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-- Operating cash flow for the first nine months improved significantly due
to higher earnings and excellent working capital management
-- Outlook for 2009 EPS updated to a range of $6.82 to $7.02, including
restructuring and impairment charges of $.28, and increased to a range
of $7.10 to $7.30 excluding these charges
The Lubrizol Corporation (NYSE: LZ | Quote | Chart | News | PowerRating) announced that consolidated earnings for the third quarter ended September 30, 2009, were $170.5 million, or $2.46 per diluted share, including after-tax restructuring and impairment charges of $3.9 million, or $.06 per diluted share. These charges primarily were related to the closure of production facilities in the Lubrizol Advanced Materials segment and additional expenses associated with the cost reduction actions the company initiated in the first quarter of 2009. Comparable earnings for the third quarter of 2008 were $63.2 million, or $0.92 per diluted share, which included after-tax restructuring and impairment charges of $3.8 million, or $.06 per diluted share, primarily related to the closure of a Lubrizol Additives blending facility in Canada and business improvement initiatives in the company's Performance Coatings product line.
Third Quarter Consolidated Results
Consolidated revenues for the third quarter decreased 6 percent to $1.27 billion compared with $1.36 billion in the third quarter of 2008. The year-over-year decrease in revenues was attributable to lower volumes and unfavorable currency that more than offset an improvement in the combination of price and product mix. Included in these factors was the incremental impact from acquisitions completed in 2008, which contributed 2 percent to consolidated revenues in the third quarter of 2009.
Excluding the restructuring and impairment charges in both periods, adjusted earnings were $174.4 million, or $2.52 per diluted share, for the third quarter of 2009 compared with $67.0 million, or $.98 per diluted share, for the third quarter of 2008.
Adjusted earnings per share for the third quarter of 2009 increased compared with the prior-year third quarter largely due to disciplined margin management, cost savings initiatives that lowered manufacturing costs and reduced selling, technical, administrative and research (STAR) expenses, contributions from the 2008 acquisitions and an insurance recovery for previously incurred environmental remediation costs. These positive factors impacting earnings more than offset the effect of lower volume, increased performance-based compensation expense and higher net interest expense.
Commenting on the results, CEO James Hambrick stated, "Additives and Advanced Materials generated very strong results in the quarter as both segments continued to deliver valued technology to customers while also managing margins and controlling discretionary expenses. We anticipated potential earnings upside from improved sequential volumes and both segments did benefit from higher than expected shipments. In my opinion, Additives' recent results are best-in-class and represent the level of performance necessary to properly support the type of investments needed for our customers. Additionally, I am pleased with the progress of Advanced Materials. Compared to Additives, this segment has faced weaker end-market demand, but the management team has delivered significantly improved results based on solid sequential volume gains and continued progress with their commercial and operational initiatives."
Nine Month Consolidated Results
For the first nine months of 2009, consolidated revenues decreased 14 percent to $3.40 billion compared with $3.94 billion for the first nine months of 2008. Consolidated earnings were $366.6 million, or $5.34 per diluted share, including after-tax restructuring and impairment charges of $18.0 million, or $.26 per diluted share. Earnings for the first nine months of 2008 were $214.9 million, or $3.12 per diluted share, including after-tax restructuring and impairment charges of $15.9 million, or $.23 per diluted share. Excluding the restructuring and impairment charges from both periods, earnings of $5.60 per diluted share for the nine months of 2009 compared with $3.35 per diluted share for the first nine months of 2008.
Cash flow from operations for the first nine months of 2009 was $734.1 million, up from $188.0 million in the year-earlier period. The increase in cash flow from operations largely was attributable to higher net income and a significant reduction in working capital, primarily from lower inventory. Capital expenditures in the first nine months of 2009 were $107.1 million, down from $146.8 million in the prior-year period as the company continued to carefully manage spending given the uncertain environment. The company's cash balance at September 30, 2009 was $1.13 billion compared with a cash balance of $186.2 million at December 31, 2008. The higher cash balance largely reflected the company's strong operating cash flow for the first nine months of 2009 and the proceeds from financing activities undertaken in the first quarter of 2009.
