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

131K characters. Original on sec.gov · Markdown

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;
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;


Albemarle Corporation and Subsidiaries

uncertainties as to the duration and impact of the COVID-19 pandemic; 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, 2020, 2019 and 2018. 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. We believe our purposes is making the world safe and sustainable by powering the potential of people. 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.

2020 Highlights

In the first quarter of 2020, we increased our quarterly dividend for the 26th consecutive year, to $0.385 per share. In February 2020, we were recognized by being named to the S&P 500 Dividend Aristocrats Index.
On April 20, 2020 we announced that J. Kent Masters was elected Chairman, President and Chief Executive Officer, effective immediately. Retired former Chairman, President and Chief Executive Officer Luke Kissam continues to serve on the Board of Directors through the annual meeting of shareholders in 2021, as he was re-elected at our 2020 annual meeting of shareholders on May 5, 2020.
On May 11, 2020, we amended our revolving, unsecured credit agreement dated as of June 21, 2018, as amended on

August 14, 2019 (the “2018 Credit Agreement”), and our unsecured credit facility entered into on August 14, 2019

(the “2019 Credit Facility”) (together the “Credit Agreements”) to modify the financial covenant in the Credit

Agreements. The modified covenant is based on net funded debt to consolidated EBITDA, with a maximum ratio to

4.00:1 for the fiscal quarter ending June 30, 2020, 4.50:1 for the fiscal quarters ending September 30, 2020 through

September 30, 2021, decreasing to 4.00:1 times for the fiscal quarter ended December 31, 2021, and 3.50:1 thereafter,

among other changes.

In September 2020, it was announced that we have been selected by the U.S. Department of Energy (“DOE”) as a critical partner for two lithium research projects over three years through a Battery Manufacturing Lab Call. Albemarle will work in conjunction with two DOE labs on the approved projects.
In December 2020, we entered into an amendment and restatement of the 2019 Credit Facility to, among other changes, (a) extend the final maturity date of the outstanding loans under the 2019 Credit Facility to April 2023, (b) change the applicable margin for the outstanding loans under the 2019 Credit Facility to LIBOR plus an applicable margin which ranges from 0.875% to 1.625%, depending on the Company’s credit rating and (c) provide for an additional term loan commitment of $500 million.


Albemarle Corporation and Subsidiaries

Achieved $80 million of sustainable cost savings in 2020 under our previously announced cost-reduction program. We expect to deliver a run rate of more than $120 million in sustainable savings by the end of 2021, an increase from the previous estimate of approximately $100 million.
We achieved earnings of $375.8 million during 2020 as compared to $533.2 million for 2019. Cash flows from operations in 2020 were $798.9 million up 11% from 2019. In addition, earnings for 2020 includes pension and other postretirement benefit (“OPEB”) actuarial losses of $40.9 million after income taxes, compared to pension and OPEB actuarial losses of $21.1 million after income taxes in 2019.

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, particularly that for EVs, remains strong, providing the opportunity to continue to develop high quality and innovative products while managing the high cost of expanding capacity. The other markets we serve continue to present various opportunities for value and growth as we have positioned ourselves to manage the impact on our business of changing global conditions, such as slow and uneven global growth, currency exchange volatility, crude oil price fluctuation, a dynamic pricing environment, an ever-changing landscape in electronics, the continuous need for cutting edge catalysts and technology by our refinery customers and increasingly stringent environmental standards. Amidst these dynamics, we believe our business fundamentals are sound and that we are strategically well-positioned as we remain focused on increasing sales volumes, optimizing and improving the value of our portfolio primarily through pricing and product development, managing costs and delivering value to our customers and shareholders. We believe that our businesses remain well-positioned to capitalize on new business opportunities and long-term trends driving growth within our end markets and to respond quickly to changes in economic conditions in these markets.

Currently, the COVID-19 pandemic is having an impact on overall global economic conditions. While we have not seen a material impact to our operations to date, the ultimate impact on our business will depend on the length and severity of the outbreak throughout the world. All of our information technology systems are running as designed and all sites are operating at normal capacity while we continue to comply with all government and health agency recommendations and requirements, as well as protecting the safety of our employees and communities. We believe we have sufficient inventory to continue to produce at current levels, however, government mandated shutdowns could impact our ability to acquire additional materials and disrupt our customers’ purchases. At this time we cannot predict the expected overall financial impact of the COVID-19 pandemic on our business, but we are planning for various economic scenarios and continue to make efforts to protect the safety of our employees and the health of our business.

Lithium: We expect results to be flat year-over-year during 2021 in Lithium, due mainly to pricing pressure in certain markets and higher unit costs from plant start-ups at La Negra, Chile and Kemerton, Western Australia, offset by modest volume growth and increased productivity at our existing plants. There is no new capacity coming online during 2021 to drive significant additional sales volume, although we expect our new plants in La Negra and Kemerton to begin producing sales in 2022. In addition, we have seen reduced demand in the glass and ceramics markets, which has led to reduced sales. In the third quarter of 2020 we announced idling actions at certain plants, however, we have since restarted those facilities. EV sales have started to rebound after a marked slowdown during the second quarter of 2020, with full year 2020 showing a healthy increase in total EV sales over the prior year. We continue to keep the Wodgina spodumene mine idled until demand supports bringing the mine back to production.

On a longer-term basis, we believe that demand for lithium will continue to grow as new lithium applications advance and the use of plug-in hybrid electric vehicles and full battery electric vehicles increases. This demand for lithium is supported by a favorable backdrop of steadily declining lithium ion battery costs, increasing battery performance, continuing significant investments in the battery and EV supply chain by our customers and automotive OEM’s, favorable global public policy toward e-mobility/renewable energy usage, and additional stimulus measures taken in Europe in light of the COVID-19 pandemic that we expect to bolster EV demand. Our outlook is also bolstered by long-term supply agreements with key strategic customers, reflecting our standing as a preferred global lithium partner, highlighted by our scale, access to geographically diverse, low-cost resources and long-term track record of reliability of supply and operating execution.

Bromine Specialties: We expect both net sales and profitability to be modestly higher in 2021, as we recover from the lower demand due to shutdowns related to the COVID-19 pandemic and ongoing cost savings initiatives. While we have not experienced a material impact from the COVID-19 pandemic to date, sales in 2020 were adversely impacted and we are likely to see continued adverse impacts into 2021.

