<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
COMMON STOCK, $.01 Par Value NEW YORK STOCK EXCHANGE
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 at least the past 90 days. Yes _X_ No____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
Aggregate market value of voting stock held by non-affiliates of
the registrant as of January 31, 1999: $666,251,168*.
Number of shares of Common Stock outstanding as of January 31,
1999: 47,008,283.
* In determining this figure, an aggregate of 18,275,079 shares
of Common Stock treated as beneficially owned by
Floyd D. Gottwald, Jr., Bruce C. Gottwald and members of their
families have been excluded and treated as shares held by
affiliates. See Item 12 herein. The aggregate market value has
been computed on the basis of the closing price in the New York
Stock Exchange Composite Transactions on January 31, 1999, as
reported by The Wall Street Journal.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Albemarle Corporation's definitive Proxy Statement
for its 1999 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934 (the "Proxy Statement")
are incorporated by reference into Part III of this Form 10-K.
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PART I
Item 1. BUSINESS
Albemarle Corporation ("the Company" or "Albemarle") was
incorporated under the laws of the Commonwealth of Virginia on
November 24, 1993, as a wholly-owned subsidiary of Ethyl
Corporation ("Ethyl"). Ethyl thereafter transferred to Albemarle,
Ethyl's olefins and derivatives, bromine chemicals and specialty
chemicals businesses, and, as of the close of business on
February 28, 1994, Ethyl distributed to its common shareholders
all of the outstanding shares of Albemarle. Since February 28,
1994, the Company has been a publicly held operating company.
On March 1, 1996, the Company sold its alpha olefins,
poly alpha olefins and synthetic alcohols businesses ("Olefins
Business") to Amoco Chemical Company ("Amoco"). Currently,
Albemarle is engaged in the polymers and fine chemicals
businesses.
Unaudited pro forma condensed consolidated statement
of income for the year ended December 31, 1996, which the Company
believes is important to enable the reader to obtain
a meaningful understanding of Albemarle's results of operations
excluding the Olefins Business, is included in Note 18,
"Supplemental Pro Forma Condensed Consolidated Financial
Information (unaudited)", of the notes to the consolidated
financial statements on pages 41 and 42. The unaudited pro forma
condensed consolidated statement of income is for informational
purposes only and does not purport to be indicative of the
Company's future consolidated results of operations or what
the consolidated results of operations would have been had
Albemarle operated without the Olefins Business for all of 1996.
On July 24, 1997, the Company announced the realignment of its
global business units into the Polymer Chemicals and Fine
Chemicals' divisions effective October 1, 1997.
Description of Business
Albemarle is a major producer of specialty polymers and fine
chemicals including polymer intermediates, cleaning product
intermediates and additives, agrichemical intermediates,
pharmachemical intermediates and bulk actives, catalysts,
brominated flame retardants, bromine chemicals and potassium and
chlorine chemicals. Albemarle employs approximately 2,700 people.
The following discussion of the Company's businesses as
of December 31, 1998, should be read in conjunction with the
information contained in Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations on
page 17.
The Company conducts its worldwide chemicals' operations through
two global business units - Polymer Chemicals and Fine Chemicals,
which, in conformity with the Company's adoption as of December
31, 1998, of the Financial Accounting Standards Board's ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 131
"Disclosures about Segments of an
Enterprise and Related Information," are reported as two separate
and distinct operating segments.
Albemarle manufactures a broad range of chemicals, most of which
are additives to or intermediates for plastics, polymers and
elastomers, cleaning products, agricultural compounds,
pharmaceuticals, photographic chemicals, drilling compounds and
biocides. Most sales of the Company's products are made directly
to manufacturers of the aforementioned products, including
chemical and polymer companies, pharmaceutical companies,
cleaning product manufacturers, paper and photographic companies,
drilling companies and water treatment companies.
The Company produces the majority of its products in
the United States, but also has a production facility in France
and has aluminum alkyls produced for it by Amoco at the Company's
former Feluy, Belgium plant. The processes and technology for
many of these products were developed in
the Company's or its predecessor's research and development
laboratories.
The Polymer Chemicals' operating segment produces a broad range
of chemicals, including flame retardants, catalysts, polymer
curatives and antioxidants.
In most flame retardants' products lines, the Company's plants
operated below capacity during 1998. The expansion of brine field
and bromine capacities at the Company's Magnolia, Ark. facility
that started in 1995, continued. The result of the current phase
of the program will be an approximate 30% bromine production
capacity increase. During 1997, the Company announced plans to
build a world-class production facility for tetrabromobisphenol-A
flame retardant in Magnolia, targeted to start up in late 1999.
The Company continues to focus on expansion of its bromine
production capabilities.
The Company began receiving orders during 1997 for
SAYTEX HP-7010 flame retardant, a new brominated polystyrene
product for use in engineered plastics. The Company currently
manufactures this product at its market development unit in its
Baton Rouge research and development facility. A new commercial
plant is under design with a targeted startup in 2000.
Aluminum alkyls are used as co-catalysts in the production of
polyolefins, such as polyethylene and polypropylene, elastomers,
alpha olefins such as hexene, octene and decene, and organotin
heat stabilizers and in the preparation of organic intermediates.
The Company has continued to expand and debottleneck its
production units at Pasadena, Texas and Orangeburg, S.C. It also
has strengthened its supply chain for methylaluminoxane ("MAO"),
a co-catalyst used in metallocene catalyst systems, by increasing
capacity for MAO and the key raw materials needed to make MAO.
The Company has continued to build on its organometallics base
and expand the portfolio of products and capabilities it offers
its customers pursuing the development and commercialization of
polymers based on metallocenes/single-site catalysts.
The Company also is expanding its efforts in polymer curatives,
products used to control polyurethane and epoxy system
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polymerization. Also produced are antioxidants and alkylated
hindered phenolics that are used to maintain the performance
integrity of thermoplastic resins. During 1998, the Company
started up its new commercial scale Ethacure 300 curative plant.
Products of the Fine Chemicals' operating segment include
elemental bromine, alkyl bromides, inorganic bromides, a number
of bromine fine chemicals and pharmaceutical and agricultural
intermediates. Applications for these products primarily exist in
chemical synthesis, oil and gas well drilling and
completion fluids, water purification, glass making, cleaning
products, soil fumigation and chemical intermediates for
pharmaceutical, photographic and agricultural chemicals.
Other Fine Chemicals' products include tertiary amines for
surfactants and biocides, disinfectants and sanitizers; zeolite A
(sodium alumina silicate) used as a phosphate replacement in
laundry detergent builders; and alkenyl succinic anhydride (ASA)
used in paper-sizing formulations. These products have many
varied customers. They are sold to suppliers for use in
household, institutional and industrial cleaners, personal care
products and industrial products.
The Company's primary bulk actives, ibuprofen and naproxen, are
widely-used pharmaceuticals that provide
fever reduction and temporary relief of aches and pains and
menstrual cramps. Bulk ibuprofen is formulated into tablets by
pharmaceutical companies who sell to customers in both the
prescription and over-the-counter markets. Ibuprofen products
accounted for more than 25% of the U.S. over-the-counter
analgesic market in 1998. They compete against other painkillers
containing aspirin, acetaminophen, ketoprofen
and naproxen. The Company is one of the world's largest
producers of ibuprofen. In 1998, the U.S. Food and Drug
Administration ("FDA") granted approval for additional
customers to use the naproxen product.
Agricultural intermediates are sold to chemical companies that
supply finished products to farmers, governments and others.
These products include orthoalkylated anilines for the
acetanilide family of pre-emergent herbicides used on corn,
soybeans and other crops and organophosphorus products for
insecticide use.
The Company's subsidiary, Albemarle PPC ("APPC"), operates a
plant in Thann, France. APPC is one of the world's largest
producers of organic and inorganic brominated compounds used
mainly in pharmaceutical, photographic and agricultural chemical
intermediates. APPC also operates an electrolysis unit to produce
high-purity caustic potash and potassium carbonate used in the
glass, water treatment, cleaning product and food industries.
APPC strengthens the Company's position in Fine Chemicals and
provides substantial additional manufacturing and research and
development capabilities in Europe.
In most Fine Chemicals' product lines, the Company's plants
operated near capacity during 1998, with the exception of bulk
naproxen which had excess capacity.
The Company operates on a worldwide basis with (i) manufacturing
plants located in France and the United Kingdom in addition to
facilities in the United States, (ii) offices and distribution
terminals in Belgium, France, Japan and Singapore as well as the
United States and (iii) offices in Shanghai and Bejing, China.
The Company does not believe it has significant assets in
countries in which those assets would be deemed
to be exposed to substantial risk. See Note 16, "Operating
Segments and Geographic Area Information" of notes to the
consolidated financial statements in Item 8 on page 40.
Competition
The Company operates in a highly competitive marketplace,
competing against a number of other companies in each of its
product lines. Some markets involve a significant number of
competitors, while others involve only a few. The competitors of
the Company are both larger and smaller in terms of resources and
market share. Competition generally is based on product
performance, reputation for quality, price and customer service
and support. The degree and nature of competition depends on the
type of product involved.
In general, the Company competes in all of its markets on the
basis of the quality and price of its products as well as
customer services by maintaining a broad range of products and
by focusing resources on products in which the Company has a
competitive advantage. The Company endeavors to improve its
reputation for quality products, competitive prices and excellent
customer service and support. Competition in connection with all
of the Company's products requires continuing investments in
research and development, product and process improvements and
specialized customer services. Through research and development,
the Company and its subsidiaries continue to seek to increase
margins by introducing value-added products and products based on
proprietary technologies.
Raw Materials
Raw materials used by the Company include ethylene, potassium
chloride, aluminum, ortho-toluidine, bisphenol-A, chlorine,
phenol, isobutylene, caustic soda, toluene, diphenyl oxide,
alumina trihydrate, dimethlyamine, phthalic anhydride, alpha
olefins, maleic anhydride, ethanol, phosphorus, sulfuric acid and
nitrogen, as well as electricity and natural gas as fuels, most
of which are readily available from numerous
suppliers and are purchased or provided under contracts at prices
the Company believes are competitive. The Company also produces
bromine in Arkansas from its extensive brine reserves backed by
an active leasing program. The Company has supply agreements with
the Dead Sea Bromine group
of companies. The contracts essentially cover the bromine
requirements for the production of bromine fine chemicals
in our Thann, France facility and provide additional bromine
if requested for the Company's other bromine needs.
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Major Customers
Due to the diversity of product lines in which the Company
competes, no major portion of the Company's sales or earnings was
generated by one customer nor is the Company overly reliant on
contracts with any one public, private or governmental entity.
Several of the Company's customers manufacture products for
cyclical industries such as the agricultural, automotive,
electronics and building and construction industries. As a
result, demand for the products of the Company from customers in
such industries also is cyclical. In addition, the profitability
of sales of certain of the Company's products depends on the
level of industry plant capacity utilization.
Due to the diversity and size of the Company's operations, there
is little seasonal variation in revenues or earnings, except for
certain agricultural products.
Other Matters
On September 30, 1998, the Company finalized the purchase of
5,738,241 of its common shares through a self-tender offer at a
price of $19.50 per share plus expenses for an aggregate cost of
$112.7 million. During 1998, the Company purchased an additional
1,174,500 shares for $27.9 million, at an average price of $23.79
per share, in market transactions. During 1997, the Company
purchased 1,560,300 shares for $37.5 million, at an average price
of $24.04 per share, in market transactions. As of December 31,
1998, the Company had authorization to purchase an additional
3,508,700 shares of its common stock.
On October 15, 1998, Albemarle Holdings Company Limited, a
wholly-owned subsidiary of the Company, Jordan Dead Sea
Industries Company Limited and Arab Potash Company announced the
signing of a joint venture agreement to manufacture and market
bromine and derivatives from a world-scale complex to be built in
Jordan, near the Dead Sea. In furtherance of the joint venture
agreement between the three companies, the Jordan Bromine Company
Limited was formed on January 11, 1999. Jordan Bromine Company
Limited will build units at Safi, Jordan to produce bromine,
tetrabromobisphenol-A flame retardant, calcium bromine, chlorine
and potassium hydroxide.
On October 30, 1998, the Company, through Albemarle UK Limited a
newly created subsidiary, acquired the Teesport, United Kingdom,
operations of Hodgson Specialty Chemicals division of BTP plc for
approximately $15.2 million. The purchase price for this
acquisition was allocated primarily to property, plant and equipment,
goodwill and inventory.
Research and Patents
The Company's research and development ("R&D") efforts support
each operating segment. With respect to Polymer Chemicals, the
research focus is divided between new and improved flame
retardants, polymerization catalysts and new polymer additives.
Flame retardant research is targeted to satisfy increasing market
needs for performance and quality in products manufactured from
polystyrene, acrylonitrile-butadiene-styrene (ABS) and engineered
thermoplastics. Catalysts research is targeted to meet the market
needs for cost-effective metallocene catalyst systems for the
production of improved polyolefin polymers. Development efforts
are focused on efficiently debottlenecking pilot plant capacity
to meet the expected demand for these businesses and to inventory
new molecules to meet the expanding needs of our customers. These
efforts are expected to continue into 1999 and beyond.
The primary focus of the Company's Fine Chemicals research
program is the development of efficient processes for the
manufacture of chemical intermediates for the pharmaceutical and
agrichemical industries. A second area of focus is the
development of efficient manufacturing processes for
pharmaceutical and agricultural bulk active compounds which are
no longer covered by patents. Another area of research is the
development of biocides for industrial and recreational water
treatment and other applications, especially products based on
bromine chemistry. These efforts are expected to continue into
1999 and beyond.
In addition to the U.S. research facility in Baton Rouge, La.,
the Company's European businesses are supported by the research
and development facilities at Louvain-la-Neuve, Belgium, and
Thann, France.
The Company spent approximately $29.7 million, $31.4 million and
$30.4 million in 1998, 1997 and 1996, respectively, on research
and development, which amounts qualified under the technical
accounting definition of research and development. Total R&D
department spending for 1998 was about $41.6 million, including
$11.9 million related to technical services support to customers
and the Company's plants, testing of existing products, quality
improvement and environmental studies.
The Company considers patents, licenses and trademarks to
be of significance to its businesses. As of December 31, 1998,
the Company owned 1,298 active United States and foreign patents,
including 43 U.S. patents and 71 foreign patents issued in 1998.
Some of these patents are licensed to others. In addition, rights
under the patents and inventions of others have been acquired by
the Company through licenses. The Company's patent position is
actively managed and is deemed by it to be adequate for the
conduct of its business.
Environmental Regulation
The Company maintains and operates manufacturing and distribution
facilities and equipment which are used
in the Polymer and Fine Chemicals' segments. These are subject to
environmental risks and regulations, which are discussed more
fully in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations under the heading
"Environmental Matters" on page 21.
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FINANCIAL INFORMATION AS TO INDUSTRY
SEGMENTS AND GEOGRAPHIC AREAS
The Company's operations are in the chemicals industry.
Industry segments and geographic area information for
the Company's operations for the three years ended December 31,
1998, is presented in Note 16, "Operating Segments and
Geographical Area Information" of the notes to the consolidated
financial statements in Item 8 on page 40.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
Financial information about the Company's foreign and domestic
operations and export sales for the three years ended December
31, 1998, is set forth in Note 16, "Operating Segments and
Geographical Area Information" of the notes to the consolidated
financial statements in Item 8 on page 40. Domestic export sales
to non-affiliates may be made worldwide but are made primarily in
the Asia Pacific region, Latin America and Europe. Foreign
unaffiliated net sales are primarily in Europe, the Middle East
and the Asia Pacific region.
Item 2. PROPERTIES
The Company's principal executive offices are located at 330
South Fourth Street, Richmond, Va., 23219, and its principal
operations offices are located at 451 Florida Street, Baton
Rouge, La., 70801. The Company leases its executive offices and
operations offices in Richmond, Va. and Baton Rouge, La.,
respectively; and its regional offices in Singapore; Tokyo,
Japan; and Beijing, China; as well as various other offices.
The following is a brief description of the principal plants and
related facilities of the Company, all of which are owned except
as stated below.
LOCATION PRINCIPAL OPERATIONS
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Baton Rouge, La. Research and product development activities
(2 facilities,
one on leased land)
Pasadena, Texas Production of aluminum alkyls, alkenyl
succinic anhydride, orthoalkylated anilines,
zeolite A and other chemicals
Louvain-la-Neuve,
Belgium Regional offices and research and
customer technical service activities
Magnolia, Ark. Production of flame retardants and bromine
(West Plant)
Magnolia, Ark. Production of flame retardants, bromine, several
(South Plant) inorganic bromides, agrichemical intermediates
and tertiary amines
Orangeburg, S.C. Production of fine chemicals, including
pharmaceutical intermediates,
fuel additives, orthoalkylated phenols and
polymer modifiers
Teesport,
United Kingdom Production of fine chemicals, including
clear completion fluids, amines and quats
Thann, France Production of organic and inorganic brominated
pharmaceutical intermediates,
photographic and agrichemical intermediates,
high-purity caustic potash and
potassium carbonate; research and product
development activities
Takaishi City,
Osaka, Japan Production of aluminum alkyls
(50 percent
joint venture
with Mitsui
Chemicals, Inc.)
Feluy, Belgium Production of aluminum alkyls
(Leased by Amoco
under a 99-year
lease but operated
for the Company)
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The Company currently is adding capacity in the flame retardants
and fine chemicals areas. The Company believes that its plants,
including planned expansions, will be adequate at projected sales
levels for 1999. Operating rates of certain plants vary with
product mix and normal seasonal sales swings. The Company
believes that its plants generally are well maintained and in
good operating condition.
Certain Agreements Between Albemarle and Ethyl
Albemarle and Ethyl entered into agreements, dated as of February
28, 1994, pursuant to which the Company and Ethyl agreed to
coordinate certain facilities and services of adjacent operating
facilities at plants in Pasadena, Texas and Feluy, Belgium.
Effective March 1, 1996, certain of these agreements were
transferred to Amoco as part of the Olefins Business sale. In
addition, Albemarle and Ethyl entered into agreements (term: 10
years - Ethyl has the right to extend for one additional 10-year
term), dated as of February 28, 1994 for providing for the
blending by Albemarle for Ethyl of certain products and the
production of others at the Company's Orangeburg, S.C., plant.
Certain Agreements Between Albemarle and MEMC Pasadena, Inc.
("MEMC")
Albemarle and MEMC entered into agreements, dated as of July 31,
1995, and subsequently revised effective May 31, 1997, pursuant
to which Albemarle currently provides support services to MEMC at
its Pasadena, Texas, plant which consists of facilities for the
production of electronic materials products. Effective May 31,
1997, Albemarle supplies certain utilities and services to the
MEMC Pasadena plant site pursuant to a utilities and services
agreement (the "Utilities and Services Agreement"). All of the
utilities and services are supplied at Albemarle's cost plus a
percentage fee. Albemarle furnishes certain utilities and
services for a minimum of five years from the effective date (May
31, 1997) of the Utilities and Services Agreement, subject to the
right of MEMC to terminate any one or more utilities or services
on twelve months' notice. Albemarle will make available to MEMC
certain other utilities and services for the duration of MEMC's
lease of the property upon which the MEMC Pasadena plant site is
located.
