UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

_________________________________________________ 

FORM 10-Q

_________________________________________________ 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended March 31, 2019

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-12658

_________________________________________________ 

ALBEMARLE CORPORATION

(Exact name of registrant as specified in its charter)

_________________________________________________ 

VIRGINIA	54-1692118
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4250 Congress Street, Suite 900

Charlotte, North Carolina 28209

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code - (980) 299-5700

_________________________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
COMMON STOCK, $.01 Par Value	ALB	NEW YORK STOCK EXCHANGE

Number of shares of common stock, $.01 par value, outstanding as of April 30, 2019: 105,956,723

ALBEMARLE CORPORATION

INDEX – FORM 10-Q

		Page Number(s)
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income - Three Months Ended March 31, 2019 and 2018	3
	Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2019 and 2018	4
	Condensed Consolidated Balance Sheets - March 31, 2019 and December 31, 2018	5
	Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2019 and 2018	7
	Notes to the Condensed Consolidated Financial Statements	8-22
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22-33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	35
SIGNATURES		36
EXHIBITS

2

PART I. FINANCIAL INFORMATION

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,
	2019			2018
Net sales	$	832,064		$	821,629
Cost of goods sold	548,578			516,650
Gross profit	283,486			304,979
Selling, general and administrative expenses	113,355			101,370
Research and development expenses	14,977			20,986
Operating profit	155,154			182,623
Interest and financing expenses	(12,586		)	(13,538		)
Other income (expenses), net	11,291			(30,476		)
Income before income taxes and equity in net income of unconsolidated investments	153,859			138,609
Income tax expense	37,514			20,361
Income before equity in net income of unconsolidated investments	116,345			118,248
Equity in net income of unconsolidated investments (net of tax)	35,181			20,677
Net income	151,526			138,925
Net income attributable to noncontrolling interests	(17,957		)	(7,165		)
Net income attributable to Albemarle Corporation	$	133,569		$	131,760
Basic earnings per share	$	1.26		$	1.19
Diluted earnings per share	$	1.26		$	1.18
Weighted-average common shares outstanding – basic	105,799			110,681
Weighted-average common shares outstanding – diluted	106,356			111,867

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

ALBEMARLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

	Three Months Ended   March 31,
	2019			2018
Net income	$	151,526		$	138,925
Other comprehensive (loss) income, net of tax:
Foreign currency translation	(10,855		)	64,891
Pension and postretirement benefits	7			3
Net investment hedge	3,304			(14,421		)
Interest rate swap	641			642
Total other comprehensive (loss) income, net of tax	(6,903		)	51,115
Comprehensive income	144,623			190,040
Comprehensive income attributable to noncontrolling interests	(17,910		)	(7,351		)
Comprehensive income attributable to Albemarle Corporation	$	126,713		$	182,689

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

ALBEMARLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

	March 31,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	465,274		$	555,320
Trade accounts receivable, less allowance for doubtful accounts (2019 – $4,486; 2018 – $4,460)	603,542			605,712
Other accounts receivable	57,019			52,059
Inventories	756,193			700,540
Other current assets	105,148			84,790
Total current assets	1,987,176			1,998,421
Property, plant and equipment, at cost	4,983,385			4,799,063
Less accumulated depreciation and amortization	1,813,195			1,777,979
Net property, plant and equipment	3,170,190			3,021,084
Investments	563,030			528,722
Other assets	211,073			80,135
Goodwill	1,561,092			1,567,169
Other intangibles, net of amortization	378,501			386,143
Total assets	$	7,871,062		$	7,581,674
Liabilities And Equity
Current liabilities:
Accounts payable	$	482,433		$	522,516
Accrued expenses	263,868			257,323
Current portion of long-term debt	425,684			307,294
Dividends payable	38,716			35,169
Current operating lease liability	21,299			—
Income taxes payable	46,191			60,871
Total current liabilities	1,278,191			1,183,173
Long-term debt	1,393,904			1,397,916
Postretirement benefits	45,862			46,157
Pension benefits	282,082			285,396
Other noncurrent liabilities	616,007			526,942
Deferred income taxes	390,977			382,982
Commitments and contingencies (Note 9)
Equity:
Albemarle Corporation shareholders’ equity:
Common stock, $.01 par value, issued and outstanding – 105,950 in 2019 and 105,616 in 2018	1,059			1,056
Additional paid-in capital	1,368,069			1,368,897
Accumulated other comprehensive loss	(357,538		)	(350,682		)
Retained earnings	2,660,684			2,566,050
Total Albemarle Corporation shareholders’ equity	3,672,274			3,585,321
Noncontrolling interests	191,765			173,787
Total equity	3,864,039			3,759,108
Total liabilities and equity	$	7,871,062		$	7,581,674

