Page 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Transition Period from ___________ to ___________ Commission File Number 1-12658 ALBEMARLE CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) VIRGINIA 54-1692118 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 330 SOUTH FOURTH STREET P. O. BOX 1335 RICHMOND, VIRGINIA 23210 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code - (804) 788-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of common stock, $.01 par value, outstanding as of October 31, 2001: 45,469,767
Page 2 ALBEMARLE CORPORATION I N D E X Page Number ------ PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets - September 30, 2001 and December 31, 2000 3-4 Consolidated Statements of Income - Three- and Nine- Months Ended September 30, 2001 and 2000 5 Consolidated Statements of Comprehensive Income - Three- and Nine- Months Ended September 30, 2001 and 2000 6 Condensed Consolidated Statements of Cash Flows - Nine- Months Ended September 30, 2001 and 2000 7 Notes to the Consolidated Financial Statements 8-13 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition, and Additional Information 14-20 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 20 ITEM 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 EXHIBIT INDEX 22 EXHIBIT 99 List of Albemarle Corporation Officers
Page 3 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements -------------------- ALBEMARLE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars In Thousands) <TABLE> <CAPTION> September 30, 2001 December 31, 2000 ------------------ ------------------ (Unaudited) ASSETS Current assets: <S> <C> <C> Cash and cash equivalents $ 34,222 $ 19,300 Accounts receivable, less allowance for doubtful accounts (2001 - $3,446; 2000 - $2,119) 185,475 174,297 Inventories: Finished goods 128,075 79,143 Raw materials 23,431 10,804 Stores, supplies and other 22,426 17,471 ------------------ ------------------ 173,932 107,418 Deferred income taxes and prepaid expenses 18,137 14,139 ------------------ ------------------ Total current assets 411,766 315,154 ------------------ ------------------ Property, plant and equipment, at cost 1,421,815 1,326,534 Less accumulated depreciation and amortization 882,901 836,460 ------------------ ------------------ Net property, plant and equipment 538,914 490,074 Prepaid pension assets 124,869 111,537 Other assets and deferred charges 58,339 42,583 Goodwill and other intangibles, net of amortization 32,573 22,455 ------------------ ------------------ Total assets $ 1,166,461 $ 981,803 ================== ================== </TABLE> See accompanying notes to the consolidated financial statements.
Page 4 ALBEMARLE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars In Thousands) <TABLE> <CAPTION> September 30, 2001 December 31, 2000 ------------------ ------------------ (Unaudited) LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: <S> <C> <C> Accounts payable $ 68,839 $ 72,296 Long-term debt, current portion 171,596 299 Accrued expenses 69,033 56,932 Dividends payable 5,649 5,956 Income taxes payable 25,765 6,633 ------------------ ------------------ Total current liabilities 340,882 142,116 ------------------ ------------------ Long-term debt 12,367 97,681 Other noncurrent liabilities 121,647 83,496 Deferred income taxes 97,349 99,603 Shareholders equity: Common stock, $.01 par value, issued and outstanding- 45,758,467 in 2001 and 45,823,743 in 2000 458 458 Additional paid-in capital 55,846 57,223 Accumulated other comprehensive (loss) (14,223) (14,688) Retained earnings 552,135 515,914 ------------------ ------------------ Total shareholders' equity 594,216 558,907 ------------------ ------------------ Total liabilities and shareholders equity $ 1,166,461 $ 981,803 ================== ================== </TABLE> See accompanying notes to the consolidated financial statements.
Page 5 ALBEMARLE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per-Share Amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------- -------------------------------------- 2001 2000 2001 2000 ------------------ ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> Net sales $ 242,017 $ 237,053 $ 677,713 $ 698,739 Cost of goods sold 185,336 168,214 512,841 489,292 ------------------ ------------------ ------------------ ------------------ Gross profit 56,681 68,839 164,872 209,447 Selling, general and administrative expenses 25,822 27,106 70,712 79,114 Research and development expenses 5,603 6,989 16,813 19,456 Special item - - - (15,900) ------------------ ------------------ ------------------ ------------------ Operating profit 25,256 34,744 77,347 126,777 Interest and financing expenses (2,013) (1,551) (4,168) (4,542) Other income, net 975 1,164 3,793 2,500 ------------------ ------------------ ------------------ ------------------ Income before income taxes 24,218 34,357 76,972 124,735 Income taxes 7,457 10,651 22,861 38,668 ------------------ ------------------ ------------------ ------------------ Net income $ 16,761 $ 23,706 $ 54,111 $ 86,067 ================== ================== ================== ================== Basic earnings per share $ 0.37 $ 0.52 $ 1.18 $ 1.88 ================== ================== ================== ================== Diluted earnings per share $ 0.36 $ 0.51 $ 1.16 $ 1.85 ================== ================== ================== ================== Cash dividends declared per share of common stock $ 0.13 $ 0.11 $ 0.39 $ 0.33 ================== ================== ================== ================== </TABLE> See accompanying notes to the consolidated financial statements.
