ALBEMARLE CORPORATION

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported) October 25, 2005

 

ALBEMARLE CORPORATION

(Exact name of Registrant as specified in charter)

 

Virginia   1-12658   54-1692118

(State or other jurisdiction

of incorporation)

 

(Commission file

number)

 

(IRS employer

identification no.)

330 South Fourth Street, Richmond, Virginia   23219
(Address of principal executive offices)   (Zip code)

 

Registrant’s telephone number, including area code (804) 788-6000

 

Not applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



 

Section 2 — Financial Information

 

Item 2.02. Results of Operations and Financial Condition.

 

On October 25, 2005, Albemarle Corporation (the “Company”) issued a press release regarding its earnings for the third quarter and nine months ended September 30, 2005. A copy of this release is being furnished as Exhibit 99.1 hereto and incorporated herein by reference. In addition, on October 25, 2005, the Company will hold a teleconference for analysts and media to discuss results for the third quarter and nine months ended September 30, 2005. The teleconference will be webcast on the Company’s website at www.albemarle.com.

 

The press release attached as Exhibit 99.1 includes net income and related per share amounts excluding certain special items. Net income excluding special items is a financial measure that is not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). The Company has reported net income excluding special items because management believes that this financial measure is more reflective of the Company’s performance as it presents investors with information about the impact of certain non-recurring items on the Company, and, in doing so, improves transparency to investors and enhances period-to-period comparability of financial performance. Net income excluding special items should not be considered as an alternative to net income determined in accordance with GAAP. The Company has included in the press release a reconciliation of net income excluding special items, a non-GAAP financial measure, to net income, the most directly comparable financial measure calculated and reported in accordance with GAAP.

 

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

 

Section 9 — Financial Statements and Exhibits

 

Item 9.01. Financial Statement and Exhibits.

 

  (c) Exhibits.

 

99.1    Press release, dated October 25, 2005, issued by the Company.

 

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SIGNATURE

 

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 hereunto duly authorized.

 

Date: October 25, 2005

 

ALBEMARLE CORPORATION
By:   /s/    LUTHER C. KISSAM, IV        
    Luther C. Kissam, IV
    Vice President, General Counsel and Secretary

 

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EXHIBIT INDEX

 

Exhibit Number

  

Exhibit


99.1    Press release, dated October 25, 2005, issued by the Company.

 

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PRESS RELEASE DATED 25-OCT-05

Exhibit 99.1

 

LOGO          
   Contact:     
   Nicole Daniel    804.788.6096
   Danielle Paquette    804.788.6045

 

Albemarle Announces Third-Quarter 2005 Results

 

    Net Income, excluding special items in 2004, increased 29.4 percent over third-quarter 2004, resulting in 55 cents per diluted share for the current quarter.

 

    Net Sales for the quarter were $506.6 million, up 22.4 percent over third-quarter 2004, which included two months of the refinery catalysts business.

 

    Results reflect consolidation of Jordan Bromine Company Limited (“JBC”), effective as of August 1, 2005.

 

RICHMOND, Va., October 25 — Albemarle Corporation (NYSE: ALB) reported third-quarter 2005 net income of $26.3 million, or 55 cents per diluted share, up from $0.8 million for third-quarter 2004, which included $19.5 million of special items primarily related to the July 31, 2004 acquisition of the Akzo Nobel N.V. refinery catalysts business. The Company reported net sales of $506.6 million, an increase of $92.7 million compared to 2004, due in large part to the full three months 2005 impact of the refinery catalysts business acquisition and significant pricing improvement across each segment offset, in part, by lower volumes in flame retardants.

 

Net income for third-quarter 2005 included $4.9 million, or 10 cents per diluted share, of tax benefit associated with Section 965 of the Internal Revenue Code that was enacted as a part of the American Jobs Creation Act of 2004. Third-quarter 2004 net income, excluding special items, amounted to $20.3 million, or 48 cents per diluted share. Third-quarter 2004 special items are outlined in the reconciliation on page 14. Third-quarter 2005 results include two months consolidation of JBC.

 

Nine-months 2005 net income, excluding special items, was $80.5 million, or $1.69 per diluted share, compared to nine-months 2004 net income, excluding special items, of $56.1 million, or $1.32 per diluted share. Special items for nine-months 2005, which totaled $2.2 million after income taxes, included a $3.6 million after-tax gain from a retiree benefits plan change and a $0.5 million legal provision, in addition to a $0.9 million write-off of deferred financing costs associated with the refinery catalysts business acquisition.

 

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Special items for nine-months 2004, which totaled $20.9 million after income taxes, are outlined in the reconciliation on page 15.

 

Average common shares used to compute third-quarter and nine-months 2005 diluted earnings per share were 48,014,000 and 47,642,000, up from 42,544,000 and 42,342,000, respectively, for the corresponding periods in 2004, due mainly to the Company’s January 2005 public offering of 4,573,000 shares of common stock.

