Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking Statements

Some of the information presented in this Annual Report on Form 10-K, 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;
Albemarle Corporation and Subsidiaries
•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; and
•the other factors detailed from time to time in the reports we file with the 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 consolidated financial statements and related notes included in this Annual Report on Form 10-K.

The following is a discussion and analysis of our results of operations for the years ended December 31, 2019, 2018 and 2017. 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.

2019 Highlights

•In the first quarter, we increased our quarterly dividend for the 25th consecutive year, to $0.3675 per share. As a result, in February 2020, we were recognized by being named to the S&P 500 Dividend Aristocrats Index.
Albemarle Corporation and Subsidiaries
•On August 14, 2019, the Company entered into a $1.2 billion unsecured credit facility with several banks and other financial institutions. Borrowings under this facility bear interest at variable rates based on an average London inter-bank offered rate (“LIBOR”), plus an applicable margin that depends on certain credit ratings of the Company. Upon the closing of the credit facility, the applicable margin over LIBOR was 1.125%. In October 2019, we borrowed $1.0 billion under this credit facility to fund the cash portion of the acquisition of a 60% interest in the Wodgina Project. This balance was repaid in full with proceeds from notes issued in November 2019 (see below for further details).
•On October 31, 2019, we completed the acquisition of a 60% interest in MRL’s Wodgina Project and formed a 60%-40% unincorporated joint venture with MRL to operate the mine and battery-grade lithium hydroxide production facilities. Albemarle paid $820 million in cash and transferred a 40% interest in certain lithium hydroxide conversion assets being built in Kemerton, Western Australia.
•On November 25, 2019, we closed the offerings on notes totaling $500.0 million and €1.0 billion. Net proceeds from these offerings were used to repay 1) the $1.0 billion balance of the credit facility entered into on August 14, 2019, 2) a large portion of approximately $370 million of commercial paper notes and 3) the remaining balance of $175.2 million of the senior notes issued in December 2010, and for general corporate purposes.
•In collaboration with ExxonMobil, we created the Galexia™ platform, a transformative hydroprocessing suite of catalyst and service solutions for the refining industry. The platform enables an improved way of doing business, ensuring customer demands are better addressed at every stage throughout the value chain.
•Announced a cost-reduction program expected to deliver a run rate of over $100 million in sustainable savings by the end of 2021.
•We achieved earnings of $533.2 million during 2019 as compared to $693.6 million for 2018. Cash flows from operations in 2019 were $719.4 million up 32% from 2018. Earnings for 2018 included a $169.9 million after-tax gain from the Polyolefin Catalysts Divestiture. In addition, earnings for 2019 includes pension and other postretirement benefit (“OPEB”) actuarial losses of $21.1 million after income taxes, compared to pension and OPEB actuarial losses of $10.6 million after income taxes in 2018.

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 continues to accelerate, 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.

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. In addition, there is no new capacity coming online during 2020 to drive significant additional volume. While we completed the acquisition of 60% interest in the Wodgina Project, we have made the decision to idle production of spodumene until demand supports bringing the mine back into 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 and favorable global public policy toward e-mobility/renewable energy usage. 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 to see modest growth in net sales in 2020 driven by continued strong demand in flame retardants, drilling completion fluids, and other derivatives. We expect profitability to be flat to slightly down due to lower overall average selling prices as global bromine supply and demand comes into balance in 2020.

Albemarle Corporation and Subsidiaries

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. Absent an increase in regulatory pressure on offshore drilling, we would expect this business to follow a long-term growth trajectory once oil prices recover from prevailing levels as we expect that deep-water drilling will continue to increase around the world. 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 to see modest sales growth in net sales and flat to modest growth in profitability in 2020, driven by FCC growth, partially offset by lower HPC results. 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 global demand for plastics driven by rising standards of living and infrastructure spending. In 2019, we announced that we have begun to pursue opportunities to divest PCS, with the expectation that a divestiture will be completed in 2020.

All Other: The fine chemistry services 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 fine chemistry services business to be impacted by a challenging agriculture industry environment and the timing of customer orders in pharmaceuticals. In addition, in 2019, we announced that we have begun to pursue opportunities to divest our fine chemistry services business, with the expectation that a divestiture will be completed in 2020.

Corporate: We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax rate for 2020 to be between 18.5% and 19.5%; however, our rate will 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 Tax Cuts and Jobs Act (“TCJA”), and other tax jurisdictions.

Actuarial gains and losses related to our defined benefit pension and OPEB plan obligations are reflected in Corporate as a component of non-operating pension and OPEB plan costs under mark-to-market accounting. Results for the year ended December 31, 2019 include an actuarial loss of $29.3 million ($21.1 million after income taxes), as compared to a loss of $14.0 million ($10.6 million after income taxes) for the year ended December 31, 2018.

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 web site, www.albemarle.com. Our web site 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.

Discussion of our results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017 can be found in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.

Albemarle Corporation and Subsidiaries

Comparison of 2019 to 2018

Selected Financial Data

Net Sales

In thousands20192018$ Change% Change
Net sales3,589,4273,374,950214,4776%
• $213.1 million of higher sales volume, driven primarily by Lithium, Bromine Specialties and Fine Chemistry Services, and $76.5 million of favorable pricing impacts across all businesses • $48.1 million of unfavorable currency exchange resulting from a stronger U.S. Dollar against various currencies • $27.1 million related to the Polyolefin Catalysts Divestiture

Gross Profit

In thousands20192018$ Change% Change
Gross profit$1,257,778$1,217,256$40,5223%
Gross profit margin35.0%36.1%
• Higher sales volume, driven primarily by Lithium, Bromine Specialties and Fine Chemistry Services, and favorable pricing impacts across all businesses • Higher input costs in our Lithium segment, resulting from increased toll feedstock, higher tolled volume and investments in operational excellence • Higher raw material costs, primarily in our Lithium and Bromine Specialties segments • $10.7 million related to the Polyolefin Catalysts Divestiture • Unfavorable currency exchange impacts resulting from the stronger U.S. Dollar against various currencies • Charges of $8.8 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements and $4.9 million for the write-off of fixed assets in our Jordanian joint venture in 2018

Selling, General and Administrative Expenses

In thousands20192018$ Change% Change
Selling, general and administrative expenses$533,368$446,090$87,27820%
Percentage of Net sales14.9%13.2%
• $64.8 million of stamp duties levied on assets purchased related to the Wodgina Project in 2019 • Higher professional fees to support planned projects • $7.4 million of increased acquisition and integration related costs, driven by the Wodgina Project, and increased severance payments as part of a business reorganization plan • $16.2 million of charitable contributions in 2018 beyond the Company’s ordinary, recurring charitable contributions

Research and Development Expenses

In thousands20192018$ Change% Change
Research and development expenses$58,287$70,054$(11,767)(17)%
Percentage of Net sales1.6%2.1%
• Lower spend in our Lithium and Catalysts segments, including the impact of the Polyolefin Catalysts Divestiture

