<PAGE>Page 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Transition Period from to
---------- ----------
Commission File Number 1-12658
ALBEMARLE CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1692118
------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S.Employer incorporation or
organization) Identification No.)
330 SOUTH FOURTH STREET
P. O. BOX 1335
RICHMOND, VIRGINIA 23210
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (804) 788-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock, $.01 par value, outstanding as of September
30, 2000: 45,827,066
<PAGE>Page 2
ALBEMARLE CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999 3-4
Consolidated Statements of Income - Three and
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Income - Three
and Nine Months Ended September 30, 2000 and 1999 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 7
Notes to the Consolidated Financial Statements 8-12
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition and Additional
Information and Recent Developments 13-19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
ITEM 3. Legal Proceedings 19
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
<PAGE>Page 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
--------------------
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,847 $ 48,621
Accounts receivable, less allowance for doubtful
accounts(2000-$2,699; 1999 - $2,609) 176,746 155,140
Inventories:
Finished goods 76,281 82,415
Raw materials 10,962 10,889
Stores, supplies and other 17,126 17,512
------------- --------------
104,369 110,816
Deferred income taxes and prepaid expenses 12,788 18,022
------------- --------------
Total current assets 312,750 332,599
------------- --------------
Property, plant and equipment, at cost 1,305,614 1,287,507
Less accumulated depreciation and amortization 822,797 792,122
------------- --------------
Net property, plant and equipment 482,817 495,385
------------- --------------
Prepaid pension costs 108,041 83,111
Other assets and deferred charges 58,643 25,102
Goodwill and other intangibles, net of amortization 14,684 17,897
------------- --------------
Total assets $ 976,935 $ 954,094
============= ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 4
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- --------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 69,448 $ 61,386
Long-term debt, current portion 286 779
Accrued expenses 54,010 50,505
Dividends payable 5,041 4,635
Income taxes payable 14,153 14,048
------------- --------------
Total current liabilities 142,938 131,353
------------- --------------
Long-term debt 110,682 158,981
Other noncurrent liabilities 83,563 81,185
Deferred income taxes 92,685 92,011
Shareholders' equity:
Common stock, $.01 par value,
issued - 45,827,066 in 2000 and
46,199,639 in 1999, respectively 458 462
Additional paid-in capital 57,677 63,904
Accumulated other comprehensive
(loss) income (17,229) (9,013)
Retained earnings 506,161 435,211
------------- --------------
Total shareholders' equity 547,067 490,564
------------- --------------
Total liabilities and shareholders' equity $976,935 $954,094
============= ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 5
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per-Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $237,053 $212,086 $698,739 $621,242
Cost of goods sold 168,214 152,602 489,292 433,067
------------ ------------ ------------ ------------
Gross profit 68,839 59,484 209,447 188,175
------------ ------------ ------------ ------------
Selling, general and
administrative expenses 27,106 24,879 79,114 76,079
Research and development
expenses 6,989 8,603 19,456 26,119
Special items -- 852 (15,900) 6,631
------------ ------------ ------------ ------------
Operating profit 34,744 25,150 126,777 79,346
Interest and financing
expenses (1,551) (1,564) (4,542) (6,883)
Gain on sale of investment in
Albright & Wilson stock, net -- -- -- 22,054
Other income (expense), net 1,164 (20) 2,500 960
------------ ------------ ------------ ------------
Income before income taxes 34,357 23,566 124,735 95,477
Income taxes 10,651 6,427 38,668 30,553
------------ ------------ ------------ ------------
Net income $23,706 $17,139 $86,067 $64,924
============ ============ ============ ============
Basic earnings per share $ .52 $ .37 $ 1.88 $ 1.38
============ ============ ============ ============
Shares used to compute
basic earnings per share 45,816 46,949 45,898 47,000
============ ============ ============ ============
Diluted earnings per share $ .51 $ .36 $ 1.85 $ 1.36
============ ============ ============ ============
Shares used to compute
diluted earnings per share 46,684 47,475 46,610 47,651
============ ============ ============ ============
Cash dividends declared per
share of common stock $ .11 $ .10 $ .33 $ .30
============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 6
