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)
September 30, 2001 December 31, 2000
------------------ ------------------
(Unaudited)
ASSETS
Current assets:
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
================== ==================
See accompanying notes to the consolidated financial statements.
Page 4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
September 30, 2001 December 31, 2000
------------------ ------------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
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
================== ==================
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 Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
2001 2000 2001 2000
------------------ ------------------ ------------------ ------------------
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
================== ================== ================== ==================
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 Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
2001 2000 2001 2000
------------------ ------------------ ------------------ ------------------
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
================== ================== ================== ==================
See accompanying notes to the consolidated financial statements.
Page 7
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------------------------
2001 2000
------------------ ------------------
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
================== ==================
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:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
2001 2000 2001 2000
------------------ ------------------ ------------------ ------------------
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
================== ================== ================== ==================
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:
% of Income Before Income Taxes
-------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
2001 2000 2001 2000
------------------ ------------------ ------------------ ------------------
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%
================== ================== ================== ==================
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.
Nine Months Ended Nine Months Ended Three Months Ended
September 30, 2001 September 30, 2000 September 30, 2000
--------------------- ---------------------- ----------------------
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
===================== ====================== ======================
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.
Three Months Ended September 30,
----------------------------------------------------------
2001 2000
--------------------------- --------------------------
Summary of segment results Net Sales Income Net Sales Income
------------ ------------ ------------ ------------
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
============ ============
Nine Months Ended September 30,
----------------------------------------------------------
2001 2000
--------------------------- --------------------------
Summary of segment results Net Sales Income Net Sales Income
------------ ------------ ------------ ------------
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
============ ============
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