and the Eastern Texas Gulf Coast. Three unsuccessful exploratory wells were drilled under this program. Acreage currently is being acquired for several possible exploration wells in 1976. Ethyl leased 13,000 acres in the Anadarko Basin in Western Oklahoma in 1975 primarily for iodine well testing. ETC 16151 Exploration in February 1976 resulted in an oil and gas discovery. Additional testing is required to determine the sig nificance of this discovery. Research & Development Ethyl received 135 U.S. and 55 foreign patents in 1975, bringing the total num ber maintained to more than 2,700 U.S. and foreign patents. New Product Research: A fleet test in which each of 14 catalyst-equipped cars was driven 50,000 miles using un leaded gasoline containing MMT was successfully completed in 1975. This manganese antiknock for use with leadfree gasoline continues to be costeffective, compatible with all emissions reduction systems and without any health hazards. Construction is underway on two new commercial specialty chemical units which use brominated chemical inter mediates and Ethyl-developed technol ogy. Production of a fragrance chem ical using bromine chemistry is well along in the pilot plant stage. Disinfec tant uses are being developed for an other bromine compound. Promising new flame retardants have been found for polyester, cotton and cotton-polyester blend fibers. Develop ment of these retardants is progressing well in cooperative work with fiber and fabric manufacturers. Work on a phar maceutical product for a major drug firm advanced to successful initial com mercial production. Research is in progress on production processes for other new pharmaceuticals. Ethyl's microbiological process research also continued to make good progress. Development of Ethyl's new alumi num process technology continued satisfactorily. Participation was estab lished with a small group of major com panies in hard-rock mineral exploration in Alaska with leasing rights to mineral discoveries. Coal or lignite someday may become a preferred raw material for certain major chemicals currently produced from gas and oil. Long-range work is in progress to develop the technology for that transition and to establish access to appropriate raw ma terials. Evaluation of a bauxite deposit in Brazil continued in 1975. Work thus far has shown the deposit to be less significant than originally anticipated. Research is in progress on promising co-surfactant candidates for tertiary oil recovery operations. Ethyl continued research in 1975 on phosphonitrilic compounds for a wide variety of end uses, including rubber and plastics. The size of Ethyl's iodine brine re serves in Oklahoma was confirmed in 1975 by additional drilling. Develop ment work on a process for extraction of the iodine from this brine will con tinue in 1976. New Ethyl technology has led to com mercial production of an alkylated aniline intermediate for pesticides. Two new orthoalkylated phenolic antioxi dants have been introduced, based on a unique manufacturing process. Research and development of lubri cant additives has been coordinated with Edwin Cooper to strengthen market position. A major R&D emphasis in plastics in 1975 was the introduction of new ver sions of injection molded PVC for TV cabinets. Fire retardancy and good properties make this injection molded PVC well suited for this application. In packaging, Ethyl successfully contin ued its broad efforts to reduce residual monomer in PVC products to less than one part per million. Portion ot an active ora benefication pitot plant operated by R&D engineers. Automotive Emissions Research: Work continued in 1975 on the leadcompatible emissions control system called the Turbulent Flow System (TFS). The key component in Ethyl's system is the turbulent flow intake manifold, which improves the mixture of fuel and air, distributing it more evenly to the cylinders. The process permits the en gine to operate efficiently, without mis fire, using lean mixtures (low propor tions of gasoline with air). With the TFS, emissions have been reduced below the levels required by the 1975-76 U.S. 49-state standards in a total of 15 cars and 10 different makes and models. The TFS also offers im proved fuel economy and better drive- ability. Several automobile companies in the U.S, and Europe are testing the system. An example of the fuel economy available with the TFS was displayed in a European high-performance vehicle. The TFS-equipped car had emissions below the levels of 1975-76 U.S. 49-state standards, using leaded gasoline. Ac cording to the EPA, the fuel economy was better than that of any 1975 car certified by automotive manufacturers in the same weight class. To achieve even lower emission levels, exhaust port liners and thermal reactors are added, which do not detract from the system's durability. This was proven in 1975 in a 50,000mile, EPA-type road test using highoctane leaded fuel. After 50,000 miles, emissions remained well below the 1975 federal standards and the even stricter ones for California. And, the fuel economy was better than that of most 1975 cars of the same weight cer tified to meet those standards. Such emission stability indicates that the TFS-reactor combination can be a lifeof-the-car system, while catalysts probably will need to be replaced peri odically. The car is accumulating mile age in continuing tests. Ethyl researchers established a reli able method of measurement of sulfate emissions in 1975 and verified that they are very low from lean-reactor cars utilizing Ethyl's TFS and from non catalyst cars. Sulfate emissions vary widely with operation in cars equipped with exhaust catalysts and can be very high under certain conditions. Although Ethyl believes that scien tific evidence shows that lead from automotive exhaust poses no threat to public health, the Company has de veloped particulate traps that will cap ture most of the lead normally emitted. Work continued in 1975 on simple, in expensive traps for both full-sized U.S. cars and smaller foreign cars. An aver age of approximately 75% reduction in emission of lead particulates can be obtained using traps. Ethyl traps were tested by a joint industry-government group in Italy in 1975. ETC 16152 A phase microscope is used in part of Ethyl's research to put chemical capabilities of microorganisms to commercial use. Public Service Ethyl continued in 1975 its program of sup port to educational and charitable organiza tions, primarily in the communities in which the Company has facilities. A public service highlight occurred in February when the Company received the Freedoms Founda tion's George Washington Certificate for economic education. The award honored the 1974-75 edition of ETHYL DIGEST. This booklet had as its theme the American free enterprise system and its contribution to the nation's progress during the past 200 years. Initially, ETHYL DIGEST was distributed to shareholders, employees, customers, the media, members of Congress, the governors of the states and other government officials, as well as to business and educational opin ion leaders. To meet unprecedented demand, there were three printings. Of particular interest to many DIGEST readers, especially educators, businessmen and government leaders, have been the large-type version of the Declaration of Inde pendence and the pocket-sized copy of the Constitution of the United States. In 1976, the Company is supplementing this effort with an updated Special Bicentennial Edition, includ ing timely articles on energy and the econ omy. In this way, Ethyl is able to make its own special con tribution to the nation's Bicen tennial and is pleased to join in celebrating America. & Member National Bicentennial Business Alliance ETC 16153 13 Net Sales Millions ol Dollars i i 14 t Net Sales The following table sets forth Ethyl's net sales represented by each of its lines of business for the period 1971-1975: Net Sales by Lines of Business (In Thousands of Dollars) 1975 Net Percent Salts of Total 1974 Net Percent Seles of Total 1973 Net Percent Sales of Total 1972 Net Percent Sales of Total 1971 Net Percent Sales of Total Chemicals: (a) Domestic.. 5 387,804 38% 5 337,499 33% 5248,043 35% 5240,553 Foreign... 170,997 16 149,935 15 104,761 15 85,560 Plastics (b).. 275,659 27 306,076 30 146,323 21 132,108 Paper.......... 99,118 10 115,099 11 101,957 15 88,185 Aluminum... 86,719 8 100,234 10 97,918 14 85,193 Coal (c)....... 8,923 1 10,716 1 Total.. 51,029,220 100% 81,019,559 100% 5699,002 100% 5631,599 " (a) Includes Edwin Cooper from its acquisition in July 1975. (b) Includes VCA Corporation from its acquisition in April 1974. (c) Elk Horn Coal Corporation acquired in January 1974. 38% 14 21 14 13 100% 5229.605 75.117 111,038 85.666 75,632 40% 13 19 15 13 $577,058 100% Profit Contribution The following table shows, with respect to the Company's lines of business, operating profits exclusive of income taxes, extraordinary items and certain corporate expenses that are not practical to identify with a particular line of business. Operating Profit by Lines of Business After Identifiable Corporate Expenses (In Thousands of Dollars) 1975 Percent of Operating Operating Profit Profit 1974 Percent of Operating Operating Profit Profit 1973 Percent of Operating Operating Profit Profit 1972 Percent of Operating Operating Profit Profit 1971 Percent of Operating Operating Pro;.: Profit Chemicals: (a) Domestic.. 8 90,070 Foreign ... 42,723 Plastics (b).. 17,209 Paper .......... 5,953 Aluminum ... 7,858 Coal(c)....... 3,603 Total ... 5167.416 54% 25 10 4 5 2 100% --" 5 78,008 39,427 43,723 11,618 3,362 5,518 5181,656 43% 22 24 6 2 3 100% -- ---- 5 69,951 26,074 18,842 6,024 10,417 5131,308 53% 20 14 5 8 --100% 5 73,542 20,627 14,554 1,921 11,197 5121,841 60% 17 12 2 9 100% 5 71.965 17,649 11,349 970 8,021 5109.955 66% 16 10 1 7 100% " (a) Includes Edwin Cooper from its acquisition in July 1975. (b) Includes VCA Corporation from its acquisition in April 1974. (c) Elk Horn Coal Corporation acquired in January 1974. The operating profits used for purposes of the above table include charges for gen eral 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 comprise financing costs (net of investment income), research and development expense in new product areas, exploration costs and other unallocated charges, as shown in the following table: 1975 Net Financing Costs............................. . 513,400 1974 5 9,463 1973 5 2,750 1972 510,941 1971 $12,563 Research and Development-- New Product Areas........................... 9,467 8,768 7,873 5,564 6.695 Exploration Costs--Oil, Gas & Bauxite.. . 11,496 6,413 1,315 2,337 1.651 * Other--General and Administrative....... . 20,641 18,832 17,282 16,865 15,230 Total............................................ . 555,004 543,476 529.220 535,707 $36,139 ETC 16154 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 accurate allocations within the chemicals line of business to determine the relative contribu tion to the Company's operating profits by classes of chemical products. Because lead antiknocks (the largest contributor to chemical sales and profits) are inter related with certain other chemical products, any substantial reduction or elimina tion 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) The following table sets forth the amounts and percentages of net sales of each of the classes of similar products for the period 1971-1975. 1975 Net Percent Seles of Totel Chemicals: Petroleum (a)1 349,079 Industrial... 209,722 Plastics (b).. 275,659 Paper.......... 99,118 Aluminum ... 86,719 Coal (c)....... 8,923 Total.. 11,029,220 34% 20 27 10 8 1 100% 1974 Net Percent Sales of Total 1 298,218 189,216 306,076 115,099 100,234 10,716 11,019,559 29% 19 30 11 10 1 100% 1973 Net Percent Sales of Total 1243,624 109,180 146,323 101,957 97,918 35% 15 21 15 14 1699,002 100% 1972 Net Percent Sales of Total 1225,993 100,120 132,108 88,185 85,193 36% 16 21 14 13 1631,599 100% 1971 Net Percent Sales of Total 1222,166 82,556 111,038 85,666 75,632 39% 14 19 15 13 1577,058 100% (a) Includes Edwin Cooper from its acquisition in July 1975. (b) Includes VCA Corporation from its acquisition in April 1974. (c) Elk Horn Coal Corporation acquired in January 1974. Lead antiknock compounds (which comprise most of the Petroleum Chemicals sales shown above) remain the Company's principal product and contribute to operating profits a substantially higher percentage than their 29% contribution to net sales. Management's Discussion and Analysis of the Consolidated Statements of Income 1975 Compared to 1974 Net sales for 1975 increased $9.7 million (1%) from 1974. The inclusion of sales of Edwin Cooper from its acquisition in July 1975 and higher unit selling prices across virtually all product lines more than offset lower unit sales volumes in all lines of business, particularly in plastics. In spite of lower unit sales volumes, cost of goods sold in 1975 increased $11.6 million (1%) from 1974, with the result that the gross profit margin for the Company declined slightly from 24.3% in 1974 to 23.9% in 1975. The increase in costs of goods sold was due to (1) the acquisition of Edwin Cooper (2) higher costs of labor, raw materials and supplies, especially feedstocks and energy, (3) lower plant operat ing rates and (4) higher operating costs to comply with environmental laws and the requirements of OSHA. In addition, the Company set up reserves of about $2.5 million during the year to cover proposed shutdowns of several plants which are expected to reduce its operating costs in the future. Cost of goods sold during 1975 was affected by inventory reductions as described in Note 5 to the Financial State ments on page 25. The profitability of the Plastics Division, which was down $26.5 million (61%) from 1974, was adversely affected in particular by the general slowdown of the economy, especially in the construction and automotive industries, inventory reductions by customers and continuing cost increases in raw materials and supplies. When com pared with the record levels in 1974, the decline was quite significant although the comparison with prior years was much less adverse. Within the Plastics Division, aerosol containers, polymers and PVC pipe were particularly depressed due to the 5 `Before Extraordinary Items 60 ETC 16155 15 Total Assets Millions ot Dollars 16 factors referred to above. Additionally, aerosol container sales were adversely affected by publicity over fluorocarbon emissions into the atmosphere. On the other hand, the profitability of domestic chemicals, which was higher than 1974 by $12.1 million (15%), was favorably affected in 1975 by the inclusion of the domestic results of Edwin Cooper for the last half of 1975, together with improved profit margins on antiknocks resulting from selling price increases, net of cost increases, which mainly occurred late in 1974. Depreciation and depletion of property, plant and equipment and maintenance and repair costs increased $3.5 million (9%) and $3.6 million (8%), respectively, in 1975 as compared with 1974 due mainly to capital expenditures, the acquisition of Edwin Cooper and higher costs. Expenditures for labor and employee benefit costs increased $12.2 million (5%) in 1975 over 1974 primarily because of the acquisition of Edwin Cooper and wage and salary increases due to inflation. Rental expense in 1975 increased $0.9 million (6%) over 1974 due to the acquisition of Edwin Cooper and increased distribution equipment. Selling and general expenses in 1975 increased $18.9 million (19%) from 1974 due primarily to the acquisition of Edwin Cooper, expanded research and develop ment activity in new product areas, higher exploration costs charged to operations resulting from the decision to write-off about $5 million of investment in a natural gas well in Matagorda County, Texas, and continuing inflationary cost pressures. Miscellaneous income in 1975 decreased $2.8 million (35%) from 1974 due prin cipally to (1) a reduction in interest income resulting from lower yields on invest ments in short-term securities and (2) losses of approximately $0.9 million in 1975 from the translation of European and Canadian currencies due to the strengthening of the U. S. dollar. Interest and financing costs in 1975 increased $2.1 million (12%) from 1974 due primarily to higher levels of borrowing during 1975 and higher interest rates. Income taxes in 1975 decreased $12.5 million (20%) from 1974 due to lower income before taxes. The effective income tax rate in 1975 of 45.7% was slightly lower than the 1974 rate of 46.2% due principally to an increase in the investment credit of $1.0 million. 1974 Compared to 1973 Net sales for 1974 increased $320.6 million (46%) over 1973 due primarily to (1) the acquisitions of VCA Corporation (VCA) and Elk Horn Coal Corporation and (2) higher selling prices of most of the Company's products resulting from sharply higher operating costs. Cost of goods sold for 1974 increased $253.5 million (49%) with the result that the gross profit margin declined from 25.8% in 1973 to 24.3% in 1974. Cost of goods sold in 1974 reflects (1) the acquisitions of VCA and Elk Horn Coal Corporation (2) escalating costs for labor, raw materials and supplies, especially feedstocks and energy, and (3) increasing costs related to pollution abatement and OSHA com pliance. Cost of goods sold in 1974 was affected by a change in the method of accounting for inventories as described in Note 5 to the Financial Statements on page 25. Depreciation and depletion of property, plant and equipment and maintenance and repair costs increased $6.4 million (20%) and $10.3 million (30%), respectively, in 1974 compared with 1973 due mainly to capital expenditures and acquisitions and generally higher costs. Labor and employee benefit costs increased $45.7 million (26%) in 1974 over 1973 due principally to the acquisition of VCA and greater than normal wage and salary increases attributable to inflation. Rent expense increased $4.7 million (46%) in 1974 over 1973 due primarily to the acquisition of VCA and increased distribution facilities and equipment to support higher sales. Selling and general expenses in 1974 increased $24.1 million (32%) over 1973 principally as a result of the acquisitions of VCA and Elk Horn Coal Corporation, expanded activity and higher cost levels for research and development, the introduc tion of consumer automotive products, exploration costs charged to operations and inflationary cost pressures, particularly on salaries. Miscellaneous income in 1974 declined $6.7 million (45%) from 1973 due primarily to a reduction of interest income resulting from lower levels of investments in short- * > } i ETC 16156 ETHYL CORPORATION 330 South Fourth Street Richmond, Virginie 23219 term securities during 1974, reflecting the effects of cash expenditures for acquisi tions in early 1974. Income taxes in 1974 increased $14.7 million (30%) from 1973 due to higher income before taxes. The effective tax rate in 1974 of 46.2% was lower than the 1973 rate of 48.2% due to a combination of several factors, including (1) an increase in the investment tax credit of $1.1 million and (2) additional capital gains related pri marily to Elk Horn Coal Corporation. A five-year summary of Income and Retained Earnings is shown on page 22. Quarterly Sales, Net Income and Earnings per Share The following table shows quarterly sales, earnings and earnings per share and fully diluted earnings per share for each quarter in 1975 and 1974: (In Thousands ol Dollars) First Quarter....................... Second Quarter................. Third Quarter.................... Fourth Quarter.................. Total Year .................... . Net Sales 1975 1974 $ 235,257 $ 196,247 239,017 281,488 273,458 263,534 298,239 261,539 $1,029,220 $1,019,559 Nel Income 1975 1974 $13,782 15,961 17,258 14,003 $12,225 17,789 22,595 21,688 $61,004 $74,297 First Quarter .................... Second Quarter................ Third Quarter..................... Fourth Quarter ................. Total Year....................... Earnings per Share 1975 1974 $1.35 1.59 1.73 1.42 $1.18 1.77 2.28 2.18 $8.09 $7.41 Fully Diluted Earnings per Share 1975 $1.20 1.39 1.51 1.25 $5.35 1974 $1.06 1.54 1.96 1.89 $6.45 Working Capital Provided from Operations Working capital provided from opera tions (refer to Changes in Financial Position--Page 23) amounted to $115.2 million in 1975, compared with $120.9 million in 1974. This was sufficient in 1975 to provide for capital stock acquisitions and dividends and to provide substantial funds for capital expenditures and acquisitions. At December 31,1975, working capital was $266.1 million and the ratio of current assets to current liabilities was 3.53 to 1. This compared with working capital of $200 million and a ratio of 2.57 to 1 at December 31,1974. Internal Revenue Service Examination The Internal Revenue Service has completed its examination of the Company's first ten taxable periods after the 1962 EthylAlbemarle merger through the calendar year 1971. The IRS has proposed tax in creases of about $35 million, including interest, which would total about $44 million if assessed on the same basis through 1975. The IRS position results from differences in the valuation of assets acquired in the merger and the allocation of values between tangible and intangible assets. The IRS valuation of assets was made by a govern ment engineer during the course of its examination. The Company based its asset valuation on an appraisal by independent appraisers made at the time of the merger. 