<PAGE>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 June 30, 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 July 31,
2000: 45,805,284
<PAGE>Page 2
ALBEMARLE CORPORATION
I N D E X
Page
Number
-------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999 3-4
Consolidated Statements of Income - Three and
Six Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Income -
Three and Six Months Ended June 30, 2000 and 1999 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 7
Notes to the Consolidated Financial Statements 8-12
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, and
Additional Information 13-19
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk 19
PART II. OTHER INFORMATION
ITEM 3. Legal Proceedings 19
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
<PAGE>Page 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
--------------------
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $17,785 $48,621
Accounts receivable, less allowance for
doubtful accounts (2000 - $2,691;
1999 - $2,609) 159,685 155,140
Inventories:
Finished goods 81,834 82,415
Raw materials 10,809 10,889
Stores, supplies and other 17,073 17,512
------------ ------------
109,716 110,816
Deferred income taxes and prepaid expenses 11,756 18,022
------------ ------------
Total current assets 298,942 332,599
------------ ------------
Property, plant and equipment, at cost 1,299,823 1,287,507
Less accumulated depreciation and
amortization 818,374 792,122
------------ ------------
Net property, plant and equipment 481,449 495,385
------------ ------------
Prepaid pension costs 105,183 83,111
Other assets and deferred charges 68,177 25,102
Goodwill and other intangibles, net of
amortization 15,643 17,897
------------ ------------
Total assets $969,394 $954,094
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $61,569 $61,386
Long-term debt, current portion 305 779
Accrued expenses 48,395 50,505
Dividends payable 5,041 4,635
Income taxes payable 9,138 14,048
------------ ------------
Total current liabilities 124,448 131,353
------------ ------------
Long-term debt 133,703 158,981
Other noncurrent liabilities 83,742 81,185
Deferred income taxes 95,479 92,011
Shareholders' equity:
Common stock, $.01 par value,
issued - 45,797,694 in 2000 and
46,199,639 in 1999, respectively 457 462
Additional paid-in capital 57,008 63,904
Accumulated other comprehensive
(loss) income (12,938) (9,013)
Retained earnings 487,495 435,211
------------ ------------
Total shareholders' equity 532,022 490,564
------------ ------------
Total liabilities and shareholders' equity $969,394 $954,094
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 5
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In Thousands Except Per-Share Amounts)
---------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $226,206 $200,811 $461,686 $409,156
Cost of goods sold 160,200 143,438 321,078 280,465
---------- ---------- ---------- ----------
Gross profit 66,006 57,373 140,608 128,691
---------- ---------- ---------- ----------
Selling, general and
administrative expenses 25,822 24,549 52,008 51,200
Research and development
expenses 6,219 9,093 12,467 17,516
Special items (15,900) 5,779 (15,900) 5,779
---------- ---------- ---------- ----------
Operating profit 49,865 17,952 92,033 54,196
---------- ---------- ---------- ----------
Interest and financing
expenses (1,224) (2,847) (2,991) (5,319)
Gain on sale of investment in
Albright & Wilson stock, net -- 22,054 -- 22,054
Other income, net 363 167 1,336 980
---------- ---------- ---------- ----------
Income before income taxes 49,004 37,326 90,378 71,911
Income taxes 15,191 12,713 28,017 24,126
---------- ---------- ---------- ----------
Net income $ 33,813 $ 24,613 $ 62,361 $ 47,785
========== ========== ========== ==========
Basic earnings per share $ .74 $ .52 $ 1.36 $ 1.02
========== ========== ========== ==========
Shares used to compute
basic earnings per share 45,795 47,033 45,939 47,025
========== ========== ========== ==========
Diluted earnings per share $ .73 $ .52 $ 1.34 $ 1.00
========== ========== ========== ==========
Shares used to compute
diluted earnings per share 46,608 47,731 46,573 47,738
========== ========== ========== ==========
Cash dividends declared per
share of common stock $ .11 $ .10 $ .22 $ .20
========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 6
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Dollars In Thousands)
----------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $33,813 $24,613 $62,361 $47,785
Other comprehensive income (loss),
net of tax:
Net change in unrealized gain
on securities available-for-sale 354 (8,144) 332 --
Foreign currency translation
adjustments (15) (2,836) (4,257) (13,952)
---------- ---------- ---------- ----------
Other comprehensive income (loss) 339 (10,980) (3,925) (13,952)
---------- ---------- ---------- ----------
Comprehensive income $34,152 $13,633 $58,436 $33,833