Gain on Sale of Business

In thousands20192018$ Change% Change
Gain on sale of business$—$(210,428)$210,428(100)%
• Gain related to the Polyolefin Catalysts Divestiture, which closed in the second quarter of 2018
Albemarle Corporation and Subsidiaries

Interest and Financing Expenses

In thousands20192018$ Change% Change
Interest and financing expenses$(57,695)$(52,405)$(5,290)10%
• Increased debt balance in 2019, primarily related to the funding of the Wodgina Project acquisition • 2019 included a loss on early extinguishment of debt of $4.8 million representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of the senior notes issued in 2010 • The increase was partially offset by higher capitalized interest from an increase in capital expenditures in 2019

Other Expenses, Net

In thousands20192018$ Change% Change
Other expenses, net$(45,478)$(64,434)$18,956(29)%
• $11.1 million gain related to the sale of land in Pasadena, Texas in 2019 • $27.0 million of legal expenses in 2018, related to products that Albemarle no longer manufactures and a previously disposed business • $15.6 million in 2018 related to environmental charges related to a site formerly owned by Albemarle • Decrease of $16.5 million in losses related to adjustments to indemnification liabilities of previously disposed businesses • Decrease in interest income of $5.4 million from lower cash balances • Increase in foreign exchange losses of $15.3 million • $4.4 million decrease from the remeasurement of the fair value of our investment in private equity securities • $27.0 million of pension and OPEB costs (including mark-to-market actuarial losses of $29.3 million) as compared to $5.3 million of pension and OPEB costs (including mark-to-market actuarial losses of $14.0 million) in 2018 • The mark-to-market actuarial loss in 2019 is primarily attributable to a decrease in the weighted-average discount rate to 3.56% from 4.59% for our U.S. pension plans and to 1.33% from 2.15% for our foreign pension plans to reflect market conditions as of the December 31, 2019 measurement date. This was partially offset by a higher return on pension plan assets in 2019 than was expected, as a result of overall market and investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was 15.82% versus an expected return of 6.72%. • The mark-to-market actuarial loss in 2018 is primarily attributable to a lower return on pension plan assets in 2018 than was expected, as a result of overall market and investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was (4.55%) versus an expected return of 6.73%. This was partially offset by an increase in the weighted-average discount rate to 4.59% from 4.03% for our U.S. pension plans and to 2.15% from 1.94% for our foreign pension plans to reflect market conditions as of the December 31, 2018 measurement date.

Income Tax Expense

20192018$ Change% Change
Income Tax Expense$88,161$144,826$(56,665)(39)%
Effective income tax rate15.7%18.2%
• Change in geographic mix of earnings, mainly attributable to our share of income of our JBC joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan and tax discretes • The discrete net tax benefits in 2019 of $15.0 million related to uncertain tax positions, primarily from seeking treaty relief from the competent authority to prevent double taxation

Equity in Net Income of Unconsolidated Investments

In thousands20192018$ Change% Change
Equity in net income of unconsolidated investments$129,568$89,264$40,30445%
• Higher equity income reported by our Lithium segment joint venture, Windfield Holdings Pty. Ltd. and certain Catalyst segment joint ventures • $17.3 million charge representing our 49% share of a tax settlement between our Windfield Holdings joint venture and an Australian taxing authority, offset in Income tax expense • Approximately $2.0 million of foreign currency losses
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Net Income Attributable to Noncontrolling Interests

In thousands20192018$ Change% Change
Net income attributable to noncontrolling interests$(71,129)$(45,577)$(25,552)56%
• Increase in consolidated income related to our JBC joint venture resulting from the full year impact of the Tetrabrom expansion completed in second quarter 2018.

Net Income Attributable to Albemarle Corporation

In thousands20192018$ Change% Change
Net income attributable to Albemarle Corporation$533,228$693,562$(160,334)(23)%
Percentage of Net Sales14.9%20.6%
Basic earnings per share$5.03$6.40$(1.37)(21)%
Diluted earnings per share$5.02$6.34$(1.32)(21)%
• Decrease primarily due to gain related to the Polyolefin Catalysts Divestiture in 2018 and increased charges resulting from the acquisition of a 60% interest in the Wodgina Project during 2019, as well as other items noted above.

Other Comprehensive Loss, Net of Tax

In thousands20192018$ Change% Change
Other comprehensive loss, net of tax$(45,520)$(125,195)$79,675(64)%
• Foreign currency translation$(62,031)$(150,258)$88,227(59)%
• 2019 included unfavorable movements in the Euro of approximately $52 million, the Chinese Renminbi of approximately $6 million, the Brazilian Real of approximately $4 million and a net unfavorable variance in various other currencies totaling approximately less than $1 million
• 2018 included unfavorable movements in the Euro of approximately $114 million, the Chinese Renminbi of approximately $14 million, the Brazilian Real of approximately $12 million, the Korean Won of approximately $5 million and a net unfavorable variance in various other currencies totaling approximately $5 million
• Net investment hedge$8,441$25,786$(17,345)(67)%

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

Albemarle Corporation and Subsidiaries

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.

Year Ended December 31,Percentage Change
2019%2018%2019 vs. 2018
(In thousands, except percentages)
Net sales:
Lithium$1,358,17037.8%$1,228,17136.4%11%
Bromine Specialties1,004,21628.0%917,88027.2%9%
Catalysts1,061,81729.6%1,101,55432.6%(4)%
All Other165,2244.6%127,1863.8%30%
Corporate——%159—%(100)%
Total net sales$3,589,427100.0%$3,374,950100.0%6%
Adjusted EBITDA:
Lithium$524,93450.6%$530,77352.7%(1)%
Bromine Specialties328,45731.7%288,11628.6%14%
Catalysts270,62426.1%284,30728.3%(5)%
All Other49,6284.8%14,0911.4%252%
Corporate(136,862)(13.2)%(110,623)(11.0)%24%
Total adjusted EBITDA$1,036,781100.0%$1,006,664100.0%3%
Albemarle Corporation and Subsidiaries

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):