See accompanying Notes to the Condensed Consolidated Financial Statements.

5

ALBEMARLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(In Thousands, Except Share Data)						Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Albemarle Shareholders’ Equity			Noncontrolling Interests			Total Equity
	Common Stock
	Shares		Amounts
Balance at January 1, 2019	105,616,028		$	1,056		$	1,368,897		$	(350,682	)	$	2,566,050		$	3,585,321		$	173,787		$	3,759,108
Net income												133,569			133,569			17,957			151,526
Other comprehensive loss									(6,856		)				(6,856		)	(47		)	(6,903		)
Cash dividends declared, $0.3675 per common share												(38,935		)	(38,935		)	—			(38,935		)
Stock-based compensation and other						7,277									7,277						7,277
Exercise of stock options	114,128		1			2,675									2,676						2,676
Issuance of common stock, net	340,111		3			(3		)							—						—
Increase in ownership interest of noncontrolling interest						(523		)							(523		)	68			(455		)
Shares withheld for withholding taxes associated with common stock issuances	(120,256	)	(1		)	(10,254		)							(10,255		)				(10,255		)
Balance at March 31, 2019	105,950,011		$	1,059		$	1,368,069		$	(357,538	)	$	2,660,684		$	3,672,274		$	191,765		$	3,864,039
Balance at January 1, 2018	110,546,674		$	1,105		$	1,863,949		$	(225,668	)	$	2,035,163		$	3,674,549		$	143,147		$	3,817,696
Net income												131,760			131,760			7,165			138,925
Other comprehensive income									50,929						50,929			186			51,115
Cash dividends declared, $0.335 per common share												(37,103		)	(37,103		)	(7,378		)	(44,481		)
Cumulative adjustment from adoption of income tax standard update (Note 1)												(11,199		)	(11,199		)				(11,199		)
Stock-based compensation and other						5,737									5,737						5,737
Exercise of stock options	12,740		—			646									646						646
Issuance of common stock, net	319,440		3			(3		)							—						—
Shares withheld for withholding taxes associated with common stock issuances	(122,740	)	(1		)	(15,008		)							(15,009		)				(15,009		)
Balance at March 31, 2018	110,756,114		$	1,107		$	1,855,321		$	(174,739	)	$	2,118,621		$	3,800,310		$	143,120		$	3,943,430

See accompanying Notes to the Condensed Consolidated Financial Statements.

