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 June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Transition Period from ___________ to ___________ Commission File Number 1-12658 ALBEMARLE CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) VIRGINIA 54-1692118 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 330 SOUTH FOURTH STREET P. O. BOX 1335 RICHMOND, VIRGINIA 23210 - ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code - (804) 788-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of common stock, $.01 par value, outstanding as of July 31, 2001: 45,875,567

Page 2 ALBEMARLE CORPORATION I N D E X Page Number ------ PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets - June 30, 2001 and December 31, 2000 3-4 Consolidated Statements of Income - Three- and Six- Months Ended June 30, 2001 and 2000 5 Consolidated Statements of Comprehensive Income - Three- and Six- Months Ended June 30, 2001 and 2000 6 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2001 and 2000 7 Notes to the Consolidated Financial Statements 8-12 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition, Additional Information, and Recent Developments 13-19 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II. OTHER INFORMATION ITEM 3. Legal Proceedings 20 ITEM 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 EXHIBIT INDEX 22 EXHIBIT 21 List of Albemarle Corporation Subsidiaries EXHIBIT 99 List of Albemarle Corporation Officers

Page 3 PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. Financial Statements -------------------- ALBEMARLE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars In Thousands) June 30, 2001 December 31, 2000 ----------------- ------------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,887 $ 19,300 Accounts receivable, less allowance for doubtful accounts (2001 - $3,001; 2000 - $2,119) 149,353 174,297 Inventories: Finished goods 90,789 79,143 Raw materials 11,303 10,804 Stores, supplies and other 18,234 17,471 ------------------ ------------------ 120,326 107,418 Deferred income taxes and prepaid expenses 13,348 14,139 ------------------ ------------------ Total current assets 290,914 315,154 ------------------ ------------------ Property, plant and equipment, at cost 1,337,340 1,326,534 Less accumulated depreciation and amortization 862,768 836,460 ------------------ ------------------ Net property, plant and equipment 474,572 490,074 Prepaid pension assets 120,397 111,537 Other assets and deferred charges 93,005 42,583 Goodwill and other intangibles, net of amortization 20,234 22,455 ------------------ ------------------ Total assets $ 999,122 $ 981,803 ================== ================== See accompanying notes to the consolidated financial statements.

Page 4 ALBEMARLE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (Dollars In Thousands) June 30, 2001 December 31, 2000 ----------------- ------------------ (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 61,793 $ 72,296 Long-term debt, current portion 281 299 Accrued expenses 47,520 56,932 Dividends payable 5,641 5,956 Income taxes payable 18,416 6,633 ----------------- ------------------ Total current liabilities 133,651 142,116 ----------------- ------------------ Long-term debt 109,440 97,681 Other noncurrent liabilities 86,443 83,496 Deferred income taxes 91,298 99,603 Shareholders' equity: Common stock, $.01 par value, issued and outstanding- 45,873,464 in 2001 and 45,823,743 in 2000 459 458 Additional paid-in capital 57,922 57,223 Accumulated other comprehensive (loss) (21,428) (14,688) Retained earnings 541,337 515,914 ----------------- ------------------ Total shareholders' equity 578,290 558,907 ----------------- ------------------ Total liabilities and shareholders' equity $ 999,122 $ 981,803 ================= ================== See accompanying notes to the consolidated financial statements.

Page 5 ALBEMARLE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (In Thousands Except Per-Share Amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------------------- -------------------------------- 2001 2000 2001 2000 -------------- -------------- -------------- --------------- Net sales $ 211,286 $ 226,206 $ 435,696 $ 461,686 Cost of goods sold 162,550 160,200 327,505 321,078 -------------- -------------- -------------- --------------- Gross profit 48,736 66,006 108,191 140,608 Selling, general and administrative expenses 22,186 25,822 44,890 52,008 Research and development expenses 5,433 6,219 11,210 12,467 Special item - (15,900) - (15,900) -------------- -------------- -------------- --------------- Operating profit 21,117 49,865 52,091 92,033 Interest and financing expenses (1,086) (1,224) (2,155) (2,991) Other income, net 1,236 363 2,818 1,336 -------------- -------------- -------------- --------------- Income before income taxes 21,267 49,004 52,754 90,378 Income taxes 6,462 15,191 15,404 28,017 -------------- -------------- -------------- --------------- Net income $ 14,805 $ 33,813 $ 37,350 $ 62,361 ============== ============== ============== =============== Basic earnings per share $ 0.32 $ 0.74 $ 0.81 $ 1.36 ============== ============== ============== =============== Diluted earnings per share $ 0.32 $ 0.73 $ 0.80 $ 1.34 ============== ============== ============== =============== Cash dividends declared per share of common stock $ - $ 0.11 $ 0.26 $ 0.22 ============== ============== ============== =============== See accompanying notes to the consolidated financial statements.

