ALBEMARLE CORPORATIO

ALB
Delayed Quote. Delayed  - 09/22 04:10:00 pm
95.24USD +0.12%

ALBEMARLE : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/05/2020 | 05:02pm


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 the
Securities 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 ended June 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 on
May 5, 2020, which was paid on July 1, 2020 to shareholders of record at the
close of business as of June 12, 2020.
•On April 20, 2020, J. Kent Masters was elected Chairman, President and Chief
Executive Officer.
•On May 11, 2020, we amended our revolving, unsecured credit agreement dated as
of June 21, 2018, as amended on August 14, 2019 (the "2018 Credit Agreement"),
and our unsecured credit facility entered into on August 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 ending June 30, 2020, 4.50:1 for the fiscal quarters ending September
30, 2020
through September 30, 2021, decreasing to 4.00:1 times for the fiscal
quarter ended December 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 in China 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 in Europe 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 in North America tight oil, and those in
the Middle East and Asia 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 the FCS 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 our FCS 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 the U.S., including the U.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 and FCS
?$6.3 million of unfavorable currency translation resulting from the stronger U.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 and FCS
?$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 stronger U.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 $ 14,210 $ 13,462 $ 748


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 $ (17,852) $ (11,601)


$ (6,251) 54 %
?Increased debt balance in 2020, primarily related to the funding of the Wodgina 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 Jordan Bromine Company
Limited
("JBC") joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan



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, Windfield Holdings Pty Ltd ("Talison"), primarily driven by
lower sales volume, partially offset by foreign currency gains of $11.5 million



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 to Albemarle Corporation
In thousands Q2 2020 Q2 2019 $ Change % Change
Net income attributable to Albemarle
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 and FCS
?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 to Albemarle
Corporation
, the most directly comparable financial measure calculated and
reported in accordance with U.S. GAAP, or any other financial measure reported
in accordance with U.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 Albemarle Corporation, the most
directly comparable financial measure calculated and reported in accordance with
U.S. GAAP, (in thousands):



Bromine Reportable
Lithium Specialties


Catalysts Segments Total All Other Corporate


Consolidated Total
Three months ended June 30, 2020
Net income (loss) attributable to
Albemarle 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 ended June 30, 2019
Net income (loss) attributable to
Albemarle 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 in Germany in 2020. During the three months ended
June 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 ended June 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 ended June 30, 2020 recorded in:
?Other (expenses) income, net - $0.9 million net gain primarily relating to the
sale of idle properties in Germany.
33
--------------------------------------------------------------------------------
Ta ble of Contents
(d) Included amounts for the three months ended June 30, 2019 recorded in:
?Cost of goods sold - $0.1 million related to non-routine labor and compensation
related costs in Chile 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 stronger U.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 stronger U.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 stronger U.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) %



?$136.5 million of lower sales volume from each of our reportable segments
?$71.7 million of unfavorable pricing primarily driven by Lithium
?$5.9 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies






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 stronger U.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 % Change
Research
and development expenses $ 30,307 $ 28,439 $ 1,868


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 $ (34,737) $ (24,187)


$ (10,550) 44 %
?Increased debt balance in 2020, primarily related to the funding of the Wodgina 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 in Pasadena, 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 Jordan
?2020 includes a discrete tax benefit for lapses in statute of limitations
?2019 includes a discrete tax expense related to uncertain tax positions



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 to Albemarle Corporation
In thousands YTD 2020 YTD 2019 $ Change % Change
Net income attributable to Albemarle
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 Albemarle Corporation, the most
directly comparable financial measure calculated and reported in accordance with
U.S. GAAP, (in thousands):



37



--------------------------------------------------------------------------------



Ta ble of Contents



Bromine Reportable
Lithium Specialties


Catalysts Segments Total All Other Corporate


Consolidated Total
Six months ended June 30, 2020
Net income (loss) attributable to
Albemarle 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 ended June 30, 2019
Net income (loss) attributable to
Albemarle 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 in Germany, as well in our Bromine Specialties
business in 2020. During the six months ended June 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 ended June 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 ended June 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 in Germany, 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 in
Pasadena, Texas not used as part of our operations.
(e) Included amounts for the six months ended June 30, 2019 recorded in:
?Cost of goods sold - $0.5 million related to non-routine labor and compensation
related costs in Chile 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 stronger U.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) %



