filings.toolsItem 8. Financial Statements and Supplementary Data.
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Item 8. Financial Statements and Supplementary Data.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with management’s and our directors’ authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria for effective internal control over financial reporting described in the Internal Control—Integrated Framework 2013 set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as of December 31, 2023, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal control. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
| /S/ J. KENT MASTERS | ||||||||
| J. Kent Masters | ||||||||
| Chairman, President and Chief Executive Officer | ||||||||
| (principal executive officer) | ||||||||
| February 14, 2024 |
| Albemarle Corporation and Subsidiaries | ||||||||
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Albemarle Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Albemarle Corporation and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
| Albemarle Corporation and Subsidiaries | ||||||||
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment – Refining Solutions Reporting Unit
As described in Notes 1 and 12 to the consolidated financial statements, the Company’s goodwill balance was $1,629.7 million as of December 31, 2023, and the goodwill associated with the Refining Solutions reporting unit was $172.6 million. Management tests the Company’s 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 the Company’s reporting units below their carrying amounts. Management performed the annual goodwill impairment test as of October 31, 2023 by comparing the estimated fair value of the reporting units to the related carrying value. Management estimates the fair value using a discounted cash flow model. For the Refining Solutions reporting unit, the revenue growth rates, adjusted EBITDA (earnings before interest and financing expenses, income tax expense, depreciation and amortization) margins, and the discount rate were deemed to be significant assumptions.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Refining Solutions reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Refining Solutions reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, adjusted EBITDA margins, and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Refining Solutions reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Refining Solutions reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model used by management; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, adjusted EBITDA margins, and the discount rate. Evaluating management’s assumptions related to revenue growth rates and adjusted EBITDA margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Refining Solutions reporting unit; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow model and (ii) the reasonableness of the discount rate assumption.
| /s/ PricewaterhouseCoopers LLP | ||
| Charlotte, North Carolina | ||
| February 14, 2024 |
We have served as the Company’s auditor since 1994.
| Albemarle Corporation and Subsidiaries | ||||||||
| CONSOLIDATED STATEMENTS OF INCOME |
| (In Thousands, Except Per Share Amounts) | |||||||||||||||||
| Year Ended December 31 | 2023 | 2022 | 2021 | ||||||||||||||
| Net sales | $ | 9,617,203 | $ | 7,320,104 | $ | 3,327,957 | |||||||||||
| Cost of goods sold(a) | 8,431,294 | 4,245,517 | 2,329,986 | ||||||||||||||
| Gross profit | 1,185,909 | 3,074,587 | 997,971 | ||||||||||||||
| Selling, general and administrative expenses | 919,493 | 524,145 | 441,482 | ||||||||||||||
| Research and development expenses | 85,725 | 71,981 | 54,026 | ||||||||||||||
| (Gain) loss on change in interest in properties/sale of business, net | (71,190) | 8,400 | (295,971) | ||||||||||||||
| Operating profit | 251,881 | 2,470,061 | 798,434 | ||||||||||||||
| Interest and financing expenses | (116,072) | (122,973) | (61,476) | ||||||||||||||
| Other income (expenses), net | 110,929 | 86,356 | (603,340) | ||||||||||||||
| Income before income taxes and equity in net income of unconsolidated investments | 246,738 | 2,433,444 | 133,618 | ||||||||||||||
| Income tax expense | 430,277 | 390,588 | 29,446 | ||||||||||||||
| Income before equity in net income of unconsolidated investments | (183,539) | 2,042,856 | 104,172 | ||||||||||||||
| Equity in net income of unconsolidated investments (net of tax) | 1,854,082 | 772,275 | 95,770 | ||||||||||||||
| Net income | 1,670,543 | 2,815,131 | 199,942 | ||||||||||||||
| Net income attributable to noncontrolling interests | (97,067) | (125,315) | (76,270) | ||||||||||||||
| Net income attributable to Albemarle Corporation | $ | 1,573,476 | $ | 2,689,816 | $ | 123,672 | |||||||||||
| Basic earnings per share | $ | 13.41 | $ | 22.97 | $ | 1.07 | |||||||||||
| Diluted earnings per share | $ | 13.36 | $ | 22.84 | $ | 1.06 | |||||||||||
| Weighted-average common shares outstanding—basic | 117,317 | 117,120 | 115,841 | ||||||||||||||
| Weighted-average common shares outstanding—diluted | 117,766 | 117,793 | 116,536 |
(a)Included purchases from related unconsolidated affiliates of $2.3 billion, $656.7 million and $156.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.
See accompanying notes to the consolidated financial statements.
| Albemarle Corporation and Subsidiaries | ||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (In Thousands) | |||||||||||||||||
| Year Ended December 31 | 2023 | 2022 | 2021 | ||||||||||||||
| Net income | $ | 1,670,543 | $ | 2,815,131 | $ | 199,942 | |||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
| Foreign currency translation and other | 26,403 | (171,295) | (74,385) | ||||||||||||||
| Net investment hedge | — | — | 5,110 | ||||||||||||||
| Cash flow hedge | 5,851 | (4,399) | 174 | ||||||||||||||
| Interest rate swap | — | 7,399 | 2,623 | ||||||||||||||
| Total other comprehensive income (loss), net of tax | 32,254 | (168,295) | (66,478) | ||||||||||||||
| Comprehensive income | 1,702,797 | 2,646,836 | 133,464 | ||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (97,185) | (125,232) | (76,110) | ||||||||||||||
| Comprehensive income attributable to Albemarle Corporation | $ | 1,605,612 | $ | 2,521,604 | $ | 57,354 |
See accompanying notes to the consolidated financial statements.
| Albemarle Corporation and Subsidiaries | ||||||||
| CONSOLIDATED BALANCE SHEETS |
| (In Thousands) | |||||||||||
| December 31 | 2023 | 2022 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 889,900 | $ | 1,499,142 | |||||||
| Trade accounts receivable, less allowance for doubtful accounts (2023—$2,808; 2022—$2,534) | 1,213,160 | 1,190,970 | |||||||||
| Other accounts receivable | 509,097 | 185,819 | |||||||||
| Inventories | 2,161,287 | 2,076,031 | |||||||||
| Other current assets | 443,475 | 234,955 | |||||||||
| Total current assets | 5,216,919 | 5,186,917 | |||||||||
| Property, plant and equipment, at cost | 12,233,757 | 9,354,330 | |||||||||
| Less accumulated depreciation and amortization | 2,738,553 | 2,391,333 | |||||||||
| Net property, plant and equipment | 9,495,204 | 6,962,997 | |||||||||
| Investments | 1,369,855 | 1,150,553 | |||||||||
| Other assets | 297,087 | 250,558 | |||||||||
| Goodwill | 1,629,729 | 1,617,627 | |||||||||
| Other intangibles, net of amortization | 261,858 | 287,870 | |||||||||
| Total assets | $ | 18,270,652 | $ | 15,456,522 | |||||||
| Liabilities and Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable to third parties | $ | 1,537,859 | $ | 1,533,624 | |||||||
| Accounts payable to related parties | 550,186 | 518,377 | |||||||||
| Accrued expenses | 544,835 | 505,894 | |||||||||
| Current portion of long-term debt | 625,761 | 2,128 | |||||||||
| Dividends payable | 46,666 | 46,116 | |||||||||
| Income taxes payable | 255,155 | 134,876 | |||||||||
| Total current liabilities | 3,560,462 | 2,741,015 | |||||||||
| Long-term debt | 3,541,002 | 3,214,972 | |||||||||
| Postretirement benefits | 26,247 | 32,751 | |||||||||
| Pension benefits | 150,312 | 159,571 | |||||||||
| Other noncurrent liabilities | 769,100 | 636,596 | |||||||||
| Deferred income taxes | 558,430 | 480,770 | |||||||||
| Commitments and contingencies (Note 17) | |||||||||||
| Equity: | |||||||||||
| Albemarle Corporation shareholders’ equity: | |||||||||||
| Common stock, $.01 par value (authorized 150,000 shares), issued and outstanding — 117,356 in 2023 and 117,168 in 2022 | 1,174 | 1,172 | |||||||||
| Additional paid-in capital | 2,952,517 | 2,940,840 | |||||||||
| Accumulated other comprehensive loss | (528,526) | (560,662) | |||||||||
| Retained earnings | 6,987,015 | 5,601,277 | |||||||||
| Total Albemarle Corporation shareholders’ equity | 9,412,180 | 7,982,627 | |||||||||
| Noncontrolling interests | 252,919 | 208,220 | |||||||||
| Total equity | 9,665,099 | 8,190,847 | |||||||||
| Total liabilities and equity | $ | 18,270,652 | $ | 15,456,522 |
See accompanying notes to the consolidated financial statements.
| Albemarle Corporation and Subsidiaries | ||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
| (In Thousands, Except Share Data) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total Albemarle Shareholders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amounts | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | 106,842,369 | $ | 1,069 | $ | 1,438,038 | $ | (326,132) | $ | 3,155,252 | $ | 4,268,227 | $ | 200,367 | $ | 4,468,594 | |||||||||||||||||||||||||||||||||||
| Net income | 123,672 | 123,672 | 76,270 | 199,942 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (66,318) | (66,318) | (160) | (66,478) | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared, $1.56 per common share | (182,385) | (182,385) | (96,136) | (278,521) | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 18,818 | 18,818 | 18,818 | |||||||||||||||||||||||||||||||||||||||||||||||
| Fees related to public issuance of common stock | (888) | (888) | (888) | |||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 302,151 | 3 | 18,389 | 18,392 | 18,392 | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | 9,919,755 | 99 | 1,453,789 | 1,453,888 | 1,453,888 | |||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for withholding taxes associated with common stock issuances | (48,942) | (1) | (8,139) | (8,140) | (8,140) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 117,015,333 | $ | 1,170 | $ | 2,920,007 | $ | (392,450) | $ | 3,096,539 | $ | 5,625,266 | $ | 180,341 | $ | 5,805,607 | |||||||||||||||||||||||||||||||||||
| Net income | 2,689,816 | 2,689,816 | 125,315 | 2,815,131 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (168,212) | (168,212) | (83) | (168,295) | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared, $1.58 per common share | (185,078) | (185,078) | (97,353) | (282,431) | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 31,390 | 31,390 | 31,390 | |||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 32,581 | 1 | 2,395 | 2,396 | 2,396 | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | 186,768 | 2 | 385 | 387 | 387 | |||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for withholding taxes associated with common stock issuances | (66,316) | (1) | (13,337) | (13,338) | (13,338) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 117,168,366 | $ | 1,172 | $ | 2,940,840 | $ | (560,662) | $ | 5,601,277 | $ | 7,982,627 | $ | 208,220 | $ | 8,190,847 | |||||||||||||||||||||||||||||||||||
| Net income | 1,573,476 | 1,573,476 | 97,067 | 1,670,543 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 32,136 | 32,136 | 118 | 32,254 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared, $1.60 per common share | (187,738) | (187,738) | (52,486) | (240,224) | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 38,957 | 38,957 | 38,957 | |||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 3,124 | — | 190 | 190 | 190 | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | 298,781 | 3 | (3) | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for withholding taxes associated with common stock issuances | (114,001) | (1) | (27,467) | (27,468) | (27,468) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 117,356,270 | $ | 1,174 | $ | 2,952,517 | $ | (528,526) | $ | 6,987,015 | $ | 9,412,180 | $ | 252,919 | $ | 9,665,099 |
See accompanying notes to the consolidated financial statements.
| Albemarle Corporation and Subsidiaries | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (In Thousands) | |||||||||||||||||
| Year Ended December 31 | 2023 | 2022 | 2021 | ||||||||||||||
| Cash and cash equivalents at beginning of year | $ | 1,499,142 | $ | 439,272 | $ | 746,724 | |||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | 1,670,543 | 2,815,131 | 199,942 | ||||||||||||||
| Adjustments to reconcile net income to cash flows from operating activities: | |||||||||||||||||
| Depreciation and amortization | 429,944 | 300,841 | 254,000 | ||||||||||||||
| (Gain) loss on change in interest in properties/sale of business, net | (71,190) | 8,400 | (295,971) | ||||||||||||||
| Inventory net realizable value adjustment | 604,099 | — | — | ||||||||||||||
| Stock-based compensation and other | 36,545 | 30,474 | 20,120 | ||||||||||||||
| Equity in net income of unconsolidated investments (net of tax) | (1,854,082) | (772,275) | (95,770) | ||||||||||||||
| Dividends received from unconsolidated investments and nonmarketable securities | 2,000,862 | 801,239 | 78,391 | ||||||||||||||
| Pension and postretirement benefit | (1,658) | (52,254) | (74,010) | ||||||||||||||
| Pension and postretirement contributions | (17,866) | (16,112) | (30,253) | ||||||||||||||
| Unrealized loss (gain) on investments in marketable securities | 39,864 | 3,279 | (3,818) | ||||||||||||||
| Loss on early extinguishment of debt | — | 19,219 | 28,955 | ||||||||||||||
| Deferred income taxes | 100,877 | 93,339 | (38,500) | ||||||||||||||
| Changes in current assets and liabilities, net of effects of acquisitions and divestitures: | |||||||||||||||||
| (Increase) in accounts receivable | (350,655) | (786,121) | (49,295) | ||||||||||||||
| (Increase) in inventories | (962,924) | (1,609,642) | (127,401) | ||||||||||||||
| (Increase) decrease in other current assets | (171,870) | (104,655) | 17,411 | ||||||||||||||
| (Decrease) increase in accounts payable to third parties | (315,220) | 816,194 | 126,563 | ||||||||||||||
| Increase in accounts payable to related parties | 31,809 | 470,878 | 17,376 | ||||||||||||||
| Increase (decrease) in accrued expenses and income taxes payable | 253,518 | (201,356) | 127,068 | ||||||||||||||
| Non-cash transfer of 40% value of construction in progress of Kemerton plant to MRL | 17,297 | 122,682 | 135,928 | ||||||||||||||
| Other, net | (114,572) | (31,412) | 53,521 | ||||||||||||||
| Net cash provided by operating activities | 1,325,321 | 1,907,849 | 344,257 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Acquisitions, net of cash acquired | (426,228) | (162,239) | — | ||||||||||||||
| Capital expenditures | (2,149,281) | (1,261,646) | (953,667) | ||||||||||||||
| Cash proceeds from divestitures, net | — | — | 289,791 | ||||||||||||||
| (Purchases) sales of marketable securities, net | (204,451) | 1,942 | 3,774 | ||||||||||||||
| Investments in equity investments and nonmarkertable securities | (1,200) | (706) | (6,488) | ||||||||||||||
| Net cash used in investing activities | (2,781,160) | (1,422,649) | (666,590) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from issuance of common stock | — | — | 1,453,888 | ||||||||||||||
| Proceeds from borrowings of long-term debt | 356,047 | 1,964,216 | — | ||||||||||||||
| Repayments of long-term debt and credit agreements | (28,862) | (705,000) | (1,173,823) | ||||||||||||||
| Other borrowings (repayments), net | 617,014 | (391,662) | 60,991 | ||||||||||||||
| Fees related to early extinguishment of debt | — | (9,767) | (24,877) | ||||||||||||||
| Dividends paid to shareholders | (187,188) | (184,429) | (177,853) | ||||||||||||||
| Dividends paid to noncontrolling interests | (105,631) | (44,208) | (96,136) | ||||||||||||||
| Proceeds from exercise of stock options | 190 | 2,783 | 18,392 | ||||||||||||||
| Withholding taxes paid on stock-based compensation award distributions | (27,468) | (13,338) | (8,140) | ||||||||||||||
| Other | (191) | (6,708) | (2,230) | ||||||||||||||
| Net cash provided by financing activities | 623,911 | 611,887 | 50,212 | ||||||||||||||
| Net effect of foreign exchange on cash and cash equivalents | 222,686 | (37,217) | (35,331) | ||||||||||||||
| (Decrease) increase in cash and cash equivalents | (609,242) | 1,059,870 | (307,452) | ||||||||||||||
| Cash and cash equivalents at end of year | $ | 889,900 | $ | 1,499,142 | $ | 439,272 |
See accompanying notes to the consolidated financial statements.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 1—Summary of Significant Accounting Policies:
Basis of Consolidation
The consolidated financial statements include the accounts and operations of Albemarle Corporation and our wholly owned, majority owned and controlled subsidiaries. Unless the context otherwise indicates, the terms “Albemarle,” “we,” “us,” “our” or “the Company” mean Albemarle Corporation and its consolidated subsidiaries. For entities that we control and are the primary beneficiary, but own less than 100%, we record the minority ownership as noncontrolling interest, except as noted below. We apply the equity method of accounting for investments in which we have an ownership interest from 20% to 50% or where we exercise significant influence over the related investee’s operations. In addition, the consolidated financial statements contained herein include our proportionate share of the results of operations of the MARBL Lithium Joint Venture (“MARBL”), which manages the exploration, development, mining, processing and production of lithium and other minerals from the Wodgina hard rock lithium mine project (“Wodgina”). As described in Note 10, “Investments,” the Company closed on the restructuring of the MARBL joint venture with Mineral Resources Limited (“MRL”) on October 18, 2023 to reduce our ownership interest in the MARBL joint venture to 50% from 60%. The consolidated financial statements reflect our ownership percentage of the MARBL joint venture during the periods presented. The joint venture is unincorporated with each investor holding an undivided interest in each asset and proportionately liable for each liability; therefore our proportionate share of assets, liabilities, revenue and expenses are included in the appropriate classifications in the consolidated financial statements. All significant intercompany accounts and transactions are eliminated in consolidation.
Estimates, Assumptions and Reclassifications
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) 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. Actual results could differ from those estimates.
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 are rare 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 are 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. Such costs are immaterial.
The Company currently utilizes the following practical expedients, as permitted by Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers:
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All sales and other pass-through taxes are excluded from contract value;
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In utilizing the modified retrospective transition method, no adjustment was necessary for contracts that did not cross over the reporting year;
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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;
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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
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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.
Certain products we produce are made to our customer’s specifications where such products have limited 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.
Included in Trade accounts receivable at December 31, 2023 and 2022 is approximately $1.2 billion and $1.0 billion, respectively, arising from contracts with customers. The remaining balance of Trade accounts receivable at December 31, 2023 and 2022 primarily includes value-added taxes collected from customers on behalf of various taxing authorities.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market investments with insignificant interest rate risks and no limitations on access.
