1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the transition period from________to________
Commission file number 1-12658
ALBEMARLE CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1692118
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 SOUTH FOURTH STREET
P. O. BOX 1335
RICHMOND, VIRGINIA 23210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 804-788-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, $.01 Par Value NEW YORK STOCK EXCHANGE
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_
Aggregate market value of voting stock held by non-affiliates of the registrant
as of January 31, 2000: $504,123,779*
Number of shares of Common Stock outstanding as of January 31, 2000:
46,191,477.
* In determining this figure, an aggregate of 18,281,510 shares of Common Stock
treated as beneficially owned by Floyd D. Gottwald, Jr., Bruce C. Gottwald and
members of their families have been excluded and treated as shares held by
affiliates. See Item 12 herein. The aggregate market value has been computed on
the basis of the closing price in the New York Stock Exchange Composite
Transactions on January 31, 2000, as reported by The Wall Street Journal.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Albemarle Corporation's definitive Proxy Statement for its 2000
Annual Meeting of Shareholders 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.
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PART I
ITEM 1. BUSINESS
Albemarle Corporation ("the Company" or "Albemarle") was incorporated
under the laws of the Commonwealth of Virginia on November 24, 1993, as a
wholly-owned subsidiary of Ethyl Corporation ("Ethyl"). Ethyl thereafter
transferred to Albemarle, Ethyl's olefins and derivatives, bromine chemicals
and specialty chemicals businesses, and, as of the close of business on
February 28, 1994, Ethyl distributed to its common shareholders all of the
outstanding shares of Albemarle. Since February 28, 1994, the Company has been
a publicly held operating company.
DESCRIPTION OF BUSINESS
Albemarle is a major producer of polymer and fine chemicals including
polymer intermediates, cleaning product intermediates and additives,
agrichemical intermediates, pharmachemical intermediates and bulk actives,
catalysts, brominated flame retardants, bromine chemicals and potassium and
chlorine chemicals. Albemarle employs approximately 2,550 people.
The following discussion of the Company's businesses as of December 31,
1999, should be read in conjunction with the information contained in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 17.
The Company's worldwide chemicals operations are reported as two
separate and distinct operating segments Polymer Chemicals and Fine Chemicals,
in conformity with the Financial Accounting Standards Board's ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures about
Segments of an Enterprise and Related Information."
Albemarle manufactures a broad range of chemicals, most of which are
additives to or intermediates for plastics, polymers and elastomers, cleaning
products, agricultural compounds, pharmaceuticals, photographic chemicals,
drilling compounds and biocides. Most sales of the Company's products are made
directly to manufacturers of the aforementioned products, including chemical
and polymer companies, pharmaceutical companies, cleaning product
manufacturers, paper and photographic companies, drilling companies and water
treatment companies.
The Company produces the majority of its products in the United States,
but also has production facilities in France and the United Kingdom and has
aluminum alkyls produced for it by BP Amoco [formerly Amoco Chemical Company
("Amoco")] at the Company's former Feluy, Belgium plant. The processes and
technology for many of these products were developed in the Company's or its
predecessor's research and development laboratories.
The Polymer Chemicals' operating segment produces a broad range of
chemicals, including flame retardants, catalysts, polymer curatives and
antioxidants.
Albemarle's flame retardants are manufactured to help polymers and
other materials meet fire-safety requirements in finished products which serve
a variety of end use markets including electronic enclosures, printed circuit
boards, electrical connectors and construction. During the fourth quarter of
1999, the Company started up a world-class six-sigma SAYTEX(r) CP-2000 flame
retardant [tetrabromobisphenol-A] plant in Magnolia, Arkansas.
Aluminum alkyls are used as co-catalysts in the production of
polyolefins, such as polyethylene and polypropylene, elastomers, alpha olefins
such as hexene, octene and decene, and organotin heat stabilizers and in the
preparation of organic intermediates. The Company has continued to expand and
debottleneck its production units at Pasadena, Texas and Orangeburg, South
Carolina. It also has strengthened its supply chain for methylaluminoxane
("MAO"), a co-catalyst used in metallocene catalyst systems, by increasing
capacity for MAO and the key raw materials needed to make MAO. The Company has
continued to build on its organometallics base and expand the portfolio of
products and capabilities it offers its customers pursuing the development and
commercialization of polymers based on metallocenes/single-site catalysts.
The Company also is expanding its efforts in polymer curatives,
products used to control polyurethane and epoxy system polymerization. Also
produced are antioxidants and alkylated hindered phenolics that are used to
maintain the performance integrity of thermoplastic resins.
The Company continues to focus on expansion of its bromine production
capabilities. The expansion of brine field and bromine capacities at the
Company's Magnolia, Arkansas, facility that started in 1995, continued. The
result of the current phase of the program will be an approximate 30% bromine
production capacity increase.
Products of the Fine Chemicals' operating segment include
pharmaceutical, agricultural intermediates, elemental bromine, alkyl bromides,
inorganic bromides, and a number of bromine fine chemicals. Applications for
these products primarily exist in chemical synthesis, oil and gas well drilling
and completion fluids, water purification, glass making, cleaning products,
soil fumigation and chemical intermediates for pharmaceutical, photographic and
agricultural chemicals. Other Fine Chemicals' products include tertiary amines
for surfactants and biocides, disinfectants and sanitizers; zeolite A (sodium
alumina silicate) used as a phosphate replacement in laundry detergent
builders; and alkenyl succinic anhydride (ASA) used in paper-sizing
formulations. These products have many varied customers. They are sold to
suppliers for use in household, institutional and industrial cleaners, personal
care products and industrial products.
The Company's primary bulk actives, ibuprofen and naproxen, are
widely-used pharmaceuticals that provide fever reduction and temporary relief
of aches and pains and menstrual cramps. Bulk ibuprofen is formulated by
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pharmaceutical companies who sell to customers in both the prescription and
over-the-counter markets. Ibuprofen products accounted for more than 25% of the
U.S. over-the-counter analgesic market in 1999. They compete against other
painkillers containing aspirin, acetaminophen, ketoprofen and naproxen. The
Company is one of the world's largest producers of ibuprofen. In 1999, the U.S.
Food and Drug Administration granted approval for additional customers to use
the naproxen product.
Agricultural intermediates are sold to chemical companies that supply
finished products to farmers, governments and others. These products include
orthoalkylated anilines for the acetanilide family of pre-emergent herbicides
used on corn, soybeans and other crops and organophosphorus products for
insecticide use.
The Company's subsidiary, Albemarle PPC ("APPC"), operates a plant in
Thann, France. APPC is one of the world's largest producers of organic and
inorganic brominated compounds used mainly in pharmaceutical, photographic and
agricultural chemical intermediates. APPC also operates an electrolysis unit to
produce high-purity caustic potash and potassium carbonate used in the glass,
water treatment, cleaning product and food industries. APPC strengthens the
Company's position in Fine Chemicals and provides additional manufacturing and
research and development capabilities in Europe.
In Polymer Chemicals' product lines, some of the Company's flame
retardant and aluminum alkyl plants operated below capacity during 1999. In
the Fine Chemicals' product lines, most plants operated near capacity
during 1999, with the exception of bulk naproxen, ibuprofen and certain
agrichemical products which had excess capacity due to low customer
demand.
The Company operates on a worldwide basis with (i) manufacturing
plants located in France and the United Kingdom, in addition to facilities
in the United States, (ii) offices and distribution terminals in Belgium,
France, Japan and Singapore, as well as the United States and (iii) offices
in Shanghai and Beijing, China. The Company does not believe it has
significant assets in countries in which those assets would be deemed to
be exposed to substantial risk. See Note 16, "Operating Segments and
Geographic Area Information" of notes to the consolidated financial
statements in Item 8 on page 40.
COMPETITION
The Company operates in a highly competitive marketplace, competing
against a number of other companies in each of its product lines. Some markets
involve a significant number of competitors, while others involve only a few.
The competitors of the Company are varied in terms of size, resources and
market share. Competition generally is based on product performance and
availability, reputation for quality, price and customer service and support.
The degree and nature of competition depends on the type of product involved.
In general, the Company competes in all of its markets on the basis of
the quality and price of its products as well as customer services by
maintaining a broad range of products and by focusing resources on products in
which the Company has a competitive advantage. The Company endeavors to improve
its reputation for quality products, competitive prices and excellent customer
service and support. Competition in connection with all of the Company's
products requires continuing investments in research and development, product
and process improvements and specialized customer services. Through research
and development, the Company and its subsidiaries continue to seek to increase
margins by introducing value-added products and products based on proprietary
technologies.
RAW MATERIALS
Raw materials used by the Company include ethylene, potassium chloride,
aluminum, ortho-toluidine, bisphenol-A, chlorine, phenol, isobutylene, caustic
soda, toluene, diphenyl oxide, alumina trihydrate, dimethlyamine, phthalic
anhydride, alpha olefins, maleic anhydride, ethanol, phosphorus, sulfuric acid
and nitrogen, as well as electricity and natural gas as fuels, most of which
are readily available from numerous suppliers and are purchased or provided
under contracts at prices the Company believes are competitive. The Company
also produces bromine in Arkansas from its extensive brine reserves backed by
an active leasing program. The Company has supply agreements with the Dead Sea
Bromine group of companies. The contracts essentially cover the bromine
requirements for the production of bromine fine chemicals in our Thann, France,
facility and provide additional bromine if requested for the Company's other
bromine needs.
MAJOR CUSTOMERS
Due to the diversity of product lines in which the Company competes, no
major portion of the Company's sales or earnings was generated by one customer
nor is the Company overly reliant on contracts with any one public, private or
governmental entity, although loss of one or more major customers could have a
substantial financial impact.
Several of the Company's customers manufacture products for cyclical
industries such as the agricultural, pharmaceutical, automotive, electronics
and building and construction industries. As a result, demand for the products
of the Company from customers in such industries also is cyclical. In addition,
the profitability of sales of certain of the Company's products depends on the
level of industry plant capacity utilization.
Due to the diversity and size of the Company's operations, there is
little seasonal variation in revenues or earnings, except for certain
agricultural and pharmaceutical products.
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OTHER MATTERS
On May 4, 1999, the Company's subsidiary, Albemarle Holdings
Company Limited ("AHC"), signed a joint venture agreement with The Arab
Potash Company Limited ("APC") and Jordan Dead Sea Industries Company
Limited ("JODICO") to form the Jordan Bromine Company Limited ("JBC"). AHC
owns 50%, JODICO owns 40% and APC owns 10% of JBC. JBC will manufacture
and market bromine and bromine derivatives from a world-scale complex to
be built in Jordan, near the Dead Sea. JBC will build units near Safi,
Jordan, to produce bromine, CP-2000 flame retardant, calcium bromide and
other derivatives plus chlorine and potassium hydroxide. The project
continues on schedule, with the facilities slated to begin production
within approximately two years. In conjunction with the joint venture
agreement, AHC has entered into a Know-How and Technology Agreement with JBC
whereby AHC will license to JBC know-how and technology for the production
of bromine and bromine derivatives in Jordan. Albemarle Marketing Company
Limited ("Albemarle Marketing"), a subsidiary of Albemarle, has entered
into a Marketing Agreement whereby Albemarle Marketing will market bromine
and bromine derivatives for JBC. Albemarle Services Company Limited, a
subsidiary of Albemarle, has entered into a Training and Start-Up and
Construction Services Agreement with JBC to assist JBC and JBC's contractors
in the construction, start-up and operation of the bromine and bromine
derivatives facilities. Finally, the Company has entered into an Isotank
Agreement with JBC whereby Albemarle will lease to JBC isotanks for the
transportation of bromine.
During 1999, the Company purchased in market transactions 857,400
shares of its common stock for approximately $15.5 million, at an average
price of $18.05 per share. As of December 31, 1999, the Company had
authorization to purchase an additional 2,651,300 shares of its common
stock.
During the last three quarters of 1999, the Company incurred special
charges of $10.7 million ($6.7 million after income taxes) that resulted
primarily from voluntary separation offers made to various employees
throughout the Company. The program impacted a total of 122 salaried and
wageroll employees. The Company expects to recover the costs of the
reductions in force in approximately one year.
On January 20, 2000, the Company and Ferro Corporation ("Ferro")
announced that an agreement in principle had been reached whereby
the Company would purchase the PYRO-CHEK(r) flame retardant business of
Ferro along with an operating plant at Port-de-Bouc, France.
RESEARCH AND PATENTS
The Company's research and development ("R&D") efforts support each
operating segment. With respect to Polymer Chemicals, the research focus is
divided between new and improved flame retardants, polymerization catalysts and
new polymer additives. Flame retardant research is targeted to satisfy
increasing market needs for performance and quality in products manufactured
from polystyrene, acrylonitrilebutadiene-styrene (ABS) and engineered
thermoplastics. Catalysts research is targeted to meet the market needs for
cost-effective metallocene catalyst systems for the production of improved
polyolefin polymers. Development efforts are focused on efficiently
debottlenecking pilot plant capacity to meet the expected demand for these
businesses and to inventory new molecules to meet the expanding needs of our
customers. These efforts are expected to continue into 1999 and beyond.
The primary focus of the Company's Fine Chemicals research program is
the development of efficient processes for the manufacture of chemical
intermediates for the pharmaceutical and agrichemical industries. A second area
of focus is the development of efficient manufacturing processes for
pharmaceutical and agricultural bulk active compounds which are no longer
covered by patents. Another area of research is the development of biocides for
industrial and recreational water treatment and other applications, especially
products based on bromine chemistry. These efforts are expected to continue
into 2000 and beyond. In addition to the U.S. research facility in Baton Rouge,
Louisiana, the Company's European businesses are supported by the research and
development facilities at Louvain-la-Neuve, Belgium, and Thann, France.
The Company spent approximately $34.3 million, $29.7 million and $31.4
million in 1999, 1998 and 1997, respectively, on research and development,
which amounts qualified under the technical accounting definition of research
and development. Total R&D department spending for 1999 was about $39.4
million, including $5.1 million related to technical services support to
customers and the Company's plants, testing of existing products, quality
improvement and environmental studies.