Page 6 ALBEMARLE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars In Thousands) (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------- -------------------------------------- 2001 2000 2001 2000 ------------------ ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> Net income $ 16,761 $ 23,706 $ 54,111 $ 86,067 Other comprehensive income (loss), net of tax: Unrealized gain (loss) on securities available for sale (102) 193 (341) 525 Foreign currency translation adjustments 7,307 (4,484) 806 (8,741) ------------------ ------------------ ------------------ ------------------ Other comprehensive income (loss) 7,205 (4,291) 465 (8,216) ------------------ ------------------ ------------------ ------------------ Comprehensive income $ 23,966 $ 19,415 $ 54,576 $ 77,851 ================== ================== ================== ================== </TABLE> See accompanying notes to the consolidated financial statements.
Page 7 ALBEMARLE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars In Thousands) (Unaudited) <TABLE> <CAPTION> Nine Months Ended September 30, ----------------------------------------- 2001 2000 ------------------ ------------------ <S> <C> <C> Cash and cash equivalents at beginning of year $ 19,300 $ 48,621 Cash flows from operating activities: Net income 54,111 86,067 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 55,461 54,312 Special item - (15,900) Working capital increase excluding cash and cash equivalents, net of effects of acquisition of businesses (7,303) (5,383) Other, net (278) 1,222 ------------------ ------------------ Net cash provided from operating activities 101,991 120,318 ------------------ ------------------ Cash flows from investing activities: Acquisition of businesses, including expenses, net of $5,500 cash acquired (113,000) (33,000) Capital expenditures (37,928) (40,219) Investments in joint ventures and nonmarketable securities (6,216) (7,978) Other, net 767 1,392 ------------------ ------------------ Net cash used in investing activities (156,377) (79,805) ------------------ ------------------ Cash flows from financing activities: Proceeds from borrowings 122,850 19,786 Repayments of long-term debt (36,211) (67,400) Dividends paid (18,194) (14,711) Purchases of common stock (2,202) (8,893) Proceeds from exercise of stock options 677 863 ------------------ ------------------ Net cash provided from (used in) financing activities 66,920 (70,355) ------------------ ------------------ Net effect of foreign exchange on cash and cash equivalents 2,388 68 ------------------ ------------------ Net increase (decrease) in cash and cash equivalents 14,922 (29,774) ------------------ ------------------ Cash and cash equivalents at end of period $ 34,222 $ 18,847 ================== ================== </TABLE> See accompanying notes to the consolidated financial statements
Page 8 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) 1. In the opinion of management, the accompanying consolidated financial statements of Albemarle Corporation and Subsidiaries ("Albemarle" or "the Company") contain all adjustments necessary to present fairly, in all material respects, the Company's consolidated financial position as of September 30, 2001, and December 31, 2000, the consolidated results of operations and comprehensive income for the three- and nine-month periods ended September 30, 2001, and 2000, and condensed consolidated cash flows for the nine-month periods ended September 30, 2001, and 2000. All adjustments are of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2000 Annual Report & Form 10-K filed on February 28, 2001. The December 31, 2000, consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results of operations for the three- and nine- month periods ended September 30, 2001, are not necessarily indicative of the results to be expected for the full year. 2. Long-term debt consists of the following: September 30, December 31, 2001 2000 ------------------ ------------------ Variable-rate bank loans $ 157,100 $ 70,000 Foreign borrowings 14,832 15,916 Industrial revenue bonds 11,000 11,000 Miscellaneous 1,031 1,064 ------------------ ------------------ Total 183,963 97,980 Less amounts due within one year 171,596 299 ------------------ ------------------ Long-term debt $ 12,367 $ 97,681 ================== ================== The Company's Competitive Advance and Revolving Facility Agreement ("Revolving Credit Agreement") will mature on September 29, 2002. Accordingly, the balance outstanding thereto is included in current liabilities. The Company anticipates entering into a new long-term agreement in the coming months. 3. Cost of goods sold includes foreign exchange transaction gains (losses) of $976 and ($1,089), and $390 and $209 for the three- and nine-month periods ended September 30, 2001, and 2000, respectively. 4. In April 2000, the Company made a change in election for certain of its pension annuity contracts. This election resulted in the recognition of a one-time noncash special accounting settlement gain of $15,900 ($10,128 after income taxes), or 22 cents per share on a fully diluted basis, in accordance with Financial Accounting Standards Board `s ("FASB")