Financing Activities
On October 1, 2009, the company repaid at maturity the remaining $205 million of its 4.625% senior notes. Following this repayment, the company's total debt is approximately $1.5 billion. Also, the company plans to prepay without penalty its $150 million bank term loan before year end.
Earnings Outlook
The company increased its September 14, 2009, earnings guidance. The company's guidance for 2009 earnings is now in the range of $6.82 to $7.02 per diluted share, including restructuring and impairment charges of $.28 per diluted share, primarily related to cost reductions initiated in the first quarter of 2009, impaired preliminary process engineering design work and the closure of production facilities. In 2008, the company reported a loss of $0.97 per share, including restructuring and impairment charges of $5.04 per share, largely related to the impairment of goodwill, and other adjustments of $.02 per share. Excluding the special charges from both years, the company projects 2009 adjusted earnings in the range of $7.10 to $7.30 per diluted share, which compares with 2008 adjusted earnings of $4.09 per diluted share.
Key updated assumptions for this revised guidance and cash flow include:
-- STAR expenses for the full year unchanged compared with 2008;
-- An effective tax rate of 30.0 percent for the year;
-- The euro to average $1.50 in the fourth quarter of the year;
-- Capital expenditures of approximately $150 million to $155 million; and
-- Average shares outstanding of approximately 69.0 million.
Regarding the 2009 earnings outlook, Hambrick added, "Our outlook reflects some upward pressure on raw materials, particularly in Additives where we are already taking appropriate pricing action. Additionally, in this atypical year, forecasting sales volumes for the fourth quarter is more challenging than usual given the potential for year-end inventory reductions by our customers."
"Even with our strong performance this year, we anticipate another year of earnings growth for the corporation in 2010. I believe our performance is sustainable and that earnings will benefit from both broader economic recovery as well as from our organic growth initiatives of product innovation and geographic expansion. We will continue to manage for sustainable growth as we diligently pursue our seventh consecutive year of increased earnings."
Conference Call on the Web
An audio webcast of the third quarter earnings conference call with investors will be available live October 29 at 11:00 a.m. Eastern time on the Investor page of www.lubrizol.com and will be archived for 30 days. Following the call, a transcript will be posted on the Investors page of the Web site in the Financial Reports section.
About The Lubrizol Corporation
The Lubrizol Corporation (NYSE: LZ | Quote | Chart | News | PowerRating) is an innovative specialty chemical company that produces and supplies technologies that improve the quality and performance of our customers' products in the global transportation, industrial and consumer markets. These technologies include lubricant additives for engine oils, other transportation-related fluids and industrial lubricants, as well as fuel additives for gasoline and diesel fuel. In addition, Lubrizol makes ingredients and additives for personal care products and pharmaceuticals; specialty materials, including plastics technology and performance coatings in the form of specialty resins and additives. Lubrizol's industry-leading technologies in additives, ingredients and compounds enhance the quality, performance and value of customers' products, while reducing their environmental impact.
With headquarters in Wickliffe, Ohio, The Lubrizol Corporation owns and operates manufacturing facilities in 18 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 6,800 employees worldwide. Revenues for 2008 were $5.0 billion. For more information, visit www.lubrizol.com.
This release contains forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements relate to anticipated trends and expectations rather than historical matters. Forward-looking statements are subject to uncertainties and factors relating to the company's operations and business environment that are difficult to predict and may be beyond the control of the company. Such uncertainties and factors may cause actual results to differ materially from those expressed or implied by forward-looking statements. Uncertainties and risk factors that could affect the future performance of the company and cause results to differ from the forward-looking statements in this release include, but are not limited to, the company's ability to manage margins in an environment of volatile raw material costs; conditions affecting the company's customers, suppliers and the industries that it serves; competitors' responses to the company's products; changes in accounting, tax or regulatory practices or requirements; and other factors that are set forth in management's discussion and analysis of the company's most recently filed reports with the Securities and Exchange Commission. The forward-looking statements contained herein represent the company's judgment as of the date of this release and it cautions readers not to place undue reliance on such statements. The company assumes no obligations to update the statements contained in this release.
