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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, 1997
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, 1998: $768,791,402*.
Number of shares of Common Stock outstanding as of January 31,
1998: 53,616,402.
* In determining this figure, an aggregate of 18,868,768 shares
of Common Stock treated as beneficially owned by
Floyd D. Gottwald, Jr., Bruce C. Gottwald, and the members of
their immediate 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,
1998, as reported by The Wall Street Journal.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Albemarle Corporation's definitive Proxy Statement
for its 1998 Annual Meeting of Shareholders to be 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, at 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"). After the sale, Albemarle is
engaged in the bromine chemicals, the specialty chemicals and the
surfactants and detergents businesses.
Unaudited pro forma condensed consolidated statements of income
for the years ended December 31, 1996 and 1995, which the Company
believes are important to enable the reader to obtain a
meaningful understanding of Albemarle's results of operations
excluding the Olefins Business, are included in Note 17
"Supplemental Pro Forma Condensed Consolidated Financial
Information (Unaudited)" of the Notes to The Consolidated
Financial Statements on pages 39 and 40. The unaudited pro forma
condensed consolidated statements of income are for informational
purposes only and do 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 and 1995.
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 and fine chemicals
including polymer intermediates, cleaning product intermediates
and additives, agricultural chemical intermediates,
pharmaceutical 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, 1997, 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
18.
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 of the Financial
Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 131 "Disclosure About Segments
of an Enterprise and Related Information" will be reported as two
separate and distinct segments in 1998.
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 significant production facility in France
and also has aluminum alkyls produced for it by Amoco at the
Company's former Feluy, Belgium plant. The processes and
technology for most of these products were developed in the
Company's or its predecessor's research and development
laboratories.
The Polymer Chemicals business produces a broad range
of chemicals, including flame retardants, catalysts, polymer
curatives and antioxidants.
In most flame retardant product lines, the Company's
plants operated below capacity during 1997. The expansion of
brine field and bromine capacities at the Company's Magnolia,
Ark., facility that started in 1995, continued. The overall
result of the current phase of the program will be a bromine
production capacity increase of thirty percent. During 1997, the
Company announced plans to build a world-class production
facility for SAYTEX RB-100 flame retardant to be located at the
Company's Magnolia, Ark., facility and 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 product, a new brominated
polystyrene product for use in engineered plastics. In the third
quarter, the Company started a market development unit plant in
its Baton Rouge research and development facility to make this
product and began to fill orders. A new commercial plant is under
construction with a targeted startup in mid 1999.
Aluminum alkyls are used as cocatalysts 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 capacity at Pasadena, Texas and
Orangeburg, S.C. It has also strengthened its supply chain for
methylaluminoxane ("MAO"), a cocatalyst used in metallocene
catalyst systems, by increasing capacity for MAO and for the key
raw materials needed to make MAO. The Company has continued to
build its organometallics base and expand the portfolio of
products and capabilities it offers its customers pursuing the
development and commercialization of metallocene-based polymers.
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The Company is also expanding its efforts in polymer curatives,
products used to control polyurethane and epoxy system
polymerization. Also produced are antioxidants and alkylated
hindered phenolics that are used to maintain the performance
integrity of thermoplastic resins.
Products of the Fine Chemicals business include elemental
bromine, alkyl bromides, inorganic bromides, a number of bromine
fine chemicals, and pharmachemical and agrichemical
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. Products originally a
part of what was the olefins and alcohols businesses but not sold
to Amoco, are included as a part of Fine Chemicals. These
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 account for more
than 25% of the U.S. over-the-counter analgesic market. They
compete against other painkillers containing aspirin,
acetaminophen, ketoprofen and naproxen. The Company is one of the
world's largest producers of bulk ibuprofen. In 1997, the Company
started commercial production of bulk naproxen with initial sales
commencing in the U.S. only after customers obtained U.S. Food and Drug
Administration ("FDA") approval.
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. A new agricultural intermediate (an urease
inhibitor), primarily for use on corn to improve the
effectiveness of nitrogen-based fertilizers, underwent
commercial-scale trials and expanded testing in 1997.
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 1997, with the exception of bulk
ibuprofen, halide aluminum alkyls and bulk naproxen which had
excess capacity.
The Company operates on a worldwide basis with (i) a
manufacturing plant located in France 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 Hong Kong and Beijing, China. The Company
has no significant assets in countries in which those assets
would be deemed to be exposed to substantial risk. See Note 16
"Geographic Area Information" of Notes to The Consolidated
Financial Statements in Item 8 on page 39.
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 will 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 signed supply
agreements with the Dead Sea Bromine group of companies. The
contracts essentially cover the
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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.
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 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 related
trade payables paid by the Company.
The sale involved the transfer of approximately 550 people who
supported these businesses. Certain assets located primarily in
Pasadena, Texas, Deer Park, Texas, and Feluy, Belgium, were
included in the sale. The transaction included numerous operating
and service agreements primarily focusing on the sharing of
common facilities at the Pasadena, Texas, plant and the operation
for the Company of the aluminum alkyls portion of the Feluy plant
site by Amoco. In connection with the sale of the Olefins
Business, the Company also implemented an early-retirement and
work-force reduction program for certain salaried employees. The
effort has resulted in annual cost savings to the Company. A Form
8-K report relating to the sale was filed with the Securities and
Exchange Commission ("SEC") on March 15, 1996.
On April 1, 1996, the Company purchased 9,484,465 shares of its
common stock, at a price of $23 per share plus expenses for a
total aggregate cost of $219.4 million, through a tender offer,
which began on March 4, 1996, and concluded on April 1, 1996.
Later in 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. 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 February 28, 1998, the Company had authorization to
purchase 4,411,100 shares of its common stock reflecting
purchases since December 31, 1997, and increased Board of
Directors authorization of 2 million additional shares obtained
at the February 1998 board meeting.
RESEARCH AND PATENTS
The Company's research and development supports each major
business area. With respect to Polymer Chemicals, the research
focus is divided between new and improved flame retardants and
polymerization catalysts. 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 plant capacity to meet
the strong demand for the above businesses. These efforts are
expected to continue into 1998 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 pharmachemical and
agrichemical industries. A secondary focus is the development of
efficient manufacturing processes for pharmaceutical 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 1998 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 $31.4 million, $30.4 million and
$29.5 million in 1997, 1996 and 1995, respectively, on research
and development, which amounts qualified under the technical
accounting definition of research and development. Total R&D
department spending for 1997 was some $44.4 million, including
$13.0 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 business. As of December 31, 1997,
the Company owned 1,234 active U.S. and foreign patents,
including 37 U.S. patents and 76 foreign patents issued in 1997.
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 divisions. These are subject to environmental risks and
regulations, which are discussed more fully in Item 7,
Management's Discussion and Analysis and 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 substantially all in the chemicals
industry. Geographic area information for the Company's
operations for the three years ended December 31, 1997, is
presented in Note 16 "Geographic Area Information"
of the Notes to The Consolidated Financial Statements in Item 8
on page 39.
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, 1997, is set forth in Note 16 "Geographic Area Information"
of the Notes to The Consolidated Financial Statements in Item 8
on page 39. 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 Brussels, Belgium;
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
Baton Rouge, La. Research and product development
(2 facilities, one on leased land) activities
Pasadena, Texas Production of aluminum alkyls,
alkenyl succinic anhydride,
orthoalkylated anilines,
zeolite A and other chemicals
Louvain-la-Neuve, Belgium Research and customer technical
service activities
Magnolia, Ark. Production of flame retardants and bromine
(West Plant)
Magnolia, Ark. Production of flame retardants, bromine,
(South Plant) ethylene dibromide, several inorganic
bromides, agrichemical intermediates
and tertiary amines
Orangeburg, S.C. Production of fine chemicals, including
pharmachemical intermediates,
fuel additives, orthoalkylated phenols
and polymer modifiers
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 1998. 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
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 (among others) certain utilities utilized by
Amoco at the Amoco Pasadena plant and Amoco supplies to Albemarle
(among others) certain utilities utilized by Albemarle at the
Albemarle Pasadena plant.
Virtually all of the utilities, services and products supplied by
Albemarle to Amoco and from 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 from 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 2 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 olefins 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 from 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 ultimately result in any liability that would have a
material adverse effect upon the results of operations or
financial condition of the Company and its subsidiaries on a
consolidated basis.