Page 9 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Share and Per-Share Amounts) (Unaudited) Statement of Financial Accounting Standards ("SFAS") No. 88 "Employer's Accounting for Settlements and Curtailments of Defined Pension Plans and Termination Benefits." The special item gain did not affect any retiree benefits or benefit programs of the Company. 5. Basic and diluted earnings per share for the three- and nine-month periods ended September 30, 2001, and 2000, are calculated as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------- -------------------------------------- 2001 2000 2001 2000 ------------------ ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> Basic earnings per share Numerator: Income available to stockholders, as reported $ 16,761 $ 23,706 $ 54,111 $ 86,067 ------------------ ------------------ ------------------ ------------------ Denominator: Average number of shares of common stock outstanding 45,870 45,816 45,860 45,898 ------------------ ------------------ ------------------ ------------------ Basic earnings per share $ 0.37 $ 0.52 $ 1.18 $ 1.88 ================== ================== ================== ================== Diluted earnings per share Numerator: Income available to stockholders, as reported $ 16,761 $ 23,706 $ 54,111 $ 86,067 ------------------ ------------------ ------------------ ------------------ Denominator: Average number of shares of common stock outstanding 45,870 45,816 45,860 45,898 Shares issuable upon exercise of stock options 669 868 771 712 ------------------ ------------------ ------------------ ------------------ Total shares 46,539 46,684 46,631 46,610 ------------------ ------------------ ------------------ ------------------ Diluted earnings per share $ 0.36 $ 0.51 $ 1.16 $ 1.85 ================== ================== ================== ================== </TABLE>
Page 10 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Share and Per-Share Amounts) (Unaudited) 6. The significant differences between the U.S. Federal statutory income tax rate on pretax income and the effective income tax rate for the three- and nine-month periods ended September 30, 2001 and 2000, respectively are as follows: <TABLE> <CAPTION> % of Income Before Income Taxes ------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------- -------------------------------------- 2001 2000 2001 2000 ------------------ ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> Federal statutory rate 35.0% 35.0% 35.0% 35.0% Foreign sales corporation benefit (0.2) (6.0) (1.8) (2.7) State taxes, net of federal tax benefit 1.2 -- 1.1 0.5 Depletion (2.1) (1.1) (1.8) (0.9) Reversal of valuation allowance -- -- (1.4) -- Other (3.1) 3.1 (1.4) (0.9) ------------------ ------------------ ------------------ ------------------ Effective income tax rate 30.8% 31.0% 29.7% 31.0% ================== ================== ================== ================== </TABLE> During the first quarter of 2001, the Company released a valuation allowance required on a deferred tax asset related to the Company's facilities in Louvain-la-Neuve, Belgium, which was established in 1996 when the Company's Olefins Business was sold. 7. On May 31, 2001, the Company, through its wholly owned subsidiary Albemarle Deutschland GmbH, completed the acquisition of Martinswerk GmbH ("Martinswerk"), including manufacturing facilities and headquarters in Bergheim, Germany and Martinswerk's 50-percent stake in Magnifin Magnesiaprodukte GmbH, which has manufacturing facilities at St. Jakobs Breitenau, Austria. The acquisition was financed through the Company's existing Revolving Credit Agreement. The acquisition has been accounted for by the purchase method of accounting, and accordingly, the operating results have been included in the Company's consolidated results of operations from the date of acquisition. The US GAAP purchase price allocation, which amounted to approximately $34,000 in cash plus expenses and the assumption of approximately $60,000 in current and long-term liabilities, have been recorded in the accompanying financial statements at September 30, 2001, to the extent possible based upon the use of certain estimates. The assets acquired and liabilities assumed have been based upon information currently available and on current assumptions as to future operations. The Company is also completing the review and determination of the fair values of the other assets acquired and liabilities assumed. Accordingly, the allocation of the purchase price is subject to revision, based upon the final determination of certain issues. Martinswerk produces mineral-based flame retardants for the plastics and rubber markets, brightening pigments for high-quality paper applications and specialty aluminum oxides for polishing, catalyst and niche ceramic applications. Magnifin produces high-purity magnesium hydroxide flame retardant products used in applications requiring higher processing temperatures.
