The Lubrizol Corporation (NYSE: LZ) announced that consolidated
earnings for the second quarter ended June 30, 2011, were $191.3
million, or $2.90 per diluted share, including after-tax
merger-related and restructuring charges of $0.6 million, or $.01
per diluted share, primarily related to expense associated with the
company’s pending merger transaction with Berkshire Hathaway.
Comparable earnings for the second quarter of 2010 were $201.4
million, or $2.88 per diluted share, which included after-tax
restructuring and impairment charges of $0.3 million, or less
than $.01 per diluted share, primarily related to restructuring
initiatives in the Advanced Materials segment.
Second Quarter Consolidated
Results
Consolidated revenues for the second quarter increased 17
percent to $1.63 billion compared with $1.40 billion in the second
quarter of 2010. The year-over-year increase in revenues largely
was due to a 13 percent improvement in the combination of price and
product mix, favorable currency impact of 3 percent and 1 percent
higher volume. Excluding the special charges in both periods,
adjusted earnings were $191.9 million, or $2.91 per diluted share,
for the second quarter of 2011 compared with $201.7 million, or
$2.88 per diluted share, for the second quarter of 2010.
Adjusted earnings per share for the second quarter of 2011
slightly increased compared with the prior-year second quarter
largely due to improvement in the combination of price and product
mix, the favorable impact of reduced shares outstanding and higher
volume. These positive factors to earnings offset the impact of
higher raw material costs, higher selling, testing, administrative
and research (STAR) expenses, higher manufacturing costs, reduced
income from foreign currency translation gains and a higher
effective tax rate.
Six Month Consolidated
Results
For the first six months of 2011, consolidated revenues
increased 16 percent to $3.15 billion compared with $2.72 billion
for the first six months of 2010. Consolidated earnings were $360.8
million, or $5.47 per diluted share, including after-tax
merger-related and restructuring and impairment charges (credits)
of $9.7 million, or $.15 per diluted share. Earnings for the first
six months of 2010 were $363.7 million, or $5.21 per diluted share,
including after-tax restructuring and impairment charges of $0.9
million, or $.01 per diluted share. Excluding the special charges
from both periods, earnings of $5.62 per diluted share in the first
half of 2011 compared with $5.22 per diluted share in the first
half of 2010.
Cash flow from operations for the first six months of 2011 was
$222 million, down from $273 million in the year-earlier period.
The decrease in cash flow from operations primarily was
attributable to the change in working capital in the two periods.
Capital expenditures in the first half of 2011 were approximately
$139 million, which compared with $63 million in the prior-year
period. Some of this higher spending was attributable to
construction of the company’s new lubricant additives manufacturing
facility in China that is targeted to be operational in the second
half of 2012. The company’s cash balance at June 30, 2011,
decreased to $793 million compared with a cash balance of $896
million at December 31, 2010, primarily due to the January 2011
acquisition of the Nalco personal care and household care business
for $164 million.
Lubrizol Additives Segment
Results
Revenues for the Additives segment in the second quarter
increased to $1.20 billion compared with $1.01 billion in the
prior-year period. The increase in revenues was due to an
improvement in the combination of price and product mix, favorable
currency, as well as slightly higher volume.
Additives segment operating income in the quarter was $282
million and segment operating margin was 23.5 percent, which
continues to track with the company’s long-term operating margin
target range of 24 percent to 26 percent.
Lubrizol Advanced Materials Segment
Results
Revenues in the Advanced Materials segment for the quarter
increased 10 percent to $434 million compared with $393 million in
the second quarter of 2010 due to improvement in the combination of
price and product mix and favorable currency, which more than
offset a slight decline in volume.
Segment operating income in the second quarter decreased to $52
million largely due to lower volumes and higher raw material
costs.
Dividend Announced
As announced on June 28, the board of directors declared a
regular dividend of 36 cents per share payable September 9, 2011,
to shareholders of record at the close of business on August 10,
2011.