THE LUBRIZOL CORPORATION
------------------------
CONSOLIDATED STATEMENTS OF INCOME
(In Millions Except Per Share Data)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Revenues $1,274.6 $1,362.7 $3,398.0 $3,940.2
Cost of sales 814.0 1,078.2 2,269.7 3,057.4
----- ------- ------- -------
Gross profit 460.6 284.5 1,128.3 882.8
Selling and
administrative
expenses 117.7 111.0 323.3 321.5
Research, testing and
development expenses 54.8 55.8 153.0 165.6
Amortization of
intangible assets 6.3 6.8 18.8 20.8
Restructuring and
impairment charges 5.8 5.7 27.3 25.1
Other expense
(income) - net 2.8 (4.5) (7.7) (13.4)
Interest expense - net 25.0 18.3 77.6 49.6
---- ---- ---- ----
Income before income taxes 248.2 91.4 536.0 313.6
Provision for
income taxes 73.5 26.2 160.2 91.7
---- ---- ----- ----
Net income 174.7 65.2 375.8 221.9
Net income attributable
to noncontrolling
interests 4.2 2.0 9.2 7.0
--- --- --- ---
Net income attributable
to The Lubrizol
Corporation $170.5 $63.2 $366.6 $214.9
====== ===== ====== ======
Earnings per share
attributable to The
Lubrizol Corporation:
Basic $2.50 $0.93 $5.40 $3.15
===== ===== ===== =====
Diluted $2.46 $0.92 $5.34 $3.12
===== ===== ===== =====
Weighted-average common
shares outstanding:
Basic 68.1 67.8 67.9 68.2
==== ==== ==== ====
Diluted 69.4 68.5 68.7 69.0
==== ==== ==== ====
THE LUBRIZOL CORPORATION
------------------------
CONSOLIDATED BALANCE SHEETS
(In Millions of Dollars)
September 30, December 31,
2009 2008
---- ----
Assets
Cash and cash equivalents $1,127.4 $186.2
Receivables 728.7 608.5
Inventories 604.9 814.6
Other current assets 116.9 90.6
----- ----
Total current assets 2,577.9 1,699.9
Property and equipment - net 1,191.5 1,197.6
Goodwill and intangible assets - net 1,145.2 1,143.1
Investments and other assets 110.3 109.9
----- -----
Total $5,024.9 $4,150.5
======== ========
Liabilities and Shareholders' Equity
Short-term debt and current portion of
long-term debt $223.9 $391.2
Accounts payable 332.3 350.4
Accrued expenses and other current
liabilities 370.9 279.7
----- -----
Total current liabilities 927.1 1,021.3
Long-term debt 1,477.9 954.6
Other noncurrent liabilities 609.2 590.0
----- -----
Total liabilities 3,014.2 2,565.9
------- -------
Shareholders' equity 2,010.7 1,584.6
------- -------
Total $5,024.9 $4,150.5
======== ========
THE LUBRIZOL CORPORATION
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions of Dollars)
Nine Months
Ended
September 30,
-------------
2009 2008
---- ----
Cash provided by (used for):
Operating activities:
Net income $375.8 $221.9
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 125.6 128.1
Deferred income taxes (2.2) (7.2)
Stock-based compensation 17.1 10.6
Restructuring and impairment charges 11.0 15.1
Net change in working capital 193.5 (176.6)
Other items - net 13.3 (3.9)
---- ----
Total operating activities 734.1 188.0
Investing activities:
Capital expenditures (107.1) (146.8)
Proceeds from (purchase of) investments 5.6 (50.0)
Other items - net (0.8) 2.3
---- ---
Total investing activities (102.3) (194.5)
Financing activities:
Changes in short-term debt - net (4.8) 0.2
Repayments of long-term debt (286.0) (0.2)
Proceeds from the issuance of long-term debt 646.3 0.4
