Page 1
Page 1 of 23 Pages
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 March 31, 2002
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 April 30,
2002: 41,610,716
Page 2
ALBEMARLE CORPORATION
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - March 31, 2002
and December 31, 2001 3-4
Consolidated Statements of Income - Three
Months Ended March 31, 2002 and 2001 5
Consolidated Statements of Comprehensive Income - Three
Months Ended March 31, 2002 and 2001 6
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2002 and 2001 7
Notes to the Consolidated Financial Statements 8-14
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, and Additional
Information 15-21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 4. Submission of Matters to a Vote of Security Holders 22
ITEM 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
Page 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
----------------------
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
March 31, December 31,
2002 2001
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 29,498 $ 30,585
Accounts receivable, less allowance for doubtful
accounts (2002 - $1,910; 2001 - $4,193) 171,626 175,160
Inventories:
Finished goods 121,804 114,337
Raw materials 18,809 19,551
Stores, supplies and other 25,222 25,773
------------ -----------
165,835 159,661
Deferred income taxes and prepaid expenses 17,378 18,255
------------ -----------
Total current assets 384,337 383,661
------------ -----------
Property, plant and equipment, at cost 1,434,971 1,425,203
Less accumulated depreciation and amortization 911,669 895,531
------------ -----------
Net property, plant and equipment 523,302 529,672
Prepaid pension assets 131,510 128,195
Other assets and deferred charges 59,047 56,199
Goodwill 27,488 26,704
Other intangibles, net of amortization 5,226 5,044
------------ -----------
Total assets $1,130,910 $1,129,475
============ ===========
See accompanying notes to the consolidated financial statements.
Page 4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars In Thousands)
----------------------
March 31, December 31,
2002 2001
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 65,619 $ 63,559
Long-term debt, current portion 227,051 157,862
Accrued expenses 60,096 59,978
Dividends payable 5,404 5,915
Income taxes payable 19,907 16,523
----------- -----------
Total current liabilities 378,077 303,837
----------- -----------
Long-term debt 12,060 12,353
Other noncurrent liabilities 127,910 120,269
Deferred income taxes 100,961 99,714
Shareholders' equity:
Common stock, $.01 par value, issued and outstanding-
41,546,341 in 2002 and 45,498,201 in 2001 415 455
Additional paid-in capital 171 51,025
Accumulated other comprehensive loss (19,377) (18,453)
Retained earnings 530,693 560,275
----------- -----------
Total shareholders' equity 511,902 593,302
----------- -----------
Total liabilities and shareholders' equity $1,130,910 $1,129,475
=========== ===========
See accompanying notes to the consolidated financial statements.
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ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In Thousands Except Per-Share Amounts)
---------------------------------------
(Unaudited)
Three Months Ended
March 31,
------------------------------
2002 2001
-------- --------
Net sales $224,628 $224,410
Cost of goods sold 168,868 164,955
-------- --------
Gross profit 55,760 59,455
Selling, general and administrative expenses 25,704 22,704
Research and development expenses 4,776 5,777
Special item 850 -
-------- --------
Operating profit 24,430 30,974
Interest and financing expenses (1,225) (1,069)
Other income, net 792 1,582
-------- --------
Income before income taxes 23,997 31,487
Income taxes 7,199 8,942
-------- --------
Net income $ 16,798 $ 22,545
======== ========
Basic earnings per share $ 0.39 $ 0.49
======== ========
Diluted earnings per share $ 0.38 $ 0.48
======== ========
Cash dividends declared per
share of common stock $ 0.13 $ 0.26
======== ========
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
March 31,
------------------------------
2002 2001
--------- ---------
Net income $16,798 $22,545
Other comprehensive gain (loss),
net of tax:
Unrealized gain (loss) on securities
available for sale 27 (271)
Foreign currency translation
adjustments (951) (3,801)
--------- ---------
Other comprehensive loss (924) (4,072)
--------- ---------
Comprehensive income $15,874 $18,473
========= =========
See accompanying notes to the consolidated financial statements.
