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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2003

OR

Commission file number 1-5112

ETHYL CORPORATION

Incorporated pursuant to the Laws of the Commonwealth of Virginia

Internal Revenue Service Employer Identification No. 54-0118820

330 South Fourth Street

Richmond, Virginia 23219-4350

804-788-5000

Securities registered pursuant to Section 12(b) of the Act:

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 at least 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-2 of the Act).

Yes x     No ¨

Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2003: $146,252,572.45 *

Number of shares of Common Stock outstanding as of January 31, 2004: 16,804,009

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Ethyl Corporation’s definitive Proxy Statement for its 2004 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the Proxy Statement) are incorporated by reference into Part III of this Form 10-K.

*In determining this figure, an aggregate of 2,035,258 shares of Common Stock reported in the registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders as beneficially owned by Bruce C. Gottwald and members of his immediate family have been excluded and treated as shares held by affiliates. See Item 12. The aggregate market value has been computed on the basis of the closing price in the New York Stock Exchange Composite Transactions on June 30, 2003 as reported by The Wall Street Journal.

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Form 10-K

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Items 11 and 14 and portions of Items 10 and 12 are incorporated by reference from the Proxy Statement.

The Securities and Exchange Commission (SEC) has not approved or disapproved of this Annual Report on Form 10-K or passed upon its accuracy or adequacy.

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PART I

ITEM 1.    BUSINESS

As a specialty chemicals company, we provide highly formulated packages of lubricant and fuel additives. We develop, manufacture and blend fuel and lubricant additive products and market and sell those products worldwide. We are one of the largest producers of lubricant additives worldwide and we believe we offer the broadest line of fuel additives worldwide. We recently launched our first line of petroleum additives created specifically for the metalworking industry. Under the brand name TecGARD^™, these products meet the needs of the metalworking industry for high-temperature, high-pressure, and high-precision performance. Lubricant and fuel additives are necessary products for the maintenance and operation of vehicles and machinery. From additive components to custom-formulated chemical blends, we believe we provide customers with products and solutions that make fuels burn cleaner, engines run smoother, and machines last longer. We are one of the primary marketers of tetraethyl lead (TEL) in North America, and through our marketing agreements with The Associated Octel Company Limited and its affiliates (Octel), we are the only marketer of TEL outside of North America.

We have developed long-term relationships with our customers in every major region of the world whom we serve through our five manufacturing facilities in North America and Europe. We have more than 200 employees dedicated to research and development who work closely with our customers to develop chemical formulations that are tailored to our customers’ and the end-users’ specific needs. Our portfolio of approximately 1,000 technologically advanced, value-added products allows us to provide a full line of products and services to our customers.

We were incorporated in 1887 and shares of our common stock have been traded on the New York Stock Exchange since 1965. We employed approximately 1,100 people at year-end 2003.

References in this Annual Report on Form 10-K to “we,” “our,” and “Ethyl” are to Ethyl Corporation and its subsidiaries on a consolidated basis, unless the context indicates otherwise.

Business Segments

We report our business in two distinct segments: petroleum additives and tetraethyl lead. We divide our business this way due to the operational differences between the two business units. The petroleum additives business operates in a market that we actively review for opportunities, while TEL is a mature product with declining demand marketed primarily through third-party agreements. Financial information concerning our segments is provided in Item 8, “Financial Statements and Supplementary Data.”

Petroleum Additives—Petroleum additives are used in lubricating oils and fuels to enhance their performance in machinery, vehicles and other equipment. We manufacture component chemicals that are selected to perform one or more specific functions and blend those chemicals with other components to form packages for use in specified end-user applications. The petroleum additives market is an international marketplace, with customers including oil companies and refineries, vehicle original equipment manufacturers (OEMs), and other specialty chemical companies.

We view the petroleum additives marketplace as being comprised of two product lines: lubricant additives and fuel additives. Lubricant additives are highly formulated chemical products that improve the performance, durability and functionality of oils, thereby enhancing the performance of machinery and engines. Fuel additives are chemical components and products that improve the refining process and performance of gasoline, diesel and other fuels, resulting in lower fuel costs, better vehicle performance, and lower tailpipe or smoke stack emissions.

Our success in the petroleum additives segment is due to our technical capabilities, our formulation expertise, our close relationships with our customers, our broad differentiated product offerings, and our global

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distribution capabilities. We invest significantly in research and development in order to anticipate our customers’ needs and meet the rapidly changing environment for new and improved products and services.

Lubricant Additives

Lubricant additives are essential ingredients for lubricating oils. Lubricant additives are used in a wide variety of vehicle and industrial applications, including engine oil, automatic transmission fluids, gear oils, hydraulic oils, turbine oils, and in virtually any other application where metal-to-metal moving parts are utilized. Lubricant additives are organic and synthetic chemical components that enhance wear protection, prevent deposits, and protect against the hostile operating environment of an engine, transmission, axle, hydraulic pump or industrial machine.

Lubricants are used in nearly every piece of operating machinery from heavy industrial equipment to vehicles. Lubricants provide a layer of insulation and protection between moving mechanical parts. Without this layer of protection, the normal functioning of machinery would not occur. Effective lubricants reduce downtime, prevent accidents, and increase efficiency. Specifically, lubricants serve the following main functions:

The functionality of lubricants is created through an exact balance between a base oil and performance enhancing additives. This balance is the goal of effective formulations achieved by experienced research professionals. We offer a full line of lubricant additive products, each of which is composed of component chemicals specially selected to perform desired functions. We manufacture most of the chemical components and blend these components to create products designed to meet industry and customer specifications. Lubricant additive components are generally classified based upon their intended functionality, including:

We are one of the leading global suppliers of specially formulated lubricant additives that combine some or all of the components described above. Our products are highly formulated, complex chemical compositions derived from extensive research and testing to ensure all additive components work together to provide the intended results. Our products are engineered to meet specifications prescribed by either the industry generally or a specific customer. Purchasers of lubricant additives tend to be oil companies, distributors, and refineries.

Key drivers of lubricant additives demand include total vehicle miles driven, vehicle production, equipment production, the average age of vehicles on the road, new engine and driveline technologies, and drain/refill intervals.

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We view the lubricant marketplace as being broken down into two primary components: engine oil additives and specialty additives.

Engine Oil Additives

The largest submarket within the lubricant additives marketplace is engine oils, which we estimate represents 75% of the overall lubricant additive market volume, yet a much lower percentage of the overall market profitability. The engine oil market customers include consumers, service stations and OEMs. The primary functions of engine oil additives are to reduce friction, prevent wear, control formation of sludge and oxidation, and prevent rust. Engine oil additives are typically sold to lubricant manufacturers who combine them with a base oil product to meet internal, industry and OEM specifications.

Key drivers of the engine oils market are the number of vehicles on the road, drain intervals for engine oils, engine and crankcase size, changes in engine design, temperature and specification changes driven by the OEMs. Customer and supplier dynamics have created a difficult marketplace for engine oil additives in recent years as the marketplace prices engine oil products on a commodity basis. This has resulted in significant pricing pressure felt by engine oil additive companies.

Specialty Additives

The specialty additive submarket is comprised of additives designed for products such as automatic transmission fluids (ATF), gear oils, and industrial fluids, which serve both driveline and industrial applications. This submarket comprises approximately 25% of our overall lubricant additives market volume, but a much larger percentage of its overall profitability. ATFs primarily serve as the power transmission and heat transfer medium in the area of the transmission where the torque of the drive shaft is transferred to the gears of the vehicle. Gear additives lubricate gears, bearings, clutches and bands in the gear-box and are used in vehicles, off-highway, hydraulic and marine equipment. Other products in this area consist of hydraulic transmission fluids, universal tractor fluids, power steering fluids, shock absorber fluids, gear oils, lubricants for heavy machinery, and vehicle greases. These products must conform to highly prescribed specifications developed by vehicle OEMs for specific models or designs. These additives are generally sold to oil companies and often ultimately to vehicle OEMs for new vehicles (factory-fill). End-products are also sold to service stations for aftermarket servicing (service-fill). Our TecGARD^™ additives will be marketed to the metalworking industry with state-of-the-art solutions for the market.

Key drivers of the specialty additives marketplace are the number of vehicles, drain intervals for ATF and gear applications, changes in engine and transmission design and temperatures, and specification changes driven by the OEMs.

Fuel Additives

Fuel additives are chemical compounds that are used to improve both the oil refining process and the performance of gasoline, diesel and other fuels. Benefits of fuel additives in the oil refining process include reduced use of crude oil, lower processing costs, and improved fuel storage properties. Fuel performance benefits include ignition improvements, emission reductions, fuel economy improvements, and engine cleanliness, as well as protection against deposits in fuel injectors, intake valves and the combustion chamber. Our fuel additives are extensively tested and designed to meet stringent industry, government and OEM requirements.

Many different types of additives are used in fuels. Their use is generally determined by customer, industry, OEM and government specifications and often differs from country to country. The different types of fuel additives we offer include:

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We offer the broadest line of fuel additives worldwide and sell our products to major fuel marketers and refiners, as well as independent terminals and other fuel blenders.

One of our fuel additives is Methylcyclopentadienyl Manganese Tricarbonyl (MMT). Albemarle Corporation manufactures MMT for us through a long-term supply arrangement. We are the primary marketer of MMT. Since 1995, the number of countries in which we sell MMT has increased from 4 to 30. When used in the refining process, MMT provides octane enhancement while reducing the amount of crude oil necessary to produce gasoline. We believe MMT is 2-3 times more cost-effective for enhancing octane (per unit of octane) of unleaded gasoline than the next best product on the market today. When MMT is used in unleaded gasoline, it reduces tailpipe emissions that are known contributors to urban smog. As a result, MMT is an attractive solution to enhance otherwise low octane levels and to reduce vehicle generated pollution.