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


Albemarle Corporation and Subsidiaries

developing markets are likely to drive continued demand for fire safety products. Our long-term drilling outlook is uncertain at this time and will follow a long-term trajectory in line with oil prices. We are focused on profitably growing our globally competitive bromine and derivatives production network to serve all major bromine consuming products and markets. The combination of our solid, long-term business fundamentals, strong cost position, product innovations and effective management of raw material costs will enable us to manage our business through end-market challenges and to capitalize on opportunities that are expected with favorable market trends in select end markets.

Catalysts: Total Catalysts results in 2021 are expected to be flat year-over-year, with PCS improving over lower 2020 levels. We expect 2021 refining catalyst volumes to be lower year-over-year resulting from a recent change in customer order patterns in North America. The FCC market is expected to gradually recover from the COVID-19 pandemic in line with increased travel and depletion of global gasoline inventories, however, demand may not return to normal levels until late 2022 at the earliest. HPC demand tends to be lumpier than FCC demand and is also expected to continue to be negatively impacted as refiners defer spending into 2021 and 2022.

On a longer-term basis, we believe increased global demand for transportation fuels, new refinery start-ups and ongoing adoption of cleaner fuels will be the primary drivers of growth in our Catalysts business. We believe delivering superior end-use performance continues to be the most effective way to create sustainable value in the refinery catalysts industry. We believe our technologies continue to provide significant performance and financial benefits to refiners challenged to meet tighter regulations around the world, including those managing new contaminants present in North America tight oil, and those in the Middle East and Asia seeking to use heavier feedstock while pushing for higher propylene yields. Longer-term, we believe that the global crude supply will get heavier and more sour, a trend that bodes well for our catalysts portfolio. With superior technology and production capacities, and expected growth in end market demand, we believe that Catalysts remains well-positioned for the future. In PCS, we expect growth on a longer-term basis in our organometallic business due to growing global demand for plastics driven by rising standards of living and infrastructure spending. As previously announced, we are pursuing opportunities to divest PCS.

All Other: The fine chemistry services (“FCS”) business is reported outside the Company’s reportable segments as it does not fit in the Company’s core businesses. We expect the near future prospects for the FCS business to continue to be positively impacted by the timing of customer orders in a strong pharmaceutical and agriculture contract manufacturing environment. As previously announced, we are pursuing opportunities to divest our FCS business.

Corporate: We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax 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. and other tax jurisdictions. On February 8, 2021, we completed an underwritten public offering of 8,496,733 shares of our common stock, par value $0.01 per share, at a price to the public of $153.00 per share. The Company also granted to the Underwriters an option to purchase up to an additional 1,274,509 shares for a period of 30 days, which was exercised.The total gross proceeds from this offering were approximately $1.5 billion, before deducting expenses, underwriting discounts and commissions. We intend to use the net proceeds of the offering primarily to fund growth capital expenditures, such as the construction and expansion of lithium operations in Australia, Chile and Silver Peak, Nevada, and opportunities in China. We also intend to use the net proceeds for debt repayment in the short term and other general corporate purposes.

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, 2020 include an actuarial loss of $52.3 million ($40.9 million after income taxes), as compared to a loss of $29.3 million ($21.1 million after income taxes) for the year ended December 31, 2019.

We remain committed to evaluating the merits of any opportunities that may arise for acquisitions or other business development activities that will complement our business footprint. Additional information regarding our products, markets and financial performance is provided at our website, www.albemarle.com. Our website is not a part of this document nor is it incorporated herein by reference.

Results of Operations

The following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.

Discussion of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018 can be found in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.


Albemarle Corporation and Subsidiaries

Comparison of 2020 to 2019

Selected Financial Data

Net Sales


In thousands	2020	2019	$ Change	% Change
Net sales	3,128,909	3,589,427	(460,518)	(13)	%
•$245.5 million of lower sales volume from each of our reportable segments, partially offset by FCS growth •$219.3 million of unfavorable pricing primarily driven by Lithium •$4.4 million of favorable currency translation resulting from the weaker U.S. Dollar against various currencies

Gross Profit


In thousands	2020			2019			$ Change		% Change
Gross profit	$	994,853		$	1,257,778		$	(262,925)	(21)	%
Gross profit margin	31.8		%	35.0		%
•Lower sales volume from each of our reportable segments and unfavorable pricing impacts primarily driven by Lithium •Increased freight costs in Catalysts •Lower commission expenses in Chile resulting from the lower pricing in Lithium •Unfavorable currency exchange impacts resulting from the stronger U.S. Dollar against various currencies

Selling, General and Administrative Expenses


In thousands	2020			2019			$ Change		% Change
Selling, general and administrative expenses	$	429,827		$	533,368		$	(103,541)	(19)	%
Percentage of Net sales	13.7		%	14.9		%
•Productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company’s previously announced cost savings initiative •$64.8 million of stamp duties levied on assets purchased related to the Wodgina Project in 2019 •$13.3 million increase in severance expenses as part of business reorganization plans

Research and Development Expenses


In thousands	2020			2019			$ Change		% Change
Research and development expenses	$	59,214		$	58,287		$	927	2	%
Percentage of Net sales	1.9		%	1.6		%
•Research and development spend in line with prior year

Interest and Financing Expenses


In thousands	2020		2019		$ Change		% Change
Interest and financing expenses	$	(73,116)	$	(57,695)	$	(15,421)	27	%
•Increased debt balance in 2020, primarily related to the funding of the Wodgina Project acquisition in the fourth quarter of 2019 and Credit Agreement draws in 2020 •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 2010 Senior Notes •The increase was partially offset by higher capitalized interest from continued high capital expenditures in 2020


Albemarle Corporation and Subsidiaries

Other Expenses, Net


In thousands	2020		2019		$ Change		% Change
Other expenses, net	$	(59,177)	$	(45,478)	$	(13,699)	30	%
•$11.1 million gain related to the sale of land in Pasadena, Texas in 2019 •$7.2 million gain related to the sale of our ownership percentage in the SOCC joint venture •$3.0 million increase in foreign exchange losses •$40.7 million of pension and OPEB costs (including mark-to-market actuarial losses of $52.3 million) in 2020 as compared to $27.0 million of pension and OPEB costs (including mark-to-market actuarial losses of $29.3 million) in 2019 •The mark-to-market actuarial loss in 2020 is primarily attributable to a decrease in the weighted-average discount rate to 2.50% from 3.56% for our U.S. pension plans and to 0.86% from 1.33% for our foreign pension plans to reflect market conditions as of the December 31, 2020 measurement date. This was partially offset by a higher return on pension plan assets in 2020 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 13.15% versus an expected return of 6.52%. •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%.

