Forward-looking Statements Some of the information presented in this Quarterly Report on Form 10-Q, including the documents incorporated by reference, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on our current expectations, which are in turn based on assumptions that we believe are reasonable based on our current knowledge of our business and operations. We have used words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "would," "will" and variations of such words and similar expressions to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. There can be no assurance that our actual results will not differ materially from the results and expectations expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially from the outlook expressed or implied in any forward-looking statement include, without limitation, information related to: •changes in economic and business conditions; •changes in financial and operating performance of our major customers and industries and markets served by us; •the timing of orders received from customers; •the gain or loss of significant customers; •competition from other manufacturers; •changes in the demand for our products or the end-user markets in which our products are sold; •limitations or prohibitions on the manufacture and sale of our products; •availability of raw materials; •increases in the cost of raw materials and energy, and our ability to pass through such increases to our customers; •changes in our markets in general; •fluctuations in foreign currencies; •changes in laws and government regulation impacting our operations or our products; •the occurrence of regulatory actions, proceedings, claims or litigation; •the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change; •hazards associated with chemicals manufacturing; •the inability to maintain current levels of product or premises liability insurance or the denial of such coverage; •political unrest affecting the global economy, including adverse effects from terrorism or hostilities; •political instability affecting our manufacturing operations or joint ventures; •changes in accounting standards; •the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs; •changes in the jurisdictional mix of our earnings and changes in tax laws and rates; •changes in monetary policies, inflation or interest rates that may impact our ability to raise capital or increase our cost of funds, impact the performance of our pension fund investments and increase our pension expense and funding obligations; •volatility and uncertainties in the debt and equity markets; •technology or intellectual property infringement, including through cyber-security breaches, and other innovation risks; •decisions we may make in the future; •the ability to successfully execute, operate and integrate acquisitions and divestitures; •uncertainties as to the duration and impact of the novel coronavirus ("COVID-19") pandemic; and •the other factors detailed from time to time in the reports we file with theSecurities and Exchange Commission ("SEC"). We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. The following discussion should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. 27 -------------------------------------------------------------------------------- Ta ble of Contents The following is a discussion and analysis of our results of operations for the three-month and six-month periods endedJune 30, 2020 and 2019. A discussion of our consolidated financial condition and sources of additional capital is included under a separate heading "Financial Condition and Liquidity." Overview We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals that are designed to meet our customers' needs across a diverse range of end markets. The end markets we serve include energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, crop protection and custom chemistry services. We believe that our commercial and geographic diversity, technical expertise, innovative capability, flexible, low-cost global manufacturing base, experienced management team and strategic focus on our core base technologies will enable us to maintain leading market positions in those areas of the specialty chemicals industry in which we operate. Secular trends favorably impacting demand within the end markets that we serve combined with our diverse product portfolio, broad geographic presence and customer-focused solutions will continue to be key drivers of our future earnings growth. We continue to build upon our existing green solutions portfolio and our ongoing mission to provide innovative, yet commercially viable, clean energy products and services to the marketplace to contribute to our sustainable revenue. For example, our Lithium business contributes to the growth of clean miles driven with electric miles and more efficient use of renewable energy through grid storage; Bromine Specialties enables the prevention of fires starting in electronic equipment, greater fuel efficiency from rubber tires and the reduction of emissions from coal fired power plants; and the Catalysts business creates efficiency of natural resources through more usable products from a single barrel of oil, enables safer, greener production of alkylates used to produce more environmentally-friendly fuels, and reduced emissions through cleaner transportation fuels. We believe our disciplined cost reduction efforts and ongoing productivity improvements, among other factors, position us well to take advantage of strengthening economic conditions as they occur, while softening the negative impact of the current challenging global economic environment. Second Quarter 2020 During the second quarter of 2020: •Our board of directors declared a quarterly dividend of$0.385 per share onMay 5, 2020 , which was paid onJuly 1, 2020 to shareholders of record at the close of business as ofJune 12, 2020 . •OnApril 20, 2020 ,J. Kent Masters was elected Chairman, President and Chief Executive Officer. •OnMay 11, 2020 , we amended our revolving, unsecured credit agreement dated as ofJune 21, 2018 , as amended onAugust 14, 2019 (the "2018 Credit Agreement"), and our unsecured credit facility entered into onAugust 14, 2019 (the "2019 Credit Facility") (together the "Credit Agreements") to modify the financial covenant in the Credit Agreements. The modified covenant is based on net funded debt to consolidated EBITDA, with a maximum ratio to 4.00:1 for the fiscal quarter endingJune 30, 2020 , 4.50:1 for the fiscal quarters endingSeptember 30, 2020 throughSeptember 30, 2021 , decreasing to 4.00:1 times for the fiscal quarter endedDecember 31, 2021 , and 3.50:1 thereafter, among other changes. •Our net sales for the quarter were$764.0 million , down 14% from net sales of$885.1 million in the second quarter of 2019. •Diluted earnings per share were$0.80 , a decrease from second quarter 2019 results of$1.45 per diluted share.
Outlook
The current global business environment presents a diverse set of opportunities and challenges in the markets we serve. In particular, the market for lithium battery and energy storage remains strong, providing the opportunity to continue to develop high quality and innovative products while managing the high cost of expanding capacity. The other markets we serve continue to present various opportunities for value and growth as we have positioned ourselves to manage the impact on our business of changing global conditions, such as slow and uneven global growth, currency exchange volatility, crude oil price fluctuation, a dynamic pricing environment, an ever-changing landscape in electronics, the continuous need for cutting edge catalysts and technology by our refinery customers and increasingly stringent environmental standards. Amidst these dynamics, we believe our business fundamentals are sound and that we are strategically well-positioned as we remain focused on increasing sales volumes, optimizing and improving the value of our portfolio primarily through pricing and product development, managing costs and delivering value to our customers and shareholders. We believe that our businesses remain well-positioned to capitalize on new business opportunities and long-term trends driving growth within our end markets and to respond quickly to changes in