UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

_________________________________________________ 

FORM 10-Q

_________________________________________________ 

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

For Quarterly Period Ended March 31, 2020

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  ☒    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  ☒    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	☒	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  ☒

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 May 4, 2020: 106,318,614

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, 2020 and 2019	3
	Consolidated Statements of Comprehensive (Loss) Income - Three Months Ended March 31, 2020 and 2019	4
	Condensed Consolidated Balance Sheets - March 31, 2020 and December 31, 2019	5
	Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2020 and 2019	6
	Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2020 and 2019	7
	Notes to the Condensed Consolidated Financial Statements	8-24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25-37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	39
SIGNATURES		41
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,
	2020			2019
Net sales	$	738,845		$	832,064
Cost of goods sold	496,827			548,578
Gross profit	242,018			283,486
Selling, general and administrative expenses	101,877			113,355
Research and development expenses	16,097			14,977
Operating profit	124,044			155,154
Interest and financing expenses	(16,885		)	(12,586		)
Other income, net	8,314			11,291
Income before income taxes and equity in net income of unconsolidated investments	115,473			153,859
Income tax expense	18,442			37,514
Income before equity in net income of unconsolidated investments	97,031			116,345
Equity in net income of unconsolidated investments (net of tax)	26,604			35,181
Net income	123,635			151,526
Net income attributable to noncontrolling interests	(16,431		)	(17,957		)
Net income attributable to Albemarle Corporation	$	107,204		$	133,569
Basic earnings per share	$	1.01		$	1.26
Diluted earnings per share	$	1.01		$	1.26
Weighted-average common shares outstanding – basic	106,227			105,799
Weighted-average common shares outstanding – diluted	106,512			106,356

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

ALBEMARLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In Thousands)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
Net income	$	123,635		$	151,526
Other comprehensive (loss) income, net of tax:
Foreign currency translation	(81,986		)	(10,855		)
Pension and postretirement benefits	9			7
Net investment hedge	2,081			3,304
Cash flow hedge	(51,460		)	—
Interest rate swap	648			641
Total other comprehensive loss, net of tax	(130,708		)	(6,903		)
Comprehensive (loss) income	(7,073		)	144,623
Comprehensive income attributable to noncontrolling interests	(16,477		)	(17,910		)
Comprehensive (loss) income attributable to Albemarle Corporation	$	(23,550	)	$	126,713

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,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	553,228		$	613,110
Trade accounts receivable, less allowance for doubtful accounts (2020 – $3,700; 2019 – $3,711)	518,703			612,651
Other accounts receivable	73,765			67,551
Inventories	853,500			768,984
Other current assets	155,985			162,813
Total current assets	2,155,181			2,225,109
Property, plant and equipment, at cost	6,973,817			6,817,843
Less accumulated depreciation and amortization	1,947,848			1,908,370
Net property, plant and equipment	5,025,969			4,909,473
Investments	543,670			579,813
Other assets	219,202			213,061
Goodwill	1,559,055			1,578,785
Other intangibles, net of amortization	344,561			354,622
Total assets	$	9,847,638		$	9,860,863
Liabilities And Equity
Current liabilities:
Accounts payable	$	573,075		$	574,138
Accrued expenses	491,579			553,160
Current portion of long-term debt	35,615			187,336
Dividends payable	40,715			38,764
Current operating lease liability	23,826			23,137
Income taxes payable	28,116			32,461
Total current liabilities	1,192,926			1,408,996
Long-term debt	3,105,225			2,862,921
Postretirement benefits	50,673			50,899
Pension benefits	285,851			292,073
Other noncurrent liabilities	768,757			754,536
Deferred income taxes	402,681			397,858
Commitments and contingencies (Note 9)
Equity:
Albemarle Corporation shareholders’ equity:
Common stock, $.01 par value, issued and outstanding – 106,319 in 2020 and 106,040 in 2019	1,063			1,061
Additional paid-in capital	1,393,681			1,383,446
Accumulated other comprehensive loss	(526,489		)	(395,735		)
Retained earnings	3,009,749			2,943,478
Total Albemarle Corporation shareholders’ equity	3,878,004			3,932,250
Noncontrolling interests	163,521			161,330
Total equity	4,041,525			4,093,580
Total liabilities and equity	$	9,847,638		$	9,860,863