Payment of Treasury rate lock upon settlement (16.7) -
Payment of debt issuance costs (4.8) -
Dividends paid (62.8) (62.6)
Dividends paid to noncontrolling interests (2.5) (5.3)
Common shares purchased - (75.1)
Proceeds from the exercise of stock options 22.5 3.8
Tax benefit from the exercise of stock options 7.0 2.2
--- ---
Total financing activities 298.2 (136.6)
Effect of exchange rate changes on cash 11.2 13.2
---- ----
Net increase (decrease) in cash and cash equivalents 941.2 (129.9)
Cash and cash equivalents at the beginning of period 186.2 502.3
----- -----
Cash and cash equivalents at the end of period $1,127.4 $372.4
======== ======
THE LUBRIZOL CORPORATION
------------------------
SEGMENT INFORMATION
(In Millions of Dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Revenues from external customers:
Lubrizol Additives $914.5 $961.9 $2,445.1 $2,752.2
Lubrizol Advanced
Materials 360.1 400.8 952.9 1,188.0
----- ----- ----- -------
Total revenues $1,274.6 $1,362.7 $3,398.0 $3,940.2
======== ======== ======== ========
Segment operating income:
Lubrizol Additives $256.5 $102.1 $596.4 $341.1
Lubrizol Advanced
Materials 60.5 26.5 122.6 90.4
---- ---- ----- ----
Total segment operating
income 317.0 128.6 719.0 431.5
Corporate expenses (31.7) (17.0) (76.5) (50.7)
Corporate other (expense)
income - net (6.3) 3.8 (1.6) 7.5
Restructuring and impairment
charges (5.8) (5.7) (27.3) (25.1)
Interest expense - net (25.0) (18.3) (77.6) (49.6)
----- ----- ----- -----
Income before income taxes $248.2 $91.4 $536.0 $313.6
====== ===== ====== ======
Note: In the fourth quarter of 2008, we reorganized our reporting
structure among the Lubrizol Additives and Lubrizol Advanced Materials
operating segments related to two businesses: the AMPS(R) specialty
monomer business and the ADEX(TM) explosives emulsifier business. We made
this change in order to better align the businesses with others of similar
asset and technology base in the Lubrizol Additives segment. In addition,
on January 1, 2009, we revised our measurement of segment operating income
to include income attributable to noncontrolling interests within the
Lubrizol Additives segment. The results for 2008 have been revised to
conform with the current year presentation.
THE LUBRIZOL CORPORATION
------------------------
Supplemental Financial Information
For the Three and Nine Months Ended September 30, 2009 and 2008
Reconciliation of Earnings to Earnings As Adjusted
(In Millions of Dollars, Except Per Share Data)
Earnings as adjusted (Non-GAAP) is a measure of income that differs from
earnings measured in accordance with generally accepted accounting
principles ("GAAP"). Earnings as adjusted (Non-GAAP) is net income
attributable to The Lubrizol Corporation per our consolidated results,
adjusted for exclusion of restructuring and impairment charges.
Management believes that both net income attributable to The Lubrizol
Corporation and earnings as adjusted for exclusion of these special
charges assist the investor in understanding the results of operations of
The Lubrizol Corporation. In addition, Management and the Board evaluate
results using net income attributable to The Lubrizol Corporation and
earnings as adjusted.
