<Page> Page 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
|X| Annual Report Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934
(No Fee Required)
For the fiscal year ended December 31, 2001
or
|_| Transition Report Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934
(No Fee Required)
For the 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, $.01 Par Value NEW YORK STOCK EXCHANGE
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 at least the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
Number of shares of Common Stock outstanding as of December 31, 2001:
45,498,201.
Aggregate market value of voting stock held by non-affiliates of the registrant
as of December 31, 2001: $678,935,184*
* In determining this figure, an aggregate of 17,209,235 shares of Common Stock
treated as beneficially owned by Floyd D. Gottwald, Jr., Bruce C. Gottwald and
members of their families have been excluded and treated as shares held by
affiliates. See Item 12 herein. The aggregate market value has been computed on
the basis of the closing price on the New York Stock Exchange Composite
Transactions on December 31, 2001, as reported by The Wall Street Journal.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Albemarle Corporation's definitive Proxy Statement for its 2002
Annual Meeting of Shareholders filed with the Securities and Exchange Commission
pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "Proxy
Statement") are incorporated by reference into Part III of this Form 10-K/A.
Page 2
ALBEMARLE CORPORATION
PURPOSE OF AMENDMENT:
The purpose of this amendment is to correct a typographical error in Note No.8
beginning on Page 23 of the original filing, Page 11 of this filing.
Also attached is an updated Exhibit 23.1, the consent from our independent
auditors, PricewaterhouseCoopers LLP, dated May 31, 2002.
Page 3
ALBEMARLE CORPORATION AND SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------
(In Thousands of Dollars Except Share Data)
December 31 2001 2000
- ----------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 30,585 $ 19,300
Accounts receivable, less allowance for doubtful
accounts (2001--$4,193; 2000--$2,119) 175,160 174,297
Inventories:
Finished goods 114,337 79,143
Raw materials 19,551 10,804
Stores, supplies and other 25,773 17,471
---------- ---------
159,661 107,418
Deferred income taxes and prepaid expenses 18,255 14,139
- ----------------------------------------------------------------------------------------------------------
Total current assets 383,661 315,154
- ----------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 1,425,203 1,326,534
Less accumulated depreciation and amortization 895,531 836,460
- ----------------------------------------------------------------------------------------------------------
Net property, plant and equipment 529,672 490,074
- ----------------------------------------------------------------------------------------------------------
Prepaid pension assets 128,195 111,537
Other assets and deferred charges 56,199 42,583
Goodwill and other intangibles net of amortization 31,748 22,455
- ----------------------------------------------------------------------------------------------------------
Total assets $1,129,475 $ 981,803
==========================================================================================================
Liabilities And Shareholders' Equity
Current liabilities:
Accounts payable $ 63,559 $ 72,296
Long-term debt, current portion 157,862 299
Accrued expenses 59,978 56,932
Dividends payable 5,915 5,956
Income taxes payable 16,523 6,633
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 303,837 142,116
- ----------------------------------------------------------------------------------------------------------
Long-term debt 12,353 97,681
Other noncurrent liabilities 120,269 83,496
Deferred income taxes 99,714 99,603
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, $.01 par value (authorized 150,000,000 shares) issued
and outstanding--45,498,201 in 2001 and 45,823,743 in 2000) 455 458
Additional paid-in capital 51,025 57,223
Accumulated other comprehensive loss (18,453) (14,688)
Retained earnings 560,275 515,914
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 593,302 558,907
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,129,475 $ 981,803
==========================================================================================================
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
Page 4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------
(In Thousands Except Per-Share Amounts)
Years Ended December 31 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net sales $916,899 $917,549 $845,925
Cost of goods sold 695,564 646,086 588,983
- -----------------------------------------------------------------------------------------------------
Gross profit 221,335 271,463 256,942
Special items 2,051 (8,134) 10,692
Selling, general and administrative expenses 98,915 103,234 97,836
Research and development expenses 21,919 26,201 34,288
- -----------------------------------------------------------------------------------------------------
Operating profit 98,450 150,162 114,126
Interest and financing expenses (5,536) (5,998) (8,379)
Gain on sale of investment in Albright & Wilson stock, net -- -- 22,054
Other income, net 4,282 3,337 937
- -----------------------------------------------------------------------------------------------------
Income before income taxes 97,196 147,501 128,738
Income taxes 29,029 45,725 39,909
- -----------------------------------------------------------------------------------------------------
Net income $ 68,167 $101,776 $ 88,829
=====================================================================================================
Basic earnings per share $ 1.49 $ 2.22 $ 1.89
Shares used to compute basic earnings per share 45,766 45,882 46,889
=====================================================================================================
Diluted earnings per share $ 1.47 $ 2.18 $ 1.87
Shares used to compute diluted earnings per share 46,524 46,606 47,513
=====================================================================================================
Cash dividends declared per share of common stock $ .52 $ .46 $ .40
=====================================================================================================
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
Page 5
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
(In Thousands of Dollars Except Share Data)
Accumulated
Other Total
Common Stock Additional Comprehensive Share-
-------------------- Paid-in (Loss) Retained holders'
Shares Amounts Capital Income Earnings Equity
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1999 47,008,283 $ 470 $ 78,724 $ 7,360 $ 365,113 $ 451,667
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net income for 1999 88,829 88,829
Foreign currency translation
(net of deferred tax benefit of $9,735) (16,555) (16,555)
Other (net of deferred taxes of $104) 182 182
-----------
Total comprehensive income 72,456
Cash dividends declared for 1999 (18,731) (18,731)
Exercise of stock options and SARs 48,756 646 646
Shares purchased and retired (857,400) (8) (15,466) (15,474)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 46,199,639 462 63,904 (9,013) 435,211 490,564
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for 2000 101,776 101,776
Foreign currency translation
(net of deferred tax benefit of $3,803) (6,680) (6,680)
Other (net of deferred taxes of $573) 1,005 1,005
----------
Total comprehensive income 96,101
Cash dividends declared for 2000 (21,073) (21,073)
Exercise of stock options and SARs 132,045 1 2,060 2,061
Shares purchased and retired (574,091) (5) (9,793) (9,798)
Issuance of restricted stock 66,150 1,052 1,052
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 45,823,743 458 57,223 (14,688) 515,914 558,907
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income for 2001 68,167 68,167
Foreign currency translation
(net of deferred tax benefit of $2,019) (3,538) (3,538)
Other (net of deferred tax benefit of $129) (227) (227)
-----------
Total comprehensive income 64,402
Cash dividends declared for 2001 (23,806) (23,806)
Exercise of stock options and SARs 68,809 1 935 936
Shares purchased and retired (417,505) (4) (7,581) (7,585)
Issuance of restricted stock 23,154 448 448
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 45,498,201 $455 $ 51,025 $ (18,453) $ 560,275 $ 593,302
=================================================================================================================================
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
Page 6
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
(In Thousands of Dollars)
Years Ended December 31 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year $ 19,300 $ 48,621 $ 21,180
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income 68,167 101,776 88,829
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization 77,610 73,750 75,750
Increase in prepaid pension assets (16,658) (13,436) (9,714)
Deferred income taxes 3,517 13,405 (2,887)
Noncash pension settlement gain -- (14,990) --
Gain on sale of investment in Albright & Wilson stock, net -- -- (22,054)
Write off of plant facilities -- -- 7,706
Change in assets and liabilities, net of effects of the purchase of businesses:
Decrease (increase) in accounts receivable 22,098 (22,759) (10,775)
Decrease in inventories 2,094 3,423 12,548
(Decrease) increase in accounts payable (20,884) 11,215 18,503
Increase in accrued expenses and income taxes 1,225 445 4,963
Other, net 6,796 2,238 1,428
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 143,965 155,067 164,297
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (49,903) (52,248) (77,569)
Acquisition of businesses, net of cash acquired (113,245) (35,006) --
Investments in joint ventures and nonmarketable securities (12,370) (10,733) (7,791)
Cost of securities available for sale -- -- (135,462)
Proceeds from sale of securities available for sale -- -- 157,516
Other, net (217) 800 (2,562)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (175,735) (97,187) (65,868)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from borrowings 128,230 19,786 135,060
Repayments of long-term debt (54,091) (79,492) (169,758)
Dividends paid (23,844) (19,752) (18,797)
Purchases of common stock (7,585) (9,798) (15,474)
Other, net 862 1,313 646
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided from (used in) financing activities 43,572 (87,943) (68,323)
- ---------------------------------------------------------------------------------------------------------------------------------
Net effect of foreign exchange on cash and cash equivalents (517) 742 (2,665)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 11,285 (29,321) 27,441
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 30,585 $ 19,300 $ 48,621
=================================================================================================================================
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
Page 7
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and operations of
Albemarle Corporation and all of its wholly-owned subsidiaries ("the Company" or
"Albemarle"). The Company consolidates all majority-owned and controlled
subsidiaries and applies the equity method of accounting for investments between
20% and 50% owned. 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 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.