 

Selected data related to net income, special items and related per share amounts for the third-quarters and nine-months ended September 30, 2005 and 2004 are shown in the Additional Information section below, as well as a reconciliation of net income excluding special items.

 

Quarterly Segment Results

 

Polymer Additives segment net sales were $195.4 million, up $9.5 million versus 2004. Polymer Additives segment income for third-quarter 2005 amounted to $23.4 million, up 8.1 percent from third-quarter 2004, excluding special items, driven by overall gains in pricing that were offset, in part, by lower volumes in flame retardants and the effect of higher raw materials and energy costs.

 

Catalysts segment net sales were $173.5 million, up $67.0 million versus third-quarter 2004, due mainly to the three months net sales of the refinery catalysts business in the current period versus two months in third-quarter 2004 and higher pricing due to increased raw material costs. Catalysts segment income for third-quarter 2005 amounted to $14.8 million, down 2.2 percent from third-quarter 2004, excluding special items, driven by lower production volumes in polyolefins catalysts that were offset, in part, by the extra month of refinery catalysts business results.

 

Fine Chemicals segment net sales were $137.7 million, up $16.3 million versus last year, driven by improved volumes and product mix in fine chemistry services and improved pricing in performance chemicals. Fine Chemicals segment income for third-quarter 2005 amounted to $12.5 million, up 39.7 percent from third-quarter 2004, excluding special items. Improved pricing in performance chemicals and improved volumes in fine chemistry services and the reclassification impact of consolidating JBC were offset, in part, by the

 

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effect of higher raw materials and energy costs and lower pricing in pharmaceutical and agricultural intermediates.

 

During the quarter, interest and financing expenses increased $5.2 million, excluding special items, versus third-quarter 2004 due mainly to the full quarter 2005 interest expense impact from the refinery catalysts acquisition debt incurred in July 31, 2004, as well as comparatively higher interest rates during the 2005 period. The corporate effective income tax rate for third-quarter 2005 amounted to 13.7 percent, down from third-quarter 2004 due largely to the Section 965 benefit described above.

 

Commentary

 

Commenting on third-quarter 2005 results, Mark C. Rohr, President and CEO of Albemarle Corporation said, “We are pleased that the our net sales and net income, excluding special items, are up over 20% compared to third-quarter 2004 results, and up over 40% for first nine-months 2005 compared to first nine-months 2004. Although we faced a number of challenges in third-quarter 2005, including an approximately $3.6 million pre-tax impact due primarily to production losses during Hurricanes Katrina and Rita, I remain confident that we are on track to deliver solid results for the year. We are successfully working through a number of pricing initiatives to help offset the continued rampant escalation in raw material and energy costs, and I believe we will see the positive results from those initiatives in fourth-quarter 2005 and into 2006.

 

Additionally, we are pleased with the European Union’s decision to exempt decabrom from its restriction on hazardous substances, a RoHS directive. This decision should remove questions regarding the safety of this critical flame retardant.

 

This quarter, we also began consolidating the results of JBC, our bromine-based Jordanian joint venture on the Dead Sea, and two months operations are reflected in this quarter’s results on a line-by-line basis.”

 

Earnings Call

 

The Company’s performance for the third quarter ended September 30, 2005 will be discussed on a conference call at 10:00 AM Eastern Daylight Time on October 25, 2005,

 

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which can be accessed through Albemarle’s website under Investor Information at www.albemarle.com.

 

Albemarle Corporation, headquartered in Richmond, Virginia, is a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals for consumer electronics; petroleum and petrochemical processing; transportation and industrial products; pharmaceuticals; agricultural products; construction and packaging materials. The Company operates in three business segments, Polymer Additives, Catalysts and Fine Chemicals, and serves customers in approximately 100 countries.

 

Forward-Looking Statement

 

Some of the information presented in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe our expectations as reflected are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially. Factors that could cause actual results to differ from expectations include, without limitation: the inability to pass through increases in costs and expenses for raw materials and energy; competition from other manufacturers; changes in demand for our products; the gain or loss of significant customers; fluctuations in foreign currencies; increased government regulation of our operations or our products; and the integration of the Akzo Nobel refinery catalysts business or future acquisitions into our operations. Additional factors that could cause our results to differ materially from those described in the forward-looking statements can be found in our Annual Report on Form 10-K for the period ended December 31, 2004.

