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, 1997
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, 1997: 55,402,619
2
ALBEMARLE CORPORATION
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 3-4
Consolidated Statements of Income - Three and
Nine Months Ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 6
Notes to the Consolidated Financial Statements 7-12
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition and
Additional Information 13-17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
Exhibit 28.1 Current By-Laws As Amended 21-35
Exhibit 27 Financial Data Schedule 36-37
3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
--------------------
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
-----------------------
September 30,
1997 December 31,
(Unaudited) 1996
--------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,339 $ 14,242
Accounts receivable, less allowance
for doubtful accounts (1997- $1,510;
1996 - $1,290) 150,457 141,293
Inventories:
Finished goods 63,441 58,271
Raw materials 14,139 10,148
Work-in-process 167 247
Stores, supplies and other 17,625 15,833
--------------- -------------
Total inventories 95,372 84,499
Deferred income taxes and prepaid
expenses 17,248 19,107
--------------- -------------
Total current assets 273,416 259,141
--------------- -------------
Property, plant and equipment, at cost 1,180,169 1,148,832
Less accumulated depreciation and
amortization (682,270) (653,108)
--------------- -------------
Net property, plant and
equipment 497,899 495,724
Other assets and deferred charges 74,694 68,304
Goodwill and other intangibles, net of
amortization 18,107 23,092
--------------- -------------
Total assets $ 864,116 $ 846,261
--------------- -------------
--------------- -------------
<FN>
See accompanying notes to the consolidated financial statements.
4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
September 30,
1997 December 31,
(Unaudited) 1996
--------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,499 $ 66,968
Long-term debt, current portion 380 7,457
Accrued expenses 51,674 55,783
Dividends payable 4,988 3,853
Income taxes payable 14,578 13,887
-------------- -------------
Total current liabilities 125,119 147,948
--------------- -------------
Long-term debt 38,055 24,406
Other noncurrent liabilities 67,501 64,166
Deferred income taxes 93,467 104,543
Shareholders' equity:
Common stock, $.01 par value,
issued - 55,432,619 in 1997
and 55,046,183 in 1996, respectively 554 550
Additional paid-in capital 256,154 250,890
Foreign currency translation
adjustments (193) 16,677
Retained earnings 283,459 237,081
--------------- -------------
Total shareholders' equity 539,974 505,198
--------------- -------------
Total liabilities and shareholders'
equity $ 864,116 $ 846,261
--------------- -------------
--------------- -------------
<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,
-------------------- ------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Net sales $ 207,111 $ 183,776 $ 613,180 $ 649,986
Cost of goods sold 144,191 139,016 416,089 474,342
--------- --------- --------- ---------
Gross profit 62,920 44,760 197,091 175,644
Selling, general and
administrative expenses 27,786 25,212 82,054 88,436
Research and development
expenses 7,709 8,480 22,934 22,317
--------- --------- --------- ---------
Operating profit 27,425 11,068 92,103 64,891
Interest and financing
expenses 152 323 559 2,367
Gain on sale of business -- -- -- (158,157)
Other income, net (318) (271) (839) (3,823)
---------- ---------- ---------- ---------
Income before income taxes 27,591 11,016 92,383 224,504
Income taxes 9,043 3,129 33,295 86,358
---------- --------- --------- ----------
NET INCOME $ 18,548 $ 7,887 $ 59,088 $ 138,146
---------- --------- --------- ----------
---------- --------- --------- ----------
EARNINGS PER SHARE $ .33 $ .14 $ 1.06 $ 2.30
---------- --------- --------- ----------
---------- --------- --------- ----------
Shares used to compute
earnings per share 55,910 56,017 55,681 59,988
---------- --------- --------- ----------
---------- --------- --------- ----------
Cash dividends declared
per share of common stock $ .09 $ .07 $ .23 $ .18
---------- --------- --------- ----------
---------- --------- --------- ----------
<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,
------------------
1997 1996
--------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 14,242 $ 33,130
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 59,088 138,146
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 50,717 54,204
Gain on sale of business, net of income
taxes of $63,780 -- (94,377)
Working capital increases excluding
cash and cash equivalents:
Income tax payments on gain on sale of business -- (59,324)
Other working capital increases, net
of the effects of the sale of business
in 1996 (41,807) (10,059)
Other, net (303) (9,829)
--------- ---------
Net cash provided from operating activities 67,695 18,761
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and cost of business
