[TYPE]10-Q
<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Transition Period from ____________ to ______________
Commission File Number 1-12658
ALBEMARLE CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1692118
- ---------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 SOUTH FOURTH STREET
P. O. BOX 1335
RICHMOND, VIRGINIA 23210
- ---------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (804)788-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock, $.01 par value, outstanding as of
April 30, 2000: 45,777,493
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<PAGE>2
ALBEMARLE CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 3-4
Consolidated Statements of Income - Three
Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Comprehensive Income - Three
Months Ended March 31, 2000 and 1999 6
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 7
Notes to the Consolidated Financial Statements 8-10
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, Additional
Information, Year 2000 and Recent Developments 11-15
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk 15-16
PART II.OTHER INFORMATION
ITEM 3. Legal Proceedings 16
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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<PAGE>3
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $21,378 $48,621
Accounts receivable, less allowance for
doubtful accounts (2000 - $2,618; 1999 -
$2,609) 157,844 155,140
Inventories:
Finished goods 78,558 82,415
Raw materials 9,923 10,889
Stores, supplies and other 17,081 17,512
------------ ------------
105,562 110,816
Deferred income taxes and prepaid expenses 14,463 18,022
------------ ------------
Total current assets 299,247 332,599
------------ ------------
Property, plant and equipment, at cost 1,290,502 1,287,507
Less accumulated depreciation and
amortization 803,698 792,122
------------ ------------
Net property, plant and equipment 486,804 495,385
Other assets and deferred charges 111,718 108,213
Goodwill and other intangibles, net of
amortization 16,539 17,897
------------ ------------
Total assets $914,308 $954,094
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<C>
Current liabilities: <C> <C>
Accounts payable $58,404 $61,386
Long-term debt, current portion 736 779
Accrued expenses 45,829 50,505
Dividends payable 5,035 4,635
Income taxes payable 17,419 14,048
------------ ------------
Total current liabilities 127,423 131,353
------------ ------------
Long-term debt 113,691 158,981
Other noncurrent liabilities 82,342 81,185
Deferred income taxes 87,943 92,011
Shareholders' equity:
Common stock, $.01 par value, issued and
outstanding- 45,775,627 in 2000 and
46,199,639 in 1999 458 462
Additional paid-in capital 57,004 63,904
Accumulated other comprehensive (loss) (13,277) (9,013)
Retained earnings 458,724 435,211
------------ ------------
Total shareholders' equity 502,909 490,564
------------ ------------
Total liabilities and shareholders' equity $914,308 $954,094
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>5
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net sales $235,480 $208,345
Cost of goods sold 160,878 137,027
---------- ----------
Gross profit 74,602 71,318
Selling, general and administrative expenses 26,186 26,551
Research and development expenses 6,248 8,523
---------- ----------
Operating profit 42,168 36,244
Interest and financing expenses (1,767) (2,472)
Other income, net 973 813
---------- ----------
Income before income taxes 41,374 34,585
Income taxes 12,826 11,413
---------- ----------
NET INCOME $28,548 $23,172
========== ==========
BASIC EARNINGS PER SHARE $0.62 $0.49
========== ==========
DILUTED EARNINGS PER SHARE $0.61 $0.49
========== ==========
Cash dividends declared per share of common stock $0.11 $0.10
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>6
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net income $28,548 $23,172
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on securities available
for sale (22) 8,144
Foreign currency translation adjustments (4,242) (11,116)
---------- ----------
Other comprehensive (loss) income (4,264) (2,972)
---------- ----------
Comprehensive income $24,284 $20,200
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>7
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $48,621 $21,180
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 28,548 23,172
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 18,150 18,886
Working capital (increase) decrease excluding
cash and cash equivalents (3,466) 24,842
Other, net (855) (3,906)
---------- ----------
Net cash provided from operating activities 42,377 62,994
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,509) (22,167)
Cost of securities available-for-sale -- (129,295)
Restricted expended (unexpended) industrial
revenue bond proceeds 777 (6,869)
Other, net 410 (267)
---------- ----------
Net cash used in investing activities (12,322) (158,598)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (44,700) (4,749)
Dividends paid (4,635) (4,701)
Purchases of common stock (7,972)
Proceeds from borrowings -- 122,360
Proceeds from exercise of stock options 16 231
---------- ----------
Net cash (used in) provided from financing
activities (57,291) 113,141
---------- ----------
Net effect of foreign exchange on cash and cash
equivalents (7) (676)
---------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (27,243) 16,861
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $21,378 $38,041
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE>8
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Albemarle Corporation and Subsidiaries ("Albemarle" or "the
Company") contain all adjustments necessary to present fairly, in all
material respects, the Company's consolidated financial position as of March
31, 2000, and December 31, 1999, the consolidated results of operations and
comprehensive income for the three-month periods ended March 31, 2000, and
1999, and condensed consolidated cash flows for the three-month periods
ended March 31, 2000, and 1999. All adjustments are of a normal and
recurring nature. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1999 Annual Report & Form 10-K filed on March 22,
2000. The December 31, 1999, consolidated balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The results of
operations for the three-month period ended March 31, 2000, are not
necessarily indicative of the results to be expected for the full year.
