filings.toolsItem 1. Financial Statements (Unaudited).
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Item 1. Financial Statements (Unaudited).
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net sales | $ | 2,580,252 | $ | 1,127,728 | |||||||||||||||||||
| Cost of goods sold | 1,303,712 | 678,698 | |||||||||||||||||||||
| Gross profit | 1,276,540 | 449,030 | |||||||||||||||||||||
| Selling, general and administrative expenses | 154,306 | 112,568 | |||||||||||||||||||||
| Research and development expenses | 20,471 | 16,083 | |||||||||||||||||||||
| Loss on sale of interest in properties | — | 8,400 | |||||||||||||||||||||
| Operating profit | 1,101,763 | 311,979 | |||||||||||||||||||||
| Interest and financing expenses | (26,777) | (27,834) | |||||||||||||||||||||
| Other income, net | 82,492 | 15,496 | |||||||||||||||||||||
| Income before income taxes and equity in net income of unconsolidated investments | 1,157,478 | 299,641 | |||||||||||||||||||||
| Income tax expense | 276,963 | 80,530 | |||||||||||||||||||||
| Income before equity in net income of unconsolidated investments | 880,515 | 219,111 | |||||||||||||||||||||
| Equity in net income of unconsolidated investments (net of tax) | 396,188 | 62,436 | |||||||||||||||||||||
| Net income | 1,276,703 | 281,547 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | (38,123) | (28,164) | |||||||||||||||||||||
| Net income attributable to Albemarle Corporation | $ | 1,238,580 | $ | 253,383 | |||||||||||||||||||
| Basic earnings per share | $ | 10.57 | $ | 2.16 | |||||||||||||||||||
| Diluted earnings per share | $ | 10.51 | $ | 2.15 | |||||||||||||||||||
| Weighted-average common shares outstanding – basic | 117,232 | 117,066 | |||||||||||||||||||||
| Weighted-average common shares outstanding – diluted | 117,841 | 117,653 |
See accompanying Notes to the Condensed Consolidated Financial Statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | 1,276,703 | $ | 281,547 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation and other | 46,216 | (5,889) | |||||||||||||||||||||
| Cash flow hedge | 1,101 | 4,017 | |||||||||||||||||||||
| Interest rate swap | — | 650 | |||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | 47,317 | (1,222) | |||||||||||||||||||||
| Comprehensive income | 1,324,020 | 280,325 | |||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (38,115) | (28,111) | |||||||||||||||||||||
| Comprehensive income attributable to Albemarle Corporation | $ | 1,285,905 | $ | 252,214 |
See accompanying Notes to the Condensed Consolidated Financial Statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
| March 31, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,586,734 | $ | 1,499,142 | |||||||
| Trade accounts receivable, less allowance for doubtful accounts (2023 – $3,283; 2022 – $2,534) | 1,351,915 | 1,190,970 | |||||||||
| Other accounts receivable | 312,560 | 185,819 | |||||||||
| Inventories | 3,180,825 | 2,076,031 | |||||||||
| Other current assets | 225,541 | 234,955 | |||||||||
| Total current assets | 6,657,575 | 5,186,917 | |||||||||
| Property, plant and equipment, at cost | 9,830,257 | 9,354,330 | |||||||||
| Less accumulated depreciation and amortization | 2,476,768 | 2,391,333 | |||||||||
| Net property, plant and equipment | 7,353,489 | 6,962,997 | |||||||||
| Investments | 1,391,229 | 1,150,553 | |||||||||
| Other assets | 243,405 | 250,558 | |||||||||
| Goodwill | 1,634,152 | 1,617,627 | |||||||||
| Other intangibles, net of amortization | 284,508 | 287,870 | |||||||||
| Total assets | $ | 17,564,358 | $ | 15,456,522 | |||||||
| Liabilities And Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable to third parties | $ | 1,758,254 | $ | 1,533,624 | |||||||
| Accounts payable to related parties | 1,012,822 | 518,377 | |||||||||
| Accrued expenses | 403,336 | 505,894 | |||||||||
| Current portion of long-term debt | 2,167 | 2,128 | |||||||||
| Dividends payable | 46,753 | 46,116 | |||||||||
| Income taxes payable | 282,037 | 134,876 | |||||||||
| Total current liabilities | 3,505,369 | 2,741,015 | |||||||||
| Long-term debt | 3,233,393 | 3,214,972 | |||||||||
| Postretirement benefits | 33,062 | 32,751 | |||||||||
| Pension benefits | 160,343 | 159,571 | |||||||||
| Other noncurrent liabilities | 686,655 | 636,596 | |||||||||
| Deferred income taxes | 486,466 | 480,770 | |||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Equity: | |||||||||||
| Albemarle Corporation shareholders’ equity: | |||||||||||
| Common stock, $.01 par value, issued and outstanding – 117,299 in 2023 and 117,168 in 2022 | 1,173 | 1,172 | |||||||||
| Additional paid-in capital | 2,931,961 | 2,940,840 | |||||||||
| Accumulated other comprehensive loss | (513,337) | (560,662) | |||||||||
| Retained earnings | 6,792,938 | 5,601,277 | |||||||||
| Total Albemarle Corporation shareholders’ equity | 9,212,735 | 7,982,627 | |||||||||
| Noncontrolling interests | 246,335 | 208,220 | |||||||||
| Total equity | 9,459,070 | 8,190,847 | |||||||||
| Total liabilities and equity | $ | 17,564,358 | $ | 15,456,522 |
See accompanying Notes to the Condensed Consolidated Financial Statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| (In Thousands, Except Share Data) | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Albemarle Shareholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amounts | ||||||||||||||||||||||||||||||||||||||||||||||