Page 11 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Share and Per-Share Amounts) (Unaudited) On July 1, 2001, the Company acquired the custom and fine chemicals businesses of ChemFirst Inc. (NYSE:CEM) for approximately $79,000 in cash, plus the assumption of certain current liabilities and expenses associated with the acquisition. The acquisition was financed through the Company's existing Revolving Credit Agreement. The Asset Purchase Agreement provides for additional contingent payments to ChemFirst Inc. not expected to exceed $10,000. The US GAAP purchase price allocation, excluding the effects of additional contingent consideration, has been included in the September 30, 2001 financial statements based upon the use of certain estimates. The assets acquired included working capital, property, plant and equipment and certain intangibles, including goodwill and technical know how. The purchase price allocation will be finalized by December 31, 2001. Albemarle's new businesses focus on the manufacture of custom and proprietary fine chemicals and chemical services for the pharmaceutical and life sciences industries. They also include additives for ultraviolet light-cured polymer coatings, which should broaden the portfolio of Albemarle's polymer chemicals business. Included is a multi-functional manufacturing plant in Tyrone, Pennsylvania, and a cGMP (current Good Manufacturing Practices) pilot plant in Dayton, Ohio. Pro forma information is presented as follows for the nine-month periods ended September 30, 2001 and 2000, respectively, and the three-month period ended September 30, 2000, prior to the finalization of the purchase price allocations, as if Martinswerk GmbH and Martinswerk's 50-percent stake in Magnifin Magnesiaprodukte GmbH, and the custom and fine chemicals businesses of ChemFirst Inc., which were acquired on May 31, 2001 and July 1, 2001, respectively, had been acquired on January 1, 2000. <TABLE> <CAPTION> Nine Months Ended Nine Months Ended Three Months Ended September 30, 2001 September 30, 2000 September 30, 2000 --------------------- ---------------------- ---------------------- <S> <C> <C> <C> Net sales $ 748,239 $ 915,656 $ 335,716 ===================== ====================== ====================== Net income $ 56,513 $ 96,090 $ 28,815 ===================== ====================== ====================== Diluted earnings per share $ 1.21 $ 2.06 $ 0.62 ===================== ====================== ====================== </TABLE> The pro forma information presented above includes adjustments for interest expense, depreciation, amortization of intangibles as well as various other income statement accounts in order to properly present results of operations for the Company as if the acquisitions were made on January 1, 2000.
Page 12 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Share and Per-Share Amounts) (Unaudited) 8. The Company is a global manufacturer of specialty polymer and fine chemicals, currently grouped into two operating segments: Polymer Chemicals and Fine Chemicals. The operating segments were determined based on management responsibility. The Polymer Chemicals' segment is comprised of flame retardants, organometallics and catalysts, and polymer additives and intermediates. The Fine Chemicals' operating segment is comprised of agrichemicals and pharmachemicals, performance chemicals and fine chemistry services. Segment data includes intersegment transfers of raw materials at cost and foreign exchange gains and losses as well as allocations for certain corporate costs. The corporate and other expenses include certain corporate-related items not allocated to the reportable segments. <TABLE> <CAPTION> Three Months Ended September 30, ---------------------------------------------------------- 2001 2000 --------------------------- -------------------------- Summary of segment results Net Sales Income Net Sales Income ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Polymer Chemicals $ 117,558 $ 14,217 $ 128,799 $ 28,289 Fine Chemicals 124,459 18,065 108,254 15,044 ------------ ------------ ------------ ------------ Segment totals $ 242,017 32,282 $ 237,053 43,333 Corporate and other expenses ============ (7,026) ============ (8,589) ------------ ------------ Operating profit 25,256 34,744 Interest and financing expenses (2,013) (1,551) Other income, net 975 1,164 ------------ ------------ Income before income taxes $ 24,218 $ 34,357 ============ ============ </TABLE> <TABLE> <CAPTION> Nine Months Ended September 30, ---------------------------------------------------------- 2001 2000 --------------------------- -------------------------- Summary of segment results Net Sales Income Net Sales Income ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Polymer Chemicals $ 347,430 $ 50,363 $ 382,641 $ 87,678 Fine Chemicals 330,283 42,155 316,098 56,753 ------------ ------------ ------------ ------------ Segment totals $ 677,713 92,518 $ 698,739 144,431 Corporate and other expenses ============ (15,171) ============ (17,654) ------------ ------------ Operating profit 77,347 126,777 Interest and financing expenses (4,168) (4,542) Other income, net 3,793 2,500 ------------ ------------ Income before income taxes $ 76,972 $ 124,735 ============ ============ </TABLE>
