1
Page 1 of 21 Pages
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 March 31, 1999
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 April 30, 1999: 47,035,891
2
ALBEMARLE CORPORATION
I N D E X
Page
Number
----------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
- March 31, 1999 and
December 31, 1998 3-4
Consolidated Statements of Income
- Three Months Ended March 31, 1999
and 1998 5
Consolidated Statements of
Comprehensive Income - Three
Months Ended March 31, 1999 and 1998 6
Condensed Consolidated Statements
of Cash Flows - Three Months
Ended March 31, 1999 and 1998 7
Notes to the Consolidated Financial
Statements 8-12
ITEM 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition, Additional Information,
Year 2000, and Recent Developments 13-19
PART II. OTHER INFORMATION
ITEM 3. Legal Proceedings 19
ITEM 4. Submission of Matters to a Vote
of Security Holders 20
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
3
PART I - FINANCIAL INFORMATION
- -------------------------------
ITEM 1. Financial Statements
--------------------
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in Thousands)
---------------------
March 31, December 31,
1999 1998
-------------- ---------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $38,041 $21,180
Accounts receivable,
less allowance for doubtful
accounts (1999- $3,030;
1998 - $2,782) 131,145 145,207
Inventories:
Finished goods 97,399 97,684
Raw materials 12,694 11,684
Stores, supplies and other 16,534 17,838
-------------- ---------------
126,627 127,206
Deferred income taxes and prepaid
expenses 18,936 17,937
-------------- ---------------
Total current assets 314,749 311,530
-------------- ---------------
Property, plant and equipment,
at cost 1,262,534 1,259,340
Less accumulated depreciation
and amortization 752,721 744,672
-------------- ---------------
Net property, plant and
equipment 509,813 514,668
Investment in securities
available-for-sale 140,089 --
Other assets and deferred charges 99,152 90,308
Goodwill and other intangibles
- net of amortization 19,236 21,291
-------------- ---------------
Total assets $1,083,039 $937,797
-------------- ---------------
-------------- ---------------
<FN>
See accompanying notes to the consolidated financial statements.
4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in Thousands)
----------------------
March 31, December 31,
1999 1998
--------------- --------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $50,004 $45,073
Long-term debt, current portion 378 408
Accrued expenses 54,297 53,300
Dividends payable 4,703 4,701
Income taxes payable 14,488 4,454
--------------- --------------
Total current liabilities 123,870 107,936
--------------- --------------
Long-term debt 309,247 192,530
Other noncurrent liabilities 77,312 75,664
Deferred income taxes 105,180 110,000
Shareholders' equity:
Common stock, $.01 par value,
issued and outstanding
- 47,028,391 at March 31, 1999
and 47,008,283 at December 31,
1998 470 470
Additional paid-in capital 78,990 78,724
Accumulated other comprehensive
income 4,388 7,360
Retained earnings 383,582 365,113
--------------- --------------
Total shareholders' equity 467,430 451,667
--------------- --------------
Total liabilities and shareholders'
equity $1,083,039 $937,797
--------------- --------------
--------------- --------------
<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
March 31,
------------------------
1999 1998
----------- -----------
Net sales $208,345 $215,149
Cost of goods sold 134,886 147,328
----------- -----------
Gross profit 73,459 67,821
Selling, general and administrative
expenses 28,792 26,575
Research and development expenses 8,423 7,054
----------- -----------
Operating profit 36,244 34,192
Interest and financing expenses 2,472 952
Other income, net (813) (666)
----------- -----------
Income before income taxes 34,585 33,906
Income taxes 11,413 11,257
----------- -----------
NET INCOME $23,172 $22,649
----------- -----------
----------- -----------
BASIC EARNINGS PER SHARE $ .49 $ .42
----------- -----------
----------- -----------
Shares used to compute basic earnings per
share 47,016 53,469
----------- -----------
----------- -----------
DILUTED EARNINGS PER SHARE $ .49 $ .42
----------- -----------
----------- -----------
Shares used to compute diluted
earnings per share 47,746 53,981
----------- -----------
----------- -----------
Cash dividends declared per share
of common stock $ .10 $ .09
----------- -----------
----------- -----------
<FN>
See accompanying notes to the consolidated financial statements.
