| ALBEMARLE CORP Item 1A Risk Factors 9 Item 1A Risk Factors |
| You should consider carefully the following risks when reading the information, including the financial information, contained in this Annual Report on Form 10-K Our inability to pass through increases in costs and expenses for raw materials and energy, on a timely basis or at all, could have a material adverse effect on the margins of our products |
| Our raw material and energy costs increased significantly in 2005 |
| The increases were primarily driven by significantly tighter market conditions and major increases in pricing of basic building blocks for our products such as crude oil, chlorine and metals, including molybdenum, which is used in the refinery catalysts business |
| We generally attempt to pass changes in the prices of raw materials and energy to our customers, but we may be unable to or be delayed in doing so |
| Our inability to pass through price increases or any limitation or delay in our passing through price increases could adversely affect our margins |
| In addition to raising prices, raw material suppliers may extend lead times or limit supplies |
| Constraints on the supply or delivery of critical raw materials could disrupt production and adversely affect the performance of our business |
| jpg] We face competition from other specialty chemical companies, which places downward pressure on the prices and margins of our products |
| We operate in a highly competitive marketplace, competing against a number of domestic and foreign specialty chemical producers |
| Competition is based on several key criteria, including product performance and quality, product price, product availability and security of supply, responsiveness of product development in cooperation with customers and customer service |
| Some of our competitors are larger than we are and may have greater financial resources |
| These competitors may also be able to maintain significantly greater operating and financial flexibility than we do |
| As a result, these competitors may be better able to withstand changes in conditions within our industry, changes in the prices of raw materials and energy and in general economic conditions |
| Additionally, competitors’ pricing decisions could compel us to decrease our prices, which could affect our margins and profitability adversely |
| Our ability to maintain or increase our profitability is, and will continue to be, dependent upon our ability to offset decreases in the prices and margins of our products by improving production efficiency and volume, shifting to higher margin chemical products and improving existing products through innovation and research and development |
| If we are unable to do so or to otherwise maintain our competitive position, we could lose market share to our competitors |
| Downturns in our customers’ cyclical industries could adversely affect our sales and profitability |
| Downturns in the businesses that use our specialty chemicals will adversely affect our sales |
| Many of our customers are in industries, including the electronics, building and construction, and automotive industries, that are cyclical in nature and sensitive to changes in general economic conditions |
| Historically, downturns in general economic conditions have resulted in diminished product demand, excess manufacturing capacity and lower average selling prices, and we may experience similar problems in the future |
| A decline in economic conditions in our customers’ cyclical industries may have a material adverse effect on our sales and profitability |
| Our results are subject to fluctuation because of irregularities in the demand for our HPC catalysts and certain of our agrichemicals |
| Our HPC catalysts are used by petroleum refiners in their processing units to reduce the quantity of sulfur and other impurities in petroleum products |
| The effectiveness of HPC catalysts diminishes with use, requiring the HPC catalysts to be replaced, on average, once every one to three years |
| The sales of our HPC catalysts, therefore, are largely dependent on the useful life cycle of the HPC catalysts in the processing units |
| Sales of our agrichemicals are also subject to fluctuation as demand varies depending on climate and other environmental conditions, which may prevent farming for extended periods |
| Changes in our customers’ products can reduce the demand for our specialty chemicals |
| Our specialty chemicals are used for a broad range of applications by our customers |
| Changes in our customers’ products or processes may enable our customers to reduce consumption of the specialty chemicals that we produce or make our specialty chemicals unnecessary |
| Customers may also find alternative materials or processes that no longer require our products |
| For example, many of our flame retardants are incorporated into resin systems to enhance the flame retardancy of a particular polymer |
| Should a customer decide to use a different polymer due to price, performance or other considerations, we may not be able to supply a product that meets the customer’s new requirements |
| Consequently, it is important that we develop new products to replace the sales of products that mature and decline in use |
| Our business, results of operations, cash flows and margins could be materially adversely affected if we are unable to manage successfully the maturation of our existing products and the introduction of new products |
| Our research and development efforts may not succeed and our competitors may develop more effective or successful products |
| The specialty chemicals industry is subject to periodic technological change and ongoing product improvements |
| In order to maintain our margins and remain competitive, we must successfully develop, manufacture and market new or improved products |
| As a result, we must commit substantial resources each year to research and development |
| Ongoing investments in research and development for future products could result in higher costs without a proportional increase in revenues |