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2000 1999 2000 1999
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net income $23,706 $17,139 $86,067 $64,924
Other comprehensive income (loss),
net of tax:
Net change in unrealized gain
on securities
available-for-sale 193 -- 525 --
Foreign currency translation
adjustments (4,484) 1,899 (8,741) (12,053)
------------ ----------- ------------- -----------
Other comprehensive income (loss) (4,291) 1,899 (8,216) (12,053)
------------ ----------- ------------- -----------
Comprehensive income $19,415 $19,038 $77,851 $52,871
============ =========== ============= ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 7
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash and cash equivalents at beginning of year $48,621 $21,180
------------ -----------
Cash flows from operating activities:
Net income 86,067 64,924
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization 54,312 56,844
Special items (15,900) --
Gain on sale of investment in Albright & Wilson stock, net -- (22,054)
Write off of plant facilities -- 4,781
Working capital (increase) decrease excluding cash and cash
equivalents, net of effects of purchase of business in 2000 (5,383) 36,485
Other, net 1,222 (5,028)
------------ -----------
Net cash provided from operating activities 120,318 135,952
------------ -----------
Cash flows from investing activities:
Capital expenditures (40,219) (61,298)
Acquisition of business (33,000) --
Investments in joint ventures and nonmarketable securities (7,978) (3,245)
Proceeds from sale of investment in Albright & Wilson stock -- 157,516
Cost of investment in Albright & Wilson stock -- (135,462)
Other, net 1,392 (4,545)
------------ -----------
Net cash used in investing activities (79,805) (47,034)
------------ -----------
Cash flows from financing activities:
Repayments of long-term debt (67,400) (169,036)
Dividends paid (14,711) (14,107)
Purchases of common stock (8,893) (3,102)
Proceeds from borrowings 19,786 122,360
Proceeds from exercise of stock options 863 645
------------ -----------
Net cash used in financing activities (70,355) (63,240)
------------ -----------
Net effect of foreign exchange on cash 68 (1,203)
------------ -----------
(Decrease) increase in cash and cash equivalents (29,774) 24,475
------------ -----------
Cash and cash equivalents at end of period $18,847 $45,655
============ ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>Page 8
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Albemarle Corporation and Subsidiaries ("Albemarle" or "the
Company") contain all adjustments necessary to present fairly, in all
material respects, the Company's consolidated financial position as of
September 30, 2000, and December 31, 1999, the consolidated results of
operations and comprehensive income for the three- and nine-month periods
ended September 30, 2000, and 1999, and condensed consolidated cash flows
for the nine-month periods ended September 30, 2000, and 1999. All
adjustments are of a normal and recurring nature. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1999
Annual Report & Form 10-K filed on March 22, 2000. The December 31, 1999,
consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. The results of operations for the three-
and nine-month periods ended September 30, 2000, are not necessarily
indicative of the results to be expected for the full year. Certain amounts
in the accompanying consolidated financial statements and notes thereto
have been reclassified to conform to the current presentation.
2. Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------- ----------------
<S> <C> <C>
Variable-rate bank loans $ 79,900 $128,700
Foreign borrowings 19,004 18,966
Industrial revenue bonds 11,000 11,000
Miscellaneous 1,064 1,094
----------------- ----------------
Total 110,968 159,760
Less amounts due within one year 286 779
----------------- ----------------
Long-term debt $110,682 $158,981
================= ================
</TABLE>
On March 10, 1999, the Company entered into a Loan Agreement with Columbia
County, Arkansas, 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. The presently unexpended proceeds from the Tax Exempt Bonds of $1,869
are restricted to the purchase of solid waste disposal facilities and
accordingly, are reflected as a noncurrent asset in the balance sheet
caption -- Other assets and deferred charges. The Tax Exempt Bonds bear
interest at a variable rate that approximates 65% of the federal funds rate.
The Tax Exempt Bonds will mature on March 1, 2021, and are collateralized by
a transferable irrevocable direct pay letter of credit.
3. On June 29, 2000, the Company acquired the PYRO-CHEK(R) flame retardant
business, along with a plant at Port-de-Bouc, France, from Ferro
Corporation. The purchase price is subject to adjustments based upon certain
contingencies. The assets purchased consist primarily of property, plant and
equipment, goodwill and intangibles and inventory.