Certain amounts in the accompanying notes to the consolidated financial
statements have been reclassified to conform to the current presentation.
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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the accompanying consolidated financial statements
consist of cash and time deposits of the Company. Time deposits of 90 days or
less are stated at cost, which approximates market value.
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 units or fair value of property, plant and
equipment to determine the future recoverability of any property, plant and
equipment recorded. For purposes of determining these evaluations, undiscounted
cash flows are grouped at levels which management uses to operate the business,
which in some cases include businesses on a worldwide basis. 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.
During 1999, the Company recorded asset write-downs of approximately $7,706
in connection with its ongoing review of its Polymer Chemicals operating
segment. These charges were recorded as a component of cost of goods sold in the
Company's statement of operations and are described in detail as follows. During
the fourth quarter of 1999, $2,925 of deferred engineering costs, incurred in
connection with the planned construction of a flame-retardant plant, were
written off since it was decided not to proceed with the proposed plant. The
assets were written-off as the fair value of the assets were deemed to be zero.
During the third quarter of 1999, the remaining net book value of certain flame
retardant production assets, totaling $2,381, were taken out of service and
written off due to the earlier than anticipated start-up of new replacement
production assets. During the second quarter of 1999, the remaining net book
value of certain flame retardant production assets, totaling $2,400, were idled
and written off due to changes in customer demand for the flame-retardant
product and a determination that the assets had a fair value of zero.
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.
Page 8
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
INVESTMENTS
The Company's investments in joint ventures and nonmarketable securities
amounted to $39,944 and $26,416 at December 31, 2001 and 2000, respectively. At
December 31, 2001, the Company's equity interest in 8 joint ventures and 5
nonmarketable securities amounted to $31,941 and $8,003, respectively. The
Company's investment in any single investee is less than $15,000 and is
accounted for under the equity method. The Company's share of the investee's
(losses) earnings included in the consolidated statement of operations as a
component of other income, net totaled ($645), $1,339 and ($1,017) for the years
ended December 31, 2001, 2000 and 1999, respectively.
Investments in marketable equity securities at December 31, 2001 and 2000,
are accounted for as available-for-sale securities, with changes in fair value
included in "accumulated other comprehensive (loss) income" in the shareholders'
equity section of the consolidated balance sheets. The aggregate fair value of
these investments totaled $3,743 and $4,200 at December 31, 2001 and 2000,
respectively. Net unrealized (losses) gains totaled ($227) and $1,005 at
December 31, 2001 and 2000, respectively.
These investments are included in the balance sheets under the caption
"Other assets and deferred charges".
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.
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.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist principally of goodwill, product licenses
and patents. Goodwill amounted to $26,704 and $21,485 at December 31, 2001 and
2000, respectively, net of accumulated amortization and effects of foreign
currency translation adjustments. Goodwill acquired prior to July 1, 2001 is
being amortized on a straight-line basis over periods of 16 to 20 years.
Intangible assets ($5,044 and $970 at December 31, 2001 and 2000, respectively,
net of accumulated amortization and effects of foreign currency translation
adjustments) are amortized on a straight-line basis over periods from three to
17 years. Amortization of goodwill and other intangibles amounted to $2,400,
$2,694 and $2,091 for 2001, 2000 and 1999, respectively. As of January 1, 2002,
the Company will discontinue amortizing goodwill as required by SFAS No. 142,
"Goodwill and Other Intangible Assets." Assuming the statement had been
implemented by the Company on January 1, 1999, net income and diluted earnings
per share would have been $69,300, $102,700, $89,700 and $1.49, $2.20 and $1.89,
respectively for the years ended December 31, 2001, 2000 and 1999, respectively.
Accumulated amortization of goodwill and other intangibles was $21,980 and
$19,580 at the end of 2001 and 2000, respectively. The Company evaluates
historical and expected undiscounted operating cash flows of the related
business units to determine the future recoverability of any goodwill recorded.
For purposes of determining these evaluations, undiscounted cash flows are
grouped at levels which management uses to operate the business, which in some
cases include businesses on a worldwide basis. Recorded goodwill 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.
RESEARCH AND DEVELOPMENT EXPENSES
The Company-sponsored research and development expenses related to present and
future products are expensed currently as incurred.
Page 9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
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.
EMPLOYEE SAVINGS PLAN
Certain Company employees participate in the Albemarle-defined contribution
401(k) employee savings plan which is generally available to all U.S. full-time
salaried and non-union hourly employees and to employees who are covered by a
collective bargaining agreement which included such participation.
The plan is funded with contributions by participants and the Company. The
Company's contributions to the 401(k) approximated $5,205, $4,860 and $5,090 in
2001, 2000 and 1999, respectively.
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.
In connection with the spin-off of Ethyl Corporation's ("Ethyl") olefins
and derivatives, bromine chemicals, and specialty chemicals businesses ("the
predecessor businesses") into Albemarle Corporation in 1994, the Company and
Ethyl entered into a tax sharing agreement whereby Ethyl agreed to indemnify and
hold harmless the Company against all taxes attributable to the predecessor
businesses prior to the spin-off, with the exception of certain of the Company's
subsidiaries which remained responsible for their taxes.
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
SFAS No. 130 "Reporting Comprehensive Income," established rules for the
reporting of comprehensive income. Comprehensive income is defined as net income
and other comprehensive income and is displayed in the shareholders' equity
section of the consolidated balance sheets.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of all foreign subsidiaries were prepared in their
respective local currencies and translated into U.S. dollars based on the
current exchange rate in effect at the balance sheet dates, while income and
expenses were translated at average rates for the periods presented. Translation
adjustments have no effect on net income. Transaction adjustments are included
in cost of goods sold. Foreign currency transaction adjustments resulted in
gains (losses) of $492, ($798) and $6,034 in 2001, 2000 and 1999, respectively.
Foreign currency transaction gains and losses herein are net of the foreign
exchange gains and losses from financial instruments activity below.