6
ALBEMARLE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-------------------------------------------------
(Dollars in Thousands)
----------------------
(Unaudited)
Three Months Ended
March 31,
----------------------
1999 1998
---------- -----------
Net income $23,172 $22,649
Other comprehensive income (loss),
net of tax:
Unrealized gain on securities
available-for-sale 8,144 --
Foreign currency translation
adjustments (11,116) (1,976)
---------- -----------
Other comprehensive (loss) income (2,972) (1,976)
---------- -----------
Comprehensive income $20,200 $20,673
---------- -----------
---------- -----------
<FN>
See accompanying notes to the consolidated financial statements.
7
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------
(Dollars in Thousands)
----------------------
(Unaudited)
Three Months Ended
March 31,
-----------------------
1999 1998
----------- ----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR $21,180 $34,322
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 23,172 22,649
Adjustments to reconcile net income
to cash flows from operating
activities:
Depreciation and amortization 18,886 17,607
Working capital decrease excluding
cash and cash equivalents 24,842 15,206
Other, net (4,582) (2,680)
----------- ----------
Net cash provided from operating
activities 62,318 52,782
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,167) (18,361)
Cost of securities
available-for-sale (129,295) --
Restricted unexpended
industrial revenue bond proceeds (6,869) --
Other, net (267) (215)
----------- ----------
Net cash used in investing
activities (158,598) (18,576)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 122,360 3,865
Repayments of long-term debt (4,749) (6,324)
Dividends paid (4,701) (4,963)
Proceeds from stock options exercised 231 167
Purchases of common stock -- (19,029)
----------- ----------
Net cash provided from (used in)
financing activities 113,141 (26,284)
----------- ----------
Increase in cash and cash equivalents 16,861 7,922
----------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $38,041 $42,244
----------- ----------
----------- ----------
<FN>
See accompanying notes to the consolidated financial statements.
8
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
March 31, 1999 and December 31, 1998, the consolidated
results of operations, comprehensive income and condensed
consolidated cash flows for the three-month periods ended
March 31, 1999 and 1998. 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 1998
Annual Report & Form 10-K filed on March 10, 1999. The
December 31, 1998 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-month
period ended March 31, 1999, are not necessarily indicative
of the results to be expected for the full year. Certain
amounts in the accompanying consolidated financial statements
and notes thereto for the period ended March 31, 1999, have
been compiled and included herein in connection with the
adoption of Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 131
"Disclosure about Segments of an Enterprise and Related
Information" effective December 31, 1998.
2. Long-term debt consists of the following:
March 31, December 31,
1999 1998
------------- ----------------
Variable-rate bank loans $ 281,000 $ 169,600
Foreign borrowings 16,529 22,216
Industrial revenue bonds 11,000 --
Miscellaneous 1,096 1,122
------------- ----------------
Total 309,625 192,938
Less amounts due within one
year 378 408
------------- ----------------
Long-term debt $ 309,247 $ 192,530
------------- ----------------
------------- ----------------
9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
In Thousands Except Per-Share Amounts
-------------------------------------
(Unaudited)
2. Continued.
On March 10, 1999, the Company entered into a Loan Agreement
with Columbia County, Arkansas ("the County"), which issued
$11 million 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 presently unexpended proceeds
from the Tax-Exempt Bonds are restricted to the purchase of
solid waste disposal facilities and accordingly, are
reflected as a noncurrent asset in the balance sheet caption
- other assets and deferred charges. The Tax-Exempt Bonds
bear interest at a variable rate which approximates 65% of
the federal funds rate. The Tax-Exempt Bonds will mature in
22 years and are collateralized by a transferable irrevocable
direct pay letter of credit.