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ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars In Thousands)
----------------------
(Unaudited)
Three Months Ended
March 31,
----------------------------
2002 2001
--------- ---------
Cash and cash equivalents at beginning of year $ 30,585 $ 19,300
--------- ---------
Cash flows from operating activities:
Net income 16,798 22,545
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization 20,269 18,445
Working capital increase (decrease) excluding cash
and cash equivalents 1,057 (8,759)
Other, net (4,452) (795)
--------- ---------
Net cash provided from operating activities 33,672 31,436
--------- ---------
Cash flows from investing activities:
Capital expenditures (8,182) (14,469)
Investments in joint ventures and nonmarketable securities (1,277) (6,143)
Restricted cash from industrial revenue bond proceeds 1,741 -
Other, net 1,872 22
--------- ---------
Net cash used in investing activities (5,846) (20,590)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings 100,099 -
Repayments of long-term debt (31,164) (9,216)
Dividends paid (5,918) (5,956)
Purchases of common stock (92,943) -
Proceeds from exercise of stock options 445 591
--------- ---------
Net cash used in financing activities (29,481) (14,581)
--------- ---------
Net effect of foreign exchange on cash and cash equivalents 568 (1,000)
--------- ---------
Net decrease in cash and cash equivalents (1,087) (4,735)
--------- ---------
Cash and cash equivalents at end of period $ 29,498 $ 14,565
========= =========
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 for a fair presentation, in all
material respects, of the Company's consolidated financial position as of
March 31, 2002, and December 31, 2001, the consolidated results of
operations and comprehensive income for the three-month periods ended March
31, 2002, and 2001, and condensed consolidated cash flows for the
three-month periods ended March 31, 2002, and 2001. 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 2001 Annual Report & Form 10-K
filed on February 27, 2002. The December 31, 2001 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-month period ended
March 31, 2002, are not necessarily indicative of the results to be
expected for the full year.
2. Long-term debt consists of the following:
March 31, December 31,
2002 2001
------------ ------------
Variable-rate bank loans $213,940 $144,600
Foreign borrowings 13,174 13,584
Industrial revenue bonds 11,000 11,000
Miscellaneous 997 1,031
------------ ------------
Total 239,111 170,215
Less amounts due within one year 227,051 157,862
------------ ------------
Long-term debt $ 12,060 $ 12,353
============ ============
The Company's Competitive Advance and Revolving Facility Agreement
("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.
3. Cost of goods sold includes foreign exchange transaction gains (losses) of
$791 and ($502) for the three-months ended March 31, 2002 and 2001,
respectively.
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ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
4. Basic and diluted earnings per share for the three-month periods ended
March 31, 2002 and 2001, are calculated as follows:
Three Months Ended
March 31,
---------------------------
Basic earnings per share 2002 2001
- ------------------------ -------- --------
Numerator:
Income available to stockholders, as reported $16,798 $22,545
-------- --------
Denominator:
Average number of shares of common stock
outstanding 43,438 45,838
-------- --------
Basic earnings per share $ 0.39 $ 0.49
======== ========
Diluted earnings per share
- --------------------------
Numerator:
Income available to stockholders, as reported $16,798 $22,545
-------- --------
Denominator:
Average number of shares of common stock
outstanding 43,438 45,838
Shares issuable upon exercise of stock
options and other common stock equivalents 752 848
-------- --------
Total shares 44,190 46,686
-------- --------
Diluted earnings per share $ 0.38 $ 0.48
======== ========
5. Cash dividends declared for the three-month period ended March 31, 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 March 28, 2001, payable July 1, 2001.