Page 6 ALBEMARLE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ----------------------------------------------- (Dollars In Thousands) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------------------- -------------------------------- 2001 2000 2001 2000 -------------- -------------- -------------- --------------- Net income $ 14,805 $ 33,813 $ 37,350 $ 62,361 Other comprehensive (loss) income, net of tax: Unrealized gain on securities available for sale 32 354 (239) 332 Foreign currency translation adjustments (2,700) (15) (6,501) (4,257) -------------- -------------- -------------- --------------- Other comprehensive (loss) income (2,668) 339 (6,740) (3,925) -------------- -------------- -------------- --------------- Comprehensive income $ 12,137 $ 34,152 $ 30,610 $ 58,436 ============== ============== ============== =============== See accompanying notes to the consolidated financial statements.

Page 7 ALBEMARLE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Dollars In Thousands) (Unaudited) Six Months Ended June 30, ---------------------------------- 2001 2000 -------------- -------------- Cash and cash equivalents at beginning of year $ 19,300 $ 48,621 Cash flows from operating activities: Net income 37,350 62,361 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 37,014 36,189 Special item - (15,900) Working capital decrease (increase) excluding cash and cash equivalents 743 (10,989) Other, net (6,696) 4,266 -------------- -------------- Net cash provided from operating activities 68,411 75,927 -------------- -------------- Cash flows from investing activities: Acquisition of businesses (45,375) (33,000) Capital expenditures (28,558) (27,781) Investments in joint ventures and nonmarketable securities (6,193) (7,381) Other, net 676 2,799 -------------- -------------- Net cash used in investing activities (79,450) (65,363) -------------- -------------- Cash flows from financing activities: Proceeds from borrowings 44,000 19,786 Repayments of long-term debt (31,014) (44,700) Dividends paid (12,239) (9,671) Purchases of common stock - (8,853) Proceeds from exercise of stock options 598 809 -------------- -------------- Net cash provided from (used in) financing activities 1,345 (42,629) -------------- -------------- Net effect of foreign exchange on cash and cash equivalents (1,719) 1,229 -------------- -------------- (Decrease) in cash and cash equivalents (11,413) (30,836) -------------- -------------- Cash and cash equivalents at end of period $ 7,887 $ 17,785 ============== ============== See accompanying notes to the consolidated financial statements

Page 8 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) 1. In the opinion of management, the accompanying consolidated financial statements of Albemarle Corporation and Subsidiaries ("Albemarle" or "the Company") contain all adjustments necessary to present fairly, in all material respects, the Company's consolidated financial position as of June 30, 2001, and December 31, 2000, the consolidated results of operations and comprehensive income for the three- and six-month periods ended June 30, 2001, and 2000, and condensed consolidated cash flows for the six-month periods ended June 30, 2001, and 2000. All adjustments are of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2000 Annual Report & Form 10-K filed on February 28, 2001. The December 31, 2000, consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results of operations for the three- and six- month periods ended June 30, 2001, are not necessarily indicative of the results to be expected for the full year. 2. Long-term debt consists of the following: June 30, December 31, 2001 2000 ---------------------- --------------------- Variable-rate bank loans $ 83,200 $ 70,000 Foreign borrowings 14,488 15,916 Industrial revenue bonds 11,000 11,000 Miscellaneous 1,033 1,064 ---------------------- --------------------- Total 109,721 97,980 Less amounts due within one year 281 299 ---------------------- --------------------- Long-term debt $ 109,440 $ 97,681 ====================== ===================== 3. Cost of goods sold includes foreign exchange transaction (losses) gains of ($85) and $879, and ($587) and $1,298 for the three- and six-months periods ended June 30, 2001, and 2000, respectively. 4. 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. 5. Cash dividends declared for the six-month period ended June 30, 2001 totaled $0.26 per share which included a dividend of $0.13 per share declared on February 28, 2001, payable April 1, 2001, as well as a dividend of $0.13 per share declared on March 28, 2001, payable July 1, 2001.