On March 10, 1999, the Company and the County entered into
series of agreements. Pursuant to these agreements, the
Company will benefit from a ten-year property tax abatement
on all new plant capital expansions, modifications, and/or
improvements (except for the restrictions on the $11 million
Tax-Exempt Bonds mentioned in the paragraph above) constructed
at the Company's Magnolia, Arkansas South Plant over the
next three years, up to a total of $81 million, including the
solid waste disposal facilities mentioned above. With the
exception of the $11 million Tax-Exempt Bonds, the funding
for the projects will be provided primarily from the Company's
cash flow from operations with the remainder provided by
long-term debt.
3. In March 1999, in connection with the Company's tender for
the shares of Albright & Wilson plc ("Albright & Wilson"),
a United Kingdom chemicals' company, the Company purchased
58,394,049 (18.6 percent)common shares of Albright & Wilson
for an aggregate purchase consideration of approximately
$129.3 million, including acquisition expenses. Funding
for this purchase was provided from advances under
the Company's existing Competitive Advance and Revolving
Credit Agreement("Revolving Credit Agreement"). On March 8, 1999,
in connection with the Company's tender, the Company entered
into a Credit Agreement totaling $1.275 billion. On April 16,
1999, in connection with the Company's revised tender offer
for Albright & Wilson, the Company signed an addendum to that
Credit Agreement increasing the total Credit Agreement to
$1.4 billion. The Credit Agreement and its addendum become
activated and could replace the Company's current Revolving
Credit Agreement if certain events associated with the tender
offer take place, but see "Recent Developments" later in
this Report.
10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
In Thousands Except Per-Share Amounts
-------------------------------------
(Unaudited)
3. Continued.
At March 31, 1999, the Company accounted for the acquired
shares of Albright & Wilson as securities available-for-sale
at the current market value ($140.1 million) on the London
Stock Exchange at that date in accordance with SFAS 115
"Accounting for Certain Investments in Debt and Equity
Securities" with the after-tax effect of the revaluation
adjustment ($8.1 million) of the securities included as other
comprehensive income in the balance sheet under the
shareholders' equity caption accumulated other comprehensive
income. The securities are classified as securities
available-for-sale as of the balance sheet date because of
the Company's tender offer outstanding as of March 31,
1999 for the remaining shares of Albright & Wilson.
4. Basic and diluted earnings per share for the three-month
periods ended March 31, 1999 and 1998, are calculated as
follows:
BASIC EARNINGS PER SHARE 1999 1998
----------- ------------
Numerator:
Income available to
stockholders, as reported $23,172 $22,649
----------- ------------
Denominator:
Average number of shares of
common stock outstanding 47,016 53,469
----------- ------------
Basic earnings per share $ .49 $ .42
----------- ------------
----------- ------------
DILUTED EARNINGS PER SHARE
Numerator:
Income available to
stockholders, as reported $23,172 $22,649
----------- ------------
Denominator:
Average number of shares of
common stock outstanding 47,016 53,469
Shares issuable upon exercise
of stock options 730 512
----------- ------------
Total shares 47,746 53,981
----------- ------------
Diluted earnings per share $ .49 $ .42
----------- ------------
----------- ------------
5. The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" in June 1998, which is
effective for financial statements for fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes
accounting and reporting standards for derivative
instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. It
11
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
In Thousands Except Per-Share Amounts
-------------------------------------
(Unaudited)
5. Continued.
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. The Company will
adopt SFAS No. 133 in 1999. At the time of adoption, this
standard is not expected to have a material impact on the
financial position or results of operations of the Company.
6. In 1998, the Company adopted SFAS No. 131, which changed the
way it reports information about its operating segments.
Prior years' segment data has been restated to conform to the
current presentation. The Company is a global manufacturer of
specialty polymer and fine chemicals, currently 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. 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. The corporate and other expenses
includes corporate-related items not allocated to the
reportable segments. See Table on the following page.