Key drivers in the fuel additive marketplace include total vehicle miles driven, the introduction of more sophisticated engines, regulations on emissions (both gasoline and diesel), quality of crude oil slate and performance standards and marketing programs of major oil companies.

Competition

We compete in two distinct segments—petroleum additives and TEL. The petroleum additives segment is further divided into the lubricant additives submarket and the fuel additives submarket. In lubricant additives, the four top suppliers in 2003 supplied over 85% of the market. These suppliers include Lubrizol, Infineum (a joint venture between ExxonMobil Chemical and Shell), Oronite (a subsidiary of ChevronTexaco) and Ethyl. Several other suppliers comprise the remaining market share.

The fuel additives market is fragmented and characterized by more competitors. While we participate in many facets of the fuels market, our competitors tend to be more narrowly focused. In the gasoline detergent market, we compete mainly against BASF, Oronite and Lubrizol; in the cetane improver market, we compete against SNPE of France and Exchem of the U.K.; and in the diesel markets, we compete against Lubrizol, Infineum, BASF, and Octel.

The competition among the participants in these industries is characterized by the need to provide customers with cost effective, technologically capable products that meet industry specifications. The need to continually lower cost through formulation technology and cost improvement programs is vital for success in this environment.

Tetraethyl Lead—TEL is a distinct business segment. TEL is used as an octane enhancer in gasoline to improve ignition qualities and operating performance of fuel. Since the 1920s, TEL has been used to prevent “engine knock,” a condition of poor combustion timing causing loss of engine power. In the 1970s, U.S. automobile manufacturers began including emissions control technology in vehicles to comply with the Federal Clean Air Act. When the surface metal of a catalytic converter in emissions control systems was deemed

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incompatible with lead, unleaded gasoline became the fuel standard in the United States with other countries following. Octel is now the only manufacturer of TEL worldwide. Through our agreements with Octel, we receive 32% of the net proceeds from the sale of TEL by Octel in all regions of the world except North America. In North America, we continue to purchase a small quantity of TEL from Octel and sell it to selected customers for aviation and racing fuel. Our agreements with Octel expire in 2010, but contain provisions for extensions thereafter.

We expect the market for TEL to continue to decline. The rate of decline will vary from year to year and an exact year on year decline rate is difficult to project. The decline rate will be determined in a large part by major customers’ plans to cease using the product. Our marketing agreements with Octel should help us manage this declining market by providing efficiencies of operation while maximizing cash flow.

Raw Materials and Product Supply

We use a variety of raw materials and chemicals in our manufacturing and blending processes and believe the sources of these are adequate for our operations in the foreseeable future. The most significant of these include base oil, polyisobutylene, olefin copolymers, antioxidants, alcohols, and methacrylates. Generally, we purchase major raw materials and chemicals under long-term contracts with multi-source suppliers. Certain products are obtained through single-source suppliers.

We have the following long-term supply agreements for raw materials and finished products:

During 2003, DSM Copolymer, Inc., our supplier of olefin copolymer viscosity index improvers, notified us of their intent to terminate a long-term supply agreement in mid-2005. The contract was initially scheduled to terminate in 2012. We are pursuing other supply alternatives, which may not be as favorable as our current terms.

Prior to the sale of our antioxidant business to Albemarle Corporation (Albemarle) in January 2003, Albemarle supplied certain antioxidant finished products to us under a supply agreement that would have expired in 2014. They continue to supply antioxidants for our internal needs.

Research, Development, and Testing

R&D provides the basis for our global petroleum additives technology. We develop products through a combination of chemical synthesis, formulation, engineering design and performance testing. In addition to products, R&D also provides our customers with technical support to assure total customer satisfaction.

We are committed to providing the most advanced products, comprehensive testing programs and superior technical support to our customers worldwide. R&D expenditures, which totaled $57 million in 2003, are expected to grow modestly in 2004 in support of our core technology areas. The efficiency of our R&D spending continues to improve through expansion of internal testing capabilities and project management processes.

New products developed in 2003 include next generation fill-for-life automatic transmission fluids and additive packages for emerging technologies such as continuously variable and dual-clutch transmission designs. In addition, we have developed new, robust ATF service-fill technologies for General Motor’s new Service Fill Specification, DEXRON^® III-H. We continued to develop and expand our fuel-efficient/heat reduction axle fluid technology to other applications and performance levels and have expanded our product offerings in the industrial fluid area. A new multipurpose grease additive that delivers superior wear protection and material compatibility was commercialized in 2003. New performance additives used in gasoline and distillate

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applications were also developed in 2003. These additives provide a variety of benefits including enhanced deposit control, improved emissions, and increased combustion efficiency across a broad range of combustion related areas. Ethyl’s proprietary dispersant viscosity improver technology has become a standard for performance in a critical heavy-duty diesel application. New formulations were developed for the new GF-4 passenger car motor oil category, which requires stronger wear and fuel economy performance.

Intellectual Property

We actively protect our inventions, new technologies, and product developments by filing patent applications or maintaining trade secrets. We currently own approximately 1,000 issued United States and foreign patents, with a significant number of additional patents pending. The use of technology covered by several of these patents and trade secrets is licensed to others through an active royalty-generating licensing program. In addition, we have acquired the rights under patents and inventions of others through licenses. We take care to respect the intellectual property rights of others and we believe our products do not infringe upon those rights. We vigorously participate in patent opposition proceedings around the world where necessary to secure a technology base free of infringement. We believe our patent position is strong, aggressively managed, and sufficient for the conduct of our business.

We also have several hundred trademark registrations throughout the world for our marks including Ethyl^®, MMT^®, HiTEC^®, and GREENBURN^®, as well as several pending trademark applications.

Commitment to Responsible Care^®

We are committed to continuous improvement and vigilant management of the health and safety of our employees, neighbors and customers, as well as the stewardship of the environment. One way we demonstrate this commitment is by supporting the principles of the American Chemistry Council (ACC) Responsible Care^® program. As part of this commitment, we have established Responsible Care goals. These goals are continuous in nature and are just a portion of the metrics we use to manage the worldwide environmental and safety aspects of our business. The goals and their status for 2003 are:

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All of our employees are responsible for environmental and safety excellence, and we expect and demonstrate the type of leadership that will ensure the continued success of our efforts. Responsible Care is a way of life at Ethyl, enhancing operations, the way we work, and the relationships we maintain with our customers and our communities. In 2003, we began the implementation of the enhanced Responsible Care defined by the ACC which will culminate in an independent third party audit of the environmental, health and safety processes at Ethyl’s headquarters and U.S. manufacturing sites.

Environmental

We operate under policies that we believe comply with federal, state, local, and foreign requirements regarding the handling, manufacture, and use of materials. One or more regulatory agencies may classify some of these materials as hazardous or toxic. We also believe that we comply with laws, regulations, statutes, and ordinances protecting the environment, including those related to the discharge of materials. We expect to continue to comply in every material respect.

We regularly review the status of significant existing or potential environmental issues. We accrue and expense our proportionate share of environmental remediation and monitoring costs in accordance with Statement of Financial Accounting Standards (SFAS) No. 5 and Financial Accounting Standards Board Interpretation No. 14, as clarified by the American Institute of Certified Public Accountants Statement of Position 96-1. As necessary, we adjust our accruals based on additional information.

Total gross liabilities accrued at year-end for environmental remediation were $23 million for both 2003 and 2002. We recorded expected insurance reimbursement assets for these amounts of $3 million in 2003 and $4 million in 2002. In addition to the accruals for environmental remediation, we also have accruals for dismantling and decommissioning costs of $10 million at December 31, 2003 and $13 million at December 31, 2002. The decrease in the accruals for dismantling and decommissioning cost from year-end 2002 to 2003 is primarily the result of the adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations” on January 1, 2003. See Note 15. As new technology becomes available, it may be possible to reduce accrued amounts. While we are currently fully accrued for known environmental issues, it is possible that unexpected future costs could have a significant financial impact.

We spent approximately $13 million in 2003 and 2002 for environmental operating and clean-up costs, excluding depreciation of previously capitalized expenditures. We spent $12 million in 2001. Of these amounts, the ongoing costs of operations were $11 million in 2003, 2002 and 2001. The balance represents clean-up, or remediation and monitoring costs. These environmental operating and clean-up expenses are included in cost of goods sold. In the next year, we expect environmental operating and remediation costs to be about the same as 2003.

For capital expenditures on pollution prevention and safety projects, we spent $3 million in 2003, $5 million in 2002, and $2 million in 2001. Over the next few years, we expect capital expenditures for these types of projects to be nearly double the 2003 level due to modifications needed to meet the Miscellaneous Organic National Emissions Standards for Hazardous Air Pollutants regulation.

Our estimate of the effects of complying with governmental pollution prevention and safety regulations is subject to:

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We are subject to the federal Superfund law and similar state laws under which we may be designated as a potentially responsible party (PRP). As a PRP, we may be liable for a share of the costs associated with cleaning up hazardous waste sites such as a landfill to which we may have sent waste.

In de minimis PRP matters and in some minor PRP matters, we generally negotiate a consent decree to pay an apportioned settlement. This relieves us of any further liability as a PRP, except for remote contingencies. Costs for a de minimis participant are typically less than $50,000. Costs for a minor participant are typically less than $300,000.