Status of Berkshire Hathaway
Transaction
At a special meeting held on June 9, 2011, Lubrizol’s
shareholders overwhelmingly approved the acquisition of Lubrizol by
Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) for $135 per share in
an all-cash transaction.
Approximately 95% of the votes cast, in person or by proxy,
voted in favor of the merger. In total, 49.4 million, or 77%, of
the shares outstanding as of the April 27, 2011, record date, were
represented at the special meeting, constituting a quorum. Adoption
of the merger agreement required an affirmative vote of a simple
majority of the Lubrizol common shares outstanding.
In addition to the approval of shareholders, completion of the
transaction is subject to satisfaction of customary closing
conditions, including the expiration of waiting periods and the
receipt of approvals under the Hart-Scott-Rodino (HSR) Antitrust
Improvements Act and applicable non-U.S. merger control
regulations. The transaction received early termination under HSR
on April 8, 2011. The company also advises that all non-U.S.
regulatory filings have been made and reviews are proceeding in the
ordinary course.
Lubrizol projects the transaction with Berkshire Hathaway will
close within the next one to three months.
About The Lubrizol
Corporation
The Lubrizol Corporation (NYSE: LZ) is an innovative specialty
chemical company that produces and supplies technologies to
customers 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 17 countries, as well
as sales and technical offices around the world. Founded in 1928,
Lubrizol has approximately 7,000 employees worldwide. Revenues for
2010 were $5.4 billion. For more information, visit
www.lubrizol.com.
Forward-Looking
Statements
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
Lubrizol's operations and business environment that are difficult
to predict and may be beyond the control of Lubrizol. 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 Lubrizol and cause results to differ from the
forward-looking statements in this release include, but are not
limited to, Lubrizol's ability to manage margins in an environment
of volatile raw material costs; conditions affecting Lubrizol's
customers, suppliers and the industries that it serves;
competitors' responses to Lubrizol's products; changes in
accounting, tax or regulatory practices or requirements; other
factors that are set forth in management's discussion and analysis
of Lubrizol's most recently filed reports with the Securities and
Exchange Commission; and uncertainties associated with the proposed
acquisition of Lubrizol by Berkshire Hathaway, including
uncertainties relating to the anticipated timing of filings and
approvals relating to the transaction, the expected timing of
completion of the transaction and the ability to complete the
transaction. The forward-looking statements contained herein
represent Lubrizol's judgment as of the date of this release and
Lubrizol cautions readers not to place undue reliance on such
statements. Lubrizol assumes no obligations to update the
forward-looking statements contained in this release.
THE LUBRIZOL
CORPORATION
CONSOLIDATED STATEMENTS OF
INCOME (In Millions Except Per Share Data) Three Months Ended
Six Months Ended June 30, June 30, 2011 2010 2011 2010
Revenues $ 1,634.8 $ 1,401.2 $ 3,153.7 $ 2,716.7 Cost of sales
1,133.3 927.6 2,170.0
1,792.4 Gross profit 501.5 473.6 983.7 924.3
Selling and administrative expenses 123.6 100.0 256.3 222.9
Research, testing and development expenses 58.7 52.9 112.5 105.7
Amortization of intangible assets 7.1 6.2 13.9 12.5 Berkshire
Hathaway merger-related costs 0.8 - 10.7 - Restructuring and
impairment charges (credits) 0.3 0.5 (0.3 ) 1.4 Other income – net
(5.0 ) (11.6 ) (4.1 ) (19.7 ) Interest expense – net 22.0
23.4 45.6 46.9
Income before income taxes 294.0 302.2 549.1 554.6 Provision for
income taxes 97.2 95.6 178.4
181.0 Net income 196.8 206.6 370.7 373.6 Net
income attributable to noncontrolling interests 5.5
5.2 9.9 9.9 Net income
attributable to The Lubrizol Corporation $ 191.3 $ 201.4
$ 360.8 $ 363.7 Earnings per