| Additionally, for any new product program, there is a risk of technical or market failure in which case we may not be able to develop the new commercial products needed to maintain our competitive position or we may need to commit additional resources to new product development programs |
| Moreover, new products may have lower margins than the products they replace |
| We also expect competition to increase as our competitors develop and introduce new and enhanced products |
| For example, the Fine Chemicals segment is experiencing increased competition from large-scale producers of pharmachemicals, particularly from Asian sources |
| In our Catalysts segment, our petroleum refinery customers are processing crude oil feedstocks of declining quality, while at the same time operating under increasingly stringent regulations requiring the gasoline, diesel and other fuels they produce to contain fewer impurities, including sulfur |
| As a result, our petroleum refining customers are demanding more effective and efficient catalysts products, and the average life cycle for new catalysts products has declined |
| As new products enter the market, our products may become obsolete or competitors’ products may be marketed more effectively than our products |
| jpg] products, maintain or improve our margins with our new products or keep pace with technological developments, our business, financial condition, results of operations and cash flows will suffer |
| Our inability to protect our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations |
| Protection of our proprietary processes, methods and compounds and other technology is important to our business |
| We generally rely on patent, trade secret, trademark and copyright laws of the United States and certain other countries in which our products are produced or sold, as well as licenses and nondisclosure and confidentiality agreements, to protect our intellectual property rights |
| The patent, trade secret, trademark and copyright laws of some countries may not protect our intellectual property rights to the same extent as the laws of the United States |
| Failure to protect our intellectual property rights may result in the loss of valuable proprietary technologies |
| Additionally, some of our technologies are not covered by any patent or patent application and, even if a patent application has been filed, it may not result in an issued patent |
| If patents are issued to us, those patents may not provide meaningful protection against competitors or against competitive technologies |
| We cannot assure you that our intellectual property rights will not be challenged, invalidated, circumvented or rendered unenforceable |
| We could face patent infringement claims from our competitors or others alleging that our processes or products infringe on their proprietary technologies |
| If we are found to be infringing on the proprietary technology of others, we may be liable for damages, and we may be required to change our processes, to redesign our products partially or completely, to pay to use the technology of others or to stop using certain technologies or producing the infringing product entirely |
| Even if we ultimately prevail in an infringement suit, the existence of the suit could prompt customers to switch to products that are not the subject of infringement suits |
| We may not prevail in any intellectual property litigation and such litigation may result in significant legal costs or otherwise impede our ability to produce and distribute key products |
| We also rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position |
| While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, we cannot assure you that our confidentiality agreements will not be breached, that they will provide meaningful protection for our trade secrets and proprietary manufacturing expertise or that adequate remedies will be available in the event of an unauthorized use or disclosure of our trade secrets or manufacturing expertise |
| Our substantial international operations subject us to risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations |
| We and our joint ventures currently have 25 facilities located outside the United States, including facilities and offices located in Austria, Belgium, Brazil, France, Germany, Italy, Japan, Jordan, Korea, the Netherlands, the People’s Republic of China, Saudi Arabia and the United Kingdom |
| We expect sales from international markets to continue to represent a significant portion of our net sales and the net sales of our joint ventures |
| Accordingly, our business is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many jurisdictions |
| Risks inherent in international operations include the following: * fluctuations in exchange rates may affect product demand and may adversely affect the profitability in US dollars of products and services we provide in international markets where payment for our products and services is made in the local currency; * transportation and other shipping costs may increase; * intellectual property rights may be more difficult to enforce; * foreign countries may impose additional withholding taxes or otherwise tax our foreign income, or adopt other restrictions on foreign trade or investment, including currency exchange controls; * unexpected adverse changes in foreign laws or regulatory requirements may occur; * agreements may be difficult to enforce and receivables difficult to collect; * compliance with a variety of foreign laws and regulations may be burdensome; * unexpected adverse changes in export duties, quotas and tariffs and difficulties in obtaining export licenses; * general economic conditions in the countries in which we operate could have an adverse effect on our earnings from operations in those countries; 11 ______________________________________________________________________ [albemarle_10k1x12x1 |
| jpg] * foreign operations may experience staffing difficulties and labor disputes; * foreign governments may nationalize private enterprises; and * our business and profitability in a particular country could be affected by political or economic repercussions on a domestic, country specific or global level from terrorist activities and the response to such activities |
