1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For 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
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock, $.01 par value, outstanding as
of October 31, 1996: 55,038,320
2
ALBEMARLE CORPORATION
I N D E X
Page
Number
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995 3-4
Consolidated Statements of Income - Three and Nine
Months Ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 6
Notes to the Consolidated Financial Statements 7-11
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 12-16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
Exhibit 10.1 - Credit Agreement
Exhibit 27 - Financial Data Schedule
3
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements
--------------------
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 39,326 $ 33,130
Accounts receivable, less allowance
for doubtful accounts (1996-$1,191;
1995-$1,615) 137,740 198,125
Inventories:
Finished goods 45,585 132,334
Work-in-process 3,631 5,767
Raw materials 9,476 15,125
Stores, supplies and other 15,074 24,371
------------- ------------
73,766 177,597
Deferred income taxes and prepaid
expenses 18,864 19,935
------------- -------------
Total current assets 269,696 428,787
------------- -------------
Property, plant and equipment, at cost 1,126,647 1,493,846
Less accumulated depreciation and
amortization (638,680) (807,951)
------------- -------------
Net property, plant and equipment 487,967 685,895
Other assets and deferred charges 64,274 60,814
Goodwill and other intangibles - net of
amortization 24,315 28,995
-------------- ------------
Total assets $ 846,252 $ 1,204,491
============== ============
<FN>
See accompanying notes to the consolidated financial statements.
4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
September 30, December 31, 31,
1996 1995
------------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,077 $ 102,788
Long term debt, current portion 7,726 17,020
Accrued expenses 60,413 65,017
Dividends payable 3,853 3,634
Income taxes payable 31,191 5,760
------------ ----------
Total current liabilities 157,260 194,219
------------ ----------
Long-term debt 29,643 200,092
Other noncurrent liabilities 64,038 54,512
Deferred income taxes 101,610 133,102
Shareholders' equity:
Common stock, $.01 par value,
Issued - 55,038,320 in
1996 and 66,076,853 in 1995,
respectively 550 661
Additional paid-in capital 250,785 498,827
Foreign currency translation adjustments 19,345 27,604
Retained earnings 223,021 95,474
------------ ---------
Total shareholders' equity 493,701 622,566
------------ ---------
Total liabilities and shareholders'
equity $846,252 $1,204,491
============ ==========
<FN>
See accompanying notes to the consolidated financial statements.
5
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------------
(In Thousands Except Per-Share Amounts)
---------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ------------------
1996 1995 1996 1995
-------- -------- ------- -------
Net sales $183,776 $315,211 $649,986 $948,173
Cost of goods sold 139,016 241,790 474,342 742,627
-------- ------- -------- -------
Gross profit 44,760 73,421 175,644 205,546
Selling, general and
administrative expenses 25,212 34,095 88,436 98,876
Research and development
expenses 8,480 6,645 22,317 20,868
-------- ------- -------- -------
Operating profit 11,068 32,681 64,891 85,802
Interest and financing expenses 323 3,117 2,367 10,211
Gain on sales of businesses -- (4,925) (158,157) (4,925)
Other income, net (271) (1,111) (3,823) (1,933)
-------- ------- -------- -------
Income before income taxes 11,016 35,600 224,504 82,449
Income taxes 3,129 13,378 86,358 33,153
-------- ------- --------- -------
Net income $7,887 $22,222 $138,146 $49,296
======== ======= ========= =======
Earnings per share $.14 $.33 $2.30 $.74
======== ======= ========= =======
Shares used to compute
earnings per share 56,017 66,450 59,988 66,270
======== ======= ========== =======
Cash dividends declared
per share of common stock $.07 $.055 $.18 $.155
======== ======= ========== =======
<FN>
See accompanying notes to the consolidated financial statements.
