<PAGE>1
Page 1 of 22 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 June 30, 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 July 31, 1999: 47,036,891
<PAGE>2
ALBEMARLE CORPORATION
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets
- June 30, 1999 and December 31, 1998 3-4
Consolidated Statements of Income
- Three and Six Months Ended
June 30, 1999 and 1998 5
Consolidated Statements of Comprehensive
Income - Three and Six Months Ended
June 30, 1999 and 1998 6
Condensed Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 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 13-20
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk 20
PART II. OTHER INFORMATION
ITEM 3. Legal Proceedings 21
ITEM 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>3
PART I - FINANCIAL INFORMATION
---------------------
ITEM 1. Financial Statements
--------------------
<TABLE>
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
<CAPTION>
June 30, December 31,
1999 1998
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $35,874 $21,180
Accounts receivable, less allowance
for doubtful accounts (1999
- $2,894; 1998 - $2,782) 134,203 145,207
Inventories:
Finished goods 96,510 97,684
Raw materials 10,661 11,684
Stores, supplies and other 17,326 17,838
------------- --------------
124,497 127,206
Deferred income taxes and prepaid
expenses 15,705 17,937
------------- --------------
Total current assets 310,279 311,530
Property, plant and equipment, at cost 1,272,438 1,259,340
Less accumulated depreciation and
amortization 762,232 744,672
------------- --------------
Net property, plant and
equipment 510,206 514,668
Other assets and deferred charges 98,756 90,308
Goodwill and other intangibles, net of
amortization 18,177 21,291
------------- --------------
Total assets $937,418 $937,797
============= ==============
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>4
<TABLE>
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
----------------------------
(Dollars In Thousands)
----------------------
<CAPTION>
June 30, December 31,
1999 1998
------------ -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $56,224 $45,073
Long-term debt, current portion 857 408
Accrued expenses 58,844 53,300
Dividends payable 4,703 4,701
Income taxes payable 5,461 4,454
----------- -----------
Total current liabilities 126,089 107,936
----------- -----------
Long-term debt 156,040 192,530
Other noncurrent liabilities 78,684 75,664
Deferred income taxes 100,128 110,000
Shareholders' equity:
Common stock, $.01 par value,
issued - 47,036,891 in 1999 and
47,008,283 in 1998, respectively 470 470
Additional paid-in capital 79,107 78,724
Accumulated other comprehensive
(loss) income (6,592) 7,360
Retained earnings 403,492 365,113
---------- ----------
Total shareholders' equity 476,477 451,667
---------- ----------
Total liabilities and shareholders'
equity $937,418 $937,797
========== ==========
<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 Six Months Ended
June 30, June 30,
---------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $200,811 $204,103 $409,156 $419,252
Cost of goods sold 141,441 137,925 276,327 285,253
-------- -------- -------- --------
Gross profit 59,370 66,178 132,829 133,999
Selling, general and
administrative expenses 26,546 27,089 55,338 53,664
Research and development
expenses 9,093 6,889 17,516 13,943
Special charges 5,779 -- 5,779 --
-------- -------- -------- --------
Operating profit 17,952 32,200 54,196 66,392
Interest and financing
expenses 2,847 755 5,319 1,707
Gain on sale of
investment in Albright
& Wilson stock, net (22,054) -- (22,054) --
Other income, net (167) (516) (980) (1,182)
--------- --------- --------- ---------
Income before income
taxes 37,326 31,961 71,911 65,867
Income taxes 12,713 10,150 24,126 21,407
--------- --------- --------- ---------
NET INCOME $24,613 $21,811 $47,785 $44,460
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC EARNINGS PER
SHARE $ .52 $ .41 $ 1.02 $ .83
--------- --------- --------- ----------
--------- --------- --------- ----------
Shares used to compute
basic earnings per share 47,033 53,069 47,025 53,269
--------- --------- --------- ----------
--------- --------- --------- ----------
DILUTED EARNINGS PER
SHARE $ .52 $ .41 $ 1.00 $ .83
--------- --------- --------- ----------