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 might be payable by the Company on the basis of a reasonable asset valuation. The Company does not accept the IRS proposal and will continue to contest it. Capital Expenditures and Acquisitions During 1975, about $109 million was spent on acquisitions and capital projects for new plants, expansions and modernizations, compared with about $195 million in 1974. The 1974 figure included about $115 mil lion for the acquisitions of VCA Corporation and Elk Horn Coal Corporation while the 1975 figure includes approximately $40 million, including working capital and a <" ETC 16158 17 manufacturing license in connection with the acquisition of Edwin Cooper, a manu facturer and marketer of lubricant additives. Expenditures in 1975 included about $19 million for pollution abatement and OSHA projects, and over the next several years it is estimated that annual expenditures in the range of $10 million to $20 million can be expected for such purposes. Common Dividend Increased The Board of Directors increased the regular quarterly dividend on the Common Stock twice during 1975--from 30 cents to 32% cents per share effective with the July 1, 1975, payment and from 32% cents to 35 cents per share effective with the January 1, 1976, payment. The following table snows the quarterly dividends declared in 1975 and 1974: 1975 1974 First Quarter..................................................... $ .30 Second Quarter....................................................... 321ft Third Quarter........................................................... 32% Fourth Quarter (includes special dividend of 10 cents in 1974)..............................................35 $1.30 $ .25 .30 .30 .40 $1.25 In addition, regular quarterly dividends of 60 cents per share on the $2.40 Cumulative Second Preferred Stock and $1.50 per share on the 6% First Preferred Stock were paid during 1974 and 1975. Market Prices of Listed Stock The Company's Common Stock and $2.40 Cumulative Second Preferred Stock are traded principally on the New York Stock Exchange. The following table shows the reported high and low prices of these listed stocks, by quarters, for the years 1974 and 1975: $2.40 Cumulative Common Second Preferred High Low High Low 1974 First Quarter................ ........ Second Quarter.......... ........ Third Quarter.............. ........ Fourth Quarter............ ........ $30 28 26 Vi 27% $21 % 22% 19 19% $40 39% 38% 36% $33% 34% 26 27% 1975 First Quarter .............. ........ Second Quarter.......... ........ Third Quarter.............. ........ Fourth Quarter............ ........ 33% 37% 33% 30% 23% 30 Vs 26 25% 45% 49% 45% 39% 34 Vs 42% 36 35V4 How Ethyl Used The Revenues It Received During 1975 (Millions of Dollars) $1,034.5 100.0% WAS RECEIVED BY ETHYL from all sources THESE RECEIPTS WENT: 601.9 58.2% To suppliers for materials, services, etc. 235.7 22.8% To employees for payrolls, employee benefits 63.3 6.1 % For income and other taxes 18.4 1.8% For interest expense 16.0 1.5% To Ethyl shareholders 99.2 9.6% For use in the business, including exDansion, modernization and working capital * , 16 ETC 16159 Long-Term Debt As of December 31,1975, the long-term portion of Ethyl's debt was $272.7 million, equal to 38% of the Company's total capitalization. In 1975, Ethyl refinanced its senior debt with four insurance companies providing for $56 million of new money and resetting the debt to mature between 1978 and 1993. Debt repayments during 1975 amounted to $2.6 million. These consisted of $1,250,000 on the 4%% Promissory Notes due 1983 and $1,329,000 on Miscellane ous Debt. Summary of Long-Term Debt Senior Debt 9Vi% Promissory Notes--due 1984-1993 ... 7%% Promissory Notes--due 1978-1983 ... 10Vi% Promissory Notes--due 1984-1993 ... $ 94,000,000 45,000,000 56,000,000 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 47/% Promissory Notes--due 1976-1983 . .. The Northwestern Mutual Life Insurance Company John Hancock Life Insurance Company New York Life Insurance Company Promissory Notes--due 1977-1981 (variable interest rates based on the prime commercial rate) ........................................................... Seven Banks Miscellaneous..................................................... Subordinated Debt 5%% Subordinated Notes--Due 1979-1982 . Various Institutional Investors Less unamortized discount (the balance of the amount corresponding to the proceeds of warrants sold with the Notes in 1962), reflecting an imputed total interest ' rate of 7.4% .................................................. Total Debt at December 31,1975 . Current Portion of Debt................. Long-Term Debt............................. $195,000,000 19,000,000 10,000,000 4,211,000 $228,211,000 50,000,000 3,481,000 46,519,000 274,730,000 2,018,000 $272,712,000 Summary of Debt Maturities to 1985 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Subordinated Notes Due 1979-82 Promissory Notes Due 1993 $ 8,000,000 8,000,000 8,000,000 26,000,000 $9,400,000 9,400,000 Promissory Notes Due 1983 ' WA% Promissory Notes Due 1993 $7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 $5,600,000 5,600,000 Promissory Notes Due 1983 $1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 10,250,000 Promissory Notes 1977-81 $1,250,000 2,500,000 2,500,000 2,500,000 1,250,000 Miscella neous to 1992 $768,000 628,000 349,000 302,000 280,000 390,000 151,000 150,000 158,000 165,000 Total Amount $ 2,018,000 3,128,000 11,599,000 19,552,000 19,530,000 18,390,000 34,901,000 17,900,000 15,158,000 15,165,000 u ASSETS December 31 Current assets: Cash and short-term securities.......................... Accounts and notes receivable.......................... Inventories ........................................................... Prepaid expenses ............................................... Total current assets................................. 1975 1974 $103,930,000 131,460,000 124,964,000 11,149,000 371,403,000 $ 42,525.000 129.402.000 149.367.000 6,211,000 327.505.000 Property, plant and equipment, at cost: Land and land improvements............................. Coal lands............................................................. Development costs, producing properties........ Timberlands and standing timber...................... Buildings ............................................................. Machinery and equipment................................. 31,921,000 16,786,000 9,915,000 11,348,000 97,753,000 565,424,000 733,147,000 28.711.000 16.755.000 .10.717.000 11 182.000 92,657,000 500.645.000 660.667.000 Less, Accumulated depreciation, depletion and amortization ................................................. Net property, plant and equipment........ 327,687,000 405,460,000 293.110.000 367.557.000 Deferred charges and other assets 32,628,000 23,737,000 Goodwill and other intangibles 66,318,000 64,250,000 $875,809,000 $783,049,000 The accompanying notes are an integral part of these statements. 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: Principal amount........................................... Less unamortized discount............................ Subordinated debt less unamortized discount............................... Deferred income taxes......................................... Provision for employee benefits .......................... Minority interest..................................................... 1975 1974 $ 79,623,000 4,200,000 2,522,000 2,018,000 16,907,000 105,270,000 $ 81,658,000 3,832,000 2,496,000 16,714,000 22,801,000 127,501,000 226,193,000 157,975,000 50,000,000 3,481,000 46,519,000 54,623,000 6,668,000 555,000 50,000,000 4,065,000 45,935,000 44,650,000 6,834,000 468,000 SHAREHOLDERS' EQUITY Capital stock: Cumulative First Preferred Stock, 6% Series A, par $100 per share....................................... Cumulative Second Preferred Stock, $2.40 Convertible Series A, par $10 per share (aggregate liquidation price $76,517,000 on 1,517,897 outstanding shares, after treasury stock)........................ Common Stock, par $1 per share.................. Capital surplus..................................................... Retained earnings............................................... Less, Treasury stock at cost............................... Total shareholders' equity.................. 2,674,000 2,787,000 19,621,000 10,173,000 43,972,000 407,764,000 484,204,000 48,223,000 435,981,000 $875,809,000 19,621,000 10,173,000 43,947,000 362,742,000 439,270,000 39,584,000 399,686,000 $783,049,000 The accompanying notes are an integral part of these statements. CONSOLIDATED STATEMENTS OF Years Ended December 31 1975 Income: Net sales................................................... . $1,029,220,000 Miscellaneous income, net..................... 5,238,000 1,034,458,000 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................................. 783,615,000 119,298,000 19,133,000 51,408,000 973,454,000 61,004,000 61,004,000 1974 $1,019,559,000 8,058,000 1,027,617,000 772,048,000 100,381,000 17,008,000 63,883,000 953,320,000 74,297,000 74,297,000 1973 $699,002,000 14,716,000 713,718,000 518,528,000 76,330,000 16,772,000 49,204,000 660.834,000 52,884,000 52,884,000 1972 $631,599,000 7,187,000 638,786,000 460,803,000 73,870,000 17,979,000 41,427,000 594,079,000 44,707,000 4,535,000 49,242,000 1971 $577,058,000 5,642,000 582,700,000 419,722,000 70,476,000 18,686,000 35.576.000 544,460,000 38,240,000 (3.326,000) 34,914,000 * Retained earnings at beginning of year........ 362,742,000 Deduct, Cash dividends: 6% First Preferred Stock, $6.00 per share....................................... 137,000 5% First Preferred Stock $2.50 per share....................................... Second Preferred Stock, $2.40 per share . 3,644,000 Common Stock, per share $1.30; $1.25; $1,071/2; $.881/2; $.84 respectively........ 12,201,000 15,982,000 Retained earnings at end of year.................. $ 407,764,000 304,135,000 166,000 3,644,000 11,880,000 15,690,000 $ 362,742,000 Earnings per share: Income before extraordinary items___ Extraordinary items............................... NET INCOME................................... Fully diluted earnings per share assuming conversion of the Second Preferred Stock. (If the Second Preferred Stock were converted, its dividend would become $1.82 per share at the 1975 annualized regular dividend rate, as against the present $2.40 preferred dividend.) Income before extraordinary items .... Extraordinary items............................... NET INCOME................................... $8.09 $6.09 $5.35 $5.35 $7.41 $7.41 $6.45 $6.45 265,627,000 169,000 3,759,000 10,448,000 14,376,000 $304,135,000 $5.02 $5.02 $4.47 $4,47 229,359,000 169,000 3,893,000 8,912,000 12,974,000 $265,627,000 $4.03 .45 $4.48 $3.65 .37- $4.02 207,097,000 175,000 44,000 3,974,000 8.459,000 12,652,000 $229,359,000 $3.36 (.33) S3.03 S3.09 (.27) S2.82 * .4 The accompanying notes are an integral part of these statements. 22 d CONSOLIDATED STATEMENTS OF 1 Years ended December 31 1975 1974 Source of Funds: Operations: Net Income............................................................ $ 61,004,000 $ 74,297,000 Expenses not requiring outlay of working capital: t Depreciation, depletion and amortization....... 44,390,000 40,176,000 Deferred income taxes...................................... 9,810,000 6,459,000 Working capital provided from operations .. 115,204,000 120,932,000 Additional borrowing................................................ 56,000,000 10,000,000 Current portion of long-term debt refinanced....... 14,500,000 Proceeds from sale of West Carrollton fixed assets.......................................................... 4,500,000 Working capital of consolidated subsidiaries at dates of acquisition ....................................... 18,912,000 28,733,000 Other items-net..................................................... 2,078,000 Decrease in working capital.................................. 68,898,000 Total ....................................................... $206,694,000 $233,063,000 Application of Funds: t Additions to property, plant and equipment.......... $ 69,470,000 $ 74,549,000 Reduction of long-term debt ................................. 2,282,000 19,704,000 Cash dividends......................................................... 15,982,000 15,690,000 Capital stock reacquired......................................... 8,727,000 1,483,000 Acquisition of consolidated subsidiaries (net of long-term debt assumed in 1974-$5,449,000)... 35,880,000 114,321,000 Purchase of manufacturing license........................ 306,000 Investment in Cooper Laboratories ...................... 6,367,000 Long-term note receivable...................................... 4,718,000 Other items--net..................................................... 949,000 Increase in working capital.................................... 66,129,000 Total......................................................... $206,694,000 $233,063,000 Changes in Working Capital: Increase (decrease) In current assets: Cash and short-term securities........................ Accounts and notes receivable...................... Inventories ....................................................... Prepaid expenses............................................. (Decrease) increase in current liabilities: Accounts payable and accrued expenses .... Dividends payable............................................. Notes payable.................................................... Long-term debt, current portion...................... Income taxes..................................................... Increase (decrease) in working capital.............. $61,405,000 2,058,000 (24,503,000) 4,938,000 43,898,000 $(135,023,000) 39,031,000 58,657,000 450,000 (36,885,000) (2,035,000) 368,000 26,000 (14,696,000) (5,894,000) (22,231,000) $ 66,129,000 19,107,000 442,000 2,492,000 719,000 9,253,000 32,013,000 $ (68,898,000) The accompanying notes are an integral part ol these statements. 23 s NV A KC: /= ' <T^ ^ <r>, Li '. <11 gv 1. Summary of Significant Accounting Policies: Consolidation The consolidated financial statements in clude the accounts and operations of Ethyl Corporation and all of its subsidiaries (the "Company"). Foreign Currency Translation Commencing with the year 1975, financial statements of foreign subsidiaries have been translated into U.S. dollars by early application of the principles prescribed by the Statement of Financial Accounting Standards No. 8 of the Financial Accounting Standards Board. Under such principles, current assets (other than inventories and prepaid expenses) and current liabilities are translated at rates prevailing at the balance sheet date. Inventories, prepaid expenses, property, plant and equipment, noncurrent assets, noncurrent liabilities and shareholders' capital accounts are translated at historical rates. Revenues and expenses are translated at average rates except for depreciation and amortization, which are trans lated at historical rates. Gains and losses on translation and on other foreign currency transactions are included in income currently. The change of method in 1975 did not result in material differences from the current-noncurrent method previously used and, accordingly, no restatement of prior years has been made. Inventories Inventories are stated at the lower of cost or market with cost determined on the last-in, first-out basis for substantially all domestic inventories and on either average cost or first-in, first-out for other inventories. Cost elements included in work in process and finished goods inventories are raw materials, direct labor and manufac turing overhead. Raw materials and stores and supplies include purchase and delivery costs. Depreciation Provisions for depreciation are based on the estimated useful lives of depreciable property, plant and equipment and are computed generally on the straightline and declining balance methods. Expenditures for re newal and betterments are capitalized and expenditures for ordinary repairs and maintenance are charged to in come as incurred. The costs and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are in cluded in income. Unamortized Discount Unamortized discount on long term debt is amortized by charges to income on straightline bases over periods ending from 1979 to 1982. Exploration Costs Bonus and deposit payments, geo physical costs of active exploration prospects and drilling costs of active exploratory wells are capitalized as de ferred costs. Such costs are amortized if commercial dis coveries are made or charged to income if prospects are abandoned or deemed likely to be abandoned. Costs of dry holes (unless valuable in defining active prospects) and annual charges related to prospects are charged to income. Intangibles Goodwill acquired prior to November 1,1970, ($34,368,000) is not being amortized. Goodwill acquired subsequently ($24,724,000) is being amortized over forty years. Retirement Income Plans Annual pension costs are actuarially determined and include amortization of prior service costs generally over periods ranging up to 30 years. The policy of the Company is to fund pension costs accrued. 24 h Income Taxes Deferred income taxes arise from timing differences between financial and income tax reporting of various items principally depreciation, intangible drilling and development costs and provisions for income taxes on undistributed earnings of certain subsidiaries. The investment tax credit is accounted for by the flow through method as a reduction of the provision for income taxes in the year realized. Earnings Per Share Earnings, and fully diluted earnings, per common share are computed using the weighted aver age number of shares of common stock outstanding during the year including common stock options as common stock equivalents and after deducting preferred stock dividends. Proceeds from common stock equivalents are assumed to be used to purchase outstanding shares of the Company's common stock. Fully diluted earnings per share assumes the complete conversion of the Cumulative Second Pre ferred Stock. Shares used in the computation of earnings per share were: Fully Diluted Earnings Per Share Earnings Per Share 1975 ................................. 9,398,487 11,371,991 1974 ................................. 9,512,470 11/85,996 1973 ................................. 9,756,992 ' 11,793 634 1972 ...................................... 10,086,799 12.201 b15 1971 ...................................... 10,140,533 12,293,589 2. Acquisition: Effective July 1, 1975, the Company acquired for $35,880,000 cash the Edwin Cooper Division (a manufacturer of lubricant additives for the petroleum industry) of The Burmah Oil Company, Limited. The acquisition was accounted for under the purchase method and, accordingly, its opera tions from the date of acquisition are included in the con solidated statement of income. The purchase price was allocated to the net tangible assets acquired on the basis of estimated fair values and included no goodwill. The following pro forma unaudited summary, giving effect to purchase accounting and interest adjustments, com bines the pre-acquisition consolidated net sales and net income of the Company for the years ended December 31, 1975 and 1974 with the net sales and net income of the Edwin Cooper Division for the same periods: Net sales....................................... Net income................................... Earnings per share...................... Fully diluted earnings per share................................... 1975 $1,068,859,000 62,026,000 6.20 5.44 1974 $1,096,584,000 76.031,000 7.59 6.60 3. Foreign Operations: Foreign exchange conversion and translation losses of $1,411,000 (net of a reserve for foreign exchange fluctua tions of $637,000 as of December 31, 1974) were charged to income for 1975. Following is a summary of certain financial information relating to operations (including oil and gas) of the Com pany's foreign branches and subsidiaries: Net sales.............................................. Net earnings....................................... Working capital ................................. Net assets............................................ 1975 $132,448,000 10,745,000 45,858,000 77,691,000 1974 $111,372,000 12.000,000 32,366,000 58,797,000 ETC 16165 a 4 4 4 1 4. Marketable Securities: Short-term securities, amounting to $87,437,000 at Decem ber 31, 1975, and $30,402,000 at December 31, 1974, are stated at cost plus accrued income which approximates market value. Marketable equity securities included in noncurrent assets and stated at cost amounted to $6,538,000 at De cember 31, 1975, and $6,737,000 at December 31, 1974. The amount by which cost exceeds quoted market value at December 31, 1975, is deemed to be temporary and is not material. Realized gains and losses on sales of marketable equity securities included in the determination of net income for 1975 and 1974 were not material. 