The Company considers patents, licenses and trademarks to be of
significance to its businesses. As of December 31, 1999, the Company owned
1,455 active United States and foreign patents, including 45 U.S. patents and
154 foreign patents issued in 1999. Some of these patents are licensed to
others. In addition, rights under the patents and inventions of others have
been acquired by the Company through licenses. The Company's patent position is
actively managed and is deemed by it to be adequate for the conduct of its
business.
ENVIRONMENTAL REGULATION
The Company maintains and operates manufacturing and distribution
facilities and equipment which are used in the Polymer and Fine Chemicals'
segments. These are subject to environmental risks and regulations, which are
discussed more fully in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations under the heading "Environmental
Matters" on page 21.
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FINANCIAL INFORMATION AS TO INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
The Company's operations are substantially all in the chemicals
industry. Industry segments and geographic area information for the Company's
operations for the three years ended December 31, 1999, is presented in Note
16, "Operating Segments and Geographical Area Information" of the notes to the
consolidated financial statements in Item 8 on page 40.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Financial information about the Company's foreign and domestic
operations and export sales for the three years ended December 31, 1999, is set
forth in Note 16, "Operating Segments and Geographical Area Information" of the
notes to the consolidated financial statements in Item 8 on page 40. Domestic
export sales to non-affiliates may be made worldwide but are made primarily in
the Asia Pacific region and Europe. Foreign unaffiliated net sales are
primarily in Europe, the Middle East, Japan and the Asia Pacific region.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 330 South
Fourth Street, Richmond, Virginia, 23219, and its principal operations offices
are located at 451 Florida Street, Baton Rouge, Louisiana, 70801. The Company
leases its executive offices and operations offices in Richmond, Virginia and
Baton Rouge, Louisiana, respectively; and its regional offices in Singapore;
Tokyo, Japan; and Shanghai and Beijing, China; as well as various other
offices.
The following is a brief description of the principal plants and
related facilities of the Company, all of which are owned except as stated
below.
LOCATION PRINCIPAL OPERATIONS
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Baton Rouge, Louisiana Research and product development
(2 facilities, one on leased land) activities
Louvain-la-Neuve, Belgium Regional offices and research and
customer technical service activities
Magnolia, Arkansas Production of flame retardants, bromine,
(South Plant) several inorganic bromides, agrichemical
intermediates and tertiary amines
Magnolia, Arkansas Production of flame retardants and
(West Plant) bromine
Orangeburg, South Carolina Production of flame retardants, aluminum
alkyls and fine chemicals, including
pharmaceutical intermediates, fuel
additives, orthoalkylated phenols and
polymer modifiers
Pasadena, Texas Production of aluminum alkyls, alkenyl
succinic anhydride, orthoalkylated
anilines, zeolite A and other chemicals
Teesport, United Kingdom Production of fine chemicals, including
emulsifiers, corrosion inhibitors, scale
inhibitors and esters
Thann, France Production of organic and inorganic
brominated pharmaceutical intermediates,
photographic and agrichemical
intermediates, high-purity caustic
potash, potassium carbonate and
chlorine; research and product
development activities
Takaishi City, Osaka, Japan Production of aluminum alkyls
(50% joint venture with
Mitsui Chemicals, Inc.)
Feluy, Belgium Production of aluminum alkyls
(Leased by Amoco in 1996 under
a 99-year lease but operated
for the Company)
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The Company currently is adding capacity in the flame retardants and
fine chemicals areas. The Company believes that its plants, including planned
expansions, will be adequate at projected sales levels for 2000. Operating
rates of certain plants vary with product mix and normal seasonal sales swings.
The Company believes that its plants generally are well maintained and in good
operating condition.
CERTAIN AGREEMENTS BETWEEN ALBEMARLE AND ETHYL
Albemarle and Ethyl entered into agreements, dated as of February 28,
1994, pursuant to which the Company and Ethyl agreed to coordinate certain
facilities and services of adjacent operating facilities at plants in Pasadena,
Texas and Feluy, Belgium. Effective March 1, 1996, certain of these agreements
or portions thereof were transferred to Amoco as part of the Olefins Business
sale. In addition, Albemarle and Ethyl entered into agreements (term: 10 years
- - Ethyl has the right to extend for one additional 10-year term), dated as of
February 28, 1994 providing for the blending by Albemarle for Ethyl of certain
products and the production of others at the Company's Orangeburg, South
Carolina, plant.
CERTAIN AGREEMENTS BETWEEN ALBEMARLE AND MEMC PASADENA, INC. ("MEMC")
Albemarle and MEMC entered into agreements, dated as of July 31, 1995,
and subsequently revised effective May 31, 1997, pursuant to which Albemarle
currently provides support services to MEMC at its Pasadena, Texas, plant which
consists of facilities for the production of electronic materials products.
Effective May 31, 1997, Albemarle supplies certain utilities and services to
the MEMC Pasadena plant site pursuant to a utilities and services agreement
(the "Utilities and Services Agreement"). All of the utilities and services are
supplied at Albemarle's cost plus a percentage fee. Albemarle furnishes certain
utilities and services for a minimum of five years from the effective date (May
31, 1997) of the Utilities and Services Agreement, subject to the right of MEMC
to terminate any one or more utilities or services on twelve months' notice.
Albemarle will make available to MEMC certain other utilities and services for
the duration of MEMC's lease of the property upon which the MEMC Pasadena plant
site is located.
CERTAIN AGREEMENTS BETWEEN ALBEMARLE AND AMOCO
Albemarle and Amoco entered into agreements, dated as of March 1, 1996,
pursuant to which the Company provides operating and support services, certain
utilities and products to Amoco, and Amoco provides operating and support
services, certain utilities and products to Albemarle.
PASADENA, TEXAS AGREEMENTS
After the sale, Amoco owns and operates the linear alpha olefins and
synthetic alcohols facilities ("Amoco Pasadena plant"). Albemarle owns and
operates all remaining Albemarle plants ("Albemarle Pasadena plant"). As a
result of the sale, Albemarle supplies to Amoco certain utilities utilized by
Amoco at the Amoco Pasadena plant and Amoco supplies to Albemarle certain
utilities utilized by Albemarle at the Albemarle Pasadena plant.Virtually all
of the utilities, services and products supplied by Albemarle to Amoco and by
Amoco to Albemarle in Pasadena, Texas, are supplied at the provider's cost plus
a percentage fee. Most of the utilities, services and products supplied by
Albemarle to Amoco and by Amoco to Albemarle have an initial term of 10 years,
with an automatic extension for an additional 10-year term, unless terminated
by either party at the end of the initial term upon two years notice.
With respect to products supplied by Albemarle to Amoco, and conversely
Amoco to Albemarle, each may terminate the supply of such product to the other
on 180 days notice.
FELUY, BELGIUM AGREEMENTS
After the sale, Amoco possesses (under a 99-year lease, with certain
purchase options) and operates the linear alpha olefins and poly alpha olefin
facilities. In addition, Amoco possesses (under the same lease) and operates
the aluminum alkyls facilities exclusively for Albemarle (term: 10 years -
Albemarle has the right to extend for one additional 10-year term). Albemarle
supplies aluminum alkyl products to Amoco for use in the linear alpha olefins
facility (term: 10 years - Amoco has the right to extend for one additional
10-year term). The services and products supplied by Albemarle to Amoco and by
Amoco to Albemarle are at the provider's cost plus a percentage fee.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved from time to time in
legal proceedings of types regarded as common in the Company's businesses,
particularly administrative or judicial proceedings seeking remediation under
environmental laws, such as Superfund, and products liability litigation.
While it is not possible to predict or determine the outcome of the
proceedings presently pending, in the Company's opinion they will not result
ultimately in any liability that is likely to have a material adverse effect
upon the results of operations or financial condition of the Company and its
subsidiaries on a consolidated basis.
In early January 1999, the U.S. Environmental Protection Agency ("EPA"),
Region 6, issued an administrative complaint under section 113 of the Clean Air
Act, alleging violations of EPA's rule regarding leaks and repairs of
appliances containing hydrochlorofluorocarbons. EPA proposed a civil penalty of
$162,000. The Company has filed an answer and request for an administrative
hearing. The Company is vigorously contesting the complaint, but is also
engaging in settlement negotiations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded primarily on the New York Stock
Exchange under the symbol ALB. The market price highs and lows (per the New
York Stock Exchange) by quarters for the years 1999 and 1998 are listed below:
1999 1998
Quarter High Low High Low
---------------------------------------------------------
First 25 5/16 18 7/8 25 15/16 21 1/8
Second 24 5/16 19 5/16 26 3/16 21 5/16
Third 23 1/8 16 5/8 25 1/16 16 3/4
Fourth 19 15/16 17 3/16 23 3/4 16
---------------------------------------------------------
There were 46,191,477 shares of common stock held by 8,069 shareholders
of record as of January 31, 2000.
On February 23, 2000, the Company's Board of Directors increased the
quarterly dividend rate by 10%, from $.10 per share to $.11 per share, payable
April 1, 2000.
During 1999, the quarterly dividend rate was $.10 per share or $.40 per
share on an annual basis. The Company's Board of Directors increased the
quarterly dividend rate, on November 20, 1998, by 11%, from $.09 to $.10 per
share payable January 1, 1999.
Shareholders' equity per share at December 31, 1999, was $10.62, up
from $9.61 at December 31, 1998. Shareholders' equity per share at December 31,
1998, of $9.61 was up slightly from $9.60 at December 31, 1997, primarily
reflecting the purchase of 5,738,241 common shares through a tender offer
finalized on September 30, 1998, and additional 1998 repurchases of 1,174,500
shares.
ITEM 6. SELECTED FINANCIAL DATA
The information for the five years ended December 31, 1999, is
contained in the "Five-Year Summary" included in Part IV, Item 14, Exhibit 99
on page 46.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following financial data and discussion provides an analysis of
certain significant factors affecting the results of operations of the Company
for years ended December 31, 1999, 1998 and 1997. In addition, a discussion of
consolidated financial condition and sources of additional capital is included
under a separate heading, "Financial Condition and Liquidity" on page 20.
Some of the information presented in the following discussion may
constitute forward-looking comments within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. Factors that could
cause actual results to differ from expectations include, without limitation,
the timing of orders received from customers, the gain or loss of significant
customers, competition from other manufacturers, changes in the demand for the
Company's products, increases in the cost of the product, changes in the
markets in general, fluctuations in foreign currencies and significant changes
in new product introductions resulting in increases in capital project requests
and approvals leading to additional capital spending.
RESULTS OF OPERATIONS
Net sales by operating segments for the three years ended December 31,
are as follows:
Net Sales
(In Thousands) 1999 1998 1997
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Polymer Chemicals $449,156 $417,998 $411,134
Fine Chemicals 396,769 402,864 418,716
- --------------------------------------------------------------------------------
Segment totals $845,925 $820,862 $829,850
================================================================================
NET SALES
Net sales for 1999 amounted to $845.9 million, up $25.0 million (3%)
from $820.9 million in 1998. Polymer Chemicals' net sales were up $31.2
million, primarily due to higher shipments in flame retardants, organometallics
and polymer additives and intermediates, offset in part, by unfavorable
pricing. Fine Chemicals' net sales were down $6.1 million due to lower
shipments in pharmachemicals and potassium and chlorine chemicals, product mix
in agrichemicals, and lower sales of non-manufactured products in the Asia
Pacific region, offset by higher shipments and lower prices in bromine and
derivatives and surface actives.
Net sales for 1998 amounted to $820.9 million, down $9.0 million (1%)
from $829.9 million in 1997. Polymer Chemicals' net sales were up $6.9 million,
due to higher shipments in flame retardants and organometallics, offset in
part, by lower pricing and the effects of foreign exchange in Europe and the
Asia Pacific region. Fine Chemicals' net sales were down $15.9 million,
primarily due to lower shipments in agrichemicals and lower sales of
non-manufactured products in the Asia Pacific region, offset in part, by higher
shipments in pharmachemicals.
OPERATING COSTS AND EXPENSES
Cost of goods sold in 1999 increased $21.3 million (4%) from 1998,
primarily due to higher operating costs associated with increased shipments
over 1998, new product development costs including the startup costs incurred
for our new six-sigma SAYTEX(r) CP-2000 flame retardant (tetrabromobisphenol-A)
plant ("CP-2000 flame retardant") in Magnolia, Arkansas, and the write off of
certain excess flame retardant plant assets ($7.7 million) in Magnolia,
Arkansas, offset in part, by the favorable effects of foreign exchange
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8
transaction gains of approximately $6.0 million in 1999 versus foreign exchange
transaction losses of approximately $3.0 million in 1998, with the result that
the gross profit margin decreased to 31.3% in 1999 from 31.8% in 1998. Overall,
Albemarle's average 1999 raw material costs were lower than 1998 but most of
the favorable raw material prices were realized during the first half of the
year when commodity markets were very low. 1999 energy costs were just above
1998 levels due primarily to higher natural gas pricing.
Cost of goods sold in 1998 decreased $8.4 million from 1997 primarily
due to improved plant utilizations, the impact of the Company's cost-reduction
program, and lower shipments in certain products, offset in part by the
unfavorable effects of foreign exchange transaction losses of approximately
$3.0 million in 1998 versus foreign exchange transaction gains of approximately
$8.3 million in 1997, with the result that the gross profit margin increased to
31.8% in 1998 from 31.5% in 1997. Overall, Albemarle's raw material costs were
lower in 1998 than 1997 reflecting softness in many of the commodity markets.
Average 1998 energy costs also were lower with both electricity and natural gas
prices lower than 1997.
Selling, general and administrative expenses, combined with research
and development expenses ("SG&A"), increased $4.6 million (3%) in 1999 from
1998, due primarily to higher research and development core technology charges
and higher consulting costs and professional fees, offset in part, by lower
employee related costs in 1999. The 1999 increase in SG&A compares to a
reduction of $5.6 million (4%) in 1998 from 1997, due primarily to lower
outside consulting costs and the effects of the Company's concerted efforts to
lower costs as a percent of net sales. As a percentage of net sales, SG&A were
16.5% in 1999 and 1998 versus 17% in 1997.