Income Tax Expense


	2020			2019			$ Change		% Change
Income Tax Expense	$	54,425		$	88,161		$	(33,736)	(38)	%
Effective income tax rate	14.6		%	15.7		%
•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 •2020 includes discrete tax benefits for changes to uncertain tax positions, excess tax benefits realized from stock-based compensation arrangements, and return to accrual adjustments •2019 includes discrete tax benefits 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 thousands	2020		2019		$ Change		% Change
Equity in net income of unconsolidated investments	$	127,521	$	129,568	$	(2,047)	(2)	%
•Lower equity income reported by Windfield, our Lithium segment joint venture, primarily driven by lower volume and pricing •$17.3 million charge in 2019 representing our 49% share of a tax settlement between Windfield and an Australian taxing authority, offset in Income tax expense •Approximately $16 million of foreign currency gains from the Windfield joint venture in 2020

Net Income Attributable to Noncontrolling Interests


In thousands	2020		2019		$ Change		% Change
Net income attributable to noncontrolling interests	$	(70,851)	$	(71,129)	$	278	—	%
•Decrease in consolidated income related to our JBC joint venture due to lower sales volume


Albemarle Corporation and Subsidiaries

Net Income Attributable to Albemarle Corporation


In thousands	2020			2019			$ Change		% Change
Net income attributable to Albemarle Corporation	$	375,764		$	533,228		$	(157,464)	(30)	%
Percentage of Net Sales	12.0		%	14.9		%
Basic earnings per share	$	3.53		$	5.03		$	(1.50)	(30)	%
Diluted earnings per share	$	3.52		$	5.02		$	(1.50)	(30)	%
•Decrease primarily due to decreased sales volume in each of our reportable segments and unfavorable price impacts in Lithium •Increase in mark-to-market actuarial losses due to lower discount rates •Increased interest expense from higher debt balances in 2020 •Lower equity in net income of unconsolidated investments from the Talison joint venture •Productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from our previously announced cost savings initiative •$64.8 million of stamp duties levied on assets purchased related to the Wodgina Project in 2019

Other Comprehensive Income (Loss), Net of Tax


In thousands	2020		2019		$ Change		% Change
Other comprehensive income (loss), net of tax	$	69,850	$	(45,520)	$	115,370	*
•Foreign currency translation	$	100,389	$	(62,031)	$	162,420	*
•2020 included favorable movements in the Euro of approximately $84 million, the Chinese Renminbi of approximately $22 million, the Taiwanese Dollar of approximately $7 million, the Japanese Yen of approximately $5 million and the Korean Won of approximately $4 million, partially offset by unfavorable movements in the Brazilian Real of approximately $19 million and a net unfavorable variance in various other currencies totaling approximately $2 million
•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
•Cash flow hedge	$	1,602	$	4,847	$	(3,245)	(67)	%
•Net investment hedge	$	(34,185)	$	8,441	$	(42,626)	*

Percentage calculation is not meaningful

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
	2020		%		2019		%		2020 vs. 2019
	(In thousands, except percentages)
Net sales:
Lithium	$	1,144,778	36.6	%	$	1,358,170	37.8	%	(16)	%
Bromine Specialties	964,962		30.8	%	1,004,216		28.0	%	(4)	%
Catalysts	797,914		25.5	%	1,061,817		29.6	%	(25)	%
All Other	221,255		7.1	%	165,224		4.6	%	34	%

Total net sales	$	3,128,909	100.0	%	$	3,589,427	100.0	%	(13)	%

Adjusted EBITDA:
Lithium	$	393,093	48.0	%	$	524,934	50.6	%	(25)	%
Bromine Specialties	323,605		39.5	%	328,457		31.7	%	(1)	%
Catalysts	130,134		15.9	%	270,624		26.1	%	(52)	%
All Other	84,821		10.4	%	49,628		4.8	%	71	%
Corporate	(112,915)		(13.8)	%	(136,862)		(13.2)	%	(17)	%
Total adjusted EBITDA	$	818,738	100.0	%	$	1,036,781	100.0	%	(21)	%


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):


	Lithium		Bromine Specialties		Catalysts		Reportable Segments Total		All Other		Corporate		Consolidated Total
2020
Net income (loss) attributable to Albemarle Corporation	$	277,711	$	274,495	$	80,149	$	632,355	$	76,323	$	(332,914)	$	375,764
Depreciation and amortization	112,854		50,310		49,985		213,149		8,498		10,337		231,984
Restructuring and other(a)	—		—		—		—		—		19,597		19,597
Acquisition and integration related costs(b)	—		—		—		—		—		17,263		17,263

Interest and financing expenses	—		—		—		—		—		73,116		73,116
Income tax expense	—		—		—		—		—		54,425		54,425

Non-operating pension and OPEB items	—		—		—		—		—		40,668		40,668
Other(c)	2,528		(1,200)		—		1,328		—		4,593		5,921
Adjusted EBITDA	$	393,093	$	323,605	$	130,134	$	846,832	$	84,821	$	(112,915)	$	818,738
2019
Net income (loss) attributable to Albemarle Corporation	$	341,767	$	279,945	$	219,686	$	841,398	$	41,188	$	(349,358)	$	533,228
Depreciation and amortization	99,424		47,611		50,144		197,179		8,440		7,865		213,484
Restructuring and other(a)	—		—		—		—		—		5,877		5,877
Gain on sale of property(d)	—		—		—		—		—		(14,411)		(14,411)
Acquisition and integration related costs(b)	—		—		—		—		—		20,684		20,684
Interest and financing expenses(e)	—		—		—		—		—		57,695		57,695
Income tax expense	—		—		—		—		—		88,161		88,161

Non-operating pension and OPEB items	—		—		—		—		—		26,970		26,970
Stamp duty(f)	64,766		—		—		64,766		—		—		64,766
Windfield tax settlement(g)	17,292		—		—		17,292		—		—		17,292
Other(h)	1,685		901		794		3,380		—		19,655		23,035
Adjusted EBITDA	$	524,934	$	328,457	$	270,624	$	1,124,015	$	49,628	$	(136,862)	$	1,036,781

(a)In 2020, we recorded severance expenses as part of business reorganization plans, impacting each of our businesses and Corporate, primarily in the U.S., Belgium, Germany and with our Jordanian joint venture partner. During the year ended December 31, 2020, we recorded severance expenses of $0.7 million in Cost of goods sold, $19.2 million in SG&A and a $0.3 million gain in Net income attributable to noncontrolling interests for the portion of severance expense allocated to our Jordanian joint venture partner. The balance of unpaid severance is recorded in Accrued expenses and is primarily expected to be paid through 2021. In addition, we recorded severance payments as part of a business reorganization plans of $5.9 million recorded in Selling, general and administrative expenses for the year ended December 31, 2019.