economic conditions in these markets. Currently, the COVID-19 pandemic is having an impact on overall global economic conditions. While we have not seen a material impact to our operations to date, the ultimate impact on our business will depend on the length and severity of the 28 -------------------------------------------------------------------------------- Ta ble of Contents outbreak throughout the world. All of our information technology systems are running as designed and all sites are operating at normal capacity while we continue to comply with all government and health agency recommendations and requirements, as well as protecting the safety of our employees and communities. We believe we have sufficient inventory to continue to produce at current levels, however, government mandated shutdowns could impact our ability to acquire additional materials and disrupt our customers' purchases. At this time we cannot predict the expected overall financial impact of the COVID-19 pandemic on our business, but we are planning for various economic scenarios to make efforts to protect the safety of our employees and the health of our business. Lithium: We expect results to decline year-over-year during 2020 in Lithium, due mainly to pricing pressure in certain markets, partially offset by productivity enhancements across our business. There is no new capacity coming online during 2020 to drive significant additional volume. In addition, we have seen reduced demand in the glass and ceramics markets, which has led to reduced sales. While we have not experienced a material impact from the COVID-19 pandemic to date, our position in the automotive OEM supply chain may delay the overall impact to Lithium. Our plants inChina temporarily operated at reduced rates during the first quarter due to operating restrictions; however both plants were back to normal capacity following the lifting of the restrictions. In addition, all other plants operated at normal rates during the first half of 2020. We are continuing to monitor the Lithium impact for the remainder of the year as global electric vehicle production has slowed. In addition, we continue to keep the Wodgina spodumene mine idled until demand supports bringing the mine back to production. On a longer-term basis, we believe that demand for lithium will continue to grow as new lithium applications advance and the use of plug-in hybrid electric vehicles and full battery electric vehicles increases. This demand for lithium is supported by a favorable backdrop of steadily declining lithium ion battery costs, increasing battery performance, continuing significant investments in the battery and EV supply chain by our customers and automotive OEM's,favorable global public policy toward e-mobility/renewable energy usage and additional stimulus measures taken inEurope in light of the COVID-19 pandemic that we expect to bolster electric vehicle demand. Our outlook is also bolstered by long-term supply agreements with key strategic customers, reflecting our standing as a preferred global lithium partner, highlighted by our scale, access to geographically diverse, low-cost resources and long-term track record of reliability of supply and operating execution. Bromine Specialties: We expect both net sales and profitability to be down in 2020, primarily due to lower demand from recent shutdowns related to the COVID-19 pandemic. While we have not experienced a material impact from the COVID-19 pandemic to date, sales in the first half of the year were adversely impacted and we are likely to see continued adverse impacts in the second half of 2020. On a longer-term basis, we continue to believe that improving global standards of living, widespread digitization, increasing demand for data management capacity and the potential for increasingly stringent fire safety regulations in developing markets are likely to drive continued demand for fire safety products. Our long-term drilling outlook is uncertain at this time and will follow a long term trajectory in line with oil prices. We are focused on profitably growing our globally competitive bromine and derivatives production network to serve all major bromine consuming products and markets. The combination of our solid, long-term business fundamentals, strong cost position, product innovations and effective management of raw material costs will enable us to manage our business through end-market challenges and to capitalize on opportunities that are expected with favorable market trends in select end markets. Catalysts: We expect both net sales and profitability to be down in 2020, driven by significantly lower demand due to stay at home orders and travel restrictions resulting from the COVID-19 pandemic. The travel restrictions adversely impacted FCC in the first half due to reduced transportation fuel demand throughout the world. While we do expect to see some recovery in the second half of 2020, we do not expect demand to return to normal levels during 2020. As these restrictions are lifted, we expect fuel demand to recover, however, at this time we are unable to predict the timing of these changes. We have also begun to see an adverse impact from the COVID-19 pandemic on HPC, as customers are focusing on reducing capital spending in 2020. We are likely to see a continued negative impact in the second half of 2020 as refiners are able to defer change outs. We will continue to monitor the situation as we expect our global customer and suppliers to continue to experience disruptions resulting from the impact of the COVID-19 pandemic. On a longer-term basis, we believe increased global demand for transportation fuels, new refinery start-ups and ongoing adoption of cleaner fuels will be the primary drivers of growth in our Catalysts business. We believe delivering superior end-use performance continues to be the most effective way to create sustainable value in the refinery catalysts industry. We believe our technologies continue to provide significant performance and financial benefits to refiners challenged to meet tighter regulations around the world, including those managing new contaminants present inNorth America tight oil, and those in theMiddle East andAsia seeking to use heavier feedstock while pushing for higher propylene yields. Longer-term, we believe that the global crude supply will get heavier and more sour, a trend that bodes well for our catalysts portfolio. With superior technology and production capacities, and expected growth in end market demand, we believe that Catalysts remains well-positioned for the future. In PCS, we expect growth on a longer-term basis in our organometallic business due to growing 29 -------------------------------------------------------------------------------- Ta ble of Contents global demand for plastics driven by rising standards of living and infrastructure spending. As previously announced, we are pursuing opportunities to divest PCS. All Other: The fine chemistry services ("FCS") business is reported outside the Company's reportable segments as it does not fit in the Company's core businesses. We expect the near future prospects for theFCS business to continue to be positively impacted by the timing of customer orders in a strong pharmaceutical and agriculture contract manufacturing environment. As previously announced, we are pursuing opportunities to divest ourFCS business. Corporate: In the first quarter of 2020, we increased our quarterly dividend rate to$0.385 per share. We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax rate for 2020 to continue to vary based on the locales in which income is actually earned and remains subject to potential volatility from changing legislation in theU.S. , including theU.S. Tax Cuts and Jobs Act ("TCJA"), and other tax jurisdictions. We remain committed to evaluating the merits of any opportunities that may arise for acquisitions or other business development activities that will complement our business footprint. Additional information regarding our products, markets and financial performance is provided at our website, www.albemarle.com. Our website is not a part of this document nor is it incorporated herein by reference.
Results of Operations
The following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.