share attributable to The Lubrizol Corporation: Basic $ 2.96
$ 2.95 $ 5.59 $ 5.32 Diluted $
2.90 $ 2.88 $ 5.47 $ 5.21
Weighted-average common shares outstanding: Basic
64.6 68.2 64.5 68.4
Diluted 66.1 69.8
66.0 69.8
THE LUBRIZOL
CORPORATION
CONSOLIDATED BALANCE SHEETS (In Millions of Dollars) June
30, December 31, 2011 2010
Assets Cash and cash equivalents
$ 793.4 $ 896.2 Receivables 921.9 723.5 Inventories 917.5 821.8
Other current assets 123.9 108.6 Total current assets
2,756.7 2,550.1 Property and equipment – net 1,281.5 1,183.5
Goodwill and intangible assets – net 1,244.8 1,065.0 Other assets
166.3 168.4 Total $ 5,449.3 $ 4,967.0
Liabilities and Equity Current portion of long-term debt $
0.6 $ 0.4 Accounts payable 468.4 369.2 Accrued expenses and other
current liabilities 310.6 351.3 Total current
liabilities 779.6 720.9 Long-term debt 1,356.5 1,351.6 Other
noncurrent liabilities 607.1 613.8 Total liabilities
2,743.2 2,686.3 Redeemable stock-based awards
10.6 9.6 Total equity 2,695.5 2,271.1
Total $ 5,449.3 $ 4,967.0
THE LUBRIZOL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH
FLOWS (In Millions of Dollars) Six Months Ended June 30, 2011
2010 Cash provided by (used for):
Operating activities: Net
income $ 370.7 $ 373.6
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 88.8 84.8 Deferred income taxes (3.1
) 10.3 Stock-based compensation 8.0 9.1 Net change in working
capital (233.0 ) (204.9 ) Other items – net (9.6 )
0.3 Total operating activities 221.8 273.2
Investing activities: Capital expenditures (139.2 ) (63.2 )
Acquisitions (164.2 ) (2.5 ) Other items – net 5.0
4.1 Total investing activities (298.4 ) (61.6 )
Financing activities: Dividends paid (46.2 ) (45.8 )
Dividends paid to noncontrolling interest (11.4 ) (8.0 ) Common
shares purchased - (125.5 ) Repayments of long-term debt (0.1 )
(45.8 ) Other items – net 13.6 26.4
Total financing activities (44.1 ) (198.7 ) Effect of
exchange rate changes on cash 17.9 (31.7 ) Net
decrease in cash and cash equivalents (102.8 ) (18.8 ) Cash
and cash equivalents at the beginning of period 896.2
991.0 Cash and cash equivalents at the end of
period $ 793.4 $ 972.2
THE LUBRIZOL
CORPORATION
SEGMENT INFORMATION (In Millions of Dollars) Three
Months Ended Six Months Ended June 30, June 30, 2011 2010 2011 2010
Revenues from external customers: Lubrizol Additives $
1,201.0 $ 1,008.4 $ 2,284.4 $ 1,956.4 Lubrizol Advanced Materials
433.8 392.8 869.3
760.3 Total revenues $ 1,634.8 $ 1,401.2 $
3,153.7 $ 2,716.7
Segment operating
income: Lubrizol Additives $ 282.4 $ 271.5 $ 542.3 $ 517.9
Lubrizol Advanced Materials 52.2 62.5
123.3 123.1 Total segment operating
income 334.6 334.0 665.6 641.0 Corporate expenses (19.4 )
(15.3 ) (57.6 ) (50.8 ) Corporate other income (expense) – net 1.9
7.4 (2.9 ) 12.7 Berkshire Hathaway merger-related costs (0.8 ) -
(10.7 ) - Restructuring and impairment (charges) credits (0.3 )
(0.5 ) 0.3 (1.4 ) Interest expense – net (22.0 )
(23.4 ) (45.6 ) (46.9 ) Income before income taxes $
294.0 $ 302.2 $ 549.1 $ 554.6
THE LUBRIZOL
CORPORATION
Supplemental Financial Information For the Three
and Six Months Ended June 30, 2011 and 2010 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 may not be comparable with
similarly titled measures used by other companies and should not be
considered in isolation or as a substitute for measures of income
in accordance with GAAP, as non-GAAP measures have limitations in
that they do not reflect all of the amounts associated with our
results of operations. We believe that earnings as
adjusted for the exclusion of Berkshire Hathaway merger-related
costs and restructuring and impairment charges (credits) assists
the investor in evaluating the results of our core operating
activities and provides greater comparability with historical
results where such charges may be materially
different. We use earnings as adjusted to measure and
evaluate performance and to determine, in part, incentive
compensation. We believe that the presentation of both
GAAP and non-GAAP measures may assist investors in comparing our
performance with that of peer companies presenting a similar
non-GAAP measure.