6

ALBEMARLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Three Months Ended   March 31,
	2019			2018
Cash and cash equivalents at beginning of year	$	555,320		$	1,137,303
Cash flows from operating activities:
Net income	151,526			138,925
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	49,283			50,330
Gain on sale of property	(11,079		)	—
Stock-based compensation	5,556			2,869
Equity in net income of unconsolidated investments (net of tax)	(35,181		)	(20,677		)
Dividends received from unconsolidated investments and nonmarketable securities	3,034			25,462
Pension and postretirement expense (benefit)	578			(890		)
Pension and postretirement contributions	(3,555		)	(3,548		)
Unrealized gain on investments in marketable securities	(476		)	(393		)
Deferred income taxes	7,580			29,067
Working capital changes	(122,939		)	(95,050		)
Other, net	10,589			(4,541		)
Net cash provided by operating activities	54,916			121,554
Cash flows from investing activities:
Capital expenditures	(216,132		)	(131,815		)
Proceeds from sale of property and equipment	10,356			—
Sales of marketable securities, net	1,090			10
Investments in equity and other corporate investments	(2,509		)	(735		)
Net cash used in investing activities	(207,195		)	(132,540		)
Cash flows from financing activities:
Other borrowings (repayments), net	118,223			(381,159		)
Dividends paid to shareholders	(35,387		)	(35,382		)
Dividends paid to noncontrolling interests	—			(7,378		)
Proceeds from exercise of stock options	2,676			646
Withholding taxes paid on stock-based compensation award distributions	(10,255		)	(15,009		)
Net cash provided by (used in) financing activities	75,257			(438,282		)
Net effect of foreign exchange on cash and cash equivalents	(13,024		)	4,153
Decrease in cash and cash equivalents	(90,046		)	(445,115		)
Cash and cash equivalents at end of period	$	465,274		$	692,188

See accompanying Notes to the Condensed Consolidated Financial Statements.

7

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 condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018, our consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and condensed consolidated statements of cash flows for the three-month periods ended March 31, 2019 and 2018. All adjustments are of a normal and recurring nature. 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, 2018, which was filed with the Securities and Exchange Commission (“SEC”) on February 27, 2019. The December 31, 2018 condensed 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, 2019 are not necessarily indicative of the results to be expected for the full year. The three-month period ended March 31, 2018 includes an $11.2 million cumulative adjustment to decrease Retained earnings due to the adoption of accounting guidance that eliminated the deferral of tax effects of intra-entity asset transfers other than inventory.

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” and all related amendments using the modified retrospective method. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $139.1 million as of January 1, 2019. Comparative periods have not been restated and are reported in accordance with our historical accounting. The standard did not have an impact on our consolidated Net income or cash flows. In addition, as a result of the adoption of this new standard, we have implemented internal controls and system changes to prepare the financial information.

As part of this adoption, we have elected the practical expedient relief package allowed by the new standard, which does not require the reassessment of (1) whether existing contracts contain a lease, (2) the lease classification or (3) unamortized initial direct costs for existing leases; and have elected to apply hindsight to the existing leases. 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.

See Note 2, “Leases” and Note 17, “Recently Issued Accounting Pronouncements,” for additional information. In addition, see below for a description of our updated lease accounting policy.

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.

8

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 2—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.

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 months ended March 31, 2019 (in thousands):

	Three Months Ended
	March 31, 2019
Operating lease cost	$	9,421
Finance lease cost:
Amortization of right of use assets	178
Interest on lease liabilities	33
Total finance lease cost	211
Short-term lease cost	1,966
Variable lease cost	1,086
Total lease cost	$	12,684

Supplemental cash flow information related to our lease contracts for the three months ended March 31, 2019 is as follows (in thousands):

	Three Months Ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8,930
Operating cash flows from finance leases	33
Financing cash flows from finance leases	171

9

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, 2019 is as follows (in thousands, except as noted):

	March 31, 2019
Operating leases:
Other assets	$	130,628
Current operating lease liability	21,299
Other noncurrent liabilities	110,058
Total operating lease liabilities	131,357
Finance leases:
Net property, plant and equipment	4,105
Current portion of long-term debt	684
Long-term debt	3,601
Total finance lease liabilities	4,285
Weighted average remaining lease term (in years):
Operating leases	11.9
Finance leases	6.5
Weighted average discount rate (%):
Operating leases	3.88		%
Finance leases	2.90		%

Maturities of lease liabilities as of March 31, 2019 were as follows (in thousands):

	Operating Leases		Finance Leases
Remainder of 2019	$	18,801	$	607
2020	21,096		765
2021	12,435		676
2022	10,546		676
2023	10,198		676
Thereafter	93,911		1,352
Total lease payments	166,987		4,752
Less imputed interest	35,630		467
Total	$	131,357	$	4,285

As of December 31, 2018, future non-cancelable minimum lease payments were $25.6 million in 2019; $17.9 million in 2020; $12.5 million in 2021; $10.8 million in 2022; $10.1 million in 2023; and $87.1 million thereafter.