6
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars In Thousands)
----------------------
(Unaudited)
Nine Months Ended
September 30,
--------------------
1996 1995
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $33,130 $32,114
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 138,146 49,296
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 54,204 69,622
Gain on sales of businesses, net of income
taxes of $63,780 and $1,868, respectively (94,377) (3,057)
Working capital increases excluding cash
and cash equivalents, net of the
effects of the sales of businesses:
Income tax payments on gain on sale
of business (59,324) --
Other working capital increases (10,059) (19,469)
Other, net (9,829) (10,652)
-------- -------
Net cash provided from operating activities 18,761 85,740
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (64,094) (81,891)
Proceeds from sales of businesses, net of
expenses and $42,297 of trade accounts
payable retained by the Company 487,345 4,195
Acquisition of business -- (2,138)
Collections on notes received from sale of
business -- 8,250
Other, net 1,982 352
-------- -------
Net cash provided from (used in) investing
activities 425,233 (71,232)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 26,641 29,394
Repayments of long-term debt (204,334) (19,543)
Purchases of common stock (250,270) --
Dividends paid (10,380) (9,909)
Other, net 545 -
--------- --------
Net cash (used in) financing activities (437,798) (58)
--------- --------
Increase in cash and cash equivalents 6,196 14,450
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $39,326 $46,564
========= ========
<FN>
See accompanying notes to the consolidated financial statements.
7
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
1. In the opinion of management, the accompanying consolidated
financial statements contain all adjustments necessary to
present fairly, in all material respects, the Company's
consolidated financial position as of September 30, 1996 and
December 31, 1995, the consolidated results of operations for
the three- and nine-month periods ended September 30, 1996 and
1995, and the condensed consolidated cash flows for the nine
months ended September 30, 1996 and 1995. All adjustments are
of a normal and recurring nature. These consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included
in the Company's 1995 Annual Report which was incorporated by
reference in the Company's Form 10-K filed on March 28, 1996.
The December 31, 1995 consolidated balance sheet data was
derived from audited financial statements, but does not
include all disclosures required by generally accepted
accounting principles. The results of operations for the
three- and nine-month periods ended September 30, 1996, are
not necessarily indicative of the results to be expected for
the full year. Certain amounts in the accompanying
consolidated financial statements have been reclassified to
conform to the current presentation.
2. On March 1, 1996, the Company sold its alpha olefins, poly
alpha olefins, and synthetic alcohol businesses ("Olefins
Business") to Amoco Chemical Company ("Amoco") for $487.3
million, including plant and equipment (primarily located in
Pasadena, Texas, Deer Park, Texas and Feluy, Belgium), other
assets, inventory and accounts receivable, net of expenses and
trade accounts payable retained and paid by the Company, and
certain business-related liabilities transferred at the date
of sale. The sale involved the transfer of approximately 550
people who supported these businesses. The gain on the sale
was $158.2 million ($94.4 million after income taxes or $1.57
per share), net of $44.3 million of costs incurred in
connection with the sale for early retirements and work-force
reductions, abandonment costs of certain facilities and
certain other accruals (including environmental) related to
the sale and/or the businesses sold. In connection with the
sale of the Olefins Business, the Company utilized
approximately $20 million of its Belgian net operating loss
carryforward to offset, in part, the Belgian portion of the
taxable gain.
The transaction includes numerous operating and service
agreements primarily focusing on the sharing of common
facilities at the Pasadena plant site and the operation of the
Feluy plant site.
The net sales and operating profit before allocation of
corporate expenses for the Olefins Business for the three-months
ended September 30, 1995 were $129.3 and $8.3 million,
respectively.
8
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
2. Continued.
In addition, the net sales and operating loss before
allocation of corporate expenses for the Olefins Business for
the nine-months ended September 30, 1995 were $363.1 million
and ($9.0) million, respectively.
3. On July 31, 1995 the Company sold its electronic materials
business to MEMC Pasadena, Inc. for approximately $59.2
million, consisting of $4.2 million in cash and two notes
totaling $55 million. The gain realized on the sale was
deferred and was recognized as principal payments were
collected on the notes received as consideration for the sale.
For the three and nine-month periods ended September 30, 1995
the company recognized a gain of approximately $4.9 million
($3.1 million after taxes, or $.04 cents per share). The
non-cash effects of the remaining balances of the note receivable
and related deferred gain at September 30, 1995 approximated
$46.8 million and $18.5 million, respectively, and are not
reflected in the accompanying September 30, 1995 condensed
consolidated statement of cash flow. Additionally, the
Company currently operates for MEMC the granular polysilicon
plant located at Pasadena, Texas.
4. Debt consists of the following:
September 30, December 31,
1996 1995
------------- ------------
Variable-rate bank loans $20,600 $130,000
Foreign bank borrowings 15,598 85,919
Miscellaneous 1,171 1,193
------------- -------------
Total 37,369 217,112
Less current maturities 7,726 17,020
------------- -------------
Long-term debt $29,643 $200,092
============= =============
The reduction in long-term debt reflects payments resulting
from use of the proceeds received from the sale of the Olefins
Business.