========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 7
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars In Thousands)
----------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash and cash equivalents at beginning of year $48,621 $21,180
Cash flows from operating activities:
Net income 62,361 47,785
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization 36,189 37,768
Special items (15,900) 5,779
Gain on sale of investment in Albright & Wilson stock -- (22,054)
Working capital (increase) decrease excluding cash and
cash equivalents, net (10,989) 19,259
Other, net 4,266 (536)
---------- ----------
Net cash provided from operating activities 75,927 88,001
---------- ----------
Cash flows from investing activities:
Cost of investment in Albright & Wilson stock -- (135,462)
Capital expenditures (27,781) (46,795)
Acquisition of business (33,000) --
Investments in joint ventures and non-marketable
securities (7,381) (1,185)
Proceeds from sale of investment in Albright & Wilson
stock -- 157,516
Other, net 2,799 (1,627)
---------- ----------
Net cash used in investing activities (65,363) (27,553)
---------- ----------
Cash flows from financing activities:
Repayments of long-term debt (44,700) (157,319)
Dividends paid (9,671) (9,404)
Purchases of common stock (8,853) --
Proceeds from borrowings 19,786 122,360
Proceeds from exercise of stock options 809 348
---------- ----------
Net cash used in financing activities (42,629) (44,015)
---------- ----------
Net effect of foreign exchange on cash 1,229 (1,739)
---------- ----------
(Decrease) increase in cash and cash equivalents (30,836) 14,694
---------- ----------
Cash and cash equivalents at end of period $17,785 $35,874
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 8
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Albemarle Corporation and Subsidiaries ("Albemarle" or "the
Company") contain all adjustments necessary to present fairly, in all
material respects, the Company's consolidated financial position as of June
30, 2000, and December 31, 1999, the consolidated results of operations and
comprehensive income for the three- and six-month periods ended June 30,
2000, and 1999, and condensed consolidated cash flows for the six-month
periods ended June 30, 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- and six-month periods ended June 30, 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 for the three-month and six-month periods ended June 30, 2000,
have been reclassified to conform to the current presentation.
2. Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Variable-rate bank loans $104,500 $128,700
Foreign borrowings 17,442 18,966
Industrial revenue bonds 11,000 11,000
Miscellaneous 1,066 1,094
------------ ------------
Total 134,008 159,760
Less amounts due within one year 305 779
------------ ------------
Long-term debt $133,703 $158,981
============ ============
</TABLE>
On March 10, 1999, the Company entered into a Loan Agreement with Columbia
County, Arkansas, 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
$1,869 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. On June 29, 2000, the Company acquired the PYRO-CHEK(R) flame retardant
business, along with a plant at Port-de-Bouc, France, from Ferro
Corporation. The purchase price is subject to adjustments based upon certain
contingencies. The assets purchased consist primarily of property, plant and
equipment, goodwill and intangibles and inventory.
<PAGE>Page 9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Per-Share Amounts)
(Unaudited)
4. Cost of goods sold includes foreign exchange transaction gains of $879 and
$1,036, and $1,298 and $3,617 for the three- and six- months ended June 30,
2000, and 1999, respectively.
5. In April 2000, the Company made a change in election in certain of its
pension annuity contracts. This election resulted in the recognition of a
one-time noncash special accounting settlement gain of $15,900 ($10,128
after income taxes), or 22 cents per share on a fully diluted basis, in
accordance with SFAS No. 88 "Employer's Accounting for Settlements and
Curtailments of Defined Pension Plans and Termination Benefits". The special
item gain did not effect any retiree benefits or benefit programs of the
Company.
6. In May 1999, the Company, through its affiliate Albemarle UK Holdings
Limited, sold to ISPG, Plc, the competing bidder, for an aggregate
consideration of $157,516 resulting in a gain of $22,054 ($14,381 after
income taxes), net of expenses or 30 cents per share on a fully diluted
basis, 58,394,049 common shares of Albright & Wilson plc ("Albright &
Wilson"), a United Kingdom chemicals company, which shares were acquired in
March 1999, as part of an unsuccessful offer for Albright & Wilson. The
proceeds from the sale of the Albright & Wilson common shares were primarily
used to pay down debt under the Company's existing Competitive Advance and
Revolving Credit Agreement.