Page 13 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Share and Per-Share Amounts) (Unaudited) 9. On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company's transition adjustment did not have a material effect on the financial position or results of operations in 2001. In connection with the adoption of SFAS No. 133, the Company elected not to utilize hedge accounting. Consequently, changes in the fair value of derivatives are recognized in the Company's statement of operations. In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and establishes specific criteria for the recognition of intangible assets separately from goodwill. This Statement is not expected to have a material impact on the Company's financial statements. Also during July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 eliminates the amortization of goodwill and instead requires a periodic review of any goodwill balance for possible impairment. SFAS No. 142 also requires that goodwill be allocated at the reporting unit level. The statement is effective for years beginning after December 15, 2001. The Company will discontinue amortization of goodwill as of January 1, 2002 for financial reporting purposes, and will comply with periodic impairment test procedures. This Statement is not expected to have a material impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and related asset retirement costs. SFAS No. 143 is effective for financial statements with fiscal years beginning after June 15, 2002. This Statement is not expected to have a material impact on the Company's financial statements. During October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long Lived-Assets to Be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. This statement also amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 is effective for financial statements with fiscal years beginning after December 15, 2001. This Statement is not expected to have a material impact on the Company's financial statements.
Page 14 ITEM 2. Management's Discussion and Analysis of Results of Operations and ----------------------------------------------------------------- Financial Condition and Additional Information ---------------------------------------------- The following is management's discussion and analysis of certain significant factors affecting the results of operations of Albemarle Corporation ("Albemarle" or "the Company") during the periods included in the accompanying consolidated statements of income and changes in the Company's financial condition since December 31, 2000. Some of the information presented in the following discussion may constitute forward-looking comments within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include, without limitation, the timing of orders received from customers, the gain or loss of significant customers, competition from other manufacturers, changes in the demand for the Company's products, increases in the cost of the products, changes in the market in general, fluctuations in foreign currencies and significant changes in new product introduction resulting in an increase in capital project requests and approvals leading to additional capital spending. Results of Operations --------------------- Third Quarter 2001 Compared with Third Quarter 2000 --------------------------------------------------- Net sales for third quarter 2001 amounted to $242.0 million, up 2.1% or $4.9 million from third quarter 2000 net sales of $237.1 million primarily due to $45.8 million in net sales resulting from the May 31, 2001, acquisition of Martinswerk GmbH and the July 1, 2001 acquisition of the custom and fine chemicals businesses of ChemFirst Inc. offset, in part, by lower shipments and prices in the Company's zeolite business and lower shipments of flame retardants and catalysts and additives. The gross profit margin decreased to 23.4% in 2001 from 29.0% for the corresponding period in 2000. Third quarter 2001 operating profit was down 27.3% or $9.5 million from third quarter 2000 operating profit primarily due to lower shipments and the effects of lower utilization of plant facilities in flame retardants and lower shipments and lower selling prices in surface actives (zeolites) offset, in part, by improved demand in the Company's pharmachemicals and agrichemicals business. Selling, general and administrative expenses ("SG&A") and research and development expenses ("R&D"), decreased 7.8% or $2.7 million in the third quarter of 2001 versus third quarter 2000 primarily due to lower outside consulting expenses and additional cost reduction efforts throughout the Company in 2001 offset, in part, by higher SG&A and R&D costs related to the acquisitions in 2001. As a percentage of net sales, selling, general and administrative expenses, including research and development expenses, were 13.0% in 2001 versus 14.4% in the 2000 quarter.