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			Retained Earnings			Total Albemarle Shareholders’ Equity			Noncontrolling Interests			Total Equity
	Common Stock
	Shares		Amounts
Balance at January 1, 2020	106,040,215		$	1,061		$	1,383,446		$	(395,735	)	$	2,943,478		$	3,932,250		$	161,330		$	4,093,580
Net income												107,204			107,204			16,431			123,635
Other comprehensive (loss) income									(130,754		)				(130,754		)	46			(130,708		)
Cash dividends declared, $0.385 per common share												(40,933		)	(40,933		)	(14,286		)	(55,219		)
Stock-based compensation						3,867									3,867						3,867
Exercise of stock options	193,537		2			10,193									10,195						10,195
Issuance of common stock, net	132,320		1			(1		)							—						—
Shares withheld for withholding taxes associated with common stock issuances	(47,458	)	(1		)	(3,824		)							(3,825		)				(3,825		)
Balance at March 31, 2020	106,318,614		$	1,063		$	1,393,681		$	(526,489	)	$	3,009,749		$	3,878,004		$	163,521		$	4,041,525
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						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

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,
	2020			2019
Cash and cash equivalents at beginning of year	$	613,110		$	555,320
Cash flows from operating activities:
Net income	123,635			151,526
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	53,694			49,283
Gain on sale of property	—			(11,079		)
Stock-based compensation and other	2,501			5,556
Equity in net income of unconsolidated investments (net of tax)	(26,604		)	(35,181		)
Dividends received from unconsolidated investments and nonmarketable securities	—			3,034
Pension and postretirement (benefit) expense	(1,719		)	578
Pension and postretirement contributions	(6,113		)	(3,555		)
Unrealized gain on investments in marketable securities	(627		)	(476		)
Deferred income taxes	4,790			7,580
Working capital changes	17,730			(122,939		)
Other, net	(12,233		)	10,589
Net cash provided by operating activities	155,054			54,916
Cash flows from investing activities:
Acquisitions, net of cash acquired	(22,572		)	—
Capital expenditures	(214,529		)	(216,132		)
Proceeds from sale of property and equipment	—			10,356
Sales of marketable securities, net	2,589			1,090
Investments in equity and other corporate investments	(356		)	(2,509		)
Net cash used in investing activities	(234,868		)	(207,195		)
Cash flows from financing activities:
Proceeds from borrowings of credit agreements	250,000			—
Other (repayments) borrowings, net	(151,872		)	118,223
Dividends paid to shareholders	(38,982		)	(35,387		)
Dividends paid to noncontrolling interests	(14,286		)	—
Proceeds from exercise of stock options	10,195			2,676
Withholding taxes paid on stock-based compensation award distributions	(3,825		)	(10,255		)
Debt financing costs	(214		)	—
Net cash provided by financing activities	51,016			75,257
Net effect of foreign exchange on cash and cash equivalents	(31,084		)	(13,024		)
Decrease in cash and cash equivalents	(59,882		)	(90,046		)
Cash and cash equivalents at end of period	$	553,228		$	465,274

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, 2020 and December 31, 2019, 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, 2020 and 2019. 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, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020. The December 31, 2019 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, 2020 are not necessarily indicative of the results to be expected for the full year.

The current novel coronavirus (“COVID-19”) pandemic is having an impact on overall global economic conditions. While we have not seen a material financial impact to date, the ultimate impact on our business will depend on the length and severity of the outbreak throughout the world. The Company has taken, and plans to continue to take, certain measures to maintain financial flexibility, including delaying certain capital expenditure projects and accelerating our cost savings initiative, while still protecting our employees and customers. In addition, on May 11, 2020, the Company amended its revolving, unsecured credit agreement dated as of June 21, 2018, as amended on August 14, 2019 (the “2018 Credit Agreement”) and unsecured credit facility entered into on August 14, 2019 (the “2019 Credit Facility”) (together “the Credit Agreements”) to modify its financial covenant based on the Company’s current expectations. As of March 31, 2020, the Company is in compliance with its financial covenant under its Credit Agreements and now expect to be in compliance with its financial covenant for at least one year from the issuance of these interim financial statements, following the amendment to the covenant. If conditions caused by the COVID-19 pandemic worsen and the Company’s earnings and cash flow from operations do not start to recover as contemplated in the Company's current plans, the Company may not be able to maintain compliance with its amended financial covenant and could have a material adverse effect on the Company. See Note 8, “Long-term Debt,” for further discussion of covenant amendment.