(b)Costs related to the acquisition, integration and potential divestitures for various significant projects, including the acquisition of the Wodgina Project in 2019. These costs were primarily recorded in SG&A.

(c)Included amounts for the year ended December 31, 2020 recorded in:

Cost of goods sold - $1.3 million of expense related to a legal matter as part of a prior acquisition in our Lithium business.
SG&A - $3.1 million of shortfall contributions for our multiemployer plan financial improvement plan and $3.8 million of a net expense primarily relating to the increase of environmental reserves at non-operating businesses we have previously divested.
Other expenses, net - $7.2 million gain related to the sale of our ownership percentage in the SOCC joint venture, $3.6 million of a net gain primarily relating to the sale of intangible assets in our Bromine business and property in Germany not used as part of our operations and a $2.5 million net gain resulting from the settlement of legal matters related to a business sold or a site in the process of being sold, partially offset by $9.6 million of losses resulting from the adjustment of indemnifications related to previously disposed businesses and $1.2 million of expenses related to other costs outside of our regular operations.

(d)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.

(e)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.


Albemarle Corporation and Subsidiaries

(f)See “Selling, general and administrative expenses” on page 40 for a description of these costs.

(g)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).

(h)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.
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 uncollectible 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.

Lithium


In thousands	2020		2019		$ Change		% Change
Net sales	$	1,144,778	$	1,358,170	$	(213,392)	(16)	%
•$208.7 million of unfavorable pricing impacts, primarily in battery- and tech-grade carbonate and hydroxide due to lower contract pricing reflecting 2020 price adjustments agreed to with customers •$1.9 million in lower sales volume, primarily in battery-grade carbonate due to higher inventory levels at certain customers and current economic conditions, partially offset by higher battery- and tech-grade hydroxide sales volume •$2.3 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies
Adjusted EBITDA	$	393,093	$	524,934	$	(131,841)	(25)	%
•Unfavorable pricing impacts and lower sales volume •Lower equity in net income of unconsolidated investments from the Talison joint venture •Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company’s previously announced cost savings initiative •Lower commission expenses in Chile resulting from the lower pricing •$7.0 million of favorable currency translation resulting from a weaker Chilean Peso

Bromine Specialties


In thousands	2020		2019		$ Change		% Change
Net sales	$	964,962	$	1,004,216	$	(39,254)	(4)	%
•$54.9 million of lower sales volume related to lower demand resulting from the COVID-19 pandemic •$12.8 million of favorable pricing impacts in each bromine division •$2.6 million of favorable currency translation resulting from the weaker U.S. Dollar against various currencies
Adjusted EBITDA	$	323,605	$	328,457	$	(4,852)	(1)	%
•Lower sales volume, partially offset by favorable pricing impacts and product mix •Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company’s previously announced cost savings initiative •$1.1 million of favorable currency translation resulting from the weaker U.S. Dollar against various currencies


Albemarle Corporation and Subsidiaries

Catalysts


In thousands	2020		2019		$ Change		% Change
Net sales	$	797,914	$	1,061,817	$	(263,903)	(25)	%
•$255.4 million of lower sales volume, primarily from lower fuel demand due to stay at home orders and travel restrictions worldwide related to COVID-19 pandemic •$12.7 million of unfavorable pricing impacts, primarily in FCC •$4.1 million of favorable currency translation resulting from the weaker U.S. Dollar against various currencies
Adjusted EBITDA	$	130,134	$	270,624	$	(140,490)	(52)	%
•Lower sales volume resulting from lower fuel demand and unfavorable pricing impacts •Increased freight costs •Partially offset by productivity improvements and a reduction in professional fees and other administrative costs, including those resulting from the Company’s previously announced cost savings initiative •$2.5 million of unfavorable currency translation resulting from the strong U.S. Dollar against various currencies

All Other


In thousands	2020		2019		$ Change		% Change
Net sales	$	221,255	$	165,224	$	56,031	34	%
•Higher sales volume in our FCS business
Adjusted EBITDA	$	84,821	$	49,628	$	35,193	71	%
•Higher sales volume in our FCS business

Corporate


In thousands	2020		2019		$ Change		% Change
Adjusted EBITDA	$	(112,915)	$	(136,862)	$	23,947	(17)	%
•Lower professional fees and other administrative costs resulting from our previously announced cost savings initiative •$16.2 million of favorable currency translation, primarily driven by foreign currency gains from our Talison joint venture

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. The present value of the projected net cash flows represents the preliminary fair value assigned to mineral reserves. The


Albemarle Corporation and Subsidiaries

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 for all reporting units include assumptions about revenue growth rates, adjusted EBITDA margins, discount rate as well as other economic or industry-related factors. For the Refining Solutions reporting unit, the revenue growth rates, adjusted EBITDA margins and the discount rate were deemed to be significant assumptions. 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, 2020 and did not note any impairment indicators. As a result, the Company concluded there was no impairment as of that date.

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 the declaration of proven and probable resources are generally expensed as incurred. After proven and probable resources are declared, exploration, evaluation and development costs necessary to bring the property to commercial capacity or increase the capacity or useful life are capitalized. Any costs to maintain the production capacity in a property under production are expensed as incurred.


