Page 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly Period Ended June 30, 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 July 31,
2001: 45,875,567
Page 2
ALBEMARLE CORPORATION
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - June 30, 2001 and
December 31, 2000 3-4
Consolidated Statements of Income - Three- and Six-
Months Ended June 30, 2001 and 2000 5
Consolidated Statements of Comprehensive Income - Three-
and Six- Months Ended June 30, 2001 and 2000 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 7
Notes to the Consolidated Financial Statements 8-12
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, Additional
Information, and Recent Developments 13-19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
ITEM 3. Legal Proceedings 20
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
EXHIBIT 21 List of Albemarle Corporation Subsidiaries
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)
June 30, 2001 December 31, 2000
----------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,887 $ 19,300
Accounts receivable, less allowance for doubtful
accounts (2001 - $3,001; 2000 - $2,119) 149,353 174,297
Inventories:
Finished goods 90,789 79,143
Raw materials 11,303 10,804
Stores, supplies and other 18,234 17,471
------------------ ------------------
120,326 107,418
Deferred income taxes and prepaid expenses 13,348 14,139
------------------ ------------------
Total current assets 290,914 315,154
------------------ ------------------
Property, plant and equipment, at cost 1,337,340 1,326,534
Less accumulated depreciation and amortization 862,768 836,460
------------------ ------------------
Net property, plant and equipment 474,572 490,074
Prepaid pension assets 120,397 111,537
Other assets and deferred charges 93,005 42,583
Goodwill and other intangibles, net of amortization 20,234 22,455
------------------ ------------------
Total assets $ 999,122 $ 981,803
================== ==================
See accompanying notes to the consolidated financial statements.
Page 4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
June 30, 2001 December 31, 2000
----------------- ------------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,793 $ 72,296
Long-term debt, current portion 281 299
Accrued expenses 47,520 56,932
Dividends payable 5,641 5,956
Income taxes payable 18,416 6,633
----------------- ------------------
Total current liabilities 133,651 142,116
----------------- ------------------
Long-term debt 109,440 97,681
Other noncurrent liabilities 86,443 83,496
Deferred income taxes 91,298 99,603
Shareholders' equity:
Common stock, $.01 par value, issued and outstanding-
45,873,464 in 2001 and 45,823,743 in 2000 459 458
Additional paid-in capital 57,922 57,223
Accumulated other comprehensive (loss) (21,428) (14,688)
Retained earnings 541,337 515,914
----------------- ------------------
Total shareholders' equity 578,290 558,907
----------------- ------------------
Total liabilities and shareholders' equity $ 999,122 $ 981,803
================= ==================
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)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- ---------------
Net sales $ 211,286 $ 226,206 $ 435,696 $ 461,686
Cost of goods sold 162,550 160,200 327,505 321,078
-------------- -------------- -------------- ---------------
Gross profit 48,736 66,006 108,191 140,608
Selling, general and administrative
expenses 22,186 25,822 44,890 52,008
Research and development
expenses 5,433 6,219 11,210 12,467
Special item - (15,900) - (15,900)
-------------- -------------- -------------- ---------------
Operating profit 21,117 49,865 52,091 92,033
Interest and financing expenses (1,086) (1,224) (2,155) (2,991)
Other income, net 1,236 363 2,818 1,336
-------------- -------------- -------------- ---------------
Income before income taxes 21,267 49,004 52,754 90,378
Income taxes 6,462 15,191 15,404 28,017
-------------- -------------- -------------- ---------------
Net income $ 14,805 $ 33,813 $ 37,350 $ 62,361
============== ============== ============== ===============
Basic earnings per share $ 0.32 $ 0.74 $ 0.81 $ 1.36
============== ============== ============== ===============
Diluted earnings per share $ 0.32 $ 0.73 $ 0.80 $ 1.34
============== ============== ============== ===============
Cash dividends declared per share of
common stock $ - $ 0.11 $ 0.26 $ 0.22
============== ============== ============== ===============
See accompanying notes to the consolidated financial statements.