5. Inventories: Inventories include: Finished goods.................................. Raw materials and work in process Stores, supplies, etc........................... 1975 $ 55,910,000 48,604,000 20,150,000 J124;864;00g 1974 $ 57,964,000 71,931,000 19,472,000 $149,367,000 Inventories stated on the last-in, first-out basis amounted to $70,587,000 at December 31, 1975, and $105,601,000 at December 31, 1974, which are below replacement cost by approximately $45,600,000 and $50,900,000 respectively. In 1975, the inventory reductions resulted in liquidations of LIFO inventory quantities carried at lower costs prevail ing in prior years as compared with 1975 costs, the effect of which increased net income by approximately $6,873,000, or 73 cents per share. In 1974, the last-in, first-out method of valuing inventories was extended to substantially all the domestic inventories which were accounted for previously on first-in, first-out or average cost. The effect of this change was to reduce net income for 1974 by $6,509,000, or 68 cents per share, from what it would have been if the former inventory valuation methods had been continued. The change in inventory method was made to minimize the impact of price level changes on inventory valuations and to achieve a better match of current costs with current revenues for determining profits. There is no cumulative effect of this change on prior years reported earnings. The following disclosure is made for the purpose of com plying with Internal Revenue Procedure 72-29. The applica tion of the principles of APB 16 to the valuation of LIFO inventories of subsidiaries acquired in 1974 caused con solidated taxable income for the year ended December 31, 1975, to exceed consolidated income for financial account ing purposes by $77,000, and inventories in the accompany ing consolidated balance sheets at December 31,1975, and December 31, 1974, to exceed inventories used for income tax reporting purposes by $443,000 and $520,000, respec tively. 6. Internal Revenue Service Examination: The Company has received reports of the Internal Revenue Service proposing additional income taxes for the ten tax able periods ended December 31, 1971, See caption "In ternal Revenue Service Examination" in the Financial Re sults Section (page 17) of this report for further information. 7. Long-Term Debt: Reference is made to captions "Summary of Long-Term Debt" and "Summary of Debt Maturities to 1985" in the Financial Results Section (page 19) of this report for infor mation concerning the Company's long-term borrowings. 8. Capital Stock: Transactions in capital stock during 1975 were as follows: Cumulative First Preferred (authorized 1,000,000 shares): January 1, 1975 .......................... Purchases ................................ Cancelled .................................. December 31,1975 ............. Issued Shares Amounts Treasury Shares Amounts 27,874 $ 2,787,400 (1,130) (113,000) 26,744 $ 2,674,400 459 $ 6.286 (1,130) 5,615 $ 32.966 500,609 (89,686) 443.889 Cumulative Second Preferred (authorized 10,000,000 shares): January 1, 1975 .......................... Converted into Common Stock .. December 31,1975 ............. 1,962,059 1,962,059 $19,620,590 $19,620,590 443,962 200 444,162 $19,379,556 2.000 $19,381,556 Common (authorized 25,000,000 shares): January 1, 1975 .......................... Purchases ................................ Issued upon conversion of cumulative second preferred .............................. December 31, 1975 ............. 10,173,133 $10,173,133 677,413 $20,171,361 282,673 8,226.382 260 260 10,173,393 $10,173,393 960.086 $28,397,743 The Cumulative First Preferred is redeemable at $101 at the option of the Company and is preferentially entitled to par value in involuntary liquidation and the redemption price in voluntary liquidation. Annual sinking fund pay ments of approximately $114,000 are required for manda tory redemption. Each share of Cumulative Second Preferred has one vote and is convertible into 1.3 shares of common stock. The voluntary or involuntary liquidation value of the Cumulative 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 value over par value on shares of outstanding stock is approxi mately $61,338,000 as of December 31, 1975. These shares are callable at $75 per share, plus accrued dividends. The changes in Capital Surplus are the excess of par value over cost of shares of First Preferred Stock cancelled in 1975 and 1974 and the excess of par value of Second Preferred Stock over par value of Common Stock issued upon con version of Second Preferred Stock to Common Stock in 1975. 9. Stock Option Plan: Linder the Company's qualified stock option plan, 300,000 shares of unissued common stock are reserved for issuance to officers and other key employees at 100 percent of fair market value on the date of grant. No options were granted during 1975. An option to purchase 29,500 shares at $30.00 per share, granted in 1973, was outstanding at December 31, 1975, of which 11,800 shares became exercisable in 1974 and 5,900 in 1975. These shares remain exercisable at December 31,1975. There are no charges to income in con nection with the plan. 10. Retained Earnings Restriction: The Company's articles of incorporation and note agree ments contain restrictions, among others, against the pay ment of cash dividends. At December 31,1975, $46,763,000 of retained earnings is free of such restriction under the agreement presently most restrictive. 11. Depreciation, Depletion and Amortization: Depreciation and depletion charged to income amounted to $31,700,000, $33,675,000, $32,380,000, $38,784,000 and $42,311,000 for the years 1971 through 1975. Amortization of deferred charges and intangibles charged to income amounted to $1,145,000, $1,140,000, $855,000, $1,392,000 and $2,079,000 in the respective years. 25 ETC 16166 12. Income Taxes: Income tax expense, excluding amounts applicable to extraordinary items, is composed of the following: Currently Payable Deferred Total 1975 $41,596,000 $9,810,000 $51,408,000 1974 57,424,000 6,459,000 63,883,000 1973 44.9B7.000 4,217,000 49,204,000 1972 40,659,000 768,000 41,427,000 1971 34,319,000 1,257,000 35,576,000 Currently payable includes provisions for U.S. income taxes of $25,721,000, $31,689,000, $32,947,000, $42,977,000 and $31,945,000 for the years 1971 through 1975. Such pro visions were reduced, and net income for the respective years was increased, by investment tax credits of $696,000, $1,508,000, $1,743,000, $2,826,000 and $3,849,000. No provision has been made for additional income taxes that might result from the remittance to the Company of prior years' undistributed earnings of $3,900,000 of a for eign subsidiary since it is the intention of the Company to continue to reinvest such amount, of earnings indefinitely. 13. Research and Development: Research and Development expenses charged to income amounted to $19,959,000, $20,196,000, $21,811,000, $25,246,000 and $28,016,000 for the years 1971 through 1975. 14. Employee Retirement Plans: The Company provides retirement benefits for substantially all of its employees under several different plans funded with insurance companies or corporate trustees. Plan con tributions charged to income for the years 1971 through 1975 were $8,200,000, $8,550,000, $9,168,000, $11,090,000 and $14,383,000. Contributions are irrevocably devoted to the payment of retirement and other benefits for employees and their beneficiaries. Under certain plans, actuarially computed value of vested benefits at December 31, 1975, exceeded the market value of plan assets by approximately $17,635,000. Compliance with the Employee Retirement Income Se curity Act is not expected to have a substantial impact on overall retirement expense. The precise cost impact is un known at this time. 15. Extraordinary Items: 1972: $4,535,000 net gain from award, including interest received as compensation for the expropriation of certain timberlands (after income taxes of $4,812,000, of which $3,689,000 was deferred). 1971: $3,326,000 provision for costs of terminating a paper mill operation including pension and other benefits and write-down of plant investment to realizable value (after in come taxes of $3,070,000). 16. Lease Commitments: Rental expense was $8,244,000, $8,468,000, $10,246,000, $14,962,000 and $15,865,000 for the years 1971 through 1975. Following are the rental commitments under all noncancellable leases as of December 31,1975: Years 1976 1977 1978 1979 1980 1981-85 1986-1990 1991-1995 Remainder Total $12,043,000 9.886.000 8.263,000 6.888,000 5,693,000 23,317,000 14,046,000 5,455,000 8,094,000 Transportation Equipment $ 7,018,000 5,692,000 5,165,000 4,495,000 4,103,000 17,001,000 8,034,000 Office and Plant Space $3,841,000 3,428,000 2,519.000 2,063,000 1,514,000 6,204,000 5,914,000 5,362,000 7,222,000 Other S'-.184.000 766,000 579,000 330,000 76.000 112.000 96.000 93.000 872,000 The present value of commitments under non-capitalized financing leases and the effect on net income if such leases were capitalized are not material. 17. Subsequent Event: On February 19, 1976, the Company announced an agree ment in principle with Boise Cascade Corporation for the sale of the Oxford Paper Division, consisting principally of a pulp and paper mill in Rumford, Maine, and about 335,000 acres of timberland. The sale price is approximately $90 million, subject to audit adjustment, which may result in an after-tax loss in the range of $4 to $5 million. The transac tion was approved by the Company's board of directors on February 26,1976, and is subject to negotiation of a defini tive agreement. <1 * 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, 1975, and the related consolidated statements of income, retained earnings 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, 1974, and the consolidated financial statements for the three years ended December 31, 1973, from which the consolidated statements of income for 1973,1972 and 1971 were taken. In our opinion, the aforementioned financial statements present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31,1975 and 1974, the results of their operations and changes in their financial position for the years then ended and their net income and other data for the years ended December 31,1973,1972 and 1971, all in conformity with generally accepted accounting principles applied on a consistent basis, except for the change, with which we concur, in the method of valuing inventories as described in Note 5 to the consolidated financial statements. Suite iooo Seventh and Franklin Building Richmond, Virginia 23219 February 26,1976 26 COOPERS & LYBRAND 4 <1 ETHYL CORPORATION AND SUBSIDIARIES I Petroleum Chemicals Products Antioxidants Ashless dispersant/ detergents Additive packages for gasoline and diesel, hydraulic, :jrbine and gear oils Combustion improver Diesel fuel ignition improvers Distillate fuel antistatic additive Friction modifiers Fuel and oil corrosion/ rust inhibitors Gasoline antiknock compounds Gasoline detergent, deicer, corrosion inhibitors Metal deactivators Marine alkaline reserve agents Metal working oil concentrates and bases Metallic detergents Lubricant oxidation inhibitors Oil soluble dyes Industrial Chemicals Products Alkyl aluminum halides Alpha olefins (detergent & plasticizer) Alpha olefin sulfonates Alum Aluminum alkyls Bromine Bromine chemicals Caustic Chlorinated solvents Ethyl chloride Ethylene dibromide Linear primary alcohols (detergent & plasticizer) Methyl chloride Organophosphorous chemicals Orthoalkylated antioxidants Orthoalkylated phenols and anilines Special organometallics Sodium Vinyl bromide Vinyl chloride Chemical Plants Antwerp, Belgium Baton Rouge, Louisiana Houston, Texas Magnolia, Arkansas Orangeburg, South Carolina Sarnia, Ontario, Canada Sauget, Illinois Stanlow, Cheshire, England Thessaloniki, Greece Plastics Products________________ Aerosol valves for can and bottle packaging Mechanical spray pumps for packaging Metal container closures Decorating services tor metal, plastic molded, plastic container products and glass containers Aerosol actuator overcaps Dies and tooling Extruded plastic containers Engineering plastics molded custom parts Drawn and extruded rigid and collapsible metal containers Custom metal die stamping Molded plastic powder boxes, compacts, soap boxes, talc containers, deodorant sticks, lip balm dispensers, jars and housewares "Guardian" containers Polybutylene water service pipe Polyethylene, polypropylene and polyvinyl chloride . containers Polyethylene films for industrial, agricultural, disposable, shrink, stretch, bundling and packaging applications Polyvinyl chloride resins and compounds Polyvinyl chloride pipe and fittings for water and sewer applications Plants_________________ Baton Rouge, Louisiana Bedford Heights, Ohio Belvidere, New Jersey Blue Island, Illinois Bridgeport, Connecticut Bramalea, Ontario, Canada Brooklyn Heights, Ohio Carbondale, Pennsylvania Carlstadt, New Jersey Chicago, Illinois (3) Columbia, Mississippi Drummondville, Quebec, Canada Erie, Pennsylvania Excelsior Springs, Missouri Fairfield, Connecticut Flemington, New Jersey Fremont, California Garrettsville, Ohio Goleta, California Hackensack, New Jersey Harrisonburg, Virginia Jeffersonville, Indiana Kansas City, Missouri (2) LaGrange, Georgia LaMirada, California LaGrange, Kentucky Louisville, Kentucky Manchester, Iowa Mississauga, Ontario, Canada North Riverside, Illinois Northvale, New Jersey Pittsfield, Massachusetts (3) Pomona, California Richmond Hills, Ontario, Canada Rockaway, New Jersey Sandston, Virginia Scarborough, Ontario, Canada South Grafton, Massachusetts Terre Haute, Indiana Tiptonville, Tennessee Union City, California Vandalia, Illinois Waterbury, Connecticut Paper Products ___________ Coated offset papers for magazine publishing, book publishing and commercial printing Coated letterpress papers for magazine publishing and commercial printing Coated gravure papers for magazine publishing and commercial printing Converting papers for envelopes and business forms Plant Rumford, Maine Aluminum Products Aluminum billets Aluminum windows and doors Decorated aluminum products for the floor covering and home building industries Extruded aluminum shapes in a variety of painted and anodized finishes for windows and doors, store fronts and curtain walls, boats, swimming pools, trucks and trailers Residential lawn buildings Plants Carthage, Tennessee Harrisburg, Pennsylvania Kentland, Indiana Mechanicsburg, Pennsylvania Newnan, Georgia New Oxford, Pennsylvania Research & Development Facilities Baton Rouge, Louisiana Bracknell, Berkshire, England Detroit, Michigan Houston, Texas Kansas City, Missouri Orangeburg, South Carolina St. Louis, Missouri Terre Haute, Indiana Richmond, Virginia Rumford, Maine 27 Io ETHYL CORPORATION AND SUBSIDIARIES smd Staff! LAWRENCE E. BLANCHARD. JR. S DOUGLAS FLEET Retired Vice President M F. GAUTREAUX JAMES M. GILL BRUCE C GOTTWALD FLOYD D. GOTTWALD FLOYD D. GOTTWALD. JR. ROBERT HERZOG A. B. HORN. JR. GEORGE F KIRBY Chairman and President Texas Eastern Transmission Coto. Houston, Texas JOSEPH M LOWRY Retired Senior Vice President ANDREW M. McBURNEY ROBERT T. MARSH. JR. Retired Chairman ot me Board first 4 Merchants National Bank Richmond. Va. JAMES F. MILLER Vice Chairman--Management Committee Blyth Eastman Dilion Co . Inc. New York, N.Y. CLARENCE M. NEHER MELVIN M. PAYNE President National Geographic Sociery Washington. D C. W. THOMAS RICE Chairman & Chief Executive Officer SeaDoartf Coast Line Industries. Inc. Richmond. Va. SIDNEY BUFORD SCOTT Partner Scott 4 Stringteilow Richmond. Va. ERWIN H. WILL Retired Chairman ot the Board Virginia Electric & Power Co. Richmond. Va. Memoer ot the Executive Committee FLOYD D. GOTTWALD. JR. Chairman ot the Board Chief Executive Officer Chairman--Executive Committee BRUCE C. GOTTWALD President FLOYD D GOTTWALD Vice Chairman ot me Board Vice Chairman--Executive Committee LAWRENCE E. BLANCHARD. JR. Executive Vice President ROBERT HERZOG Executive Vice President M F GAUTREAUX Senior vce President-- Research 4 Deve/opmenr JAMES M. GILL Senior Vice President-- Chemicals Group a. B HORN. JR. Senior Vice President-- International Group CLARENCE M NEHER Senior Vice President-- Plastics Group LLOYD B. ANDREW Vice President. Director--financial Relations WALLACE F. ARMSTRONG Vice President--Manufacturing C RAYMOND HAILEY Vice President. President--Oxford Paper Division E. MALCOLM HARVEY Vice President--Aluminum. President--The William L. Bonne// Company. Inc. ARTHUR W. HELWIG Vice President, Secretary--Executive Committee Director--Planning 4 Profit Improvement HOWARD E. HESSELBERG Vice President--Air Conservation FREDERICK P. WARNE Vice President, Secretary 4 General Counsel FRANK J. McNALLY Treasurer JAMES H. KIRBY Controller KARL F CAST General Manager--Engineering, Central Systems 4 Data Processing J. E. CRUTCHFIELD Director--Central Systems and Data Processing G. SAMUEL ROBERTS Chief Engineer STEPHEN B. RODI Director--Corporate Employee Relations GORDON E. SAXON Director--Advertising & Sa/es Promotion PAUL E. WEIMER Budget Director J. C. WRIGHT Director--Purchasing 4 Traffic CHARLES H. ZEANAH Director--Corporate Public Relations Corporate Headquarters 330 South fourth Street Richmond. Va. 23219 (604) 644-6081 Executive Offices 451 Florida Street Baton Rouge. La. 70801 (504) 388-8011 100 Park Avenue New York. N. Y. 10017 (212) 679-2000 Stock Transfer Agents first & Merchants National Bank Richmond, Va. Chase Manhattan Bank. N.A. New York. N. Y. 28 Registrars ol Stock Bank of Virginia Richmond. Va. Morgan Guaranty Trust Co. New York, N. Y. General Counsel Hunton. Williams. Gay & Gibson Richmond. Va. Stock Listings New York Slock Exchanje Pacitic Coast Stock Exchange Toronto Slock Exchange Ticker Symbol: EY Number ot Employees Approximately 17,000 IDMslosr^ Oxford Paper ANDREW M. McBURNEY Executive Vice President RUSSELL H. CHAMBLISS. JR. Vice President--Sales S. D DILLON Vice President-- National Accounts. West C. RiCKERT LEWIS Vice President-- National Accounts. East RICHARD A PREMO Vice President--Operations Petroleum Chemicals JOHN F KOEHNLE Divisional Vice President 4 General Manager T E LOCKERBIE General Manager--Product Deve/opment 4 Sales Application A. T ROWE Director--Marketing Industrial Chemicals ROGER A. MOSER General Manager H WARREN REES Genera/ Sa/es Manager KERRY C. SORRELLS Sales Manager Instruments R J OSTRANDER Genera/ Manager Ethyl International Petroleum Chemicals M WHITLOCK Genera/ Manager W J. RUSHER General Manager--Sales A. M SCHILS Director--Ethyl S.A. E G AMOLOCHiTlS Managing Director-- Ethyl Hellas Chemical Co. S A. Industrial Chemicals L 3 REYNOLDS General Manager R R. DOWNEY Managing Director--Ethyl S A. Oil & Gas L N. APPLEGATE Director Edwin Cooper J A. HANCOCK Managing Director G R BUCHANAN President--Edwin Cooper, Inc. H A. RIGBY Director & General Manager-- Edwin Cooper Limited E G. PETERS Director--Edwin Cooper Limited Ethyl Corporation ot Canada Limited KENNETH A. FREBERG President C A PARKINSON Genera/ Manager--Sa/es Elk Horn Coal Corporation ROY A CUNNINGHAM President Plastics ROBERT X. HAEFLE Director--Central Development JAMES R LEES Director--Marketing ROLAND E McKENZlE President--Dispensers. Metal Products 4 film Divisions CHARLES W MONTGOMERY Director--financial Controls Dispenser Products Divt$ic~ SAM F COPIA Sales Manager IMCO Container Products D-v/s/on B. HANCEL BONDS President CHARLES MINARIK Vice President--Sales 4 Mar-f MARION HIERMAN President--IMCO ot Canada Metal Products Division - PHILLIPS E. PATTON General Manager E PAUL WINSLOW General Manager--Sa/es Molded Products Division RICHARD F SANDS President ROBERT D BISHOP Vice President 4 General Manager--Packaging Polymer and Pipe Divisions RAY WILKINS President L RAY McCULLEY Sa/es Manager--Pipe RAYMOND M WOLBER Sa/es Manager--Polymer VisQueen Film Products Z . s/on RICHARD W GOODRUM General Manager JOHN K. SHiFFLER General Sales Manager Aluminum H T SMITH Director--Planning & Coordma: WILLIAM H. MORGAN General Manager--Marketing 4 Product Development The William L. Bonnell Company, Inc. LLOYD L. REYNOLDS Vice President 4 Genera/ Managr' WARREN H. BROCKWAY Vice Pres^ent 4 Genera; Sa'6Manager JOHN C`DUNN Vice President--industrial Sales Capitol Products Corpora: z* GEORGE S THUMLERT Executive Vice President & General Manager WALLACE FREMONT Vice President DONALD G. HORNUNG Vice President ETC 16169 6 * % I lIn Thousands of Dollars Except Common Stock Data) ETHYL CORPORATION AND SUBSIDIARIES Years Ended December 31 1975 SALES AND INCOME Nel sales......................... $1,029,220 Income belore income taxes and extraordinary items .. 112,412 Depreciation, depletion and amortization............. 44,390 Income before extraordinary items....... Net income..................... 01,004 01,004 1974 $1,019,559 138,180 40,176 74,297 74,297 1973 $699,002 102,088 33,235 52,884 52,884 1972 $631,599 86,134 34,815 44,707 49,242 1971 $577,058 73,816 32,845 38,240 34,914 1970 1969 1968 1967ID 1966 $556,856 $509,302 $509,072 $468,938 $465,823 70,231 66,044 61,094 51,663 62,876 31,949 29,562 31,076 30,749 28,411 35,582 37,199 33,024 29,524 31,502 31,502 29,662 29,662 37,306 37,306 FINANCIAL CONDITION Working capital .............. Ratio of current assets to current liabilities....... Property, plant and equipment (Net)............. Capital expenditures & acquisitions................ Long-term debt................ Shareholders' equity___ _ _ 206,133 3.53 tol 405,460 100,856 272,712 435,981 200,004 268,902 261,959 229,996 2.57 to 1 3.82 to 1 4.13 tol 4.22 to 1 367,557 281,380 280,440 283,678 195,237 203,910 399,686 37,664 207,581 342,563 31,508 223,261 322,360 24,383 238,834 289,459 209,724 176,499 176,302 129,757 107,244 4.54 to 1 2.71 to 1 3.47 to 1 3.5^ to 1 v '3 to 1 298,771 293,200 269,761 301,345 306,073 64,190 247,757 274,159 53,312 223,165 252,885 64,158 207,550 243,896 26,943 198,263 228,948 59,116 210,724 200,687 COMMON STOCK Weighted average number of shares outstanding^) ,. Earnings per share........... Fully diluted earnings per share assuming conversion of the Second Preferred StockO). Equity per share!