<PAGE>Page 9
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
4. Cost of goods sold includes foreign exchange transaction (losses)/gains of
($1,089) and $867, and ($209) and $4,484, respectively, for the three- and
nine-months ended September 30, 2000, and 1999.
5. In April 2000, the Company made a change in election in certain of its
pension annuity contracts. This election resulted in the recognition of a
one-time noncash special accounting settlement gain of $15,900 ($10,128
after income taxes), or 22 cents per share on a fully diluted basis, in
accordance with SFAS No. 88 "Employer's Accounting for Settlements and
Curtailments of Defined Pension Plans and Termination Benefits". The special
item gain did not affect any retiree benefits or benefit programs of the
Company.
6. In May 1999, the Company, through its affiliate Albemarle UK Holdings
Limited, sold to ISPG, Plc, the competing bidder 58,394,049 common shares of
Albright & Wilson plc ("Albright & Wilson", a United Kingdom chemicals
company), for an aggregate consideration of $157,516 resulting in a gain of
$22,054 ($14,381 after income taxes), net of expenses or 30 cents per share
on a fully diluted basis. The shares were acquired in March 1999, as part of
an unsuccessful offer for Albright & Wilson. The proceeds from the sale of
the Albright & Wilson shares were primarily used to pay down debt under the
Company's existing Competitive Advance and Revolving Credit Agreement.
7. Special charges for the three- and nine-month periods ended September 30,
1999, totaling $852 ($543 after income taxes) and $6,631 ($4,130 after
income taxes) or 1 cent and 9 cents per share, respectively, on a fully
diluted basis, resulted from work-force reductions programs at certain of
the Company's facilities. The program impacted a total of 85 salaried and
wageroll employees.
8. The significant differences between the U.S. Federal statutory income tax
rate on pretax income and the effective income tax rate for the three- and
nine-months periods ended September 30, 2000, and 1999, respectively are as
follows:
<TABLE>
<CAPTION>
% of Income Before Income Taxes
-------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ -----------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0% 35.0%
Foreign sales corporation
benefit (6.0) (5.7) (2.7) (2.2)
State taxes, net of federal tax
benefit - (0.2) 0.5 1.2
Depletion (1.1) (1.4) (0.9) (1.1)
Other 3.1 (0.4) (0.9) (0.9)
------------ ----------- ----------- -----------
Effective income tax rate 31.0% 27.3% 31.0% 32.0%
============ =========== =========== ===========
</TABLE>
<PAGE>Page 10
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Share Amounts)
(Unaudited)
9. Basic and diluted earnings per share for the three- and nine-month periods
ended September 30, 2000, and 1999, are calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
Basic Earnings Per Share 2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Numerator:
Income available to
stockholders, as reported $23,706 $17,139 $86,067 $64,924
------------ ----------- ------------ -----------
Denominator:
Average number of shares of
common stock outstanding 45,816 46,949 45,898 47,000
------------ ----------- ------------ -----------
Basic earnings per share $ .52 $ .37 $ 1.88 $ 1.38
============ =========== ============ ===========
Diluted Earnings Per Share
Numerator:
Income available to
stockholders, as reported $23,706 $17,139 $86,067 $64,924
------------ ----------- ------------ -----------
Denominator:
Average number of shares of
common stock outstanding 45,816 46,949 45,898 47,000
Shares issuable upon
exercise of stock options 868 526 712 651
------------ ----------- ------------ -----------
Total shares 46,684 47,475 46,610 47,651
------------ ----------- ------------ -----------
Diluted earnings per share $ .51 $ .36 $ 1.85 $ 1.36
============ =========== ============ ===========
</TABLE>
The three- and nine-months ended September 30, 2000, average number of
shares of common stock outstanding includes the effects of the purchase of
182,000 and 675,400 common shares in the third and fourth quarters of 1999
and the purchase of 491,400 and 42,253 common shares in the first and second
quarters of 2000.
