FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from ..... to .....
Commission file number 1-5263
THE LUBRIZOL CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-0367600
(State of incorporation) (I.R.S. Employer Identification No.)
29400 Lakeland Boulevard
Wickliffe, Ohio 44092-2298
(Address of principal executive officers, including zip code)
Registrant's telephone number, including area code: (440) 943-4200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------------------- ------------------------
Common Shares without par value New York Stock Exchange
Common Share purchase rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2g the Act)
Yes X No
------ ------
Aggregate market value (on basis of closing sale price) of voting stock
held by nonaffiliates as of June 30, 2002: $1,479,352,243.
Number of the registrant's Common Shares, without par value,
outstanding as of March 1, 2003: 51,457,892.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 2002 Annual Report to its shareholders
(Incorporated into Part I and II of this Form 10-K)
Portions of the registrant's Proxy Statement dated March 19, 2003
(Incorporated into Part III of this Form 10-K)
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PART I
ITEM 1. BUSINESS
The Lubrizol Corporation was organized under the laws of Ohio in 1928.
The company began business as a compounder of special-purpose lubricants, and in
the early 1930's was among the first to commence research in the field of
lubricant additives. Today, the company is a global fluid technology company
that develops, produces and sells high-performance chemicals, systems and
services for industry and transportation. The company creates these products,
including specialty additive packages and related equipment, for use in
transportation and industrial lubricants and other markets. The company does
this by applying advanced chemical and mechanical technologies to enhance the
performance, quality and value and reduce the environmental impact of the
customer products in which our products are used. Beginning in 2002, the company
reorganized its product lines into four principle operating segments: fluid
technologies for transportation, fluid technologies for industry, advanced fluid
systems and emulsified products.
PRINCIPAL PRODUCTS. Fluid technologies for transportation is comprised
of additives for lubricating engine oils, such as for gasoline, diesel, marine
and stationary gas engines and additive components; additives for driveline
oils, such as automatic transmission fluids, gear oils and tractor lubricants;
and additives for fuel products and refinery and oil field chemicals. In
addition, the company sells additive components and viscosity improvers within
its lubricant and fuel additives product lines. Fluid technologies for industry
includes additives for industrial fluids, such as additives for hydraulic,
grease and metalworking fluids and compressor lubricants; and performance
chemicals, such as additives for coatings and inks, defoamers and process
chemicals. Advanced fluid systems is comprised principally of fluid metering
devices, particulate emission trap devices, and FluiPaKTM sensor systems.
Emulsified products is comprised of PuriNOxTM low-emissions diesel fuel.
Revenues within the fluid technologies for transportation (FTT) segment
comprised 79%, 82% and 82% of consolidated revenues in 2002, 2001 and 2000,
respectively. Within FTT, additives for lubricating engine oils comprised 54%,
55% and 53% of consolidated revenues in 2002, 2001 and 2000, respectively and
additives for driveline oils comprised 21%, 22% and 22% of consolidated revenues
for these same respective periods. Revenues within the fluid technologies for
industry (FTI) segment comprised 19%, 16% and 17% of consolidated revenues in
2002, 2001 and 2000, respectively. Within FTI, additives for industrial fluids
comprised 10% of consolidated revenues in 2002, 2001 and 2000. Further financial
information for the company's operating segments is contained in Note 13 to the
Financial Statements, which is included in the company's 2002 Annual Report to
its shareholders and is incorporated herein by reference.
Additives improve the lubricants and fuels used in cars, trucks, buses,
off-highway equipment, marine engines and industrial applications. In
lubricants, additives enable oil to withstand a broader range of temperatures,
limit the buildup of sludge and varnish deposits, reduce wear, inhibit the
formation of foam, rust and corrosion, and retard oxidation. In fuels, additives
help maintain efficient operation of the fuel delivery system, help control
deposits and corrosion, improve combustion and assist in preventing
decomposition during storage. The company sells a proprietary
dispersant/surfactant additive package that enables the emulsion of water in
diesel fuel, resulting in a low-emission fuel (PuriNOxTM) for diesel engines.
The company also manufactures and sells or leases the specialized blending units
to blend the additive, water and diesel fuel into the stable emulsion.
Due to the variety of oil properties and applications, a number of
different chemicals are used to formulate the company's products. Each additive
combination is designed to fit the characteristics of the customer's base oil
and the level of performance specified. Engine oils for passenger cars contain a
combination of chemical additives which usually includes one or more detergents,
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dispersants, oxidation inhibitors and wear inhibitors, pour point depressants
and viscosity improvers. Other chemical combinations are used in specialty
additive systems for heavy duty engine oils used by trucks and off-highway
equipment and in formulations for gear oils, automatic transmission fluids,
industrial oils, metalworking fluids, defoamers, and gasoline, diesel and
residual fuels.
The company's advanced fluid systems products principally involve
products used in emission controls, such as catalyst, exhaust and filter systems
and precision metering devices used in blending and additive injection
operations.