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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-month
periods ended March 31, 2002 and 2001, respectively, are as follows:
% of Income Before Income Taxes
---------------------------------
Three Months Ended March 31,
---------------------------------
2002 2001
-------- ---------
Federal statutory rate 35.0% 35.0%
Foreign sales corporation benefit (2.4) (2.5)
State taxes, net of federal tax benefit 1.0 1.0
Depletion (1.9) (1.4)
Reversal of valuation allowance - (3.3)
Other (1.7) (0.4)
--------- ---------
Effective income tax rate 30.0% 28.4%
========= =========
During the first quarter of 2001, the Company released a valuation
allowance that had been 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, acquired Martinswerk GmbH for approximately $34,000 in
cash plus expenses and the assumption of approximately $64,000 in current
and long-term liabilities. The assets acquired included Martinswerk's
manufacturing facilities and headquarters in Bergheim, Germany and its
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
is being 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. See pro
forma financial information presented below. The purchase price allocation
is still open at March 31, 2002, pending the Company's final determination
of an accrual related to the valuation and the number of participants of
the Company's liability for a planned workforce reduction in Germany which
will be finalized by May 31, 2002. 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.
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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. 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. which are dependant upon
the contribution margin of certain products and are not expected to exceed
$10,000. Additional payments, if any, will be recorded as goodwill. The
acquisition is being 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. See pro
forma financial information presented below. The purchase price allocation
valuation, excluding the effects of additional contingent consideration,
has been included in the March 31, 2002 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 is still open at
March 31, 2002, pending the Company's receipt and reconciliation of certain
inventory information from ChemFirst Inc. We expect to finalize the
purchase price allocation in the second quarter of 2002. 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 three-month period
ended March 31, 2001, 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, 2001.
Three Months Ended
March 31, 2001
------------------------
Net sales $265,591
=============
Net income $24,736
=============
Basic earnings per share $0.54
=============
Diluted earnings per share $0.53
=============
The pro forma information presented above primarily includes adjustments
for interest expense, depreciation expense and amortization of intangibles.
Page 12
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
8. On February 13, 2002, the Company completed the purchase of 4,000,000
shares of its common stock from Bruce C. Gottwald and his related immediate
family interests for an aggregate price of $92,680. The Company's purchase
price was 25 cents per share less than the weighted average trading price
from New York Stock Exchange transactions in Albemarle common stock during
the 10 business days' period beginning with the third business day
following the announcement of Albemarle's 2001 year-end earnings.
9. During the first quarter of 2002, the Company continued its efforts to
reduce operating costs through an involuntary separation program that
resulted in a special charge of $850 ($541 after income taxes or 1 cent per
share on a diluted basis). The program impacted a total of 12 salaried
employees throughout the Company. The following table summarizes the total
liability assumed related to the involuntary separation program:
Three Months Ended
March 31, 2002
------------------
Total 2002 workforce
reduction charge $1,114
Less: over accrual from
prior year accruals 264
------------------
Net workforce reduction
charge for 2002 $ 850
==================
Approximately $733 of the total 2002 work force accrual was paid in the
first quarter. In addition, essentially all of the fourth quarter 2001 work
force accrual was paid during the first quarter of 2002.
10. During the first quarter ended March 31, 2002, the Company recorded a net
charge of $2,000 ($1,274 after income taxes or 3 cents per share on a
diluted basis) to costs of sales that related to the discontinuance of
product support for and the withdrawal from a water treatment venture. The
Company's balance sheet at March 31, 2002, included entries reflecting the
accrual of a probable insurance recovery of $3,700 in other assets and
deferred charges and accruals totaling $5,700 in current and noncurrent
liabilities.
11. The Company has recorded environmental liabilities of approximately $29,970
and $30,245 at March 31, 2002 and December 31, 2001, respectively, which
represents management's best estimate of the Company's future remediation
and other anticipated environmental costs relating to past operations. We
believe that such estimate is reasonable based on available information and
that the liabilities and related loss contingencies and the expected
outcome of uncertainties have been adequately described in the Company's
consolidated financial
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ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
statements at December 31, 2001. Although it is difficult to quantify the
potential financial impact of compliance with environmental protection
laws, management estimates, based on the latest available information, that
there is a reasonable possibility that future environmental remediation
costs associated with the Company's past operations, in excess of amounts
already recorded, could be up to $10,000 before income taxes, to be
incurred over a period of time. However, the Company believes that any sum
it may be required to pay in connection with environmental remediation
matters in excess of the amounts recorded should occur over a period of
time and should not have a material adverse impact on its financial
condition or results of operations, but could have a material adverse
impact in a particular quarterly reporting period.