 

4


 

Albemarle Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(In Thousands of Dollars, Except Share and Per-Share Amounts) (Unaudited)

 

     Third Quarter Ended September 30,

 
     2005 (a)

    2004 (a)

 

Net sales

   $ 506,605     $ 413,904  

Cost of goods sold

     406,994 (b)     324,396 (b, c)

Acquisition-related cost

     —         13,400 (e)
    


 


Gross profit

     99,611       76,108  

Selling, general and administrative expenses

     50,423 (d)     43,075  

Research and development expenses

     10,107       9,101  

Special items

     —         2,801 (f)
    


 


Operating profit

     39,081       21,131  

Interest and financing expenses

     (10,882 )     (6,250 )(g)

Equity in net income of unconsolidated investments

     4,124       1,826  

Other income (expenses), net

     534       (15,606 )(h)
    


 


Income before income taxes and minority interests

     32,857       1,101  

Income (taxes) benefits

     (4,502 )(i)     1,097  
    


 


Income after income (taxes) benefits and before minority interests

     28,355       2,198  

Minority interests in income of consolidated subsidiaries

     (2,063 )     (1,371 )(h)
    


 


Net income

   $ 26,292     $ 827  
    


 


Basic earnings per share:

                

Net income

   $ 0.56     $ 0.02  
    


 


Shares used to compute basic earnings per share

     46,607       41,588  
    


 


Diluted earnings per share:

                

Net income

   $ 0.55     $ 0.02  
    


 


Shares used to compute diluted earnings per share

     48,014       42,544  
    


 


 

See accompanying notes to the condensed consolidated financial statements following the balance sheets.

 

5


 

Albemarle Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(In Thousands of Dollars, Except Share and Per-Share Amounts) (Unaudited)

 

     Nine Months Ended September 30,

 
     2005 (a)

    2004 (a)

 

Net sales

   $ 1,519,324     $ 1,062,672  

Cost of goods sold

     1,207,224 (b)     845,952 (b, c)

Acquisition-related cost

     —         13,400 (e)
    


 


Gross profit

     312,100       203,320  

Selling, general and administrative Expenses

     161,118 (d)     106,078  

Research and development expenses

     31,429       18,768  

Special items

     (4,868 )(f)     7,858 (f)
    


 


Operating profit

     124,421       70,616  

Interest and financing expenses

     (31,270 )(g)     (9,168 )(g)

Equity in net income of unconsolidated investments

     22,583       2,494  

Other income (expenses), net

     1,100 (h)     (12,278 )(h)
    


 


Income before income taxes and minority interests

     116,834       51,664  

Income taxes

     (29,590 )(i)     (12,714 )
    


 


Income after income taxes and before minority interests

     87,244       38,950  

Minority interests in income of consolidated subsidiaries

     (4,575 )(h)     (3,748 )(h)
    


 


Net income

   $ 82,669     $ 35,202  
    


 


Basic earnings per share:

                

Net income

   $ 1.79     $ 0.85  
    


 


Shares used to compute basic earnings per share

     46,242       41,497  
    


 


Diluted earnings per share:

                

Net income

   $ 1.74     $ 0.83  
    


 


Shares used to compute diluted earnings per share

     47,642       42,342  
    


 


 

See accompanying notes to the condensed consolidated financial statements following the balance sheets.

 

6


 

Albemarle Corporation

Consolidated Summary of Segment Results (a)

(In Thousands of Dollars) (Unaudited)

 

Third Quarter Ended September 30, 2005


   Polymer
Additives


   Catalysts

    Fine
Chemicals


    Unallocated

    Total

 

Net sales

   $ 195,356    $ 173,501     $ 137,748     $ —       $ 506,605  
    

  


 


 


 


Operating profit (b, d)

   $ 21,860    $ 12,837     $ 11,836     $ (7,452 )   $ 39,081  

Equity in net income (losses) of unconsolidated investments

     1,586      1,929       646       (37 )     4,124  
    

  


 


 


 


Segment income (loss)

   $ 23,446    $ 14,766     $ 12,482     $ (7,489 )     43,205  
    

  


 


 


       

Interest and financing expenses

                                    (10,882 )

Other income, net

                                    534  
                                   


Income before income taxes and minority interests

                                  $ 32,857  
                                   


Third Quarter Ended September 30, 2004


   Polymer
Additives


   Catalysts

    Fine
Chemicals


    Unallocated

    Total

 

Net sales

   $ 185,902    $ 106,518     $ 121,484     $ —       $ 413,904  
    

  


 


 


 


Operating profit (b, c, e, f)

   $ 24,279    $ (2,962 )   $ 9,830     $ (10,016 )   $ 21,131  

Equity in net income (losses) of unconsolidated investments

     993      1,654       (728 )     (93 )     1,826  
    

  


 


 


 


Segment income (loss)

   $ 25,272    $ (1,308 )   $ 9,102     $ (10,109 )     22,957  
    

  


 


 


       

Interest and financing expenses (g)

                                    (6,250 )

Other (expenses), net (h)

                                    (15,606 )
                                   


Income before income taxes and minority interests

                                  $ 1,101  
                                   


 

See accompanying notes to the condensed consolidated financial statements following the balance sheets.