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
SHAREHOLDER 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
1997 and 1996 are listed below:
1997 1996
Quarter High Low High Low
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First 20 17 7/8 22 3/4 17 1/4
Second 21 1/2 17 3/8 24 1/8 18 1/4
Third 27 1/4 20 13/16 19 1/4 14 3/8
Fourth 26 3/4 21 7/8 19 1/8 15 1/2
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There were 53,886,802 shares of common stock held by 9,044
shareholders of record as of December 31, 1997.
The Company's current common stock dividend rate is $.36 per
share on an annual basis after the Board of Directors on August
27, 1997, increased the quarterly dividend rate, payable October
1, 1997, by 29%, from $.07 to $.09 per share. The Company's
quarterly dividend rate, payable October 1, 1996, was previously
increased on August 28, 1996, from $.055 to $.07 per share, or
27%.
Shareholders' equity per share at December 31, 1997 was $9.60, up
4.6% from $9.18 at December 31, 1996. The December 31, 1996,
shareholders' equity per share of $9.18 was down 2.5% from $9.42
at December 31, 1995, primarily reflecting the impact of the
purchase of 9,484,465 common shares through a tender offer
concluded on April 1, 1996, and additional second and third
quarter 1996 purchases of 275,400 and 1,481,100 common shares, respectively.
Item 6. SELECTED FINANCIAL DATA
The information for the five years ended December 31, 1997, is
contained in the "Five Year Summary" included in Part IV, Item
14, Exhibit 99 on pages 46 and 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. At 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 about net sales,
operating profit, capital expenditures and geographical areas
provides an analysis of certain significant factors affecting the
results of operations of the Company for years ended December 31,
1997, 1996 and 1995. 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 21. Unaudited pro forma condensed consolidated statements of
income for the years ended December 31, 1996 and 1995, which the
Company believes are important to enable the reader to obtain a
meaningful understanding of Albemarle's results of operations
excluding the Olefins Business, are included in Note 17 "Supplemental
Pro Forma Condensed Consolidated Financial Information (Unaudited)"
of the Notes to The Consolidated Financial Statements in Item 8
on pages 39 and 40. The unaudited pro forma condensed consolidated
statements of income are for informational purposes only and do 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 and 1995.
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RESULTS OF OPERATIONS
Net Sales
Net sales for 1997 amounted to $829.9 million, down 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 seven percent from 1996
primarily due to higher shipments in agricultural chemicals,
pharmaceutical intermediates, 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.
Net sales for 1996 amounted to $854.5 million, down from $1,244.2
million in 1995. Excluding net sales of the Olefins Business sold
March 1, 1996, and the electronic materials business sold July
31, 1995, (See Note 13 "Special Items" of the Notes to The
Consolidated Financial Statements on pages 37 and 38) Albemarle's
net sales for 1996 would have shown an increase of five percent
from 1995 due primarily to higher shipments of organometallics
and a higher sales mix of bromine fine chemicals, partly offset
by lower shipments and lower prices of flame retardants and
pharmaceutical intermediates.
OPERATING COSTS AND EXPENSES
Cost of goods sold in 1997 decreased $42.9 million from 1996
primarily due to the absence of 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.
Cost of goods sold in 1996 decreased $355.9 million from 1995
primarily due to the absence of shipments of the Olefins Business
for ten months in 1996 and the electronic materials business for
all of 1996 versus 1995 and higher foreign exchange gains in 1996
with the result that the gross profit margin increased to 28.5%
in 1996 from 22.3% in 1995. The reductions in 1996 cost of goods
sold were partially offset by higher costs in pharmaceutical
intermediates, related primarily to naproxen sampling and
start-up costs, as well as higher operating costs resulting from
underutilization of assets in flame retardants in 1996. Average
energy unit costs were higher in 1996. Both natural gas and
electricity prices were higher in 1996 than in the prior year.
Raw material prices were generally lower in 1996 than in the
prior year with ethylene, aluminum, potassium chloride and
phthalic anhydride having the largest decreases.
Selling, general and administrative expenses, combined with
research and development expenses, decreased $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 than in 1996, offset in part by normal salary
increases in 1997. This compares to a $10.4 million decrease (6%)
in 1996 from 1995, primarily due to lower employee-related
expenses as a result of the March 1, 1996, sale of the Olefins
Business and the July 31, 1995, sale of the electronic materials
business, offset in part by normal salary increases and the
expense associated with the exercise of certain stock
appreciation rights and the award of restricted stock in 1996. As
a percentage of net sales, selling, general and administrative
expenses, including research and development expenses, decreased
to 17% in 1997 from 17.5% in 1996 versus 12.9% in 1995.
OPERATING PROFIT
Operating profit in 1997 increased 29.2% from 1996. Excluding the
first two months of 1996 operating profits of
the Olefins Business sold, 1997 operating profits would have
shown an increase of approximately 33% over 1996. The 1997 period
benefited primarily from increased shipments in agricultural
chemicals, organometallics and antioxidants, increased shipments
and improved costs in pharmaceuticals and bromine fine chemicals,
and improved costs in European potassium and chlorine chemicals,
while flame retardants were down primarily due to the effects of
a stronger U.S. dollar.
Operating profit in 1996 decreased 20% from 1995. Excluding the
results of businesses sold, operating profit was also down
significantly primarily due to lower shipments and higher costs
in pharmaceutical intermediates and flame retardants.
Costs in pharmaceutical intermediates were higher
primarily due to the expenses associated with commercializing
naproxen for introduction in mid 1997 while the flame retardants
business was heavily impacted by a lengthy slowdown in the
electronics industry resulting in higher costs associated with
the underutilization of assets.
INTEREST AND FINANCING EXPENSES AND OTHER INCOME
Interest and financing expenses in 1997 decreased $1.8 million
from 1996 primarily due to higher capitalization of interest on
capital projects in 1997. This compares to a decrease of
$10.7 million in 1996 from 1995 primarily due to lower average
debt outstanding, reflecting pay down of debt with proceeds from
the sale of the Olefins Business.
Other income, net, decreased to $.9 million in 1997 from $4.0
million in 1996, which decreased $.5 million from
$4.5 million in 1995, due primarily to lower interest income.
-19-
9
GAIN ON SALE OF BUSINESSES
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 and in 1995 the Company's earnings included
a gain of approximately $23.4 million ($14.5 million after income
taxes) on the sale of the electronic materials business. (See
Note 13 "Special Items" of the Notes to The Consolidated
Financial Statements on pages 37 and 38.)
INCOME TAXES
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.
Income taxes in 1996 increased $43.7 million (82%) compared to
1995 on a 92% increase in pre-tax income while the effective
income tax rate was 38.3% in 1996 versus a 40.6%
rate for 1995. The 1996 rate was lower than the 1995 rate due
primarily to improved earnings in the Company's Belgian
subsidiary, while the 1995 rate reflected a deferred income
tax charge of approximately $2.9 million recognized in 1995
as a result of an increase in the French statutory tax rate.
(See Note 12 "Income Taxes" of the Notes to The Consolidated
Financial Statements on pages 36 and 37 for details of changes in
effective income tax rates.)
OUTLOOK
In 1997, the Company saw significant improvement in its
profitability built upon its focus on cost reductions and plant
efficiencies as well as a seven percent growth in revenues. As
the Company goes into 1998, it expects to continue to face
the challenges of a strong U.S. dollar and its impact on the
Company's revenue growth.
In Fine Chemicals, the Company initiated sales in the
U.S. of the analgesic naproxen following late 1997 approval
of some prospective customers by the U.S. Food and Drug
Administration, but remain disappointed in the level and pace of
its efforts. The Company's bulk ibuprofen sales continue strong,
a trend that began to develop in the latter half of 1997. The
Company's emerging Surface Actives business continues to focus on
the cleaning and water treating industries. An expanded range of
ADMOX surfactants and U. S. Environmental Protection Agency
("EPA") registered quaternary biocides will be targeted at
formulators of hard surface cleaning products. SANIBROM biocides
are expected to increase penetration of the industrial and
recreational water treating areas by replacing chlorine based
sanitizers with safer, more effective bromine based products.
ABZOL cleaners are receiving broader acceptance in the electronic
and precision cleaning markets, but their full potential will not
be realized until the EPA's Significant New Alternatives Policy
approval is received. The Company is hopeful for a recovery in
Gulf Coast oil drilling operations that use its bromine-based completion
fluids.
The Polymer Chemicals unit introduced two new flame retardants in
late 1997. Prospective customers are qualifying these products at
this time. The Company expects sales of these products to pick up
later in 1998, assuming successful completion of this
qualification process. The Company's new catalyst business
continues to reach some of its milestones as the Company seeks to
become a full-service catalyst supplier to the polymer industry.