On September 24, 1996, to replace its existing credit
facility, the Company entered into a new five-year, $500
million unsecured Competitive Advance and Revolving Credit
Facility Agreement (the "Credit Agreement") with a consortium
of banks at various interest rate options. No amounts were
outstanding at September 30, 1996 under that 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
consolidated shareholders' equity and consolidated
indebtedness.
9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
5. The third quarter 1996 effective income tax rate was lower
than the effective tax rate for nine months 1996, excluding
the effects of the sale of the Olefins Business, due to the
cumulative effect of a lower effective income tax rate for the
year than previously forecasted. Both periods effective income
tax rates were lower than the normal combined federal and
state income tax rates for the periods. The provisions for
income taxes on the operating results of the Company in the
accompanying consolidated statements of income for the three-
and nine-month periods ended September 30, 1995 are higher
than normal combined federal and state income tax rates
primarily due to the absence of tax benefits on net operating
losses of the Company's Belgian subsidiary as the Company
provided valuation allowances against the deferred tax assets
related to these net operating losses due to the uncertainty
of the assets' realization.
6. On April 1, 1996, the Company purchased 9,484,465 shares of
its common stock, at a price of $23 per share for a total
aggregate price (including expenses) of $219.4 million,
through a self tender offer, which began on March 4, 1996 and
concluded on April 1, 1996, following the sale of its Olefins
Business to Amoco. Additionally, the Company purchased
275,400 and 1,481,100 common shares in the second and third
quarters of 1996, respectively. The Company still has
authorization from its board of directors to purchase
approximately 4.2 million additional shares.
7. The following unaudited supplemental pro forma condensed
consolidated statement of income for the nine months ended
September 30, 1996 is presented assuming that the disposition
of the Olefins Business had occurred as of January 1, 1995.
The related pro forma information is presented for
informational purposes only and is not necessarily indicative
of the results of operations of the Company or what the
results of operations would have been had the Company operated
without the Olefins Business during the nine months ended
September 30, 1996. Additionally, the accompanying pro forma
information, consistent with the data presented in the
Company's Form 8-K filed on March 15, 1996, does not give any
effect to the purchase of 9,484,465 shares of common stock
acquired in the tender offer as if it had occurred on
January 1, 1995.
10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
7. Continued.
Pro Forma Condensed Consolidated
Statement of Income
Nine Months Ended September 30, 1996
------------------------------------
Historical Adjustments Pro Forma
---------- ----------- ---------
Net sales $649,986 $ (79,763) (a)
799 (b) $571,022
Cost of goods sold 474,342 (71,200) (a)
420 (b) 403,562
---------- ---------- ---------
Gross profit 175,644 (8,184) 167,460
Selling, R&D and general
expenses 110,753 (5,221) (a) 105,532
---------- ---------- ---------
Operating profit 64,891 (2,963) 61,928
Interest and financing
expenses 2,367 (1,563) (c) 804
Gain on sale of business (158,157) 158,157 (d) --
Other income, net (3,823) 16 (a)
(60) (e) (3,867)
---------- ---------- ---------
Income before income taxes 224,504 (159,513) 64,991
Income taxes 86,358 (63,780) (d)
(519) (f) 22,059
---------- ---------- ---------
Net income $138,146 $ (95,214) $42,932
========== ========== =========
Earnings per share $2.30 $.72
========== =========
Shares used to compute
earnings per share 59,988 59,988 (g)
========== =========
<FN>
See accompanying notes to the pro forma condensed
consolidated statement of income.
11
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
7. Continued.
Notes to the pro forma condensed consolidated statement of income
are described below:
(a) To eliminate the results of operations of the Olefins Business
for the period January 1, 1996 thru February 29, 1996 as
though the sale to Amoco occurred on January 1, 1995 and to
reflect reductions in administrative and other costs which
occurred because of personnel, employee benefits (including
compensation) and other cost reductions assumed implemented
following the sale of the Olefins Business to Amoco.
(b) To record service fee income and incremental sales revenue
generated from providing various services and products under
contracts to Amoco and to record costs and expenses for
services and products provided by Amoco. The service and
supply arrangements were entered into in connection with the
sale of the Olefins Business to Amoco.
(c) To reflect the pro forma interest cost savings resulting from
the repayment of certain domestic and Belgian debt using the
proceeds received from the sale of the Olefins Business.
(d) To eliminate the gain and the related income taxes on the
March 1, 1996, sale of the Olefins Business.
