<PAGE>1
Page 1 of 19 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 September 30, 1998
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, 1998: 46,996,723
<PAGE>2
ALBEMARLE CORPORATION
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
- September 30, 1998 and
December 31, 1997 3-4
Consolidated Statements of Income
- Three and Nine Months Ended
September 30, 1998 and 1997 5
Consolidated Statements of Comprehensive
Income - Three and Nine Months ended
September 30, 1998 and 1997 6
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 1998 and 1997 7
Notes to the Consolidated Financial Statements 8-10
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, Additional
Information, Year 2000 Update and Recent
Developments 11-17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>3
PART I - FINANCIAL INFORMATION
- - -------------------------------
ITEM 1. Financial Statements
--------------------
<TABLE>
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,177 $ 34,322
Accounts receivable, less allowance
for doubtful accounts (1998
- $2,706; 1997 - $2,449) 130,976 154,421
Inventories:
Finished goods 88,888 65,998
Raw materials 11,035 7,424
Stores, supplies and other 16,491 16,861
------------- -------------
Total inventories 116,414 90,283
Deferred income taxes and prepaid
expenses 18,893 17,710
------------- -------------
Total current assets 295,460 296,736
------------- -------------
Property, plant and equipment, at cost 1,235,875 1,188,252
Less accumulated depreciation and
amortization 730,797 691,612
------------- -------------
Net property, plant and equipment 505,078 496,640
Other assets and deferred charges 86,642 77,204
Goodwill and other intangibles, net of
amortization 17,059 17,601
------------- -------------
Total assets $ 904,239 $ 888,181
------------- -------------
------------- -------------
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>4
<TABLE>
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
--------------- ---------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,891 $ 50,668
Long-term debt, current portion 781 379
Accrued expenses 55,720 47,578
Dividends payable 4,746 4,952
Income taxes payable 10,594 8,983
--------------- ---------------
Total current liabilities 117,732 112,560
--------------- ---------------
Long-term debt 176,941 91,414
Other noncurrent liabilities 73,274 69,704
Deferred income taxes 103,952 97,167
Shareholders' equity:
Common stock, $.01 par value,
issued - 46,996,723 in 1998
and 53,886,802 in 1997,
respectively 470 539
Additional paid-in capital 78,718 218,841
Accumulated other comprehensive
income (loss) 6,033 (1,445)
Retained earnings 347,119 299,401
-------------- ---------------
Total shareholders' equity 432,340 517,336
-------------- ---------------
Total liabilities and shareholders' equity $ 904,239 $ 888,181
-------------- ---------------
-------------- ---------------
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>5
<TABLE>
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In Thousands Except Per-Share Amounts)
---------------------------------------
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $196,192 $207,111 $615,444 $613,180
Cost of goods sold 138,683 144,191 423,936 416,089
--------- ---------- ---------- ---------
Gross profit 57,509 62,920 191,508 197,091
Selling, general and
administrative expenses 25,366 27,786 79,030 82,054
Research and development
expenses 7,903 7,709 21,846 22,934
--------- ---------- ---------- ----------
Operating profit 24,240 27,425 90,632 92,103
Interest and financing
expenses 596 152 2,303 559
Other income, net (397) (318) (1,579) (839)
--------- ---------- ---------- -----------
Income before income
taxes 24,041 27,591 89,908 92,383
Income taxes 6,464 9,043 27,871 33,295
--------- ---------- ---------- -----------
NET INCOME $ 17,577 $ 18,548 $ 62,037 $ 59,088
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
BASIC EARNINGS PER
SHARE $ .33 $ .34 $ 1.17 $ 1.07
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
Shares used to compute
basic earnings per share 52,695 55,333 53,077 55,194
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
DILUTED EARNINGS PER
SHARE $ .33 $ .33 $ 1.16 $ 1.06
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
Shares used to compute
diluted earnings per
share 53,293 55,910 53,652 55,681
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
Cash dividends declared
per share of
common stock $ .09 $ .09 $ .27 $ .23
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>6
<TABLE>
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
------------------------------------------------
(Dollars In Thousands)
----------------------
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net income $17,577 $18,548 $62,037 $59,088
Other comprehensive
income, net of tax:
Foreign currency
translation
adjustments 8,144 (3,388) 7,478 (16,870)
---------- ---------- ---------- -----------
Comprehensive income $25,721 $15,160 $69,515 $42,218