The Company continues to work toward a mid-1998 startup of the plant
to produce ETHACURE 300 curative used in cast polyurethane elastomers and
other applications. The curative offers several handling and
processing benefits over other similar products.
The economic turmoil in Asia is a concern to the Company in light
of our sales into the region. However, the Company's products are
purchased for use in other products, primarily electronics, sold
in the U.S. and Europe. These economies continue to experience
good economic growth, and demand for such products is strong. The
Company continues to keep a close watch on conditions, including the
creditworthiness of its customers.
As part of the Company's efforts to insure that the change of
dates beginning in the year 2000 will not cause disruption to its
business information and process systems, the Company established
a project team in 1997 to determine the scope of this issue and
to map the implementation of solutions. The Company completed the
preliminary review and expects to implement new systems in 1998
to provide ample time for testing and final implementation in
1999. The Company's completion of key software changes in 1997,
including enterprise-wide SAP , PeopleSoft and Lotus Notes
software platforms, should make the Company's financial,
operations, planning, human resources and general business areas
year 2000 compliant. Preliminary estimates for two-year
expenditures are approximately $5 million.
Some of the information presented above constitutes
forward-looking comments within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company
believes its expectations are based on reasonable assumptions
within the bounds of its knowledge of its businesses and
operations, there can be no assurance that actual results will
not differ materially from its expectations. Factors which could
cause actual results to differ from expectations include, without
limitation, the timing of orders received from customers, the
gain or loss of significant customers, competition from other
manufacturers, changes in the demand for the Company's products,
increases in the cost of the product, changes in the market in
general, fluctuations in foreign currencies and significant
changes in new product introduction resulting in an increase in
capital project requests and approvals leading to additional
capital spending.
-20-
10
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents at December 31, 1997 were
$34.3 million, which represents 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 (reflecting mainly higher accounts receivable
and inventories and a decrease in accounts payable), capital
expenditures, payment of quarterly dividends to common
shareholders, purchase 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.
Cash and cash equivalents at December 31, 1996 were
$14.2 million, which represented a decrease of $18.9 million from
$33.1 million at year-end 1995. Cash provided from operating
activities was $28.5 million which included installment income
tax payments of $79.4 million on the gain from the sale of the
Olefins Business. Excluding the impact of the installment income
tax payments, which were paid from the proceeds on the sale of
the Olefins Business, cash flows from operations would have been
$107.9 million, which together with $23.9 million of proceeds
from borrowings, were used to cover operating activities in 1996,
including a working capital increase (reflecting mainly higher
accounts receivable and inventories), capital expenditures,
payment of quarterly dividends to common shareholders, and the
purchase of 1,756,500 shares of common stock for $32.1 million.
Proceeds from the sale of the Olefins Business of $487.3 million,
net of expenses and trade payables paid by the Company,
supplemented by $18.9 million from cash on hand, were used to
purchase 9,484,465 shares of common stock, repay long-term debt
and pay income tax installments related to the sale.
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 a portion of its
capital expenditures.
The noncurrent portion of the Company's long-term debt amounted
to $91.4 million at December 31, 1997, compared to $24.4 million
at the end of 1996. The Company's total long-term debt, including
the current portion as a percentage of total capitalization at
December 31, 1997, was approximately 15.1% (See Note 8 "Long-Term
Debt" of the Notes to The Consolidated Financial Statements on
pages 30 and 31 for details of the Company's long-term
borrowings.)
The Company, at December 31, 1997, had the flexibility to borrow
up to a total of $500 million ($70 million outstanding at
December 31, 1997) 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, 1997, decreased from
December 31, 1996, primarily due to the strengthening of the U.S.
dollar. Capital expenditures in 1997 of $85.3 million were lower
than the 1996 level of $90.4 million. The Company's capital
spending program is expected to increase significantly 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.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign
requirements regulating the handling, manufacture or 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 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"
-21-
11
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 $13.3 million in 1997 versus approximately
$11.5 million in 1996 and $9.0 million in 1995, 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, 1997,
totaled approximately $8.9 million. There is a reasonable
possibility that future remediation costs in excess of amounts
already recorded could be up to $6.8 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 would occur over a period of time
and should not have a material adverse impact on its financial
condition or results of operations, but could have a material adverse
impact in a particular reporting period.
Capital expenditures for pollution-abatement and safety projects
for the Company, including such costs that are included in other
projects, were approximately $17.2 million, $14.7 million and
$22.0 million in 1997, 1996 and 1995, 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 1997 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.
GEOGRAPHIC AREAS
The following discussion is based on information provided in Note
16 "Geographic Area Information" of the Notes to The Consolidated
Financial Statements in Item 8 on page 39.
Domestic operating profit includes profit from U.S. export sales
and profit from sales to foreign affiliates of products that are
resold in foreign markets. Intercompany transfers from
foreign areas to the U.S. are not material.
Export sales increased 10% from 1996 primarily due to increased
shipments. In 1996 export sales decreased 36% from 1995 primarily
due to the sale of the Olefins Business.
Foreign unaffiliated net sales for 1997 decreased 4%
from 1996 primarily due to the foreign exchange effects of a
stronger U. S. dollar in 1997. In addition, excluding the 1996
sales by Albemarle S.A. related to the Olefins Business sold in
1996, 1997 foreign unaffiliated net sales would have increased 8%
over 1996. Foreign unaffiliated net sales for 1996 decreased 33%
from 1995 primarily due to the absence after March 1, 1996, of
sales by Albemarle S.A. related to the Olefins Business sold.
The operating results of the foreign operations were up
significantly from 1996 primarily due to lower costs in the
Company's European locations, primarily the Thann, France
facility. The operating results of the foreign operations were
profitable in 1996 versus an operating loss in 1995. Operating
profit for 1996 reflects favorable foreign exchange gains and the
effects in Belgium of the sale of the Olefins Business.
Total assets were $888.2 million at the end of 1997 versus $846.3
million at the end of 1996 and $1,204.5 million at the end of
1995. Identifiable assets in the U.S. increased $27.9 million in
1997 from 1996, primarily due to increased capital expenditures
and other investments, while 1996 showed a decrease of $118.2
million from 1995, primarily due to the sale of the Olefins
Business. Foreign identifiable assets increased $14.0 million
from 1996, while 1996 decreased $240.1 million from 1995 due
primarily to the sale of the Olefins Business.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", in June, 1997, which are effective for
financial statements for annual periods beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting
comprehensive income in a full set of general purpose financial
statements, either in the income statement or in a separate statement,
and also requires display of "accumulated other comprehensive income"
in a separate caption in the equity section of the balance sheet.
SFAS No. 131 establishes standards for reporting information about operating
segments, including related disclosures about products and
services, geographic areas, and major customers. The Company will
adopt SFAS Nos. 130 and 131 in 1998. At the time of their
adoption these standards are not expected to have a material
impact on the financial position or results of operations of the
Company.
-22-
12
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars Except Share Data)
- ----------------------------------------------------------------------
December 31 1997 1996
- ----------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 34,322 $ 14,242
Accounts receivable, less allowance
for doubtful accounts
(1997 - $2,449; 1996 - $1,290) 154,421 141,293
Inventories:
Finished goods 65,998 58,518
Raw materials 7,424 10,148
Stores, supplies and other 16,861 15,833
- -----------------------------------------------------------------------
90,283 84,499
Deferred income taxes and prepaid expenses 17,710 19,107
- -----------------------------------------------------------------------
Total current assets 296,736 259,141
- -----------------------------------------------------------------------
Property, plant and equipment, at cost 1,188,252 1,148,832
Less accumulated depreciation and
amortization 691,612 653,108
- -----------------------------------------------------------------------
Net property, plant and equipment 496,640 495,724
- -----------------------------------------------------------------------
Other assets and deferred charges 77,204 68,304
Goodwill and other intangibles -
net of amortization 17,601 23,092
- -----------------------------------------------------------------------
Total assets $ 888,181 $ 846,261
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,668 $ 66,968
Long-term debt, current portion 379 7,457
Accrued expenses 47,578 55,783
Dividends payable 4,952 3,853
Income taxes payable 8,983 13,887
- -----------------------------------------------------------------------
Total current liabilities 112,560 147,948
- -----------------------------------------------------------------------
Long-term debt 91,414 24,406
Other noncurrent liabilities 69,704 64,166
Deferred income taxes 97,167 104,543
Shareholders' equity:
Common stock, $.01 par value, issued
- 53,886,802 in 1997 and 55,046,183
in 1996 539 550
Additional paid-in capital 218,841 250,890
Foreign currency translation adjustments (1,445) 16,677
Retained earnings 299,401 237,081
- -----------------------------------------------------------------------
Total shareholders' equity 517,336 505,198
- -----------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 888,181 $ 846,261
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
See accompanying Notes To The Consolidated Financial Statements.