7. Special charges for the three- and six-months ended June 30, 1999, totaling
$5,779 ($3,587 after income taxes) or 7 cents per share on a fully diluted
basis, resulted from work-force reductions primarily at the Company's
administrative offices in Baton Rouge, Louisiana and its Pasadena, Texas
plant. The program impacted a total of 74 salaried and wageroll employees.
8. The significant differences between the U.S. federal statutory income tax
rate on pretax income and the effective income tax rate for the three- and
six-months periods ended June 30, 2000 and 1999, respectively are as
follows:
<TABLE>
<CAPTION>
% of Income Before Income Taxes
--------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 35.0%
Foreign sales corporation
benefit (1.4) (1.4) (1.5) (1.5)
State taxes, net of federal tax
benefit 0.8 0.6 0.7 1.2
Depletion (0.8) (0.9) (0.8) (0.9)
Other (2.6) 0.8 (2.4) (0.3)
---------- ---------- ---------- ----------
Effective income tax rate 31.0% 34.1% 31.0% 33.5%
========== ========== ========== ==========
</TABLE>
<PAGE>Page 10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share Amounts)
(Unaudited)
9. Basic and diluted earnings per share for the three- and six-month periods
ended June 30, 2000, and 1999, are calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Numerator:
Income available to
stockholders, as reported $33,813 $24,613 $62,361 $47,785
---------- ---------- ---------- ----------
Denominator:
Average number of shares of
common stock outstanding 45,795 47,033 45,939 47,025
---------- ---------- ---------- ----------
Basic earnings per share $ .74 $ .52 $ 1.36 $ .02
========== ========== ========== ==========
Diluted Earnings Per Share
Numerator:
Income available to
stockholders, as reported $33,813 $24,613 $62,361 $47,785
---------- ---------- ---------- ----------
Denominator:
Average number of shares of
common stock outstanding 45,795 47,033 45,939 47,025
Shares issuable upon
exercise of stock options 813 698 634 713
---------- ---------- ---------- ----------
Total shares 46,608 47,731 46,573 47,738
---------- ---------- ---------- ----------
Diluted earnings per share $ .73 $ .52 $ 1.34 $ 1.00
========== ========== ========== ==========
</TABLE>
The three- and six-months ended June 30, 2000, average number of shares of
common stock outstanding includes the effects of the purchase of 182,000 and
675,400 common shares in the third and fourth quarters of 1999 and the
purchase of 491,400 common shares in the first quarter of 2000.
<PAGE> Page 11
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share Amounts)
(Unaudited)
10. The Company is a global manufacturer of specialty polymer and fine
chemicals, currently grouped into two operating segments: Polymer Chemicals
and Fine Chemicals. The operating segments were determined based on
management responsibility. The Polymer Chemicals segment is comprised of
flame retardants, organometallics and catalysts, and polymer additives and
intermediates. The Fine Chemicals' segment is comprised of agrichemicals,
bromine and derivatives, pharmachemicals, potassium and chlorine chemicals,
and surface actives. Segment data includes intersegment transfers of raw
materials at cost, except for flame retardants which are accounted for at
an intersegment transfer price, and foreign exchange gains and losses as
well as allocations for certain corporate costs and the effects of special
items. Corporate and other expenses include corporate-related items not
allocated to the reportable segments and the effects of special items. See
Tables below:
<TABLE>
<CAPTION>
For The Quarter Ended June 30
--------------------------------
2000 1999
---- ----
Revenues Income Revenues Income
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Polymer Chemicals $125,629 $32,461 $103,085 $14,134
Fine Chemicals 100,577 19,803 97,726 9,258
---------- ---------- ---------- ----------
Segment totals $226,206 52,264 $200,811 23,392
========== ==========
Corporate and other expenses (2,399) (5,440)
---------- ----------
Operating profit 49,865 17,952
Interest and financing expenses (1,224) (2,847)
Gain on sale of Albright & Wilson
stock, net -- 22,054
Other income, net 363 167
---------- ----------
Income before income taxes $49,004 $37,326
========== ==========
</TABLE>
<PAGE>Page 12
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share Amounts)
(Unaudited)
10.Continued
<TABLE>
<CAPTION>
For The Quarter Ended June 30
---------------------------------
2000 1999
---- ----
Revenues Income Revenues Income
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Polymer Chemicals $253,842 $59,389 $210,475 $36,547
Fine Chemicals 207,844 41,709 198,681 29,030
---------- ---------- ---------- ----------
Segment totals $461,686 101,098 $409,156 65,577