10. The Company is a global manufacturer of specialty polymer and fine
chemicals, currently grouped into two operating segments: Polymer Chemicals
and Fine Chemicals. The operating segments were determined based on
management responsibility. The Polymer Chemicals'
<PAGE>Page 11
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Share Amounts)
(Unaudited)
10. Continued,
segment is comprised of flame retardants, organometallics and catalysts, and
polymer additives and intermediates. The Fine Chemicals' segment is
comprised of agrichemicals, bromine and derivatives, pharmachemicals,
potassium and chlorine chemicals, and surface actives. Segment data includes
intersegment transfers of raw materials at cost, except for bromine which is
accounted for at an intersegment transfer price, and foreign exchange gains
and losses as well as allocations for certain corporate costs and the
effects of special items. Corporate and other expenses include
corporate-related items not allocated to the reportable segments and the
effects of special items. See Tables below:
<TABLE>
<CAPTION>
For The Quarter Ended September 30
----------------------------------
2000 1999
------------------------- ------------------------
Revenues Income Revenues Income
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Polymer Chemicals $128,799 $28,289 $113,842 $16,780
Fine Chemicals 108,254 15,044 98,244 13,304
------------ ------------ ------------ -----------
Segment totals $237,053 43,333 $212,086 30,084
============ ============
Corporate and other expenses (8,589) (4,934)
------------ -----------
Operating profit 34,744 25,150
Interest and financing expenses (1,551) (1,564)
Other income (expense), net 1,164 (20)
------------ -----------
Income before income taxes $34,357 $23,566
============ ===========
</TABLE>
<PAGE>Page 12
ALBEMARLE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Share Amounts)
(Unaudited)
10. Continued,
<TABLE>
<CAPTION>
For The Nine Months Ended September 30
--------------------------------------
2000 1999
------------------------- ------------------------
Revenues Income Revenues Income
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Polymer Chemicals $382,641 $ 87,678 $324,317 $53,327
Fine Chemicals 316,098 56,753 296,925 42,334
------------ ------------ ------------ -----------
Segment totals $698,739 144,431 $621,242 95,661
============ ============
Corporate and other expenses (17,654) (16,315)
------------ ------------
Operating profit 126,777 79,346
Interest and financing expenses (4,542) (6,883)
Gain on sale of Albright & Wilson
stock, net -- 22,054
Other income, net 2,500 960
------------ ------------
Income before income taxes $124,735 $95,477
============ ============
</TABLE>
11. In June 2000, the Financial Acounting Standards Board issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an amendment of FASB No.133", which established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. The Company will adopt SFAS No. 133, as amended on January 1, 2001.
At the time of adoption, SFAS No. 133 is not expected to have a material
impact on the financial position or results of operations of the Company.
<PAGE>Page 13
ITEM 2. Management's Discussion and Analysis of Results of Operations and
------------------------------------------------------------------
Financial Condition
-------------------
The following is management's discussion and analysis of certain significant
factors affecting the results of operations of Albemarle Corporation and
Subsidiaries ("Albemarle" or "the Company") during the periods included in the
accompanying consolidated statements of income and changes in the Company's
financial condition since December 31, 1999.
Some of the information presented in the following discussion constitutes
forward-looking comments within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include, without limitation, the timing of orders
received from customers, the gain or loss of significant customers, competition
from other manufacturers, changes in the demand for the Company's products,
increases in the cost of the products, changes in the market in general,
fluctuations in foreign currencies and significant changes in new product
introduction resulting in an increase in capital project requests and approvals
leading to additional capital spending.
Results of Operations
---------------------
Third Quarter 2000 Compared with Third Quarter 1999
---------------------------------------------------
Net sales for the third quarter of 2000 amounted to $237.1 million, up 12% or
$25.0 million from third- quarter 1999 net sales of $212.1 million primarily due
to higher shipments($29.9 million) partially offset by lower pricing($4.9
million). Net sales for third-quarter 2000 were a record quarter for the Company
since the sale of the Olefins Business on March 1, 1996.
The gross profit margin increased to 29.0% in 2000 from 28.0% for the
third-quarter of 1999. Excluding special items, third-quarter 2000 operating
profit was up 34%, or $8.7 million from third-quarter 1999, primarily due to
higher shipments and improved plant utilization in most businesses as well as
the favorable effect of workforce reductions which occurred during the last
three quarters of 1999, offset, in part, by higher raw material costs, lower
sales prices and unfavorable effects of foreign exchange transaction losses of
$2.0 million. Including special items consisting of a third-quarter 1999 special
charge of $.9 million for work-force reductions at certain of the Company's
facilities, third-quarter 2000 operating profit was up 38%, or $9.6 million from
third-quarter 1999.