Page 15 Operating Segments ------------------ Net sales by reportable business operating segment for the third quarter periods ended September 30, 2001 and 2000 are as follows: Net Sales --------- (In Thousands) 2001 2000 ---------- ---------- Polymer Chemicals $117,558 $128,799 Fine Chemicals 124,459 108,254 ---------- ---------- Segment totals $242,017 $237,053 ========== =========== Polymer Chemicals' net sales for third quarter 2001 decreased 8.7%, or $11.2 million, from third quarter 2000 net sales, primarily due to $24.4 in lower shipments and pricing of flame retardants and $4.8 in lower shipments and pricing of catalysts and additives offset, in part, by net sales of $17.5 million, resulting from the May 31, 2001, acquisition of Martinswerk GmbH. Fine Chemicals' net sales for third quarter 2001 increased 15.0% or $16.2 million from third quarter 2000 primarily due to net sales of $28.2 million resulting from the May 31, 2001, acquisition of Martinswerk GmbH and the July 1, 2001, acquisition of the custom and fine chemicals businesses of ChemFirst Inc. and $3.6 million in increased shipments in pharmachemicals primarily offset by lower shipments and unfavorable pricing in surface actives (zeolites) and $5.3 million in lower shipments in agrichemicals. Operating profit by reportable business operating segment for the third quarter periods ended September 30, 2001, and 2000 are as follows: Operating Profit ---------------- (In Thousands) 2001 2000 ---------- ---------- Polymer Chemicals $14,217 $28,289 Fine Chemicals 18,065 15,044 ---------- ---------- Segment totals 32,282 43,333 Corporate and other expenses (7,026) (8,589) ---------- ---------- Operating profit $25,256 $34,744 ========== ========== Polymer Chemicals' third quarter 2001 segment operating profit was down 49.7% or $14.1 million from third quarter 2000 primarily due to $13.8 million in decreased shipments and the effects of lower utilization of plant facilities in flame retardants. Fine Chemicals' third quarter 2001 segment operating profit increased 20.1% or $3.0 million from third quarter 2000 primarily due to $6.2 million in improved performance in agrichemicals and pharmachemicals and favorable costs in bromine and derivatives partially offset by lower shipments and lower sales pricing in surface actives (zeolites). Corporate and other expenses for the third quarter of 2001 were down 18.2% percent or $1.6 million from third quarter 2000 primarily due to lower outside consulting expenses, lower employee related costs and cost reduction efforts.
Page 16 Interest and Financing Expenses ------------------------------- Interest and financing expenses for third quarter 2001 increased $0.5 million from $1.6 million in third quarter 2000 due to higher average outstanding debt related to the acquisition of Martinswerk and the custom and fine chemicals businesses of ChemFirst Inc. in 2001. Other Income, Net ----------------- Other income, net for the third quarter 2001 amounted to $1.0 million, down $0.2 million from the corresponding period in 2000. Income Taxes ------------ Income taxes for third quarter 2001 were lower compared to the same period in 2000 primarily due to lower income before taxes in 2001. The third quarter 2001 effective income tax rate was 30.8%, down from 31.0% in third quarter 2000. Results of Operations --------------------- Nine Months 2001 Compared with Nine Months 2000 ----------------------------------------------- Net sales for the first nine months of 2001 amounted to $677.7 million, down 3.0% or $21.0 million from the corresponding period of 2000 net sales of $698.7 million primarily due to $35.8 million in lower shipments and lower pricing of flame retardants, lower shipments and unfavorable pricing in the Company's zeolite business, $20.1 million in lower shipments of catalysts and additives, and the net effects of foreign exchange in the European and Asia Pacific regions, partially offset by net sales of $55.2 million resulting from the May 31, 2001, acquisition of Martinswerk GmbH and the July 1, 2001, acquisition of the custom and fine chemicals businesses of ChemFirst Inc. and $4.6 million in higher shipments in oil field chemicals. The gross profit margin decreased to 24.3% in the first nine months of 2001 from 30.0% for the corresponding period in 2000. The first nine months of 2001 operating profit was down 39.0% or $49.4 million from the 2000 period, which included a one-time special SFAS No. 88 noncash accounting settlement gain of $15.9 million resulting from an election made to close certain pension contracts in the Company's pension plans. Excluding the one-time special noncash accounting settlement gain in 2000, operating profit for the first nine months of 2001 was down 30.2% or $33.5 million from 2000 primarily due to lower shipments in flame retardants, lower shipments and lower sales pricing in surface actives (zeolites), lower shipments of catalysts and additives, higher overall raw material and energy costs and the unfavorable net effects of foreign exchange. Results for the first nine months of 2001 reflect improved performance in the Company's agrichemicals and pharmachemicals businesses and the benefit of cost reduction efforts. Selling, general and administrative expenses and research and development expenses, decreased 11.2% or $11.0 million in the first nine months of 2001 versus the 2000 period primarily due to lower employee related costs, the benefit of cost reduction efforts and the reduction in focus of corporate research and development efforts, offset, in part, by a $4.0 million increase in recurring selling, general and administrative expenses and research and development expenses associated with the acquisitions during 2001. As a percentage of net sales, selling, general and administrative expenses, including research and development expenses, were 12.9% in the first nine months 2001 versus 14.1% in the corresponding period of 2000.