*)........... Dividends per share......... 9,398,487 $ 6.09 $ 5.35 *38.78 * 1.30 9,512,470 9,756,992 10,086,799 10,140,533 10,138,482 10,169,972 10,171,893 10,164,357 10,073,508 $ 7.41 $ 5.02 $ 4.03* $ 3.36* $ 3.06* $ 2.77* $ 2.61 $ 2.41 $ 3.21 $ 6.45 $34.61 $ 1.25 $ 4.47 $28.89 $ 1.07% $ 3.65* $25.17 $ .88V2 $ 3.09* $21.64 $ .84 $ 2.85* $19.62 $ .84 $ 2.61* $17.18 $ .75 $ 2.46 $15.73 $ .63 $ 2.29 $13.88 $ .60 $ 2.94 $12.12 $ .58 Before extraordinary items. Alter extraordinary items, would be $4.48 and $4.02 in 1972, $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. Alt prior years reflect the merger oI Oxford into Ethyl on a pooling of interests basis. (2) Including Common Stock equivalents. > (3) It the Second Preferred Stock were converted, its dividend would become $1.82 a share at the present common dividend rate, as against the present $2.40 preferred dividend. (4) Reflects a deduction tor the liquidating value ot the Second Preferred Stock, and is based on the number ot shares outstanding at the end ot each year, treating warrants and common stock options as common stock equivalents. ETHYL CORPORATION 330 South Fourth Street Richmond, Virginia 23219 Historically known as a one-product, one-industry company, Corporation today Is a diversified manufacturer ol petroleum and i chemicals, plastics, aluminum and energy-related products. The has facilities around the world and employs approximately 1 people. It operates more than 60 plants, most of which make h mediates or additives for products that reach the consumer In anc ! Changing... to Serve a Changing World ETC 16171 0 About the Cover In developing new product processes on a larger scale than possible in laboratory glass ware, Ethyl researchers use this 13-gallon reactor. The unit also is used to prepare initial market development samples. Lower Right: Corporate Motto ETC 16173  Financial Highlights (In Thousands of Dollars Except Per Share of Common Stock) Years Ended December 31 1976 1975 Percent Increase (Decrease) Net Sales................................................... $1,135,412 $ 930,10201 22 Income from Continuing Operations........ 69,120 57,554 20 Net Income................................................. 69,080 61,004 13 Depreciation, Depletion & Amortization .. 43,493 38,2100) 14 Capital Expenditures and Acquisitions ... \ Working Capital......................................... 67,656 325,174 108,856 266,133 (19) 22 Earnings per Share i Continuing Operations......................... Net Income ........................................... $ 7.18 $ 7.18 $ 5.72 $ 6.09 26 18 Fully Diluted Earnings per Share Assuming Conversion of Second Preferred Stock Continuing Operations......................... $ 6.26 $ 5.05 24 Net Income............................................. $ 6.26 $ 5.35 17 Dividends per Share................................. $ 1.50 $ 1.30 15 Shareholders' Equity per Share.............. $43.47 $38.78 Weighted Average Number of Common Shares Outstanding ............................. 9,117,525 9,398,487 t (1) Restated to exclude Oxford Paper Division,! in April 1976. 12 (3) Ethyl Annual Report 1976 The second level of the reactor area in Edwin Cooper's expanded Sauget, III., plant. The facilities are used to produce an inter mediate compound tor processing in another part of the same complex. Contents 2 Message to Shareholders 4-17 Operations Review 5 Products and Plants 6 Flow Chart 7 New Generation of Chemicals 18 Financial Results of 1976 24 Financial Statements 28 Notes to Financial Statements 31 Auditors' Report 32 Ten-Year Summary Annual Meeting The annual meeting of Ethyl Corporation's shareholders will be held in the Marshall Room of the John Marshall Hotel, 5th and Franklin Streets, Richmond, Va., at 11 a.m. (EDT) on Thursday, May 5,1977. Formal notices of the annual meeting, proxies and proxy statements will be mailed about April 5, 1977. ETC 16174 MESSAGE TO SHAREHOLDERS To the Shareholders of Ethyl Corporation: The Company's sales in 1976 reached an all-time high. Net income and earnings per share rose over 1975 and were the second highest tor any year in Ethyl's history. Continued emphasis on cost reduction, manu facturing improvements, new products and diversification, coupled with an improvement in the U.S. economy, contributed to the success of 1976. Net sales for 1976 were $1,135,412,000, up 22% from $930,102,000 in 1975. Sales for both years exclude the sales of the Oxford Paper Divi sion, which was sold in April 1976 to Boise Cascade Corporation. Net income for 1976 was $69,080,000, or $7.18 a share, compared with $61,004,000, or $6.09 a share, for 1975. Net income increased 13% while per-share earnings were up 18%. Income from continuing operations, which excludes Oxford Paper, was $69,120,000, or $7.18 a share, com pared with $57,554,000, or $5.72 a share, for 1975. Income from Ethyl's continuing operations was up 20% and the per-share increase was 26%. Income and earnings per share from continuing operations were all-time records. In the U.S., the recovery of the economy contributed to the rebound in sales. In plastics, the consumer market, which was significantly de pressed in 1975, showed impressive improvement. Sales of chemicals benefited from much stronger plastics, automotive and agricultural markets. Aluminum also benefited from improved const-iction and housing activity levels. Economic recovery in other countries.'.,rincipally in Western Europe, was slower, and the impact is shown in lower sales and earnings in those markets. Our 1976 report has been expanded from previous ones. A summary of activities may be found on page 4, followed by substantial background information on the Company's operating areas. On page 6, a new chart illustrates Ethyl's principal raw materials, products and markets. We also call your attention to the description on page 7 of the Company's evolution in specialty chemicals. As we indicated in our interim reports to you, Ethyl's court challenge to the Environmental Protection Agency's (EPA) proposed regulations to phase down the lead content in gasoline was concluded on June 14, 1976, when the United States Supreme Court declined to hear the petition of Ethyl and others to set aside the regulations. However, EPA announced on September 28 that it had amended its controversial planned phase-down in order to avoid causing serious gasoline shortages during the summers of 1977 and 1978. The amended regulations eliminate the 1976 and 1977 requirements and extend the 0.5-gram-per-gallon requirement to October 1,1979--nine months later than originally proposed. The postponement of the lead phase-down regulations will reduce the amount of crude oil required to produce gasoline during the delay and diminish somewhat the strain on the refining industry. The conservation of crude oil is certainly a positive factor in any postponement in view of rising imports and prices and dwindling domestic reserves. The delay in the lead regulations also lessens the impact on Ethyl's antiknock operations, although we still anticipate a continuing decrease in domestic antiknock sales as the use of unleaded gasoline increases commensurate with the number of catalytic converter-equipped cars on the road. Such decreases in domestic antiknock shipments did not materialize in 1976 largely because of the growth in gasoline demand. However, we do anticipate decreases in 1977. (See Petroleum Chemicals summary on pages 9 and 11.) I 1 2 ETC 16175 As with most comparable companies, Ethyl had significant expendi tures in 1976 to comply with environmental laws and the requirements of the Occupational Safety and Health Act. Ethyl's expenditures were about $9.4 million in 1976. The current outlook is for these expenditures to continue in the range of $5 to $10 million annually. Our capital budgeting plans call for approximately $100 million in expenditures annually during the next five years. The greater part of this investment will be in new plants (see page 7). We will continue to step up our research and development investment (see page 15) since we believe this is a vital key to future growth. We continue to pursue potential acquisitions, especially those in the high-technology area. However, most of our immediate future capital expenditures are expected to be for internally generated projects. Our outlook for 1977 is optimistic. As with most companies, the strength of economic activity is important to Ethyl's businesses, particularly the amount of disposable income among consumers, the number of new automobiles sold, new housing starts and the amount of total construction. In 1977, all of these areas should be up and have a favorable impact on Ethyl. Good growth is expected in consumer items, which will be reflected in our sales of detergent intermediates and plastic packaging components for personal care products. The automobile market, which should show a modest increase in 1977, is an important outlet for Ethyl's plastics as well as for chemical intermediates for plastics and rubber products. Construction expenditures should continue to increase in 1977. Housing is the largest outlet for our aluminum area and an important market for our plastics products. Therefore, we continue to target a minimum of 10% earnings growth per year despite the anticipated decline in domestic lead antiknock business. We achieved this in 1976, and we expect to equal or exceed this level in 1977. Our forecasts for the economy, our past performance and our diversifica tion program undergird our confidence in attaining this objective as we continue "Changing: to Serve a Changing World." We express sincere appreciation to our employees, shareholders, customers and suppliers for their continued loyalty and support. We are particularly proud of our employees' performance in the face of many seemingly adverse developments affecting the Company. In February 1976, we introduced some 40 Ethyl managers to a large group of finan cial analysts at a briefing in Houston. The analysts were most compli mentary of the quality, sincerity, dedication and depth of Ethyl's management, and we, too, are very proud of them. Chairman of the Board Chief Executive Officer March 7 1977 Bruce C. Gottwald President ETC 16176 3 OPERATIONS REVIEW A highly diversified manufacturer of petroleum and industrial chemicals, plastics, aluminum and energyrelated products, Ethyl Corporation operates plants and other facilities around the world. Approximately 16,000 people are employed at more than 60 manu facturing sites. The majority of Ethyl's products are sold to other manufacturers for use as intermediates or additives in consumer end-products. Ethyl's net sales in 1976 were $1,135,412,000 and its net income was $69,080,000, or $7.18 a share. This section reports on Ethyl's products and plants and activities concerning them in 1976. A summary: Petroleum Chemicals sales were $417129,000 or 37% of sales. (See pages 9 and 11.) Industrial Chemicals sales were $245 757,000 or 21% of sales. (See page 11.) PlaStiCS products sales were $345,737,000 or 30%of sales. (See pages 11 and 12.) Aluminum products sales were $120,274,000 or 11% of sales. (See pages 12 and 15.) Coal-related revenues were $6,515,000 or 1 % of sales. (See page 15.) Oil and Gas exploration continued in Canada, the North Sea and the U.S. (See page 15.) Research and Development expenditures were $24,790,000, more than half of which weredirected inthe area of new products. (See pages 15 and 17.) Chemical Plants Antwerp. Belgium Baton Rouge. Louisiana Feluy, Belgium Houston. Texas Magnolia. Arkansas Orangeburg. South Carolina Sarnia. Ontario. Canada Sauget. Illinois Stanlow. Cheshire. England Thessaloniki. Greece Plastics Plants Baton Rouge. Louisiana Bedford Heights. Ohio Beividere. New Jersey Blue Island. Illinois Bridgeport. Connecticut Brooklyn Heights. Ohio Carbondaie. Pennsylvania Carlstadt. New Jersey Chicago. Illinois (3) Columbia. Mississippi Drummondville. Quebec. Canada Erie. Pennsylvania Excelsior Springs. Missouri Fairfield. Connecticut Remington. New Jersey Fremont. California Garrettsville. Ohio Goleta. California Hackensack. New Jersey Harrisonburg. Virginia Jeffersonville. Indiana Kansas City. Missouri (2) LaGrange. Georgia LaGrange. Kentucky LaMirada. California Louisville. Kentucky Manchester. Iowa Mississauga. Ontario. Canada North Riverside, Illinois Northvale. New Jersey Pittsfield. Massachusetts (3) Pomona. California Richmond Hills. Ontario. Canada Rockaway, New Jersey Sandston, Virginia Scarborough. Ontario, Canada South Grafton. Massachusetts Terre Haute. Indiana Tiptonville, Tennessee Union City. California Vandalia. Illinois Waterbury. Connecticut Aluminum Plants Carthage. Tennessee Harrisburg. Pennsylvania Kentland. Indiana Meehan icsburg, Pennsylvania Newnan, Georgia New Oxford, Pennsylvania Terminals Cadiz, Spain Dordrecht. Netherlands Guanta. Venezuela Thessaloniki. Greece Ethyl also distributes products to customer terminals around the world Research A Development Facilities Baton Rouge. Louisiana Bracknell. Berkshire. England Detroit. Michigan Houston. Texas Kansas City. Missouri Orangeburg. South Carolina St Louis. Missouri Terre Haute. Indiana Petroleum Chemicals Antioxidants Ashless dispersant/ detergents Additive packages for gasoline and diesel fuel, hydraulic, turbine and gear oils Combustion improver Diesel fuel ignition improvers Distillate fuel antistatic additive Friction modifiers Fuel and oil corrosion/ rust inhibitors Gasoline antiknock compounds Gasoline detergent, deicer. corrosion inhibitors Metal deactivators Marine alkaline reserve agents Metal working oil concentrates and bases Metallic detergents Lubricant oxidation inhibitors Ol soluble dyes Tackiness agents Pour point depressants Viscosity index improvers Industrial Chemicals Alkyl aluminum halides Alpha olefins (detergent & plasticizer) Alpha olefin sulfonates Alum Aluminum alkyls Bromine Bromine chemicals Caustic Chlorinated solvents Ethyl chloride Ethylene dibromide Linear primary alcohols (detergent & plasticizer) Methyl chloride Organophosphorus chemicals Orthoalkylated antioxidants Orthoalkylated phenols and anilines Special organometallics Sodium Vinyl bromide Vinyt chloride Plastics Aerosol actuator overcaps Aerosol valves for can and bottle packaging Bottles and containers (polyethylene, polypropylene and polyvinyl chloride) Custom metal die stamping Decorating services for metal, plastic molded, plastic container products and glass containers Dies and tooling Drawn and extruded rigid and collapsible metal containers Engineering plastics molded custom parts Extruded plastic containers Films for industrial, agricultural, disposable, shrink, stretch, bundling and packaging applications Mechanical spray pumps for packaging Metal and plastic container closures Molded plastic powder boxes, compacts, soap boxes, talc containers, deodorant sticks, lip balm dispensers, jars and housewares Polybutytene water service pipe Polyvinyl chloride pipe and fittings for water and sewer applications Pslyvinyl chloride resins and compounds Aluminum Aluminum billets Aluminum windows and doors Decorated aluminum products for the floor covering and home building industries Extruded aluminum shapes in a variety of painted and anodized finishes for windows and doors, store fronts and curtain walls, boats, swimming pools, trucks and trailers Residential lawn buildings ETC 16178 5 > Product Areas Ethyl's Major Areas Principal Raw Materials Major Ethyl Products Typical Customer Products & Uses Petroleum Chemicals 1976 Sales: $417,129,000 - vfnnomaI cii s B 1976 Sates: i.^245,757/900 AnJJlne^^r ^`--SPhanol ^'^^^WwdnuSi ^ S': -; Chlorine '; ' 7. rSromine-iicIvJirftie . :CrST3*-T3-C*s:t^L:'.->'r.<V?^C--.'-.4u*:-- *r.~. *rV;-"'-*<V'"*;^"U' cS^^Syntertc Mnear.jy y-^in,V^r* ~-: alcohols L-'-JJaear alpha oiedns pjfi'f-Qrthoaikylated i v - anilines 'iv?-fbrthoalkylate<f f, '.Vr ' 'phenols v *./ ' ' "^Aiumlrusn alkyls : .. '.-. Bromine & ..'' 1 V- -OeiWathws 'W' i'Cetergents ^-^Plasticizers for S^:-^ny1 plastics iafcC?=*- Agricultural f^terbfcides&.insecticides fe^-^Antioxidants >rV;Catalystsfor rubber '*'-a plastics S#Fiaaneratardants Unyi chloride s. .y ; monomm-'&gj*?rXow density ':* lpolyethylene fllgh density :-~gd polyethylene -K ^Poiypfopytene^ ?SisK V"~v - --- i-::K?`Polylnj3 chloride r^l-nsins & compounds ^ Polyeth^ne ten ^ feptoflc bottles & jars Molded closures r,- Molded auto ' components & Molded powder boxes "; - & compacts, . fer.y~ - - * C ': Disposable diapers ^Building Sconstruc- pf;?c ;bon products Automobile parts jp- Packaging for: ^Cosmetics & perfumes Detergents & house- hold chemicals --ffoodoils & syrups ETC 16179 ANEW GENERATION OF CHEMICALS Ethyl Corporation was the first marketer of lead antiknock compounds. It is still the largest manufacturer in this worldwide market. These chemicals continue to serve the economies of the world by conserving crude oil and by making possible the production of high-quality gasoline at the lowest possible cost. More importantly, Ethyl's research and manufacturing experience in antiknock chemicals has opened up new opportunities in the chemical business. For over 50 years, Ethyl has conducted research to reduce the cost of the original process for manufacturing lead antiknocks and to find better antiknock additives. While this effort has been successful in meeting its objectives, the extent of its impact on Ethyl goes far beyond lead antiknocks to the creation of a broad range of unique chemicals. Sales of non-lead-antiknock chemicals reached $347.4 million in 1976, or 30% of total sales. In order to make antiknock compounds more economically, a means had to be developed for low-cost production of the intermediate hydrogen chloride. Necessary technologies were developed which led Ethyl to the manufacture of vinyl chloride, trichloroethylene, perchlorethylene and methyl chloride. Ethyl's original polyvinyl chloride (PVC) know-how was obtained from Europe in exchange for the Company's oxychlorination process for vinyl chloride. The Company made further refinements to produce PVC for its own plastic converting operations and for sale to other manufacturers. The search for economical ethylene dibromide--a component of lead antiknock compounds-led Ethyl from a seawater recovery operation to a new plant utilizing the bromine-rich brine fields of Arkansas. With this base in bromine, Ethyl began production of vinyl bromide, a flame retardant. Utilizing bromine recycling capabilities, the Company in 1976 began producing an herbicide intermediate and is scheduled to produce germicide and surfactant intermediates early in 1977. Both of these new plants are at Magnolia, Ark. In looking for an alternate method to make lead antiknocks, the Company developed a process using aluminum alkyls. These alkyls are ncr' produced and marketed as catalysts for making polyethylene, polypropylene, polybuf- ^iene and other rubber polymers. Building on this aluminum alkyl technology, Ethyl developed unique processes to produce linear alcohols and alpha olefins from ethylene for use in household detergents and in plasticizers for vinyl products. The search for a non-lead antiknock also led Ethyl scientists to discover a unique, economical method for producing orthoalkylated anilines and phenols. These products have broad acceptance as intermediates for agricultural pesticides and for antioxidants for rubber, plastic and petroleum products. Out of the activity aimed at chemically combining hydrocarbons and metals, Ethyl developed a process for adding various alkyls, or hydrocarbons, to phosphorus. These products are used as intermediates for pesticides. The Company continues to develop such new products for commercialization. One of Ethyl's goals has been to develop an antiknock superior to tetraethyl lead (TEL). While a product better than TEL has not been found, the program has developed MMT-a manganese antiknock. Ethyl believes MMT is an effective antiknock for unleaded gasolines. (See page 9.) In addition to aiding the development of highly efficient automobile engines requiring high-octane gasoline while conserving crude oil in the process, lead antiknocks have given rise to a broadly based, highly technical chemical business which is a mainstay of Ethyl today. Ethyl's research continues to be innovative and to present new investment opportunities. This innovation can be seen in 11 new plant start-ups completed or in process in a two-year period--each resulting from internal developmentrepresenting total investments of more than $100 million. Plants/Products Aluminum Alkyls Herbicide Intermediate Orthoalkylation Expansions MMT Antiknock Germicide & Surfactant Intermediates Drug Intermediates Insecticide Intermediates New Detergent Product Locations Belgium Arkansas South Carolina Texas South Carolina Louisiana Arkansas South Carolina Canada Arkansas Texas Start-i 1976 1976 1976 1977 1977 1978 1977 1977 1976 1978 1978 ETC 16180 7 Left: Part of the reactor area in a new addition to Edwin Cooper's Sauget, III., plant. Below: A process heater in the new MMT production facilities at Orangeburg, S.C. Petroleum sales in future years. These competi tive