10

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 3—Goodwill and Other Intangibles:

The following table summarizes the changes in goodwill by reportable segment for the three months ended March 31, 2019 (in thousands):

	Lithium			Bromine Specialties		Catalysts			All Other		Total
Balance at December 31, 2018	$	1,354,779		$	20,319	$	185,485		$	6,586	$	1,567,169
Foreign currency translation adjustments	(4,369		)	—		(1,708		)	—		(6,077		)
Balance at March 31, 2019	$	1,350,410		$	20,319	$	183,777		$	6,586	$	1,561,092

The following table summarizes the changes in other intangibles and related accumulated amortization for the three months ended March 31, 2019 (in thousands):

	Customer Lists and Relationships			Trade Names and Trademarks(a)			Patents and Technology			Other			Total
Gross Asset Value
Balance at December 31, 2018	$	428,372		$	18,453		$	55,801		$	43,708		$	546,334
Foreign currency translation adjustments	(1,662		)	(76		)	217			166			(1,355		)
Balance at March 31, 2019	$	426,710		$	18,377		$	56,018		$	43,874		$	544,979
Accumulated Amortization
Balance at December 31, 2018	$	(95,797	)	$	(8,176	)	$	(35,248	)	$	(20,970	)	$	(160,191	)
Amortization	(5,808		)	—			(355		)	(664		)	(6,827		)
Foreign currency translation adjustments	412			25			113			(10		)	540
Balance at March 31, 2019	$	(101,193	)	$	(8,151	)	$	(35,490	)	$	(21,644	)	$	(166,478	)
Net Book Value at December 31, 2018	$	332,575		$	10,277		$	20,553		$	22,738		$	386,143
Net Book Value at March 31, 2019	$	325,517		$	10,226		$	20,528		$	22,230		$	378,501

(a) Includes only indefinite-lived intangible assets.

NOTE 4—Income Taxes:

The effective income tax rate for the three-month period ended March 31, 2019 was 24.4%, compared to 14.7% for the three-month period ended March 31, 2018. The Company’s effective income tax rate fluctuates based on, among other factors, its level and location of income. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the three-months ended March 31, 2019 was impacted by a variety of factors, primarily stemming from the location in which income was earned and discrete net tax expenses primarily related to uncertain tax positions. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the three-months ended March 31, 2018 was impacted by a variety of factors, primarily stemming from discrete tax benefits related to adjustments recorded for the U.S. Tax Cuts and Jobs Act (“TCJA”) and excess tax benefits realized from stock-based compensation arrangements.

11

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 5—Earnings Per Share:

Basic and diluted earnings per share for the three-month periods ended March 31, 2019 and 2018 are calculated as follows (in thousands, except per share amounts):

	Three Months Ended   March 31,
	2019		2018
Basic earnings per share
Numerator:
Net income attributable to Albemarle Corporation	$	133,569	$	131,760
Denominator:
Weighted-average common shares for basic earnings per share	105,799		110,681
Basic earnings per share	$	1.26	$	1.19
Diluted earnings per share
Numerator:
Net income attributable to Albemarle Corporation	$	133,569	$	131,760
Denominator:
Weighted-average common shares for basic earnings per share	105,799		110,681
Incremental shares under stock compensation plans	557		1,186
Weighted-average common shares for diluted earnings per share	106,356		111,867
Diluted earnings per share	$	1.26	$	1.18

At March 31, 2019, there were 119,265 common stock equivalents not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

On February 26, 2019, the Company increased the regular quarterly dividend by 10% to $0.3675 per share and declared a cash dividend of said amount for the first quarter of 2019, which was paid on April 1, 2019 to shareholders of record at the close of business as of March 15, 2019. On May 8, 2019, the Company declared a cash dividend of $0.3675 per share, which is payable on July 1, 2019 to shareholders of record at the close of business as of June 14, 2019.