COMPETITION. The company's fluid technologies for transportation
segment and fluid technologies for industry segment are highly competitive in
terms of price, technology development, product performance and customer
service. The company's principal competitors within its fluid technologies for
transportation segment, both in the United States and overseas, are Infineum, a
joint venture involving two major petroleum companies (Shell Oil Company and
Exxon Mobil Corporation); Chevron Oronite Company, a subsidiary of ChevronTexaco
Corporation, a major petroleum company; and one chemical company (Ethyl
Corporation). The petroleum companies either directly or indirectly produce
lubricant and fuel additives for their own use and also sell additives to
others. These petroleum companies are also customers of the company and may also
sell base oil to the company. The company believes, based on volume sold, that
it is the largest supplier to the petroleum industry of performance additive
packages for lubricants. In fluid technologies for industry, the company
competes primarily in the metalworking fluids, hydraulic fluids, synthetic
refrigerant lubricants and additives for paints, coatings and inks and specialty
surfactants markets, with numerous competitors within each market.
CUSTOMERS. The company primarily markets its fluid technologies for
transportation and fluid technologies for industry products worldwide through
its own sales organization. In addition, the company utilizes sales agents and
distributors where necessary. The company's additive customers consist primarily
of oil refiners and independent oil blenders and are located in more than 100
countries. In 2002, approximately 45% of the company's consolidated sales were
made to customers in North America, 28% to customers in Europe and the Middle
East and 27% to customers in Asia-Pacific and Latin America. The company's ten
largest customers, most of which are international oil companies and a number of
which are groups of affiliated entities, accounted for approximately 55% of
consolidated sales in 2002. The loss of one or more of these customers could
have a material adverse effect on the company's business, specifically in the
fluid technologies for transportation segment. Shell Oil Products, together with
its affiliates, was the company's largest customer within the fluid technologies
for transportation segment during 2002, comprising 12% of consolidated sales.
Shell completed several acquisitions in 2002, including Equilon Enterprises and
Pennzoil-Quaker State, and the 2002 percentage includes sales to Shell, Equilon
and Pennzoil-Quaker State as well as sales to the combined entity, following the
consummation of the acquisitions. Sales to BP comprised 10% of consolidated
sales in 2002. The company's chemicals for industry segment is not materially
dependent on a single customer or on a few customers.
RAW MATERIALS. The company utilizes a broad variety of chemical raw
materials in the manufacture of its additives and uses oil in processing and
blending additives. These materials are obtainable from several sources, and for
the most part are derived from petroleum. Political and economic conditions in
the Middle East have, in the past, caused and may continue to cause the cost of
raw materials to fluctuate significantly; however, the availability of raw
materials to the company has not been significantly affected when these
conditions occurred. The company expects raw materials to be available in
adequate quantities during 2003.
RESEARCH, TESTING AND DEVELOPMENT. The company has historically
emphasized research and has developed a large percentage of the additives it
manufactures and sells. Technological developments in the design of engines and
other automotive equipment, combined with rising demands for environmental
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protection and fuel economy, require increasingly sophisticated chemical
additives to meet industry performance standards. The frequency of changes in
industry performance affects the company's technical spending patterns.
Consolidated research and development expenditures were $93.5 million
in 2002, $87.6 million in 2001 and $86.4 million in 2000. These amounts were
equivalent to 4.7%, 4.7% and 4.9% of the respective revenues for those years.
These amounts include expenditures for the performance evaluation of additive
developments in engines and other types of mechanical equipment as well as
expenditures for the development of specialty chemicals for industrial
applications. In addition, $74.8 million, $70.9 million and $64.4 million was
spent in 2002, 2001 and 2000, respectively, for technical service (testing)
activities, principally for evaluation in mechanical equipment of specific
lubricant formulations designed for the needs of petroleum industry customers
throughout the world.
Research, testing and development expenditures by reporting segment
were as follows (in thousands of dollars):
2002 2001 2000
-------- -------- --------
Research & development expenditures:
Fluid technologies for transportation $ 81,650 $ 74,582 $ 74,526
Fluid technologies for industry 8,557 8,630 8,595
All Other 3,294 4,370 3,274
-------- -------- --------
Total $ 93,501 $ 87,582 $ 86,395
======== ======== ========
Testing expenditures:
Fluid technologies for transportation $ 62,247 57,783 54,950
Fluid technologies for industry 10,078 10,826 7,940
All Other 2,477 2,282 1,520
-------- -------- --------
Total $ 74,802 $ 70,891 $ 64,410
======== ======== ========
The company has two research facilities at Wickliffe, Ohio, one of
which is principally for lubricant additive research and the other for research
in the field of other specialty chemicals. The company also maintains a
mechanical testing laboratory at Wickliffe, equipped with a variety of gasoline
and diesel engines and other mechanical equipment to evaluate the performance of
additives for lubricants and fuels. The company has similar mechanical testing
laboratories in England and Japan and, in addition, makes extensive use of
independent contract research firms. Extensive field testing is also conducted
through various arrangements with fleet operators and others.
