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Table of Contents
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, 2024
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 (I.R.S. Employer
incorporation or organization) 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
_________________________________________________
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
DEPOSITARY SHARES, each representing a 1/20th interest in a ALB PR A New York Stock Exchange
share of 7.25% Series A Mandatory Convertible Preferred Stock
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
-------------------------------------------------------------------------------
Table of Contents
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
Number of shares of common stock, $.01 par value, outstanding as of April 24,
2024:
117,527,473
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Table of Contents
ALBEMARLE CORPORATION
INDEX - FORM 10-Q
Page
Number(s)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of 4
Income
- Three
Months Ended
March 31
, 202
4
and 2
023
Consolidated Statements of Comprehensive 5
(Loss) Income
- Three Months Ended March 31, 2024 and 2023
Consolidated Balance Sheets - March 31, 2024 and December 31, 2023 6
Consolidated Statements of Changes in Equity 7
- Three Months Ended March 31, 2024 and 2023
Condensed Consolidated Statements of Cash Flows 8
- Three Months Ended March 31, 2024 and 2023
Notes to the Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of 27
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative 44
Disclosures About Market Risk
Item 4. Controls and Procedures 44
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 45
Item 1A. Risk Factors 45
Item 5. Other Information 45
Item 6. Exhibits 45
SIGNATURES 46
EXHIBITS
3
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Table of Contents
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,
2024 2023
Net sales $ 1,360,736 $ 2,580,252
Cost of goods sold 1,321,798 1,303,712
(a)
Gross profit 38,938 1,276,540
Selling, general and administrative expenses 194,912 154,306
Research and development expenses 23,532 20,471
Operating (loss) profit ( 1,101,763
179,506
)
Interest and financing expenses ( (
37,969 26,777
) )
Other income, net 49,901 82,492
(Loss) income before income taxes and equity in net income of unconsolidated investments ( 1,157,478
167,574
)
Income tax (benefit) expense ( 276,963
3,721
)
(Loss) income before equity in net income of unconsolidated investments ( 880,515
163,853
)
Equity in net income of unconsolidated investments (net of tax) 180,500 396,188
Net income 16,647 1,276,703
Net income attributable to noncontrolling interests ( (
14,199 38,123
) )
Net income attributable to Albemarle Corporation 2,448 1,238,580
Mandatory convertible preferred stock dividends ( -
11,584
)
Net (loss) income attributable to Albemarle Corporation common shareholders $ ( $ 1,238,580
9,136
)
Basic (loss) earnings per share attributable to common shareholders $ ( $ 10.57
0.08
)
Diluted (loss) earnings per share attributable to common shareholders $ ( $ 10.51
0.08
)
Weighted-average common shares outstanding - basic 117,451 117,232
Weighted-average common shares outstanding - diluted 117,451 117,841
(a)
Included purchases from related unconsolidated affiliates of $
540.7
million and $
353.2
million for the three-month periods ended March 31, 2024 and 2023, respectively.
See accompanying Notes to the Condensed Consolidated Financial Statements.
4
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
2024 2023
Net income $ 16,647 $ 1,276,703
Other comprehensive (loss) income, net of tax:
Foreign currency translation and other ( 46,216
50,220
)
Cash flow hedge ( 1,101
18,660
)
Total other comprehensive (loss) income, net of tax ( 47,317
68,880
)
Comprehensive (loss) income ( 1,324,020
52,233
)
Comprehensive income attributable to noncontrolling interests ( (
13,998 38,115
) )
Comprehensive (loss) income attributable to Albemarle Corporation $ ( $ 1,285,905
66,231
)
See accompanying Notes to the Condensed Consolidated Financial Statements.
5
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
(Unaudited)
March 31, December 31,
2024 2023
Assets
Current assets:
Cash and cash equivalents $ 2,055,813 $ 889,900
Trade accounts receivable, less allowance for doubtful accounts (2024 - $ 874,038 1,213,160
2,761
; 2023 - $
2,808
)
Other accounts receivable 438,507 509,097
Inventories 1,904,827 2,161,287
Other current assets 549,540 443,475
Total current assets 5,822,725 5,216,919
Property, plant and equipment, at cost 12,587,763 12,233,757
Less accumulated depreciation and amortization 2,831,728 2,738,553
Net property, plant and equipment 9,756,035 9,495,204
Investments 1,259,001 1,369,855
Other assets 329,283 297,087
Goodwill 1,613,534 1,629,729
Other intangibles, net of amortization 251,755 261,858
Total assets $ 19,032,333 $ 18,270,652
Liabilities And Equity
Current liabilities:
Accounts payable to third parties $ 1,165,955 $ 1,537,859
Accounts payable to related parties 129,613 550,186
Accrued expenses 454,600 544,835
Current portion of long-term debt 5,076 625,761
Dividends payable 58,354 46,666
Income taxes payable 237,098 255,155
Total current liabilities 2,050,696 3,560,462
Long-term debt 3,519,453 3,541,002
Postretirement benefits 26,382 26,247
Pension benefits 145,067 150,312
Other noncurrent liabilities 833,548 769,100
Deferred income taxes 657,468 558,430
Commitments and contingencies (Note 6)
Equity:
Albemarle Corporation shareholders' equity:
Common stock, $ 1,175 1,174
.01
par value, authorized -
150,000
issued and outstanding -
117,527
in 2024 and
117,356
in 2023
Mandatory convertible preferred stock, Series A, no par value, $ 2,235,379 -
1,000
stated value, authorized -
15,000
, issued and outstanding -
2,300
in 2024 and
0
in 2023
Additional paid-in capital 2,962,585 2,952,517
Accumulated other comprehensive loss ( (
597,205 528,526
) )
Retained earnings 6,930,868 6,987,015
Total Albemarle Corporation shareholders' equity 11,532,802 9,412,180
Noncontrolling interests 266,917 252,919
Total equity 11,799,719 9,665,099
Total liabilities and equity $ 19,032,333 $ 18,270,652
See accompanying Notes to the Condensed Consolidated Financial Statements.