FINANCIAL INSTRUMENTS
The Company manages its foreign currency exposures by maintaining certain assets
and liabilities in approximate balance and through the use from time to time of
foreign exchange contracts. The principal objective of such contracts is to
minimize the risks and/or costs associated with global operating activities. The
Company does not utilize financial instruments for trading or other speculative
purposes. The counterparties to these contractual agreements are major financial
institutions with which the Company generally also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not anticipate
nonperformance by the other parties, and no material loss would be expected from
their nonperformance.
The Company enters into forward currency exchange contracts, which
typically expire within one year, in the regular course of business to assist in
managing its exposure against foreign currency fluctuations on sales and
intercompany transactions.
While these hedging contracts are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying foreign
currency exposures being hedged. Gains and losses on forward contracts are
recognized currently in income. The Company had outstanding forward exchange
contracts at December 31, 2001, hedging US dollar payables in its Japanese
subsidiary, with a notional value totaling $1,553.
Page 10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
The Company had outstanding forward exchange contracts at December 31,
2000, hedging Belgian francs receivables with a notional value totaling $2,691.
For the years ended December 31, 2001, 2000 and 1999, the Company recognized
(losses) gains of ($43), $447 and ($1,001), respectively, in income before
income taxes on its exchange contracts.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123")
encourages, but does not require, companies to record at fair value,
compensation cost for stock-based employee compensation plans. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB Opinion No. 25") and related
interpretations (See Note 9, "Capital Stock"). Under the intrinsic method,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company's transition adjustment and
related cumulative effect of a change in accounting principle relating to the
adoption of SFAS No. 133 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 for then
existing derivatives. Consequently, changes in the fair value of derivatives
will be recognized in the Company's statement of operations.
In July 2001, the Company adopted 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. The
adoption of SFAS No. 141 did not 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.
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.
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.
NOTE 2--SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental information for the consolidated statements of cash flows is as
follows:
2001 2000 1999
- -------------------------------------------------------------
Cash paid during the year for:
Income taxes $17,684 $35,670 $31,285
Interest and financing
expenses (net of
capitalization) 5,383 5,944 8,236
=============================================================
Page 11
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
NOTE 3--EARNIGS PER SHARE:
Basic and diluted earnings per share are calculated as follows:
2001 2000 1999
- ------------------------------------------------------------------
Basic earnings per share
Numerator:
Income available to
stockholders, as reported $68,167 $101,776 $88,829
- ------------------------------------------------------------------
Denominator:
Average number of shares of
common stock outstanding 45,766 45,882 46,889
- ------------------------------------------------------------------
Basic earnings per share $ 1.49 $ 2.22 $ 1.89
==================================================================
Diluted earnings per share
Numerator:
Income available to
stockholders, as reported $68,167 $101,776 $88,829
- ------------------------------------------------------------------
Denominator:
Average number of shares of
common stock outstanding 45,766 45,882 46,889
Shares issuable upon exercise
of stock options and other
common stock equivalents 758 724 624
- ------------------------------------------------------------------
Total shares 46,524 46,606 47,513
- ------------------------------------------------------------------
Diluted earnings per share $ 1.47 $ 2.18 $ 1.87
==================================================================
NOTE 4--INVENTORIES:
Domestic inventories stated on the LIFO basis amounted to $90,282 and $64,068 at
December 31, 2001 and 2000, respectively, which are below replacement cost by
approximately $24,655 and $26,395, respectively.
NOTE 5--DEFERRED INCOME TAXES AND PREPAID EXPENSES:
Deferred income taxes and prepaid expenses consist of the following:
2001 2000
- ----------------------------------------------------------------
Deferred income taxes--current $13,878 $10,410
Prepaid expenses 4,377 3,729
- ----------------------------------------------------------------
Total $18,255 $14,139
================================================================
NOTE 6--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consists of the following:
2001 2000
- ----------------------------------------------------------------
Land $21,156 $ 19,063
Land improvements 29,868 30,376
Buildings 90,003 87,133
Machinery and equipment 1,259,318 1,168,599
Construction in progress 24,858 21,363
- ----------------------------------------------------------------
Total $1,425,203 $1,326,534
================================================================
The cost of property, plant and equipment is depreciated, generally by the
straight-line method, over the following useful lives: land improvements--5 to
30 years; buildings--10 to 40 years; and machinery and equipment--3 to 40 years.
Interest capitalized on significant capital projects in 2001, 2000 and 1999
was $773, $1,192 and $1,978, respectively, while amortization of capitalized
interest (which is included in depreciation expense) in 2001, 2000 and 1999 was
$1,484, $1,495 and $1,440, respectively.
NOTE 7--ACCRUED EXPENSES:
Accrued expenses consist of the following:
2001 2000
- ----------------------------------------------------------------
Employee benefits, payroll and
related taxes $30,454 $31,010
Taxes other than income and payroll 7,211 7,426
Other 22,313 18,496
- ----------------------------------------------------------------
Total $59,978 $56,932
================================================================
NOTE 8--LONG-TERM DEBT:
Long-term debt consists of the following:
2001 2000
- ----------------------------------------------------------------
Variable-rate bank loans $144,600 $70,000
Foreign borrowings 13,584 15,916
Industrial revenue bonds 11,000 11,000
Miscellaneous 1,031 1,064
- ----------------------------------------------------------------
Total 170,215 97,980
Less amounts due within one year 157,862 299
- ----------------------------------------------------------------
Long-term debt $ 12,353 $97,681
================================================================
Page 12
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
Maturities of long-term debt are as follows: 2002--$157,862; 2003--$295;
2004--$146; 2005--$47; 2006--$51 and 2007 through 2021--$11,814.
The Company has a five-year, $500,000 unsecured Competitive Advance and
Revolving Credit Facility Agreement (the "Credit Agreement") that was entered
into on September 24, 1996. The maturity date of the Credit Agreement has been
extended to September 29, 2002. At December 31, 2001 and 2000, $125,000 and
$55,000 in borrowings were outstanding under the Credit Agreement, respectively.
The Credit Agreement contains certain covenants typical for a credit agreement
of its size and nature, including financial covenants requiring the Company to
limit consolidated indebtedness (as defined) to not more than 60% of the sum of
the Company's consolidated shareholders' equity (as defined) and consolidated
indebtedness. The average interest rate on 2001 and 2000 borrowings under the
Credit Agreement was 3.82% and 6.58%, respectively, with a year-end interest
rate of 2.23% and 6.86% on the balance outstanding at December 31, 2001 and
2000, respectively.
The Company has three additional agreements with domestic financial
institutions which provide immediate, uncommitted credit lines, on a short-term
basis, up to a maximum of $120,000 at the individual financial institution's
money market rate. At December 31, 2001 and 2000, $19,600 and $15,000 in
borrowings under these agreements were outstanding, respectively. The average
interest rate on borrowings under these agreements was 4.48% and 6.68% in 2001
and 2000, respectively, with a year-end interest rate of 2.00% and 6.88% on
balances outstanding at December 31, 2001 and 2000, respectively.