 

7


 

Albemarle Corporation

Consolidated Summary of Segment Results (a)

(In Thousands of Dollars) (Unaudited)

 

Nine Months Ended September 30, 2005


   Polymer
Additives


   Catalysts

   Fine
Chemicals


    Unallocated

    Total

 

Net sales

   $ 597,893    $ 493,629    $ 427,802     $ —       $ 1,519,324  
    

  

  


 


 


Operating profit (b, d, f)

   $ 70,460    $ 52,075    $ 34,377     $ (32,491 )   $ 124,421  

Equity in net income (losses) of unconsolidated investments

     6,159      12,096      4,505       (177 )     22,583  
    

  

  


 


 


Segment income (loss)

   $ 76,619    $ 64,171    $ 38,882     $ (32,668 )     147,004  
    

  

  


 


       

Interest and financing expenses (g)

                                   (31,270 )

Other income, net (h)

                                   1,100  
                                  


Income before income taxes and minority interests

                                 $ 116,834  
                                  


Nine Months Ended September 30, 2004


   Polymer
Additives


   Catalysts

   Fine
Chemicals


    Unallocated

    Total

 

Net sales

   $ 538,630    $ 153,795    $ 370,247     $ —       $ 1,062,672  
    

  

  


 


 


Operating profit (b, c, e, f)

   $ 65,688    $ 2,227    $ 25,886     $ (23,185 )   $ 70,616  

Equity in net income (losses) of unconsolidated investments

     2,538      1,794      (1,611 )     (227 )     2,494  
    

  

  


 


 


Segment income (loss)

   $ 68,226    $ 4,021    $ 24,275     $ (23,412 )     73,110  
    

  

  


 


       

Interest and financing expenses (g)

                                   (9,168 )

Other (expenses), net (h)

                                   (12,278 )
                                  


Income before income taxes and minority interests

                                 $ 51,664  
                                  


 

See accompanying notes to the condensed consolidated financial statements following the balance sheets.

 

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Albemarle Corporation and Subsidiaries

Selected Cash Flows Data

(In Thousands of Dollars) (Unaudited)

 

     Nine Months Ended September 30

 
     2005

    2004

 

Cash and cash equivalents at beginning of year

   $ 46,390     $ 35,173  

Cash and cash equivalents at end of period

   $ 47,859     $ 60,817  

Sources of cash and cash equivalents:

                

Net income

     82,669       35,202  

Depreciation and amortization

     86,197       69,288  

Proceeds from issuance of senior notes

     324,665       —    

Proceeds from issuance of common stock

     147,862       —    

Proceeds from borrowings

     149,884       1,050,946  

Proceeds from liquidation of equity method investment and sale of nonmarketable security

     1,058       —    

Proceeds from exercise of stock options

     2,893       6,762  

Uses of cash and cash equivalents:

                

Capital expenditures

     (50,575 )     (37,602 )

Investments in joint ventures and other investments

     (3,088 )     (6,742 )

Acquisitions of assets/business, net of cash acquired (j)

     (7,553 )     (762,378 )

Repayments of long-term debt

     (615,652 )     (325,806 )

Payments on hedging of anticipated acquisition purchase price

     —         (12,848 )

Dividends paid

     (18,992 )     (17,982 )

 

See accompanying notes to the condensed consolidated financial statements following the balance sheets.

 

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Albemarle Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands of Dollars) (Unaudited)

 

    

September 30,

2005


   December 31,
2004


ASSETS

             

Cash and cash equivalents

   $ 47,859    $ 46,390

Other current assets

     806,856      701,020
    

  

Total current assets

     854,715      747,410
    

  

Property, plant and equipment

     2,194,471      2,064,585

Less accumulated depreciation and amortization

     1,211,712      1,168,601
    

  

Net property, plant and equipment

     982,759      895,984

Other assets and intangibles

     724,451      799,351
    

  

     $ 2,561,925    $ 2,442,745
    

  

LIABILITIES & SHAREHOLDERS’ EQUITY

             

Current liabilities

   $ 431,354    $ 373,746

Long-term debt

     820,613      899,584

Other noncurrent liabilities

     227,052      209,289

Deferred income taxes

     175,303      248,751

Shareholders’ equity

     907,603      711,375
    

  

     $ 2,561,925    $ 2,442,745
    

  

 

Notes (In Thousands of Dollars, Except Per Share Amounts):

 

(a) Certain reclassifications have been made in the condensed consolidated statements of income and consolidated summary of segment results to conform to current presentation. Minority interests in consolidated subsidiaries is now reflected as a separate line item following income after income taxes and before minority interests. Equity in net income (losses) of unconsolidated investments changes are now included in segment income. See note (h).