OPERATING PROFIT
Operating profit by operating segments for the three years ended
December 31, are as follows:
Operating Profit
(In Thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Polymer Chemicals $ 73,083 $ 76,608 $ 72,802
Fine Chemicals 60,187 69,619 65,274
Corporate and
other expenses (19,144) (20,512) (17,369)
- --------------------------------------------------------------------------------
Totals $114,126 $125,715 $120,707
================================================================================
The Company's operating profit in 1999, including special work-force
reduction charges of $10.7 million, decreased $11.6 million (9%) from 1998.
Operating profit also was affected by higher new product development costs
including the startup costs incurred for our new CP-2000 flame retardant plant
in Magnolia, Arkansas, and the write off of certain excess flame retardant
plant assets ($7.7 million) in Magnolia, Arkansas, offset, in part, by the
favorable effects of foreign exchange in 1999 versus 1998. Albemarle's average
1999 raw material costs were lower than 1998, but most of the favorable raw
material prices were realized during the first half of the year when commodity
markets were very low. 1999 energy costs were just above 1998 levels due
primarily to higher natural gas pricing. SG&A increased $4.6 million (3%) in
1999 from 1998 due primarily to higher research and development core technology
charges and higher consulting costs and professional fees, offset in part, by
lower employee related costs in 1999.
Polymer Chemicals' operating results decreased $3.5 million due to
work-force-reduction charges of $4.6 million related to the segment businesses,
offset however, by the favorable effects of foreign exchange in 1999 versus the
1998 period. Polymer Chemicals' operating results also were impacted by flame
retardant shipments that were up over 1998 despite pricing pressure in the
business. The increased revenue in flame retardants was more than offset by
higher operating costs in 1999 over 1998 due to new product development costs
including the startup costs incurred for our new CP-2000 flame retardant plant
in Magnolia, Arkansas, and the write off of certain excess flame retardant
plant assets ($7.7 million) in Magnolia. Polymer Chemicals' also were impacted
by higher shipments in organometallics and polymer additives and intermediates,
offset in part, by pricing pressures in the businesses.
Fine Chemicals' operating results decreased $9.4 million primarily due
to lower shipments and product mix in agrichemicals. Pharmachemicals
(ibuprofen) and potassium and chlorine chemicals operating results were
affected by lower shipments and lower prices, offset in part, by higher
shipments net of lower prices in bromine and derivatives and surface actives.
Fine Chemicals operating results were also impacted due to work-force-reduction
charges of $4.7 million related to the segment businesses, offset however, by
the favorable effects of foreign exchange in 1999 versus the 1998 period.
Corporate and other expenses decreased $1.4 million in 1999 versus
1998, primarily due to lower employee-related costs, offset, in part, by
work-force reduction charges of $1.4 million in 1999.
Operating profit in 1998 increased 4% from 1997. Albemarle's raw
material costs were lower in 1998 than 1997, reflecting softness in many of the
commodity markets. Average 1998 energy costs also were lower with both
electricity and natural gas prices lower than 1997.
Polymer Chemicals' operating results in 1998 benefited from increased
shipments in flame retardants and organometallics and catalysts and improved
plant utilizations in flame retardants and the impact of the Company's
cost-reduction program.
Fine Chemicals' operating results in 1998 benefited primarily from
increased shipments (ibuprofen) and improved plant utilization in
pharmachemicals. 1998 operating profit improvement, for both segments, was
impacted by the unfavorable effects of foreign exchange versus the same period
in 1997. (See Note 16, "Operating Segments and Geographic Area Information" of
the notes to the consolidated financial statements in Item 8 on page 40.)
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9
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses in 1999 increased $3.9 million from
1998 and $3.8 million in 1998 from 1997 primarily due to higher average debt
outstanding. Other income, net, decreased to $.9 million in 1999 from $1.6
million in 1998, due primarily to lower interest income. Other income, net
increased to $1.6 million in 1998 from $.9 million in 1997, due primarily to
higher interest income.
GAIN ON SALE OF INVESTMENT
In May 1999, the Company sold all of its 58,394,049 common shares of
Albright & Wilson plc ("Albright & Wilson"), a United Kingdom chemicals
company, that were acquired in March 1999, as part of its friendly tender offer
for Albright & Wilson, to ISPG, Plc, the competing bidder, for an aggregate
consideration of $157.6 million, resulting in a gain of $22.1 million ($14.4
million after income taxes or 30 cents per share on a diluted basis), net of
transaction expenses. The net proceeds from the sale of the common shares were
primarily used to pay down debt under the Company's existing Credit Agreement.
INCOME TAXES
Income taxes in 1999 increased $1.8 million (5%) compared to 1998 due
primarily to higher pre-tax income. The effective tax rate for 1999 was 31%
which was consistent with the prior year.
Income taxes in 1998 decreased $2.9 million (7%) compared to 1997, due
primarily to a lower effective income tax rate in 1998 of 31% versus an
effective income tax rate of 33.8% in 1997. The lower effective income tax rate
in 1998 reflected a nonrecurring tax benefit.
See Note 12, "Income Taxes" of the notes to the consolidated financial
statements in Item 8 on pages 37 and 38 for details of changes in effective
income tax rates.
2000 OUTLOOK
We enjoyed volume growth in a majority of our businesses during 1999
but were impacted by competitive lower pricing in a few, especially flame
retardants. The Asian economy, that started out slow early in 1999, fueled a
number of our businesses in the latter half of 1999 and continues into 2000.
The emphasis on reducing costs during 1999 that included employee
work-force reductions, manufacturing cost improvements and reducing our
cash-to-cash cycle, should payout during 2000 in the form of reduced SG&A,
lower factory costs and reduced working capital.
In our operating segments, Polymer and Fine Chemicals, we are hopeful
we will continue to see strong volumes and that the recently announced price
increases, primarily in certain Polymer Chemicals' areas, will be successful.
However, because of various customer contractual agreements, it is unlikely to
expect much improvement in price until after the first quarter.
In Fine Chemicals, where a few of our businesses were negatively
impacted throughout most of 1999 by either poor economic conditions (i.e.,
agrichemicals) or issues at major customers (i.e., pharmachemicals), we have
some optimism there will be some improvement in 2000. However, we will need
first to see some evidence these conditions are no longer affecting us.
Two new recent events, our joint development agreement with The Borax
Flame Retardant Group on expanding our markets for flame retardants, and our
just-announced plan to buy Ferro's PYRO-CHEK(r) flame retardants business, are
either in an early stage or not yet completed and, therefore, it is premature
to assess any impact in 2000. We did have new product sales in 1999 of
approximately $70 million and expect this to grow in 2000. Our Polymer
Chemicals' businesses likely will be providing the majority of the increase.
POLYMER CHEMICALS
Efforts to supply the leading polymer producers with winning solutions
for their customers were quite successful in 1999. This was especially evident
in flame retardants, where to a large extent, we believe our growth in volumes
was a direct result of our customers' winning business in their markets. We
will strive to continue to expand our global relationships with these strategic
customers in 2000. The acceptance of our new, improved quality
tetrabrombisphenol-A by approximately 75% of our customer base by the end of
1999, is a prime example of how this works. We expect to have essentially all
our customers qualified on this new product in early 2000. Also at the end of
1999, we introduced NcendX(tm) P-30 flame retardant, our first halogen-free
flame retardant. This product, commercialized in less than a year and targeted
for engineering plastics, has been well received by our key customers and
already is being considered for expansion to meet likely demand beyond 2000.
During the first half of 1999, we experienced significant pressures at
strategic customers, dramatically reducing the global industry pricing on our
largest volume flame retardants for the balance of the year. At the end of
1999, we announced price increases. Because of customer contractual commitments
and the uncertainty of competitive persistence with these increases, it is
premature to predict success but in any event, unlikely that we will see any
impact until at least after the first quarter of 2000.
In our catalysts and additives businesses, we saw strong volume growth
in 1999 and are hopeful that strong polymer market growth, new business
development opportunities and the rapidly expanding metallocene and single
site-catalyst demand in polyolefins, will continue to drive these products in
2000. This new catalysts area has been one of the Company's largest R&D
programs for a number of years, and in 2000, we should achieve positive
operating profit for the first time.
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10
FINE CHEMICALS
In pharmachemicals, we are continuing to pursue our marketing strategy
of seeking strategic customer relationships where we can build on our technical
strengths and customer needs for a manufacturing (outsource) partner in bulk
actives or advanced intermediates. There are some very attractive opportunities
under development but due to the rigorous testing and regulations required to
bring these to the consumer drug market, the benefit from these, if successful,
will not be realized in 2000. In our commercial products, we will still be
facing a slower than expected scale-up of our naproxen plant due to excess
naproxen capacity, threats from imported products and a consumer marketplace
that has an overabundance of competing analgesic products. Ibuprofen is
entering 2000 from a low-volume year, having absorbed the impact of a major
customer having excess inventory accumulated in late 1998 that was drawn down
in 1999. It is our belief that volumes will return in 2000, consistent with a
consumer ibuprofen market that continues to grow at 6-8% per year.
We faced the effects of a poor domestic farm economy during 1999, when
lower volumes of agrichemicals were used by the American farmer. We are
prepared for 2000 to be similar in consumption patterns and not a resumption to
historic pre-1999 levels. We believe, however, we will have an opportunity in
the future to expand our presence in Asia, especially China, where we formed an
agrichemical joint venture in 1999 with Yanshan Petrochemical. We continue to
produce methyl bromide under production limits set by the government as defined
by the Montreal Protocol phase-down schedule (2000 limits are not changed from
1999 under the plan). In 2000, we will be producing methyl bromide using
certain assets from the old tetrabrombisphenol-A plant that remained at the end
of 1999 when the new CP-2000 flame retardant facility started up.
Bromine and derivatives results in 2000 will be determined largely by
the oil industry, as our business has turned around significantly in the latter
half of 1999 and is expected to continue into 2000 with the higher price of
oil, the main driver for oil companies' well completions, where the majority of
our products are used. Continued expansion of our oilfield chemicals business
in the North Sea, leveraging our Teesport, United Kingdom location, plus
developing new opportunities, will be a factor in 2000. The cost benefits from
lower chlorine and other raw material prices during 1999 are not expected to be
as favorable in 2000 due to recent price announcements. We expect later in
2000, site construction will begin in Jordan by JBC, on our joint venture
facility that will produce bromine and derivatives.
The newest developments in our surface actives business are primarily
based on our biocide products in our water treatment business. We received 21
registrations in 1999 and have eight more pending as we enter 2000. We
introduced and are preparing for commercial sales of Stabrom(r) 909 biocide in
early 2000, a new class of bromine biocides that simplifies industrial water
treatment. Some key issues going into 2000 include competitive pressures in
builders for detergents and startup costs associated with new product
introductions.
Potassium and chlorine chemicals results in 2000 will be primarily
dependent on competitive pricing opportunities and cost-reduction efforts.
2000 OUTLOOK
In summary, we believe we should be able to deliver mid single-digit
sales revenue growth from our Polymer and Fine Chemicals' businesses plus new
business development and small acquisitions and ventures. This assumes that
some of the pricing improvements, cost-reduction efforts and new product
developments as described above are successful. This also assumes that the
volume growth currently seen in our business, supported by the strong global
economy, continues without substantial change.
Some of the information presented in this 2000 Outlook constitutes
forward-looking comments within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes its expectations
are based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will not
differ materially from its expectations. Factors that could cause actual
results to differ from expectations include, without limitation, the timing of
orders received from customers, the gain or loss of significant customers,
competition from other manufacturers, changes in the demand for the Company's
products, increases in the cost of the product, changes in the markets in
general, fluctuations in foreign currencies and significant changes in new
product introductions resulting in increases in capital project requests and
approvals, leading to additional capital spending.
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents at December 31, 1999 were $48.6 million,
which represents an increase of $27.4 million from $21.2 million at year-end
1998.
Cash provided from operating activities was $164.3 million, which
together with $157.5 million of proceeds from the sale of an investment in
Albright & Wilson stock and $135.1 million of proceeds from borrowings were
primarily used to cover operating activities in 1999, [net of a decrease in
working capital excluding foreign currency translation of $25.2 million (mainly
increased accounts payable and lower inventories)], repay $169.8 million of
long-term debt, purchase 58,394,049 shares of Albright & Wilson common stock
totaling $135.5 million, fund capital expenditures, pay quarterly dividends to
common shareholders, purchase 857,400 shares of the Company's common stock for
$15.5 million.
Cash and cash equivalents at December 31, 1998 were $21.2 million,
which represents a decrease of $13.1 million from $34.3 million at year-end
1997.
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Cash provided from operating activities was $137.9 million, which
together with $110.5 million of proceeds from borrowings and existing cash and
cash equivalents of $13.1 million, were used to cover operating activities in
1998, including a working capital increase (mainly reflecting higher
inventories), capital expenditures, payment of quarterly dividends to common
shareholders, purchase of 6,912,741 shares of the Company's common stock for
$140.6 million, the acquisition of the Teesport, United Kingdom, facility and
repayment of a portion of long-term debt.
The Company anticipates that cash provided from operating activities in
the future will be sufficient to cover its operating expenses, debt service
obligations, dividend payments to common shareholders and to fund its capital
expenditures.
The noncurrent portion of the Company's long-term debt amounted to
$159.0 million at December 31, 1999, compared to $192.5 million at the end of
1998. The Company's total long-term debt, including the current portion, as a
percentage of total capitalization at December 31, 1999, was approximately
24.6%. (See Note 8, "Long-Term Debt" of the notes to the consolidated financial
statements in Item 8 on pages 31 and 32 for details of the Company's long-term
borrowings.)
The Company, at December 31, 1999, had the flexibility to borrow up to
a total of $500 million ($115 million outstanding at December 31, 1999) under
its Competitive Advance and Revolving Credit Facility Agreement ("Credit
Agreement").
The Credit Agreement contains certain covenants typical for a credit
agreement of its size and nature, including financial covenants requiring the
Company to maintain consolidated indebtedness (as defined) of not more than 60%
of the sum of the Company's consolidated shareholders' equity (as defined) and
consolidated indebtedness. The amount and timing of any borrowings will depend
on the Company's specific cash requirements.