Inventories
Inventories are stated at lower of cost and net realizable value with cost determined primarily on the first-in, first-out basis. Cost is determined on the weighted-average basis for a small portion of our inventories at foreign plants and our stores, supplies and other inventory. A portion of our domestic produced finished goods and raw materials are determined on the last-in, first-out basis.
The Company eliminates the balance of intra-entity profits on purchases of inventory from its equity method investments that remains unsold at the balance sheet in Inventories, specifically finished goods and equally reduces Equity in net income of unconsolidated investments (net of tax) on the consolidated statements of income. The intra-entity profit is recognized in Equity in net income of unconsolidated investments (net of tax) in the period that converted inventory is sold to a third-party customer. In the same period, the intra-entity profit is also recognized as higher Cost of goods sold on the consolidated statements of income.
Property, Plant and Equipment
Property, plant and equipment include costs of assets constructed, purchased or leased under a finance lease, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for normal repairs and maintenance are expensed as incurred. Costs associated with yearly planned major maintenance are generally deferred and amortized over 12 months or until the same major maintenance activities must be repeated, whichever is shorter. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income.
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
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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.
Leases
We determine if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As an implicit rate for most of our leases is not determinable, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The lease payments for the initial measurement of lease ROU assets and lease liabilities include fixed and variable payments based on an index or a rate. Variable lease payments that are not index or rate based are recorded as expenses when incurred. Our variable lease payments typically include real estate taxes, insurance costs and common-area maintenance. The operating lease ROU asset also includes any lease payments made, net of lease incentives. The lease term is the non-cancelable period of the lease, including any options to extend, purchase or terminate the lease when it is reasonably certain that we will exercise that option. We amortize the operating lease ROU assets on a straight-line basis over the period of the lease and the finance lease ROU assets on a straight-line basis over the shorter of their estimated useful lives or the lease terms. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term.
Additionally, we have made accounting policy elections such as exclusion of short-term leases (leases with a term of 12 months or less and which do not include a purchase option that we are reasonably certain to exercise) from the balance sheet presentation, use of portfolio approach in determination of discount rate and accounting for non-lease components in a contract as part of a single lease component for all asset classes, except specific mining operation equipment.
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.
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.
Investments
Investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s board of directors and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, we record our investments in equity-method investees in the consolidated balance sheets as Investments and our share of investees’ earnings or losses together with other-than-temporary impairments in value as Equity in net income of unconsolidated investments in the consolidated statements of income. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
Certain investments in equity securities and mutual fund investments are accounted for as trading equities and are marked-to-market on a periodic basis through the consolidated statements of income. Investments in joint ventures and nonmarketable securities of immaterial entities are estimated based upon the overall performance of the entity where financial results are not available on a timely basis.
Environmental Compliance and Remediation
Environmental compliance costs include the cost of purchasing and/or constructing assets to prevent, limit and/or control pollution or to monitor the environmental status at various locations. These costs are capitalized and depreciated based on estimated useful lives. Environmental compliance costs also include maintenance and operating costs with respect to pollution
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prevention and control facilities and other administrative costs. Such operating costs are expensed as incurred. Environmental remediation costs of facilities used in current operations are generally immaterial and are expensed as incurred. We accrue for environmental remediation costs and post-remediation costs that relate to existing conditions caused by past operations at facilities or off-plant disposal sites in the accounting period in which responsibility is established and when the related liability is considered probable and estimable. In developing these cost estimates, we evaluate currently available facts regarding each site, with consideration given to existing technology, presently enacted laws and regulations, prior experience in remediation of contaminated sites, the financial capability of other potentially responsible parties and other factors, subject to uncertainties inherent in the estimation process. If the amount and timing of the cash payments for a site are fixed or reliably determinable, the liability is discounted, if the calculated discount is material. Additionally, these estimates are reviewed periodically, with adjustments to the accruals recorded as necessary.
Research and Development Expenses
Our research and development expenses related to present and future products are expensed as incurred. These expenses consist primarily of personnel-related costs and other overheads, as well as outside service and consulting costs incurred for specific programs. Our U.S. facilities in Texas and Louisiana and our global facilities in the Netherlands, Germany, Belgium and Korea form the capability base for our contract research and custom manufacturing businesses. These business areas provide research and scale-up services primarily to innovative life science companies.
Goodwill and Other Intangible Assets
We account for goodwill and other intangibles acquired in a business combination in conformity with current accounting guidance that requires that goodwill and indefinite-lived intangible assets 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. In applying the goodwill impairment test, the Company initially performs a qualitative test (“Step 0”), where it first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting units and other entity and reporting unit specific events. If after assessing these qualitative factors, the Company determines it is “more-likely-than-not” that the fair value of the reporting unit is less than the carrying value, the Company performs a quantitative test (“Step 1”). During Step 1, the Company estimates the fair value using a discounted cash flow model. 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. The Company defines adjusted EBITDA as earnings before interest and financing expense, income tax expenses, depreciation and amortization, as adjusted on a consistent basis for certain non-operating, non-recurring or unusual items in a balanced manner and on a segment basis. 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. The Company uses a Weighted Average Cost of Capital (“WACC”) approach to determine our discount rate for goodwill recoverability testing. The 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 its control. The Company performs a sensitivity analysis by using a range of inputs to confirm the reasonableness of these estimates being used in the goodwill impairment analysis. The Company tests its 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 its reporting units below their carrying amounts.
The Company performed its annual goodwill impairment test as of October 31, 2023. The performance catalyst solutions (“PCS”) reporting unit, within the Ketjen segment, has experienced declining earnings from a changing market. During this annual impairment test, it was determined that it is expected to experience a continued decline in its foreseeable forecast, resulting in a fair value based on the present value future cash flows that was lower than its current carrying value. As a result, the Company recorded a $6.8 million impairment loss, representing the full value of goodwill associated with the PCS reporting unit. No evidence of impairment was noted for the other reporting units from the analysis. However, if the adjusted EBITDA or discount rate estimates for the Refining Solutions reporting unit negatively changed by 10%, the Refining Solutions fair value would be below its carrying value.
The Company assesses its 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
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impaired. The indefinite-lived intangible asset impairment standard allows the Company 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. During the year ended December 31, 2023, no evidence of impairment was noted from the analysis for the Company’s indefinite-lived intangible assets.
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 Energy Storage 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.”
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 other postretirement benefit (“OPEB”) plans equal to the plan’s funded status as of the measurement date. The primary assumptions are as follows:
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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.
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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.
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Rate of Compensation Increase—For salary-related plans, we project employees’ annual pay increases, which are used to project employees’ pension benefits at retirement.
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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 2023, 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.
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 2023, 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, 2023 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 on the 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 United Kingdom (“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.
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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 allocation of plan assets to these investments. In projecting the rate of compensation increase, we consider past experience in light of movements in inflation rates.
For the purpose of measuring our U.S. pension and OPEB obligations at December 31, 2023 and 2022, we used the Pri-2012 Mortality Tables along with the MP-2021 Mortality Improvement Scale, respectively, published by the SOA.
Stock-based Compensation Expense
The fair value of restricted stock awards, restricted stock unit awards and performance unit awards with a service condition are determined based on the number of shares or units granted and the quoted price of our common stock on the date of grant, and the fair value of stock options is determined using the Black-Scholes valuation model. The fair value of performance unit awards with a service condition and a market condition are estimated on the date of grant using a Monte Carlo simulation model. The fair value of these awards is determined after giving effect to estimated forfeitures. Such value is recognized as expense over the service period, which is generally the vesting period of the equity grant. To the extent restricted stock awards, restricted stock unit awards, performance unit awards and stock options are forfeited prior to vesting in excess of the estimated forfeiture rate, the corresponding previously recognized expense is reversed as an offset to operating expenses.
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. The Company’s deferred tax assets and liabilities are 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. The Company elected to not consider the estimated impact of potential future Corporate Alternative Minimum Tax liabilities for purposes of assessing valuation allowances on its deferred tax balances.
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. Under current accounting guidance for uncertain tax positions, interest and penalties related to income tax liabilities are included in Income tax expense on the consolidated statements of income.
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, or 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.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss comprises principally foreign currency translation adjustments, gains or losses on foreign currency cash flow hedges designated as effective hedging instruments, amounts related to the revaluation of our euro-denominated senior notes which were designated as a hedge of our net investment in foreign operations in 2014, a realized loss on a forward starting interest rate swap entered into in 2014 which was designated as a cash flow hedge, and deferred income taxes related to the aforementioned items.
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Foreign Currency Translation
The assets and liabilities of all foreign subsidiaries were prepared in their respective functional currencies and translated into U.S. Dollars based on the current exchange rate in effect at the balance sheet dates, while income and expenses were translated at average exchange rates for the periods presented. Translation adjustments are reflected as a separate component of equity.
Foreign exchange transaction and revaluation gains (losses) were $39.9 million, ($21.8) million and $0.1 million for the years ended December 31, 2023, 2022 and 2021, respectively, and are included in Other income (expenses), net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our consolidated statements of cash flows.
Derivative Financial Instruments
We manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies and through the use of foreign currency forward contracts from time to time, which generally expire within one year. The principal objective of such contracts is to minimize the financial impact of changes in foreign currency exchange rates. While these contracts are subject to fluctuations in value, such fluctuations are generally expected to be offset by changes in the value of the underlying foreign currency exposures being hedged. Gains or losses under foreign currency forward contracts that have been designated as an effective hedging instrument under ASC 815, Derivatives and Hedging will be recorded in Accumulated other comprehensive loss beginning on the date of designation. All other gains and losses on foreign currency forward contracts not designated as an effective hedging instrument are recognized currently in Other income (expenses), net, and generally do not have a significant impact on results of operations.
We may also enter into interest rate swaps, collars or similar instruments from time to time, with the objective of reducing interest rate volatility relating to our borrowing costs.
The counterparties to these contractual agreements are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties. We do not utilize financial instruments for trading or other speculative purposes. In the fourth quarter of 2019, we entered into a foreign currency forward contract to hedge the cash flow exposure of non-functional currency purchases during the construction of the Kemerton plant in Australia and designated it as an effective hedging instrument under ASC 815, Derivatives and Hedging. All other foreign currency forward contracts outstanding at December 31, 2023 and 2022 have not been designated as hedging instruments under ASC 815, Derivatives and Hedging.
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The guidance applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued additional accounting guidance which clarifies that certain optional expedients and exceptions apply to derivatives that are affected by the discounting transition. The guidance under both FASB issuances was originally effective March 12, 2020 through December 31, 2022. However, in December 2022, the FASB issued an update to defer the sunset date of this guidance to December 31, 2024. The Company currently does not expect this guidance to have a significant impact on its consolidated financial statements.
In October 2021, the FASB issued guidance on how to recognize and measure acquired contract assets and liabilities from revenue contracts in a business combination, which requires the acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers as if it had originated the contracts. This guidance is effective for financial statements issued for annual periods beginning after December 15, 2022, including interim periods within those annual periods. This guidance does not currently, nor is it expected to, have a significant impact on its consolidated financial statements.
In March 2022, the FASB issued accounting guidance that expands the Company’s abilities to hedge the benchmark interest rate risk of portfolios of financial assets or beneficial interests in a fair value hedge. This guidance expands the use of the portfolio layer method to allow multiple hedges of a single closed portfolio of assets using spot starting, forward starting, and amortizing-notional swaps. This also permits both prepayable and non-prepayable financial assets to be included in the closed portfolio of assets hedged in a portfolio layer hedge. In addition, this guidance requires that basis adjustments not be allocated to individual assets for active portfolio layer method hedges, but rather be maintained on the closed portfolio of assets
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as a whole. This guidance is effective for financial statements issued for annual periods beginning after December 15, 2022, including interim periods within those annual periods. This guidance does not currently, nor is it expected to, have a significant impact on its consolidated financial statements.
In March 2023, the FASB issued guidance requiring the Company to amortize leasehold improvements associated with common control leases over the asset’s useful life to the common control group regardless of the lease term. This guidance is effective for financial statements issued for annual periods beginning after December 15, 2023, including interim periods within those annual periods. The Company currently does not expect this guidance to have a significant impact on its consolidated financial statements.
In August 2023, the FASB issued guidance which will require a joint venture to recognize and initially measure its assets, including goodwill, and liabilities using a new basis of accounting upon formation. Initial measurement of a joint venture’s total net assets will be equal to the fair value of one hundred percent of the joint venture’s equity. In addition, a joint venture will be permitted to apply the measurement period guidance of ASC 805-10 if the initial accounting for the joint venture formation is incomplete by the end of the reporting period in which the formation occurs. This guidance is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. The Company currently does not expect this guidance to have a significant impact on its consolidated financial statements.
In November 2023, the FASB issued guidance to update qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively. The Company currently does not expect this guidance to have a significant impact on its consolidated financial statement disclosures.
In December 2023, the FASB issued guidance to require qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however, retrospective application is also permitted. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.
NOTE 2—Acquisitions:
Guangxi Tianyuan New Energy Materials Acquisition
On October 25, 2022, the Company completed the acquisition of all of the outstanding equity of Guangxi Tianyuan New Energy Materials Co., Ltd. (“Qinzhou”), for approximately $200 million in cash, which included the deferral of approximately $29 million. The full amount of the deferral, net of working capital adjustments, was paid in installments ending in July 2023. Qinzhou's operations include a lithium processing plant strategically positioned near the Port of Qinzhou in Guangxi, which began commercial production in the first half of 2022. The plant has designed annual conversion capacity of up to 25,000 metric tonnes of lithium carbonate equivalent (“LCE”) and is capable of producing battery-grade lithium carbonate and lithium hydroxide.
The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values at the acquisition closing date, which were based, in part, upon third-party appraisals for certain assets. The fair value of the assets and liabilities was primarily related to Property, plant and equipment of $106.6 million, Other intangibles of $16.3 million, net current liabilities of $5.5 million, and long-term liabilities of $7.1 million. The excess of the purchase price over the fair value of the net assets acquired was $76.8 million and was recorded as Goodwill.
The allocation of the purchase price was finalized in the third quarter of 2023. The fair value of the assets acquired and liabilities assumed was based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. The discount rate is a significant assumption used in the valuation model. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could be subject to possible impairment.
Goodwill arising from the acquisition was recorded within the Energy Storage segment and consists largely of anticipated synergies and economies of scale from the combined companies and overall strategic importance of the acquired businesses to Albemarle. The goodwill attributable to the acquisition will not be amortizable or deductible for tax purposes.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Acquisition, integration and potential divestiture related costs
Acquisition, integration and potential divestiture related costs for the years ended December 31, 2023, 2022 and 2021 of $26.8 million, $16.3 million and $12.7 million were included primarily in Selling, general and administrative expenses, respectively, on our consolidated statements of income. These include costs for the Qinzhou acquisitions noted above, as well as various other completed or potential acquisitions and divestitures.
NOTE 3—Divestitures:
On June 1, 2021, the Company completed the sale of its fine chemistry services (“FCS”) business to W. R. Grace & Co. (“Grace”) for proceeds of approximately $570 million, consisting of $300 million in cash and the issuance to Albemarle of preferred equity of a Grace subsidiary having an aggregate stated value of $270 million. The preferred equity can be redeemed at Grace’s option under certain conditions and began accruing payment-in-kind (“PIK”) dividends at an annual rate of 12% on June 1, 2023. This preferred equity can be redeemed by Albemarle when the accumulated balance reaches 200% of its original value. The balance of this preferred equity is reported in Investments in the consolidated balance sheets.
As part of the transaction, Grace acquired our manufacturing facilities located in South Haven, Michigan and Tyrone, Pennsylvania. The sale of the FCS business reflects the Company’s commitment to investing in its core, growth-oriented business segments. During the year ended December 31, 2021 we recorded a gain of $428.4 million ($330.9 million after taxes) related to the sale of this business.
The results of operations of the business classified as held for sale are included in the consolidated statements of income through June 1, 2021. This business did not qualify for discontinued operations treatment because the Company’s management does not consider the sale as representing a strategic shift that had or will have a major effect on the Company’s operations and financial results.
NOTE 4—Supplemental Cash Flow Information:
Supplemental information related to the consolidated statements of cash flows is as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash paid during the year for: | |||||||||||||||||
| Income taxes (net of refunds of $31,386, $11,564 and $32,677 in 2023, 2022 and 2021, respectively) | $ | 319,391 | $ | 248,143 | $ | 130,840 | |||||||||||
| Interest (net of capitalization) | $ | 101,978 | $ | 92,095 | $ | 27,734 | |||||||||||
| Supplemental non-cash disclosures related to investing and financing activities: | |||||||||||||||||
| Capital expenditures included in Accounts payable | $ | 494,029 | $ | 296,294 | $ | 165,677 | |||||||||||
| Promissory note issued for capital expenditures(a) | $ | — | $ | 10,876 | $ | — | |||||||||||
| Non-cash proceeds from divestitures(b) | $ | — | $ | — | $ | 244,530 |
(a) During the first quarter of 2022, the Company issued a promissory note with a present value of $10.9 million for land purchased in Kings Mountain, North Carolina. The promissory note is payable in equal annual installments from the years 2027 to 2048.
(b) Fair value of preferred equity of a Grace subsidiary received as part of proceeds for the sale of our FCS business. See Note 3, “Divestitures,” for further details.
As part of the purchase price paid for the acquisition of a 60% interest in Wodgina in 2019, the Company transferred $17.3 million, $122.7 million and $135.9 million of its construction in progress of the designated Kemerton assets during the years ended December 31, 2023, 2022 and 2021, respectively, representing MRL’s 40% interest in the assets at the time of transfer. Since the acquisition, the Company has transferred the full $480 million of construction in progress to MRL, as defined in the original purchase agreement. In addition, during the years ended December 31, 2022 and 2021, the Company recorded expenses of $8.4 million and $132.4 million, respectively, related to cost overruns of the designated Kemerton assets. The cash outflow for these assets was recorded in Capital expenditures within Cash flows from investing activities on the condensed consolidated statements of cash flows. The non-cash transfer of these assets is recorded in Non-cash transfer of 40% value of construction in progress of the Kemerton plant to MRL within Cash flows from operating activities on the consolidated statements of cash flows.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Other, net within Cash flows from operating activities on the consolidated statements of cash flows for the years ended December 31, 2023, 2022 and 2021 included $64.4 million, $41.8 million and $28.7 million, respectively, representing the reclassification of the current portion of the one-time transition tax resulting from the enactment of the Tax Cuts and Jobs Act (“TCJA”) in 2017, from Other noncurrent liabilities to Income taxes payable within current liabilities. For additional information, see Note 21, “Income Taxes.” In addition, included in Other, net for the years ended December 31, 2023, 2022 and 2021 is $39.9 million, ($21.8) million and $0.1 million, respectively, related to gains (losses) on fluctuations in foreign currency exchange rates.