6
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(In Thousands, Mandatory Additional Accumulated Retaine
Except Share Convertible Paid-in Capital Other Earning
Data) Preferred Stock Comprehensive
Loss
Common Stock
Shares Amounts Shares Amounts
Balance 117,356,270 $ 1,174 - $ - $ 2,952,517 $ ( $ 6,987,015 $ 9,412,180 $
at 528,526
December )
31,
2023
Net income 2,448 2,448 14,199 16,647
Other comprehensive loss ( ( ( (
68,679 68,679 201 68,880
) ) ) )
Common stock dividends ( ( - (
declared, $ 47,011 47,011 47,011
0.40 ) ) )
per common share
Mandatory convertible preferred ( ( (
stock cumulative dividends 11,584 11,584 11,584
) ) )
Stock-based compensation 9,057 9,057 9,057
Exercise of 1,420 - 86 86 86
stock options
Issuance of 260,750 2 11,543 11,545 11,545
common stock, net
Issuance of mandatory 2,300 2,235,379 2,235,379 2,235,379
convertible
preferred stock, net
Withholding taxes ( ( ( ( (
paid on stock-based 91,273 1 10,618 10,619 10,619
compensation award ) ) ) ) )
distributions
Balance 117,527,167 $ 1,175 2,300,000 $ 2,235,379 $ 2,962,585 $ ( $ 6,930,868 $ 11,532,802 $
at 597,205
March )
31,
2024
Balance 117,168,366 $ 1,172 - $ - $ 2,940,840 $ ( $ 5,601,277 $ 7,982,627 $
at 560,662
December )
31,
2022
Net income 1,238,580 1,238,580 38,123 1,276,703
Other comprehensive income 47,325 47,325 ( 47,317
8
)
Common stock dividends ( ( - (
declared, $ 46,919 46,919 46,919
0.40 ) ) )
per common share
Stock-based compensation 9,658 9,658 9,658
Exercise of 1,220 - 81 81 81
stock options
Issuance of 205,172 2 ( - -
common stock, net 2
)
Withholding taxes ( ( ( ( (
paid on stock-based 75,366 1 18,616 18,617 18,617
compensation award ) ) ) ) )
distributions
Balance 117,299,392 $ 1,173 - $ - $ 2,931,961 $ ( $ 6,792,938 $ 9,212,735 $
at 513,337
March )
31,
2023
d Total Albemarle Noncontrolling Total Equity
s Shareholders' Interests
Equity
252,919 $ 9,665,099
266,917 $ 11,799,719
208,220 $ 8,190,847
246,335 $ 9,459,070
See accompanying Notes to the Condensed Consolidated Financial Statements.
7
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
2024 2023
Cash and cash equivalents at beginning of year $ 889,900 $ 1,499,142
Cash flows from operating activities:
Net income 16,647 1,276,703
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization 123,751 87,271
Stock-based compensation and other 9,317 10,540
Equity in net income of unconsolidated investments (net of tax) ( (
180,500 396,188
) )
Dividends received from unconsolidated investments and nonmarketable securities 50,756 547,552
Pension and postretirement expense 1,273 1,954
Pension and postretirement contributions ( (
4,824 2,825
) )
Realized loss on investments in marketable securities 33,746 -
Unrealized loss (gain) on investments in marketable securities 6,737 (
45,732
)
Deferred income taxes 116,447 14,098
Working capital changes ( (
52,320 764,071
) )
Other, net ( (
23,076 8,322
) )
Net cash provided by operating activities 97,954 720,980
Cash flows from investing activities:
Capital expenditures ( (
579,322 415,608
) )
Sales (purchases) of marketable securities, net 84,893 (
122,267
)
Investments in equity investments and nonmarketable securities ( (
74 1,133
) )
Net cash used in investing activities ( (
494,503 539,008
) )
Cash flows from financing activities:
Proceeds from issuance of mandatory convertible preferred stock, net of issuance costs 2,236,750 -
Repayments of long-term debt and credit agreements ( -
29,019
)
Proceeds from borrowings of long-term debt and credit agreements 29,019 -
Other debt repayments, net ( (
620,753 713
) )
Dividends paid to common shareholders ( (
46,908 46,282
) )
Dividends paid to noncontrolling interests - (
53,145
)
Proceeds from exercise of stock options 86 81
Withholding taxes paid on stock-based compensation award distributions ( (
10,619 18,617
) )
Other ( -
1,256
)
Net cash provided by (used in) financing activities 1,557,300 (
118,676
)
Net effect of foreign exchange on cash and cash equivalents 5,162 24,296
Increase in cash and cash equivalents 1,165,913 87,592
Cash and cash equivalents at end of period $ 2,055,813 $ 1,586,734
See accompanying Notes to the Condensed Consolidated Financial Statements.
8
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1-
Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Albemarle Corporation and our
wholly-owned, majority-owned and controlled subsidiaries (collectively,
"Albemarle," "we," "us," "our" or the "Company") contain all adjustments
necessary for a fair statement, in all material respects, of our consolidated
balance sheets as of March 31, 2024 and December 31, 2023, our consolidated
statements of income, consolidated statements of comprehensive (loss) income
and consolidated statements of changes in equity for the three-month periods
ended March 31, 2024 and 2023 and our condensed consolidated statements of
cash flows for the three-month periods ended March 31, 2024 and 2023. 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,
2023, as filed with the U.S. Securities and Exchange Commission ("SEC") on
February 15, 2024. The December 31, 2023 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, 2024 are not necessarily indicative of the results to
be expected for the full year.
NOTE 2-
Inventories:
The following table provides a breakdown of inventories at March 31, 2024 and
December 31, 2023 (in thousands):
March 31, December 31,
2024 2023
Finished goods $ 1,349,770 $ 1,624,893
Raw materials and work in process 414,204 401,050
(a)
Stores, supplies and other 140,853 135,344
Total $ 1,904,827 $ 2,161,287
(b)
(a)
Includes $
241.0
million and $
213.4
million at March 31, 2024 and December 31, 2023, respectively, of work in
process in our Energy Storage segment.
(b)
During the year ended December 31, 2023, the Company recorded a $
604.1
million charge in Cost of goods sold to reduce the value of certain spodumene
and finished goods to their net realizable value following the decline in
lithium market pricing at the end of the year.
The Company purchases certain of its inventory from its equity method
investments (primarily the Windfield Holdings Pty. Ltd. ("Windfield") joint
venture) and eliminates the balance of intra-entity profits on purchases of
such inventory that remains unsold at the balance sheet in Inventories,
specifically finished goods and equally reduces Equity in net income of
unconsolidated investments (net of tax) on the consolidated statements of
income. The balance of intra-entity profits on inventory purchased from equity
method investments in Inventories totaled $
408.5
million and $
559.6
million at March 31, 2024 and December 31, 2023, respectively. The
intra-entity profit is recognized in Equity in net income of unconsolidated
investments (net of tax) in the period that converted inventory is sold to a
third-party customer. In the same period, the intra-entity profit is also
recognized as higher Cost of goods sold on the consolidated statements of
income.
NOTE 3-
Investments:
Proportionately Consolidated Joint Ventures
On October 18, 2023, the Company closed on the restructuring of the MARBL
lithium joint venture in Australia ("MARBL") with Mineral Resources Limited
("MRL"). This updated structure is intended to significantly simplify the
commercial operation agreements previously entered into, allow us to retain
full control of downstream conversion assets and provide greater strategic
opportunities for each company based on their global operations and the
evolving lithium market.
Under the amended agreements, Albemarle acquired the remaining
40
% ownership of the Kemerton lithium hydroxide processing facility in Australia
that was jointly owned with MRL through the MARBL joint venture. Following
this restructuring, Albemarle and MRL each own
50
% of the Wodgina Lithium Mine Project ("Wodgina"), and MRL operates the
Wodgina mine on behalf of the joint venture. During the fourth quarter of
2023, Albemarle paid MRL approximately $
380
million in cash, which included $
180
million of consideration for the remaining ownership of Kemerton as well as a
payment for the economic effective date of the transaction being retroactive
to April 1, 2022.
9
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
This joint venture is unincorporated with each investor holding an undivided
interest in each asset and proportionately liable for each liability;
therefore our proportionate share of assets, liabilities, revenue and expenses
are included in the appropriate classifications in the consolidated financial
statements.