LithiumBromine SpecialtiesCatalystsReportable Segments TotalAll OtherCorporateConsolidated Total
2019
Net income (loss) attributable to Albemarle Corporation$341,767$279,945$219,686$841,398$41,188$(349,358)$533,228
Depreciation and amortization99,42447,61150,144197,1798,4407,865213,484
Restructuring and other(a)—————5,8775,877
Acquisition and integration related costs(b)—————20,68420,684
Gain on sale of property(c)—————(14,411)(14,411)
Interest and financing expenses(d)—————57,69557,695
Income tax expense—————88,16188,161
Non-operating pension and OPEB items—————26,97026,970
Stamp duty(e)64,766——64,766——64,766
Windfield tax settlement(f)17,292——17,292——17,292
Other(g)1,6859017943,380—19,65523,035
Adjusted EBITDA$524,934$328,457$270,624$1,124,015$49,628$(136,862)$1,036,781
2018
Net income (loss) attributable to Albemarle Corporation$428,212$246,509$445,604$1,120,325$6,018$(432,781)$693,562
Depreciation and amortization95,19341,60749,131185,9318,0736,694200,698
Restructuring and other(a)—————3,8383,838
Gain on sale of business(h)——(210,428)(210,428)——(210,428)
Acquisition and integration related costs(b)—————19,37719,377
Interest and financing expenses—————52,40552,405
Income tax expense—————144,826144,826
Non-operating pension and OPEB items—————5,2855,285
Legal accrual(i)—————27,02727,027
Environmental accrual(j)—————15,59715,597
Albemarle Foundation contribution(k)—————15,00015,000
Indemnification adjustments(l)—————25,24025,240
Other(m)7,368——7,368—6,86914,237
Adjusted EBITDA$530,773$288,116$284,307$1,103,196$14,091$(110,623)$1,006,664
(a)Severance payments as part of a business reorganization plan, $5.9 million recorded in Selling, general and administrative expenses for the year ended December 31, 2019 and $0.1 million and $3.7 million recorded in Cost of goods sold and Selling, general and administrative expenses for the year ended December 31, 2018.
(b)Included amounts for the years ended December 31, 2019 and 2018 recorded in (1) Cost of goods sold of $1.0 million and $3.7 million, respectively; and (2) Selling, general and administrative expenses of $19.7 million and $15.7 million, respectively, relating to various significant projects, including the acquisition of the 60% interest Wodgina Project.
(c)Gain of $3.3 million recorded in Selling, general and administrative expenses related to the release of liabilities as part of the sale of a property and $11.1 million gain recorded in Other expenses, net related to the sale of land in Pasadena, Texas not used as part of our operations.
(d)Included in Interest and financing expenses is a loss on early extinguishment of debt of $4.8 million. See Note 14, “Long-Term Debt,” to our consolidated financial statements included in Part II, Item 8 of this report for additional information.
(e)See “Selling, general and administrative expenses” on page 32 for a description of these costs.
(f)Represents our 49% share of a tax settlement between our Windfield joint venture and an Australian taxing authority, recorded in Equity in net income of unconsolidated investments (net of tax).
(g)Included amounts for the year ended December 31, 2019 recorded in:
•Cost of goods sold - $0.7 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements.
Albemarle Corporation and Subsidiaries
•Selling, general and administrative expenses - $1.8 million of shortfall contributions for our multiemployer plan financial improvement plan, $0.9 million of a write off of uncollectable accounts receivable from a terminated distributor in the Bromine Specialties segment, $1.0 million related to the settlement of terminated agreements, primarily in the Catalysts segment, and $0.8 million related to the settlement of an ongoing audit in the Lithium segment.
•Other expenses, net - $3.1 million of unrecoverable vendor costs outside the operations of the business related to the construction of the future Kemerton production facility, $9.8 million of a net loss primarily resulting from the adjustment of indemnifications and other liabilities related to previously disposed businesses or purchase accounting, $3.6 million of asset retirement obligation charges related to the update of an estimate at a site formerly owned by Albemarle, and $1.2 million of non-operating pension costs from our 50% interest in JBC.
(h)See “Gain on Sale of Business” on page 32 for a description of this gain.
(i)Included in Other expenses, net is a $16.2 million expense resulting from a jury rendered verdict against Albemarle related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures and a $10.8 million expense resulting from a settlement of a legal matter related to guarantees from a previously disposed business.
(j)Increase in environmental reserve to indemnify the buyer of a formerly owned site recorded in Other expenses, net. As defined in the agreement of sale, this indemnification has a set cutoff date in 2024, at which point we will no longer be required to provide financial coverage.
(k)Included in Selling, general and administrative expenses is a charitable contribution, using a portion of the proceeds received from the Polyolefin Catalysts Divestiture, to the Albemarle Foundation, a non-profit organization that sponsors grants, health and social projects, educational initiatives, disaster relief, matching gift programs, scholarships and other charitable initiatives in locations where our employees live and operate. This contribution is in addition to the ordinary annual contribution made to the Albemarle Foundation by the Company, and is significant in size and nature in that it is intended to provide more long-term benefits in the communities where we live and operate.
(l)Included in Other expenses, net is $19.7 million related to the proposed settlement of an ongoing audit of a previously disposed business in Germany, and $5.5 million related to the adjustment of indemnifications previously recorded from disposed businesses.
(m)Included amounts for the year ended December 31, 2018 recorded in:
•Cost of goods sold - $4.9 million for the write-off of fixed assets related to a major capacity expansion in our Jordanian joint venture and $8.8 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements.
•Selling, general and administrative expenses - $2.3 million of shortfall contributions for our multiemployer plan financial improvement plan and a $1.2 million contribution, using a portion of the proceeds received from the Polyolefin Catalysts Divestiture, to schools in the state of Louisiana for qualified tuition purposes. This contribution is significant in size and is intended to provide long-term benefits for families in the Louisiana community. This was partially offset by a $1.5 million gain related to a refund from Chilean authorities due to an overpayment made in a prior year.
•Other expenses, net - $1.5 million gain related to the reversal of previously recorded liabilities of disposed businesses.

Lithium

In thousands20192018$ Change% Change
Net sales$1,358,170$1,228,171$129,99911%
• $151.6 million in higher sales volume, primarily in battery-grade lithium hydroxide due to continued strong demand • Pricing was effectively flat due to favorable price/mix in battery-grade hydroxide, offset by the impact of lower prices in China on battery-grade and technical- grade sales • $22.5 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies
Adjusted EBITDA$524,934$530,773$(5,839)(1)%
• Increased cost of goods sold, mainly related to higher tolled product volumes to meet customer commitments • Higher sales volume, primarily in battery-grade lithium hydroxide • $8.7 million of favorable currency translation resulting from a weaker Chilean Peso

Bromine Specialties

In thousands20192018$ Change% Change
Net sales$1,004,216$917,880$86,3369%
• $46.7 million in higher sales volume and $48.5 million in favorable pricing impacts in flame retardants and other bromine derivatives due to continued strong demand • $8.8 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies
Adjusted EBITDA$328,457$288,116$40,34114%
• Higher sales volume and favorable pricing impacts • Higher production and raw material costs • $5.8 million of unfavorable currency translation
Albemarle Corporation and Subsidiaries