Page 6
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Dollars In Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- ---------------
Net income $ 14,805 $ 33,813 $ 37,350 $ 62,361
Other comprehensive (loss) income,
net of tax:
Unrealized gain on securities
available for sale 32 354 (239) 332
Foreign currency translation
adjustments (2,700) (15) (6,501) (4,257)
-------------- -------------- -------------- ---------------
Other comprehensive (loss) income (2,668) 339 (6,740) (3,925)
-------------- -------------- -------------- ---------------
Comprehensive income $ 12,137 $ 34,152 $ 30,610 $ 58,436
============== ============== ============== ===============
See accompanying notes to the consolidated financial statements.
Page 7
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars In Thousands)
(Unaudited)
Six Months Ended June 30,
----------------------------------
2001 2000
-------------- --------------
Cash and cash equivalents at beginning of year $ 19,300 $ 48,621
Cash flows from operating activities:
Net income 37,350 62,361
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization 37,014 36,189
Special item - (15,900)
Working capital decrease (increase) excluding cash and
cash equivalents 743 (10,989)
Other, net (6,696) 4,266
-------------- --------------
Net cash provided from operating activities 68,411 75,927
-------------- --------------
Cash flows from investing activities:
Acquisition of businesses (45,375) (33,000)
Capital expenditures (28,558) (27,781)
Investments in joint ventures and nonmarketable securities (6,193) (7,381)
Other, net 676 2,799
-------------- --------------
Net cash used in investing activities (79,450) (65,363)
-------------- --------------
Cash flows from financing activities:
Proceeds from borrowings 44,000 19,786
Repayments of long-term debt (31,014) (44,700)
Dividends paid (12,239) (9,671)
Purchases of common stock - (8,853)
Proceeds from exercise of stock options 598 809
-------------- --------------
Net cash provided from (used in) financing activities 1,345 (42,629)
-------------- --------------
Net effect of foreign exchange on cash and cash
equivalents (1,719) 1,229
-------------- --------------
(Decrease) in cash and cash equivalents (11,413) (30,836)
-------------- --------------
Cash and cash equivalents at end of period $ 7,887 $ 17,785
============== ==============
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
June 30, 2001, and December 31, 2000, the consolidated results of
operations and comprehensive income for the three- and six-month periods
ended June 30, 2001, and 2000, and condensed consolidated cash flows for
the six-month periods ended June 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 six-
month periods ended June 30, 2001, are not necessarily indicative of the
results to be expected for the full year.
2. Long-term debt consists of the following:
June 30, December 31,
2001 2000
---------------------- ---------------------
Variable-rate bank loans $ 83,200 $ 70,000
Foreign borrowings 14,488 15,916
Industrial revenue bonds 11,000 11,000
Miscellaneous 1,033 1,064
---------------------- ---------------------
Total 109,721 97,980
Less amounts due within one year 281 299
---------------------- ---------------------
Long-term debt $ 109,440 $ 97,681
====================== =====================
3. Cost of goods sold includes foreign exchange transaction (losses) gains
of ($85) and $879, and ($587) and $1,298 for the three- and six-months
periods ended June 30, 2001, and 2000, respectively.
4. In April 2000, the Company made a change in election in certain of its
pension annuity contracts. This election resulted in the recognition of a
one-time noncash special accounting settlement gain of $15,900 ($10,128
after income taxes), or 22 cents per share on a fully diluted basis, in
accordance with SFAS No. 88 "Employer's Accounting for Settlements and
Curtailments of Defined Pension Plans and Termination Benefits". The
special item gain did not affect any retiree benefits or benefit programs
of the Company.
5. Cash dividends declared for the six-month period ended June 30, 2001
totaled $0.26 per share which included a dividend of $0.13 per share
declared on February 28, 2001, payable April 1, 2001, as well as a
dividend of $0.13 per share declared on March 28, 2001, payable July 1,
2001.