12
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
In Thousands Except Per-Share Amounts
-------------------------------------
(Unaudited)
6. Continued.
Three Months Ended March 31,
------------------------------------
1999 1998
---- ----
Summary of segment results Revenues Income Revenues Income
-------------------------- -------- ------- -------- ---------
Polymer Chemicals $107,390 $22,413 $110,434 $20,581
Fine Chemicals 100,955 19,772 104,715 19,390
-------- -------- -------- ---------
Segment totals $208,345 42,185 $215,149 39,971
-------- --------
-------- --------
Corporate and other
expenses (5,941) (5,779)
-------- ---------
Operating profit 36,244 34,192
Interest and financing
expenses (2,472) (952)
Other income, net 813 666
-------- ---------
Income before income taxes $34,585 $33,906
-------- ---------
-------- ---------
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 ("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, 1998.
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 products, 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.
Results of Operations
- ----------------------
First Quarter 1999 Compared with First Quarter 1998
- ----------------------------------------------------
Net sales of $208.3 million for the first quarter of 1999 were
down $6.8 million or three percent from $215.1 million in the
first quarter of 1998 with reductions in each reportable business
operating segment.
The gross profit margin increased to 35.3% in the first quarter
of 1999 from 31.5% in the first quarter of 1998. First-quarter
1999 operating profit benefited from favorable raw material
costs, the favorable effects of foreign exchange and a
nonrecurring credit, offset in part by higher selling, general
and administrative expenses including research and development
expenses. Excluding the favorable effects of foreign exchange
and the nonrecurring credit, first quarter 1999 operating results
were down two percent compared to first quarter 1998.
Selling, general and administrative expenses and research and
development expenses increased 11 percent in 1999 versus the 1998
quarter. The increase in first quarter 1999 resulted primarily
from higher new product development expenses, higher outside
consulting costs and an increase in certain employee related
costs in the 1999 period. As a percentage of net sales, selling,
general and administrative expenses and research and development
expenses were 17.9% in 1999 versus 15.6% in the 1998 quarter.
14
OPERATING SEGMENTS
Net sales by reportable business operating segment for the
three-month periods ended March 31, 1999 and 1998 are as follows:
Net Sales
---------
1999 1998
---- -----
Polymer Chemicals $107,390 $110,434
Fine Chemicals 100,955 104,715
-------- --------
Segment totals $208,345 $215,149
-------- --------
Polymer Chemicals' net sales for first quarter 1999 were down
approximately $3.0 million from first quarter 1998 primarily due
to lower pricing and shipments in flame retardants and lower
shipments in polymer additives and intermediates, offset in part
by the favorable effects of foreign exchange rates in 1999 in the
European and Asia-Pacific regions. Fine Chemicals' net sales for
first quarter 1999 were down approximately $3.8 million from
first quarter 1998 primarily due to lower shipments in potassium
and chlorine chemicals and lower sales of nonmanufactured
products in the Asia-Pacific region.
Operating profit results by reportable business operating
segments for the three-month periods ended March 31, 1999 and
1998 are as follows:
Operating Profit
----------------
1999 1998
---- ----
Polymer Chemicals $22,413 $20,581
Fine Chemicals 19,772 19,390
-------- --------
Segment totals 42,185 39,971
Corporate and other
expenses (5,941) (5,779)
-------- --------
Operating profit $36,244 $34,192
-------- --------
-------- --------
Polymer Chemicals' first quarter 1999 segment operating profit
was up nine percent from first quarter 1998 due to lower raw
material costs, the favorable effects of foreign exchange
transaction gains in 1999, an allocation of a portion of a
nonrecurring export expense reimbursement and a reduction in
other corporate expense allocations in first quarter 1999 versus
the first quarter of 1998. Fine Chemicals' first quarter 1999
segment operating profit was up two percent from first quarter
1998 due to lower raw material costs, the favorable effects of
foreign exchange transaction gains in 1999, an allocation of a
portion of a nonrecurring export expense reimbursement and a
reduction in other corporate expense allocations in 1999, offset
in part by higher research and development expenses in first
quarter 1999 versus the first quarter of 1998.