(e) To record the related amortization of certain advance rents
received from Amoco upon closing of the sale of the Olefins
Business associated with an arrangement in the nature of an
operating lease in Belgium.
(f) To record the income tax effects of the adjustments set forth
in Notes (a) through (c) and (e) above, calculated at an assumed
state and federal combined income tax rate of 37.92% for
domestic items and an assumed combined rate of 35% for items
related to the Company's Belgian subsidiary which includes the
utilization of a portion of its net operating loss
carryforwards and the estimated additional income taxes which
would have resulted if undistributed Belgian foreign earnings
had been remitted to the Company.
(g) The average number of shares used to compute earnings per
share does not include the effects of the Company's April 1,
1996 self tender offer as if it had occurred on January 1,
1995. The average number of shares would have been 57,231,000
had the offer been assumed to have been completed on January
1, 1995.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
------------------------------------------------
The following is management's discussion and analysis of certain
significant factors affecting the results of operations during the
periods included in the accompanying consolidated statements of
income and changes in financial condition since December 31, 1995
of Albemarle Corporation ("Albemarle" or "the Company")
On March 1, 1996, the Company sold its alpha olefins, poly alpha
olefins and synthetic alcohol businesses ("Olefins Business") to
Amoco Chemical Company ("Amoco"). After the sale, Albemarle is
engaged in the bromine chemicals, specialty chemicals and
detergents and surfactants businesses.
Results of Operations
- ---------------------
Third Quarter 1996 Compared with Third Quarter 1995
- ---------------------------------------------------
NET SALES
Net sales for the third quarter of 1996 amounted to $183.8 million,
down from $315.2 million in 1995. Excluding the third quarter 1995
net sales of the Olefins Business sold March 1, 1996 and the
electronic materials business sold July 31, 1995, Albemarle's net
sales for the third quarter of 1996 would have increased two
percent ($4.3 million) from the 1995 primarily due to higher
shipments of organometallics, partly offset by decreases in
shipments of flame retardants, agricultural intermediates and
bromine fine chemicals.
OPERATING COST AND EXPENSES
Cost of goods sold decreased primarily due to the impact of
shipments of the Olefins Business and the electronic materials
business in the third quarter of 1996 versus third quarter 1995 and
higher foreign exchange gains offset in part by higher costs in
pharmaceutical intermediates related primarily to naproxen start-up
costs as well as higher operating costs and lower operating rates
in flame retardants and bromine fine chemicals in the 1996 third
quarter. Overall gross profit margins increased to 24.4% in the
1996 third quarter from 23.3% in the corresponding period in 1995.
Selling, general and administrative expenses, combined with
research and development expenses, decreased 17% ($7.0 million) in
1996 from the 1995 quarter, primarily due to lower employee related
expenses as a result of the sale of the Olefins Business and the
electronic materials business as well as reductions in employee
benefit costs and in the allowance for doubtful accounts. These
reductions were offset in part by higher research and development
expenses related to flame retardants and pharmaceuticals. As a
percentage of net sales, selling, general and administrative
expenses, including research and development expenses, increased to
18.3% in 1996 from 12.9% in the 1995 quarter.
13
OPERATING PROFIT
Excluding the results of businesses sold in both periods operating
profit was significantly lower for the third quarter 1996 than the
corresponding period of 1995 due to lower shipments and higher
costs in flame retardants and bromine fine chemicals and higher
costs in pharmaceutical intermediates.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses in the third quarter of 1996
decreased to $.3 million from $3.1 million in 1995 due primarily
to lower average outstanding debt. Other income decreased $.8
million due primarily to the absence of interest income from the
notes receivable from MEMC Pasadena, Inc. received in connection
with the July 31, 1995 sale of the electronic materials business.
GAIN ON SALE OF BUSINESS
The Company's third quarter 1995 earnings included a gain of $4.9
million (approximately $3.1 million after income taxes)
representing the partial recognition of a gain realized on the July
31, 1995 sale of the Company's electronic materials business.
INCOME TAXES
The effective income tax rate for the third quarter of 1996 was
28.4% versus a 37.6% rate for the corresponding period of 1995.