Selling, general and administrative expenses, combined with research and
development expenses, increased 1.8% or $0.6 million in the third quarter of
2000 from third-quarter 1999 primarily due to higher outside consulting costs
and employee benefit costs offset, in part, by more focused new product
development consisting primarily of lower employee-related costs resulting from
workforce reductions effected during the last three quarters of 1999 and lower
outside research and development contracted services in the 2000 period. As a
percentage of net sales, selling, general and administrative expenses, including
research and development expenses, were 14.4% in 2000 versus 15.8% in the 1999
quarter.
<PAGE>Page 14
Operating Segments
Net sales by reportable business operating segments for the third-quarter
periods ended September 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Net Sales
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Polymer Chemicals $128,799 $113,842
Fine Chemicals 108,254 98,244
------------- -------------
Segment totals $237,053 $212,086
============= =============
</TABLE>
Polymer Chemicals' net sales for the third quarter of 2000 were up 13% or $15.0
million from third- quarter 1999 primarily due to higher shipments partially
offset by lower pricing in flame retardants and lower shipments of catalysts and
additives in the 2000 period compared to the 1999 period. Fine Chemicals' net
sales for the third quarter of 2000 were up 10% or $10.0 million from
third-quarter 1999 primarily due to higher shipments in performance chemicals
and agrichemicals and higher shipments and lower pricing in pharmachemicals.
Operating profit by reportable business operating segments for the third-quarter
periods ended September 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Operating Profit
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Polymer Chemicals $28,289 $16,780
Fine Chemicals 15,044 13,304
------------- -------------
Segment totals 43,333 30,084
Corporate and other expenses (8,589) (4,934)
------------- -------------
Operating profit $34,744 $25,150
============= =============
</TABLE>
Polymer Chemicals' third quarter 2000 segment operating profit was up 69%, or
$11.5 million, from third quarter 1999 primarily due to higher shipments in
flame retardants and improved plant utilization as well as the favorable effect
of workforce reductions which occurred during the last three quarters of 1999,
offset in part, by higher raw material costs, lower sales prices and unfavorable
effects of foreign exchange($1.1 million) in 2000 versus the corresponding 1999
period. Fine Chemicals' third quarter 2000 segment operating profit was up
approximately 13% or $1.7 million from third quarter 1999. The improvement in
2000 is primarily due to higher shipments as well as the favorable effect of
workforce reductions which occurred during the last three quarters of 1999
offset, in part, by lower sales prices and unfavorable effects of foreign
exchange($.9 million) in 2000 versus the corresponding 1999 period. Corporate
and other expenses increased 74% or $3.7 million from third quarter 1999
primarily due to higher outside consulting costs and employee benefit costs in
the 2000 period.
<PAGE>Page 15
Interest and Financing Expenses and Other Income (Expense), Net
Interest and financing expenses for the third quarter of 2000 of $1.6
million was unchanged from the third quarter of 1999. Third-quarter 2000 was
based upon a higher average interest rate offset by lower average debt
outstanding as compared to the 1999 third quarter. Other income (expense), net
primarily includes the effects of equity earnings of nonmarketable investments.
Income Taxes
The third quarter of 2000 effective income tax rate was 31.0%, up from 27.3% in
the 1999 third quarter.
Results of Operations
---------------------
Nine Months 2000 Compared with Nine Months 1999
-----------------------------------------------
Net sales for the first nine months of 2000 amounted to $698.7 million, an
increase of 12%, or $77.5 million, from the corresponding period of 1999, due to
higher shipments in most businesses ($97.1 million) partially offset by lower
pricing ($19.6 million).
The gross profit margin for the first nine months of 2000 was 30.0%, down
slightly from 30.3% for the 1999 period. Excluding special items, first nine
months 2000 operating profit was up 29%, or $24.9 million, from the 1999 period
primarily due to higher shipments, improved plant utilization in most businesses
and lower selling, general and administrative expenses, including research and
development expenses as well as the favorable effect of workforce reductions
which occurred during the last three quarters of 1999, offset, in part, by
higher raw material costs and lower sales prices as well as the unfavorable
effects of foreign exchange ($4.7 million) in 2000 versus the corresponding
period in 1999. Including special items consisting of an April 2000 special
noncash accounting settlement gain of $15.9 million, resulting from an election
made with respect to certain pension contracts in the Company's pension plans,
and a third-quarter 1999 special charge of $6.6 million for work-force
reductions at certain of the Company's facilities, nine months 2000 operating
profit was up 60%, or $47.4 million from the corresponding period in 1999.