The Company's foreign currency translation adjustments, net of related
deferred taxes, included in accumulated other comprehensive (loss) income in
the consolidated statement of changes in shareholders' equity on page 26 at
December 31, 1999, decreased from December 31, 1998, primarily due to the
weakening of foreign currencies against the U.S. dollar.
Capital expenditures in 1999 of $77.6 million were slightly higher than
the 1998 level of $76.7 million. The Company's capital spending program is
expected to be in the $60 - $70 million range over the next few years, with
expenditures expected to expand capacities at existing facilities to support an
expected increase in sales. Capital spending for environmental and safety
projects is expected to be less than the current year. Future capital spending
is expected to be financed primarily with cash provided from operating
activities, with the balance, if necessary, provided by additional long-term
debt. The Company continues to evaluate potential acquisitions of facilities
and/or businesses, particularly in areas where our know-how adds value.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign
requirements regulating the handling, manufacture and use of materials (some of
which may be classified as hazardous or toxic by one or more regulatory
agencies), the discharge of materials into the environment and the protection
of the environment. To the Company's knowledge, it is currently complying with
and expects to continue to comply in all material respects with existing
environmental laws, regulations, statutes and ordinances. Such compliance with
federal, state, local and foreign environmental protection laws is not expected
to have in the future a material effect on earnings or the competitive position
of Albemarle.
Among other environmental requirements, the Company is subject to the
federal Superfund law, and similar state laws, under which the Company may be
designated as a potentially responsible party ("PRP") and may be liable for a
share of the costs associated with cleaning up various hazardous waste sites.
Management believes that in most cases, the Company's participation is de
minimis. Further, almost all such sites represent environmental issues that are
quite mature and have been investigated, studied and in many cases settled by
the Company or its predecessor company. In de minimis PRP matters, the
Company's policy generally is to negotiate a consent decree and to pay any
apportioned settlement, enabling the Company to be effectively relieved of any
further liability as a PRP, except for remote contingencies. In other than de
minimis PRP matters, the Company's records indicate that unresolved exposures
should be immaterial. The Company accrues and expenses its proportionate share
of PRP costs in accordance with Statement of Financial Accounting Standards
("SFAS") No. 5 "Accounting for Contingencies" and Financial Accounting
Standards Board's ("FASB") Interpretation No. 14, as clarified by the American
Institute of Certified Public Accountant's Statement of Position 96-1. Because
management has been actively involved in evaluating environmental matters, the
Company is able to conclude that the outstanding environmental liabilities for
unresolved PRP sites should not be material to operations.
The Company's environmental and safety operating costs charged to
expense were approximately $13.6 million in 1999 versus approximately $14.6
million in 1998 and $13.3 million in 1997, excluding depreciation of previous
capital expenditures, and are expected to be in the same range in the next few
years. Costs for remediation have been accrued and payments related to sites
are charged against accrued liabilities, which at December 31, 1999, totaled
approximately $10.0 million. There is a reasonable possibility that future
remediation costs in excess of amounts already recorded could be up to $11.3
million before income taxes. However, the Company believes that any sum it may
be required to pay in connection with environmental remediation matters in
excess of the amounts recorded should occur over a period of time and should
not have a material adverse impact on its financial condition or
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12
results of operations, but could have a material adverse impact in a particular
reporting period.
Capital expenditures for pollution-abatement and safety projects for
the Company, including such costs that are included in other projects, were
approximately $4.0 million, $8.5 million and $17.2 million in 1999, 1998 and
1997, respectively. For each of the next few years, capital expenditures for
these types of projects are likely to be less than the current year
expenditures. Management's estimates of the effects of compliance with
governmental pollution-abatement and safety regulations are subject to (i) the
possibility of changes in the applicable statutes and regulations or in
judicial or administrative construction of such statutes and regulations, and
(ii) uncertainty as to whether anticipated solutions to pollution problems will
be successful, or whether additional expenditures may prove necessary.
YEAR 2000
Albemarle's company-wide Year 2000 Project ("Project") addressed the
ability of computer programs and embedded computer chips to distinguish between
the year 1900 and the year 2000. Re-engineering of the Company's business
processes, which began in the mid-1990's, resulted in upgrades to Y2K-compliant
business systems prior to the beginning of the Year 2000 Project. The Project's
remediation and contingency planning functions were completed during the fourth
quarter of 1999. Since the Company's products are not date aware, its Year 2000
issues revolved around its suppliers' ability to supply goods and services, its
ability to produce, its business processes functioning properly, and its
customers ability to purchase. As part of the Company's contingency planning,
most production processes were interrupted intentionally as a precaution for
the transition into the Year 2000. As of the date of filing of this document,
the Company has experienced no significant internal or external Y2K problems
affecting its manufacturing, business, financial or other operations.
The total cost associated with required modifications to become Year
2000 ready and Year 2000 related contingency planning was $2.9 million. While
the Company does not track internal manpower costs for its Year 2000 Project,
an estimate of these costs is included in the estimated total cost. The
estimate does not include Albemarle's share of Year 2000 costs incurred by
joint ventures in which the Company participates or entities in which the
Company holds a minority interest. The Company did not significantly increase
inventories for the transition into the Year 2000.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of certain normal business activities or
operations, which could materially and adversely affect the Company's results
of operations, liquidity and financial condition. Readers are referred to prior
10-Q and 10-K reports for further discussion of Year 2000 risks. From the
world-wide successful transition into 2000, the Company believes that the
transitions through the February 29th and December 31st, 2000, dates will be
similarly non-eventful.
Readers are cautioned that to the extent legally permissible, this
statement should be considered a Year 2000 Readiness Disclosure pursuant to the
Year 2000 Information and Readiness Disclosure Act and that forward-looking
statements contained in the Year 2000 Update should be read in conjunction with
the Company's disclosures regarding the 'safe harbor' provisions of the Private
Securities Litigation Reform Act of 1995 included on page 20.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" in June 1998, which was effective for financial
statements for all fiscal quarters beginning after June 15, 1999. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133",
postponing SFAS No. 133's effective date to quarters beginning after June 15,
2000.
SFAS No. 133 established accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. At the time of the
Company's adoption, SFAS No. 133 is not expected to have a material impact on
the financial position or results of operations of the Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of operations, the Company is exposed to changes
in financial market conditions due to the denomination of its business
transactions in diverse foreign currencies and the Company's ongoing
manufacturing and funding activities. As a result, future earnings, cash flows
and fair values of assets and liabilities are subject to uncertainty. The
Company has established policies, procedures and internal processes governing
its management of uncertain market conditions, and uses both operational and
financial market actions in its risk management activities, which include the
use of derivative instruments. The Company does not use derivative instruments
for trading purposes. The Company only enters into derivative contracts based
on economic analysis of underlying exposures anticipating that adverse impacts
on future earnings, cash flows and fair values due to fluctuations in foreign
currency exchange rates will be offset by the proceeds from and changes in fair
value of the derivative instruments. The Company does not hedge its exposure
to market risks in a manner that completely eliminates the effects of changing
market conditions on earnings, cash flows and fair values.
Short-term exposures to changing foreign currency exchange rates are
primarily due to operating cash flows denominated in foreign currencies. The
Company covers
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13
certain known and anticipated operating exposures by using forward contracts.
The primary currencies for which the Company has foreign currency
exchange rate exposure are the euro, Japanese yen, British pound sterling and
the U.S. dollar (in certain of its foreign locations). In response to the
greater fluctuations in foreign currency exchange rates in recent periods, the
Company has increased the degree of risk management activities to minimize
their impact on earnings of future periods.
The Company's financial instruments, subject to foreign currency
exchange risk, consist of foreign currency forward contracts and represented a
net liability position of $.1 million at December 31, 1999. The Company
conducted a sensitivity analysis on the fair value of its foreign currency
hedge portfolio assuming instantaneous 10% changes in foreign currency exchange
rates from their levels as of December 31, 1999, with all other variables held
constant. A 10% appreciation of the U.S. dollar against foreign currencies
would result in an increase of $1.0 million in the fair value of foreign
currency exchange hedging contracts. A 10% depreciation of the U.S. dollar
against foreign currencies would result in a decrease of $1.2 million in the
fair value of foreign currency exchange hedging contracts.
The sensitivity in fair value of the foreign currency hedge portfolio
represents changes in fair values estimated based on market conditions as of
December 31, 1999, without reflecting the effects of underlying anticipated
transactions.
When those anticipated transactions are realized, actual effects of
changing foreign currency exchange rates could have a material impact on
earnings and cash flows in future periods.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars Except Share Data)
- --------------------------------------------------------------------------------
December 31 1999 1998
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 48,621 $ 21,180
Accounts receivable, less
allowance for doubtful accounts
(1999-$2,609; 1998-$2,782) 155,140 145,207
Inventories:
Finished goods 82,415 97,684
Raw materials 10,889 11,684
Stores, supplies and other 17,512 17,838
- --------------------------------------------------------------------------------
110,816 127,206
Deferred income taxes and prepaid expenses 18,022 17,937
- --------------------------------------------------------------------------------
Total current assets 332,599 311,530
- --------------------------------------------------------------------------------
Property, plant and equipment, at cost 1,287,507 1,259,340
Less accumulated depreciation
and amortization 792,122 744,672
- --------------------------------------------------------------------------------
Net property, plant and equipment 495,385 514,668
- --------------------------------------------------------------------------------
Other assets and deferred charges 108,213 90,308
Goodwill and other intangibles net of amortization 17,897 21,291
- --------------------------------------------------------------------------------
Total assets $ 954,094 $ 937,797
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,386 $ 45,073
Long-term debt, current portion 779 408
Accrued expenses 50,505 53,300
Dividends payable ` 4,635 4,701
Income taxes payable 14,048 4,454
-------------------------------------------------------------------------------
Total current liabilities 131,353 107,936
-------------------------------------------------------------------------------
Long-term debt 158,981 192,530
Other noncurrent liabilities 81,185 75,664
Deferred income taxes 92,011 110,000
Shareholders' equity:
Common stock, $.01 par value
(authorized 150,000,000 shares)
issued and outstanding- 46,199,639
in 1999 and 47,008,283 in 1998 462 470
Additional paid-in capital 63,904 78,724
Accumulated other comprehensive
(loss) income (9,013) 7,360
Retained earnings 435,211 365,113
- --------------------------------------------------------------------------------
Total shareholders' equity 490,564 451,667
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 954,094 $ 937,797
================================================================================
<FN>
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per-Share Amounts)
- --------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $ 845,925 $ 820,862 $ 829,850
Cost of goods sold 581,380 560,057 568,424
- --------------------------------------------------------------------------------
Gross profit 264,545 260,805 261,426
Special charges 10,692 - -
Selling, general and
administrative expenses 105,439 105,435 109,273
Research and development expenses 34,288 29,655 31,446
- --------------------------------------------------------------------------------
Operating profit 114,126 125,715 120,707
Interest and financing expenses (8,379) (4,487) (719)
Gain on sale of investment in
Albright & Wilson stock, net 22,054 - -
Other income, net 937 1,570 917
- --------------------------------------------------------------------------------
Income before income taxes 128,738 122,798 120,905
Income taxes 39,909 38,066 40,923
- --------------------------------------------------------------------------------
Net income $ 88,829 $ 84,732 $ 79,982
================================================================================
Basic earnings per share $ 1.89 $ 1.64 $ 1.45
Shares used to compute basic
earnings per share 46,889 51,558 55,164
================================================================================
Diluted earnings per share $ 1.87 $ 1.63 $ 1.44
Shares used to compute diluted
earnings per share 47,513 52,136 55,668
================================================================================
Cash dividends declared per share
of common stock $ .40 $ .37 $ .32
================================================================================
<FN>
See accompanying notes to the consolidated financial statements.
-25-
16
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands of Dollars Except Share Data)
- -------------------------------------------------------------------------------------------------------------
Accumulated Total
Common Stock Additional Other Share-
--------------------- Paid-in Comprehensive Retained holders'
Shares Amounts Capital Income(Loss) Earnings Equity
- -------------------------------------------------------------------------------------------------------------
Balance at January 1, 1997 55,046,183 $ 550 $ 250,890 $ 16,677 $ 237,081 $ 505,198
- -------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for 1997 79,982 79,982
Foreign currency trans-
lation (net of deferred
tax benefit of $11,072) (18,122) (18,122)
----------
Total comprehensive income 61,860
Cash dividends declared
for 1997 (17,662) (17,662)
Exercise of stock
options and SARs 400,919 4 5,451 5,455
Shares purchased and
retired (1,560,300) (15) (37,500) (37,515)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 53,886,802 539 218,841 (1,445) 299,401 517,336
- -------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for 1998 84,732 84,732
Foreign currency trans-
lation (net of deferred
taxes of $5,380) 8,805 8,805
----------
Total comprehensive income 93,537
Cash dividends declared
for 1998 (19,020) (19,020)
Exercise of stock
options 34,222 419 419
Shares purchased and
retired (6,912,741) (69) (140,536) (140,605)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 47,008,283 470 78,724 7,360 365,113 451,667
- -------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for 1999 88,829 88,829
Foreign currency trans-
lation (net of deferred
tax benefit of $9,735) (16,555) (16,555)
Other (net of deferred
taxes of $104) 182 182
----------
Total comprehensive income 72,456
Cash dividends declared
for 1999 (18,731) (18,731)
Exercise of stock
options and SARs 48,756 646 646
Shares purchased and
retired (857,400) (8) (15,466) (15,474)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 46,199,639 $ 462 $ 63,904 $ (9,013) $ 435,211 $ 490,564
=============================================================================================================
<FN>
See accompanying notes to the consolidated financial statements.