Second Quarter 2020 Compared to Second Quarter 2019
Selected Financial Data (Unaudited)
Net Sales In thousands Q2 2020 Q2 2019 $ Change % Change Net sales$ 764,049 $ 885,052 $ (121,003) (14) % ?$58.1 million of unfavorable pricing from each of our businesses ?$56.6 million of lower sales volume primarily driven by Catalysts and Bromine Specialties, partially offset by Lithium andFCS ?$6.3 million of unfavorable currency translation resulting from the strongerU.S. Dollar against various currencies Gross Profit In thousands Q2 2020 Q2 2019 $ Change % Change Gross profit$ 233,359 $ 325,914 $ (92,555) (28) % Gross profit margin 30.5 % 36.8 % ?Unfavorable pricing from each of our businesses and lower sales volume primarily in Catalysts and Bromine Specialties, partially offset by Lithium andFCS ?$9.8 million of a net expense related to the correction of out-of-period errors primarily regarding inventory values in Catalysts and overstated freight costs in Catalysts and Lithium ?Unfavorable currency exchange impacts resulting from the strongerU.S. Dollar against various currencies Selling, General and Administrative Expenses In thousands Q2 2020 Q2 2019 $ Change % Change Selling, general and administrative expenses$ 106,949 $ 126,715 $ (19,766) (16) % Percentage of Net sales 14.0 % 14.3 % ?Productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from our previously announced cost savings initiative. ?$2.0 million increase in severance expense as part of a business reorganization plan 30
-------------------------------------------------------------------------------- Ta ble of Contents Research and Development Expenses In thousands Q2 2020 Q2 2019
$ Change % Change
Research and development expenses
6 % Percentage of Net sales 1.9 % 1.5 %
?Increased research and development spend primarily in Bromine Specialties
Interest and Financing Expenses In thousands Q2 2020 Q2 2019 $ Change % Change
Interest and financing expenses
$ (6,251) 54 % ?Increased debt balance in 2020, primarily related to the funding of theWodgina Project acquisition and credit facility draws in 2020. ?The increase was partially offset by higher capitalized interest from continued capital expenditure spend in 2020 Other Expenses, Net In thousands Q2 2020 Q2 2019 $ Change % Change Other expenses, net$ (6,273) $ (7,065) $ 792 (11) % ?$2.4 million decrease in losses related to the adjustment of indemnifications related to previously divested businesses in 2019 ?$2.2 million increase in non-operating pension and OPEB gains resulting from lower interest expenses and increased estimated return on assets ?$3.7 million increase in foreign exchange losses Income Tax Expense In thousands Q2 2020 Q2 2019 $ Change % Change Income tax expense$ 15,431 $ 30,411 $ (14,980) (49) % Effective income tax rate 17.5 % 18.2 %
?Change in geographic mix of earnings, mainly attributable to our share of the income of our
Equity in Net Income of Unconsolidated Investments In thousands
Q2 2020 Q2 2019 $ Change % Change Equity in net income of unconsolidated investments$ 31,114 $ 38,310 $ (7,196) (19) %
?Lower earnings from our Lithium segment joint venture,
Net Income Attributable to Noncontrolling Interests In thousands
Q2 2020 Q2 2019 $ Change % Change Net income attributable to noncontrolling interests$ (18,134) $ (20,772) $ 2,638 (13) %
?Decrease in consolidated income related to our JBC joint venture from lower sales volume
31 -------------------------------------------------------------------------------- Ta ble of Contents Net Income Attributable toAlbemarle Corporation In thousands Q2 2020 Q2 2019 $ Change % Change Net income attributable toAlbemarle Corporation $ 85,624 $ 154,198 $ (68,574) (44) % Percentage of Net sales 11.2 % 17.4 % Basic earnings per share$ 0.81 $ 1.46 $ (0.65) (45) % Diluted earnings per share$ 0.80 $ 1.45 $ (0.65) (45) % ?Decrease primarily due to unfavorable pricing from each of our businesses and lower sales volume primarily in Catalysts and Bromine Specialties, partially offset by Lithium andFCS ?Increased interest expense from higher debt balances in 2020 ?Lower equity in net income of unconsolidated investments from the Talison joint venture ?Productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from our previously announced cost savings initiative. Other Comprehensive Income, Net of Tax In thousands Q2 2020 Q2 2019 $ Change % Change Other comprehensive income, net of tax$ 95,392 $ 8,154 $ 87,238 1,070 % ?Foreign currency translation$ 62,847 $ 10,544 $ 52,303 496 % ?2020 included favorable movements in the Euro of approximately$60 million and a net favorable movement in various other currencies totaling approximately$7 million , partially offset by unfavorable movements in the Brazilian Real of approximately$4 million ?2019 included favorable movements in the Euro of approximately$12 million and various other currencies totaling approximately$5 million , partially offset by an unfavorable variance in the Chinese Renminbi of approximately$6 million ?Cash flow hedge$ 37,645 $ -$ 37,645 ?Net investment hedge$ (5,756) $ (3,037) $ (2,719) 90 % Segment Information Overview. We have identified three reportable segments according to the nature and economic characteristics of our products as well as the manner in which the information is used internally by the Company's chief operating decision maker to evaluate performance and make resource allocation decisions. Our reportable business segments consist of: (1) Lithium, (2) Bromine Specialties and (3) Catalysts. Summarized financial information concerning our reportable segments is shown in the following tables. The "All Other" category includes only the fine chemistry services business, that does not fit into any of our core businesses. The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the operating segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the reportable segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit ("Non-operating pension and OPEB items") are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs. The Company's chief operating decision maker uses adjusted EBITDA (as defined below) to assess the ongoing performance of the Company's business segments and to allocate resources. The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items in a balanced manner and on a segment basis. These non-recurring or unusual items may include acquisition and integration related costs, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, non-operating pension and OPEB items and other significant non-recurring items. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with,U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income attributable toAlbemarle Corporation , the most directly comparable financial measure calculated and reported in accordance withU.S. GAAP, or any other financial measure reported in accordance withU.S. GAAP. 32
--------------------------------------------------------------------------------
Ta ble of Contents Three Months Ended June 30, Percentage Change 2020 % 2019 % 2020 vs 2019 (In thousands, except percentages) Net sales: Lithium$ 283,722 37.1 %$ 324,758 36.7 % (13) % Bromine Specialties 232,779 30.5 % 255,433 28.9 % (9) % Catalysts 197,053 25.8 % 266,301 30.1 % (26) % All Other 50,495 6.6 % 38,560 4.3 % 31 % Total net sales$ 764,049 100.0 %$ 885,052 100.0 % (14) % Adjusted EBITDA: Lithium$ 94,536 51.0 %$ 141,779 54.1 % (33) % Bromine Specialties 73,041 39.4 % 81,332 31.1 % (10) % Catalysts 22,777 12.3 % 66,875 25.5 % (66) % All Other 18,598 10.1 % 11,240 4.3 % 65 % Corporate (23,759) (12.8) % (39,326) (15.0) % (40) % Total adjusted EBITDA$ 185,193 100.0 %$ 261,900 100.0 % (29) %
See below for a reconciliation of adjusted EBITDA, the non-GAAP financial
measure, from Net income attributable to
Bromine Reportable Lithium Specialties
Catalysts Segments Total All Other Corporate