Liaison offices in Detroit, Michigan; Hazelwood, England; Hamburg,
Germany; Tokyo, Japan; and Paris, France, maintain close contact with the
principal automotive and equipment manufacturers of the world and keep the
company abreast of the performance requirements for its products in the face of
changing technologies. These liaison activities also serve as contacts for
cooperative development and evaluation of products for future applications.
Contacts with the automotive and equipment industry are important so that the
company may have the necessary direction and lead time to develop products for
use in engines, transmissions, gear sets, and other areas of equipment that
require lubricants of advanced design.
PATENTS. The company owns a variety of United States and foreign
patents relating to lubricant and fuel additives, lubricants, chemical
compositions and processes, and protective coating materials and processes.
While these domestic and foreign patents expire from time to time, the company
continues to apply for and obtain patent protection on an ongoing basis.
Although the company believes that, in the aggregate, its patents constitute an
important asset, it does not regard its business as being materially dependent
upon any
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single patent or any group of related patents. The company utilizes patents in
all operating segments.
ENVIRONMENTAL MATTERS. The company is subject to federal, state and
local laws and regulations designed to protect the environment and limit
manufacturing wastes and emissions. The company believes that as a general
matter its policies, practices and procedures are properly designed to prevent
unreasonable risk of environmental damage and the consequent financial liability
to the company. Compliance with environmental laws and regulations requires
continuing management effort and expenditures by the company. Capital
expenditures for environmental projects were $3.4 million in 2002, which
represented 5.2% of 2002 capital expenditures. The company believes that the
cost of complying with environmental laws and regulations will not have a
material affect on the earnings, liquidity or competitive position of the
company.
The company is engaged in the handling, manufacture, use,
transportation and disposal of substances that are classified as hazardous or
toxic by one or more regulatory agencies. The company believes that its
handling, manufacture, use, transportation and disposal of such substances
generally have been in accord with environmental laws and regulations.
Among other environmental laws, the company is subject to the federal
"Superfund" law, under which the company has been designated as a "potentially
responsible party" that may be liable for cleanup costs associated with various
waste sites, some of which are on the U.S. Environmental Protection Agency
Superfund priority list. The company's experience, consistent with what it
believes to be the experience of others in similar cases, is that Superfund site
liability tends to be apportioned among parties based upon contribution of
materials to the Superfund site. Accordingly, the company measures its liability
and carries out its financial reporting responsibilities with respect to
Superfund sites based upon this standard, even though Superfund site liability
is technically joint and several in nature. The company views the expense of
such remedial cleanups as a part of its product cost, and accrues for estimated
environmental liabilities with charges to cost of sales. The company considers
its environmental accrual to be adequate to provide for its portion of costs for
all such known environmental liabilities. Based upon consideration of currently
available information, the company believes liabilities for environmental
matters will not have a material adverse affect on the company's financial
position, operating results or liquidity.
EMPLOYEES. At December 31, 2002, the company and its subsidiaries had
5,231 employees of which approximately 51% were in the U.S.
GEOGRAPHIC AREA INFORMATION. Financial information with respect to
domestic and foreign operations is contained in Note 13 to the Financial
Statements which is included in the company's 2002 Annual Report to its
shareholders, and is incorporated herein by reference.
The company supplies its additive customers abroad through export from
the United States and from overseas manufacturing plants. Sales and technical
service offices are maintained in approximately 30 countries outside the United
States. As a result, the company is subject to business risks inherent in
non-U.S. activities, including political and economic uncertainty, import and
export limitations and market risk related to changes in interest rates and
foreign currency exchange rates. The company believes the political and economic
risks related to its foreign operations are mitigated due to the stability of
the countries in which its largest foreign operations are located.
While changes in the U.S. dollar value of foreign currencies will
affect earnings from time to time, the longer-term economic effect of these
changes should not be significant given the company's net asset exposure,
currency mix and use of U.S. dollar-based pricing in certain countries. The
company's consolidated net income will generally benefit as foreign currencies
increase in
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value compared to the U.S. dollar and will generally decline as foreign
currencies decrease in value.
AVAILABLE INFORMATION. The company's Internet address is
www.lubrizol.com. The company makes available free of charge on their Internet
website the annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on From 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after the company electronically files the material with or furnishes it to the
SEC.