In addition, as of March 31, 2020, we assessed other accounting estimates based on forecasted financial information, including, but not limited to, our allowance for credit losses, the carrying value of our goodwill, intangible assets, and other long-lived assets. At this time we cannot predict the ultimate financial impact of COVID-19 on our business, and to what extent economic and operating conditions recover on a sustainable basis globally. Accordingly, if the impact is more severe or longer in duration than we have assumed, such impact could potentially result in impairments and increases in credit allowances.

NOTE 2—Acquisitions:

On October 31, 2019 (the “Acquisition Closing Date”), we completed the previously announced acquisition of a 60% interest in Mineral Resources Limited’s (“MRL”) Wodgina hard rock lithium mine project (“Wodgina Project”) for a total purchase price of approximately $1.3 billion. The purchase price is comprised of $820 million in cash and the transfer of 40% interest in certain lithium hydroxide conversion assets being built by Albemarle in Kemerton, Western Australia, valued at $480 million. The cash consideration was initially funded by the 2019 Credit Facility entered into on August 14, 2019. In addition, during the first quarter of 2020, we paid $22.6 million of agreed upon purchase price adjustments.

In addition, we have formed an unincorporated joint venture with MRL, MARBL, for the exploration, development, mining, processing and production of lithium and other minerals (other than iron ore and tantalum) from the Wodgina Project and for the operation of the Kemerton assets. We are entitled to a pro rata portion of 60% of all minerals (other than iron ore and tantalum) recovered from the tenements and produced by the joint venture. The joint venture is unincorporated with each investor holding an undivided interest in each asset and proportionately liable for each liability; therefore our proportionate share of assets, liabilities, revenue and expenses are included in the appropriate classifications in the consolidated financial statements. As part of this acquisition, MARBL Lithium Operations Pty. Ltd. (the “Manager”), an incorporated joint venture, has been formed to manage the Wodgina Project. We consolidate our 60% ownership interest in the Manager in our consolidated financial statements.

8

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

This acquisition provides access to a high-quality hard rock lithium source, further diversifying our global lithium resource base, and strengthens our position by increasing capacity to support future market demand. In the short-term, we have idled production of the Wodgina Project until market conditions support production economics.

The results of our 60% ownership interest in MARBL are reported within the Lithium segment. Included in Net income attributable to Albemarle Corporation for the three months ended March 31, 2020 is a loss of approximately $4.7 million attributable to the joint venture. There were no net sales attributable to the joint venture during this period. Included in Selling, general and administrative expenses on our consolidated statements of income for the three months ended March 31, 2020 is $0.4 million of costs directly related to this acquisition, primarily consisting of professional services and advisory fees. Pro forma financial information of the combined entities for periods prior to the acquisition is not presented due to the immaterial impact of the Net Sales and Net Income of the Wodgina Project on our consolidated statements of income.

Preliminary Purchase Price Allocation

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 excess of the purchase price over the preliminary estimated fair value of the net assets acquired was approximately $19.4 million and was recorded as Goodwill.

The following table summarizes the consideration paid for the joint venture and the amounts of the assets acquired and liabilities assumed as of the acquisition date, which have been allocated on a preliminary basis (in thousands):

Total purchase price:
Cash paid	$	820,000
Fair value of 40% interest in Kemerton assets	480,000
Purchase agreement completion adjustment and other adjustments	23,566
Total purchase price	$	1,323,566
Net assets acquired:
Inventories	$	33,900
Other current assets	10,695
Property, plant and equipment:
Land improvements	2,912
Buildings and improvements	19,268
Machinery and equipment	163,808
Mineral rights and reserves	1,058,700
Construction in progress	103,700
Other assets	1,000
Current liabilities	(10,695		)
Long-term debt(a)	(55,806		)
Other noncurrent liabilities	(23,296		)
Total identifiable net assets	1,304,186
Goodwill	19,380
Total net assets acquired	$	1,323,566

(a) Represents 60% ownership interest in finance lease acquired. See Note 10, “Leases,” for further information on the Company’s leases.

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. Significant changes in our purchase price allocation since our initial preliminary estimates reported in the fourth quarter of 2019 were primarily related to an increase in the estimated fair values of mineral rights and reserves, which resulted in a decrease to recognized goodwill of approximately $12.4 million. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of Mineral rights and reserves and Goodwill. The fair value of the assets acquired and

9

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

liabilities assumed are based on management’s preliminary estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. The fair value of the mineral reserves of $1,025.9 million is determined using an excess earnings approach, which requires management to estimate future cash flows, net of capital investments in the specific operation. Management’s cash flow projections involved the use of significant estimates and assumptions with respect to the expected production of the mine over the estimated time period, sales prices, shipment volumes, and expected profit margins. The present value of the projected net cash flows represents the preliminary fair value assigned to mineral reserves. The discount rate is a significant assumption used in the valuation model.