Certain Agreements Between Albemarle and Amoco
Albemarle and Amoco entered into agreements, dated as of March 1,
1996, pursuant to which the Company provides operating and
support services, certain utilities and products to Amoco, and
Amoco provides operating and support services, certain utilities
and products to Albemarle.
Pasadena, Texas Agreements
After the sale, Amoco owns and operates the linear alpha olefins
and synthetic alcohols facilities ("Amoco Pasadena plant").
Albemarle owns and operates all remaining Albemarle plants
("Albemarle Pasadena plant"). As a result of the sale,
Albemarle supplies to Amoco certain utilities utilized by Amoco
at the Amoco Pasadena plant and Amoco supplies
to Albemarle certain utilities utilized by Albemarle at the
Albemarle Pasadena plant.
Virtually all of the utilities, services and products supplied by
Albemarle to Amoco and by Amoco to Albemarle in Pasadena, Texas,
are supplied at the provider's cost plus a percentage fee. Most
of the utilities, services and products supplied by Albemarle to
Amoco and by Amoco to Albemarle have an initial term of 10 years,
with an automatic extension for an additional 10-year term,
unless terminated by either party at the end of the initial term
upon two years notice.
With respect to products supplied by Albemarle to Amoco,
and conversely Amoco to Albemarle, each may terminate the
supply of such product to the other on 180 days notice.
Feluy, Belgium Agreements
After the sale, Amoco possesses (under a 99-year lease, with
certain purchase options) and operates the linear alpha olefins
and poly alpha olefin facilities. In addition, Amoco possesses
(under the same lease) and operates the aluminum alkyls
facilities exclusively for Albemarle (term: 10 years-Albemarle
has the right to extend for one additional 10-year term).
Albemarle supplies aluminum alkyl products to Amoco for use in
the linear alpha olefins facility (term: 10 years-Amoco has the right
to extend for one additional 10-year term). The services and
products supplied by Albemarle to Amoco and by Amoco to Albemarle
are at the provider's cost plus a percentage fee.
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
will not result ultimately in any liability that is 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 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 also has requested an informal
settlement conference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded primarily on the New York
Stock Exchange under the symbol ALB.
The market price highs and lows (per the New York Stock Exchange)
by quarters for the years 1998 and 1997 are listed below:
1998 1997
Quarter High Low High Low
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First 25 15/16 21 1/8 20 17 7/8
Second 26 3/16 21 5/16 21 1/2 17 3/8
Third 25 1/16 16 3/4 27 1/4 20 13/16
Fourth 23 3/4 16 26 3/4 21 7/8
There were 47,008,283 shares of common stock held by 8,899
shareholders of record as of December 31, 1998.
The Company's current common stock dividend rate is
$.40 per share on an annual basis after the Board of Directors on
November 20, 1998 increased the quarterly dividend rate, payable
January 1, 1999, by 11%, from $.09 to $.10 per share. The
Company's quarterly dividend rate was previously increased on
August 27, 1997, from $.07 to $.09 per share,
or 29% effective with the October 1, 1997 payment.
Shareholders' equity per share at December 31, 1998 was $9.61, up
slightly from $9.60 at December 31, 1997, primarily reflecting
the purchase of 5,738,241 common shares through a tender offer
finalized on September 30, 1998, and additional 1998 repurchases
of 1,174,500 shares. Shareholders' equity per share at December
31, 1997 of $9.60 was up 4.6% from $9.18 at December 31, 1996.
Item 6. SELECTED FINANCIAL DATA
The information for the five years ended December 31, 1998, is
contained in the "Five-Year Summary" included in Part IV, Item
14, Exhibit 99 on page 47.
Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Albemarle Corporation ("the Company" or "Albemarle") became an
independent company upon the spin-off by Ethyl Corporation
("Ethyl") of its olefins and derivatives, bromine chemicals and
specialty chemicals businesses. As of the
close of business on February 28, 1994, Ethyl distributed to
its common shareholders all of the outstanding common shares of
Albemarle.
On March 1, 1996, the Company sold its alpha olefins,
poly alpha olefins and synthetic alcohols businesses ("Olefins
Business") to Amoco Chemical Company ("Amoco").
The following financial data and discussion provides an analysis
of certain significant factors affecting the results of
operations of the Company for years ended December 31, 1998, 1997
and 1996. In addition, a discussion of consolidated financial
condition and sources of additional capital is included under a
separate heading, "Financial Condition and Liquidity" on page 20.
An unaudited pro forma condensed consolidated statement of income
for the year ended December 31, 1996, which the Company believes
is important to enable the reader to obtain a meaningful
understanding of Albemarle's results
of operations excluding the Olefins Business, is included in Note
18, "Supplemental Pro Forma Condensed Consolidated Financial
Information (Unaudited)" of the notes to the consolidated
financial statements in Item 8 on pages 41 and 42. The unaudited
pro forma condensed consolidated statement of income is for
informational purposes only and does not purport to be indicative
of the Company's future consolidated results of operations or
what the consolidated results of operations would have been had
Albemarle operated without the Olefins Business for all of 1996.
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RESULTS OF OPERATIONS
Net Sales
Net sales by operating segments for the three years ending
December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Operating segments:
Polymer Chemicals $417,998 $411,134 $379,675
Fine Chemicals 402,864 418,716 394,688
Olefins Business -- -- 80,118
- ----------------------------------------------------------------
Total $820,862 $829,850 $854,481
================================================================
</TABLE>
Net sales for 1998 amounted to $820.9 million down $9.0 million
(1%) from $829.9 million in 1997. Fine Chemicals' net sales were
down $15.9 million primarily due to lower shipments in
agrichemicals and lower sales of non-manufactured products in the
Asia Pacific region, offset in part, by higher shipments in
pharmachemicals. Polymer Chemicals' net sales were up $6.9
million due to higher shipments in flame retardants and
organometallics and catalysts, offset in part, by lower pricing
and the effects of foreign exchange in Europe and the Asia
Pacific region.
Net sales for 1997 amounted to $829.9 million, down
$24.6 million (3%) from $854.5 million in 1996. Excluding
the first two months net sales of the Olefins Business sold March
1, 1996, Albemarle's net sales for 1997 would have shown an
increase of $55.5 million (7%) from 1996 due
to higher shipments in Polymer Chemicals primarily
organometallics, antioxidants and flame retardants, offset
in part by the effects of a stronger U.S. dollar on sales in
Europe and the Asia Pacific region. Fine Chemicals' net sales
also were up over 1996 due primarily to higher shipments
in agrichemicals and pharmachemicals.
Operating Costs and Expenses
Cost of goods sold in 1998 decreased $8.4 million from 1997
primarily due to improved plant utilizations, the impact of the
Company's cost reduction program, and lower shipments in certain
products offset in part, by the unfavorable effects of foreign
exchange transaction losses of $3.0 million in 1998
versus foreign exchange transaction gains of $8.3 million in
1997, with the result that the gross profit margin increased
to 31.8% in 1998 from 31.5% in 1997. Overall, Albemarle's raw
material costs were lower in 1998 than 1997 reflecting softness
in many of the commodity markets. Average 1998 energy costs also
were lower with both electricity and natural gas prices lower
than 1997.
Cost of goods sold in 1997 decreased $42.9 million from 1996
primarily due to the absence of the costs associated with the
shipments of the Olefins Business for two months in 1996, offset
in part by increased shipments in 1997, with the result that the
gross profit margin increased to 31.5% in 1997 from
28.5% in 1996. The improvement in gross margin reflects improved
plant utilizations and the impact of the Company's cost-reduction
program. Average energy costs were higher during 1997 and
reflected an unusually strong natural gas market. Albemarle's
overall 1997 raw material prices were generally flat compared to
1996 with the exception of ethylene and ethylene derivatives
which were higher.
Selling, general and administrative expenses, combined with
research and development expenses ("SG&A"), decreased $5.6
million (4%) in 1998 from 1997, due primarily to lower outside
consulting costs and the effects of the Company's concerted
efforts to reach a total Company benchmark SG&A rate of 15% of
net sales. The 1998 reduction in SG&A compares to a reduction of
$9 million (6%) in 1997 from 1996, primarily due to lower outside
consulting costs and lower-employee-related expenses resulting
from the Company's workforce reduction program implemented in
conjunction with the sale of the Olefins Business and lower
expenses associated with the exercise of stock appreciation
rights and the award of restricted stock in 1996, offset in part
by normal salary increases in 1997. As a percentage of net sales,
selling, general and administrative expenses, including research
and development expenses, decreased to 16.5% in 1998 from 17% in
1997 versus 17.5% in 1996.
Operating Profit
Operating profit in 1998 increased 4% from 1997. Albemarle's raw
material costs were lower in 1998 than 1997, reflecting softness
in many of the commodity markets. Average 1998 energy costs also
were lower with both electricity and natural gas prices lower
than 1997. Polymer Chemicals' operating results benefited from
increased shipments in flame retardants and organometallics and
catalysts and improved plant utilizations
in flame retardants and the impact of the Company's cost
reduction program. Fine Chemicals' operating results benefited
primarily from increased shipments (ibuprofen) and improved plant
utilization in pharmachemicals. 1998 operating profit
improvement, for both segments, was impacted by the unfavorable
effects of foreign exchange versus the same period in 1997.
Operating profit in 1997 increased 29.2% from 1996.
Excluding the first two months 1996 operating profit of the
Olefins Business sold, 1997 operating profits would have
shown an increase of approximately 33% over 1996. Fine Chemicals'
operating results reflected increased shipments in agrichemicals
and increased shipments and improved costs
in pharmachemicals and bromine fine chemicals and improved costs
in European potassium and chlorine chemicals, while Polymer
Chemicals' operating results reflected higher shipments in
organometallics and catalysts and antioxidants. Although flame
retardants shipments were up, operating results for
flame retardants were down in 1997 from 1996, primarily due to
the effects of a stronger U.S. dollar. (See Note 16, "Operating
Segments and Geographic Area Information" of the notes to the
consolidated financial statements on page 40.)
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<PAGE>9
Interest and Financing Expenses and Other Income
Interest and financing expenses in 1998 increased $3.8 million
from 1997 primarily due to higher average debt outstanding. This
compares to a decrease of $1.8 million in 1997 from 1996
primarily due to higher capitalization of interest on capital
projects in 1997.
Other income, net, increased to $1.6 million in 1998 from $.9
million in 1997, due primarily to higher interest income. Other
income, net decreased $3.1 million in 1997 from $4.0 million in
1996, due primarily to lower interest income.
Gain on Sale of Business
The Company's 1996 earnings include a gain of approximately
$158.2 million ($94.4 million after income taxes) on the sale of
the Olefins Business. (See Note 13, "Special Item" of the notes
to the consolidated financial statements on page 39.)
Income Taxes
Income taxes in 1998 decreased $2.9 million (7%) compared to 1997
due primarily to a lower effective income tax rate in 1998 of 31%
versus an effective income tax rate of 33.8% in 1997. The lower
effective income tax rate in 1998 reflected a nonrecurring tax
benefit.
Income taxes in 1997 decreased $56.1 million (58%) compared to
1996 reflecting a 52% decrease in pre-tax income while the
effective income tax rate was 33.8% in 1997 versus a 38.3% rate
for 1996. Excluding the effect of the gain on the sale of the
Olefins Business, the effective income tax rate for 1996 would
have been 34.5% which is slightly higher than the 1997 rate.
See Note 12, "Income Taxes" of the notes to the consolidated
financial statements on pages 37 and 38 for details of changes in
effective income tax rates.
1999 Outlook
The 1998 performance of the Company reflects high
utilization of the Company's plants, stock repurchases of more
than 6.9 million shares, diminished sales due to the impact of
foreign exchange, the faltering Asian economies and slow starts
in the sales of new products. 1998 cash flows from operations
were up from 1997.
Going forward to 1999, continuation of the high plant utilization
depends upon demand for the Company's products. Interest expense
will be higher in 1999, reflecting higher average debt
outstanding, primarily related to the 1998 share repurchase
program. The Company will continue to work on infrastructure
costs through its cost control efforts. We will continue to
monitor the Company's foreign exchange exposure, where possible,
and, in some cases, utilize foreign exchange hedges when and
where appropriate.
For the Company's two operating segments, Polymer Chemicals and
Fine Chemicals, we should see sales growth in 1999, assuming
pricing, currency and volume objectives can be achieved. Sales
growth likely will be greater in Fine Chemicals than in Polymer
Chemicals. Volume should grow if economic conditions remain
relatively strong outside of Asia and Latin America.
New products accounted for about $50 million in sales in 1998.
The Company's lower-than-expected sales from introduction of new
products in 1998 was related to government regulations, market
conditions and other issues. New flame retardants, additional
organometallics and catalysts and several new surface actives
Albemarle believes, could drive these programs forward in 1999.
Polymer Chemicals
As we enter 1999, we are pleased with the growth of the customers
we now supply in the Company's flame retardant business area. The
strong increase in sales volume in 1998 took place in the face of
pricing pressures that have more than reversed the 1997 price
increases. We have fought to maintain excellent relationships
with customers and will continue to do so. In third quarter 1999,
we expect to start up a new tetrabromobisphenol-A plant in
Magnolia, resulting in some additional costs. Customers are
receiving qualification quantities.
We expect to follow through on customer qualification of the
Company's new SAYTEX HP-7010 flame retardant with significant
sales forecasted in 1999. The Company's sales growth forecast in
flame retardants is in the high-single digit, perhaps
double-digit sales increase in 1999, assuming the economies in
Europe and the U.S. continue to grow and we are successful in the
Company's sales and support efforts for existing products, while
developing the Company's new product opportunities.
In the Company's organometallics and catalysts business, aluminum
alkyls 1999 sales should be about even with 1998.
In the metallocene/single-site catalysts business, Albemarle
serves the Company's customers through production of the
metallocene/single-site complexes, co-catalysts, and supported
catalyst systems. The production of metallocene/single-site
complexes and supported catalyst systems is conducted under
strict secrecy agreements. This business should grow strongly but
from a small base, if polymer makers adopt these new
catalysts in their processes.
Polymer additives and intermediates sales are expected
to be flat with the upside in ETHACURE 300 curative, a
polyurethane curative, offset by slack demand in some of the more
established products being sold into a variety of polymer
applications. ETHACURE 300 curative completed all the rigorous
governmental requirements on November 28, 1998.
-19-
<PAGE>10
Fine Chemicals
We continue to pursue a pharmachemicals marketing strategy of
building relationships with innovators in the pharmaceutical
industry. The Company's research and development strategy is
based on strong technical competencies in several important
chemistries. The Company's manufacturing strategy is aimed at
filling the Company's multi-purpose plant facility with other
products, such as propofol and its intermediates. We continue to
be very active on the naproxen qualification front for
international customers, but the market growth is
not as great as we expected, and a significant amount of excess
manufacturing capacity is available. Globalization of the
pharmachemicals business is another opportunity we will continue
to pursue. Each of these issues will have the potential to impact
the Company's business, and could affect the Company's
projections for 1999 in pharmachemicals, where we see
single-digit increases in sales.
For 1999 in agrichemicals, we expect to achieve high single-digit
increases in sales; however, research and development ("R&D")
spending and other costs may bring operating profit to or a
little below 1998 levels in this mature business. The Company's
focus for R&D continues to be on niche fine chemicals. We
continue to explore methods of increasing business outside North
America. Methyl bromide sales will be restricted by government
regulations to 75% of 1991 production in 1999, going to 50% in
2001 and 30% in 2003, under current U.S. and international
regulations. Albemarle intends to continue sales of this product
for soil fumigant purposes until sales are suspended January 1,
2005.
Bromine and derivatives' growth in 1999 will be dependent upon
the recovery of oil drilling, the continued substitution of
bromine for chlorine in many applications and the integration of
the Teesport, United Kingdom operation the Company acquired on
October 30, 1998. Double-digit sales and operating profit growth
may be possible for this portion of the Fine Chemicals' segment,
dependent upon these market factors. Additional cost reductions
in manufacturing and continuing favorable chlorine and other raw
material prices are necessary to support this growth, however,
several of these factors are not under the Company's control.
As we begin 1999, the surface actives' biocides business is
beginning to make intermediate shipments to new customers and has
more than 20 product registrations pending with government
authorities. Currently, we believe we can grow sales in double
digits, and could do the same in operating profits with positive
contributions from the new Teesport facility's products developed
for this business area, and the approvals of product
registrations in the United States. Other key issues in this
business going into 1999 include competitive pressures in
builders for detergents and the short-term startup costs
associated with bringing new products on line.
Potassium and chlorine chemicals' 1999 results will depend on the
regaining of strength in the Asian economy and a favorable
caustic/chlorine balance in Europe.
In summary, the Company's two business segments, Polymer
Chemicals and Fine Chemicals, should deliver high single-digit or
low double-digit sales growth in 1999 with the current plan,
assuming pricing, currency and volume objectives can be achieved
and the economic conditions remain relatively strong outside of
Asia and Latin America.
Some of the information presented in this Annual Report
& Form 10-K 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, there
can be no assurance that actual results will not differ
materially from its expectations due to a number of factors
including, 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
markets in general, fluctuations in foreign currencies and
significant changes in new product introduction resulting in
increases in capital project requests and approvals leading to
additional capital spending.
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents at December 31, 1998 were
$21.2 million, which represents a decrease of $13.1 million
from $34.3 million at year-end 1997.
Cash provided from operating activities was $137.2 million, which
together with $110.5 million of proceeds from borrowings and
existing cash and cash equivalents of $13.1 million were used to
cover operating activities in 1998, including a working capital
increase (mainly reflecting higher inventories), capital
expenditures, payment of quarterly dividends to common
shareholders, purchase of 6,912,741 shares of common stock for
$140.6 million, the acquisition of the Teesport, United Kingdom
facility and repayment of a portion of long-term debt.
Cash and cash equivalents at December 31, 1997 were $34.3
million, which represented an increase of $20.1 million from
$14.2 million at year-end 1996.
Cash provided from operating activities was $98.8 million, which
together with $61.1 million of proceeds from borrowings were used
to cover operating activities in 1997, including a working
capital increase (mainly reflecting higher accounts receivable
and inventories and a decrease in accounts payable), capital
expenditures, payment of quarterly dividends to common
shareholders, purchase of 1,560,300 shares of common stock for
$37.5 million and repayment of a portion of long-term debt, with
the balance added to cash and cash equivalents.
The Company anticipates that cash provided from operating
activities in the future will be sufficient to cover its
operating expenses, debt service obligations, dividend payments
to common shareholders and to fund its capital expenditures.
-20-
<PAGE>11
The noncurrent portion of the Company's long-term debt amounted
to $192.5 million at December 31, 1998, compared to $91.4 million
at the end of 1997. The Company's total long-term debt, including
the current portion, as a percentage of total capitalization at
December 31, 1998, was approximately 29.9%. (See Note 8,
"Long-Term Debt" of the notes to the consolidated financial
statements on pages 31 and 32 for details of the Company's
long-term borrowings.)
The Company, at December 31, 1998, had the flexibility to borrow
up to a total of $500 million ($140 million outstanding at
December 31, 1998) under its Competitive Advance and Revolving
Credit Facility Agreement ("Credit Agreement").
The Credit Agreement contains certain covenants typical for
a credit agreement of its size and nature, including financial
covenants requiring the Company to maintain consolidated
indebtedness (as defined) of not more than 60% of the sum
of the Company's consolidated shareholders' equity (as defined)
and consolidated indebtedness. The amount and
timing of any borrowings will depend on the Company's
specific cash requirements.