Selling, general and administrative expenses, combined with research and
development expenses, decreased 4% or $3.6 million for the first nine months of
2000 versus the corresponding period in 1999, due to more focused new product
development consisting primarily of lower employee-related costs resulting from
workforce reductions effected during the last three quarters of 1999 and lower
outside research and development contracted services in the 2000 period, offset,
in part, by higher outside consulting costs and employee benefit costs in the
2000 period. As a percentage of net sales, selling, general and administrative
expenses, including research and development expenses, were 14.1% in 2000 versus
16.4% in the 1999 nine month period.
Operating Segments
Net sales by reportable business operating segments for the nine-months' periods
ended September 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Net Sales
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Polymer Chemicals $382,641 $324,317
Fine Chemicals 316,098 296,925
------------- -------------
Segment totals $698,739 $621,242
============= =============
</TABLE>
<PAGE>Page 16
Polymer Chemicals' net sales for the first nine months of 2000 were up 18%, or
$58.3 million, from the corresponding period of 1999 primarily due to higher
shipments, partially offset by lower pricing, in flame retardants and higher
shipments in catalysts and additives. Fine Chemicals' net sales for the first
nine months of 2000 were up 6% or $19.2 million from the first nine months
period of 1999 primarily due to higher shipments in performance chemicals and
higher shipments in pharmachemicals, offset, in part, by lower pricing in
pharmachemicals. Shipments for agrichemicals were down for the first nine months
of 2000, however, they were up significantly for the third quarter of 2000
compared with the corresponding period in 1999.
Operating profit by reportable business operating segments for the nine-months'
periods ended September 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Operating Profit
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Polymer Chemicals $87,678 $53,327
Fine Chemicals 56,753 42,334
------------- -------------
Segment totals 144,431 95,661
Corporate and other expenses (17,654) (16,315)
------------- -------------
Operating profit $126,777 $79,346
============= =============
</TABLE>
Polymer Chemicals' segment operating profit for the first nine months of 2000
was up 64%, or $34.4 million, from the corresponding 1999 period, primarily due
to higher shipments in flame retardants and catalysts and additives and improved
plant utilization, offset, in part, by higher raw material costs, lower sales
prices and the unfavorable effects of foreign exchange($2.8 million) in 2000
versus the corresponding 1999 period. Polymer Chemicals' first nine months 2000
segment operating profit also includes an allocation of $6.0 million related to
the second quarter 2000 SFAS No. 88 one-time noncash special accounting
settlement gain. The improvement in 2000 also reflects the impact of an
allocation of approximately $3.3 million for the work-force reduction special
charges in 1999 as well as the 1999 second quarter write off of $2.4 million of
certain redundant flame retardant plant assets and the 1999 third quarter write
off of $2.4 million of residual net assets associated with the replacement of a
TBBPA production facility. Fine Chemicals' segment operating profit for the
first nine months of 2000 was up approximately 34% or $14.4 million from the
1999 nine-months' period primarily due to higher shipments in performance
chemicals and pharmachemicals as well as the favorable effect of workforce
reductions which occurred during the last three quarters of 1999, offset, in
part by lower pricing, lower shipments in agrichemicals and the unfavorable
effects of foreign exchange($1.9 million) in 2000 versus the corresponding 1999
period. Fine Chemicals' first nine months of 2000 segment operating profit also
includes an allocation of approximately $6.2 million related to the one-time
second quarter 2000 special SFAS No. 88 settlement gain. Corporate and other
expenses increased 8% or $1.3 million from the nine-months' 1999 period due to
higher outside consulting costs and employee benefit costs offset, in part, by
an allocation of approximately $3.7 million related to the second quarter 2000
SFAS No. 88 one-time noncash special accounting settlement gain.
Interest and Financing Expenses and Other Income (Expense), Net
Interest and financing expenses for the first nine months of 2000 decreased
to $4.5 million from $6.9 million in the corresponding period of 1999 primarily
due to lower average outstanding debt in the 2000 period, offset, in part, by a
higher interest rate in the 2000 period. Other income (expense), net primarily
includes the effects of equity earnings from nonmarketable investments.