Page 9 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) 6. Basic and diluted earnings per share for the three- and six-month periods ended June 30, 2001, and 2000, are calculated as follows: Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 2001 2000 2001 2000 -------------- -------------- -------------- -------------- Basic earnings per share Numerator: Income available to stockholders, as reported $ 14,805 $ 33,813 $ 37,350 $ 62,361 -------------- -------------- -------------- -------------- Denominator: Average number of shares of common stock outstanding 45,873 45,795 45,855 45,939 -------------- -------------- -------------- -------------- Basic earnings per share $ 0.32 $ 0.74 $ 0.81 $ 1.36 ============== ============== ============== ============== Diluted earnings per share Numerator: Income available to stockholders, as reported $ 14,805 $ 33,813 $ 37,350 $ 62,361 -------------- -------------- -------------- -------------- Denominator: Average number of shares of common stock outstanding 45,873 45,795 45,855 45,939 Shares issuable upon exercise of stock options 794 813 821 634 -------------- -------------- -------------- -------------- Total shares 46,667 46,608 46,676 46,573 -------------- -------------- -------------- -------------- Diluted earnings per share $ 0.32 $ 0.73 $ 0.80 $ 1.34 ============== ============== ============== ==============

Page 10 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) 7. 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 six-month periods ended June 30, 2001 and 2000, respectively are as follows: % of Income Before Income Taxes -------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, --------------------------- --------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Federal statutory rate 35.0% 35.0% 35.0% 35.0% Foreign sales corporation benefit (2.5) (1.4) (2.5) (1.5) State taxes, net of federal tax benefit 1.0 0.8 1.0 0.7 Depletion (2.2) (0.8) (1.7) (0.8) Reversal of valuation allowance - - (2.0) - Other (0.9) (2.6) (0.6) (2.4) ---------- ---------- ---------- ---------- Effective income tax rate 30.4% 31.0% 29.2% 31.0% ========== ========== ========== ========== During the first quarter of 2001, the Company released a valuation allowance required on a deferred tax asset related to the Company's facilities in Louvain-la-Neuve, Belgium, which was established in 1996 when the Company's Olefins Business was sold. 8. At the close of business on May 31, 2001, the Company through its wholly-owned subsidiary Albemarle Deutschland GmbH, acquired Martinswerk GmbH ("Martinswerk"), including manufacturing facilities and headquarters in Bergheim, Germany and Martinswerk's 50 percent stake in Magnifin Magnesiaprodukte GmbH, which has manufacturing facilities at St. Jakobs Breitenau, Austria. The acquisition has been accounted for by the purchase method of accounting and accordingly, the operating results have been included in the Company's consolidated results of operations from the date of acquisition. The preliminary purchase price plus accrued costs, which is subject to certain adjustments, amounted to $45,375 plus the assumption of certain liabilities and is reflected in the June 30, 2001, balance sheet under the caption "other assets and deferred charges" while the allocation of purchase price is being completed. 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. Net sales pro forma information is presented as follows for the six-month-periods ended June 30, 2001 and 2000, respectively, prior to the finalization of the purchase price allocation ("PPA"), as if Martinswerk GmbH and Martinswerk's 50% stake in Magnifin Magnesiaprodukte GmbH, which was acquired on May 31, 2001, had been acquired on January 1, 2001 and 2000, respectively. Net income and earnings per share data will be included when the PPA is completed. Six Months Ended Six Months Ended June 30, 2001 June 30, 2000 ---------------- ---------------- Net Sales $485,682 $520,144 ================ ================

Page 11 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) 9. The Company is a global manufacturer of specialty polymer and fine chemicals, currently grouped into two operating segments: Polymer Chemicals and Fine Chemicals. The operating segments were determined based on management responsibility. The Polymer Chemicals' segment is comprised of flame retardants, organometallics and catalysts, and polymer additives and intermediates. The Fine Chemicals' operating segment is comprised of agrichemicals and pharmachemicals and performance chemicals. Segment data includes intersegment transfers of raw materials at cost and foreign exchange gains and losses as well as allocations for certain corporate costs. The corporate and other expenses include corporate-related items not allocated to the reportable segments. Three Months Ended June 30, ---------------------------- 2001 2000 ---- ---- Revenues Income Revenues Income ---------- ---------- ---------- ---------- Summary of segment results Polymer Chemicals $ 108,916 $ 15,288 $ 125,629 $ 32,461 Fine Chemicals 102,370 9,198 100,577 19,803 ---------- ---------- ---------- ---------- Segment totals $ 211,286 24,486 $ 226,206 52,264 ========== ========== Corporate and other expenses (3,369) (2,399) ---------- ---------- Operating profit 21,117 49,865 Interest and financing expenses (1,086) (1,224) Other income, net 1,236 363 ---------- ---------- Income before income taxes $ 21,267 $ 49,004 ========== ========== Six Months Ended June 30, ---------------------------- 2001 2000 ---- ---- Revenues Income Revenues Income ---------- ---------- ---------- ---------- Summary of segment results Polymer Chemicals $ 229,872 $ 36,146 $ 253,842 $ 59,389 Fine Chemicals 205,824 24,090 207,844 41,709 ---------- ---------- ---------- ---------- Segment totals $ 435,696 60,236 $ 461,686 101,098 ========== ========== Corporate and other expenses (8,145) (9,065) ---------- ---------- Operating profit 52,091 92,033 Interest and financing expenses (2,155) (2,991) Other income, net 2,818 1,336 ---------- ---------- Income before income taxes $ 52,754 $ 90,378 ========== ==========