-23-
13
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per-Share Amounts)
- ------------------------------------------------------------------------
Years Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------
Net sales $ 829,850 $ 854,481 $ 1,244,222
Cost of goods sold 568,424 611,353 967,204
- -------------------------------------------------------------------------
Gross profit 261,426 243,128 277,018
Selling, general and
administrative expenses 109,273 119,260 130,514
Research and development
expenses 31,446 30,442 29,541
- -------------------------------------------------------------------------
Operating profit 120,707 93,426 116,963
Interest and financing expenses 719 2,529 13,265
Gain on sales of businesses -- (158,157) (23,427)
Other income, net (917) (4,025) (4,468)
- -------------------------------------------------------------------------
Income before income taxes 120,905 253,079 131,593
Income taxes 40,923 97,020 53,363
- -------------------------------------------------------------------------
Net income $ 79,982 $ 156,059 $ 78,230
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Basic earnings per share $ 1.45 $ 2.67 $ 1.18
Shares used to compute
basic earnings per share 55,164 58,353 66,069
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Diluted earnings per share $ 1.44 $ 2.65 $ 1.18
Shares used to compute
diluted earnings per share 55,668 58,842 66,352
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Cash dividends declared
per share of common stock $ .32 $ .25 $ .21
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
See accompanying Notes To The Consolidated Financial Statements.
-24-
14
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands of Dollars Except Share Data)
- ------------------------------------------------------------------------------
Years Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------
Shares Amounts Shares Amounts Shares Amounts
- ------------------------------------------------------------------------------
COMMON STOCK (AUTHORIZED 150,000,000 SHARES)
Beginning balances 55,046,183 $ 550 66,076,853 $ 661 66,067,881 $ 661
Issued upon
exercise of stock
options and SARs 400,919 4 178,840 2 8,972 --
Award of restricted
stock -- -- 34,680 -- -- --
Shares purchased
and retired (1,560,300) (15)(11,244,190) (113) -- --
- -------------------------------------------------------------------------------
Ending balances 53,886,802 539 55,046,183 550 66,076,853 661
- -------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Beginning balances 250,890 498,827 498,725
Exercise of stock options
and SARs 5,451 2,636 102
Award of restricted stock -- 832 --
Shares purchased and retired (37,500) (251,405) --
- -------------------------------------------------------------------------------
Ending balances 218,841 250,890 498,827
- -------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Beginning balances 16,677 27,604 14,505
Translation adjustments (18,122) (10,927) 13,099
- -------------------------------------------------------------------------------
Ending balances (1,445) 16,677 27,604
- -------------------------------------------------------------------------------
RETAINED EARNINGS
Beginning balances 237,081 95,474 31,118
Net income 79,982 156,059 78,230
Cash dividends declared (17,662) (14,452) (13,874)
- -------------------------------------------------------------------------------
Ending balances 299,401 237,081 95,474
- -------------------------------------------------------------------------------
Total shareholders' equity $ 517,336 $ 505,198 $622,566
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
See accompanying Notes To The Consolidated Financial Statements.
-25-
15
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
- ------------------------------------------------------------------------------
Years Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------
Cash and cash equivalents at
beginning of year $ 14,242 $ 33,130 $ 32,114
-----------------------------------------------------------------------------
Cash flows from operating activities:
Net income 79,982 156,059 78,230
Adjustments to reconcile net
income to cash flows from operating
activities:
Depreciation and amortization 69,044 71,044 94,131
Deferred income taxes 8,070 (21,404) (2,368)
Gain on sales of businesses -- (158,157) (23,427)
Change in assets and liabilities,
net of effects of sales of
businesses:
(Increase) in accounts
receivable (21,069) (9,830) (11,190)
(Increase) in inventories (11,378) (3,234) (27,807)
(Decrease) increase in accounts
payable (12,889) 13,001 686
(Decrease) increase in accrued
expenses (11,423) (11,596) 10,182
Other, net (1,529) (7,414) (2,200)
- -----------------------------------------------------------------------------
Net cash provided from operating
activities 98,808 28,469 116,237
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (85,284) (90,439) (112,412)
Proceeds from sales of businesses,
net of expenses and $42,297
of trade accounts payable paid
by the Company in 1996 -- 487,345 4,195
Collections on notes receivable
from sale of business -- -- 55,000
Other, net (5,006) 2,318 (546)
- -----------------------------------------------------------------------------
Net cash (used in) provided from
investing activities (90,290) 399,224 (53,763)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Purchases of common stock (37,515) (251,518) --
Repayments of long-term debt (413) (206,672) (48,254)
Proceeds from borrowings 61,102 23,944 237
Dividends paid (16,563) (14,233) (13,543)
Proceeds from exercise of stock
options 4,951 1,898 102
- -----------------------------------------------------------------------------
Net cash provided from (used in)
financing activities 11,562 (446,581) (61,458)
- -----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 20,080 (18,888) 1,016
- -----------------------------------------------------------------------------
Cash and cash equivalents at end
of year $ 34,322 $ 14,242 $ 33,130
- -----------------------------------------------------------------------------
- ------------------------------------------------------------------------------
See accompanying Notes To The Consolidated Financial Statements.
-26-
16
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"). At 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 17 "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, 1997 and 1996. Time
deposits of 90 days or less are stated at cost, which
approximates market value.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
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
[net of deferred income (tax benefits) taxes of $(11,072,000),
$(6,675,000) and $8,001,000 in 1997, 1996 and 1995, respectively]
are reflected as foreign currency translation adjustments in the
shareholders' equity section of the consolidated balance sheets
and in the consolidated statements of changes in shareholders'
equity and accordingly have no effect on net income. Transaction
adjustments are included in income. Foreign currency transaction
adjustments resulted in gains of $8,325,000, $8,049,000 and
$555,000 in 1997, 1996 and 1995, 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.
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.
-27-
17
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist principally of goodwill,
sales contracts, product licenses and patents. Goodwill amounting
to $14,528,000 and $18,026,000 at December 31, 1997 and 1996,
respectively, net of accumulated amortization and effects of
foreign currency translation adjustments, arose from 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 ($3,073,000 and $5,066,000 at December
31, 1997 and 1996, 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
$2,754,000, $4,255,000 and $4,379,000 for 1997, 1996 and 1995,
respectively.
Accumulated amortization of goodwill and other intangibles was
$34,023,000 and $31,361,000 at the end of 1997 and 1996,
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
Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("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.
EMPLOYEE SAVINGS PLAN
The Company's employees may 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 pursuant to the terms of such agreement. The
plan is funded with contributions by participants and the
Company. Expenses recorded for the 401(k) plan by the Company
approximated $4,900,000, $4,900,000 and $5,100,000 in 1997, 1996
and 1995, 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 at 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 the Company's subsidiaries which remained responsible for
their taxes.
EARNINGS PER SHARE
The Company calculates earnings per share ("EPS") as required by
SFAS No. 128, "Earnings Per Share,"("SFAS No. 128"), which
requires dual presentation of basic and diluted EPS. All
prior-period EPS data have been restated as required by SFAS No.
128 (See Note 3, "Earnings Per Share").
FINANCIAL INSTRUMENTS
The Company to an extent 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 generally does not utilize financial instruments for
trading or other speculative purposes. The
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18
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, 1997 and 1996, hedging German mark and Japanese yen
receivables and revenues with a notional value totaling
$23,527,000 and $9,270,000, respectively. For the years ended
1997, 1996 and 1995, the Company recognized $2,167,000, $694,000
and $2,332,000, 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. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", in June, 1997, which are effective for
financial statements for annual periods beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting
comprehensive income in a full set of general purpose financial
statements, either in the income statement or in a separate statement,
and also requires display of "accumulated other comprehensive income"
in a separate caption in the equity section of the balance sheet.