ITEM 2. PROPERTIES
The general offices of the company are located in Wickliffe, Ohio. The
company has various leases for general office space primarily located in
Anaheim, California; Houston, Texas; Naperville, Illinois; Wilmington, Delaware;
Southfield, Michigan; Vancouver, Washington; Oakville, Ontario; and London,
England. The company leases office and laboratory space in Spartanburg, South
Carolina. The company owns three additive manufacturing plants in the United
States; one located in the Cleveland, Ohio area, at Painesville, and two near
Houston, Texas, at Deer Park and Bayport. Outside the United States, the company
owns additive manufacturing/blending plants in Australia, Brazil, Canada,
England, France (three locations), Japan, South Africa and Singapore. All of
these plants, other than Singapore, are owned in fee. In Singapore, the company
owns the plant but leases the land on which the plant is located. The company
owns in fee research, development and testing facilities in Wickliffe, Ohio;
Hazelwood, England; and Kinurra, Japan. The company also owns in fee a facility
in Midland, Michigan, at which air and refrigeration compressor lubricants are
developed and marketed; manufacturing plants in Countryside, Illinois;
Mountaintop, Pennsylvania; and Germany that manufacture performance specialty
chemical additives for the coatings and specialty metalworking fluid and
industrial lubricant markets; a manufacturing plant in Atlanta, Georgia, that
manufactures fluid metering devices; manufacturing plants in Newmarket and
London, Ontario, Canada, and Reno, Nevada, that manufacture particulate emission
control devices; a manufacturing plant in Fareham, Hampshire, England, that
manufactures additive injection equipment; manufacturing plants in Fountain Inn,
South Carolina and Cheyenne, Wyoming, that manufacture antifoam and defoaming
agents to the coatings, inks, textile, food, fermentation, mining, wastewater
and metalworking industries; and a manufacturing plant in Linden, New Jersey
that manufactures polymers including acrylic, methacrylic, alkyd and polyester
resins to the paint, coatings, painting ink, laminating, adhesives, sealants and
grease markets. The company leases space in Countryside, Illinois, at which
specialty chemical additives for the coatings and specialty metalworking fluid
and industrial lubricant markets are manufactured and in Paso Robles, California
and Bowling Green, Ohio at which specialty surfactants used in personal care
products, industrial cleaners and a wide range of other consumer and industrial
products are manufactured.
Additive manufacturing/blending plants in India, Saudi Arabia, and
China are owned and operated by joint venture companies licensed by Lubrizol.
Lubrizol's ownership of each of these companies ranges from 49% to 50.05%. At
the Lanzhou, China plant, the land on which the plant is located is leased.
The company has entered into long-term contracts for its exclusive use
of major marine terminal facilities at the Port of Houston, Texas. In addition,
Lubrizol has leases for storage facilities in Australia, Chile, Denmark,
Ecuador, England, Finland, France, Holland, Singapore, Spain, South Africa,
Sweden and Turkey; Paso Robles, Bakersfield and Los Angeles, California; St.
Paul, Minnesota; Bayonne and Edison, New Jersey; Perrysburg, Ohio; Oklahoma
City, Oklahoma; Odessa, Texas; and Tacoma, Washington. In some cases, the
ownership or leasing of such facilities is through certain of its subsidiaries
or affiliates.
The company maintains a capital expenditure program to support its
operations and believes its facilities are adequate for its present operations
and for the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS
The company and its subsidiaries are participants in ordinary routine
litigation incidental to the business but are not defendants in any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of the security holders during
the three months ended December 31, 2002.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the name, age, recent business experience and
certain other information relative to each person who is an executive officer of
the company as of March 7, 2003.
NAME BUSINESS EXPERIENCE
---- -------------------
W. G. Bares Mr. Bares, age 61, became Chairman of the Board on April 22, 1996, and
Chief Executive Officer on January 1, 1996. He was President from 1982
to January 10, 2003.
J. R. Ahern Mr. Ahern, age 56, has been Controller - Accounting and Financial
Reporting and Principal Accounting Officer since April 26, 1999. From
1993 to April 1999 he was Controller - Operations.
J. W. Bauer Mr. Bauer, age 49, has been Vice President and General Counsel
since April 1992.
D. W. Bogus Mr. Bogus, age 55, joined the company and became Vice President in May,
2000. He is responsible for fluid technologies for industry. Prior to
joining the company, he was with PPG Industries, Inc., where he was
Vice President of Governmental Affairs from May 1999 to February 2000,
Vice President-Packaging Coatings from October 1998 to May 1999, and
Vice President Industrial Coatings from September 1996 to October
1998.
C. P. Cooley Mr. Cooley, age 47, has been Vice President and Chief Financial Officer
since he joined the company in April 1998. In addition, he was
Treasurer from April 1998 to September 2001. In June 1998 he also
became responsible for corporate strategic planning. Prior to joining
the company, he was Assistant Treasurer - Corporate Finance at Atlantic
Richfield Company.
S. A. Di Biase Dr. Di Biase, age 50, has been Vice President since September 1993. He
has been responsible for emulsified products since October 2001. Prior
to that, he was responsible for research and development.
J. L. Hambrick Mr. Hambrick, age 48, was elected President on January 10, 2003. From
May 2000 to January 2003 he was Vice President responsible for managing
corporate strategies in the Asia Pacific. From October 1998 to April
2000 he was global business manager - engine oils. From January 1994
to September 1998 he was the business development manager for the
Former Soviet Union and China business regions.
G. R. Hill Dr. Hill, age 61, has been Senior Vice President since 1988. He has
been responsible for research and development since October 2001 and
has been responsible for business development since October 1993. From
1996 to June 1998 he was also responsible for corporate strategic
planning.