NOTE 6—Inventories:

The following table provides a breakdown of inventories at March 31, 2019 and December 31, 2018 (in thousands):

	March 31,		December 31,
	2019		2018
Finished goods(a)	$	535,201	$	482,355
Raw materials and work in process(b)	159,429		158,290
Stores, supplies and other	61,563		59,895
Total	$	756,193	$	700,540

(a) Increase primarily due to the build-up of inventory in our Lithium and Catalysts segments for a forecasted increase in sales in 2019.

(b) Included $76.4 million and $71.4 million at March 31, 2019 and December 31, 2018, respectively, of work in process related to lithium brine.

NOTE 7—Investments:

The Company holds a 49% equity interest in Windfield Holdings Pty. Ltd. (“Windfield”), where the ownership 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 this investment is not consolidated as the Company is not the primary beneficiary. The carrying amount of our 49% equity interest in Windfield, which is our most significant VIE, was $380.6 million and $349.6 million at March 31, 2019 and December 31, 2018, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIEs for which the Company is not the primary beneficiary was $8.3 million and $8.1 million at March 31, 2019 and December 31, 2018, respectively. Our unconsolidated VIEs are reported in Investments on the condensed consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these

12

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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.

NOTE 8—Long-Term Debt:

Long-term debt at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

	March 31,		December 31,
	2019		2018
1.875% Senior notes, net of unamortized discount and debt issuance costs of $2,576 at March 31, 2019 and $2,841 at December 31, 2018	$	440,098	$	444,155
4.15% Senior notes, net of unamortized discount and debt issuance costs of $2,762 at March 31, 2019 and $2,884 at December 31, 2018	422,238		422,116
4.50% Senior notes, net of unamortized discount and debt issuance costs of $514 at March 31, 2019 and $589 at December 31, 2018	174,701		174,626
5.45% Senior notes, net of unamortized discount and debt issuance costs of $3,966 at March 31, 2019 and $4,004 at December 31, 2018	346,034		345,996
Commercial paper notes	425,000		306,606
Variable-rate foreign bank loans	7,232		7,216
Finance lease obligations	4,285		4,495
Total long-term debt	1,819,588		1,705,210
Less amounts due within one year	425,684		307,294
Long-term debt, less current portion	$	1,393,904	$	1,397,916

Current portion of long-term debt at March 31, 2019 consisted primarily of commercial paper notes with a weighted-average interest rate of approximately 2.89% and a weighted-average maturity of 42 days.

The carrying value of our 1.875% Euro-denominated senior notes has been 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 are recorded in accumulated other comprehensive loss. During the three-month periods ended March 31, 2019 and 2018, gains (losses) of $3.3 million and ($14.4) million (net of income taxes), respectively, were recorded in accumulated other comprehensive loss in connection with the revaluation of these senior notes to our reporting currency.

NOTE 9—Commitments and Contingencies:

Environmental

We had the following activity in our recorded environmental liabilities for the three months ended March 31, 2019 (in thousands):

Beginning balance at December 31, 2018	$	49,569
Expenditures	(2,080		)
Accretion of discount	223
Additions and changes in estimates	1,070
Foreign currency translation adjustments and other	(506		)
Ending balance at March 31, 2019	48,276
Less amounts reported in Accrued expenses	9,826
Amounts reported in Other noncurrent liabilities	$	38,450

Environmental remediation liabilities included discounted liabilities of $39.1 million and $40.4 million at March 31, 2019 and December 31, 2018, respectively, discounted at rates with a weighted-average of 3.7%, with the undiscounted amount totaling $72.7 million and $74.5 million at March 31, 2019 and December 31, 2018, 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.