The Company's foreign currency translation adjustments, net of
related deferred taxes, at December 31, 1998, increased from
December 31, 1997, primarily due to the strengthening of foreign
currencies against the U.S. dollar. Capital expenditures in 1998
of $76.7 million were lower than the 1997 level of $85.3 million.
The Company's capital spending program is expected to be in the
$80 - $90 million range over the next few years. This increase is
expected to expand capacities at existing facilities to support
an expected increase in sales. Capital spending for environmental
and safety projects is expected to be about the same over the
next few years. Future capital spending is expected to be
financed primarily with cash provided from operating activities,
with the balance, if necessary, provided by additional long-term
debt. The Company continues to evaluate potential acquisitions of
facilities and/or businesses, particularly in areas where our
know-how adds value.
MARKET RISK MANAGEMENT
In the normal course of operations, the Company is exposed to
changes in financial market conditions due to the denomination of
its business transactions in diverse foreign currencies and the
Company's ongoing manufacturing and funding activities. As a
result, future earnings, cash flows and fair values of assets and
liabilities are subject to uncertainty. The Company has
established policies, procedures and internal processes governing
its management of uncertain market conditions, and uses both
operational and financial market actions in its risk management
activities, which include the use of derivative instruments. The
Company does not use derivative instruments for trading purposes.
The Company only enters into derivative contracts based on
economic analysis of underlying exposures anticipating that
adverse impacts on future earnings, cash flows and fair values
due to fluctuations in foreign currency exchange rates will be
offset by the proceeds from and changes in fair value of the
derivative instruments. The Company does not hedge its exposure
to market risks in a manner that completely eliminates the
effects of changing market conditions on earnings, cash flows
and fair values.
Short-term exposures to changing foreign currency exchange rates
are primarily due to operating cash flows denominated in foreign
currencies. The Company covers certain known and anticipated
operating exposures by using forward contracts.
The primary currencies for which the Company has foreign currency
exchange rate exposure are the euro, Japanese yen, British pound
sterling and the U.S. dollar (in certain of its
foreign locations). In response to the greater fluctuations in
foreign currency exchange rates in recent periods, the Company
has increased the degree of risk management activities to
minimize their impact on earnings of future periods.
The Company's financial instruments subject to foreign currency
exchange risk consist of foreign currency forward contracts and
represent a net liability position of $.4 million at December 31,
1998. The Company conducted a sensitivity analysis on the fair
value of its foreign currency hedge portfolio assuming
instantaneous 10% changes in foreign currency exchange rates from
their levels as of December 31, 1998, with all other variables
held constant. A 10% appreciation of the U.S. dollar against
foreign currencies would result in an increase of $.6 million in
the fair value of foreign currency exchange hedging contracts. A
10% depreciation of the U.S. dollar against foreign currencies
would result in a decrease of $.8 million in the fair value of
foreign currency exchange hedging contracts. The sensitivity in
fair value of the foreign currency hedge portfolio represents
changes in fair values estimated based on market conditions as of
December 31, 1998, without reflecting the effects of underlying
anticipated transactions. When those anticipated transactions are
realized, actual effects of changing foreign currency exchange
rates could have a material impact on earnings and cash flows in
future periods.
Environmental Matters
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 is currently 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, and similar state laws, under which
the Company may be designated as a potentially
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<PAGE>12
responsible party ("PRP") and may be liable for a share of the
costs associated with cleaning up various hazardous waste sites.
Management believes that in most cases, the Company's participation
is de minimis. Further, almost all such sites represent environmental
issues that are quite mature and have been investigated, studied
and in many cases settled by the Company or its predecessor
company. In de minimis PRP matters, the Company's policy
generally is to negotiate a consent decree and to pay any
apportioned settlement, enabling the Company to be effectively
relieved of any further liability as a PRP, except for remote
contingencies. In other than de minimis PRP matters, the
Company's records indicate that unresolved exposures should be
immaterial. The Company accrues and expenses its proportionate
share of PRP costs in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 5 "Accounting for
Contingencies" and Financial Accounting Standards Board's
("FASB") Interpretation No. 14, as clarified by American
Institute of Certified Public Accountant's Statement of Position
96-1. Because management has been actively involved in evaluating
environmental matters, the Company is able to conclude that the
outstanding environmental liabilities for unresolved PRP sites
should not be material to operations.
The Company's environmental and safety operating costs charged to
expense, which are not considered to be normal operating costs
were approximately $14.6 million in 1998 versus approximately
$13.3 million in 1997 and $11.5 million in 1996, excluding
depreciation of previous capital expenditures, and are expected
to be in the same range in the next few years. Costs for
remediation have been accrued and payments related to sites are
charged against accrued liabilities, which at December 31, 1998,
totaled approximately $9.2 million. There is a reasonable
possibility that future remediation costs in excess of amounts
already recorded could be up to $8.0 million before income taxes.
However, the Company believes that any sum it may be required to
pay in connection with environmental remediation matters in
excess of the amounts recorded should occur over a period of time
and should not have a material adverse impact on its financial
condition or annual results of operations, but could have a material
adverse impact in a particular quarterly reporting period.
Capital expenditures for pollution-abatement and safety projects
for the Company, including such costs that are included in other
projects, were approximately $8.5 million, $17.2 million and
$14.7 million in 1998, 1997 and 1996, respectively. For each of
the next few years, capital expenditures for these types of
projects are likely to be in the same range as the 1998 level.
Management's estimates of the effects of compliance with
governmental pollution-abatement and safety regulations are
subject to (i) the possibility of changes in the applicable
statutes and regulations or in judicial or administrative
construction of such statutes and regulations, and (ii)
uncertainty as to whether anticipated solutions to pollution
problems will be successful, or whether additional expenditures
may prove necessary.
Year 2000 Update
General
Albemarle's company-wide Year 2000 Project ("Project") generally
is 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 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. 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.
At December 31, 1998, the inventory, priority assessment and
compliance assessment phases of each area of the Project were
essentially complete. Corporate systems on schedule at December
31, 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 improvements already underway address some
of the Year 2000 concerns. Some manufacturer replacements or
upgrades are behind schedule. The Company, however, estimates
necessary replacements, upgrades, or work arounds should be
completed by mid-1999.
The third-party suppliers phase includes the process of
identifying and prioritizing critical suppliers of goods and
services and identifying their plans and progress. The Company
recently has completed the identification phase and has begun
evaluations of its most critical suppliers. 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.
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<PAGE>13
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 or operations. The estimated total
cost of the Project is approximately $4 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 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 December 31, 1998, was approximately $1.6 million.
Internal direct costs (compensation and benefits) are estimated
for the Project and included above, but are not separately
tracked.
Risks
Since the Company's products are not date aware, Albemarle's Year
2000 issues revolve around its suppliers'
ability to supply, its ability to produce, its business processes
functioning properly, and its customers ability to purchase.
Contingency plans will be developed for the most critical
third-party suppliers of goods and services. For example,
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 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 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 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 probability 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 20.
New Accounting Pronouncements
The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" in June 1998, which is
effective for financial statements for all fiscal quarters
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 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.
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<PAGE>14
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(In Thousands of Dollars Except Share Data)
- -----------------------------------------------------------------------
December 31 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,180 $ 34,322
Accounts receivable,
less allowance for doubtful accounts
(1998-$2,782; 1997-$2,449) 145,207 154,421
Inventories:
Finished goods 97,684 65,998
Raw materials 11,684 7,424
Stores, supplies and other 17,838 16,861
- -----------------------------------------------------------------------
127,206 90,283
Deferred income taxes
and prepaid expenses 17,937 17,710
- -----------------------------------------------------------------------
Total current assets 311,530 296,736
- -----------------------------------------------------------------------
Property, plant and equipment,
at cost 1,259,340 1,188,252
Less accumulated depreciation
and amortization 744,672 691,612
- -----------------------------------------------------------------------
Net property, plant and equipment 514,668 496,640
- -----------------------------------------------------------------------
Other assets and deferred charges 90,308 77,204
Goodwill and other intangibles
- net of amortization 21,291 17,601
- -----------------------------------------------------------------------
Total assets $ 937,797 $ 888,181
=======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,073 $ 50,668
Long-term debt, current portion 408 379
Accrued expenses 53,300 47,578
Dividends payable 4,701 4,952
Income taxes payable 4,454 8,983
- -----------------------------------------------------------------------
Total current liabilities 107,936 112,560
- -----------------------------------------------------------------------
Long-term debt 192,530 91,414
Other noncurrent liabilities 75,664 69,704
Deferred income taxes 110,000 97,167
Shareholders' equity:
Common stock, $.01 par value
(authorized 150,000,000 shares)
issued - 47,008,283 in 1998
and 53,886,802 in 1997 470 539
Additional paid-in capital 78,724 218,841
Accumulated other comprehensive
income (loss) 7,360 (1,445)
Retained earnings 365,113 299,401
- -----------------------------------------------------------------------
Total shareholders' equity 451,667 517,336
- -----------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 937,797 $ 888,181
=======================================================================
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
-24-
<PAGE>15
<TABLE>
<CAPTION>
Consolidated Statements of Income
(In Thousands Except Per-Share Amounts)
- ------------------------------------------------------------------------
Years Ended December 31 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 820,862 $ 829,850 $ 854,481
Cost of goods sold 560,057 568,424 611,353
- ------------------------------------------------------------------------
Gross profit 260,805 261,426 243,128
Selling, general and
administrative expenses 105,435 109,273 119,260
Research and development expenses 29,655 31,446 30,442
- ------------------------------------------------------------------------
Operating profit 125,715 120,707 93,426
Interest and financing expenses 4,487 719 2,529
Gain on sale of business -- -- (158,157)
Other income, net (1,570) (917) (4,025)
- ------------------------------------------------------------------------
Income before income taxes 122,798 120,905 253,079
Income taxes 38,066 40,923 97,020
- ------------------------------------------------------------------------
Net income $ 84,732 $ 79,982 $ 156,059
========================================================================
Basic earnings per share $ 1.64 $ 1.45 $ 2.67
Shares used to compute
basic earnings per share 51,558 55,164 58,353
========================================================================
Diluted earnings per share $ 1.63 $ 1.44 $ 2.65
Shares used to compute
diluted earnings per share 52,136 55,668 58,842
========================================================================
Cash dividends declared
per share of common stock $ .37 $ .32 $ .25
========================================================================
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
-25-
<PAGE>16
<TABLE>
<CAPTION>
Consolidated Statements of Changes In Shareholders' Equity
(In Thousands of Dollars Except Share Data)
- -----------------------------------------------------------------------
Accumulated
Other
Common Stock Paid-in Comprehensive
Shares Amounts Capital Income (Loss)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
January 1, 1996 66,076,853 $ 661 $ 498,827 $ 27,604
- -----------------------------------------------------------------------
Comprehensive income:
Net income for 1996
Foreign currency
translation
(net of deferred
tax benefit of $6,675) (10,927)
Total comprehensive income
Cash dividends declared
for 1996
Exercise of stock
options
and SARs 178,840 2 2,636
Award of restricted
stock 34,680 832
Shares purchased and
retired (11,244,190) (113) (251,405)
- -----------------------------------------------------------------------
Balance at
December 31, 1996 55,046,123 550 250,890 16,677
- -----------------------------------------------------------------------
Comprehensive income:
Net income for 1997
Foreign currency
translation
(net of deferred tax
benefit of $11,072) (18,122)
Total comprehensive income
Cash dividends declared
for 1997
Exercise of
stock options
and SARs 400,919 4 5,451
Shares purchased
and retired (1,560,300) (15) (37,500)
- ------------------------------------------------------------------------
Balance at
December 31, 1997 53,886,802 539 218,841 (1,445)
- ------------------------------------------------------------------------
Comprehensive income:
Net income for 1998
Foreign currency translation
(net of taxes of $5,380) 8,805
Total comprehensive income
Cash dividends
declared for 1998
Exercise of
stock options 34,222 419
Shares purchased
and retired (6,912,741) (69) (140,536)
- -------------------------------------------------------------------------
Balance at
December 31, 1998 47,008,283 $ 470 $ 78,724 $ 7,360
=========================================================================
<FN>
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Changes In Shareholders' Equity
(In Thousands of Dollars Except Share Data)
- -------------------------------------------------------------------------
Total
Retained Shareholders'
Earnings Equity
- -------------------------------------------------------------------------
<S> <C> <C>
Balance,
January 1,
1996 $ 95,474 $ 622,566
- -------------------------------------------------------------------------
Comprehensive income:
Net income for 1996 156,059 156,059
Foreign currency translation
(net of deferred tax
benefit of $6,675) (10,927)
-----------
Total comprehensive income 145,132
Cash dividends declared
for 1996 (14,452) (14,452)
Exercise of stock
options and SARs 2,638
Award of restricted
stock 832
Shares purchased and
retired (251,518)
- --------------------------------------------------------------------------
Balance at
December 31, 1996 237,081 505,198
- --------------------------------------------------------------------------
Comprehensive income:
Net income for 1997 79,982 79,982
Foreign currency translation
(net of deferred tax
benefit of $11,072) (18,122)
--------
Total comprehensive income 61,860
Cash dividends declared
for 1997 (17,662) (17,662)
Exercise of
stock options
and SARs 5,455
Shares purchased
and retired (37,515)
- --------------------------------------------------------------------------
Balance at
December 31, 1997 299,401 517,336
- --------------------------------------------------------------------------
Comprehensive income:
Net income for 1998 84,732 84,732
Foreign currency translation
(net of deferred taxes
of $5,380) 8,805
-------
Total comprehensive income 93,537
Cash dividends declared
for 1998 (19,020) (19,020)
Exercise of
stock options 419
Shares purchased
and retired (140,605)
- -------------------------------------------------------------------------
Balance at
December 31, 1998 $ 365,113 $ 451,667
=========================================================================
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
-26-
<PAGE>17
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
- -----------------------------------------------------------------------
Years Ended December 31 1998 1997 1996
=======================================================================
<S> <C> <C> <C>
Cash and cash equivalents at
beginning of year $ 34,322 $ 14,242 $ 33,130
- -----------------------------------------------------------------------
Cash flows from operating activities:
Net income 84,732 79,982 156,059
Adjustments to reconcile
net income to cash flows
from operating activities:
Depreciation and amortization 75,012 69,044 71,044
Deferred income taxes 7,730 8,070 (21,404)
Gain on sale of business -- -- (158,157)
Change in assets and
liabilities, net of effects of the
purchase/sale of businesses:
Decrease (increase) in
accounts receivable 14,528 (21,069) (9,830)
(Increase) in inventories (31,557) (11,378) (3,234)
(Decrease) increase in
accounts payable (7,008) (12,889) 13,001
Increase (decrease) in
accrued expenses and
income taxes 399 (11,423) (11,596)
Other, net (6,622) (1,529) (7,414)
- ------------------------------------------------------------------------
Net cash provided
from operating activities 137,214 98,808 28,469
- ------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (76,747) (85,284) (90,439)
Acquisition of business (15,229) -- --
Proceeds from sale of business,
net of expenses and $42,297
of trade accounts payable paid
by the Company -- -- 487,345
Other, net 2,213 (5,006) 2,318
- ------------------------------------------------------------------------
Net cash (used in) provided
from investing activities (89,763) (90,290) 399,224
- ------------------------------------------------------------------------
Cash flows from financing activities:
Purchases of common stock (140,605) (37,515) (251,518)
Repayments of long-term debt (11,652) (413) (206,672)
Proceeds from borrowings 110,516 61,102 23,944
Dividends paid (19,271) (16,563) (14,233)
Proceeds from exercise of
stock options 419 4,951 1,898
- ------------------------------------------------------------------------
Net cash (used in) provided
from financing activities (60,593) 11,562 (446,581)
- ------------------------------------------------------------------------
(Decrease) increase in cash
and cash equivalents (13,142) 20,080 (18,888)
- ------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 21,180 $ 34,322 $ 14,242
========================================================================
<FN>
See accompanying notes to the consolidated financial statements.
</TABLE>
-27-
<PAGE>18
Notes to the Consolidated Financial Statements
NOTE 1 Summary of Significant Accounting Policies:
Consolidation
The consolidated financial statements include the accounts and
operations of Albemarle Corporation and all of its wholly-owned
subsidiaries ("the Company" or "Albemarle"). All significant
intercompany accounts and transactions are eliminated
in consolidation.
Basis of Presentation
Albemarle Corporation became an independent company upon the
spin-off by Ethyl Corporation ("Ethyl") of its olefins and
derivatives, bromine chemicals and specialty chemicals businesses
("the predecessor businesses"). As of the close of business on
February 28, 1994, Ethyl distributed to its common shareholders
all of the outstanding common shares of Albemarle. The
distribution was made in the form of a tax-free dividend. One
share of the Company's common stock was distributed to Ethyl
common shareholders for every two shares of Ethyl common stock
held.
On March 1, 1996, the Company sold its alpha olefins, poly alpha
olefins and synthetic alcohols businesses ("Olefins Business") to
Amoco Chemical Company ("Amoco"). Due to the significance of the
sale on the operations of the Company, certain unaudited pro
forma disclosures have been included. See Note 18, "Supplemental
Pro Forma Condensed Consolidated Financial Information
(Unaudited)".
Certain amounts in the accompanying consolidated financial
statements and notes thereto have been reclassified to conform to
the current presentation.
Cash and Cash Equivalents
Cash and cash equivalents in the accompanying consolidated
financial statements consist of cash and time deposits of the
Company for the years ended December 31, 1998 and 1997. Time
deposits of 90 days or less are stated at cost, which
approximates market value.
Accumulated Other Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted Financial
Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income," which established rules for the reporting and the
display of comprehensive income. The Company reflects foreign
currency translation adjustments of $14,185,000, ($29,194,000) and
($17,602,000) in 1998, 1997, and 1996, respectively, net of
deferred income taxes (tax benefits) in accumulated other
comprehensive income (loss) in the shareholders' equity section
of the consolidated balance sheets and displays the components of
comprehensive income in the consolidated statements of changes in
shareholders' equity. The adoption of SFAS No. 130 had no effect
on financial position or operations of the Company. Prior years'
financial statements have been reclassified to reflect current
presentation.
Foreign Currency Translation
The assets and liabilities of all foreign subsidiaries were
prepared in their respective local currencies and translated
into U.S. dollars based on the current exchange rate in effect
at the balance sheet dates, while income and expenses were
translated at average rates for the periods presented.
Translation adjustments have no effect on net income. Transaction
adjustments are included in cost of goods sold. Foreign
currency transaction adjustments resulted in (losses) gains
of $(3,023,000), $8,325,000 and $8,049,000 in 1998, 1997 and
1996, respectively.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined on the last-in, first-out ("LIFO") basis for
substantially all domestic inventories except stores and
supplies, and on either the weighted-average or first-in,
first-out cost basis for other inventories. Cost elements
included in finished goods inventories are raw materials, direct
labor and manufacturing overhead. Raw materials include purchase
and delivery costs. Stores and supplies include purchase costs.
Property, Plant and Equipment
Accounts include costs of assets constructed or purchased,
related delivery and installation costs and interest incurred on
significant capital projects during their construction periods.
Expenditures for renewals and betterments also are capitalized,
but expenditures for repairs and maintenance are expensed as
incurred. The cost and accumulated depreciation applicable to
assets retired or sold are removed from the respective accounts,
and gains or losses thereon are included in income. Depreciation
is computed primarily by the straight-line method based on the
estimated useful lives of the assets.