We are also a PRP at some Superfund sites where our liability may be in excess of de minimis or minor PRP levels. Most Superfund sites where we are a PRP represent environmental issues that are quite mature. The sites have been investigated, and in many cases, the remediation methodology, as well as the proportionate shares of each PRP have been established. Other sites are not as mature, which makes it more difficult to reasonably estimate our share of the future clean-up or remediation costs. We have previously accrued the estimated expense of the remediation and monitoring of these sites. Generally, remediation and monitoring will go on for an extended period.

During 2000, the Environmental Protection Agency (EPA) named us as a PRP under Superfund law for the clean-up of soil and groundwater contamination at the Sauget Area 2 Site in Sauget, Illinois. Without admitting any fact, responsibility, fault, or liability in connection with this site, we are participating with other PRPs in site investigations and feasibility studies and have accrued for these estimated expenses. During late 2003, one of the other PRPs declared bankruptcy. We have not yet determined what, if any, impact this may have on Ethyl. Because of the early stage of the investigation and feasibility studies, it is difficult to make a reasonable estimate of the total cost of our share of responsibilities related to any site remediation or clean-up.

We also own several other environmental sites where we are in the process of remediation and monitoring. At one of our major sites in the United States, we have substantially completed remediation and will be monitoring the site for an extended period. In addition, during 2004, we expect to begin dismantling and remediation at our Canadian TEL plant.

Geographic Areas

We have operations in the United States, Europe, Asia, Latin America, Australia, and Canada. The economies are stable in most of the countries where we operate. In countries with more political or economic uncertainty, we generally minimize our risk of loss by utilizing U.S. Dollar denominated transactions, letters of credit, and prepaid transactions. We have also participated in selective foreign currency forward contracts in previous years. Our foreign customers mainly consist of financially viable government organizations and large companies.

Venezuela, where we sell certain petroleum additive products, has experienced political instability and economic problems. A major customer in Venezuela also purchases TEL through our marketing agreements with Octel. We continue to closely monitor the situation in this country.

The table below reports net sales and long-lived assets by geographic area. No transfers occurred between segments during the three years shown. Except for the United States and Canada, no country exceeded 10% of net sales. The United States was the only country that exceeded 10% of long-lived assets in any year. We allocated revenues to geographic areas based on the location to which the product was shipped. The change in net sales during the three-year period is discussed more fully in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

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Geographic Areas

Other Matters

On January 21, 2003, we completed the sale of our phenolic antioxidant business to Albemarle Corporation. Following an extensive assessment, we concluded this business was not part of our future core business or growth goals.

As part of the transaction, we sold accounts receivable and inventory, as well as fixed assets at our Orangeburg, South Carolina facility. These accounts receivable and inventory are reported as “Assets of discontinued operations” on our December 31, 2002 Consolidated Balance Sheet. The net book value of the fixed assets was zero. We recognized a gain of $23.2 million ($14.8 million after tax) in first quarter 2003 related to this transaction.

In July 2003, Ethyl completed its review of the MMT fleet study report released by the AAM in July 2002. With the assistance of ENVIRON International Corporation, Ethyl has concluded that the AAM study reaffirms that MMT is an acceptable fuel constituent that does not harm vehicle emission control systems. Ethyl reported these conclusions in a paper presented at the Society of Automotive Engineers (SAE) meeting in October 2003 in Pittsburgh, Pennsylvania. Nonetheless, the automotive industry continues to persist in demanding that oil companies discontinue the use of MMT and that governments disallow the use of the product. The automotive industry has more recently alleged that MMT may cause catalyst plugging in vehicles equipped with the most advanced emission control systems. However, no credible evidence to support this allegation has been provided by the automobile industry to Ethyl. In December 2003, the Government of Canada released its “Proposed Framework for an Independent Third-Party Review of New Information on the Effects of MMT on Vehicle Emissions.” In their proposal, the Canadian government provided no timetable for the commencement or completion of the review. Ethyl welcomes this independent third party review of MMT, which we believe, when properly designed, conducted and interpreted, will reaffirm that MMT is compatible with modern emission control technologies. We believe that the additive is an environmentally beneficial product that has proven its effectiveness in real-world use.

On August 8, 2003, Ethyl filed a request with the Internal Revenue Service (IRS) seeking rulings as to certain federal income tax consequences of the creation of a holding company structure by Ethyl and a related internal restructuring. Ethyl received a private letter ruling on February 5, 2004, from the IRS stating that the holding company transaction and the internal restructuring generally will qualify as tax-free for U.S. federal

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income tax purposes. On February 26, 2004, the Board of Directors determined that the creation of a holding company was in the best interests of Ethyl and its shareholders. The Board then unanimously voted to adopt the merger agreement to create the holding company and recommended that the shareholders approve the transaction. Further information is included in the Proxy Statement.

Availability of Reports Filed with the Securities and Exchange Commission and Corporate Governance Documents

Our Internet website address is www.ethyl.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC. In addition, our Corporate Governance Guidelines, Code of Conduct, and the charters of our Audit; Bonus, Salary and Stock Option; and Nominating and Corporate Governance Committees, are available on our website and are available in print, without charge, to any shareholder upon request by contacting our Corporate Secretary at Ethyl Corporation, 330 South Fourth Street, Richmond, Virginia 23219. The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC.

ITEM 2.    PROPERTIES

Our principal operating properties are shown below. Unless indicated, we own the research, development, and testing facilities and manufacturing properties, which primarily support the petroleum additives business segment.

We own our corporate headquarters located in Richmond, Virginia, and generally lease our regional and sales offices located in a number of areas worldwide.

Production Capacity

We believe our plants and supply agreements are sufficient to meet expected sales levels. Operating rates of the plants vary with product mix and normal sales swings. We believe that our facilities are well maintained and in good operating condition.

During 2003, we ceased manufacturing at our facility in Rio de Janeiro, Brazil. That facility is currently operating as a terminal location providing storage and distribution of petroleum additives.

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In February 2001, we announced a new business strategy related to our engine oil additives business. As part of this business plan, we idled engine oil additive units in our Houston, Texas plant and one of the units at our plant in Brazil. We also idled a smaller plant in Natchez, Mississippi. The assets that were idled in 2001 were fully depreciated by their closure date.

During 2000, we permanently idled a facility in Orangeburg, South Carolina and wrote its value down to zero. We concluded that the market for the product that was produced at the facility had not grown as anticipated and that available supply and other existing production facilities were adequate for demand of the product. In January 2003, we sold our facility in Orangeburg, South Carolina.

ITEM 3.    LEGAL PROCEEDINGS

We were served as a defendant in a case filed in the Circuit Court for Baltimore City, Maryland, in September 1999. Smith, et al. v. Lead Industries Association, Inc., et al., alleged personal injuries for seven children from lead exposure arising from lead paint and dust from tailpipe emissions due to leaded gasoline. The court dismissed Ethyl and some other defendants from the case in February 2002 and granted summary judgment to other defendants in November 2002. The plaintiffs have appealed both decisions. We believe that Ethyl has strong defenses to Smith and will vigorously defend the case. Ethyl was served as a defendant in another case filed in the Circuit Court for Baltimore City, Maryland, in November 2003, David Johnson et al. v. Clinton et al. The case claims damages attributable to lead similar to the Smith case, for alleged personal injuries for two plaintiffs. The Court has granted a Consent Motion to Quash Service of Process in the Johnson case, and therefore, Ethyl is not a current defendant in this case.

Ethyl and our subsidiaries are involved in other legal proceedings. These legal proceedings are incidental to our business and include administrative or judicial actions seeking remediation under environmental laws such as Superfund. These proceedings also include product liability cases.

Like many other companies, Ethyl is also a defendant in personal injury lawsuits involving exposure to asbestos. These cases involve exposure to asbestos in premises owned or operated, or formerly owned or operated, by Ethyl. Ethyl has never manufactured, sold or distributed products that contain asbestos. Nearly all of these cases are pending in Texas or Louisiana and involve multiple defendants. We maintain an accrual for these proceedings that we believe is adequate for resolving these cases. In addition, Ethyl believes that Albemarle Corporation is responsible for certain premises asbestos liabilities pursuant to an indemnification agreement between the companies dated as of February 28, 1994.

While it is not possible to predict or determine the outcome of any legal proceeding, it is our opinion that Ethyl and our subsidiaries have adequate accruals, cash, and insurance coverage such that the outcome of these legal proceedings, individually or in the aggregate, would not result in a material adverse effect on Ethyl.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no issues submitted to a vote of security holders during the fourth quarter of 2003.

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PART II

Our common stock is traded on the New York Stock Exchange and Pacific Stock Exchange under the symbol EY.

Effective July 1, 2002, there was a 1-for-5 reverse stock split of our common stock and the number of authorized shares of common stock was reduced from 400 million to 80 million. We made cash payments for fractional shares to holders who had a number shares not divisible by five. The cash payment was based on the average of the closing price for the common stock on each of the five trading days prior to the effective date and amounted to $4.25 per share or less than $10 thousand.

There were 16,786,009 shares outstanding as of December 31, 2003. The registered shareholders were 10,595 at December 31, 2003 and 10,265 at December 31, 2002.

The following table shows the high and low prices of our common stock each of the last eight quarters. The prices prior to July 1, 2002 have been adjusted to reflect the 1-for-5 reverse stock split.