--------- --------- --------- ----------
Shares used to compute
diluted earnings per share 47,731 53,681 47,738 53,831
--------- --------- --------- ----------
--------- --------- --------- ----------
Cash dividends declared
per share of common stock $ .10 $ .09 $ .20 $ .18
--------- --------- --------- ----------
--------- --------- --------- ----------
<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 Six Months Ended
June 30, June 30,
-------------------- -------------------
1999 1998 1999 1998
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Net income $24,613 $21,811 $47,785 $44,460
Other comprehensive
income, net of tax:
Net change in unrealized
gain on securities
available-for-sale (8,144) -- -- --
Foreign currency
translation
adjustments (2,836) 1,310 (13,952) (666)
--------- ---------- --------- ----------
Comprehensive income $13,633 $23,121 $33,833 $43,794
--------- ---------- --------- ----------
--------- ---------- --------- ----------
<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>
Six Months Ended
June 30,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR $21,180 $34,322
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 47,785 44,460
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 37,768 36,243
Gain on sale of investment in
Albright & Wilson stock (22,054) --
Working capital decrease
excluding cash and cash
equivalents 25,038 8,699
Other, net (3,495) (2,091)
---------- ----------
Net cash provided from operating
activities 85,042 87,311
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of investment in Albright &
Wilson stock (135,462) --
Capital expenditures (46,795) (35,761)
Restricted unexpended industrial
revenue bond proceeds (3,733) --
Proceeds from sale of investment
in Albright & Wilson stock 157,516 --
Other, net 2,106 461
----------- -----------
Net cash used in investing activities (26,368) (35,300)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (157,319) (10,926)
Dividends paid (9,404) (9,744)
Purchases of common stock -- (26,698)
Proceeds from borrowings 122,360 3,865
Proceeds from exercise of stock options 383 261
----------- -----------
Net cash used in financing activities (43,980) (43,242)
----------- -----------
Increase in cash and cash equivalents 14,694 8,769
----------- -----------
Cash and cash equivalents at end of period $35,874 $43,091
----------- -----------
----------- -----------
<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
June 30, 1999 and December 31, 1998, the consolidated results
of operations and comprehensive income for the three- and
six-month periods ended June 30, 1999 and 1998, and condensed
consolidated cash flows for the six-month periods ended June
30, 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- and
six-month periods ended June 30, 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 three-month and
six-month periods ended June 30, 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."
2. Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ---------------
<S> <C> <C>
Variable-rate bank loans $ 128,600 $ 169,600
Foreign borrowings 16,201 22,216
Industrial revenue bonds 11,000 --
Miscellaneous 1,096 1,122
------------ ---------------
Total 156,897 192,938
Less amounts due within one
year 857 408
------------ ---------------
Long-term debt $ 156,040 $192,530
------------ ---------------
------------ ---------------
</TABLE>
<PAGE>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 a
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
and/or long-term debt.
3. In May 1999, the Company, through its affiliate Albemarle UK
Holdings Limited, sold all of its 58,394,049 common
shares of Albright & Wilson plc ("Albright & Wilson"), a
United Kingdom chemicals' company, acquired in March 1999, as
part of its tender offer for Albright & Wilson, to ISPG, Plc,
the competing bidder, for an aggregate consideration of $157,516
resulting in a gain of $22,054 ($14,381 after income taxes),
net of expenses. The proceeds from the sale of the
Albright & Wilson common shares were primarily used to pay down
debt under the Company's existing Competitive Advance and
Revolving Credit Agreement.
On May 26, 1999, the Company canceled a $1.4 billion Credit
Agreement that would have become activated if the Company's
tender offer for the shares of Albright & Wilson had been successful.