Page 9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
6. Basic and diluted earnings per share for the three- and six-month periods
ended June 30, 2001, and 2000, are calculated as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Basic earnings per share
Numerator:
Income available to
stockholders, as reported $ 14,805 $ 33,813 $ 37,350 $ 62,361
-------------- -------------- -------------- --------------
Denominator:
Average number of shares of
common stock outstanding 45,873 45,795 45,855 45,939
-------------- -------------- -------------- --------------
Basic earnings per share $ 0.32 $ 0.74 $ 0.81 $ 1.36
============== ============== ============== ==============
Diluted earnings per share
Numerator:
Income available to
stockholders, as reported $ 14,805 $ 33,813 $ 37,350 $ 62,361
-------------- -------------- -------------- --------------
Denominator:
Average number of shares of
common stock outstanding 45,873 45,795 45,855 45,939
Shares issuable upon
exercise of stock options 794 813 821 634
-------------- -------------- -------------- --------------
Total shares 46,667 46,608 46,676 46,573
-------------- -------------- -------------- --------------
Diluted earnings per share $ 0.32 $ 0.73 $ 0.80 $ 1.34
============== ============== ============== ==============
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ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
7. The significant differences between the U.S. Federal statutory income tax
rate on pretax income and the effective income tax rate for the three-
and six-month periods ended June 30, 2001 and 2000, respectively are as
follows:
% of Income Before Income Taxes
--------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Federal statutory rate 35.0% 35.0% 35.0% 35.0%
Foreign sales corporation benefit (2.5) (1.4) (2.5) (1.5)
State taxes, net of federal tax benefit 1.0 0.8 1.0 0.7
Depletion (2.2) (0.8) (1.7) (0.8)
Reversal of valuation allowance - - (2.0) -
Other (0.9) (2.6) (0.6) (2.4)
---------- ---------- ---------- ----------
Effective income tax rate 30.4% 31.0% 29.2% 31.0%
========== ========== ========== ==========
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.
8. At the close of business on May 31, 2001, the Company through its
wholly-owned subsidiary Albemarle Deutschland GmbH, acquired 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 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 preliminary purchase price plus accrued
costs, which is subject to certain adjustments, amounted to $45,375 plus
the assumption of certain liabilities and is reflected in the June 30,
2001, balance sheet under the caption "other assets and deferred charges"
while the allocation of purchase price is being completed. 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.
Net sales pro forma information is presented as follows for the
six-month-periods ended June 30, 2001 and 2000, respectively, prior to
the finalization of the purchase price allocation ("PPA"), as if
Martinswerk GmbH and Martinswerk's 50% stake in Magnifin Magnesiaprodukte
GmbH, which was acquired on May 31, 2001, had been acquired on January 1,
2001 and 2000, respectively. Net income and earnings per share data will
be included when the PPA is completed.
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
---------------- ----------------
Net Sales $485,682 $520,144
================ ================
Page 11
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
9. 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 and performance chemicals.
Segment data includes intersegment transfers of raw materials at cost and
foreign exchange gains and losses as well as allocations for certain
corporate costs. The corporate and other expenses include
corporate-related items not allocated to the reportable segments.
Three Months Ended June 30,
----------------------------
2001 2000
---- ----
Revenues Income Revenues Income
---------- ---------- ---------- ----------
Summary of segment results
Polymer Chemicals $ 108,916 $ 15,288 $ 125,629 $ 32,461
Fine Chemicals 102,370 9,198 100,577 19,803
---------- ---------- ---------- ----------
Segment totals $ 211,286 24,486 $ 226,206 52,264
========== ==========
Corporate and other expenses (3,369) (2,399)
---------- ----------
Operating profit 21,117 49,865
Interest and financing expenses (1,086) (1,224)
Other income, net 1,236 363
---------- ----------
Income before income taxes $ 21,267 $ 49,004
========== ==========
Six Months Ended June 30,
----------------------------
2001 2000
---- ----
Revenues Income Revenues Income
---------- ---------- ---------- ----------
Summary of segment results
Polymer Chemicals $ 229,872 $ 36,146 $ 253,842 $ 59,389
Fine Chemicals 205,824 24,090 207,844 41,709
---------- ---------- ---------- ----------
Segment totals $ 435,696 60,236 $ 461,686 101,098
========== ==========
Corporate and other expenses (8,145) (9,065)
---------- ----------
Operating profit 52,091 92,033
Interest and financing expenses (2,155) (2,991)
Other income, net 2,818 1,336
---------- ----------
Income before income taxes $ 52,754 $ 90,378
========== ==========
Page 12
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
10. On January 1, 2001, the Company adopted Financial Accounting Standards
("FAS") 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 FAS 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 Financial Accounting Standards Board ("FASB") issued
FAS No. 141, Business Combinations. FAS 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, and it
requires unallocated negative goodwill to be written off immediately as
an extraordinary gain. This Statement is not expected to have a material
impact on the Company's financial statements.