Catalysts

In thousands20192018$ Change% Change
Net sales$1,061,817$1,101,554$(39,737)(4)%
• $27.1 million impact of the Polyolefin Catalysts Divestiture • $16.9 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies • $21.4 million of lower sales volume, primarily related to delays in the start-up of new FCC units and the loss of certain customers in PCS, partially offset by sales volume increases in CFT • $25.4 million of favorable pricing impacts, primarily in FCC and CFT
Adjusted EBITDA$270,624$284,307$(13,683)(5)%
• $10.9 million impact of the Polyolefin Catalysts Divestiture • Higher raw material costs in our CFT division, as well as lower sales volume in FCC and PCS • $10.9 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies • Favorable pricing impacts • Partial insurance claim reimbursement of $4.2 million received in 2018

All Other

In thousands20192018$ Change% Change
Net sales$165,224$127,186$38,03830%
• Higher sales volume and favorable pricing impacts in our fine chemistry services business
Adjusted EBITDA$49,628$14,091$35,537252%
• Higher sales volume and favorable pricing impacts in our fine chemistry services business • $4.4 million decrease from the remeasurement of the fair value of our investment in private equity securities

Corporate

In thousands20192018$ Change% Change
Adjusted EBITDA$(136,862)$(110,623)$(26,239)24%
• Higher selling, general and administrative spending related to professional fees to support planned projects • $18.9 million of unfavorable currency exchange impacts

Summary of Critical Accounting Policies and Estimates

Estimates, Assumptions and Reclassifications

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Listed below are the estimates and assumptions that we consider to be critical in the preparation of our financial statements.

Property, Plant and Equipment. We assign the useful lives of our property, plant and equipment based upon our internal engineering estimates which are reviewed periodically. The estimated useful lives of our property, plant and equipment range from two to sixty years and depreciation is recorded on the straight-line method, with the exception of our mineral rights and reserves, which are depleted on a units-of-production method. We evaluate the recovery of our property, plant and equipment by comparing the net carrying value of the asset group to the undiscounted net cash flows expected to be generated from the use and eventual disposition of that asset group when events or changes in circumstances indicate that its carrying amount may not be recoverable. If the carrying amount of the asset group is not recoverable, the fair value of the asset group is measured and if the carrying amount exceeds the fair value, an impairment loss is recognized.

Acquisition Method of Accounting. We recognize the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their estimated fair values on the date of acquisition for acquired businesses. Determining the fair value of these items requires management’s judgment and the utilization of independent valuation specialists and involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash flows and discount rates, among other items. When acquiring mineral reserves, the fair value is estimated using an excess earnings approach, which requires management to estimate future cash flows, net of capital investments in the specific operation. Management’s cash flow projections involved the use of significant estimates and assumptions with respect to the expected production of the mine over the estimated time period, sales prices, shipment volumes, and expected profit margins.

Albemarle Corporation and Subsidiaries

The present value of the projected net cash flows represents the preliminary fair value assigned to mineral reserves. The discount rate is a significant assumption used in the valuation model. The judgments made in the determination of the estimated fair value assigned to the assets acquired, the liabilities assumed and any noncontrolling interest in the investee, as well as the estimated useful life of each asset and the duration of each liability, can materially impact the financial statements in periods after acquisition, such as through depreciation and amortization expense. For more information on our acquisitions and application of the acquisition method, see Note 2, “Acquisitions,” to our consolidated financial statements included in Part II, Item 8 of this report.

Income Taxes. We assume the deductibility of certain costs in our income tax filings, and we estimate the future recovery of deferred tax assets, uncertain tax positions and indefinite investment assertions.

Environmental Remediation Liabilities. We estimate and accrue the costs required to remediate a specific site depending on site-specific facts and circumstances. Cost estimates to remediate each specific site are developed by assessing (i) the scope of our contribution to the environmental matter, (ii) the scope of the anticipated remediation and monitoring plan and (iii) the extent of other parties’ share of responsibility.

Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Revenue Recognition

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services, and is recognized when performance obligations are satisfied under the terms of contracts with our customers. A performance obligation is deemed to be satisfied when control of the product or service is transferred to our customer. The transaction price of a contract, or the amount we expect to receive upon satisfaction of all performance obligations, is determined by reference to the contract’s terms and includes adjustments, if applicable, for any variable consideration, such as customer rebates, noncash consideration or consideration payable to the customer, although these adjustments are generally not material. Where a contract contains more than one distinct performance obligation, the transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation, although these situations do not occur frequently and are generally not built into our contracts. Any unsatisfied performance obligations are not material. Standalone selling prices are based on prices we charge to our customers, which in some cases is based on established market prices. Sales and other similar taxes collected from customers on behalf of third parties are excluded from revenue. Our payment terms are generally between 30 to 90 days, however, they vary by market factors, such as customer size, creditworthiness, geography and competitive environment.

All of our revenue is derived from contracts with customers, and almost all of our contracts with customers contain one performance obligation for the transfer of goods where such performance obligation is satisfied at a point in time. Control of a product is deemed to be transferred to the customer upon shipment or delivery. Significant portions of our sales are sold free on board shipping point or on an equivalent basis, while delivery terms of other transactions are based upon specific contractual arrangements. Our standard terms of delivery are generally included in our contracts of sale, order confirmation documents and invoices, while the timing between shipment and delivery generally ranges between 1 and 45 days. Costs for shipping and handling activities, whether performed before or after the customer obtains control of the goods, are accounted for as fulfillment costs.

The Company currently utilizes the following practical expedients, as permitted by Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers:

•All sales and other pass-through taxes are excluded from contract value;
•In utilizing the modified retrospective transition method, no adjustment was necessary for contracts that did not cross over the reporting year;
•We will not consider the possibility of a contract having a significant financing component (which would effectively attribute a portion of the sales price to interest income) unless, if at contract inception, the expected payment terms (from time of delivery or other relevant criterion) are more than one year;
•If our right to customer payment is directly related to the value of our completed performance, we recognize revenue consistent with the invoicing right; and
•We expense as incurred all costs of obtaining a contract incremental to any costs/compensation attributable to individual product sales/shipments for contracts where the amortization period for such costs would otherwise be one year or less.
Albemarle Corporation and Subsidiaries

Certain products we produce are made to our customer’s specifications where such products have no alternative use or would need significant rework costs in order to be sold to another customer. In management’s judgment, control of these arrangements is transferred to the customer at a point in time (upon shipment or delivery) and not over the time they are produced. Therefore revenue is recognized upon shipment or delivery of these products.

Costs incurred to obtain contracts with customers are not significant and are expensed immediately as the amortization period would be one year or less. When the Company incurs pre-production or other fulfillment costs in connection with an existing or specific anticipated contract and such costs are recoverable through margin or explicitly reimbursable, such costs are capitalized and amortized to Cost of goods sold on a systematic basis that is consistent with the pattern of transfer to the customer of the goods or services to which the asset relates, which is less than one year. We record bad debt expense in specific situations when we determine the customer is unable to meet its financial obligation.