-26-
17
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
- -------------------------------------------------------------------------------------------------
Years Ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year $ 21,180 $ 34,322 $ 14,242
- -------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income 88,829 84,732 79,982
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 75,750 75,012 69,044
Gain on sale of investment in Albright & Wilson
stock, net (22,054) - -
Write off of plant facilities 7,706 - -
Deferred income taxes (2,887) 7,730 8,070
Change in assets and liabilities, net of effects
of the purchase of business in 1998:
(Increase) decrease in accounts receivable (10,775) 14,528 (21,069)
Decrease (increase) in inventories 12,548 (31,557) (11,378)
Increase (decrease) in accounts payable 18,503 (7,008) (12,889)
Increase (decrease) in accrued expenses
and income taxes 4,963 399 (11,423)
Other, net (8,286) (5,982) (3,233)
- -------------------------------------------------------------------------------------------------
Net cash provided from operating activities 164,297 137,854 97,104
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (77,569) (76,747) (85,284)
Cost of securities available for sale (135,462) - -
Proceeds from sale of securities available for sale 157,516 - -
Purchase of non-marketable investments (7,791) - (7,789)
Restricted unexpended industrial revenue bond proceeds (2,618) - -
Acquisition of business - (15,229) -
Other, net 56 2,213 2,783
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (65,868) (89,763) (90,290)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Purchases of common stock (15,474) (140,605) (37,515)
Repayments of long-term debt (169,758) (11,652) (413)
Proceeds from borrowings 135,060 110,516 61,102
Dividends paid (18,797) (19,271) (16,563)
Proceeds from exercise of stock options 646 419 4,951
- -------------------------------------------------------------------------------------------------
Net cash (used in) provided from financing activities (68,323) (60,593) 11,562
- -------------------------------------------------------------------------------------------------
Net effect of foreign exchange on cash and cash equivalents (2,665) (640) 1,704
- -------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 27,441 (13,142) 20,080
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 48,621 $ 21,180 $ 34,322
=================================================================================================
<FN>
See accompanying notes to the consolidated financial statements.
-27-
18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except for Share Data and Per-Share Amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and
operations of Albemarle Corporation and all of its wholly-owned subsidiaries
("the Company" or "Albemarle"). All significant intercompany accounts and
transactions are eliminated in consolidation.
ESTIMATES AND RECLASSIFICATIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
Certain amounts in the accompanying consolidated financial statements
and notes thereto have been reclassified to conform to the current presentation.
REVENUE RECOGNITION
Sales revenue is recognized based (1) upon delivery of product to
customers (2) the price is fixed and determinable and (3) collectibility is
reasonably assured. Revenue from services is recognized when costs of providing
services are incurred.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the accompanying consolidated financial
statements consist of cash and time deposits of the Company. Time deposits of
90 days or less are stated at cost, which approximates market value.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost
determined on the last-in, first-out ("LIFO") basis for substantially all
domestic inventories except stores and supplies, and on either the
weighted-average or first-in, first-out cost basis for other inventories. Cost
elements included in finished goods inventories are raw materials, direct labor
and manufacturing overhead. Raw materials include purchase and delivery costs.
Stores and supplies include purchase costs.
PROPERTY, PLANT AND EQUIPMENT
Accounts include costs of assets constructed or purchased, related
delivery and installation costs and interest incurred on significant capital
projects during their construction periods. Expenditures for renewals and
betterments also are capitalized, but expenditures for repairs and maintenance
are expensed as incurred. The cost and accumulated depreciation applicable to
assets retired or sold are removed from the respective accounts, and gains or
losses thereon are included in income. Depreciation is computed primarily by
the straight-line method based on the estimated useful lives of the assets.
The Company evaluates historical and expected undiscounted operating
cash flows of the related business units or fair value of property, plant and
equipment to determine the future recoverability of any property, plant and
equipment recorded. For purposes of determining these evaluations, undiscounted
cash flows are grouped at levels which management uses to operate the business,
which in some cases include businesses on a worldwide basis. Recorded property,
plant and equipment is reevaluated on the same basis at the end of each
accounting period whenever any significant, permanent changes in business or
circumstances have occurred which might impair recovery.
The costs of brine wells, leases and royalty interests are primarily
amortized over the estimated average life of the well. On a yearly basis for
all wells, this approximates a unit-of-production method based upon estimated
reserves and production volumes.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental compliance costs include the cost of purchasing and/or
constructing assets to prevent, limit and/or control pollution or to monitor
the environmental status at various locations. These costs are capitalized and
depreciated based on estimated useful lives.
Environmental compliance costs also include maintenance and operating
costs with respect to pollution prevention and control facilities and other
administrative costs. Such operating costs are expensed as incurred.
Environmental remediation costs of facilities used in current
operations are generally immaterial and are expensed as incurred.
Remediation costs and post-remediation costs at facilities or off-plant
disposal sites that relate to an existing condition caused by past operations
are accrued as liabilities and expensed when such costs are reasonably
estimated.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist principally of goodwill, product
licenses and patents. Goodwill amounting to $15,548 and $18,913 at December 31,
1999 and 1998, respectively, net of accumulated amortization and effects of
foreign currency translation adjustments, arose from the 1993 acquisition of
Potasse et Produits Chimiques SA ("PPC") and the 1998 acquisition of the
Teesport, United Kingdom, operations of Hodgson Specialty Chemicals division of
BTP plc and is being amortized on a straight-line basis over periods of 16 to
20 years. Intangible assets ($2,349 and $2,378 at December 31, 1999 and 1998,
respectively, net of accumulated amortization and effects of foreign currency
translation adjustments) are amortized on a straight-line basis over periods
from three to 17 years. Amortization of goodwill and other intangibles amounted
to $2,091, $2,097 and $2,754 for 1999, 1998 and 1997, respectively.
Accumulated amortization of goodwill and other intangibles was $16,886
and $14,795 at the end of 1999 and 1998, respectively. The Company evaluates
historical and expected
-28-
19
undiscounted operating cash flows of the related business units to determine
the future recoverability of any goodwill recorded. For purposes of determining
these evaluations, undiscounted cash flows are grouped at levels which
management uses to operate the business, which in some cases include businesses
on a worldwide basis. Recorded goodwill is reevaluated on the same basis at the
end of each accounting period whenever any significant, permanent changes in
business or circumstances have occurred which might impair recovery.
RESEARCH AND DEVELOPMENT EXPENSES
The Company-sponsored research and development expenses related to
present and future products are expensed currently as incurred.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Annual costs of pension plans are determined actuarially based on SFAS
No. 87, "Employers' Accounting for Pensions" ("SFAS No. 87"). The Company's
policy is to fund U.S. pension plans at amounts not less than the minimum
requirements of the Employee Retirement Income Security Act of 1974 and
generally for obligations under its foreign plans to deposit funds with
trustees and/or under insurance policies. Annual costs of other postretirement
plans are accounted for based on SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The policy of the Company is to
fund postretirement health benefits for retirees on a pay-as-you-go basis.
EMPLOYEE SAVINGS PLAN
Certain Company employees participate in the Albemarle-defined
contribution 401(k) employee savings plan which is generally available to all
U.S. full-time salaried and non-union hourly employees and to employees who are
covered by a collective bargaining agreement which included such participation.
The plan is funded with contributions by participants and the Company.
The Company's contributions to the 401(k) approximated $5,090, $5,100 and
$4,900 in 1999, 1998 and 1997, respectively.
INCOME TAXES
The Company and its subsidiaries file consolidated U.S. Federal income
tax returns and individual foreign income tax returns.
Deferred income taxes result from temporary differences in the
recognition of income and expenses for financial and income tax reporting
purposes, using the liability or balance sheet method. Such temporary
differences result primarily from differences between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
It is the Company's policy to record deferred income taxes on any undistributed
earnings of foreign subsidiaries that are not deemed to be, or are not intended
to be, permanently reinvested in those subsidiaries.
In connection with the spin-off of Ethyl Corporation's ("Ethyl")
olefins and derivatives, bromine chemicals, and specialty chemicals businesses
("the predecessor businesses") into Albemarle Corporation in 1994, the Company
and Ethyl entered into a tax sharing agreement whereby Ethyl agreed to
indemnify and hold harmless the Company against all taxes attributable to the
predecessor businesses prior to the spin-off, with the exception of certain of
the Company's subsidiaries which remained responsible for their taxes.
EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") as required by SFAS
No. 128, "Earnings Per Share," which requires dual presentation of basic and
diluted EPS.
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income,"
established rules for the reporting and the display of comprehensive income.
Comprehensive income is defined as net income and other comprehensive income.
The Company reflects foreign currency translation adjustments of ($26,290),
$14,185 and ($29,194) in 1999, 1998 and 1997, respectively, net of deferred
income taxes (tax benefits) as the primary component of other comprehensive
income in accumulated other comprehensive (loss) income in the shareholders'
equity section of the consolidated balance sheets and displays the components
of comprehensive income in the consolidated statements of changes in
shareholders' equity.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of all foreign subsidiaries were prepared in
their respective local currencies and translated into U.S. dollars based on the
current exchange rate in effect at the balance sheet dates, while income and
expenses were translated at average rates for the periods presented.
Translation adjustments have no effect on net income. Transaction adjustments
are included in cost of goods sold. Foreign currency transaction adjustments
resulted in gains (losses) of $6,034, ($3,023) and $8,325 in 1999, 1998 and
1997, respectively. Foreign currency transaction gains and losses herein are
net of the foreign exchange gains and losses from financial instruments
activity below.
FINANCIAL INSTRUMENTS
The Company manages its foreign currency exposures by maintaining
certain assets and liabilities in approximate balance and through the use of
foreign exchange contracts. The principal objective of such contracts is to
minimize the risks and/or costs associated with global operating activities.
The Company does not utilize financial instruments for trading or other
speculative purposes. The counterparties to these contractual agreements are
major financial institutions with which the Company generally also has other
financial relationships. The Company is exposed to credit loss in the event of
nonperformance by these
-29-
20
counterparties. However, the Company does not anticipate nonperformance by the
other parties, and no material loss would be expected from their
nonperformance.
The Company enters into forward currency exchange contracts, which
typically expire within one year, in the regular course of business to assist
in managing its exposure against foreign currency fluctuations on sales and
intercompany transactions.
While these hedging contracts are subject to fluctuations in value,
such fluctuations are generally offset by the value of the underlying foreign
currency exposures being hedged. Gains and losses on forward contracts are
recognized currently in income. The Company had outstanding forward exchange
contracts at December 31, 1999, hedging Japanese yen receivables and revenues
with a notional value totaling $10,623. The Company had outstanding forward
exchange contracts at December 31, 1998, hedging Japanese yen receivables and
revenues with a notional value totaling $6,512. For the years ended December
31, 1999, 1998 and 1997, the Company recognized (losses) gains of ($1,001),
($876) and $2,167, respectively, in income before income taxes on its forward
exchange contracts.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No.
123") encourages, but does not require, companies to record at fair value,
compensation cost for stock-based employee compensation plans. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB Opinion No. 25") and related
interpretations (See Note 9, "Capital Stock"). Under the intrinsic method,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
ENVIRONMENTAL
The Company accrues for environmental remediation costs and
post-remediation costs on an undiscounted basis at facilities or off-plant
disposal sites that relate to existing conditions caused by past operations in
the accounting period in which responsibility is established and when the
related costs are estimable. In developing these cost estimates, evaluation is
given to currently available facts regarding each site, with consideration
given to existing technology, presently enacted laws and regulations, prior
experience in remediation of contaminated sites, the financial capability of
other potentially responsible parties and other factors, subject to
uncertainties inherent in the estimation process. Additionally, these estimates
are reviewed periodically, with adjustments to the accruals recorded as
necessary.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" in June, 1998, which was effective for financial
statements for all fiscal quarters beginning after June 15, 1999. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133",
postponing SFAS No. 133's to quarters beginning after June 15, 2000. SFAS No.
133 established accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. At the time of the Company's adoption, SFAS
No. 133 is not expected to have a material impact on the financial position or
results of operations of the Company.
NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental information for the consolidated statements of cash flows
is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Cash paid during the year for:
Income taxes $31,285 $37,650 $37,475
Interest and financing
expenses (net of
capitalization) 8,236 4,492 574
================================================================================
NOTE 3 - EARNINGS PER SHARE:
Basic and diluted earnings per share are calculated as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Basic earnings per share
Numerator:
Income available to
stockholders, as reported $88,829 $84,732 $79,982
- --------------------------------------------------------------------------------
Denominator:
Average number of shares of
common stock outstanding 46,889 51,558 55,164
- --------------------------------------------------------------------------------
Basic earnings per share $ 1.89 $ 1.64 $ 1.45
================================================================================
Diluted earnings per share
Numerator:
Income available to
stockholders, as reported $88,829 $84,732 $79,982
- --------------------------------------------------------------------------------
Denominator:
Average number of shares of
common stock outstanding 46,889 51,558 55,164
Shares issuable upon exercise of
stock options 624 578 504
- --------------------------------------------------------------------------------
Total shares 47,513 52,136 55,668
- --------------------------------------------------------------------------------
Diluted earnings per share $ 1.87 $ 1.63 $ 1.44
================================================================================
-30-
21
NOTE 4 - INVENTORIES:
Domestic inventories stated on the LIFO basis amounted to $53,145 and
$68,201 at December 31, 1999 and 1998, respectively, which are below
replacement cost by approximately $32,663 and $34,766, respectively. During
1999, the Company's domestic inventory declined resulting in the liquidation of
a portion of 1998's LIFO layer. The liquidation effect on income before income
taxes was approximately $2,100 for 1999.
NOTE 5 - DEFERRED INCOME TAXES AND PREPAID EXPENSES:
Deferred income taxes and prepaid expenses consist of the following:
1999 1998
- --------------------------------------------------------------------------------
Deferred income taxes - current $14,547 $15,250
Prepaid expenses 3,475 2,687
- --------------------------------------------------------------------------------
Total $18,022 $17,937
================================================================================
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consists of the following:
1999 1998
- --------------------------------------------------------------------------------
Land $ 18,913 $ 18,887
Land improvements 31,367 35,849
Buildings 89,469 87,186
Machinery and equipment 1,116,626 1,075,277
Construction in progress 31,132 42,141
- --------------------------------------------------------------------------------
Total $1,287,507 $1,259,340
================================================================================
The cost of property, plant and equipment is depreciated, generally by
the straight-line method, over the following useful lives: land improvements -
5 to 30 years; buildings - 10 to 40 years; and machinery and equipment - 3 to
25 years.