Unconsolidated Joint Ventures
The following table details the Company's equity in net income of
unconsolidated investments (net of tax) for the three-month periods ended
March 31, 2024 and 2023 (in thousands):
Three Months Ended
March 31,
2024 2023
Windfield $ 172,679 $ 387,299
Other joint ventures 7,821 8,889
Total $ 180,500 $ 396,188
The Company holds a
49
% equity interest in 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 the Company's
49
% equity interest in Windfield, which is the Company's most significant VIE,
was $
713.6
million and $
712.0
million at March 31, 2024 and December 31, 2023, respectively. The Company's
unconsolidated VIEs are reported in Investments on the consolidated balance
sheets. The Company does not guarantee debt for, or have other financial
support obligations to, these entities, and its maximum exposure to loss in
connection with its continuing involvement with these entities is limited to
the carrying value of the investments.
The following table summarizes the unaudited results of operations for the
Windfield joint venture, which met the significant subsidiary test for
subsidiaries not consolidated or 50% or less owned persons under Rule 10-01 of
Regulation S-X, for the three-month periods ended March 31, 2024 and 2023 (in
thousands):
Three Months Ended
March 31,
2024 2023
Net sales $ 190,009 $ 1,959,298
Gross profit 149,982 1,901,700
Income before income taxes 94,630 1,784,150
Net income 66,411 1,248,902
Public Equity Securities
Included in the Company's investments balance are holdings in equity
securities of public companies. The fair value is measured using publicly
available share prices of the investments, with any changes reported in Other
income, net in our consolidated statements of income. During the three-month
period ended March 31, 2023, the Company purchased approximately $
121.9
million of shares in publicly-traded companies. In addition, during the
three-month periods ended March 31, 2024 and 2023, the Company recorded
unrealized mark-to-market (losses) gains of ($
9.4
) million and $
45.8
million, respectively, in Other income, net for all public equity securities
held at the end of the balance sheet date.
In January 2024, the Company sold equity securities of a public company for
proceeds of approximately $
81.5
million. As a result of the sale, the Company realized a loss of $
33.7
million in the three months ended March 31, 2024.
Other
As part of the proceeds from the sale of the fine chemistry services ("FCS")
business on June 1, 2021, W.R. Grace & Co. ("Grace") issued Albemarle
preferred equity of a Grace subsidiary having an aggregate stated value of $
270
million. The preferred equity can be redeemed at Grace's option under certain
conditions and began accruing PIK dividends at an annual rate of
12
% on June 1, 2023. In addition, the preferred equity can be redeemed by
Albemarle when the accumulated balance reaches
200
% of the original value. This preferred equity had a fair value of $
298.0
million and $
289.3
million at March 31, 2024 and December 31, 2023, respectively, which is
reported in Investments in the consolidated balance sheets.
10
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4-
Goodwill and Other Intangibles:
The following table summarizes the changes in goodwill by reportable segment
for the three-month period ended March 31, 2024 (in thousands):
Energy Storage Specialties Ketjen Total
Balance at December 31, 2023 $ 1,424,484 $ 32,639 $ 172,606 $ 1,629,729
Foreign currency translation adjustments and other ( ( ( (
12,950 28 3,217 16,195
) ) ) )
Balance at March 31, 2024 $ 1,411,534 $ 32,611 $ 169,389 $ 1,613,534
The following table summarizes the changes in other intangibles and related
accumulated amortization for the three-month period ended March 31, 2024 (in
thousands):
Customer Lists and Relationships Trade Names and Trademarks Patents and Technology Other Total
(a)
Gross Asset Value
Balance at December 31, 2023 $ 417,803 $ 13,405 $ 46,287 $ 34,649 $ 512,144
Retirements - ( ( ( (
2,309 14,506 4,409 21,224
) ) ) )
Foreign currency translation adjustments and other ( ( ( ( (
6,236 227 519 927 7,909
) ) ) ) )
Balance at March 31, 2024 $ 411,567 $ 10,869 $ 31,262 $ 29,313 $ 483,011
Accumulated Amortization
Balance at December 31, 2023 $ ( $ ( $ ( $ ( $ (
204,481 3,673 26,758 15,374 250,286
) ) ) ) )
Amortization ( - ( ( (
5,012 647 227 5,886
) ) ) )
Retirements - 2,309 14,506 4,409 21,224
Foreign currency translation adjustments and other 2,956 40 360 336 3,692
Balance at March 31, 2024 $ ( $ ( $ ( $ ( $ (
206,537 1,324 12,539 10,856 231,256
) ) ) ) )
Net Book Value at December 31, 2023 $ 213,322 $ 9,732 $ 19,529 $ 19,275 $ 261,858
Net Book Value at March 31, 2024 $ 205,030 $ 9,545 $ 18,723 $ 18,457 $ 251,755
(a) Net Book Value includes only indefinite-lived intangible assets.
11
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 5-
Long-Term Debt:
Long-term debt at March 31, 2024 and December 31, 2023 consisted of the
following (in thousands):
March 31, December 31,
2024 2023
1.125 $ 408,732 $ 416,501
% notes due 2025
1.625 541,900 552,200
% notes due 2028
3.45 171,612 171,612
% Senior notes due 2029
4.65 650,000 650,000
% Senior notes due 2027
5.05 600,000 600,000
% Senior notes due 2032
5.45 350,000 350,000
% Senior notes due 2044
5.65 450,000 450,000
% Senior notes due 2052
Commercial paper notes - 620,000
Interest-free loan 300,000 300,000
Variable-rate foreign bank loans 28,398 30,197
Finance lease obligations 103,563 110,245
Other 22,000 22,000
Unamortized discount and debt issuance costs ( (
101,676 105,992
) )
Total long-term debt 3,524,529 4,166,763
Less amounts due within one year 5,076 625,761
Long-term debt, less current portion $ 3,519,453 $ 3,541,002
During the three months ended March 31, 2024, we repaid a net amount of $
620.0
million of commercial paper notes using the net proceeds received from the
issuance of mandatory convertible preferred stock. See Note 7, "Equity," for
additional information.
Given the current economic conditions, specifically around the market pricing
of lithium, and the related impact on the Company's future earnings, on
February 9, 2024 we amended our revolving, unsecured amended and restated
credit agreement dated October 28, 2022 (the "2022 Credit Agreement"), which
provides for borrowings of up to $
1.5
billion and matures on October 28, 2027. Borrowings under the 2022 Credit
Agreement bear interest at variable rates based on a benchmark rate depending
on the currency in which the loans are denominated, plus an applicable margin
which ranges from
0.910
% to
1.375
%, depending on the Company's credit rating from Standard & Poor's Rating
Services LLC ("S&P"), Moody's Investors Services, Inc. ("Moody's") and Fitch
Ratings, Inc. ("Fitch"). With respect to loans denominated in U.S. dollars,
interest is calculated using the term Secured Overnight Financing Rate
("SOFR") plus a term SOFR adjustment of
0.10
%, plus the applicable margin. The applicable margin on the facility was
1.125
% as of March 31, 2024. There were
no
borrowings outstanding under the 2022 Credit Agreement as of March 31, 2024.
Borrowings under the 2022 Credit Agreement are conditioned upon satisfaction
of certain customary conditions precedent, including the absence of defaults.
The February 2024 amendment was entered into to modify the financial covenants
under the 2022 Credit Agreement to avoid a potential covenant violation over
the following 18 months given the market pricing of lithium. Following the
February 2024 amendment, the 2022 Credit Agreement subjects the Company to two
financial covenants, as well as customary affirmative and negative covenants.