 

Effective August 1, 2005, the Company began consolidating its 50-percent ownership position in Jordan Bromine Company Limited (“JBC”), a Jordanian-American joint venture company that manufactures and markets bromine products extracted from the Dead Sea. The Company had previously accounted for this investment on an equity basis but changed to the consolidation method as a result of August 2005 amendments to the related joint venture agreement, upon which Albemarle management concluded that consolidation accounting for this investment was appropriate under generally accepted accounting principals in the United States (“GAAP”). This change in accounting has no impact on the Company’s net income for the three- and nine-month periods ended September 30, 2005 and 2004, respectively.

 

The following unaudited pro forma data summarizes the results of operations for the third-quarter and nine-month periods ended September 30, 2005 as if the consolidation of JBC had been completed as of the beginning of each of the periods presented.

 

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     (Unaudited) Pro Forma

 
    

Third Quarter Ended

September 30, 2005


   

Nine Months Ended

September 30, 2005


 

Net sales

   $ 506,605     $ 1,519,324  

Operating profit

   $ 40,926     $ 136,614  

Interest and financing expenses

   $ (11,201 )   $ (33,426 )

Equity in net income of unconsolidated investments

   $ 2,984     $ 14,949  

Other income, net

   $ 534     $ 1,278  

Minority interests in income of consolidated subsidiaries

   $ (2,449 )   $ (7,156 )

Net income

   $ 26,292     $ 82,669  

Basic earnings per share

   $ 0.56     $ 1.79  

Diluted earnings per share

   $ 0.55     $ 1.74  

 

(b) Cost of goods sold includes foreign exchange transaction gains (losses) of $120 and ($625), and ($907) and ($258) for the third-quarter and nine-month periods ended September 30, 2005 and 2004, respectively.

 

(c) Cost of goods sold for the third-quarter and nine-month periods ended September 30, 2004 included an August 26, 2004, cash settlement pursuant to which the Company and a former insurer settled a dispute related to payments to be made to the Company in connection with certain insurance coverage for the period 1950 through 2000. Pursuant to the agreement, the Company will receive $6,945 ($4,424 after income taxes, or 10 cents per diluted share) with $4,208 paid at the settlement date. Cost of goods sold for the third-quarter and nine-month periods ended September 30, 2004 also includes a third-quarter charge amounting to $3,396 ($2,163 after income taxes, or five cents per diluted share) related to the establishment of a valuation reserve for the potential recoverability of a claim incurred by the Company regarding the discontinuance of product support for and withdrawal from a water treatment venture.

 

(d) Selling general and administrative expenses for the third-quarter and nine-months ended September 30, 2005, reflect an adjustment of $2,759 ($1,760 after income taxes, or four cents per diluted share) to reduce certain of its incentive plan accruals.

 

(e) Acquisition-related cost totaling $13,400 ($8,536 after income taxes, or 20 cents per diluted share) for the third-quarter and nine-month periods ended September 30, 2004, consisted of a step-up increase in acquired inventory to fair value associated with the July 31, 2004 acquisition of the Akzo Nobel N.V. (“Akzo Nobel”) refinery catalysts business.

 

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(f) Special items *:

 

     Third Quarter Ended
September 30,


    Nine Months Ended
September 30,


 
     2005

   2004

    2005

    2004

 

Curtailment gain (1)

   $ —      $ —       $ 5,603     $ —    

Provisional charge for the potential settlement of future legal claims (2)

     —        —         (735 )     —    

Purchased in-process research and development charges (3)

     —        (3,000 )     —         (3,000 )

Reduction in force adjustments (4)

     —        199       —         (4,308 )

Cleanup of the Pasadena plant zeolite facility (5)

     —        —         —         (550 )
    

  


 


 


Special items

   $ —      $ (2,801 )   $ 4,868     $ (7,858 )
    

  


 


 



1. Nine-month period ended September 30, 2005 includes a second-quarter 2005 curtailment gain amounting to $5,603 ($3,569 after income taxes, or seven cents per diluted share) that relates to a reduction in the Company’s accumulated postretirement benefit obligation (liability) at the June 29, 2005 remeasurement date associated with a change in coverage in the Company’s unfunded postretirement health care benefits plan for active employees’ future retiree medical premium payments effective December 31, 2005.

 

2. Nine-month period ended September 30, 2005 includes a second-quarter 2005 provisional charge of $735 ($468 after income taxes, or one cent per diluted share) for the potential settlement of future legal claims with respect to certain future asbestos premises liability claims.

 

3. Third-quarter and nine-month periods ended September 30, 2004, included purchased in-process research and development charges amounting to $3,000, or seven cents per diluted share, that were comprised of the write-off of the estimated research and development costs associated with the acquired refinery catalysts business deemed not to have future use.

 

4. Third-quarter and nine-month periods ended September 30, 2004 included a $199 reversal adjustment of a reserve for work force reduction. Nine months ended September 30, 2004 included a first quarter 2004 charge totaling $4,507 ($2,871 after income taxes, or seven cents per diluted share) for layoffs related to the closing of the Pasadena plant zeolite facility and a related curtailment charge.