While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, it will evaluate any necessary information prior to finalization of the amounts. During the measurement-period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement-period adjustments to the estimated fair values will be recognized in the reporting period in which they are determined. The impact of all changes that do not qualify as measurement-period adjustments will be included in current period earnings. 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 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—Goodwill and Other Intangibles:

The following table summarizes the changes in goodwill by reportable segment for the three months ended March 31, 2020 (in thousands):

	Lithium			Bromine Specialties		Catalysts			All Other		Total
Balance at December 31, 2019	$	1,370,846		$	20,319	$	181,034		$	6,586	$	1,578,785
Acquisitions(a)	(12,382		)	—		—			—		(12,382		)
Foreign currency translation adjustments and other	(5,335		)	—		(2,013		)	—		(7,348		)
Balance at March 31, 2020	$	1,353,129		$	20,319	$	179,021		$	6,586	$	1,559,055

(a) Represents preliminary purchase price adjustments for the Wodgina Project acquisition. See Note 2, “Acquisitions” for additional information.

10

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the changes in other intangibles and related accumulated amortization for the three months ended March 31, 2020 (in thousands):

	Customer Lists and Relationships			Trade Names and Trademarks(a)			Patents and Technology			Other			Total
Gross Asset Value
Balance at December 31, 2019	$	422,462		$	18,087		$	55,020		$	41,282		$	536,851
Foreign currency translation adjustments and other	(1,606		)	(357		)	(310		)	(2,581		)	(4,854		)
Balance at March 31, 2020	$	420,856		$	17,730		$	54,710		$	38,701		$	531,997
Accumulated Amortization
Balance at December 31, 2019	$	(116,749	)	$	(7,938	)	$	(36,197	)	$	(21,345	)	$	(182,229	)
Amortization	(5,544		)	—			(341		)	(215		)	(6,100		)
Foreign currency translation adjustments and other	420			14			130			329			893
Balance at March 31, 2020	$	(121,873	)	$	(7,924	)	$	(36,408	)	$	(21,231	)	$	(187,436	)
Net Book Value at December 31, 2019	$	305,713		$	10,149		$	18,823		$	19,937		$	354,622
Net Book Value at March 31, 2020	$	298,983		$	9,806		$	18,302		$	17,470		$	344,561

(a) Net Book Value includes only indefinite-lived intangible assets.

NOTE 4—Income Taxes:

The effective income tax rate for the three-month period ended March 31, 2020 was 16.0%, compared to 24.4% for the three-month period ended March 31, 2019. 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, 2020 was impacted by a variety of factors, primarily stemming from the location in which income was earned. For the three-month period ended March 31, 2020, this was mainly attributable to our share of the income of our Jordan Bromine Company Limited (“JBC”) joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. 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.

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, 2020 and 2019 are calculated as follows (in thousands, except per share amounts):

	Three Months Ended March 31,
	2020		2019
Basic earnings per share
Numerator:
Net income attributable to Albemarle Corporation	$	107,204	$	133,569
Denominator:
Weighted-average common shares for basic earnings per share	106,227		105,799
Basic earnings per share	$	1.01	$	1.26
Diluted earnings per share
Numerator:
Net income attributable to Albemarle Corporation	$	107,204	$	133,569
Denominator:
Weighted-average common shares for basic earnings per share	106,227		105,799
Incremental shares under stock compensation plans	285		557
Weighted-average common shares for diluted earnings per share	106,512		106,356
Diluted earnings per share	$	1.01	$	1.26

At March 31, 2020, there were 303,093 common stock equivalents not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

On February 28, 2020, the Company increased the regular quarterly dividend by 5% to $0.385 per share and declared a cash dividend of said amount for the first quarter of 2020, which was paid on April 1, 2020 to shareholders of record at the close of business as of March 13, 2020. On May 5, 2020, the Company declared a cash dividend of $0.385 per share, which is payable on July 1, 2020 to shareholders of record at the close of business as of June 12, 2020.