Income taxes decreased $8.4 million in the 1996 quarter compared to
the 1995 quarter, on a $19.7 million decrease in pretax income from
operations, excluding the effect of the gain on the sale of the
electronics materials business in 1995. The lower than normal
effective income tax rate and related income tax expense for the
third quarter of 1996 was due to an adjustment to reflect the
effect of lower than expected pretax income from operations and the
planned utilization of foreign tax credits in 1996. The rate in the
corresponding period in 1995 was higher than normal primarily
because the Company provided valuation allowances against net
operating losses of its Belgian subsidiary.
Results of Operations
- ---------------------
Nine Months 1996 Compared with Nine Months 1995
- -----------------------------------------------
NET SALES
Net sales for the first nine months of 1996 amounted to $650.0
million, down from $948.2 million in 1995. Excluding the net sales
in both periods of the Olefins Business sold March 1, 1996 and the
electronic materials business sold July 31, 1995, Albemarle's net
sales for the first nine months of 1996 would have increased three
percent ($15.3 million) over the 1995 period. The sales increase
in the remaining businesses was primarily due to higher shipments
of organometallics, bromine and derivatives and bromine fine
chemicals, partly offset by decreases in shipments of
pharmaceutical intermediates, flame retardants and zeolites.
14
OPERATING COSTS AND EXPENSES
Cost of goods sold decreased primarily due to decreases in
shipments, mainly due to the impact of the effects of the
businesses sold as well as higher foreign exchange gains offset in
part by higher costs in pharmaceutical intermediates related to
naproxen start-up as well as higher operating costs and lower
operating rates in flame retardants and bromine fine chemicals in
the 1996 period. Gross profit margins for nine months 1996
increased overall to 27.0% from 21.7% in the corresponding period
in 1995.
Selling, general and administrative expenses, combined with
research and development expenses, decreased 8% ($9.0 million) in
the first nine months of 1996 from the corresponding period in
1995, primarily due to lower employee related expenses as a result
of the sale of the Olefins Business and the electronic materials
business, as well as reductions in employee benefit costs and lower
costs of outside services, offset in part by the expense associated
with the exercise of certain stock appreciation rights and higher
data processing expenses. As a percentage of net sales, selling,
general and administrative expenses, including research and
development expenses, increased to 17.0% in the first nine months
of 1996 from 12.6% in 1995.
OPERATING PROFIT
Operating profit in the first nine months of 1996 decreased 24%
($20.9 million) from the corresponding period in 1995. Excluding
the results of businesses sold in both periods, operating profit
was significantly lower for the first nine months of 1996 than for
the corresponding period of 1995 due to lower shipments and higher
costs in pharmaceutical intermediates and flame retardants.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses in the first nine months of 1996
decreased to $2.4 million from $10.2 million in the corresponding
period of 1995 primarily due to lower average outstanding debt.
Other income was up $1.9 million over the 1995 period primarily due
to interest income from the temporary investment of a portion of
the proceeds from the sale of the Olefins Business.
GAIN ON SALE OF BUSINESSES
The Company's earnings for the first nine months of 1996 included
a gain resulting from the March 1, 1996 sale of the Olefins
Business to Amoco for $487.3 million, including plant and equipment
(primarily located in Pasadena, Texas, Deer Park, Texas and Feluy,
Belgium), other assets, inventory and accounts receivable, net of
expenses and trade accounts payable retained and paid by the
Company and certain business-related liabilities transferred at the
date of sale. The sale involved the transfer of approximately 550
people who supported these businesses. The gain on the sale was
$158.2 million ($94.4 million after income taxes or $1.57 per
share), net of costs incurred or accrued in connection with the
sale. (See Note 2 of the Notes to the Consolidated Financial
Statements on page 7.) The Company's third quarter 1995 earnings
included a gain of $4.9 million (approximately $3.1 million after
income taxes) representing the partial recognition of the gain
realized on the sale of the electronic materials business.
<PAGE 15>
INCOME TAXES
Income taxes in the first nine months of 1996 increased $53.2
million from the 1995 period on a $142.0 million increase in pretax
income while the effective income tax rate was 38.5% in the 1996
period versus a 40.2% rate for the corresponding period in 1995.
Excluding the effect of the gains on the sales of the businesses,
income taxes in the first nine months of 1996 decreased $8.7
million compared to the 1995 period, reflecting an effective income
tax rate of 34.0%, down from the 40.4% rate for the first nine
months of 1995, on an $11.2 million decrease in pretax income from
operations. The rate for the first nine months of 1996 was
favorably impacted by improved operating results from the Company's
former Belgium subsidiary, lower than expected pretax income from
operations and the planned benefits in 1996 of foreign tax credits.