 

5. Nine-month period ended September 30, 2004 included a second-quarter 2004 charge totaling $550 ($350 after income taxes, or one cent per diluted share) related to the cleanup of the Pasadena plant zeolite facility.

 

* See also footnotes (c), (e), (g) and (h) for additional nonrecurring items.

 

(g) Interest and financing expenses for the nine months ended September 30, 2005 include a January 2005 write-off of deferred financing expenses totaling $1,386 ($883 after income taxes, or two cents per diluted share), associated with the 364-day bridge loan that was retired using the proceeds from the Company’s January 2005 public offerings of common stock and senior notes. Interest and financing expenses for the third-quarter and nine-months periods ended September 30, 2004 included the write-off of deferred financing expenses totaling $528 ($336 net of income taxes, or one cent per diluted share) related to the refinancing of the Company’s previous revolving credit agreement.

 

(h) Other (expenses) income, net for the nine months ended September 30, 2005 and the third-quarter and nine-month periods ended September 30, 2004 include the effect of the reclassification of minority interest for the Company’s majority-owned subsidiary, Stannica LLC, totaling ($4,030), ($1,371) and ($3,748), respectively. Other (expenses) income, net for the third-quarter and nine-month periods ended September 30, 2004 include foreign exchange hedging charges totaling $15,712 ($10,009 after income taxes, or 24 cents per diluted share) and $12,848 ($8,184 after income taxes, or 19 cents per diluted share), respectively associated with the contracts entered into by the Company to hedge the euro-denominated purchase price for the Company’s acquisition of the Akzo Nobel refinery catalysts business.

 

12


(i) Includes the tax benefits related to the 2005 adoption of FASB Staff Position (“FSP”) SFAS 109-1 and its related qualified domestic production activities deduction totaling $129 and $388 for the third-quarter and nine-month periods ended September 30, 2005, respectively, in the period in which the deduction is claimed. Also included are the tax benefits related to the adoption of FSP SFAS 109-2, which created a one-time tax savings during the period on certain accumulated and projected future earnings of certain controlled foreign subsidiaries which have been or will be repatriated for the third-quarter and nine-month periods ended September 30, 2005 of $4,857 or 10 cents per diluted share.

 

(j) On July 31, 2004, the Company completed the acquisition of the Akzo Nobel refinery catalysts business for approximately $763 million, including expenses, at applicable exchange rates. During 2004 and 2005, the Company adjusted the purchase price by approximately $23 million and $8 million, respectively, due primarily to payments to Akzo Nobel as part of the post-closing working capital adjustments.

 

Additional Information

 

It should be noted that net income excluding special items is a financial measure that is not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). It is presented here to exclude the impact of certain non-recurring items on our results that are set forth on pages 14 and 15, as well as the pro forma impact of consolidating JBC on our consolidated segment income that are set forth on pages 16 and 17. We believe this measure is more reflective of our operations, provides transparency to investors and enables period-to-period comparability of financial performance. Set forth below is a reconciliation of net income excluding special items, the most directly comparable financial measure calculated and reported in accordance with GAAP in the third quarter and nine months ended September 30, 2005 and 2004.

 

A description of other non-GAAP financial measures, and reconciliation of these to the most directly comparable financial measures calculated and reported in accordance with GAAP, can be found in the Investor Information section of our website at www.albemarle.com, under “Disclosure of Non-GAAP Financial Measures”.

 

13


 

ALBEMARLE CORPORATION AND SUBSIDIARIES

(In Thousands, Except Per-Share Amounts)

(Unaudited)

 

     Third Quarter Ended September 30, 2005

    Third Quarter Ended September 30, 2004

 
     As
Reported


    Special
Items


   Excluding
Special Items


    As
Reported


    Special
Items


    Excluding
Special Items


 

Net sales

   $ 506,605     $ —      $ 506,605     $ 413,904     $ —       $ 413,904  

Cost of goods sold

     (406,994 )     —        (406,994 )     (324,396 )     (3,549 )(c)     (327,945 )

Acquisition-related cost

     —         —        —         (13,400 )     13,400 (e)     —    
    


 

  


 


 


 


Gross profit

     99,611       —        99,611       76,108       9,851       85,959  

Selling, general and administrative expenses (including SFAS No. 2 R&D)

     (60,530 )     —        (60,530 )     (52,176 )     —         (52,176 )

Special items

     —                —         (2,801 )     2,801 (f)     —    
    


 

  


 


 


 


Operating profit

     39,081       —        39,081       21,131       12,652       33,783  

Interest and financing expenses

     (10,882 )     —        (10,882 )     (6,250 )     528 (g)     (5,722 )

Equity in net income of unconsolidated investments

     4,124       —        4,124       1,826       —         1,826  

Other income (expenses), net

     534       —        534       (15,606 )     15,712 (h)     106  
    


 