NOTE 6—Inventories:

The following table provides a breakdown of inventories at March 31, 2020 and December 31, 2019 (in thousands):

	March 31,		December 31,
	2020		2019
Finished goods(a)	$	562,231	$	495,639
Raw materials and work in process(b)	221,173		205,781
Stores, supplies and other	70,096		67,564
Total	$	853,500	$	768,984

(a) Increase primarily due to the build-up of inventory in Lithium and Catalysts for forecasted sales during the remainder of 2020.

(b) Included $117.8 million and $109.3 million at March 31, 2020 and December 31, 2019, respectively, of work in process in our Lithium segment.

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 $364.8 million and $397.2 million at March 31, 2020 and December 31, 2019, 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 $7.5 million and $7.6 million at March 31, 2020 and December 31, 2019, 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, 2020 and December 31, 2019 consisted of the following (in thousands):

	March 31,		December 31,
	2020		2019
1.125% notes, net of unamortized discount and debt issuance costs of $4,342 at March 31, 2020 and $5,659 at December 31, 2019	$	547,156	$	549,241
1.625% notes, net of unamortized discount and debt issuance costs of $5,938 at March 31, 2020 and $5,696 at December 31, 2019	545,560		549,204
1.875% Senior notes, net of unamortized discount and debt issuance costs of $1,585 at March 31, 2020 and $1,831 at December 31, 2019.	431,820		434,241
3.45% Senior notes, net of unamortized discount and debt issuance costs of $3,274 at March 31, 2020 and $3,533 at December 31, 2019	296,725		296,467
4.15% Senior notes, net of unamortized discount and debt issuance costs of $2,275 at March 31, 2020 and $2,398 at December 31, 2019	422,724		422,603
5.45% Senior notes, net of unamortized discount and debt issuance costs of $3,811 at March 31, 2020 and $3,850 at December 31, 2019	346,189		346,150
Floating rate notes, net of unamortized debt issuance costs of $962 at March 31, 2020 and $1,169 at December 31, 2019	199,037		198,831
Revolving credit facility	250,000		—
Commercial paper notes	35,000		186,700
Variable-rate foreign bank loans	7,300		7,296
Finance lease obligations	59,329		59,524
Total long-term debt	3,140,840		3,050,257
Less amounts due within one year	35,615		187,336
Long-term debt, less current portion	$	3,105,225	$	2,862,921

Current portion of long-term debt at March 31, 2020 consisted primarily of commercial paper notes with a weighted-average interest rate of approximately 1.72% and a weighted-average maturity of 22 days.

In the first quarter of 2020, the Company borrowed $250.0 million under the 2018 Credit Agreement to pay approximately $152 million in short-term commercial paper notes and for other general corporate purposes. The applicable interest rate for the amount borrowed was 2.08%.

In April 2020, the Company borrowed $200.0 million under the 2019 Credit Facility to be used for general corporate purposes. The applicable interest rate for the amount borrowed was 1.125%.

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, 2020 and 2019, gains of $2.1 million and $3.3 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.

As of March 31, 2020, the Company was in compliance with its debt covenant under the Credit Agreements. As a result of the uncertainty of the overall financial impact of the COVID-19 pandemic, the Company amended the Credit Agreements on May 11, 2020 to modify its financial covenant based on the Company’s current expectations. The amendment effects changes to certain provisions of the Credit Agreements, including: (a) conversion of the consolidated funded debt to consolidated EBITDA ratio to a consolidated net funded debt to consolidated EBITDA ratio; (b) carving-out third party sales of accounts receivables from the Securitization Transaction definition; (c) setting the consolidated net funded debt to consolidated EBITDA ratio to 4.00:1 for the fiscal quarter ending June 30, 2020, 4.50:1 for the fiscal quarters through September 30, 2021, 4.00:1 for the fiscal quarter ending December 31, 2021, and 3:50:1 for fiscal quarters thereafter; and (d) reducing the priority debt basket to 24% of Consolidated Net Tangible Assets, as defined in the Credit Agreements, through and including December 31, 2021. As

13

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

part of this amendment, the Company has agreed to pay a 10 basis point fee on the consenting lenders commitments under the Credit Agreements. If conditions caused by the COVID-19 pandemic worsen and the Company’s earnings and cash flow from operations do not start to recover as contemplated in the Company's current plans, the Company may not be able to maintain compliance with its amended financial covenants and it will require the Company to seek additional amendments to the Credit Agreements. If the Company is not able to obtain such necessary additional amendments, this would lead to an event of default and its lenders could require the Company to repay its outstanding debt. In that situation, the Company may not be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay the lenders.