The Company evaluates historical and expected undiscounted
operating cash flows of the related business units or fair value
of property, plant and equipment to determine the future
recoverability of any property, plant and equipment recorded. For
purposes of determining these evaluations, undiscounted cash
flows are grouped at levels which management uses to operate the
business, which in some cases include businesses on a worldwide
basis. Recorded property, plant and equipment is reevaluated on
the same basis at the end of each accounting period whenever any
significant, permanent changes in business or circumstances have
occurred which might impair recovery.
The costs of brine wells, leases and royalty interests are
primarily amortized over the estimated average life of the well.
On a yearly basis, for all wells, this approximates a
unit-of-production method based upon estimated reserves and
production volumes.
-28-
<PAGE>19
Environmental Compliance and Remediation
Environmental compliance costs include the cost of purchasing
and/or constructing assets to prevent, limit and/or control
pollution or to monitor the environmental status at
various locations. These costs are capitalized and depreciated
based on estimated useful lives.
Environmental compliance costs also include maintenance and
operating costs with respect to pollution prevention and control
facilities and other administrative costs. Such operating costs
are expensed as incurred.
Environmental remediation costs of facilities used in current
operations are generally immaterial and are expensed as incurred.
Remediation costs and post-remediation costs at facilities or
off-plant disposal sites that relate to an existing condition
caused by past operations are accrued as liabilities and expensed
when such costs are reasonably estimated.
Goodwill and Other Intangibles
Goodwill and other intangibles consist principally of goodwill,
product licenses and patents. Goodwill amounting to $18,913,000
and $14,528,000 at December 31, 1998 and 1997, respectively, net
of accumulated amortization and effects of
foreign currency translation adjustments, arose from the 1998
acquisition of the Teesport, United Kingdom, operations of
Hodgson Specialty Chemicals division of BTP plc and the 1993
acquisition of Potasse et Produits Chimiques SA ("PPC") and is
being amortized on a straight-line basis over periods of 16 to 20
years. Intangible assets ($2,378,000 and $3,073,000 at December
31, 1998 and 1997, respectively, net of accumulated amortization
and effects of foreign currency translation adjustments) are
amortized on a straight-line basis over periods
from three to 17 years. Amortization of goodwill and other
intangibles amounted to $2,097,000, $2,754,000 and $4,255,000 for
1998, 1997 and 1996, respectively.
Accumulated amortization of goodwill and other intangibles was
$14,795,000 and $12,698,000 at the end of 1998 and 1997,
respectively. The Company evaluates historical and expected
undiscounted operating cash flows of the related business units
to determine the future recoverability of any goodwill recorded.
For purposes of determining these evaluations, undiscounted cash
flows are grouped at levels which management uses to operate the
business, which in some cases include businesses on a worldwide
basis. Recorded goodwill is reevaluated on the same basis at the
end of each accounting period whenever any significant, permanent
changes in business or circumstances have occurred which might
impair recovery.
Research and Development Expenses
The Company-sponsored research and development expenses related
to present and future products are expensed currently as
incurred.
Pension Plans and Other Postretirement Benefits
Annual costs of pension plans are determined actuarially based on
SFAS No. 87, "Employers' Accounting for Pensions" ("SFAS No.
87"). The Company's policy is to fund U.S. pension plans at
amounts not less than the minimum requirements of the Employee
Retirement Income Security Act of 1974 and generally for
obligations under its foreign plans to deposit funds with
trustees and/or under insurance policies. Annual costs of other
postretirement plans are accounted for based on SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions". The policy of the Company
is to fund postretirement health benefits for retirees on a
pay-as-you-go basis.
During 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits"
("SFAS No. 132"). SFAS No. 132 revised and standardized the
disclosure requirements for pensions and other postretirement
benefit plans to the extent practicable. It does not change the
measurement or recognition of these plans.
Employee Savings Plan
Certain Company employees participate in the Albemarle defined
contribution 401(k) employee savings plan which is generally
available to all full-time salaried and non-union hourly
employees and to employees who are covered by a collective
bargaining agreement which included such participation.
The plan is funded with contributions by participants and
the Company. Expenses recorded for the 401(k) plan by the Company
approximated $5,100,000, $4,900,000 and $4,900,000 in 1998, 1997
and 1996, respectively.
Income Taxes
The Company and its subsidiaries file consolidated U.S. Federal
income tax returns and individual foreign income
tax returns.
Deferred income taxes result from temporary differences in the
recognition of income and expenses for financial and income tax
reporting purposes, using the liability or balance sheet method.
Such temporary differences result primarily from differences
between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. It is the
Company's policy to record deferred income taxes on any
undistributed earnings of foreign subsidiaries that are not
deemed to be, or are not intended to be, permanently reinvested
in those subsidiaries.
In connection with the spin-off as of the close of business on
February 28, 1994, the Company and Ethyl entered into a tax
sharing agreement whereby Ethyl agreed to indemnify and hold
harmless the Company against all taxes attributable to the
predecessor businesses prior to the spin-off, with the exception
of certain of the Company's subsidiaries which remained
responsible for their taxes.
-29-
<PAGE>20
Earnings Per Share
The Company calculates earnings per share ("EPS") as required by
SFAS No. 128, "Earnings Per Share," which requires dual
presentation of basic and diluted EPS.
Financial Instruments
The Company manages its foreign currency exposures by maintaining
certain assets and liabilities in approximate balance and through
the use of foreign exchange contracts. The principal objective of
such contracts is to minimize the risks and/or costs associated
with global operating activities. The Company does not utilize
financial instruments for trading or other speculative purposes.
The counterparties to these contractual agreements are major
financial institutions with which the Company generally also has
other financial relationships. The Company is exposed to credit
loss in the event of nonperformance by these counterparties.
However, the Company does not anticipate nonperformance by the
other parties, and no material loss would be expected from their
nonperformance.
The Company enters into forward currency exchange contracts,
which typically expire within one year, in the regular course of
business to assist in managing its exposure against foreign
currency fluctuations on sales and intercompany transactions.
While these hedging contracts are subject to fluctuations in
value, such fluctuations are generally offset by the value of the
underlying foreign currency exposures being hedged. Gains and
losses on forward contracts are recognized currently in income.
The Company had outstanding forward exchange contracts at
December 31, 1998, hedging Japanese yen receivables and revenues
with a notional value totaling $6,512,000. The Company had
outstanding forward exchange contracts at December 31, 1997,
hedging Japanese yen and German mark receivables and revenues
with a notional value totaling $23,527,000. For the years ended
December 31, 1998, 1997 and 1996, the Company recognized (losses)
gains of $(876,000), $2,167,000 and $694,000, respectively, in
income before income taxes on its forward exchange contracts.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS
No. 123") encourages, but does not require, companies to record
at fair value, compensation cost for stock-based employee
compensation plans. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB Opinion No.
25") and related interpretations (See Note 9, "Capital Stock").
Under the intrinsic method, compensation cost for stock options
is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of revenues, expenses, assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
New Accounting Pronouncements
The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" in June, 1998, which is
effective for financial statements for all fiscal quarters
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 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. 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.
NOTE 2 Supplemental Cash Flow Information:
Supplemental information for the consolidated statements of cash
flows is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $37,650 $37,475 $110,771
Interest and financing
expenses (net of
capitalization) 4,492 574 2,910
==================================================================
</TABLE>
-30-
<PAGE>21
NOTE 3 Earnings Per Share:
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
(In Thousands, Except Per-Share Data) 1998 1997 1996
- ------------------------------------------------------------------
<S>
Basic earnings per share <C> <C> <C>
Numerator:
Income available to
stockholders, as reported $84,732 $79,982 $156,059
Denominator:
Average number of shares of
common stock outstanding 51,558 55,164 58,353
- ------------------------------------------------------------------
Basic earnings per share $ 1.64 $ 1.45 $ 2.67
==================================================================
Diluted earnings per share
Numerator:
Income available to
stockholders, as reported $84,732 $79,982 $156,059
- ------------------------------------------------------------------
Denominator:
Average number of shares of
common stock outstanding 51,558 55,164 58,353
Shares issuable upon exercise
of stock options 578 504 489
- ------------------------------------------------------------------
Total shares 52,136 55,668 58,842
- ------------------------------------------------------------------
Diluted earnings per share $ 1.63 $ 1.44 $ 2.65
==================================================================
</TABLE>
NOTE 4 Inventories:
Domestic inventories stated on the LIFO basis amounted
to $68,201,000 and $42,957,000 at December 31, 1998 and 1997,
respectively, which are below replacement cost by approximately
$34,766,000 and $35,983,000, respectively.
NOTE 5 Deferred Income Taxes and Prepaid Expenses:
Deferred income taxes and prepaid expenses consist of the
following:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Deferred income taxes - current $15,250 $14,680
Prepaid expenses 2,687 3,030
- ------------------------------------------------------------------
Total $17,937 $17,710
==================================================================
</TABLE>
NOTE 6 Property, Plant and Equipment:
Property, plant and equipment, at cost, consists of the
following:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Land $ 18,887 $ 18,582
Land improvements 35,849 36,177
Buildings 87,186 83,906
Machinery and equipment 1,075,277 993,160
Construction in progress 42,141 56,427
- ------------------------------------------------------------------
Total $1,259,340 $1,188,252
==================================================================
</TABLE>
The cost of property, plant and equipment is depreciated,
generally by the straight-line method, over the following useful
lives: land improvements - 5 to 30 years; buildings - 10 to 40
years; and machinery and equipment - 3 to 25 years.
Interest capitalized on significant capital projects in 1998,
1997, and 1996 was $1,598,000, $1,826,000 and $823,000,
respectively, while amortization of capitalized interest (which
is included in depreciation expense) in 1998, 1997 and 1996 was
$1,460,000, $1,382,000 and $1,610,000, respectively.
NOTE 7 Accrued Expenses:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Employee benefits, payroll
and related taxes $25,592 $21,392
Taxes other than income
and payroll 6,860 3,900
Other 20,848 22,286
- -----------------------------------------------------------------
Total $53,300 $47,578
=================================================================
</TABLE>
NOTE 8 Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Variable-rate bank loans $169,600 $77,000
Foreign borrowings 22,216 13,645
Miscellaneous 1,122 1,148
- ----------------------------------------------------------------
Total 192,938 91,793
- ----------------------------------------------------------------
Less amounts due within one year 408 379
- ----------------------------------------------------------------
Long-term debt $192,530 $91,414
================================================================
</TABLE>
Maturities of long-term debt for the next five years are
as follows: 1999- $408,000; 2000 - $366,000; 2001 - $369,000;
2002 - $190,325,000; 2003 - $380,000 and 2004 through
2016 - $1,090,000.
-31-
<PAGE>22
On September 24, 1996, the Company entered into a
five-year, $500 million unsecured Competitive Advance and
Revolving Credit Facility Agreement (the "Credit Agreement"). The
maturity date of the Credit Agreement was extended to September
29, 2002. At December 31, 1998 and 1997, $140 and $70 million in
borrowings were outstanding under the Credit Agreement,
respectively. The Credit Agreement contains certain covenants
typical for a credit agreement of its size and nature, including
financial covenants requiring the Company to limit consolidated
indebtedness (as defined) to not more than 60% of the sum of the
Company's consolidated shareholders' equity (as defined) and
consolidated indebtedness. The average interest rate on 1998 and
1997 borrowings under the Credit Agreement was 5.70% and 5.88%,
respectively, with a year-end interest rate of 5.67% and 6.11% on
the balance outstanding at December 31, 1998 and 1997,
respectively.
The Company has four additional agreements with domestic banks
which provide immediate uncommitted credit lines, on a short-term
basis, up to a maximum of $135 million at the individual bank's
money market rate. At December 31, 1998 and 1997, $29.6 million
and $7 million in borrowings from these agreements were
outstanding, respectively, which the Company has the ability to
refinance with borrowings under the Credit Agreement; therefore,
these amounts have been classified as long-term debt. The average
interest rate on borrowings under these agreements was 5.51% and
5.64% in 1998 and 1997, respectively, with a year-end interest
rate of 5.40% and 6.88% on balances outstanding at December 31,
1998 and 1997, respectively.
One of the Company's foreign subsidiaries modified an existing
agreement with a foreign bank during 1998 which
provides immediate uncommitted credit lines, on a short-term
basis, up to a maximum of approximately 2.5 billion Japanese yen
($21.7 million) at the individual bank's money market rate. At
December 31, 1998 and 1997, borrowings under this agreement
consisted of 2.3 billion Japanese yen ($19.6 million) and 1.5
billion Japanese yen ($11.6 million), respectively. The average
interest rate on borrowings under this agreement was 1.62% and
1.63% in 1998 and 1997, respectively. Another foreign subsidiary
of the Company entered into an agreement with a foreign bank
during 1998 to provide immediate uncommitted credit lines, on a
short-term basis, up to a maximum of approximately 3 million
British pound sterling ($5 million) at the individual bank's
money market rate. This agreement has been guaranteed by the
Company. At December 31, 1998, borrowings under this agreement
consisted of approximately 0.4 million British pounds sterling
($0.7 million). The average interest rate on borrowings under
this agreement was 7.6%. The Company has the ability to refinance
borrowings from these agreements with borrowings under the Credit
Agreement. Therefore, these amounts have been classified as
long-term debt. Additional foreign borrowings at December 31,
1998 and 1997, consisted of 10.5 million French francs ($1.9
million) and 12.57 million French francs ($2.1 million),
respectively. The average interest rate on these borrowings were
0.48% and 0.50% in 1998 and 1997, respectively.
One of the Company's foreign subsidiaries has a separate,
additional agreement with a foreign bank which provides an
immediate uncommitted credit line, on a short-term basis, up to a
maximum of approximately $14.5 million at the individual bank's
money market rate. This agreement has been guaranteed by the
Company. At December 31, 1998 and 1997, no borrowings were
outstanding under this agreement, respectively.
NOTE 9 Capital Stock:
Preferred Stock
The Company has the authority to issue 15,000,000 shares
of preferred stock, in one or more classes or series. No shares
of the Company's preferred stock have been issued to date.
Stock Purchases
On September 30, 1998, the Company finalized the purchase of
5,738,241 of its common shares through a self-tender offer at a
price of $19.50 per share plus expenses for an aggregate cost of
approximately $112.7 million. Earlier in 1998, the Company
purchased, in market transactions, an additional 1,174,500 shares
for $27.9 million, at an average price of $23.79 per share.
During 1997, the Company purchased, in market transactions,
1,560,300 shares for $37.5 million, at an average price of $24.04
per share.
On April 1, 1996, the Company purchased 9,484,465 of its common
shares through a self-tender offer at a price of $23 per share
plus expenses for an aggregate cost of $219.4 million, following
the sale of the Olefins Business to Amoco. During 1996, the
Company purchased an additional 1,756,500 shares for $32.1
million, at an average price of $18.25 per share, in market
transactions. As of December 31, 1998, the Company had
authorization to purchase an additional 3,508,700 shares of its
common stock.
Stock Option Plans
The Company has two incentive plans (1994 and 1998 plans). The
plans provide for incentive awards payable in either cash or
common stock of the Company, qualified and non-qualified stock
options ("stock options"), stock appreciation rights ("SARs"),
and restricted stock awards and performance awards ("stock
awards"). Under the 1998 plan, which was approved by shareholders
at the 1998 Annual Meeting, a maximum of 3,000,000 shares of the
Company's common stock may be issued as incentive awards, stock
options, SARs or stock awards. Under the 1994 plan, a maximum of
3,200,000 shares of the Company's common stock could be issued
pursuant to the exercise of stock options, SARs or the grant of
stock awards. After the adoption of the 1998 plan, it is not
anticipated that any additional grants or awards will be made
under the 1994 plan.
-32-
<PAGE>23
Stock options outstanding under the two plans have been granted
at prices which are either equal to or above the
market value of the stock on the date of grant and expire 7 to 10
years after issuance. The stock options become exercisable based
upon growth in either operating earnings as defined from the
base-year earnings, or the increase in fair market value ("FMV")
of the Company's common stock, during a specified period, from
the FMV on the date of grant. However, stock options for 40,000
shares granted in 1998 become exercisable at the end of the sixth
year.
Restricted stock award agreements totaling 250,000 of contingent
shares of Albemarle common stock were made with certain employees
of the Company in 1998. These shares earn out over a two- or
four-year period based on certain performance criteria, which, if
exceeded, could result in as many as 500,000 shares of restricted
stock being issued, or none may be issued if the performance
criteria are not met.
The compensation expense associated with these programs in 1998,
1997 and 1996 amounted to approximately $2.2 million, $1.3
million and $2.6 million, respectively.
Stock option activity in 1996, 1997 and 1998 is shown below:
<TABLE>
<CAPTION>
Weighted-
Average
Shares Available Options Exercise
for Grant Activity Options Price Price
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 1996 1,420,619 1,770,409 $9.45 - $14.81 $13.05
- --------------------------------------------------------------------
Non-qualifying
stock options
granted (293,000) 293,000* $17.38 $17.38
Exercised -- (301,646) $9.45 - $13.47 $13.00
Lapsed 10,000 (10,000) $13.13 $13.13
Restricted
stock awards (34,680)
- --------------------------------------------------------------------
December 31, 1996 1,102,939 1,751,763 $9.45 - $17.38 $13.78
- --------------------------------------------------------------------
Exercised -- (473,254) $9.45 - $14.81 $13.03
- --------------------------------------------------------------------
December 31, 1997 1,102,939 1,278,509 $9.45 - $17.38 $14.06
- --------------------------------------------------------------------
1998 Plan
adoption 3,000,000
Non-qualifying
stock options
granted (590,000) 590,000* $25.25 - $25.75 $25.71
Exercised -- (34,222) $9.45 - $13.47 $12.26
Restricted stock
awards (250,000)
- -------------------------------------------------------------------
December 31, 1998 3,262,939 1,834,287 $10.36 - $25.75 $17.84
===================================================================
*The weighted average fair values of options granted during 1998
and 1996 were $7.26 and $6.47, respectively.
</TABLE>
The following table summarizes information about fixed-price
stock options at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------
Weighted- Weighted-| Weighted-
Number Average Average | Number Average
Exercise Outstanding Remaining Exercise |Exercisable Exercise
Prices @ 12/31/98 Contractual Life Price |@12/31/98 Price
- ----------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$12.29 1,708 0.7 years $ 12.29 | 1,708 $ 12.29
10.36 5,339 1.8 years 10.36 | 5,339 10.36
12.12 18,759 3.0 years 12.12 | 18,759 12.12
13.47 33,860 4.0 years 13.47 | 33,860 13.47
13.13 891,621 5.2 years 13.13 | 891,621 13.13
17.38 293,000 7.7 years 17.38 | 175,800 17.38
25.25 50,000 9.3 years 25.25 | -- 25.25
25.75 500,000 9.3 years 25.75 | -- 25.75
25.75 40,000 6.8 years 25.75 | -- 25.75
- ----------------------------------------------------------------------
1,834,287 1,127,087
======================================================================
-33-
</TABLE>
<PAGE>24
As discussed in Note 1, "Summary of Significant Accounting
Policies", the Company accounts for stock-based compensation
plans under APB Opinion No. 25. If compensation cost had been
determined based on the fair value at the grant date for awards
made in 1998 and 1996 under the Plans consistent with the method
of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------
<S> <S> <C> <C>
Net income as reported $84,732 $79,982
pro forma $83,924 $79,394
Basic earnings as reported $ 1.64 $ 1.45
per share pro forma $ 1.63 $ 1.44
Diluted earnings as reported $ 1.63 $ 1.44
per share pro forma $ 1.61 $ 1.43
==================================================================
</TABLE>
The fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for options granted in 1998 and
1996, respectively: dividend yield 1.94% and 2.61%; expected
volatility of 30.44% and 29.33%; risk-free interest rate of 4.65%
and 6.39%; and expected lives of 7 and 8 years.