pressures, coupled with weakness Chemicals of the British pound, depressed prices and reduced earnings significantly. In Ethyl produces a broad range of Canadian markets, the Company along additives for petroleum products. with all Canadian industry was subject Principal among these are antiknock to wage, price and profit controls, compounds, which are added to gaso which are expected to continue line by refiners to increase octane through 1978. number and improve performance. The Ethyl International began construc Company also produces a number of tion in 1976 of bulk storage terminals special-purpose additives for automo in Indonesia and Singapore, with com tive and industrial uses. pletion scheduled in early 1977. Revenues from worldwide petroleum Another terminal is scheduled for com chemicals sales in 1976 were up 19%. pletion in mid-1977 at Bataan, The The results of the Edwin Cooper Divi- Philippines. These terminals, and sion, acquired in July 1975, were expansion of other facilities, are included for the first time on a 12- designed to reduce distribution costs month basis. and solidify market position. In the U.S., sales revenues from On June 14,1976, the U.S. Supreme petroleum chemicals were 25% higher Court declined to review the petition than 1975 principally because of higher of Ethyl and others to set aside federal prices necessary to offset increased regulations to phase down lead in costs and because of the contribution gasoline. This action let stand the of Edwin Cooper. Domestic antiknock U.S. Court of Appeals decision in favor compound shipments increased of the Environmental Protection slightly as a result of growth in U.S. Agency (EPA). On September 28, EPA gasoline demand and the resulting announced that it had amended its pressures on the refining industry to controversial phase-down plan and boost gasoline production. This factor, extended the various steps in the which favors the use of antiknock phase-down, including the final limit of compounds, more than offset increased 0.5 gram per gallon, to October 1,1979 U.S. sales of unleaded gasoline and --nine months beyond the original reduced sales of premium gasoline. date. Sales of MMT--Ethyl's manganese Most other countries continue to antiknock additive for unleaded gaso recognize the importance of lead anti line--grew rapidly in the first half but knocks in conserving crude oil and as were limited by plant capacity during an energy extender. Therefore, these the second six months of 1976. Expan countries have been more conserva sion of MMT production facilities at tive in imposing restrictions on lead in Orangeburg, S.C., was begun during gasoline. For example, Canada froze the year. The larger facilities are automotive emissions standards at scheduled to begin operation in early 1976 levels for car models through 1977. Construction of a larger MMT 1981 making it practical to meet the plant at Baton Rouge, La., is planned rules using leaded gasoline and no for early 1978 start-up. Questions catalytic converters. recently have been raised by auto Sales of other petroleum additives mobile manufacturers as to whether were up slightly in 1976 principally as MMT adversely affects performance of a result of domestic price increases. exhaust catalyst systems. Ethyl's tests Gasoline antioxidant sales were at show that MMT does not interfere with record levels, while sales of cetane the performance of such exhaust improvers continued strong. Gasoline catalyst systems. The Company has detergent sales decreased as competi been advised that a Congressional tion in the product area strengthened. committee is considering possible proposals to restrict the use of MMT pending further testing. Any significant restrictions on the use of MMT at this time might result in a write-off of investments in the range of $4 to Ethyl of Canada completed facilities at its Sarnia, Ontario, plant to produce a new gasoline detergent for the Canadian refining industry. The Edwin Cooper Division's 1976 sales revenues were up 10% overfull- $5 million. year 1975 levels, all from volume in In foreign markets, 1976 sales creases. Lubricant additives shipments revenues from antiknocks were down to markets in North and South America 7% from 1975 due to continued slow increased sharply and shipments to all economic recovery and lower prices areas of Europe recovered from resulting from weakness of the depressed 1975 levels. The Middle British pound. East was the only major market area Ethyl maintained its international where shipments were lower in 1976. market position in antiknocks in 1976 Edwin Cooper's worldwide volume sur despite strong competitive pressures passed 1974's record levels. Depressed from both foreign and U.S. producers margins were applicable to most of in anticipation of reduced domestic the lube additive industry in 1976, 9 4 I Mautx- principally due to increased costs and Canadian wage, price and profit competitive pressures. Improved oper controls were applied in 1976 to Ethyl ating margins and increased sales are of Canada's industrial chemicals sales. expected in 1977. However, demand was strong, espe A $7 million addition to Edwin cially for aluminum alkyls. Cooper's Sauget, III., plant to produce At Orangeburg, expansion of facili a new line of automotive and industrial ties for an insecticide intermediate was gear oil additives went into operation completed at mid-year. By year-end, in the fourth quarter. Additional capac an orthoalkylated products expansion ity for two major components used in neared completion there. Other 1976 automotive and diesel crankcase lubri activities at Orangeburg included cants is expected to be added in 1977. planning and design of a new plant for An expansion of Sauget's blending 330 antioxidant (used in plastics, facilities also was completed in 1976. resins, rubbers and waxes) and a new In 1976, Ethyl sold the assets of its pharmaceutical intermediates plant. emission-measuring instrument busi Both are scheduled for start-up in 1977. nesses because of continued poor profitability. The Company retained its refinery systems business to continue this specialized service to the petro leum industry. Industrial Chemicals Most of Ethyl's basic and specialty chemicals have emerged from tech nology developed by the Company's researchers. A number of these chemi Expansion activity at Ethyl's com plex at Magnolia, Ark., in 1976 was two-fold. A new facility to produce a herbicide intermediate was completed. Construction was begun on an alkyl dimethylamines plant scheduled for start-up in mid-1977. Total cost of these two plants will be approximately $15 million. Products from the fatty amines plant will be sold for use in making germicides, corrosion inhibi tors and surfactants. Design of a new Magnolia facility to produce yet another agricultural intermediate for cals are specialized intermediates for products used in such diverse and insecticides was begun in 1976. Start-up of this unit is scheduled for Lett: A new aluminum alkyls plant at Feluy, Belgium, began supplying customers in Europe, the Middle East and Africa during the fourth quarter. growing areas as surfactants, lubri cants, pesticides, pharmaceuticals, plastics, elastomers and textiles. (See page 7.) early 1978. Expansion of Ethyl's linear olefin plant at Houston was completed in 1976. Modifications of the olefin plant Below: A computer is used by Imco Container Products Division to design containers to The Industrial Chemicals Division in Baton Rouge is responsible for U.S. begun during the year to provide greater product flexibility are expected customer specifications. sales, while Ethyl of Canada sells in that to be finished in 1977. A major new I country. Sales elsewhere in the world are handled by Ethyl International. Industrial chemicals sales worldwide orthoalkylation unit, under construc tion at Houston, is scheduled for start up in mid-1977. Ethyl completed an i* increased 17% in 1976 primarily be cause of volume. They exceeded the aluminum alkyls blending and trailer loading facility at Houston to improve i record levels of the previous year. service to the polymer catalyst market. In the U.S., sales were up nearly This market also was served from 17%. Domestic gains were made in Orangeburg with production of a new agricultural chemical and pharma catalyst--an organomagnesium com ceutical intermediates. Sales of or- pound. Modifications were also made ganometallics rebounded from the at Houston in 1976 to produce a high relatively slow pace of 1975. Sales purity grade of ethylene dichloride. gains also were achieved in both the Otherindustrial chemicals expansion linear alcohol and linear olefin markets, in 1976 included production facilities and profits increased marginally. fora pharmaceutical intermediate at Ethyl International's industrial Sarnia, Canada. chemicals sales again increased in 1976. Slower economic recovery in Europe created generally depressed Plastics prices and lower earnings. Current Plastics products, a major business market position and penetration line for Ethyl, include a variety of pack should enable Ethyl to take advantage aging films, molded parts, closures, of anticipated economic recovery aerosol valves, dispenser pumps, in 1977. polyvinyl chloride (PVC) resins and In September, Ethyl dedicated an compounds, PVC pipe and customized $11 million aluminum alkyls facility at plastic bottles and containers. Feluy, Belgium, near Brussels. The Net sales of plastics products in plant began supplying customers in creased 25% in 1976 with recovery Europe, the Middle East and Africa rapid early in the year and somewhat during the fourth quarter. A study is slower at year-end. under way for the addition of product Sales of the Polymer Products lines at the Feluy site to include Division recovered from 1975 lows to orthoalkylated chemicals and other 1974 record levels with both volume products for the agricultural, plastics and prices higher than anticipated. and surfactant industries. Emphasis continued on basic product ETC 16184 11 lines--rigid PVC compounds and specialty emulsion resins. The market for PVC bottle compound contributed strongly in 1976. A position was established in the television cabinet market for injection molding com pound on the strength of its fire-resist ant properties. Continued growth for Polymer Products is forecast for 1977. Pipe Products Division sales in creased about 75% over 1975 as the construction industry began its recovery in 1976. Although prices improved 17% in 1976, the market was not strong enough to support prices adequate to cover increased costs. In 1977, sales growth and price improve ment are expected. The Imco Container Products Division, which ranks among the largest American producers of poly ethylene, polyvinyl chloride, and other clear, rigid plastic containers, broke sales records in all end-use markets in 1976 with a total sales increase of 30%. Strong performance is expected to continue into 1977. Through its reputa tion as a leader and innovator in plastic container packaging for the toiletries and cosmetics industry, Imco con tinued to provide the design and decorating expertise needed to mer chandise highly competitive skin and hair care items. Imco will increase concentration on development of the medicinal and health markets in 1977. Regulatory pressures continue in the pharmaceutical area and Imco is en gaged in resolving questions of drug efficacy, contamination, lot control and packaging. Imco also has established itself as a leader in food packaging. Applications for edible oils, syrups, squeezable mustards, juices, sauces, extracts and condiments were intro duced in 1976. Additional gains in this market are expected in 1977. The Dispenser Products Division's 1976 operating results showed a slight improvement over 1975. Market un certainties due to concerns over the ecological effects of certain aerosol propellants continued to affect usage throughout the year. Major emphasis in 1976 was on cost reduction, con solidation of product lines and improvement in the performance of mechanical non-aerosol spray pumps --now a method of dispensing a wide range of products. Sales in 1977 are expected to increase with pump sales as the largest contributor--somewhat offsetting a decline in aerosol valves. The Metal Products Division recovered from its 1975 low to 1974 sales levels with significant gains in closures, decorative cans and metal tubes. Substantial growth in these areas is forecast for 1977. A major new metal closure line, "NO MAR," was introduced successfully to the cosmetics industry in 1976. A key feature of NO MAR closures is that they do not mar or scratch in han dling, enabling customers to use them in automatic capping equipment. Sales of the Molded Products Division rebounded substantially in 1976 from 1975's depressed levels. All product lines showed considerable strength throughout the year, and it is anticipated that they will show sub stantial growth again in 1977. Con tinued emphasis was placed on cost reduction programs in 1976. The Bramalea, Ontario, Canada, plant was consolidated into the Richmond Hills plant in Ontario in 1976. A new line of compacts, "HERITAGE," was intro duced in the fourth quarter. Several items were redesigned in the housewares line to provide a more modern appearance. Liner-less closures also were added to the closure product line. "VIsQueen" Film Products Division sales in 1976 increased by 13%. VisQueen was able to improve its market position in areas selected for concentrated effort including the agricultural market, soft goods industry, consumer disposables and laminated film for food packaging. In addition to major sales efforts, pro grams were begun in 1976 to consoli date production for lower costs. Quality improvements were made to maintain VisQueen as a leading sup plier of low density polyethylene film to major industries in the U.S. Aluminum The 1976 sales gain in aluminum products reflected recovery in the con struction and home-improvement markets traditionally served by two of Ethyl's subsidiaries--The William L. Bonnell Company, Inc., of Newnan, Ga., and Capitol Products Corporation of Mechanicsburg, Pa. Extrusions manufactured by Bonnell and Capitol are used in residential windows and patio doors, curtain walls and window walls in high-rise build ings, store fronts, advertising signs, mobile homes, automobiles, trailers, recreational vehicles, boats and a variety of other applications. More than 36,000 extruded shapes are offered by Bonnell and Capitol. Both subsidiaries had good years in sales and in earnings. Although alumi num raw material prices advanced, extrusion prices generally were raised sufficiently to offset these cost increases. Progress was made during the year in programs designed to save both energy and raw materials. Thermalized aluminum extrusions produced by Bonnell continued to gain broad acceptance as a useful energy saving innovation that reduces heat loss from windows and doors. In 1976, Bonnell installed equipment at New nan, Ga., to pour urethane into ex truded aluminum sash or frame members to provide superior insulat- Right: An Imco Container quality control inspector checks the threads on a custom container as part ot this division's specialty work. Below: Ink samples are sele* `^d by an imco Container employee in preparation ip- decora tion ot customized plastic containers. ' t I 12 ETC 16185 Paper Ethyl went out of the paper business when the Oxford Paper Division, acquired by Ethyl in August 1967, was sold on April 26,1976, to Boise Cas cade Corporation for approximately $90 million cash. The sale included Oxford's pulp and paper mill at Rumford, Me., and about 335,000 acres of timberland. Ethyl decided to sell Oxford because there are better long term investment opportunities in its chemicals and plastics businesses than in the paper business. (See Discontinued Operations, page 28.) Lett: Hand assembly remains an important factor in assuring quality in Capitol Products' production ot aluminum thermal-break windows. Below: Capitol's aluminum thermal-break windows ease cleaning ol inside sash panels, increase resistance to condensation and aid energy conservation. ing qualities. The urethane-aluminum products are primarily for architectural applications. They supplement Bonnell's complete line of PVC-aluminum thermalized extrusions currently used in residential housing. Capitol Products also experienced a sizeable increase in residential win dow and door sales. While part of the increase came from the recovery of the multi-family housing market, most of it resulted from a wider distribution network, which expanded sales into the larger single-family housing mar ket. In addition, Capitol experienced a strong sales trend toward its new energy-saving product lines. Thermalbreak windows, first introduced in 1974 to reduce heat loss and to eliminate frame condensation, were comple mented in 1976 by a thermal-break patio door. In 1977, two additional thermal-break window products will be added to provide additional inroads into the growing market for energy saving products. Expansion plans for 1977 include a new extrusion press for the Carthage, Tenn., plant of Bonnell. This new press will represent about a one-third in crease in the capacity of this plant. It is expected to be in operation by the third quarter of 1977. Coal Elk Horn Coal Corporation conducts Ethyl's coal-related activities. Elk Horn owns approximately 130,000 acres of coal land, primarily in Eastern Ken tucky, part of which it leases to others. An Elk Horn subsidiary, West Virginia Belt Sales and Repairs, Inc., with offices and warehouses in Mt. Hope, W. Va., and Wayland, Ky., makes and markets a broad range of mine and mill supplies. Ethyl currently owns about 96% of the outstanding stock of Elk Horn. On September 1,1976, the headquarters of Elk Horn were moved from Beckley, W. Va., to Ethyl's corporate head quarters in Richmond, Va. Depressed conditions in the coal industry in 1975 continued into 1976, with the spot market for steam coal extremely weak to non-existent. This caused a decrease in coal production from Elk Horn properties and a result ing decline in revenues. Coal produc tion from Elk Horn properties was 2.8 million tons in 1976 versus 3.2 million tons in 1975. Oil and Gas Exploration Exploration programs are conducted by Ethyl in cooperation with other com panies in Western Canada, the North Sea and in Louisiana, Texas and Oklahoma. In 1976, Ethyl's joint exploration program in Canada with BP Canada Exploration included seven commer cial discoveries. Additional develop ment and exploration wells are planned for 1977. In the North Sea, exploratory drilling was unsuccessful in 1976. Additional drilling is planned in 1977. A joint exploration program with Amerada Hess Corporation was suc cessful in 1976 with the completion of a gas well in Vermilion Parish, La. The Company has a 50% working interest in this well and surrounding acreage. Additional exploration and develop ment wells are planned in South Louisiana in 1977. Ethyl has 26,000 acres leased in Matagorda County, Texas, but no operations were conducted on this acreage in 1976. An agreement has been reached for another operator to explore this property further. Ethyl is the owner and 100% interest operator on approximately 13,000 acres under lease in the Anadarko Basin in Western Oklahoma. Two wells have been drilled there and some oil and gas has been produced. Addi tional development is needed to deter mine its long-term commercial viability. Research and Development Ethyl received 114 U.S. patents in 1976. The Company currently holds more than 1,950 unexpired U.S. patents. There were also 115 foreign patents received, bringing the total maintained abroad to 850. New Product Research: Intensive application development of MMT, Ethyl's manganese antiknock for un leaded gasoline, continued success fully throughout 1976. Emphasis was on demonstrating compatibility with the changing automotive emissioncontrol systems that are designed to meet the more stringent emission standards. Research on other petroleum addi tives included the synthesis of com pounds of interest to Edwin Cooper and development of a new carburetor detergent to complement Ethyl's present product line. Efforts to expand the Company's line of agricultural chemical intermediates included start-up of a new facility at Magnolia, Ark., and completion of de velopment of processes for several new agricultural chemical intermediates. Ethyl's efforts in research, develop ment and production of bulk pharma ceutical intermediates have yielded new opportunities. One drug ingredient is now commercial, and others will be produced upon plant completions at Orangeburg, S.C. The Company has extensive process research on several other new drug intermediates in pro gress and may begin production of these in 1977. 