12. 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 March 31,
----------------------------------------------------------------------
2002 2001
----------------------------- -----------------------------
Summary of Segment Results Revenues Income Revenues Income
---------- --------- ---------- --------
Polymer Chemicals $116,463 $11,729 $120,956 $ 20,858
Fine Chemicals 108,165 16,503 103,454 14,892
---------- --------- ---------- ---------
Segment totals $224,628 28,232 $224,410 35,750
========== ==========
Corporate and other expenses (3,802) (4,776)
--------- ---------
Operating profit 24,430 30,974
Interest and financing expenses (1,225) (1,069)
Other income, net 792 1,582
--------- ---------
Income before income taxes $ 23,997 $ 31,487
========= =========
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ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(In Thousands Except Share and Per-Share Amounts)
(Unaudited)
13. During July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("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. This statement was effective for years
beginning after December 15, 2001, with the exception of goodwill and
intangible assets acquired after June 30, 2001, which were subject
immediately to the nonamortization and amortization provisions of the
statement. For financial reporting purposes, the Company discontinued
amortization of goodwill as of January 1, 2002, with the exception of
goodwill associated with the acquisition of the custom and fine chemicals
businesses of ChemFirst Inc., and is in compliance with periodic impairment
test procedures. The Company has completed its transitional goodwill
impairment testing and has determined that goodwill is not impaired at
January 1, 2002.
The following schedule presents net income, basic earnings per share and
diluted earnings per share, exclusive of goodwill amortization expense,
including any related tax effects, for all periods presented in which the
standard had not been adopted.
Three Months Ended
March 31, 2001
---------------------
Reported net income $22,545
Add back: goodwill amortization, net of tax 281
---------------------
Adjusted net income $22,826
=====================
Basic earnings per share:
Reported net income $0.49
Goodwill amortization, net of tax 0.01
---------------------
Adjusted net income $0.50
=====================
Diluted earnings per share:
Reported net income $0.48
Goodwill amortization, net of tax 0.01
---------------------
Adjusted net income $0.49
=====================
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. The Company adopted SFAS No. 144 on January 1, 2002. This Statement
has not had an impact on the Company's financial statements as of March 31,
2002.
Page 15
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, 2001.
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
---------------------
First Quarter 2002 Compared with First Quarter 2001
---------------------------------------------------
Net sales for first quarter 2002 of $224.6 million were about even with
first quarter 2001 net sales of $224.4 million primarily due to $35.6
million in first quarter net sales from the mid-year 2001 acquisitions of
Martinswerk GmbH and the custom and fine chemicals businesses of ChemFirst
Inc. offset, in part, by lower shipments and selling prices in flame
retardants ($14.1 million), catalysts and additives ($7.6 million) and
agrichemicals ($4.9 million), lower selling prices and shipments in
performance chemicals ($6.7 million) and lower shipments in pharmachemicals
($2.2 million).
The gross profit margin decreased to 24.8% in first quarter 2002 from 26.5%
for the corresponding period in 2001. First quarter 2002 operating profit
was down 21.1% or $6.5 million from first quarter 2001 operating profit
primarily due to lower shipments and selling prices in flame retardants and
catalyst and additives and the net unfavorable effects of foreign exchange
offset, in part, by favorable raw material and energy costs and the
favorable net effects of the mid-year 2001 acquisitions. First quarter 2002
operating profit also includes a charge of $2.0 million ($5.7 million, net
of a probable insurance recovery of $3.7 million) to costs of sales that
related to the discontinuance of product support for and the withdrawal
from a water treatment venture as well as a $0.9 million charge for
workforce reductions as the Company continues to aggressively pursue its
cost reduction efforts.