In addition, the FASB issued FAS No. 142, Goodwill and Other Intangible
Assets. FAS No. 142 eliminates the amortization of goodwill and instead
requires a periodic review of any goodwill balance for possible
impairment. FAS No. 142 also requires that goodwill be allocated at the
reporting unit level and is effective for years beginning after December
15, 2001. The Company will discontinue amortization of goodwill as of
January 1, 2002 for book 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.
Page 13
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
ITEM 2. Management's Discussion and Analysis of Results of Operations
----------------------------------------------------------------
and Financial Condition, Additional Information and Recent
----------------------------------------------------------------
Developments
------------
The following is management's discussion and analysis of certain
significant factors affecting the results of operations of Albemarle
Corporation ("Albemarle" or "the Company") during the periods included in
the accompanying consolidated statements of income and changes in the
Company's financial condition since December 31, 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
---------------------
Second Quarter 2001 Compared with Second Quarter 2000
------------------------------------------------------
Net sales for second quarter 2001 amounted to $211.3 million, down 6.6%
or $14.9 million from second quarter 2000 net sales of $226.2 million
primarily due to lower shipments of flame retardants and catalysts and
additives, lower shipments and prices in the Company's zeolites business,
and the net effects of foreign exchange in the European and Asia Pacific
regions, partially offset by the increase of $9.5 million in net sales
resulting from the May 31, 2001, acquisition of Martinswerk GmbH and
higher shipments in oilfield chemicals.
The gross profit margin decreased to 23.1% in 2001 from 29.2% for the
corresponding period in 2000. Second-quarter 2001 operating profit was
down 57.7% or $28.7 million from second-quarter 2000 operating profit,
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,
second-quarter 2001 operating profit was down 37.8% or $12.8 million
primarily due to lower shipments of flame retardants and catalysts and
additives, lower shipments and lower selling prices in surface actives
(zeolites) and the unfavorable net effects of foreign exchange. The
preceding unfavorable results for the second quarter of 2001 versus the
corresponding second quarter in 2000 were offset, in part, by improved
demand in the Company's pharmachemicals and agrichemicals business, lower
employee related costs and the benefit of aggressive cost reduction
efforts.
Selling, general and administrative expenses and research and development
expenses, decreased 13.8% or $4.4 million in the second quarter of 2001
versus second quarter 2000 primarily due to lower employee related costs
and aggressive cost reduction efforts. As a percentage of net sales,
selling, general and administrative expenses, including research and
development expenses, were 13.1% in 2001 versus 14.2% in the 2000
quarter.
Page 14
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
Operating Segments
------------------
Net sales by reportable business operating segment for the second quarter
periods ended June 30, 2001 and 2000 are as follows:
Net Sales
---------
2001 2000
---------- ----------
Polymer Chemicals $108,916 $125,629
Fine Chemicals 102,370 100,577
---------- ----------
Segment totals $211,286 $226,206
========== ==========
Polymer Chemicals' net sales for second quarter 2001 decreased 13.3%, or
$16.7 million, from second quarter 2000 net sales, primarily due to lower
shipments of flame retardants ($12.3 million) offset, in part, by the
increase in net sales of $5.7 million, resulting from the May 31, 2001,
acquisition of Martinswerk GmbH, lower shipments of catalysts and
additives ($7.2 million) and the unfavorable net effects of foreign
exchange.