acquired in 1997 (73,285) (64,094)
Proceeds from sale of business, net of
$42,297 of trade accounts payable retained
by the Company -- 487,345
Other, net 1,587 1,982
--------- ---------
Net cash (used in) provided from investing
activities (71,698) 425,233
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 17,889 26,641
Repayments of long-term debt (10,978) (204,334)
Dividends paid (11,575) (10,380)
Purchases of common stock -- (251,518)
Proceeds from exercise of stock options 4,764 1,793
--------- ---------
Net cash provided from (used in)
financing activities 100 (437,798)
--------- ---------
(Decrease) increase in cash and cash equivalents (3,903) 6,196
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,339 $ 39,326
--------- ---------
--------- ---------
<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 of Albemarle Corporation and
Subsidiaries ("Albemarle" or "the Company") contain all
adjustments necessary to present fairly, in all material
respects, the Company's consolidated financial position as of
September 30, 1997 and December 31, 1996, the consolidated
results of operations for the three- and nine-month periods
ended September 30, 1997 and 1996, and the condensed
consolidated cash flows for the nine-month periods ended
September 30, 1997 and 1996. 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 1996
Annual Report which was incorporated by reference in the
Company's Form 10-K filed on March 26, 1997. The December
31, 1996 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, 1997, 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 for the nine
months ended September 30, 1996, 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 costs (including environmental costs) related
to the sale and/or businesses sold. The transaction included
numerous operating and service agreements primarily focusing
on the sharing of common facilities at the Pasadena plant
site of Albemarle and the Feluy plant site operated by Amoco.
8
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
3. Long-term debt consists of the following:
September 30, December 31,
1997 1996
------------- -------------
Variable-rate bank loans $ 28,200 $ 16,300
Foreign bank borrowings 9,087 14,392
Miscellaneous 1,148 1,171
------------- -------------
Total 38,435 31,863
Less amounts due within one year 380 7,457
------------- -------------
Long-term debt $ 38,055 $ 24,406
------------- -------------
------------- -------------
4. The provision for income taxes on the earnings of the Company
in the accompanying consolidated statement of income for the
nine-month period ended September 30, 1996 is higher than the
statutory income tax rates primarily due to a lower tax basis
than book basis related to the sale of the Olefins Business,
offset in part, by the benefits in 1996 of foreign tax
credits.
5. The shares used to compute earnings per share for the three-
and nine-month periods ended September 30, 1997 and 1996,
reflect the April 1, 1996 purchase by the Company of
9,484,465 shares of its common stock, at a price of $23 per
share plus expenses for a total aggregate cost of $219.4
million, through a tender offer, which began on March 4, 1996
and concluded on April 1, 1996, following the sale of the
Olefins Business to Amoco. The Company purchased 275,400 and
1,481,100 common shares in the second and third quarters of
1996, respectively, at an aggregate cost of $6.1 million and
$26.0 million, respectively.
6. The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" in February, 1997 which is effective for
financial statements for both interim and annual periods
ending after December 15, 1997. Earlier application is not
permitted; however, restatement of all prior-period earnings
per share data presented is required. Based upon the
Company's preliminary determination, the effect of the
adoption of SFAS No. 128 on the financial statements of the
Company is not expected to be material.
9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share Amounts)
(Unaudited)
The FASB issued SFAS No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", in June, 1997, which are effective
for financial statements for annual periods beginning after
December 15, 1997. Earlier application of both Statements is
permitted. SFAS No. 130 establishes standards for reporting
comprehensive income in a full set of general-purpose financial
statements, either in the income statement or in a separate
statement, and also requires display of "accumulated other
comprehensive income" in a separate caption in the equity
section of the balance sheet. SFAS No. 131 establishes
standards for reporting information about operating segments,
including related disclosures about products and services,
geographic areas, and major customers. The Company has not yet
determined the effect SFAS Nos. 130 and 131 will have on the
Company's financial statements. At the time of their adoption
these standards are not expected to have a material impact on
the financial position or results of operations of the Company.