15
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses for first quarter 1999 increased
to $2.5 million from $1.0 million for first quarter 1998 due
primarily to higher average outstanding debt associated with the
September 1998 repurchase of common stock. Other income
increased $.2 million primarily due to higher interest income in
the 1999 period.
INCOME TAXES
Income taxes for first quarter 1999 increased $.2 million
compared to first quarter 1998 due primarily to higher pretax
income in the 1999 period. The effective tax rate declined
slightly to 33.0% in the 1999 quarter from 33.2% in the 1998
quarter.
Financial Condition and Liquidity
- ----------------------------------
Cash and cash equivalents at March 31, 1999, were $38.0 million,
representing an increase of $16.8 million from $21.2 million at
year-end 1998.
Cash flows from operating activities for the first three months
of 1999 together with borrowings of $122.4 million were used to
cover the 18.6 percent investment in Albright & Wilson plc
("Albright & Wilson"), capital expenditures, restricted
unexpended proceeds from industrial revenue bonds, payment of
dividends, repayment of debt with the balance added to cash and
cash equivalents.
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 change in the Company's accumulated other comprehensive
income included in shareholders' equity was due to the impact of
the other comprehensive income adjustment, net of related
deferred income taxes, associated with the change in foreign
currency translation adjustments (net of related deferred income
taxes) which was primarily due to the strengthening of the U.S.
dollar, offset by the increase in appreciation of the investment
in Albright & Wilson common shares included in the balance sheet
caption - investment in securities available-for-sale, revalued
to the current market rate on the London Stock Exchange at March
31, 1999.
The noncurrent portion of the Company's long-term debt amounted
to $309.2 million at March 31, 1999, compared to $192.5 million
at the end of 1998. The Company's long-term debt, including the
current portion, as a percentage of total capitalization amounted
to 39.8% at March 31, 1999.
The Company's capital expenditures in the first quarter of 1999
were higher than in the first quarter of 1998. For the year,
capital expenditures are forecasted to be above the 1998 level.
Capital spending will be financed primarily with cash flow from
operations with any needed additional cash provided from debt.
The amount and timing of any additional borrowing will depend on
the Company's specific cash requirements.
16
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.
Additional Information
- ----------------------
OUTLOOK
First-quarter 1999 proved a slow start to the year for the
Company, with volumes and revenues off in certain business units
in both reportable operating segments. The favorable effects of
foreign exchange and a significant non-recurring income credit,
coupled with a lower number of shares outstanding, provided a
significant increase in earnings per share versus first quarter
1998.
Raw material costs are expected to continue to contribute to
profitability as the year progresses, and plant utilization in
several key areas should continue at a high rate. Both of these
factors should contribute to good cost performance, but
performance could be diminished should the business conditions
that existed in the early months of the 1999 first quarter
continue during the year.
As the Company looks at the revenue performance by region, it
appears that Japan and Asia are somewhat stabilized and possibly
improving and North America is steady to slightly better, while
Europe is well behind the pace of last year.
New product development continues as a primary focus in the
Company's growth strategy. Customers have qualified one
significant new flame retardant, and sales of commercial
quantities are developing. ETHACURE 300 curative, used in cast
polyurethane elastomers and other applications, is also
commercial at this point, and sales comparisons with last year
are positive and should continue to be positive in 1999 should
the markets remain at current levels. While the pharmaceutical
bulk active naproxen sales lag earlier expectations, volumes
booked so far this year have increased over the comparable period
of 1998. Additionally, volume in propofol, an anesthesia product,
has increased from a smaller base which should lower plant costs
in our pharmaceutical unit. Ibuprofen volumes from this same unit
were very strong in 1998, providing a negative comparison with
the first quarter of 1999. Other new products are under
development, including new pharmaceutical, agricultural, cleaning
and polymer chemicals, and the Company's recent success in
obtaining biocide registrations has provided the ability to sell
a broader line into the market for these products.