NOTE 10 Rental Expense and Other Data:
Rental Expense
The Company has a number of operating lease agreements, primarily
for office space, transportation equipment and storage
facilities. Future minimum lease payments for the next five years
for all noncancelable leases as of December 31, 1998 are
$6,430,000 for 1999, $4,715,000 for 2000, $3,373,000 for 2001,
$2,719,000 for 2002, $2,066,000 for 2003, and amounts payable
after 2003 are $1,000. Rental expense was approximately
$12,400,000 for 1998, $13,200,000 for 1997, and $15,000,000 for
1996.
Contractual and Other Commitments
Contractual obligations for plant construction, purchases of real
property and equipment and various take or pay and throughput
agreements amounted to approximately $20,000,000 at December 31,
1998.
Service Agreements
The Company and Ethyl are parties to various agreements, dated as
of February 28, 1994, pursuant to which the Company and Ethyl
agreed to coordinate certain facilities and services of adjacent
operating facilities at plants in Pasadena, Texas and Feluy,
Belgium. In addition, the Company and Ethyl are parties to
agreements providing for the blending by the Company of Ethyl's
additive products and the production of antioxidants and
manganese-based antiknock compounds at the Orangeburg, S.C.
plant. The Company's billings to Ethyl in 1998, 1997 and 1996 in
connection with these agreements amounted to approximately $31
million, $29 million and $34 million, respectively.
The Company and MEMC Pasadena, Inc. ("MEMC Pasadena") are parties
to agreements dated as of July 31, 1995 and subsequently revised
effective May 31, 1997, pursuant to which the Company provides
certain utilities and services to the MEMC Pasadena site which is
located at Albemarle's Pasadena plant and on which the electronic
materials facility is located. MEMC Pasadena agreed to reimburse
Albemarle for all the costs and expenses plus a percentage fee
incurred as a result of these agreements. The Company's billings
to MEMC Pasadena, in connection with these agreements amounted
to approximately $9 million in 1998, $38 million in 1997 and $41
million in 1996. The reduction in 1998 from 1997 was the result
of the Company providing fewer services as a result of the 1997
revision to the agreements, including, but not limited to, plant
operations and engineering costs.
The Company and Amoco are parties to numerous operating and
service agreements, dated as of March 1, 1996, pursuant to which
the Company provides operating and support services, certain
utilities and products to Amoco, and Amoco provides operating and
support services, certain utilities and products to Albemarle.
The Company's billings to Amoco in 1998, 1997 and 1996, in
connection with these agreements, amounted to approximately $41
million, $42 million and $42 million, respectively. Amoco's
billings to the Company in 1998, 1997 and 1996, in connection
with these agreements, amounted to $17 million, $15 million and
$17 million, respectively.
Environmental
The Company accrues for environmental remediation costs and
post-remediation costs on an undiscounted basis at facilities or
off-plant disposal sites that relate to existing conditions
caused by past operations in the accounting period in which
responsibility is established and when the related costs are
estimable. In developing these cost estimates, evaluation is
given to currently available facts regarding each site, with
consideration given to existing technology, presently enacted
laws and regulations, prior experience in remediation of
contaminated sites, the financial capability of other potentially
responsible parties and other factors, subject to uncertainties
inherent in the estimation process. Additionally, these estimates
are reviewed periodically, with adjustments to the accruals
recorded as necessary. The Company has recorded liabilities of
approximately $9.2 million and $8.9 million at December 31, 1998
and 1997, respectively, which represents management's best
estimate of the Company's future remediation and other
anticipated environmental costs relating to past operations.
Although it is difficult to quantify the potential financial
impact of compliance with environmental protection
laws, management estimates, based on the latest available
-34-
<PAGE>25
information, that there is a reasonable possibility that future
environmental remediation costs to be incurred over a period of
time associated with the Company's past operations in excess of
amounts already recorded, could be up to $8.0 million before
income taxes. However, the Company believes that any sum it may
be required to pay in connection with environmental remediation
matters in excess of the amounts recorded will not have a
material adverse impact on its financial condition or annual results of
operations, but could have a material adverse impact in a
particular quarterly reporting period.
Litigation
The Company is from time-to-time subject to routine litigation
incidental to its businesses. The Company is not party to any
pending litigation proceedings that are expected to have a
material adverse effect on the Company's results of operations or
financial condition. Accordingly, no additional disclosures
are required.
NOTE 11 Pension Plans and Other Postretirement Benefits:
The Company has primarily noncontributory defined benefit pension
plans covering most employees. The benefits for these plans are
based primarily on compensation and/or years of service. The
funding policy for each plan complies with the requirements of
relevant governmental laws and regulations. Plan assets consist
principally of common stock, U.S. government and corporate
obligations and group annuity contracts. The
pension information for all periods presented includes amounts
related to salaried and hourly plans. The prepaid benefit cost
related to pensions is included in "Other assets and deferred
charges" on the consolidated balance sheets.
The Company provides postretirement medical benefits and life
insurance for certain groups of retired employees. Medical and
life insurance benefit costs are funded principally on a
pay-as-you-go basis. Although the availability of medical
coverage after retirement varies for different groups of
employees, the majority of employees who retire before becoming
eligible for Medicare can continue group coverage by paying all
or most of the cost of a composite monthly premium designed to
cover the claims incurred by active and retired employees. The
availability of group coverage for Medicare-eligible retirees
also varies by employee group with coverage designed either to
supplement or coordinate with Medicare. Retirees generally pay a
portion of the cost of the coverage. Plan assets for retiree life
insurance are held under an insurance contract and reserved for
retiree life insurance benefits. The accrued postretirement
benefit cost is included in "Other noncurrent liabilities" in the
consolidated balance sheets.
Pension coverage for employees of the Company's foreign
subsidiaries is provided through separate plans. Obligations
under such plans are systematically provided for by depositing
funds with trustees or under insurance policies. The pension
cost, actuarial present value of benefit obligations and plan
assets have been combined with the Company's other pension
disclosure information presented.
-35-
<PAGE>26
The following provides a reconciliation of benefit obligations,
plan assets, and funded status of the plans as well as a summary
of significant assumptions:
<TABLE>
<CAPTION>
(In Thousands
Except for Other
Assumptions) Pension Benefits Postretirement Benefits
- ------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
- ------------------------------------------------------------------
Benefit obligation
at January 1 $ 302,807 $ 274,780 $ 50,060 $ 47,050
Service cost 8,419 7,350 1,940 1,765
Interest cost 21,407 20,361 3,600 3,286
Amendments 236 -- 14 --
Change in discount
rate assumptions 21,537 10,409 4,285 1,894
Actuarial loss
(gain) 967 5,203 288 (1,981)
Benefits paid (14,867) (14,296) (1,481) (1,954)
Effect of
foreign exchange 523 (1,000) -- --
- ------------------------------------------------------------------
Benefit obligation
at December 31 $ 341,029 $ 302,807 $ 58,706 $ 50,060
==================================================================
Change in plan assets
- ------------------------------------------------------------------
Fair value of
plan assets at
January 1 $ 435,172 $ 382,190 $ 6,708 $ 7,339
Actual return
on plan assets 57,356 66,759 471 610
Employer
contributions 2,161 618 929 713
Benefits paid (14,774) (14,019) (1,481) (1,954)
Effect of
foreign exchange 144 (376) -- --
- ------------------------------------------------------------------
Fair value of
plan assets
at December 31 $ 480,059 $ 435,172 $ 6,627 $ 6,708
==================================================================
Funded status of plans
- ------------------------------------------------------------------
Over (under)
funded status $ 139,030 $ 132,365 $ (52,079) $ (43,352)
Unrecognized
net gain (73,406) (74,642) (4,227) (9,297)
Unrecognized
prior service cost 9,254 10,458 895 980
Unrecognized net
transition asset (7,693) (10,411) -- --
- -----------------------------------------------------------------
Prepaid (accrued)
benefit cost
at December 31 $ 67,185 $ 57,770 $ (55,411) $ (51,669)
=================================================================
Assumptions as of December 31
- -----------------------------------------------------------------
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return
on plan assets 9.50% 9.50% 9.50% 9.50%
Rate of
compensation
increase 4.50% 4.50% 4.50% 4.50%
=================================================================
</TABLE>
The components of net periodic pension and postretirement benefit
(income) expense are as follows:
<TABLE>
<CAPTION>
(In Thousands) Pension Benefits Other Postretirement Benefits
- -----------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service
cost $ 8,419 $ 7,350 $ 7,367 $ 1,940 $ 1,765 $ 1,855
Interest
cost 21,407 20,361 18,950 3,600 3,286 3,222
Expected
return on
assets (35,984)(32,714) (30,133) (588) (610) (660)
Amortization
of prior
service cost 1,466 1,445 1,436 99 98 98
Amortization
of (gain)
loss 58 37 -- (381) (573) (349)
Amortization
of transition
asset (2,718) (2,719) (2,718) -- -- --
- -----------------------------------------------------------------
Benefit
(income)
expense $ (7,352)$(6,240)$ (5,098) $ 4,670 $ 3,966 $ 4,166
=================================================================
-36-
</TABLE>
<PAGE>27
In 1996, the Company recognized a one-time curtailment loss and
special termination benefits charge related to pension plans of
$5.5 million and a one-time curtailment gain related to other
postretirement benefits of $0.7 million, which were both included
in the net gain on the sale of the Olefins Business (See Note 13,
"Special Items"), as required by SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," reflecting the
effects of the transfer of approximately 550 people who supported
the Olefins Business sold to Amoco.
The assumed health care cost trend rate was 9% in 1998, 10% in
1997 and 11% in 1996, declining by 1% per year to an ultimate
rate of 7%, except that managed care costs were assumed to be 6%
in 1998, 7% in 1997 and 8% in 1996.
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A
one-percentage-point change in assumed health care cost trend
rates at December 31, 1998 would have the following effects:
<TABLE>
<CAPTION>
One-Percentage- One-Percentage-
(In Thousands) Point Increase Point Decrease
- --------------------------------------------------------
<S> <C> <C>
Effect on total
of service and
interest cost
components $ 1,000 $ (800)
- --------------------------------------------------------
Effect on
postretirement
benefit obligation $ 7,300 $ (5,800)
========================================================
</TABLE>
Other Postemployment Benefits
The Company also provides certain postemployment benefits to
former or inactive employees who are not retirees. The Company
funds postemployment benefits on a pay-as-you go basis. These
benefits include salary continuance, severance and disability
health care and life insurance which are accounted for under SFAS
No. 112 "Employers' Accounting for Postemployment Benefits". The
accrued postemployment benefit liability was approximately $1.7
million at the end of 1998, a decrease of about $0.2 million from
1997.
NOTE 12 Income Taxes:
Income before income taxes and current and deferred income taxes
(benefits) are composed of the following:
<TABLE>
<CAPTION>
(In Thousands)
Years ended December 31 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes:
Domestic $110,877 $100,157 $232,889
Foreign 11,921 20,748 20,190
- ----------------------------------------------------------------
Total $122,798 $120,905 $253,079
================================================================
Current income taxes (benefits):
Federal $ 29,413 $ 26,586 $ 101,698
State 1,516 1,981 12,478
Foreign (593) 4,286 4,248
- ----------------------------------------------------------------
Total 30,336 32,853 118,424
- ----------------------------------------------------------------
Deferred income tax (benefits):
Federal 7,456 7,568 (18,070)
State 835 1,042 (2,415)
Foreign (561) (540) (919)
- ----------------------------------------------------------------
Total 7,730 8,070 (21,404)
- ----------------------------------------------------------------
Total income taxes $ 38,066 $ 40,923 $ 97,020
================================================================
-37-
</TABLE>
<PAGE>28
The significant differences between the U.S. federal statutory
rate and the effective income tax rate are as follows:
<TABLE>
<CAPTION>
% of Income Before Income Taxes
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Foreign sales corporation
benefit (2.1) (1.9) (2.9)
State taxes, net of
federal tax benefit 1.3 1.5 2.6
Depletion (1.1) (1.1) (1.1)
Other items, net (2.1) 0.3 0.9
- ----------------------------------------------------------------
Effective income tax
rate on operations 31.0 33.8 34.5
Sale of business -- -- 3.8
- ---------------------------------------------------------------
Effective income tax rate 31.0% 33.8% 38.3%
===============================================================
</TABLE>
The deferred income tax assets and deferred income tax
liabilities recorded on the consolidated balance sheets as of
December 31, 1998 and 1997, consist of the following:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits
other than pensions $ 20,760 $19,751
Future employee benefits 7,048 6,374
LIFO inventories 5,103 5,102
Accrued liabilities 3,476 2,891
Intercompany profit
in inventories 2,957 3,484
Environmental reserves 2,936 2,634
Belgian subsidiary
net operating loss
carryforwards -- 9,384
Foreign currency
translation adjustments -- 928
Other 4,136 3,871
- --------------------------------------------------------------
Gross deferred tax assets 46,416 54,419
Valuation allowances -- (2,105)
- --------------------------------------------------------------
Net deferred tax assets 46,416 52,314
- --------------------------------------------------------------
Deferred tax liabilities:
Depreciation 100,876 93,243
Pensions 24,709 20,975
Gain on Belgian
intercompany loan 7,648 7,648
Foreign currency
translation adjustments 4,452 --
Capitalization of interest 2,116 2,216
Olefins Business sale
deferred gains 169 7,267
Other 1,196 3,452
- -------------------------------------------------------------
Gross deferred tax liabilities 141,166 134,801
- -------------------------------------------------------------
Net deferred tax liabilities $ 94,750 $ 82,487
=============================================================
Reconciliation to consolidated balance sheets:
Current deferred tax assets $ 15,250 $ 14,680
Deferred tax liabilities 110,000 97,167
- -------------------------------------------------------------
Net deferred tax liabilities $ 94,750 $ 82,487
=============================================================
</TABLE>
Approximately $23 million and $22 million of accumulated
operating loss carryforwards from the Company's Belgian
subsidiary (approximately $9.4 million and $8.7 million tax
benefit) were utilized in 1998 and 1997, respectively, to offset
Belgian taxable income. Valuation allowances of $2.1 million
related to accumulated operating loss carryforwards were reversed
in 1998.
-38-
<PAGE>29
NOTE 13 Special Item:
On March 1, 1996, the Company sold its Olefins Business to Amoco
for $487.3 million, including plant and equipment, other assets,
inventory and accounts receivable net of expenses and trade
accounts payable paid by the Company, and certain
business-related liabilities transferred at the date of sale. The
sale involved approximately 550 people who supported these
businesses. Certain assets primarily located in Pasadena, Texas,
Deer Park, Texas and Feluy, Belgium were included in the sale.
The gain on the sale was $158.2 million ($94.4 million after
income taxes) net of $44.3 million of costs incurred for early
retirements and work-force reductions, abandonment costs of
certain facilities and certain other accruals (including
environmental) related to or in conjunction with the sale. The
transaction included a number of operating and service agreements
primarily focusing on the sharing of common facilities at the
Pasadena plant site and the Feluy plant site operated by Amoco.
NOTE 14 Fair Value of Financial Instruments:
In assessing the fair value of financial instruments, the Company
uses methods and assumptions that are based on market conditions
and other risk factors existing at the time of assessment. Fair
value information for the Company's financial instruments is as
follows:
Cash and Cash Equivalents -The carrying value approximates fair
value due to their short-term nature.
Long-term Debt -The carrying value of the Company's long-term
debt reported in the accompanying consolidated balance sheets at
December 31, 1998 and 1997, approximates fair value since
substantially all of the Company's long-term debt bears interest
based on prevailing variable market rates currently available in
the countries in which the Company has borrowings.
Foreign Currency Exchange Contracts - The fair values of the
Company's forward currency exchange contracts are estimated based
on current settlement values. The fair value of the forward
contracts represent a net liability position of $0.4 million at
December 31, 1998 and a net asset position of $0.9 million at
December 31, 1997, respectively.
NOTE 15 Quarterly Financial Summary (Unaudited):
<TABLE>
<CAPTION>
(In Thousands First Second Third Fourth
Except Per-Share Amounts) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net sales $ 215,149 $ 204,103 $ 196,192 $ 205,418
Gross profit $ 67,821 $ 66,178 $ 57,509 $ 69,297
Net income $ 22,649 $ 21,811 $ 17,577 $ 22,695
Basic earnings per share $ .42 $ .41 $ .33 $ .48
Shares used to compute
basic earnings per share (a) 53,469 53,069 52,695 46,999
Diluted earnings per share $ .42 $ .41 $ .33 $ .48
Shares used to compute
diluted earnings
per share (a) 53,981 53,681 53,293 47,590
1997
Net sales $ 198,394 $ 207,675 $ 207,111 $ 216,670
Gross profit $ 66,362 $ 67,809 $ 62,920 $ 64,335
Net income $ 20,177 $ 20,363 $ 18,548 $ 20,894
Basic earnings per share $ .37 $ .37 $ .34 $ .38
Shares used to compute
basic earnings per share 55,046 55,204 55,333 55,072(b)
Diluted earnings per share $ .36 $ .37 $ .33 $ .38
Shares used to compute
diluted earnings per share 55,535 55,599 55,910 55,628(b)
==========================================================================
Notes (Share Data Represents Common Shares Purchased):
(a) Includes the effects of the purchase of 772,100, 338,600 and
5,802,041 common shares during the first, second and third
quarters of 1998, respectively.
(b) Includes the effects of the purchase of 1,560,300 common
shares during the 1997 fourth quarter.
-39-
</TABLE>
<PAGE>30
NOTE 16 Operating Segments and Geographic Area Information:
In 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which changes
the way the Company reports information about its operating
segments. Prior years' segment data has been restated to conform
to 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. Applying the criteria of SFAS No. 131
to prior years' operations, the Company would have had three segments
which would have included the Olefins Business sold in 1996.
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.
The accounting policies of the segments are the same as those
described in Note 1, "Summary of Significant Accounting
Policies." The Company evaluates the performance of its operating
segments based on operating profit which represents income before
income taxes, before gain on sale of business and before interest
and financing expenses and other income, net. 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.
Summarized financial information concerning the Company's
reportable segments is shown in the following table. The
"Corporate & Other" column includes corporate-related items not
allocated to the reportable segments.