The first financial covenant requires that the ratio of (a) the Company's
consolidated net funded debt plus a proportionate amount of Windfield's net
funded debt to (b) consolidated Windfield-Adjusted EBITDA (as such terms are
defined in the 2022 Credit Agreement) be less than or equal to (i)
3.50
:1 prior to the second quarter of 2024, (ii)
5.00
:1 for the second quarter of 2024, (iii)
5.50
:1 for the third quarter of 2024, (iv)
4.00
:1 for the fourth quarter of 2024, (v)
3.75
:1 for the first and second quarters of 2025 and (vi)
3.50
:1 after the second quarter of 2025. The maximum permitted leverage ratios
described above are subject to adjustment in accordance with the terms of the
2022 Credit Agreement upon the consummation of an acquisition after June 30,
2025 if the consideration includes cash proceeds from issuance of funded debt
in excess of $
500
million.
Beginning in the fourth quarter of 2024, the second financial covenant
requires that the ratio of the Company's consolidated EBITDA to consolidated
interest charges (as such terms are defined in the 2022 Credit Agreement) be
no less than
2.00
:1 for fiscal quarters through June 30, 2025, and no less than
3.00
:1 for all fiscal quarters thereafter. The 2022 Credit
12
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Agreement also contains customary default provisions, including defaults for
non-payment, breach of representations and warranties, insolvency,
non-performance of covenants and cross-defaults to other material
indebtedness. The occurrence of an event of default under the 2022 Credit
Agreement could result in all loans and other obligations becoming immediately
due and payable and the commitments under the 2022 Credit Agreement being
terminated. Following the $
2.2
billion issuance of mandatory convertible preferred stock in March 2024 and
the amendments to the financial covenants, the Company expects to maintain
compliance with the amended financial covenants in the near future. However, a
significant downturn in lithium market prices or demand could impact the
Company's ability to maintain compliance with its amended financial covenants
and it could require the Company to seek additional amendments to the 2022
Credit Agreement and/or issue debt or equity securities to fund its activities
and maintain financial flexibility. If the Company were unable to obtain such
necessary additional amendments, this could 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 6-
Commitments and Contingencies:
Environmental
The following activity was recorded in environmental liabilities for the three
months ended March 31, 2024 (in thousands):
Beginning balance at December 31, 2023 $ 34,149
Expenditures (
678
)
Accretion of discount 289
Liability releases (
1,924
)
Foreign currency translation adjustments and other (
285
)
Ending balance at March 31, 2024 31,551
Less amounts reported in Accrued expenses 6,788
Amounts reported in Other noncurrent liabilities $ 24,763
Environmental remediation liabilities included discounted liabilities of $
25.3
million and $
27.4
million at March 31, 2024 and December 31, 2023, respectively, discounted at
rates with a weighted-average of
3.6
% and
3.7
%, respectively, and with the undiscounted amount totaling $
52.5
million and $
55.4
million at March 31, 2024 and December 31, 2023, respectively. For certain
locations where the Company is operating groundwater monitoring and/or
remediation systems, prior owners or insurers have assumed all or most of the
responsibility.
The amounts recorded represent our future remediation and other anticipated
environmental liabilities. These liabilities typically arise during the normal
course of our operational and environmental management activities or at the
time of acquisition of the site, and are based on internal analysis as well as
input from outside consultants. As evaluations proceed at each relevant site,
changes in risk assessment practices, remediation techniques and regulatory
requirements can occur, therefore such liability estimates may be adjusted
accordingly. The timing and duration of remediation activities at these sites
will be determined when evaluations are completed. Although it is difficult to
quantify the potential financial impact of these remediation liabilities,
management estimates (based on the latest available information) that there is
a reasonable possibility that future environmental remediation costs
associated with our past operations could represent an additional $
48
million before income taxes, in excess of amounts already recorded.
We believe that any sum we may be required to pay in connection with
environmental remediation matters in excess of the amounts recorded would
likely occur over a period of time and would likely not have a material
adverse effect upon our results of operations, financial condition or cash
flows on a consolidated annual basis although any such sum could have a
material adverse impact on our results of operations, financial condition or
cash flows in a particular quarterly reporting period.
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
13
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
proceedings. We also maintain insurance to mitigate certain of such risks.
Costs for legal services are generally expensed as incurred.
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 $
12.2
million and $
14.5
million at March 31, 2024 and December 31, 2023, respectively, recorded in
Other noncurrent liabilities, primarily related to the indemnification of
certain income and non-income tax liabilities associated with the Chemetall
Surface Treatment entities sold in 2017.
Other
We have contracts with certain of our customers which serve as guarantees on
product delivery and performance according to customer specifications that can
cover both shipments on an individual basis, as well as blanket coverage of
multiple shipments under certain customer supply contracts. The financial
coverage provided by these guarantees is typically based on a percentage of
net sales value.
NOTE 7-
Equity:
Common Stock
On February 22, 2024, the Company's board of directors declared a cash
dividend of $
0.40
. This dividend was paid on April 1, 2024 to shareholders of record at the
close of business as of March 15, 2024.
Mandatory Convertible Preferred Stock
On March 8, 2024, the Company issued
46,000,000
depositary shares ("Depositary Shares"), each representing a 1/20th interest
in a share of Series A Mandatory Convertible Preferred Stock ("Mandatory
Convertible Preferred Stock"). The
2,300,000
shares of Mandatory Convertible Preferred Stock issued had a $
1,000
per share liquidation preference. As a result of this transaction, the Company
received cash proceeds of approximately $
2.2
billion, net of underwriting fees and offering costs. The Company intends to
use the proceeds for general corporate purposes, which may include, among
other uses, funding growth capital expenditures, such as the construction and
expansion of lithium operations in Australia and China that are significantly
progressed or near completion, following the repayment of commercial paper in
the first quarter of 2024.
Dividends on the Mandatory Convertible Preferred Stock are payable on a
cumulative basis when, as and if declared by the Albemarle board of directors,
or an authorized committee thereof, at an annual rate of
7.25
% on the liquidation preference of $
1,000
per share, and may be paid in cash or, subject to certain limitations, in
shares of common stock or, subject to certain limitations, any combination of
cash and shares of common stock. Dividends that are declared on the Mandatory
Convertible Preferred Stock will be payable quarterly to the holders of record
on the February 15, May 15, August 15 and November 15 of each year,
immediately preceding the relevant dividend payment date, whether or not such
holders convert their Depositary Shares, or such Depositary Shares are
automatically converted, after a record date and on or prior to the
immediately succeeding dividend payment date. The first dividend is expected
to be payable to shareholders on record on May 15, 2024 at $
17.12
per share of Mandatory Convertible Preferred Stock, with subsequent quarterly
cash dividends expected to be $
18.125
per share of Mandatory Convertible Preferred Stock. Dividends are expected to
be paid on March 1, June 1, September 1 and December 1 of each year,
commencing on, and including, June 1, 2024 and ending on, and including, March
1, 2027.
The Company may not redeem the shares of the Mandatory Convertible Preferred
Stock. However, at its option, the Company may purchase the Mandatory
Convertible Preferred Stock from time to time on the open market, by tender
offer, exchange offer or otherwise.