Fine Chemicals' net sales for second quarter 2001 increased 1.8% or $1.8
million from second quarter 2000 primarily due to higher shipments in
oilfield chemicals of $2.3 million, potassium and chlorine chemicals of
$1.8 million and agrichemicals of $1.8 million as well as the increase in
net sales of $3.8 million resulting from the May 31, 2001, acquisition of
Martinswerk GmbH primarily offset by lower shipments and unfavorable
pricing in surface actives (zeolites).
Operating profit by reportable business operating segment for the second
quarter periods ended June 30, 2001, and 2000 are as follows:
Operating Profit
----------------
2001 2000
---------- ----------
Polymer Chemicals $15,288 $32,461
Fine Chemicals 9,198 19,803
---------- ----------
Segment totals 24,486 52,264
Corporate and other expenses (3,369) (2,399)
---------- ----------
Operating profit $21,117 $49,865
========== ==========
Polymer Chemicals' second quarter 2001 segment operating profit was down
52.9% or $17.2 million from second quarter 2000 primarily due to
decreased shipments in flame retardants and catalysts and additives and
the unfavorable net effects of foreign exchange in second quarter 2001
versus second quarter 2000. Polymer Chemicals' second quarter 2000
segment operating profit 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 was
down 42.2% or $11.2 million from second quarter 2000.
Page 15
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
Fine Chemicals' second quarter 2001 segment operating profit decreased
53.6% or $10.6 million from second quarter 2000 primarily due to lower
shipments and lower sales pricing in surface actives (zeolites) partially
offset by improved demand in agrichemicals and pharmachemicals. Fine
Chemicals' second quarter 2000 segment operating profit 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 was down 32.5% or $4.4 million from second
quarter 2000.
Excluding the allocation of $3.7 million related to the one-time special
SFAS No. 88 settlement gain in the second quarter of 2000, corporate and
other expenses for the second quarter of 2001 were down 45.1% percent or
$2.8 million from second quarter 2000 primarily due to lower employee
related costs and aggressive cost reduction efforts.
Interest and Financing Expenses
----------------------------------
Interest and financing expenses for second quarter 2001 decreased $0.1
million from $1.2 million in second quarter 2000.
Other Income, Net
-----------------
Other income, net for the second quarter 2001 amounted to $1.2 million,
up $0.8 million from the corresponding period in 2000.
Income Taxes
------------
Income taxes for second quarter 2001 were lower compared to the same
period in 2000 primarily due to lower income before taxes in 2001. The
second quarter 2001 effective income tax rate was 30.4%, down from 31.0%
in second quarter 2000.
Results of Operations
---------------------
Six Months 2001 Compared with Six Months 2000
---------------------------------------------
Net sales for the first six months of 2001 amounted to $435.7 million,
down 5.6% or $26.0 million from the corresponding period of 2000 net
sales of $461.7 million primarily due to lower shipments of catalysts and
additives, lower shipments and unfavorable prices in the Company's
zeolites business and lower shipments of flame retardants and the net
effects of foreign exchange in the European and Asia Pacific regions,
partially offset by the increase in net sales of $9.5 million resulting
from the May 31, 2001, acquisition of Martinswerk GmbH and higher
shipments in oilfield chemicals.
The gross profit margin decreased to 24.8% in the first six months of
2001 from 30.5% for the corresponding period in 2000. The first six
months of 2001 operating profit was down 43.4% or $39.9 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 six months of 2001 was down 31.6% or
$24.0 million from 2000 primarily due to lower shipments and lower sales
pricing in surface actives (zeolites), lower shipments of catalysts and
additives and flame retardants, higher overall raw material and energy
costs, the impact of business interruptions at our plants and those of
certain of our customers, net of accrued insurance recoveries and the
unfavorable net effects of foreign exchange. The preceding unfavorable
results for the first six months of 2001 versus the corresponding period
in 2000 were offset, in part, by lower employee related costs, the
benefit of aggressive cost reduction efforts and improved demand in the
Company's agrichemicals business.