| 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 | 1,238,580 | 1,238,580 | 38,123 | 1,276,703 | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 47,325 | 47,325 | (8) | 47,317 | |||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared, $0.40 per common share | (46,919) | (46,919) | — | (46,919) | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 9,658 | 9,658 | 9,658 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 1,220 | — | 81 | 81 | 81 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | 205,172 | 2 | (2) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Withholding taxes paid on stock-based compensation award distributions | (75,366) | (1) | (18,616) | (18,617) | (18,617) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 117,299,392 | $ | 1,173 | $ | 2,931,961 | $ | (513,337) | $ | 6,792,938 | $ | 9,212,735 | $ | 246,335 | $ | 9,459,070 | ||||||||||||||||||||||||||||||||
| 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 | 253,383 | 253,383 | 28,164 | 281,547 | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (1,169) | (1,169) | (53) | (1,222) | |||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared, $0.395 per common share | (46,261) | (46,261) | — | (46,261) | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 5,384 | 5,384 | 5,384 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 500 | — | 32 | 32 | 32 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | 151,630 | 2 | 385 | 387 | 387 | ||||||||||||||||||||||||||||||||||||||||||
| Withholding taxes paid on stock-based compensation award distributions | (55,069) | (1) | (10,421) | (10,422) | (10,422) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 117,112,394 | $ | 1,171 | $ | 2,915,387 | $ | (393,619) | $ | 3,303,661 | $ | 5,826,600 | $ | 208,452 | $ | 6,035,052 |
See accompanying Notes to the Condensed Consolidated Financial Statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash and cash equivalents at beginning of year | $ | 1,499,142 | $ | 439,272 | |||||||
| Cash flows from operating activities: | |||||||||||
| Net income | 1,276,703 | 281,547 | |||||||||
| Adjustments to reconcile net income to cash flows from operating activities: | |||||||||||
| Depreciation and amortization | 87,271 | 66,574 | |||||||||
| Loss on sale of investment in properties | — | 8,400 | |||||||||
| Stock-based compensation and other | 10,540 | 4,245 | |||||||||
| Equity in net income of unconsolidated investments (net of tax) | (396,188) | (62,436) | |||||||||
| Dividends received from unconsolidated investments and nonmarketable securities | 547,552 | 39,168 | |||||||||
| Pension and postretirement benefit | 1,954 | (4,250) | |||||||||
| Pension and postretirement contributions | (2,825) | (3,890) | |||||||||
| Unrealized (gain) loss on investments in marketable securities | (45,732) | 1,469 | |||||||||
| Deferred income taxes | 14,098 | 27,747 | |||||||||
| Working capital changes | (764,071) | (219,397) | |||||||||
| Non-cash transfer of 40% value of construction in progress of Kemerton plant to MRL | 7,665 | 65,100 | |||||||||
| Other, net | (15,987) | 1,899 | |||||||||
| Net cash provided by operating activities | 720,980 | 206,176 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (415,608) | (231,698) | |||||||||
| (Purchases) sales of marketable securities, net | (122,267) | 3,751 | |||||||||
| Investments in equity and other corporate investments | (1,133) | (146) | |||||||||
| Net cash used in investing activities | (539,008) | (228,093) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings of long-term debt and credit agreements | — | 280,000 | |||||||||
| Other debt repayments, net | (713) | (166,615) | |||||||||
| Dividends paid to shareholders | (46,282) | (45,637) | |||||||||
| Dividends paid to noncontrolling interests | (53,145) | — | |||||||||
| Proceeds from exercise of stock options | 81 | 419 | |||||||||
| Withholding taxes paid on stock-based compensation award distributions | (18,617) | (10,422) | |||||||||
| Other | — | (126) | |||||||||
| Net cash (used in) provided by financing activities | (118,676) | 57,619 | |||||||||
| Net effect of foreign exchange on cash and cash equivalents | 24,296 | (11,649) | |||||||||
| Increase in cash and cash equivalents | 87,592 | 24,053 | |||||||||
| Cash and cash equivalents at end of period | $ | 1,586,734 | $ | 463,325 |
See accompanying Notes to the Condensed Consolidated Financial Statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1—Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Albemarle Corporation and our wholly-owned, majority-owned and controlled subsidiaries (collectively, “Albemarle,” “we,” “us,” “our” or the “Company”) contain all adjustments necessary for a fair statement, in all material respects, of our consolidated balance sheets as of March 31, 2023 and December 31, 2022, our consolidated statements of income, consolidated statements of comprehensive income and consolidated statements of changes in equity for the three-month period ended March 31, 2023 and 2022 and our condensed consolidated statements of cash flows for the three-month periods ended March 31, 2023 and 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 15, 2023. The December 31, 2022 consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). The results of operations for the three-month period ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the accompanying condensed consolidated financial statements and the notes thereto to conform to the current presentation.