<PAGE>10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
4. Basic and diluted earnings per share for the three- and six-month
periods ended June 30, 1999 and 1998, are calculated as follows:
<TABLE>
<CAPTION>
Three-Months Ended Six-Months Ended
June 30 June 30
------------------- ------------------
BASIC EARNINGS PER
SHARE 1999 1998 1999 1998
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Numerator:
Income available
to stockholders,
as reported $24,613 $21,811 $47,785 $44,460
-------- --------- -------- --------
Denominator:
Average number of
shares of common
stock outstanding 47,033 53,069 47,025 53,269
--------- ---------- ---------- ----------
Basic earnings per
share $ .52 $ .41 $ 1.02 $ .83
========= ========== ========== ==========
DILUTED EARNINGS PER
SHARE
Numerator:
Income available
to stockholders,
as reported $24,613 $ 21,811 $47,785 $44,460
--------- ---------- ---------- ----------
Denominator:
Average number of
shares of common
stock outstanding 47,033 53,069 47,025 53,269
Shares issuable
upon exercise of
stock options 698 612 713 562
---------- ---------- ----------- ----------
Total shares 47,731 53,681 47,738 53,831
---------- ---------- ----------- ----------
Diluted earnings
per share $ .52 $ .41 $ 1.00 $ .83
========== =========== =========== ==========
</TABLE>
<PAGE>11
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------
(In Thousands Except Share Amounts)
(Unaudited)
4. Continued.
The three- and six-months ended June 30, 1999, average number
of shares of common stock outstanding includes the effects of
the purchase of 5,738,241 common shares through a tender
offer finalized on September 30, 1998.
5. Special charges for the three- and six-months ended June 30,
1999, totaling $5,779 ($3,587 after income taxes), resulted
from work-force reductions primarily at the Company's
administrative offices in Baton Rouge, Louisiana and its
Pasadena, Texas plant. The program impacted a total of 74
salaried and wageroll employees.
6. The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" in June 1998, which was
effective for financial statements for fiscal years beginning
after June 15, 1999. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement
No. 133", postponing SFAS No. 133's effective date one year
to June 15, 2000. SFAS No. 133 established accounting and
reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts,
and hedging activities. It required 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 has not yet determined an adoption
date for SFAS No. 133. At the time of adoption, SFAS No. 133
is not expected to have a material impact on the financial
position or results of operations of the Company.
7. At December 31 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, except for
flame retardants which are accounted for at transfer price,
and foreign exchange 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 Tables on the following page.
<PAGE>12
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------
(In Thousands Except Share Amounts)
(Unaudited)
7. Continued.
<TABLE>
<CAPTION>
Three Months Ended June 30
---------------------------
1999 1998
---- ----
SUMMARY OF SEGMENT RESULTS Revenues Income Revenues Income
-------------------------- -------- ------ -------- -------
<S> <C> <C> <C> <C>
Polymer Chemicals $103,085 $14,134 $104,191 $22,037
Fine Chemicals 97,726 9,258 99,912 16,159
-------- ------- -------- --------
Segment totals $200,811 23,392 $204,103 38,196
-------- --------
-------- --------
Corporate and other
expenses (5,440) (5,996)
------- ---------
Operating profit 17,952 32,200
Interest and financing
expenses 2,847 755
Gain on sale of
investment in
Albright & Wilson
stock, net (22,054) --
Other income, net (167) (516)
---------- ---------
Income before income
taxes $37,326 $31,961
---------- ---------
---------- ---------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------
1999 1998
---- ----
SUMMARY OF SEGMENT RESULTS Revenues Income Revenues Income
-------------------------- -------- ------ -------- -------
<S> <C> <C> <C> <C>
Polymer Chemicals $210,475 $36,547 $214,625 $42,618
Fine Chemicals 198,681 29,030 204,627 35,549
-------- ------- -------- --------
Segment totals $409,156 65,577 $419,252 78,167
-------- --------
-------- --------
Corporate and other
expenses (11,381) (11,775)
------- ---------
Operating profit 54,196 66,392
Interest and financing
expenses 5,319 1,707
Gain on sale of
investment in
Albright & Wilson
stock, net (22,054) --
Other income, net (980) (1,182)
---------- ---------
Income before income
taxes $71,911 $65,867
---------- ---------
---------- ---------
</TABLE>
<PAGE>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 business
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 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
- ----------------------
Second Quarter 1999 Compared with Second Quarter 1998
- ------------------------------------------------------
Net sales for second quarter 1999 amounted to $200.8 million,
down two percent or $3.3 million from second quarter 1998 net
sales of $204.1 million with reductions in each reportable
business operating segment primarily due to the effects of
competitive pricing, despite higher volumes in most businesses.