Certain amounts in the accompanying consolidated financial statements and
notes thereto have been reclassified to conform to the current presentation.
2. Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Variable-rate bank loans $78,900 $128,700
Foreign borrowings 23,461 18,966
Industrial revenue bonds 11,000 11,000
Miscellaneous 1,066 1,094
------------ ------------
Total 114,427 159,760
Less amounts due within one year 736 779
------------ ------------
Long-term debt $113,691 $158,981
============ ============
</TABLE>
On March 10, 1999, the Company entered into a Loan Agreement with Columbia
County, Arkansas ("the County"), which issued $11,000 in Tax Exempt Solid
Waste Disposal Revenue Bonds ("Tax Exempt Bonds") for the purpose of
financing various solid waste disposal facilities at the Company's Magnolia,
Arkansas South Plant. The presently unexpended proceeds from the Tax Exempt
Bonds of $1,841 are restricted to the purchase of solid waste disposal
facilities and accordingly, are reflected as a noncurrent asset in the
balance sheet caption - Other assets and deferred charges. The Tax Exempt
Bonds bear interest at a variable rate that approximates 65% of the federal
funds rate. The Tax Exempt Bonds will mature in 21 years and are
collateralized by a transferable irrevocable direct pay letter of credit.
3. Cost of goods sold includes foreign exchange transaction gains of $419 and
$2,581 for the three months ended March 31, 2000, and 1999, respectively.
-8-
<PAGE>9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
4. In March 1999, in connection with the Company's tender for the shares of
Albright & Wilson plc (Albright & Wilson"), a United Kingdom chemicals'
company, the Company purchased 58,394,049 (18.6 percent) common shares of
Albright & Wilson for an aggregate purchase consideration of approximately
$129,300, including acquisition expenses. Funding for this purchase was
provided from advances under the Company's existing Competitive Advance and
Revolving Credit Agreement.
At March 31, 1999, the Company accounted for the acquired shares of Albright
& Wilson as securities available-for-sale at the current market value
($140,089) on the London Stock Exchange at that date with the after-tax
effect of the revaluation adjustment ($8,144) of the securities included
in the statement of comprehensive income for the three months ended March
31, 1999.
5. Basic and diluted earnings per share for the three-month periods ended March
31, 2000, and 1999, are calculated as follows:
<TABLE>
<CAPTION>
Three-Months Ended
March 31
--------------------------
BASIC EARNINGS PER SHARE 2000 1999
---------- ----------
<S> <C> <C>
Numerator:
Income available to stockholders, as reported $28,548 $23,172
---------- ----------
Denominator:
Average number of shares of common stock
outstanding 46,084 47,016
---------- ----------
Basic earnings per share $0.62 $0.49
========== ==========
DILUTED EARNINGS PER SHARE
Numerator:
Income available to stockholders, as reported $28,548 $23,172
---------- ----------
Denominator:
Average number of shares of common stock
outstanding 46,084 47,016
Shares issuable upon exercise of stock options 454 730
---------- ----------
Total shares 46,538 47,746
---------- ----------
Diluted earnings per share $0.61 $0.49
========== ==========
</TABLE>
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<PAGE>10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
8. The Financial Accounting Standards Board ("FASB") issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June 1998,
which was effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued
FAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133", postponing FAS
No. 133's effective date to all fiscal quarters of all fiscal years
beginning after June 15, 2000. FAS No. 133 established 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. At the time of adoption, FAS No. 133 is not expected to have a
material impact on the financial position or results of operations of the
Company.