| In addition, certain of our joint ventures operate in high-risk regions of the world such as the Middle East and South America |
| Unanticipated events, such as geopolitical changes, could result in a write-down of our investment in the affected joint venture |
| Our success as a global business will depend, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in each location where we and our joint ventures do business |
| We are exposed to fluctuations in foreign exchange rates, which may adversely affect our operating results and net income |
| We conduct our business and incur costs in the local currency of most of the countries in which we operate |
| The financial condition and results of operations of each foreign operating subsidiary and joint venture are reported in the relevant local currency and then translated to US dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements |
| Changes in exchange rates between these foreign currencies and the US dollar will affect the recorded levels of our assets and liabilities as foreign assets and liabilities that are translated into US dollars for presentation in our financial statements as well as our net sales, cost of goods sold and operating margins and could result in exchange losses |
| The main foreign currencies for which we have exchange rate fluctuation exposure are the European Union euro, Japanese yen and British pound sterling |
| Exchange rates between these currencies and the US dollar in recent years have fluctuated significantly and may do so in the future |
| Significant changes in these foreign currencies relative to the US dollar could also have an adverse effect on our ability to meet interest and principal payments on any foreign currency-denominated debt outstanding |
| In addition to currency translation risks, we incur currency transaction risks whenever one of our operating subsidiaries or joint ventures enters into either a purchase or a sales transaction using a different currency from the currency in which it receives revenues |
| Our operating results and net income may be affected by any volatility in currency exchange rates and our ability to manage effectively our currency transaction and translation risks |
| We incur substantial costs in order to comply with extensive environmental, health and safety laws and regulations |
| In the jurisdictions in which we operate, we are subject to numerous federal, state and local environmental, health and safety laws and regulations, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated properties |
| Ongoing compliance with such laws and regulations is an important consideration for us and we incur substantial capital and operating costs in our compliance efforts |
| Environmental laws have become increasingly strict in recent years |
| We expect this trend to continue and anticipate that compliance will continue to require increased capital expenditures and operating costs |
| Violations of environmental, health and safety laws and regulations may subject us to fines, penalties and other liabilities and may require us to change certain business practices |
| If we violate environmental, health and safety laws or regulations, in addition to being required to correct such violations, we can be held liable in administrative, civil or criminal proceedings for substantial fines and other sanctions could be imposed that could disrupt or limit our operations |
| Liabilities associated with the investigation and cleanup of hazardous substances, as well as personal injury, property damages or natural resource damages arising out of such hazardous substances, may be imposed in many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally (so that a responsible party may be held liable for more than its share of the losses involved, or even the entire loss) |
| Such liabilities may also be imposed on many different entities with a relationship to the hazardous substances at issue, including, for example, entities that formerly owned or operated the property affected and entities that arranged for the disposal of the hazardous substances at the affected property, as well as entities that currently own or operate such property |
| Such liabilities can be difficult to identify and the extent of any such liabilities can be difficult to predict |
| We use, and in the past have used, hazardous substances at many of our facilities, and we have in the past, and may in the future, be subject to claims relating to exposure to hazardous materials and the associated liabilities may be material |
| We also have generated, and continue to generate, hazardous wastes at a number of our facilities |
| Some of our facilities also have lengthy histories of manufacturing or other activities that have resulted in site contamination |
| We have also given contractual indemnities for environmental conditions relating to facilities we no longer own or operate |
| The nature of our business, including historical operations at our current and former facilities, exposes us to risks of liability under these laws and regulations due to the production, storage, use, transportation and sale of materials that can cause contamination or personal injury if released into the environment |
| Additional information may arise in the future concerning the nature or extent of our liability with respect to identified sites, and additional sites may be identified for which we are alleged to be liable, that could cause us to materially increase our environmental accrual or the upper range of the costs we believe we could reasonably incur for such matters |
| jpg] Contractual indemnities may be ineffective in protecting us from environmental liabilities |
| At several of our properties where hazardous substances are known to exist (including some sites where hazardous substances are being investigated or remediated), we believe we are entitled to contractual indemnification from one or more former owners or operators; however, in the event we make a claim, the indemnifier may disagree with us |