The gross profit margin decreased to 29.6% in 1999 from 32.4% for
the corresponding period in 1998. Second-quarter 1999 operating
profit was down 44% or $14.2 million from 1998 primarily due to
special charges of $5.8 million for work-force reductions
primarily at the Company's administrative offices in Baton Rouge,
Louisiana and its Pasadena, Texas plant in 1999 as well as the
effects of competitive pricing on net sales (despite higher
volumes in most businesses), higher operating costs and higher
selling, general and administrative expenses, including research
and development expenses, offset in part, by favorable raw
material costs and the favorable effects of foreign exchange
in the 1999 period. The Company anticipates future annual operating
cost savings of approximately $5 million before income taxes
as a result of the work-force reductions.
Selling, general and administrative expenses and research and
development expenses, increased five percent or $1.7 million in
the second quarter of 1999 versus second quarter 1998 primarily
due to higher new product development costs and higher outside
consulting expenses in the 1999 period. As a percentage of net
sales, selling, general and administrative expenses, including
research and development expenses, were 17.7% in 1999 versus 16.6%
in the 1998 quarter.
<PAGE>14
OPERATING SEGMENTS
Net sales by reportable business operating segments for the
second quarter periods ended June 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Net Sales
---------------------
1999 1998
--------- -----------
<S> <C> <C>
Polymer Chemicals $103,085 $104,191
Fine Chemicals 97,726 99,912
--------- ------------
Segment totals $200,811 $204,103
--------- ------------
--------- ------------
</TABLE>
Polymer Chemicals' net sales for second quarter 1999 were down
one percent or $1.1 million from second quarter 1998 primarily
due to the effects of competitive pricing in most businesses and
lower shipments of polymer additives and intermediates, offset in
part, by increased shipments in flame retardants and
organometallics and catalysts. Fine Chemicals' net sales for
second quarter 1999 were down two percent or $2.2 million from
second quarter 1998 primarily due to the effects of competitive
pricing in most businesses, lower shipments in European potassium
and chlorine chemicals and lower sales of non-manufactured
products in the Asia-Pacific region, offset in part, by higher
shipments of surface actives.
Operating profit by reportable business operating
segments for the second quarter periods ended June 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Operating Profit
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Polymer Chemicals $14,134 $22,037
Fine Chemicals 9,258 16,159
---------- ----------
Segment totals 23,392 38,196
Corporate and other
expenses (5,440) (5,996)
---------- ----------
Operating profit $17,952 $32,200
---------- ----------
---------- ----------
</TABLE>
Polymer Chemicals' second quarter 1999 segment operating profit
was down 36% or $7.9 million from second quarter 1998 primarily
due to an allocation of approximately $2.9 million for the
work-force reduction special charges in 1999 and higher operating
and new product development costs, offset in part, by lower raw
material costs and the favorable effects of foreign exchange in
second quarter 1999 versus second quarter 1998. Fine Chemicals'
second quarter 1999 segment operating profit declined approximately
43% or $6.9 million from second quarter 1998 primarily due to an
allocation of approximately $2.9 nillion for the work-force reduction
special charges in 1999 and higher operating and new product development
costs, offset in part, by lower raw material costs and the favorable
effects of foreign exchange in second quarter 1999 versus second
quarter 1998. Corporate and other expenses were down nine percent or
$.6 million from second quarter 1998 due to lower employee related costs
in the 1999 period.
<PAGE>15
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses for second quarter 1999 increased
to $2.8 million from $.8 million for second quarter 1998
primarily due to higher average outstanding debt associated with
the March 1999 investment in Albright & Wilson plc ("Albright &
Wilson") and the 1998 purchases of common stock. Other
income declined $.3 million primarily due to lower interest
income in the 1999 period.