Albemarle Corporation and Subsidiaries

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 2020, 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 2020, 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, 2020 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, 2020, the weighted-average discount rate for the U.S. and foreign pension plans decreased to 2.50% and 0.86%, respectively, from 3.56% and 1.33%, respectively, at December 31, 2019 to reflect market conditions as of the December 31, 2020 measurement date. The discount rate for the OPEB plans at December 31, 2020 and 2019 was 2.49% and 3.53%, 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 2020 and 2019, the weighted-average expected rate of return on U.S. pension plan assets was 6.88%, and the weighted-average expected rate of return on foreign pension plan assets was 4.07% and 5.51%, respectively. Effective January 1, 2021, the weighted-average expected rate of return on U.S. and foreign pension plan assets is 6.88% and 4.12%, respectively.

In projecting the rate of compensation increase, we consider past experience in light of movements in inflation rates. At December 31, 2020 and 2019, the assumed weighted-average rate of compensation increase was 3.82% and 3.72%, respectively, for our foreign pension plans.


Albemarle Corporation and Subsidiaries

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. In October 2020, the SOA published an updated Improvement Scale, MP-2020, which was used for the purpose of measuring our U.S. pension and OPEB obligations at December 31, 2020.

At December 31, 2020, 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% Increase				1% Decrease
	Increase (Decrease) in Benefit Obligation		Increase (Decrease) in Benefit Cost		Increase (Decrease) in Benefit Obligation		Increase (Decrease) in Benefit Cost
Actuarial Assumptions
Discount Rate:
Pension	$	(118,547)	$	6,117	$	144,048	$	(8,115)
Other postretirement benefits	$	(5,175)	$	303	$	6,257	$	(387)
Expected return on plan assets:
Pension	*		$	(6,665)	*		$	6,665
Other postretirement benefits	*		$	—	*		$	—

Not applicable.

Of the $683.5 million total pension and postretirement assets at December 31, 2020, $78.8 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.

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.


Albemarle Corporation and Subsidiaries

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 2017. 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 2019 related to Germany, Italy, 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 $0.5 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.

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, payables 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 $746.7 million at December 31, 2020 as compared to $613.1 million at December 31, 2019. Cash provided by operating activities was $798.9 million, $719.4 million and $546.2 million during the years ended December 31, 2020, 2019 and 2018, respectively.

The increase in cash provided by operating activities in 2020 versus 2019 was primarily due to lower working capital outflow, including inventory reductions and the timing of receivable collections, as well as the previously announced Company-wide cost savings initiative and increased dividends from unconsolidated investments, which more than offset lower revenues in each of our reportable segments. The working capital outflow in 2020 also included the payment of $61.5 million related to stamp duties in Australia levied on the assets purchased as part of the acquisition of the Wodgina Project completed in 2019. 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.

During 2020, cash on hand, cash provided by operations and proceeds from borrowings of $200 million from one of our credit facilities funded $850.5 million of capital expenditures for plant, machinery and equipment, dividends to shareholders of $161.8 million, and pension and postretirement contributions of $16.4 million. In addition, during 2020 we received $11.0


Albemarle Corporation and Subsidiaries

million in proceeds from the sale of our ownership interest in the SOCC joint venture during and paid $22.6 million of agreed upon purchase price adjustments for the Wodgina Project acquisition. During 2019, cash on hand, cash provided by operations and proceeds from borrowings of $1.60 billion funded the Wodgina Project acquisition discussed below, $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. In addition, during the years ended December 31, 2020, 2019 and 2018, our consolidated joint venture, JBC, paid dividends of approximately $63.7 million, $224.9 million and $40.0 million, respectively, which resulted in dividends to noncontrolling interests of $32.1 million, $83.2 million and $14.8 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 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. In addition, during the year ended December 31, 2020, we paid $22.6 million of agreed upon purchase price adjustments. 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.

Capital expenditures were $850.5 million, $851.8 million and $700.0 million for the years ended December 31, 2020, 2019 and 2018, respectively, and were incurred mainly for plant, machinery and equipment, and mining resource development. We expect our capital expenditures to be between $850 million and $950 million in 2021 primarily for Lithium growth and capacity increases, primarily in Australia, Chile and Silver Peak, Nevada, as well as productivity and continuity of operations projects in all segments. We currently expect the construction of the Kemerton, Australia and La Negra, Chile plants to be completed by the end of 2021, with sales volume from these plants beginning in 2022.

During the years ended December 31, 2020, 2019 and 2018, we incurred $17.3 million, $20.7 million and $19.4 million of costs related to the acquisition, integration and potential divestitures for various significant projects, including the acquisition of the Wodgina Project in 2019, which primarily consisted of professional services and advisory fees.

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 of our common stock during 2018, 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 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 2020 or 2019. At December 31, 2020, there were 7,396,263 remaining shares available for repurchase under the Company’s authorized share repurchase program.

Net current assets decreased to approximately $404.3 million at December 31, 2020 from $816.1 million at December 31, 2019. The decrease is primarily due to the reclassification of $480 million of senior notes due to mature in December 2021 from Long-term debt to Current portion of long-term debt. This is partially offset by the increase in Cash and cash equivalents. 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


Albemarle Corporation and Subsidiaries

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, 2020 and 2019, our cash and cash equivalents included $492.8 million and $565.6 million, respectively, held by our foreign subsidiaries. The majority of these foreign cash balances are associated with earnings that we have asserted are indefinitely reinvested and which we plan to use to support our continued growth plans outside the U.S. through funding of capital expenditures, acquisitions, research, operating expenses or other similar cash needs of our foreign operations. From time to time, we repatriate cash associated with earnings from our foreign subsidiaries to the U.S. for normal operating needs through intercompany dividends, but only from subsidiaries whose earnings we have not asserted to be indefinitely reinvested or whose earnings qualify as “previously taxed income” as defined by the Internal Revenue Code. For the years ended December 31, 2020, 2019 and 2018, we repatriated approximately $1.8 million, $351.9 million and $621.8 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/Year	Principal (in millions)	Interest Rate	Interest Payment Dates	Maturity Date
November 2019	€500.0	1.125%	November 25	November 25, 2025
November 2019	€500.0	1.625%	November 25	November 25, 2028
November 2019(a)	$300.0	3.45%	May 15 and November 15	November 15, 2029
November 2019(b)	$200.0	Floating Rate	February 15, May 15, August 15 and November 15	November 15, 2022
December 2014(a)	€393.0	1.875%	December 8	December 8, 2021
November 2014(a)	$425.0	4.15%	June 1 and December 1	December 1, 2024
November 2014(a)	$350.0	5.45%	June 1 and December 1	December 1, 2044

(a) Denotes senior notes.