| In 2004, we commenced an arbitration proceeding against Aventis SA concerning its obligations with respect to contamination at our Thann, France facility after Aventis refused to accept our demands for indemnification under the contract pursuant to which we acquired the facility |
| If our contractual indemnity is not upheld, our accrual and/or our costs for the investigation and cleanup of hazardous substances could increase materially |
| Concern about the impact of some of our products on human health or the environment may lead to regulation, or reaction in our markets independent of regulation, that could reduce or eliminate markets for such products |
| We manufacture or market a number of products that are or have been the subject of attention by regulatory authorities and environmental interest groups |
| For example, for many years we have marketed methyl bromide, a chemical that is particularly effective as a soil fumigant |
| In recent years, the market for methyl bromide has changed significantly, driven by the Montreal Protocol of 1990 and related regulation prompted by findings regarding the chemicalapstas potential to deplete the ozone layer |
| Completion of the phase-out of methyl bromide as a fumigant took effect January 1, 2005 with continued use for critical uses allowed on an annual basis until feasible alternatives are available |
| In addition, there has been increased scrutiny by regulatory authorities and environmental interest groups of polybrominated diphenylethers, or PBDEs, which are used as flame retardants |
| We manufacture decabrom-PDE, a type of PBDE compound |
| In 2005, our net sales of decabrom-PDE were less than 3prca of total net sales |
| Government regulation, if it occurs, or the threat of regulation, even if governmental regulation does not occur, may result in a decline in our net sales of decabrom-PDE We could be subject to damages based on claims brought against us by our customers or lose customers as a result of the failure of our products to meet certain quality specifications |
| Our products provide important performance attributes to our customers’ products |
| If a product fails to perform in a manner consistent with quality specifications or has a shorter useful life than guaranteed, a customer could seek replacement of the product or damages for costs incurred as a result of the product failing to perform as guaranteed |
| These risks apply to our refinery catalysts in particular because, in certain instances, we sell our refinery catalysts under agreements that contain limited performance and life cycle guarantees |
| A successful claim or series of claims against us could have a material adverse effect on our financial condition and results of operations and could result in a loss of one or more customers |
| Our substantial indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry or to implement our strategic initiatives |
| As of December 31, 2005, we had total indebtedness of dlra833dtta5 million |
| Our substantial indebtedness could have important consequences to us |
| For example, it could: * require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; * limit our ability to secure additional financing to implement our strategic initiatives; * increase the amount of our interest expense because approximately half of our borrowings are at variable rates of interest, which, if interest rates increase or our credit ratings decline, will result in higher interest expense; * increase our vulnerability to general adverse economic and industry conditions; * limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; * place us at a disadvantage compared to our competitors that may have proportionately less debt; * restrict us from making strategic acquisitions, introducing new technologies or otherwise exploiting business opportunities; * make it more difficult for us to satisfy our obligations with respect to our existing indebtedness; and * limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds, dispose of assets or pay cash dividends |
| jpg] In addition, we may be able to incur substantial additional indebtedness in the future |
| The terms of our senior credit agreement and the indenture governing our 5dtta10prca senior notes due 2015 do not prohibit us from incurring substantial additional indebtedness |
| If new debt is added to our current debt levels, the related risks that we now face could intensify |
| We will need a significant amount of cash to service our indebtedness and our ability to generate cash depends on many factors beyond our control |
| Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt depends on a range of economic, competitive and business factors, many of which are outside our control |
| Based on an average interest rate of 5dtta17prca at February 28, 2006 and outstanding borrowings at that date of dlra843dtta6 million, our annual interest expense would be dlra43dtta6 million |
| A change of 0dtta125prca in the interest rate applicable to such borrowings would change our annualized interest expense by approximately dlra1dtta1 million |
| Our business may not generate sufficient cash flow from operations to service our debt obligations, particularly if currently anticipated cost savings and operating improvements are not realized on schedule or at all |
| If we are unable to service our debt obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, reduce or delay capital expenditures, sell assets or raise additional equity |
| We may not be able to refinance any of our indebtedness, sell assets or raise additional equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity |
| Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, could have a material adverse effect on our business and financial condition |
| Restrictive covenants in our debt instruments may adversely affect our business |
| Our senior credit agreement and the indenture governing the senior notes contain restrictive covenants |
| These covenants provide constraints on our financial flexibility |
| The failure to comply with the covenants in the senior credit agreement, the indenture governing the senior notes and the agreements governing other indebtedness, including indebtedness incurred in the future, could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations |
| A downgrading of the ratings on our debt or an increase in interest rates will cause our debt service obligations to increase |
| Borrowings under our senior credit agreement bear interest at floating rates |
| The rates are subject to adjustment based on the ratings of our senior unsecured long-term debt by Standard & Poor’s Ratings Services or S&P and Moody’s Investors Services, or Moody’s |
| S&P has rated our senior unsecured long-term debt as BBB- and Moody’s has rated our senior unsecured long-term debt as Baa3 |
| S&P and/or Moody’s may, in the future, downgrade our ratings |
| The downgrading of our ratings or an increase in benchmark interest rates would result in an increase of our interest expense on borrowings under our senior credit agreement |
| In addition, the downgrading of our ratings could adversely affect our future ability to obtain funding or materially increase the cost of any additional funding |
| Our business is subject to hazards common to chemical businesses, any of which could interrupt our production and adversely affect our results of operations |
| Our business is subject to hazards common to chemical manufacturing, storage, handling and transportation, including explosions, fires, inclement weather, natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, remediation, chemical spills, discharges or releases of toxic or hazardous substances or gases and other risks |
| These hazards can cause personal injury and loss of life, severe damage to, or destruction of, property and equipment and environmental contamination |
| In addition, the occurrence of material operating problems at our facilities due to any of these hazards may diminish our ability to meet our output goals |
| Accordingly, these hazards, and their consequences could have a material adverse effect on our operations as a whole, including our results of operations and cash flows, both during and after the period of operational difficulties |
| The insurance that we maintain may not fully cover all potential exposures |
| We maintain property, business interruption and casualty insurance but such insurance may not cover all risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered |
| We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including liabilities for environmental remediation |
| In addition, from time to time, various types of insurance for companies in the specialty chemical industry have not been available on commercially acceptable terms or, in some cases, have not been available at all |
| In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain |
| We may incur significant charges in the event we close all or part of a manufacturing plant or facility |
| We periodically assess our manufacturing operations in order to manufacture and distribute our products in the most efficient manner |
| Based on our assessments, we may make capital improvements to modernize certain units, move manufacturing or 14 ______________________________________________________________________ [albemarle_10k1x15x1 |
| jpg] distribution capabilities from one plant or facility to another plant or facility, discontinue manufacturing or distributing certain products or close all or part of a manufacturing plant or facility |
| We also have shared services agreements at several of our plants and if such agreements are terminated or revised, we would assess and potentially adjust our manufacturing operations |
| The closure of all or part of a manufacturing plant or facility could result in future charges which could be significant |
| If we are unable to retain key personnel or attract new skilled personnel, it could have an adverse effect on our business |
| The unanticipated departure of any key member of our management team could have an adverse effect on our business |
| In addition, because of the specialized and technical nature of our business, our future performance is dependent on the continued service of, and on our ability to attract and retain, qualified management, scientific, technical, marketing and support personnel |
| Competition for such personnel is intense, and we may be unable to continue to attract or retain such personnel |
| Some of our employees are unionized, represented by workers’ councils or are employed subject to local laws that are less favorable to employers than the laws of the United States |
| As of December 31, 2005, we had approximately 3cmam700 employees |
| Approximately 20prca of our 2cmam050 US employees are unionized |
| Two of our collective bargaining agreements expire in 2007 and one expires in 2008 |
| In addition, a large number of our employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws of the United States |
| Such employment rights require us to work collaboratively with the legal representatives of the employees to effect any changes to labor arrangements |
| For example, most of our employees in Europe are represented by workers’ councils that must approve any changes in conditions of employment, including salaries and benefits and staff changes, and may impede efforts to restructure our workforce |
| Although we believe that we have a good working relationship with our employees, a strike, work stoppage or slowdown by our employees or significant dispute with our employees could result in a significant disruption of our operations or higher ongoing labor costs |
| Our joint ventures may not operate according to their business plans if our partners fail to fulfill their obligations, which may adversely affect our results of operations and may force us to dedicate additional resources to these joint ventures |
| We currently participate in a number of joint ventures and may enter into additional joint ventures in the future |
| The nature of a joint venture requires us to share control with unaffiliated third parties |
| If our joint venture partners do not fulfill their obligations, the affected joint venture may not be able to operate according to its business plan |
| In that case, our results of operations may be adversely affected and we may be required to increase the level of our commitment to the joint venture |