NOTE 2—Acquisitions:
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 includes a deferral of approximately $29 million to be paid in installments within a year of the acquisition closing date. 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 tons 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 preliminary estimated fair value of the net assets acquired was approximately $76.1 million and was recorded as Goodwill.
The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to Goodwill, is based upon preliminary information and is subject to change within the measurement-period (up to one year from the acquisition date) as additional information concerning final asset and liability valuations is obtained. The primary area of the preliminary purchase price allocation that is not yet finalized relates to the fair value of the net working capital and Goodwill. 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.
NOTE 3—Income Taxes:
The effective income tax rate for the three-month period ended March 31, 2023 was 23.9% compared to 26.9% for the three-month period ended March 31, 2022. The three-month period ended March 31, 2023 included tax expense related to an uncertain tax position in Chile offset by a tax benefit related to foreign derived intangible income, and net discrete tax expense related to foreign return to provisions offset by excess tax benefits realized from stock-based compensation arrangements. The Company’s effective income tax rate fluctuates based on, among other factors, the amount and location of income. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the three-month period ended March 31, 2023 was impacted by a variety of factors, primarily the location in which income was earned, foreign-derived intangible income and an uncertain tax position recorded in Chile. The difference between the U.S. federal statutory income tax
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
rate and our effective income tax rate for the three-month period ended March 31, 2022 was impacted by a variety of factors, primarily global intangible low-taxed income and the location in which income was earned.
NOTE 4—Earnings Per Share:
Basic and diluted earnings per share for the three-month periods ended March 31, 2023 and 2022 are calculated as follows (in thousands, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Basic earnings per share | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to Albemarle Corporation | $ | 1,238,580 | $ | 253,383 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average common shares for basic earnings per share | 117,232 | 117,066 | |||||||||||||||||||||
| Basic earnings per share | $ | 10.57 | $ | 2.16 | |||||||||||||||||||
| Diluted earnings per share | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to Albemarle Corporation | $ | 1,238,580 | $ | 253,383 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average common shares for basic earnings per share | 117,232 | 117,066 | |||||||||||||||||||||
| Incremental shares under stock compensation plans | 609 | 587 | |||||||||||||||||||||
| Weighted-average common shares for diluted earnings per share | 117,841 | 117,653 | |||||||||||||||||||||
| Diluted earnings per share | $ | 10.51 | $ | 2.15 |
At March 31, 2023 there were 51,316 common stock equivalents not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.
On February 23, 2023, the Company declared a cash dividend of $0.40, an increase from the prior year regular quarterly dividend. This dividend was paid on April 3, 2023 to shareholders of record at the close of business as of March 17, 2023. On May 2, 2023, the Company declared a cash dividend of $0.40 per share, which is payable on July 3, 2023 to shareholders of record at the close of business as of June 16, 2023.
NOTE 5—Inventories:
The following table provides a breakdown of inventories at March 31, 2023 and December 31, 2022 (in thousands):
| March 31, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Finished goods | $ | 2,706,606 | $ | 1,679,473 | |||||||
| Raw materials and work in process(a) | 368,669 | 296,998 | |||||||||
| Stores, supplies and other | 105,550 | 99,560 | |||||||||
| Total | $ | 3,180,825 | $ | 2,076,031 |
(a)Includes $154.7 million and $133.2 million at March 31, 2023 and December 31, 2022, respectively, of work in process in our Energy Storage segment.
The Company records the balance of deferred profits on sales from its equity method investments to the Company to Inventories, specifically finished goods. Deferred profits from equity method investments totaled $552.8 million and $332.3 million as of March 31, 2023 and December 31, 2022, respectively.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 6—Investments:
MARBL Joint Venture Agreement Restructuring
On February 22, 2023, the Company announced that it has signed definitive agreements with Mineral Resources Limited (“MRL”) to restructure the parties' MARBL lithium joint venture in Australia (“MARBL”) and separately for MRL to invest in Albemarle conversion assets in China. This restructured agreement is intended to provide the Company with additional funding to support the expansion of lithium conversion capacity, while securing downstream conversion capacity for MRL.
In Australia, Albemarle will increase its interest in the first two conversion trains of the Kemerton processing plant from 60% to 85% by purchasing a 25% interest from MRL. Albemarle will operate Kemerton trains 1 and 2 on behalf of the joint venture. MRL will increase its interest in the Wodgina Lithium Mine Project from 40% to 50% by purchasing a 10% interest from Albemarle. MRL will operate the Wodgina mine on behalf of the joint venture. Consideration for Albemarle's increased stake in Kemerton will be offset by consideration for MRL's increased stake in Wodgina.