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>7
<TABLE>
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------
(Dollars In Thousands)
----------------------
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR $ 34,322 $ 14,242
---------- ----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income 62,037 59,088
Adjustments to reconcile
net income to cash
flows from operating
activities:
Depreciation and amortization 55,459 50,717
Working capital decrease
(increase) excluding cash
and cash equivalents 3,642 (41,807)
Other, net (2,156) (303)
---------- -----------
Net cash provided from
operating activities 118,982 67,695
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and
acquisition costs (57,331) (73,285)
Other, net 1,375 1,587
---------- ------------
Net cash used in
investing activities (55,956) (71,698)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock (140,470) --
Proceeds from borrowings 97,472 17,889
Repayments of long-term debt (10,926) (10,978)
Dividends paid (14,525) (11,575)
Proceeds from exercise of stock
options 278 4,764
---------- ------------
Net cash (used in)
provided from financing
activities (68,171) 100
---------- ------------
Decrease in cash and cash equivalents (5,145) (3,903)
---------- ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 29,177 $ 10,339
---------- ------------
---------- ------------
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>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
September 30, 1998 and December 31, 1997, the consolidated
results of operations and comprehensive income for the three-
and nine-month periods ended September 30, 1998 and 1997, and
the condensed consolidated cash flows for the nine-month
periods ended September 30, 1998 and 1997. 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 1997 Annual Report to shareholders which
included the Company's Form 10-K filed on March 20, 1998.
The December 31, 1997 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, 1998, 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 September 30, 1998, have been compiled and
included herein in connection with the adoption of Financial
Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" effective January 1, 1998.
2. Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Variable-rate
bank loans $ 159,000 $ 77,000
Foreign bank
borrowings 17,600 13,645
Miscellaneous 1,122 1,148
---------------- ----------------
Total 177,722 91,793
Less amounts due
within one year 781 379
---------------- ----------------
Long-term debt $ 176,941 $ 91,414
---------------- ----------------
---------------- ----------------
</TABLE>
<PAGE>9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
3. Basic and diluted earnings per share for the three- and
nine-month periods ended September 30, 1998 and 1997, are
calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- ---------------------
BASIC EARNINGS PER SHARE 1998 1997 1998 1997
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Numerator:
Income available to
stockholders, as
reported $17,577 $18,548 $62,037 $59,088
--------- --------- --------- ---------
Denominator:
Average number of
shares of common
stock outstanding 52,695 55,333 53,077 55,194
-------- --------- --------- ---------
Basic earnings per
share $ .33 $ .34 $ 1.17 $ 1.07
-------- --------- --------- ---------
-------- --------- --------- ---------
DILUTED EARNINGS PER SHARE
Numerator:
Income available to
stockholders, as
reported $17,577 $18,548 $62,037 $59,088
-------- --------- --------- ---------
Denominator:
Average number of
shares of common
stock outstanding 52,695 55,333 53,077 55,194
Shares issuable
upon exercise of stock
options 598 577 575 487
--------- --------- ---------- ----------
Total shares 53,293 55,910 53,652 55,681
--------- --------- ---------- ----------
Diluted earnings
per share $ .33 $ .33 $ 1.16 $ 1.06
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
<PAGE>10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
4. In June, 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information",
which became effective for fiscal years beginning after
December 31, 1997. SFAS No. 131 establishes standards for
reporting information about operating segments, including
related disclosures about products and services, geographic
areas, and major customers. Interim reporting disclosures are
not required in the first year of adoption and are therefore
not provided.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position
and measure those instruments at fair value. This Statement
is effective for all fiscal quarters beginning after June 15,
1999, however, early adoption is permitted.
The Company has not determined the impact SFAS Nos. 131 and
133 will have on the Company's financial statements; however,
at the time of adoption, these Statements are not expected to
have a material impact on the financial position or results
of operations of the Company.