7. On March 31, 1997, the Company and Mitsui Toatsu Chemicals,
Inc. (Mitsui Toatsu) completed the formation of an alliance whereby
Albemarle acquired for cash 50 percent of the outstanding stock of
Nippon Aluminum Alkyls, Ltd. (NAA). Mitsui Toatsu continued to
hold the remaining 50% of NAA until October 1, 1997, when Mitsui
Toatsu and Mitsui Petrochemical Industries, Ltd. merged to form
Mitsui Chemicals, Inc. Therefore Mitsui Chemicals, Inc. became owner
on October 1, 1997 of the remaining 50%. NAA produces organometallic
catalysts at its facility in Takaishi City, Osaka and distributes
products to the petrochemical and synthetic rubber industries in
Japan and the Asia Pacific area. No historical pro forma financial
information is required for this acquisition.
8. 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, 1996. The related
pro forma information is presented for informational purposes only and is
not necessarily indicative of what the consolidated results of
operations would have been had the Company operated without the
Olefins Business for 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 reflect the impact of the purchase of 9,484,465 shares of
common stock acquired in the Company's tender offer as if they had
occurred on January 1, 1996.
10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
8. Continued.
Pro Forma Condensed Consolidated
Statement of Income
Nine Months Ended September 30, 1996
--------------------------------------
Adjustments
Increase
Historical (Decrease) 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 $ 0.72
----------- ------------
----------- ------------
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)
8. 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,
1996, 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 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 combined U.S. state and federal income tax rate
of 37.92%. The Company's income tax provision on the results
of operations of the remaining businesses was adjusted for
utilization of a portion of the Belgian net operating loss
carryforwards for which a valuation allowance had previously
been provided on the related deferred tax assets and for the
estimated additional income taxes which would have resulted
if undistributed foreign earnings had been remitted to the
Company.
12
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share Amounts)
(Unaudited)
8. Continued.
(g) The average number of shares used to compute earnings per
share does not include the effects of the Company's tender
offer concluded on April 1, 1996, as if it had occurred on
January 1, 1996. The average number of shares would have
been 56,826,000 had the offer been assumed to have been
completed on January 1, 1996.
13
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 of
Albemarle Corporation's ("Albemarle" or "the Company") during the
periods included in the accompanying consolidated statements of
income and changes in the Company's financial condition since
December 31, 1996.
Some of the information presented in the following discussion
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 businesses
and operations, there can be no assurance that actual results will
not differ materially from its expectations. Factors which 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 market in
general, fluctuations in foreign currencies and significant changes
in new product introduction resulting in an increase in capital
project requests and approvals leading to additional capital
spending.
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 was
engaged in the Bromine Chemicals, the Specialty Chemicals and the
Surfactants and Detergents businesses. Effective July 24, 1997,
the businesses were realigned into Polymer Chemicals, Fine
Chemicals and Potassium and Chlorine Chemicals.
Results of Operations
- ---------------------
Third Quarter 1997 Compared with Third Quarter 1996
- ---------------------------------------------------
NET SALES
Net sales for the third quarter of 1997 amounted to $207.1 million,
a 13% increase over third quarter 1996 net sales of $183.8
million. The higher net sales were primarily due to increased
shipments of flame retardants, bromine fine chemicals,
pharmaceuticals, agricultural chemicals and special intermediates,
partly offset by price reductions in certain flame retardants.
OPERATING COSTS AND EXPENSES
Cost of goods sold for the third quarter of 1997 amounted to $144.2
million compared to $139.0 million in the 1996 period. The gross
profit margin increased to 30.4% in 1997 from 24.4% for the
corresponding period in 1996. The improvement in the gross margin
over 1996 primarily reflects improved plant utilizations, the
impact of the Company's cost reduction program, and lower start-up
costs associated with naproxen in the 1997 period.
Selling, general and administrative expenses, combined with
research and development expenses, increased five percent in 1997
versus the 1996 quarter. The increase reflects the impact of
higher non-recurring employee-related compensation costs as well as
higher costs of experience-rated employee group life insurance in
1997 versus the 1996 period, offset in part by a decline in
research and development expenses primarily related to new products
as defined by the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 2. As a percentage of net
sales, selling, general and administrative expenses, including
research and development expenses, were 17.1% in 1997 versus 18.3%
in the 1996 quarter.