GAIN ON SALE OF INVESTMENT IN ALBRIGHT & WILSON STOCK
Second quarter 1999 results include the gain of $22.1 million
($14.4 million after income taxes), net of expenses, from the
sale of the Company's investment in Albright & Wilson common
stock acquired in March 1999, as part of its tender
offer for Albright & Wilson.
INCOME TAXES
Income taxes for second quarter 1999, excluding special items,
decreased approximately $2.9 million, primarily due to lower
pretax income. Excluding the effect of special items, consisting
of the special charges related to the work-force reductions
and the gain on the sale of Albright & Wilson common stock, the
second quarter 1999 effective income tax rate was 34.4%, up from
31.8% in the 1998 quarter which benefited from a one-time tax
planning strategy in 1998 that resulted in a 1998 annual effective
income tax rate of 31.0%.
Results of Operations
- ---------------------
Six Months 1999 Compared with Six Months 1998
- ---------------------------------------------
Net sales for the first six months of 1999 amounted to $409.2
million, a decrease of two percent or $10.1 million from the
corresponding period of 1998, with reductions in each reportable
business segment primarily due to the effects of competitive
pricing despite higher volumes in most businesses.
The gross profit margin increased to 32.5% in 1999 from 32.0% in
the 1998 period. Operating profit for the first six months of
1999 was down approximately 18% or $12.2 million from 1998
primarily due to special charges of $5.8 million for work-force
reductions primarily at the Company's administrative offices in
Baton Rouge, Louisiana and its Pasadena, Texas plant in 1999 as
well as the effects of competitive pricing on net sales (despite
higher volumes in most businesses), higher selling, general and
administrative expenses, including research and development
expenses and higher operating costs, offset in part, by favorable
raw material costs and the favorable effects of foreign exchange
in 1999 versus the corresponding period in 1998.
Selling, general and administrative expenses, combined with
research and development expenses, increased eight percent or
$5.2 million for the first six months of 1999 versus the
corresponding period in 1998, primarily due to higher new product
development costs, higher outside consulting expenses and an
increase in certain employee related costs in the 1999 period.
As a percentage of net sales, selling, general and administrative
expenses, including research and development expenses, were 17.8%
in 1999 versus 16.1% in the 1998 quarter.
<PAGE>16
OPERATING SEGMENTS
Net sales by reportable business operating segments for the
six-month periods ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Net Sales
----------------------
1999 1998
---------- -----------
<S> <C> <C>
Polymer Chemicals $210,475 $214,625
Fine Chemicals 198,681 204,627
---------- -----------
Segment totals $409,156 $419,252
========== ===========
</TABLE>
Polymer Chemicals' net sales for the first six months of 1999
were down two percent or $4.1 million from the corresponding
period of 1998 primarily due to the effects of competitive
pricing in most businesses and decreased shipments in polymer
additives and intermediates, offset in part, by increased
shipments in organometallics and catalysts and flame retardants
and the favorable effects of foreign exchange in 1999 in
the Asia-Pacific and European regions. Fine Chemicals' net sales
for the 1999 six-month period were down three percent or $5.9
million from the corresponding period of 1998 primarily due to
the effects of competitive pricing in most businesses, lower
sales of non-manufactured products in the Asia-Pacific region and
lower shipments of European potassium and chlorine chemicals and
pharmachemicals, offset in part, by higher shipments of surface
actives and agrichemicals in the 1999 period.
Operating profit by reportable business operating segments for the
six-month periods ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Operating Profit
---------------------------
1999 1998
----------- --------------
<S> <C> <C>
Polymer Chemicals $36,547 $42,618
Fine Chemicals 29,030 35,549
----------- --------------
Segment totals 65,577 78,167
Corporate and other
expenses (11,381) (11,775)
----------- --------------
Operating profit $54,196 $66,392
----------- --------------
----------- --------------
</TABLE)
Polymer Chemicals' segment operating profit for the first six
months of 1999 was down 14% or $6.1 million from the
corresponding period of 1998 primarily due to an allocation of
approximately $2.9 million for the work-force reduction special
charges in 1999 and higher new product development and operating
costs, offset in part, by lower raw material costs and the favorable
effects of foreign exchange in the 1999 six-month period
versus the 1998 six-month period. Fine Chemicals' 1999 six month
segment operating profit declined 18% or $6.5 million from the
1998 six-month period primarily due to an allocation of approximatley
$2.9 million for the work-force reduction special charges in 1999 and
higher new product development and operating costs, offset in
part, by lower raw material costs
<PAGE>17
and the favorable effects of foreign exchange in the 1999 six-month
period versus the 1998 six-month period.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses for the first six months of 1999
increased to $5.3 million from $1.7 million in the corresponding
period of 1998 primarily due to higher average outstanding debt
associated with the March 1999 investment in Albright & Wilson
and the 1998 purchases of common stock. Other income
declined $.2 million primarily due to lower interest income in
the 1999 period.