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Ethyl Corporation & Subsidiaries

Five Year Summary

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Notes to the Five Year Summary

The special items in 2000 include a benefit of $81 million related to settlements of certain pension contracts resulting in the recognition of noncash gains and a $4 million benefit related to the demutualization of MetLife, Inc. These items were partially offset by an $8 million charge for the write-off of plant assets and a $1.4 million special retirement charge. The special item in 1999 consists of a supply contract amendment of $7 million income.

Other income (expense), net in 2002 includes a loss on impairment of nonoperating assets of $4 million, as well as expenses related to debt refinancing activities of $1 million. In addition, 2002 reflects $1 million interest income from a settlement with the IRS, as well as $2.4 million for interest income from a lawsuit settlement.

The 2001 amount includes $3 million of expenses related to the refinancing of our debt. Also included is a net charge related to nonoperating assets of $3 million resulting from impairment losses of $4 million, which was partially offset by a $1 million gain on the sale of a nonoperating asset. Other income (expense), net for 2000 includes a $3 million charge for our percentage share of losses in equity investments offset by a $2 million gain on the sale of a nonoperating asset.

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Forward-Looking Statements

The following discussion contains statements about future events and expectations, or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future results. When we use words in this document, such as “anticipates,” “intends,” “plans,” “believes,” “estimates,” “expects,” and similar expressions, we do so to identify forward-looking statements. Examples of forward-looking statements include statements we make regarding future prospects of growth in the petroleum additive market, the level of future declines in the market for tetraethyl lead, and other trends in the petroleum additive market, our ability to maintain or increase our market share, and our future capital expenditure levels.

We believe our forward-looking statements are based on reasonable expectations and assumptions, within the bounds of what we know about our business and operations. However, we offer no assurance that actual results will not differ materially from our expectations due to uncertainties and factors that are difficult to predict and beyond our control.

These factors include, but are not limited to, timing of sales orders, gain or loss of significant customers, competition from other manufacturers, resolution of environmental liabilities, or changes in the demand for our products. Other factors include significant changes in new product introduction, increases in product cost, the impact of fluctuations in foreign exchange rates on reported results of operations, changes in various markets, geopolitical risks in certain of the countries in which we conduct business, and the impact of consolidation of the petroleum additives industry. In addition, certain risk factors are also discussed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”

You should keep in mind that any forward-looking statement made by us in this discussion or elsewhere speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this discussion or elsewhere might not occur.

OVERVIEW

The year 2003 was a year in which we continued our progress on improving earnings and reducing debt. We also established a long-term debt structure in April 2003 which provides us with a platform to continue to build for the future.

The strategic actions we have taken over the last several years included a restructuring of our important engine oil additives business. The engine oil business restructuring plan involved significant reductions in manufacturing, research and other support areas that serviced the engine oil business. We changed our focus from growing overall market share to growing profitability in higher-margin markets. These efforts have resulted in lower fixed costs and higher capacity utilization, allowing us to compete more effectively within the realities of today’s petroleum additives marketplace.

Since 2000, our non-engine oil business within our petroleum additives segment has continued to grow, and we have contributed increased resources and focus to that growth. Continually since 1997, we have focused our efforts on reducing our overall leverage through asset sales, recapture of excess assets in our U.S. salaried pension fund, and the overall cash generating ability of our businesses.

The success of these actions is reflected in our improved operating results, as well as our success in reducing debt from $641 million at the end of 1997 to $209 million at the end of 2003.

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While we have made much progress, we continue to face a challenging and very competitive petroleum additives market characterized by increasing raw material prices and continuing demand for new performance products.

As we have already mentioned, we significantly reduced our debt again in 2003. We are now in the upper end of our target debt range and are comfortable with our overall debt leverage. Since our debt is now much lower, we are looking more closely at acquisition opportunities to grow our business. Our priority is to start with what we know best: fuel additives and lubricant additives. We are going to work outward from there and possibly look at other industries where we have strengths that could be utilized. For example these could be manufacturing industries or industries related to the safe handling of hazardous materials - something we have been involved in for 75 years. We are going to be patient and very deliberate as we search for the right fit. Thus, it may be some time before we announce an acquisition. Our guidance to our shareholders is to be equally as patient while we look for the right opportunity. Meanwhile, we will continue to reduce our debt while pursuing opportunities to continue growth within our core petroleum additives business.

RESULTS OF OPERATIONS

The results of operations exclude the operations of our phenolic antioxidant business, which was sold in January 2003. The earnings results of this business have been removed from net sales and operating profit for all periods covered in this review. These results are included in the Consolidated Statements of Income under “Income from operations of discontinued business.” There was no effect on net income as a result of these reclassifications.

Net Sales

We continued to improve our business in 2003 realizing increased net sales in essentially all areas of the petroleum additives segment. This is a result of our commitment to supply our customers with top quality products and service. The commitment to our customers is reflected in the significant investment in research and development which is part of our ongoing effort to improve our products and services to meet our customers’ needs.

Total net sales were higher in 2003 than in either of the previous two years, representing increases of 15% over 2002 and 7% over 2001.

In 2003 and 2002, net sales to two customers of our petroleum additives segment exceeded 10% of total net sales. Sales to BP amounted to $81 million (11% of total net sales) in 2003 and $69 million (11% of total net sales) in 2002. Sales to Shell amounted to $121 million (16% of total net sales) in 2003 and $87 million (13% of total net sales) in 2002. These net sales represent a wide-range of products sold to these two customers in multiple regions of the world.

No other single customer accounted for 10% or more of our total net sales in 2003, 2002, or 2001.

The following table shows our net sales by segment for each of the last three years.

Net Sales By Segment

Petroleum Additives—Our petroleum additives sales improved over both 2002 and 2001. When comparing 2003 to 2002, petroleum additives net sales increased 15% above 2002 net sales reflecting improved results across all product lines. Total volumes shipped in 2003 were higher across all product lines than in 2002, and this

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impact, along with product mix, resulted in higher sales of about $80 million. The remaining increase in net sales over 2002 was caused by favorable foreign currency and changes in selling prices.

The increase of 8% in 2003 net sales when comparing to 2001 net sales was across all product lines except engine oil additives. The decrease in engine oil additives net sales reflects the impact of the loss of three high-volume engine oil customers in 2001 which was discussed more fully in our Annual Report on Form 10-K for the year ended December 31, 2002. Again, shipments were higher across all product lines, except engine oil additives. However, the reduction in engine oil volumes more than offset the increase across other product lines resulting in a reduction of 3% in overall shipments. Nonetheless, the increase in shipments of other product lines resulted in higher net sales when comparing 2003 to 2001 of $50 million. The remaining increase in sales of $6 million was the result of favorable foreign exchange and price changes.

Tetraethyl Lead—Most of the TEL marketing activity is through the agreements with Octel, under which we do not record the sales transactions. Therefore, TEL net sales reflected in the table above are those made by us in areas not covered by the agreements, as well as sales made to Octel under the terms of the agreements. These sales are minor compared to the TEL sales made through the marketing agreements. See Note 4.

TEL net sales were up slightly in 2003 when compared to 2002, but down substantially when compared to 2001. Sales increased $1 million when comparing 2003 to 2002 and decreased $8 million when comparing to 2001. Sales made to Octel in 2003 were $2.5 million higher than 2002 and $6 million lower than 2001. During the first quarter 2001, Octel purchased substantially all remaining inventory they were required to purchase from us under the agreements. The decrease in TEL sales, excluding Octel, reflects the expected and continuing market decline.

Segment Operating Profit (Loss)

We evaluate the performance of petroleum additives and TEL based on segment operating profit. Corporate departments and other expenses outside the control of the segment managers are not allocated to segment operating profit. Depreciation on segment property, plant, and equipment, and amortization of segment intangible assets and the prepayments for services are included in the operating profit of each segment.

The table below reports operating profit (loss) by segment for the last three years. Certain measures presented in the table below are not recognized as financial measures calculated in accordance with generally accepted accounting principles (GAAP). We believe this information provides transparency to investors and enhances period-to-period comparability of performance. We believe that this information enables the reader to have a clear understanding of the results of operations included in the GAAP financial statements.

Segment Operating Profit (Loss)

Petroleum Additives—Petroleum additives operating profit, excluding nonrecurring charges, improved to $59 million in 2003. This is the best operating profit in the segment since 1999 and represents an increase in operating profit on the same basis of 13% from 2002 and 79% from 2001. The improvement over 2002 is across all petroleum additive product lines except engine oil additives. The improvement over 2001 is across all product lines.

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The 2003 petroleum additives operating profit of $59 million compares to $51 million for 2002. Excluding nonrecurring items in 2002, which are discussed below, operating profit was $52 million. The improvement is the result of many factors. Volumes shipped increased 10% with the most significant impact in the fuels product line. In addition, the higher profit reflects improved production costs. A favorable foreign exchange impact, primarily from the Euro, also contributed to the higher profit. Partially offsetting these factors were higher raw material costs. Total raw material costs were up compared to 2002 due to higher shipments, as well as the rising cost of the raw materials we use to produce our products.

When compared to 2001, the profits were significantly improved reflecting a much improved mix of product sold. While volumes shipped were lower in 2003 than 2001, a predominantly higher percentage of our profits came from products other than engine oils. The foreign currency impact was also favorable when compared to 2001. Although not at as high a rate as the 2002 comparison, raw material costs increased when compared to 2001 resulting from both higher volumes and costs.

Total R&D expenses were $57 million in 2003, $51 million in 2002, and $54 million in 2001 (excluding the 2001 nonrecurring engine oils rationalization charges). In addition to an unfavorable foreign currency impact, the increase in R&D expenses compared to 2002 reflects higher personnel costs supporting the development and testing of new products primarily in the specialty additives product lines. The $3 million increase compared to 2001 also reflects higher costs in the specialty additives product line, as well as the MMT product line. A decrease in the engine oil area partially offset these increases. R&D related to new products and processes was $28 million in 2003, $30 million in 2002, and $33 million in 2001. All of our R&D expenses were related to petroleum additives.