Selling, general and administrative expenses ("SG&A") and research and
development expenses ("R&D"), increased 7.0% or $2.0 million in the first
quarter of 2002 versus first quarter 2001 primarily due to SG&A and R&D
costs related to the businesses acquired in 2001 ($3.2 million) offset, in
part, by the benefits of cost reduction efforts initiated in 2001. As a
percentage of net sales, selling, general and administrative expenses, and
research and
Page 16
development expenses, were 13.6% in 2002 versus 12.7% in the 2001 quarter.
OPERATING SEGMENTS
Net sales by reportable business operating segment for the first quarter
periods ended March 31, 2002 and 2001 are as follows:
Net Sales
(In Thousands)
------------------------------
2002 2001
----------- -----------
Polymer Chemicals $116,463 $120,956
Fine Chemicals 108,165 103,454
----------- -----------
Segment totals $224,628 $224,410
=========== ===========
Polymer Chemicals' net sales for first quarter 2002 decreased 3.7%, or $4.5
million, from first quarter 2001 net sales, primarily due to lower
shipments and pricing of flame retardants ($14.1 million) and catalysts and
additives ($7.6 million), which includes the unfavorable net effects of
foreign exchange ($2.4 million) offset, in part, by net sales of $17.1
million from the May 31, 2001 acquisition of Martinswerk GmbH.
Fine Chemicals' net sales for first quarter 2002 increased 4.6% or $4.7
million from first quarter 2001 primarily due to net sales of $18.5 million
from the mid-year 2001 acquisitions of Martinswerk GmbH and the custom and
fine chemicals businesses of ChemFirst Inc. offset, in part, by lower
pricing and shipments in performance chemicals ($6.7 million), and lower
shipments and pricing in agrichemicals ($4.9 million) and pharmachemicals
($2.2 million), which includes the unfavorable net effects of foreign
exchange ($1.5 million).
Operating profit by reportable business operating segment for the first
quarter periods ended March 31, 2002, and 2001 are as follows:
Operating Profit
(In Thousands)
-----------------------------------
2002 2001
-------------- --------------
Polymer Chemicals $11,729 $20,858
Fine Chemicals 16,503 14,892
-------------- --------------
Segment totals 28,232 35,750
Corporate and other expenses (3,802) (4,776)
-------------- ----------------
Operating profit $24,430 $30,974
============== ================
Polymer Chemicals' first quarter 2002 segment operating profit was down
43.8% or $9.1 million from first quarter 2001 primarily due to lower sales
volumes ($5.0 million), net of the favorable effects of the mid-year 2001
acquisition of Martinswerk GmbH and sales prices ($4.3 million), a
reclassification of bad debt expense for an account written off to the
corporate allowance for doubtful accounts from corporate and other expenses
($2.0 million) and the net unfavorable effects of foreign exchange ($2.0
million) offset, in part, by favorable raw material costs ($4.6 million).
Page 17
Fine Chemicals' first quarter 2002 segment operating profit increased 10.8%
or $1.6 million from first quarter 2001 primarily due to favorable plant
utilization and production costs ($7.5 million) and favorable raw material
costs ($4.9 million) offset, in part, by lower sales prices ($4.6 million)
and volumes ($3.6 million) and a charge of $2.0 million ($5.7 million, net
of a probable insurance recovery of $3.7 million) that related to the
discontinuance of product support for and the withdrawal from a water
treatment venture.
Corporate and other expenses for the first quarter of 2002 were down 20.4%,
or $1.0 million, from first quarter 2001 primarily due to a
reclassification of bad debt expense to Polymer Chemicals ($2.0 million)
offset, in part, by a first quarter 2001 workforce reduction charge ($0.9
million).
INTEREST AND FINANCING EXPENSES
Interest and financing expenses for first quarter 2002 increased $0.1
million from $1.1 million in first quarter 2001.
OTHER INCOME, NET
Other income, net for the first quarter 2002 amounted to $0.8 million, down
$0.8 million from the corresponding period in 2001.
INCOME TAXES
Income taxes for first quarter 2002 were lower compared to the same period
in 2001 primarily due to lower income before taxes in 2002. The first
quarter 2002 effective income tax rate was 30.0%, up from 28.4% in first
quarter 2001. During the first quarter of 2001, the Company released a
valuation allowance that had been 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.