NOTE 5—Earnings Per Share:
Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Basic earnings per share | |||||||||||||||||
| Numerator: | |||||||||||||||||
| Net income attributable to Albemarle Corporation | $ | 1,573,476 | $ | 2,689,816 | $ | 123,672 | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted-average common shares for basic earnings per share | 117,317 | 117,120 | 115,841 | ||||||||||||||
| Basic earnings per share | $ | 13.41 | $ | 22.97 | $ | 1.07 | |||||||||||
| Diluted earnings per share | |||||||||||||||||
| Numerator: | |||||||||||||||||
| Net income attributable to Albemarle Corporation | $ | 1,573,476 | $ | 2,689,816 | $ | 123,672 | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted-average common shares for basic earnings per share | 117,317 | 117,120 | 115,841 | ||||||||||||||
| Incremental shares under stock compensation plans | 449 | 673 | 695 | ||||||||||||||
| Weighted-average common shares for diluted earnings per share | 117,766 | 117,793 | 116,536 | ||||||||||||||
| Diluted earnings per share | $ | 13.36 | $ | 22.84 | $ | 1.06 |
At December 31, 2023, there were 165,159 common stock equivalents not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.
Included in the calculation of basic earnings per share are unvested restricted stock awards that contain nonforfeitable rights to dividends. At December 31, 2023, there were 4,500 unvested shares of restricted stock awards outstanding.
We have the authority to issue 15 million shares of preferred stock in one or more classes or series. As of December 31, 2023, no shares of preferred stock have been issued.
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.
In November 2016, our Board of Directors authorized an increase in the number of shares the Company is permitted to repurchase under our share repurchase program, pursuant to which the Company is now permitted to repurchase up to a maximum of 15 million shares, including those previously authorized but not yet repurchased.
There were no shares of the Company’s common stock repurchased during the year ended December 31, 2023, 2022 or 2021. As of December 31, 2023, there were 7,396,263 remaining shares available for repurchase under the Company’s authorized share repurchase program.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6—Other Accounts Receivable:
Other accounts receivable consist of the following at December 31, 2023 and 2022 (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Value added tax/consumption tax | $ | 474,280 | $ | 141,856 | |||||||
| Other | 34,817 | 43,963 | |||||||||
| Total | $ | 509,097 | $ | 185,819 |
NOTE 7—Inventories:
The following table provides a breakdown of inventories at December 31, 2023 and 2022 (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Finished goods | $ | 1,624,893 | $ | 1,679,473 | |||||||
| Raw materials and work in process(a) | 401,050 | 296,998 | |||||||||
| Stores, supplies and other | 135,344 | 99,560 | |||||||||
| Total(b) | $ | 2,161,287 | $ | 2,076,031 |
(a)Included $213.4 million and $133.2 million at December 31, 2023 and 2022, respectively, of work in process in our Energy Storage segment.
(b)During the year ended December 31, 2023, the Company recorded a $604.1 million charge in Cost of goods sold to reduce the value of certain spodumene and finished goods to their net realizable value following the decline in lithium market pricing at the end of the year.
Approximately 3% of our inventories are valued using the last-in, first-out (“LIFO”) method at both December 31, 2023 and 2022. The portion of our domestic inventories stated on the LIFO basis amounted to $60.4 million and $52.9 million at December 31, 2023 and 2022, respectively, which are below replacement cost by approximately $60.1 million and $57.9 million, respectively.
The Company eliminates the balance of intra-entity profits on purchases of inventory from its equity method investments that remains unsold at the balance sheet in Inventories, specifically finished goods and equally reduces Equity in net income of unconsolidated investments (net of tax) on the consolidated statements of income. The balance of intra-entity profits on inventory purchased from equity method investments in Inventories totaled $559.6 million and $332.3 million at December 31, 2023 and 2022, respectively. The intra-entity profit is recognized in Equity in net income of unconsolidated investments (net of tax) in the period that converted inventory is sold to a third-party customer. In the same period, the intra-entity profit is also recognized as higher Cost of goods sold on the consolidated statements of income.
NOTE 8—Other Current Assets:
Other current assets consist of the following at December 31, 2023 and 2022 (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Income tax receivables | $ | 112,953 | $ | 71,795 | |||||||
| Prepaid taxes | 207,894 | 97,682 | |||||||||
| Other prepaid expenses | 116,033 | 58,754 | |||||||||
| Other | 6,595 | 6,724 | |||||||||
| Total | $ | 443,475 | $ | 234,955 |
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 9—Property, Plant and Equipment:
Property, plant and equipment, at cost, consist of the following at December 31, 2023 and 2022 (in thousands):
| Useful Lives (Years) | December 31, | |||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Land | — | $ | 297,435 | $ | 172,464 | |||||||||||||||
| Land improvements | 10 – 30 | 316,544 | 201,284 | |||||||||||||||||
| Buildings and improvements | 10 – 50 | 699,045 | 492,509 | |||||||||||||||||
| Machinery and equipment(a) | 2 – 45 | 6,173,463 | 4,446,315 | |||||||||||||||||
| Mineral rights and reserves | 7 – 60 | 1,689,013 | 1,795,668 | |||||||||||||||||
| Construction in progress | — | 3,058,257 | 2,246,090 | |||||||||||||||||
| Total | $ | 12,233,757 | $ | 9,354,330 |
(a)Consists primarily of (1) short-lived production equipment components, office and building equipment and other equipment with estimated lives ranging 2 – 7 years, (2) production process equipment (intermediate components) with estimated lives ranging 8 – 19 years, (3) production process equipment (major unit components) with estimated lives ranging 20 – 29 years, and (4) production process equipment (infrastructure and other) with estimated lives ranging 30 – 45 years.
The cost of property, plant and equipment is depreciated generally by the straight-line method. Depletion of mineral rights is based on the units-of-production method. Depreciation expense, including depletion, amounted to $398.5 million, $273.0 million and $225.6 million during the years ended December 31, 2023, 2022 and 2021, respectively. Interest capitalized on significant capital projects in 2023, 2022 and 2021 was $72.7 million, $31.1 million and $50.0 million, respectively.
In October 2022, the Company announced it has been awarded a nearly $150 million grant from the U.S. Department of Energy to expand domestic manufacturing of batteries for EVs and the electric grid and for materials and components currently imported from other countries. The grant funding is intended to support a portion of the anticipated cost to construct a new, commercial-scale U.S.-based lithium concentrator facility at our Kings Mountain, North Carolina location. The grant will be received over the life of the construction period for the new facility (projected as 2024 to 2026) as reimbursement for capital expenditures. To further support the restart of the Kings Mountain mine, in August 2023, we announced a $90 million critical materials award from the U.S. Department of Defense. As funds are received for both of these grants, the Company will reduce the cost of the assets by the amount of the grant, and income will be recognized by the lower depreciation expense over the useful life of the assets.
NOTE 10—Investments:
Investments include our share of unconsolidated joint ventures, nonmarketable securities and marketable equity securities. The following table details the Company’s investment balances at December 31, 2023 and 2022 (in thousands):
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Joint ventures | $ | 855,131 | $ | 832,119 | ||||||||||
| Available for sale debt securities | 289,307 | 260,139 | ||||||||||||
| Nonmarketable securities | 18,389 | 18,760 | ||||||||||||
| Marketable equity securities | 207,028 | 39,535 | ||||||||||||
| Total | $ | 1,369,855 | $ | 1,150,553 |
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Unconsolidated Joint Ventures
The Company’s ownership positions in significant unconsolidated investments are shown below:
| December 31, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| * | Windfield Holdings Pty. Ltd. (“Windfield”) - a joint venture with Sichuan Tianqi Lithium Industries, Inc., that mines lithium ore and produces lithium concentrate | 49 | % | 49 | % | 49 | % | ||||||||||||||||
| * | Nippon Aluminum Alkyls - a joint venture with Mitsui Chemicals, Inc. that produces aluminum alkyls | 50 | % | 50 | % | 50 | % | ||||||||||||||||
| * | Nippon Ketjen Company Limited - a joint venture with Sumitomo Metal Mining Company Limited that produces refinery catalysts | 50 | % | 50 | % | 50 | % | ||||||||||||||||
| * | Eurecat S.A. - a joint venture with Axens Group for refinery catalysts regeneration services | 50 | % | 50 | % | 50 | % | ||||||||||||||||
| * | Fábrica Carioca de Catalisadores S.A. - a joint venture with Petrobras Quimica S.A. - PETROQUISA that produces catalysts and includes catalysts research and product development activities | 50 | % | 50 | % | 50 | % | ||||||||||||||||
The following table details the Company’s equity in net income of unconsolidated investments (net of tax) for the years ended December 31, 2023, 2022 and 2021 (in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Windfield | $ | 1,833,589 | $ | 750,378 | $ | 75,206 | ||||||||||||||
| Other joint ventures | 20,493 | 21,897 | 20,564 | |||||||||||||||||
| Total | $ | 1,854,082 | $ | 772,275 | $ | 95,770 |
Our investment in the significant unconsolidated joint ventures above amounted to $841.5 million and $813.9 million as of December 31, 2023 and 2022, respectively. Undistributed earnings attributable to our significant unconsolidated investments represented approximately $97.3 million and $242.7 million of our consolidated retained earnings at December 31, 2023 and 2022, respectively. All of the unconsolidated joint ventures in which we have investments are private companies and accordingly do not have a quoted market price available.
The following summary lists the assets, liabilities and results of operations for the Company’s significant unconsolidated joint ventures presented herein (in thousands):
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Summary of Balance Sheet Information: | ||||||||||||||
| Current assets | $ | 1,424,059 | $ | 1,927,791 | ||||||||||
| Noncurrent assets | 2,321,261 | 1,659,692 | ||||||||||||
| Total assets | $ | 3,745,320 | $ | 3,587,483 | ||||||||||
| Current liabilities | $ | 773,931 | $ | 770,211 | ||||||||||
| Noncurrent liabilities | 1,267,271 | 1,175,773 | ||||||||||||
| Total liabilities | $ | 2,041,202 | $ | 1,945,984 |
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Summary of Statements of Income Information: | ||||||||||||||||||||
| Net sales | $ | 7,019,117 | $ | 4,290,223 | $ | 827,848 | ||||||||||||||
| Gross profit | $ | 6,373,472 | $ | 3,765,304 | $ | 443,129 | ||||||||||||||
| Income before income taxes | $ | 5,988,737 | $ | 3,301,875 | $ | 269,788 | ||||||||||||||
| Net income | $ | 4,224,961 | $ | 2,314,094 | $ | 187,084 |
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
We have evaluated each of the unconsolidated investments pursuant to current accounting guidance and none qualify for consolidation. Dividends received from our significant unconsolidated investments were $2.0 billion, $800.9 million and $78.4 million in 2023, 2022 and 2021, respectively.
The Company holds a 49% equity interest in Windfield, which we acquired in the Rockwood acquisition. With regards to the Company’s ownership in Windfield, the parties share risks and benefits disproportionate to their voting interests. As a result, the Company considers Windfield to be a variable interest entity (“VIE”). However, the Company does not consolidate Windfield as it is not the primary beneficiary. The carrying amount of our 49% equity interest in Windfield, which is our most significant VIE, was $712.0 million and $694.5 million at December 31, 2023 and 2022, respectively. The Company’s unconsolidated VIEs are reported in Investments in the consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of the investments.
Proportionately Consolidated Joint Ventures
On October 18, 2023, the Company closed on the restructuring of the MARBL joint venture with MRL. This updated structure is intended to significantly simplify the commercial operation agreements previously entered into, allow us to retain full control of downstream conversion assets and to provide greater strategic opportunities for each company based on their global operations and the evolving lithium market.
Under the amended agreements, Albemarle acquired the remaining 40% ownership of the Kemerton lithium hydroxide processing facility in Australia that was jointly owned with MRL through the MARBL joint venture. Following this restructuring, Albemarle and MRL each own 50% of Wodgina, and MRL operates the Wodgina mine on behalf of the joint venture. During the fourth quarter of 2023, Albemarle paid MRL approximately $380 million in cash, which includes $180 million of consideration for the remaining ownership of Kemerton as well as a payment for the economic effective date of the transaction being retroactive to April 1, 2022.
As a result of this transaction, the Company recorded a gain of $71.2 million on the consolidated statement of income during the fourth quarter of 2023. The fair value of the 40% ownership of the Kemerton lithium hydroxide processing facility was based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could be subject to possible impairment.
This joint venture is unincorporated with each investor holding an undivided interest in each asset and proportionately liable for each liability; therefore our proportionate share of assets, liabilities, revenue and expenses are included in the appropriate classifications in the consolidated financial statements.
Public Equity Securities
Included in the Company’s marketable equity securities balance are holdings in equity securities of public companies. The fair value is measured using publicly available share prices of the investments, with any changes reported in Other income (loss), net in our consolidated statements of income. During the year ended December 31, 2023, the Company purchased approximately $203.4 million of shares in publicly-traded companies. In addition, during the years ended December 31, 2023 and 2022, the Company recorded unrealized mark-to-market (losses) gains of ($41.4) million and $4.3 million, respectively, in Other income (loss), net for all public equity securities held at the end of the balance sheet date.
In January 2024, the Company sold equity securities of a public company for proceeds of approximately $81.5 million. As a result of the sale, the Company expects to realize a loss of $33.7 million in the three months ended March 31, 2024.
Other
The Company holds a 50% equity interest in Jordan Bromine Company Limited (“JBC”), reported in the Bromine segment. The Company consolidates this venture as it is considered the primary beneficiary due to its operational and financial control.
On June 1, 2021, the Company completed the sale of its FCS business to Grace for proceeds of approximately $570 million, consisting of $300 million in cash and the issuance to Albemarle of preferred equity of a Grace subsidiary having an aggregate stated value of $270 million. The preferred equity can be redeemed at Grace’s option under certain conditions and
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
will accrue PIK dividends at an annual rate of 12% beginning June 1, 2023, two years after issuance. The fair value of this preferred equity was $289.3 million and $260.1 million at December 31, 2023 and 2022, respectively.
We maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of our Executive Deferred Compensation Plan (“EDCP”), subject to the claims of our creditors in the event of our insolvency. Assets of the Trust, in conjunction with our EDCP, are accounted for as trading securities in accordance with authoritative accounting guidance. The assets of the Trust consist primarily of mutual fund investments and are marked-to-market on a monthly basis through the consolidated statements of income. At December 31, 2023 and 2022, these marketable securities amounted to $33.6 million and $27.3 million, respectively.
NOTE 11—Other Assets:
Other assets consist of the following at December 31, 2023 and 2022 (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred income taxes(a) | $ | 22,433 | $ | 46,434 | |||||||
| Assets related to unrecognized tax benefits(a) | 73,009 | 32,421 | |||||||||
| Operating leases(b) | 137,405 | 128,173 | |||||||||
| Other | 64,240 | 43,530 | |||||||||
| Total | $ | 297,087 | $ | 250,558 |
(a)See Note 1, “Summary of Significant Accounting Policies” and Note 21, “Income Taxes.”
(b)See Note 18, “Leases.”
NOTE 12—Goodwill and Other Intangibles:
The following table summarizes the changes in goodwill by reportable segment for the years ended December 31, 2023 and 2022 (in thousands):
| Energy Storage | Specialties | Ketjen | Total | ||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 1,394,182 | $ | 20,319 | $ | 183,126 | $ | 1,597,627 | |||||||||||||||||||||
| Acquisitions(a) | 76,105 | — | — | 76,105 | |||||||||||||||||||||||||
| Foreign currency translation adjustments and other | (46,012) | — | (10,093) | (56,105) | |||||||||||||||||||||||||
| Balance at December 31, 2022 | 1,424,275 | 20,319 | 173,033 | 1,617,627 | |||||||||||||||||||||||||
| Change in ownership interest(b) | (6,058) | — | — | (6,058) | |||||||||||||||||||||||||
| Segment realignment(c) | (12,316) | 12,316 | — | — | |||||||||||||||||||||||||
| Impairment loss(d) | — | — | (6,765) | (6,765) | |||||||||||||||||||||||||
| Foreign currency translation adjustments and other | 18,583 | 4 | 6,338 | 24,925 | |||||||||||||||||||||||||
| Balance at December 31, 2023(e) | $ | 1,424,484 | $ | 32,639 | $ | 172,606 | $ | 1,629,729 |
(a) Represents purchase price adjustments for the Qinzhou acquisition. See Note 2, “Acquisitions,” for additional information.
(b) Represents the reduction of goodwill associated with the proportionately consolidated MARBL joint venture. On October 18, 2023, we completed the restructuring the MARBL joint venture, which reduced the Company’s ownership percentage from 60% to 50%. See Note 10, “Investments,” for further details.
(c) Effective January 1, 2023, the Company realigned its Lithium and Bromine reportable segments into the Energy Storage and Specialties reportable segments. See Note 25, “Segment and Geographic Area Information,” for additional details. As a result, the Company transferred goodwill from its legacy Lithium segment to the new Specialties reportable segment during the year ended December 31, 2023.
(d) During the year ended December 31, 2023, the Company recorded an impairment loss for the remaining balance of its goodwill associated with its PCS business within the Ketjen segment. See Note 1, “Summary of Significant Accounting Policies,” for further details.