14
OPERATING PROFIT
Operating profit in the third quarter of 1997 increased 148% from
the corresponding period in 1996, primarily due to increased
shipments and improved costs in flame retardants, bromine fine
chemicals, pharmaceuticals, agricultural chemicals and special
intermediates, and improved costs in European potassium and
chlorine chemicals.
INCOME TAXES
Income taxes for the third quarter of 1997 increased $5.9 million
compared to the third quarter of 1996 due to a $16.6 million
increase in pretax income and a higher effective tax rate (32.8% in
the 1997 quarter versus 28.4% for the 1996 period). The higher
effective income tax rate in the 1997 period reflects an increase
in income from foreign subsidiaries, which are taxed at higher than
U. S. statutory rates and for which no benefits are provided since
amounts are not presently expected to be repratiated, while the
effective tax rate for the 1996 period reflects the utilization of
available foreign tax credits.
Results of Operations
- ----------------------
Nine Months 1997 Compared with Nine Months 1996
- -----------------------------------------------
NET SALES
Net sales for the first nine months of 1997 amounted to $613.2
million, down from $650.0 million for the corresponding period of
1996. Excluding the first two months 1996 net sales (approximately
$80 million) of the Olefins Business sold March 1, 1996,
Albemarle's net sales for the first nine months of 1997 would have
shown an increase of eight percent or approximately $43 million.
The higher net sales were primarily due to increased shipments of
flame retardants, bromine fine chemicals, organometallics,
pharmaceuticals, and antioxidants offset in part, by price
reductions in certain flame retardants.
OPERATING COSTS AND EXPENSES
Cost of goods sold decreased 12% or $58.3 million in 1997 from 1996
primarily reflecting the impact of two months cost of goods sold of
the Olefins Business included in the 1996 period. The gross profit
margin increased to 32.1% in 1997 from 29.3% in 1996 excluding from
the 1996 period the two months results of the Olefins Business.
The improvement in the gross margin reflects improved plant
utilizations and the impact of the Company's cost reduction
program.
15
Selling, general and administrative expenses, combined with
research and development expenses, decreased 5.2% in 1997 versus
the 1996 period. The 1997 period reflects the elimination of
two-months expenses associated with the operations of the Olefins
Business and a reduction in expenses associated with the exercise
of stock appreciation rights versus the 1996 period. Additionally,
the 1997 period benefited from lower employee-related expenses
resulting from the Company's workforce reduction program
implemented in conjunction with the sale of the Olefins Business.
As a percentage of net sales, selling, general and administrative
expenses, including research and development expenses, were 17.1%
in the nine months of 1997 versus 17.0% in the 1996 period.
Excluding the first two months 1996 selling, general and
administrative expenses and research and development expenses of
the Olefins Business sold, the percentage of net sales for the 1996
period would have been 18.5%.
OPERATING PROFIT
Operating profit in the first nine months of 1997 increased
approximately 42% from the corresponding period in 1996. Excluding
the first two months of 1996 operating profits of the Olefins
Business sold, the nine months of 1997 operating profits would have
shown an increase of 49% over the 1996 period. The 1997 period
benefited from product mix in agricultural chemicals, increased
shipments and improved costs in pharmaceuticals and bromine fine
chemicals, higher shipments in organometallics, and improved costs
in zeolites and European potassium and chlorine chemicals.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses in the nine months of 1997
decreased to $0.6 million from $2.4 million in the nine months of
1996 due to lower average outstanding debt. Other income decreased
$3.0 million due to lower interest income in the 1997 period.
GAIN ON SALE OF BUSINESS
The Company's 1996 first nine month's earnings included a gain of
$158.2 million ($94.4 million after income taxes) on the sale of
the Olefins Business.