14
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ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Unless converted earlier in accordance with its terms, each share of Mandatory
Convertible Preferred Stock will automatically convert on the mandatory
conversion date, which is expected to be March 1, 2027, into between
7.618
shares and
9.140
shares of common stock, in each case, subject to customary anti-dilution
adjustments described in the certificate of designations related to the
Mandatory Convertible Preferred Stock (the "Certificate of Designations"). The
number of shares of common stock issuable upon conversion will be determined
based on the average volume weighted average price per share of common stock
over the
20
consecutive trading day period beginning on, and including, the 21st scheduled
trading day immediately prior to March 1, 2027.
Holders of shares of Mandatory Convertible Preferred Stock have the option to
convert all or any portion of their shares of the Mandatory Convertible
Preferred Stock at any time. The conversion rate applicable to any early
conversion may in certain circumstances be increased to compensate holders of
the Mandatory Convertible Preferred Stock for certain unpaid accumulated
dividends as described in the Certificate of Designations.
If a Fundamental Change, as defined in the Certificate of Designations, occurs
on or prior to March 1, 2027, then holders of the Mandatory Convertible
Preferred Stock will be entitled to convert all or any portion of their
Mandatory Convertible Preferred Stock at the fundamental change conversion
rate, as defined in the Certificate of Designations, as for a specified period
of time and to also receive an amount to compensate them for certain unpaid
accumulated dividends and any remaining future scheduled dividend payments.
There are
2,300,000
shares of Mandatory Convertible Preferred Stock issued and outstanding at
March 31, 2024.
Accumulated Other Comprehensive Loss
The components and activity in Accumulated other comprehensive loss (net of
deferred income taxes) consisted of the following during the periods indicated
below (in thousands):
Three Months Ended March 31, 2024 Three Months Ended March
Foreign Currency Cash Flow Hedge Total Foreign Currency Cash Flow Hedge Total
Translation and Other (a) Translation and Other (a)
Balance, $ ( $ 8,075 $ ( $ ( $ 2,224 $ (
beginning 536,601 528,526 562,886 560,662
of period ) ) ) )
Other ( ( ( 46,200 1,101 47,301
comprehensive 50,237 21,342 71,579
(loss) ) ) )
income before
reclassifications
Amounts 17 2,682 2,699 16 - 16
reclassified
from accumulated
other
comprehensive
loss
Other ( ( ( 46,216 1,101 47,317
comprehensive 50,220 18,660 68,880
(loss) income, ) ) )
net of tax
Other 201 - 201 8 - 8
comprehensive
income
attributable
to noncontrolling
interests
Balance, $ ( $ ( $ ( $ ( $ 3,325 $ (
end 586,620 10,585 597,205 516,662 513,337
of period ) ) ) ) )
31, 2023
(a)
We entered into a foreign currency forward contract, which was designated and
accounted for as a cash flow hedge under ASC 815,
Derivatives and Hedging
. See Note 13, "Fair Value of Financial Instruments," for additional
information.
15
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The amount of income tax expense allocated to each component of Other
comprehensive (loss) income for the three-month periods ended March 31, 2024
and 2023 is provided in the following tables (in thousands):
Three Months Ended March 31, 2024 Three Months Ended March
Foreign Currency Cash Flow Hedge Total Foreign Currency Cash Flow Hedge Total
Translation and Other Translation and Other
Other $ ( $ ( $ ( $ 45,978 $ 1,101 $ 47,079
comprehensive 50,217 26,657 76,874
(loss) ) ) )
income,
before tax
Income tax ( 7,997 7,994 238 - 238
(expense) benefit 3
)
Other $ ( $ ( $ ( $ 46,216 $ 1,101 $ 47,317
comprehensive 50,220 18,660 68,880
(loss) ) ) )
income,
net of tax
31, 2023
NOTE 8-
Pension Plans and Other Postretirement Benefits:
The components of pension and postretirement benefits cost (credit) for the
three-month periods ended March 31, 2024 and 2023 were as follows (in
thousands):
Three Months Ended
March 31,
2024 2023
Pension Benefits Cost (Credit):
Service cost $ 1,566 $ 1,321
Interest cost 8,145 8,542
Expected return on assets ( (
8,830 8,409
) )
Amortization of prior service benefit 20 20
Total net pension benefits cost $ 901 $ 1,474
Postretirement Benefits Cost:
Service cost $ 12 $ 12
Interest cost 360 468
Total net postretirement benefits cost $ 372 $ 480
Total net pension and postretirement benefits cost $ 1,273 $ 1,954
All components of net benefit cost, other than service cost, are included in
Other income, net on the consolidated statements of income.
During the three-month periods ended March 31, 2024 and 2023, the Company made
contributions of $
4.8
million and $
2.8
million, respectively, to its qualified and nonqualified pension plans and the
U.S. postretirement benefit plan.
NOTE 9-
Income Taxes:
The effective income tax rate for the three-month period ended March 31, 2024
was
2.2
% compared to
23.9
% for the three-month period ended March 31, 2023. The three-month period
ended March 31, 2024 included the impact of the adoption of a 15% global
minimum tax under the Pillar Two Global Anti-Base Erosion Rules ("Pillar Two")
developed by the Organisation for Economic Co-operation and Development
("OECD") as part of global tax framework. The Company's effective income tax
rate fluctuates based on, among other factors, the amount and location of
income. The lower effective tax rate in the three-month period ended March 31,
2024, compared to the three-month period ended March 31, 2023, was due to
lower 2024 earnings in various jurisdictions. The difference between the U.S.
federal statutory income tax rate of
21
% and the Company's effective income tax rate for the three-month period ended
March 31, 2024 was impacted by a variety of factors, primarily the location in
which income was earned, including the impact of the OECD Pillar Two minimum
tax and the valuation allowance for losses in certain entities in China, the
global intangible low-taxed income inclusion, and a reduction to the uncertain
tax position recorded in Chile. The difference between the U.S. federal
statutory income tax rate of
21
% and the Company's effective income tax rate for the three-month period ended
March 31, 2023 was impacted by a variety of factors, primarily the location in
which income was earned, foreign-derived intangible income and an uncertain
tax position recorded in Chile.
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 10-
Earnings Per Share:
Basic and diluted earnings per share for the three-month periods ended March
31, 2024 and 2023 are calculated as follows (in thousands, except per share
amounts):
Three Months Ended
March 31,
2024 2023
Basic (loss) earnings per share
Numerator:
Net income attributable to Albemarle Corporation $ 2,448 $ 1,238,580
Mandatory convertible preferred stock dividends ( -
11,584
)
Net (loss) income attributable to Albemarle Corporation common shareholders $ ( $ 1,238,580
9,136
)
Denominator:
Weighted-average common shares for basic (loss) earnings per share 117,451 117,232
Basic (loss) earnings per share $ ( $ 10.57
0.08
)
Diluted (loss) earnings per share
Numerator:
Net income attributable to Albemarle Corporation $ 2,448 $ 1,238,580
Mandatory convertible preferred stock dividends ( -
11,584
)
Net (loss) income attributable to Albemarle Corporation common shareholders $ ( $ 1,238,580
9,136
)
Denominator:
Weighted-average common shares for basic (loss) earnings per share 117,451 117,232
Incremental shares under stock compensation plans - 609
Weighted-average common shares for diluted (loss) earnings per share 117,451 117,841
Diluted (loss) earnings per share $ ( $ 10.51
0.08
)
For the three-month period ended March 31, 2024, calculated on a weighted
average basis, there were
6,270,968
shares assuming the conversion of the mandatory convertible preferred stock and
216,568
shares under the stock compensation plans not included in the computation of
diluted earnings per share because their effect would have been anti-dilutive
as the Company reported a net loss attributable to common shareholders for the
period.