(e) Balance at December 31, 2023 includes an accumulated impairment loss of $6.8 million in Ketjen. As a result, the balance of Ketjen as of December 31, 2023 fully consists of goodwill related to the Refining Solutions reporting unit.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Other intangibles consist of the following at December 31, 2023 and 2022 (in thousands):
| Customer Lists and Relationships | Trade Names and Trademarks**(b)** | Patents and Technology | Other | Total | |||||||||||||||||||||||||
| Gross Asset Value | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 428,379 | $ | 17,883 | $ | 57,313 | $ | 36,705 | $ | 540,280 | |||||||||||||||||||
| Acquisitions(a) | 6,000 | — | 8,300 | 2,030 | 16,330 | ||||||||||||||||||||||||
| Retirements | — | (4,253) | (16,206) | (5,844) | (26,303) | ||||||||||||||||||||||||
| Foreign currency translation adjustments and other | (21,709) | (469) | (3,008) | 2,295 | (22,891) | ||||||||||||||||||||||||
| Balance at December 31, 2022 | 412,670 | 13,161 | 46,399 | 35,186 | 507,416 | ||||||||||||||||||||||||
| Foreign currency translation adjustments and other | 5,133 | 244 | (112) | (537) | 4,728 | ||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 417,803 | $ | 13,405 | $ | 46,287 | $ | 34,649 | $ | 512,144 | |||||||||||||||||||
| Accumulated Amortization | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | (163,283) | $ | (7,983) | $ | (39,796) | $ | (20,271) | $ | (231,333) | |||||||||||||||||||
| Amortization | (22,144) | — | (1,649) | (914) | (24,707) | ||||||||||||||||||||||||
| Retirements | — | 4,253 | 16,206 | 5,844 | 26,303 | ||||||||||||||||||||||||
| Foreign currency translation adjustments and other | 7,800 | 143 | 1,449 | 799 | 10,191 | ||||||||||||||||||||||||
| Balance at December 31, 2022 | (177,627) | (3,587) | (23,790) | (14,542) | (219,546) | ||||||||||||||||||||||||
| Amortization | (24,510) | — | (2,563) | (953) | (28,026) | ||||||||||||||||||||||||
| Foreign currency translation adjustments and other | (2,344) | (86) | (405) | 121 | (2,714) | ||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | (204,481) | $ | (3,673) | $ | (26,758) | $ | (15,374) | $ | (250,286) | |||||||||||||||||||
| Net Book Value at December 31, 2022 | $ | 235,043 | $ | 9,574 | $ | 22,609 | $ | 20,644 | $ | 287,870 | |||||||||||||||||||
| Net Book Value at December 31, 2023 | $ | 213,322 | $ | 9,732 | $ | 19,529 | $ | 19,275 | $ | 261,858 |
(a)Represents purchase price adjustments for the Qinzhou acquisition. See Note 2, “Acquisitions,” for additional information.
(b)Net Book Value includes only indefinite-lived intangible assets.
Useful lives range from 13 – 25 years for customer lists and relationships; 8 – 20 years for patents and technology; and primarily 5 – 25 years for other.
Amortization of other intangibles amounted to $28.0 million, $24.7 million and $25.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Included in amortization for the years ended December 31, 2023, 2022 and 2021 is $16.7 million, $17.2 million and $19.3 million, respectively, of amortization using the pattern of economic benefit method.
Total estimated amortization expense of other intangibles for the next five fiscal years is as follows (in thousands):
| Estimated Amortization Expense | |||||
| 2024 | $ | 29,583 | |||
| 2025 | $ | 29,046 | |||
| 2026 | $ | 28,525 | |||
| 2027 | $ | 28,024 | |||
| 2028 | $ | 27,534 |
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 13—Accrued Expenses:
Accrued expenses consist of the following at December 31, 2023 and 2022 (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Employee benefits, payroll and related taxes | $ | 168,361 | $ | 145,885 | |||||||
| Dividend payable to noncontrolling interest | — | 53,168 | |||||||||
| Other(a) | 376,474 | 306,841 | |||||||||
| Total | $ | 544,835 | $ | 505,894 |
(a)Other accrued expenses represent balances such as operating lease liabilities, environmental reserves, asset retirement obligations, pension obligations, interest, utilities, other taxes, among other liabilities, expected to be paid within the next 12 months. No individual component exceeds 5% of total current liabilities.
In January 2024, the Company announced it is taking measures to unlock near term cash flow and generate long-term financial flexibility by re-phasing organic growth investments and optimizing its cost structure. As part of those actions, the Company announced headcount reductions and expects to record a charge of approximately $15 million to $20 million for severance and outplacement costs in the first quarter of 2024. The Company expects these severance payments to primarily be made during 2024.
NOTE 14—Long-Term Debt:
Long-term debt consisted of the following at December 31, 2023 and 2022 (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| 1.125% notes due 2025 | $ | 416,501 | $ | 401,265 | |||||||
| 1.625% notes due 2028 | 552,200 | 532,000 | |||||||||
| 3.45% Senior notes due 2029 | 171,612 | 171,612 | |||||||||
| 4.65% Senior notes due 2027 | 650,000 | 650,000 | |||||||||
| 5.05% Senior notes due 2032 | 600,000 | 600,000 | |||||||||
| 5.45% Senior notes due 2044 | 350,000 | 350,000 | |||||||||
| 5.65% Senior notes due 2052 | 450,000 | 450,000 | |||||||||
| Commercial paper notes | 620,000 | — | |||||||||
| Interest-free loan | 300,000 | — | |||||||||
| Variable-rate foreign bank loans | 30,197 | 2,997 | |||||||||
| Finance lease obligations | 110,245 | 76,537 | |||||||||
| Other | 22,000 | 11,378 | |||||||||
| Unamortized discount and debt issuance costs | (105,992) | (28,689) | |||||||||
| Total long-term debt | 4,166,763 | 3,217,100 | |||||||||
| Less amounts due within one year | 625,761 | 2,128 | |||||||||
| Long-term debt, less current portion | $ | 3,541,002 | $ | 3,214,972 |
Aggregate annual maturities of long-term debt as of December 31, 2023 are as follows (in millions): 2024—$625.8; 2025—$416.5; 2026—$60.0; 2027—$710.0; 2028—$612.2; thereafter—$1,848.3.
2022 Notes
On May 13, 2022, the Company issued a series of notes (collectively, the “2022 Notes”) as follows:
-
$650.0 million aggregate principal amount of senior notes, bearing interest at a rate of 4.65% payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2022. The effective interest rate on these senior notes is approximately 4.84%. These senior notes mature on June 1, 2027.
-
$600.0 million aggregate principal amount of senior notes, bearing interest at a rate of 5.05% payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2022. The effective interest rate on these senior notes is approximately 5.18%. These senior notes mature on June 1, 2032.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
- $450.0 million aggregate principal amount of senior notes, bearing interest at a rate of 5.65% payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2022. The effective interest rate on these senior notes is approximately 5.71%. These senior notes mature on June 1, 2052.
The net proceeds from the issuance of the 2022 Notes were used to repay the balance of the commercial paper notes, the remaining balance of $425.0 million of the 4.15% Senior Notes due 2024 (the “2024 Notes”) and for general corporate purposes. The 2024 Notes were originally due to mature on December 15, 2024 and bore interest at a rate of 4.15%. During the year ended December 31, 2022, the Company recorded a loss on early extinguishment of debt of $19.2 million in Interest and financing expenses, representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of the 2024 Notes. In addition, the loss on early extinguishment of debt includes the accelerated amortization of the interest rate swap associated with the 2024 Notes from Accumulated other comprehensive income.
2019 Notes
On November 25, 2019, the Company issued a series of notes (collectively, the “2019 Notes”) as follows:
-
$200.0 million aggregate principal amount of notes, bearing interest at a floating rate, which were fully repaid in the first quarter of 2021, as noted below.
-
€500.0 million aggregate principal amount of notes, bearing interest at a rate of 1.125% payable annually on November 25 of each year, beginning in 2020. The effective interest rate on these notes is approximately 1.30%. These notes mature on November 25, 2025. These notes were partially repaid in the first quarter of 2021, as noted below.
-
€500.0 million aggregate principal amount of notes, bearing interest at a rate of 1.625% payable annually on November 25 of each year, beginning in 2020. The effective interest rate on these notes is approximately 1.74%. These notes mature on November 25, 2028.
-
$300.0 million aggregate principal amount of senior notes, bearing interest at a rate of 3.45% payable semi-annually on May 15 and November 15 of each year, beginning in 2020. The effective interest rate on these senior notes is approximately 3.58%. These senior notes mature on November 15, 2029. These notes were partially repaid in the first quarter of 2021, as noted below.
2014 Senior Notes
We currently have outstanding $350.0 million aggregate principal amount of senior notes issued on November 24, 2014, bearing interest at a rate of 5.45% payable semi-annually on June 1 and December 1 of each year, beginning June 1, 2015. The effective interest rate on these senior notes is approximately 5.50%. These senior notes mature on December 1, 2044.
In the first quarter of 2021, the Company made certain debt principal payments using proceeds from the February 2021 underwritten public offering of common stock. As a result, included in Interest and financing expenses for the year ended December 31, 2021 is a loss on early extinguishment of debt of $29.0 million representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of this debt.
On January 22, 2014, we entered into a pay fixed, receive variable rate forward starting interest rate swap, with a notional amount of $325.0 million, with J.P. Morgan Chase Bank, N.A., to be effective October 15, 2014. Our risk management objective and strategy for undertaking this hedge was to eliminate the variability in the interest rate and partial credit spread on the 20 future semi-annual coupon payments that were to be paid in connection with the 2024 Notes. On October 15, 2014, the swap was settled, resulting in a payment to the counterparty of $33.4 million. This amount was recorded in Accumulated other comprehensive loss and was to be amortized to interest expense over the life of the 2024 Notes. As noted above, the 2024 Notes were repaid in the second quarter of 2022, and as a result, the unamortized balance of this interest rate swap was reclassified to interest expense during the same period as part of the early extinguishment of debt.
Prior to repayment in the first quarter of 2021, the carrying value of the 1.875% Euro-denominated senior notes was designated as an effective hedge of our net investment in certain foreign subsidiaries where the Euro serves as the functional currency, and gains or losses on the revaluation of these senior notes to our reporting currency were recorded in accumulated other comprehensive loss. Upon repayment of these notes, this net investment hedge was discontinued. The balance of foreign exchange revaluation gains and losses associated with this discontinued net investment hedge will remain within accumulated other comprehensive loss until the hedged net investment is sold or liquidated. Prior to the net investment hedge being discontinued a gain of $5.1 million (net of income taxes), during the year ended December 31, 2021, was recorded in Accumulated other comprehensive loss.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Credit Agreements
Given the current economic conditions, specifically around the market pricing of lithium, and the related impact on the Company’s future earnings, on February 9, 2024 we amended our revolving, unsecured amended and restated credit agreement dated October 28, 2022 (the “2022 Credit Agreement”), which provides for borrowings of up to $1.5 billion and matures on October 28, 2027. Borrowings under the 2022 Credit Agreement bear interest at variable rates based on a benchmark rate depending on the currency in which the loans are denominated, plus an applicable margin which ranges from 0.910% to 1.375%, 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”). With respect to loans denominated in U.S. dollars, interest is calculated using the term Secured Overnight Financing Rate (“SOFR”) plus a term SOFR adjustment of 0.10%, plus the applicable margin. The applicable margin on the facility was 1.125% as of December 31, 2023. There were no borrowings outstanding under the 2022 Credit Agreement as of December 31, 2023.
Borrowings under the 2022 Credit Agreement are conditioned upon satisfaction of certain customary conditions precedent, including the absence of defaults. The February 2024 amendment was entered into to modify the financial covenants under the 2022 Credit Agreement to avoid a potential covenant violation over the following 18 months given the current market pricing of lithium. Following the February 2024 amendment, the 2022 Credit Agreement subjects the Company to two financial covenants, as well as customary affirmative and negative covenants. The first financial covenant requires that the ratio of (a) the Company’s consolidated net funded debt plus a proportionate amount of Windfield’s net funded debt to (b) consolidated Windfield-Adjusted EBITDA (as such terms are defined in the 2022 Credit Agreement) be less than or equal to (i) 3.50:1 prior to the second quarter of 2024, (ii) 5.00:1 for the second quarter of 2024, (iii) 5.50:1 for the third quarter of 2024, (iv) 4.00:1 for the fourth quarter of 2024, (v) 3.75:1 for the first and second quarters of 2025 and (vi) 3.50:1 after the second quarter of 2025. The maximum permitted leverage ratios described above are subject to adjustment in accordance with the terms of the 2022 Credit Agreement upon the consummation of an acquisition after June 30, 2025 if the consideration includes cash proceeds from issuance of funded debt in excess of $500 million.
Beginning in the fourth quarter of 2024, the second financial covenant requires that the ratio of the Company’s consolidated EBITDA to consolidated interest charges (as such terms are defined in the 2022 Credit Agreement) be no less than 2.00:1 for fiscal quarters through June 30, 2025, and no less than 3.00:1 for all fiscal quarters thereafter. The 2022 Credit Agreement also contains 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 2022 Credit Agreement could result in all loans and other obligations becoming immediately due and payable and the commitments under the 2022 Credit Agreement being terminated. The amendments to the financial covenants assume moderate improvement to the current market pricing of lithium. If lithium market prices do not improve, or worsen, the Company may not be able to maintain compliance with its amended financial covenants and it will require the Company to seek additional amendments to the 2022 Credit Agreement and/or issue debt or equity securities, as needed, to fund its activities and maintain financial flexibility. If the Company is not able to obtain such necessary additional amendments, this 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.
On August 14, 2019, the Company entered into a $1.2 billion unsecured credit facility with several banks and other financial institutions, which was amended and restated on December 15, 2020 and again on December 10, 2021 (the “2019 Credit Facility”). On October 24, 2022, the 2019 Credit Facility was terminated, with the outstanding balance of $250 million repaid using cash on hand.
Commercial Paper Notes
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. On May 17, 2023, we entered into definitive documentation to increase the size of our existing commercial paper program. The maximum aggregate face amount of Commercial Paper Notes outstanding at any time is $1.5 billion (up from $750 million prior to the increase). The proceeds from the issuance of the Commercial Paper Notes are expected to be used for general corporate purposes, including the repayment of other debt of the Company. The 2022 Credit Agreement is available to repay the Commercial Paper Notes, if necessary. Aggregate borrowings outstanding under the 2022 Credit Agreement and the Commercial Paper Notes will not exceed the $1.5 billion current maximum amount available under the 2022 Credit Agreement. 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. At December 31, 2023, we had $620.0 million of Commercial Paper Notes outstanding bearing a
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
weighted-average interest rate of approximately 6.05% and a weighted-average maturity of 11 days. The Commercial Paper Notes are classified as Current portion of long-term debt in our condensed consolidated balance sheets at December 31, 2023.
Other
In the second quarter of 2023, the Company received a loan of $300.0 million to be repaid in five equal annual installments beginning on December 31, 2026. This interest-free loan was discounted using an imputed interest rate of 5.53% and the Company will amortize that discount through Interest and financing expenses over the term of the loan.
We have additional uncommitted credit lines with various U.S. and foreign financial institutions that provide for borrowings of up to approximately $279.8 million at December 31, 2023. Outstanding borrowings under these agreements were $30.2 million and $3.0 million at December 31, 2023 and 2022, respectively. The average interest rate on borrowings under these agreements during 2023, 2022 and 2021 was approximately 0.4%.
At December 31, 2023 and 2022, we had the ability and intent to refinance our borrowings under our other existing credit lines with borrowings under the 2022 Credit Agreement. Therefore, the amounts outstanding under those credit lines, if any, are classified as long-term debt at December 31, 2023 and 2022. At December 31, 2023, we had the ability to borrow $880.0 million under our commercial paper program and the Credit Agreements.
We believe that as of December 31, 2023, we were, and currently are, in compliance with all of our debt covenants.
NOTE 15—Pension Plans and Other Postretirement Benefits:
We maintain various noncontributory defined benefit pension plans covering certain employees, primarily in the U.S., the U.K., Germany and Japan. We also have a contributory defined benefit plan covering certain Belgian employees. The benefits for these plans are based primarily on compensation and/or years of service. Our U.S. and U.K. 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. The funding policy for each plan complies with the requirements of relevant governmental laws and regulations. The pension information for all periods presented includes amounts related to salaried and hourly plans.
The following provides a reconciliation of benefit obligations, plan assets and funded status, as well as a summary of significant assumptions, for our defined benefit pension plans (in thousands):
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | ||||||||||||||||||||||
| U.S. Pension Plans | Foreign Pension Plans | U.S. Pension Plans | Foreign Pension Plans | ||||||||||||||||||||
| Change in benefit obligations: | |||||||||||||||||||||||
| Benefit obligation at January 1 | $ | 514,971 | $ | 180,561 | $ | 680,696 | $ | 255,234 | |||||||||||||||
| Service cost | 499 | 5,686 | 904 | 3,700 | |||||||||||||||||||
| Interest cost | 26,924 | 7,153 | 18,827 | 3,363 | |||||||||||||||||||
| Actuarial gain | 11,957 | 10,078 | (144,288) | (49,380) | |||||||||||||||||||
| Benefits paid | (41,449) | (9,051) | (41,168) | (11,049) | |||||||||||||||||||
| Employee contributions | — | 60 | — | 64 | |||||||||||||||||||
| Foreign exchange loss (gain) | — | 7,137 | — | (18,562) | |||||||||||||||||||
| Settlements/curtailments | — | (5,606) | — | (1,028) | |||||||||||||||||||
| Other | — | (100) | — | (1,781) | |||||||||||||||||||
| Benefit obligation at December 31 | $ | 512,902 | $ | 195,918 | $ | 514,971 | $ | 180,561 | |||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||
| Fair value of plan assets at January 1 | $ | 469,828 | $ | 58,229 | $ | 605,991 | $ | 94,256 | |||||||||||||||
| Actual return on plan assets | 54,785 | 4,395 | (95,925) | (29,694) | |||||||||||||||||||
| Employer contributions | 967 | 14,496 | 930 | 12,451 | |||||||||||||||||||
| Benefits paid | (41,449) | (9,051) | (41,168) | (11,049) | |||||||||||||||||||
| Employee contributions | — | 60 | — | 64 | |||||||||||||||||||
| Foreign exchange gain (loss) | — | 3,091 | — | (9,004) | |||||||||||||||||||
| Settlements/curtailments | — | (5,606) | — | (1,028) | |||||||||||||||||||
| Other | — | (100) | — | 2,233 | |||||||||||||||||||
| Fair value of plan assets at December 31 | $ | 484,131 | $ | 65,514 | $ | 469,828 | $ | 58,229 | |||||||||||||||
| Funded status at December 31 | $ | (28,771) | $ | (130,404) | $ | (45,143) | $ | (122,332) |
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| U.S. Pension Plans | Foreign Pension Plans | U.S. Pension Plans | Foreign Pension Plans | ||||||||||||||||||||
| Amounts recognized in consolidated balance sheets: | |||||||||||||||||||||||
| Current liabilities (accrued expenses) | $ | (912) | $ | (7,951) | $ | (947) | $ | (6,957) | |||||||||||||||
| Noncurrent liabilities (pension benefits) | (27,859) | (122,453) | (44,196) | (115,375) | |||||||||||||||||||
| Net pension liability | $ | (28,771) | $ | (130,404) | $ | (45,143) | $ | (122,332) | |||||||||||||||
| Amounts recognized in accumulated other comprehensive (loss) income: | |||||||||||||||||||||||
| Prior service benefit | $ | — | $ | (531) | $ | — | $ | (615) | |||||||||||||||
| Net amount recognized | $ | — | $ | (531) | $ | — | $ | (615) | |||||||||||||||
| Weighted-average assumptions used to determine benefit obligations at December 31: | |||||||||||||||||||||||
| Discount rate | 5.21 | % | 3.73 | % | 5.46 | % | 4.04 | % | |||||||||||||||
| Rate of compensation increase | — | % | 3.67 | % | — | % | 3.67 | % |
The accumulated benefit obligation for all defined benefit pension plans was $700.4 million and $688.0 million at December 31, 2023 and 2022, respectively.