5. The Company finalized the purchase on September 30, 1998, of
5,738,241 shares of its common stock through a tender offer
at a price of $19.50 per share, or a total cost of
approximately $112.5 million including expenses. Earlier,
the Company purchased 772,100; 338,600 and 63,800 common
shares on the open market in the first, second and third
quarters of 1998, respectively, at an aggregate cost of $27.9
million.
<PAGE>11
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 and Subsidiaries ("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, 1997.
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 currencies, possible problems incurred in
the Year 2000 Project, political changes and changes in new product
introduction which could lead to additional capital spending.
Results of Operations
- - ---------------------
Third Quarter 1998 Compared with Third Quarter 1997
- - ----------------------------------------------------
NET SALES
Net sales for the third quarter of 1998 amounted to $196.2 million,
down approximately five percent from third quarter 1997 net sales
of $207.1 million. The decrease in net sales was primarily due to
lower shipments in agrichemicals and lower shipments and
unfavorable pricing in pharmachemicals, as well as the unfavorable
effects of foreign exchange on flame retardants, primarily in
Japan, offset in part by higher shipments (net of lower pricing and
product mix) in organometallics and polymer additives and
intermediates and higher volumes in zeolites.
OPERATING COSTS AND EXPENSES
Cost of goods sold for the third quarter of 1998 amounted to $138.7
million down approximately four percent from $144.2 million in the
1997 period. The gross profit margin decreased to 29.3% in 1998
from 30.4% for the corresponding period in 1997. The decline in
the gross margin from third quarter 1997 reflects the unfavorable
effects of foreign exchange losses in 1998 versus favorable effects
of foreign exchange gains in 1997, offset in part by lower raw
material costs and improved plant utilizations in certain product
lines in the 1998 period.
Selling, general and administrative expenses, combined with
research and development expenses, decreased six percent in 1998
versus the 1997 quarter. As a percentage of net sales, selling,
general and administrative expenses, including research and
development expenses, were 17.0% in 1998 versus 17.1% in the 1997
quarter.
<PAGE>12
OPERATING PROFIT
Operating profit in the third quarter of 1998 decreased 11.6% from
the corresponding period in 1997, primarily due to the
unfavorable effects of foreign exchange losses in 1998 versus
favorable effects of foreign exchange gains in 1997, offset in part
by lower raw material costs, improved plant utilizations in certain
product lines and lower selling, general and administrative
expenses in the 1998 period.
INTEREST AND FINANCING EXPENSES
Interest and financing expenses for the third quarter of 1998 were
$0.4 million higher compared to the corresponding third quarter of
1997 due to higher average outstanding debt.
INCOME TAXES
Income taxes for the third quarter of 1998 decreased $2.6 million
compared to the third quarter of 1997 as the effective income tax
rate declined to 26.9% in the 1998 quarter from 32.8% in the 1997
quarter. The lower effective income tax rate in the 1998 period
results in part from recognition of the benefit of tax planning
strategies in the current year which previously could not be
measured.
Results of Operations
- - ----------------------
Nine Months 1998 Compared with Nine Months 1997
- - ------------------------------------------------
NET SALES
Net sales for the first nine months of 1998 amounted to $615.4
million, up slightly from $613.2 million for the corresponding
period of 1997. The higher net sales were primarily due to higher
shipments of organometallics, polymer additives and intermediates
and pharmachemicals, partly offset by unfavorable pricing and mix
changes in organometallics, polymer additives and intermediates and
agrichemicals as well as the unfavorable effects of foreign
exchange on flame retardants, primarily in Japan.
OPERATING COSTS AND EXPENSES
Cost of goods sold increased two percent or $7.8 million for the
first nine months of 1998 from the corresponding period in 1997,
with the result that the gross profit margin decreased to 31.1% in
1998 from 32.1% in the 1997 period. The decline in the gross
margin from the first nine months of 1997 reflects the unfavorable
effects of foreign exchange losses in 1998 versus favorable effects
of foreign exchange gains in 1997, offset in part by lower raw
material costs and improved plant utilizations in certain product
lines in the 1998 period.