NOTE 11-
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.
17
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Table of Contents
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, 2024 and 2023 (in thousands):
Three Months Ended
March 31,
2024 2023
Operating lease cost $ 9,546 $ 11,751
Finance lease cost:
Amortization of right of use assets 1,308 845
Interest on lease liabilities 1,459 1,059
Total finance lease cost 2,767 1,904
Short-term lease cost 6,018 5,060
Variable lease cost 7,797 3,509
Total lease cost $ 26,128 $ 22,224
Supplemental cash flow information related to our lease contracts for the
three-month periods ended
March 31, 2024
and
2023
is as follows (in thousands):
Three Months Ended
March 31,
2024 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 8,848 $ 10,974
Operating cash flows from finance leases 1,018 1,203
Financing cash flows from finance leases 560 500
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 8,856 10,337
18
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Table of Contents
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, 2024
and December 31, 2023 is as follows (in thousands, except as noted):
March 31, 2024 December 31, 2023
Operating leases:
Other assets $ 137,114 $ 137,405
Accrued expenses 28,916 30,583
Other noncurrent liabilities 114,427 113,681
Total operating lease liabilities 143,343 144,264
Finance leases:
Net property, plant and equipment 105,116 112,438
Current portion of long-term debt 10,036 9,702
(a)
Long-term debt 98,487 104,484
Total finance lease liabilities 108,523 114,186
Weighted average remaining lease term (in years):
Operating leases 12.4 12.2
Finance leases 20.6 20.7
Weighted average discount rate (%):
Operating leases 4.63 % 4.74 %
Finance leases 5.64 % 4.71 %
(a) Balance includes accrued interest of finance lease recorded in Accrued
expenses.
Maturities of lease liabilities at March 31, 2024 were as follows (in
thousands):
Operating Leases Finance Leases
Remainder of 2024 $ 25,358 $ 13,952
2025 30,524 9,340
2026 22,169 8,690
2027 16,935 8,690
2028 12,707 8,690
Thereafter 106,227 127,855
Total lease payments 213,920 177,217
Less imputed interest 70,577 68,694
Total $ 143,343 $ 108,523
NOTE 12-
Segment Information:
The Company's
three
reportable segments include: (1) Energy Storage; (2) Specialties; and (3)
Ketjen. Each segment has a dedicated team of sales, research and development,
process engineering, manufacturing and sourcing, and business strategy
personnel and has full accountability for improving execution through greater
asset and market focus, agility and responsiveness. This business structure
aligns with the markets and customers we serve through each of the segments.
This structure also facilitates the continued standardization of business
processes across the organization, and is consistent with the manner in which
information is presently used internally by the Company's chief operating
decision maker to evaluate performance and make resource allocation decisions.
The Corporate category is not considered to be a segment and includes
corporate-related items not allocated to the operating segments. Pension and
other post-employment benefit ("OPEB") service cost (which represents the
benefits earned
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
by active employees during the period) and amortization of prior service cost
or benefit are allocated to the reportable segments and Corporate, whereas the
remaining components of pension and OPEB benefits cost or credit ("Non-operating
pension and OPEB items") are included in Corporate. Segment data includes
inter-segment transfers of raw materials at cost and allocations for certain
corporate costs.
The Company's chief operating decision maker uses adjusted EBITDA (as defined
below) to assess the ongoing performance of the Company's business segments
and to allocate resources. Effective January 1, 2024, the Company changed its
definition of adjusted EBITDA for financial accounting purposes. The updated
definition includes Albemarle's share of the pre-tax earnings of the Windfield
joint venture, whereas the prior definition included Albemarle's share of
Windfield earnings net of tax. This calculation is consistent with the
definition of adjusted EBITDA used in the leverage financial covenant
calculation in the February 2024 amendment to the 2022 Credit Agreement, which
is a material agreement for the Company and aligns the information presented
to various stakeholders. This presentation more closely represents the
materiality and financial contribution of the strategic investment in
Windfield to the Company's earnings, and more closely represents a measure of
EBITDA. The Company's updated definition of adjusted EBITDA is earnings before
interest and financing expenses, income tax expenses, the proportionate share
of Windfield income tax expense, depreciation and amortization, as adjusted on
a consistent basis for certain non-operating, non-recurring or unusual items
in a balanced manner and on a segment basis. These non-operating,
non-recurring or unusual items may include acquisition and integration related
costs, gains or losses on sales of businesses, restructuring charges, facility
divestiture charges, certain litigation and arbitration costs and charges,
non-operating pension and OPEB items and other significant non-recurring
items. In addition, management uses adjusted EBITDA for business and
enterprise planning purposes and as a significant component in the calculation
of performance-based compensation for management and other employees. The
Company has reported adjusted EBITDA because management believes it provides
additional useful measurements to review the Company's operations, provides
transparency to investors and enables period-to-period comparability of
financial performance. Total adjusted EBITDA is a financial measure that is
not required by, or presented in accordance with, U.S. GAAP. Total adjusted
EBITDA should not be considered as an alternative to Net 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. Adjusted EBITDA for the prior
period has been recast to conform to the current year presentation.
Segment information for the three-month periods ended March 31, 2024 and 2023
were as follows (in thousands).
Three Months Ended
March 31,
2024 2023
Net sales:
Energy Storage $ 800,898 $ 1,943,682
Specialties 316,065 418,778
Ketjen 243,773 217,792
Total net sales $ 1,360,736 $ 2,580,252
Adjusted EBITDA:
Energy Storage $ 197,996 $ 1,567,692
Specialties 45,181 162,158
Ketjen 21,979 14,543
Total segment adjusted EBITDA $ 265,156 $ 1,744,393
Depreciation and amortization:
Energy Storage $ 87,274 $ 52,162
Specialties 22,437 19,892
Ketjen 12,357 13,143
Total segment depreciation and amortization 122,068 85,197
Corporate 1,683 2,074
Total depreciation and amortization $ 123,751 $ 87,271
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ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
See below for a reconciliation of total segment adjusted EBITDA to the
companies consolidated Net income attributable to Albemarle Corporation, the
most directly comparable financial measure calculated and reported in
accordance with U.S. GAAP (in thousands):
Three Months Ended
March 31,
2024 2023
Total segment adjusted EBITDA $ 265,156 $ 1,744,393
Corporate expenses, net 26,080 17,311
Depreciation and amortization ( (
123,751 87,271
) )
Interest and financing expenses ( (
37,969 26,777
) )
Income tax benefit (expense) 3,721 (
276,963
)
Proportionate share of Windfield income tax expense ( (
(a) 73,689 165,985
) )
Acquisition and integration related costs ( (
(b) 1,907 5,108
) )
Restructuring and other charges ( -
(c) 36,285
)
Non-operating pension and OPEB items 325 (
601
)
(Loss) gain in fair value of public equity securities ( 45,826
(d) 43,159
)
Other 23,926 (
(e) 6,245
)
Net income attributable to Albemarle Corporation $ 2,448 $ 1,238,580
(a)
Albemarle's
49
% ownership interest in the income tax expense of the Windfield joint venture.