Postretirement medical benefits and life insurance is provided for certain groups of U.S. retired employees. Medical and life insurance benefit costs have been funded principally on a pay-as-you-go basis. Although the availability of medical coverage after retirement varies for different groups of employees, the majority of employees who retire before becoming eligible for Medicare can continue group coverage by paying a portion of the cost of a monthly premium designed to cover the claims incurred by retired employees subject to a cap on payments allowed. The availability of group coverage for Medicare-
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
eligible retirees also varies by employee group with coverage designed either to supplement or coordinate with Medicare. Retirees generally pay a portion of the cost of the coverage. Plan assets for retiree life insurance are held under an insurance contract and are reserved for retiree life insurance benefits. In 2005, the postretirement medical benefit available to U.S. employees was changed to provide that employees who are under age 50 as of December 31, 2005 would no longer be eligible for a company-paid retiree medical premium subsidy. Employees who are of age 50 and above as of December 31, 2005 and who retire after January 1, 2006 will have their retiree medical premium subsidy capped. Effective January 1, 2008, our medical insurance for certain groups of U.S. retired employees is now insured through a medical carrier.
The following provides a reconciliation of benefit obligations, plan assets and funded status, as well as a summary of significant assumptions, for our postretirement benefit plans (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Other Postretirement Benefits | Other Postretirement Benefits | ||||||||||
| Change in benefit obligations: | |||||||||||
| Benefit obligation at January 1 | $ | 35,990 | $ | 47,493 | |||||||
| Service cost | 47 | 85 | |||||||||
| Interest cost | 1,873 | 1,307 | |||||||||
| Actuarial gain | (6,618) | (10,164) | |||||||||
| Benefits paid | (2,403) | (2,731) | |||||||||
| Benefit obligation at December 31 | $ | 28,889 | $ | 35,990 | |||||||
| Change in plan assets: | |||||||||||
| Fair value of plan assets at January 1 | $ | — | $ | — | |||||||
| Employer contributions | 2,403 | 2,731 | |||||||||
| Benefits paid | (2,403) | (2,731) | |||||||||
| Fair value of plan assets at December 31 | $ | — | $ | — | |||||||
| Funded status at December 31 | $ | (28,889) | $ | (35,990) |
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Other Postretirement Benefits | Other Postretirement Benefits | ||||||||||
| Amounts recognized in consolidated balance sheets: | |||||||||||
| Current liabilities (accrued expenses) | $ | (2,642) | $ | (3,239) | |||||||
| Noncurrent liabilities (postretirement benefits) | (26,247) | (32,751) | |||||||||
| Net postretirement liability | $ | (28,889) | $ | (35,990) | |||||||
| Weighted-average assumptions used to determine benefit obligations at December 31: | |||||||||||
| Discount rate | 5.21 | % | 5.45 | % | |||||||
| Rate of compensation increase | — | % | — | % |
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
The components of pension benefits cost (credit) are as follows (in thousands):
| Year Ended | Year Ended | Year Ended | |||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||
| U.S. Pension Plans | Foreign Pension Plans | U.S. Pension Plans | Foreign Pension Plans | U.S. Pension Plans | Foreign Pension Plans | ||||||||||||||||||||||||||||||
| Service cost | $ | 499 | $ | 5,686 | $ | 904 | $ | 3,700 | $ | 869 | $ | 3,697 | |||||||||||||||||||||||
| Interest cost | 26,924 | 7,153 | 18,827 | 3,363 | 18,005 | 2,427 | |||||||||||||||||||||||||||||
| Expected return on assets | (30,875) | (2,872) | (40,288) | (3,252) | (39,972) | (3,593) | |||||||||||||||||||||||||||||
| Actuarial (gain) loss | (11,951) | 8,593 | (8,008) | (18,818) | (34,857) | (19,494) | |||||||||||||||||||||||||||||
| Amortization of prior service benefit | — | 81 | — | 89 | — | 115 | |||||||||||||||||||||||||||||
| Total net pension benefits (credit) cost | $ | (15,403) | $ | 18,641 | $ | (28,565) | $ | (14,918) | $ | (55,955) | $ | (16,848) | |||||||||||||||||||||||
| Weighted-average assumption percentages: | |||||||||||||||||||||||||||||||||||
| Discount rate | 5.46 | % | 4.04 | % | 2.86 | % | 1.44 | % | 2.50 | % | 0.86 | % | |||||||||||||||||||||||
| Expected return on plan assets | 6.88 | % | 4.86 | % | 6.89 | % | 3.85 | % | 6.88 | % | 3.98 | % | |||||||||||||||||||||||
| Rate of compensation increase | — | % | 3.67 | % | — | % | 3.12 | % | — | % | 3.26 | % |
Effective January 1, 2024, the weighted-average expected rate of return on plan assets for the U.S. and foreign defined benefit pension plans is 6.88% and 5.95%, respectively.
The components of postretirement benefits cost (credit) are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Other Postretirement Benefits | Other Postretirement Benefits | Other Postretirement Benefits | |||||||||||||||
| Service cost | $ | 47 | $ | 85 | $ | 123 | |||||||||||
| Interest cost | 1,873 | 1,307 | 1,238 | ||||||||||||||
| Actuarial gain | (6,816) | (10,163) | (2,568) | ||||||||||||||
| Total net postretirement benefits credit | $ | (4,896) | $ | (8,771) | $ | (1,207) | |||||||||||
| Weighted-average assumption percentages: | |||||||||||||||||
| Discount rate | 5.45 | % | 2.85 | % | 2.49 | % | |||||||||||
| Rate of compensation increase | — | % | — | % | 3.50 | % |
All components of net benefit cost (credit), other than service cost, are included in Other income (expenses), net on the consolidated statements of income.
The mark-to-market actuarial gain in 2023 was primarily attributable to a higher return on pension plan assets during the year 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 11.21% versus an expected return of 6.66%. This was partially offset by a decrease in the weighted-average discount rate to 5.21% from 5.46% for our U.S. pension plans and to 3.73% from 4.04% for our foreign pension plans to reflect market conditions as of the December 31, 2023 measurement date.
The mark-to-market actuarial gain in 2022 was primarily attributable to a significant increase in the weighted average discount rate to 5.46% from 2.86% for our U.S. pension plans and to 4.04% from 1.44% for our foreign pension plans to reflect market conditions as of the December 31, 2022 measurement date. This was partially offset by a lower return on pension plan assets in 2022 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 (17.94)% versus an expected return of 6.48%.
The mark-to-market actuarial gain in 2021 was primarily attributable to a higher return on pension plan assets in 2021 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 8.42% versus an expected return of 6.50%. In addition, there was an increase in the weighted-average discount rate to 2.86% from 2.50% for our U.S. pension plans and to 1.44% from 0.86% for our foreign pension plans to reflect market conditions as of the December 31, 2021 measurement date.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities | ||||
| Level 2 | Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability | ||||
| Level 3 | Unobservable inputs for the asset or liability |
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Investments for which market quotations are readily available are valued at the closing price on the last business day of the year. Listed securities for which no sale was reported on such date are valued at the mean between the last reported bid and asked price. Securities traded in the over-the-counter market are valued at the closing price on the last business day of the year or at bid price. The net asset value of shares or units is based on the quoted market value of the underlying assets. The market value of corporate bonds is based on institutional trading lots and is most often reflective of bid price. Government securities are valued at the mean between bid and ask prices. Holdings in private equity securities are typically valued using the net asset valuations provided by the underlying private investment companies.
The following tables set forth the assets of our pension and postretirement plans that were accounted for at fair value on a recurring basis as of December 31, 2023 and 2022 (in thousands):
| December 31, 2023 | Quoted Prices in Active Markets for Identical Items (Level 1) | Quoted Prices in Active Markets for Similar Items (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Pension Assets: | |||||||||||||||||||||||
| Domestic Equity(a) | $ | 58,906 | $ | 58,906 | $ | — | $ | — | |||||||||||||||
| International Equity(b) | 106,491 | 99,432 | 7,059 | — | |||||||||||||||||||
| Fixed Income(c) | 294,140 | 257,299 | 36,841 | — | |||||||||||||||||||
| Absolute Return Measured at Net Asset Value(d) | 80,542 | — | — | — | |||||||||||||||||||
| Cash | 9,566 | 9,566 | — | — | |||||||||||||||||||
| Total Pension Assets | $ | 549,645 | $ | 425,203 | $ | 43,900 | $ | — | |||||||||||||||
| December 31, 2022 | Quoted Prices in Active Markets for Identical Items (Level 1) | Quoted Prices in Active Markets for Similar Items (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Pension Assets: | |||||||||||||||||||||||
| Domestic Equity(a) | $ | 98,080 | $ | 97,984 | $ | 96 | $ | — | |||||||||||||||
| International Equity(b) | 88,002 | 79,815 | 8,187 | — | |||||||||||||||||||
| Fixed Income(c) | 269,352 | 235,184 | 34,168 | — | |||||||||||||||||||
| Absolute Return Measured at Net Asset Value(d) | 68,725 | — | — | — | |||||||||||||||||||
| Cash | 3,898 | 3,898 | — | — | |||||||||||||||||||
| Total Pension Assets | $ | 528,057 | $ | 416,881 | $ | 42,451 | $ | — | |||||||||||||||
(a)Consists primarily of U.S. stock funds that track or are actively managed and measured against the S&P 500 index.
(b)Consists primarily of international equity funds that invest in common stocks and other securities whose value is based on an international equity index or an underlying equity security or basket of equity securities.
(c)Consists primarily of debt obligations issued by governments, corporations, municipalities and other borrowers. Also includes insurance policies.
(d)Consists primarily of funds with holdings in private investment companies. See additional information about the Absolute Return investments below. Holdings in private investment companies are measured at fair value using the net asset value per share as a practical expedient and have not been categorized in the fair value hierarchy. Their fair values are included in this table to permit reconciliation to the reconciliation of plan assets table above.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
The Company’s pension plan assets in the U.S. and U.K. represent approximately 96% of the total pension plan assets. The investment objective of these pension plan assets is to achieve solid returns while preserving capital to meet current plan cash flow requirements. Assets should participate in rising markets, with defensive action in declining markets expected to an even greater degree. Depending on market conditions, the broad asset class targets may range up or down by approximately 10%. These asset classes include but are not limited to hedge fund of funds, bonds and other fixed income vehicles, high yield fixed income securities, equities and distressed debt. At December 31, 2023 and 2022, equity securities held by our pension and OPEB plans did not include direct ownership of Albemarle common stock.
The weighted-average target allocations as of the measurement date are as follows:
| Target Allocation | |||||
| Equity securities | 38 | % | |||
| Fixed income | 53 | % | |||
| Absolute return | 9 | % | |||
Our Absolute Return investments consist primarily of our investments in hedge fund of funds. These are holdings in private investment companies with fair values that are based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers or fund managers associated with these investments provide valuations of the investments on a monthly basis utilizing the net asset valuation approach for determining fair values. These valuations are reviewed by the Company for reasonableness based on applicable sector, benchmark and company performance to validate the appropriateness of the net asset values as a fair value measurement. Where available, audited financial statements are obtained and reviewed for the investments as support for the manager’s investment valuation. In general, the investment objective of these funds is high risk-adjusted returns with an emphasis on preservation of capital. The investment strategies of each of the funds vary; however, the objective of our Absolute Return investments is complementary to the overall investment objective of our U.S. pension plan assets.
We made contributions to our defined benefit pension and OPEB plans of $17.9 million, $16.1 million and $30.3 million during the years ended December 31, 2023, 2022 and 2021, respectively. We expect contributions to our domestic nonqualified and foreign qualified and nonqualified pension plans to approximate $14.2 million in 2024. Also, we expect to pay approximately $2.4 million in premiums to our U.S. postretirement benefit plan in 2024. However, we may choose to make additional voluntary pension contributions in excess of these amounts.
The current forecast of benefit payments, which reflects expected future service, amounts to (in thousands):
| U.S. Pension Plans | Foreign Pension Plans | Other Postretirement Benefits | |||||||||||||||
| 2024 | $ | 43,432 | $ | 13,476 | $ | 2,446 | |||||||||||
| 2025 | $ | 43,600 | $ | 11,493 | $ | 2,425 | |||||||||||
| 2026 | $ | 43,399 | $ | 11,753 | $ | 2,400 | |||||||||||
| 2027 | $ | 42,985 | $ | 12,322 | $ | 2,368 | |||||||||||
| 2028 | $ | 42,350 | $ | 12,716 | $ | 2,330 | |||||||||||
| 2029-2033 | $ | 197,112 | $ | 66,160 | $ | 10,884 |
We have a supplemental executive retirement plan (“SERP”), which provides unfunded supplemental retirement benefits to certain management or highly compensated employees. The SERP provides for incremental pension benefits to offset the limitations imposed on qualified plan benefits by federal income tax regulations. Costs (credits) relating to our SERP were $0.6 million, ($1.2) million and ($0.2) million for the years ended December 31, 2023, 2022 and 2021, respectively. The projected benefit obligation for the SERP recognized in the consolidated balance sheets at December 31, 2023 and 2022 was $6.2 million and $6.5 million, respectively. The benefit expenses and obligations of this SERP are included in the tables above. Benefits of $0.9 million are expected to be paid to SERP retirees in 2024. On October 1, 2012, our Board of Directors approved amendments to the SERP, such that effective December 31, 2014, no additional benefits shall accrue under this plan and participants’ accrued benefits shall be frozen as of that date to reflect the same changes as were made under the U.S. qualified defined benefit plan.
At December 31, 2023, 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.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Defined Contribution Plans
On March 31, 2004, a new defined contribution pension plan benefit was adopted under the qualified defined contribution plan for U.S. non-represented employees hired after March 31, 2004. On October 1, 2012, our Board of Directors approved certain plan amendments, such that effective January 1, 2013, the defined contribution pension plan benefit is expanded to include non-represented employees hired prior to March 31, 2004, and revised the contribution for all participants to be based on 5% of eligible employee compensation. The employer portion of contributions to our U.S. defined contribution pension plan amounted to $17.8 million, $12.1 million, and $16.7 million in 2023, 2022 and 2021, respectively. Contributions in 2021 included amounts deferred from 2020 as a result of the Company’s plan to maintain financial flexibility during the COVID-19 pandemic.
Certain of our employees participate in our defined contribution 401(k) employee savings plan, which is generally available to all U.S. full-time salaried and non-union hourly employees and to employees who are covered by a collective bargaining agreement that provides for such participation. This U.S. defined contribution plan is funded with contributions made by the participants and us. Our contributions to the 401(k) plan amounted to $18.4 million, $12.7 million and $17.4 million in 2023, 2022 and 2021, respectively. Contributions in 2021 included amounts deferred from 2020 as a result of the Company’s plan to maintain financial flexibility during the COVID-19 pandemic.
Multiemployer Plan
Prior to 2022, certain current and former employees participated in a multiemployer plan in Germany, the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf (“DN Pensionskasse”) that provided monthly payments in the case of disability, death or retirement. On January 1, 2022, the Company terminated its membership with the DN Pensionskasse and as a result did not make any contributions during the year.
In prior years, the majority of the Company’s contributions to the DN Pensionskasse were tied to employees’ contributions, which are generally calculated as a percentage of base compensation, up to a certain statutory ceiling. Our normal contributions to this plan were $1.5 million in the year ended December 31, 2021.
Effective July 1, 2016, the DN Pensionskasse was subject to a financial improvement plan, which expired on December 31, 2022, with the final contribution in the second quarter of 2023. This financial improvement plan called for increased capital reserves to avoid future underfunding risk. During the years ended December 31, 2023, 2022 and 2021, the Company made contributions for its employees covered under this plan of $0.4 million, $2.8 million and $1.3 million, respectively, recorded in Selling, general and administrative expenses, as a result of this financial improvement plan.
NOTE 16—Other Noncurrent Liabilities:
Other noncurrent liabilities consist of the following at December 31, 2023 and 2022 (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Transition tax on foreign earnings(a) | $ | 127,339 | $ | 191,708 | |||||||
| Operating leases(b) | 113,681 | 99,269 | |||||||||
| Liabilities related to uncertain tax positions(c) | 220,555 | 83,670 | |||||||||
| Executive deferred compensation plan obligation | 33,564 | 27,270 | |||||||||
| Environmental liabilities(d) | 23,224 | 31,272 | |||||||||
| Asset retirement obligations(d) | 88,703 | 79,522 | |||||||||
| Tax indemnification liability(e) | 14,481 | 66,137 | |||||||||
| Deferred revenue | 78,027 | — | |||||||||
| Other(f) | 69,526 | 57,748 | |||||||||
| Total | $ | 769,100 | $ | 636,596 |
(a)Noncurrent portion of one-time transition tax on foreign earnings. See Note 21, “Income Taxes,” for additional information.
(b)See Note 18, “Leases.”
(c)See Note 21, “Income Taxes.”
(d)See Note 17, “Commitments and Contingencies.”
(e)Indemnification of certain income and non-income tax liabilities, primarily associated with the Chemetall Surface Treatment entities sold in 2017.