  


 


 


 


Income before income taxes and minority interests

     32,857       —        32,857       1,101       28,892       29,993  

Income tax (expense) benefits

     (4,502 )     —        (4,502 )     1,097       (9,399 )(c, e-h)     (8,302 )
    


 

  


 


 


 


Income after income taxes and before minority interests

     28,355       —        28,355       2,198       19,493       21,691  

Minority interests in income of consolidated subsidiaries

     (2,063 )     —        (2,063 )     (1,371 )     —         (1,371 )
    


 

  


 


 


 


Net income

   $ 26,292     $ —      $ 26,292     $ 827     $ 19,493     $ 20,320  
    


 

  


 


 


 


Diluted earnings per share

   $ 0.55     $ —      $ 0.55     $ 0.02     $ 0.46     $ 0.48  
    


 

  


 


 


 


 

14


 

ALBEMARLE CORPORATION AND SUBSIDIARIES

(In Thousands, Except Per-Share Amounts)

(Unaudited)

 

     Nine Months Ended September 30, 2005

    Nine Months Ended September 30, 2004

 
    

As

Reported


    Special
Items


    Excluding
Special Items


    As Reported

    Special
Items


    Excluding
Special Items


 

Net sales

   $ 1,519,324     $ —       $ 1,519,324     $ 1,062,672     $ —       $ 1,062,672  

Cost of goods sold

     (1,207,224 )     —         (1,207,224 )     (845,952 )     (3,549 )(c)     (849,501 )

Acquisition-related cost

     —         —         —         (13,400 )     13,400 (e)     —    
    


 


 


 


 


 


Gross profit

     312,100       —         312,100       203,320       9,851       213,171  

Selling, general and administrative expenses (including SFAS No. 2 R&D)

     (192,547 )     —         (192,547 )     (124,846 )     —         (124,846 )

Special items

     4,868       (4,868 )(f)     —         (7,858 )     7,858 (f)     —    
    


 


 


 


 


 


Operating profit

     124,421       (4,868 )     119,553       70,616       17,709       88,325  

Interest and financing expenses

     (31,270 )     1,386 (g)     (29,884 )     (9,168 )     528 (g)     (8,640 )

Equity in net income of unconsolidated investments

     22,583       —         22,583       2,494       —         2,494  

Other income (expenses), net

     1,100       —         1,100       (12,278 )     12,848 (h)     570  
    


 


 


 


 


 


Income before income taxes and minority interests

     116,834       (3,482 )     113,352       51,664       31,085       82,749  

Income tax (expense) benefits

     (29,590 )     1,264 (f,g)     (28,326 )     (12,714 )     (10,196 )(c, e-h)     (22,910 )
    


 


 


 


 


 


Income after income taxes and before minority interests

     87,244       (2,218 )     85,026       38,950       20,889       59,839  

Minority interests in income of consolidated subsidiaries

     (4,575 )     —         (4,575 )     (3,748 )     —         (3,748 )
    


 


 


 


 


 


Net income

   $ 82,669     $ (2,218 )   $ 80,451     $ 35,202     $ 20,889     $ 56,091  
    


 


 


 


 


 


Diluted earnings per share

   $ 1.74     $ (0.05 )   $ 1.69     $ 0.83     $ 0.49     $ 1.32  
    


 


 


 


 


 


 

15


 

Albemarle Corporation

Consolidated Summary of Segment Results (a)

(In Thousands of Dollars) (Unaudited)

 

Third Quarter Ended September 30, 2005


   Polymer
Additives


    Catalysts

    Fine
Chemicals


    Unallocated

    Total

 

Net sales

   $ 195,356     $ 173,501     $ 137,748     $ —       $ 506,605  
    


 


 


 


 


Operating profit (b, d)

   $ 21,860     $ 12,837     $ 11,836     $ (7,452 )   $ 39,081  

Equity in net income (losses) of unconsolidated investments

     1,586       1,929       646       (37 )     4,124  
    


 


 


 


 


Segment income (loss)

   $ 23,446     $ 14,766     $ 12,482     $ (7,489 )     43,205  
    


 


 


 


       

Interest and financing expenses

                                     (10,882 )

Other income, net

                                     534  
                                    


Income before income taxes and minority interests

                                   $ 32,857  
                                    


Special Items included in operating profit

   $ —       $ —       $ —       $ —       $ —    
    


 


 


 


 


Operating profit excluding special items

   $ 21,860     $ 12,837     $ 11,836     $ (7,452 )   $ 39,081  
    


 


 


 


 


Segment income (loss) excluding special items

   $ 23,446     $ 14,766     $ 12,482     $ (7,489 )   $ 43,205  
    


 


 


 


 


Operating profit excluding special items and reflecting the consolidation of JBC as of the beginning of the period

   $ 22,645     $ 12,837     $ 12,896     $ (7,452 )   $ 40,926  
    


 