Goodwill and Other Intangible Assets

We account for goodwill and other intangibles acquired in a business combination in conformity with current accounting guidance which requires goodwill and indefinite-lived intangible assets to not be amortized.

We test goodwill for impairment by comparing the estimated fair value of our reporting units to the related carrying value. Our reporting units are either our operating business segments or one level below our operating business segments for which discrete financial information is available and for which operating results are regularly reviewed by the business management. We estimate the fair value based on present value techniques involving future cash flows. Future cash flows include assumptions about sales volumes, selling prices, raw material prices, labor and other employee benefit costs, capital additions, income taxes, working capital, and other economic or market-related factors. Significant management judgment is involved in estimating these variables, and they include inherent uncertainties since they are forecasting future events. We perform a sensitivity analysis by using a range of inputs to confirm the reasonableness of these estimates being used in the goodwill impairment analysis. We use a Weighted Average Cost of Capital (“WACC”) approach to determine our discount rate for goodwill recoverability testing. Our WACC calculation incorporates industry-weighted average returns on debt and equity from a market perspective. The factors in this calculation are largely external to the Company and, therefore, are beyond our control. We test our recorded goodwill for impairment in the fourth quarter of each year or upon the occurrence of events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts. The Company performed its annual goodwill impairment test as of October 31, 2019 and concluded there was no impairment as of that date. In addition, no material indications of impairment in any of our reporting units were indicated by the sensitivity analysis.

We assess our indefinite-lived intangible assets, which include trade names and trademarks, for impairment annually and between annual tests if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The indefinite-lived intangible asset impairment standard allows us to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if we determine, based on the qualitative assessment, that it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying amount. If we determine based on the qualitative assessment that it is more likely than not that the asset is impaired, an impairment test is performed by comparing the fair value of the indefinite-lived intangible asset to its carrying amount.

Definite-lived intangible assets, such as purchased technology, patents and customer lists, are amortized over their estimated useful lives generally for periods ranging from five to twenty-five years. Except for customer lists and relationships associated with the majority of our Lithium business, which are amortized using the pattern of economic benefit method, definite-lived intangible assets are amortized using the straight-line method. We evaluate the recovery of our definite-lived intangible assets by comparing the net carrying value of the asset group to the undiscounted net cash flows expected to be generated from the use and eventual disposition of that asset group when events or changes in circumstances indicate that its carrying amount may not be recoverable. If the carrying amount of the asset group is not recoverable, the fair value of the asset group is measured and if the carrying amount exceeds the fair value, an impairment loss is recognized. See Note 12, “Goodwill and Other Intangibles,” to our consolidated financial statements included in Part II, Item 8 of this report.

Resource Development Expenses

We incur costs in resource exploration, evaluation and development during the different phases of our resource development projects. Exploration costs incurred before obtaining legal rights to explore an area are generally expensed as incurred. After obtaining legal rights, exploration costs are expensed in areas where we have uncertainty about obtaining proven resources. In areas where we have substantial knowledge about the area and consider it probable to obtain commercially viable proven resources, exploration and evaluation costs are capitalized.

Albemarle Corporation and Subsidiaries

If technical feasibility studies have been obtained, resource evaluation expenses are capitalized when the study demonstrates proven or probable resources for which future economic returns are expected, while costs for projects that are not considered viable are expensed. Development costs that are necessary to bring the property to commercial production or increase the capacity or useful life are capitalized. Costs to maintain the production capacity in a property under production are expensed as incurred.

Capitalized resource costs are depleted using the units-of-production method. Our resource development assets are evaluated for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Pension Plans and Other Postretirement Benefits

Under authoritative accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. As required, we recognize a balance sheet asset or liability for each of our pension and OPEB plans equal to the plan’s funded status as of the measurement date. The primary assumptions are as follows:

•Discount Rate—The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future.
•Expected Return on Plan Assets—We project the future return on plan assets based on prior performance and future expectations for the types of investments held by the plans as well as the expected long-term allocation of plan assets for these investments. These projected returns reduce the net benefit costs recorded currently.
•Rate of Compensation Increase—For salary-related plans, we project employees’ annual pay increases, which are used to project employees’ pension benefits at retirement.
•Mortality Assumptions—Assumptions about life expectancy of plan participants are used in the measurement of related plan obligations.

Actuarial gains and losses are recognized annually in our consolidated statements of income in the fourth quarter and whenever a plan is determined to qualify for a remeasurement during a fiscal year. The remaining components of pension and OPEB plan expense, primarily service cost, interest cost and expected return on assets, are recorded on a monthly basis. The market-related value of assets equals the actual market value as of the date of measurement.

During 2019, we made changes to assumptions related to discount rates and expected rates of return on plan assets. We consider available information that we deem relevant when selecting each of these assumptions.

Our U.S. defined benefit plans for non-represented employees are closed to new participants, with no additional benefits accruing under these plans as participants’ accrued benefits have been frozen. In selecting the discount rates for the U.S. plans, we consider expected benefit payments on a plan-by-plan basis. As a result, the Company uses different discount rates for each plan depending on the demographics of participants and the expected timing of benefit payments. For 2019, the discount rates were calculated using the results from a bond matching technique developed by Milliman, which matched the future estimated annual benefit payments of each respective plan against a portfolio of bonds of high quality to determine the discount rate. We believe our selected discount rates are determined using preferred methodology under authoritative accounting guidance and accurately reflect market conditions as of the December 31, 2019 measurement date.

In selecting the discount rates for the foreign plans, we look at long-term yields on AA-rated corporate bonds when available. Our actuaries have developed yield curves based on the yields of constituent bonds in the various indices as well as on other market indicators such as swap rates, particularly at the longer durations. For the Eurozone, we apply the Aon Hewitt yield curve to projected cash flows from the relevant plans to derive the discount rate. For the U.K., the discount rate is determined by applying the Aon Hewitt yield curve for typical schemes of similar duration to projected cash flows of Albemarle’s U.K. plan. In other countries where there is not a sufficiently deep market of high-quality corporate bonds, we set the discount rate by referencing the yield on government bonds of an appropriate duration.

At December 31, 2019, the weighted-average discount rate for the U.S. and foreign pension plans decreased to 3.56% and 1.33%, respectively, from 4.59% and 2.15%, respectively, at December 31, 2018 to reflect market conditions as of the December 31, 2019 measurement date. The discount rate for the OPEB plans at December 31, 2019 and 2018 was 3.53% and 4.55%, respectively.

In estimating the expected return on plan assets, we consider past performance and future expectations for the types of investments held by the plan as well as the expected long-term allocations of plan assets to these investments. For the years 2019 and 2018, the weighted-average expected rate of return on U.S. pension plan assets was 6.89%, and the weighted-average expected rate of return on foreign pension plan assets was 5.51% and 5.52%, respectively. Effective January 1, 2020, the weighted-average expected rate of return on U.S. and foreign pension plan assets is 6.88% and 4.07%, respectively.