The rate in 1995 was higher than normal primarily because the
Company provided valuation allowances against net operating losses
of its Belgian subsidiary.
Financial Condition and Liquidity
- ---------------------------------
Cash and cash equivalents at September 30, 1996, were $39.3 million
which represents an increase of $6.2 million from $33.1 million at
year-end 1995.
Approximately 18.8 million of cash was generated by operations in
the first nine months of 1996, which included installment income
tax payments of $59.3 million on the gain on the sale of the
Olefins Business. Excluding the impact of the income tax payments,
cash flows from operations would have been $78.1 million which
together with $26.6 million of proceeds from borrowings were
sufficient to cover operating activities, capital expenditures,
payment of dividends, purchases of common stock and increase cash
and cash equivalents.
Proceeds from the sale of the Olefins Business of $487.3 million,
net of expenses and trade payables retained and paid by the
Company, were used to purchase 9,759,865 shares of common stock,
repay long-term debt, and pay installments of income taxes related
to the sale.
On September 24, 1996, to replace its existing credit facility, the
Company entered into a new five-year, $500 million unsecured
Competitive Advance and Revolving Credit Facility Agreement with a
consortium of banks at various interest rate options. No amounts
were outstanding at September 30, 1996 under that 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 consolidated
shareholders' equity and consolidated indebtedness.
The Company anticipates that cash provided from operations in the
future will be sufficient to pay its operating expenses, satisfy
debt-service obligations and make dividend payments to common
shareholders at current rates.
16
The Company's foreign currency translation adjustments, net of
related deferred taxes, at September 30, 1996, decreased 30% from
December 31, 1995, primarily due to the strengthening of the U.S.
dollar.
The non-current portion of the Company's long-term debt amounted to
$29.6 million at September 30, 1996, compared to $200.1 million at
the end of 1995. The reduction in long-term debt reflects payments
resulting from the use of proceeds received from the sale of the
Olefins Business. The Company's long-term debt, including the
current portion, as a percentage of total capitalization at
September 30, 1996, amounted to approximately 7.0% compared to
25.9% at December 31, 1995.
The Company's capital expenditures in the third quarter of 1996
were lower than in the third quarter of 1995. For the year,
capital expenditures should be significantly below the 1995 level.
Capital spending will be financed primarily with cash flow from
operations with any needed additional cash to be provided from
debt. The amount and timing of any borrowing will depend on the
Company's specific cash requirements.
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 best
of the Company's knowledge, it currently is 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 has not in the past had, and 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 and
may be liable for a share of the costs associated with cleaning up
various hazardous waste sites.
17
Part II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
-----------------
An administrative proceeding, involving a potential penalty in
excess of $100,000, was previously reported in the Company's 1996
first quarter report on Form 10-Q. The Company completed a
settlement on August 30, 1996 for a cash penalty of less than
$100,000, plus a supplemental environmental project to be agreed
upon, expected to cost approximately $150,000.
An administrative proceeding with the federal Occupational Safety
and Health Administration, involving a proposed penalty of
$119,000, was previously reported in the Company's 1996 second
quarter report on Form 10-Q. The Company has filed a notice of
contest and is contesting vigorously.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - The following document is filed as an
exhibit to this Form 10-Q pursuant to Item 601 of
Regulation S-K:
10.1 Credit Agreement, dated as of September 24, 1996,
between the Company, NationsBank, N.A. as
administrative agent and Bank of America Illinois, The
Bank of New York and The Chase Manhattan Bank, as co-agents and
certain commercial banks, which supersedes
the Credit Agreement of February 16, 1994, previously
filed with the Securities and Exchange Commission in
its entirety.
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
18
SIGNATURES
Pursuant to the requirements 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)
Date: November 5, 1996 By: s/Thomas G. Avant
------------------------------
Senior Vice President
(Principal Accounting Officer)
Date: November 5, 1996 By: s/Robert G. Kirchhoefer
----------------------------
Treasurer
19
EXHIBIT INDEX
-------------
EXHIBIT 10.1
- ------------
Credit Agreement, dated as of September 24, 1996, between the
Company, NationsBank, N.A. as administrative agent and Bank of
America Illinois, The Bank of New York and The Chase Manhattan
Bank, as co-agents and certain commercial banks, which supersedes
the Credit Agreement of February 16, 1994, previously filed with the
Securities and Exchange Commission in its entirety.
EXHIBIT 27
- -----------
Financial Data Schedule