Page 17 Operating Segments ------------------ Net sales by reportable business operating segment for the nine-months periods ended September 30, 2001 and 2000 are as follows: Net Sales --------- (In Thousands) 2001 2000 ---------- ---------- Polymer Chemicals $347,430 $382,641 Fine Chemicals 330,283 316,098 ---------- ---------- Segment totals $677,713 $698,739 ========== ========== Polymer Chemicals' net sales for the first nine months of 2001 decreased 9.2% or $35.2 million from the corresponding period in 2000 primarily due to $35.8 million in lower shipments and pricing in flame retardants, and $20.1 million in catalysts and additives and the unfavorable net effects of foreign exchange offset, in part, by net sales of $23.5 million, resulting from the May 31, 2001, acquisition of Martinswerk GmbH. Fine Chemicals' net sales for the first nine months of 2001 increased 4.5% or $14.2 million from the corresponding period in 2000 primarily due to net sales of $31.7 million resulting from the May 31, 2001, acquisition of Martinswerk GmbH and $4.6 million in higher shipments of oil field chemicals offset, in part, by lower shipments and unfavorable pricing in surface actives (zeolites). Operating profit by reportable business operating segment for the nine-months periods ended September 30, 2001, and 2000 are as follows: Operating Profit ---------------- (In Thousands) 2001 2000 ---------- ---------- Polymer Chemicals $50,363 $87,678 Fine Chemicals 42,155 56,753 ---------- ---------- Segment totals 92,518 144,431 Corporate and other expenses (15,171) (17,654) ---------- ---------- Operating profit $77,347 $126,777 ========== ========== Polymer Chemicals' first nine months of 2001 segment operating profit was down 42.6% or $37.3 million from the corresponding period in 2000 primarily due to lower shipments and pricing in flame retardants, lower shipments in catalysts and additives, higher raw material and energy costs and the unfavorable net effects of foreign exchange in the 2001 period versus the 2000 period. Polymer Chemicals' segment operating profit for the first nine months of 2000 included an allocation of $6.0 million related to the one-time special SFAS No. 88 settlement gain. Excluding the one-time gain in 2000, Polymer Chemicals' segment operating profit for the first nine months of 2001 was down 38.3% or $31.3 million from the corresponding period in 2000.
Page 18 Fine Chemicals' first nine months of 2001 segment operating profit decreased 25.7% or $14.6 million from the corresponding period in 2000 primarily due to lower shipments and lower pricing in surface actives (zeolites) and higher raw material and energy costs partially offset by improved performance in the agrichemicals and pharmachemicals businesses. Fine Chemicals' segment operating profit for the first nine months of 2000 included an allocation of $6.2 million related to the one-time special SFAS No. 88 settlement gain. Excluding the one-time gain in 2000, Fine Chemicals' segment operating profit for the first nine months of 2001 was down 16.6% or $8.4 million from the corresponding period in 2000. Excluding the allocation of $3.7 million related to the one-time special SFAS No. 88 settlement gain in the first nine months of 2000, corporate and other expenses for the first nine months of 2001 were down 29.0% percent or $6.2 million from the corresponding period of 2000 primarily due to lower employee related costs and the benefit of cost reduction efforts. Interest and Financing Expenses ------------------------------- Interest and financing expenses for the first nine months of 2001 decreased $0.4 million from $4.5 million in the corresponding period of 2000 primarily due to a lower average interest rate in the 2001 period. Other Income, Net ----------------- Other income, net for the first nine months of 2001 amounted to $3.8 million, up $1.3 million from the corresponding period in 2000. Income Taxes ------------ Income taxes for the first nine months of 2001 were lower compared to the same period in 2000 due to lower income before taxes and the reversal in 2001 of a deferred tax valuation allowance associated with one of the Company's foreign subsidiaries. The effective income tax rate for the first nine months of 2001 was 29.7%, down from 31.0% in the corresponding period of 2000. Financial Condition and Liquidity --------------------------------- Cash and cash equivalents at September 30, 2001, were $34.2 million, representing an increase of $14.9 million from $19.3 million at year-end 2000. Cash flows provided from operating activities of $102.0 million, together with $122.9 million of proceeds from borrowings from the Company's Competitive Advance and Revolving Facility Agreement ("Revolving Credit Agreement") were used primarily to cover the acquisitions, capital expenditures, repayment of debt, payment of dividends and additional investments in the Company's joint ventures. The Company anticipates that cash provided from operations in the future will be sufficient to pay its operating