| Also, differences in views among joint venture participants may result in delayed decisions or failures to agree on major issues |
| If these differences cause the joint ventures to deviate from their business plans, our results of operations could be adversely affected |
| We may not be able to consummate future acquisitions or integrate future acquisitions into our business, which could result in unanticipated expenses and losses |
| As part of our business growth strategy, we have acquired businesses and entered into joint ventures in the past and intend to pursue acquisitions and joint venture opportunities in the future |
| Our ability to implement this component of our growth strategy will be limited by our ability to identify appropriate acquisition or joint venture candidates and our financial resources, including available cash and borrowing capacity |
| The expense incurred in consummating acquisitions or entering into joint ventures, the time it takes to integrate an acquisition or our failure to integrate businesses successfully, could result in unanticipated expenses and losses |
| Furthermore, we may not be able to realize any of the anticipated benefits from acquisitions or joint ventures |
| The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations |
| Some of the risks associated with the integration of acquisitions include: * potential disruption of our ongoing business and distraction of management; * unforeseen claims and liabilities, including unexpected environmental exposures; * unforeseen adjustments, charges and write-offs; * problems enforcing the indemnification obligations of sellers of businesses or joint venture partners for claims and liabilities; * unexpected losses of customers of, or suppliers to, the acquired business; * difficulty in conforming the acquired business’ standards, processes, procedures and controls with our operations; 15 ______________________________________________________________________ [albemarle_10k1x16x1 |
| jpg] * variability in financial information arising from the implementation of purchase price accounting; * inability to coordinate new product and process development; * loss of senior managers and other critical personnel and problems with new labor unions; and * challenges arising from the increased scope, geographic diversity and complexity of our operations |
| Although our pension plans are currently adequately funded, events could occur that would require us to make significant contributions to the plans and reduce the cash available for our business |
| We have several defined benefit pension plans around the world, including in the United States, the Netherlands, Germany, Belgium, France and Japan, covering most of our employees |
| The US plans represent approximately 80prca of the total liabilities of the plans worldwide |
| We are required to make cash contributions to our pension plans to the extent necessary to comply with minimum funding requirements imposed by the various countries’ benefit and tax laws |
| The amount of any such required contributions will be determined annually based on an actuarial valuation of the plans as performed by the plans’ actuaries |
| During 2005, we made no contributions to our US qualified defined benefit pension plans |
| Our US qualified defined benefit pension plans in aggregate were approximately 130prca funded on an IRS funding basis as of December 31, 2005 and, as a result, there are no required cash contributions to the plans in 2006 |
| However, the actual amount of contributions made subsequent to 2005 will depend upon asset returns, then-current interest rates, and a number of other factors |
| The amount we may elect or be required to contribute to our pension plans in the future may increase significantly |
| Specifically, if year-end accumulated obligations exceed assets, we may elect to make a voluntary contribution, over and above the minimum required, in order to avoid additional minimum liability charges to our balance sheet and consequent reductions to shareholders’ equity |
| These contributions could be substantial and would reduce the cash available for our business |
| The occurrence or threat of extraordinary events, including domestic and international terrorist attacks, may disrupt our operations and decrease demand for our products |
| Chemical-related assets may be at greater risk of future terrorist attacks than other possible targets in the United States, or US, and throughout the world |
| As an ACC member company, we have completed vulnerability assessments of our US manufacturing locations and met the requirements of this industry standard |
| We have a corporate security standard and audit our facilities for compliance |
| Recent investments have been made to upgrade site security |
| However, federal legislation is under consideration that could impose new site security requirements, specifically on chemical manufacturing facilities, which may increase our overhead expenses |
| New federal regulations have already been adopted to increase the security of the transportation of hazardous chemicals in the United States |
| We believe we have met these requirements but additional federal and local regulations that limit the distribution of hazardous materials are being considered |
| We ship and receive materials that are classified as hazardous |
| Bans on movement of hazardous materials through cities like Washington, DC could affect the efficiency of our logistical operations |
| Broader restrictions on hazardous material movements could lead to additional investment to produce hazardous raw materials and change where and what products we manufacture |
| The occurrence of extraordinary events, including future terrorist attacks and the outbreak or escalation of hostilities, cannot be predicted, and their occurrence can be expected to continue to affect negatively the economy in general, and specifically the markets for our products |
| The resulting damage from a direct attack on our assets, or assets used by us, could include loss of life and property damage |
| In addition, available insurance coverage may not be sufficient to cover all of the damage incurred or, if available, may be prohibitively expensive |