Selling, general and administrative expenses, combined with
research and development expenses, decreased approximately four
percent for the first nine months of 1998 versus the corresponding
period in 1997. As a percentage of net sales, selling, general and
administrative expenses, including research and development
expenses, were 16.4% in the nine months of 1998 versus 17.1% in the
1997 period.
<PAGE>13
OPERATING PROFIT
Operating profit in the first nine months of 1998 decreased
approximately two percent from the corresponding period in 1997,
primarily due to the unfavorable effects of foreign exchange
losses in 1998 versus favorable effects of foreign exchange gains
in 1997, offset in part by lower raw material costs, improved plant
utilizations in certain product lines and lower selling, general
and administrative expenses, including research and development
expenses, in the 1998 period.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses for the first nine months of 1998
were $1.7 million higher compared to the corresponding period in
1997 due to higher average outstanding debt. Other income
increased $0.7 million due to higher interest income in the 1998
period.
INCOME TAXES
Income taxes in the first nine months of 1998 decreased $5.4
million from the 1997 period, reflecting lower pretax income as
well as a lower effective income tax rate (31.0% in 1998 versus
36.0% in 1997). The 1998 effective income tax rate reflects the
benefits of tax planning strategies for the current year, while the
effective income tax rate in the 1997 period does not reflect the
benefit of tax planning strategies and improved earnings in certain
foreign subsidiaries until the fourth quarter of 1997 which
resulted in a 1997 annual effective income tax rate of 33.8%.
Financial Condition and Liquidity
- - ---------------------------------
Cash and cash equivalents at September 30, 1998, were $29.2
million, reflecting a decrease of $5.1 million from $34.3 million
at year-end 1997.
Cash flows provided from operating activities of $119 million for
the first nine months of 1998 together with proceeds from
additional borrowings of $97.5 million and $5.1 million of existing
cash were used to cover purchases of common stock, capital
expenditures and payment of dividends.
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
account from December 31, 1997, was due to foreign currency
translation adjustments primarily relating to the weakening of the
U.S. dollar at September 30, 1998, net of deferred income taxes.
The noncurrent portion of the Company's long-term debt amounted to
$176.9 million at September 30, 1998, compared to $91.4 million at
the end of 1997. The Company's long-term debt, including the
current portion, as a percentage of total capitalization amounted
to 29.1% at September 30, 1998.
<PAGE>14
The Company's capital expenditures in the first nine months of 1998
were lower than in the same period of 1997. For the year, capital
expenditures are forecasted to be about the same as the 1997 level.
Capital spending will be financed with cash flow from operations and
additional debt. The amount and timing of borrowings 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.
ADDITIONAL INFORMATION
- - -----------------------
OUTLOOK
The Company's top-line revenue growth for the nine months ended
September 30, 1998 compared to the same period in 1997 has been
negatively impacted by fluctuations of the U.S. dollar against
foreign currencies and the Asian economic issues as well as the
competitive pressures on pricing now evident in the polymer market.
The negative effects of foreign exchange have been diminished on a
net basis somewhat by the Company's foreign exchange hedging
strategy that bills shipments from its manufacturing facilities in
local currencies and enters into foreign exchange hedges for
certain of its European and Asian subsidiaries' accounts receivable
at levels designed to protect against further changes in those
currencies, particularly the Japanese yen.
European and United States electronic products markets have
continued to drive demand for the Company's Polymer Chemicals
business unit products, particularly flame retardants, where volume
growth is predicted for fourth quarter 1998 should these market
conditions hold. The lackluster performance of Asian economies has
diminished the requirements for some of the Company's polymer
additives used in materials sold for use in that region.
The Company's metallocene-based and other single-site catalysts are
still incurring significant developmental costs. Customers are
conducting large-scale tests using these products. The enhanced
polymer properties imparted by processes using these catalysts
could continue to spur innovation by the Company's customers.
Competition in these developmental products continues to grow, and
the Company continues to focus its efforts on improving performance
of these new catalysts.