One of the Company's foreign subsidiaries has an existing agreement with a
foreign bank which provides immediate uncommitted credit lines, on a short-term
basis, up to a maximum of approximately 2.5 billion Japanese yen ($19,075) at
the individual bank's money market rate. At December 31, 2001 and 2000,
borrowings under this agreement consisted of 1.7 billion Japanese yen ($12,971)
and 1.7 billion Japanese yen ($14,824), respectively. The average interest rate
on borrowings under this agreement was 1.43% and 1.42% in 2001 and 2000,
respectively with a year-end interest rate of 1.38% and 1.50% at December 31,
2001 and 2000, respectively. Certain of the Company's remaining foreign
subsidiaries have three additional agreements with foreign institutions which
provide immediate uncommitted credit lines, on a short term basis, up to a
maximum of approximately $20,646 at the individual institution's money market
rate. These agreements have been guaranteed by the Company. At December 31, 2001
and 2000, borrowings under these agreements were $0 and $183, respectively. The
average interest rate on borrowings under these agreements was 4.40% and 6.40%
in 2001 and 2000, respectively. The year-end interest rate was 4.59% and 6.37%
at December 31, 2001 and 2000, respectively. Additional foreign borrowings at
December 31, 2001 and 2000, consisted of 4.6 million French francs ($613) and
6.4 million French francs ($909), respectively. The average interest rate on
these borrowings was 0.50% at December 31, 2001 and 2000. The year-end interest
rate was 0.50% at December 31, 2001 and 2000.
At December 31, 2000, the Company had the ability to refinance its
borrowings under uncommitted credit lines with domestic financial institutions
and foreign banks with borrowings under the Credit Agreement, therefore, these
amounts were classified as long-term debt. At December 31, 2001, these amounts
are reflected in the accompanying financial statements as current debt.
The Company has a Loan Agreement with Columbia County, Arkansas ("the
County"), which issued $11,000 in Tax-Exempt Solid Waste Disposal Revenue Bonds
("Tax-Exempt Bonds") for the purpose of financing various solid waste disposal
facilities at the Company's Magnolia, Arkansas South Plant. At December 31, 2001
and 2000, $11,000 in borrowings from this agreement was outstanding. The
Tax-Exempt Bonds bear interest at a variable rate which approximates 65% of the
federal funds rate. The average interest rate was 2.84% and 4.34% in 2001 and
2000, respectively, with a year-end interest rate of 1.75% and 5.20%. The
Tax-Exempt Bonds will mature on March 1, 2021 and are collateralized by a
transferable irrevocable direct-pay letter of credit. Concurrently, the Company
and the County entered into a series of agreements. Pursuant to these
agreements, the Company will benefit from a ten-year property tax abatement on
all new capital plant expansions, modifications and/or improvements (except for
the restrictions on the $11,000 Tax-Exempt Bonds) constructed at the Company's
Magnolia, Arkansas South Plant over the next two years, up to a total of
$81,000, including the solid waste disposal facilities mentioned above.
NOTE 9--CAPITAL STOCK:
PREFERRED STOCK
The Company has the authority to issue 15,000,000 shares of preferred stock, in
one or more classes or series. No shares of the Company's preferred stock have
been issued to date.
Page 13
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
STOCK PURCHASES
During 2001, the Company purchased, in market transactions, 417,505 common
shares for $7,585, at an average price of $18.17 per share. The Company
purchased 574,091 common shares, in market transactions, for $9,798, at an
average price of $17.07 per share during 2000. During 1999, the Company
purchased, in market transactions, 857,400 shares for $15,474, at an average
price of $18.05 per share. The Company had authorization to purchase at December
31, 2001 an additional 4,588,200 shares of its common stock.
INCENTIVE PLANS
The Company has two incentive plans (1994 and 1998 plans). The plans provide for
incentive awards payable in either cash or common stock of the Company,
qualified and non-qualified stock options ("stock options"), stock appreciation
rights ("SARs"), and restricted stock awards and performance awards ("stock
awards"). Under the 1994 plan, a maximum of 3,200,000 shares of the Company's
common stock could be issued pursuant to the exercise of stock options, SARs or
the grant of stock awards. At December 31, 2001, 466,985 shares are available
under the 1994 plan. However, it is not anticipated that any additional grants
or awards will be made under the 1994 plan.
Under the 1998 plan, a maximum of 3,000,000 shares of the Company's common
stock may be issued as incentive awards, stock options, SARs or stock awards. At
December 31, 2001, 1,456,650 shares are available under the 1998 plan. Total
compensation expense associated with the Company's incentive plans in 2001, 2000
and 1999 amounted to $3,299, $9,595 and $2,970, respectively.
Stock options outstanding under the two plans have been granted at prices
which are equal to the market value of the stock on the date of grant and expire
5 to 10 years after issuance. The stock options become exercisable based upon
either (a) growth in operating earnings as defined from the base-year earnings,
(b) the increase in fair market value ("FMV") of the Company's common stock,
during a specified period, from the FMV on the date of grant, or (c) at the end
of a fixed period as defined in the agreements.
Presented below is a summary of the activity in the 1994 and 1998 plans:
Shares Weighted-
Available Options Average
for Grant Activity Options Price Exercise Price
- -------------------------------------------------------------------------------------------------------------
January 1, 1999 3,262,939 1,834,287 $ 10.36--$25.75 $17.84
Non-qualifying stock options granted (388,500) 388,500* $ 20.00--$25.75 $21.48
Exercised (53,448) $ 12.29--$13.13 $12.89
Restricted stock awards (15,500)
- -------------------------------------------------------------------------------------------------------------
December 31, 1999 2,858,939 2,169,339 $ 10.36--$25.75 $18.62
Non-qualifying stock options granted (445,500) 445,500* $ 15.94--$22.31 $17.12
Exercised (237,368) $ 10.36--$13.47 $13.06
Non-qualifying stock options canceled and lapsed 97,000 (97,000) $ 13.13--$25.75 $23.14
Restricted stock awards (206,000)
Restricted stock awards canceled 69,350
- -------------------------------------------------------------------------------------------------------------
December 31, 2000 2,373,789 2,280,471 $ 12.12--$25.75 $18.70
Non-qualifying stock options granted (472,500) 472,500* $ 21.32--$24.38 $24.31
Exercised (80,139) $ 12.12--$15.94 $13.12
Non-qualifying stock options canceled and lapsed 28,000 (28,000) $ 15.94--$25.75 $22.23
Restricted stock awards (10,000)
Restricted stock awards canceled 4,346
- -------------------------------------------------------------------------------------------------------------
December 31, 2001 1,923,635 2,644,832 $ 13.13--$25.75 $19.84
=============================================================================================================
<FN>
*The weighted average fair values of options granted during 2001, 2000 and 1999 were $8.07, $10.99 and $6.01,
respectively.
</FN>
Page 14
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
The following table summarizes information about fixed-price stock options at
December 31, 2001:
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------------------------------------------
Number Weighted-Average Weighted-Average Number
Month/Year Exercise Outstanding Remaining Contractual Exercise Exercisable Weighted Average
of Grants Prices at 12/31/01 Life Price at 12/31/01 Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
12 / 1992 $13.47 16,407 1.0 years $13.47 16,407 $13.47
3 / 1994 13.13 554,425 2.2 years 13.13 554,425 13.13
8 / 1996 17.38 293,000 4.7 years 17.38 234,400 17.38
3 / 1998 25.25 50,000 6.3 years 25.25 10,000 25.25
4 / 1998 25.75 419,000(a) 6.3 years 25.75 -- 25.75
11 / 1998 25.75 40,000(a) 6.8 years 25.75 -- 25.75
3 / 1999 25.75 100,000(a) 7.2 years 25.75 -- 25.75
6 / 1999 20.00 267,000(a) 7.5 years 20.00 133,500 20.00
1 / 2000 19.19 50,000(a) 8.0 years 19.19 25,000 19.19
2 / 2000 15.94 327,500 5.2 years 15.94 163,750 15.94
4 / 2000 20.31 5,000 3.3 years 20.31 5,000 20.31
7 / 2000 22.31 50,000(a) 8.5 years 22.31 -- 22.31
1 / 2001 24.38 392,500 9.1 years 24.38 -- 24.38
5 / 2001 24.38 50,000 9.3 years 24.38 -- 24.38
7 / 2001 24.38 15,000 9.5 years 24.38 -- 24.38
8 / 2001 21.32 10,000 9.7 years 21.32 -- 21.32
12 / 2001 24.00 5,000 10.0 years 24.00 -- 24.00
- ---------------------------------------------------------------------------------------------------------------------------------
2,644,832 1,142,482
=================================================================================================================================
(a) During 2001, the lives of these options were extended from seven years to
ten years.