SFAS No. 131 establishes standards for reporting information about
operating segments, including related disclosures about products and
services, geographic areas, and major customers. The Company will
adopt SFAS Nos. 130 and 131 in 1998. At the time of their
adoption these standards are 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:
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Cash paid during the year for:
Income taxes $ 37,475 $ 110,771 $ 49,439
Interest and financing
expenses (net of capitalization) 574 2,910 13,382
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
NOTE 3-EARNINGS PER SHARE:
Basic and diluted earnings per share are calculated as follows:
(In Thousands, Except Per-Share Data) 1997 1996 1995
- --------------------------------------------------------------------------
Basic Earnings Per Share
Numerator:
Income available to
stockholders, as reported $ 79,982 $ 156,059 $ 78,230
- --------------------------------------------------------------------------
Denominator:
Average number of shares of
common stock outstanding 55,164 58,353 66,069
- --------------------------------------------------------------------------
Basic earnings per share $ 1.45 $ 2.67 $ 1.18
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Diluted Earnings Per Share
Numerator:
Income available to
stockholders, as reported $ 79,982 $ 156,059 $ 78,230
- --------------------------------------------------------------------------
Denominator:
Average number of shares of
common stock outstanding 55,164 58,353 66,069
Shares issuable upon exercise of
stock options 504 489 283
- --------------------------------------------------------------------------
Total shares 55,668 58,842 66,352
- --------------------------------------------------------------------------
Diluted earnings per share $ 1.44 $ 2.65 $ 1.18
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
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19
NOTE 4-INVENTORIES:
Domestic inventories stated on the LIFO basis amounted to
$42,957,000 and $35,167,000 at December 31, 1997 and 1996,
respectively, which are below replacement cost by approximately
$35,983,000 and $34,868,000, respectively.
NOTE 5-DEFERRED INCOME TAXES AND PREPAID EXPENSES:
Deferred income taxes and prepaid expenses consist of the
following:
(In Thousands) 1997 1996
- -----------------------------------------------------------------------
Deferred income taxes - current $ 14,680 $ 15,083
Prepaid expenses 3,030 4,024
- -----------------------------------------------------------------------
Total $ 17,710 $ 19,107
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NOTE 6-PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consists of the
following:
(In Thousands) 1997 1996
- -----------------------------------------------------------------------
Land $ 18,582 $ 19,343
Land improvements 36,177 39,291
Buildings 83,906 88,281
Machinery and equipment 993,160 958,950
Construction in progress 56,427 42,967
- -----------------------------------------------------------------------
Total $1,188,252 $1,148,832
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
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 1997,
1996, and 1995 was $1,826,000, $823,000 and $2,260,000,
respectively, while amortization of capitalized interest (which
is included in depreciation expense) in 1997, 1996 and 1995 was
$1,382,000, $1,610,000 and $2,841,000, respectively.
NOTE 7-ACCRUED EXPENSES:
Accrued expenses consist of the following:
(In Thousands) 1997 1996
- -----------------------------------------------------------------------
Employee benefits, payroll
and related taxes $ 21,392 $ 21,958
Taxes other than payroll 3,900 8,075
Other 22,286 25,750
- -----------------------------------------------------------------------
Total $ 47,578 $ 55,783
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NOTE 8-LONG-TERM DEBT:
Long-term debt consists of the following:
(In Thousands) 1997 1996
- -----------------------------------------------------------------------
Variable-rate bank loans $ 77,000 $ 16,300
Foreign borrowings 13,645 14,392
Miscellaneous 1,148 1,171
- -----------------------------------------------------------------------
Total 91,793 31,863
Less amounts due within one year 379 7,457
- -----------------------------------------------------------------------
Long-term debt $ 91,414 $ 24,406
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Maturities of long-term debt for the next five years are as
follows: 1998 - $379,000; 1999 - $383,000; 2000 - $344,000; 2001
- - $347,000; 2002 - $88,902,000 and 2003 through 2016 -
$1,438,000.
On September 24, 1996, the Company entered into a
five-year, $500 million unsecured Competitive Advance and
Revolving Credit Facility Agreement (the "Credit Agreement") with
a consortium of banks at various interest rate options to replace
its existing credit facility. At December 31, 1997, $70 million
in borrowings was outstanding under the Credit Agreement. No
amounts were outstanding at December 31, 1996. 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. On August 26, 1997, the maturity date of the Credit
Agreement was extended to September 29, 2002. The average
interest rate on 1997 borrowings under the Credit Agreement was
5.88%, with a year-end interest rate of 6.11% on the balance
outstanding at December 31, 1997.
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20
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 approximately $125 million at the individual
bank's money market rate. At December 31, 1997, $7 million in borrowings
from these agreements were outstanding, which the Company has the ability
to refinance with borrowings under the Credit Agreement;
therefore, this amount has been classified as long-term debt. The
average interest rate on borrowings under these agreements was
5.64% in 1997, with a year-end interest rate of 6.88% on balances
outstanding at December 31, 1997.
One of the Company's foreign subsidiaries modified an existing
agreement with a foreign bank during 1997 which provides
immediate uncommitted credit lines, on a short-term basis, up to
a maximum of approximately $15 million at the individual bank's
money market rate. At December 31, 1997, borrowings under this
agreement consisted of 1.5 billion Japanese yen ($11.6 million).
The average interest rate on borrowings under this agreement was
1.63% in 1997. The Company has the ability to refinance borrowings
from this agreement with borrowings under the Credit Agreement;
therefore, this amount has been classified as long-term debt.
Additional foreign borrowings at December 31, 1997, consisted of
12.57 million French francs ($2.1 million). The average interest rate
on this borrowing was 0.50% in 1997.
Two of the Company's foreign subsidiaries have separate,
additional agreements with foreign banks during 1997 which
provide immediate uncommitted credit lines, on a short-term
basis, up to a maximum of approximately $27 million at the
individual bank's money market rate. These agreements have been
guaranteed by the Company. At December 31, 1997, no borrowings
were outstanding under these agreements.
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
During the fourth quarter of 1997, the Company purchased
1,560,300 shares of its common stock on the open market at a
total cost of $37.5 million. On April 1, 1996, the Company
purchased 9,484,465 shares of its common stock, at a price
of $23 per share plus expenses for a total aggregate cost of
$219.4 million, through a tender offer, which began on
March 4, 1996, and concluded on April 1, 1996, following
the sale of the Olefins Business to Amoco. Additionally, the
Company purchased 275,400 and 1,481,100 common shares
in the second and third quarters of 1996, respectively, at
an aggregate cost of $32.1 million. The Company, at December 31,
1997, had authorization from its Board of Directors to purchase
2,683,200 additional shares.
STOCK OPTION PLAN
On February 8, 1994, an Omnibus Stock Incentive Plan ("Plan") was
adopted by the Company. Under the Plan, a maximum of 3,200,000
shares of the Company's common stock may be issued as restricted
stock or upon the exercise of incentive or nonqualified stock
options and stock appreciation rights ("SARs"). Such options,
SARs and restricted stock may be granted to participants under
the Plan. Initial options and related SARs were granted March 1, 1994,
to officers and key employees to purchase a total of 1,499,500
shares of the Company's common stock. All of these options and
related SARs expire no later than ten years from the date of grant
and the exercise price was set at $13.125 per share, the closing price of
the Company's common stock on March 1, 1994. These options and
related SARs became exercisable in full at December 31, 1995
based upon the growth in operating earnings of the Company from
the base year earnings for the year ended December 31, 1993. The
compensation expense associated with the exercise of SARs in 1997
and 1996 amounted to approximately $1.0 million and $1.5 million,
respectively. In addition, holders of options under the Ethyl
Stock Option Plan who became employees of the Company were given
the choice of retaining those options or surrendering them in
favor of receiving options to purchase shares of the Company's
common stock. Employees of the Company who elected to surrender
their Ethyl options received options for shares of the Company's
common stock. For these options, the Company adopted the same
terms as were applicable when they were issued under the terms of
the Ethyl Stock Option Plan.
On May 6, 1996, 34,680 shares of restricted stock were awarded
and issued under the Plan. One half vest in one year with the
remaining half vesting in two years. The fair value of the
restricted stock was $24 per share at the award date, which was
the market price of the Company's stock on that date. Of the
aggregate compensation expense associated with the awards, which
included certain tax benefits to the recipients, approximately
$.3 million and $1.1 million, was recognized as an expense in
1997 and 1996, respectively.
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21
The Company granted 293,000 additional options to officers and
key employees during 1996. These options expire 10 years from the
date of grant with an exercise price of $17.375 per share, the
closing price of the Company's common stock on August 28, 1996.