Page 12 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) 10. On January 1, 2001, the Company adopted Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company's transition adjustment did not have a material effect on the financial position or results of operations in 2001. In connection with the adoption of FAS No. 133, the Company elected not to utilize hedge accounting. Consequently, changes in the fair value of derivatives are recognized in the Company's statement of operations. In July 2001, the Financial Accounting Standards Board ("FASB") issued FAS No. 141, Business Combinations. FAS 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, and it requires unallocated negative goodwill to be written off immediately as an extraordinary gain. This Statement is not expected to have a material impact on the Company's financial statements. In addition, the FASB issued FAS No. 142, Goodwill and Other Intangible Assets. FAS No. 142 eliminates the amortization of goodwill and instead requires a periodic review of any goodwill balance for possible impairment. FAS No. 142 also requires that goodwill be allocated at the reporting unit level and is effective for years beginning after December 15, 2001. The Company will discontinue amortization of goodwill as of January 1, 2002 for book purposes, and will comply with periodic impairment test procedures. This Statement is not expected to have a material impact on the Company's financial statements.

Page 13 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) ITEM 2. Management's Discussion and Analysis of Results of Operations ---------------------------------------------------------------- and Financial Condition, Additional Information and Recent ---------------------------------------------------------------- Developments ------------ The following is management's discussion and analysis of certain significant factors affecting the results of operations of Albemarle Corporation ("Albemarle" or "the Company") during the periods included in the accompanying consolidated statements of income and changes in the Company's financial condition since December 31, 2000. Some of the information presented in the following discussion may constitute forward-looking comments within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include, without limitation, the timing of orders received from customers, the gain or loss of significant customers, competition from other manufacturers, changes in the demand for the Company's products, increases in the cost of the products, changes in the market in general, fluctuations in foreign currencies and significant changes in new product introduction resulting in an increase in capital project requests and approvals leading to additional capital spending. Results of Operations --------------------- Second Quarter 2001 Compared with Second Quarter 2000 ------------------------------------------------------ Net sales for second quarter 2001 amounted to $211.3 million, down 6.6% or $14.9 million from second quarter 2000 net sales of $226.2 million primarily due to lower shipments of flame retardants and catalysts and additives, lower shipments and prices in the Company's zeolites business, and the net effects of foreign exchange in the European and Asia Pacific regions, partially offset by the increase of $9.5 million in net sales resulting from the May 31, 2001, acquisition of Martinswerk GmbH and higher shipments in oilfield chemicals. The gross profit margin decreased to 23.1% in 2001 from 29.2% for the corresponding period in 2000. Second-quarter 2001 operating profit was down 57.7% or $28.7 million from second-quarter 2000 operating profit, which included a one-time special SFAS No. 88 noncash accounting settlement gain of $15.9 million, resulting from an election made to close certain pension contracts in the Company's pension plans. Excluding the one-time special noncash accounting settlement gain in 2000, second-quarter 2001 operating profit was down 37.8% or $12.8 million primarily due to lower shipments of flame retardants and catalysts and additives, lower shipments and lower selling prices in surface actives (zeolites) and the unfavorable net effects of foreign exchange. The preceding unfavorable results for the second quarter of 2001 versus the corresponding second quarter in 2000 were offset, in part, by improved demand in the Company's pharmachemicals and agrichemicals business, lower employee related costs and the benefit of aggressive cost reduction efforts. Selling, general and administrative expenses and research and development expenses, decreased 13.8% or $4.4 million in the second quarter of 2001 versus second quarter 2000 primarily due to lower employee related costs and aggressive cost reduction efforts. As a percentage of net sales, selling, general and administrative expenses, including research and development expenses, were 13.1% in 2001 versus 14.2% in the 2000 quarter.