17
The Company continues to seek alliances and pursue acquisitions
in synergistic specialty chemical businesses. The Company's
recent revised bid of 160 pence, cum dividend, for the remaining
share capital of Albright & Wilson (London exchange: AWN) was
topped by another company on April 30, 1999. Albemarle had an
initial bid of 130 pence, cum dividend, and was successful in
obtaining 18.6 percent of the Albright & Wilson shares in early
March. The Company expects that this matter will be resolved
during the second quarter. If consummated, the acquisition is
expected to be somewhat dilutive in the first year or two. See
"Recent Developments" later in this Report.
Additional information regarding the Company, its products,
markets and financial performance is provided at its Internet web
site www.Albemarle.com.
Year 2000 Update
- ----------------
Albemarle's company-wide Year 2000 Project ("Project") is
generally proceeding on schedule. The Project addresses the
inability of some computer programs and embedded computer chips
to differentiate between the years 1900 and 2000. The Company
has a global Project team, with certain location specific sub
teams. At March 31, 1999, the inventory, priority assessment and
compliance assessment phases of each area of the Project were
essentially complete. All corporate systems activities and most
process and support equipment modifications are expected to be
completed by mid-1999. Some manufacturer replacements or
upgrades are behind schedule. The Company, however, estimates
necessary replacements, upgrades, and work-arounds will be
completed for most equipment and software by mid-1999.
The total cost associated with required modifications to become
Year 2000 ready is not expected to be material to the Company's
financial position. Conversion to SAP, Peoplesoft, and Lotus
Notes business systems prior to beginning the Project
significantly reduced the costs the Company otherwise would have
incurred. The Project will be funded from current operations.
The estimated total cost of the Project is approximately $3
million of which approximately two-thirds has or will be expensed
and one-third is or will be capital items. The estimate includes
allowances for some items for which a fix or work around is still
being determined. The estimate does not include Albemarle's
potential share of Year 2000 costs that may be incurred by small
joint ventures in which the Company participates or entities in
which the Company holds a minority interest. The total amount
expended on the Project through March 1999, including internal costs,
was approximately $1.8 million.
The Company initiated the identification phase of its supplier
contingency planning program in fourth quarter 1998 and is
currently in the evaluation phase. These evaluations will be
followed by the development of contingency plans as necessary.
This Project phase is scheduled for completion by mid-1999, with
adjustment and monitoring planned through the remainder of 1999
and early 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. Due to
18
the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of
third-party suppliers and customers, the Company is unable to determine
at this time whether the consequences of Year 2000 problems will
have a material impact on the Company's results of operations,
liquidity or financial condition. The Project is expected to
reduce significantly the Company's level of uncertainty about the
Year 2000 problem and, in particular, about Year 2000 compliance
and readiness of its major third-party suppliers. Since the
Company's products are not date aware, its Year 2000 issues
revolve around its suppliers' ability to supply, its ability to
produce, its business processes ability to function properly, and
its customers' ability to purchase. Contingency plans will be
developed regarding the most critical third-party suppliers of
goods and services. As examples, these plans may include
inventory increases of raw materials and finished products and/or
changes in the mix of suppliers for certain goods or services.
Contingency plans for manufacturing and other business processes
will include increased sensitivity at the actual changeover from
December 31, 1999 to January 1, 2000 and alternative methods,
including manual processing for business information processes.
The Company believes that, with the previously accomplished
implementation of global business systems and completion of the
Project as scheduled, the possibility of material interruptions
of normal operations should be reduced significantly.
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 on Year 2000 included in the Company's 1998
Annual Report & Form 10-K filed on March 10, 1999 and with the
'safe harbor' provisions of the Private Securities Litigation
Reform Act of 1995 referenced on page 13.
Recent Developments
- -------------------
On April 13, 1999, the Company experienced an explosion at its
Orangeburg, South Carolina plant resulting in two fatalities. The
Company is currently investigating the cause. Represententatives
from OSHA and DEHEC (the state health and environment agency)
have visited the site. Albemarle is cooperating fully with the
agencies involved. No significant property damage was sustained
to the plant production facilities.