Albemarle Corporation and Subsidiaries

In projecting the rate of compensation increase, we consider past experience in light of movements in inflation rates. At December 31, 2019 and 2018, the assumed weighted-average rate of compensation increase was 3.72% and 3.63%, respectively, for our foreign pension plans.

In October 2018, the the Society of Actuaries (“SOA”) published an updated Mortality Improvement Scale, MP-2018. The updated Improvement Scale incorporates an additional year of mortality data (2016). We utilized the same base mortality, SOA RP-2014 Adjusted to 2006 Total Dataset Mortality, but we revised our mortality assumption to incorporate the MP-2018 Mortality Improvement Scale for purposes of measuring our U.S. pension and OPEB obligations at December 31, 2018. In October 2019, the SOA published the Pri-2012 Mortality Tables and an updated Improvement Scale, MP-2019. The Pri-2012 Mortality Tables are an update to the RP-2014 Adjusted to 2006 Total Dataset Mortality while the updated improvement scale incorporates an additional year of mortality data (2017). We revised both the base mortality tables and mortality improvement assumption by incorporating both the Pri-2012 Mortality Tables and MP-2019 Mortality Improvement Scale for purpose of measuring our U.S. pension and OPEB obligations at December 31, 2019.

At December 31, 2019, the assumed rate of increase in the pre-65 and post-65 per capita cost of covered health care benefits for U.S. retirees was zero as the employer-paid premium caps (pre-65 and post-65) were met starting January 1, 2013.

A variance in the assumptions discussed above would have an impact on the projected benefit obligations, the accrued OPEB liabilities, and the annual net periodic pension and OPEB cost. The following table reflects the sensitivities associated with a hypothetical change in certain assumptions, primarily in the U.S. (in thousands):

(Favorable) Unfavorable
1% Increase1% Decrease
Increase (Decrease) in Benefit ObligationIncrease (Decrease) in Benefit CostIncrease (Decrease) in Benefit ObligationIncrease (Decrease) in Benefit Cost
Actuarial Assumptions
Discount Rate:
Pension$(103,167)$4,733$125,286$(6,286)
Other postretirement benefits$(5,070)$289$6,058$(363)
Expected return on plan assets:
Pension*$(6,183)*$6,183
Other postretirement benefits*$—*$—
  • Not applicable.

Of the $638.1 million total pension and postretirement assets at December 31, 2019, $73.8 million, or approximately 12%, are measured using the net asset value as a practical expedient. Gains or losses attributable to these assets are recognized in the consolidated balance sheets as either an increase or decrease in plan assets. See Note 15, “Pension Plans and Other Postretirement Benefits,” to our consolidated financial statements included in Part II, Item 8 of this report.

Income Taxes

We use the liability method for determining our income taxes, under which current and deferred tax liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. In order to record deferred tax assets and liabilities, we are following guidance under ASU 2015-17, which requires deferred tax assets and liabilities to be classified as noncurrent on the balance sheet, along with any related valuation allowance. Tax effects are released from Accumulated Other Comprehensive Income using either the specific identification approach or the portfolio approach based on the nature of the underlying item.

Deferred income taxes are provided for the estimated income tax effect of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred tax assets are also provided for operating losses, capital losses and certain tax credit carryovers. A valuation allowance, reducing deferred tax assets, is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of such deferred tax assets is dependent upon the generation of sufficient future taxable income of the appropriate character. Although realization is not assured, we do not establish a valuation allowance when we believe it is more likely than not that a net deferred tax asset will be realized.

Albemarle Corporation and Subsidiaries

We only recognize a tax benefit after concluding that it is more likely than not that the benefit will be sustained upon audit by the respective taxing authority based solely on the technical merits of the associated tax position. Once the recognition threshold is met, we recognize a tax benefit measured as the largest amount of the tax benefit that, in our judgment, is greater than 50% likely to be realized. Interest and penalties related to income tax liabilities are included in Income tax expense on the consolidated statements of income.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Due to the statute of limitations, we are no longer subject to U.S. federal income tax audits by the Internal Revenue Service (“IRS”) for years prior to 2011. Due to the statute of limitations, we also are no longer subject to U.S. state income tax audits prior to 2011.

With respect to jurisdictions outside the U.S., several audits are in process. We have audits ongoing for the years 2011 through 2018 related to Germany, Italy, India, Belgium, and Chile, some of which are for entities that have since been divested.

While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than our accrued position. Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.

Since the timing of resolutions and/or closure of tax audits are uncertain, it is difficult to predict with certainty the range of reasonably possible significant increases or decreases in the liability related to uncertain tax positions that may occur within the next twelve months. Our current view is that it is reasonably possible that we could record a decrease in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $9.6 million as a result of closure of tax statutes. As a result of the sale of the Chemetall Surface Treatment business in 2016, we agreed to indemnify certain income and non-income tax liabilities, including uncertain tax positions, associated with the entities sold. The associated liability is recorded in Other noncurrent liabilities. See Note 16, “Other Noncurrent Liabilities,” and Note 21, “Income Taxes,” for further details.

We have designated the undistributed earnings of a portion of our foreign operations as indefinitely reinvested and as a result we do not provide for deferred income taxes on the unremitted earnings of these subsidiaries. Our foreign earnings are computed under U.S. federal tax earnings and profits (“E&P”) principles. In general, to the extent our financial reporting book basis over tax basis of a foreign subsidiary exceeds these E&P amounts, deferred taxes have not been provided, as they are essentially permanent in duration. The determination of the amount of such unrecognized deferred tax liability is not practicable. We provide for deferred income taxes on our undistributed earnings of foreign operations that are not deemed to be indefinitely invested. We will continue to evaluate our permanent investment assertion taking into consideration all relevant and current tax laws.

On December 22, 2017, the TCJA was signed into law in the U.S. The TCJA contains several key tax provisions including, among other things, the reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018, the requirement of companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and the creation of new taxes on certain foreign sourced earnings such as global intangible low-taxed income (“GILTI”). A company can elect an accounting policy to account for GILTI as a period charge in the future period the tax arises or as part of deferred taxes related to the investment or subsidiary. The Company has elected to account for GILTI as a period cost.

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

Our cash and cash equivalents were $613.1 million at December 31, 2019 as compared to $555.3 million at December 31, 2018. Cash provided by operating activities was $719.4 million, $546.2 million and $304.0 million during the years ended December 31, 2019, 2018 and 2017, respectively.