<PAGE>15
Successful plant startup was completed in the third quarter for the
Company's Ethacure(TM)300 curative. This product is used in a number of
markets ranging from roofing and water proofing to roller blade
wheels and will be offered to a wide variety of customers.
The Company is engaged in the significant new user requirement approval
process with the U.S. Environmental Protection Agency and continues
to sell the product during this process.
In Fine Chemicals, Pharmachemicals should post stronger operating
results for the year 1998 versus 1997 due to improved shipments in
Ibuprofen and other pharmaceutical intermediates. These sales
increases, coupled with lower developmental costs for Naproxen
compared to 1997, account for the improvement. Agrichemicals
results are expected to be about flat with 1997, reflecting low
growth in the sector.
The late-summer and early-fall hurricane season and low oil prices
have combined to limit sales of the Company's clear brine fluids
for the drilling industry. For the Surface Actives and Biocides
group, use of powdered detergents continues to be an important
market driver for the Company's zeolite business, and, if
successful, government registrations for several products in the
biocide business could help boost these sales next year.
Performance in 1998 for this area should be about equal with 1997.
Lower sales than expected have been brought about in part by world
economic conditions and the effects of foreign exchange. The
Company continues to emphasize cost reductions and is on target to
achieve over $20 million of reductions in 1998 as a part of its $50
million manufacturing cost reduction program. Cost reductions in
overhead also are receiving a great deal of attention, but the
Company does not expect by the end of this year to reach its goal
of 15 percent of sales for selling, general and administrative plus
research and development expenses.
YEAR 2000 UPDATE
- - -----------------
GENERAL
Albemarle's company-wide Year 2000 Project ("Project") is generally
proceeding on schedule. The Project is addressing the ability of
computer programs and embedded computer chips to distinguish
between the year 1900 and the year 2000. In 1994, the Company
began significant re-engineering of its business processes across
the Company including improved access to business information
through common, integrated computing systems. As a result,
Albemarle replaced its business systems with systems from SAP
America, Inc., Oracle Corporation, PeopleSoft and Lotus which are
designed to be Year 2000 compliant. The Company became fully
operational on these systems in 1997.
PROJECT
The Company has a global Project team, with certain location
specific sub teams. The Project includes three major areas --
corporate systems, local hardware and software systems, and
third-party suppliers of goods and services. The general phases of the
Project are: (1) inventorying date-aware items; (2) determining
criticality and assigning priorities to identified items; (3)
assessing the Year 2000 compliance of items determined to be
material to the
<PAGE>16
Company; (4) repairing, replacing or identifying
workarounds for material items that are determined not
to be Year 2000 compliant; (5) testing material items;
(6) identifying critical third parties; and (7) designing
contingency plans.
At September 30, 1998, the inventory, priority assessment and
compliance assessment phases of each area of the Project were
essentially complete. Material items are those believed by the
Company to have a risk involving the safety of individuals, or that
may cause damage to property or the environment, or substantially
affect revenues.
Corporate systems on schedule at September 30, 1998 include
hardware and systems software, networks and telecommunications. All
corporate systems activities are expected to be completed by mid-1999.
Local hardware and software systems include process control and
instrumentation systems, laboratory data systems and building
systems. Operational improvement projects already underway address
some of the Year 2000 concerns. Some manufacturer replacements or
upgrades are behind schedule. The Company, however estimates
necessary replacements or upgrades will be completed by mid-1999.
The third-party suppliers phase includes the process of identifying
and prioritizing critical suppliers of goods and services, and
communicating with them about their plans and progress in
addressing the Year 2000 problem. The Company has recently
initiated the identification phase which will be followed by an
evaluation of the most critical third parties. These evaluations
will be followed by the development of contingency plans as
necessary. This Project phase is scheduled for completion by mid-1999,
with monitoring planned through the remainder of 1999 and
early 2000.