Financial Condition and Liquidity
---------------------------------
Cash and cash equivalents at March 31, 2002, were $29.5 million,
representing a decrease of $1.1 million from $30.6 million at year-end
2001.
Cash flows provided from operating activities of $33.7 million, together
with $100.1 million of proceeds from borrowings primarily from the
Company's Competitive Advance and Revolving Facility Agreement ("Revolving
Credit Agreement") were used primarily to purchase 4,000,000 shares of the
Company's common stock, to cover repayment of debt, capital expenditures,
and payment of dividends. 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, 2001, 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.
Page 18
The noncurrent portion of the Company's long-term debt amounted to $12.1
million at March 31, 2002, compared to $12.4 million at the end of 2001.
The Company's long-term debt, including the current portion, as a
percentage of total capitalization amounted to 31.8% at March 31, 2002. The
Company is guarantor of $11.8 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 32.9% at March
31, 2002.
The Company's Revolving Credit Agreement will mature on September 29, 2002.
Accordingly, the balance outstanding at March 31, 2002, is included in
current liabilities. The Company anticipates entering into a new long-term
agreement in the coming months based upon market conditions at the time the
agreement is consummated.
The Company's capital expenditures in the first three months of 2002 were
lower than the same period of 2001. For the year capital expenditures are
forecasted to be slightly lower than the 2001 level. Capital spending will
be financed primarily with cash flow from operations with additional cash
needed, if any, to be 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
----------------------
Summary of Critical Accounting Policies:
----------------------------------------
CONSOLIDATION
The consolidated financial statements include the accounts and operations
of Albemarle Corporation and all of its majority-owned and controlled
subsidiaries. The Company applies the equity method of accounting for
investments between 20% and 50% owned and the Company has significant
influence. All significant intercompany accounts and transactions are
eliminated in consolidation.
ESTIMATES AND RECLASSIFICATIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported
Page 19
amounts of revenues, expenses, assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Sales revenue is recognized when (1) ownership and all rewards and risks of
loss have been transferred to the buyer, (2) the price is fixed and
determinable and (3) collectibility is reasonably assured. Revenue from
services is recognized when costs of providing services are incurred.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined
on the last-in, first-out ("LIFO") basis for substantially all domestic
inventories except stores and supplies, and on either the weighted-average
or first-in, first-out cost basis for other inventories.
PROPERTY, PLANT AND EQUIPMENT
Accounts include costs of assets constructed or purchased, related delivery
and installation costs and interest incurred on significant capital
projects during their construction periods. Expenditures for renewals and
betterments also are capitalized, but expenditures for repairs and
maintenance are expensed as incurred. The cost and accumulated depreciation
applicable to assets retired or sold are removed from the respective
accounts, and gains or losses thereon are included in income. Depreciation
is computed primarily by the straight-line method based on the estimated
useful lives of the assets.
The Company evaluates historical and expected undiscounted operating cash
flows of the related business segments or fair value of property, plant and
equipment to determine the future recoverability of any property, plant and
equipment recorded. Recorded property, plant and equipment is reevaluated
on the same basis at the end of each accounting period whenever any
significant permanent changes in business or circumstances have occurred
which might impair recovery.
The costs of brine wells, leases and royalty interests are primarily
amortized over the estimated average life of the well. On a yearly basis
for all wells, this approximates a unit-of-production method based upon
estimated reserves and production volumes.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental compliance costs include the cost of purchasing and/or
constructing assets to prevent, limit and/or control pollution or to
monitor the environmental status at various locations. These costs are
capitalized and depreciated based on estimated useful lives.
Environmental compliance costs also include maintenance and operating costs
with respect to pollution prevention and control facilities and other
administrative costs. Such operating costs are expensed as incurred.
Environmental remediation costs of facilities used in current operations
are generally immaterial and are expensed as incurred.