These options become exercisable based upon the growth in
operating earnings from the base-year earnings or the increase in
the fair market value ("FMV") on the last trading day of each
year of the Company's common stock from the FMV on the date of
grant. As of December 31, 1997, 175,800 of these options became
exercisable. Stock option activity in 1995, 1996 and 1997 is
shown below:
Weighted-
Average
Shares Available Options Exercise
for Grant Activity Options Price Price
- -----------------------------------------------------------------------------
January 1, 1995 1,420,619 1,779,381 $9.45 - $14.81
- -----------------------------------------------------------------------------
Exercised -- (8,972) $11.39 $11.39
- -----------------------------------------------------------------------------
December 31, 1995 1,420,619 1,770,409 $9.45 - $14.81 $13.05
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
* The weighted average fair value of options granted during 1996 was $6.47.
The following table summarizes information about fixed-price
stock options at December 31, 1997:
Options Outstanding Options Exercisable
- -------------------------------------------------|---------------------------
Weighted- Weighted- | Weighted-
Number Average Average | Number Average
Exercise Outstanding Remaining Exercise |Exercisable Exercise
Prices @ 12/31/97 Contractual Life Price | @ 12/31/97 Price
- -------------------------------------------------|---------------------------
$ 9.45 1,127 0.7 years $ 9.45 | 1,127 $ 9.45
12.29 13,039 1.7 years 12.29 | 13,039 12.29
10.36 8,543 2.8 years 10.36 | 8,543 10.36
12.12 28,294 4.0 years 12.12 | 28,294 12.12
13.47 40,735 5.0 years 13.47 | 40,735 13.47
13.13 893,771 6.2 years 13.13 | 893,771 13.13
17.38 293,000 8.7 years 17.38 | 175,800 17.38
- -------------------------------------------------|---------------------------
1,278,509 |1,161,309
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
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22
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 1996 under the Plan 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:
1997 1996
- ---------------------------------------------------------------
Net Income as reported $ 79,982 $ 156,059
pro forma $ 79,394 $ 155,863
- ---------------------------------------------------------------
Basic earnings as reported $ 1.45 $ 2.67
per share pro forma $ 1.44 $ 2.67
- ---------------------------------------------------------------
Diluted earnings as reported $ 1.44 $ 2.65
per share pro forma $ 1.43 $ 2.65
- ---------------------------------------------------------------
- ---------------------------------------------------------------
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 1996:
dividend yield 2.61%; expected volatility of 29.33%; risk-free
interest rate of 6.39%; and expected lives of eight 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, 1997, are
$5,847,000 for 1998, $4,080,000 for 1999, $2,857,000 for 2000,
$2,574,000 for 2001, $2,390,000 for 2002, and amounts payable
after 2002 are $2,062,000. Rental expense was approximately
$13,200,000 for 1997, $15,000,000 for 1996, and $20,400,000 for 1995.
CONTRACTUAL COMMITMENTS
Contractual obligations for plant construction and purchases of
real property and equipment amounted to approximately $10,800,000
at December 31, 1997.
SERVICE AGREEMENTS
The Company and Ethyl are parties to arm's length 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 1997 and 1996 in
connection with these agreements amounted to approximately $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 incurred as a result of
these agreements. The Company's billings to MEMC Pasadena, in
connection with these agreements amounted to approximately $38
million in 1997 and $41 million in 1996.
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 1997 and 1996, in connection
with these agreements, amounted to approximately $42 million each
year. Amoco's billings to the Company in 1997 and 1996, in
connection with these agreements, amounted to $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 $8.9 million and $8.4 million at December 31, 1997
and 1996, 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 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 $6.8 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
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23
not have a material adverse impact on its financial condition or
results of operations, but could have a material adverse impact
in a particular 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 BENEFITS:
PENSION PLANS
The Company has primarily noncontributory defined benefit pension
plans covering most employees. The benefits for these plans are
based primarily on years of service and compensation. 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 income and
prepaid pension expense information for all periods presented
include amounts related to salaried and hourly plans.
The components of the Company's net pension income for the years
ended December 31, 1997, 1996 and 1995, are as follows:
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------------------
Return on plan assets:
Actual return $ 65,717 $ 84,802 $ 53,321
Expected return lower
than actual (33,004) (54,669) (25,396)
- ---------------------------------------------------------------------
Expected return 32,713 30,133 27,925
Amortization of
transition asset 2,719 2,718 2,718
Service cost (benefits
earned during the year) (7,350) (7,367) (7,274)
Interest cost on projected
benefit obligation (20,360) (18,950) (17,406)
Amortization of prior
service costs (1,482) (1,436) (810)
- ---------------------------------------------------------------------
Net pension income $ 6,240 $ 5,098 $ 5,153
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Amortization of the transition asset is based on the amount
determined at the date of adoption of SFAS No. 87.
Net pension income and plan obligations are calculated using
assumptions of estimated discount and long-term interest rates
and rates of projected increases in compensation. The discount
rates for measuring benefit obligations were assumed to be 7.25%
at December 31, 1997, 7.5% at December 31, 1996, and 7.25% at
December 31, 1995. The rates of projected compensation increase
were assumed to be 4.5% at the end of all periods. The expected
long-term rate of return on plan assets was assumed to be 9.5%
each year. Net pension income (see preceding table) is determined
using assumptions as of the beginning of each year. Funded status
(see table below) is determined using assumptions as of the end
of each year.
In 1996, the Company recognized a one-time curtailment loss and
special termination benefits charge of $5.5 million, which was
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 of Benefits" ("SFAS No. 88")
reflecting the effects of the transfer of approximately 550
people who supported the Olefins Business sold to Amoco.
The following table presents a reconciliation of the funded
status of the pension plans to prepaid pension expense which is
included in the line item "Other assets and deferred charges" of
the consolidated balance sheets:
(In Thousands)
December 31 1997 1996
- --------------------------------------------------------------------
Plan assets at fair value $ 435,172 $ 382,323
- --------------------------------------------------------------------
Less actuarial present value of
benefit obligations:
Accumulated benefit obligation
(including vested benefits of
$251,458 and $225,751, respectively) 261,736 236,661
Projected compensation increase 41,072 37,448
- ---------------------------------------------------------------------
Projected benefit obligation 302,808 274,109
- ---------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 132,364 108,214
Unrecognized net gain (74,640) (55,337)
Unrecognized transition asset
being amortized (10,416) (13,129)
Unrecognized prior service cost
being amortized 10,463 11,663
- ---------------------------------------------------------------------
Prepaid pension expense $ 57,771 $ 51,411
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
FOREIGN PENSION PLANS
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.
OTHER POSTRETIREMENT BENEFITS
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
-34-
24
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 the
full 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.
The components of net periodic postretirement benefit cost are as
follows:
(In Thousands)
Years Ended December 31 1997 1996 1995
- ----------------------------------------------------------------------
Service cost (benefits
attributed to employee service
during the year) $ 1,765 $ 1,855 $ 1,816
Interest cost on accumulated
postretirement benefit
obligation 3,286 3,222 3,093
Return on plan assets (610) (660) (665)
Amortization of prior
service costs 98 98 98
Amortization of
unrecognized net gains (573) (349) (629)
- -----------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 3,966 $ 4,166 $ 3,713
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
In 1996, the Company recognized a one-time curtailment gain of
approximately $726,000 which was included in the gain on the sale
of the Olefins Business (See Note 13, "Special Items"), as
required by SFAS No. 88, reflecting the effects of the transfer
of approximately 550 people who supported the Olefins Business
sold to Amoco.
Summary information on the Company plans is presented below.
(In Thousands)
December 31 1997 1996
- ------------------------------------------------------------------
Financial status of plans:
Accumulated postretirement
benefit obligation ("APBO"):
Retirees $ 17,386 $ 18,364
Fully eligible, active plan
participants 7,627 5,737
Other active plan participants 25,047 22,949
- -------------------------------------------------------------------
Total APBO 50,060 47,050
Less plan assets at fair value 6,708 7,339
Less unrecognized prior service cost 980 1,078
Plus unrecognized net gain 9,297 9,784
- -------------------------------------------------------------------
Accrued postretirement
benefit cost $ 51,669 $ 48,417
- -------------------------------------------------------------------
- -------------------------------------------------------------------
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.