NOTE 9—Commitments and Contingencies:

Environmental

We had the following activity in our recorded environmental liabilities for the three months ended March 31, 2020 (in thousands):

Beginning balance at December 31, 2019	$	42,592
Expenditures	(918		)
Accretion of discount	216
Foreign currency translation adjustments	(183		)
Ending balance at March 31, 2020	41,707
Less amounts reported in Accrued expenses	9,379
Amounts reported in Other noncurrent liabilities	$	32,328

Environmental remediation liabilities included discounted liabilities of $35.1 million and $35.6 million at March 31, 2020 and December 31, 2019, respectively, discounted at rates with a weighted-average of 3.7%, with the undiscounted amount totaling $68.8 million and $69.2 million at March 31, 2020 and December 31, 2019, 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 be an additional $10 million to $30 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

14

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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 $31.6 million and $31.0 million at March 31, 2020 and December 31, 2019, respectively, recorded in Other noncurrent liabilities, related to the indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold.

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 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.

15

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The following table provides details of our lease contracts for the three-month periods ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31,
	2020		2019
Operating lease cost	$	8,740	$	9,421
Finance lease cost:
Amortization of right of use assets	154		178
Interest on lease liabilities	650		33
Total finance lease cost	804		211
Short-term lease cost	2,883		1,966
Variable lease cost	1,948		1,086
Total lease cost	$	14,375	$	12,684

Supplemental cash flow information related to our lease contracts for the three-month periods ended March 31, 2020 and 2019 is as follows (in thousands):

	Three Months Ended March 31,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11,177	$	8,930
Operating cash flows from finance leases	380		33
Financing cash flows from finance leases	172		171
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	16,021		—

16

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, 2020 and December 31, 2019 is as follows (in thousands, except as noted):

	March 31, 2020			December 31, 2019
Operating leases:
Other assets	$	141,827		$	133,864
Current operating lease liability	23,826			23,137
Other noncurrent liabilities	119,233			114,686
Total operating lease liabilities	143,059			137,823
Finance leases:
Net property, plant and equipment	59,320			59,494
Current portion of long-term debt	615			636
Long-term debt	58,713			58,888
Total finance lease liabilities	59,328			59,524
Weighted average remaining lease term (in years):
Operating leases	15.8			11.4
Finance leases	28.2			28.3
Weighted average discount rate (%):
Operating leases	4.08		%	3.84		%
Finance leases	4.56		%	4.56		%

Maturities of lease liabilities as of March 31, 2020 were as follows (in thousands):

	Operating Leases		Finance Leases
Remainder of 2020	$	23,100	$	1,652
2021	18,498		2,129
2022	14,652		4,408
2023	13,205		4,408
2024	12,181		4,408
Thereafter	148,998		94,324
Total lease payments	230,634		111,329
Less imputed interest	87,575		52,001
Total	$	143,059	$	59,328

NOTE 11—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.

17

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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 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, 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.

	Three Months Ended March 31,
	2020			2019
	(In thousands)
Net sales:
Lithium	$	236,818		$	291,886
Bromine Specialties	231,592			249,052
Catalysts	207,207			251,648
All Other	63,228			39,478
Total net sales	$	738,845		$	832,064
Adjusted EBITDA:
Lithium	$	78,637		$	115,616
Bromine Specialties	83,262			78,597
Catalysts	47,470			60,071
All Other	22,824			7,243
Corporate	(35,828		)	(35,660		)
Total adjusted EBITDA	$	196,365		$	225,867

18

ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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, 2020
Net income (loss) attributable to Albemarle Corporation	$	53,240	$	71,665	$	34,892	$	159,797	$	20,846	$	(73,439	)	$	107,204
Depreciation and amortization	25,397		11,597		12,578		49,572		1,978		2,144			53,694
Restructuring and other(a)	—		—		—		—		—		1,847			1,847
Acquisition and integration related costs(b)	—		—		—		—		—		2,951			2,951
Interest and financing expenses	—		—		—		—		—		16,885			16,885
Income tax expense	—		—		—		—		—		18,442			18,442
Non-operating pension and OPEB items	—		—		—		—		—		(2,908		)	(2,908		)
Other(c)	—		—		—		—		—		(1,750		)	(1,750		)
Adjusted EBITDA	$	78,637	$	83,262	$	47,470	$	209,369	$	22,824	$	(35,828	)	$	196,365
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