<TABLE>
<CAPTION>
Operating Segment Results
Polymer Fine Olefins Corporate
(In Thousands) Chemicals Chemicals Business(a) & Other Total
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net sales $ 417,998 $ 402,864 - - $ 820,862
Operating
profit(b) 75,751 68,762 - $ (18,798) 125,715
Identifiable assets 322,944 475,810 - 139,043 937,797
Depreciation and
amortization 29,807 43,800 - 1,405 75,012
Capital expenditures 40,012 30,147 - 6,588 76,747
1997
Net sales 411,134 418,716 - - 829,850
Operating profit(b) 72,802 65,274 - (17,369) 120,707
Identifiable assets 281,616 472,283 - 134,282 888,181
Depreciation and
amortization 26,728 40,965 - 1,351 69,044
Capital expenditures 28,115 55,537 - 1,632 85,284
1996
Net sales 379,675 394,688 $ 80,118 - 854,481
Operating profit(b) 68,946 41,762 3,981 (21,263) 93,426
Identifiable assets 271,357 466,196 - 108,708 846,261
Depreciation and
amortization 26,905 38,950 3,917 1,272 71,044
Capital expenditures 21,877 66,483 - 2,079 90,439
========================================================================
Net Sales(c) (In Thousands) 1998 1997 1996
- ------------------------------------------------------------------------
United States $ 470,818 $ 453,211 $ 473,118
Foreign 350,044 376,639 381,363
- ------------------------------------------------------------------------
Total $ 820,862 $ 829,850 $ 854,481
========================================================================
Long-Lived Assets
as of December 31 (In Thousands) 1998 1997 1996
-----------------------------------------------------------------------
United States $ 406,928 $ 399,357 $ 383,874
France 109,206 109,841 128,666
Other foreign countries 19,825 5,043 6,276
- ------------------------------------------------------------------------
Total $ 535,959 $ 514,241 $ 518,816
========================================================================
Notes:
(a) See Note 13, "Special Item."
(b) Includes the effects of foreign exchange transaction (losses)
gains of $(3,023), $8,325 and $8,049 in 1998, 1997 and 1996,
respectively.
(c) No foreign country exceeds 10% of total Company net sales.
-40-
</TABLE>
<PAGE>31
NOTE 17 Acquisitions
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 Chemicals division of BTP plc for approximately $15.2
million. The purchase price for this acquisition was allocated
primarily to property, plant and equipment, goodwill and
inventory. No pro forma financial information is provided for
this acquisition for the period presented since its impact was
immaterial to the Company's consolidated results of operations
and financial position.
NOTE 18 Supplemental Pro Forma Condensed Consolidated Financial
Information (Unaudited):
As a result of the sale of the Olefins Business, the Company
believes that the following unaudited pro forma condensed
consolidated statement of income is important to enable the
reader to obtain a meaningful understanding of the Company's
results of operations after the transaction.
The pro forma condensed consolidated statement of income for the
year ended December 31, 1996 presents the results of operations
of the Company assuming that the disposition of the Olefins
Business had occurred as of January 1, 1996. Additionally, the
accompanying pro forma information, consistent with the data
presented in the Company's Form 8-K filed on March 15, 1996, does
not reflect the impact of the purchase of 9,484,465 shares of
common stock acquired in the Company's tender offer concluded on
April 1, 1996, as if it had occurred on January 1, 1996.
The unaudited pro forma condensed consolidated statement of
income is presented for informational purposes only and does not
purport to be indicative of the Company's future consolidated
results of operations or what the consolidated results of
operations would have been had the Company operated without the
Olefins Business for all of 1996.
<TABLE>
<CAPTION>
Pro Forma Condensed Consolidated Statement of Income (Unaudited)
(In Thousands Except Per-Share Amounts)
Year Ended December 31 1996
- ------------------------------------------------------------------
Adjustments
Increase Pro
Historical (Decrease) Forma
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 854,481 $ (80,118)(1)
799 (2) $ 775,162
Cost of goods sold 611,353 (71,623)(1)
420 (2) 540,150
- ------------------------------------------------------------------
Gross profit 243,128 (8,116) 235,012
Selling, R&D and
general expenses 149,702 (5,486)(1) 144,216
- -------------------------------------------------------------------
Operating profit 93,426 (2,630) 90,796
Interest and financing
expenses 2,529 (1,563)(3) 966
Gain on sale of
business (158,157) 158,157 (4) --
Other (income)
expenses, net (4,025) 14 (1)
(60)(5) (4,071)
- -------------------------------------------------------------------
Income before income
taxes 253,079 (159,178) 93,901
Income taxes 97,020 (63,780)(4)
(393)(6) 32,847
- -------------------------------------------------------------------
Net income $ 156,059 $ (95,005) $ 61,054
===================================================================
Basic earnings
per share $ 2.67 $ 1.05
Shares used to
compute basic
earnings per share 58,353 58,353(7)
Diluted earnings
per share $ 2.65 $ 1.04
Shares used to
compute diluted
earnings per share 58,842 58,842(7)
====================================================================
See footnotes on page 42
-41-
<PAGE>32
The description of adjustments to the pro forma condensed
consolidated statement of income follows:
(1) To eliminate the results of operations of the Olefins
Business for the period presented as though the sale to Amoco
occurred on January 1, 1996, and to reflect reductions in administrative
and other costs which occurred because of personnel, employee
benefits (including compensation) and other cost reductions assumed
implemented following the sale of the Olefins Business to Amoco.
(2) To record service fee income and incremental sales revenue
generated from providing various services and products under
contracts to Amoco and to record costs and expenses for services and
products provided by Amoco. The service and supply arrangements
were entered into in connection with the sale of the Olefins
Business to Amoco.
(3) To reflect the pro forma interest cost savings resulting
from the repayment of certain domestic and Belgian debt, using
the proceeds received from the sale of the Olefins Business.
(4) To eliminate the gain and the related income taxes on the
March 1, 1996, sale of the Olefins Business.
(5) To record the related amortization of certain advance rents
received from Amoco upon closing of the sale of the Olefins
Business associated with an arrangement in the nature of an operating
lease in Belgium.
(6) To record the income tax effects of adjustments set forth in
adjustments (1) through (3) and (5) above, calculated at an
assumed combined domestic state and federal income tax rate of
37.92%. The Company's income tax provision on the results of
operations of the remaining businesses was adjusted for utilization of a
portion of the Belgian net operating loss carryforwards for which
a valuation allowance had previously been provided on the related
deferred tax assets and for the estimated additional income taxes
which would have resulted if undistributed foreign earnings had been
remitted to the Company.
(7) The average number of shares used to compute basic and
diluted earnings per share does not include the effects of the
Company's tender offer concluded on April 1, 1996, as if it had
occurred on January 1, 1996. The average number of shares used to
compute basic earnings per share and diluted earnings per share for 1996
would have been 55,982,000 and 56,471,000, respectively, had the
offer been assumed to have been completed on January 1, 1996.
</TABLE>
NOTE 19 Subsequent Event (Unaudited):
In March 1999 in connection with the Company's tender for the
shares of a United Kingdom chemicals company, the Company
entered into commitments to acquire approximately 58,394,000
shares of the target company for an aggregate purchase consideration
of approximately $123,840,000. Funding for this purchase will be
provided from additional advances under the Company's existing
revolving credit agreement.
-42-
<PAGE>33
Management's Report on the Consolidated Financial Statements
Albemarle Corporation's management has prepared the consolidated
financial statements and related notes appearing on pages 24
through 42 in conformity with generally accepted accounting
principles. In so doing, management makes informed judgments and
estimates of the expected effects of events and transactions.
Actual results may differ from management's judgments and
estimates. Financial data appearing elsewhere in this annual
report are consistent with these consolidated financial
statements.
Albemarle maintains a system of internal controls to provide
reasonable, but not absolute, assurance of the reliability of the
financial records and the protection of assets. The internal
control system is supported by written policies and procedures,
careful selection and training of qualified personnel and an
extensive internal audit program.
These consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent
certified public accountants. Their audit was made in accordance
with generally accepted auditing standards and included an
evaluation of Albemarle's internal accounting controls to the
extent considered necessary to determine audit procedures.
The audit committee of the Board of Directors, composed only of
outside directors, meets with management, internal auditors and
the independent accountants to review accounting, auditing and
financial reporting matters. The independent accountants are
appointed by the board on recommendation of the audit committee,
subject to shareholder approval.
Report of Independent Accountants
To the Board of Directors and Shareholders of Albemarle
Corporation:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, changes in
shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Albemarle
Corporation and its Subsidiaries (the "Company") at December 31,
1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
February 5, 1999
Richmond, Virginia
-43-
<PAGE>34
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the Proxy Statement to be filed
under the caption "Election of Directors" concerning directors
and persons nominated to become directors of the Company is incorporated
herein by reference. The names and ages of all officers of the
Company as of March 1, 1999 are set forth below:
Name Age Office
- ------------------------------------------------------------------
Floyd D. Gottwald, Jr.* 76 Chairman of the Board and of the
Executive Committee,
Chief Executive Officer and Director
Charles B. Walker* 60 Vice Chairman of the Board, Chief
Financial Officer and Director
Dirk Betlem* 60 President, Chief Operating Officer and
Director
E. Whitehead Elmore 60 Senior Vice President, General Counsel
and Corporate Secretary
John G. Dabkowski 50 Vice President - Polymer Chemicals
Dixie E. Goins 48 Vice President - Research and
Development
William M. Gottwald, M.D. 51 Vice President - Corporate Strategy
and Secretary to the Executive
Committee
Jack P. Harsh 46 Vice President - Human Resources
Robert G. Kirchhoefer 58 Treasurer and Chief Accounting
Officer
Victor L. McDearman, Jr. 54 Vice President - Fine Chemicals
Charles E. Moore 58 Vice President - Engineering
George A. Newbill 55 Vice President - Manufacturing and
Supply Chain
Gary L. Ter Haar 62 Vice President - Health and Environment
Michael D. Whitlow 47 Vice President - External Affairs and
Investor Relations
Edward G. Woods 57 Vice President - Business Development
* Member of the Executive Committee
ADDITIONAL INFORMATION - OFFICERS OF THE COMPANY
The term of office of each such officer is until the meeting of
the Board of Directors following the next annual shareholders'
meeting (April 21, 1999). All such officers have been employed by
the Company or its predecessor for at least the last five years,
with the exception of William M. Gottwald, M.D. and Jack P.
Harsh. William M. Gottwald joined Albemarle after being
associated with the Company's predecessor since 1981, most
recently as senior vice president responsible for finance,
planning and information resources. Jack P. Harsh joined
Albemarle effective November 16, 1998, from Union Carbide
Corporation in Danbury, Conn., where he directed human resources
for the solvents, intermediates and monomers business and
supply-chain planning organization. He was elected
vice president - human resources, effective December 1, 1998.
Item 11. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement
to be filed under the caption "Compensation of Executive
Officers and Directors" concerning executive compensation
is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement
to be filed under the caption "Stock Ownership" is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Proxy Statement
to be filed under the captions "Certain Relationships and
Related Transactions" and "Stock Ownership" is incorporated
herein by reference.
-44-
<PAGE>35
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial and informational
statements of the registrant are included in Part II Item 8 on
pages 24 to 43:
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income, Changes in Shareholders'
Equity and Cash Flows for the years ended December 31, 1998,
1997, and 1996
Notes to the Consolidated Financial Statements
Management's Report on the Consolidated Financial Statements
Report of Independent Accountants
(a) (2) No Financial Statement Schedules are provided
in accordance with Item 14 (a) (2) as the information is either
not applicable, not required or has been furnished in the
Consolidated Financial Statements or Notes thereto.
(a) (3) Exhibits
The following documents are filed as exhibits to this Form 10-K
pursuant to Item 601 of Regulation S-K:
3.1 Amendment to Restated Articles of Incorporation of the
registrant [filed as exhibit 3.1 to the Company's Form 10-K for
1994 (No. 1-12658), and incorporated herein by reference].
3.2 Amended By-laws of the registrant [filed as exhibit 28.1 to
the Company's Third Quarter 1997 Form 10-Q (No. 1-12658), and
incorporated herein by reference].
10.1 Credit Agreement, dated as of September 24, 1996, between
the Company, NationsBank, N.A., as administrative agent and Bank
of America National Trust and Savings Association (formerly Bank
of America Illinois), The Bank of New York and the Chase
Manhattan Bank, as co-agents and certain commercial banks [filed
as Exhibit 10.1 to the Company's Third Quarter 1996 Form 10-Q
(No. 1-12658) and incorporated herein by reference].
10.2 The Company's 1994 Omnibus Stock Incentive Plan, adopted on
February 8, 1994 [filed as Exhibit 10.1 to the Company's Form S-1
(No. 33-77452), and incorporated herein by reference].
10.3 The Company's Bonus Plan, adopted on February 8, 1994 [filed
as Exhibit 10.8 to the Company's Form 10 (No. 1-12658), and
incorporated herein by reference].
10.4 Savings Plan for the Employees of the Company,
adopted on February 8, 1994 [filed as Exhibit 10.9
to the Company's Form 10 (No. 1-12658), and incorporated herein
by reference].
10.5 The Company's Excess Benefit Plan [filed as Exhibit 10.10 to
the Company's Form 10 (No. 1-12658), and incorporated herein by
reference].
10.6 The Company's Supplemental Retirement Plan
[filed as Exhibit 10.11 to the Company's Form 10
(No. 1-12658), and incorporated herein by reference].
10.7 The Company's Agreement between Certain Executives [filed as
Exhibit 10.12 to the Company's Form 10 (No. 1-12658), and
incorporated herein by reference].
10.8 The Company's 1998 Incentive Plan, adopted
April 22, 1998.
11 Statements re: Computation of Pro Forma Earnings Per Share -
for year ended December 31, 1996.
11.1 Statements re: Computation of Pro Forma Earnings Per Share -
for years ended December 31, 1998 and 1997.
21. Subsidiaries of the Company.
99. Five-Year Summary (see page 47).
__________________________
(b) No report on Form 8-K was filed in the last quarter of the
period covered by this report.
(c) Exhibits - The response to this portion of Item 14 is
submitted as a separate section of this report.
Note: Part IV Item 14(1) 4 documents 10.8, 11, 11.1, 21 and Item
14(c) are not included herein. They will be filed in the
Securities and Exchange Commission EDGAR filing of the Form 10-K
document only.
-45-
<PAGE>36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Floyd D. Gottwald, Jr.
--------------------------
Floyd D. Gottwald, Jr., Chairman of the Board
Dated: March 1, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated as of
March 1, 1999.
Signature Title
- ------------------------------------------------------------
/s/ Floyd D. Gottwald, Jr. Chairman of the Board, Chairman of
- ------------------------- the Executive Committee,
(Floyd D. Gottwald, Jr.) Chief Executive Officer and
Director (Principal Executive Officer)
/s/ Charles B. Walker Vice Chairman of the Board, Chief
- ------------------------- Financial Officer and
(Charles B. Walker) Director (Principal Financial Officer)
/s/ Robert G. Kirchhoefer Treasurer and Chief Accounting
- ------------------------- Officer
(Robert G. Kirchhoefer) (Principal Accounting Officer)
/s/ Craig R. Andersson Director
- -------------------------
(Craig R. Andersson)
/s/ Dirk Betlem President, Chief Operating Officer and
- ------------------------- Director
(Dirk Betlem)
/s/ John D. Gottwald Director
- -------------------------
(John D. Gottwald)
/s/ Andre' B. Lacy Director
- -------------------------
(Andre' B. Lacy)
/s/ Seymour S. Preston III Director
- --------------------------
(Seymour S. Preston, III)
/s/ Emmett J. Rice Director
- --------------------------
(Emmett J. Rice)
/s/ Charles E. Stewart Director
- --------------------------
(Charles E. Stewart)
/s/ Anne M. Whittemore Director
- --------------------------
(Anne M. Whittemore)
-46-
<PAGE>37
EXHIBIT INDEX
3.1 Restated Articles of Incorporation Incorporated by reference
see page 35
3.2 By-laws Incorporated by reference
see page 35
10.1 Credit Agreement, dated Incorporated by reference
September 24, 1996 see page 35
10.2 Omnibus Stock Incentive Plan Incorporated by reference
see page 35
10.3 Bonus Plan Incorporated by reference
see page 35
10.4 Savings Plan Incorporated by reference
see page 35
10.5 Excess Benefit Plan Incorporated by reference
see page 35
10.6 Supplemental Retirement Plan Incorporated by reference
see page 35
10.7 Agreement Between Certain Executives Incorporated by reference
see page 35
10.8 1998 Incentive Plan Page 38
11 Computation of Pro Forma Earnings
Per Share-year ended 1996 Page 65
11.1 Computation of Pro Forma Earnings
Per Share-years ended 1998 and 1997 Page 66
21 Subsidiaries of the Company Page 67
23 Consent of Independent Certified
Public Accountants Page 68
27 Financial Data Schedule Page 69
99 Five Year Summary Page 70
Exhibit 10.8
<PAGE>38
ALBEMARLE CORPORATION
1998 INCENTIVE PLAN
<PAGE>39
ALBEMARLE CORPORATION
1998 INCENTIVE PLAN
-------------------
ARTICLE I
DEFINITIONS
-----------
1.01. Administrator means the Committee and any delegate of
the Committee that is appointed in accordance with Article III.
1.02. Affiliate means any "subsidiary" or "parent" corporation
(within the meaning of Code section 424) of the Company.
1.03. Agreement means a written agreement (including any
amendment or supplement thereto) between the Company and a
Participant specifying the terms and conditions of an award of
Restricted Stock, Performance Share award, or an Option or SAR, an
Incentive Award or a combination thereof, granted to such
Participant.
1.04. Board means the Board of Directors of the Company.
1.05. Change in Control has the same meaning as is given that
defined term in the Albemarle Corporation Supplemental Benefits
Trust.
1.06. Code means the Internal Revenue Code of 1986, and any
amendments thereto.
1.07. Committee means the Executive Compensation Committee of
the Board.
1.08. Common Stock means the Common Stock of the Company.
1.09. Company means Albemarle Corporation.
1.10. Control Change Date has the same meaning as is given
that defined term in the Albemarle Corporation Supplemental
Benefits Trust.
<PAGE>40
1.11. Corresponding SAR means an SAR that is granted in
relation to a particular Option and that can be exercised only upon
the surrender to the Company, unexercised, of that portion of the
Option to which the SAR relates.
1.12. Fair Market Value means, on any given date, the closing
price of a share of Common Stock as reported on the New York Stock
Exchange composite tape on such date, or if the Common Stock was
not traded on the New York Stock Exchange on such day, then on the
next preceding day that the Common Stock was traded on such
exchange, all as reported by such source as the Administrator may
select.
1.13. Incentive Award means an award which, subject to such
terms and conditions as may be prescribed by the Administrator,
entitles the Participant to receive a payment in cash or Common
Stock in an amount determined by the Administrator.
1.14. Initial Value means, with respect to a Corresponding
SAR, the option price per share of the related Option, and with
respect to an SAR granted independently of an Option, the Fair
Market Value of one share of Common Stock on the date of grant.
1.15. Option means a stock option that entitles the holder to
purchase from the Company a stated number of shares of Common Stock
at the price set forth in an Agreement.
1.16. Participant means an employee of the Company or an
Affiliate, including an employee who is a member of the Board, or
an individual who provides services to the Company or an Affiliate
who satisfies the requirements of Article IV and is
<PAGE>41
selected by the Administrator to receive a Restricted Stock award,
Performance Share award, an Option, an SAR, an Incentive Award or
a combination thereof.
1.17. Performance Shares means an award which, in accordance
with and subject to an Agreement, will entitle the Participant, or
his estate or beneficiary in the event of the Participant's death,
to receive cash or an award of Restricted Stock or a combination
thereof.
1.18. Plan means the Albemarle Corporation 1998 Incentive
Plan.