13

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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 be an additional $10 million to $35 million before income taxes, in excess of amounts already recorded. The variability of this range is primarily driven by possible environmental remediation activity at a formerly owned site where we indemnify the buyer through a set cutoff date in 2024.

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 previously reported in 2018, following receipt of information regarding potential improper payments being made by third party sales representatives of our Refining Solutions business, within our Catalysts segment, we promptly retained outside counsel and forensic accountants to investigate potential violations of the Company’s Code of Conduct, the Foreign Corrupt Practices Act and other potentially applicable laws. Based on this internal investigation, we have voluntarily self-reported potential issues relating to the use of third party sales representatives in our Refining Solutions business, within our Catalysts segment, to the U.S. Department of Justice (“DOJ”), the SEC, and the Dutch Public Prosecutor (“DPP”), and are cooperating with the DOJ, the SEC, and DPP in their review of these matters. In connection with our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures.

At this time, we are unable to predict the duration, scope, result or related costs associated with any investigations by the DOJ, the SEC, or DPP. We are unable to predict what, if any, action may be taken by the DOJ, the SEC, or DPP, or what penalties or remedial actions they may seek to impose. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses. We do not believe, however, that any fines, penalties, disgorgement, equitable relief or other losses would have a material adverse effect on our financial condition or liquidity.

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 $27.8 million and $45.3 million at March 31, 2019 and December 31, 2018, respectively, recorded in Other noncurrent liabilities, and $19.2 million recorded in Accrued expenses at March 31, 2019, related to the indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold, as well as the proposed settlement of an ongoing audit of a previously disposed business in Germany.

14

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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—Segment Information:

Our three reportable segments include: (1) Lithium; (2) Bromine Specialties; and (3) Catalysts. 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.

Summarized financial information concerning our reportable segments is shown in the following tables. The “All Other” category includes only the fine chemistry services business that does not fit into any of our core businesses.

The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the operating segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the reportable segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.

The Company’s chief operating decision maker uses adjusted EBITDA (as defined below) to assess the ongoing performance of the Company’s business segments and to allocate resources. The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items in a balanced manner and on a segment basis. These non-recurring or unusual items may include acquisition and integration related costs, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, non-operating pension and OPEB items and other significant non-recurring items. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.

15

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

	Three Months Ended   March 31,
	2019			2018
	(In thousands)
Net sales:
Lithium	$	291,886		$	298,032
Bromine Specialties	249,052			225,639
Catalysts	251,648			260,717
All Other	39,478			37,165
Corporate	—			76
Total net sales	$	832,064		$	821,629
Adjusted EBITDA:
Lithium	$	115,616		$	131,014
Bromine Specialties	78,597			69,969
Catalysts	60,071			67,830
All Other	7,243			3,862
Corporate	(35,660		)	(23,957		)
Total adjusted EBITDA	$	225,867		$	248,718

See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, from Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP (in thousands):

	Lithium			Bromine Specialties		Catalysts		Reportable Segments Total			All Other		Corporate			Consolidated Total
Three months ended March 31, 2019
Net income (loss) attributable to Albemarle Corporation	$	93,169		$	67,480	$	47,859	$	208,508		$	5,206	$	(80,145	)	$	133,569
Depreciation and amortization	22,092			11,117		12,212		45,421			2,037		1,825			49,283
Acquisition and integration related costs(a)	—			—		—		—			—		5,285			5,285
Gain on sale of property(b)	—			—		—		—			—		(11,079		)	(11,079		)
Interest and financing expenses	—			—		—		—			—		12,586			12,586
Income tax expense	—			—		—		—			—		37,514			37,514
Non-operating pension and OPEB items	—			—		—		—			—		(583		)	(583		)
Other(c)	355			—		—		355			—		(1,063		)	(708		)
Adjusted EBITDA	$	115,616		$	78,597	$	60,071	$	254,284		$	7,243	$	(35,660	)	$	225,867
Three months ended March 31, 2018
Net income (loss) attributable to Albemarle Corporation	$	108,334		$	59,536	$	55,660	$	223,530		$	1,760	$	(93,530	)	$	131,760
Depreciation and amortization	24,065			10,433		12,170		46,668			2,102		1,560			50,330
Acquisition and integration related costs(a)	—			—		—		—			—		2,201			2,201
Interest and financing expenses	—			—		—		—			—		13,538			13,538
Income tax expense	—			—		—		—			—		20,361			20,361
Non-operating pension and OPEB items	—			—		—		—			—		(2,197		)	(2,197		)
Legal accrual(d)	—			—		—		—			—		17,628			17,628
Environmental accrual(e)	—			—		—		—			—		15,597			15,597
Other(f)	(1,385		)	—		—		(1,385		)	—		885			(500		)
Adjusted EBITDA	$	131,014		$	69,969	$	67,830	$	268,813		$	3,862	$	(23,957	)	$	248,718