(f)No individual component exceeds 5% of total liabilities.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 17—Commitments and Contingencies:
In the ordinary course of business, we have commitments in connection with various activities. We believe that amounts recorded are adequate for known items which might become due in the current year. The most significant commitments are as follows:
Environmental
We had the following activity in our recorded environmental liabilities for the years ended December 31, 2023, 2022 and 2021 (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Balance, beginning of year | $ | 38,245 | $ | 46,617 | $ | 45,771 | |||||||||||
| Expenditures | (3,393) | (10,378) | (2,752) | ||||||||||||||
| Accretion of discount | 1,094 | 1,031 | 960 | ||||||||||||||
| Additions, liability releases and changes in estimates, net | (2,541) | 673 | 4,063 | ||||||||||||||
| Foreign currency translation adjustments and other | 744 | 302 | (1,425) | ||||||||||||||
| Balance, end of year | 34,149 | 38,245 | 46,617 | ||||||||||||||
| Less amounts reported in Accrued expenses | 10,925 | 6,973 | 9,077 | ||||||||||||||
| Amounts reported in Other noncurrent liabilities | $ | 23,224 | $ | 31,272 | $ | 37,540 |
Environmental remediation liabilities included discounted liabilities of $27.4 million and $30.1 million at December 31, 2023 and 2022, respectively, discounted at rates with a weighted-average of 3.7% and 3.4%, respectively, with the undiscounted amount totaling $55.4 million and $57.5 million at December 31, 2023 and 2022, respectively. For certain locations where the Company is operating groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility.
The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations could represent an additional $47 million before income taxes, in excess of amounts already recorded.
We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would likely 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.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Asset Retirement Obligations
The following is a reconciliation of our beginning and ending asset retirement obligation balances for 2023 and 2022 (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Balance, beginning of year | $ | 80,101 | $ | 79,213 | |||||||
| Additions and changes in estimates | 11,288 | 2,919 | |||||||||
| Accretion of discount | 2,421 | 1,996 | |||||||||
| Liabilities settled | (3,044) | (4,266) | |||||||||
| Foreign currency translation adjustments and other | (1,607) | 239 | |||||||||
| Balance, end of year | $ | 89,159 | $ | 80,101 | |||||||
| Less amounts reported in Accrued expenses | 456 | 579 | |||||||||
| Amounts reported in Other noncurrent liabilities | $ | 88,703 | $ | 79,522 |
Asset retirement obligations primarily relate to post-closure reclamation of brine wells and sites involved in the surface mining and manufacturing of lithium. We are not aware of any conditional asset retirement obligations that would require recognition in our consolidated financial statements.
Litigation
We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.
On February 6, 2017, Huntsman International LLC (“Huntsman”), a subsidiary of Huntsman Corporation, filed a lawsuit in New York state court against Rockwood Holdings, Inc. (“Rockwood”), Rockwood Specialties, Inc., certain former executives of Rockwood and its subsidiaries, Seifollah Ghasemi, Thomas Riordan, Andrew Ross, and Michael Valente, and Albemarle. The lawsuit arises out of Huntsman’s acquisition of certain Rockwood subsidiaries in connection with a stock purchase agreement (the “SPA”), dated September 17, 2013. Before that transaction closed on October 1, 2014, Albemarle began discussions with Rockwood to purchase all outstanding equity of Rockwood and did so in a transaction that closed on January 12, 2015. Huntsman’s complaint asserted that certain technology that Rockwood had developed for a production facility in Augusta, Georgia, and which was among the assets that Huntsman acquired pursuant to the SPA, did not work, and that Rockwood and the defendant executives had intentionally misled Huntsman about that technology in connection with the Huntsman-Rockwood transaction. The complaint asserted claims for, among other things, fraud, negligent misrepresentation, and breach of the SPA, and sought certain costs for completing construction of the production facility.
On March 10, 2017, Albemarle moved in New York state court to compel arbitration, which was granted on January 8, 2018 (although Huntsman unsuccessfully appealed that decision). Huntsman’s arbitration demand asserted claims substantially similar to those asserted in its state court complaint, and sought various forms of legal remedies, including cost overruns, compensatory damages, expectation damages, punitive damages, and restitution. After a trial, the arbitration panel issued an award on October 28, 2021, awarding approximately $600 million (including interest) to be paid by Albemarle to Huntsman, in addition to the possibility of attorney’s fees, costs and expenses. Following the arbitration panel decision, Albemarle reached a settlement with Huntsman to pay $665 million in two equal installments, with the first payment made in December 2021. The second and final payment of $332.5 million was made in May 2022. As a result, the consolidated statements of income for the year ended December 31, 2021, includes expense of $657.4 million ($508.5 million net of income tax), inclusive of estimated possible legal fees incurred by Huntsman and other related obligations, to reflect the increase in liabilities for this legal matter.
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 what is now the Ketjen segment, we investigated and voluntarily self-reported potential violations of the U.S. Foreign Corrupt Practices Act to the U.S. Department of Justice (“DOJ”) and the SEC, and also reported this conduct to the Dutch Public Prosecutor (“DPP”). We cooperated with these
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
agencies in their investigations of this historical conduct and implemented appropriate remedial measures intended to strengthen our compliance program and related internal controls.
In September 2023, the Company finalized agreements to resolve these matters with the DOJ and SEC. The DPP has confirmed it will not pursue action in this matter. In connection with this resolution, which relates to conduct prior to 2018, we entered into a non-prosecution agreement with the DOJ and an administrative resolution with the SEC, pursuant to which we paid a total of $218.5 million in aggregate fines, disgorgement, and prejudgment interest to the DOJ and SEC. The resolution does not include a compliance monitorship, although the Company has agreed to certain ongoing compliance reporting obligations.
During the year ended December 31, 2023, the Company recorded a charge of $218.5 million in Selling, General and Administrative Expenses in its consolidated statement of operations and accrued a corresponding liability on its consolidated balance sheet for these agreements. The agreed upon amounts were paid to the DOJ and SEC in October 2023, with this matter considered finalized and no future financial obligations expected.
Indemnities
We are indemnified by third parties in connection with certain matters related to acquired and divested businesses. Although we believe that the financial condition of those parties who may have indemnification obligations to the Company is generally sound, in the event the Company seeks indemnity under any of these agreements or through other means, there can be no assurance that any party who may have obligations to indemnify us will adhere to their obligations and we may have to resort to legal action to enforce our rights under the indemnities.
The Company may be subject to indemnity claims relating to properties or businesses it divested, including properties or businesses of acquired businesses that were divested prior to the completion of the acquisition. In the opinion of management, and based upon information currently available, the ultimate resolution of any indemnification obligations owed to the Company or by the Company is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows. The Company had approximately $14.5 million and $66.1 million at December 31, 2023 and 2022, respectively, recorded in Other noncurrent liabilities primarily related to the indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold in 2017.
Other
The Company has standby letters of credit and guarantees with various financial institutions. The following table summarizes our letters of credit and guarantee agreements (in thousands):
| 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | ||||||||||||||||||||||||||||||
| Letters of credit and other guarantees | $ | 193,648 | $ | 13,375 | $ | 2,454 | $ | 868 | $ | 717 | $ | 6,088 |
The outstanding letters of credit are primarily related to insurance claim payment guarantees. The majority of the Company’s other guarantees have terms of one year and mainly consist of performance and environmental guarantees, as well as guarantees to customs and port authorities. The guarantees arose during the ordinary course of business.
We do not have recorded reserves for the letters of credit and guarantees as of December 31, 2023. We are unable to estimate the maximum amount of the potential future liability under guarantees and letters of credit. However, we accrue for any potential loss for which we believe a future payment is probable and a range of loss can be reasonably estimated. We believe our liability under such obligations is immaterial.
We currently, and are from time to time, subject to transactional audits in various taxing jurisdictions and to customs audits globally. We do not expect the financial impact of any of these audits to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
NOTE 18—Leases:
We lease certain office space, buildings, transportation and equipment in various countries. The initial lease terms generally range from 1 to 30 years for real estate leases, and from 2 to 15 years for non-real estate leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Many leases include options to terminate or renew, with renewal terms that can extend the lease term from 1 to 50 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table provides details of our lease contracts for the years ended December 31, 2023, 2022 and 2021 (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Operating lease cost | $ | 48,238 | $ | 43,809 | $ | 42,338 | |||||||||||
| Finance lease cost: | |||||||||||||||||
| Amortization of right of use assets | 5,302 | 3,377 | 614 | ||||||||||||||
| Interest on lease liabilities | 5,070 | 3,504 | 3,010 | ||||||||||||||
| Total finance lease cost | 10,372 | 6,881 | 3,624 | ||||||||||||||
| Short-term lease cost | 20,309 | 13,985 | 11,084 | ||||||||||||||
| Variable lease cost | 25,075 | 8,064 | 8,002 | ||||||||||||||
| Total lease cost | $ | 103,994 | $ | 72,739 | $ | 65,048 |
Supplemental cash flow information related to our lease contracts for the years ended December 31, 2023, 2022 and 2021 is as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2020 | |||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||
| Operating cash flows from operating leases | $ | 49,261 | $ | 36,629 | $ | 33,030 | |||||||||||
| Operating cash flows from finance leases | 4,671 | 3,389 | 1,776 | ||||||||||||||
| Financing cash flows from finance leases | 2,165 | 1,432 | 687 | ||||||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||||||||
| Operating leases | 48,655 | 15,913 | 56,814 | ||||||||||||||
| Finance leases | 46,773 | 3,976 | 17,096 |
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Supplemental balance sheet information related to our lease contracts, including the location on balance sheet, at December 31, 2023 and 2022 is as follows (in thousands, except as noted):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating leases: | |||||||||||
| Other assets | $ | 137,405 | $ | 128,173 | |||||||
| Accrued expenses | 30,583 | 35,515 | |||||||||
| Other noncurrent liabilities | 113,681 | 99,269 | |||||||||
| Total operating lease liabilities | 144,264 | 134,784 | |||||||||
| Finance leases: | |||||||||||
| Net property, plant and equipment | 112,438 | 81,356 | |||||||||
| Current portion of long-term debt(a) | 9,702 | 4,995 | |||||||||
| Long-term debt | 104,484 | 74,409 | |||||||||
| Total finance lease liabilities | 114,186 | 79,404 | |||||||||
| Weighted average remaining lease term (in years): | |||||||||||
| Operating leases | 12.2 | 13.3 | |||||||||
| Finance leases | 20.7 | 22.8 | |||||||||
| Weighted average discount rate (%): | |||||||||||
| Operating leases | 4.74 | % | 3.60 | % | |||||||
| Finance leases | 4.71 | % | 4.41 | % |
(a) Balance includes accrued interest of finance lease.
Maturities of lease liabilities as of December 31, 2023 were as follows (in thousands):
| Operating Leases | Finance Leases | ||||||||||
| 2024 | $ | 33,646 | $ | 12,386 | |||||||
| 2025 | 28,980 | 9,229 | |||||||||
| 2026 | 20,667 | 8,566 | |||||||||
| 2027 | 15,664 | 8,566 | |||||||||
| 2028 | 11,102 | 8,566 | |||||||||
| Thereafter | 107,058 | 128,547 | |||||||||
| Total lease payments | 217,117 | 175,860 | |||||||||
| Less imputed interest | 72,853 | 61,674 | |||||||||
| Total | $ | 144,264 | $ | 114,186 |
NOTE 19—Stock-based Compensation Expense:
Incentive Plans
We have various share-based compensation plans that authorize the granting of (i) qualified and non-qualified stock options to purchase shares of our common stock, (ii) restricted stock and restricted stock units, (iii) performance unit awards and (iv) stock appreciation rights (“SARs”) to employees and non-employee directors, at our option. Stock options granted to employees generally vest over three years and have a term of ten years. Restricted stock and restricted stock unit awards vest in periods ranging from one to five years from the date of grant. Performance unit awards are earned at a level ranging from 0% to 200% contingent upon the achievement of specific performance criteria over periods ranging from one to three years. Distribution of earned units occurs generally 50% upon completion of the applicable measurement period with the remaining 50% distributed one year thereafter.
In May 2017, the Company adopted the Albemarle Corporation 2017 Incentive Plan (the “Incentive Plan”), which replaced the Albemarle Corporation 2008 Incentive Plan. The maximum number of shares available for issuance to participants
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
under the Incentive Plan is 4,500,000 shares. The adoption of the Incentive Plan did not affect awards already granted under the Albemarle Corporation 2008 Incentive Plan. In February 2023, the Company adopted the Albemarle Corporation 2023 Stock Compensation and Deferral Election Plan for Non-Employee Directors (the “Non-Employee Directors Plan”). The Non-Employee Directors Plan replaced the 2013 Stock Compensation and Deferral Election Plan for Non-Employee Directors, which expired by its terms in May 2023. Under the Non-Employee Directors Plan, a maximum aggregate number of 500,000 shares of our common stock is authorized for issuance to the Company’s non-employee directors; any shares remaining available for issuance under the prior plans were canceled. The aggregate fair market value of shares that may be issued to a director during any compensation year (as defined in the Non-Employee Directors Plan, generally July 1 to June 30) shall not exceed $750,000. At December 31, 2023, there were 3,072,368 shares available for grant under the Incentive Plan and 493,250 shares available for grant under the Non-Employee Directors Plan.
Total stock-based compensation expense associated with our incentive plans for the years ended December 31, 2023, 2022 and 2021 amounted to $39.0 million, $31.4 million and $18.8 million, respectively, and is included in Cost of goods sold and Selling, general and administrative expenses in the consolidated statements of income. Total related recognized tax benefits for the years ended December 31, 2023, 2022 and 2021 amounted to $4.6 million, $4.0 million and $2.3 million, respectively.
The following table summarizes information about the Company’s fixed-price stock options as of and for the year ended December 31, 2023:
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at December 31, 2022 | 384,936 | $ | 114.24 | 6.3 | $ | 39,501 | |||||||||||||||||
| Granted | 51,316 | 249.52 | |||||||||||||||||||||
| Exercised | (3,124) | 59.41 | |||||||||||||||||||||
| Forfeited | (5,984) | 207.12 | |||||||||||||||||||||
| Outstanding at December 31, 2023 | 427,144 | $ | 129.59 | 5.8 | $ | 14,891 | |||||||||||||||||
| Exercisable at December 31, 2023 | 314,745 | $ | 102.14 | 4.9 | $ | 14,891 |
We granted 51,316, 57,348 and 62,479 stock options during 2023, 2022 and 2021, respectively. There were no significant modifications made to any share-based grants during these periods.
The fair value of each option granted during the years ended December 31, 2023, 2022 and 2021 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Dividend yield | 1.26 | % | 1.32 | % | 1.43 | % | |||||||||||
| Volatility | 40.06 | % | 36.21 | % | 36.19 | % | |||||||||||
| Average expected life (years) | 6 | 6 | 6 | ||||||||||||||
| Risk-free interest rate | 3.95 | % | 1.97 | % | 1.44 | % | |||||||||||
| Fair value of options granted | $ | 98.66 | $ | 63.00 | $ | 49.42 |
Dividend yield is the average of historical yields and those estimated over the average expected life. The stock volatility is based on historical volatilities of our common stock. The average expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns. The risk-free interest rate is based on the U.S. Treasury strip rate with stripped coupon interest for the period equal to the contractual term of the share option grant in effect at the time of grant.
The intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $0.5 million, $6.9 million and $37.2 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.
Total compensation cost not yet recognized for nonvested stock options outstanding as of December 31, 2023 is approximately $4.2 million and is expected to be recognized over a remaining weighted-average period of 1.9 years. Cash proceeds from stock options exercised and tax benefits related to stock options exercised were $0.2 million and $0.1 million for
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
the year ended December 31, 2023, respectively. The Company issues new shares of common stock upon exercise of stock options and vesting of restricted common stock awards.
The following table summarizes activity in performance unit awards as of and for the year ended December 31, 2023:
| Shares | Weighted-Average Grant Date Fair Value Per Share | ||||||||||
| Nonvested, beginning of period | 224,548 | $ | 140.44 | ||||||||
| Granted | 79,396 | 288.28 | |||||||||
| Vested | (73,060) | 102.29 | |||||||||
| Forfeited | (7,028) | 229.70 | |||||||||
| Nonvested, end of period | 223,856 | 207.61 |
The weighted average grant date fair value of performance unit awards granted in 2023, 2022 and 2021 was $22.9 million, $13.1 million and $10.0 million, respectively. For all periods presented, half of the performance unit awards granted were based on the targeted return on invested capital (“ROIC Award”), while the other half were granted based on targeted market conditions (“TSR Award”). The fair value of each TSR Award was estimated on the date of grant using the Monte Carlo simulation model as these equity awards are tied to a service and market condition. The calculation used the following weighted-average assumptions:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Volatility | 50.41 | % | 51.51 | % | 47.13 | % | |||||||||||
| Risk-free interest rate | 4.51 | % | 1.72 | % | 0.27 | % |
The weighted average fair value of performance unit awards that vested during 2023, 2022 and 2021 was $17.2 million, $11.9 million and $5.8 million, respectively, based on the closing prices of our common stock on the dates of vesting. Total compensation cost not yet recognized for nonvested performance unit awards outstanding as of December 31, 2023 is approximately $24.8 million, calculated based on current expectation of specific performance criteria, and is expected to be recognized over a remaining weighted-average period of approximately 1.5 years. Each performance unit represents one share of common stock.