Contingent restricted stock awards were granted to certain employees of the
Company in 2001, 2000 and 1999. Issuance of restricted stock is determined based
on certain performance criteria over periods which could result in as many as
twice the number of shares being issued as restricted stock, or none could be
issued if the performance criteria are not met. Upon issuance, the restricted
stock vests over a period of three years.
The following table summarizes the contingent restricted stock awards
outstanding in 1999, 2000 and 2001:
Contingent Restricted
Shares
- ---------------------------------------------------------------------------------------------------------------------------------
Awards outstanding--January 1, 1999 250,000
Awards granted 13,500
- ---------------------------------------------------------------------------------------------------------------------------------
Awards outstanding--December 31, 1999 263,500
Restricted stock issued to retirees (4,860)
Restricted stock issued to employees (61,290)
Awards canceled (69,350)
Awards granted 146,000
- ---------------------------------------------------------------------------------------------------------------------------------
Awards outstanding--December 31, 2000 274,000
Restricted stock issued to retirees (3,154)
Awards canceled (4,346)
Awards granted 10,000
- ---------------------------------------------------------------------------------------------------------------------------------
Awards outstanding--December 31, 2001 276,500
=================================================================================================================================
In addition, restricted stock for 62,000 shares were granted in 2000 and
1999 which vest over a fixed period as defined in the agreements. During 2001,
20,000 shares were vested and issued.
Page 15
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
In January 2002, the Company's Executive Compensation Committee approved
the conversion of certain performance based restricted stock awards to
performance unit awards, reducing the potential number of shares to be issued
upon meeting the original performance criteria. If the original performance
criteria is met, 50 percent of the value of the incentive award is payable in
restricted cash and 50 percent of the value of the incentive award is payable in
shares of Albemarle common stock, based on the closing market price of Albemarle
common stock on the date of vesting. Both the restricted cash award and the
restricted stock vest over a three year period.
As discussed in Note 1, "Summary of Significant Accounting Policies," the
Company accounts for stock-based compensation plans under APB Opinion No. 25. If
compensation cost had been determined based on the fair value at the grant date
for awards made in 2001, 2000 and 1999 under the plans consistent with the
method of SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
2001 2000
- -------------------------------------------------------------
Net income as reported $ 68,167 $ 101,776
pro forma $ 66,524 $ 100,437
- -------------------------------------------------------------
Basic earnings as reported $ 1.49 $ 2.22
per share pro forma $ 1.45 $ 2.19
- -------------------------------------------------------------
Diluted earnings as reported $ 1.47 $ 2.18
per share pro forma $ 1.43 $ 2.16
=============================================================
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for options granted in 2001, 2000 and 1999, respectively:
dividend yield 3.02%, 2.43% and 2.68%; expected volatility of 31.71%, 32.90% and
31.44%; risk-free interest rate of 5.51%, 5.14% and 6.56%; and expected lives of
seven years.
NOTE 10--COMMITMENTS AND CONTINGENCIES:
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Contractual obligations for plant construction, purchases of equipment, unused
lines of credit and various take or pay and throughput agreements amounted to
approximately $85,323 and $65,592 at December 31, 2001 and 2000, respectively.
In addition, the Company has commitments, in the form of guarantees, for
50% of the loan amounts outstanding (which at December 31, 2001, amounted to
$7,400) from time to time of its 50%-owned joint venture company, Jordan Bromine
Company Limited ("JBC"). JBC entered into the loan agreements in 2000 to finance
construction of certain bromine and derivatives manufacturing facilities on the
Dead Sea. The Company's total loan guarantee commitment for JBC is 50% of the
total loan agreements, which could amount to $73,000 if JBC makes all of its
allowable draws.
SERVICE AGREEMENTS
The Company and Ethyl are parties to various agreements, dated as of February
28, 1994, pursuant to which the Company and Ethyl agreed to coordinate certain
facilities and services of adjacent operating facilities at plants in Pasadena,
Texas, Baton Rouge, Louisiana and Feluy, Belgium. In addition, the Company and
Ethyl are parties to agreements providing for the blending by the Company of
Ethyl's additive products and the production of antioxidants and manganese-based
antiknock compounds at the Orangeburg, South Carolina plant. The Company's
billings to Ethyl in 2001, 2000 and 1999 in connection with these agreements
amounted to $23,776, $28,409 and $29,556, respectively.
The Company and MEMC Pasadena, Inc. ("MEMC Pasadena") are parties to
agreements dated as of July 31, 1995 and subsequently revised effective May 31,
1997, pursuant to which the Company provides certain utilities and services to
the MEMC Pasadena site which is located at Albemarle's Pasadena plant and on
which the electronic materials facility is located. MEMC Pasadena agreed to
reimburse Albemarle for all the costs and expenses plus a percentage fee
incurred as a result of these agreements. The Company's billings to MEMC
Pasadena, in connection with these agreements amounted to $7,882 in 2001, $6,824
in 2000 and $6,339 in 1999.
The Company and BP Amoco Chemical Company [formerly Amoco Chemical Company
("BP")] are parties to numerous operating and service agreements, dated as of
March 1, 1996, pursuant to which the Company provides operating and support
services, certain utilities and products to BP, and BP provides operating and
support services, certain utilities and products to Albemarle, at their
respective facilities in Pasadena, Texas and Feluy, Belgium. The Company's
billings to BP in 2001, 2000 and 1999, in connection with these agreements,
amounted to $53,488, $47,343 and $39,270, respectively. BP's billings to the
Company in 2001, 2000 and 1999, in connection with these agreements, amounted to
$16,330, $15,382 and $14,735, respectively.
ENVIRONMENTAL
The Company has recorded liabilities of $30,245, at December 31, 2001, up
Page 16
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
$18,713, from $11,532 at December 31, 2000, primarily due to the Company's May
31, 2001, acquisition of Martinswerk GmbH, Bergheim, Germany in which the
Company assumed approximately $16,650 of additional government regulated
environmental liabilities, which will be paid out over the next 13 years, as a
part of the purchase price. The amounts recorded represent management's best
estimate of the Company's undiscounted future remediation and other anticipated
environmental costs relating to past operations.
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 to be incurred over a period of time
associated with the Company's past operations in excess of amounts already
recorded, could be up to $9,700 before income taxes. However, the Company
believes that the amount 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.
RENTAL EXPENSE
The Company has a number of operating lease agreements, primarily for office
space, transportation equipment and storage facilities. Future minimum lease
payments for the next five years for all noncancelable leases as of December 31,
2001 are $6,303 for 2002, $4,198 for 2003, $1,163 for 2004, $384 for 2005, $242
for 2006 and amounts payable after 2006 are $330. Rental expense was
approximately $13,540 for 2001, $13,280 for 2000, and $13,840 for 1999.