Page 14 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) Operating Segments ------------------ Net sales by reportable business operating segment for the second quarter periods ended June 30, 2001 and 2000 are as follows: Net Sales --------- 2001 2000 ---------- ---------- Polymer Chemicals $108,916 $125,629 Fine Chemicals 102,370 100,577 ---------- ---------- Segment totals $211,286 $226,206 ========== ========== Polymer Chemicals' net sales for second quarter 2001 decreased 13.3%, or $16.7 million, from second quarter 2000 net sales, primarily due to lower shipments of flame retardants ($12.3 million) offset, in part, by the increase in net sales of $5.7 million, resulting from the May 31, 2001, acquisition of Martinswerk GmbH, lower shipments of catalysts and additives ($7.2 million) and the unfavorable net effects of foreign exchange. Fine Chemicals' net sales for second quarter 2001 increased 1.8% or $1.8 million from second quarter 2000 primarily due to higher shipments in oilfield chemicals of $2.3 million, potassium and chlorine chemicals of $1.8 million and agrichemicals of $1.8 million as well as the increase in net sales of $3.8 million resulting from the May 31, 2001, acquisition of Martinswerk GmbH primarily offset by lower shipments and unfavorable pricing in surface actives (zeolites). Operating profit by reportable business operating segment for the second quarter periods ended June 30, 2001, and 2000 are as follows: Operating Profit ---------------- 2001 2000 ---------- ---------- Polymer Chemicals $15,288 $32,461 Fine Chemicals 9,198 19,803 ---------- ---------- Segment totals 24,486 52,264 Corporate and other expenses (3,369) (2,399) ---------- ---------- Operating profit $21,117 $49,865 ========== ========== Polymer Chemicals' second quarter 2001 segment operating profit was down 52.9% or $17.2 million from second quarter 2000 primarily due to decreased shipments in flame retardants and catalysts and additives and the unfavorable net effects of foreign exchange in second quarter 2001 versus second quarter 2000. Polymer Chemicals' second quarter 2000 segment operating profit included an allocation of $6.0 million related to the one-time special SFAS No. 88 settlement gain. Excluding the one-time gain in 2000, Polymer Chemicals' segment operating profit was down 42.2% or $11.2 million from second quarter 2000.

Page 15 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) Fine Chemicals' second quarter 2001 segment operating profit decreased 53.6% or $10.6 million from second quarter 2000 primarily due to lower shipments and lower sales pricing in surface actives (zeolites) partially offset by improved demand in agrichemicals and pharmachemicals. Fine Chemicals' second quarter 2000 segment operating profit included an allocation of $6.2 million related to the one-time special SFAS No. 88 settlement gain. Excluding the one-time gain in 2000, Fine Chemicals' segment operating profit was down 32.5% or $4.4 million from second quarter 2000. Excluding the allocation of $3.7 million related to the one-time special SFAS No. 88 settlement gain in the second quarter of 2000, corporate and other expenses for the second quarter of 2001 were down 45.1% percent or $2.8 million from second quarter 2000 primarily due to lower employee related costs and aggressive cost reduction efforts. Interest and Financing Expenses ---------------------------------- Interest and financing expenses for second quarter 2001 decreased $0.1 million from $1.2 million in second quarter 2000. Other Income, Net ----------------- Other income, net for the second quarter 2001 amounted to $1.2 million, up $0.8 million from the corresponding period in 2000. Income Taxes ------------ Income taxes for second quarter 2001 were lower compared to the same period in 2000 primarily due to lower income before taxes in 2001. The second quarter 2001 effective income tax rate was 30.4%, down from 31.0% in second quarter 2000. Results of Operations --------------------- Six Months 2001 Compared with Six Months 2000 --------------------------------------------- Net sales for the first six months of 2001 amounted to $435.7 million, down 5.6% or $26.0 million from the corresponding period of 2000 net sales of $461.7 million primarily due to lower shipments of catalysts and additives, lower shipments and unfavorable prices in the Company's zeolites business and lower shipments of flame retardants and the net effects of foreign exchange in the European and Asia Pacific regions, partially offset by the increase in net sales of $9.5 million resulting from the May 31, 2001, acquisition of Martinswerk GmbH and higher shipments in oilfield chemicals. The gross profit margin decreased to 24.8% in the first six months of 2001 from 30.5% for the corresponding period in 2000. The first six months of 2001 operating profit was down 43.4% or $39.9 million from the 2000 period, which included a one-time special SFAS No. 88 noncash accounting settlement gain of $15.9 million, resulting from an election made to close certain pension contracts in the Company's pension plans. Excluding the one-time special noncash accounting settlement gain in 2000, operating profit for the first six months of 2001 was down 31.6% or $24.0 million from 2000 primarily due to lower shipments and lower sales pricing in surface actives (zeolites), lower shipments of catalysts and additives and flame retardants, higher overall raw material and energy costs, the impact of business interruptions at our plants and those of certain of our customers, net of accrued insurance recoveries and the unfavorable net effects of foreign exchange. The preceding unfavorable results for the first six months of 2001 versus the corresponding period in 2000 were offset, in part, by lower employee related costs, the benefit of aggressive cost reduction efforts and improved demand in the Company's agrichemicals business.