Page 16
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
Selling, general and administrative expenses and research and development
expenses, decreased 13.0% or $8.4 million in the first six months of 2001
versus the 2000 period primarily due to lower employee related costs and
the benefit of aggressive cost reduction efforts. As a percentage of net
sales, selling, general and administrative expenses, including research
and development expenses, were 12.9% in the first six months 2001 versus
14.0% in the corresponding period of 2000.
Operating Segments
------------------
Net sales by reportable business operating segment for the six-months
periods ended June 30, 2001 and 2000 are as follows:
Net Sales
---------
2001 2000
---------- ----------
Polymer Chemicals $229,872 $253,842
Fine Chemicals 205,824 207,844
---------- ----------
Segment totals $435,696 $461,686
========== ==========
Polymer Chemicals' net sales for the first six months of 2001 decreased
9.4% or $24.0 million from the corresponding period in 2000 primarily due
to lower shipments in catalysts and additives of $15.3 million and in
flame retardants of $9.4 million offset, in part, by the increase in net
sales of $5.7 million, resulting from the May 31, 2001, acquisition of
Martinswerk GmbH and the unfavorable net effects of foreign exchange.
Fine Chemicals' net sales for the first six months of 2001 decreased 1.0%
or $2.0 million from the corresponding period in 2000 primarily due to
lower shipments and unfavorable pricing in surface actives (zeolites)
primarily offset by higher shipments in oilfield chemicals of $4.4
million as well as the increase in net sales of $3.8 million resulting
from the May 31, 2001, acquisition of Martinswerk GmbH and higher
shipments of potassium and chlorine chemicals of $1.7 million.
Page 17
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
Operating profit by reportable business operating segment for the
six-months periods ended June 30, 2001, and 2000 are as follows:
Operating Profit
----------------
2001 2000
---------- ----------
Polymer Chemicals $36,146 $59,389
Fine Chemicals 24,090 41,709
---------- ----------
Segment totals 60,236 101,098
Corporate and other expenses (8,145) (9,065)
---------- ----------
Operating profit $52,091 $92,033
========== ==========
Polymer Chemicals' first six months of 2001 segment operating profit was
down 39.1% or $23.2 million from the corresponding period in 2000
primarily due to decreased shipments in catalysts and additives and flame
retardants, higher raw material and energy costs, the impact of business
interruptions at our plants and those of certain of our customers, net of
accrued insurance recoveries and the unfavorable net effects of foreign
exchange in the 2001 period versus the 2000 period. Polymer Chemicals'
segment operating profit for the first six 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 six months of 2001 was down 32.3%
or $17.2 million from the corresponding period in 2000.
Fine Chemicals' first six months of 2001 segment operating profit
decreased 42.2% or $17.6 million from the corresponding period in 2000
primarily due to lower shipments and lower sales pricing in surface
actives (zeolites), higher raw material and energy costs, the impact of
business interruptions at our plants, net of accrued insurance recoveries
partially offset by improved demand in agrichemicals. Fine Chemicals'
segment operating profit for the first six 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 six months of 2001 was down 32.2%
or $11.4 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 six months of 2000, corporate
and other expenses for the first six months of 2001 were down 36.4%
percent or $4.6 million from the corresponding period of 2000 primarily
due to lower employee related costs and the benefit of aggressive cost
reduction efforts.
Interest and Financing Expenses
-------------------------------
Interest and financing expenses for the first six months of 2001
decreased $0.8 million from $3.0 million in the corresponding period of
2000 primarily due to lower average outstanding debt.
Page 18
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
Other Income, Net
-----------------
Other income, net for the first six months of 2001 amounted to $2.8
million, up $1.5 million from the corresponding period in 2000.
Income Taxes
------------
Income taxes for the first six 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 six months of 2001 was 29.2%, down from 31.0% in the corresponding
period of 2000.
Financial Condition and Liquidity
---------------------------------
Cash and cash equivalents at June 30, 2001, were $7.9 million,
representing a decrease of $11.4 million from $19.3 million at year-end
2000.