(b)
Costs related to the acquisition, integration and potential divestitures for
various significant projects, recorded in Selling, general and administrative
expenses ("SG&A").
(c)
In January 2024, the Company announced it was taking measures to unlock near
term cash flow and generate long-term financial flexibility by re-phasing
organic growth investments and optimizing its cost structure. As a result, the
Company recorded severance costs for employees in Corporate and each of the
businesses, and losses related to the cancellation of certain capital
expenditure projects. During the three months ended March 31, 2024, $
33.5
million of these expenses were recorded in SG&A and $
2.8
million were recorded in Other income, net. The severance has primarily been
paid, with the remainder expected to be paid in 2024.
(d)
Loss of $
33.7
million recorded in Other income, net for the three months ended March 31,
2024 resulting from the sale of investments in public equity securities and a
(loss) gain of ($
9.4
) million and $
45.8
million recorded in Other income, net for the three months ended March 31,
2024 and
2023
, respectively, resulting from the net change in fair value of investments in
public equity securities.
(e)
Included amounts for the three months ended March 31, 2024 recorded in:
.
Cost of goods sold - $
1.4
million of expenses related to non-routine labor and compensation related
costs that are outside normal compensation arrangements.
.
SG&A - $
0.1
million of expenses related to certain legal costs.
.
Other income, net - $
17.3
million gain primarily from the sale of assets at a site not part of our
operations, an $
8.7
million gain from PIK dividends of preferred equity in a Grace subsidiary and
a $
2.4
million gain primarily resulting from the adjustment of indemnification
related to a previously disposed business, partially offset by $
2.9
million of charges for asset retirement obligations at a site not part of our
operations.
Included amounts for the three months ended March 31, 2023 recorded in:
.
SG&A - $
1.9
million of charges primarily for environmental reserves at sites not part of
our operations and $
0.7
million of facility closure expenses related to offices in Germany.
.
Other income, net - $
3.6
million of charges for asset retirement obligations at a site not part of our
operations.
NOTE 13-
Fair Value of Financial Instruments:
In assessing the fair value of financial instruments, we use methods and
assumptions that are based on market conditions and other risk factors
existing at the time of assessment. Fair value information for our financial
instruments is as follows:
Long-Term Debt-the fair values of our notes are estimated using Level 1 inputs
and account for the difference between the recorded amount and fair value of
our long-term debt.
The carrying value of our remaining long-term debt reported in the
accompanying consolidated balance sheets approximates fair value as
substantially all of such debt bears interest based on prevailing variable
market rates currently available in the countries in which we have borrowings.
21
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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2024 December 31, 2023
Recorded Fair Value Recorded Fair Value
Amount Amount
(In thousands)
Long-term debt $ 3,543,472 $ 3,350,906 $ 4,186,532 $ 4,021,693
Foreign Currency Forward Contracts-during the fourth quarter of 2019, we
entered into a foreign currency forward contract to hedge the cash flow
exposure of non-functional currency purchases during the construction of the
Kemerton plant in Australia. This derivative financial instrument is used to
manage risk and is not used for trading or other speculative purposes. This
foreign currency forward contract has been designated as a hedging instrument
under Accounting Standards Codification ("ASC") 815,
Derivatives and Hedging
. We had outstanding designated foreign currency forward contracts with
notional values totaling the equivalent of $
907.4
million and $
994.5
million at March 31, 2024 and December 31, 2023, respectively.
We also enter into foreign currency forward contracts in connection with our
risk management strategies that have not been designated as hedging
instruments under ASC 815,
Derivatives and Hedging
, in an attempt to minimize the financial impact of changes in foreign
currency exchange rates. These derivative financial instruments are used to
manage risk and are not used for trading or other speculative purposes. The
fair values of our non-designated foreign currency forward contracts are
estimated based on current settlement values. At March 31, 2024 and December
31, 2023, we had outstanding non-designated foreign currency forward contracts
with notional values totaling $
5.5
billion and $
7.1
billion, respectively, hedging our exposure to various currencies including
the Chinese Renminbi, Euro, Australian Dollar and Chilean Peso.
The following table summarizes the fair value of our foreign currency forward
contracts included in the consolidated balance sheets as of March 31, 2024 and
December 31, 2023 (in thousands):
March 31, 2024 December 31, 2023
Assets Liabilities Assets Liabilities
Designated as hedging instruments
Other current assets $ - $ - $ 3,489 $ -
Other assets - - 11,704 -
Accrued expenses - 3,954 - 446
Other noncurrent liabilities - 6,291 - -
Total designated as hedging instruments - 10,245 15,193 446
Not designated as hedging instruments
Other current assets 2,239 - 2,636 -
Accrued expenses - 6,935 - 5,306
Total not designated as hedging instruments 2,239 6,935 2,636 5,306
Total $ 2,239 $ 17,180 $ 17,829 $ 5,752
The following table summarizes the net (losses) gains recognized for our
foreign currency forward contracts during the three-month periods ended March
31, 2024 and 2023 (in thousands):
Three Months Ended
March 31,
2024 2023
Designated as hedging instruments
(Loss) income recognized in Other comprehensive (loss) income $ ( $ 1,101
21,342
)
Loss recognized in Other income, net $ ( $ -
2,682
)
Not designated as hedging instruments
Income recognized in Other income, net $ 14,822 $ 35,233
(a)
(a) Fluctuations in the value of our foreign currency forward contracts not
designated as hedging instruments are generally expected to be offset by
changes in the value of the underlying exposures being hedged, which are also
reported in Other income, net.
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ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
In addition, for the three-month periods ended March 31, 2024 and 2023, we
recorded net cash receipts of $
14.5
million and $
41.5
million, respectively, in Other, net, in our condensed consolidated statements
of cash flows.
Unrealized gains and losses related to the cash flow hedges will be
reclassified to earnings over the life of the related assets when settled and
the related assets are placed into service.
The counterparties to our foreign currency forward contracts are major
financial institutions with which we generally have other financial
relationships. We are exposed to credit loss in the event of nonperformance by
these counterparties. However, we do not anticipate nonperformance by the
counterparties.
NOTE 14-
Fair Value Measurement:
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The inputs used to measure
fair value are classified into the following hierarchy:
Level 1 Unadjusted quoted prices in active markets
for identical assets or liabilities
Level 2 Unadjusted quoted prices in active markets for similar assets or
liabilities, or unadjusted quoted prices for identical or similar
assets or liabilities in markets that are not active, or inputs other
than quoted prices that are observable for the asset or liability
Level 3 Unobservable inputs for the asset or liability
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ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
We endeavor to utilize the best available information in measuring fair value.
Financial assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement.