<PAGE>Page 17
Gain on Sale of Investment in Albright & Wilson Stock
Results for the first nine months of 1999 include the gain of $22.1 million
($14.4 million after income taxes), net of expenses, from the sale of the
Company's investment in Albright & Wilson common stock acquired in March 1999.
Income Taxes
The effective income tax rate for the first nine months of 2000 was 31.0%, down
from 32.0% in the 1999 nine months' period.
Financial Condition and Liquidity
---------------------------------
Cash and cash equivalents at June 30, 2000, were $18.8 million, representing a
decrease of $29.8 million from $48.6 million at year-end 1999.
Cash flows provided from operating activities of $120.3 million (which included
a working capital increase of $5.4 million) for the first nine months of 2000
together with $86.1 million of existing cash and cash equivalents and proceeds
from borrowings of $19.8 million were used to cover the acquisition of the Ferro
brominated polystyrene business, capital expenditures, repayment of debt,
payment of dividends, purchase of common shares of the Company, and investments
in joint ventures and nonmarketable securities.
The Company anticipates that cash provided from operations in the future will be
sufficient to pay its operating expenses, satisfy debt-service obligations and
make dividend payments.
The change in the Company's accumulated other comprehensive income account from
December 31, 1999, was primarily due to foreign currency adjustments, net of
related deferred taxes, primarily related to the strengthening of the U.S.
Dollar versus the Euro.
The noncurrent portion of the Company's long-term debt amounted to $110.7
million at September 30, 2000, compared to $159 million at the end of 1999. The
Company's long-term debt, including the current portion, as a percentage of
total capitalization, amounted to 16.9% at September 30, 2000.
The Company's capital expenditures in the first nine months of 2000 were lower
than the same period of 1999. Capital expenditures for the year 2000 are
forecasted to be lower than the 1999 level. Capital spending will be financed
primarily with cash flow from operations with any additional cash provided from
additional debt. The amount and timing of any additional borrowing will depend
on the Company's specific cash requirements.
The Company is subject to federal, state, local and foreign requirements
regulating the handling, manufacture and use of materials (some of which may be
classified as hazardous or toxic by one or more regulatory agencies), the
discharge of materials into the environment and the protection of the
environment. To the best of the Company's knowledge, it currently is complying
with and expects to continue to comply in all material respects with existing
environmental laws, regulations, statutes and ordinances. Such compliance with
federal, state, local and foreign environmental protection laws has not in the
past had, and is not expected to have in the future, a material effect on
earnings or the competitive position of Albemarle.
Among other environmental requirements, the Company is subject to the federal
Superfund law, and similar state laws, under which the Company may be designated
as a potentially responsible party and may be liable for a share of the costs
associated with cleaning up various hazardous waste sites.
<PAGE>Page 18
ADDITIONAL INFORMATION
----------------------
Outlook
For Polymer Chemicals, we are facing possible slow downs in our markets;
although, we have not seen any evidence of this yet in our year-to-date sales.
In flame retardants, we are targeting to maintain our market share and improve
prices. We are optimistic about being able to continue good growth momentum,
albeit not at the double digit rates of the past year. It is more likely to be
high single digit growth rates but with added support from price increases that
finally appear to be taking effect. In catalysts and additives, we've seen the
beginnings of a slowdown in the polyolefins' market. If this continues, along
with raw material and energy price increases, we could see an impact on these
businesses.
For Fine Chemicals, we are hoping to see a continued improvement in the fourth
quarter of 2000 for our agrichemicals' business so that the year 2000 will be
able to approach year 1999 profit levels. For pharmachemicals, we're working
hard to utilize the full capability of our existing assets and leverage our
ibuprofen franchise to globalize our analgesics business. In performance
chemicals, we plan to run our bromine assets hard to keep up with derivative
demand including our oil field businesses where we are beginning to see
improvements in demand, especially from the North Sea and Gulf of Mexico
drilling regions. In zeolites, with a new competitor entering the U.S. market,
our volumes and margins will be lower beginning in the 2000 fourth quarter. We
plan to address some of the impact through cost reductions while seeking
opportunities to expand into other applications utilizing these assets. In 2001,
we anticipate a profit impact from the decrease of the zeolite business,
however, we are hopeful we will be able to offset most of the impact by
improvements in the rest of our performance chemicals. Overall, we believe our
Fine Chemicals business is likely to be flat in 2001.