Cash flows provided from operating activities of $68.4 million, together
with $44 million of proceeds from borrowings from the Company's Revolving
Credit Agreement and $11.4 million of existing cash and cash equivalents
were used to cover acquisition of the Martinswerk business, capital
expenditures, payment of dividends, repayment of debt 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) income
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 $109.4
million at June 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 15.9% at June 30, 2001.
The Company is guarantor of $5.2 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 16.6% at
June 30, 2001.
The Company's capital expenditures in the first six months of 2001 were
slightly higher 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 additional debt. The amount and
timing of any additional borrowings will depend on the Company's specific
cash requirements.
The Company is subject to federal, state, local and foreign requirements
regulating the handling, manufacture and use of materials (some of which
may be classified as hazardous or toxic by one or more regulatory
agencies), the discharge of materials into the environment and the
protection of the environment. To the Company's knowledge, it currently
is complying with and expects to continue to comply in all material
respects with existing environmental laws, regulations, statutes and
ordinances. Such compliance with federal, state, local and foreign
environmental protection laws is not expected to have in the future a
material effect on earnings or the competitive position of Albemarle.
Page 19
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
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 Fine Chemicals, we believe we'll see improvements in our
pharmachemicals and agrichemicals business. To realize such improvements
it is important that our ibuprofen operation, currently running near
capacity, must meet anticipated strong second-half customer demand. We
are confident, provided the announced plant expansion plans currently
underway are completed as scheduled, we can meet this demand. We continue
to position our oilfield chemicals and bromine derivatives for the future
with progress on our joint venture bromine project in Jordan. We expect
to see 2001 Fine Chemicals' results slightly below or even with 2000
levels.
In Polymer Chemicals, we foresee continued softness in our flame
retardants business due to continuing weakness in end-use electronics
markets. In addition, with an expected slow recovery in polyolefins
impacting our catalyst and additives businesses, it is likely our
second-quarter 2001 level of performance in Polymer Chemicals will
continue throughout the second half. We will continue to manage our way
through this difficult economic situation proactively, positioning
ourselves to take full advantage for an ultimate recovery, while staying
focused on long-term strategies, which we believe to be sound.
Additional information regarding the Company, its products, markets and
financial performance is provided at the Company's Internet web site,
www.Albemarle.com.
Recent Developments
-------------------
In early July, the Company announced the completion of its acquisition of
the custom and fine chemicals businesses of ChemFirst Inc.(NYSE:CEM) for
$79 million in cash, which will be financed through the Company's
existing Revolving Credit Agreement. The Asset Purchase Agreement also
provides for additional contingent payments to ChemFirst not expected to
exceed $10 million. 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
pilot plant in Dayton, Ohio.
Page 20
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
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.
Part II - OTHER INFORMATION
---------------------------
ITEM 3. Legal Proceedings
-----------------
The Company and its subsidiaries are involved from time to time in legal
proceedings of types regarded as common in the Company's businesses,
particularly administrative or judicial proceedings seeking remediation
under environmental laws, such as Superfund, and products liability
litigation.
While it is not possible to predict or determine the outcome of the
proceedings presently pending, in the Company's opinion they should not
result ultimately in liabilities 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 documents are filed as exhibits to this Form
10-Q pursuant to Item 601 of Regulation S-K:
21. List of the Company's significant subsidiaries as
adjusted to reflect the acquisition of Martinswerk GmbH
(filed herewith).
99. List of Albemarle Corporation Officers (filed herewith).
(b) The report on Form 8-K filed June 1, 2001, related to the
May 31, 2001, completion of the acquisition of Martinswerk
GmbH 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: August 13, 2001 By: s/ Robert G. Kirchhoefer
-----------------------------
Robert G. Kirchhoefer
Treasurer and
Chief Accounting Officer
(Principal Accounting Officer)
Page 22
EXHIBIT INDEX
-------------
Page
Number
------
EXHIBIT
- -------
21. List of Albemarle Corporation Subsidiaries 23
99. List of Albemarle Corporation Officers 24