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
Net Net
Income Income
Income Attributable Income Attributable
Before to Diluted Before to Diluted
Tax Lubrizol EPS Tax Lubrizol EPS
--- -------- --- ---- -------- ---
Earnings $248.2 $170.5 $2.46 $91.4 $63.2 $0.92
Adjustments:
Restructuring
and impairment
charges 5.8 3.9 0.06 5.7 3.8 0.06
--- --- ---- --- --- ----
Earnings as
adjusted (Non-GAAP) $254.0 $174.4 $2.52 $97.1 $67.0 $0.98
====== ====== ===== ===== ===== =====
Nine Months Ended Nine Months Ended
September 30, 2009 September 30, 2008
Net Net
Income Income
Income Attributable Income Attributable
Before to Diluted Before to Diluted
Tax Lubrizol EPS Tax Lubrizol EPS
--- -------- --- ---- -------- ---
Earnings $536.0 $366.6 $5.34 $313.6 $214.9 $3.12
Adjustments:
Restructuring and
impairment
charges 27.3 18.0 0.26 25.1 15.9 0.23
---- ---- ---- ---- ---- ----
Earnings
as adjusted
(Non-GAAP) $563.3 $384.6 $5.60 $338.7 $230.8 $3.35
====== ====== ===== ====== ====== =====
THE LUBRIZOL CORPORATION
------------------------
Supplemental Financial Information
For the Three and Nine Months Ended September 30, 2009 and 2008
Reconciliation of Net Income Attributable to The Lubrizol Corporation
to Earnings Before Interest and Taxes (EBIT), and Before Restructuring
and Impairment Charges (Adjusted EBIT)
(in Millions of Dollars)
Earnings before interest and taxes (EBIT) (Non-GAAP) and earnings before
interest, taxes and restructuring and impairment charges (Adjusted EBIT)
(Non-GAAP) are measures of income that differ from net income attributable
to The Lubrizol Corporation measured in accordance with generally accepted
accounting principles ("GAAP"). EBIT is defined as net income
attributable to The Lubrizol Corporation per our consolidated results,
adjusted for interest expense - net and the provision for income taxes
EBIT is further adjusted for restructuring and impairment charges to
derive Adjusted EBIT. Management believes that net income attributable to
The Lubrizol Corporation, EBIT and Adjusted EBIT assist the investor in
understanding the results of operations of The Lubrizol Corporation. In
addition, Management and the Board evaluate results using net income
attributable to The Lubrizol Corporation, EBIT and Adjusted EBIT.
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Net income attributable to The Lubrizol
Corporation $170.5 $63.2 $366.6 $214.9
Add back:
Interest expense - net 25.0 18.3 77.6 49.6
Provision for income taxes 73.5 26.2 160.2 91.7
---- ---- ----- ----
Earnings before interest and taxes (EBIT) 269.0 107.7 604.4 356.2
Restructuring and impairment charges 5.8 5.7 27.3 25.1
--- --- ---- ----
Earnings before interest, taxes, restructuring
and impairment charges (Adjusted EBIT) $274.8 $113.4 $631.7 $381.3
====== ====== ====== ======
THE LUBRIZOL CORPORATION
------------------------
Supplemental Financial Information
For the Year Ended December 31, 2008
Reconciliation of Earnings to Earnings As Adjusted
(In Millions of Dollars, Except Per Share Data)
Earnings as adjusted (Non-GAAP) is a measure of income that differs from
earnings measured in accordance with generally accepted accounting
principles ("GAAP"). Earnings as adjusted (Non-GAAP) is net loss
attributable to The Lubrizol Corporation per our consolidated results,
adjusted for exclusion of restructuring and impairment charges and the
write-off of acquired in-process research and development. Management
believes that both net loss attributable to The Lubrizol Corporation and
earnings as adjusted for exclusion of these special charges assist the
investor in understanding the results of operations of The Lubrizol
Corporation. In addition, Management and the Board evaluate results
using net loss attributable to The Lubrizol Corporation and earnings as
adjusted.
Year Ended
December 31, 2008
-----------------
Net Loss
Income Attributable
Before to Diluted
Tax Lubrizol EPS
--- -------- ---
Earnings (loss) $17.0 $(66.1) $(0.97)
Adjustments:
Restructuring and impairment
charges 394.0 345.9 5.04
Write-off of acquired in-process
research and development 1.6 1.0 0.01
Pro forma effect of dilution on
earnings as adjusted* 0.01
----
Earnings as adjusted (Non-GAAP) $412.6 $280.8 $4.09
====== ====== =====
*Our loss per share for generally accepted accounting principles (GAAP)
does not allow for the inclusion of the dilutive effect of shares in the
denominator of our per share calculation since this effect would result in
a reduction of the loss per share. The per share impact of the
adjustments is reflected as if the dilutive shares were used in the
denominator of the earnings per share calculation of each adjustment. The
pro forma effect of dilution on earnings as adjusted is included in the
reconciliation of our Non-GAAP measure so that earnings as adjusted
reflects the impact of any applicable dilutive shares.
SOURCE The Lubrizol Corporation
http://www.lubrizol.com
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