Albemarle Corporation and Subsidiaries

The increase in cash provided by operating activities in 2019 versus 2018 was primarily due to lower working capital outflow, including a reduction in inventory build-up in Lithium and Catalysts. In addition, we received increased dividends from unconsolidated investments and recorded higher cash earnings, particularly in Bromine Specialties. This was partially offset by timing on payables and higher cash taxes paid. The increase in cash provided by operating activities in 2018 versus 2017 was primarily due to higher income tax payments in 2017, including approximately $257 million of income taxes from the gain on sale of the Chemetall Surface Treatment business. In addition, 2018 benefited from increased earnings in each of our reportable segments, increased dividends received from unconsolidated investments and lower interest payments. This was partially offset by increased receivables from higher net sales during 2018 and the build-up of inventory in our Lithium and Catalysts segments due to higher forecasted sales.

During 2019, cash on hand, cash provided by operations and proceeds from borrowings of $1.60 billion funded $851.8 million of capital expenditures for plant, machinery and equipment, dividends to shareholders of $152.2 million, the repayment of $175.2 million of senior notes, and pension and postretirement contributions of $16.5 million. During 2018, cash on hand, cash provided by operations and $413.6 million of net proceeds from divestitures funded $114.7 million of commercial paper repayments, net of borrowings, $500.0 million of accelerated share repurchase programs, $700.0 million of capital expenditures for plant, machinery and equipment, and mining resource development, dividends to shareholders of $144.6 million, and pension and postretirement contributions of $15.2 million. During 2017, cash on hand, cash provided by operations and net borrowings of $138.8 million funded $778.2 million of debt repayments, $317.7 million of capital expenditures for plant, machinery and equipment, a $250.0 million accelerated share repurchase program, dividends to shareholders of $140.6 million, and pension and postretirement contributions of $13.3 million. In addition, during the years ended December 31, 2019, 2018 and 2017, our consolidated joint venture, JBC, paid dividends of approximately $224.9 million, $40.0 million and $102.5 million, respectively, which resulted in dividends to noncontrolling interests of $83.2 million, $14.8 million and $36.8 million, respectively.

On October 31, 2019, we completed the acquisition of a 60% interest in the Wodgina Project for a total purchase price of$1.3 billion. The purchase price is comprised of $820 million in cash, subject to certain adjustments capped at $22.5 million, and the transfer of 40% interest in certain lithium hydroxide conversion assets being built by Albemarle in Kemerton, Western Australia, valued at approximately $480 million. The cash consideration was funded by the unsecured credit facility entered into on August 14, 2019.

In November 2019, we issued notes totaling $500.0 million and €1.0 billion. The net proceeds from the issuance of these notes were used to repay the $1.0 billion balance of the the unsecured credit facility entered into on August 14, 2019, a large portion of approximately $370 million of commercial paper notes, the remaining balance of $175.2 million of the senior notes issued on December 10, 2010 (“2010 Senior Notes”), and for general corporate purposes. During the year ended December 31, 2019, we recorded a loss on early extinguishment of debt of $4.8 million in Interest and financing expenses, representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of the 2010 Senior Notes.

On April 3, 2018, we completed the Polyolefin Catalysts Divestiture to W.R. Grace & Co. for net cash proceeds of approximately $413.6 million and recorded a gain of $210.4 million before income taxes in 2018 related to the sale of this business. The transaction included Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at our Yeosu, South Korea site. The sale did not include the organometallics or curatives portion of the PCS business. The Polyolefin Catalysts Divestiture reflects our commitment to investing in the future growth of our high priority businesses and returning capital to our shareholders.

In the first quarter of 2017, using a portion of the proceeds from the sale of the Chemetall Surface Treatment business, we repaid the 3.00% Senior notes in full, €307.0 million of the 1.875% Senior notes and $174.7 million of the 4.50% Senior notes, as well as related tender premiums of $45.2 million. As a result, Interest and financing expenses on the consolidated statements of income includes a loss on early extinguishment of debt of $52.8 million for the year ended December 31, 2017, representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of these senior notes.

Capital expenditures were $851.8 million, $700.0 million and $317.7 million for the years ended December 31, 2019, 2018 and 2017, respectively, and were incurred mainly for plant, machinery and equipment, and mining resource development. The increase in capital expenditures during the year ended December 31, 2019 was primarily driven by expansion in our Lithium business. We expect our capital expenditures to be between $1.0 billion and $1.1 billion in 2020 for Lithium growth and capacity increases, as well as productivity and continuity of operations projects in all segments. Of the total capital expenditures, our projects related to the continuity of operations is expected to remain in the range of 5-7% of net sales, similar to prior years.

Albemarle Corporation and Subsidiaries

During 2019, we incurred $20.7 million of acquisition and integration related costs related to various significant projects, including the acquisition of the Wodgina Project, primarily consisting of professional services and advisory fees. During 2018, we incurred $19.4 million of acquisition and integration related costs related to various significant projects. During 2017, we incurred $33.9 million of acquisition and integration related costs related to various significant projects, including the Jiangli New Materials acquisition, which contains non-routine compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s ordinary course compensation arrangements.

The Company is permitted to repurchase up to a maximum of 15,000,000 shares under a share repurchase program authorized by our Board of Directors. Under this share repurchase program, the Company repurchased approximately 5.3 million shares and 2.3 million shares of our common stock during 2018 and 2017, respectively, which reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share. All of the shares repurchased in 2018 and 2017 were repurchased pursuant to the terms of accelerated share repurchase agreements with major financial institutions. There were no shares of our common stock repurchased during 2019. At December 31, 2019, there were 7,396,263 remaining shares available for repurchase under the Company’s authorized share repurchase program.

Net current assets decreased to approximately $816.1 million at December 31, 2019 from $815.2 million at December 31, 2018, with the decrease being largely due to the 40% interest in our Kemerton assets being constructed to be transferred to MRL in the next twelve months, which is recorded in Accrued expenses. This is partially offset by the increase in Cash and cash equivalents and repayment of commercial paper notes resulting from the issuance of approximately $1.6 billion of new notes in November 2019. 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 and 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.

At December 31, 2019 and 2018, our cash and cash equivalents included $565.6 million and $525.8 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. For the years ended December 31, 2019, 2018 and 2017, we repatriated approximately $351.9 million, $621.8 million and $20.5 million of cash, respectively, as part of these foreign earnings cash repatriation activities.

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 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/YearPrincipal (in millions)Interest RateInterest Payment DatesMaturity Date
November 2019€500.01.125%November 25November 25, 2025
November 2019€500.01.625%November 25November 25, 2028
November 2019(a)$300.03.45%May 15 and November 15November 15, 2029
November 2019(b)$200.0Floating RateFebruary 15, May 15, August 15 and November 15November 15, 2022
December 2014(a)€393.01.875%December 8December 8, 2021
November 2014(a)$425.04.15%June 1 and December 1December 1, 2024
November 2014(a)$350.05.45%June 1 and December 1December 1, 2044
(a)Denotes senior notes.
Albemarle Corporation and Subsidiaries
(b)Borrowings bear interest at a floating rate based on the 3-month LIBOR plus 105 basis points. The floating interest rate for the initial interest period is 2.9595%, 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. These 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 revolving, unsecured credit agreement dated as of June 21, 2018, as amended on August 14, 2019 (the “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 Rating 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 December 31, 2019. There were no borrowings outstanding under the 2018 Credit Agreement as of December 31, 2019.