(b) Borrowings bear interest at a floating rate based on the 3-month LIBOR plus 105 basis points. The floating interest rate for the current interest period is 1.271%, with the interest rate reset on each interest payment date.

Our senior notes and the floating rate note are senior unsecured obligations and rank equally with all our other senior unsecured indebtedness from time to time outstanding. The notes are effectively subordinated to any of our existing or future secured indebtedness and to the existing and future indebtedness of our subsidiaries. As is customary for such long-term debt instruments, each of these notes outstanding has terms that allow us to redeem the notes before its maturity, in whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of these notes to be redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis using the comparable government rate (as defined in the indentures governing these notes) plus between 25 and 40 basis points, depending on the note, plus, in each case, accrued interest thereon to the date of redemption. Holders may require us to purchase such notes at 101% upon a change of control triggering event, as defined in the indentures. These notes are subject to typical events of default, including bankruptcy and insolvency events, nonpayment and the acceleration of certain subsidiary indebtedness of $40 million or more caused by a nonpayment default.

Our Euro notes issued in 2019 are unsecured and unsubordinated obligations and rank equally in right of payment to all our other unsecured senior obligations. As is customary for such long-term debt instruments, each of these notes outstanding has terms that allow us to redeem the notes before their 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


Albemarle Corporation and Subsidiaries

the indentures governing these notes) plus between 25 and 35 basis points, depending on the note, plus, in each case, accrued and unpaid interest on the principal amount being redeemed to, but excluding, the date of redemption. Holders may require us to purchase such notes at 101% upon a change of control triggering event, as defined in the indentures. These notes are subject to typical events of default, including bankruptcy and insolvency events, nonpayment and the acceleration of certain subsidiary indebtedness exceeding $100 million caused by a nonpayment default.

Our 2018 Credit Agreement currently provides for borrowings of up to $1.0 billion and matures on August 9, 2024. Borrowings under the 2018 Credit Agreement bear interest at variable rates based on an average LIBOR for deposits in the relevant currency plus an applicable margin which ranges from 0.910% to 1.500%, depending on the Company’s credit rating from Standard & Poor’s Ratings Services LLC (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Inc. (“Fitch”). The applicable margin on the facility was 1.325% as of December 31, 2020. There were no borrowings outstanding under the 2018 Credit Agreement as of December 31, 2020.

On August 14, 2019, the Company entered into our 2019 Credit Facility with several banks and other financial institutions, which was amended and restated on December 15, 2020. The lenders’ commitment to provide new loans under the amended 2019 Credit Facility terminates on December 10, 2021, with each such loan maturing one year after the funding of such loan. The Company can request that the maturity date of loans be extended for a period of up to four additional years, but any such extension is subject to the approval of the lenders. Borrowings under the amended 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 1.125% to 1.750%, depending on the Company’s credit rating from S&P, Moody’s and Fitch. The applicable margin on the credit facility was 1.500% as of December 31, 2020. In October 2019, we borrowed $1.0 billion under this credit facility to fund the cash portion of the October 31, 2019 acquisition of a 60% interest in 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). In April 2020, the Company borrowed $200.0 million under the 2019 Credit Facility, which remained outstanding as of December 31, 2020 and maturing in April 2023, to be used for general corporate purposes. As part of the December 2020 amendment, the Company is permitted up to two additional borrowings in an aggregate amount equal to $500 million for general corporate purposes.

Borrowings under the Credit Agreements are conditioned upon satisfaction of certain conditions precedent, including the absence of defaults. The Company is subject to one financial covenant, as well as customary affirmative and negative covenants. The financial covenant initially required that the Company’s consolidated funded debt to consolidated EBITDA ratio (as such terms are defined in the Credit Agreements) to be less than or equal to 3.50:1, subject to adjustments in accordance with the terms of the Credit Agreements relating to a consummation of an acquisition where the consideration includes cash proceeds from issuance of funded debt in excess of $500 million. As a result of the uncertainty of the overall financial impact of the COVID-19 pandemic, the Company amended the Credit Agreements on May 11, 2020 to modify its financial covenant based on the Company’s current expectations. The amendment effects changes to certain provisions of the Credit Agreements, including: (a) conversion of the consolidated funded debt to consolidated EBITDA ratio to a consolidated net funded debt to consolidated EBITDA ratio; (b) carving-out third party sales of accounts receivables from the Securitization Transaction definition; (c) setting the consolidated net funded debt to consolidated EBITDA ratio to 4.00:1 for the fiscal quarter ending June 30, 2020, 4.50:1 for the fiscal quarters through September 30, 2021, 4.00:1 for the fiscal quarter ending December 31, 2021, and 3:50:1 for fiscal quarters thereafter; and (d) reducing the priority debt basket to 24% of Consolidated Net Tangible Assets, as defined in the Credit Agreements, through and including December 31, 2021. As part of this amendment, the Company has agreed to pay a 10 basis point fee on the consenting lenders commitments under the Credit Agreements. The Credit Agreements also contain customary default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-performance of covenants and cross-defaults to other material indebtedness. The occurrence of an event of default under the Credit Agreements could result in all loans and other obligations becoming immediately due and payable and the credit facility being terminated. If conditions caused by the COVID-19 pandemic worsen and the Company’s earnings and cash flow from operations do not start to recover as contemplated in the Company's current plans, the Company may not be able to maintain compliance with its amended financial covenant and it will require the Company to seek additional amendments to the Credit Agreements. If the Company is not able to obtain such necessary additional amendments, that would lead to an event of default and its lenders could require the Company to repay its outstanding debt. In that situation, the Company may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders. Certain representations, warranties and covenants under the 2018 Credit Agreement were conformed to those under the 2019 Credit Facility following an amendment entered into on August 14, 2019.