9. The Company is a global manufacturer of specialty polymer and fine
chemicals, grouped into two operating segments: Polymer Chemicals and Fine
Chemicals. The operating segments were determined based on management
responsibility. The Polymer Chemicals' operating segment is comprised of
flame retardants, and catalysts and additives. The Fine Chemicals'
operating segment is comprised of agrichemicals, bromine and derivatives,
pharmachemicals, potassium and chlorine chemicals, and surface actives.
Segment data includes intersegment transfers of raw materials at cost and
foreign exchange gains and losses as well as allocations for certain
corporate costs. The corporate and other expenses include corporate-related
items not allocated to the reportable segments.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
SUMMARY OF SEGMENT RESULTS Revenues Income Revenues Income
- -------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Polymer Chemicals $128,213 $26,928 $107,390 $22,413
Fine Chemicals 107,267 21,906 100,955 19,772
---------- ---------- ---------- ----------
Segment totals $235,480 48,834 $208,345 42,185
========== ==========
Corporate and other expenses (6,666) (5,941)
---------- ----------
Operating profit 42,168 36,244
Interest and financing expenses (1,767) (2,472)
Other income, net 973 813
---------- ----------
Income before income taxes $41,374 $34,585
========== ==========
</TABLE>
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<PAGE>11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION, ADDITIONAL INFORMATION, YEAR 2000 AND RECENT
DEVELOPMENTS
The following is management's discussion and analysis of certain significant
factors affecting the results of operations of Albemarle Corporation
("Albemarle" or "the Company") during the periods included in the accompanying
consolidated statements of income and changes in the Company's financial
condition since December 31, 1999.
Some of the information presented in the following discussion may constitute
forward-looking comments within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes its expectations
are based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will
not differ materially from its expectations. Factors that could cause actual
results to differ from expectations include, without limitation, the timing of
orders received from customers, the gain or loss of significant customers,
competition from other manufacturers, changes in the demand for the Company's
products, increases in the cost of the products, changes in the market in
general, fluctuations in foreign currencies and significant changes in new
product introduction resulting in an increase in capital project requests and
approvals leading to additional capital spending.
Results Of Operations
- ---------------------
First Quarter 2000 Compared with First Quarter 1999
- ---------------------------------------------------
Net sales for first quarter 2000 amounted to $235.5 million, up 13% or $27.2
million from first quarter 1999 net sales of $208.3 million primarily due to
higher shipments of Polymer Chemicals' flame retardants and organometallics and
catalysts offset, in part, by lower pricing in flame retardants. Fine
Chemicals' performance chemicals' shipments were also up while agrichemicals
shipments were down from first quarter 1999 but ahead of fourth quarter 1999.
The gross profit margin decreased to 31.7% in 2000 from 34.2% for the
corresponding period in 1999. First-quarter 2000 operating profit was up 16.3%
or $5.9 million from 1999 primarily due to higher shipments in most businesses
offset, in part, by higher raw material costs, lower sales pricing and the
unfavorable effects of foreign exchange in first quarter 2000 versus first
quarter 1999. The Company's operating results also reflect the benefit from
work-force reductions effected during the last three quarters of 1999.
Selling, general and administrative expenses and research and development
expenses, decreased 7.5% or $2.6 million in the first quarter of 2000 versus
first quarter 1999 due to lower research and development department costs
consisting primarily of lower employee related costs resulting from work-force
reductions effected during the last three quarters of 1999 and lower outside
research and development contracted services in the 2000 period. As a
percentage of net sales, selling, general and administrative expenses,
including research and development expenses, were 13.8% in 2000 versus 16.8%
in the 1999 quarter.