LITIGATION
The Company is, from time to time, subject to routine litigation incidental to
its businesses. The Company is not party to any pending litigation proceedings
that are expected to have a material adverse effect on the Company's results of
operations or financial condition.
NOTE 11--PENSION PLANS AND OTHER POSTRETIREMENT
BENEFITS:
The Company has noncontributory defined-benefit pension plans covering most
employees. The benefits for these plans are based primarily on compensation
and/or years of service. The funding policy for each plan complies with the
requirements of relevant governmental laws and regulations. Plan assets consist
principally of common stock, U.S. government and corporate obligations and group
annuity contracts. The pension information for all periods presented includes
amounts related to salaried and hourly plans. The net prepaid (accrued) benefit
cost related to pensions is included in "Prepaid pension assets" and "Other
noncurrent liabilities" in the consolidated balance sheets.
The Company provides postretirement medical benefits and life insurance for
certain groups of U.S. retired employees. Medical and life insurance benefit
costs are funded principally on a pay-as-you-go basis. Although the availability
of medical coverage after retirement varies for different groups of employees,
the majority of employees who retire before becoming eligible for Medicare can
continue group coverage by paying all or most of the cost of a composite monthly
premium designed to cover the claims incurred by active and retired employees.
The availability of group coverage for Medicare-eligible retirees also varies by
employee group with coverage designed either to supplement or coordinate with
Medicare. Retirees generally pay a portion of the cost of the coverage. Plan
assets for retiree life insurance are held under an insurance contract and
reserved for retiree life insurance benefits. The accrued postretirement benefit
cost is included in "Other noncurrent liabilities" in the consolidated balance
sheets.
Pension coverage for employees of the Company's foreign subsidiaries is
provided through separate plans. Obligations under such plans are systematically
provided for by depositing funds with trustees or under insurance policies. The
pension cost, actuarial present value of benefit obligations and plan assets
have been combined with the Company's other pension disclosure information
presented.
Page 17
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
The following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans, as well as a summary of significant assumptions:
Other
Pension Benefits Postretirement Benefits
- -----------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Change in benefit obligations
- -----------------------------------------------------------------------------------------------------------------
Benefit obligation at January 1 $304,864 $338,114 $59,766 $55,909
Service cost 8,579 8,737 2,067 1,887
Interest cost 22,792 21,064 4,514 4,142
Plan amendments 307 877 -- --
Assumption changes 10,121 (9,891) 9,661 (2,335)
Actuarial loss 2,328 1,767 2,398 2,803
Benefits paid (15,332) (13,464) (3,344) (2,640)
Acquisition of Martinswerk GmbH 14,412 -- -- --
Plan curtailments, termination benefits and
termination of insurer contracts -- (41,784) -- --
Foreign exchange loss (gain) 187 (556) -- --
- ------------------------------------------------------------------------------------------------------------------
Benefit obligation at December 31 $348,258 $304,864 $75,062 $59,766
==================================================================================================================
Change in plan assets
- ------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at January 1 $467,945 $540,450 $ 6,363 $ 7,197
Actual return on plan assets (61,116) (9,773) 1,892 (834)
Employer contributions 1,495 1,290 2,364 2,640
Benefits paid (15,332) (13,464) (3,344) (2,640)
Transfer to insurer due to termination of contracts -- (50,399) -- --
Transfer to 401(h) account (970) -- -- --
Foreign exchange loss (69) (159) -- --
Employee contributions 66 -- -- --
- ------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $392,019 $467,945 $ 7,275 $ 6,363
==================================================================================================================
Funded status of plans
- ------------------------------------------------------------------------------------------------------------------
Over (under) funded status $43,760 $163,080 $(67,787) $(53,403)
Unrecognized net loss (gain) 58,262 (62,306) 1,553 (9,331)
Unrecognized prior service cost 6,198 7,696 597 696
Unrecognized net transition asset (615) (2,684) -- --
- ------------------------------------------------------------------------------------------------------------------
Net prepaid (accrued) benefit cost at December 31 $107,605 $105,786 $(65,637) $(62,038)
==================================================================================================================
Assumption percentages as of December 31
- ------------------------------------------------------------------------------------------------------------------
Discount rate 7.25% 7.50% 7.25% 7.50%
Expected return on plan assets 9.50% 9.50% 7.00% 7.00%
Rate of compensation increase 4.50% 4.50% 4.50% 4.50%
==================================================================================================================
The components of pension and postretirement benefits (income) expense are as follows:
Pension Benefits Other Postretirement Benefit
- ------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Service cost $ 8,579 $ 8,737 $ 9,676 $2,067 $1,887 $2,152
Interest cost 22,792 21,064 22,425 4,514 4,142 3,738
Expected return on assets (44,708) (40,998) (40,100) (414) (476) (439)
Plan curtailments, termination benefits and
termination of insurer contracts -- (14,836) 713 -- -- --
Amortization of prior service cost 1,780 1,759 1,553 99 99 99
Amortization of (gain) loss (2,322) (1,188) 102 (303) (415) (271)
Amortization of transition asset (2,070) (2,070) (2,351) -- -- --
Employee contributions (77) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Benefits (income) expense $(16,026) $(27,532) $(7,982) $5,963 $5,237 $5,279
========================================================================================================================
Page 18
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
The Company has a Supplemental Retirement Plan ("SERP"),which provides unfunded
supplemental retirement benefits to certain management or highly compensated
employees of the Company. The SERP provides for incremental pension payments
partially to offset the reduction in amounts that would have been payable from
the Company's principal pension plan if it were not for limitations imposed by
federal income tax regulations. Expense relating to the SERP of $1,528, $1,618
and $934 was recorded for the years ended December 31, 2001, 2000 and 1999,
respectively. The accumulated benefit obligation recognized in the Company's
consolidated balance sheet at December 31, 2001 and 2000 was $5,736 and $5,773,
respectively. The benefit expenses and obligations of this SERP are included in
the tables on the preceding page.
In 2000, the Company recognized a one-time noncash pension settlement gain
related to a change in election in certain pension annuity contracts of $14,990.
In 2000 and 1999, the Company recognized curtailment losses and special
termination benefits charges related to pension plans of $154 and $713,
respectively. The 2000 and 1999 curtailment losses and special termination
benefits charges are both included in special charges (See Note 13, "Special
Items") reflecting the voluntary separation offers accepted by 76 and 122
employees throughout the Company in 2000 and 1999, respectively.
The assumed health care cost trend rate for the indemnity plans was 7% per
year in 2001 and 2000 for both pre 65 and post 65 coverage. The trend rate for
the managed care plans for pre 65 coverage was 6% per year in 2001 and 2000. For
2002, the trend rate for pre 65 coverage is 11% per year, dropping by 1% per
year to an ultimate rate of 6%; the trend rate for post 65 coverage is 13% per
year, dropping by 1% per year to an ultimate rate of 6%.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates at December 31, 2001 would have the
following effects:
One-Percentage- One-Percentage-
Point Increase Point Decrease
- --------------------------------------------------------------
Effect on total of service and
interest cost components $ 1,200 $ (900)
- --------------------------------------------------------------
Effect on postretirement
benefit obligation $11,000 $(9,200)
==============================================================
OTHER POST EMPLOYMENT BENEFITS
The Company also provides certain post employment benefits to former or inactive
employees who are not retirees. The Company funds post employment benefits on a
pay-as-you-go basis. These benefits include salary continuance, severance and
disability health care and life insurance which are accounted for under SFAS No.