On May 29, 2013, we entered into agreements to initiate a commercial paper program on a private placement basis under which we may issue unsecured commercial paper notes (the “Commercial Paper Notes”) from time-to-time up to a maximum aggregate principal amount outstanding at any time of $750.0 million. The proceeds from the issuance of the Commercial Paper


Albemarle Corporation and Subsidiaries

Notes are expected to be used for general corporate purposes, including the repayment of other debt of the Company. The Credit Agreements are available to repay the Commercial Paper Notes, if necessary. Aggregate borrowings outstanding under the Credit Agreements and the Commercial Paper Notes will not exceed the $1.0 billion current maximum amount available under the Credit Agreements. The Commercial Paper Notes will be sold at a discount from par, or alternatively, will be sold at par and bear interest at rates that will vary based upon market conditions at the time of issuance. The maturities of the Commercial Paper Notes will vary but may not exceed 397 days from the date of issue. The definitive documents relating to the commercial paper program contain customary representations, warranties, default and indemnification provisions. At December 31, 2020, we had $325.0 million of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately 0.51% and a weighted-average maturity of 16 days. The Commercial Paper Notes are classified as Current portion of long-term debt in our consolidated balance sheets at December 31, 2020 and 2019.

The non-current portion of our long-term debt amounted to $2.77 billion at December 31, 2020, compared to $2.86 billion at December 31, 2019. In addition, at December 31, 2020, we had the ability to borrow $1.18 billion under our commercial paper program and the Credit Agreements, and $195.9 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, 2020 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 $93.1 million at December 31, 2020. 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.

Liquidity Outlook

We anticipate that cash on hand and cash provided by operating activities, divestitures and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations, fund any capital expenditures and share repurchases, make acquisitions, make pension contributions and pay dividends for the foreseeable future. Our main focus during the uncertainty surrounding the COVID-19 pandemic is to continue to maintain financial flexibility by continuing our cost savings initiative, while still protecting our employees and customers, committing to shareholder returns and maintaining an investment grade rating. Over the next three years, in terms of uses of cash, we will continue to invest in growth of the businesses and return value to shareholders. Additionally, we will continue to evaluate the merits of any opportunities that may arise for acquisitions of businesses or assets, which may require additional liquidity. As previously announced, we are pursuing opportunities to divest our PCS and fine chemistry services businesses.

On February 8, 2021, we completed an underwritten public offering of 8,496,773 shares of our common stock, par value $0.01 per share, at a price to the public of $153.00 per share. The Company also granted to the Underwriters an option to purchase up to an additional 1,274,509 shares for a period of 30 days, which was exercised. The total gross proceeds from this offering were approximately $1.5 billion, before deducting expenses, underwriting discounts and commissions. We intend to use the net proceeds of the offering primarily to fund growth capital expenditures, such as the construction and expansion of lithium operations in Australia, Chile and Silver Peak, Nevada, and opportunities in China. We also intend to use the net proceeds for debt repayment in the short term and other general corporate purposes.

Overall, with generally strong cash-generative businesses and no significant long-term debt maturities before December 2021, we believe we have, and will be able to maintain, a solid liquidity position. Our annual maturities of long-term debt as of December 31, 2020 are as follows (in millions): 2021—$804.7; 2022—$200.0; 2023—$223.9; 2024—$425.0; 2025—$610.8; thereafter—$1,328.0. Obligations in 2021 include the 1.875% Senior Notes of €393.0 million and our outstanding Commercial Paper Notes of $325.0 million with a weighted average maturity of 16 days. In addition, we expect to make interest payments on those long-term debt obligations as follows (in millions): 2021—$77.9; 2022—$68.9; 2023—$64.7; 2024—$62.4; 2025—$45.7; thereafter—$431.9. For variable-rate debt obligations, projected interest payments are calculated using the December 31, 2020 weighted average interest rate of approximately 0.87%.

In addition, we expect our capital expenditures to be between $850 million and $950 million in 2021, primarily for Lithium growth and capacity increases in Australia, Chile and Silver Peak, Nevada, as well as productivity and continuity of operations projects in all segments. We currently expect the construction of the Kemerton, Australia and La Negra, Chile plants to be completed by the end of 2021, with sales volume from these plants beginning in 2022. As of December 31, 2020, we have


Albemarle Corporation and Subsidiaries

also committed to approximately $100.9 million of payments to third-party vendors in the normal course of business to secure raw materials for our production processes, with approximately $68.5 million to be paid in 2021. 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.

See Note 18, “Leases,” to our consolidated financial statements included in Part II, Item 8 of this report for our annual expected payments under our operating lease obligations at December 31, 2020.

In 2021, we expect to pay $28.4 million of the $301.4 million balance remaining from the transition tax on foreign earnings as a result of the Tax Cuts and Jobs Act (“TCJA”) signed into law in December 2017. 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 and is payable over an eight-year period, with the final payment made in 2026.

Contributions to our domestic and foreign qualified and nonqualified pension plans, including our supplemental executive retirement plan, are expected to approximate $27 million in 2021. We may choose to make additional pension contributions in excess of this amount. We made contributions of approximately $13.3 million to our domestic and foreign pension plans (both qualified and nonqualified) during the year ended December 31, 2020.

The liability related to uncertain tax positions, including interest and penalties, recorded in Other noncurrent liabilities totaled $14.7 million and $21.2 million at December 31, 2020 and 2019, respectively. Related assets for corresponding offsetting benefits recorded in Other assets totaled $24.1 million and $26.1 million at December 31, 2020 and 2019, 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.

Our cash flows from operations may be negatively affected by adverse consequences to our customers and the markets in which we compete as a result of moderating global economic conditions and reduced capital availability. The COVID-19 pandemic has not had a material impact on our liquidity to date; however, we cannot predict the overall impact in terms of cash flow generation as that will depend on the length and severity of the outbreak. As a result, we are planning for various economic scenarios and actively monitoring our balance sheet to maintain the financial flexibility needed.

Although we maintain business relationships with a diverse group of financial institutions as sources of financing, an adverse change in their credit standing could lead them to not honor their contractual credit commitments to us, decline funding under our existing but uncommitted lines of credit with them, not renew their extensions of credit or not provide new financing to us. While the global corporate bond and bank loan markets remain strong, periods of elevated uncertainty related to the COVID-19 pandemic or global economic and/or geopolitical concerns may limit efficient access to such markets for extended periods of time. If such concerns heighten, we may incur increased borrowing costs and reduced credit capacity as our various credit facilities mature. If the U.S. Federal Reserve or similar national reserve banks in other countries decide to tighten the monetary supply in response, for example, to improving economic conditions, we may incur increased borrowing costs (as interest rates increase on our variable rate credit facilities, as our various credit facilities mature or as we refinance any maturing fixed rate debt obligations), although these cost increases would be partially offset by increased income rates on portions of our cash deposits.