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<PAGE>12
OPERATING SEGMENTS
Net sales by reportable business operating segment for the first quarter
periods ended March 31, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Net Sales
-----------
2000 1999
-------- --------
<S> <C> <C>
Polymer Chemicals $128,213 $107,390
Fine Chemicals 107,267 100,955
-------- --------
Segment totals $235,480 $208,345
======== ========
</TABLE>
Polymer Chemicals' net sales for first quarter 2000 increased 19.4% or $20.8
million from first quarter 1999 due to increased shipments in flame retardants,
polymer additives and intermediates, and organometallics and catalysts offset,
in part, by the effects of competitive pricing in most businesses. Fine
Chemicals' net sales for first quarter 2000 increased 6.3% or $6.4 million from
first quarter 1999 due to higher shipments of performance chemicals, primarily
surface actives. In pharmachemicals net sales were up slightly, ibuprofen
shipments were up 25% in first quarter 2000 versus first quarter 1999, however
they were offset by the effects of slightly lower pricing and lower shipments
of naproxen. Agrichemicals shipments were down in first quarter 2000 versus
first quarter 1999, however net sales were significantly ahead of fourth
quarter 1999.
Operating profit by reportable business operating segment for the first quarter
periods ended March 31, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Operating Profit
----------------
2000 1999
-------- --------
<S> <C> <C>
Polymer Chemicals $26,928 $22,413
Fine Chemicals 21,906 19,772
-------- --------
Segment totals 48,834 42,185
Corporate and other expenses (6,666) (5,941)
-------- --------
Operating profit $42,168 $36,244
======== ========
</TABLE>
Polymer Chemicals' first quarter 2000 segment operating profit was up 20.1% or
$4.5 million from first quarter 1999 primarily due to increased shipments in
most businesses offset, in part, by higher raw material costs, lower sales
pricing and the unfavorable effects of foreign exchange in first quarter 2000
versus first quarter 1999. Fine Chemicals' first quarter 2000 segment operating
profit increased approximately 10.8% or $2.1 million from first quarter 1999
primarily due to increased shipments in surface actives and ibuprofen offset,
in part, by higher raw material costs, the unfavorable effects of foreign
exchange, and by higher production costs due to unfavorable plant utilization
in certain product lines, primarily pharmachemicals in first quarter 2000
versus first
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<PAGE>13
quarter 1999. Corporate and other expenses were up 12.2% percent or $.7 million
from first quarter 1999 primarily due to additional manpower reduction costs
incurred in the 2000 period. The Company's operating results for the first
quarter 2000 reflect benefits of approximately $2 million from work-force
reductions effected during the last three quarters of 1999.
INTEREST AND FINANCING EXPENSES
Interest and financing expenses for first quarter 2000 decreased $0.7 million
from $2.5 million in first quarter 1999 primarily due to higher average
outstanding debt associated with the Company's purchase of shares of Albright &
Wilson stock in 1999.
INCOME TAXES
Income taxes for first quarter 2000 were higher compared to the same period in
1999 due to higher income before taxes in 2000 offset, in part by a lower
effective income tax rate. The first quarter 2000 effective income tax rate was
31.0%, down from 33.0% in first quarter 1999. The effective tax rate for the
year ended December 31, 1999 was 31.0%.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Cash and cash equivalents at March 31, 2000, were $21.4 million, representing a
decrease of $27.2 million from $48.6 million at year-end 1999.
Cash flows provided from operating activities of $42.4 million, net of $3.5
million working capital increase, for the first three months of 2000 together
with $27.2 million of existing cash and cash equivalents were used to cover
repayment of debt, capital expenditures, purchase of 491,400 shares of the
Company's common stock and payment of dividends.
The Company anticipates that cash provided from operations in the future will
be sufficient to pay its operating expenses, satisfy debt-service obligations
and make dividend payments.
The change in the Company's accumulated other comprehensive (loss) income from
December 31, 1999, was primarily due to foreign currency adjustments, net of
related deferred taxes, primarily related to the strengthening of the U.S.
Dollar versus the Euro and the Japanese yen.
The noncurrent portion of the Company's long-term debt amounted to $113.7
million at March 31, 2000, compared to $159 million at the end of 1999. The
Company's long-term debt, including the current portion, as a percentage of
total capitalization amounted to 18.5% at March 31, 2000.