Page 16 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) Selling, general and administrative expenses and research and development expenses, decreased 13.0% or $8.4 million in the first six months of 2001 versus the 2000 period primarily due to lower employee related costs and the benefit of aggressive cost reduction efforts. As a percentage of net sales, selling, general and administrative expenses, including research and development expenses, were 12.9% in the first six months 2001 versus 14.0% in the corresponding period of 2000. Operating Segments ------------------ Net sales by reportable business operating segment for the six-months periods ended June 30, 2001 and 2000 are as follows: Net Sales --------- 2001 2000 ---------- ---------- Polymer Chemicals $229,872 $253,842 Fine Chemicals 205,824 207,844 ---------- ---------- Segment totals $435,696 $461,686 ========== ========== Polymer Chemicals' net sales for the first six months of 2001 decreased 9.4% or $24.0 million from the corresponding period in 2000 primarily due to lower shipments in catalysts and additives of $15.3 million and in flame retardants of $9.4 million offset, in part, by the increase in net sales of $5.7 million, resulting from the May 31, 2001, acquisition of Martinswerk GmbH and the unfavorable net effects of foreign exchange. Fine Chemicals' net sales for the first six months of 2001 decreased 1.0% or $2.0 million from the corresponding period in 2000 primarily due to lower shipments and unfavorable pricing in surface actives (zeolites) primarily offset by higher shipments in oilfield chemicals of $4.4 million as well as the increase in net sales of $3.8 million resulting from the May 31, 2001, acquisition of Martinswerk GmbH and higher shipments of potassium and chlorine chemicals of $1.7 million.

Page 17 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) Operating profit by reportable business operating segment for the six-months periods ended June 30, 2001, and 2000 are as follows: Operating Profit ---------------- 2001 2000 ---------- ---------- Polymer Chemicals $36,146 $59,389 Fine Chemicals 24,090 41,709 ---------- ---------- Segment totals 60,236 101,098 Corporate and other expenses (8,145) (9,065) ---------- ---------- Operating profit $52,091 $92,033 ========== ========== Polymer Chemicals' first six months of 2001 segment operating profit was down 39.1% or $23.2 million from the corresponding period in 2000 primarily due to decreased shipments in catalysts and additives and flame retardants, higher raw material and energy costs, the impact of business interruptions at our plants and those of certain of our customers, net of accrued insurance recoveries and the unfavorable net effects of foreign exchange in the 2001 period versus the 2000 period. Polymer Chemicals' segment operating profit for the first six months of 2000 included an allocation of $6.0 million related to the one-time special SFAS No. 88 settlement gain. Excluding the one-time gain in 2000, Polymer Chemicals' segment operating profit for the first six months of 2001 was down 32.3% or $17.2 million from the corresponding period in 2000. Fine Chemicals' first six months of 2001 segment operating profit decreased 42.2% or $17.6 million from the corresponding period in 2000 primarily due to lower shipments and lower sales pricing in surface actives (zeolites), higher raw material and energy costs, the impact of business interruptions at our plants, net of accrued insurance recoveries partially offset by improved demand in agrichemicals. Fine Chemicals' segment operating profit for the first six months of 2000 included an allocation of $6.2 million related to the one-time special SFAS No. 88 settlement gain. Excluding the one-time gain in 2000, Fine Chemicals' segment operating profit for the first six months of 2001 was down 32.2% or $11.4 million from the corresponding period in 2000. Excluding the allocation of $3.7 million related to the one-time special SFAS No. 88 settlement gain in the first six months of 2000, corporate and other expenses for the first six months of 2001 were down 36.4% percent or $4.6 million from the corresponding period of 2000 primarily due to lower employee related costs and the benefit of aggressive cost reduction efforts. Interest and Financing Expenses ------------------------------- Interest and financing expenses for the first six months of 2001 decreased $0.8 million from $3.0 million in the corresponding period of 2000 primarily due to lower average outstanding debt.