In China, MRL will acquire a 50% interest in Albemarle's Qinzhou and Meishan plants. Qinzhou has a designed annual capacity of up to 25,000 metric tonnes of LCE. The plant will undergo modifications to be able to convert Wodgina spodumene and is expected to commence that conversion in early 2024. The Meishan plant, which is under construction with a designed annual capacity of 50,000 metric tonnes of LCE, is scheduled to be completed in 2024. Albemarle will continue to operate Meishan and Qinzhou.
In addition, MRL committed to fund 50% of the capital costs for downstream conversion capacity. MRL is expected to pay approximately $350 million for its initial share of capital costs of this conversion capacity at closing. Albemarle expects to pay MRL a completion adjustment currently estimated to be between $100 million to $150 million reflecting a retroactive effective date of April 1, 2022.
These transactions are expected to close in stages beginning in the second quarter of 2023 and are subject to regulatory approval and other customary closing conditions. At this time the Company expects to record a gain as a result of these transactions in the period it closes.
Variable Interest Entities
The Company holds a 49% equity interest in Windfield Holdings Pty. Ltd. (“Talison”), where the ownership parties share risks and benefits disproportionate to their voting interests. As a result, the Company considers Talison to be a variable interest entity (“VIE”), however this investment is not consolidated as the Company is not the primary beneficiary. The carrying amount of the Company’s 49% equity interest in Windfield, which is our most significant VIE, was $746.8 million and $694.5 million at March 31, 2023 and December 31, 2022, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIEs of which the Company is not the primary beneficiary was $7.7 million at March 31, 2023 and $6.7 million at December 31, 2022. The Company’s unconsolidated VIEs are reported in Investments on 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.
The following table summarizes the unaudited results of operations for the Talison joint venture, which met the significant subsidiary test for subsidiaries not consolidated or 50% or less owned persons under Rule 10-01 of Regulation S-X, for the three-month periods ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net sales | $ | 1,959,298 | $ | 392,833 | |||||||
| Gross profit | 1,901,700 | 354,442 | |||||||||
| Income before income taxes | 1,784,150 | 292,552 | |||||||||
| Net income | 1,248,902 | 204,787 |
Other
As part of the proceeds from the sale of the fine chemistry services (“FCS”) business on June 1, 2021, W.R. Grace & Co. (“Grace”) issued Albemarle preferred equity of a Grace subsidiary having an aggregate stated value of $270 million. The
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
preferred equity can be redeemed at Grace’s option under certain conditions and will accrue PIK dividends at an annual rate of 12% beginning two years after issuance. This preferred equity had a fair value of $266.3 million and $260.1 million at March 31, 2023 and December 31, 2022, respectively, which is reported in Investments in the consolidated balance sheets.
NOTE 7—Goodwill and Other Intangibles:
The following table summarizes the changes in goodwill by reportable segment for the three months ended March 31, 2023 (in thousands):
| Energy Storage | Specialties | Ketjen | Total | ||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 1,424,275 | $ | 20,319 | $ | 173,033 | $ | 1,617,627 | |||||||||||||||||||||
| Segment realignment(a) | (12,316) | 12,316 | — | — | |||||||||||||||||||||||||
| Foreign currency translation adjustments and other | 13,342 | — | 3,183 | 16,525 | |||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 1,425,301 | $ | 32,635 | $ | 176,216 | $ | 1,634,152 |
(a) Effective January 1, 2023, the Company realigned its Lithium and Bromine reportable segments into the Energy Storage and Specialties reportable segments. See Note 11, “Segment Information,” for additional details. As a result, the Company transferred goodwill from its legacy Lithium segment to the new Specialties reportable segment during the three months ended March 31, 2023.