The following table summarizes activity in non-performance based restricted stock and restricted stock unit awards as of and for the year ended December 31, 2023:
| Shares | Weighted-Average Grant Date Fair Value Per Share | ||||||||||
| Nonvested, beginning of period | 300,953 | $ | 120.09 | ||||||||
| Granted | 87,240 | 221.86 | |||||||||
| Vested | (183,258) | 86.15 | |||||||||
| Forfeited | (6,788) | 196.00 | |||||||||
| Nonvested, end of period | 198,147 | 190.40 |
The weighted average grant date fair value of restricted stock and restricted stock unit awards granted in 2023, 2022 and 2021 was $19.4 million, $15.4 million and $10.6 million, respectively. The weighted average fair value of restricted stock and restricted stock unit awards that vested in 2023, 2022 and 2021 was $38.8 million, $17.8 million and $11.0 million, respectively, based on the closing prices of our common stock on the dates of vesting. Total compensation cost not yet recognized for nonvested, non-performance based restricted stock and restricted stock units as of December 31, 2023 is approximately $20.2 million and is expected to be recognized over a remaining weighted-average period of 1.9 years. The fair value of the non-performance based restricted stock and restricted stock units was estimated on the date of grant adjusted for a dividend factor, if necessary.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 20—Accumulated Other Comprehensive (Loss) Income:
The components and activity in Accumulated other comprehensive (loss) income (net of deferred income taxes) consisted of the following during the years ended December 31, 2023, 2022 and 2021 (in thousands):
| Foreign Currency Translation and Other | Net Investment Hedge**(a)** | Cash Flow Hedge**(b)** | Interest Rate Swap**(c)** | Total | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | (369,152) | $ | 46,593 | $ | 6,449 | $ | (10,022) | $ | (326,132) | |||||||||||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (74,478) | 5,110 | 174 | — | (69,194) | ||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 93 | — | — | 2,623 | 2,716 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | (74,385) | 5,110 | 174 | 2,623 | (66,478) | ||||||||||||||||||||||||||||||||||||
| Amounts reclassified within accumulated other comprehensive income | 51,703 | (51,703) | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income attributable to noncontrolling interests | 160 | — | — | — | 160 | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | (391,674) | $ | — | $ | 6,623 | $ | (7,399) | $ | (392,450) | |||||||||||||||||||||||||||||||
| Other comprehensive loss before reclassifications | (171,367) | — | (4,399) | — | (175,766) | ||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 72 | — | — | 7,399 | 7,471 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | (171,295) | — | (4,399) | 7,399 | (168,295) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss attributable to noncontrolling interests | 83 | — | — | — | 83 | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (562,886) | $ | — | $ | 2,224 | $ | — | $ | (560,662) | |||||||||||||||||||||||||||||||
| Other comprehensive income before reclassifications | 26,337 | — | 5,986 | — | 32,323 | ||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 66 | — | (135) | — | (69) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | 26,403 | — | 5,851 | — | 32,254 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss attributable to noncontrolling interests | (118) | — | — | — | (118) | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | (536,601) | $ | — | $ | 8,075 | $ | — | $ | (528,526) |
(a)During the first quarter of 2021, the net investment hedge was discontinued following the repayment of the 1.875% Euro-denominated
senior notes. The balance of foreign exchange revaluation gains and losses associated with this discontinued net investment hedge have
been reclassified to Foreign currency translation and other, and will remain within Accumulated other comprehensive loss until the
hedged net investment is sold or liquidated.
(b)We entered into a foreign currency forward contract in the fourth quarter of 2019, which was designated and accounted for as a cash flow hedge under ASC 815, Derivatives and Hedging. See Note 22, “Fair Value of Financial Instruments,” for additional information.
(c)The pre-tax portion of amounts reclassified from accumulated other comprehensive loss is included in interest expense. The balance of this interest rate swap was being amortized to Interest and financing expenses over the life of the 4.15% senior notes originally due in 2024. As discussed in Note 14, “Long-term Debt,” the Company repaid these notes in the second quarter of 2022, and as a result, reclassified the remaining balance of this interest rate swap to interest expense during the same period as part of the early extinguishment of debt.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
The amount of income tax benefit (expense) allocated to each component of Other comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021 is provided in the following tables (in thousands):
| Foreign Currency Translation and Other | Net Investment Hedge | Cash Flow Hedge | Interest Rate Swap | Total | |||||||||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, before tax | $ | 23,964 | $ | — | $ | 8,358 | $ | — | $ | 32,322 | |||||||||||||||||||||||||||||||
| Income tax expense | 2,439 | — | (2,507) | — | (68) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | $ | 26,403 | $ | — | $ | 5,851 | $ | — | $ | 32,254 | |||||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, before tax | $ | (168,953) | $ | — | $ | (4,399) | $ | 9,739 | $ | (163,613) | |||||||||||||||||||||||||||||||
| Income tax expense | (2,342) | — | — | (2,340) | (4,682) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | $ | (171,295) | $ | — | $ | (4,399) | $ | 7,399 | $ | (168,295) | |||||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, before tax | $ | (76,544) | $ | 6,552 | $ | 174 | $ | 3,336 | $ | (66,482) | |||||||||||||||||||||||||||||||
| Income tax benefit (expense) | 2,159 | (1,442) | — | (713) | 4 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | $ | (74,385) | $ | 5,110 | $ | 174 | $ | 2,623 | $ | (66,478) |
NOTE 21—Income Taxes:
Income before income taxes and equity in net income of unconsolidated investments, and current and deferred income tax expense (benefit) are composed of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Income before income taxes and equity in net income of unconsolidated investments: | |||||||||||||||||
| Domestic | $ | (461,897) | $ | 952,799 | $ | (186,077) | |||||||||||
| Foreign | 708,635 | 1,480,645 | 319,695 | ||||||||||||||
| Total | $ | 246,738 | $ | 2,433,444 | $ | 133,618 | |||||||||||
| Current income tax expense (benefit): | |||||||||||||||||
| Federal | $ | (54,250) | $ | 33,230 | $ | 11,722 | |||||||||||
| State | (3,395) | 4,965 | 694 | ||||||||||||||
| Foreign | 387,045 | 259,054 | 55,530 | ||||||||||||||
| Total | $ | 329,400 | $ | 297,249 | $ | 67,946 | |||||||||||
| Deferred income tax expense (benefit): | |||||||||||||||||
| Federal | $ | (8,545) | $ | 84,054 | $ | (38,413) | |||||||||||
| State | (4,154) | (3,511) | (5,544) | ||||||||||||||
| Foreign | 113,576 | 12,796 | 5,457 | ||||||||||||||
| Total | $ | 100,877 | $ | 93,339 | $ | (38,500) | |||||||||||
| Total income tax expense | $ | 430,277 | $ | 390,588 | $ | 29,446 |
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
The reconciliation of the U.S. federal statutory rate to the effective income tax rate is as follows:
| % of Income Before Income Taxes | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State taxes, net of federal tax benefit | (2.8) | — | (3.5) | ||||||||||||||
| Change in valuation allowance(a) | 98.8 | (3.9) | 33.7 | ||||||||||||||
| Impact of foreign earnings, net(b)(c) | 7.7 | (0.1) | (40.5) | ||||||||||||||
| Global intangible low tax inclusion | 4.2 | 0.3 | 12.3 | ||||||||||||||
| Foreign-derived intangible income | — | (3.0) | — | ||||||||||||||
| Section 162(m) limitation | 4.4 | 0.3 | 4.5 | ||||||||||||||
| Subpart F income | (1.9) | 0.2 | 4.8 | ||||||||||||||
| Stock-based compensation | (3.9) | (0.3) | (7.2) | ||||||||||||||
| Depletion | (2.4) | (0.2) | (2.9) | ||||||||||||||
| U.S. federal return to provision | (6.1) | (0.4) | (1.7) | ||||||||||||||
| Revaluation of unrecognized tax benefits/reserve requirements(d) | 39.1 | 2.3 | 3.0 | ||||||||||||||
| Legal accrual(e) | 18.6 | — | — | ||||||||||||||
| Other items, net | (2.3) | (0.1) | (1.5) | ||||||||||||||
| Effective income tax rate | 174.4 | % | 16.1 | % | 22.0 | % |
(a)Due to the Company being in a three-year cumulative loss position in China as of December 31, 2023, the year ended December 31, 2023 includes the establishment of a valuation allowance of $223.0 million on current year losses in one of our Chinese entities. The years ended December 31, 2022 and 2021 include benefits of $91.8 million and $6.0 million, respectively, due to the release of a foreign valuation allowance due to changes in expected profitability.
(b)The year ended December 31, 2021 includes a discrete tax benefit of $27.9 million related to the revision of an indemnification estimate for an ongoing tax-related matter in Germany.
(c)Our statutory rate is decreased by our share of the income of JBC, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. The applicable provisions of the Jordanian law, and applicable regulations thereunder, do not have a termination provision and the exemption is indefinite. As a Free Zones company, JBC is not subject to income taxes on the profits of products exported from Jordan, and currently, substantially all of the profits are from exports. This resulted in a rate benefit of 20.1%, 3.2%, and 34.6% for the years ended December 31, 2023, 2022, and 2021, respectively.
(d)The year ended December 31, 2023 includes a $96.5 million expense recorded for a current year tax reserve related to an uncertain tax position in Chile.
(e)The year ended December 31, 2023 includes the tax impact of a non-deductible $218.5 million legal accrual recorded for the agreements to resolve a previously disclosed legal matter with the DOJ and SEC during the year ended December 31, 2023. See Note 17, “Commitments and Contingencies,” for further details on this matter.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2023 and 2022 consist of the following (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred tax assets: | |||||||||||
| Accrued employee benefits | $ | 31,917 | $ | 20,060 | |||||||
| Operating loss carryovers | 1,316,916 | 1,157,841 | |||||||||
| Pensions | 23,527 | 26,229 | |||||||||
| Inventory reserves | 83,136 | 3,600 | |||||||||
| Tax credit carryovers | 1,431 | 3,750 | |||||||||
| Other(a) | 103,517 | 118,733 | |||||||||
| Gross deferred tax assets | 1,560,444 | 1,330,213 | |||||||||
| Valuation allowance | (1,349,924) | (1,087,505) | |||||||||
| Deferred tax assets | 210,520 | 242,708 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation | (541,245) | (446,942) | |||||||||
| Intangibles | (54,413) | (84,690) | |||||||||
| Other | (150,859) | (145,412) | |||||||||
| Deferred tax liabilities | (746,517) | (677,044) | |||||||||
| Net deferred tax liabilities | $ | (535,997) | $ | (434,336) | |||||||
| Classification in the consolidated balance sheets: | |||||||||||
| Noncurrent deferred tax assets | $ | 22,433 | $ | 46,434 | |||||||
| Noncurrent deferred tax liabilities | (558,430) | (480,770) | |||||||||
| Net deferred tax liabilities | $ | (535,997) | $ | (434,336) |
Changes in the balance of our deferred tax asset valuation allowance are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Balance at January 1 | $ | (1,087,505) | $ | (1,276,305) | $ | (1,326,204) | |||||||||||
| Additions | (262,469) | (5,810) | (61,470) | ||||||||||||||
| Deductions | 50 | 194,610 | 111,369 | ||||||||||||||
| Balance at December 31 | $ | (1,349,924) | $ | (1,087,505) | $ | (1,276,305) |
At December 31, 2023, we had approximately $1.4 million of domestic credits available to offset future payments of income taxes, expiring in varying amounts between 2024 and 2028. We have established valuation allowances for $0.1 million of those domestic credits since we believe that it is more likely than not that the related deferred tax assets will not be realized. We believe that sufficient taxable income will be generated during the carryover period in order to utilize the other remaining credit carryovers.
At December 31, 2023, we have on a pre-tax basis, domestic state net operating losses of $355.5 million, expiring between 2022 and 2041, which have pre-tax valuation allowances of $13.8 million established. In addition, we have on a pre-tax basis $5.2 billion of foreign net operating losses, which have pre-tax valuation allowances for $5.1 billion established. $643.5 million of these foreign net operating losses expire in 2028, $2.7 billion expire in 2035, $215.1 million expire in 2036. $19.7 million expire in 2037, $14.3 million expire at various other dates and $1.6 billion have an indefinite life. We have established valuation allowances for these deferred tax assets since we believe that it is more likely than not that the related deferred tax assets will not be realized. For the same reason, we established pre-tax valuation allowances of $250.9 million and $265.5 million for other state and foreign deferred tax assets, respectively, unrelated to net operating losses. The realization of the deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. Although realization is not assured, we believe it is more likely than not that the remaining deferred tax assets will be realized. However, the amount considered realizable could be reduced if estimates of future taxable income change.
As of December 31, 2023, we have not recorded taxes on approximately $11.1 billion of cumulative undistributed earnings of our non-U.S. subsidiaries and joint ventures. The TCJA imposed a mandatory transition tax on accumulated foreign
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
earnings and generally eliminated U.S. taxes on foreign subsidiary distribution with the exception of foreign withholding taxes and other foreign local tax. We generally do not provide for taxes related to our undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. If in the foreseeable future, we can no longer demonstrate that these earnings are indefinitely reinvested, a deferred tax liability will be recognized. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated.
Liabilities related to uncertain tax positions were $220.6 million and $83.7 million at December 31, 2023 and 2022, respectively, inclusive of interest and penalties of $42.0 million and $11.5 million at December 31, 2023 and 2022, respectively, and are reported in Other noncurrent liabilities as provided in Note 16, “Other Noncurrent Liabilities.” These liabilities at December 31, 2023 and 2022 were reduced by $73.0 million and $32.4 million, respectively, for offsetting benefits from the corresponding effects of potential transfer pricing adjustments, state and local income taxes, and rate arbitrage related to foreign structure. These offsetting benefits are recorded in Other assets as provided in Note 11, “Other Assets.” The resulting net liability of $105.6 million as of December 31, 2023 would favorably affect earnings if recognized and released, while the net liability of $39.8 million at December 31, 2022 would favorably affect earnings if recognized and released.
The liabilities related to uncertain tax positions, exclusive of interest, were $178.8 million and $72.2 million at December 31, 2023 and 2022, respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2023, 2022 and 2021 (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Balance at January 1 | $ | 72,162 | $ | 20,717 | $ | 11,639 | |||||||||||
| Additions for tax positions related to prior years | 6,216 | 1,673 | 75 | ||||||||||||||
| Reductions for tax positions related to prior years | — | — | (6) | ||||||||||||||
| Additions for tax positions related to current year | 101,179 | 50,531 | 10,911 | ||||||||||||||
| Lapses in statutes of limitations/settlements | (770) | (995) | (1,931) | ||||||||||||||
| Foreign currency translation adjustment | (2) | 236 | 29 | ||||||||||||||
| Balance at December 31 | $ | 178,785 | $ | 72,162 | $ | 20,717 |
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 2020. Due to the statute of limitations, we also are no longer subject to U.S. state income tax audits prior to 2017.
With respect to jurisdictions outside the U.S., several audits are in process. We have audits ongoing for the years 2014 through 2022 related to Belgium, Canada, Chile, China, Germany and South Africa, 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 is 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 an increase in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $0.4 million as a result of closure of tax statutes.
NOTE 22—Fair Value of Financial Instruments:
In assessing the fair value of financial instruments, we use methods and assumptions that are based on market conditions and other risk factors existing at the time of assessment. Fair value information for our financial instruments is as follows:
Long-Term Debt—the fair values of our notes are estimated using Level 1 inputs and account for the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying consolidated balance sheets approximates fair value as substantially all of such debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Recorded Amount | Fair Value | Recorded Amount | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Long-term debt | $ | 4,186,532 | $ | 4,021,693 | $ | 3,239,853 | $ | 2,993,027 |
Foreign Currency Forward Contracts—during the fourth quarter of 2019, we entered into a foreign currency forward contract to hedge the cash flow exposure of non-functional currency purchases during the construction of the Kemerton plant in Australia. This derivative financial instrument is used to manage risk and is not used for trading or other speculative purposes. This foreign currency forward contract has been designated as a hedging instrument under ASC 815, Derivatives and Hedging. At December 31, 2023 and 2022, we had outstanding designated foreign currency forward contracts with notional values totaling the equivalent of $994.5 million and $64.5 million, respectively.
We also enter into foreign currency forward contracts in connection with our risk management strategies that have not been designated as hedging instruments under ASC 815, Derivatives and Hedging, in an attempt to minimize the financial impact of changes in foreign currency exchange rates. These derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. The fair values of our non-designated foreign currency forward contracts are estimated based on current settlement values. At December 31, 2023 and 2022, we had outstanding non-designated foreign currency forward contracts with notional values totaling $7.1 billion and $2.8 billion, respectively, hedging our exposure to various currencies including the Chinese Renminbi, Euro, Australian Dollar, Chilean Peso and Japanese Yen.
The following table summarizes the fair value of our foreign currency forward contracts included in the consolidated balance sheets at December 31, 2023 and 2022 (in thousands):
| December 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||
| Designated as hedging instruments | |||||||||||||||||||||||
| Other current assets | $ | 3,489 | $ | — | $ | — | $ | — | |||||||||||||||
| Other assets | 11,704 | — | — | — | |||||||||||||||||||
| Accrued expenses | — | 446 | — | 3,159 | |||||||||||||||||||
| Total designated as hedging instruments | 15,193 | 446 | — | 3,159 | |||||||||||||||||||
| Not designated as hedging instruments | |||||||||||||||||||||||
| Other current assets | 2,636 | — | 6,016 | — | |||||||||||||||||||
| Accrued expenses | — | 5,306 | — | 85 | |||||||||||||||||||
| Total not designated as hedging instruments | 2,636 | 5,306 | 6,016 | 85 | |||||||||||||||||||
| Total | $ | 17,829 | $ | 5,752 | $ | 6,016 | $ | 3,244 |
The following table summarizes the net gains (losses) recognized for our foreign currency forward contracts during the years ended December 31, 2023, 2022 and 2021 (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Designated as hedging instruments: | |||||||||||||||||
| Gains (losses) recognized in Other comprehensive income (loss) | $ | 8,493 | $ | (4,398) | $ | 174 | |||||||||||
| Not designated as hedging instruments: | |||||||||||||||||
| Gains (losses) recognized in Other income (expenses), net(a) | $ | 213,378 | $ | (41,088) | $ | 1,068 |
(a)Fluctuations in the value of our foreign currency forward contracts not designated as hedging instruments are generally expected to be offset by changes in the value of the underlying exposures being hedged, which are also reported in Other income (expenses), net.
In addition, for the years ended December 31, 2023, 2022 and 2021, we recorded net cash receipts (settlements) of $218.0 million, ($44.4) million and ($2.4) million, respectively, primarily within Changes in current assets and liabilities, in our consolidated statements of cash flows.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
Unrealized gains and losses related to the cash flow hedges will be reclassified to earnings over the life of the related assets when settled and the related assets are placed into service.
The counterparties to our foreign currency forward contracts are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties.