15 ETC 16188 In the area of alcohol-olefin products and derivatives, emphasis continued on major cost reductions. Plans are being made to start up in 1977 and then operated on leaded gasoline. Key to the lean-burn program at Ethyl has been the use of the patented Turbulent Flow Manifold (TFM). Be support sales from a new alkyl di- cause it improves mixture distribution 1 methylamines plant at Magnolia. These among the cylinders, the TFM effec products are used in the manufacture tively reduces emissions through leanof surfactants, germicides and corro mixture operation while maintaining sion inhibitors. good driveability. When the TFM is I A process for a new detergent addi combined with other simple com tive was developed and a manufactur ponents and engine adjustments, it is ! ing facility is under construction. A marketing program has begun on a new organic detergent builder. Research continues on promising surfactant compounds for tertiary oil recovery operations. called theTurbulentFlowSystem(TFS). As reported last year, a 50,000-mile, EPA-type durability test was conducted using a 1975 car equipped with the TFS and exhaust port liners and ther mal reactors. Emissions from this car Ethyl's research on newflame retard were below the levels of the stringent ants has made available a series of I developmental bromine and r phosphorus-based organic chemicals 1975-76 emissions standards for California. After 50,000 miles, fuel economy tests showed the car gave a designed to meet the needs of the combined city-highway fuel economy textile and plastic industries. One is that was 8.5% better than the average particularly promising for cotton and fuel economy of similar 1975 cars another for polyester fabric. meeting the California emission stand Research on bromine compounds ards. During 1976, the durability test for other applications continues. A was continued through 100,000 miles. plant-scale sewage disinfection study Throughout the test, the car achieved of bromine chloride, conducted in the desired low emission levels and cooperation with the EPA and other good fuel economy. The 100,000-mile organizations, was made in 1976. test demonstrated tha^ he TFS-reactor Further sewage disinfection testing is combination can be a life-of-r,s-car planned in 1977. system in contrast to the catalyst. Substantial progress was made Cooperative development efforts con during the year in the introduction of tinued with several automotive and injection molded PVC for TV cabinets, supplier companies throughout the and a new PVC resin was developed world, particularly in Europe where for use in foamed plastisols for floor the TFS has been well received. ing. Research is in progress on orien Another continuing program is the tation processes for PVC and other research on particulate traps to cap plastics for lower-cost packaging ture most of the lead that normally containers. Ethyl is building a market develop would be exhausted from cars using leaded fuels. Left: Development of improved quality control procedures lor Ethyl's products is an important phase oI R&D work. Below: The Company was recognized in 1976 by the American Revolution Bicentennial Administration for its contributions to the celebration of America's 200th birthday. OVUT'O/v Certificate of Official Recognition ment facility for the production of highpurity phosphonitrilic chloride, which will be used in elastomers, flame retardants and other products. Good progress was made in 1976 in the first full field year of a joint hardrock mineral exploration program on Doyon, Limited, land in Alaska. Research on coal and lignite as raw materials for the manufacture of chemicals continued, with a coopera tive research agreement initiated with a major Japanese chemical company during the year. An extensive geologic study wasmade of Elk Horn Coal's properties. New infor mation isbeingobtainedfrom a program of diamond drilling and field observa tions, including new coal quality data. Automotive Emissions Research: For the past several years, Ethyl's research on low-emission systems that are compatible with lead antiknocks has centered on the lean-burn tech Public Service Again in 1976, financial support was provided to civic, charitable and educational organizations, primarily in communities where Ethyl has facilities. A Special Bicentennial Edition of ETHYL DIGEST was prepared and distributed to shareholders, employees, customers, the media, members of Congress and other government officials during 1976 with excellent reception. Company executives addressed educational and civic organizations throughout the U.S. during the year on the subject of free enterprise and busi ness credibility. As part of Ethyl's observance of the Bicentennial, the Company sponsored a series of col lege and university lectures on market economies and the free enterprise sys tem by Dr. Massimo Salvadori, history Etftyf Corporation JAcmScr J/ancnaf3ictn?mmnf BusinessA fftnrict- nique (low proportions of gasoline with ai r), because it offers the desi rable combination of low exhaust emissions and good fuel economy. In 1976, one professor emeritus of Smith College. The 1977 DIGEST was in preparation at year-end. This edition will attempt to deal with "THE FUTURE." Publica U.S. car company introduced its own tion is scheduled for the second quar design of a lean-burn system that met ter of 1977, and copies will be sent current emission standards and to shareholders. 17 ETC 16190 Financial Results 1976 Net Sales The following table sets forth Ethyl's net sales represented by each of its lines of business from continuing operations for the period 1972-1976: Net Sales by Lines of Business (In Thousands of Dollars) 1976 Net Percent Sales of Total 1975 Net Percent Sales of Total Chemicals: (a) Domestic .... $ 468,263 Foreign ...... . 194,623 Plastics (b).... . 345,737 Aluminum...... . 120,274 Coal (c) ........ 6,515 Total (d). .51,135,412 41% 17 30 11 1 100% 5387,804 170,997 275,659 86,719 8,923 $930,102 42% 18 30 9 1 100% 1974 Net Percent Sales of Total $337,499 149,935 306,076 100,234 10,716 $904,460 37% 17 34 11 1 100% 1973 Net Percent Sales of Total $248,043 104,761 146,323 97,918 41% 18 25 16 $597,045 100% 1972 Percent Safes of Total $242,553 85.560 132.108 85,193 44% 16 24 16 $543,414 100% (a) Includes Edwin Cooper from its acquisition in July 1975. (b) Includes VCA Corporation from its acquisition in April 1974. (c) Elk Horn Coal Corporation acquired in January 1974. (d) 1975 and prior years restated to exclude Oxford Paper Division,sold in April1976. Profit Contribution The following table shows, with respect to the Company's lines of business, operating profits from continuing operations exclusive of income taxes, discontinued operations, extraordinary items and certain corporate expenses that are not practical to identify with a particular line of business. Sales (Continuing Operations) In Millions of Dollars Operating Profit by Lines of Business After Identifiable Corporate Expenses (In Thousands of Dollars) 1976 1975 1974 1973 1972 Operating Percent Operating Percent Operating Percent Operating Percent Opera'-.; Percent Profit of Total Profit of Total Profit of Total Profit of Total Profof Total Chemicals: (a) Domestic.............5109,543 61% Foreign.............. 27,175 15 Plastics (b)........... 32,484 18 Aluminum............. 9,865 5 Coal (c) .............. 2,058 1 Total (d) .... 6181,125 100% 5 90,070 56% $ 78.008 46% 42,723 26 39,427 23 17,209 11 43,723 26 7,858 5 3,362 2 3,603 2 5,518 3 6161,463 100% 6170,038 100% $ 69,951 56% $ 73.5:2 61% 26,074 21 20.627 17 18,842 15 14.554 12 10,417 8 11,197 10 ______ ____ ______ ____ $125,284 100% $119.923 100% (a) Includes Edwin Cooper from its acquisition in July 1975. (b) Includes VCA Corporation from its acquisition in April 1974. (c) Elk Horn Coal Corporation acquired in January 1974. (d) 1975 and prior years restated to exclude Oxford Paper Division, sold in April 1976. 4 The operating profits used for purposes ol the above table include charges for gen eral 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 comprise financing costs (net of investment income), research and development expense in new areas, exploration costs and other unallocated charges, as shown in the following table: 1976 Net Financing Costs............................ 513,825 Research and Development- New Areas...................................... 9,785 Exploration Costs--Oil, Gas &Minerals... 4,734 Other--General and Administrative ...... 23,326 Total.......................................... $51,670 1975 $13,400 9,467 11,496 20,641 $55,004 1974 $ 9,463 8,768 6,413 18,832 $43,476 1973 $ 2,750 7,873 1,315 $17,282 $29,220 1972 510,941 5,564 2,337 16,865 335,707 67 68 69 70 71 72 73 74 75 76 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- ETC 16191 out allocations, it is not practicable in management's judgment to make accurate allocations within the chemicals line of business to determine the relative contribu tion to the Company's operating profits by classes of chemical products. Because lead antiknocks (the largest contributor to chemical sales and profits) are inter related with certain other chemical products, any substantial reduction or elimina tion 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) The following table sets forth the amounts and percentages of net sales from con tinuing operations of each of the classes of similar products for the period 1972-1976. 1976 Net Percent Seles of Total Chemicals: Petroleum (a) 3 417,129 37% Industrial ... . 245,757 21 Plastics (b).... . 345,737 30 Aluminum...... . 120,274 11 Coal Cc)......... 6,515 1 Total (d) 31,135,412 100% 1975 Net Percent Sales of Total 3349,079 209,722 275,659 86,719 8,923 $930,102 OO 37% 23 30 9 1 1974 Net Percent Sales of Total $298,218 189,216 306,076 100,234 10,716 $904,460 33% 21 34 11 1 100% 1973 Net Percent Sales of Total $243,624 109,180 146,323 97,918 41% 18 25 16 $597,045 100% 1972 Net Percent Sales of Total $225,993 100,120 132,108 85,193 42% 18 24 16 $543,414 100% (a) Includes Edwin Cooper from its acquisition in July 1975. (b) Includes VCA Corporation from its acquisition in April 1974. (c) Elk Horn Coal Corporation acquired in January 1974. (d) 1975 and prior years restated to exclude Oxford Paper Division,sold in April1976. Lead antiknock compounds (which are included in Petroleum Chemicals sales shown above) remain the Company's principal product and contribute to operating profits a substantially higher percentage than their 28% contribution in 1976 to net sales. Management's Discussion and Analysis of the Consolidated Statements of Income Continuing Operations 1976 Compared to 1975 Net sales for 1976 increased $205.3 million (22%) from 1975. Higher sales volumes and selling prices in Ethyl's domestic chemicals, plastics and aluminum lines of business, together with the inclusion of the sales of Edwin Cooper, acquired in July 1975, more than offset lower sales revenues from foreign antiknocks reflecting weakness of the British pound and competitive pressures. Cost of goods sold in 1976 increased $176.2 million (25%) from 1975 with the result that the gross profit margin for the Company declined from 25.3% in 1975 to 23.2% in 1976. The higher cost of goods sold was due to the higher sales volumes dis cussed in the previous paragraph in addition to increased costs for labor, raw mat terials and energy. Also, cost of goods sold during 1975 was favorably affected by inventory reductions which resulted in liquidations of LIFO inventory quantities car ried at lower costs prevailing in prior years compared with 1975 costs. (See Note 5 in the Financial Statements on page 29.) (i Domestic chemicals operating profit for 1976 increased by $19.5 million (22%) over 1975 and was an all-time record. Contributing to this increase were a slight increase in lead antiknock compound shipments and prices for the year and higher sales volume of industrial chemicals, which exceeded the record levels of the previ ous year. In addition, sales of Ethyl's manganese antiknock additive were substan tially higher than 1975's modest levels. Plastics operating results were $15.3 million (89%) above 1975 although below the record level set in 1974 with the recovery of the economy being the major factor for this improvement. Significant gains were recorded in customized plastic bottles and containers, polyvinyl chloride (PVC) resins and compounds, molded parts and closures while "Visqueen" film products, although above 1975, did not show as substantial a gain as other plastic products. In addition, dispenser products were slightly improved over 1975 despite the market uncertainties due to concerns over the ecological effects of certain aerosol pro pellants which continued to affect usage throughout the year. Aluminum showed a gain of $2 million (26%) over 1975 reflecting the recovery in the construction and home improvement markets. Selling prices generally were raised sufficiently to offset Income In Millions of Dollars 100 67 68 `69 -70 '71 '72 73 74 75 76 ' Before Extraordinary Items ETC 16192 19 Financial Results 1976 Sales Price Index higher aluminum raw material prices which increased during 1976. Foreign chemicals profit, on the other hand, was down $15.5 million (36%) from 1975 due to continued slow economic recovery, principally in Western Europe, and lower antiknock reve nues reflecting price weakness due to a decrease in the British pound and competi tive pressures. The decline in coal profits of $1.5 million (43%) reflects the depressed conditions in the coal industry that existed in 1975 and continued into 1976. Depreciation and depletion of property, plant and equipment and maintenance and repair costs for 19/6 increased $5 million (14%) and $9.4 million (23%), re spectively, from 1975 due mainly to capital expenditures, the full-year effect of the acquisition of Edwin Cooper and generally higher costs. Labor and employee benefit costs increased $39.9 million (19%) in 1976 over 1975 principally due to an increase in the number of employees reflecting higher plant operating rates, the Edwin Cooper acquisition and inflation. Selling and general expenses in 1976 increased $4.9 million (4%) from 1975 due primarily to the full-year impact of the Edwin Cooper acquisition and inflationary cost pressures on salaries which were offset in part by lower exploration costs charged to operations in 1976 compared with 1975. Miscellaneous income in 1976 increased $3 million (58%) from 1975 due mainly to higher investment income resulting from a larger amount of funds invested in short-term securities reflecting the proceeds from the sale of the Oxford Paper Divi sion in April 1976 although average yields in 1976 were lower than in 1975. Interest and financing costs in 1976 increased $4.3 million (22%) from 1975 due mainly to higher levels of borrowing in 1976 and higher interest rates. Income taxes in 1976 increased $11.4 million (23%) from 1975 due to higher income before taxes. The effective income tax rate in 1976 of 46.6% was slightly higher than the 1975 rate of 45.9% due principally to a combination of several factors including: (1) lower capital gains related to Elk Horn Coal Corporation, (2) higher state income tax provision and (3) foreign currency translation, while the investment credit increased by $2.4 million in 1976. 1975 Compared to 1974 Net sales for 1975 increased $25.6 million (3%) from 1974. The inclusion of sales of Edwin Cooper from its acquisition in July 1975 and higher unit selling prices across virtually all product lines more than offset lower unit sales volumes in all lines of business, particularly in plastics. In spite of lower unit sales volumes, cost of goods sold in 1975 increased $19.9 million (3%) from 1974, with the result that the gross profit margin for the Company was unchanged from 25.3% in 1974. The increase in costs of goods sold was due to: (1) the acquisition of Edwin Cooper, (2) higher costs of labor, raw materials and supplies, especially feedstocks and energy, (3) lower plant operating rates and (4) higher operating costs to comply with environmental laws and the requirements of OSHA. In addition, the Company set up reserves of about $2.5 million during the year to cover proposed shutdowns of several plants which are expected to reduce its operating costs in the future. Cost of goods sold during 1975 was affected by inven tory reductions as described in Note 5 to the Financial Statements on page 29. The profitability of the Plastics Division which was down $26.5 million (61%) from 1974 was adversely affected in particular by the general slowdown of the economy, especially in the construction and automotive industries, inventory reduc tions by customers and continuing cost increases in raw materials and supplies. When compared with the record levels in 1974, the decline was quite significant although when compared with 1973 the decline was much less adverse. Within the Plastics Division, aerosol containers, polymers and PVC pipe were particularly depressed due to the factors referred to above. Additionally, aerosol container sales were adversely affected by publicity over fluorocarbon emissions into the atmo sphere. On the other hand, the profitability of domestic chemicals, which was higher than 1974 by $12.1 million (15%), was favorably affected in 1975 by the inclusion of the domestic results of Edwin Cooper for the last half of 1975, together with improved profit margins on antiknocks resulting from selling price increases, net of cost in creases, which mainly occurred late in 1974. Depreciation and depletion of property, plant and equipment and maintenance and repair costs increased $3.7 million (11%) and $2.9 million (8%), respectively, in 1975 as compared with 1974 due mainly to capital expenditures, the acquisition of Edwin Cooper and higher costs. Expenditures for labor and employee benefit costs increased $15 million (8%) in 1975 over 1974 primarily because of the acquisition of Edwin Cooper and wage and salary increases due to inflation. Rental expense in 1975 increased $1 million (7%) over 1974 due to the acquisition of Edwin Cooper and increased distribution equipment. Selling and general expenses in 1975 increased $20.4 million (22%) from 1974 due primarily to the acquisition of Edwin Cooper, expanded research and development activity in new product areas, higher exploration costs charged to operations ** * 4* ' ^ 4 20 ETC n193 resulting from the decision to write-off about $5 million of investment in a natural gas well in Matagorda County, Texas, and continuing inflationary cost pressures. Miscellaneous income in 1975 decreased $3.3 million (39%) from 1974 due prin cipally to (1) a reduction in interest income resulting from lower yields on invest ments in short-term securities, and (2) losses of approximately $900,000 in 1975 from the translation of European and Canadian currencies due to the strengthening of the U.S. dollar. Interest and financing costs in 1975 increased $2.1 million (12%) from 1974 due primarily to higher levels of borrowing during 1975 and higher interest rates. Income taxes in 1975 decreased $10.1 million (17%) from 1974 due to lower income before taxes. The effective income tax rate in 1975 of 45.9% was slightly lower than the 1974 rate of 46.6% due principally to an increase in the investment credit of $1.4 million. Discontinued Operations The sale of the Oxford Paper Division in 1976 resulted in an t after-tax loss on disposal of $1,459,000. Income from Oxford's operations from January 1 to February 22,1976, amounted to $1,419,000. This compared with Oxford's income from operations for the year 1975 of $3,450,000. A five-year summary of Income and Retained Earnings is shown on page 26. Selected Quarterly Financial Data The following table shows selected quarterly financial data for each quarter in 1976 and 1975: (In Thousands of Dollars except Earnings per Share) 1976 Continuing Operations: First Quarter Second Quarter Third Quarter Fourth Quarter Net Sales.............. ................... . Gross Profit................................. Net Income..................................... Earnings per Share....................... Fully Diluted Earnings per Share .. $255,354 59,165 15,052 $1.53 $1.35 $292,193 67,725 19,206 $2.00 $1.73 $298,582 68,298 19,101 $2.01 $1.74 $289,283 68,761 15,721 $1.64 $1.44 1975 Continuing Operations: Net Sales..................................... Gross Profit................................. Net Income..................................... Earnings per Share....................... Fully Diluted Earnings per Share .. 212,028 52,815 13,782 $1.35 $1.20 217,771 58,587 15,961 $1.59 $1.39 255,939 63,730 17,258 $1.73 $1.51 244,364 59,733 14,003 $1.42 $1.25 Working Capital Provided from Continuing Operations Working capital provided from continuing operations (refer to Changes in Financial Position -- page 27) amounted to $115 million in 1976 compared with $105.4 million in 1975. This was sufficient in 1976 to provide for capital stock acquisitions, dividends and to provide substantial funds for capital expenditures. At December 31,1976, working capital was $325.2 million and the ratio of current assets to current liabilities was 3.51 to 1. This compared with working capital of $266.1 million and a ratio of 3.53 to 1 at December 31,1975. Total Assets In Millions of Dollars Internal Revenue Service Examination The Internal Revenue Service has completed its examination of the Company's first twelve taxable periods after the 1962 Ethyl- 1 Albemarle merger through the calendar year 1973. The IRS has proposed tax in creases of about $39 million, including interest, which would total about $45 million if assessed on the same basis through 1976. The IRS position results largely from (t differences in the valuation of assets acquired in the merger and the allocation of values between tangible and intangible assets. The IRS valuation of assets was made by a government engineer during the course of its examination. The Company based its asset valuation on an appraisal by independent appraisers made at the time of the merger. 