J. E. Hodge Mr. Hodge, age 60, has been Vice President since September 1993. He is
responsible for operations.
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NAME BUSINESS EXPERIENCE
---- -------------------
S. F. Kirk Mr. Kirk, age 53, has been Vice President since September 1993. Since
January 1999, he has been responsible for sales and marketing. From
April 1996 to January 1999, he was responsible for sales.
Y. Le Couedic Mr. Le Couedic, age 55, has been Vice President since September 1993.
He is responsible for management information systems.
G. R. Lewis Mr. Lewis, age 43, was elected Vice President responsible for managing
Corporate strategies in the Asia Pacific region on January 10, 2003.
He was Assistant Secretary from April 2001 to January 2003 and was
Assistant to the General Counsel from October 1997 to January 2003.
G. P. Lieb Mr. Lieb, age 50, has been Controller - Commercial Analysis and Support
since April 26, 1999. From 1993 to April 1999 he was Controller -
Accounting and Financial Reporting. From 1994 to April 1999 he was also
Principal Accounting Officer.
M. W. Meister Mr. Meister, age 48, has been Vice President since April 1993, and was
named Chief Ethics Officer in April 1998. He is responsible for human
resources.
R. S. Potter Ms. Potter, age 43, joined the company and was named Treasurer in
September 2001. Prior to joining the company, she was Vice President
and Treasurer at Dexter Corporation from 1999 to 2000, Leader of
Facilities Integration at Hercules, Inc. from 1998 to 1999, and
Assistant Vice President and Treasurer at BetzDearborn Corporation from
1996 to 1998.
L. M. Reynolds Ms. Reynolds, age 42, was named Corporate Secretary in April 2001, and
has been Counsel since February 1991. From April 1995 until April 2001,
she was Assistant Secretary.
J. D. Stearns Mr. Stearns, age 55, was named Chief Tax Officer in September 1990. In
addition, he has been Controller - Tax Administration since September
1986.
J. Wanstreet Ms. Wanstreet, age 51, was elected Vice President on April 22, 2002.
She is responsible for global communications and investor relations.
From January 2001 to April 2002 she was Manager, Investor Relations.
From January 1999 to December 2000 she was Finance Manager. From
January 1995 to December 1998 she was Research Manager.
All executive officers serve at the pleasure of the Board.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The common shares of the company are listed on the New York Stock
Exchange under the symbol LZ. The number of shareholders of record of common
shares was 4,055 as of March 7, 2003.
Information relating to the recent price and dividend history of the
company's common shares follows:
COMMON SHARE PRICE HISTORY
-------------------------------- DIVIDENDS
2002 2001 PER COMMON SHARE
---- ---- ----------------
HIGH LOW HIGH LOW 2002 2001
---- --- ---- --- ---- ----
1st quarter $36.18 $31.75 $33.65 $24.13 $ .26 $ .26
2nd quarter 36.36 32.26 33.69 28.25 .26 .26
3rd quarter 33.55 27.01 37.69 28.00 .26 26
4th quarter 31.60 26.20 35.75 27.75 .26 .26
----- -----
$1.04 $1.04
===== =====
On November 6, 2002, the company issued 3,282 common shares in a transaction
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) of that Act. We issued the shares to the beneficiary of a former director
pursuant to a deferred compensation plan for directors.
ITEM 6. SELECTED FINANCIAL DATA.
The summary of selected financial data for each of the last five years
included in the Historical Summary contained on pages 42 and 43 of the company's
2002 Annual Report to its shareholders is incorporated herein by reference.
Other income for 2000 includes a litigation settlement gain of $19.4 million and
credits of $4.5 million for adjustments to the second program of the company's
cost reduction initiative. Other income (charges) for 1999 includes litigation
settlement gains of $17.6 million and special charges of $19.6 million for the
second program of the company's cost reduction initiative and adjustments to the
first program of the company's cost reduction initiative.
Total debt reported in the Historical Summary includes the following
amounts classified as long-term at December 31: $384.8 million in 2002, $388.1
million in 2001, $378.8 million in 2000, $365.4 million in 1999, and $390.4
million in 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Management's Discussion and Analysis of Financial Condition and
Results of Operations, including the information appearing under the heading
"Cautionary Statement For `Safe Harbor' Purposes Under the Private Securities
Litigation Reform Act of 1995", contained on pages 10 through 21, inclusive, of
the company's 2002 Annual Report to its shareholders is incorporated herein by
reference.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information appearing under the heading "Quantitative and
Qualitative Disclosures about Market Risk" contained on page 21 of the company's
2002 Annual Report to its shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the company and its
subsidiaries, together with the independent auditors' report relating thereto,
contained on pages 22 through 41, inclusive, of the company's 2002 Annual Report
to its shareholders, and the Quarterly Financial Data (Unaudited) contained on
page 22 of such 2002 Annual Report, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Election of Directors" on
pages 3 to 6, inclusive, and under "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 21 of the company's Proxy Statement dated March 19, 2003, is
incorporated herein by reference. Information relative to executive officers of
the company is contained under "Executive Officers of the Registrant" in Part I
of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to executive compensation contained under the
headings "Director Compensation" on page 9, "Executive Compensation - Summary
Compensation Table" and "- Stock Incentive Plans" on pages 12 through 14,
inclusive, under "Employee and Executive Officer Benefit Plans - Pension Plans"
on pages 18 and 19 and under "Employee and Executive Officer Benefit Plans -
Supplemental Retirement Plan" and "- Executive Agreements" on pages 20 and 21,
of the company's Proxy Statement dated March 19, 2003, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information relating to security ownership set forth under the
heading "Share Ownership of Directors, Executive Officers and Large Beneficial
Owners" on pages 10 and 11 of the company's Proxy Statement dated March 19,
2003, is incorporated herein by reference.