 


 


 


Third Quarter Ended September 30, 2004


   Polymer
Additives


    Catalysts

    Fine
Chemicals


    Unallocated

    Total

 

Net sales

   $ 185,902     $ 106,518     $ 121,484     $ —       $ 413,904  
    


 


 


 


 


Operating profit (b, c, e, f)

   $ 24,279     $ (2,962 )   $ 9,830     $ (10,016 )   $ 21,131  

Equity in net income (losses) of unconsolidated investments

     993       1,654       (728 )     (93 )     1,826  
    


 


 


 


 


Segment income (loss)

   $ 25,272     $ (1,308 )   $ 9,102     $ (10,109 )     22,957  
    


 


 


 


       

Interest and financing expenses (g)

                                     (6,250 )

Other (expenses), net (h)

                                     (15,606 )
                                    


Income before income taxes and minority interests

                                   $ 1,101  
                                    


Special Items included in operating profit (c, e, f)

   $ (3,583 )   $ 16,400     $ (165 )   $ —       $ 12,652  
    


 


 


 


 


Operating profit excluding special items

   $ 20,696     $ 13,438     $ 9,665     $ (10,016 )   $ 33,783  
    


 


 


 


 


Segment income (loss) excluding special items

   $ 21,689     $ 15,092     $ 8,937     $ (10,109 )   $ 35,609  
    


 


 


 


 


Operating profit excluding special items and reflecting the consolidation of JBC as of the beginning of the period

   $ 20,372     $ 13,438     $ 8,850     $ (10,016 )   $ 32,644  
    


 


 


 


 


 

16


 

Albemarle Corporation

Consolidated Summary of Segment Results (a)

(In Thousands of Dollars) (Unaudited)

 

Nine Months Ended September 30, 2005


   Polymer
Additives


    Catalysts

    Fine
Chemicals


    Unallocated

    Total

 

Net sales

   $ 597,893     $ 493,629     $ 427,802     $ —       $ 1,519,324  
    


 


 


 


 


Operating profit (b, d, f)

   $ 70,460     $ 52,075     $ 34,377     $ (32,491 )   $ 124,421  

Equity in net income (losses) of unconsolidated investments

     6,159       12,096       4,505       (177 )     22,583  
    


 


 


 


 


Segment income (loss)

   $ 76,619     $ 64,171     $ 38,882     $ (32,668 )     147,004  
    


 


 


 


       

Interest and financing expenses (g)

                                     (31,270 )

Other income, net (h)

                                     1,100  
                                    


Income before income taxes and minority interests

                                   $ 116,834  
                                    


Special Items included in operating profit (f)

   $ (2,181 )   $ (560 )   $ (2,240 )   $ 113     $ (4,868 )
    


 


 


 


 


Operating profit excluding special items

   $ 68,279     $ 51,515     $ 32,137     $ (32,378 )   $ 119,553  
    


 


 


 


 


Segment income (loss) excluding special items

   $ 74,438     $ 63,611     $ 36,642     $ (32,555 )   $ 142,136  
    


 


 


 


 


Operating profit excluding special items and reflecting the consolidation of JBC as of the beginning of the period

   $ 73,291     $ 51,515     $ 39,318     $ (32,378 )   $ 131,746  
    


 


 


 


 


Nine Months Ended September 30, 2004


   Polymer
Additives


    Catalysts

    Fine
Chemicals


    Unallocated

    Total

 

Net sales

   $ 538,630     $ 153,795     $ 370,247     $ —       $ 1,062,672  
    


 


 


 


 


Operating profit (b, c, e, f)

   $ 65,688     $ 2,227     $ 25,886     $ (23,185 )   $ 70,616  

Equity in net income (losses) of unconsolidated investments

     2,538       1,794       (1,611 )     (227 )     2,494  
    


 


 


 


 


Segment income (loss)

   $ 68,226     $ 4,021     $ 24,275     $ (23,412 )     73,110  
    


 


 


 


       

Interest and financing expenses (g)

                                     (9,168 )

Other (expenses), net (h)

                                     (12,278 )
                                    


Income before income taxes and minority interests

                                   $ 51,664  
                                    


Special Items included in operating profit (c, e, f)

   $ (3,583 )   $ 16,400     $ 4,892     $ —       $ 17,709  
    


 


 


 


 


Operating profit excluding special items

   $ 62,105     $ 18,627     $ 30,778     $ (23,185 )   $ 88,325  
    


 


 


 


 


Segment income (loss) excluding special items

   $ 64,643     $ 20,421     $ 29,167     $ (23,412 )   $ 90,819  
    


 


 


 


 


Operating profit excluding special items and reflecting the consolidation of JBC as of the beginning of the period

   $ 59,928     $ 18,627     $ 29,561     $ (23,185 )   $ 84,931  
    


 


 


 


 


 

17