The Company's capital expenditures in the first three months of 2000 were lower
than the same period of 1999. For the year capital expenditures are forecasted
to be lower than the 1999 level. Capital spending will be financed primarily
with cash flow from operations with additional cash, if any, provided from
additional debt. The amount and timing of any additional borrowings will depend
on the Company's specific cash requirements.
The Company is subject to federal, state, local and foreign requirements
regulating the handling, manufacture and use of materials (some of which may be
classified as hazardous or toxic by one or more regulatory agencies), the
discharge of materials into the environment and the protection of the
environment. To the Company's knowledge, it currently is complying with and
expects to continue to comply in all material respects with existing
environmental laws, regulations, statutes and ordinances. Such compliance with
federal, state, local and foreign environmental protection laws has not in the
past had, and is not expected to have in the future, a material effect on
earnings or the competitive position of Albemarle.
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<PAGE>14
Among other environmental requirements, the Company is subject to the federal
Superfund law, and similar state laws, under which the Company may be
designated as a potentially responsible party and may be liable for a share of
the costs associated with cleaning up various hazardous waste sites.
ADDITIONAL INFORMATION
- ----------------------
OUTLOOK
In Polymer Chemicals, our goal is to sustain this quarter's level of earnings
for flame retardants in 2000's subsequent quarters. In organometallics and
catalysts and polymer additives, this was a strong quarter with good results in
our single site catalyst programs and especially in our base organometallics
business. We expect to continue to see good growth in our new polymer
businesses (many from a small base). It is not likely that we will continue to
see the magnitude of year over year volume growth experienced in this first
quarter, in our base businesses.
In Fine Chemicals, we expect our agrichemicals business in 2000 will be similar
to 1999. Our pharmachemicals business could continue close to this quarter's
levels but the difficulties faced in our naproxen business and the efforts to
offset them will likely extend through the end of 2000. In our bromine and
derivatives business, if oil prices encourage oil producers to begin
exploration and well completion using our oil field chemicals, we could see
improvements. In addition strong volumes in our flame retardant business, if
continued, will help our cost position by more fully loading our assets.
Surface actives turned in a strong performance. Biocide product results are
improving. We expect our more mature businesses to face pricing and volume
pressures as our customers seek assistance from us to be able to successfully
compete in their end markets.
In summary, our first quarter exceeded earlier projections with stronger
revenues and volumes. We are also benefiting from our cost reduction efforts
which are expected to continue to have a positive effect for the balance of the
year. While we don't expect to be able to duplicate the significant performance
of this quarter (vs. 1999) in subsequent quarters, we do believe that we have a
good chance of achieving our stated objective of 15% earnings increase year
over year.
Some of the information presented in the above discussion may constitute
forward-looking comments within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes its expectations
are based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will not
differ materially from its expectations. Factors that could cause actual
results to differ from expectations include, without limitation, the timing of
orders received from customers, the gain or loss of significant customers,
competition from other manufacturers, changes in the demand for the Company's
products, increases in the cost of the products, changes in the market in
general, fluctuations in foreign currencies and significant changes in new
product introduction resulting in an increase in capital project requests and
approvals leading to additional capital spending.
Additional information regarding the Company, its products, markets and
financial performance is provided at the Company's Internet web site,
www.Albemarle.com.
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<PAGE>15
YEAR 2000 UPDATE
- ----------------
Albemarle's company-wide Year 2000 Project ("Project") addressed the ability of
computer programs and embedded computer chips to distinguish between the year
1900 and the year 2000. Re-engineering of the Company's business processes,
which began in the mid-1990's, resulted in upgrades to Y2K-compliant business
systems. The Project's remediation and contingency planning functions were
completed during the fourth quarter of 1999. Since the Company's products are
not date aware, its Year 2000 issues generally revolved around its suppliers'
ability to supply goods and services, its ability to produce, its business
processes functioning properly, and its customers ability to purchase. As part
of the Company's contingency planning, most production processes were
interrupted intentionally as a precaution for the transition into the Year
2000. As of the date of filing of this document, the Company has experienced no
significant internal or external Y2K problems affecting its manufacturing,
business, financial or other operations.