Consolidated Total Three months endedJune 30, 2020 Net income (loss) attributable toAlbemarle Corporation $ 66,038 $ 60,692 $ 10,702 $ 137,432 $ 16,425 $ (68,233) $ 85,624 Depreciation and amortization 28,498 12,349 12,075 52,922 2,173 2,746 57,841 Restructuring and other(a) - - - - - 6,733 6,733 Acquisition and integration related costs(b) - - - - - 5,470 5,470 Interest and financing expenses - - - - - 17,852 17,852 Income tax expense - - - - - 15,431 15,431 Non-operating pension and OPEB items - - - - - (2,895) (2,895) Other(c) - - - - - (863) (863) Adjusted EBITDA$ 94,536 $ 73,041 $ 22,777 $ 190,354 $ 18,598 $ (23,759) $ 185,193 Three months endedJune 30, 2019 Net income (loss) attributable toAlbemarle Corporation $ 117,303 $ 69,616 $ 54,124 $ 241,043 $ 9,118 $ (95,963) $ 154,198 Depreciation and amortization 24,365 11,716 12,751 48,832 2,122 1,994 52,948 Restructuring and other - - - - - 4,760 4,760 Acquisition and integration related costs(b) - - - - - 4,990 4,990 Interest and financing expenses - - - - - 11,601 11,601 Income tax expense - - - - - 30,411 30,411 Non-operating pension and OPEB items - - - - - (676) (676) Other(d) 111 - - 111 - 3,557 3,668 Adjusted EBITDA$ 141,779 $ 81,332 $ 66,875 $ 289,986 $ 11,240 $ (39,326)
$ 261,900
(a) Severance expenses as part of a business reorganization plan, primarily within our Lithium business inGermany in 2020. During the three months endedJune 30, 2020 , we recorded expenses of$6.7 million in Selling, general and administrative expenses. The balance of unpaid severance is recorded in Accrued expenses and is expected to primarily be paid through the first quarter of 2021. During the three months endedJune 30, 2019 , severance expenses of$4.8 million were recorded in Selling, general and administrative expenses as part of a business reorganization plan primarily in Catalysts, Lithium and Corporate. (b) Costs related to the acquisition, integration and potential divestiture for various significant projects, recorded in Selling, general and administrative expenses. (c) Included amounts for the three months endedJune 30, 2020 recorded in: ?Other (expenses) income, net -$0.9 million net gain primarily relating to the sale of idle properties inGermany . 33 -------------------------------------------------------------------------------- Ta ble of Contents (d) Included amounts for the three months endedJune 30, 2019 recorded in: ?Cost of goods sold -$0.1 million related to non-routine labor and compensation related costs inChile that were outside normal compensation arrangements. ?Selling, general and administrative expenses -$1.0 million of shortfall contributions for our multiemployer plan financial improvement plan. ?Other (expenses) income, net -$2.5 million of a net loss primarily resulting from the adjustment of indemnifications related to previously disposed businesses. Lithium In thousands Q2 2020 Q2 2019 $ Change % Change Net sales$ 283,722 $ 324,758 $ (41,036) (13) % ?$44.1 million of unfavorable pricing impacts, primarily in battery- and tech-grade carbonate and hydroxide due to lower contract pricing reflecting 2020 price adjustments agreed to with customers ?$6.3 million in higher sales volume, primarily in battery-grade hydroxide, and partially offset by lower sales volume in battery-grade carbonate ?$3.2 million of unfavorable currency translation resulting from the strongerU.S. Dollar against various currencies Adjusted EBITDA$ 94,536 $ 141,779 $ (47,243) (33) % ?Unfavorable pricing impacts, partially offset by higher sales volume ?Lower equity in net income of unconsolidated investments from the Talison joint venture ?Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company's previously announced cost savings initiative ?$3.2 million of favorable currency translation resulting from a weaker Chilean Peso Bromine Specialties In thousands Q2 2020 Q2 2019 $ Change % Change Net sales$ 232,779 $ 255,433 $ (22,654) (9) % ?$19.8 million of lower sales volume related to lower demand resulting from the COVID-19 pandemic ?$1.0 million of unfavorable pricing impacts, primarily in the flame retardants division ?$1.8 million of unfavorable currency translation resulting from the strongerU.S. Dollar against various currencies Adjusted EBITDA$ 73,041 $ 81,332 $ (8,291) (10) % ?Lower sales volume and unfavorable pricing impacts ?Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company's previously announced cost savings initiative. Catalysts In thousands Q2 2020 Q2 2019 $ Change % Change Net sales$ 197,053 $ 266,301 $ (69,248) (26) % ?$57.8 million of lower sales volume, primarily from lower fuel demand due to stay at home orders and travel restrictions worldwide related to the COVID-19 pandemic ?$10.2 million of unfavorable pricing impacts, primarily in FCC ?$1.3 million of unfavorable currency translation resulting from the strongerU.S. Dollar against various currencies Adjusted EBITDA$ 22,777 $ 66,875 $ (44,098) (66) % ?Lower sales volume resulting from lower fuel demand ?$12.0 million of a net expense related to the correction of out-of-period errors primarily regarding inventory values and overstated freight costs ?Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company's previously announced cost savings initiative. All Other In thousands Q2 2020 Q2 2019 $ Change % Change Net sales$ 50,495 $ 38,560 $ 11,935 31 % ?Higher sales volume in our FCS business Adjusted EBITDA$ 18,598 $ 11,240 $ 7,358 65 % ?Higher sales volume in our FCS business 34
--------------------------------------------------------------------------------
Ta ble of Contents Corporate In thousands Q2 2020 Q2 2019 $ Change % Change Adjusted EBITDA$ (23,759) $ (39,326) $ 15,567 (40) % ?Lower professional fees and other administrative costs resulting from our previously announced cost savings initiative ?$7.8 million of unfavorable currency exchange impacts
Six Months 2020 Compared to Six Months 2019
Selected Financial Data (Unaudited)
Net Sales In thousands YTD 2020 YTD 2019 $ Change % Change Net sales$ 1,502,894 $ 1,717,116 $ (214,222) (12) %
?
Gross Profit In thousands YTD 2020 YTD 2019 $ Change % Change Gross profit$ 475,377 $ 609,400 $ (134,023) (22) % Gross profit margin 31.6 % 35.5 % ?Lower sales volume from each of our reportable segments and unfavorable pricing impacts primarily driven by Lithium ?Unfavorable currency exchange impacts resulting from the strongerU.S. Dollar against various currencies Selling, General and Administrative Expenses In thousands YTD 2020 YTD 2019 $ Change % Change Selling, general and administrative expenses$ 208,826 $ 240,070 $ (31,244) (13) % Percentage of Net sales 13.9 % 14.0 % ?Productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company's previously announced cost savings initiative ?$2.9 million increase in severance expense as part of a business reorganization plan ?$2.2 million decrease in acquisition and integration related costs Research and Development Expenses In thousands YTD 2020 YTD 2019 $
Change %
7 % Percentage of Net sales 2.0 % 1.7 %
?Increased research and development spend primarily in Bromine Specialties
Interest and Financing Expenses In thousands YTD 2020 YTD 2019 $ Change % Change
Interest and financing expenses
$ (10,550) 44 % ?Increased debt balance in 2020, primarily related to the funding of theWodgina Project acquisition and credit facility draws in 2020 ?The increase was partially offset by higher capitalized interest from continued capital expenditure spend in 2020 35 --------------------------------------------------------------------------------
Ta ble of Contents Other Income, Net In thousands YTD 2020 YTD 2019 $ Change % Change Other income, net$ 2,041 $ 4,226 $ (2,185) (52) % ?$11.1 million gain related to the sale of land inPasadena, Texas in 2019 ?$7.7 million decrease in foreign exchange gains ?$4.5 million increase in non-operating pension and OPEB gains resulting from lower interest expenses and increased estimated return on assets Income Tax Expense In thousands YTD 2020 YTD 2019 $ Change % Change Income tax expense$ 33,873 $ 67,925 $ (34,052) (50) % Effective income tax rate 16.6 % 21.2 %
?Change in geographic mix of earnings, mainly attributable to our share of the income of our JBC joint venture, a
Free Zones company under the law of the Hashemite Kingdom of
Equity in Net Income of Unconsolidated Investments In thousands
YTD 2020 YTD 2019 $ Change % Change Equity in net income of unconsolidated investments$ 57,718 $ 73,491 $ (15,773) (21) %
?Lower earnings from our Lithium segment joint venture, Talison, primarily driven by lower sales volume
Net Income Attributable to Noncontrolling Interests In thousands
YTD 2020 YTD 2019 $ Change % Change Net income attributable to noncontrolling interests$ (34,565) $ (38,729) $ 4,164 (11) %