SG&A for this segment in 2003 was about $10 million higher than both 2002 and 2001. The increase was primarily the result of higher spending in support of the fuel additives and the specialty additives product lines. The increase included the impact of an unfavorable foreign currency effect. As a percentage of net sales, SG&A combined with R&D expenses was 15.5% in 2003, 15.4% in 2002, and 14.8% in 2001. While SG&A and R&D expenses were higher in 2003 than 2002, the increase in net sales resulted in the substantially unchanged percentage. The percentage increase over 2001 primarily reflects the smaller increase in net sales for 2003 as compared to 2001.

There was a nonrecurring item of $100 thousand for 2003 related to the implementation of Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” The nonrecurring item for 2002 was for a $1.5 million impairment of goodwill, which was partially offset by a $300 thousand benefit related to a change in estimate of the restructuring accrual for the engine oil additives rationalization. The goodwill write-off was done in accordance with SFAS No. 142, “Goodwill and Other Intangibles.”

The nonrecurring charge of $72 million in 2001 was for costs related to the rationalization of our engine oil additives business of $75.5 million, which was partially offset by a $3 million gain on the sale of certain Bracknell, England assets. The engine oil rationalization included the idling of production and research facilities, as well as a workforce reduction. The charges for the rationalization program included early retirement costs of $23 million, as well as severance and other related expenses of $6 million. Accelerated depreciation was $41 million, shutdown costs were $4 million, and other costs were $2 million. Of these costs, we reported $29 million of severance, early retirement, and other related expenses as a special item. Cost of goods sold included $43 million; selling, general, and administrative expenses included $300 thousand; and research, development, and testing expenses included $3.2 million. Further information on these costs is included in Note 27.

We have been notified by DSM Copolymer, Inc., our supplier of olefin copolymer viscosity index improvers, of their intent to terminate their supply contract with us in mid-2005. The contract was initially

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scheduled to terminate in 2012. We have adjusted amortization of the intangible asset associated with this contract to coincide with the 2005 termination date. We are pursuing other supply alternatives, which may not be as favorable as our current terms. In the event we cannot achieve the same or similar terms, our cost will increase.

Tetraethyl Lead—Results of our TEL segment include the operating profit contribution from our marketing agreements, as well as certain TEL operations not included in the marketing agreements.

The operating profit contribution from our marketing agreements was $30 million in 2003, $26 million in 2002, and $37 million in 2001. As we expected during 2003, volumes shipped declined, but this was more than offset by improved pricing. The $7 million decrease from 2001 levels was the result of 23% lower volumes reflecting the declining market for this product. The 2003 and 2002 years also include higher amortization of the prepayment for services costs as a result of the increase in the prepayment following the amendment of these agreements in 2001. See Note 4. Amortization costs in 2003 were $400 thousand lower than 2002, but $4 million higher than 2001.

The loss from other TEL operations which were not a part of the marketing agreements was $4 million lower when compared to 2002. The year 2002 included charges related to environmental remediation and premises asbestos liability claims that were $4 million higher than 2003. These charges in 2002 were partially offset by approximately $2 million resulting from the benefit of a legal settlement for the recovery of operating costs. In addition, 2003 profits benefited from sales to Octel which were about $2.5 million higher than 2002. Other TEL operations that were not a part of the marketing agreements in 2001 were about the same as 2003. The 2001 year included an earnings benefit of $1 million from the liquidation of LIFO inventory. While both 2003 and 2001 included earnings from the sale of lead inventory to Octel, the sales to Octel in 2003 were $6 million lower than 2001.

The nonrecurring income of $2 million in 2003 resulted from the implementation of SFAS No. 143. The nonrecurring charge of $2 million was for the impairment of goodwill upon the adoption of SFAS No. 142.

While the market for this product is continuing to decline, it still continues to supply Ethyl with strong cash flows.

The following discussion references certain captions on the Consolidated Statements of Income.

Special Items Expense, Net

Special items expense, net totaled $114 million expense in 2001 and included pension-related charges and engine oil additives rationalization charges which were partially offset by the $3 million gain on the sale of some of the assets in Bracknell, England. The termination of our U.S. salaried pension plan and the subsequent settlement of the pension contracts resulted in a noncash charge of $62 million. The excise tax on the reversion of the pension assets was $26 million. Severance, early retirement, and other expenses amounted to $29 million.

There was $46.5 million engine oil additives-related costs not included in special items of which we reported $43 million in cost of goods sold; $3.2 million in research, development, and testing expenses; and $300 thousand in selling, general, and administrative expenses.

Interest and Financing Expenses

Interest and financing expenses were $21 million in 2003, $26 million in 2002, and $33 million in 2001. Compared to 2002, lower average debt outstanding resulted in a reduction of $5 million, while higher average interest rates resulted in an increase of $2 million. Fees and amortization of financing costs in 2003 were $2 million lower than 2002. Compared to 2001, lower debt outstanding resulted in a $10 million decrease in expense in 2003, while higher average interest rates caused an increase of $1 million. Fees and amortization of financing costs were $3 million lower in 2003 than in 2001.

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On April 30, 2003, we entered into a new long-term debt structure consisting of a senior notes issuance and a new senior credit facility. Interest costs under the new long-term debt structure will vary from our former credit facility. The interest on our $150 million senior notes due 2010 is at a fixed rate of 8.875%. The interest rates on our senior credit facility are at variable rates of LIBOR plus a premium of 325 to 450 basis points.

Other Income (Expense), Net

Other income (expense), net for 2003 was $1 million income and included a $1 million refund from an insurance company related to employee benefit policies.

Other income (expense), net for 2002 was $500 thousand expense and included charges of $4 million on the impairment of nonoperating assets and $1 million related to debt refinancing activities. These were partially offset by $2 million in interest income from a lawsuit settlement and $1 million interest income from a settlement with the IRS.

Other income (expense), net for 2001 was expense of $4 million and included charges of $2.6 million related to the refinancing of our debt, as well as $2 million for our percentage share of losses in equity investments. Also included is a loss on impairments of nonoperating assets of $4 million, which was partially offset by a gain of $1 million on the sale of a nonoperating asset.

The $1 million gain in 2001 on the sale of a nonoperating asset was for the sale of certain real and personal property in King William, Virginia, to Old Town, LLC (Old Town). Old Town is a separate legal entity organized by members of the Gottwald family. The property was sold for its appraised value of $2.9 million. We continue to manage the property for Old Town. See Item 13, “Certain Relationships and Related Transactions.”

Income Taxes

Income taxes on continuing operations were expense of $9 million in 2003, $4 million in 2002, and a benefit of $45 million in 2001. The increase in our income from continuing operations before income taxes from 2003 to 2002 resulted in the $5 million increase in income taxes in 2003. The effective tax rate was almost unchanged at 29.7% in 2003 and 28.3% in 2002. The effective tax rate in 2003 and 2002 reflects certain foreign and other tax benefits.

The effective tax rate in 2001 was 29.7% and included the recognition of certain income tax benefits. While we were able to recognize the tax benefit in 2001 for substantially all of the items that resulted in a pretax loss, the $26 million excise tax on the pension reversion was not tax deductible. Excluding this item in 2001, the effective tax rate on the pretax loss for the year would have been approximately 36%.

Our deferred taxes are in a net asset position and we believe that we will recover the full benefit of our deferred tax assets. See Note 23 for details on income taxes.

Income from Operations of Discontinued Business

After approval by the Board of Directors in December 2002, on January 21, 2003, we completed the sale of our phenolic antioxidant business to Albemarle Corporation. Following an extensive assessment, we concluded this business was not part of our future core business or growth goals.

As part of the transaction, we sold accounts receivable and inventory, as well as fixed assets at our Orangeburg, South Carolina facility. These accounts receivable and inventory are reported as “Assets of discontinued operations” on our Consolidated Balance Sheets. The net book value of the fixed assets was zero.

The income from operations of discontinued business reflected in our Consolidated Statements of Income is on an after-tax basis. The 2003 amount is the after-tax gain on the disposal of the business of $14.8 million ($23.2 million before tax). Prior year amounts represent the after-tax earnings of the business. The net sales of the discontinued business were $19 million for 2002 and $17 million for 2001.

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Cumulative Effect of Accounting Changes

As discussed above in the “Segment Operating Profit (Loss)” section, during first quarter 2003, we recognized a gain of $2.5 million ($1.6 million after tax) on the implementation of SFAS No. 143.

We wrote-off goodwill of $3.1 million ($2.5 million after tax) in first quarter 2002 in accordance with SFAS No.142. Under the undiscounted cash flow model that we used prior to the adoption of SFAS 142, the goodwill was not impaired and therefore, had not been previously written off.

Net Income (Loss)

Net income was $37 million ($2.21 per share) in 2003 as compared to net income of $10 million ($.59 per share) in 2002 and a net loss of $105 million ($6.29 per share) in 2001. Due to the significant impact on earnings of nonrecurring items and discontinued operations, we have included below a summary of earnings and earnings per share, in millions (except for per share amounts). Certain measures presented in the table below are not recognized as financial measures calculated in accordance with generally accepted accounting principles (GAAP). We believe this information provides transparency to investors and enhances period-to-period comparability of performance. We believe that this information enables the reader to have a clear understanding of the results of operations included in the GAAP financial statements.