The following table summarizes the changes in other intangibles and related accumulated amortization for the three months ended March 31, 2023 (in thousands):
| Customer Lists and Relationships | Trade Names and Trademarks**(a)** | Patents and Technology | Other | Total | |||||||||||||||||||||||||
| Gross Asset Value | |||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 412,670 | $ | 13,161 | $ | 46,399 | $ | 35,186 | $ | 507,416 | |||||||||||||||||||
| Foreign currency translation adjustments and other | 5,066 | 231 | 639 | 981 | 6,917 | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 417,736 | $ | 13,392 | $ | 47,038 | $ | 36,167 | $ | 514,333 | |||||||||||||||||||
| Accumulated Amortization | |||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (177,627) | $ | (3,587) | $ | (23,790) | $ | (14,542) | $ | (219,546) | |||||||||||||||||||
| Amortization | (6,529) | — | (657) | (248) | (7,434) | ||||||||||||||||||||||||
| Foreign currency translation adjustments and other | (2,136) | (43) | (373) | (293) | (2,845) | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | (186,292) | $ | (3,630) | $ | (24,820) | $ | (15,083) | $ | (229,825) | |||||||||||||||||||
| Net Book Value at December 31, 2022 | $ | 235,043 | $ | 9,574 | $ | 22,609 | $ | 20,644 | $ | 287,870 | |||||||||||||||||||
| Net Book Value at March 31, 2023 | $ | 231,444 | $ | 9,762 | $ | 22,218 | $ | 21,084 | $ | 284,508 |
(a) Net Book Value includes only indefinite-lived intangible assets.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 8—Long-Term Debt:
Long-term debt at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
| March 31, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| 1.125% notes due 2025 | $ | 408,959 | $ | 401,265 | |||||||
| 1.625% notes due 2028 | 542,200 | 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 | |||||||||
| Variable-rate foreign bank loans | 3,056 | 2,997 | |||||||||
| Finance lease obligations | 76,070 | 76,537 | |||||||||
| Other | 11,510 | 11,378 | |||||||||
| Unamortized discount and debt issuance costs | (27,847) | (28,689) | |||||||||
| Total long-term debt | 3,235,560 | 3,217,100 | |||||||||
| Less amounts due within one year | 2,167 | 2,128 | |||||||||
| Long-term debt, less current portion | $ | 3,233,393 | $ | 3,214,972 |
NOTE 9—Commitments and Contingencies:
Environmental
The following activity was recorded in environmental liabilities for the three months ended March 31, 2023 (in thousands):
| Beginning balance at December 31, 2022 | $ | 38,245 | |||
| Expenditures | (817) | ||||
| Accretion of discount | 249 | ||||
| Additions and changes in estimates | 1,869 | ||||
| Foreign currency translation adjustments and other | 381 | ||||
| Ending balance at March 31, 2023 | 39,927 | ||||
| Less amounts reported in Accrued expenses | 7,441 | ||||
| Amounts reported in Other noncurrent liabilities | $ | 32,486 |
Environmental remediation liabilities included discounted liabilities of $32.1 million and $30.1 million at March 31, 2023 and December 31, 2022, respectively, discounted at rates with a weighted-average of 3.6% and 3.4%, respectively, and with the undiscounted amount totaling $60.8 million and $57.5 million at March 31, 2023 and December 31, 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 $19 million before income taxes, in excess of amounts already recorded.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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.
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.
As first reported in 2018, following receipt of information regarding potential improper payments being made by third-party sales representatives of our Refining Solutions business, within our Ketjen segment, we promptly retained outside counsel and forensic accountants to investigate potential violations of the Company’s Code of Conduct, the Foreign Corrupt Practices Act, and other potentially applicable laws. Based on this internal investigation, we have voluntarily self-reported potential issues relating to the use of third-party sales representatives in our Refining Solutions business, within our Ketjen segment, to the U.S. Department of Justice (“DOJ”), the SEC, and the Dutch Public Prosecutor (“DPP”), and are cooperating with the DOJ, the SEC, and the DPP in their review of these matters. In connection with our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures. We have commenced discussions with the SEC, DOJ and DPP about a potential resolution of these matters.
At this time, we are unable to predict the duration, scope, result, or related costs associated with the investigations. We also are unable to predict what action may be taken by the DOJ, the SEC, or the DPP, or what penalties or remedial actions they may ultimately seek. Any determination that our operations or activities are not, or were not, in compliance with existing laws or regulations could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses. We do not believe, however, that any such fines, penalties, disgorgement, equitable relief, or other losses would have a material adverse effect on our financial condition or liquidity. However, an adverse resolution could have a material adverse effect on our results of operations in a particular period.
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 $67.4 million and $66.1 million at March 31, 2023 and December 31, 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
We have contracts with certain of our customers which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis, as well as blanket coverage of multiple shipments under certain customer supply contracts. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.
NOTE 10—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
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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.
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 three-month periods ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Operating lease cost | $ | 11,751 | $ | 10,611 | |||||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of right of use assets | 845 | 430 | |||||||||||||||||||||
| Interest on lease liabilities | 1,059 | 853 | |||||||||||||||||||||
| Total finance lease cost | 1,904 | 1,283 | |||||||||||||||||||||
| Short-term lease cost | 5,060 | 2,699 | |||||||||||||||||||||
| Variable lease cost | 3,509 | 717 | |||||||||||||||||||||
| Total lease cost | $ | 22,224 | $ | 15,310 |
Supplemental cash flow information related to our lease contracts for the three-month periods ended March 31, 2023 and 2022 is as follows (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 10,974 | $ | 8,637 | |||||||
| Operating cash flows from finance leases | 1,203 | 599 | |||||||||
| Financing cash flows from finance leases | 500 | 515 | |||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | 10,337 | 999 | |||||||||
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Supplemental balance sheet information related to our lease contracts, including the location on balance sheet, at March 31, 2023 and December 31, 2022 is as follows (in thousands, except as noted):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Operating leases: | |||||||||||
| Other assets | $ | 128,229 | $ | 128,173 | |||||||
| Accrued expenses | 35,343 | 35,515 | |||||||||
| Other noncurrent liabilities | 102,125 | 99,269 | |||||||||
| Total operating lease liabilities | 137,468 | 134,784 | |||||||||
| Finance leases: | |||||||||||
| Net property, plant and equipment | 80,591 | 81,356 | |||||||||
| Current portion of long-term debt(a) | 4,872 | 4,995 | |||||||||
| Long-term debt | 73,903 | 74,409 | |||||||||
| Total finance lease liabilities | 78,775 | 79,404 | |||||||||
| Weighted average remaining lease term (in years): | |||||||||||
| Operating leases | 13.0 | 13.3 | |||||||||
| Finance leases | 22.6 | 22.8 | |||||||||
| Weighted average discount rate (%): | |||||||||||
| Operating leases | 3.72 | % | 3.60 | % | |||||||
| Finance leases | 4.41 | % | 4.41 | % |
(a) Balance includes accrued interest of finance lease recorded in Accrued liabilities.