Interest capitalized on significant capital projects in 1999, 1998,
and 1997 was $1,978, $1,598 and $1,826, respectively, while amortization of
capitalized interest (which is included in depreciation expense) in 1999, 1998
and 1997 was $1,440, $1,460 and $1,382, respectively.
NOTE 7 - ACCRUED EXPENSES:
Accrued expenses consist of the following:
1999 1998
- --------------------------------------------------------------------------------
Employee benefits, payroll
and related taxes $24,548 $25,592
Taxes other than income
and payroll 6,298 6,860
Other 19,659 20,848
- --------------------------------------------------------------------------------
Total $50,505 $53,300
================================================================================
NOTE 8 - LONG-TERM DEBT:
Long-term debt consists of the following:
1999 1998
- --------------------------------------------------------------------------------
Variable-rate bank loans $128,700 $169,600
Industrial revenue bonds 11,000 -
Foreign borrowings 18,966 22,216
Miscellaneous 1,094 1,122
- --------------------------------------------------------------------------------
Total 159,760 192,938
Less amounts due within one year 779 408
- --------------------------------------------------------------------------------
Long-term debt $158,981 $192,530
================================================================================
Maturities of long-term debt for the next five years are as follows:
2000 - $779; 2001 - $322; 2002 - $146,256; 2003 - $332; 2004 - $160 and 2005
through 2021 - $11,911.
The Company has a five-year, $500,000 unsecured Competitive Advance and
Revolving Credit Facility Agreement (the "Credit Agreement") that was entered
into on September 24, 1996. The maturity date of the Credit Agreement has been
extended to September 29, 2002. At December 31, 1999 and 1998, $115,000 and
$140,000 in borrowings were outstanding under the Credit Agreement,
respectively. The Credit Agreement contains certain covenants typical for a
credit agreement of its size and nature, including financial covenants
requiring the Company to limit consolidated indebtedness (as defined) to not
more than 60% of the sum of the Company's consolidated shareholders' equity (as
defined) and consolidated indebtedness. The average interest rate on 1999 and
1998 borrowings under the Credit Agreement was 5.35% and 5.70%, respectively,
with a year-end interest rate of 6.67% and 5.67% on the balance outstanding at
December 31, 1999 and 1998, respectively.
The Company has three additional agreements with domestic financial
institutions which provide immediate, uncommitted credit lines, on a short-term
basis, up to a maximum of $115,000 at the individual financial institution's
money market rate. At December 31, 1999 and 1998, $13,700 and $29,600 in
borrowings from these agreements were outstanding, respectively, which the
Company has the ability to refinance with borrowings under the Credit
Agreement; therefore, these amounts have been classified as long-term debt. The
average interest rate on borrowings under these agreements was 5.27% and 5.51%
in 1999 and 1998, respectively, with a year-end interest rate of 6.38% and
5.40% on balances outstanding at December 31, 1999 and 1998, respectively.
On March 10, 1999, the Company entered into a Loan Agreement with
Columbia County, Arkansas ("the County"), which issued $11,000 in Tax-Exempt
Solid Waste Disposal Revenue Bonds ("Tax-Exempt Bonds") for the purpose of
financing various solid waste disposal facilities at the Company's Magnolia,
Arkansas South Plant. The Tax-Exempt Bonds bear interest at a variable rate
which approximates 65% of the federal funds rate. The average interest rate for
1999 was
-31-
22
3.59% with a year-end interest rate of 5.55%. The Tax-Exempt Bonds will mature
on March 1, 2021 and are collateralized by a transferable irrevocable
direct-pay letter of credit. Concurrently, the Company and the County entered
into a series of agreements. Pursuant to these agreements, the Company will
benefit from a ten-year property tax abatement on all new capital plant
expansions, modifications and/or improvements (except for the restrictions on
the $11,000 Tax-Exempt Bonds) constructed at the Company's Magnolia, Arkansas
South Plant over the next three years, up to a total of $81,000, including the
solid waste disposal facilities mentioned above.
One of the Company's foreign subsidiaries has an existing agreement
with a foreign bank which provides immediate uncommitted credit lines, on a
short-term basis, up to a maximum of approximately 2.5 billion Japanese yen
($24,475) at the individual bank's money market rate. At December 31, 1999 and
1998, borrowings under this agreement consisted of 1.8 billion Japanese yen
($17,230) and 2.3 billion Japanese yen ($19,617), respectively. The average
interest rate on borrowings under this agreement was 1.50% and 1.62% in 1999
and 1998, respectively with a year-end interest rate of 1.375% and 1.55% at
December 31, 1999 and 1998, respectively.
Certain of the Company's remaining foreign subsidiaries have three
additional agreements with foreign institutions which provide immediate
uncommitted credit lines, on a short term basis, up to a maximum of
approximately $23,445 at the individual institution's money market rate. These
agreements have been guaranteed by the Company. At December 31, 1999 and 1998,
borrowings under these agreements were $461 and $734, respectively. The average
interest rate on borrowings under these agreements was 5.82% and 7.60% in 1999
and 1998, respectively. The year-end interest rate was 6.25% and 6.725% at
December 31, 1999 and 1998, respectively.
The Company has the ability to refinance borrowings from the foreign
subsidiaries' agreements with borrowings under the Credit Agreement. Therefore,
these amounts have been classified as long-term debt. Additional foreign
borrowings at December 31, 1999 and 1998, consisted of 8.3 million French
francs ($1,275) and 10.5 million French francs ($1,865), respectively. The
average interest rate on these borrowings was 0.50% and 0.48% in 1999 and 1998,
respectively. The year-end interest rate was 0.50% and 0.49% at December 31,
1999 and 1998, respectively.
NOTE 9 - CAPITAL STOCK:
PREFERRED STOCK
The Company has the authority to issue 15,000,000 shares of preferred
stock, in one or more classes or series. No shares of the Company's preferred
stock have been issued to date.
STOCK PURCHASES
During 1999, the Company purchased, in market transactions, 857,400
shares for $15,474, at an average price of $18.05 per share. On September 30,
1998, the Company finalized the purchase of 5,738,241 of its common shares
through a self-tender offer at a price of $19.50 per share plus expenses for an
aggregate cost of approximately $112,659. Earlier in 1998, the Company
purchased, in market transactions, an additional 1,174,500 shares for $27,946,
at an average price of $23.79 per share. During 1997, the Company purchased, in
market transactions, 1,560,300 shares for $37,515, at an average price of
$24.04 per share. As of December 31, 1999, the Company had authorization to
purchase an additional 2,651,300 shares of its common stock.
STOCK OPTION PLANS
The Company has two incentive plans (1994 and 1998 plans). The plans
provide for incentive awards payable in either cash or common stock of the
Company, qualified and non-qualified stock options ("stock options"), stock
appreciation rights ("SARs"), and restricted stock awards and performance
awards ("stock awards"). Under the 1998 plan, a maximum of 3,000,000 shares of
the Company's common stock may be issued as incentive awards, stock options,
SARs or stock awards. Under the 1994 plan, a maximum of 3,200,000 shares of the
Company's common stock could be issued pursuant to the exercise of stock
options, SARs or the grant of stock awards. At December 31, 1999, 371,919
shares are available under the 1994 grant. However, it is not anticipated that
any additional grants or awards will be made under the 1994 plan.
Stock options outstanding under the two plans have been granted at
prices which are either equal to or above the market value of the stock on the
date of grant and expire 7 to 10 years after issuance. The stock options become
exercisable based upon growth in either operating earnings as defined from the
base-year earnings, or the increase in fair market value ("FMV") of the
Company's common stock, during a specified period, from the FMV on the date of
grant. However, stock options for 428,500 shares granted from the 1998 plan
become exercisable at the end of the sixth year.
Contingent restricted stock award agreements relating to 263,500
contingent restricted shares of Albemarle common stock were made with certain
employees of the Company in 1998 and 1999. The fulfillment of the contingencies
are determined over a two- or four-year period based on certain performance
criteria, which, if exceeded, could result in as many as twice the 263,500
being issued as restricted stock, or none may be issued if the performance
criteria are not met. The two-year contingent restricted stock award agreements
totaling 122,000 ended at the end of 1999 at which time it was determined that
61,290 restricted shares would be issued to certain employees. Upon issuance,
the restricted stock thereafter will vest based upon certain criteria over a
period of three years. In addition, with regard to the two- and four-year
plans, 4,860 restricted shares were issued, all of which vest without waiting
the three years, as to certain employees who have retired from the Company.
Total compensation expense associated with the Company's incentive
plans in 1999, 1998 and 1997 amounted to approximately $2,970, $5,570 and
$3,154, respectively.
-32-
23
Presented below is a summary of the activity in the 1994 and 1998 plans:
Weighted-
Average
Shares Available Options Exercise
for Grant Activity Options Price Price
- -------------------------------------------------------------------------------------------------
January 1,1997 1,102,939 1,751,763 $ 9.45 - $17.38 $13.78
- -------------------------------------------------------------------------------------------------
Exercised - (473,254) $ 9.45 - $14.81 $13.03
- -------------------------------------------------------------------------------------------------
December 31,1997 1,102,939 1,278,509 $ 9.45 - $17.38 $14.06
- -------------------------------------------------------------------------------------------------
1998 Plan adoption 3,000,000
Non-qualifying stock options
granted (591,000) 591,000* $ 25.25 - $25.75 $25.71
Exercised - (34,222) $ 9.45 - $13.47 $12.26
Restricted stock awards (250,000)
- -------------------------------------------------------------------------------------------------
December 31, 1998 3,261,939 1,835,287 $ 10.36 - $25.75 $17.84
- -------------------------------------------------------------------------------------------------
Non-qualifying stock options
granted (388,500) 388,500* $ 20.00 - $25.75 $21.48
Exercised - (53,448) $ 12.29 - $13.13 $12.89
Restricted stock awards (13,500)
Restricted stock awards canceled 69,350
- -------------------------------------------------------------------------------------------------
December 31, 1999 2,929,289 2,170,339 $ 10.36 - $25.75 $18.62
=================================================================================================
<FN>
*The weighted average fair values of options granted during 1999 and 1998
were $6.01 and $7.26, respectively.
The following table summarizes information about fixed-price stock options
at December 31, 1999:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------- ---------------------------
Weighted- Weighted- Weighted
Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices @ 12/31/99 Contractual Life Price @ 12/31/99 Price
- ------------------------------------------------------------------- ----------------------------
$10.36 5,339 0.8 years $ 10.36 5,339 $ 10.36
12.12 5,359 2.0 years 12.12 5,359 12.12
13.47 26,920 3.0 years 13.47 26,920 13.47
13.13 860,221 4.2 years 13.13 860,221 13.13
17.38 293,000 6.7 years 17.38 175,800 17.38
25.25 50,000 8.3 years 25.25 - 25.25
25.75 501,000 8.3 years 25.75 - 25.75
25.75 40,000 5.8 years 25.75 - 25.75
25.75 100,000 6.2 years 25.75 - 25.75
20.00 288,500 6.5 years 20.00 - 20.00
- ------------------------------------------------------------------- ----------------------------
2,170,339 1,073,639
=================================================================== ============================
-33-
24
As discussed in Note 1, "Summary of Significant Accounting Policies",
the Company accounts for stock-based compensation plans under APB Opinion No.
25. If compensation cost had been determined based on the fair value at the
grant date for awards made in 1998 and 1996 under the Plans consistent with the
method of SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
1999 1998
- --------------------------------------------------------------------------------
Net income as reported $88,829 $84,732
pro forma $88,018 $83,924
- --------------------------------------------------------------------------------
Basic earnings as reported $ 1.89 $ 1.64
per share pro forma $ 1.88 $ 1.63
- --------------------------------------------------------------------------------
Diluted earnings as reported $ 1.87 $ 1.63
per share pro forma $ 1.85 $ 1.61
================================================================================
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for options granted in 1999 and 1998, respectively: dividend
yield 2.68% and 1.94%; expected volatility of 31.44% and 30.44%; risk-free
interest rate of 6.56% and 4.65%; and expected lives of seven years.
NOTE 10 - RENTAL EXPENSE AND OTHER DATA:
RENTAL EXPENSE
The Company has a number of operating lease agreements, primarily for
office space, transportation equipment and storage facilities. Future minimum
lease payments for the next five years for all noncancelable leases as of
December 31, 1999 are $6,519 for 2000, $4,336 for 2001, $3,282 for 2002, $2,477
for 2003, $125 for 2004, and amounts payable after 2004 are $194. Rental
expense was approximately $13,838 for 1999, $13,750 for 1998, and $14,228 for
1997.
CONTRACTUAL AND OTHER COMMITMENTS
Contractual obligations for plant construction, purchases of real
property and equipment and various take or pay and throughput agreements
amounted to approximately $14,000 at December 31, 1999.
SERVICE AGREEMENTS
The Company and Ethyl are parties to various agreements, dated as of
February 28, 1994, pursuant to which the Company and Ethyl agreed to coordinate
certain facilities and services of adjacent operating facilities at plants in
Pasadena, Texas and Feluy, Belgium. In addition, the Company and Ethyl are
parties to agreements providing for the blending by the Company of Ethyl's
additive products and the production of antioxidants and manganese-based
antiknock compounds at the Orangeburg, South Carolina plant. The Company's
billings to Ethyl in 1999, 1998 and 1997 in connection with these agreements
amounted to approximately $29,556, $31,423 and $29,051, respectively.
The Company and MEMC Pasadena, Inc. ("MEMC Pasadena") are parties to
agreements dated as of July 31, 1995 and subsequently revised effective May 31,
1997, pursuant to which the Company provides certain utilities and services to
the MEMC Pasadena site which is located at Albemarle's Pasadena plant and on
which the electronic materials facility is located. MEMC Pasadena agreed to
reimburse Albemarle for all the costs and expenses plus a percentage fee
incurred as a result of these agreements. The Company's billings to MEMC
Pasadena, in connection with these agreements amounted to approximately $6,339
in 1999, $9,430 in 1998 and $38,421 in 1997. The reduction in 1999 and 1998
from 1997 was the result of the Company providing fewer services as a result of
the 1997 revision to the agreements, including, but not limited to, plant
operations and engineering costs.