GAIN ON SALE OF INVESTMENT IN ALBRIGHT & WILSON STOCK
Results for the first six months of 1999 include the gain of
$22.1 million ($14.4 million after income taxes), net of expenses,
from the sale of the Company's investment in Albright & Wilson common
stock acquired in March 1999, as part of its tender offer for
Albright & Wilson.
INCOME TAXES
Income taxes in the first six months of 1999, excluding special
items, decreased $2.8 million, primarily due to lower pretax
income. Excluding the effect of special items, consisting of
the special charges related to the work-force reductions and the
gain on the sale of Albright & Wilson common stock, the effective
income tax rate for the first six months of 1999 was 33.5%, up
from 32.5% in the corresponding period of 1998.
Financial Condition and Liquidity
- -----------------------------------
Cash and cash equivalents at June 30, 1999, were $35.9 million,
representing an increase of $14.7 million from $21.2 million at
year-end 1998.
Cash flows provided from operating activities of $85 million
(which included a working capital decrease of $25 million) for the
first six months of 1999 together with proceeds from sale of the
investment in Albright & Wilson stock of $157.5 million and
borrowings of $122.4 million were used to cover repayment of debt,
the cost of investment in Albright & Wilson stock, capital
expenditures and payment of dividends 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 account from December 31, 1998, was due to foreign currency
adjustments, net of related deferred taxes, primarily related to
the strengthening of the U.S. dollar.
The noncurrent portion of the Company's long-term debt amounted
to $156.0 million at June 30, 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 24.8% at June 30, 1999.
The Company's capital expenditures in the first six months of
1999 were higher than the
<PAGE>18
same period of 1998. For the year however, capital expenditures
are forecasted to be the same as the 1998 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 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
Second quarter 1999 net sales experienced some sequential
downward trends from first quarter 1999 although volumes in the
majority of our businesses are either holding steady or
increasing compared to the actual results for second quarter
1998. Primary issues for the Company at this time, center around
competitive pricing and the need to increase the number and
frequency of successful new product introductions. More
specifically, the Company is addressing two major adverse
trends--flame retardant pricing in the polymer chemicals segment and
ibuprofen volumes in the fine chemicals segment. Flame retardant
pricing has declined significantly as a result of aggressive
competitive pricing activity. The lower ibuprofen volumes are thought
to be due to inventory over stocking by a major pharmaceutical customer
in the fourth quarter of 1998.
In fine chemicals, we are also forecasting continued weakness in
the third quarter of 1999 in our agrichemicals business. This
weakness follows historical seasonality trends, where the Company
has weak second and third quarters that typically improve later
in the year and normally result in stronger fourth quarters.
With the recovery in oil prices, oil rig counts have begun to
increase which could favorably impact the Company's oilfield
chemicals business in the second half of 1999.
Although we were unsuccessful in our attempted acquisition of
Albright & Wilson, we are actively exploring other opportunities
including joint ventures that could complement our existing
businesses.
<PAGE>19
During the third quarter of 1999, we anticipate the startup of a
new process production facility for the improved manufacture of
one of our large volume flame retardants (tetrabromobisphenol-A).
In addition, a flame retardant (HP 7010) has been building in
momentum as it gains customer acceptance.
As a result of the work-force reductions, which were announced in
second quarter 1999, the Company anticipates future annual operating
cost savings of approximately $5 million before income taxes.