?$48.6 million of lower sales volume related to lower demand resulting from the COVID-19 pandemic
?$9.2 million of favorable pricing impacts in each bromine division
Adjusted EBITDA


$ 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) %



?$106.4 million of lower sales volume, primarily from lower fuel demand due to stay at home orders and travel
restrictions worldwide related to COVID-19 pandemic
?$8.1 million of unfavorable pricing impacts, primarily in FCC
Adjusted EBITDA


$ 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 our FCS business
Adjusted EBITDA $ 41,422 $ 18,483 $ 22,939 124 %


?Higher sales volume in our FCS business






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 in Australia 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 at June 30, 2020 from $613.1 million at December 31, 2019.
Capital expenditures for the six-month period ended June 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 in Australia and Chile, 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 at June 30, 2020 and
December 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.
On February 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.
On May 5, 2020, the Company declared a cash dividend of $0.385, which was paid
on July 1, 2020 to shareholders of record at the close of business as of
June 12, 2020.
At June 30, 2020 and December 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 the U.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 the U.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 on August 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 from Standard & Poor's Ratings
Services LLC
("S&P"), Moody's Investors Services, Inc. ("Moody's") and Fitch
Ratings, Inc.
("Fitch"). The applicable margin on the facility was 1.125% as of
June 30, 2020. There were $250.0 million in outstanding borrowings under the
2018 Credit Agreement as of June 30, 2020.
On August 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 on August 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 of
June 30, 2020. In October 2019, we borrowed $1.0 billion under this credit
facility to fund the cash portion of the October 31, 2019 acquisition of a 60%
interest in Mineral Resource Limited's Wodgina Project and for general corporate
purposes, and such amount was repaid in full in November 2019 using a portion of
the proceeds received from the notes issued in 2019. In April 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 on May 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 ending June 30, 2020, 4.50:1 for the
fiscal quarters through September 30, 2021, 4.00:1 for the fiscal quarter ending
December 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 including December 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 on August 14, 2019.
On May 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. At June 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 at June 30, 2020 and December 31,
2019
.
The non-current portion of our long-term debt amounted to $3.13 billion at
June 30, 2020, compared to $2.86 billion at December 31, 2019. In addition, at
June 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 of June 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 at June 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 ended December 31, 2019.
Total expected 2020 contributions to our domestic and foreign qualified and
nonqualified pension plans, including the Albemarle 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 ended June 30, 2020.
The liability related to uncertain tax positions, including interest and
penalties, recorded in Other noncurrent liabilities totaled $16.1 million at
June 30, 2020 and $21.2 million at December 31, 2019. Related assets for
corresponding offsetting benefits recorded in Other assets totaled $24.7 million
at June 30, 2020 and $26.1 million at December 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 the U.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 the U.S. Department of Justice ("DOJ"), the SEC, and the
Dutch Public Prosecutor ("DPP"), and are cooperating with the DOJ, the SEC, 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, the SEC, or DPP. We are
unable to predict what, if any, action may be taken by the DOJ, the SEC, 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 at June 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 the U.S. We anticipate that any
needs for liquidity within the U.S. in excess of our cash held in the U.S. can
be readily satisfied with borrowings under our existing U.S. credit facilities
or our commercial paper program.
Guarantor Financial Information
Albemarle Wodgina Pty. Ltd. (the "Issuer"), a wholly owned subsidiary of
Albemarle Corporation, issued $300.0 million aggregate principal amount of 3.45%
Senior Notes due 2029 (the "3.45% Senior Notes") in November 2019. The 3.45%
Senior Notes are fully and unconditionally guaranteed (the "Guarantee") on a
senior unsecured basis by Albemarle 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 in Western Australia (together, the
"Wodgina Project").
The Guarantor conducts its U.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 ended December 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 ended June 30, 2020 and year ended December 31, 2019,
respectively.
(b) Includes intergroup expenses to Non-Guarantors of $85.2 million and $147.7
million
for the six months ended ended June 30, 2020 and year ended December 31,
2019
, respectively.

© Edgar Online, source Glimpses

© Acquiremedia 2020
Copier lien
All news about ALBEMARLE CORPORATION
12h ago
6d ago
09/08
09/02
08/30