========== ==========
Corporate and other expenses (9,065) (11,381)
---------- ----------
Operating profit 92,033 54,196
Interest and financing expenses (2,991) (5,319)
Gain on sale of Albright & Wilson
stock, net -- 22,054
Other income, net 1,336 980
---------- ----------
Income before income taxes $90,378 $71,911
========== ==========
</TABLE>
11. In June 2000, the FASB issued SFAS No. 138, "Accounting for certain
Derivative Instruments and Certain Hedging Activities -- an amendment of
FASB No.133". SFAS No. 138 amends SFAS No. 133 which 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. The Company has not determined an adoption date
for SFAS No. 133, as amended. At the time of adoption, SFAS No. 133 is not
expected to have a material impact on the financial position or results of
operations of the Company.
<PAGE>Page 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
-----------------------------------------------------------------
The following is management's discussion and analysis of certain significant
factors affecting the results of operations of Albemarle Corporation and
Subsidiaries ("Albemarle" or "the Company") during the periods included in the
accompanying consolidated statements of income and changes in the Company's
financial condition since December 31, 1999.
Some of the information presented in the following discussion constitutes
forward-looking comments within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes its expectations
are based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will
not differ materially from its expectations. Factors which could cause actual
results to differ from expectations include, without limitation, the timing of
orders received from customers, the gain or loss of significant customers,
competition from other manufacturers, changes in the demand for the Company's
products, increases in the cost of the products, changes in the market in
general, fluctuations in foreign currencies and significant changes in new
product introduction resulting in an increase in capital project requests and
approval leading to additional capital spending.
RESULTS OF OPERATIONS
SECOND QUARTER 2000 COMPARED WITH SECOND QUARTER 1999
-----------------------------------------------------
Net sales for the second quarter of 2000 amounted to $226.2 million, up 13% or
$25.4 million from second quarter 1999 net sales of $200.8 million due to
higher shipments in most businesses partially offset by lower pricing.
The gross profit margin increased to 29.2% in 2000 from 28.6% for the
corresponding period in 1999. Excluding special items, second quarter 2000
operating profit was up 43.1% or $10.2 million from 1999 primarily due to
higher shipments and improved plant utilization in most businesses as well as
work force reductions effected during the last three quarters of 1999, offset,
in part, by higher raw material costs and lower sales prices. Including special
items consisting of a second-quarter 2000 special noncash accounting settlement
gain of $15.9 million, resulting from an election made to close certain pension
contracts in the Company's pension plans, and a second-quarter 1999 special
charge of $5.8 million for work-force reductions at certain of the Company's
facilities, second-quarter 2000 operating profit was up 177.8%, or $31.9
million from 1999.
Selling, general and administrative expenses and research and development
expenses, decreased 5% or $1.6 million in the second quarter of 2000 from
second quarter 1999 primarily due to more focused new product development
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 14.2% in 2000 versus 16.8% in the
1999 quarter.
<PAGE>Page 14
OPERATING SEGMENTS
Net sales by reportable business operating segments for the second quarter
periods ended June 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Net Sales
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Polymer Chemicals $125,629 $103,085
Fine Chemicals 100,577 97,726
---------- ----------
Segment totals $226,206 $200,811
========== ==========
</TABLE>
Polymer Chemicals' net sales for the second quarter of 2000 were up 22% or
$22.5 million from second quarter 1999 primarily due to higher shipments in
flame retardants partially offset by lower pricing. Shipments of
organometallics and catalysts, and polymer additives and intermediates were
also up during the 2000 period. Fine Chemicals' net sales for the second
quarter of 2000 were up 3% or $2.9 million from second quarter 1999 primarily
due to higher shipments in pharmaceuticals and surface actives, offset in
part, by lower pricing. Shipments were down significantly in agrichemicals for
second quarter 2000 from the corresponding second quarter period in 1999 and
the first quarter of 2000.