Page 18 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) Other Income, Net ----------------- Other income, net for the first six months of 2001 amounted to $2.8 million, up $1.5 million from the corresponding period in 2000. Income Taxes ------------ Income taxes for the first six months of 2001 were lower compared to the same period in 2000 due to lower income before taxes and the reversal in 2001 of a deferred tax valuation allowance associated with one of the Company's foreign subsidiaries. The effective income tax rate for the first six months of 2001 was 29.2%, down from 31.0% in the corresponding period of 2000. Financial Condition and Liquidity --------------------------------- Cash and cash equivalents at June 30, 2001, were $7.9 million, representing a decrease of $11.4 million from $19.3 million at year-end 2000. Cash flows provided from operating activities of $68.4 million, together with $44 million of proceeds from borrowings from the Company's Revolving Credit Agreement and $11.4 million of existing cash and cash equivalents were used to cover acquisition of the Martinswerk business, capital expenditures, payment of dividends, repayment of debt and additional investments in the Company's joint ventures. The Company anticipates that cash provided from operations in the future will be sufficient to pay its operating expenses, satisfy debt-service obligations and make dividend payments. The change in the Company's accumulated other comprehensive (loss) income from December 31, 2000, was primarily due to net foreign currency adjustments, net of related deferred taxes, primarily related to the strengthening of the U.S. Dollar versus the Euro and the Japanese yen. The noncurrent portion of the Company's long-term debt amounted to $109.4 million at June 30, 2001, compared to $97.7 million at the end of 2000. The Company's long-term debt, including the current portion, as a percentage of total capitalization amounted to 15.9% at June 30, 2001. The Company is guarantor of $5.2 million of long-term debt, in the form of commitments, on behalf of its 50-percent owned joint venture company, Jordan Bromine Company Limited. The Company's long-term debt, including the guarantee, as a percent of total capitalization amounted to 16.6% at June 30, 2001. The Company's capital expenditures in the first six months of 2001 were slightly higher than the same period of 2000. For the year capital expenditures are forecasted to be higher than the 2000 level. Capital spending will be financed primarily with cash flow from operations with additional cash, if any, provided from additional debt. The amount and timing of any additional borrowings will depend on the Company's specific cash requirements. The Company is subject to federal, state, local and foreign requirements regulating the handling, manufacture and use of materials (some of which may be classified as hazardous or toxic by one or more regulatory agencies), the discharge of materials into the environment and the protection of the environment. To the Company's knowledge, it currently is complying 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 is not expected to have in the future a material effect on earnings or the competitive position of Albemarle.

Page 19 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) Among other environmental requirements, the Company is subject to the federal Superfund law, and similar state laws, under which the Company may be designated as a potentially responsible party and may be liable for a share of the costs associated with cleaning up various hazardous waste sites. Additional Information ---------------------- Outlook ------- In Fine Chemicals, we believe we'll see improvements in our pharmachemicals and agrichemicals business. To realize such improvements it is important that our ibuprofen operation, currently running near capacity, must meet anticipated strong second-half customer demand. We are confident, provided the announced plant expansion plans currently underway are completed as scheduled, we can meet this demand. We continue to position our oilfield chemicals and bromine derivatives for the future with progress on our joint venture bromine project in Jordan. We expect to see 2001 Fine Chemicals' results slightly below or even with 2000 levels. In Polymer Chemicals, we foresee continued softness in our flame retardants business due to continuing weakness in end-use electronics markets. In addition, with an expected slow recovery in polyolefins impacting our catalyst and additives businesses, it is likely our second-quarter 2001 level of performance in Polymer Chemicals will continue throughout the second half. We will continue to manage our way through this difficult economic situation proactively, positioning ourselves to take full advantage for an ultimate recovery, while staying focused on long-term strategies, which we believe to be sound. Additional information regarding the Company, its products, markets and financial performance is provided at the Company's Internet web site, www.Albemarle.com. Recent Developments ------------------- In early July, the Company announced the completion of its acquisition of the custom and fine chemicals businesses of ChemFirst Inc.(NYSE:CEM) for $79 million in cash, which will be financed through the Company's existing Revolving Credit Agreement. The Asset Purchase Agreement also provides for additional contingent payments to ChemFirst not expected to exceed $10 million. 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 pilot plant in Dayton, Ohio.