As first 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 $746.7 million as of December 31, 2020, of which $492.8 million is held by our foreign subsidiaries. This cash represents an important source of our liquidity and is invested in bank accounts or money


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.

Guarantor Financial Information

Albemarle Wodgina Pty. Ltd. (the “Issuer”), a wholly owned subsidiary of Albemarle Corporation, issued $300.0 million aggregate principal amount of 3.45% Senior Notes due 2029 (the “3.45% Senior Notes”) in November 2019. The 3.45% Senior Notes are fully and unconditionally guaranteed (the “Guarantee”) on a senior unsecured basis by Albemarle Corporation (the “Guarantor”). No direct or indirect subsidiaries of the Guarantor guarantee the 3.45% Senior Notes (such subsidiaries are referred to as the “Non-Guarantors”).

The Issuer owns the Guarantor’s proportionate share of assets, liabilities, revenue and expenses of the unincorporated joint venture for the exploration, development, mining, processing and production of lithium and other minerals (other than iron ore and tantalum) from the Wodgina spodumene mine (“MARBL”) and for the operation of the Kemerton assets in Western Australia (together, the “Wodgina Project”).

The Guarantor conducts its U.S. Bromine Specialties and Catalysts operations directly, and conducts its other operations (other than operations conducted through the Issuer) through the Non-Guarantors.

The 3.45% Senior Notes are the Issuer’s senior unsecured obligations and rank equally in right of payment to the senior indebtedness of the Issuer, effectively subordinated to all of the secured indebtedness of the Issuer, to the extent of the value of the assets securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of its subsidiaries. The Guarantee is the senior unsecured obligation of the Guarantor and ranks equally in right of payment to the senior indebtedness of the Guarantor, effectively subordinated to the secured debt of the Guarantor to the extent of the value of the assets securing the indebtedness and structurally subordinated to all indebtedness and other liabilities of its subsidiaries.

For cash management purposes, the Guarantor transfers cash among itself, the Issuer and the Non-Guarantors through intercompany financing arrangements, contributions or declaration of dividends between the respective parent and its subsidiaries. The transfer of cash under these activities facilitates the ability of the recipient to make specified third-party payments for principal and interest on the Issuer and/or the Guarantor’s outstanding debt, common stock dividends and common stock repurchases. There are no significant restrictions on the ability of the Issuer or the Guarantor to obtain funds from subsidiaries by dividend or loan.

The following tables present summarized financial information for the Guarantor and the Issuer on a combined basis after elimination of (i) intercompany transactions and balances among the Issuer and the Guarantor and (ii) equity in earnings from and investments in any subsidiary that is a Non-Guarantor. Each entity in the combined financial information follows the same accounting policies as described herein.

Summarized Statement of Operations


	Year ended December 31,
$ in thousands	2020
Net sales(a)	$	1,621,651
Gross profit	357,431
Loss before income taxes and equity in net income of unconsolidated investments(b)	(205,486)
Net loss attributable to the Guarantor and the Issuer	(222,097)

(a) Includes net sales to Non-Guarantors of $893.5 million for the year ended December 31, 2020.

(b) Includes intergroup expenses to Non-Guarantors of $132.7 million for the year ended December 31, 2020.


Albemarle Corporation and Subsidiaries

Summarized Balance Sheet


	At December 31,
$ in thousands	2020
Current assets(a)	$	1,194,278
Net property, plant and equipment	2,621,012
Other non-current assets	305,544

Current liabilities(b)	$	2,236,233
Long-term debt	1,321,413
Other non-current liabilities(c)	7,317,103

(a) Includes receivables from Non-Guarantors of $548.9 million at December 31, 2020.

(b) Includes current payables to Non-Guarantors of $975.0 million at December 31, 2020.

The 3.45% Senior Notes are structurally subordinated to the indebtedness and other liabilities of the Non-Guarantors. The Non-Guarantors are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the 3.45% Senior Notes or the Indenture under which the 3.45% Senior Notes were issued, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that the Guarantor has to receive any assets of any of the Non-Guarantors upon the liquidation or reorganization of any Non-Guarantor, and the consequent rights of holders of the 3.45% Senior Notes to realize proceeds from the sale of any of a Non-Guarantor’s assets, would be effectively subordinated to the claims of such Non-Guarantor’s creditors, including trade creditors and holders of preferred equity interests, if any, of such Non-Guarantor. Accordingly, in the event of a bankruptcy, liquidation or reorganization of any of the Non-Guarantors, the Non-Guarantors will pay the holders of their debts, holders of preferred equity interests, if any, and their trade creditors before they will be able to distribute any of their assets to the Guarantor.

The 3.45% Senior Notes are obligations of the Issuer. The Issuer’s cash flow and ability to make payments on the 3.45% Senior Notes could be dependent upon the earnings it derives from the production from MARBL for the Wodgina Project. Absent income received from sales of its share of production from MARBL, the Issuer’s ability to service the 3.45% Senior Notes could be dependent upon the earnings of the Guarantor’s subsidiaries and other joint ventures and the payment of those earnings to the Issuer in the form of equity, loans or advances and through repayment of loans or advances from the Issuer.

The Issuer’s obligations in respect of MARBL are guaranteed by the Guarantor. Further, under MARBL pursuant to a deed of cross security between the Issuer, the joint venture partner and the manager of the project (the “Manager”), each of the Issuer, and the joint venture partner have granted security to each other and the Manager for the obligations each of the Issuer and the joint venture partner have to each other and to the Manager. The claims of the joint venture partner, the Manager and other secured creditors of the Issuer will have priority as to the assets of the Issuer over the claims of holders of the 3.45% Senior Notes.

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


Albemarle Corporation and Subsidiaries

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 $44.9 million, $48.0 million and $42.9 million in 2020, 2019 and 2018, 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, 2020 totaled approximately $45.8 million, an increase of $3.2 million from $42.6 million at December 31, 2019. 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, 2020, 2019 and 2018.

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 $40.4 million, $44.4 million and $47.3 million in 2020, 2019 and 2018, 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.

Previous: Item 6. [Removed and Reserved] · Next: Item 7A. Quantitative and Qualitative Disclosures About Market Risk.