?Decrease in consolidated income related to our JBC joint venture from lower sales volume
Net Income Attributable toAlbemarle Corporation In thousands YTD 2020 YTD 2019 $ Change % Change Net income attributable toAlbemarle Corporation $ 192,828 $ 287,767 $ (94,939) (33) % Percentage of Net sales 12.8 % 16.8 % Basic earnings per share$ 1.81 $ 2.72 $ (0.91) (33) % Diluted earnings per share$ 1.81 $ 2.71 $ (0.90) (33) % ?Decrease primarily due to decreased sales volume in each of our reportable segments and unfavorable price impacts in Lithium ?Increased interest expense from higher debt balances in 2020 ?Lower equity in net income of unconsolidated investments from the Talison joint venture ?Productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from our previously announced cost savings initiative. 36 -------------------------------------------------------------------------------- Ta ble of Contents Other Comprehensive (Loss) Income, Net of Tax In thousands YTD 2020 YTD 2019 $ Change % Change Other comprehensive (loss) income, net of tax$ (35,316) $ 1,251 $ (36,567) (2,923) % ?Foreign currency translation$ (19,139) $ (311) $ (18,828) 6,054 % ?2020 included unfavorable movements in the Brazilian Real of approximately$20 million and a net unfavorable movement in various other currencies totaling approximately$4 million , partially offset by favorable movements in the Euro of approximately$5 million ?2019 included unfavorable movements in the Euro of approximately$2 million and various other currencies totaling less than$1 million , partially offset by a favorable variance in the Japanese Yen of approximately$2 million , partially offset by a net favorable variance in various other currencies totaling approximately$1 million ?Cash flow hedge$ (13,815) $ -$ (13,815) ?Net investment hedge$ (3,675) $ 267 $ (3,942) (1,476) % Segment Information Overview. Summarized financial information concerning our reportable segments is shown in the following tables. The "All Other" category includes only the fine chemistry services business, that does not fit into any of our other core businesses. Six Months Ended June 30, Percentage Change 2020 % 2019 % 2020 vs. 2019 (In thousands, except percentages) Net sales: Lithium$ 520,540 34.6 %$ 616,644 35.9 % (16) % Bromine Specialties 464,371 30.9 % 504,485 29.4 % (8) % Catalysts 404,260 26.9 % 517,949 30.2 % (22) % All Other 113,723 7.6 % 78,038 4.5 % 46 % Total net sales$ 1,502,894 100.0 %$ 1,717,116 100.0 % (12) % Adjusted EBITDA: Lithium$ 173,173 45.4 %$ 257,395 52.8 % (33) % Bromine Specialties 156,303 41.0 % 159,929 32.8 % (2) % Catalysts 70,247 18.4 % 126,946 26.0 % (45) % All Other 41,422 10.8 % 18,483 3.8 % 124 % Corporate (59,587) (15.6) % (74,986) (15.4) % (21) % Total adjusted EBITDA$ 381,558 100.0 %$ 487,767 100.0 % (22) %
See below for a reconciliation of adjusted EBITDA, the non-GAAP financial
measure, from Net income attributable to
37
--------------------------------------------------------------------------------
Ta ble of Contents
Bromine Reportable Lithium Specialties
Catalysts Segments Total All Other Corporate
Consolidated Total Six months endedJune 30, 2020 Net income (loss) attributable toAlbemarle Corporation $ 119,278 $ 132,357 $ 45,594 $ 297,229 $ 37,271 $ (141,672) $ 192,828 Depreciation and amortization 53,895 23,946 24,653 102,494 4,151 4,890 111,535 Restructuring and other(a) - - - - - 8,580 8,580 Acquisition and integration related costs(b) - - - - - 8,426 8,426 Interest and financing expenses - - - - - 34,737 34,737 Income tax expense - - - - - 33,873 33,873 Non-operating pension and OPEB items - - - - - (5,803) (5,803) Other(c) - - - - - (2,618) (2,618) Adjusted EBITDA$ 173,173 $ 156,303 $ 70,247 $ 399,723 $ 41,422 $ (59,587) $ 381,558 Six months endedJune 30, 2019 Net income (loss) attributable toAlbemarle Corporation $ 210,472 $ 137,096 $ 101,983 $ 449,551 $ 14,324 $ (176,108) $ 287,767 Depreciation and amortization 46,457 22,833 24,963 94,253 4,159 3,819 102,231 Restructuring and other(a) - - - - - 5,290 5,290 Acquisition and integration related costs(b) - - - - - 10,274 10,274 Gain on sale of property(d) - - - - - (11,079) (11,079) Interest and financing expenses - - - - - 24,187 24,187 Income tax expense - - - - - 67,925 67,925 Non-operating pension and OPEB items - - - - - (1,259) (1,259) Other(e) 466 - - 466 - 1,965 2,431 Adjusted EBITDA$ 257,395 $ 159,929 $ 126,946 $ 544,270 $ 18,483 $ (74,986) $ 487,767 (a) Severance expenses as part of a business reorganization plan, primarily within our Lithium business inGermany , as well in our Bromine Specialties business in 2020. During the six months endedJune 30, 2020 , we recorded expenses of$0.7 million in Cost of goods sold,$8.2 million in Selling, general and administrative expenses and a$0.3 million gain in Net income attributable to noncontrolling interests for the portion of severance expense allocated to our Jordanian joint venture partner. The balance of unpaid severance is recorded in Accrued expenses and is expected to primarily be paid through the first quarter of 2021. During the six months endedJune 30, 2019 , severance expenses of$5.3 million , were recorded in Selling, general and administrative expenses as part of a business reorganization plan primarily in Catalysts, Lithium and Corporate. (b) Costs related to the acquisition, integration and potential divestiture for various significant projects, recorded in Selling, general and administrative expenses. (c) Included amounts for the six months endedJune 30, 2020 recorded in: ?Other (expenses) income, net -$2.7 million gain resulting from the settlement of a legal matter related to a business sold and$0.8 million net gain primarily relating to the sale of idle properties inGermany , partially offset by a$0.8 million loss resulting from the adjustment of indemnifications related to previously disposed businesses. (d) Gain recorded in Other (expenses) income, net related to the sale of land inPasadena, Texas not used as part of our operations. (e) Included amounts for the six months endedJune 30, 2019 recorded in: ?Cost of goods sold -$0.5 million related to non-routine labor and compensation related costs inChile that are outside normal compensation arrangements. ?Selling, general and administrative expenses - Severance payments as part of a business reorganization plan of$5.3 million and$1.0 million of shortfall contributions for our multiemployer plan financial improvement plan. ?Other (expenses) income, net -$0.9 million of a net loss primarily resulting from the adjustment of indemnifications and other liabilities related to previously disposed businesses. 38 --------------------------------------------------------------------------------
Ta ble of Contents Lithium In thousands YTD 2020 YTD 2019 $ Change % Change Net sales$ 520,540 $ 616,644 $ (96,104) (16) % ?$69.6 million of unfavorable pricing impacts, primarily in battery- and tech-grade carbonate and hydroxide due to lower contract pricing reflecting 2020 price adjustments agreed to with customers ?$20.2 million in lower sales volume, primarily in battery-grade carbonate due to higher inventory levels at certain customers and current economic conditions, partially offset by higher battery- and tech-grade hydroxide sales volume ?$6.2 million of unfavorable currency translation resulting from the strongerU.S. Dollar against various currencies Adjusted EBITDA$ 173,173 $ 257,395 $ (84,222) (33) % ?Unfavorable pricing impacts and lower sales volume ?Lower equity in net income of unconsolidated investments from the Talison joint venture ?Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company's previously announced cost savings initiative. ?$6.2 million of favorable currency translation resulting from a weaker Chilean Peso Bromine Specialties In thousands YTD 2020 YTD 2019 $ Change % Change Net sales$ 464,371 $ 504,485 $ (40,114) (8) %
?
$ 156,303 $ 159,929 $ (3,626) (2) % ?Lower sales volume, partially offset by favorable pricing impacts and product mix ?Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company's previously announced cost savings initiative. ?$1.1 million of unfavorable currency translation Catalysts In thousands YTD 2020 YTD 2019 $ Change % Change Net sales$ 404,260 $ 517,949 $ (113,689) (22) %
?