The discount rates for measuring benefit obligations were 7.25%
at December 31, 1997, 7.5% at December 31, 1996 and 7.25% at
December 31, 1995. The expected long-term rate of return was
assumed to be 9.5% each year. The rate of projected compensation
increase was assumed to be 4.5% at the end of all periods. The
assumed health care cost trend rate used in measuring the APBO
was 10% in 1997, 11% in 1996 and 12% in 1995, declining by 1% per
year to an ultimate rate of 7%, except that managed care costs
were assumed to be 7% in 1997, 8% in 1996 and 9% in 1995,
declining by 1% per year to 6%.
If the health care cost trend rate assumptions were increased by
1%, the APBO as of December 31, 1997, would be increased by
approximately $5.5 million. The effect of this
change on the sum of the service cost and interest cost
components of net periodic postretirement benefit cost for 1997
would be an increase of about $0.7 million.
CHANGES IN ESTIMATES
The lower discount rate at December 31, 1997, increased the
pension accumulated benefit obligation and the pension projected
benefit obligation by $8.7 million and $10 million, respectively.
The lower discount rate at December 31, 1997 increased the APBO
by approximately $1.9 million. As a result of the changes in
rates, the combined effect on pension income and postretirement
benefit expenses in 1998 is immaterial.
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 which are accounted
for under SFAS No. 112 "Employers' Accounting for Postemployment
Benefits". The accrued postemployment benefit liability was
approximately $1,924,000 at the end of 1997, an increase of
about $27,000 from 1996.
-35-
25
NOTE 12-INCOME TAXES:
Income (loss) before income taxes and current and deferred income
taxes (benefits) are composed of the following:
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Income (loss) before income taxes:
Domestic $100,851 $233,776 $141,281
Foreign 20,054 19,303 (9,688)
- -------------------------------------------------------------------------
Total $120,905 $253,079 $131,593
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Current income taxes:
Federal $ 26,586 $101,698 $ 48,593
State 1,981 12,478 5,058
Foreign 4,286 4,248 2,080
- -------------------------------------------------------------------------
Total 32,853 118,424 55,731
- -------------------------------------------------------------------------
Deferred income taxes (benefits):
Federal 7,568 (18,070) (2,959)
State 1,042 (2,415) (471)
Foreign (540) (919) 1,062
- -------------------------------------------------------------------------
Total 8,070 (21,404) (2,368)
- -------------------------------------------------------------------------
Total income taxes $ 40,923 $ 97,020 $ 53,363
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
The significant differences between the U.S. federal statutory
rate and the effective income tax rate are as follows:
% of Income
Before Income Taxes
- ------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
Foreign sales corporation benefit (1.9) (2.9) (1.8)
State taxes, net of federal
tax benefit 1.5 2.6 1.8
Depletion (1.1) (1.1) (0.8)
Higher net tax on Belgian
subsidiary due to
absence of tax benefits on
net operating losses -- -- 2.1
Other items, net 0.3 0.9 1.6
- ------------------------------------------------------------------------
Effective income tax rate
on operations 33.8 34.5 37.9
Sales of businesses -- 3.8 0.5
Increase in French statutory
tax rate -- -- 2.2
- ------------------------------------------------------------------------
Effective income tax rate 33.8% 38.3% 40.6%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
In December 1995, the Company's French subsidiary recognized
approximately $2.9 million in deferred income taxes as a result
of French tax legislation imposing a surtax which increased the
French corporate tax rate to 36.7%. And in 1997, an additional
surtax was imposed by French tax legislation on a temporary
basis.
-36-
26
The deferred income tax assets and deferred income tax
liabilities recorded on the consolidated balance sheets as of
December 31, 1997 and 1996, consist of the following:
(In Thousands) 1997 1996
- ---------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions $ 19,751 $ 18,567
Belgian subsidiary net operating loss
carryforwards 9,384 18,044
Future employee benefits 6,374 6,096
LIFO inventories 5,102 5,096
Intercompany profit in inventories 3,484 3,816
Foreign currency translation adjustments 928 --
Inventory capitalization 916 1,034
Other 9,986 9,266
- ---------------------------------------------------------------------------
Gross deferred tax assets 55,925 61,919
Valuation allowance (2,105) (10,015)
- ---------------------------------------------------------------------------
Net deferred tax assets 53,820 51,904
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 93,243 90,653
Pensions 22,481 20,455
Gain on Belgian intercompany loan 7,648 7,648
Olefins Business sale deferred gains 7,267 8,219
Capitalization of interest 2,216 2,289
Foreign currency translation adjustments -- 10,144
Other 3,452 1,956
- ---------------------------------------------------------------------------
Gross deferred tax liabilities 136,307 141,364
- ---------------------------------------------------------------------------
Net deferred tax liabilities $ 82,487 $ 89,460
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Reconciliation to consolidated balance sheets:
Current deferred tax assets $ 14,680 $ 15,083
Deferred tax liabilities 97,167 104,543
- ---------------------------------------------------------------------------
Net deferred tax liabilities $ 82,487 $ 89,460
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
The Company's Belgian subsidiary's accumulated loss carryforward
approximated $23 million and $45 million at December 31, 1997,
and 1996, respectively. Approximately $22 million and $27 million
of accumulated loss carryforward (approximately $8.7 million and
$10.8 million tax benefit) was utilized in 1997 and 1996,
respectively, to offset Belgian taxable income.
The valuation allowance that was provided for the Belgian
subsidiary's operating loss carryforward was established because
it has been concluded that although the losses can be carried
forward indefinitely, it is more likely than not that a portion
of the benefit may not be realized.
NOTE 13-SPECIAL ITEMS:
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 numerous 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.
-37-
27
On July 31, 1995, the Company sold the assets and transferred the
technology for its electronic materials business to MEMC
Pasadena, Inc., a wholly-owned subsidiary of MEMC Electronic
Materials, Inc. of St. Peters, Mo., for proceeds of approximately
$59.2 million consisting of $4.2 million in cash and two notes
totaling $55 million. The gain realized on the sale was $23.4
million ($14.5 million after income taxes.)
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, 1997 and 1996, 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 were $0.9 million and $0.2 million at December 31, 1997
and 1996, respectively.
NOTE 15-QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
First Second Third Fourth
(In Thousands Except Per-Share Amounts)Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
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(a)
DILUTED EARNINGS PER SHARE $ .36 $ .37 $ .33 $ .38
SHARES USED TO COMPUTE DILUTED
EARNINGS PER SHARE 55,535 55,599 55,910 55,628(a)
1996
Net sales $ 270,171 $ 196,039 $ 183,776 $ 204,495
Gross profit $ 74,111 $ 56,773 $ 44,760 $ 67,484
Gain on sale of Olefins Business (b)$(158,157)$ -- $ -- $ --
Net income $ 115,624 $ 14,635 $ 7,887 $ 17,913
Basic earnings per share $ 1.75 $ .26 $ .14 $ .33
Shares used to compute basic
earnings per share (c) 66,085 56,621 55,665 55,041
Diluted earnings per share $ 1.73 $ .26 $ .14 $ .32
Shares used to compute diluted
earnings per share (c) 66,663 57,282 56,017 55,406
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notes to Quarterly Financial Summary (In Thousands Except Share
Amounts):
(a) Includes the effects of the purchase of 1,560,300 common
shares during the fourth quarter.
(b) Represents gain resulting from the March 1, 1996, sale of
the Olefins Business to Amoco Chemical Company ($94,377 after
income taxes).
(c) 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.
-38-
28
NOTE 16-GEOGRAPHIC AREA INFORMATION:
The Company operates in one industry segment which includes the
development, manufacture and marketing of specialty chemical
products.
The Company is an international business with manufacturing
and/or distribution facilities in the United States, Belgium,
France, Singapore and Japan. Information regarding the Company's
operations in different geographic locations for the three years
ended December 31, 1997, is shown below. As the Company's foreign
regions of manufacturing and distribution have similar business
environments and operations, they are presented as one foreign
category. Transfers between geographic areas are priced depending
on the product and economic activity of the transferee.