The Company and Amoco are parties to numerous operating and service
agreements, dated as of March 1, 1996, pursuant to which the Company provides
operating and support services, certain utilities and products to Amoco, and
Amoco provides operating and support services, certain utilities and products
to Albemarle. The Company's billings to Amoco in 1999, 1998 and 1997, in
connection with these agreements, amounted to approximately $39,270, $40,985
and $41,520, respectively. Amoco's billings to the Company in 1999, 1998 and
1997, in connection with these agreements, amounted to $14,735, $16,611 and
$14,647 million, respectively.
ENVIRONMENTAL
The Company has recorded liabilities of approximately $10,024 and
$9,242 at December 31, 1999 and 1998, respectively, which represents
management's best estimate of the Company's future remediation and other
anticipated environmental costs relating to past operations.
Although it is difficult to quantify the potential financial impact of
compliance with environmental protection laws, management estimates, based on
the latest available information, that there is a reasonable possibility that
future environmental remediation costs to be incurred over a period of time
associated with the Company's past operations in excess of amounts already
recorded, could be up to $11,289 before income taxes. However, the Company
believes that any sum it may be required to pay in connection with
environmental remediation matters in excess of the amounts recorded will not
have a material adverse impact on its financial condition or results of
operations, but could have a material adverse impact in a particular reporting
period.
-34-
25
LITIGATION
The Company is, from time-to-time, subject to routine litigation
incidental to its businesses. The Company is not party to any pending
litigation proceedings that are expected to have a material adverse effect on
the Company's results of operations or financial condition.
NOTE 11 - PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS:
The Company has noncontributory defined-benefit pension plans covering
most employees. The benefits for these plans are based primarily on
compensation and/or years of service. The funding policy for each plan complies
with the requirements of relevant governmental laws and regulations. Plan
assets consist principally of common stock, U.S. government and corporate
obligations and group annuity contracts. The pension information for all
periods presented includes amounts related to salaried and hourly plans. The
prepaid benefit cost related to pensions is included in "Other assets and
deferred charges" on the consolidated balance sheets.
The Company provides postretirement medical benefits and life insurance
for certain groups of U.S. retired employees. Medical and life insurance
benefit costs are funded principally on a pay-as-you-go basis. Although the
availability of medical coverage after retirement varies for different groups
of employees, the majority of employees who retire before becoming eligible for
Medicare can continue group coverage by paying all or most of the cost of a
composite monthly premium designed to cover the claims incurred by active and
retired employees. The availability of group coverage for Medicare-eligible
retirees also varies by employee group with coverage designed either to
supplement or coordinate with Medicare. Retirees generally pay a portion of the
cost of the coverage. Plan assets for retiree life insurance are held under an
insurance contract and reserved for retiree life insurance benefits. The
accrued postretirement benefit cost is included in "Other noncurrent
liabilities" in the consolidated balance sheets.
Pension coverage for employees of the Company's foreign subsidiaries is
provided through separate plans. Obligations under such plans are
systematically provided for by depositing funds with trustees or under
insurance policies. The pension cost, actuarial present value of benefit
obligations and plan assets have been combined with the Company's other pension
disclosure information presented.
-35-
26
The following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans, as well as a summary of significant assumptions:
Other
Pension Benefits Postretirement Benefits
- -------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
Change in benefit obligations
- -------------------------------------------------------------------------------------------------
Benefit obligation at January 1 $ 341,029 $ 302,807 $ 58,706 $ 50,060
Service cost 9,676 8,419 2,152 1,940
Interest cost 22,425 21,407 3,738 3,600
Plan amendments 1,234 236 - 14
Assumption changes (20,952) 21,537 (4,592) 4,285
Actuarial loss(gain) 1,122 967 (2,847) 288
Benefits paid (16,100) (14,867) (1,248) (1,481)
Plan curtailments and termination
benefits 351 - - -
Effect of foreign exchange (671) 523 - -
- -------------------------------------------------------------------------------------------------
Benefit obligation at December 31 $ 338,114 $ 341,029 $ 55,909 $ 58,706
=================================================================================================
Change in plan assets
- -------------------------------------------------------------------------------------------------
Fair value of plan assets at
January 1 $ 480,059 $ 435,172 $ 6,627 $ 6,708
Actual return on plan assets 75,182 57,356 570 471
Employer contributions 1,612 2,254 1,248 929
Benefits paid (16,100) (14,867) (1,248) (1,481)
Effect of foreign exchange (303) 144 - -
- -------------------------------------------------------------------------------------------------
Fair value of plan assets
at December 31 $ 540,450 $ 480,059 $ 7,197 $ 6,627
=================================================================================================
Funded status of plans
- -------------------------------------------------------------------------------------------------
Over (under) funded status $ 202,336 $ 139,030 $(48,712) $(52,079)
Unrecognized net gain (128,653) (73,406) (11,525) (4,227)
Unrecognized prior service cost 8,605 9,254 796 895
Unrecognized net transition asset (5,342) (7,693 - -
- -------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost
at December 31 $ 76,946 $ 67,185 $(59,441) $(55,411)
=================================================================================================
Assumption percentages as of December 31
- -------------------------------------------------------------------------------------------------
Discount rate 7.25% 6.75% 7.25% 6.75%
Expected return on plan assets 9.50% 9.50% 7.00% 9.50%
Rate of compensation increase 4.50% 4.50% 4.50% 4.50%
=================================================================================================
The components of net periodic pension and postretirement benefit (income)
expense are as follows:
Other
Pension Benefits Postretirement Benefits
- -------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Service cost $ 9,676 $ 8,419 $ 7,350 $ 2,152 $ 1,940 $ 1,765
Interest cost 22,425 21,407 20,361 3,738 3,600 3,286
Expected return on assets (40,100) (35,984) (32,714) (439) (588) (610)
Plan curtailments/-
termination benefits 713 - - - - -
Amortization of prior service cost 1,553 1,466 1,445 99 99 98
Amortization of (gain) loss 102 58 37 (271) (381) (573)
Amortization of transition asset (2,351) (2,718) (2,719) - - -
- -------------------------------------------------------------------------------------------------
Benefit (income) expense $(7,982) $(7,352) $(6,240) $ 5,279 $ 4,670 $ 3,966
=================================================================================================
-36-
27
The Company has a Supplemental Retirement Plan ("SRP"), which provides
unfunded supplemental retirement benefits to certain management or highly
compensated employees of the Company. The SRP provides for incremental
pension payments partially to offset the reduction in amounts that would have
been payable from the Company's principal pension plan if it were not for
limitations imposed by federal income tax regulations. Expense relating to the
plan of $934, $785 and $777 was recorded for the years ended December 31, 1999,
1998 and 1997, respectively. The accumulated benefit obligation recognized in
the Company's consolidated balance sheet at December 31, 1999 and 1998 was
$8,548 and $8,193, respectively. The benefit expenses and obligations of this
SRP are included in the tables on the preceding page.
In 1999, the Company recognized a one-time curtailment loss and special
termination benefits charge related to pension plans of $713, which were both
included in special charges (See Note 13, "Special Items"), as required by SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," reflecting the voluntary
separation offers accepted by 122 salaried and wageroll employees throughout
the Company.
The assumed health care cost trend rate was 8% in 1999, 9% in 1998 and
10% in 1997, declining by 1% per year to an ultimate rate of 7%, except that
managed care costs were assumed to be 6% in 1999, 6% in 1998 and 7% in 1997.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates at December 31, 1999 would have the
following effects:
One-Percentage- One-Percentage
Point Increase Point Decrease
- --------------------------------------------------------------------------------
Effect on total of service and
interest cost components $ 900 $ (700)
- --------------------------------------------------------------------------------
Effect on postretirement
benefit obligation $ 7,400 $ (5,900)
================================================================================
OTHER POSTEMPLOYMENT BENEFITS
The Company also provides certain postemployment benefits to former or
inactive employees who are not retirees. The Company funds postemployment
benefits on a pay-as-you-go basis. These benefits include salary continuance,
severance and disability health care and life insurance which are accounted for
under SFAS No. 112 "Employers' Accounting for Postemployment Benefits." The
accrued postemployment benefit liability was approximately $1,734 and $1,656 at
December 31, 1999 and 1998, respectively.
NOTE 12 - INCOME TAXES:
Income before income taxes and current and deferred income taxes
(benefits) are composed of the following:
Years ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
Income before income taxes:
Domestic $ 98,395 $110,877 $100,157
Foreign 30,343(a) 11,921 20,748
- --------------------------------------------------------------------------------
Total $ 128,738 $122,798 $120,905
================================================================================
Current income taxes (benefits):
Federal $ 27,336 $ 29,413 $ 26,586
State 1,351 1,516 1,981
Foreign 14,109 (593) 4,286
- --------------------------------------------------------------------------------
Total 42,796 30,336 32,853
- --------------------------------------------------------------------------------
Deferred income taxes (benefits):
Federal 2,542 7,456 7,568
State (4,406) 835 1,042
Foreign (1,023) (561) (540)
- --------------------------------------------------------------------------------
Total (2,887) 7,730 8,070
- --------------------------------------------------------------------------------
Total income taxes $ 39,909 $ 38,066 $ 40,923
================================================================================
<FN>
(a) Includes the gain on sale of investment in Albright & Wilson stock, net
totaling $22,054 ($14,381 net of income tax).
The significant differences between the U.S. federal statutory rate
and the effective income tax rate are as follows:
% of Income Before Income Taxes
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
Foreign sales corporation
benefit (2.4) (2.1) (1.9)
State taxes, net of federal
tax benefit 0.9 1.3 1.5
Depletion (1.0) (1.1) (1.1)
Other items, net (1.5) (2.1) 0.3
- --------------------------------------------------------------------------------
Effective income tax rate 31.0% 31.0% 33.8%
================================================================================
-37-
28
The deferred income tax assets and deferred income tax liabilities
recorded on the consolidated balance sheets as of December 31, 1999 and
1998, consist of the following:
1999 1998
- -------------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions $ 21,728 $ 20,760
Accrued employee benefits 5,906 7,048
LIFO inventories 4,884 5,103
Foreign tax benefit 3,215 -
Accrued liabilities 1,666 3,476
Intercompany profit in inventories 2,608 2,957
Environmental reserves 3,095 2,936
U.K. subsidiary net operating loss carryforwards 494 -
Foreign currency translation adjustments 5,283 -
Other 3,396 4,136
- -------------------------------------------------------------------------------------------------
Net deferred tax assets 52,275 46,416
- -------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 91,466 100,876
Pensions 27,897 24,709
Gain on Belgian intercompany loan 7,321 7,648
Foreign currency translation adjustments - 4,452
Capitalization of interest 2,296 2,116
Other 759 1,365
- -------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 129,739 141,166
- -------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 77,464 $ 94,750
- -------------------------------------------------------------------------------------------------
Reconciliation to consolidated balance sheets:
Current deferred tax assets $ 14,547 $ 15,250
Deferred tax liabilities 92,011 110,000
- -------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 77,464 $ 94,750
=================================================================================================
Approximately $23,000 of accumulated operating loss carryforwards
from the Company's Belgian subsidiary (approximately $9,400 tax benefit)
were utilized in 1998 to offset Belgian taxable income. Valuation
allowances of approximately $2,100, related to accumulated operating loss
carryforwards were reversed in 1998.
-38-
29
NOTE 13 - SPECIAL ITEMS:
In May 1999, the Company sold all of its 58,394,049 common shares of
Albright & Wilson plc ("Albright & Wilson"), a United Kingdom chemicals
company, that were acquired in March 1999, as part of its friendly tender offer
for Albright & Wilson, to ISPG, Plc, the competing bidder, for an aggregate
consideration of $157,516, resulting in a gain of $22,054 ($14,381 after income
taxes or 30 cents per share on a diluted basis), net of transaction expenses.
The net proceeds from the sale of the common shares were primarily used to pay
down debt under the Company's existing Credit Agreement.
During the last three quarters of 1999, the Company incurred special
charges of $10,692 ($6,717 after income taxes or 14 cents per share on a
diluted basis) that resulted primarily from voluntary separation offers made to
various employees throughout the Company. The program impacted a total of 122
salaried and wageroll employees.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
In assessing the fair value of financial instruments, the Company uses
methods and assumptions that are based on market conditions and other risk
factors existing at the time of assessment. Fair value information for the
Company's financial instruments is as follows:
Cash and Cash Equivalents - The carrying value approximates fair value
due to their short-term nature.
Long-term Debt - The carrying value of the Company's long-term debt
reported in the accompanying consolidated balance sheets at December 31, 1999
and 1998, approximates fair value since substantially all of the Company's
long-term debt bears interest based on prevailing variable market rates
currently available in the countries in which the Company has borrowings.
Foreign Currency Exchange Contracts - The fair values of the Company's
forward currency exchange contracts are estimated based on current settlement
values. The fair value of the forward contracts represent a net liability
position of $141 and $435 at December 31, 1999, and December 31, 1998,
respectively.
NOTE 15 - QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------
1999
Net sales $208,345 $200,811 $212,086 $224,683
Gross profit $ 73,459 $ 59,370 $ 61,163 $ 70,553
Special charges(a) $ - $ (5,779) $ (852) $ (4,061)
Gain on sale of investment in Albright & Wilson (b) $ - $ 22,054 $ - $ -
Net income $ 23,172 $ 24,613 $ 17,139 $ 23,905
Basic earnings per share $ .49 $ .52 $ .37 $ .51
Shares used to compute basic earnings per share(c) 47,016 47,033 46,949 46,557
Diluted earnings per share $ .49 $ .52 $ .36 $ .51
Shares used to compute diluted earnings per share(c) 47,746 47,731 47,475 47,102
1998
Net sales $215,149 $204,103 $196,192 $205,418
Gross profit $ 67,821 $ 66,178 $ 57,509 $ 69,297
Net income $ 22,649 $ 21,811 $ 17,577 $ 22,695
Basic earnings per share $ .42 $ .41 $ .33 $ .48
Shares used to compute basic earnings per share(c) 53,469 53,069 52,695 46,999
Diluted earnings per share $ .42 $ .41 $ .33 $ .48
Shares used to compute diluted earnings per share(c) 53,981 53,681 53,293 47,590
=================================================================================================
<FN>
Notes:
(a) Represents second quarter charge of $5,779 ($3,587 after income taxes), third quarter charge
of $852 ($543 after income taxes) and fourth quarter charge of $4,061 ($2,587 after income
taxes) related to work-force reduction programs at certain of the Company's facilities.