$ 70,247 $ 126,946 $ (56,699) (45) % ?Lower sales volume resulting from lower fuel demand and unfavorable pricing impacts ?Increased freight costs ?Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company's previously announced cost savings initiative. ?$1.8 million of unfavorable currency translation All Other In thousands YTD 2020 YTD 2019 $ Change % Change Net sales$ 113,723 $ 78,038 $ 35,685 46 % ?Higher sales volume in ourFCS business Adjusted EBITDA$ 41,422 $ 18,483 $ 22,939 124 %
?Higher sales volume in our
Corporate In thousands YTD 2020 YTD 2019 $ Change % Change Adjusted EBITDA$ (59,587) $ (74,986) $ 15,399 (21) % ?Lower professional fees and other administrative costs resulting from our previously announced cost savings initiative ?$2.6 million of favorable currency translation 39
--------------------------------------------------------------------------------
Ta ble of Contents
Financial Condition and Liquidity Overview The principal uses of cash in our business generally have been capital investments and resource development costs, funding working capital and service of debt. We also make contributions to our defined benefit pension plans, pay dividends to our shareholders and repurchase shares of our common stock. Historically, cash to fund the needs of our business has been principally provided by cash from operations, debt financing and equity issuances. We are continually focused on working capital efficiency particularly in the areas of accounts receivable and inventory. We anticipate that cash on hand, cash provided by operating activities, proceeds from divestitures and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations, fund capital expenditures and other investing activities, fund pension contributions and pay dividends for the foreseeable future. Cash Flow During the first six months of 2020, cash on hand, cash provided by operations and$450 million of draws on our credit facilities funded$419.0 million of capital expenditures for plant, machinery and equipment and dividends to shareholders of$79.9 million . In addition, during the first six months of 2020, we paid$22.6 million of agreed upon purchase price adjustments to Mineral Resources Limited as part of the acquisition of the Wodgina spodumene mine completed in 2019. Our operations provided$207.9 million of cash flows during the first six months of 2020, as compared to$199.3 million for the first six months of 2019. The change compared to prior year was primarily due to lower working capital outflows, partially offset by decreased cash earnings and lower dividends received from unconsolidated investments. Our outflow from working capital changes in 2020 of$156.6 million was primarily due to the payment of$61.5 million related to stamp duties inAustralia levied on the assets purchased as part of the acquisition of the Wodgina spodumene mine completed in 2019. In addition, the outflow was impacted by increased inventory balances in Lithium and Catalysts for forecasted sales during the remainder of 2020, partially offset by the timing of the collection of receivables and lower cash taxes paid. Overall, our cash and cash equivalents increased by$123.6 million to$736.7 million atJune 30, 2020 from$613.1 million atDecember 31, 2019 . Capital expenditures for the six-month period endedJune 30, 2020 of$419.0 million were associated with plant, machinery and equipment. Our capital expenditure spending for 2020 is committed to Lithium growth and capacity increases, primarily inAustralia andChile , as well as productivity and continuity of operations projects in all segments. We forecast our 2020 capital expenditures to be approximately$850 million to$950 million , reflecting anticipated delays in certain capital expenditure projects, including the construction of our Kemerton,Australia and La Negra,Chile plants, in order to maintain financial flexibility. Net current assets were$871.6 million and$816.1 million atJune 30, 2020 andDecember 31, 2019 , respectively. The increase is primarily due to$450 million of draws on our credit facilities, partially offset by the use of cash for capital expenditures and general corporate purposes. Additional changes in the components of net current assets are primarily due to the timing of the sale of goods and other ordinary transactions leading up to the balance sheet dates. The additional changes are not the result of any policy changes by the Company, and do not reflect any change in either the quality of our net current assets or our expectation of success in converting net working capital to cash in the ordinary course of business. OnFebruary 28, 2020 , we increased our quarterly dividend rate to$0.385 per share, a 5% increase from the quarterly rate of$0.3675 per share paid in 2019. OnMay 5, 2020 , the Company declared a cash dividend of$0.385 , which was paid onJuly 1, 2020 to shareholders of record at the close of business as ofJune 12, 2020 . AtJune 30, 2020 andDecember 31, 2019 , our cash and cash equivalents included$492.8 million and$565.6 million , respectively, held by our foreign subsidiaries. The majority of these foreign cash balances are associated with earnings that we have asserted are indefinitely reinvested and which we plan to use to support our continued growth plans outside theU.S. through funding of capital expenditures, acquisitions, research, operating expenses or other similar cash needs of our foreign operations. From time to time, we repatriate cash associated with earnings from our foreign subsidiaries to theU.S. for normal operating needs through intercompany dividends, but only from subsidiaries whose earnings we have not asserted to be indefinitely reinvested or whose earnings qualify as "previously taxed income" as defined by the Internal Revenue Code. During the first six months of 2019, we repatriated$7.4 million of cash as part of these foreign earnings cash repatriation activities. There were no cash repatriations during the first six months of 2020. While we continue to closely monitor our cash generation, working capital management and capital spending in light of continuing uncertainties in the global economy, we believe that we will continue to have the financial flexibility and capability to opportunistically fund future growth initiatives. Additionally, we anticipate that future capital spending, including business acquisitions, share repurchases and other cash outlays, should be financed primarily with cash flow provided by operations and 40 -------------------------------------------------------------------------------- Ta ble of Contents cash on hand, with additional cash needed, if any, provided by borrowings. The amount and timing of any additional borrowings will depend on our specific cash requirements. Long-Term Debt We currently have the following notes outstanding: Issue Month/Year Principal (in millions) Interest Rate Interest Payment Dates Maturity Date November 2019 €500.0 1.125% November 25 November 25, 2025 November 2019 €500.0 1.625% November 25 November 25, 2028 November 2019(a)$300.0 3.45% May 15 and November 15 November 15, 2029 February 15, May 15, August November 2019(b)$200.0 Floating Rate 15 and November 15 November 15, 2022 December 2014(a) €393.0 1.875% December 8 December 8, 2021 November 2014(a)$425.0 4.15% June 1 and December 1 December 1, 2024 November 2014(a)$350.0 5.45% June 1 and December 1 December 1, 2044 (a) Denotes senior notes. (b) Borrowings bear interest at a floating rate based on the 3-month LIBOR plus 105 basis points. The applicable floating interest rate for the current interest period is 1.44%, with the interest rate reset on each interest payment date. Our senior notes and the floating rate note are senior unsecured obligations and rank equally with all our other senior unsecured indebtedness from time to time outstanding. The notes are effectively subordinated to any of our existing or future secured indebtedness and to the existing and future indebtedness of our subsidiaries. As is customary for such long-term debt instruments, each of these notes outstanding has terms that allow us to redeem the notes before its maturity, in whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of these notes to be redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis using the comparable government rate (as defined in the indentures governing these notes) plus between 25 and 40 basis points, depending on the note, plus, in each case, accrued interest thereon to the date of redemption. Holders may require us to purchase such notes at 101% upon a change of control triggering event, as defined in the indentures. These notes are subject to typical events of default, including bankruptcy and insolvency events, nonpayment and the acceleration of certain subsidiary indebtedness of$40 million or more caused by a nonpayment default. Our Euro notes issued in 2019 are unsecured and unsubordinated obligations and rank equally in right of payment to all our other unsecured senior obligations. As is customary for such long-term debt instruments, each of these notes outstanding has terms that allow us to redeem the notes before its maturity, in whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal thereof and interest thereon (exclusive of interest accrued to, but excluding, the date of redemption) discounted to the redemption date on an annual basis using the bond rate (as defined in the indentures governing these notes) plus between 25 and 35 basis points, depending on the note, plus, in each case, accrued and unpaid interest on the principal amount being redeemed to, but excluding, the date of redemption. Holders may require us to purchase such notes at 101% upon a change of control triggering event, as defined in the indentures. These notes are subject to typical events of default, including bankruptcy and insolvency events, nonpayment and the acceleration of certain subsidiary indebtedness exceeding$100 million caused by a nonpayment default. Our 2018 Credit Agreement