Operating profit by reportable business operating segments for the second
quarter periods ended June 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Operating Profit
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Polymer Chemicals $32,461 $14,134
Fine Chemicals 19,803 9,258
---------- ----------
Segment totals 52,264 23,392
Corporate and other expenses (2,399) (5,440)
---------- ----------
Operating profit $49,865 $17,952
========== ==========
</TABLE>
Polymer Chemicals' second quarter 2000 segment operating profit was up 130%, or
$18.3 million, from second quarter 1999, primarily due to higher shipments in
flame retardants and improved plant utilization, offset in part, by higher raw
material costs and lower sales prices. Polymer Chemicals' second quarter 2000
segment operating profit also includes an allocation of $6.0 million related
to the one-time special SFAS No. 88 settlement gain. The improvement in 2000
also reflects the impact of an allocation of approximately $2.9 million for the
work-force reduction special charges in 1999 as well as the write-off of $2.4
million for certain redundant flame retardant plant assets in the 1999 second
quarter. Fine Chemicals' second quarter 2000 segment operating profit was up
approximately 114% or $10.5 million from second quarter 1999 primarily due to
the allocation of approximately $6.2 million related to the one-time special
SFAS No. 88 settlement gain. The improvement in 2000 also reflects the impact
of an allocation of approximately $2.9 million for the work-force reduction
special charges in 1999. Corporate and other expenses were down 56% or $3.0
million from second quarter 1999 due to an allocation of approximately $3.7
million related to the one-time special SFAS No. 88 settlement gain.
<PAGE>Page 15
INTEREST AND FINANCING EXPENSES
Interest and financing expenses for the second quarter of 2000 decreased to
$1.2 million from $2.8 million for second quarter 1999 primarily due to lower
average outstanding debt in the 2000 period.
GAIN ON SALE OF INVESTMENT IN ALBRIGHT & WILSON STOCK, NET
Second quarter 1999 results include the gain of $22.1 million ($1.4 million
after income taxes), net of expenses, from the sale of the Company's investment
in Albright & Wilson common stock acquired in March 1999.
INCOME TAXES
The second quarter of 2000 effective income tax rate was 31.0%, down from
34.1% in the 1999 quarter which benefited from a tax planning strategy in 1999
that resulted in a 1999 annual effective income tax rate of 31.0%.
RESULTS OF OPERATIONS
SIX MONTHS 2000 COMPARED WITH SIX MONTHS 1999
---------------------------------------------
Net sales for the first six months of 2000 amounted to $461.7 million, an
increase of 13% or $52.5 million from the corresponding period of 1999, due to
higher shipments in most businesses partially offset by lower pricing.
The gross profit margin decreased to 30.5% in 2000 from 31.5% in the 1999
period. Excluding special items, six months 2000 operating profit was up 26.9%
or $16.2 million from 1999 primarily due to higher shipments, improved plant
utilization in most businesses and lower selling, general and administrative
expenses, including research and development expenses as well as the favorable
effects of work force reductions which occurred during the last three quarters
of 1999, offset, in part, by higher raw material costs and lower sales prices
as well as the unfavorable effects of foreign exchange in 2000 versus the
corresponding period in 1999. Including special items consisting of an April
2000 special noncash accounting settlement gain of $15.9 million, resulting
from an election made to close certain pension contracts in the Company's
pension plans, and a second-quarter 1999 special charge of $5.8 million for
work-force reductions at certain of the Company's facilities, six months 2000
operating profit was up 69.8%, or $37.8 million from 1999.
Selling, general and administrative expenses, combined with research and
development expenses, decreased 6% or $4.2 million for the first six months of
2000 versus the corresponding period in 1999 due to more focused new product
development 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 14% in 2000 versus 16.8% in
the 1999 six month period.