NOTE 23—Fair Value Measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities | ||||
| Level 2 | Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability | ||||
| Level 3 | Unobservable inputs for the asset or liability |
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2023 and 2022 (in thousands):
| December 31, 2023 | Quoted Prices in Active Markets for Identical Items (Level 1) | Quoted Prices in Active Markets for Similar Items (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available for sale debt securities(a) | $ | 289,307 | $ | — | $ | — | $ | 289,307 | |||||||||||||||
| Investments under executive deferred compensation plan(b) | $ | 33,564 | $ | 33,564 | $ | — | $ | — | |||||||||||||||
| Public equity securities(c) | $ | 168,928 | $ | 168,928 | $ | — | $ | — | |||||||||||||||
| Private equity securities measured at net asset value(d)(e) | $ | 4,536 | $ | — | $ | — | $ | — | |||||||||||||||
| Foreign currency forward contracts(f) | $ | 17,829 | $ | — | $ | 17,829 | $ | — | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Obligations under executive deferred compensation plan(b) | $ | 33,564 | $ | 33,564 | $ | — | $ | — | |||||||||||||||
| Foreign currency forward contracts(f) | $ | 5,752 | $ | — | $ | 5,752 | $ | — |
| December 31, 2022 | Quoted Prices in Active Markets for Identical Items (Level 1) | Quoted Prices in Active Markets for Similar Items (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available for sale debt securities(a) | $ | 260,139 | $ | — | $ | — | $ | 260,139 | |||||||||||||||
| Investments under executive deferred compensation plan(b) | $ | 27,270 | $ | 27,270 | $ | — | $ | — | |||||||||||||||
| Public equity securities(c) | $ | 5,890 | $ | 5,890 | $ | — | $ | — | |||||||||||||||
| Private equity securities measured at net asset value(d)(e) | $ | 6,375 | $ | — | $ | — | $ | — | |||||||||||||||
| Foreign currency forward contracts(f) | $ | 6,016 | $ | — | $ | 6,016 | $ | — | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Obligations under executive deferred compensation plan(b) | $ | 27,270 | $ | 27,270 | $ | — | $ | — | |||||||||||||||
| Foreign currency forward contracts(f) | $ | 3,244 | $ | — | $ | 3,244 | $ | — |
(a)Preferred equity of a Grace subsidiary acquired as a portion of the proceeds of the FCS sale on June 1, 2021. See Note 3, “Divestitures,” for further details on the material terms and conditions. A third-party estimate of the fair value was prepared using expected future cash flows over the period up to when the asset is likely to be redeemed, applying a discount rate that appropriately captures a market participant's view of the risk associated with the investment. These are considered to be Level 3 inputs.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(b)We maintain an EDCP that was adopted in 2001 and subsequently amended. The purpose of the EDCP is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended to aid in attracting and retaining employees of exceptional ability by providing them with these benefits. We also maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of the EDCP, subject to the claims of our creditors in the event of our insolvency. Assets of the Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fund investments (which are accounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statements of income) and cash and cash equivalents. As such, these assets and obligations are classified within Level 1.
(c)Holdings in equity securities of public companies reported in Investments in the consolidated balance sheets. The fair value is measured using publicly available share prices of the investments, with any changes reported in Other income (expenses), net, in our consolidated statements of income. See Note 10, “Investments,” for further details.
(d)Primarily consists of private equity securities reported in Investments in the consolidated balance sheets. The changes in fair value are reported in Other income (expenses), net in our consolidated statements of income.
(e)Holdings in certain private equity securities are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy.
(f)As a result of our global operating and financing activities, we are exposed to market risks from changes in foreign currency exchange rates which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from foreign currency exchange rate fluctuations through the use of foreign currency forward contracts. The foreign currency forward contracts are valued using broker quotations or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within Level 2. See Note 22, “Fair Value of Financial Instruments,” for further details about our foreign currency forward contracts.
The following tables set forth the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements (in thousands):
| Available for Sale Debt Securities | |||||||||||
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Beginning balance | $ | 260,139 | $ | 246,517 | |||||||
| Accretion of discount | 5,306 | 12,735 | |||||||||
| PIK dividends | 19,307 | — | |||||||||
| Change in fair value | 4,554 | 887 | |||||||||
| Ending balance | $ | 289,306 | $ | 260,139 |
NOTE 24—Related Party Transactions:
Our consolidated statements of income include sales to and purchases from unconsolidated affiliates in the ordinary course of business as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Sales to unconsolidated affiliates | $ | 35,676 | $ | 51,906 | $ | 19,441 | |||||||||||
| Purchases from unconsolidated affiliates(a) | $ | 3,652,784 | $ | 1,920,476 | $ | 213,077 |
(a)Purchases from unconsolidated affiliates primarily relate to spodumene purchased from the Company’s Windfield joint venture.
(b)Cost of goods sold on the consolidated statements of income included purchases from related unconsolidated affiliates of $2.3 billion, $656.7 million and $156.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Our consolidated balance sheets include accounts receivable due from and payable to unconsolidated affiliates in the ordinary course of business as follows (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Receivables from unconsolidated affiliates | $ | 15,992 | $ | 21,495 | |||||||
| Payables to unconsolidated affiliates(a) | $ | 550,186 | $ | 518,377 |
(a)Payables to unconsolidated affiliates primarily relate to spodumene purchased from the Company’s Windfield joint venture under normal payment terms.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 25—Segment and Geographic Area Information:
Effective January 1, 2023, the Company realigned its Lithium and Bromine global business units into a new corporate structure designed to better meet customer needs and foster talent required to deliver in a competitive global environment. In addition, the Company announced its decision to retain its Catalysts business under a separate, wholly-owned subsidiary renamed Ketjen. As a result, the Company’s three reportable segments include: (1) Energy Storage; (2) Specialties; and (3) Ketjen. Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. This business structure aligns with the markets and customers we serve through each of the segments. This structure also facilitates the continued standardization of business processes across the organization, and is consistent with the manner in which information is presently used internally by the Company’s chief operating decision maker to evaluate performance and make resource allocation decisions. The segment information for the prior year periods have been recast to conform to the current year presentation.
Summarized financial information concerning our reportable segments is shown in the following tables. The “All Other” category included only the FCS business that did not fit into any of the Company’s core businesses. On June 1, 2021, the Company completed the sale of the FCS business. See Note 3, “Divestitures,” for additional information. Amounts in the “All Other” category represent activity in this business until divested on June 1, 2021.
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the operating segments. Pension and other post-employment benefit (“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 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 inter-segment 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 and financing expenses, income tax expenses, depreciation and amortization, as adjusted on a consistent basis for certain non-operating, non-recurring or unusual items in a balanced manner and on a segment basis. These non-operating, non-recurring or unusual items may include acquisition and integration related costs, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, certain litigation and arbitration costs and charges, non-operating pension and OPEB items and other significant non-recurring items. In addition, management uses adjusted EBITDA for business and enterprise 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 additional useful measurements to review the Company’s operations, provides transparency to investors and enables period-to-period comparability of financial performance. Total adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Total adjusted EBITDA should not be considered as an alternative to Net (loss) 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.
Segment information for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands). Prior period amounts have been recast to reflect the current segment structure.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net sales: | |||||||||||||||||
| Energy Storage | $ | 7,078,998 | $ | 4,660,945 | $ | 1,067,430 | |||||||||||
| Specialties | 1,482,425 | 1,759,587 | 1,424,197 | ||||||||||||||
| Ketjen | 1,055,780 | 899,572 | 761,235 | ||||||||||||||
| Total segment net sales | 9,617,203 | 7,320,104 | 3,252,862 | ||||||||||||||
| All Other | — | — | 75,095 | ||||||||||||||
| Total net sales | $ | 9,617,203 | $ | 7,320,104 | $ | 3,327,957 | |||||||||||
| Adjusted EBITDA: | |||||||||||||||||
| Energy Storage | $ | 2,407,393 | $ | 3,032,260 | $ | 371,384 | |||||||||||
| Specialties | 298,506 | 527,318 | 468,836 | ||||||||||||||
| Ketjen | 103,872 | 28,732 | 106,941 | ||||||||||||||
| Total segment adjusted EBITDA | 2,809,771 | 3,588,310 | 947,161 | ||||||||||||||
See below for a reconciliation of total segment adjusted EBITDA to the companies consolidated Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Total segment adjusted EBITDA | $ | 2,809,771 | $ | 3,588,310 | $ | 947,161 | |||||||||||
| All other adjusted EBITDA | — | — | 29,858 | ||||||||||||||
| Corporate expenses, net | (43,486) | (112,453) | (106,045) | ||||||||||||||
| Depreciation and amortization | (429,944) | (300,841) | (254,000) | ||||||||||||||
| Interest and financing expenses(a) | (116,072) | (122,973) | (61,476) | ||||||||||||||
| Income tax expense | (430,277) | (390,588) | (29,446) | ||||||||||||||
| Gain (loss) on change in interest in properties/sale of business, net(b) | 71,190 | (8,400) | 295,971 | ||||||||||||||
| Acquisition and integration related costs(c) | (26,767) | (16,259) | (12,670) | ||||||||||||||
| Goodwill impairment(d) | (6,765) | — | — | ||||||||||||||
| Non-operating pension and OPEB items | 7,971 | 57,032 | 78,814 | ||||||||||||||
| Mark-to-market (loss) gain on public equity securities(e) | (44,732) | 4,319 | — | ||||||||||||||
| Legal accrual(f) | (218,510) | — | (657,412) | ||||||||||||||
| Albemarle Foundation contribution(g) | — | — | (20,000) | ||||||||||||||
| Indemnification adjustments(h) | — | — | (39,381) | ||||||||||||||
| Other(i) | 1,097 | (8,331) | (47,702) | ||||||||||||||
| Net income attributable to Albemarle Corporation | $ | 1,573,476 | $ | 2,689,816 | $ | 123,672 |
(a)Included in Interest and financing expenses is a loss on early extinguishment of debt of $19.2 million and $29.0 million for the years ended December 31, 2022 and 2021, respectively. See Note 14, “Long-term Debt,” for additional information. In addition, Interest and financing expenses for the year ended December 31, 2022 includes the correction of an out of period error of $17.5 million related to the overstatement of capitalized interest in prior periods.
(b)Gain recorded during the year ended December 31, 2023 resulting from the restructuring of the MARBL joint venture with MRL. See Note 10, “Investments,” for further details. $8.4 million and $132.4 million of expense recorded during the years ended December 31, 2022 and 2021, respectively, as a result of revised estimates of the obligation to construct certain lithium hydroxide conversion assets in Kemerton, Western Australia, due to cost overruns from supply chain, labor and COVID-19 pandemic related issues. The corresponding obligation was initially recorded in Accrued liabilities prior to being transferred to MRL, which held a 40% ownership interest in these Kemerton assets during those periods. See Note 2, “Acquisitions,” for additional information. In addition, the year ended December 31, 2021, includes a $428.4 million gain related to the FCS divestiture. See Note 3, “Divestitures,” for additional information on this gain.
(c)Costs related to the acquisition, integration and potential divestitures for various significant projects, recorded in Selling, general and administrative expenses (“SG&A”).
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(d)Goodwill impairment charge recorded in SG&A during the year ended December 31, 2023 related to our PCS business. See Note 12, “Goodwill and Other Intangibles,” for further details.
(e)(Loss) gain recorded in Other income (expenses), net for the years ended December 31, 2023 and 2022 resulting from the change in fair value of investments in public equity securities.
(f)Loss recorded in SG&A for the agreements to resolve a previously disclosed legal matter with the DOJ and SEC during the year ended December 31, 2023. In addition, during the year ended December 31, 2021 the Company recorded a loss in Other income (expenses), net for related to the settlement of an arbitration ruling for a prior legal matter. See Note 17, “Commitments and Contingencies,” for further details on both matters.
(g)Included in SG&A is a charitable contribution, using a portion of the proceeds received from the FCS divestiture, to the Albemarle Foundation, a non-profit organization that sponsors grants, health and social projects, educational initiatives, disaster relief, matching gift programs, scholarships and other charitable initiatives in locations where the Company’s employees live and the Company operates. This contribution is in addition to the normal annual contribution made to the Albemarle Foundation by the Company, and is significant in size and nature in that it is intended to provide more long-term benefits in these communities.
(h)Included in Other income (expenses), net to revise an indemnification estimate for an ongoing tax-related matter of a previously disposed business in Germany. A corresponding discrete tax benefit of $27.9 million was recorded in Income tax expense during the same period, netting to an expected cash obligation of approximately $11.5 million.
(i)Included amounts for the year ended December 31, 2023 recorded in:
-
Cost of goods sold - $15.1 million loss recorded to settle an arbitration matter with a regulatory agency in Chile, partially offset by a $4.1 million gain from an updated cost estimate of an environmental reserve at a site not part of our operations.
-
SG&A - $9.5 million of separation and other severance costs to employees in Corporate and the Ketjen business which are primarily expected to be paid out during 2023, $2.3 million of facility closure expenses related to offices in Germany, $1.9 million of charges primarily for environmental reserves at sites not part of our operations and $1.8 million of various expenses including for certain legal costs and shortfall contributions for a multiemployer plan financial improvement plan.
-
Other income (expenses), net - $19.3 million gain from PIK dividends of preferred equity in a Grace subsidiary, a $7.3 million gain resulting from insurance proceeds of a prior legal matter and $5.5 million of gains from the sale of investments and the write-off of certain liabilities no longer required, partially offset by $3.6 million of charges for asset retirement obligations at a site not part of our operations and $0.9 million of a loss resulting from the adjustment of indemnification related to previously disposed businesses.
Included amounts for the year ended December 31, 2022 recorded in:
-
Cost of goods sold - $2.7 million of expense related to one-time retention payments for certain employees during the Catalysts strategic review and business unit realignment, and $0.5 million related to the settlement of a legal matter resulting from a prior acquisition.
-
SG&A - $4.3 million primarily related to facility closure expenses of offices in Germany, $2.8 million of charges for environmental reserves at sites not part of our operations, $2.8 million of shortfall contributions for our multiemployer plan financial improvement plan, $1.9 million of expense related to one-time retention payments for certain employees during the Catalysts strategic review, partially offset by $4.3 million of gains from the sale of legacy properties not part of our operations.
-
Other income (expenses), net - $3.0 million gain from the reversal of a liability related to a previous divestiture, a $2.0 million gain relating to the adjustment of an environmental reserve at non-operating businesses we previously divested and a $0.6 million gain related to a settlement received from a legal matter in a prior period, partially offset by a $3.2 million loss resulting from the adjustment of indemnification related to previously disposed businesses.
Included amounts for the year ended December 31, 2021 recorded in:
-
Cost of goods sold - $10.5 million of expense related to a legal matter as part of a prior acquisition in our Lithium business.
-
SG&A - $11.5 million of legal fees related to a legacy Rockwood legal matter noted above, $9.8 million of expenses primarily related to non-routine labor and compensation related costs that are outside normal compensation arrangements, a $4.0 million loss resulting from the sale of property, plant and equipment, $3.8 million of charges for environmental reserves at a sites not part of our operations and $3.2 million of facility closure costs related to offices in Germany, and severance expenses in Germany and Belgium.
-
Other income (expenses), net - $4.8 million of net expenses primarily related to asset retirement obligation charges to update of an estimate at a site formerly owned by Albemarle.
| December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Identifiable assets: | |||||||||||||||||
| Energy Storage(a) | $ | 13,246,412 | $ | 10,471,949 | $ | 7,272,029 | |||||||||||
| Specialties | 1,696,307 | 1,396,583 | 1,344,038 | ||||||||||||||
| Ketjen | 1,355,743 | 1,214,482 | 1,149,592 | ||||||||||||||
| Total segment identifiable assets | 16,298,462 | 13,083,014 | 9,765,659 | ||||||||||||||
| Corporate | 1,972,190 | 2,373,508 | 1,208,459 | ||||||||||||||
| Total identifiable assets | $ | 18,270,652 | $ | 15,456,522 | $ | 10,974,118 | |||||||||||
(a)Increase in Energy Storage identifiable assets each year primarily due to capital expenditures for growth and capacity increases.
| Albemarle Corporation and Subsidiaries | ||||||||
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Depreciation and amortization: | |||||||||||||||||
| Energy Storage | $ | 258,436 | $ | 175,738 | $ | 123,295 | |||||||||||
| Specialties | 86,673 | 67,705 | 66,658 | ||||||||||||||
| Ketjen | 76,023 | 51,417 | 51,588 | ||||||||||||||
| Total segment depreciation and amortization | 421,132 | 294,860 | 241,541 | ||||||||||||||
| All Other | — | — | 1,870 | ||||||||||||||
| Corporate | 8,812 | 5,981 | 10,589 | ||||||||||||||
| Total depreciation and amortization | $ | 429,944 | $ | 300,841 | $ | 254,000 | |||||||||||
| Capital expenditures: | |||||||||||||||||
| Energy Storage | $ | 1,752,440 | $ | 980,410 | $ | 791,645 | |||||||||||
| Specialties | 214,039 | 183,658 | 92,194 | ||||||||||||||
| Ketjen | 132,510 | 66,319 | 49,312 | ||||||||||||||
| Total segment capital expenditures | 2,098,989 | 1,230,387 | 933,151 | ||||||||||||||
| All Other | — | — | 2,339 | ||||||||||||||
| Corporate | 50,292 | 31,259 | 18,177 | ||||||||||||||
| Total capital expenditures | $ | 2,149,281 | $ | 1,261,646 | $ | 953,667 |
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Net Sales**(a)****:** | |||||||||||||||||
| United States | $ | 930,838 | $ | 888,612 | $ | 730,738 | |||||||||||
| Foreign(b) | 8,686,365 | 6,431,492 | 2,597,219 | ||||||||||||||
| Total | $ | 9,617,203 | $ | 7,320,104 | $ | 3,327,957 |
(a)Net sales are attributed to countries based upon shipments to final destination.
(b)In 2023, net sales to South Korea, China and Japan represented 32%, 30% and 15%, respectively, of total net sales. In 2022, net sales to China, South Korea and Japan represented 33%, 22% and 15%, respectively, of total net sales. In 2021, net sales to China, Japan and South Korea represented 18%, 14% and 11%, respectively, of total net sales.
During 2023 and 2022, one customer in the Energy Storage business represented more than 10% of the Company’s consolidated net sales.
| As of December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Long-Lived Assets**(a)****:** | |||||||||||||||||
| United States | $ | 1,912,243 | $ | 1,371,347 | $ | 1,040,252 | |||||||||||
| Australia | 4,610,963 | 3,253,069 | 2,736,590 | ||||||||||||||
| Chile | 2,258,619 | 2,057,270 | 1,923,821 | ||||||||||||||
| China | 819,119 | 438,090 | 139,537 | ||||||||||||||
| Jordan | 292,870 | 267,612 | 262,392 | ||||||||||||||
| Netherlands | 186,963 | 167,264 | 177,405 | ||||||||||||||
| Germany | 91,979 | 77,845 | 80,956 | ||||||||||||||
| France | 56,876 | 52,894 | 49,740 | ||||||||||||||
| Brazil | 33,730 | 31,855 | 29,474 | ||||||||||||||
| Other foreign countries | 87,489 | 77,747 | 62,667 | ||||||||||||||
| Total | $ | 10,350,851 | $ | 7,794,993 | $ | 6,502,834 |
(a) Long-lived assets are comprised of the Company’s Property, plant and equipment and joint ventures included in Investments.
| Albemarle Corporation and Subsidiaries | ||||||||
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