INCOME TAXES
Income taxes in the first nine months of 1997 decreased $53.1
million from the 1996 period, reflecting a $132.1 million decrease
in pretax income and a lower effective income tax rate (36.0% in
1997 versus 38.5% in 1996). Excluding the effect of the gain on
the sale of the Olefins Business, the effective income tax rate
would have been 34% in the 1996 period. The higher effective
income tax rate in the 1997 period reflects an increase in income
from foreign subsidiaries, which are taxed at higher than U. S.
statutory rates and for which no benefits are provided since
amounts are not presently expected to be repatriated, while the
effective tax rate for the 1996 period reflects the utilization of
available foreign tax credits.
Financial Condition and Liquidity
- ---------------------------------
Cash and cash equivalents at September 30, 1997, were $10.3
million, representing a decrease of $3.9 million from $14.2 million
at year-end 1996.
16
Cash flows from operating activities during the first nine months
of 1997 together with $3.9 million of existing cash, and proceeds
from additional borrowings of $17.9 million and $4.8 million from
the exercise of stock options, were used to cover capital
expenditures and cost of business acquired, payment of dividends
and repayment of debt.
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.
The Company's foreign currency translation adjustments, net of
related deferred taxes, at September 30, 1997, decreased
substantially from December 31, 1996, primarily due to the
strengthening of the U.S. dollar.
The noncurrent portion of the Company's long-term debt amounted to
$38.1 million at September 30, 1997, compared to $24.4 million at
the end of 1996. The Company's long-term debt, including the
current portion, as a percentage of total capitalization amounted
to 6.6% at September 30, 1997.
The Company's capital expenditures combined with cost of business
acquired in the first nine months of 1997 were higher than in the
same period of 1996 resulting primarily from to the timing of
payments . For the year, capital expenditures are forecasted to be
slightly above the 1996 level. Capital spending will be financed
primarily with cash flow from operations with any additional cash
provided from additional debt. The amount and timing of any
additional 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 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 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
ADDITIONAL INFORMATION
- ----------------------
The Company reported in the second quarter of 1997 that two of its
new flame retardants were sampled by various customers, and it has
received orders for Saytex HP 7010 flame retardant, a new product
for use in engineered plastics that has demonstrated good color,
flowability and heat stability characteristics. In the third
quarter, the Company started up a market development unit plant in
its Baton Rouge research and development facility to make this
product and is beginning to fill orders, but the Company does not
expect this product to contribute to profits in the near term. If
the Company obtains substantial customer acceptance, it would move
to full commercial plant operations. In that event, the Company
would expect HP 7010 to be an important contributor to the flame
retardant business.
In the third quarter, the Company initiated sales of naproxen, an
analgesic product, to US customers. The Company continues to be
significantly delayed in reaching its sales goals for naproxen due
to the timing of the U.S. Food and Drug Administration's approvals
of the Company's customers' applications.
18
Part II - OTHER INFORMATION
- ----------------------------
ITEM 1. Legal Proceedings
-----------------
As previously reported in the Company's 1997 second quarter Form
10-Q, the U. S. Environmental Protection Agency (EPA), through the
Department of Justice (DOJ), has threatened suit under the Clean
Air Act ("the Act") alleging that the Company failed to respond
adequately or in a timely manner to certain requests for
information under section 114 of the Act regarding volatile organic
compound (VOC) emissions at the Company's Orangeburg, South
Carolina plant and the plant's compliance with Prevention of
Significant Deterioration (PSD) of air quality requirements. The
DOJ notice demanded a penalty of $530,000 and the submission of
certain information by a date certain. The Company denies that it
failed to respond in any material respect or that there was a
violation of PSD requirements. The Company retained an independent
consultant with experience in the field to review the available
data and prepare and submit a tabulation of that data in the format
demanded by the EPA. This information has been furnished. The
Company continues in settlement negotiations with the DOJ.
ITEM 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits - Current By-Laws as amended
- Financial Data Schedule
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
19
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 12, 1997 By: Dirk Betlem
-----------------
Dirk Betlem
President
(Chief Operating Officer)
Date: November 12, 1997 By: Thomas G. Avant
-----------------
Thomas G. Avant
Senior Vice President
(Principal Accounting
Officer)
20
EXHIBIT INDEX
-------------
Page
Number and Name of Exhibit Number
- -------------------------- ------
28.1 Current By-Laws As Amended 21-35
27 Financial Data Schedule 36-37