<PAGE>Page 16
OPERATING SEGMENTS
Net sales by reportable business operating segments for the six-month periods
ended June 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Net Sales
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Polymer Chemicals $253,842 $210,475
Fine Chemicals 207,844 198,681
---------- ----------
Segment totals $461,686 $409,156
========== ==========
</TABLE>
Polymer Chemicals' net sales for the first six months of 2000 were up 21% or
$43.4 million from the corresponding period of 1999 primarily due to higher
shipments in flame retardants partially offset by lower pricing. Shipments of
organometallics and catalysts, and polymer additives and intermediates were
also up during the 2000 period. Fine Chemicals' net sales for the six
months of 2000 were up 5% or $9.2 million from six months 1999 primarily due
to higher shipments in pharmaceuticals and surface actives, offset in part, by
lower pricing. Shipments were down significantly in agrichemicals for the first
six months of 2000 from the corresponding six months period in 1999 and the
first quarter of 2000.
Operating profit by reportable business operating segments for the six-month
periods ended June 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Operating Profit
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Polymer Chemicals $59,389 $36,547
Fine Chemicals 41,709 29,030
---------- ----------
Segment totals 101,098 65,577
Corporate and other expenses (9,065) (11,381)
---------- ----------
Operating profit $92,033 $54,196
========== ==========
</TABLE>
Polymer Chemicals' segment operating profit for the first six months of 2000
was up 63%, or $22.8 million, from six months 1999, primarily due to higher
shipments in flame retardants and improved plant utilization, offset in part,
by higher raw material costs and lower sales prices. Polymer Chemicals' second
quarter 2000 segment operating profit also includes an allocation of $6.0
million related to the one-time special SFAS No. 88 settlement gain. The
improvement in 2000 also reflects the impact of an allocation of approximately
$2.9 million for the work-force reduction special charges in 1999 as well as
the write off of $2.4 million for certain redundant flame retardant plant
assets in the 1999 second quarter. Fine Chemicals' segment operating profit for
the first six months of 2000 was up approximately 44% or $12.7 million from the
1999 six-months period primarily due to the allocation of approximately $6.2
million related to the one-time special SFAS No. 88 settlement gain. The
improvement in 2000 also reflects the impact of an allocation of approximately
$2.9 million for the work-force reduction special charges in 1999. Corporate
and other expenses were down 20% to $2.3 million from the six-month 1999 period
due to an allocation of approximately $3.7 million related to the second
quarter 2000 one-time special SFAS No. 88 settlement gain.
<PAGE>Page 17
INTEREST AND FINANCING EXPENSES
Interest and financing expenses for the first six months of 2000 decreased to
$3 million from $5.3 million in the corresponding period of 1999 primarily due
to lower average outstanding debt in the 2000 period.
GAIN ON SALE OF INVESTMENT IN ALBRIGHT & WILSON STOCK
Results for the first six months of 1999 include the gain of $22.1 million
($14.4 million after income taxes), net of expenses, from the sale of the
Company's investment in Albright & Wilson common stock acquired in March 1999.
INCOME TAXES
The effective income tax rate for the first six months of 2000 was 31.0%, down
from 33.5% in the 1999 quarter which benefited from a tax planning strategy in
1999 that resulted in a 1999 annual effective income tax rate of 31.0%.
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
Cash and cash equivalents at June 30, 2000, were $17.8 million, representing a
decrease of $30.8 million from $48.6 million at year end 1999.
Cash flows provided from operating activities of $76 million (which included a
working capital increase of $11 million) for the first six months of 2000
together with $30.8 million of existing cash and cash equivalents and proceeds
from borrowings of $20 million were used to cover the acquisition of the Ferro
brominated polystyrene business, capital expenditures, repayment of debt,
payment of dividends, purchase of common shares of the Company, and investments
in joint ventures and nonmarketable securities.
The Company anticipates that cash provided from operations in the future will
be sufficient to pay its operating expenses, satisfy debt-service obligations
and make dividend payments.
The change in the Company's accumulated other comprehensive income account from
December 31, 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.
The noncurrent portion of the Company's long-term debt amounted to $133.7
million at June 30, 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 20.1% at June 30, 2000.
The Company's capital expenditures in the first six months of 2000 were lower
than the same period of 1999. Capital expenditures for the year 2000 are
forecasted to be lower than the 1999 level. Capital spending will be financed
primarily with cash flow from operations with any additional cash provided
from additional debt. The amount and timing of any additional borrowing will
depend on the company's specific cash requirements.