Page 20
The Company accrues for environmental remediation costs and
post-remediation costs on an undiscounted basis at facilities or off-plant
disposal sites that relate to existing conditions caused by past operations
in the accounting period in which responsibility is established and when
the related costs are estimable. In developing these cost estimates,
evaluation is given to currently available facts regarding each site, with
consideration given to existing technology, presently enacted laws and
regulations, prior experience in remediation of contaminated sites, the
financial capability of other potentially responsible parties and other
factors, subject to uncertainties inherent in the estimation process.
Additionally, these estimates are reviewed periodically, with adjustments
to the accruals recorded as necessary.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Annual costs of pension plans are determined actuarially based on Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 87, "Employers' Accounting for Pensions" ("SFAS No.
87"). The Company's policy is to fund U.S. pension plans at amounts not
less than the minimum requirements of the Employee Retirement Income
Security Act of 1974 and generally for obligations under its foreign plans
to deposit funds with trustees and/or under insurance policies. Annual
costs of other postretirement plans are accounted for based on SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." The policy of the Company is to fund post-retirement health
benefits for retirees on a pay-as-you-go basis.
INCOME TAXES
The Company and its subsidiaries file consolidated U.S. Federal income tax
returns and individual foreign income tax returns.
Deferred income taxes result from temporary differences in the recognition
of income and expenses for financial and income tax reporting purposes,
using the liability or balance sheet method. Such temporary differences
result primarily from differences between the financial statement carrying
amounts and tax basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. It is
the Company's policy to record deferred income taxes on any undistributed
earnings of foreign subsidiaries that are not deemed to be, or are not
intended to be, permanently reinvested in those subsidiaries.
Outlook
-------
In Polymer Chemicals, we hope the improvement in flame retardant volumes
that we have seen earlier this year will continue. We are uncertain, at
this point, about its sustainability because we are still trying to
validate whether it is based on true end-market demand strength or the
result of inventory buildup in the supply chain. We hope to have this
sorted out by the middle of the year. We are, however, seeing some erosion
in pricing, primarily in some of our larger volume flame retardant
products, brought on by excess capacity that resulted from the electronics
industry slowdown. We continue to watch the polyolefins end markets closely
in order to determine when we can expect strengthening in our customers
demand for our catalysts and additives businesses.
Page 21
In Fine Chemicals, we anticipate a slightly weaker second quarter of 2002
due to the seasonality in our agrichemicals business, but then stronger
succeeding quarters such that 2002 should exceed last year operating
profits.
Overall, we believe our business will be essentially flat through the first
half of this year followed by a period of gradual improvement as the
polymer industry starts to recover.
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, 2001.
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 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.
Page 22
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the annual meeting of shareholders held on March 27, 2002, there were
41,535,476 shares of common stock outstanding and entitled to vote, and
37,901,755 were represented in person or by proxy. The voting shareholders
elected the directors nominated in the Proxy Statement with the following
affirmative votes and votes withheld:
Director Affirmative Votes Votes Withheld
--------- ----------------- --------------
Craig R. Andersson 37,229,678 672,077
Floyd D. Gottwald, Jr. 37,117,213 784,542
John D. Gottwald 37,149,751 752,004
William M. Gottwald 37,123,017 778,738
Richard L. Morrill 37,224,721 677,034
Seymour S. Preston III 37,228,045 673,710
Paul F. Rocheleau 37,220,437 681,318
Mark C. Rohr 37,204,177 697,578
Charles E. Stewart 37,151,695 750,060
Charles B. Walker 37,208,274 693,481
Anne M. Whittemore 37,225,684 676,071
The shareholders also approved the appointment of PricewaterhouseCoopers
LLP as the Company's auditors for 2002 with 36,766,985 affirmative votes,
1,069,845 negative votes and 64,925 abstentions.
ITEM 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits - None
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
Page 23
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: May 8, 2002 By: s/ Robert G. Kirchhoefer
--------------------------
Robert G. Kirchhoefer
Treasurer and Chief Accounting Officer
(Principal Accounting Officer)