Three Months Ended Three Months
Ended June 30, 2011 June 30, 2010 Income
Net Income Income Net Income
Before Attributable Diluted
Before Attributable Diluted Tax
to Lubrizol EPS Tax to
Lubrizol EPS Earnings $ 294.0 $ 191.3 $
2.90 $ 302.2 $ 201.4 $ 2.88 Adjustments: Berkshire Hathaway
merger-related costs 0.8 0.4 0.01 - - - Restructuring and
impairment charges 0.3 0.2
- 0.5 0.3 -
Earnings as adjusted (Non-GAAP) $ 295.1 $ 191.9
$ 2.91 $ 302.7 $ 201.7 $ 2.88
Six Months Ended Six Months Ended June 30,
2011 June 30, 2010 Income Net Income
Income Net Income Before Attributable
Diluted Before Attributable Diluted
Tax to Lubrizol EPS Tax
to Lubrizol EPS Earnings $ 549.1
$ 360.8 $ 5.47 $ 554.6 $ 363.7 $ 5.21 Adjustments: Berkshire
Hathaway merger-related costs 10.7 9.9 0.15 - - - Restructuring and
impairment (credits) charges (0.3 ) (0.2 )
- 1.4 0.9 0.01
Earnings as adjusted (Non-GAAP) $ 559.5 $
370.5 $ 5.62 $ 556.0 $ 364.6 $ 5.22
THE LUBRIZOL
CORPORATION
Supplemental Financial Information For the Three
and Six Months Ended June 30, 2011 and 2010
Reconciliation of Net Income Attributable to The Lubrizol
Corporation to Earnings Before Interest and Taxes (EBIT),
and Before Berkshire Hathaway Merger-Related Costs and
Restructuring and Impairment Charges (Credits) (Adjusted EBIT)
(In Millions of Dollars)
Earnings before interest and taxes (EBIT)
(Non-GAAP) and earnings before interest, taxes, Berkshire Hathaway
merger-related costs and restructuring and impairment charges
(credits) (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 and Adjusted EBIT may not be
comparable with similarly titled measures used by other companies
and should not be considered in isolation or as a substitute for
measures of income in accordance with 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 Berkshire Hathaway merger-related costs and restructuring and
impairment charges (credits) to derive Adjusted EBIT. We
believe 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 and may assist
investors in comparing our performance with that of peer companies
presenting similar non-GAAP measures. In addition, we
evaluate results using net income attributable to The Lubrizol
Corporation, EBIT and Adjusted EBIT.
Three Months Ended Six Months Ended
June 30, June 30, 2011 2010
2011 2010 Net income attributable to
The Lubrizol Corporation $ 191.3 $ 201.4 $ 360.8 $ 363.7 Add back:
Interest expense - net 22.0 23.4 45.6 46.9 Provision for income
taxes 97.2 95.6 178.4 181.0
Earnings before interest and taxes (EBIT) 310.5 320.4 584.8
591.6 Berkshire Hathaway merger-related costs 0.8 - 10.7 -
Restructuring and impairment charges (credits) 0.3
0.5 (0.3 ) 1.4
Earnings before interest, taxes, Berkshire
Hathaway merger-related costs and restructuring and impairment
charges (credits) (Adjusted EBIT)
$ 311.6 $ 320.9 $ 595.2 $ 593.0
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