COSTS
The total cost associated with required modifications to become
Year 2000 compliant is not expected to be material to the Company's
financial position. The estimated total cost of the Year 2000
Project is approximately $5 million of which approximately half is
or will be expensed and half is or will be capital items. The
estimate includes allowances for some items for which a fix or
workaround is still being determined. The estimate does not
include Albemarle's potential share of Year 2000 costs that may be
incurred by a small joint venture in which the Company participates
or an entity in which the Company holds a minority interest. In
addition, the estimate of Year 2000 costs does not include the
impact of the October 30, 1998 acquisition discussed in recent
developments below which will be reviewed. The total amount
expended on the Project through September 30, 1998, was
approximately $1.1 million.
RISKS
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 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
<PAGE>17
have a material impact on the Company's results of operations,
liquidity or financial condition. The Year 2000 Project is
expected to reduce significantly the Company's level of uncertainty
about the Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of its material third-party suppliers.
The Company believes 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 regarding the 'safe harbor' provisions of the
Private Securities Litigation Reform Act of 1995 included on page
11.
RECENT DEVELOPMENTS
- - --------------------
On October 18, 1998, Albemarle Holdings Company Limited (Albemarle
Holdings), a wholly-owned subsidiary of the Company, Jordan Dead
Sea Industries Company and Arab Potash Company signed a joint
venture agreement to manufacture and market bromine and bromine
derivatives from a complex to be built in Jordan near the Dead Sea.
The joint venture company to be formed and named Jordan Bromine
Company Limited will build units near Safi, Jordan to produce
bromine, tetrabromobisphenol-A flame retardant (TBBPA) and calcium
bromide and may produce chlorine. The facilities, if on schedule,
should be completed in approximately three years.
Albemarle Holdings and/or its affiliates will provide the venture
with process and engineering technology and marketing, customer
service and manufacturing expertise.
The ability to source bromine from the Dead Sea should be
strategically important. With the Company's strong competency in
bromine extraction technology, the venture should enhance the
Company's position as a world leader in bromine chemicals. Demand
for products from the Jordan venture is expected to be supported by
continuing growth in global markets for TBBPA, primarily for use in
the electronics industry, and for clear brine fluids (calcium
bromide) used in the oil and gas drilling industry.
The Company recently broke ground in Magnolia, Ark., for a new
TBBPA plant, scheduled for completion by the third-quarter of 1999.
TBBPA is a mainstay in circuit board manufacturing. It also is used
in epoxies, phenolics, ABS polystyrene, polycarbonates and
unsaturated polyesters.
As of the close of business on October 30, 1998, the Company
through Albemarle UK Limited, a newly created subsidiary, acquired
the Teesport, United Kingdom, operations of Hodgson Specialty
Chemical division of BTP plc for approximately $14 million. The
Teesport site is expected to serve as a custom manufacturing and
oilfield chemicals plant.
<PAGE>18
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 products liability, personal injury,
employee terminations and toxic tort litigation and administrative
or judicial proceedings seeking remediation under environmental
laws, such as Superfund.
While it is not possible to predict or determine the outcome of
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 or its subsidiaries on a consolidated
basis, but could have a material adverse effect in a particular
reporting period.
ITEM 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) No reports on Form 8-K have been filed
during the quarter for which this report is filed.
<PAGE>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 10, 1998 By: s/Robert G. Kirchhoefer
-------------------------
Robert G. Kirchhoefer
Treasurer
(Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY SUCH QUARTERLY
REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> $29,177
<SECURITIES> $0
<RECEIVABLES> $133,682
<ALLOWANCES> $2,706
<INVENTORY> $116,414
<CURRENT-ASSETS> $295,460
<PP&E> $1,235,875
<DEPRECIATION> $730,797
<TOTAL-ASSETS> $904,239
<CURRENT-LIABILITIES> $117,732
<BONDS> $0
$0
$0
<COMMON> $470
<OTHER-SE> $431,870
<TOTAL-LIABILITY-AND-EQUITY> $904,239
<SALES> $615,444
<TOTAL-REVENUES> $615,444
<CGS> $423,936
<TOTAL-COSTS> $524,812
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $2,303
<INCOME-PRETAX> $89,908
<INCOME-TAX> $27,871
<INCOME-CONTINUING> $62,037
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $62,037
<EPS-PRIMARY> $1.17
<EPS-DILUTED> $1.16
</TABLE>