Maturities of lease liabilities at March 31, 2023 were as follows (in thousands):
| Operating Leases | Finance Leases | ||||||||||
| Remainder of 2023 | $ | 31,554 | $ | 5,437 | |||||||
| 2024 | 27,766 | 9,409 | |||||||||
| 2025 | 15,923 | 6,129 | |||||||||
| 2026 | 12,576 | 5,478 | |||||||||
| 2027 | 10,717 | 5,478 | |||||||||
| Thereafter | 113,413 | 91,904 | |||||||||
| Total lease payments | 211,949 | 123,835 | |||||||||
| Less imputed interest | 74,481 | 45,060 | |||||||||
| Total | $ | 137,468 | $ | 78,775 |
NOTE 11—Segment 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
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
to evaluate performance and make resource allocation decisions. The segment information for the prior year period been recast to conform to the current year presentation.
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 transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net (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 three-month periods ended March 31, 2023 and 2022 were as follows (in thousands). Prior period amounts have been recast to reflect the current segment structure.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Energy Storage | $ | 1,943,682 | $ | 463,704 | |||||||||||||||||||
| Specialties | 418,778 | 446,147 | |||||||||||||||||||||
| Ketjen | 217,792 | 217,877 | |||||||||||||||||||||
| Total net sales | $ | 2,580,252 | $ | 1,127,728 | |||||||||||||||||||
| Adjusted EBITDA: | |||||||||||||||||||||||
| Energy Storage | $ | 1,406,181 | $ | 285,247 | |||||||||||||||||||
| Specialties | 162,158 | 152,602 | |||||||||||||||||||||
| Ketjen | 14,543 | 16,910 | |||||||||||||||||||||
| Total segment adjusted EBITDA | 1,582,882 | 454,759 | |||||||||||||||||||||
| Corporate | 12,837 | (22,829) | |||||||||||||||||||||
| Total adjusted EBITDA | $ | 1,595,719 | $ | 431,930 | |||||||||||||||||||
| Depreciation and amortization: | |||||||||||||||||||||||
| Energy Storage | $ | 52,162 | $ | 35,046 | |||||||||||||||||||
| Specialties | 19,892 | 16,153 | |||||||||||||||||||||
| Ketjen | 13,143 | 12,921 | |||||||||||||||||||||
| Corporate | 2,074 | 2,454 | |||||||||||||||||||||
| Total depreciation and amortization | $ | 87,271 | $ | 66,574 |
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Total segment adjusted EBITDA | $ | 1,582,882 | $ | 454,759 | |||||||||||||||||||
| Corporate expenses, net | 12,837 | (22,829) | |||||||||||||||||||||
| Depreciation and amortization | (87,271) | (66,574) | |||||||||||||||||||||
| Interest and financing expenses(a) | (26,777) | (27,834) | |||||||||||||||||||||
| Income tax expense | (276,963) | (80,530) | |||||||||||||||||||||
| Loss on sale of interest in properties, net(b) | — | (8,400) | |||||||||||||||||||||
| Acquisition and integration related costs(c) | (5,108) | (1,724) | |||||||||||||||||||||
| Non-operating pension and OPEB items | (601) | 5,280 | |||||||||||||||||||||
| Mark-to-market gain on public equity securities(d) | 45,826 | — | |||||||||||||||||||||
| Other(e) | (6,245) | 1,235 | |||||||||||||||||||||
| Net income attributable to Albemarle Corporation | $ | 1,238,580 | $ | 253,383 |
(a)Included in Interest and financing expenses for the three months ended March 31, 2022 is the correction of an out of period error of $17.5 million related to the overstatement of capitalized interest in prior periods.
(b)Expense recorded 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 recorded in Accrued liabilities to be transferred to MRL, which maintains a 40% ownership interest in these Kemerton assets.
(c)Costs related to the acquisition, integration and potential divestitures for various significant projects, recorded in Selling, general and administrative expenses (“SG&A”).