(b) Includes the second quarter gain on sale of investment in Albright & Wilson stock, net
totaling $22,054 ($14,381 net of income taxes).
(c) Includes the effects of the purchase of 182,000 and 675,400 common shares in the third and
fourth quarters of 1999 and 772,100, 338,600 and 5,802,041 common shares purchased during the
first, second and third quarters of 1998, respectively.
-39-
30
NOTE 16 - OPERATING SEGMENTS AND GEOGRAPHIC AREA INFORMATION:
The Company is a global manufacturer of specialty polymer and fine
chemicals, grouped into two operating segments: Polymer Chemicals and Fine
Chemicals. The operating segments were determined based on management
responsibility. The Polymer Chemicals' operating segment is comprised of flame
retardants, organometallics and catalysts, and polymer additives and
intermediates. The Fine Chemicals' operating segment is comprised of
agrichemicals, bromine and derivatives, pharmachemicals, potassium and chlorine
chemicals, and surface actives.
The accounting policies of the segments are the same as those described
in Note 1, "Summary of Significant Accounting Policies." The Company evaluates
the performance of its operating segments based on operating profit which
represents income before income taxes, before gain on sale of investment in
Albright & Wilson stock, net and before interest and financing expenses and
other income, net. Segment data includes intersegment transfers of raw
materials at cost and foreign exchange transaction gains and losses, as well as
allocations for certain corporate costs.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Corporate & Other" column
includes corporate-related items not allocated to the reportable segments.
Polymer Fine Corporate
Operating Segment Results Chemicals Chemicals & Other Total
- -------------------------------------------------------------------------------------------------
1999
Net sales $ 449,156 $ 396,769 - $ 845,925
Operating profit(a) 73,083 60,187 $ (19,144) 114,126
Identifiable assets 331,505 436,669 185,920 954,094
Depreciation and amortization 29,027 45,452 1,271 75,750
Capital expenditures 43,289 31,119 3,161 77,569
1998
Net sales 417,998 402,864 - 820,862
Operating profit(a) 76,608 69,619 (20,512) 125,715
Identifiable assets 322,944 475,810 139,043 937,797
Depreciation and amortization 29,807 43,800 1,405 75,012
Capital expenditures 40,012 30,147 6,588 76,747
1997
Net sales 411,134 418,716 - 829,850
Operating profit(a) 72,802 65,274 (17,369) 120,707
Identifiable assets 281,616 472,283 134,282 888,181
Depreciation and amortization 26,728 40,965 1,351 69,044
Capital expenditures 28,115 55,537 1,632 85,284
=================================================================================================
Net Sales(b) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
United States $ 480,070 $ 470,818 $ 453,211
Foreign 365,855 350,044 376,639
- -------------------------------------------------------------------------------------------------
Total $ 845,925 $ 820,862 $ 829,850
=================================================================================================
Long-Lived Assets as of December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------
United States $ 410,626 $ 406,928 $ 399,357
France 85,696 109,206 109,841
Other foreign countries 16,960 19,825 5,043
- -------------------------------------------------------------------------------------------------
Total $ 513,282 $ 535,959 $ 514,241
=================================================================================================
<FN>
Notes: (a) Includes the effects of foreign exchange transaction (losses) gains of $6,034,
($3,023)and $8,325 in 1999, 1998 and 1997, respectively.
(b) No foreign country exceeds 10% of total Company net sales.
-40-
31
NOTE 17 - ACQUISITIONS:
As of the close of business on October 30, 1998, the Company, through
Albemarle UK Limited, a newly created subsidiary, acquired the Teesport, United
Kingdom, operations of Hodgson Specialty Chemicals division of BTP plc for
approximately $15,229. The purchase price for this acquisition consisted
primarily of property, plant and equipment, goodwill and inventory. No pro
forma financial information is provided for this acquisition for the period
presented since its impact was immaterial to the Company's consolidated results
of operations and financial position.
NOTE 18 - SUBSEQUENT EVENT:
On January 20, 2000, the Company and Ferro Corporation ("Ferro")
announced that an agreement in principle had been reached whereby the Company
would purchase the PYRO-CHEK(r) flame retardant business of Ferro along with an
operating plant at Port-de-Bouc, France.
-41-
32
MANAGEMENT'S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
Albemarle Corporation's management has prepared the consolidated
financial statements and related notes appearing on pages 24 through 41 in
conformity with accounting principles generally accepted in the United States.
In so doing, management makes informed judgments and estimates of the expected
effects of events and transactions. Actual results may differ from management's
judgments and estimates. Financial data appearing elsewhere in this annual
report are consistent with these consolidated financial statements.
Albemarle maintains a system of internal controls to provide
reasonable, but not absolute, assurance of the reliability of the financial
records and the protection of assets. The internal control system is supported
by written policies and procedures, careful selection and training of qualified
personnel and an extensive internal audit program.
These consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants. Their
audit was made in accordance with auditing standards generally accepted in the
United States and included an evaluation of Albemarle's internal accounting
controls to the extent considered necessary to determine audit procedures.
The audit committee of the Board of Directors, composed only of
non-employee directors, meets with management, internal auditors and the
independent accountants to review accounting, auditing and financial reporting
matters. The independent accountants are appointed by the board on
recommendation of the audit committee, subject to shareholder approval.
REPORT OF INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS
To the Board of Directors and Shareholders of Albemarle
Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, changes in shareholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Albemarle Corporation and subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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, 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 the opinion expressed above.
/s/PricewaterhouseCoopers LLP
February 4, 2000
Richmond, Virginia
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information contained in the Proxy Statement under the caption
"Election of Directors" concerning directors and persons nominated to become
directors of the Company is incorporated herein by reference. The names and
ages of all officers of the Company as of March 1, 2000 are set forth below:
Name Age Office
- --------------------------------------------------------------------------------
Floyd D. Gottwald, Jr.* 77 Chairman of the Board and of the
Executive Committee, Chief Executive
Officer and Director
Charles B. Walker* 61 Vice Chairman of the Board, Chief
Financial Officer and Director
Mark C. Rohr 48 President and Chief Operating Officer
E. Whitehead Elmore 61 Senior Vice President, General Counsel
and Corporate Secretary
John G. Dabkowski 51 Vice President - Global Business
Dixie E. Goins 49 Vice President Research and Development
William M. Gottwald* 52 Vice President - Corporate Strategy,
Secretary to the Executive Committee
and Director
Jack P. Harsh 47 Vice President - Human Resources
Robert G. Kirchhoefer 59 Treasurer and Chief Accounting Officer
George A. Newbill 56 Vice President - Sourcing
Gary L. Ter Haar 63 Vice President - Health and Environment
Michael D. Whitlow 48 Vice President - Americas Sales and
Global Accounts
Edward G. Woods 58 Vice President Corporate Development
* Member of the Executive Committee
ADDITIONAL INFORMATION - OFFICERS OF THE COMPANY
The term of office of each such officer is until the meeting of the
Board of Directors following the next annual shareholders' meeting (April 26,
2000). All such officers have been employed by the Company or its predecessor
for at least the last five years, with the exception of William M. Gottwald,
Jack P. Harsh and Mark C. Rohr. William M. Gottwald joined Albemarle after
being associated with the Company's predecessor since 1981, most recently as
senior vice president responsible for finance, planning and information
resources. Jack P. Harsh joined Albemarle effective November 16, 1998, from
Union Carbide Corporation in Danbury, Connecticut, where he directed human
resources for the solvents, intermediates and monomers business and
supply-chain planning organization. He was elected vice president - human
resources, effective December 1, 1998. Mark C. Rohr was elected executive vice
president operations on April 1, 1999 and assumed the position of president and
chief operating officer on January 1, 2000.
Prior to joining Albemarle, Mr. Rohr was senior vice president for the
Specialty Chemicals group of Occidental Chemical Corporation in Dallas, Texas.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement under the caption
"Compensation of Executive Officers and Directors" concerning executive
compensation is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement under the caption
"Stock Ownership" is incorporated herein by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Proxy Statement under the captions
"Certain Relationships and Related Transactions" and "Stock Ownership" is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial and informational statements of
the registrant are included in Part II Item 8 on pages 24 to 42:
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income, Changes in Shareholders' Equity and Cash
Flows for the years ended December 31, 1999, 1998, and 1997
Notes to the Consolidated Financial Statements
Management's Report on the Consolidated Financial Statements
Report of Independent Accountants
(a)(2) No Financial Statement Schedules are provided in accordance with Item
14(a)(2) as the information is either not applicable, not required or has
been furnished in the Consolidated Financial Statements or Notes thereto.
(a)(3) Exhibits
The following documents are filed as exhibits to this Form 10-K pursuant to
Item 601 of Regulation S-K:
3.1 Amendment to Restated Articles of Incorporation of the registrant
[filed as Exhibit 3.1 to the Company's Form 10-K for 1994 (No.
1-12658), and incorporated herein by reference].
3.2 Amended By-laws of the registrant, adopted February 23, 2000.
10.1 Credit Agreement, dated as of September 24, 1996, between the Company,
NationsBank, N.A., as administrative agent and Bank of America National
Trust and Savings Association (formerly Bank of America Illinois), The
Bank of New York and the Chase Manhattan Bank, as co-agents and certain
commercial banks [filed as Exhibit 10.1 to the Company's Third Quarter
1996 Form 10-Q (No. 1-12658) and incorporated herein by reference].
10.2 The Company's 1994 Omnibus Stock Incentive Plan, adopted on February 8,
1994 [filed as Exhibit 10.1 to the Company's Form S-1 (No. 33-77452),
and incorporated herein by reference].
10.3 The Company's Bonus Plan, adopted on February 8, 1994 [filed as Exhibit
10.8 to the Company's Form 10 (No. 1-12658), and incorporated herein by
reference].
10.4 Savings Plan for the Employees of the Company, adopted on February 8,
1994 [filed as Exhibit 10.9 to the Company's Form 10 (No. 1-12658), and
incorporated herein by reference].
10.5 The Company's Excess Benefit Plan [filed as Exhibit 10.10 to the
Company's Form 10 (No. 1-12658), and incorporated herein by reference].
10.6 The Company's Supplemental Retirement Plan [filed as Exhibit 10.11 to
the Company's Form 10 (No. 1-12658), and incorporated herein by
reference].
10.7 The Company's Agreement between Certain Executives [filed as Exhibit
10.12 to the Company's Form 10 (No. 1-12658), and incorporated herein by
reference].
10.8 The Company's 1998 Incentive Plan, adopted April 22, 1998 [filed as
Exhibit 10.8 to the Company's Form 10-K for 1998 (No. 1-12658), and
incorporated herein by reference].
10.9 The Company's compensation arrangement with Mark C. Rohr dated February
26, 1999 filed herewith.
11. Statements re: Computation of Pro Forma Earnings Per Share for years
ended December 31, 1999 and 1998.
21. Subsidiaries of the Company.
99. Five-Year Summary (see page 46).
(b) No report on Form 8-K was filed in the last quarter of the period
covered by this report.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
Note: Part IV Item 14(1) 5 documents 3.2, 10.9, 11, 21 and Item 14(c) are not
included herein. They will be filed in the Securities and Exchange
Commission EDGAR filing of the Form 10-K document only.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ALBEMARLE CORPORATION
(Registrant)
By: /s/ Floyd D. Gottwald,Jr.
- ----------------------------------------------
Floyd D. Gottwald, Jr., Chairman of the Board
Dated: March 1, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 1, 2000.
Signature Title
- --------------------------------------------------------------------------------
/s/ Floyd D. Gottwald, Jr. Chairman of the Board, Chairman of the Executive
- -------------------------- Committee, Chief Executive Officer and
(Floyd D. Gottwald, Jr. Director (Principal Executive Officer)
/s/ Charles B. Walker Vice Chairman of the Board, Chief Financial
- -------------------------- Officer and Director (Principal Financial
(Charles B. Walker) Officer)
/s/ Robert G. Kirchhoefer Treasurer and Chief Accounting Officer
- -------------------------- (Principal Accounting Officer)
(Robert G. Kirchhoefer)
/s/ Craig R. Andersson Director
- --------------------------
(Craig R. Andersson)
/s/ John D. Gottwald Director
- --------------------------
(John D. Gottwald)
/s/ William M. Gottwald Vice President - Corporate Strategy and Director
- --------------------------
(William M. Gottwald)
/s/ Seymour S. Preston III Director
- --------------------------
(Seymour S. Preston, III)
/s/ Emmett J. Rice Director
- --------------------------
(Emmett J. Rice)
/s/ Charles E. Stewart Director
- --------------------------
(Charles E. Stewart)
/s/ Anne M. Whittemore Director
- --------------------------
(Anne M. Whittemore)
-45-
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EXHIBIT INDEX
3.1 Restated Articles of Incorporation Incorporated by reference
see page 34
3.2 By-laws Page 37
10.1 Credit Agreement, dated Incorporated by reference
September 24, 1996 see page 34
10.2 Omnibus Stock Incentive Plan Incorporated by reference
see page 34
10.3 Bonus Plan Incorporated by reference
see page 34
10.4 Savings Plan Incorporated by reference
see page 34
10.5 Excess Benefit Plan Incorporated by reference
see page 34
10.6 Supplement Retirement Plan Incorporated by reference
see page 34
10.7 Agreement Between Certain Incorporated by reference
Executives see page 34
10.8 1998 Incentive Plan Incorporated by reference
see page 34
10.9 Compensation Agreement with Page 47
Mark Rohr
11 Computation of Pro Forma Earnings Page 50
Per Share-years ended 1999 and 1998
21 Subsidiaries of Company Page 51
23 Consent of Independent Certified Page 52
Public Accountants
27 Financial Data Schedule Page 53
99 Five Year Summary Page 54