The following table gives information about the company's common stock that may
be issued under the company's equity compensation plans as of December 31, 2002.
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Equity Compensation Plan Information
Number of securities
Number of remaining available
securities to be issued Weighted-average exercise for future issuance under
upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
Plan Category warrants and rights rights reflected in column (a))
--------------------- --------------------------- --------------------------- --------------------------------
Equity compensation
plans approved by
security holders
5,272,723 (1) $31.38 611,698 (2)
--------------------- --------------------------- --------------------------- --------------------------------
Equity compensation
plans not approved
by security holders
(3) n/a (3)
--------------------- --------------------------- --------------------------- --------------------------------
Total 5,272,723 $31.38 611,698
--------------------- --------------------------- --------------------------- --------------------------------
(1) This number does not include performance share stock awards granted
under the 1991 Stock Incentive Plan.
Performance share stock awards were granted to certain executive
officers in 1997, 1998, 2000, 2001 and 2002. Common shares equal
to the number of outstanding performance shares will be issued if
the price for Lubrizol common shares reaches $45 for ten
consecutive trading days or March 24, 2003, whichever occurs
first. The number of outstanding performance shares as of
December 31, 2002, was 60,750.
(2) The number of shares available under the 1991 Stock Incentive
Plan during a calendar year is 1% of the outstanding shares on
January 1 of that year, plus any unused shares from previous
years. As of January 1, 2003, the number of shares available was
1,126,274.
(3) Under a deferred compensation plan, certain executive officers
may defer any amount of their variable pay under the performance
pay plan. Deferred amounts are converted into share units based
on the current market price of Lubrizol's shares, which are then
multiplied by 1.25. Additional share units are credited for
quarterly dividends paid on Lubrizol shares. At the end of the
deferral period, which is at least three years, common shares are
issued equal to the number of share units in the participant's
account. As of December 31, 2002, there were 61,588 share units
outstanding.
Under a deferred stock compensation plan for outside directors,
each director who is not a Lubrizol employee receives 500 share
units on each October 1 and is credited with additional share
units for quarterly dividends paid on Lubrizol shares. When a
person is no longer a director, Lubrizol shares are issued equal
to the number of share units in the person's account. As of
December 31, 2002, there were 39,533 share units outstanding.
Under a deferred compensation plan for directors, each director
who is not a Lubrizol employee may defer all or any portion of
his or her yearly fee and meeting attendance fees and have these
amounts credited to various cash investment accounts and/or a
share unit account. The number of share units credited to the
share unit account is based on the price of Lubrizol shares on
the day the share units are credited to
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the account and includes share units credited for quarterly dividends
paid on Lubrizol shares. When a person is no longer a director, Lubrizol
shares are issued equal to the number of share units in the person's
share unit account. As of December 31, 2002, there were 33,312 share
units outstanding.
Under a deferred compensation plan for officers, each executive
officer may defer all or any portion of his or her total annual
pay and have these amounts credited to various cash investment
accounts and/or a share unit account. The number of share units
credited to the share unit account is based on the price of
Lubrizol shares on the day the share units are credited to the
account and includes share units credited for quarterly dividends
paid on Lubrizol shares. Upon the distribution date, Lubrizol
shares are issued equal to the number of share units in the
person's share unit account. As of December 31, 2002, there were
1,746 share units outstanding.
Under a supplemental retirement plan for an executive officer,
500 share units are credited each anniversary date of the
officer's employment to the officer's account and includes shares
units credited for quarterly dividends paid on Lubrizol shares.
Upon retirement the executive officer may elect to receive cash
or Lubrizol shares equal to the number of share units in the
account. As of December 31, 2002, there were 1,591 share units
outstanding.