(a) Included acquisition and integration related costs relating to various significant projects. For the three-month period ended March 31, 2019, $5.3 million was recorded in Selling, general and administrative expenses. For the three-month period ended March 31, 2018, $1.0 million and $1.2 million was recorded in Cost of goods sold and Selling, general and administrative expenses, respectively.

16

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

(b) Gain recorded in Other income (expenses), net related to the sale of land in Pasadena, Texas not used as part of our operations.

(c) Included amounts for the three months ended March 31, 2019 recorded in:

▪ Cost of goods sold - $0.4 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements.

▪ Selling, general and administrative expenses - Expected severance payments as part of a business reorganization plan of $0.5 million, with the unpaid balance recorded in Accrued expenses as of March 31, 2019.

▪ Other income (expenses), net - $1.6 million of a net gain resulting from the revision of indemnifications and other liabilities related to previously disposed businesses.

(d) Included in Other income (expenses), net is a charge of $17.6 million resulting from a jury rendered verdict against Albemarle related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures.

(e) Increase in environmental reserve to indemnify the buyer of a formerly owned site recorded in Other income (expenses), net. As defined in the agreement of sale, this indemnification has a set cutoff date in 2024, at which point we will no longer be required to provide financial coverage.

(f) Included amounts for the three months ended March 31, 2018 recorded in:

▪ Cost of goods sold - $1.1 million for the write-off of fixed assets related to a major capacity expansion in our Jordanian joint venture.

▪ Selling, general and administrative expenses - $1.4 million gain related to a refund from Chilean authorities due to an overpayment made in a prior year.

▪ Other income (expenses), net - $0.2 million of a net gain resulting from the revision of indemnifications and other liabilities related to previously disposed businesses.

NOTE 11—Pension Plans and Other Postretirement Benefits:

The components of pension and postretirement benefits cost (credit) for the three-month periods ended March 31, 2019 and 2018 were as follows (in thousands):

	Three Months Ended   March 31,
	2019			2018
Pension Benefits Cost (Credit):
Service cost	$	1,130		$	1,268
Interest cost	8,320			8,027
Expected return on assets	(9,452		)	(10,764		)
Amortization of prior service benefit	6			22
Total net pension benefits cost (credit)	$	4		$	(1,447	)
Postretirement Benefits Cost (Credit):
Service cost	$	24		$	29
Interest cost	549			542
Expected return on assets	—			(2		)
Amortization of prior service benefit	—			(12		)
Total net postretirement benefits cost	$	573		$	557
Total net pension and postretirement benefits cost (credit)	$	577		$	(890	)

All components of net benefit cost (credit), other than service cost, are included in Other income (expenses), net on the consolidated statements of income.

During the three-month periods ended March 31, 2019 and 2018, we made contributions of $2.7 million and $3.1 million, respectively, to our qualified and nonqualified pension plans.

We paid $0.9 million and $0.5 million in premiums to the U.S. postretirement benefit plan during the three-month periods ended March 31, 2019 and 2018, respectively.

17

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 12—