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 might be payable by the Company on the basis of a reasonable asset valuation. The Company has commenced litigation in the Tax Court of the United States on the valuation issue for the fiscal periods ended on March 31,1963, and December 31,1963, and calendar 1964, and continues to con test the remaining nine periods. 1000 800 600 400 200 Replacement Cost Information A new rule of the Securities and Exchange Commis sion will require the Company to disclose in its annual 10K report certain replace ment cost information with respect to year-end 1976 inventories and productive >. capacity (generally buildings, machinery and equipment), and the approximate 67 68 69 70 71 72 73 74 75 76 21 Financial Results 1976 effect which replacement cost would have had on the computation of the cost of goods sold and the provision for depreciation for the year. A copy of the 10K report will be made available upon request. The replacement of plant and equipment takes place normally over extended periods at costs substantially greater than amounts expended originally lor capital additions, reflecting the cumulative impact of inflation. The current cost of replacing inventories is also significantly higher than historical cost. However, the use of the LIFO method of inventory valuation for substantially all domestic inventories states cost of goods sold at approximate replacement cost. Historical cost will continue to be the basis for presentation of the Company's financial statements, in accordance with generally accepted accounting principles. The Company continues to compensate for cost increases by increasing sales prices to the extent the marketplace will allow. Capital Expenditures and Acquisitions During 1976, about $88 million was spent on capital projects for new plants, expansions and modernizations compared with about $109 million in 1975. The 1975 figure included about $40 million for the acquisition of Edwin Cooper. Expenditures in 1976 included about $9.4 million for pollution abatement and OSHA projects, and over the next several years it is estimated that annual expenditures in the range of $5 million to $10 million can be expected for such purposes. \4 * l* Common Dividend Increased The Board of Directors increased the regular quarterly dividend on the Common Stock twice during 1976--from 35 cents to 37'; cents per share effective with the July 1,1976, payment and from 37Vi cents to 40 cents per share effective with the January 1,1977, payment. The following table shows the quarterly dividends declared in 1976 and 1975: First Quarter ............................................... Second Quarter............................................... Third Quarter ................................................. Fourth Quarter ............................................... 1976 $ .35 . .37`/z 371/; .. .40 $1.50 ' *1975 $ .30 .32H yi'/i .35 $1.30 In addition, regular quarterly dividends of 60 cents per share on the $2.40 Cumulative Second Preferred Stock and $1.50 per share on the 6% First Preferred Stock were paid during 1976 and 1975. How Ethyl Used The Revenues It Received During 1976 (Millions of Dollars) $1,143.7 100.0% WAS RECEIVED BY ETHYL from all sources THESE RECEIPTS WENT: 59.5% To suppliers for materials, services, etc. 21.5% To employees for payrolls, employee benefits 7.0% For income and other taxes 2.0% For interest expense 1.5% To Ethyl shareholders 8.5% For use in the business, including expansion, modernization and working capital ft xi 22 ETC 16195 Market Prices of Listed Stock The Company's Common Stock and $2.40 Cumulative Second Preferred Stock are traded principally on the New York Stock Exchange. The following table shows the reported high and low prices of these listed stocks, by quarters, for the years 1976 and 1975: Common High Low First Quarter................................... ............................... 4914 2954 Second Quarter............................... ............................... 4454 Third Quarter................................. ............................ 41'/, 3854 36 Fourth Quarter............................... ..............................44;4 36'/, First Quarter................................... ............................... 3354 2354 Second Quarter............................... ............................... 3714 3054 i Third Quarter ................................. ............................... 33)4 Fourth Quarter ............................... ............................... 3014 26 2554 $2.40 Cumulative Second Preferred High Low 6354 3914 5754 4954 53 47 58 4754 4554 3454 4954 4254 4554 36 3954 35'/, It Long-Term Debt As of December 31, 1976, the long-term portion of Ethyl's debt was $261.2 million, equal to 35% of the Company's total capitalization. Debt repayments during 1976 amounted to $12.6 million. These consisted of $1,250,000 on the 4%% Promissory Notes due 1983, $10 million on bank Promissory Notes and $1,328,000 on Miscellaneous Debt. SUMMARY OF LONG-TERM DEBT Senior Debt 9'/.% Promissory Notes-due 1984-1993 ......................... $ 94,000,000 754% Promissory Notes--due 1978-1983 ........................... 45,000,000 1054% Promissory Notes--due 1984-1993 ........................... 56,000,000 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 454% Promissory Notes--due 1977-1983 ........................ I The Northwestern Mutual Life Insurance Company John Hancock Life Insurance Company New York Life Insurance Company Miscellaneous................................................................. Subordinated Debt 544% Subordinated Notes--due1979-1982 ....................... Various Institutional Investors Less unamortued discount (the balance of the amount corresponding to the proceeds of warrants sold with the Notes in 1962), reflecting an imputed total interest rate of 7.4%.................................................... Total Debt at December 31,1976 ............................ Current Portion of Debt ......................................... Long-Term Debt.................................................... 5195,000,000 17,750,000 2,883,000 50,000,000 2,896,000 $215,633,000 Debt Ratio In Percent 47,104,000 262,737,000 1,564,000 $261,173,000 E quit y el SUMMARY OF DEBT MATURITIES TO 1986 5%% Subordinated Notes Due 1979-82 1977 ... 1978 ... 1979 ... ....$ 8,000,000 1980 ... .... 8,000,000 1981 , . ,. . 8,000,000 1982 ... .... 26,000,000 1983 ... 1984 ... 1985 ... 1986 ... 9%% Promissory Notes Due 1993 $9,400,000 9,400,000 9,400,000 7%% Promissory Notes Due 1983 $7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000 iov*% Promissory Notes Due 1993 $5,600,000 5,600,000 5,600,000 m% Promissory Notes Due 1983 $ 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 1,250,000 10,250,000 Miscella neous to 1992 $314,000 321,000 273,000 251,000 259,000 146,000 145,000 152,000 160,000 168,000 Total Amount $ 1,564,000 9,071,000 17,023,000 17,001,000 17,009,000 34,896,000 17,895,000 15,152,000 15,160,000 15,168,000 ETC 16196 100% 80% 60% 23 ETHYL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets ASSETS Current assets: Cash and short-term securities Accounts and notes receivable Inventories ............................... Prepaid expenses..................... Total current assets December 31 1976 1975 $189,586,000 135.804.000 118.283.000 11,192,000 454.865.000 $103,930,000 131.460.000 124.864.000 11.149,000 371.403.000 tt Property, plant and equipment, at cost: Land and land improvements.................... Coal lands................................................... Development costs, producing properties Timberlands and standing timber............ Buildings..................................................... Machinery and equipment....................... Less, Accumulated depreciation, depletion and amortization........................ Net property, plant and equipment 30.916.000 16.808.000 12.245.000 67.957.000 510.770.000 638.696.000 31.921.000 16.786.000 9.915,000 11.348.000 97.753.000 565.424.000 733.147.000 273.530.000 365.166.000 327.687.000 405.460.000 Deferred charges and other assets 37,186,000 32.628.000 Goodwill and other intangibles 64,723,000 66.318,000 $921,940,000 $875.809,000 i1 The accompanying notes are an integral part of these statements. t 06 ETC T6197 LIABILITIES December 31 1976 1975 Current liabilities: Accounts payable and accrued expenses.......... $ 85,937,000 $ 79,623,000 Dividends payable............................................... 4,541,000 4.200.000 Notes payable ..................................................... 114,000 2.522.000 Long-term debt, current portion......................... 1,564,000 2.018.000 <4 Income taxes....................................................... 37,535,000 16.907.000 Total current liabilities............................. 129,691,000 105.270.000 l \ Long-term debt: Senior .................................................................. 214,069,000 226.193.000 Subordinated: Principal amount............................................. 50,000,000 50,000,000 Less unamortized discount............................. 2,896,000 3.481.000 Subordinated debt less unamortized discount................................. 47,104,000 46.519.000 Deferred income taxes........................................... 48,871,000 54.623.000 Provision for employee benefits............................. 5,718,000 6.668.000 Minority interest....................................................... 603,000 555,000 SHAREHOLDERS' EQUITY C1 Capital stock: Cumulative First Preferred Stock, 6% Series A, par $100 per share........................................... 2,561,000 2,674,000 Cumulative Second Preferred Stock, $2.40 Convertible Series A, par $10 per share (aggregate liquidation price $80,939,000 on 1,432,299 outstanding shares, after treasury stock)............................ 18,762,000 19.621.000 Common Stock, par $1 per share....................... 10,285,000 10.173.000 Capital surplus......................................................... 44,741,000 43.972.000 Retained earnings................................................... 459,552,000 407.764.000 535,901,000 484.204.000 -t Less, Treasury stock at cost................................... 60,017,000 48.223.000 Total shareholders' equity........................ 475,884,000 435.981.000 $921,940,000 $875,809,000 ft The accompanying notes are an integral part of these statements. 25 ETHYL CORPORATION AND SUBSIDIARIES Consolidated Statements of Income and Retained Earnings Years ended December 31 Income: Net sales................................................. Miscellaneous income, net................... Costs and expenses: Cost of goods sold............................... Selling and general expenses............. Interest and financing costs................ Income taxes......................................... Income from continuing operations .............................. Discontinued operations, Oxford Paper Division: Income from operations....................... Loss on disposal................................... Income before extraordinary item.................................. Extraordinary item NET INCOME....................... 1976 $1,135,412,000 8,278,000 1,143,690,000 871,463,000 119,376,000 23,396,000 60,335,000 1,074,570,000 69,120,000 1,419,000 (1,459,000) 69,080,000 69,080,000 1975 $930,102,000 5,242,000 935,344,000 695,237,000 114,515,000 19,133,000 48,905,000 877,790,000 57,554,000 3,450,000 61,004,000 61,004,000 1974 $904,460,000 8,531,000 912,991,000 675,304,000 94,117,000 17,008,000 58,973,000 845,402,000 67,589,000 6,708,000 74,297,000 74,297,000 1973 $597,045,000 14,693,000 611,738,000 429,277,000 69,625,000 16,772,000 46,498,000 562,172,000 49,566,000 3,318,000 52,884,000 52,884,000 1972 S543.414.000 7,899,000 551,313,000 381,644,000 67,477,000 17,979,000 40,773,000 507.873,000 43,440,000 1% 1,267,000 44,707,000 4,535,000 49,242,000 Retained earnings at beginning of year .. Deduct, cash dividends: 6% First Preferred Stock, $6.00 per share................................. Second Preferred Stock, $2.40 per share................................. Common Stock, per share $1.50; $1.30; $1.25; $1.07 Vi; $.88V2 respectively ....................................... Retained earnings at end of year........... Earnings per share: Continuing operations................... NET INCOME ............................ Fully diluted earnings per share assuming conversion of the Second Preferred Stock: Continuing operations................... NET INCOME ............................ 407,764,000 126,000 3,496,000 13,670,000 17,292,000 $ 459,552,000 $7.18 $7.18 $6.26 $6.26 362,742,000 304,135,000 137,000 3,644,000 12,201,000 15,982,000 $407,764,000 $5.72 $6.09 166,000 3,644,000 11,880,000 15,690,000 $362,742,000 $6.70 $7.41 $5.05 $5.35 $5.87 $6.45 265,627,000 169,000 3,759,000 10,448,000 14,376,000 $304,135,000 $4.68 $5.02 229,359,000 % 169,000 3,893,000 i 8,912,000 12.974,000 S2S5.627.000 $3.90 $4.48 -\ $4.19 $4.47 $3.55 $4,02 ; The accompanying notes are an integral part of these statements. 26 ETC 16199 ETHYL CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Financial Position Years ended December 31 1976 1975 Source of Funds: Operations: Income from continuing operations.................. $ 69,120,000 $ 57,554,000 Expenses not requiring outlay of working capital: Depreciation, depletion and amortization ... 43,493,000 38,210,000 Deferred income taxes................................... 2,392,000 9,629.000 11 Working capital provided from continuing operations................ ............................ 115,005,000 105,393,000 Working capital provided from lV discontinued operations........................ Working capital provided on sale of 2,466,000 9,811,000 Oxford Paper Division....................................... 72,685,000 Additional borrowing ......................................... 56,000,000 Current portion of long-term debt refinanced ... 14,500,000 Working capital of consolidated subsidiary at date of acquisition............................................. 18,912,000 Other items--net................................................... 2.078.000 Total......................................................... $190,156,000 $206,694,000 Application of Funds: Additions to property, plant and equipment........ $ 87,656,000 $ f9,470,000 Reduction of long-term debt............................... 12,124,000 2.282,000 Cash dividends....................................................... 17,292,000 15,982,000 * Capital stock reacquired....................................... 11,886,000 8,727,000 Acquisition of consolidated subsidiaries............ 35,880,000 Purchase of manufacturing license .................... 3,506,000 Long-term note receivable ................................. 4,718,000 t Other items--net................................................... 2,157,000 Increase in working capital................................... 59,041,000 66,129,000 Total......................................................... $190,156,000 $206,694,000 Changes in Working Capital: Increase (decrease) in current assets: Cash and short-term securities......................... Accounts and notes receivable....................... Inventories ......................................................... Prepaid expenses............................................... $ 85,656,000 4,344,000 (6,581,000) 43,000 83,462,000 $ 61,405,000 2,058,000 (24,503,000) 4,938,000 43,898.000 Increase (decrease) in current liabilities: 't Accounts payable and accrued expenses........ Dividends payable............................................. 6,314,000 341,000 (2,035,000) 368,000 Notes payable..................................................... (2,408,000) 26,000 Long-term debt, current portion....................... (454,000) (14,696,000) . 1 Income taxes....................................................... 20,628.000 (5,894,000) 24,421,000 (22,231,000) Increase in working capital................................... $ 59,041,000 $ 66,129,000 The accompanying notes are an integral part of these statements. ETC 16200 27 ETHYL CORPORATION AND SUBSIDIARIES Notes to Financial Statements 1. Summary of Significant Accounting Policies: Consolidation The consolidated financial statements in clude the accounts and operations of Ethyl Corporation and all of its subsidiaries (the "Company"), inventories Inventories are stated at the lower of cost or market with cost determined on the last-in, first-out basis for substantially all domestic inventories and on either average cost or first-in, first-out for other inventories. Cost elements included in work in process and finished goods inventories are raw materials, direct labor and manufactur ing overhead. Raw materials include purchase and delivery costs. Stores and supplies include purchase costs. Depreciation Provisions for depreciation are based on the estimated useful lives of depreciable property, plant and equipment and are computed primarily on the straightline method. Expenditures for renewal and betterments are capitalized, and expenditures for ordinary repairs and maintenance are charged to income as incurred. The costs and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income. Unamortized Discount Unamortized discount on long term debt is amortized by charges to income on straightline bases over periods ending from 1979 to 1982. Exploration Costs Bonus and deposit payments, geo physical costs of active exploration prospects and drilling costs of active exploratory wells are capitalized as de ferred costs. Such costs are amortized if commercial dis coveries are made or charged to income if prospects are abandoned or deemed likely to be abandoned. Costs of dry holes (unless valuable in defining active prospects) and annual charges related to prospects are charged to income. Intangibles Goodwill acquired prior to November 1,1970, ($34,260,000) is not being amortized. Goodwill acquired subsequently ($24,070,000) is being amortized over 40 years. Retirement Income Plans Annual pension costs are actuarially determined and include amortization of prior service costs over varying periods not exceeding 30 years. The policy of the Company is to fund pension costs accrued. Income Taxes Deferred income taxes arise from timing differences between financial and income tax reporting of various items principally depreciation, intangible drilling and development costs and provisions for income taxes on undistributed earnings of certain subsidiaries. The investment tax credit is accounted for by the flow through method as a reduction of the provision for income taxes in the year realized. Earnings Per Share Earnings, and fully diluted earnings, per common share are computed using the weighted aver age number of shares of common stock outstanding during the year including common stock options as common stock equivalents and after deducting preferred stock dividends. Proceeds from common stock equivalents are assumed to be used to purchase outstanding shares of the Company's common stock. Fully diluted earnings per share assumes the complete conversion of the Cumulative Second Pre ferred Stock. Shares used in the computation of earnings per share were: Fully Diluted Earnings Per Share Earnings Per Share .1976 ................................. 9,117,525 11,011,472 1975 ................................. 9,398,487 11,371.991 1974 ................................. 9,512,470 11,485 996 1973 ................................. 9,756,992 11,793.684 1972 ...................................... 10,086,799 12,200,515 2. Discontinued Operations: In April 1976, the Company sold its Oxford Paper Division, consisting principally of a pulp and paper mill in Rumford, Maine, and about 335,000 acres of timberland, for approxi mately $89,850,000, which resulted in a loss of $1,459,000, after tax benefit of $1,485,000. The results of operations of the Oxford Paper Division for periods prior to February 22, 1976, the measurement date, are included in the consolidated statements of income and retained earnings under the caption "Discontinued Operations, Oxford Paper Division." The following is a summary of the operations of the Oxford Paper Division for periods prior to February 22,1976: 1976 1975 1974 1973 1972 Net Sales........... $18,798,000 $99,118,000 $115,099,000 $101,957,000 S8e.1B5,000 Costs & Expenses .... 15,988.000 93,165,000 103,481.000 95,933,000 86.254,000 Income Taxes ... 1,391,000 2,503,000 4,910,000 2,706,000 654,000 Net Income .... $ 1,419,000$ 3,450,000 $ 6,708,000 $ 3.318.C0C S 1,267,000 Amounts applicable to the operations of Oxford Paper Division have been excluded in the following notes. 3. Foreign Operations: Foreign exchange conversion and translation losses of $1,317,000 and $1,411,000 (net of a reserve for foreign ex change fluctuations of $637,000 as of December 31, 1974) were charged to income for 1976 and 1975, respectively. Following is a summary of certain financial information relating to operations (including oil and gas) of the Com pany's foreign branches and subsidiaries: Net sales......... Net earnings .. Working capital Net assets .... 