112 "Employers' Accounting for Post employment Benefits." The accrued post
employment benefit liability was $1,216 and $1,403 at December 31, 2001 and
2000, respectively.
NOTE 12--INCOME TAXES:
Income before income taxes and current and deferred income taxes (benefits) are
composed of the following:
Years Ended December 31
- --------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------
Income before Income taxes:
Domestic $90,528 $137,616 $ 98,395
Foreign 6,668 9,885 30,343(a)
- --------------------------------------------------------------------
Total $97,196 $147,501 $128,738
====================================================================
Current income taxes:
Federal $19,481 $ 25,908 $ 27,336
State 1,039 1,454 1,351
Foreign 4,992 4,958 14,109
- --------------------------------------------------------------------
Total $25,512 $ 32,320 $ 42,796
====================================================================
Deferred income taxes (benefits):
Federal $ 5,965 $ 14,798 $ 2,542
State 597 1,048 (4,406)
Foreign (3,045)(b) (2,441) (1,023)
- --------------------------------------------------------------------
Total $ 3,517 $ 13,405 $ (2,887)
====================================================================
Total income taxes $29,029 $ 45,725 $ 39,909
====================================================================
<FN>
(a) Includes the gain on sale of investment in Albright & Wilson stock, net
totaling $22,054 ($14,381 net of income tax).
(b) In 2001, the Company released a valuation allowance amounting to $2,551
that was 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.
</FN>
The significant differences between the U.S. federal statutory rate and the
effective income tax rate are as follows:
% of Income Before
Income Taxes
- -------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
Foreign sales corporation
benefit (1.9) (2.2) (2.4)
State taxes, net of federal tax
benefit 1.1 1.1 0.9
Depletion (1.8) (1.0) (1.0)
Valuation allowance (2.6) -- --
Other items, net 0.1 (1.9) (1.5)
- -------------------------------------------------------------------
Effective income tax rate 29.9% 31.0% 31.0%
===================================================================
Page 19
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
The deferred income tax assets and deferred income tax liabilities recorded
on the consolidated balance sheets as of December 31, 2001 and 2000, consist of
the following:
2001 2000
- -------------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions $ 23,884 $ 22,612
Foreign currency translation adjustments 11,105 9,086
Accrued employee benefits 6,553 6,464
Inventories 9,073 6,742
Environmental accruals 4,309 3,642
Accrued liabilities 1,732 1,479
Subsidiaries' net operating loss carryforwards 904 956
Other 3,543 2,333
- -------------------------------------------------------------------------------------------------
Deferred tax assets 61,103 53,314
- -------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 93,806 93,653
Pensions 44,012 38,383
Gain on Belgian intercompany loan 6,321 7,321
Capitalization of interest 2,403 2,350
Other 397 800
- -------------------------------------------------------------------------------------------------
Deferred tax liabilities 146,939 142,507
- -------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 85,836 $ 89,193
=================================================================================================
Reconciliation to consolidated balance sheets:
Current deferred tax assets $ 13,878 $ 10,410
Deferred tax liabilities 99,714 99,603
- -------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 85,836 $ 89,193
=================================================================================================
Page 20
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
NOTE 13--SPECIAL ITEMS:
During the fourth quarter of 2001, the Company continued its efforts to reduce
operating costs through an involuntary separation program that resulted in a
special charge of $2,051 ($1,306 after income taxes or 3 cents per share on a
diluted basis). The program impacted a total of 26 salaried employees throughout
the Company. No amounts were paid during 2001.
In April 2000, the Company made a change in election in certain of its
pension annuity contracts. This election resulted in the recognition of a
one-time noncash pension settlement gain of $14,990 ($9,549 after income taxes
or 20 cents per share on a diluted basis). The pension settlement gain did not
affect any retiree benefits or benefit programs of the Company.
In December 2000, the Company incurred a special charge of $6,856 ($4,367
after income taxes or 9 cents per share on a diluted basis) that resulted from
workforce reduction programs at certain of the Company's facilities. The program
impacted a total of 76 salaried and wageroll employees. Essentially all of the
workforce accrual established in the fourth quarter of 2000 was paid out in
2001.
In May 1999, the Company sold all of its 58,394,049 common shares of
Albright & Wilson plc ("Albright & Wilson"), a United Kingdom chemicals company,
that were acquired in March 1999, as part of its friendly tender offer for
Albright & Wilson, for an aggregate consideration of $157,516, resulting in a
gain of $22,054 ($14,381 after income taxes or 30 cents per share on a diluted
basis), net of transaction expenses. The net proceeds from the sale of the
common shares were primarily used to pay down debt under the Company's existing
Credit Agreement.
During 1999, the Company incurred special charges of $10,692 ($6,717 after
income taxes or 14 cents per share on a diluted basis) that resulted primarily
from voluntary separation offers made to various employees throughout the
Company. The program impacted a total of 122 salaried and wageroll employees.
The workforce accruals were primarily paid out in 1999.
NOTE 14--FAIR VALUE OF FINANCIAL INSTRUMENTS:
In assessing the fair value of financial instruments, the Company uses methods
and assumptions that are based on market conditions and other risk factors
existing at the time of assessment. Fair value information for the Company's
financial instruments is as follows:
Cash and Cash Equivalents--The carrying value approximates fair value due
to their short-term nature.
Long-Term Debt--The carrying value of the Company's long-term debt reported
in the accompanying consolidated balance sheets at December 31, 2001 and 2000,
approximates fair value since substantially all of the Company's long-term debt
bears interest based on prevailing variable market rates currently available in
the countries in which the Company has borrowings.
Foreign Currency Exchange Contracts--The fair values of the Company's
forward currency exchange contracts are estimated based on current settlement
values. The fair value of the forward contracts represent a net asset position
of $99 at December 31, 2001. At December 31, 2000, the fair value of the forward
contracts represented a net liability position of $62.
NOTE 15--ACQUISITIONS:
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 $55,000 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 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 Footnote 16, "Pro Forma Financial Information--Unaudited." The
purchase price allocation valuation has been included in the December 31, 2001,
financial statements based upon the use of certain estimates. The Company has
made a decision to reduce staffing levels but is still evaluating the business
operations and personnel requirements; therefore, the purchase price allocation
remains open until further information related to this decision is obtained.
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 21
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
On July 1, 2001, the Company acquired the custom and fine chemicals businesses
of ChemFirst Inc. for approximately $79,000 in cash plus expenses and the
assumption of certain current liabilities. The acquisition was financed through
the Company's existing Credit Agreement. The Asset Purchase Agreement provides
for additional contingent payments to ChemFirst Inc. which are dependent 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 Footnote
16, "Pro Forma Financial Information--Unaudited." The purchase price allocation
valuation, excluding the effects of additional contingent consideration, has
been included in the December 31, 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 valuation is still open at December 31,
2001, pending the Company's finalization of certain inventory related matters.
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. A summary of the assets acquired and liabilities assumed is
presented as follows, prior to the finalization of the purchase price
allocations, for 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.
- -------------------------------------------------------------
Current assets $ 82,623
Property, plant & equipment 67,269
Goodwill and intangibles 9,691
Other assets 9,560
Current liabilities 24,971
Noncurrent environmental accruals 16,224
Other noncurrent liabilities 14,703
- -------------------------------------------------------------
Net cash paid $ 113,245
=============================================================
On June 29, 2000, the Company acquired from Ferro Corporation the
PYRO-CHEK(R) Flame Retardant business ("Ferro"), along with a plant at
Port-de-Bouc, France, for a purchase price of approximately $35,000. The
purchase price was allocated between property, plant, and equipment, inventory,
identifiable intangibles with the remaining balance to goodwill.