1.19. Restricted Stock means Common Stock awarded to a
Participant under Article IX. Shares of Common Stock shall cease
to be Restricted Stock when, in accordance with the terms of the
applicable Agreement, they become transferable and free of
substantial risks of forfeiture.
1.20. SAR means a stock appreciation right that entitles the
holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the amount determined by
the Administrator and specified in an Agreement. In the absence of
such a determination, the holder shall be entitled to receive, with
respect to each share of Common Stock encompassed by the exercise
of such SAR, the excess of the Fair Market Value on the date of
exercise over the Initial Value. References to "SARs" include both
Corresponding SARs and SARs granted independently of Options,
unless the context requires otherwise.
1.21. Ten Percent Shareholder means any individual owning more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of an Affiliate. An individual
shall be considered to own any voting stock owned
<PAGE>42
(directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own
proportionately any voting stock owned (directly or indirectly) by
or for a corporation, partnership, estate or trust of which such
individual is a shareholder, partner or beneficiary.
ARTICLE II
PURPOSES
--------
The Plan is intended to assist the Company in recruiting
and retaining individuals with ability and initiative who provide
services to the Company or an Affiliate by enabling such persons to
participate in its future success and to associate their interests
with those of the Company and its shareholders. The Plan is
intended to permit the award of Performance Shares and shares of
Restricted Stock, the grant of SARs, the grant of both Options
qualifying under Code section 422 ("incentive stock options") and
Options not so qualifying, and the grant of Incentive Awards. No
Option that is intended to be an incentive stock option shall be
invalid for failure to qualify as an incentive stock option. The
proceeds received by the Company from the sale of Common Stock
pursuant to the Plan shall be used for general corporate purposes.
<PAGE>43
ARTICLE III
ADMINISTRATION
--------------
The Plan shall be administered by the Administrator.
The Administrator shall have authority to award Performance Shares
and Restricted Stock and to grant Options, SARs and Incentive
Awards upon such terms (not inconsistent with the provisions of the
Plan) as the Administrator may consider appropriate. Such terms
may include conditions (in addition to those contained in the Plan)
on the exercisability of all or any part of an Option or SAR or on
the transferability or forfeitability of Restricted Stock,
Performance Shares, or an Incentive Award, including by way of
example and not limitation, requirements that the Participant
complete a specified period of employment with the Company or an
Affiliate or that the Company achieve a specified level of
financial performance or financial return. Notwithstanding any
such conditions, the Administrator may, in its discretion,
accelerate the time at which any Option or SAR may be exercised,
the time at which Restricted Stock may become transferable or
nonforfeitable, or the time at which Performance Shares or
Incentive Awards are earned. In addition, the Administrator shall
have complete authority to interpret all provisions of the Plan; to
prescribe the form of Agreements; to adopt, amend, and rescind
rules and regulations pertaining to the administration of the Plan;
and to make all other determinations necessary or advisable for the
administration of the Plan. The express grant in the Plan of any
specific power to the Administrator shall not be construed as
limiting any power or authority of the Administrator. Any
<PAGE>44
decision made, or action taken, by the Administrator in connection
with the administration of the Plan shall be final and conclusive.
Neither the Administrator nor any member of the Committee shall be
liable for any act done in good faith with respect to the Plan or
any Agreement, Option, SAR, Incentive Award, award of Performance
Shares, or Restricted Stock award. All expenses of administering
the Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or
more officers of the Company or the Executive Committee of the
Board, all or part of the Committee's authority and duties with
respect to grants and awards to individuals who are not subject to
the reporting and other provisions of Section 16 of the Securities
Exchange Act of 1934, as in effect from time to time. The
Committee may revoke or amend the terms of a delegation at any time
but such action shall not invalidate any prior actions of the
Committee's delegate or delegates that were consistent with the
terms of the Plan.
ARTICLE IV
ELIGIBILITY
------------
4.01. General. Any employee of the Company or an Affiliate
(including a corporation that becomes an Affiliate after the
adoption of the Plan) or a person who provides services to the
Company or an Affiliate (including a corporation that becomes an
Affiliate after the adoption of the Plan) is eligible to
participate in the Plan if the
<PAGE>45
Administrator, in its sole discretion, determines that such person
has contributed significantly or can be expected to contribute
significantly to the profits or growth of the Company or an
Affiliate. Directors of the Company who are employees of the
Company or an Affiliate may be selected to participate in the Plan.
A person who is a member of the Committee may not be granted
Options or SARs, or awarded Restricted Stock, Performance Shares,
or Incentive Awards under the Plan.
4.02. Grants. The Administrator will designate individuals to
whom shares of Restricted Stock or Performance Shares are to be
awarded and to whom Incentive Awards, Options and SARs are to be
granted and will specify the number of shares of Common Stock
subject to each award or grant. An Option may be granted with or
without a related SAR. An SAR may be granted with or without a
related Option. Each award of Performance Shares, each Incentive
Award, each Restricted Stock award, and all grants of Options and
SARs under the Plan shall be evidenced by Agreements which shall be
subject to the applicable provisions of the Plan and to such other
provisions as the Administrator may adopt. No Participant may be
granted incentive stock options or related SARs (under all
incentive stock option plans of the Company and its Affiliates)
that are first exercisable in any calendar year for stock having an
aggregate Fair Market Value (determined as of the date an Option is
granted) that exceeds the limitation prescribed by Code section
422(d). The preceding annual limitation shall not apply with
respect to Options that are not incentive stock options.
<PAGE>46
4.03. Limitation. No Participant may be granted Options and
SARs that are not related to Options in any calendar year for more
than 200,000 shares of Common Stock. For purposes of the preceding
sentence, an Option and Corresponding SAR are treated as a single
award. In addition, no Participant may, in any calendar year, be
awarded, in the aggregate, Restricted Stock, Performance Shares,
and/or Incentive Awards covering more than 100,000 shares of Common
Stock.
ARTICLE V
STOCK SUBJECT TO PLAN
---------------------
Upon the award of shares of Restricted Stock the Company
may issue shares of Common Stock from its authorized but unissued
Common Stock. Upon the exercise of any Option or SAR, the Company
may deliver to the Participant (or the Participant's broker if the
Participant so directs), shares of Common Stock from its authorized
but unissued Common Stock. The maximum aggregate number of shares
of Common Stock that may be issued pursuant to the exercise of
Options and SARs, the award of Restricted Stock, or in settlement
of Incentive Awards under the Plan is 3,000,000 shares. Subject to
the limitations set forth in the preceding sentence, the maximum
aggregate number of shares that may be issued pursuant to the
exercise of Options is 2,000,000. The maximum aggregate number of
shares of Common Stock that may be issued under the Plan shall be
subject to adjustment as provided in Article XII. If an Option is
terminated, in whole or in part, for any reason other than its
exercise or the exercise of a Corresponding SAR, the number of
shares of Common
<PAGE>47
Stock allocated to the Option or portion thereof
may be reallocated to other Options, SARs, Restricted Stock awards,
Incentive Awards, and awards of Performance Shares to be granted
under the Plan. If an SAR is terminated, in whole or in part, for
any reason other than its exercise or the exercise of a related
Option, the number of shares of Common Stock allocated to the SAR
or portion thereof may be reallocated to other Options, SARs,
Restricted Stock awards, Incentive Awards, and awards of
Performance Shares to be granted under the Plan. If an award of
Restricted Stock is forfeited, in whole or in part, the number of
shares of Common Stock allocated to the award of Restricted Stock
or portion thereof may be reallocated to other Options, SARs,
Restricted Stock awards, Incentive Awards, and awards of
Performance Shares to be granted under the Plan. If an award of
Performance Shares is forfeited, in whole or in part, without the
issuance of an award of Restricted Stock, the number of shares of
Common Stock allocated to the award of Performance Shares or
portion thereof may be reallocated to other Options, SARs,
Restricted Stock awards, Incentive Awards, and awards of
Performance Shares to be granted under the Plan.
ARTICLE VI
OPTION PRICE
------------
The price per share for Common Stock to be purchased on
the exercise of an Option shall be determined by the Administrator
on the date of grant; provided, however, that the price per share
for Common Stock to be purchased on the exercise of any Option that
is an incentive stock option shall not be less than the Fair Market
<PAGE>48
Value on the date the Option is granted and provided further that
the price per share shall not be less than 110% of such Fair Market
Value in the case of an incentive stock option granted to a
Participant who is a Ten Percent Shareholder on the date such
incentive stock option is granted.
ARTICLE VII
EXERCISE OF OPTIONS AND SARS
----------------------------
7.01. Maximum Option or SAR Period. The maximum period in
which an Option or SAR may be exercised shall be determined by the
Administrator on the date of grant, except that no Option that is
an incentive stock option or its Corresponding SAR shall be
exercisable after the expiration of ten years from the date such
Option or Corresponding SAR was granted. In the case of an
incentive stock option or its Corresponding SAR that is granted to
a participant who is a Ten Percent Shareholder, such Option and
Corresponding SAR shall not be exercisable after the expiration of
five years from the date of grant. The terms of any Option that is
an incentive stock option or Corresponding SAR may provide that it
is exercisable for a period less than such maximum period.
7.02. Nontransferability. Any Option or SAR granted under the
Plan shall be nontransferable except by will or by the laws of
descent and distribution. In the event of any such transfer, the
Option and any Corresponding SAR that relates to such Option must
be transferred to the same person or persons. During the lifetime
of the
<PAGE>49
Participant to whom the Option or SAR is granted, the Option
or SAR may be exercised only by the Participant. No right or
interest of a Participant in any Option or SAR shall be liable for,
or subject to, any lien, obligation, or liability of such
Participant.
7.03. Transferable Options and SARs. Section 7.02 to the
contrary notwithstanding, if the Agreement provides, an Option that
is not an incentive stock option or an SAR, other than a
Corresponding SAR that is related to an incentive stock option, may
be transferred by a Participant to the Participant's children,
grandchildren, spouse, one or more trusts for the benefit of such
family members or a partnership in which such family members are
the only partners, on such terms and conditions as may be permitted
under Securities Exchange Commission Rule 16b-3 as in effect from
time to time. The holder of an Option or SAR transferred pursuant
to this section shall be bound by the same terms and conditions
that governed the Option or SAR during the period that it was held
by the Participant; provided, however, that such transferee may not
transfer the Option or SAR except by will or the laws of descent
and distribution. An Option or its Corresponding SAR may only be
transferred if the awards are transferred to the same person or
persons or entity or entities.
7.04. Employee Status. For purposes of determining the
applicability of Code section 422 (relating to incentive stock
options), or in the event that the terms of any Option or SAR
provide that it may be exercised only during employment or
continued service or within a specified period of time after
termination of employment or
<PAGE>50
service, the Administrator may decide to what extent leaves of
absence for governmental or military service, illness, temporary
disability, or other reasons shall not be deemed interruptions of
continuous employment or service.
7.05. Change in Control. Section 7.01 to the contrary
notwithstanding, upon a Control Change Date each Option or SAR then
outstanding shall be fully exercisable thereafter in accordance
with the terms of the applicable Agreement.
7.06. Performance Objectives. The Committee may prescribe
that an Option or SAR is exercisable only to the extent that
certain performance objectives are attained. Such performance
objectives may be based on one or more of the Company's, an
Affiliate's or a business unit's (i) gross, operating or net
earnings before or after taxes, (ii) return on equity, (iii) return
on capital, (iv) return on sales, (v) return on assets or net
assets, (vi) earnings per share, (vii) cash flow per share,
(viii) book value per share, (ix) earnings growth, (x) sales
growth, (xi) volume growth, (xii) cash flow (as defined by the
Committee), (xiii) Fair Market Value, (xiv) share price or total
shareholder return, (xv) market share, (xvi) economic value added,
(xvii) market value added, (xviii) productivity, (xix) level of
expenses, (xx) quality, (xxi) safety, (xxii) customer satisfaction,
(xxiii) product development or improvement, (xxiv) peer group
comparisons of any of the aforementioned objectives or (xxv) such
other performance objectives, if any, as may be determined by the
Committee. If the Committee, on the date of the award, prescribes
that an Option or SAR shall become exercisable only upon the
attainment of performance objectives stated with respect to
<PAGE>51
one or more of the foregoing criteria, the Option or SAR shall
become exercisable only to the extent the Committee certifies
that such objectives have been achieved.
ARTICLE VIII
METHOD OF EXERCISE
------------------
8.01. Exercise. Subject to the provisions of Articles VII and
XIII, an Option or SAR may be exercised in whole at any time or in
part from time to time at such times and in compliance with such
requirements as the Administrator shall determine; provided,
however, that a Corresponding SAR that is related to an incentive
stock option may be exercised only to the extent that the related
Option is exercisable and when the Fair Market Value exceeds the
option price of the related Option. An Option or SAR granted under
the Plan may be exercised with respect to any number of whole
shares less than the full number for which the Option or SAR could
be exercised. A partial exercise of an Option or SAR shall not
affect the right to exercise the Option or SAR from time to time in
accordance with the Plan and the applicable Agreement with respect
to the remaining shares subject to the Option or related to the
SAR. The exercise of either an Option or a Corresponding SAR shall
result in the termination of the other to the extent of the number
of shares with respect to which the Option or Corresponding SAR is
exercised.
8.02. Payment. Unless otherwise provided by the Agreement,
payment of the Option price shall be made in cash or a cash
equivalent acceptable to the Administrator.
<PAGE>52
Subject to rules established by the Committee, payment of all or
part of the Option price may be made with shares of Common Stock
of the Company. If Common Stock is used to pay all or part of the
Option price, the sum of the cash and cash equivalent and the Fair
Market Value of the shares (determined as of the day preceding the
date of exercise) must not be less than the Option Price of shares
for which the Option is being exercised.
8.03. Determination of Payment of Cash and/or Common Stock
Upon Exercise of SAR. At the Administrator's discretion, the
amount payable as a result of the exercise of an SAR may be settled
in cash, Common Stock, or a combination of cash and Common Stock.
No fractional share shall be deliverable upon the exercise of an
SAR but a cash payment will be made in lieu thereof.
8.04. Shareholder Rights. No Participant shall have any
rights as a stockholder with respect to shares subject to his
Option or SAR until the date of exercise of such Option or SAR.
ARTICLE IX
RESTRICTED STOCK
----------------
9.01. Award. In accordance with the provisions of Article IV
and subject to the limitations set forth in Article V, the
Administrator will designate each individual to whom an award of
Restricted Stock is to be made and will specify the number of
shares of Common Stock covered by the award.
<PAGE>53
9.02. Vesting. The Administrator, on the date of the award,
must prescribe that a Participant's rights in the Restricted Stock
shall be forfeitable or otherwise restricted for a period of time
or until satisfaction of such conditions as are set forth in the
Agreement. By way of example and not of limitation, the
restrictions may postpone transferability of the shares or may
provide that the shares will be forfeited if the Participant
separates from the service of the Company and its Affiliates before
the expiration of a stated term or if the Company, the Company and
its Affiliates or the Participant fails to achieve stated
objectives.
9.03. Performance Objectives. In accordance with Section
9.02, the Committee may prescribe that awards of Restricted Stock
will become vested or transferable or both based on objectives
stated with respect to one or more of the Company's, an Affiliate's
or a business unit's (i) gross, operating or net earnings before or
after taxes, (ii) return on equity, (iii) return on capital,
(iv) return on sales, (v) return on assets or net assets,
(vi) earnings per share, (vii) cash flow per share, (viii) book
value per share, (ix) earnings growth, (x) sales growth,
(xi) volume growth, (xii) cash flow (as defined by the Committee),
(xiii) Fair Market Value, (xiv) share price or total shareholder
return, (xv) market share, (xvi) economic value added,
(xvii) market value added, (xviii) productivity, (xix) level of
expenses, (xx) quality, (xxi) safety, (xxii) customer satisfaction,
(xxiii) product development or improvement, (xxiv) peer group
comparisons of any of the aforementioned objectives or (xxv) such
other performance objectives, if any, as may be determined by the
Committee. If the Committee, on the date of the award, prescribes
that a Restricted Stock award shall
<PAGE>54
become nonforfeitable and transferrable only upon the attainment of
performance objectives stated with respect to one or more of the
foregoing criteria, the shares subject to such Restricted Stock
award shall become nonforfeitable and transferrable only to the
extent the Committee certifies that such objectives have been
achieved.
9.04. Change in Control. Sections 9.02 and 9.03 to the
contrary notwithstanding, upon a Control Change Date each
Restricted Stock award then outstanding will become transferable
and nonforfeitable in accordance with the terms of the applicable
Agreement.
9.05. Shareholder Rights. If, and as provided in the
Agreement, prior to their forfeiture, a Participant will have all
rights of a shareholder with respect to Restricted Stock, including
the right to receive dividends and vote the shares; provided, how-
ever, that (i) a Participant may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of Restricted Stock,
(ii) the Company shall retain custody of the certificates
evidencing shares of Restricted Stock, and (iii) the Participant
will deliver to the Company a stock power or powers, endorsed in
blank, with respect to each award of Restricted Stock. The
limitations set forth in the preceding sentence shall not apply
after the shares cease to be Restricted Stock.
<PAGE>55
ARTICLE X
INCENTIVE AWARDS
----------------
10.01. Awards. The Administrator shall designate Participants
to whom Incentive Awards are made for annual incentive payments.
All Incentive Awards shall be finally determined exclusively by the
Administrator under the procedures established by the
Administrator; provided, however, that in any calendar year no
Participant may receive an Incentive Award for an amount in excess
of $1.0 million.
10.02. Terms and Conditions. The Administrator, at the time an
Incentive Award is made, shall specify the terms and conditions
which govern the award. Such terms and conditions may include, by
way of example and not of limitation, requirements that the
Participant complete a specified period of employment with the
Company or an Affiliate or that the Company, Affiliate, or the
Participant attain stated objectives or goals as a prerequisite to
payment under an Incentive Award. Such performance objectives or
goals may be based on one or more of the Company's, an Affiliate's
or a business unit's (i) gross, operating or net earnings before or
after taxes, (ii) return on equity, (iii) return on capital,
(iv) return on sales, (v) return on assets or net assets,
(vi) earnings per share, (vii) cash flow per share, (viii) book
value per share, (ix) earnings growth, (x) sales growth,
(xi) volume growth, (xii) cash flow (as defined by the Committee),
(xiii) Fair Market Value, (xiv) share price or total shareholder
return, (xv) market share, (xvi) economic value added,
(xvii) market value added,
<PAGE>56
(xviii) productivity, (xix) level of expenses, (xx) quality,
(xxi) safety, (xxii) customer satisfaction, (xxiii) product
development or improvement, (xxiv) peer group comparisons of any
of the aforementioned objectives or (xxv) such other performance
objectives, if any, as may be determined by the
Committee. If the Committee, on the date of the award, prescribes
that the Incentive Award shall be earned only upon the attainment
of performance objectives stated with respect to one or more of the
foregoing criteria, such Incentive Award shall be earned only to
the extent that the Committee certifies that such objectives have
been achieved. The Administrator, at the time an Incentive Award
is made, shall also specify when amounts shall be payable under the
Incentive Award and whether amounts shall be payable in the event
of the Participant's death, disability, or retirement.
Except with respect to those Participants who are
covered employees (as determined under Code section 162(m)(3)) and
notwithstanding any other provision of the Plan, the Administrator,
in its discretion may adjust the terms, conditions or other
requirements applicable to Incentive Awards and may increase or
decrease the amounts otherwise payable under an Incentive Award, to
reflect unusual or extraordinary transactions or events. The
Administrator may make such adjustments with respect to one or more
Participants, with respect to all Participants as to Incentive
Awards made during a particular year, or with respect to all
outstanding Incentive Awards.