Even though the rate of increase in raw material pricing appears to be slowing,
we believe higher energy costs and the weaker Euro are likely to continue to
impact our results. However, we are still optimistic that we can meet our
corporate objective in 2000 of a 15% earnings increase and that we can achieve
an earnings per share of around $2.00 per share in 2000. Having said that for
2000, we know this will not be the case every year. Our goal is to average 15%
over a number of years. 2001 appears at this time to be one of those years that
may fall below the average. So it's important to recognize that with the above
concerns, we currently are not expecting the 2000 fourth quarter and year 2001
results to achieve the level of growth which the year-to-date 2000 results have
shown.
Some of the information presented in the above discussion may constitute
forward-looking comments within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes its expectations are based on
reasonable assumptions within the bounds of its knowledge of its businesses and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors that could cause actual results to
differ from expectations include, without limitation, the timing of orders
received from customers, the gain or loss of significant customers, competition
from other manufacturers, changes in the demand for the Company's products,
increases in the cost of the products, changes in the market in general,
fluctuations in foreign currencies and significant changes in new product
introduction resulting in an increase in capital project requests and approvals
leading to additional capital spending.
Additional information regarding the Company, its products, markets and
financial performance is provided at the Company's Internet web site,
www.Albemarle.com.
<PAGE>Page 19
RECENT DEVELOPMENTS
-------------------
On October 25, 2000, the board of directors increased the regular quarterly
dividend from 11 cents a share to 13 cents a share. The dividend is payable
January 1, 2001, to shareholders of record December 15, 2000. The board also
increased the remaining authorization to repurchase the company's stock to 5
million shares and, in addition, authorized an odd-lot tender offer to be made
to holders of less than 100 shares of Albemarle's stock at no cost to those
holders. This offer will involve approximately 170,000 shares and is expected to
commence soon. The details will be mailed to the affected holders. The Company
also announced the board changed the date of the 2001 Annual Meeting of
Shareholders to Wednesday, March 28, 2001, in Richmond, Virginia and set a
record date of February 15, 2001.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There has been no significant change in the risk associated with the marketable
securities interest rates from the information provided in our Form 10-K for the
year ended December 31, 1999. The Company has exposure to volatility in the
prices to the Company of certain raw materials. Changes in pricing of these raw
materials and the timing of these changes could have a significant impact on
operating profits.
The Company's foreign currency risk has changed from that disclosed in our Form
10-K for the year ended December 31, 1999. At September 30, 2000, and December
31, 1999, the Company had entered into Japanese Yen forward contracts in the
amount of $5.3 million and $10.8 million, respectively, all with maturity dates
in 2000. A 10% appreciation of the U.S. Dollar versus the Japanese yen from
September 30, 2000 rates, with all other variables held constant, would result
in a $.5 million increase in the fair value of the forward contracts. A 10%
depreciation of the U.S. Dollar versus the Japanese yen from September 30, 2000
rates, with all other variables held constant, would result in a $.6 million
decrease in the fair value of the forward contracts.
Part II - OTHER INFORMATION
---------------------------
ITEM 3. Legal Proceedings
-----------------
The Company and its subsidiaries are involved from time to time in legal
proceedings of types regarded as common in the Company's businesses,
particularly administrative or judicial proceedings seeking remediation under,
or alleging noncompliance with, environmental laws, and products liability or
tort litigation.
While it is not possible to predict or determine the outcome of the proceedings
presently pending, in the Company's opinion they should not result ultimately in
liabilities likely to have a material adverse effect upon the results of
operations or financial condition of the Company and its subsidiaries on a
consolidated basis.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - none
(b) No report on Form 8-K was filed during third quarter 2000.
<PAGE>Page 20
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALBEMARLE CORPORATION
---------------------
(Registrant)
Date: October 31, 2000 By: s/ Robert G. Kirchhoefer
--------------------------------------
Robert G. Kirchhoefer
Treasurer and Chief Accounting Officer
(Principal Accounting Officer)