Included in our 2003 results in the selling, general, and administrative expense line of our income statement is an increase in corporate general and administrative expenses of $4 million from 2002 primarily reflecting increased insurance, legal, and personnel expenses. When compared to 2001, corporate general and administrative expenses were $1 million lower in 2003. The decrease includes lower personnel and legal costs, which were partially offset by higher insurance expenses.

The cost of our pensions is also a factor in comparing our earnings results from year to year. Pension expense on a pre-tax basis was $9 million for 2003 and $6 million for 2002. Pension income (before income taxes and excluding terminations and settlements) was $2 million in 2001. The higher expense of the pension charge for 2003 compared to prior years’ levels is caused substantially by lower asset values in our current plans due to market volatility, changes in rate assumptions, and an unfavorable foreign currency impact, as well as the reduction in assets for the domestic salaried plan that was terminated in 2001.

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CASH FLOWS DISCUSSION

We generated cash from operating activities of $82 million in 2003 and $83 million in 2002. In 2001, we generated cash amounting to $126 million, including $54 million from the pension asset reversion.

During 2003, we generated before tax proceeds of $28 million from the sale of the phenolic antioxidant business, as well as proceeds of $13 million from the sale of certain other assets. We used these proceeds, along with the cash generated from operations, to pay $13 million in debt issuance costs, fund capital expenditures of $12 million, and make the final payment of $3 million to Octel for TEL marketing agreements services. In addition, we made a net repayment on debt of $81 million and increased cash and cash equivalents $14 million. Our cash from operations included $4.8 million received from a lawsuit settlement. This settlement was related to the recovery of operating costs of $2.4 million, as well as interest income on the settlement of $2.4 million. Cash from operations of about $9 million was used to fund certain of our pension plans.

In 2002, we used cash from operating activities to make net repayments of $45 million on bank debt and $1 million on a capital lease and to pay $2 million in debt issuance costs. We also funded capital expenditures of $13 million and made payments for TEL marketing agreements services of $19 million. Cash and cash equivalents on hand increased $3 million. Our cash from operations included $1 million for deferred rental revenue; $1 million from a settlement with the IRS; and $3 million received from a contract settlement. This contract settlement was related to a dispute associated with a tax issue on the sale of a former subsidiary.

The cash flows from operating activities in 2001 included the net cash benefit of $54 million from the asset reversion of one of our pension plans. In 2001, we combined the cash from operating activities, as well as $11 million from the sale of certain assets to make a net repayment on debt of $107 million and to pay $12 million in debt issuance costs. We also funded capital expenditures of $10 million, as well as a prepayment of TEL marketing agreements services of $2.5 million. Cash and cash equivalents on hand increased $8 million.

We expect that cash from operations will continue to be sufficient to cover our operating expenses.

Depreciation and amortization in the Consolidated Statements of Cash Flows for 2001 includes accelerated depreciation of $41 million due to the shortened lives of certain engine oil assets.

FINANCIAL POSITION AND LIQUIDITY

During 2003, we continued progress on our goals of profitable growth and debt reduction. Our earnings improved in 2003 as a result of our continuing to offer high quality goods and services to our customers, as well as the benefits of our aggressive debt reduction. We also entered into a long-term debt structure in April 2003, which provides us with a platform to enable us to continue to build for the future.

We reduced our debt $81 million in 2003 and $46 million in 2002. This comes after having reduced the debt by $107 million in 2001. Our debt position has improved substantially since 2001, and we are now in our target range of leverage. We continue to make debt repayment a priority while reviewing other opportunities.

We believe the initiatives on which we are focused will continue to improve our profitability. Nonetheless, the future remains a challenge, as the petroleum additives market is still highly competitive with continued demand for new high performance products and with margins continuing to be compressed as raw material prices increase. Our cash flows from operations remain strong and we will continue to optimize working capital requirements.

Cash

At December 31, 2003, we had cash and cash equivalents of $29 million as compared to $15 million at the end of 2002.

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We also had restricted cash of $1.9 million at year-end 2003 and $700 thousand at year-end 2002. Of these funds at year-end 2003, $1.2 million was received from Metropolitan Life Insurance Company (Metropolitan) in 2003 and $200 thousand represents the remaining portion of the funds we received from the demutualization of Metropolitan in 2000. The 2000 funds from Metropolitan are being used to reduce the employee portion of retiree health benefits costs. The 2003 funds from Metropolitan will also be used for employee benefit purposes. The remaining $500 thousand represents funds related to the issuance of a European bank guarantee.

Debt

During the first quarter of 2003, we worked on an initiative to provide a long-term debt structure for Ethyl. That structure was put in place on April 30, 2003 and includes senior notes and a senior credit facility comprising a bank term loan and a revolving credit facility.

Senior Notes

On April 30, 2003, we sold senior notes in the aggregate principal amount of $150 million that bear interest at a fixed rate of 8.875% and are due in 2010.

The senior notes are our senior unsecured obligations and are jointly and severally guaranteed on an unsecured basis by all of our existing and future wholly owned domestic restricted subsidiaries and certain of our existing wholly owned foreign subsidiaries.

The senior notes and the subsidiary guarantees rank:

The indenture governing the senior notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:

Senior Credit Facility

The senior credit facility is secured by liens on substantially all of the U.S. assets of Ethyl and our domestic subsidiaries and certain foreign assets. In addition, the senior credit facility is guaranteed by our U.S. subsidiaries and certain foreign subsidiaries to the extent that it would not result in material increased tax liabilities.

The senior credit facility requires certain mandatory prepayments, including generally:

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The senior credit facility contains covenants, representations, and events of default that management considers typical of a credit agreement of this nature. The financial covenants include:

The bank term loan had an original principal amount of $115 million and has a variable interest rate of LIBOR plus 450 basis points. The term loan matures in April 2009 and has scheduled quarterly payments, which began in June 2003.

The revolver is a $50 million facility for working capital and letter of credit issuance purposes. It bears interest at LIBOR plus 325 to 425 basis points and matures in April 2008. At December 31, 2003, we had outstanding letters of credit under the revolver of $26 million resulting in the unused portion of the revolver amounting to $24 million.

***

The new debt structure will cause Ethyl to incur higher cash interest cost than the previous facility, but provides the long-term debt structure we believe we need to manage our business. The proceeds from the senior notes and the bank term loan were used to repay our former credit facility, which on April 30, 2003 included a term loan of $178.3 million and a revolving line of credit of $55.3 million, as well as a loan in the amount of $18.6 million borrowed from Bruce C. Gottwald, Chairman of the Board of Directors.

We had combined current and noncurrent long-term debt of $209 million at December 31, 2003, representing a net reduction of $81 million in our total debt since December 31, 2002. The net reduction in debt includes the full payment of the debt under our previous credit facility of $266 million and full payment of our private borrowing from Bruce C. Gottwald of $18.6 million. These payments were offset by the new borrowing amounting to $150 million on the 8.875% senior notes and $115 million on the term loan. Subsequent to the refinancing of our debt, we have made payments of $61 million on the term loan. Capital lease obligations also decreased $500 thousand. All of our debt is discussed more fully in Note 13.

During 2002, we paid down total debt by $46 million. This included payments of $73 million on the term loan, $4 million on the new term loan, and $1 million on a capital lease. These payments were offset by an increase on the revolving credit agreement of $13 million and additional private borrowing from Bruce C. Gottwald of $18.6 million.

As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total debt decreased from 65.5% at the end of 2002 to 51.1% at the end of 2003. The decrease reflects the reduction in total debt, as well as the increase in shareholders’ equity due to earnings. Normally, we repay long-term debt with cash from operations, as well as with proceeds from occasional sales of business units, plant sites, or other assets.

Working Capital

At December 31, 2003, we had working capital of $184 million, resulting in a current ratio (which is defined as current assets over current liabilities) of 2.52 to 1. Our working capital at year-end 2002 was $143 million resulting in a current ratio of 2.10 to 1. The increase in working capital and the current ratio primarily reflects a decrease in the current portion of long-term debt, as well as increases in cash and cash equivalents, accounts receivables, inventories, and prepaid expenses. Offsetting these were smaller increases in accounts payable, accrued expenses, and income taxes payable, as well as decreases in deferred income taxes and assets of discontinued operations. The change in inventory is in support of increased business activity.

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Capital Expenditures

We expect capital expenditures will be $15 million to $20 million in 2004. Capital spending for environmental and safety projects will be nearly double the 2003 level of about $3 million over the next few years due to modifications needed to meet the Miscellaneous Organic Natural Emissions Standards for Hazardous Air Pollutants regulation. We will continue to finance capital spending through cash provided from operations.

Sale-Leaseback Transaction

In June 2003, we entered into a sale-leaseback transaction for the land, buildings, and certain equipment located at our Bracknell, England facility. We received $11.1 million for the assets, which had a net book value of $9.6 million. The resulting operating lease is for ten years with an option to terminate the lease after five years. The gain of $1.5 million was deferred and is being amortized over the term of the lease agreement.

Contractual Obligations

The table below shows our year-end contractual obligations by year due.

Under the TEL Marketing Agreements, we are required to provide approximately one-third of the cost of product sold to customers in the territory from our inventory or post an equivalent dollar value deposit with Octel. The value of our available inventory fell below the requirement at year-end 2000 and was substantially

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depleted at year-end 2001 as it was utilized for sales under the agreements. The dollar value requirement was $11 million at December 31, 2003 and $13 million at December 31, 2002. We now cover this requirement of the marketing agreements through the value of a working capital advance due from Octel. We funded this advance in 2000 and it is being paid to us as the requirement decreases and will be paid in full at the end of the agreements. These amounts have been recorded in other assets and deferred charges. See Note 10.