Net Sales
- -------------------------------------------------------------------------
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Domestic unaffiliated:
United States $439,824 $462,444 $ 651,027
Export 101,556 92,137 144,745
Transfers to foreign
affiliates 131,539 129,044 160,011
Foreign unaffiliated 288,470 299,900 448,450
Elimination of transfers (131,539) (129,044) (160,011)
- -------------------------------------------------------------------------
Total $829,850 $854,481 $1,244,222
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Operating Profit (Loss) (a)
- -------------------------------------------------------------------------
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------
United States $127,741 $114,994 $138,809
Foreign (b) 20,113 8,495 (418)
- -------------------------------------------------------------------------
Subtotal 147,854 123,489 138,391
Unallocated expenses (27,147) (30,063) (21,428)
- -------------------------------------------------------------------------
Total $120,707 $ 93,426 $116,963
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Identifiable Assets as of December 31
- -------------------------------------------------------------------------
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------
United States $626,397 $598,443 $ 716,602
Foreign 261,784 247,818 487,889
- -------------------------------------------------------------------------
Total $888,181 $846,261 $1,204,491
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Notes:
(a) Operating profit represents income before income taxes,
before gains on sales of businesses and before interest and
financing expenses and other income, net.
(b) Includes the effects of foreign exchange gains. See Note
1, "Summary of Significant Accounting Policies".
NOTE 17-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 statements of income on page 40 are 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 statements of income for
the years ended December 31, 1996 and 1995, present the results
of operations of the Company assuming that the disposition of the
Olefins Business had occurred as of January 1, 1995.
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, 1995.
The unaudited pro forma condensed consolidated statements of
income are presented for informational purposes only and do 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 and 1995.
-39-
29
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except Per-Share Amounts)
Years Ended December 31 1996 1995
- --------------------------------------------------------------------------------
Adjustments Adjustments
Increase Pro Increase Pro
Historical (Decrease) Forma Historical (Decrease) Forma
- --------------------------------------------------------------------------------
Net sales $854,481 $ (79,763)(1) $1,244,222 $(475,378)(1)
799 (2) $775,517 7,567 (2) $776,411
Cost of goods
sold 611,353 (71,268)(1) 967,204 (450,524)(1)
420 (2) 540,505 2,292 (2) 518,972
- --------------------------------------------------------------------------------
Gross
profit 243,128 (8,116) 235,012 277,018 (19,579) 257,439
Selling, R&D
and general
expenses 149,702 (5,486)(1) 144,216 160,055 (23,889)(1) 136,166
- --------------------------------------------------------------------------------
Operating
profit 93,426 (2,630) 90,796 116,963 4,310 121,273
Interest and
financing
expenses 2,529 (1,563)(3) 13,265 368 (1)
966 (12,256)(3) 1,377
Gain on sales of
businesses (158,157) 158,157 (4) -- (23,427) (23,427)
Other (income)
expenses, net(4,025) 14 (1) (4,468) 155 (1)
(60)(5) (4,071) (359)(5) (4,672)
- --------------------------------------------------------------------------------
Income before
income
taxes 253,079 (159,178) 93,901 131,593 16,402 147,995
Income taxes 97,020 (63,780)(4) 53,363
(393)(6) 32,847 5,452 (6) 58,815
- --------------------------------------------------------------------------------
Net income $156,059 $ (95,005) $ 61,054 $ 78,230 $ 10,950 $ 89,180
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Basic
earnings
per share $ 2.67 $ 1.05 $ 1.18 $ 1.35
Shares used
to compute
basic earnings
per share 58,353 58,353(7) 66,069 66,069(7)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diluted
earnings
per share $ 2.65 $ 1.04 $ 1.18 $ 1.34
Shares used
to compute
diluted earnings
per share 58,842 58,842 (7) 66,352 66,352(7)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The description of adjustments to the pro forma condensed
consolidated statements of income follows:
(1) To eliminate the results of operations of the Olefins
Business for the periods presented as though the sale to Amoco
occurred on January 1, 1995, 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%. For 1996, the Company's income tax provision on the results
of operations of the remaining businesses was adjusted
for utilization of a portion of the Belgium 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. For 1995, no tax
effects have been provided on the elimination of the results of the
operations of the Olefins Business based in Belgium since valuation
allowances had historically been provided on deferred tax assets
associated with Belgian net operating loss carryforwards generated
by this business.
(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, 1995. The average number of shares used
to compute basic earnings per share would have been
55,982,000 and 56,585,000 for 1996 and 1995, respectively, and the
average number of shares used to compute diluted earnings per share
would have been 56,471,000 and 56,868,000 for 1996 and 1995,
respectively, had the offer been assumed to have been completed
on January 1, 1995.
-40-
30
MANAGEMENT'S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
Albemarle Corporation's management has prepared the consolidated
financial statements and related notes appearing on pages 23
through 40 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
Coopers & Lybrand L.L.P., 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:
We have audited the accompanying consolidated balance sheets of
Albemarle Corporation and Subsidiaries (the "Company") as of
December 31, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December
31, 1997. 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 in accordance with generally accepted
auditing standards. Those standards 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. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Albemarle Corporation and Subsidiaries as
of December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/Coopers & Lybrand, L.L.P.
Richmond, Virginia
February 6, 1998
-41-
31
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 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 13, 1998, are set forth below:
Name Age Office
- ----------------------------------------------------------------------------
Floyd D. Gottwald, Jr.* 75 Chairman of the Board and of the
Executive Committee,
Chief Executive Officer, Director
Charles B. Walker* 59 Vice Chairman of the Board, Chief
Financial Officer, Director
Dirk Betlem* 59 President and Chief Operating Officer,
Director
Thomas G. Avant 59 Senior Vice President - Finance and
Managing Director-Americas
E. Whitehead Elmore 59 Senior Vice President, General
Counsel, Corporate Secretary
John G. Dabkowski 49 Vice President - Polymer Chemicals
Dixie E. Goins 47 Vice President - Research and
Development
William M. Gottwald, M.D. 50 Vice President - Corporate
Strategy and Secretary to the
Executive Committee
Robert G. Kirchhoefer 57 Treasurer
Victor L. McDearman, Jr. 53 Vice President - Fine Chemicals
Charles E. Moore 57 Vice President - Engineering
George A. Newbill 55 Vice President - Manufacturing
Gary L. Ter Haar 61 Vice President - Health and
Environment
Michael D. Whitlow 46 Vice President - External Affairs and
Investor Relations
Edward G. Woods 56 Vice President - Business Development
*Member of the Executive Committee
-42-
32
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 22, 1998). All such officers have been employed by
the Company or its predecessor for at least the last five years,
with the exception of Dirk Betlem and William M. Gottwald, M.D.
Dirk Betlem joined the Company's predecessor June 1, 1993,
following nearly 30 years with E.I. duPont de Nemours in a
variety of management positions in the U.S. and Europe, most
recently as Vice President, Imaging Systems, and earlier in a variety
of manufacturing positions and management positions for Europe,
the Middle East and Africa. 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.
Item 11. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement 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 under the
caption "Stock Ownership" is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information contained in the Proxy Statement under the
captions "Certain Relationships and Related Transactions" and
"Stock Ownership" is incorporated herein by reference.
-43-
33
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 23 to 41:
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income, Changes in Shareholders'
Equity and Cash Flows for the years ended December 31, 1997, 1996
and 1995
Notes to 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 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].
11. Statements re: Computation of Pro Forma Earnings Per
Share - for years ended December 31, 1996 and 1995.
11.1 Statements re: Computation of Pro Forma Earnings Per
Share - for years ended December 31, 1997 and 1996.
21. Subsidiaries of the Company.
23. Consent of Independent Certified Public Accountants
27. Financial Data Schedule
99. Five Year Summary (see pages 46 and 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.
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34
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 13, 1998
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 13, 1998.
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/ Thomas G. Avant Senior Vice President - Finance (Principal
- --------------------------- Accounting Officer)
(Thomas G. Avant) and Managing Director Americas
/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)
-45-
35
EXHIBIT INDEX
3.1 Restated Articles of Incorporation Incorporated by reference
see page 33
3.2 By-laws Incorporated by reference
see page 33
10.1 Credit Agreement, dated September 24, 1996 Incorporated by reference
see page 33
10.2 Omnibus Stock Incentive Plan Incorporated by reference
see page 33
10.3 Bonus Plan Incorporated by reference
see page 33
10.4 Savings Plan Incorporated by reference
see page 33
10.5 Excess Benefit Plan Incorporated by reference
see page 33
10.6 Supplemental Retirement Plan Incorporated by reference
see page 33
10.7 Agreement Between Certain Executives Incorporated by reference
see page 33
11 Computation of Pro Forma Earnings Per Share
-years ended 1996 and 1995 Page 36
11.1 Computation of Pro Forma Earnings Per Share
-years ended 1997 and 1996 Page 37
21 Subsidiaries of the Company Page 38
23 Consent of Independent Certified Public Accountants Page 39
27 Financial Data Schedule Page 40
99 Five Year Summary Page 41