1976 $145,972,000 6,215,000 57.644.000 92.156.000 1975 $132,448,000 10.745.000 45.858.000 77.691.000 'J * 49 28 ETC 16201 * 4. Marketable Securities: 6. Internal Revenue Service Examination: I Short-term securities, amounting to $162,620,000 at Decem The Company has received reports of the Internal Revenue ber 31, 1976, and $87,437,000 at December 31, 1975, are Service proposing additional income taxes for the twelve stated at cost plus accrued income which approximates taxable periods ended December 31, 1973. See caption \ market value. "Internal Revenue Service Examination" in the Financial Marketable equity securities included in noncurrent Results Section (page 21) of this report for further assets and stated at cost amounted to $6,538,000 at Decem information. ber 31,1976 and 1975. The amount by which quoted market value exceeds cost at December 31,1976, is $3,345,000. 7. Long-Term Debt: Realized gains and losses on sales of marketable equity securities included in net income are not material. Reference is made to captions "Summary of Long-Term Debt" and "Summary of Debt Maturities to 1986" in the Financial Results Section (page 23) of this report for infor mation concerning the Company's long-term borrowings. 5. Inventories: 1976 1975 8. Capital Stock: Inventories Include: Finished goods........... Raw materials and > work in process ... Stores, supplies, etc. . Oxford Paper Division '1 $ 53,597,000 $ 55,399,000 48.281.000 16.405.000 $118,283,000 45.928.000 16.593.000 6.944,000 $124,864,000 Transactions in capital stock during 1976 were as follows: Cumulative First Preferred (authorized 1,000,000 shares): January 1,1976 ........................ Purchases.............................. Retired ................................... Issued Shares Amounts 26,744 $ 2,674,400 (1,130) (113,000) Treasury Shares Amounts 5,615 $ 522 (1,130) 443,889 38,315 (89,085) December 31, 1976 ......... 25,614 $ 2,561,400 5,007 $ 393,119 Inventories stated on the last-in, first-out basis amounted to $67,477,000 at December 31, 1976, and $67,256,000 at December 31, 1975, which are below replacement cost by approximately $46,800,000 and $44,104,000, respectively. In 1975, inventory reductions resulted In liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with 1975 costs, the effect of Cumulative Second Preferred (authorized 10,000,000 shares): January 1, 1976 ...................... 1,962,059 $19,620,590 Purchases ............................ Converted into common stock ................................ (85,592) (855.920) Converted into common stock in prior years___ (277) ( 2,770) December 31, 1976 ......... 1,876,190 $18,761,900 444,162 $19,381,556 6 291 ( 277) ( 2,770) 443,891 $19,379,077 which increased income from continuing operations by approximately $6,562,000, or 70 cents per share. In 1974, the last-in, first-out method of valuing inventories was extended to substantially all the domestic inventories which were accounted for previously on first-in, first-out or average cost. The effect of this change was to reduce net Common (authorized 25,000,000 shares): January 1, 1976 ...................... Purchases.............................. Issued upon conversion of cumulative second preferred .......................... December 31, 1976 ......... 10,173,393 $10,173,393 960,086 $28,397,743 287,800 11,847,231 111,267 111,267 _________ ___________ 10,284,660 $10,284,660 1,247,886 $40,244,974 income for 1974 by $5,756,000, or 60 cents per share, from The Cumulative First Preferred is redeemable at $101 at what it would have been if the former inventory valuation methods had been continued. The change in inventory method was made to minimize the option of the Company and is preferentially entitled to par value in involuntary liquidation and the redemption price in voluntary liquidation. Annual sinking fund pay the impact of price level changes on inventory valuations ments of approximately $114,000 are required for manda and to achieve a better match of current costs with current tory redemption. revenues for determining profits. There is no cumulative effect of this change on prior years ' reported earnings. Each share of Cumulative Second Preferred has one vote and is convertible into 1.3 shares of common stock. The The following disclosure is made for the purpose of com voluntary or involuntary liquidation value of the Cumulative plying with Internal Revenue Procedure 72-29. The applica Second Preferred Stock is the greater of (1) $42 per share tion of the principles of APB No. 16 to the valuation of LIFO or (2) an amount equivalent to the book value of that num inventories of subsidiaries acquired in 1974 caused inven ber of shares of common stock into which such preferred tories in the accompanying consolidated balance sheets at December 31, 1976, and December 31, 1975, to exceed stock is convertible. The aggregate excess of liquidation value over par value on shares of outstanding stock is ') inventories used for income tax reporting purposes by approximately $66,616,000 as of December 31,1976. These $443,000. shares are callable at $75 per share, plus accrued divi- ETC 16202 29 Notes to Financial Statements Cont'd dends. The changes in Capital Surplus during 1976 and 1975 are the excess of par value over cost of shares of First Preferred Stock retired and the excess of par value of Second Preferred Stock over par value of Common Stock issued upon conversion of Second Preferred Stock to Com mon Stock. 9. Stock Option Plan: Under the Company's qualified stock option plan, 300,000 shares of unissued common stock are reserved for issu ance to officers and other key employees at 100 percent of fair market value on the date of grant. No options were granted or exercised during 1976. An option to purchase 29,500 shares at $30.00 per share, granted in 1973, was outstanding at December 31,1976, of which 23,600 shares were exercisable. There are no charges to income in con nection with the plan. 10. Retained Earnings Restriction: The Company's articles of incorporation and note agree ments contain restrictions, among others, against the pay ment of cash dividends and purchases of the Company's stock. At December 31,1976, $54,163,000 of retained earn ings is free of such restriction under the agreement pres ently most restrictive. 11. Depreciation, Depletion and Amortization: Depreciation and depletion charged to income amounted to $27,436,000, $26,076,000, $32,451,000, $36,135,000 and $41,177,000 for the years 1972 through 1976. Amortization of deferred charges and intangibles charged to income amounted to $1,136,000, $851,000, $1,388,000, $2,075,000 and $2,316,000 in the respective years. 12. Income Taxes: Income tax expense excluding amounts applicable to the extraordinary item is composed of the following: Currently Payable Deferred Total t976 $57,943,000 $2,392,000 $60,335,000 1975 39,276,000 9,629,000 46,905,000 1974 51,689,000 7,284,000 58,973,000 1973 42,246,000 4,252,000 46,496,000 1972 40,152,000 621,000 40,773,000 Currently payable includes provisions for U.S. income taxes of $31,251,000, $30,459,000, $37,589,000, $29,816,000 and $44,855,000 for the years 1972 through 1976. Such provisions were reduced, and net income for the respective years was increased by investment tax credits of $1,204,000, $1,483,000, $2,065,000, $3,436,000 and $5,838,000. No provision has been made for additional income taxes that might result from the remittance to the Company of prior years' undistributed earnings of $3,900,000 of a for eign subsidiary since it is the intention of the Company to continue to reinvest such amount of earnings indefinitely. 13. Research and Development: Research and development expenses amounted to $24,790,000 for 1976 and $18,547,000 for 1975. The 1975 amount has been restated to conform to the guidelines prescribed by Statement of Financial Accounting Standards No. 2. 14. Employee Retirement Plans: The Company provides retirement benefits for substantially all of its employees under several different plans funded with insurance companies or corporate trustees. Plan con tributions charged to income for the years 1972 through 1976 were $6,518,000, $7,018,000, $8,455,000, $11,666,000, and $11,800,000. Contributions were irrevocably devoted to the payment of retirement and other benefits for employees and their beneficiaries. 15. Extraordinary Item: The extraordinary item in 1972 was the net gain from an award, including interest, received as compensation for the expropriation of certain timberlands (after income taxes of $4,812,000, of which $3,689,000 was deferred). 16. Lease Commitments: Rental expense was $7,939,000, $9,578,000, $14,256,000, $15,252,000 and $14,276,000 for the years 1972 through 1976. Rental expense in 1976 excludes $1,500,000 of ship operating costs which were included in rental expense in prior years. Following are the rental commitments under all non- cancellable leases as of December 31, 1976: Years 1977 1978 1979 1980 1981 1982-86 1987-1991 1992-1996 Remainder Total $11,191,000 9,225,000 7,719,000 6,420,000 5,953,000 25,886,000 14,765,000 5,479,000 7,800,000 Transportation Equipment $ 6,216,000 5,381,000 4,711,000 4,277,000 4,106,000 17,516,000 8,421,000 Office and Plant Space $4,035,000 3,150,000 2,648,000 2,042,000 1,793.000 8,187,000 6,179,000 5,314,000 6,485,000 Other S 9-10 000 694 000 360 090 101 000 54 000 153 000 16: 300 165 000 1.315 000 The present value of commitments under non-capitalized financing leases and the effect on net income if such leases were capitalized are not material. 30 ETC 162,03 17. Selected Quarterly Financial Data (Unaudited): See caption, "Selected Quarterly Financial Data" in the Financial Results Section (page 21) of this report for net sales, gross profit, net income and earnings per share for each quarter of 1976. 18. Replacement Cost Information (Unaudited): A new rule of the Securities and Exchange Commission will require the Company to disclose in its annual 10K report current replacement cost information for certain assets and expenses. The current replacement cost of the Company's inven tories and plant and equipment and the associated provi sion for depreciation thereon, subject to the disclosure requirement, are significantly higher than the comparable historical amounts shown in the consolidated financial statements. The use of the LIFO method of inventory valua tion for substantially all domestic inventories states cost of goods sold at approximate replacement cost. 19. Subsequent Event: On March 4,1977, the Company announced its offer, expir ing March 22,1977, to purchase up to 750,000 shares of its outstanding Common Stock, $1.00 par value, at a price of $46 per share. Payment for the shares acquired will be from general corporate funds; however, the Company expects to offset the reduction in funds by selling a new Cumula tive First Preferred Stock, 7%%, Series C in a private offer ing for $35,000,000. Convertible Preferred shareholders may convert their shares and tender the common shares issuable upon conversion. If more than 750,000 shares are validly tendered the Company is not obligated to purchase any of the excess although, it may purchase all or any part thereof; but will not purchase more than 1,000,000 shares in any event. Auditors' Report To the Board of Directors and Shareholders of Ethyl Corporation: We have examined the consolidated balance sheets of Ethyl Corporation and Subsid iaries as of December 31,1976 and 1975, and the related consolidated statements of in come, retained earnings and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing stan dards 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 three years ended December 31, 1974, from which the consolidated statements of income for 1974,1973 and 1972 were taken. In our opinion, the financial statements referred to above present fairly the consolidated financial position of Ethyl Corporation and Subsidiaries at December 31, 1976 and 1975, the results of their operations and changes in their financial position for the years then ended and their net income and other data for the years ended December 31, 1974, 1973 and 1972, all in conformity with generally accepted accounting princi ples applied on a consistent basis, except for the change, with which we concur, in the method of valuing inventories as described in Note 5 to the consolidated financial statements. Suite 1000 Seventh and Franklin Building Richmond, Virginia 23219 February 11, 1977, except for Note 19, as to which the date is March 4,1977 COOPERS & LYBRAND ETC 16204 31 ETHYL CORPORATION AND SUBSIDIARIES Ten-Year Summary (In Thousands of Dollars except Common Stock Data) Years Ended December 31 SALES AND INCOME Net Sales!') .................... Depreciation, depletion and amortization!') ....... Income from continuing operations .................... Income (Loss) from dis continued operations___ Income before extraordinary items....... Net Income .................... FINANCIAL CONDITION Working Capital.............. Ratio of current assets to current liabilities........... Property, plant and equipment (Net)............ Capital expenditures & acquisitions.............. Long-term debt.............. Shareholders' equity....... COMMON STOCK Weighted average number of shares outstandings) .. Earnings per share'13)2....... Fully diluted earnings per share assuming conversion of the Second Preferred Stock!3). Equity per share!4).............. Dividends per share......... 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 $1,135,412 $930,102 $904,460 $597,045 $543,414 $491,392 $464,573 $411,519 $366,052 $317,093 43,493 38,210 33,839 26,927 28,572 26,381 25,268 22,976 20,436 19,654 69,120 57,554 67,589 49,566 43,440 37,707 33,949 30,292 25.116 20,879 (40) 3,450 6,708 3,318 1,267 533 1,633 2,732 6.385 8.783 69,080 69,080 61,004 61,004 74,297 74,297 52.884 52,884 44,707 49,242 38,240 34,914 35,582 37,199 33,024 29,524 31.5Q2 31.502 29,662 29,662 325,174 266,133 200,004 268,902 3.51 to 1 3.53 to 1 2.57 to 1 3.82 to 1 365,166 405,460 367,557 281,380 67,656 261,173 475,884 108,856 272,712 435,981 195,237 203,910 399,686 37,664 207,581 342,563 261,959 229,996 4.13 to 1 4.22 to 1 280,440 283,678 31,508 223,261 322,360 24,383 238,834 289,459 209,724 4.54 to 1 298,771 64,190 247,757 274,159 176,499 ' 176.3.V 2.71 to 1 3.47 to 1 293,200 269.761 53,312 223,165 252,885 64.156 207.550 243 895 129,757 3.52 to 1 301,345 26,943 198,263 228,948 9,117,525 9,398,487 9,512,470 9,756,992 10,086.799 10,140,533 10,138,482 10,169,972 10,171.853 10.164,357 $ 7.18 $ 6.09 $ 7.41 $ 5.02 $ 4.03 $ 3.36 $ 3.06 $ 2.77 $ 2.61 S 2.41 $ 6.26 $43.47 $ 1.50 $ 5.35 $38.78 $ 1.30 $ 6.45 $34.61 $ 1.25 $ 4.47 $28.89 $ 1.07V2 $ 3.65 $25.17 $ .88V2 $ 3.09 $21.64 $ .84 $ 2.85 $19.62 $ .84 $ 2.61 $17.18 $ .75 S 2.46 $15.73 $ .63 (1) 1975 and prior years have been restated to exclude Oxford Paper Division and Albemarle Paper Division which were sold in 1976 and 1968, respectively. (2) Including warrants and common stock options as common stock equivalents. (3) Based on net income except lor years 1969 through 1972. which are based on income before extraordinary items. After extraordinary items, would be $4.48 and $4.02 in 1972, $3.03 and S2.82 in 1971, *3.22 and *2.98 in 1970 and $2.43 and *2.33 in 1969, respectively. (4) Reflects a deduction tor the liquidating value of the Second Preferred Stock, and is based on the number of shares outstanding at the end of eacfi year, treating warrants and common stock options as common stock equivalents. S 2.29 S13.88 S .60 0864 ETC 16205 32 ETHYL CORPORATION AND SUBSIDIARIES OFFICERS DIRECTORS AND STAFF LAWRENCE E. BLANCHARD, JR. S. DOUGLAS FLEET Retired Vice President M F. GAUTREAUX JAMES M. GILL BRUCE C. GOTTWALD FLOYD D. GOTTWALD - FLOYD D. GOTTWALD. JR. ROBERT HERZOG A. B. HORN. JR. GEORGE F. KIRBY Chairman and President Texas Eastern Transmission Corp. Houston, Texas JOSEPH M. LOWRY Retired Senior Vice President ANDREW M McBURNEY Senior Advisor--Paper Boise Cascade Corp. New York, N.Y. ROBERT T. MARSH. JR. Retired Chairman ot the Board First & Merchants National Bank Richmond, Va. JAMES F. MILLER Vice Chairman--Management Committee Blyth Eastman Dillon Co., Inc. New York, N.Y. CLARENCE M. NEHER PRIME F. OSBORN. Ill President $ Chief Operating Officer Seaboard Coast Line Industries, Inc. JacksonW//e, Fla. MELVIN M. PAYNE Chairman ot the Board National Geographic Society Washington, D.C. O W. THOMAS RICE Chairman A Chief Executive Officer Seaboard Coast Line Industries, Inc. Richmond, Va. SIDNEY BUFORO SCOTT Chairman Scott & Stringtellow, Inc. Richmond, Va. ERWIN H WILL . Retired Chairman ot the Board Virginia Electric 4 Power Co. Richmond, Va. * Member of the Executive Committee Elected December 23, 1976 - Resigned October 28. 1976 Corporate Headquarters 330 South Fourth Street Richmond, Va. 23219 (804) 644-6081 Executive Offices 451 Florida Street Baton Rouge. La. 70801 (504) 388-8011 100 Park Avenue New York, N.Y. 1001? (212) 679-2000 Stock Transfer Agents First 4 Merchants National Bank Richmond, Va. Chase Manhattan Bank, N.A. New York, N.Y. Montreal Trust Co. Toronto, Canada Registrars of Stock Bank of Virginia Richmond, Va. Morgan Guaranty Trust Co. New York, N.Y. The Royal Trust Co. Toronto, Canada Genera! Counsel Hunton 4 Williams Richmond, Va. Stock Listings New York Stock Exchange Pacific Coast Stock Exchange Toronto Stock Exchange Ticker Symbol: EY Number of Employees Approximately 16,000 FLOYD D. GOTTWALD, JR. Chairman of the Board Chief Executive Officer Chairman--Executive Committee BRUCE C. GOTTWALD President FLOYD D. GOTTWALD Vice Chairman of the Board Vice Chairman--Executive Committee LAWRENCE E. BLANCHARD, JR. Executive Vice President ROBERT HERZOG Executive Vice President M. F. GAUTREAUX Senior Vice President-- Research 4 Development JAMES M. GILL Sen/or Vice President-- Chemicals Group A. B. HORN. JR. Sen/or Vice President-- International Group CLARENCE M. NEHER Senior Vice President-- Plastics Group LLOYD B ANDREW Vice President, Director--Financial Relations WALLACE F. ARMSTRONG Vice President--Manufacturing C. RAYMOND HAILEY Wee President, President--The Elk Horn Coai Corporation E. MALCOLM HARVEY Vice President--Aluminum, President--The William L. Bonnell Company, Inc. President--Capitol Products Corporation ARTHUR W. HELWIG Vice President, Secretary--Executive Committee Director--Planning 4 Profit improvement HOWARO E. HESSELBERG Vice President--Air Conservation FREDERICK P. WARNE Vice President, Secretary 4 Genera/ Counsel FRANK J. McNALLY Treasurer JAMES H. KIRBY Controller KARL F. CAST General Manager--Engineering, Central Systems 4 Data Processing J. . CRUTCHFIELD Director--Central Systems 4 Data Processing G. SAMUEL ROBERTS Chief Engineer STEPHEN B. RODI Director--Corporate Employee Relations GORDON E. SAXON Director--Advertising 4 Sales Promotion PAUL E. WEIMER Budget Director J. C. WRIGHT Director--Purchasing 4 Traffic CHARLES H.ZEANAH Director--Corporate Public Relations DIVISIONS PETROLEUM CHEMICALS JOHN F. KOEHNLE Divisional Vice President 4 General Manager T. E. LOCKERBIE General Manager--Product Development 4 Sales Application R. M. THURSTON Director--Marketing INDUSTRIAL CHEMICALS ROGER A. MOSER General Manager A. E. VAUGHAN Director--Marketing Management J. M RIDOLE Sales Manager H. W. REES Manager--National Accounts 4 Sales Development ETHYL INTERNATIONAL Petroleum Chemicals M. WHITLOCK General Manager W. J. RUSHER General Manager--Sales A. M. SCHILS Director--Ethyl S.A. E. G. AMOLOCHITIS Managing Director-- Ethyl Hellas Chemical Co. S.A. Industrial Chemicals L. B. REYNOLOS Genera/ Manager R. R. DOWNEY Managing Director--Ethyl S.A. Oil & Gas L. N APPLEGATE Director EDWIN COOPER J. A. HANCOCK President R. WILKINS Managing Director-- Edwin Cooper Limited G R BUCHANAN President--Edwin Cooper, Inc. E. P. CUNNINGHAM Vice President--Research 4 Development ETHYL CORPORATION OF CANADA LIMITED KENNETH A. FREBERG President C. A. PARKINSON General Manager-Sales ELK HORN COAL H. H. BAIRD. JR. Wee President 4 Treasurer PLASTICS ROBERT X. HAFELE Director--Central Development JAMES R. LEES Director--Marketing ROLAND E. MCKENZIE Director--Manufacturing GEORGE E.ROONEY Director--Financial Controls Dispenser, Metal and Molded Products Divisions RICHARD F SANDS President Dispenser Products ANTHONY J. RINALDI Genera/ Manager DANIEL J. MASSEY General Sales Manager Metal Products PHILLIPS E. PATTON Genera/ Manager E. PAUL WINSLOW Genera/ Manager--Sales Molded Products ROBERT D BISHOP Vice President 4 General Manager--Packaging JOHN B. SHERIDAN Vice President 4 General Manager--Engineering Plastics Film, Polymer and Pipe Products Divisions CHARLES W. MONTGOMERY President VISQUEEN Film Products RICHARD W. GOODRUM Genera/ Manager JOHN K. SHIFFLER Genera/ 5a/e$ Manager Polymer Products RAYMONO M WOLBER General Manager CHARLES W. BENJAMIN Sales Manager Pipe Products DALE w. SULLIVAN General Manager Imco Container Products Division B. HANCEL BONDS President CHARLES MINARIK Vice President--Sa/es 4 Marketing MARION HIERMAN President--imco of Canada ALUMINUM WILLIAM H. MORGAN Genera/ Manager--Marketing 4 Product Deve/opment The William L. Bonnell Company, Inc. H. T. SMITH Executive Vice President 4 Genera/ Manager WARREN H. BROCKWAY Vice President--Trim Sales JOHN C. OUNN Vice President--Industrial Sales Capitol Products Corporation GEORGE S. THUMLERT Executive Vice President 4 General Manager WALLACE FREMONT Vice President--Fabricated Sales DONALD C. HORNUNG Vice President--Extrusion Sales ETC 16206 ETHYL CORPORATION 330 South Fourth Street Richmond, Virginia 23219 BULK RATE U.S. POSTAGE PAID ETHYL CORPORATION i The American Revolution Bicentennial Administration presented Ethyl Corporation with this flag in recognition of the Company's contributions to the observance of the Bicentennial. ETC 16207