Pension and Post-Retirement Benefit Plans

We apply Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions” (SFAS 87) and Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Post-retirement Benefits Other Than Pensions” (SFAS 106) to account for our pension and post-retirement plans. We use a December 31 measurement date to determine our pension and post-retirement expenses and related financial disclosure information.

Investment Return Assumptions under SFAS 87 and Asset Allocation—We periodically review our assumptions for the long-term expected return on pension plan assets. As part of the review and to develop expected rates of return, our independent consulting actuaries performed a stochastic analysis of expected returns based on the plans’ asset allocation as of both January 1, 2003 and January 1, 2004. This forecast reflects the actuarial firm’s expected long-term rates of return for each significant asset class or economic indicator. As of January 1, 2004, the actuarial firm’s expected rates were 9.6% for US large cap stocks, 6.1% for US long-term corporate bonds, and 2.7% for inflation. The range of returns developed relies both on forecasts and on broad-market historical benchmarks for expected return, correlation, and volatility for each asset class.

While the expected investment return assumption is long-term in nature, the range of reasonable returns has dropped over the past few years as a consequence of lower inflation and lower bond yields. Nevertheless, because our asset allocation is predominantly weighted toward equities, we have maintained our expected long-term rate of return at 9% for the last several years.

Significant actuarial losses, where the actual return was less than the expected return, resulted during the 2001 and 2002 stock market decline. The one-year investment return was substantially lower than the long-term assumption by about $17 million in 2002 and about $34 million in 2001 for all of our domestic pension plans. These losses enter earnings on an amortized basis and amounted to increased expense of $900 thousand in 2003, as well as an expected $900 thousand increased expense in 2004. By contrast, actual investment return exceeded assumed return in 2003 by about $3 million. We expect that there will be continued volatility in pension expense as actual investment returns vary from the expected return, but we continue to believe the risk premium for equity investment justifies the results.

Pension expense is sensitive to changes in the expected return on assets. For example, decreasing the expected rate of return by 25 basis points to 8.75% (while holding other assumptions constant) would increase the forecasted 2004 expense for our domestic pension plans by about $150 thousand. Similarly, a 25 basis point increase in the expected rate of return to 9.25% (while holding other assumptions constant) would reduce forecasted 2004 pension expense by about $150 thousand.

Discount Rate Assumption under SFAS 87 and SFAS 106—In accordance with SFAS 87 and SFAS 106, we set the discount rate for our retirement plans by reference to investment grade bond yields. We use Moody’s published AA yield for long-term corporate bonds for the last day of December as an index, and our discount rate will be within 25 basis points of the index. Moody’s AA yield dropped from 6.52% for December, 2002 to 6.01% for December, 2003. Accordingly, we reduced our discount rate for all domestic plans from 6.75% as of December 31, 2002 to 6.00% as of December 31, 2003. We also reduced our rate of projected compensation increase at December 31, 2003 from 4.5% to 4.0%.

Pension expense is also sensitive to changes in the discount rate. For example, decreasing the discount rate by 25 basis points to 5.75% (while holding other assumptions constant) would increase the forecasted 2004

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expense for our domestic pension plans by about $300 thousand. A 25 basis point increase in the discount rate to 6.25% would reduce forecasted 2004 pension expense by about $300 thousand.

Liquidity—Cash contribution requirements to the pension plan are sensitive to changes in assumed interest rates in the same manner as pension expense. We have traditionally contributed the maximum tax-deductible amount to the pension plans each year. We expect that our cash contribution requirements will be substantial in 2004 and future years because of the reduced level of assets in our current pension plan for salaried U.S. employees as compared to our former pension plan for salaried U.S. employees which we terminated in 2000. We expect our aggregate domestic cash contributions, before income taxes, will be about $4 million in 2004.

Other Assumptions under SFAS 106—During 2002, we reviewed our assumption for the health care cost trend rate under SFAS 106. This review was done with reference to cost increases in our own plans, as well as broader market increases in employer-provided health care costs and observations of SFAS 106 assumptions used by other large employers. Consequently, as of December 31, 2002, we increased our assumption for the health care cost trend rate substantially to a rate of 11% in 2002 scaling down to 5.5% over the next ten years. Previously, the health care cost trend rate was 6% to 7%. The assumption of declining inflation is consistent with the expectation that medical cost increases will abate after several years of double-digit growth. We have reviewed these assumptions and believe they are appropriate for 2003.

The expected long-term rate of return on our post-retirement plans is 7%. This rate varies from the pension rate of 9% primarily because of the difference in investment of assets. The assets of the post-retirement plan are held in an insurance contract, which results in a lower assumed rate of investment return.

Termination of U.S. Salaried Pension Plan—At December 31, 2000, we terminated an overfunded U.S. salaried employee pension plan. We received regulatory approval for the plan termination in the second quarter 2001. The proceeds from the terminated plan amounted to $179 million. After fully funding a new pension plan for U.S. salaried employees, which has comparable provisions and benefit formula, we received $131 million in the third quarter 2001 which represented the reversion of pension assets. The reversion amount was subject to the usual corporate income taxes, as well as a 20% federal excise tax. Total federal income, state income, and excise taxes amounted to $77 million. Most of these taxes were paid in the second half of 2001. The net cash received, after taxes, was $54 million and was used to pay down our debt. In 2002, as well as the next several years, Ethyl will report noncash pension expense, since the market value of assets has declined and the amount of surplus in the new pension plan is less than that in the terminated plan.

RELATED PARTY TRANSACTIONS

Thomas E. Gottwald, our Chief Executive Officer and a director, is a son of Bruce C. Gottwald, our Chairman of the Board of Directors and our former Chief Executive Officer. The members of the family of Bruce C. Gottwald may be deemed to be control persons of Ethyl.

In April 2001, we sold certain real and personal property located in King William, Virginia consisting of approximately 1,600 acres to Old Town, LLC. Old Town, LLC, which is owned by Bruce C. Gottwald and his brother, Floyd D. Gottwald, Jr., a beneficial owner of more than 5% of Ethyl’s outstanding voting shares, paid $2.9 million in cash for the property based on independent appraisals. We continue to manage the property for Old Town, LLC.

On February 1, 2002, Bruce C. Gottwald made a loan to Ethyl in the amount of $18.6 million for a three-year term at an interest rate of 8.5%. The monthly payments were interest only during the term of the loan, with the principal amount coming due at maturity. We used the proceeds of the loan to pay down then existing debt. The loan was non-recourse to Ethyl and was secured by a first deed of trust on the three buildings at 330 South Fourth Street, Richmond, Virginia, that constitute our principal offices. An independent appraiser valued the three buildings at $18.6 million. At the end of the loan term, we had the option to either convey the property to

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the lender in satisfaction of the debt or repay the debt. Had we failed to repay the debt, the lender had the right to require that we convey the property to him in satisfaction of the debt. This loan was paid in full on April 30, 2003.

On February 28, 1994, Ethyl completed the spin-off of Albemarle Corporation (Albemarle). The two companies have agreements that describe the conditions under which Albemarle must reimburse Ethyl for tax, environmental and certain other liabilities. Generally, Albemarle is responsible for tax, environmental and certain other exposures related to its operations before the spin-off of Albemarle. We believe that Albemarle has the ability to comply with this indemnification agreement. Further information, including comments regarding a $4 million receivable we have recorded from Albemarle, is in Note 18.

Ethyl and Albemarle have agreements to coordinate certain facilities and services, including the production of MMT. In connection with these agreements, Albemarle billed us approximately $9 million in 2003, $23 million in 2002, and $24 million in 2001. The decrease in 2003 reflects the sale of the phenolic antioxidant business to Albemarle in January 2003. After the sale of the business, Albemarle no longer supplied us with antioxidant finished products for third party resale. They continue to supply our internal needs for antioxidants.

On January 21, 2003, we completed the sale of our phenolic antioxidants business to Albemarle. The decision to sell the phenolic antioxidants business followed an extensive strategic assessment of our business assets where we concluded the phenolic antioxidants business was not part of our future core business or growth goals. Further information is provided above in the “Income from Operations of Discontinued Business” section of Item 7.

CRITICAL ACCOUNTING POLICIES

It is our goal to clearly present our financial information in a manner that enhances the understanding of our sources of earnings and our financial condition. We do this by including the information required by the Securities and Exchange Commission, as well as additional information that gives further insight into our financial operations.

Our financial report includes a discussion of our accounting principles, as well as methods and estimates used in the preparation of our financial statements. We believe these discussions and statements fairly represent the financial position and operating results of our company. The purpose of this portion of our discussion is to further emphasize some of the more critical areas where a significant change in facts and circumstances in our operating and financial environment might cause a change in reported financial results.

As discussed in various sections of our report, we have made certain payments related to our TEL marketing agreements. We made the final payment of $3 million in 2003. The unamortized total is $29 million at December 31 2003. We are amortizing these costs on an accelerated basis using a declining balance method over the life of the contracts. We feel this is the appropriate methodology and time period for this amortization based on the facts and circumstances of our TEL operations and the estimated product life of TEL. The customer base of TEL is significantly concentrated in a few countries and when conditions change that cause a shorter product life or other restrictions outside of our control, the amortization period is adjusted accordingly. Any adjustment to the amortization period would impact earnings, but would have no effect on cash flows. We continue to keep our accounting for this issue current with the business conditions.