Under a one-year renewable consulting agreement for a
non-Lubrizol employee, 1,500 common shares are issued to the
consultant each renewal date, if any, of the consulting
agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in footnote (1) under the heading "Share
Ownership of Directors, Executive Officers and Large Beneficial Owners - Five
Percent Beneficial Owners" on page 11 of the company's Proxy Statement dated
March 19, 2003, is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the company
carried out an evaluation, under the supervision and with the participation of
its chief executive officer and chief financial officer, of the effectiveness of
its disclosure controls and procedures (as defined in Exchange Act Rule
13a-14c). Based on that evaluation, the company's chief executive officer and
chief financial officer concluded that, as of the evaluation date, the
disclosure controls and procedures are effective in timely alerting them to
material information relating to the company and its consolidated subsidiaries
required to be included in the company's periodic SEC filings. There have been
no significant changes in the company's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Annual Report:
1. The following consolidated financial statements of
The Lubrizol Corporation and its subsidiaries,
together with the independent auditors' report
relating thereto, contained on pages 22 through 41,
inclusive, of Lubrizol's 2002 Annual Report to its
shareholders, and incorporated herein by reference:
Independent Auditors' Report
Consolidated Statements of Income for the years ended
December 31, 2002, 2001 and 2000
Consolidated Balance Sheets at December 31, 2002 and
2001
Consolidated Statements of Cash Flows for the years
ended December 31, 2002, 2001 and 2000
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 2002, 2001 and 2000
Notes to Financial Statements
Quarterly Financial Data (Unaudited)
2. Schedules
No financial statement schedules are required to be
filed as part of this Annual Report.
3. Exhibits
(3)(a) Amended Articles of Incorporation of The Lubrizol
Corporation, as adopted September 23, 1991.
(Reference is made to Exhibit (3)(a) to The Lubrizol
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1999, which Exhibit is
incorporated herein by reference.)
(3)(b) Regulations of The Lubrizol Corporation, as amended
effective April 27, 1992. (Reference is made to
Exhibit (3)(b) to The Lubrizol Corporation's Annual
Report on Form 10-K for the year ended December 31,
1999, which Exhibit is incorporated herein by
reference.)
(4)(a) Amendment to Article Fourth of Amended Articles of
Incorporation. (Reference is made to Exhibit (4)(a)
to The Lubrizol Corporation's Annual Report on Form
10-K for the year ended December 31, 1999, which
Exhibit is incorporated herein by reference.)
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(4)(b) Indenture dated as of November 25, 1998, between The
Lubrizol Corporation and The First National Bank of
Chicago as Trustee. (Reference is made to Exhibit
(4)(b) to The Lubrizol Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998, which
Exhibit is incorporated herein by reference.)The
company agrees, upon request, to furnish to the
Securities and Exchange Commission a copy of any
instrument authorizing long-term debt that does not
authorize debt in excess of 10% of the total assets
of the company and its subsidiaries on a consolidated
basis.
(4)(c) Amended and Restated Rights Agreement between The
Lubrizol Corporation and American Stock Transfer &
Trust Company dated as of July 26, 1999. (Reference
is made to Exhibit 4.l to The Lubrizol Corporation's
Registration Statement on Form 8-A/A dated August 17,
1999, which Exhibit is incorporated herein by
reference.)
(10)(a)* The Lubrizol Corporation 1985 Employee Stock Option
Plan, as amended. (Reference is made to Exhibit
(10)(a) to The Lubrizol Corporation's Annual Report
on Form 10-K for the year ended December 31, 2000,
which Exhibit is incorporated herein by reference.)
(10)(b)* The Lubrizol Corporation Amended Deferred
Compensation Plan for Directors. (Reference is made
to Exhibit (10)(b) to The Lubrizol Corporation's
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000, which Exhibit is
incorporated herein by reference.)
(10)(c)* Form of Employment Agreement between The Lubrizol
Corporation and certain of its senior executive
officers. (Reference is made to Exhibit (10)(c) to
The Lubrizol Corporation's Quarterly Report on Form
10-Q for the quarterly period ended September 30,
2000, which Exhibit is incorporated herein by
reference.)
(10)(d)* The Lubrizol Corporation Excess Defined Benefit Plan,
as amended. (Reference is made to Exhibit (10)(d) to
the Lubrizol Corporation's Quarterly Report on Form
10-Q for the period ended September 30, 2002 which
Exhibit is incorporated herein by reference.)
(10)(e)* The Lubrizol Corporation Excess Defined Contribution
Plan, as amended. (Reference is made to Exhibit
(10)(e) to The Lubrizol Corporation's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 2002, which Exhibit is incorporated
herein by reference.)
(10)(f)* The Lubrizol Corporation Performance Pay Plan, as
amended. (Reference is made to Exhibit (10)(f) to The
Lubrizol Corporation's Annual Report on Form 10-K for
the year ended December 31, 1998, which Exhibit is
incorporated herein by reference.)
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(10)(g)* The Lubrizol Corporation Executive Death Benefit
Plan, as amended. (Reference is made to Exhibit
(10)(g) to The Lubrizol Corporation's Annual Report
on Form 10-K for the year ended December 31, 2000,
which Exhibit is incorporated herein by reference.)
(10)(h)* The Lubrizol Corporation 1991 Stock Incentive Plan,
as amended.