The Company is subject to federal, state, local and foreign requirements
regulating the handling, manufacture and use of materials some of which may be
classified as hazardous or toxic by one or more regulatory agencies), the
discharge of materials into the environment and the protection of the
environment. To the best of the company's knowledge, it currently is complying
with and expects to continue to comply in all material respects with existing
environmental laws, regulations, statutes and ordinances. Such compliance with
federal, state, local and foreign environmental protection laws has not in the
past had, and is not expected to have in the future, a material effect on
earnings or the competitive position of Albemarle.
Among other environmental requirements, the Company is subject to the federal
Superfund law, and similar state laws, under which the Company may be
designated as a potentially responsible party and may be liable for a share of
the costs associated with cleaning up various hazardous waste sites.
<PAGE>Page 18
ADDITIONAL INFORMATION
----------------------
OUTLOOK
For Polymer Chemicals, our flame retardants business, which has exhibited
strong volume growth for the first half of year 2000, has a goal of maintaining
market share and improving prices. We are working hard to integrate quickly the
brominated polystyrene products, acquired in the Ferro acquisition, into our
markets. In catalysts and additives, we will be rolling out
PolymerAdditives.com in the fall as a B2B Internet joint venture with GE
Specialty Chemicals and Cytec Industries. This venture will include flame
retardants.
For Fine Chemicals, our agrichemicals' business has been depressed in the first
half of year 2000 versus the same period in 1999. This remains an area of
concern as we look to the fourth quarter for indications that the U.S. farm
economy is strengthening, a key driver for this business recovery. We are
cautiously optimistic for improvements in the third and fourth quarters of
2000, but we expect it will be difficult to achieve by the end of the year the
same profitability levels we reached in 1999. For pharmachemicals, ibuprofen is
doing well however, our advanced intermediates and new products efforts are not
yet yielding acceptable results. In surface actives, where Cytec Industries is
our exclusive partner for distributing our alkenyl succinic anhydride ("ASA")
sizing agent, we are watching the developments surrounding the disposition of
their paper chemicals' business and will have to wait on that outcome to
determine the effect, if any, on our ASA business. In zeolites, we expect to
feel the impact of the declining North American powdered laundry detergent
market, possibly as early as the fourth quarter of 2000. The price pressure
resulting from the penetration of liquids and a potential new competitor has
lowered appreciably our view of the future returns in this business. In bromine
& derivatives we hope to see improved results later in the year as we have
plans to run our assets hard to keep up with demand, especially in flame
retardants, plus we will have the new bromine plant capacity in Arkansas that
will supply additional bromine. We are also working with our oil field
customers to use our product line extensions to expand our completion fluids
business.
With the expected continuation of raw material price pressure in the second
half of 2000, earnings comparisons for the second half with the comparative
periods in 1999 will not be as easy as in the first half, however, we still
expect to have a good year overall. The first six months of 2000 results have
benefited from our overall cost reduction efforts, which we believe will
continue to have a positive effect on our earnings for the balance of the year
in contributing to our 15% earnings improvement goal over 1999.
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.
<PAGE>Page 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
There have been no significant changes in our interest rate risk and the
marketable security price risk from the information provided in our Form 10-K
for the year ended December 31, 1999. The Company has exposure to volatility in
pricing of certain of its raw materials. Changes in pricing of these raw
materials and the timing of these changes could have a significant impact on
operating profits.
The Company's foreign currency risk has changed from that disclosed in our Form
10-K for the year ended December 31, 1999. At June 30, 2000, and December 31,
1999, the Company had entered into Japanese Yen forward contracts in the amount
of $ 1.9 million and $10.8 million, respectively, all with maturity dates in
2000.
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,
or alleging noncompliance with environmental laws and products liability or
tort 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) No report on Form 8-K was filed during second quarter 2000.
<PAGE>Page 20
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALBEMARLE CORPORATION
---------------------
(Registrant)
Date: August 4, 2000 By: /s/Robert G. Kirchhoefer
-----------------------
Treasurer and Chief Accounting Officer
(Principal Accounting Officer)