currently provides for borrowings of up to$1.0 billion and matures onAugust 9, 2024 . Borrowings under the 2018 Credit Agreement bear interest at variable rates based on an average LIBOR for deposits in the relevant currency plus an applicable margin which ranges from 0.910% to 1.500%, depending on the Company's credit rating fromStandard & Poor's Ratings Services LLC ("S&P"),Moody's Investors Services, Inc. ("Moody's") andFitch Ratings, Inc. ("Fitch"). The applicable margin on the facility was 1.125% as ofJune 30, 2020 . There were$250.0 million in outstanding borrowings under the 2018 Credit Agreement as ofJune 30, 2020 . OnAugust 14, 2019 , the Company entered into our 2019 Credit Facility with several banks and other financial institutions. The lenders' commitment to provide loans under the 2019 Credit Facility terminates onAugust 11, 2020 , with each such loan maturing one year after the funding of such loan. The Company can request that the maturity date of loans be extended for a period of up to four additional years, but any such extension is subject to the approval of the lenders. Borrowings under the 2019 Credit Facility bear interest at variable rates based on an average LIBOR for deposits in the relevant currency plus an applicable margin which ranges from 0.875% to 1.625%, depending on the Company's credit rating from S&P, 41 -------------------------------------------------------------------------------- Ta ble of Contents Moody's and Fitch. The applicable margin on the credit facility was 1.125% as ofJune 30, 2020 . InOctober 2019 , we borrowed$1.0 billion under this credit facility to fund the cash portion of theOctober 31, 2019 acquisition of a 60% interest inMineral Resource Limited's Wodgina Project and for general corporate purposes, and such amount was repaid in full inNovember 2019 using a portion of the proceeds received from the notes issued in 2019. InApril 2020 , the Company borrowed the remaining$200.0 million under the 2019 Credit Facility to be used for general corporate purposes. Borrowings under the Credit Agreements are conditioned upon satisfaction of certain conditions precedent, including the absence of defaults. The Company is subject to one financial covenant, as well as customary affirmative and negative covenants. The financial covenant initially required that the Company's consolidated funded debt to consolidated EBITDA ratio (as such terms are defined in the Credit Agreements) to be less than or equal to 3.50:1, subject to adjustments in accordance with the terms of the Credit Agreements relating to a consummation of an acquisition where the consideration includes cash proceeds from issuance of funded debt in excess of$500 million . As a result of the uncertainty of the overall financial impact of the COVID-19 pandemic, the Company amended the Credit Agreements onMay 11, 2020 to modify its financial covenant based on the Company's current expectations. The amendment effects changes to certain provisions of the Credit Agreements, including: (a) conversion of the consolidated funded debt to consolidated EBITDA ratio to a consolidated net funded debt to consolidated EBITDA ratio; (b) carving-out third party sales of accounts receivables from the Securitization Transaction definition; (c) setting the consolidated net funded debt to consolidated EBITDA ratio to 4.00:1 for the fiscal quarter endingJune 30, 2020 , 4.50:1 for the fiscal quarters throughSeptember 30, 2021 , 4.00:1 for the fiscal quarter endingDecember 31, 2021 , and 3:50:1 for fiscal quarters thereafter; and (d) reducing the priority debt basket to 24% of Consolidated Net Tangible Assets, as defined in the Credit Agreements, through and includingDecember 31, 2021 . As part of this amendment, the Company has agreed to pay a 10 basis point fee on the consenting lenders commitments under the Credit Agreements. The Credit Agreements also contain customary default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-performance of covenants and cross-defaults to other material indebtedness. The occurrence of an event of default under the Credit Agreements could result in all loans and other obligations becoming immediately due and payable and the credit facility being terminated. If conditions caused by the COVID-19 pandemic worsen and the Company's earnings and cash flow from operations do not start to recover as contemplated in the Company's current plans, the Company may not be able to maintain compliance with its amended financial covenant and it will require the Company to seek additional amendments to the Credit Agreements. If the Company is not able to obtain such necessary additional amendments, that would lead to an event of default and its lenders could require the Company to repay its outstanding debt. In that situation, the Company may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders. Certain representations, warranties and covenants under the 2018 Credit Agreement were conformed to those under the 2019 Credit Facility following an amendment entered into onAugust 14, 2019 . OnMay 29, 2013 , we entered into agreements to initiate a commercial paper program on a private placement basis under which we may issue unsecured commercial paper notes (the "Commercial Paper Notes") from time-to-time up to a maximum aggregate principal amount outstanding at any time of$750.0 million . The proceeds from the issuance of the Commercial Paper Notes are expected to be used for general corporate purposes, including the repayment of other debt of the Company. The Credit Agreements are available to repay the Commercial Paper Notes, if necessary. Aggregate borrowings outstanding under the Credit Agreements and the Commercial Paper Notes will not exceed the$1.0 billion current maximum amount available under the Credit Agreements. The Commercial Paper Notes will be sold at a discount from par, or alternatively, will be sold at par and bear interest at rates that will vary based upon market conditions at the time of issuance. The maturities of the Commercial Paper Notes will vary but may not exceed 397 days from the date of issue. The definitive documents relating to the commercial paper program contain customary representations, warranties, default and indemnification provisions. AtJune 30, 2020 , we had$200.0 million of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately 1.13% and a weighted-average maturity of 17 days. The Commercial Paper Notes are classified as Current portion of long-term debt in our condensed consolidated balance sheets atJune 30, 2020 andDecember 31, 2019 . The non-current portion of our long-term debt amounted to$3.13 billion atJune 30, 2020 , compared to$2.86 billion atDecember 31, 2019 . In addition, atJune 30, 2020 , we had availability to borrow$550.0 million under our commercial paper program and the Credit Agreements, and$220.4 million under other existing lines of credit, subject to various financial covenants under our Credit Agreements. We have the ability and intent to refinance our borrowings under our other existing credit lines with borrowings under the Credit Agreements, as applicable. Therefore, the amounts outstanding under those credit lines, if any, are classified as long-term debt. We believe that as ofJune 30, 2020 , we were, and currently are, in compliance with all of our long-term debt covenants. Off-Balance Sheet Arrangements In the ordinary course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, including bank guarantees and letters of credit, which totaled approximately$89.8 million atJune 30, 2020 . 42 -------------------------------------------------------------------------------- Ta ble of Contents None of these off-balance sheet arrangements has, or is likely to have, a material effect on our current or future financial condition, results of operations, liquidity or capital resources. Other Obligations Our contractual obligations have not significantly changed based on our ordinary business activities and projected capital expenditures from the information we provided in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Total expected 2020 contributions to our domestic and foreign qualified and nonqualified pension plans, including theAlbemarle Corporation Supplemental Executive Retirement Plan, should approximate$13 million . We may choose to make additional pension contributions in excess of this amount. We have made contributions of$5.2 million to our domestic and foreign pension plans (both qualified and nonqualified) during the six-month period endedJune 30, 2020 . The liability related to uncertain tax positions, including interest and penalties, recorded in Other noncurrent liabilities totaled$16.1 million atJune 30, 2020 and$21.2 million atDecember 31, 2019 . Related assets for corresponding offsetting benefits recorded in Other assets totaled$24.7 million atJune 30, 2020 and$26.1 million atDecember 31, 2019 . We cannot estimate the amounts of any cash payments associated with these liabilities for the remainder of 2020 or the next twelve months, and we are unable to estimate the timing of any such cash payments in the future at this time. We are 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 our knowledge, we are currently complying, and expect to continue to comply, in all material respects with applicable environmental laws, regulations, statutes and ordinances. Compliance with existing federal, state, local and foreign environmental protection laws is not expected to have a material effect on capital expenditures, earnings or our competitive position, but the costs associated with increased legal or regulatory requirements could have an adverse effect on our operating results. Among other environmental requirements, we are subject to the federal Superfund law, and similar state laws, under which we may be designated as a potentially responsible party ("PRP"), and may be liable for a share of the costs associated with cleaning up various hazardous waste sites. Management believes that