(d)Gain recorded in Other income, net for the three months ended March 31, 2023, resulting from the increase in fair value of investments in public equity securities.
(e)Included amounts for the three months ended March 31, 2023 recorded in:
-
SG&A - $1.9 million of charges primarily for environmental reserves at sites not part of our operations and $0.7 million of facility closure expenses related to offices in Germany.
-
Other income, net - $3.6 million of charges for asset retirement obligations at a site not part of our operations.
Included amounts for the three months ended March 31, 2022 recorded in:
-
SG&A - $4.3 million of gains from the sale of legacy properties not part of our operations, partially offset by $2.8 million of charges for environmental reserves at sites not part of our operations and $0.7 million of facility closure expenses related to offices in Germany.
-
Other income, net - $0.6 million gain related to a settlement received from a legal matter in a prior period.
NOTE 12—Pension Plans and Other Postretirement Benefits:
The components of pension and postretirement benefits cost (credit) for the three-month periods ended March 31, 2023 and 2022 were as follows (in thousands):
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Pension Benefits Cost (Credit): | |||||||||||||||||||||||
| Service cost | $ | 1,321 | $ | 985 | |||||||||||||||||||
| Interest cost | 8,542 | 5,605 | |||||||||||||||||||||
| Expected return on assets | (8,409) | (11,212) | |||||||||||||||||||||
| Amortization of prior service benefit | 20 | 24 | |||||||||||||||||||||
| Total net pension benefits cost (credit) | $ | 1,474 | $ | (4,598) | |||||||||||||||||||
| Postretirement Benefits Cost: | |||||||||||||||||||||||
| Service cost | $ | 12 | $ | 21 | |||||||||||||||||||
| Interest cost | 468 | 327 | |||||||||||||||||||||
| Total net postretirement benefits cost | $ | 480 | $ | 348 | |||||||||||||||||||
| Total net pension and postretirement benefits cost (credit) | $ | 1,954 | $ | (4,250) |
All components of net benefit cost (credit), other than service cost, are included in Other income, net on the consolidated statements of income.
During the three-month periods ended March 31, 2023 and 2022, the Company made contributions of $2.7 million and $3.2 million, respectively, to its qualified and nonqualified pension plans.
The Company paid $0.2 million and $0.6 million in premiums to the U.S. postretirement benefit plan during the three-month periods ended March 31, 2023 and 2022, respectively.
NOTE 13—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.
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Recorded Amount | Fair Value | Recorded Amount | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Long-term debt | $ | 3,257,604 | $ | 3,073,954 | $ | 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. We had outstanding designated foreign currency forward contracts with notional values totaling the equivalent of $17.6 million and $64.5 million at March 31, 2023 and December 31, 2022, 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 March 31, 2023 and December 31, 2022, we had outstanding non-designated foreign currency forward contracts with notional values totaling $5.2 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 as of March 31, 2023 and December 31, 2022 (in thousands):
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||
| Designated as hedging instruments | |||||||||||||||||||||||
| Accrued expenses | $ | — | $ | 921 | $ | — | $ | 3,159 | |||||||||||||||
| Total designated as hedging instruments | — | 921 | — | 3,159 | |||||||||||||||||||
| Not designated as hedging instruments | |||||||||||||||||||||||
| Other current assets | — | — | 6,016 | — | |||||||||||||||||||
| Accrued expenses | — | 306 | — | 85 | |||||||||||||||||||
| Total not designated as hedging instruments | — | 306 | 6,016 | 85 | |||||||||||||||||||
| Total | $ | — | $ | 1,227 | $ | 6,016 | $ | 3,244 |
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the net gains (losses) recognized for our foreign currency forward contracts during the three-month periods ended March 31, 2023 and 2022 (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Designated as hedging instruments | |||||||||||||||||||||||
| Income recognized in Other comprehensive income (loss) | $ | 1,101 | $ | 4,017 | |||||||||||||||||||
| Not designated as hedging instruments | |||||||||||||||||||||||
| Income (loss) recognized in Other income, net(a) | $ | 35,233 | $ | (3,972) |
(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, net.
In addition, for the three-month periods ended March 31, 2023 and 2022, we recorded net cash receipts (settlements) of $41.5 million and ($3.3) million, respectively, in Other, net, in our condensed consolidated statements of cash flows.
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 14—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 |
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 March 31, 2023 and December 31, 2022 (in thousands):
| March 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) | $ | 266,276 | $ | — | $ | — | $ | 266,276 | |||||||||||||||
| Investments under executive deferred compensation plan(b) | $ | 27,539 | $ | 27,539 | $ | — | $ | — | |||||||||||||||
| Public equity securities(c) | $ | 177,503 | $ | 177,503 | $ | — | $ | — | |||||||||||||||
| Private equity securities measured at net asset value(d)(e) | $ | 6,388 | $ | — | $ | — | $ | — | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Obligations under executive deferred compensation plan(b) | $ | 27,539 | $ | 27,539 | $ | — | $ | — | |||||||||||||||
| Foreign currency forward contracts(f) | $ | 1,227 | $ | — | $ | 1,227 | $ | — |
| 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. 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.