Additional information regarding the Company, its products,
markets and financial performance is provided at the Company's
Internet web site, www.Albemarle.com.
Year 2000 Update
- ----------------
Albemarle's 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 June 30, 1999, the inventory,
priority assessment and compliance assessment phases of each area
of the Project were essentially complete. In corporate systems
activities and most process and support equipment, most critical
and problem items had been completed at June 30, 1999, however
remediation efforts are still in progress in some areas. Completion
of planned remediation efforts is expected by the end of the third
quarter of 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 is being funded from current operations.
The estimated total cost of the Project is less than $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 June 1999, including internal
costs, was approximately $2.1 million.
The Company has completed the identification and evaluation
phases of its supplier contingency planning program and is
currently developing contingency plans as necessary. These
phases are scheduled for completion by early fourth quarter
1999, with adjustment and monitoring planned through the
remainder of 1999 and early 2000. 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
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
<PAGE>20
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 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 are under
development regarding the most critical 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 July 23, 1999, the Company, through its affiliate Albemarle
TCI Limited, and Beijing Yanhua Petrochemical Co. Ltd., an
affiliate of Beijing Yanhua Petrochemical Company, announced that
they have signed an agreement in principle to form Beijing
Albemarle Yanshan Fine Chemical Company Limited. The joint
venture will make agricultural chemical intermediates based upon
Albemarle's strengths in alkylation technology.
The Beijing Albemarle Yanshan Fine Chemical Company Limited's
manufacturing operation (scheduled for startup in the second half
of 2000) will be located within the Beijing Yanhua Petrochemical
Company complex outside of Beijing, China.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
There have been no significant changes in our interest rate risk,
marketable security price risk or raw material price risk from the
information provided in our Form 10-K for the year ended December 31,
1998.
The Company's foreign currency risk has changed from that disclosed
in our Form 10-K for the year ended December 31, 1998. At June 30, 1999
and December 31, 1998, the Company had entered into Japanese Yen forward
contracts in the amount of $8.7 million and $6.9 million, respectively,
all with maturity dates in 1999. An instantaneous 10%
<PAGE>21
depreciation of the U.S. dollar versus the Japanese Yen from June 30, 1999
rates, with all other variables held constant, would result in a $1 million
decrease in the fair value of the forward contracts.
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 at the
Company's Pasadena, Texas plant of EPA's rule regarding leaks
and repairs of appliances containing hydrochlorofluorocarbons.
EPA proposed a civil penalty of $162,000. The Company has
filed an answer and request for an administrative hearing.
Although the Company is vigorously contesting the complaint, it
is attempting to negotiate a settlement with EPA.
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 April 19, 1999,
announcing that the Company increased its offer
price for the outstanding shares of Albright &
Wilson to 160 pence or about $2.58 per share or
approximately $790 million. The Company sold
all of its shares of Albright & Wilson stock to
ISPG, Plc in May 1999.
<PAGE>22
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: August 4, 1999 By: s/Robert G. Kirchhoefer
-----------------------
Robert G. Kirchhoefer
Treasurer and Chief
Accounting Officer
(Principal Accounting Officer)
</TABLE>
<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 OF FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> $35,874
<SECURITIES> $0
<RECEIVABLES> $137,097
<ALLOWANCES> $2,894
<INVENTORY> $124,497
<CURRENT-ASSETS> $310,279
<PP&E> $1,272,438
<DEPRECIATION> $762,232
<TOTAL-ASSETS> $937,418
<CURRENT-LIABILITIES> $126,089
<BONDS> $0
$0
$0
<COMMON> $470
<OTHER-SE> $476,007
<TOTAL-LIABILITY-AND-EQUITY> $937,418
<SALES> $409,156
<TOTAL-REVENUES> $409,156
<CGS> $276,327
<TOTAL-COSTS> $354,960
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $5,319
<INCOME-PRETAX> $71,911
<INCOME-TAX> $24,126
<INCOME-CONTINUING> $47,785
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $47,785
<EPS-BASIC> $1.02
<EPS-DILUTED> $1.00
</TABLE>