in cases in which we may have liability as a PRP, our liability for our share of cleanup is de minimis. Further, almost all such sites represent environmental issues that are quite mature and have been investigated, studied and in many cases settled. In de minimis situations, our policy generally is to negotiate a consent decree and to pay any apportioned settlement, enabling us to be effectively relieved of any further liability as a PRP, except for remote contingencies. In other than de minimis PRP matters, our records indicate that unresolved PRP exposures should be immaterial. We accrue and expense our proportionate share of PRP costs. Because management has been actively involved in evaluating environmental matters, we are able to conclude that the outstanding environmental liabilities for unresolved PRP sites should not have a material adverse effect upon our results of operations or financial condition. Liquidity Outlook We anticipate that cash on hand and cash provided by operating activities, divestitures and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations, fund any capital expenditures and share repurchases, make acquisitions, make pension contributions and pay dividends for the foreseeable future. Our main focus during the uncertainty surrounding the COVID-19 pandemic is to continue to maintain financial flexibility by delaying certain capital expenditure projects and accelerating our cost savings initiative, while still protecting our employees and customers, committing to shareholder returns and maintaining an investment grade rating. Over the next three years, in terms of uses of cash, we will still be investing in growth of the businesses and the return of value to shareholders. Additionally, we will continue to evaluate the merits of any opportunities that may arise for acquisitions of businesses or assets, which may require additional liquidity. As previously announced in 2019, we are pursuing opportunities to divest our PCS and fine chemistry services businesses. Our cash flows from operations may be negatively affected by adverse consequences to our customers and the markets in which we compete as a result of moderating global economic conditions and reduced capital availability. The COVID-19 pandemic has not had a material impact on our liquidity to date; however, we cannot predict the overall impact in terms of cash flow generation as that will depend on the length and severity of the outbreak. As a result, we are planning for various economic scenarios and actively monitoring our balance sheet to maintain the financial flexibility needed. Although we maintain business relationships with a diverse group of financial institutions as sources of financing, an adverse change in their credit standing could lead them to not honor their contractual credit commitments to us, decline funding under our existing but uncommitted lines of credit with them, not renew their extensions of credit or not provide new financing to us. While the global corporate bond and bank loan markets remain strong, periods of elevated uncertainty related to the COVID-19 pandemic or global economic and/or geopolitical concerns may limit efficient access to such markets for extended periods of time. If such concerns heighten, we may incur increased borrowing costs and reduced credit capacity as our various 43 -------------------------------------------------------------------------------- Ta ble of Contents credit facilities mature. If theU.S. Federal Reserve or similar national reserve banks in other countries decide to tighten the monetary supply in response, for example, to improving economic conditions, we may incur increased borrowing costs (as interest rates increase on our variable rate credit facilities, as our various credit facilities mature or as we refinance any maturing fixed rate debt obligations), although these cost increases would be partially offset by increased income rates on portions of our cash deposits. Overall, with generally strong cash-generative businesses and no significant long-term debt maturities before 2021, we believe we have, and will maintain, a solid liquidity position. As previously reported in 2018, following receipt of information regarding potential improper payments being made by third party sales representatives of our Refining Solutions business, within our Catalysts segment, we promptly retained outside counsel and forensic accountants to investigate potential violations of the Company's Code of Conduct, the Foreign Corrupt Practices Act and other potentially applicable laws. Based on this internal investigation, we have voluntarily self-reported potential issues relating to the use of third party sales representatives in our Refining Solutions business, within our Catalysts segment, to theU.S. Department of Justice ("DOJ"), theSEC , and the Dutch Public Prosecutor ("DPP"), and are cooperating with the DOJ, theSEC , and DPP in their review of these matters. In connection with our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures. At this time, we are unable to predict the duration, scope, result or related costs associated with any investigations by the DOJ, theSEC , or DPP. We are unable to predict what, if any, action may be taken by the DOJ, theSEC , or DPP, or what penalties or remedial actions they may seek to impose. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, penalties, disgorgement, equitable relief or other losses. We do not believe, however, that any fines, penalties, disgorgement, equitable relief or other losses would have a material adverse effect on our financial condition or liquidity. We had cash and cash equivalents totaling$736.7 million atJune 30, 2020 , of which$492.8 million is held by our foreign subsidiaries. This cash represents an important source of our liquidity and is invested in bank accounts or money market investments with no limitations on access. The cash held by our foreign subsidiaries is intended for use outside of theU.S. We anticipate that any needs for liquidity within theU.S. in excess of our cash held in theU.S. can be readily satisfied with borrowings under our existingU.S. credit facilities or our commercial paper program. Guarantor Financial InformationAlbemarle Wodgina Pty. Ltd. (the "Issuer"), a wholly owned subsidiary ofAlbemarle Corporation , issued$300.0 million aggregate principal amount of 3.45% Senior Notes due 2029 (the "3.45% Senior Notes") inNovember 2019 . The 3.45% Senior Notes are fully and unconditionally guaranteed (the "Guarantee") on a senior unsecured basis byAlbemarle Corporation (the "Guarantor"). No direct or indirect subsidiaries of the Guarantor guarantee the 3.45% Senior Notes (such subsidiaries are referred to as the "Non-Guarantors"). The Issuer owns the Guarantor's proportionate share of assets, liabilities, revenue and expenses of the unincorporated joint venture for the exploration, development, mining, processing and production of lithium and other minerals (other than iron ore and tantalum) from the Wodgina spodumene mine ("MARBL") and for the operation of the Kemerton assets inWestern Australia (together, the "Wodgina Project "). The Guarantor conducts itsU.S. Bromine Specialties and Catalysts operations directly, and conducts its other operations (other than operations conducted through the Issuer) through the Non-Guarantors. The 3.45% Senior Notes are the Issuer's senior unsecured obligations and rank equally in right of payment to the senior indebtedness of the Issuer, effectively subordinated to all of the secured indebtedness of the Issuer, to the extent of the value of the assets securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of its subsidiaries. The Guarantee is the senior unsecured obligation of the Guarantor and ranks equally in right of payment to the senior indebtedness of the Guarantor, effectively subordinated to the secured debt of the Guarantor to the extent of the value of the assets securing the indebtedness and structurally subordinated to all indebtedness and other liabilities of its subsidiaries. For cash management purposes, the Guarantor transfers cash among itself, the Issuer and the Non-Guarantors through intercompany financing arrangements, contributions or declaration of dividends between the respective parent and its subsidiaries. The transfer of cash under these activities facilitates the ability of the recipient to make specified third-party payments for principal and interest on the Issuer and/or the Guarantor's outstanding debt, common stock dividends and common stock repurchases. There are no significant restrictions on the ability of the Issuer or the Guarantor to obtain funds from subsidiaries by dividend or loan. 44 -------------------------------------------------------------------------------- Ta ble of Contents The following tables present summarized financial information for the Guarantor and the Issuer on a combined basis after elimination of (i) intercompany transactions and balances among the Issuer and the Guarantor and (ii) equity in earnings from and investments in any subsidiary that is a Non-Guarantor. Each entity in the combined financial information follows the same accounting policies as described herein and in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 . Summarized Statement of Operations Six Months Ended Year Ended $ in thousands June 30, 2020 December 31, 2019 Net sales(a)$ 845,939 $ 1,847,927 Gross profit 178,688 488,248
Loss before income taxes and equity in net income of unconsolidated investments(b)
(107,216) (94,118) Net loss attributable to the Guarantor and the Issuer (90,599) (134,289) (a) Includes net sales to Non-Guarantors of$474.2 million and$1,011.7 million for the six months ended endedJune 30, 2020 and year endedDecember 31, 2019 , respectively. (b) Includes intergroup expenses to Non-Guarantors of$85.2 million and$147.7 million for the six months ended endedJune 30, 2020 and year endedDecember 31, 2019 , respectively.
© Edgar Online, source