(b)We maintain an Executive Deferred Compensation Plan (“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, net in our consolidated statements of income. During the three-month period ended March 31, 2023, the Company purchased approximately $121.9 million of shares in a publicly-traded company. In addition, the Company recorded a mark-to-market gain of $45.8 million on all public equity securities during the three-month period ended March 31, 2023 in Other income, net.
(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, 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
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 13, “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 | |||||
| Beginning balance at December 31, 2022 | $ | 260,139 | |||
| Fair value adjustment | 2,953 | ||||
| Accretion of discount | 3,184 | ||||
| Ending balance at March 31, 2023 | $ | 266,276 |
NOTE 15—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 periods indicated below (in thousands):
| Foreign Currency Translation and Other | Cash Flow Hedge**(a)** | Interest Rate Swap**(b)** | Total | ||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (562,886) | $ | 2,224 | $ | — | $ | (560,662) | |||||||||||||||||||||||||||||||||
| Other comprehensive income before reclassifications | 46,200 | 1,101 | — | 47,301 | |||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 16 | — | — | 16 | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | 46,216 | 1,101 | — | 47,317 | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income attributable to noncontrolling interests | 8 | — | — | 8 | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | (516,662) | $ | 3,325 | $ | — | $ | (513,337) | |||||||||||||||||||||||||||||||||
| Three months ended March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | (391,674) | $ | 6,623 | $ | (7,399) | $ | (392,450) | |||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (5,909) | 4,017 | — | (1,892) | |||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 20 | — | 650 | 670 | |||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | (5,889) | 4,017 | 650 | (1,222) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income attributable to noncontrolling interests | 53 | — | — | 53 | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | (397,510) | $ | 10,640 | $ | (6,749) | $ | (393,619) |
(a)We entered into a foreign currency forward contract, which was designated and accounted for as a cash flow hedge under ASC 815, Derivatives and Hedging. See Note 14, “Fair Value of Financial Instruments,” for additional information.
(b)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. In the second quarter of 2022, the Company repaid these notes, and as a result, reclassified the remaining balance of this interest rate swap to interest expense during the same period as part of an early extinguishment of debt.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The amount of income tax expense allocated to each component of Other comprehensive income (loss) for the three-month periods ended March 31, 2023 and 2022 is provided in the following tables (in thousands):
| Foreign Currency Translation and Other | Cash Flow Hedge | Interest Rate Swap | Total | ||||||||||||||||||||||||||||||||
| Three months ended March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Other comprehensive income, before tax | $ | 45,978 | $ | 1,101 | $ | — | $ | 47,079 | |||||||||||||||||||||||||||
| Income tax benefit | 238 | — | — | 238 | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | $ | 46,216 | $ | 1,101 | $ | — | $ | 47,317 | |||||||||||||||||||||||||||
| Three months ended March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, before tax | $ | (6,458) | $ | 4,017 | $ | 834 | $ | (1,607) | |||||||||||||||||||||||||||
| Income tax benefit (expense) | 569 | — | (184) | 385 | |||||||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | $ | (5,889) | $ | 4,017 | $ | 650 | $ | (1,222) |
NOTE 16—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):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Sales to unconsolidated affiliates | $ | 7,100 | $ | 7,655 | |||||||||||||||||||
| Purchases from unconsolidated affiliates(a) | $ | 1,072,544 | $ | 216,554 |
(a)Purchases from unconsolidated affiliates primarily relate to spodumene purchased from the Company’s Windfield joint venture.
Our consolidated balance sheets include accounts receivable due from and payable to unconsolidated affiliates in the ordinary course of business as follows (in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Receivables from unconsolidated affiliates | $ | 13,076 | $ | 21,495 | |||||||
| Payables to unconsolidated affiliates(a) | $ | 1,012,822 | $ | 518,377 |
(a)Payables to unconsolidated affiliates primarily relate spodumene purchased from the Company’s Windfield joint venture under normal payment terms.
NOTE 17—Supplemental Cash Flow Information:
Supplemental information related to the condensed consolidated statements of cash flows is as follows (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Supplemental non-cash disclosure related to investing and financing activities: | |||||||||||
| Capital expenditures included in Accounts payable | $ | 347,165 | $ | 196,661 | |||||||
| Promissory note issued for capital expenditures(a) | $ | — | $ | 10,876 | |||||||
(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, NC. The promissory note is payable in equal annual installments from the years 2027 to 2048.
As part of the purchase price paid for the acquisition of a 60% interest in the MRL Wodgina Project, the Company transferred $7.7 million and $65.1 million of its construction in progress of the designated Kemerton assets during the three months ended March 31, 2023 and 2022, respectively, representing MRL’s 40% interest in the 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
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
progress of the Kemerton plant to MRL within Cash flows from operating activities on the consolidated statements of cash flows.
NOTE 18—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 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 which requires 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.
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