The total cost associated with required modifications to become Year 2000 ready
and Year 2000 related contingency planning was $2.9 million. While the Company
did not track internal manpower costs for this Project, an estimate of these
costs is included in the estimated total cost. The estimate does not include
Albemarle's share of Year 2000 costs incurred by joint ventures in which the
Company participates or entities in which the Company holds a minority
interest. The Company did not significantly increase inventories for the
transition into the Year 2000.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of certain normal business activities or
operations, which could materially and adversely affect the Company's results
of operations, liquidity and financial condition. Readers are referred to prior
10-Q and 10-K reports for further discussion of Year 2000 risks. From the
world-wide successful transition into 2000 and through February 29th (leap
year), the Company believes that the transition through December 31, 2000, will
be similarly non-eventful.
Readers are cautioned that to the extent legally permissible, this statement
should be considered a Year 2000 Readiness Disclosure pursuant to the Year 2000
Information and Readiness Disclosure Act and that forward-looking statements
contained in the Year 2000 Update should be read in conjunction with the
Company's disclosures regarding the 'safe harbor' provisions of the Private
Securities Litigation Reform Act of 1995 included on page 11.
RECENT DEVELOPMENTS
- -------------------
In April 2000, an election was made to close certain pension contracts with
The Equitable in Albemarle's pension plan. This election will result in the
recognition of a one-time, noncash, special item accounting gain of
approximately $15 million in the second quarter 2000 results. The special item
gain will have no effect on any retiree benefits or benefit programs of the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our interest rate risk, marketable
security price risk or raw material price risk from the information provided in
our Form 10-K for the year ended
-15-
<PAGE>16
December 31, 1999.
At March 31, 2000, and December 31, 1999, the Company had entered into Japanese
yen forward contracts in the notional amounts of $11.7 million and $10.8
million, respectively, all with maturity dates in 2000. A 10% appreciation of
the U.S. Dollar versus the Japanese yen from March 31, 2000 rates, with all
other variables held constant, would result in a $1.1 million increase in the
fair value of the forward contracts. A 10% depreciation of the U.S. Dollar
versus the Japanese yen from March 31, 2000 rates, with all other variables
held constant, would result in a $1.3 million decrease in the fair value of the
forward contracts.
Part II - OTHER INFORMATION
- ---------------------------
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved from time to time in legal
proceedings of types regarded as common in the Company's businesses,
particularly administrative or judicial proceedings seeking remediation under
environmental laws, such as Superfund, and products liability litigation.
While it is not possible to predict or determine the outcome of the proceedings
presently pending, in the Company's opinion they should not result ultimately
in liabilities likely to have a material adverse effect upon the results of
operations or financial condition of the Company and its subsidiaries on a
consolidated basis.
In early January 1999, the U.S. Environmental Protection Agency ("EPA"), Region
6, issued an administrative complaint under section 113 of the Clean Air Act,
alleging violations at the Company's Pasadena, Texas plant of EPA's rule
regarding leaks and repairs of appliances containing hydrochlorofluorocarbons.
EPA proposed a civil penalty of $162,000. The Company contested the matter, and
in March, 2000, without admitting any violation, agreed to settle the matter
for $9,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on April 26, 2000, the shareholders
elected the directors nominated in the Proxy with the following affirmative
votes and votes withheld:
Director Affirmative Votes Votes Withheld
- -------- ----------------- --------------
Craig R. Andersson 42,296,285 802,243
Floyd D. Gottwald, Jr. 39,858,937 3,239,591
John D. Gottwald 42,181,267 917,261
William M. Gottwald 42,102,036 996,492
Seymour S. Preston III 42,283,769 814,759
Emmett J. Rice 42,246,912 851,616
Charles E. Stewart 42,190,422 908,106
Charles B. Walker 42,277,978 820,550
Anne M. Whittemore 42,284,291 814,237
All of the above directors were reelected for an additional term.
-16-
<PAGE>17
The shareholders also approved the selection of PricewaterhouseCoopers LLP as
the Company's auditors with 42,686,407 affirmative votes, 349,376 negative
votes and 62,745 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
-17-
<PAGE>18
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALBEMARLE CORPORATION
---------------------
(Registrant)
Date: May 12, 2000 By: s/ Robert G. Kirchhoefer
------------------------
Robert G. Kirchhoefer
Treasurer and Chief Accounting Officer
(Principal Accounting Officer)
-18-
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