We also have certain identifiable intangibles amounting to $58 million at year-end 2003 that are discussed in Note 11 of this report. These intangibles relate to our petroleum additives business and are being amortized over periods with up to twelve years of remaining life. We continue to assess the market related to these intangibles, as well as their specific values, and have concluded the amortization periods and values are appropriate. During the second quarter 2003, due to a change in a contract, we modified the amortization period of one of the identifiable intangibles from nine remaining years to two remaining years. This change results in

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additional monthly amortization expense of $100 thousand over the next 17 months. We also evaluate these intangibles for any potential impairment. These evaluations continue to support the value at which these identifiable intangibles are carried on our financial statements. However, if conditions were to substantially deteriorate in this market, it could possibly cause a reduction in the periods of this amortization charge or could possibly result in a noncash write-off of a portion of the intangibles’ carrying value. A reduction in the amortization period would have no cash effect. While we do not anticipate such a change in the market conditions, this disclosure is provided to enhance the understanding of the factors involved.

We have made disclosure of our environmental issues in Part I, Item I of this report, as well as in the Notes to Consolidated Financial Statements. We feel our environmental accruals are appropriate for the exposures and regulatory guidelines under which we currently operate. While we currently do not anticipate significant changes to the many factors that could impact our environmental requirements, we continue to keep our accruals consistent with these requirements as they change.

Also, as noted in the discussion of Legal Proceedings in Item 3, while it is not possible to predict or determine the outcome of any legal proceeding, it is our opinion that we will not experience materially adverse effects on our results of operations or financial condition as a result of any pending or threatened proceeding.

We use significant assumptions to record the impact of the pension and post-retirement plans in the financial statements. These assumptions include the discount rate, expected long-term rate of return on plan assets, rate of compensation increase, and health-care cost trend rate. A change in any one of these assumptions could result in significantly different results for the plans. We develop these assumptions after considering advice from a major global actuarial consulting firm. Information is provided on the pension and post-retirement plans in Note 19. In addition, further disclosure on the effect of changes in these assumptions is provided in the “Financial Position and Liquidity” section of Item 7.

We believe the preceding discussion of some of the more critical accounting policies and assumptions will enhance the understanding of certain issues related to our efforts to provide an informative financial report.

RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board (FASB) issued three new accounting standards during 2003. Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” clarifies accounting and reporting requirements for derivative instruments and hedging activities. The statement is generally effective for derivative and hedging activities entered into after June 30, 2003. Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective at the beginning of the first interim period after June 15, 2003. The implementation of these statements did not have a significant impact on 2003 results, nor do we expect the implementation of either of the statements to have a significant impact on future results.

Statement of Financial Accounting Standards No. 132 (Revised 2003) “Employers’ Disclosures about Pensions and Other Postretirement Benefits” was also issued in 2003 and amends certain disclosure requirements for pension and postretirement benefit plans. It is effective for fiscal years ending after December 15, 2003. Certain disclosure requirements for foreign pension and postretirement benefit plans are effective for fiscal years ending after June 15, 2004. We have included all required disclosures in Note 19.

FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” was released in January 2003. FIN 46 expands existing accounting guidance that specifies when a company should include the assets, liabilities, and activities of another entity in the company’s financial statements. Generally, the interpretation requires that a variable interest entity be consolidated if the company has the majority of either the risk of loss or

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benefit of returns of the variable interest entity’s activities. Originally, the requirements of this interpretation were effective for interim or annual periods beginning after June 15, 2003. The FASB deferred the effective date of the interpretation until the first reporting period ending after March 15, 2004. We do not expect the implementation of this interpretation to have a significant impact on Ethyl.

In January 2004, FASB issued FASB Staff Position FAS 106-1 (FSP FAS 106-1), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act). FSP FAS 106-1 is effective for interim or annual financial statements for fiscal years ending after December 7, 2003. It permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. Because of various uncertainties related to Ethyl’s response to this legislation and the appropriate accounting methodology for this event, we have elected to defer financial recognition of this legislation until the FASB issues final accounting guidance. When issued, that final guidance could require us to change previously reported information.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to many market risk factors including fluctuations in interest and foreign currency rates, as well as changes in the cost of raw materials and marketable security prices. These risk factors may affect our results of operations, cash flows, and financial position.

We manage these risks through regular operating and financing methods, including the use of derivative financial instruments. When we have had derivative instruments, they have been with major financial institutions and were not for speculative or trading purposes. Also, as part of our financial risk management, we regularly review significant contracts for embedded derivatives. Based on our review, we have no contracts with an embedded derivative.

The following analysis presents the effect on our earnings, cash flows, and financial position as if the hypothetical changes in market risk factors occurred at year-end 2003. We analyzed only the potential impacts of our hypothetical assumptions. This analysis does not consider other possible effects that could impact our business.

Interest Rate Risk

At December 31 2003, we had total debt of $209 million with $54 million at variable interest rates. Holding all other variables constant, if the LIBOR portion of the weighted-average interest rates on the variable rate debt hypothetically increased 10% (approximately 11 basis points), the effect on our earnings and cash flows would have been higher interest expense of $60 thousand.

Since most of our debt at year-end 2003 is at a fixed rate, a hypothetical 10% decrease in interest rates, holding all other variables constant, would have resulted in a change of $7 million in fair value.

Foreign Currency Risk

We sell to customers in foreign markets through our foreign operations, as well as through export sales from our plants in the U.S. These transactions are often denominated in currencies other than the U.S. Dollar. Our primary currency exposures are the Euro, British Pound Sterling, Japanese Yen, and Canadian Dollar.

We sometimes enter into forward contracts to minimize the fluctuation of accounts receivable denominated in foreign currencies. During 2003, we entered into Euro denominated forward contracts to minimize currency exposure from expected cash flows from foreign operations. All of the contracts matured during 2003 and we did not have any outstanding forward contracts at December 31, 2003. We did not enter into any forward contracts during 2002 or 2001.

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Raw Material Price Risk

We utilize a variety of raw materials in the manufacture of our products, including base oil, polyisobutylene, olefin copolymers, antioxidants, alcohols, and methacrylates. Our profitability is sensitive to changes in the costs of these materials caused by changes in supply, demand or other market conditions, over which we have little or no control. If we experience sudden or sharp increases in the cost of our raw materials, we may not be able to pass on these increases in whole or in part to our customers. Political and economic conditions in the Middle East and Latin America have caused and may continue to cause the cost of our raw materials to fluctuate. War, armed hostilities, terrorist acts, civil unrest or other incidents may also cause a sudden or sharp increase in the cost of our raw materials. If we cannot pass on to our customers any future increases in raw material costs in the form of price increases for our products, there will be a negative impact on operating profit.

We have been notified by DSM Copolymer, Inc., our supplier of olefin copolymer viscosity index improvers, of their intent to terminate their supply contract with us in mid-2005. The contract was initially scheduled to terminate in 2012. We have adjusted amortization of the intangible asset associated with this contract to coincide with the 2005 termination date. We are pursuing other supply alternatives, which may not be as favorable as our current terms. In the event we cannot achieve the same or similar terms, our cost will increase.

Marketable Security Price Risk

At year-end 2003, our marketable securities had a fair value of $4 million, including net unrealized losses of $50 thousand. The estimated loss in the fair value resulting from a hypothetical 10% decrease in the price would have been $400 thousand.

Since the securities are classified as “available for sale,” adjustments to fair value of a temporary nature are reported in accumulated other comprehensive loss, and would not impact our results of operations or cash flows until such time that the securities are sold or that the impairment is determined to be other than temporary in nature.

Other Risk Factors

Our business is subject to many factors that could affect our future performance and cause our actual results to differ materially from those expressed or implied by forward-looking statements made in this annual report. Those risk factors are outlined below:

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FINANCIAL POLICY

Ethyl Corporation’s Financial Standards—Our goal is to present clearly Ethyl’s financial information to enhance your understanding of our sources of earnings and cash flows and our financial condition.

Management’s Report on the Financial Statements—Ethyl prepared the financial statements and related notes on pages 35 through 82 to conform to generally accepted accounting principles. In doing so, management made informed judgments and estimates of the expected effects of certain events and transactions on the reported amounts of assets and liabilities at the dates of the financial statements. The same is true for the reported amounts of revenues and expenses during these reporting periods. Financial data appearing elsewhere in the annual report is consistent with these financial statements. However, actual results could differ from the estimates on which these financial statements are based.

We maintain a system of internal controls to provide reasonable, but not absolute, assurance of the reliability of the financial records and the protection of assets. Written policies and procedures, careful selection and training of qualified personnel, and an internal audit program support Ethyl’s internal control system.

The independent accounting firm, PricewaterhouseCoopers LLP (PwC), audited these financial statements in accordance with generally accepted auditing standards. The audit included a review of Ethyl’s internal accounting controls to the extent considered necessary to determine audit procedures.

The Audit Committee of the Board of Directors, composed only of independent directors, meets with management and PwC to review accounting, auditing, and financial reporting matters. The independent auditors are appointed by the Audit Committee.

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Report of Independent Auditors

To the Board of Directors and Shareholders of Ethyl Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Ethyl Corporation and its subsidiaries at December 31, 2003 and December 31, 2002 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 15 to the financial statements, the Company changed the manner in which it accounts for asset retirement costs as of January 1, 2003. As discussed in Note 11 to the financial statements, the Company changed the manner in which it accounts for goodwill and other intangible assets as of January 1, 2002.

/S/    PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

Richmond, Virginia

February 18, 2004

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Ethyl Corporation & Subsidiaries

Consolidated Statements of Income