(10)(i)* The Lubrizol Corporation Deferred Stock Compensation
Plan for Outside Directors, as amended. (Reference is
made to Exhibit (10)(i) to The Lubrizol Corporation's
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000, which Exhibit is
incorporated herein by reference.)
(10)(j)* The Lubrizol Corporation Officers' Supplemental
Retirement Plan, as amended. (Reference is made to
Exhibit (10)(j) to The Lubrizol Corporation's
Quarterly Report on Form 10-K for the period ended
September 30, 2002, which Exhibit is incorporated
herein by reference.)
(10)(k)* The Lubrizol Corporation Deferred Compensation Plan
for Officers, as amended.
(10)(l)* The Lubrizol Corporation Executive Council Deferred
Compensation Plan, as amended. (Reference is made to
Exhibit (10)(l) to The Lubrizol Corporation's
Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000, which Exhibit is
incorporated herein by reference.)
(10)(m)* Supplemental Retirement Plan for Donald W. Bogus.
(Reference is made to Exhibit (10)(m) to The Lubrizol
Corporation's Annual Report or Form 10-K for the year
ended December 31, 2001, which Exhibit is
incorporated herein by reference.)
(10)(n)* The Lubrizol Corporation Executive Officer Long Term
Incentive Plan.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) The following portions of The Lubrizol Corporation
2002 Annual Report to its shareholders:
Pages 10-21 Management's Discussion and
Analysis of Financial Condition and
Results of Operations
Page 22 Quarterly Financial Data (Unaudited)
Page 22 Independent Auditors' Report
Page 23 Consolidated Statements of Income for
the years ended December 31, 2002, 2001
and 2000
Page 24 Consolidated Balance Sheets at
December 31, 2002 and 2001
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Page 25 Consolidated Statements of Cash Flows
for the years ended December 31, 2002,
2001 and 2000
Page 26 Consolidated Statements of
Shareholders' Equity for the years ended
December 31, 2002, 2001 and 2000
Pages 27-41 Notes to Financial Statements
Pages 42-43 Historical Summary
(21) List of Subsidiaries of The Lubrizol Corporation
(23) Consent of Independent Auditors
*Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended December 31, 2002.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on March
24, 2003, on its behalf by the undersigned, thereunto duly authorized.
THE LUBRIZOL CORPORATION
BY /S/W. G. BARES
---------------------------------------
W. G. Bares, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on March 24, 2003, by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ W. G. BARES Chairman of the Board and Chief Executive
------------------------------- Officer
W. G. Bares (Principal Executive Officer)
/s/ C. P. COOLEY Vice President and Chief Financial Officer
------------------------------- (Principal Financial Officer)
C. P. Cooley
/s/ J. R. AHERN Controller, Accounting and Financial
------------------------------- Reporting
J. R. Ahern (Principal Accounting Officer)
/s/ JERALD A. BLUMBERG Director
-------------------------------
Jerald A. Blumberg
/s/ FOREST J. FARMER, SR. Director
-------------------------------
Forest J. Farmer, Sr.
/s/ GORDON D. HARNETT Director
-------------------------------
Gordon D. Harnett
/s/ VICTORIA F. HAYNES Director
-------------------------------
Victoria F. Haynes
/s/ DAVID H. HOAG Director
-------------------------------
David H. Hoag
/s/ WILLIAM P. MADAR Director
-------------------------------
William P. Madar
/s/ PEGGY GORDON MILLER Director
-------------------------------
Peggy Gordon Miller
/s/ RONALD A. MITSCH Director
-------------------------------
Ronald A. Mitsch
/s/ DANIEL E SOMERS Director
-------------------------------
Daniel E. Somers
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CERTIFICATIONS
I, William G. Bares, certify that:
1. I have reviewed this annual report on Form 10-K of The Lubrizol Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ WILLIAM G. BARES
---------------------------------
William G. Bares
Chief Executive Officer
March 24, 2003
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CERTIFICATION
-------------
I, Charles P. Cooley, certify that:
1. I have reviewed this annual report on Form 10-K of The Lubrizol Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the consolidated financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ CHARLES P. COOLEY
---------------------------------
Charles P. Cooley
Chief Financial Officer
March 24, 2003
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Certification of Chief Executive Officer and Chief Financial Officer of
The Lubrizol Corporation Pursuant to 18 U.S.C. Section 1350
I certify that, to the best of my knowledge and belief, the Annual Report on
Form 10-K of The Lubrizol Corporation for the period ending December 31, 2002:
(1) fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of The Lubrizol Corporation.
/s/ WILLIAM G. BARES
---------------------------------
William G. Bares
Chief Executive Officer
March 24, 2003
I certify that, to the best of my knowledge and belief, the Annual Report on
Form 10-K of The Lubrizol Corporation for the period ending December 31, 2002:
(1) fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of The Lubrizol Corporation.
/s/ CHARLES P. COOLEY
---------------------------------
Charles P. Cooley
Chief Financial Officer
March 24, 2003
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