10.03. Determination of Payment of Cash and/or Common Stock In
Settlement of An Incentive Award. At the Administrator's
discretion, an Incentive Award may be
<PAGE>57
settled in cash, Common Stock, or a combination of cash and Common
Stock. No fractional share shall be deliverable in settlement of
an Incentive Award but a cash payment will be made in lieu thereof.
<PAGE>58
ARTICLE XI
PERFORMANCE SHARE AWARDS
-------------------------
11.01. Award. In accordance with the provisions of Article IV
and subject to the limitations set forth in section 4.03, the
Administrator will designate individuals to whom an award of
Performance Shares is granted and will specify the number of shares
of Common Stock covered by the award.
11.02. Earning the Award. The Administrator, on the date of
the grant of an award, may prescribe that the Performance Shares,
or portion thereof, will be earned, and the Participant will be
entitled to receive Common Stock pursuant to a Stock Award only
upon the satisfaction of certain requirements or the attainment of
certain objectives. By way of example and not of limitation, the
restrictions may provide that Performance Shares shall be earned
only upon the Participant's completion of a specified period of
employment with the Company or an Affiliate or upon the attainment
of stated performance objectives or goals. Such performance
objectives or goals may be based on one or more of the Company's,
an Affiliate's or a business unit's (i) gross, operating or net
earnings before or after taxes, (ii) return on equity, (iii) return
on capital, (iv) return on sales, (v) return on assets or net
assets, (vi) earnings per share, (vii) cash flow per share,
(viii) book value per share, (ix) earnings growth, (x) sales
growth, (xi) volume growth, (xii) cash flow (as defined by the
Committee), (xiii) Fair Market Value, (xiv) share price or total
shareholder return, (xv) market share, (xvi) economic value added,
(xvii) market value added,
<PAGE>59
(xviii) productivity, (xix) level of expenses, (xx) quality,
(xxi) safety, (xxii) customer satisfaction, (xxiii) product
development or improvement, (xxiv) peer group comparisons of
any of the aforementioned objectives or (xxv) such
other performance objectives, if any, as may be determined by the
Committee. If the Committee, on the date of the award, prescribes
that Performance Shares shall be earned only upon the attainment of
performance objectives stated with respect to one or more of the
foregoing criteria, such Performance Shares shall be earned only to
the extent the Committee certifies that such objectives have been
achieved.
11.03. Change in Control. Section 11.02 to the contrary
notwithstanding, in accordance with the terms of the applicable
Agreement, each Performance Share shall be earned and converted
into an award of Restricted Stock as of a Control Change Date and
such awards of Restricted Stock will become transferable and
nonforfeitable thereafter in accordance with the terms of the
applicable Agreement.
11.04. Shareholder Rights. No Participant shall, as a result
of receiving an award of Performance Shares, have any rights as a
shareholder until and to the extent that the award of Performance
Shares is earned and an award of Restricted Stock is made. If the
Agreement so provides, a Participant may receive a cash payment
equal to the dividends that are payable with respect to the number
of shares of Common Stock covered by the award between the date the
Performance Shares are awarded and the date an award of Restricted
Stock is made. A Participant may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of a Performance Share
award or the right to receive Common Stock thereunder other than by
will or the laws of
<PAGE>60
descent and distribution. After an award of
Performance Shares is earned and an award of Restricted Stock is
made, a Participant will have all the rights of a shareholder as
described in Plan section 9.05.
ARTICLE XII
ADJUSTMENT UPON CHANGE IN COMMON STOCK
--------------------------------------
The maximum number of shares as to which Restricted
Stock may be awarded, as to which Options and SARs may be granted,
and which may be issued in settlement of Incentive Awards or
Performance Shares under the Plan shall be proportionately
adjusted, and the terms of outstanding Restricted Stock awards,
Performance Share awards, Incentive Awards, Options, and SARs shall
be adjusted, as the Committee shall determine to be equitably
required in the event that (a) the Company (i) effects one or more
stock dividends, stock split-ups, subdivisions or consolidations of
shares or (ii) engages in a transaction to which Code section 424
applies or (b) there occurs any other event that, in the judgment
of the Committee, necessitates such action. Any determination made
under this Article XII by the Committee shall be final and
conclusive.
The issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof
shall be made with respect to, outstanding awards of Restricted
Stock, Performance Shares, Incentive Awards, Options or SARs.
The Committee may grant Performance Shares, shares of
Restricted Stock, Incentive Awards, Options, and SARs in
substitution for performance shares, stock awards, stock options,
stock appreciation rights, or similar awards held by an individual
who is or becomes an employee of the Company or an Affiliate in
connection with a transaction described in this Article XII.
Notwithstanding any provision of the Plan (other than the
limitations of Article V), the terms of such substituted
Performance Share awards, Restricted Stock awards, Incentive Awards
and Option or SAR grants shall be as the Committee, in its
discretion, determines is appropriate.
ARTICLE XIII
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
-----------------------------
No Option or SAR shall be exercisable, no Common Stock
shall be issued, no certificates for shares of Common Stock shall
be delivered, and no payment shall be made under the Plan except in
compliance with all applicable federal and state laws and
regulations (including, without limitation, withholding tax
requirements), any stock listing agreement to which the Company is
a party, and the rules of all domestic stock exchanges on which the
Company's shares may be listed. The Company shall have the right
to rely on an opinion of its counsel as to such compliance. Any
share
<PAGE>61
certificate issued to evidence Common Stock for which shares
of Restricted Stock are awarded or for which an Option or SAR is
exercised may bear such legends and statements as the Administrator
may deem advisable to assure compliance with federal and state laws
and regulations. No Option or SAR shall be exercisable, no
Restricted Stock shall be awarded, no Common Stock shall be issued,
no certificate for shares shall be delivered, and no payment shall
be made under the Plan until the Company has obtained such consent
or approval as the Administrator may deem advisable from regulatory
bodies having jurisdiction over such matters.
ARTICLE XIV
GENERAL PROVISIONS
-------------------
14.01. Effect on Employment. Neither the adoption of the Plan,
its operation, nor any documents describing or referring to the
Plan (or any part thereof) shall confer upon any individual any
right to continue in the employ or service of the Company or an
Affiliate or in any way affect any right and power of the Company
or an Affiliate to terminate the employment or service of any
individual at any time with or without assigning a reason therefor.
14.02. Unfunded Plan. The Plan, insofar as it provides for
grants, shall be unfunded, and the Company shall not be required to
segregate any assets that may at any time be represented by grants
under the Plan. Any liability of the Company to any person with
respect to any grant under the Plan shall be based solely upon any
<PAGE>62
contractual obligations that may be created pursuant to the Plan.
No such obligation of the Company shall be deemed to be secured by
any pledge of, or other encumbrance on, any property of the
Company.
14.03. Disposition of Stock. A Participant shall notify the
Administrator of any sale or other disposition of Common Stock
acquired pursuant to an Option that was an incentive stock option
if such sale or disposition occurs (i) within two years of the
grant of an Option or (ii) within one year of the issuance of the
Common Stock to the Participant. Such notice shall be in writing
and directed to the Secretary of the Company.
14.04. Rules of Construction. Headings are given to the
articles and sections of the Plan solely as a convenience to
facilitate reference. The reference to any statute, regulation, or
other provision of law shall be construed to refer to any amendment
to or successor of such provision of law.
14.05. Withholding Taxes. Each Participant shall be
responsible for satisfying any income and employment tax
withholding obligations attributable to participation in the Plan.
Unless otherwise provided by the Agreement, any such withholding
tax obligations may be satisfied in cash (including from any cash
payable in settlement of an SAR, Performance Share award, or
Incentive Award) or a cash equivalent acceptable to the Committee.
Any withholding tax obligations may also be satisfied by
surrendering shares of Common Stock to the Company, by withholding
or reducing the number of shares of Common Stock otherwise issuable
to the Participant upon the exercise of an Option or SAR, the
vesting of an award of Restricted Stock, or by any
<PAGE>63
other method as may be approved by the Committee. If shares of
Common Stock are used to pay all or part of such withholding tax
obligation, the Fair Market Value of the shares surrendered,
withheld or reduced shall be determined as of the day preceding
the date the Option or SAR is exercised, or the Restricted Stock
vests, as applicable.
14.06. Certain Reduction of Restrictive Payments. Any benefit,
payment, accelerated vesting or other right under the Plan may
constitute a "parachute payment" (as defined in Code section
280G(b)(2)(A), but without regard to Code section
280G(b)(2)(A)(ii)), with respect to a Participant and the
Participant may incur a liability under Code section 4999. In
accordance with the terms of an Agreement, the Company may reduce
or adjust any such parachute payments.
ARTICLE XV
AMENDMENT
---------
The Board may amend the Plan from time to time or
terminate it; provided, however, that no amendment may become
effective until shareholder approval is obtained if (i) the
amendment increases the aggregate number of shares of Common Stock
that may be issued under the Plan or (ii) the amendment changes the
class of individuals eligible to become Participants. No amendment
shall, without a Participant's consent, adversely affect any rights
of such Participant under any outstanding Restricted Stock award,
Performance Share award, Incentive Award or under any Option or SAR
outstanding at the time such amendment is made.
<PAGE>64
ARTICLE XVI
DURATION OF PLAN
----------------
No Performance Shares or shares of Restricted Stock may
be awarded and no Option, SAR, or Incentive Award may be granted or
made under the Plan more than ten years after the earlier of the
date that the Plan is adopted by the Board or the date that the
Plan is approved by shareholders as provided in Article XVII.
Awards of Restricted Stock, Performance Shares, Incentive Awards,
and Options and SARs granted before that date shall remain valid in
accordance with their terms.
ARTICLE XVII
EFFECTIVE DATE OF PLAN
----------------------
Shares of Restricted Stock and Performance Shares may be
awarded and Options, SARs, and Incentive Awards may be granted or
made under the Plan upon its adoption by the Board, provided that
no Restricted Stock award, Performance Share award, Incentive
Award, Option or SAR will be effective unless the Plan is approved
by a majority of the votes cast by the Company's shareholders,
voting either in person or by proxy, at a duly held shareholders'
meeting provided that the total vote cast for or against adoption
of the Plan represents over 50% of the outstanding Common Stock.
Exhibit 11
<PAGE>65
Exhibit 11
----------
<TABLE>
ALBEMARLE CORPORATION
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
for the year ended December 31, 1996
(In thousands except per share amounts)
<CAPTION>
Pro
Forma
1996
----------
<S> <C>
BASIC EARNINGS PER SHARE
Numerator:
- ----------
Net income adjusted to reflect
operations without the Olefins Business $61,054
--------
Denominator:
- -----------
Average number of shares of common stock
outstanding 58,353
--------
Basic earnings per share $1.05
======
DILUTED EARNINGS PER SHARE
Numerator:
- ---------
Net income adjusted to reflect operations
without the Olefins Business $61,054
--------
Denominator:
- -----------
Average number of shares of common stock
outstanding 58,353
Shares issuable upon the assumed exercise of
outstanding stock options 489
--------
Shares of common stock and common stock
equivalents 58,842
--------
Diluted earnings per share $1.04
======
</TABLE>
Exhibit 11.1
<PAGE>66
Exhibit 11.1
-------------
<TABLE>
ALBEMARLE CORPORATION
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
for the years ended December 31, 1998 and 1997
(In thousands except per share amounts)
<CAPTION>
Pro Forma Pro Forma
1998 1997
--------- -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Numerator:
- ---------
Net income after effect of applying
SFAS No. 123 "Accounting for Stock
Based Compensation" $83,924 $79,394
--------- ----------
Denominator:
- -----------
Average number of shares of common
stock outstanding 51,558 55,164
--------- ----------
Basic earnings per share
$1.63 $1.44
--------- ----------
--------- ----------
DILUTED EARNINGS PER SHARE
Numerator:
- ---------
Net income after effect of applying
SFAS No. 123 "Accounting for
Stock-Based Compensation" $83,924 $79,394
Denominator:
- -----------
Average number of shares of common
stock outstanding 51,558 55,164
Shares issuable upon the assumed
exercise of outstanding stock
options 623 504
--------- ----------
Total shares 52,181 55,668
Diluted earnings per share $1.61 $1.43
--------- ----------
--------- ----------
</TABLE>
Exhibit 21
<PAGE>67
Exhibit 21
----------
LIST OF ALBEMARLE CORPORATION SUBSIDIARIES
------------------------------------------
Albemarle Asano Corporation
Albemarle Asia Pacific Company
Albemarle Chimie S.A.
Albemarle China Corporation
Albemarle Foreign Sales Corporation
Albemarle France S.A.R.L.
Albemarle Holdings Company Limited
Albemarle International Corporation
Albemarle Marketing Company Limited
Albemarle Overseas Development Company
Albemarle PPC
Albemarle S.A.
Albemarle Services Company Limited
Albemarle TCI Limited
Albemarle U.K. Limited
Albemarle Virginia Corporation
Albemarle Virginia Limited Partnership
ANY, Inc.
Exhibit 23.1
<PAGE>68
Consent of Independent Accountants
We consent to the incorporation by reference in the registration
statement on Form S-1 for Albemarle Corporation (File No. 33-77452)
and in the registration statement on Form S-8 for the Savings Plan
for Employees of Albemarle Corporation (File No. 33-75622) of our
report dated February 5, 1999, on our audits of the consolidated
financial statements of Albemarle Corporation and Subsidiaries as
of December 31, 1998 and 1997, and for the years ended December 31,
1998, 1997 and 1996, which report is included on page 43 of this
Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
Richmond, Virginia
March 9, 1999
<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
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY SUCH ANNUAL
REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> $21,180
<SECURITIES> $0
<RECEIVABLES> $147,989
<ALLOWANCES> $2,782
<INVENTORY> $127,206
<CURRENT-ASSETS> $311,530
<PP&E> $1,259,340
<DEPRECIATION> $744,672
<TOTAL-ASSETS> $937,797
<CURRENT-LIABILITIES> $107,936
<BONDS> $0
$0
$0
<COMMON> $470
<OTHER-SE> $451,197
<TOTAL-LIABILITY-AND-EQUITY> $937,797
<SALES> $820,862
<TOTAL-REVENUES> $820,862
<CGS> $560,057
<TOTAL-COSTS> $695,147
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $4,487
<INCOME-PRETAX> $122,798
<INCOME-TAX> $38,066
<INCOME-CONTINUING> $84,732
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $84,732
<EPS-PRIMARY> $1.64
<EPS-DILUTED> $1.63
</TABLE>
Exhibit 99
<PAGE>70
Five-Year Summary
<TABLE>
<CAPTION>
(In Thousands Except Per-Share Amounts)
Years Ended
December 31 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations (1)
Net sales $820,862 $829,850 $854,481 $1,244,222 $1,080,922
Costs and
expenses 695,147 709,143 761,055 1,127,259 986,891
- ------------------------------------------------------------------------
Operating profit 125,715 120,707 93,426 116,963 94,031
Interest and
financing
expenses (2) 4,487 719 2,529 13,265 14,484
Gain on sales of
businesses (3) -- -- (158,157) (23,427) (8,400)
Other income, net (1,570) (917) (4,025) (4,468) (1,434)
- ------------------------------------------------------------------------
Income before
income taxes 122,798 120,905 253,079 131,593 89,381
Income taxes 38,066 40,923 97,020 53,363 38,103
- ------------------------------------------------------------------------
Net income $ 84,732 $ 79,982 $156,059 $ 78,230 $ 51,278
========================================================================
Financial Position and Other Data (1)
Total assets $937,797 $888,181 $846,261 $1,204,491 $1,139,190
Operations:
Working capital $203,594 $184,176 $111,193 $ 234,568 $ 213,038
Current ratio 2.89 to 1 2.64 to 1 1.75 to 1 2.21 to 1 2.20 to 1
Depreciation and
amortization $ 75,012 $ 69,044 $ 71,044 $ 94,131 $ 93,276
Capital
expenditures $ 76,747 $ 85,284 $ 90,439 $ 112,412 $ 70,379
Research and
development
expenses $ 29,655 $ 31,446 $ 30,442 $ 29,541 $ 28,063
Gross margin as
a % of net sales 31.8 31.5 28.5 22.3 22.7
Total long-term
debt (2) $192,938 $ 91,793 $ 31,863 $ 217,112 $ 256,462
Equity (4) $451,667 $ 517,336 $505,198 $ 622,566 $ 545,009
Total long-term
debt as a % of
total
capitalization 29.9 15.1 5.9 25.9 32.0
Common Stock (5)
Basic earnings
per share $ 1.64 $ 1.45 $ 2.67 $ 1.18
Shares used to
compute basic earnings
per share (4) 51,558 55,164 58,353 66,069
Diluted earnings
per share $ 1.63 $ 1.44 $ 2.65 $ 1.18
Shares used to
compute diluted earnings
per share (4) 52,136 55,668 58,842 66,352
Cash dividends
declared per
share $ .37 $ .32 $ .25 $ .21 $ .20
Shareholders'
equity per
share (4) $ 9.61 $ 9.60 $ 9.18 $ 9.42 $ 8.25
Return on average
shareholders'
equity 17.5% 15.6% 27.7% 13.4% 8.2%
========================================================================
(1) Includes the actual consolidated results of operations of
the Company for the years ended December 31, 1998, 1997, 1996 and
1995, and for the ten months ended December 31, 1994, as well as
the historical combined results of operations and net assets of
Ethyl Corporation's former specialty chemical operations, spun
off as of the close of business on February 28, 1994, consisting
of its olefins and derivatives, bromine chemicals and specialty
chemicals (the predecessor businesses) for the two months ended
February 28, 1994.
(2) Total long-term debt and interest and financing expenses for
1996 reflect the paydown of debt from the proceeds received from
the March 1, 1996, sale of the alpha olefins, poly alpha olefins
and synthetic alcohols businesses (Olefins Business). Total
long-term debt and interest and financing expenses for 1994
include the impact of $303.4 million of debt assumed in
connection with the spin-off of the Company from Ethyl.
(3) 1996 gain on the sale of the Olefins Business ($94,377 after
income taxes). 1995 gain on the sale of the electronic materials
business ($14,542 after income taxes). 1994 gain on the sale of
the Solimide business and other related assets ($6,732 after
income taxes).
(4) 1998 equity includes the effect of the purchase of 5,738,241
common shares through a tender offer finalized on September 30,
1998, and additional first, second and third quarter purchases of
772,100, 338,600 and 63,800 common shares, respectively. 1997
equity includes the effect of the fourth quarter purchase of
1,560,300 common shares. 1996 equity includes the effects of the
purchase of 9,484,465 common shares through a tender offer
concluded on April 1, 1996 and additional second and third
quarter purchases of 275,400 and 1,481,100 common shares,
respectively. 1994 equity includes a $303.4 million reduction for
debt transferred in connection with the spin-off of the Company
from Ethyl, as well as the effect of the sale of 6,863,416 new
shares of the Company's common stock issued on May 11, 1994, in a
private placement for $100 million.
(5). No annual earnings per share information is presented for the
historical results of operations of the Company and the
predecessor businesses while a part of Ethyl since the Company
had no separate capital structure until March 1, 1994.
</TABLE>