On April 16, 1999, the Company announced it had amended its offer
to acquire the outstanding shares of Albright & Wilson,
headquartered in London to 160 pence per share, cum dividend.
Based on Albright & Wilson's shares outstanding, the offer price
is approximately $790 million. On April 30, 1999, Albright &
Wilson received a counteroffer of 167.5 pence per share, cum
dividend.
After considering its position, the Company, on May 13, 1999,
announced that it decided not to increase further its offer
for Albright & Wilson. In addition, the Company announced
that it had sold 25,000,000 Albright & Wilson shares to ISPG,
Plc, the competing bidder. The Company, through its affiliate
Albemarle UK Holdings Limited, after the sale of 25,000,000
shares, now owns 33,394,049 Albright & Wilson shares.
19
On May 4, 1999, the final joint venture agreements relating
to the joint venture company, Jordan Bromine Company Limited,
were signed at the closing in Amman, Jordan, by joint venture
partners The Arab Potash Company Limited (APC), Jordan Dead Sea
Industries Company Limited (JODICO) and Albemarle Holdings Company
Limited, a subsidiary of the Company. The joint venture will
manufacture and market bromine and bromine derivatives from a
world-scale complex to be built in Jordan, near the Dead Sea.
Jordan Bromine Company Limited will build units near Safi, Jordan
to produce bromine, tetrabromobisphenol-A flame retardant,
calcium bromide, chlorine and potassium hydroxide. The project
continues on schedule, with the facilities slated to begin
production within approximately three years.
PART II - OTHER INFORMATION
---------------------------
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 should
not result ultimately in liabilities 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 the EPA's rule
regarding leaks and repairs of appliances containing
hydrochlorofluorocarbons at the Company's Pasadena, Texas
plant. The EPA proposed a civil penalty of $162,000. The
Company has filed an answer and request for an administrative
hearing. Although the Company is vigorously contesting the
complaint, it also has attended an informal settlement conference
and is attempting to negotiate a settlement with the EPA.
20
Item 4. Submission of Matters to A Vote of Security Holders
---------------------------------------------------
At the annual meeting of shareholders held on April 21, 1999, the
shareholders elected the directors nominated in the Proxy with the
following affirmative votes and votes withheld:
Director Affirmative Votes Votes Withheld
- -------- ------------------ --------------
Craig R. Andersson 42,981,032 365,103
Dirk Betlem 42,960,855 385,280
Floyd D. Gottwald, Jr. 42,951,077 395,058
John D. Gottwald 42,957,176 388,959
Andre B. Lacy 42,986,711 359,424
Seymour S. Preston III 42,983,453 362,682
Emmett J. Rice 42,972,941 373,194
Charles E. Stewart 42,876,082 470,053
Charles B. Walker 42,941,000 405,135
Anne M. Whittemore 42,982,119 364,016
<FN>
All of the above directors were reelected for an additional term.
The shareholders also approved the selection of
PricewaterhouseCoopers LLP as the Company's auditors with
43,367,290 affirmative votes, 31,606 negative votes and 47,239
abstentions.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) A report on Form 8-K was filed on March 11, 1999,
in which the Company included a copy of its March
8, 1999, press release announcing its offer to
purchase the outstanding shares of Albright & Wilson
at a price of 130 pence or about $2.08 per share.
Based upon 313.8 million shares outstanding, the
offer price was expected to be approximately $657
million. On April 16, 1999, the Company filed an
additional Form 8-K announcing that it will
increase its offer price for the outstanding shares
of Albright & Wilson to 160 pence or about $2.58
per share or approximately $790 million.
21
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: May 13, 1999 By: s/Robert G. Kirchhoefer
-----------------------
Robert G. Kirchhoefer
Treasurer & Chief Accounting
Officer
(Principal Accounting Officer)