No pro forma financial information was provided for the Ferro acquisition
for the periods presented since their impact was immaterial to the Company's
consolidated results of operations and financial position.
NOTE 16--PRO FORMA FINANCIAL INFORMATION--UNAUDITED
The pro forma information presented below for 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, 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.
For the Years Ended
December 31
- -------------------------------------------------------------
2001 2000
- -------------------------------------------------------------
Net sales $ 987,398 $ 1,093,567
Net income $ 70,527 $ 107,789
Diluted earnings per share $ 1.52 $ 2.31
=============================================================
Page 22
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
NOTE 17--OPERATING SEGMENTS AND GEOGRAPHIC AREA INFORMATION:
The Company is a global manufacturer of specialty polymer and fine chemicals,
grouped into two operating segments: Polymer Chemicals and Fine Chemicals. The
operating segments were determined based on management responsibility. The
Polymer Chemicals' operating segment is comprised of flame retardants,
catalysts, and polymer additives and intermediates. The Fine Chemicals'
operating segment is comprised of agrichemicals, pharmachemicals and performance
chemicals.
The accounting policies of the segments are the same as those described in
Note 1, "Summary of Significant Accounting Policies." The Company evaluates the
performance of its operating segments based on operating profit which represents
income before income taxes, before gain on sale of investment in Albright &
Wilson stock and before interest and financing expenses and other income, net.
Segment data includes intersegment transfers of raw materials at cost and
foreign exchange transaction gains and losses, as well as allocations for
certain corporate costs.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Corporate & Other" column
includes corporate-related items not allocated to the reportable segments.
Polymer Fine Corporate
Operating Segment Results Chemicals Chemicals & Other Total
- ----------------------------------------------------------------------------------------------------------------
2001
Net Sales $ 461,930 $ 454,969 -- $ 916,899
Operating profit(a) 59,691 61,466 $ (22,707) 98,450
Identifiable assets 353,855 532,921 242,699 1,129,475
Depreciation and amortization 28,246 48,542 822 77,610
Capital expenditures 14,537 35,134 232 49,903
2000
Net sales $ 500,899 $ 416,650 -- $ 917,549
Operating profit(a) 103,817 70,736 $ (24,391) 150,162
Identifiable assets 350,811 433,380 197,612 981,803
Depreciation and amortization 28,804 43,819 1,127 73,750
Capital expenditures 11,216 40,614 418 52,248
1999
Net sales $ 449,156 $ 396,769 -- $ 845,925
Operating profit(a) 73,083 60,187 $ (19,144) 114,126
Identifiable assets 331,505 436,669 185,920 954,094
Depreciation and amortization 29,027 45,452 1,271 75,750
Capital expenditures 43,289 31,119 3,161 77,569
================================================================================================================
Net Sales(b) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
United States $ 498,141 $ 504,373 $ 480,070
Foreign 418,758 413,176 365,855
- ----------------------------------------------------------------------------------------------------------------
Total $ 916,899 $ 917,549 $ 845,925
================================================================================================================
Long-Lived Assets as of December 31 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
United States $ 428,808 $ 406,169 $ 410,626
France 82,539 93,508 85,696
Other foreign countries 50,073 12,852 16,960
- ----------------------------------------------------------------------------------------------------------------
Total $ 561,420 $ 512,529 $ 513,282
================================================================================================================
<FN>
Notes:
(a Includes the effects of foreign exchange transaction gains(losses) of $492,
($798) and $6,034 in 2001, 2000 and 1999, respectively.
(b No sales in a foreign country exceed 10% of the Company's total net
sales.
</FN>
Page 23
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars Except for Share Data and Per-Share Amounts)
NOTE 18--QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------
2001
Net sales $ 224,410 $ 211,286 $ 242,017 $ 239,186
Gross profit $ 59,455 $ 48,736 $ 56,681 $ 56,463
Special items(a) $ -- $ -- $ -- $ (2,051)
Net income $ 22,545 $ 14,805 $ 16,761 $ 14,056
Basic earnings per share $ .49 $ .32 $ .37 $ .31
Shares used to compute basic earnings per share 45,838 45,873 45,870 45,485
Diluted earnings per share $ .48 $ .32 $ .36 $ .30
Shares used to compute diluted earnings per share 46,686 46,667 46,539 46,204
2000
Net sales $ 235,480 $ 226,206 $ 237,053 $ 218,810
Gross profit $ 74,602 $ 66,006 $ 68,839 $ 62,016
Special items(b,c) $ -- $ 15,900 $ -- $ (7,766)
Net income $ 28,548 $ 33,813 $ 23,706 $ 15,709
Basic earnings per share $ .62 $ .74 $ .52 $ .34
Shares used to compute basic earnings per share 46,084 45,795 45,816 45,834
Diluted earnings per share $ .61 $ .73 $ .51 $ .34
Shares used to compute diluted earnings per share 46,538 46,608 46,684 46,595
============================================================================================================
<FN>
Notes:
(a) A special charge in 2001 totaled $2,051 ($1,306 after income taxes) for the
fourth quarter. This charge resulted from workforce reduction programs which
impacted a total of 26 salaried employees throughout the Company.
(b) In April 2000, a change in election was made in certain pension annuity
contracts which resulted in the recognition of a one-time noncash pension
settlement gain of $15,900 ($10,128 after income taxes). A fourth quarter
actuarial adjustment amounting to $910 ($579 after income taxes) reduced the
net effect on 2000 to $14,990 ($9,549 after income taxes).
(c) A special charge in 2000 totaled $6,856 ($4,367 after income taxes) for the
fourth quarter. This charge resulted from workforce reduction programs which
impacted a total of 76 salaried and wageroll employees at certain of the
Companies' facilities.
</FN>
NOTE 19--SUBSEQUENT EVENT:
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-day period
beginning with the third business day following the January 23, 2002,
announcement of Albemarle's 2001 earnings.
Page 24
ALBEMARLE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
Albemarle Corporation's management has prepared the consolidated financial
statements and related notes appearing on pages 15 through 35 in conformity with
accounting principles generally accepted in the United States. In so doing,
management makes informed judgments and estimates of the expected effects of
events and transactions. Actual results may differ from management's judgments
and estimates. Financial data appearing elsewhere in this annual report are
consistent with these consolidated financial statements.
Albemarle maintains a system of internal controls to provide reasonable,
but not absolute, assurance of the reliability of the financial records and the
protection of assets. The internal control system is supported by written
policies and procedures, careful selection and training of qualified personnel
and an extensive internal audit program.
These consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants. Their
audit was made in accordance with auditing standards generally accepted in the
United States and included an evaluation of Albemarle's internal accounting
controls to the extent considered necessary to determine audit procedures.
The audit committee of the Board of Directors, composed only of
non-employee directors, meets with management, the outsourced independent
internal auditors and the independent accountants to review accounting, auditing
and financial reporting matters. The independent accountants are appointed by
the board on recommendation of the audit committee, subject to shareholder
approval.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Albemarle Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Albemarle Corporation and its subsidiaries at December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
January 23, 2002, except Footnote 19
for which the date is February 13, 2002
Richmond, Virginia
Page 25
ALBEMARLE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /S/
----------------------------
Robert G. Kirchhoefer
Dated: May 31, 2002