expenses, satisfy debt-service obligations and make dividend payments. The change in the Company's accumulated other comprehensive (loss) from December 31, 2000, was primarily due to net foreign currency adjustments, net of related deferred taxes, primarily related to the strengthening of the U.S. Dollar versus the Euro and the Japanese yen. The noncurrent portion of the Company's long-term debt amounted to $12.4 million at September 30, 2001, compared to $97.7 million at the end of 2000. The Company's long-term debt, including the current portion, as a percentage of total capitalization amounted to 23.6% at September 30, 2001. The Company is guarantor of $7.3 million of long-term debt, in the form of commitments, on behalf of its 50-percent owned joint venture company, Jordan Bromine Company Limited. The Company's long-term debt, including the guarantee, as a percent of total capitalization amounted to 24.3% at September 30, 2001.
Page 19 The Company's Revolving Credit Agreement will mature on September 29, 2002. Accordingly, the balance outstanding thereunder is included in current liabilities. The Company anticipates entering into a new long-term agreement in the coming months. The Company's capital expenditures in the first nine months of 2001 were slightly lower than the same period of 2000. For the year capital expenditures are forecasted to be higher than the 2000 level. Capital spending will be financed primarily with cash flow from operations with additional cash, if any, provided from debt. The amount and timing of any additional borrowings will depend on the Company's specific cash requirements. The Company is subject to federal, state, local and foreign requirements regulating the handling, manufacture and use of materials (some of which may be classified as hazardous or toxic by one or more regulatory agencies), the discharge of materials into the environment and the protection of the environment. To the Company's knowledge, it currently is complying, 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 and may be liable for a share of the costs associated with cleaning up various hazardous waste sites. Additional Information ---------------------- Outlook In Polymer Chemicals, our outlook for the next several quarters is essentially more of the same. In flame retardants, we are likely to see some price pressure the longer the slowdown in the electronics market continues, but we are hoping will begin to see some rebound in volumes by mid next year. In our catalysts and additives business, we expect end markets to remain flat and to continue as such into next year or until consumer confidence returns. In Fine Chemicals, our outlook is for the third quarter momentum to continue into the fourth quarter, especially in agrichemicals and pharmachemicals where target markets and key customers' businesses appear reasonably healthy. In order for this to happen, however, our plants must perform with lower unit costs and we must manage inventory levels. We will continue to focus on building our new products pipeline and expanding our global reach. Additional information regarding the Company, its products, markets and financial performance is provided at the Company's Internet web site, www.Albemarle.com. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- There have been no significant changes in our interest rate risk, marketable security price risk or raw material price risk from the information provided in our Form 10-K for the year ended December 31, 2000.
Page 20 Part II - OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- The Company and its subsidiaries are involved from time to time in legal proceedings of types regarded as common in the Company's businesses, particularly administrative or judicial proceedings seeking remediation under environmental laws, such as Superfund, and products liability litigation. While it is not possible to predict or determine the outcome of the proceedings presently pending, in the Company's opinion they should not result ultimately in liabilities that are likely to have a material adverse effect upon the results of operations or financial condition of the Company and its subsidiaries on a consolidated basis. ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits The following document is filed as an exhibit to this Form 10-Q pursuant to Item 601 of Regulation S-K: 99. List of Albemarle Corporation Officers (filed herewith). (b) The report on Form 8-K filed July 10, 2001, related to the July 1, 2001, completion of the acquisition of the custom and fine chemicals businesses of ChemFirst Inc. is incorporated herein by reference.
Page 21 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALBEMARLE CORPORATION ---------------------- (Registrant) Date: November 13, 2001 By: s/ Robert G. Kirchhoefer ----------------------------- Robert G. Kirchhoefer Treasurer and Chief Accounting Officer (Principal Accounting Officer)
Page 22 EXHIBIT INDEX ------------- EXHIBIT - ------- 99. List of Albemarle Corporation Officers