Page 20 ALBEMARLE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------- (In Thousands Except Share and Per-Share Amounts) (Unaudited) ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ----------------------------------------------------------- There have been no significant changes in our interest rate risk, marketable security price risk or raw material price risk from the information provided in our Form 10-K for the year ended December 31, 2000. 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 environmental laws, such as Superfund, and products liability litigation. While it is not possible to predict or determine the outcome of the proceedings presently pending, in the Company's opinion they should not result ultimately in liabilities that are likely to have a material adverse effect upon the results of operations or financial condition of the Company and its subsidiaries on a consolidated basis. ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits The following documents are filed as exhibits to this Form 10-Q pursuant to Item 601 of Regulation S-K: 21. List of the Company's significant subsidiaries as adjusted to reflect the acquisition of Martinswerk GmbH (filed herewith). 99. List of Albemarle Corporation Officers (filed herewith). (b) The report on Form 8-K filed June 1, 2001, related to the May 31, 2001, completion of the acquisition of Martinswerk GmbH is incorporated herein by reference.

Page 21 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALBEMARLE CORPORATION --------------------- (Registrant) Date: August 13, 2001 By: s/ Robert G. Kirchhoefer ----------------------------- Robert G. Kirchhoefer Treasurer and Chief Accounting Officer (Principal Accounting Officer)

Page 22 EXHIBIT INDEX ------------- Page Number ------ EXHIBIT - ------- 21. List of Albemarle Corporation Subsidiaries 23 99. List of Albemarle Corporation Officers 24

EXHIBIT 21
- ----------

                   LIST OF ALBEMARLE CORPORATION SUBSIDIARIES
                   ------------------------------------------


Name                                                 Domicile
- ----                                                 --------

Albemarle Asano Corporation                          Japan
Albemarle Asia Pacific Company                       Virginia
Albemarle Asia Pacific Company LLC                   Virginia
Albemarle Chemicals SAS                              France
Albemarle Chimie                                     France
Albemarle China Corporation                          Virginia
Albemarle Deutschland GmbH                           Federal Republic of Germany
Albemarle Europe SPRL                                Belgium
Albemarle Foreign Sales Corporation                  U. S. Virgin Islands
Albemarle France S.A.R.L.                            France
Albemarle Holdings Company Limited                   Turks and Caicos Islands
Albemarle International Corporation                  Virginia
Albemarle International Company LLC                  Virginia
Albemarle Marketing Company Limited                  Turks and Caicos Islands
Albemarle Overseas Development Corporation           Virginia
Albemarle Overseas Development Company LLC           Virginia
Albemarle PPC                                        France
Albemarle Services Company Limited                   Turks and Caicos Islands
Albemarle TCI Limited                                Turks and Caicos Islands
Albemarle UK Holdings, Inc.                          Virginia
Albemarle UK Limited                                 England
Albemarle Ventures Company Limited                   Turks and Caicos Islands
Albemarle Virginia Corporation                       Virginia
Albemarle Virginia, L.P.                             Virginia
ANY, Inc.                                            New York
Breitenau Holding GmbH                               Federal Republic of Germany
Martinswerk GmbH                                     Federal Republic of Germany


EXHIBIT 99
- ----------

                     List of Albemarle Corporation Officers
                     --------------------------------------

Name                                 Officers
- --------------------------------------------------------------------------------
Floyd D. Gottwald, Jr.*              Chief Executive Officer and Chairman
                                           of the Executive Committee

William M. Gottwald*                 Chairman of the Board and Secretary
                                           to the Executive Committee

Charles B. Walker*                   Vice Chairman of the Board
                                           and Chief Financial Officer

Mark C. Rohr                         President and Chief Operating Officer

E. Whitehead Elmore                  Executive Vice President
                                           and Corporate Secretary

John G. Dabkowski                    Vice President Polymer Chemicals

Thomas F. Dominick                   Vice President Development Resources

Dixie E. Goins                       Vice President Science and Technology

Jack P. Harsh                        Vice President Human Resources

George P. Manson, Jr.                Vice President and General Counsel

George A. Newbill                    Vice President Sourcing Organization

John M. Steitz                       Vice President Fine Chemicals

Gary L. Ter Haar                     Vice President Health and Environment

Michael D. Whitlow                   Vice President Americas Sales
                                           and Global Accounts

Edward G. Woods                      Vice President Corporate Development

Michael J. Zobrist                   Vice President Investor Relations/
                                           External Affairs

Robert G. Kirchhoefer                Treasurer and Chief Accounting Officer


*Member of the Executive Committee