On August 14, 2019, the Company entered into a $1.2 billion unsecured credit facility (the “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 an additional 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, Moody’s and Fitch. The applicable margin on the credit facility was 1.125% as of December 31, 2019. 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 MRL’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 (see above for further details). Following the repayment of the amounts borrowed, the Company had $200 million remaining to borrow under this credit facility. There were no borrowings outstanding under the 2019 Credit Facility as of December 31, 2019.

Borrowings under the 2019 Credit Facility and 2018 Credit Agreement (together “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 requires 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 3.50:1.00, 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. 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. Certain representations, warranties and covenants under

Albemarle Corporation and Subsidiaries

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 $1.2 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 December 31, 2019, we had $186.7 million of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately 2.01% and a weighted-average maturity of 39 days. The Commercial Paper Notes are classified as Current portion of long-term debt in our consolidated balance sheets at December 31, 2019 and 2018.

The non-current portion of our long-term debt amounted to $2.86 billion at December 31, 2019, compared to $1.40 billion at December 31, 2018. In addition, at December 31, 2019, we had the ability to borrow $1.01 billion under our commercial paper program and the Credit Agreements, and $283.4 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 December 31, 2019 we were, and currently are, in compliance with all of our debt covenants. For additional information about our long-term debt obligations, see Note 14, “Long-Term Debt,” to our consolidated financial statements included in Part II, Item 8 of this report.

Off-Balance Sheet Arrangements

In the normal 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 $82.3 million at December 31, 2019. 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

The following table summarizes our contractual obligations for capital projects, various take or pay and throughput agreements, long-term debt, operating leases and other commitments as of December 31, 2019 (in thousands):

20202021202220232024Thereafter
Long-term debt obligations(a)$187,336$436,072$200,000$—$425,000$1,825,984
Expected interest payments on long-term debt obligations(b)76,51576,51568,13462,21560,745473,065
Operating lease obligations (rental)28,33315,30613,15312,43311,85094,002
Take or pay / throughput agreements(c)62,56820,8607,6905,6284,83010,907
Letters of credit and guarantees49,15211,3831,3031,190—19,305
Transition tax on foreign earnings(d)10,54030,44230,44244,57867,177130,850
Capital projects500,97596,3433,473———
Total$915,419$686,921$324,195$126,044$569,602$2,554,113
(a)Amounts represent the expected principal payments of our long-term debt and do not include any fair value adjustments, premiums or discounts. Obligations in 2020 include our outstanding Commercial Paper Notes of $186.7 million with a weighted average maturity of 39 days.
(b)Interest on our fixed rate borrowings was calculated based on the stated rates of such borrowings. A weighted average interest rate of approximately 2.87% was used for our remaining long-term debt obligations.
(c)These amounts primarily relate to contracts entered into with certain third party vendors in the normal course of business to secure raw materials for our production processes. In order to secure materials, sometimes for long durations, these contracts mandate a minimum amount of product to be purchased at predetermined rates over a set timeframe.
Albemarle Corporation and Subsidiaries
(d)In December 2017, the TCJA was signed into law imposing a one-time transition tax on foreign earnings, payable over an eight-year period. The one-time transition tax imposed by the TCJA is based on our total post-1986 earnings and profits that we previously deferred from U.S. income taxes.

Amounts in the table above exclude required employer pension contributions. Contributions to our domestic and foreign qualified and nonqualified pension plans, including our supplemental executive retirement plan (“SERP”), are expected to approximate $13 million in 2020. We may choose to make additional pension contributions in excess of this amount. We made contributions of approximately $13.4 million to our domestic and foreign pension plans (both qualified and nonqualified) during the year ended December 31, 2019.

The liability related to uncertain tax positions, including interest and penalties, recorded in Other noncurrent liabilities totaled $21.2 million and $22.9 million at December 31, 2019 and 2018, respectively. Related assets for corresponding offsetting benefits recorded in Other assets totaled $26.1 million and $13.0 million at December 31, 2019 and 2018, respectively. We cannot estimate the amounts of any cash payments during the next twelve months associated with these liabilities and are unable to estimate the timing of any such cash payments in the future at this time.

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 over the next three years, in terms of uses of cash, will 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. In 2019, we announced that we have begun to pursue opportunities to divest our PCS and fine chemistry services businesses, with the expectation that each divestiture will be completed in 2020.

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.

While we maintain business relationships with a diverse group of financial institutions, an adverse change in their credit standing could lead them to not honor their contractual credit commitments, decline funding under existing but uncommitted lines of credit, not renew their extensions of credit or not provide new financing. While the global corporate bond and bank loan markets remain strong, periods of elevated uncertainty related to 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 credit facilities mature. When 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 FCPA, 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 DOJ, the SEC, and the 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 the 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 such 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 $613.1 million as of December 31, 2019, of which $565.6 million is held by our foreign subsidiaries. This cash represents an important source of our liquidity and is invested in bank accounts or money

Albemarle Corporation and Subsidiaries

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.

Safety and Environmental Matters

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 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.

Our environmental and safety operating costs charged to expense were $48.0 million, $42.9 million and $40.1 million in 2019, 2018 and 2017, respectively, excluding depreciation of previous capital expenditures, and are expected to be in the same range in the next few years. Costs for remediation have been accrued and payments related to sites are charged against accrued liabilities, which at December 31, 2019 totaled approximately $42.6 million, a decrease of $7.0 million from $49.6 million at December 31, 2018. See Note 17, “Commitments and Contingencies” to our consolidated financial statements included in Part II, Item 8 of this report for a reconciliation of our environmental liabilities for the years ended December 31, 2019, 2018 and 2017.

We believe that any sum we may be required to pay in connection with environmental remediation and asset retirement obligation matters in excess of the amounts recorded should occur over a period of time and should not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis, although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particular quarterly reporting period.

Capital expenditures for pollution-abatement and safety projects, including such costs that are included in other projects, were approximately $44.4 million, $47.3 million and $28.1 million in 2019, 2018 and 2017, respectively. In the future, capital expenditures for these types of projects may increase due to more stringent environmental regulatory requirements and our efforts in reaching sustainability goals. Management’s estimates of the effects of compliance with governmental pollution-abatement and safety regulations are subject to (a) the possibility of changes in the applicable statutes and regulations or in judicial or administrative construction of such statutes and regulations and (b) uncertainty as to whether anticipated solutions to pollution problems will be successful, or whether additional expenditures may prove necessary.

Recently Issued Accounting Pronouncements

See Note 1, “Summary of Significant Accounting Policies” to our consolidated financial statements included in Part II, Item 8 of this report for a discussion of our Recently Issued Accounting Pronouncements.

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