The following tables set forth our financial assets and liabilities that were
accounted for at fair value on a recurring basis as of March 31, 2024 and
December 31, 2023 (in thousands):
March 31, 2024 Quoted Prices in Active Markets Quoted Prices in Active Markets Unobservable Inputs (Level 3)
for Identical Items (Level 1) for Similar Items (Level 2)
Assets:
Available for sale $ 297,987 $ - $ - $ 297,987
debt securities
(a)
Investments under executive $ 32,884 $ 32,884 $ - $ -
deferred compensation plan
(b)
Public equity $ 44,234 $ 44,234 $ - $ -
securities
(c)
Private equity securities $ 4,535 $ - $ - $ -
measured at net asset value
(d)(e)
Foreign currency $ 2,239 $ - $ 2,239 $ -
forward contracts
(f)
Liabilities:
Obligations under executive $ 32,884 $ 32,884 $ - $ -
deferred compensation plan
(b)
Foreign currency $ 17,180 $ - $ 17,180 $ -
forward contracts
(f)
December 31, 2023 Quoted Prices in Active Markets Quoted Prices in Active Markets Unobservable Inputs (Level 3)
for Identical Items (Level 1) for Similar Items (Level 2)
Assets:
Available for sale $ 289,307 $ - $ - $ 289,307
debt securities
(a)
Investments under executive $ 33,564 $ 33,564 $ - $ -
deferred compensation plan
(b)
Public equity $ 168,928 $ 168,928 $ - $ -
securities
(c)
Private equity securities $ 4,536 $ - $ - $ -
measured at net asset value
(d)(e)
Foreign currency $ 17,829 $ - $ 17,829 $ -
forward contracts
(f)
Liabilities:
Obligations under executive $ 33,564 $ 33,564 $ - $ -
deferred compensation plan
(b)
Foreign currency $ 5,752 $ - $ 5,752 $ -
forward contracts
(f)
(a)
Preferred equity of a Grace subsidiary acquired as a portion of the proceeds
of the FCS sale on June 1, 2021. A third-party estimate of the fair value was
prepared using expected future cash flows over the period up to when the asset
is likely to be redeemed, applying a discount rate that appropriately captures
a market participant's view of the risk associated with the investment. These
are considered to be Level 3 inputs.
(b)
We maintain an Executive Deferred Compensation Plan ("EDCP") that was adopted
in 2001 and subsequently amended. The purpose of the EDCP is to provide
current tax planning opportunities as well as supplemental funds upon the
retirement or death of certain of our employees. The EDCP is intended to aid
in attracting and retaining employees of exceptional ability by providing them
with these benefits. We also maintain a Benefit Protection Trust (the "Trust")
that was created to provide a source of funds to assist in meeting the
obligations of the EDCP, subject to the claims of our creditors in the event
of our insolvency. Assets of the Trust are consolidated in accordance with
authoritative guidance. The assets of the Trust consist primarily of mutual
fund investments (which are accounted for as trading securities and are
marked-to-market on a monthly basis through the consolidated statements of
income) and cash and cash equivalents. As such, these assets and obligations
are classified within Level 1.
(c)
Holdings in equity securities of public companies reported in Investments in
the consolidated balance sheets. The fair value is measured using publicly
available share prices of the investments, with any changes reported in Other
income, net in our consolidated statements of income. See Note 3,
"Investments," for further details.
(d)
Primarily consists of private equity securities reported in Investments in the
consolidated balance sheets. The changes in fair value are reported in Other
income, net in our consolidated statements of income.
(e)
Holdings in certain private equity securities are measured at fair value using
the net asset value per share (or its equivalent) practical expedient and have
not been categorized in the fair value hierarchy.
(f)
As a result of our global operating and financing activities, we are exposed
to market risks from changes in foreign currency exchange rates which may
adversely affect our operating results and financial position. When deemed
appropriate, we minimize our risks from foreign currency exchange rate
fluctuations through the use of foreign currency forward contracts. The
foreign currency forward
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ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
contracts are valued using broker quotations or market transactions in either
the listed or over-the-counter markets. As such, these derivative instruments
are classified within Level 2. See Note 13, "Fair Value of Financial
Instruments," for further details about our foreign currency forward contracts.
The following tables set forth the reconciliation of the beginning and ending
balance for the Level 3 recurring fair value measurements (in thousands):
Available for Sale Debt Securities
Beginning balance at December 31, 2023 $ 289,307
PIK dividends 8,680
Ending balance at March 31, 2024 $ 297,987
NOTE 15-
Related Party Transactions:
Our consolidated statements of income include sales to and purchases from
unconsolidated affiliates in the ordinary course of business as follows (in
thousands):
Three Months Ended
March 31,
2024 2023
Sales to unconsolidated affiliates $ 1,958 $ 7,100
Purchases from unconsolidated affiliates $ 137,197 $ 1,072,544
(a)
(a)
Purchases from unconsolidated affiliates primarily relate to spodumene
purchased from the Company's Windfield joint venture. The decrease from prior
year primarily related to the lower lithium market prices in recent months.
Our consolidated balance sheets include accounts receivable due from and
payable to unconsolidated affiliates in the ordinary course of business as
follows (in thousands):
March 31, 2024 December 31, 2023
Receivables from unconsolidated affiliates $ 1,511 $ 15,992
Payables to unconsolidated affiliates $ 129,613 $ 550,186
(a)
(a)
Payables to unconsolidated affiliates primarily relate spodumene purchased
from the Company's Windfield joint venture under normal payment terms.
NOTE 16-
Supplemental Cash Flow Information:
Supplemental information related to the condensed consolidated statements of
cash flows is as follows (in thousands):
Three Months Ended
March 31,
2024 2023
Supplemental non-cash disclosure related to investing and financing activities:
Capital expenditures included in Accounts payable $ 315,895 $ 347,165
Common stock issued for annual incentive bonus plan 11,545 -
(a)
(a)
During the three-month period ended March 31, 2024 the Company issued
95,003
shares of common stock to certain employees in lieu of cash as payment of a
portion of their 2023 annual incentive bonus plan.
NOTE 17-
Recently Issued Accounting Pronouncements:
In March 2020, the Financial Accounting Standards Board ("FASB") issued
accounting guidance that provides optional expedients and exceptions for
applying U.S. GAAP to contracts, hedging relationships and other transactions
affected by reference rate reform if certain criteria are met. The guidance
applies only to contracts, hedging relationships and other
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ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
transactions that reference LIBOR or another reference rate expected to be
discontinued because of reference rate reform. In January 2021, the FASB
issued additional accounting guidance which clarifies that certain optional
expedients and exceptions apply to derivatives that are affected by the
discounting transition. The guidance under both FASB issuances was originally
effective March 12, 2020 through December 31, 2022. However, in December 2022,
the FASB issued an update to defer the sunset date of this guidance to
December 31, 2024. The Company currently does not expect this guidance to have
a significant impact on its consolidated financial statements.
In August 2023, the FASB issued guidance which will require a joint venture to
recognize and initially measure its assets, including goodwill, and
liabilities using a new basis of accounting upon formation. Initial
measurement of a joint venture's total net assets will be equal to the fair
value of one hundred percent of the joint venture's equity. In addition, a
joint venture will be permitted to apply the measurement period guidance of
ASC 805-10 if the initial accounting for the the joint venture formation is
incomplete by the end of the reporting period in which the formation occurs.
This guidance is effective prospectively for all joint venture formations with
a formation date on or after January 1, 2025. The Company currently does not
expect this guidance to have a significant impact on its consolidated
financial statements.
In November 2023, the FASB issued guidance to update qualitative and
quantitative reportable segment disclosure requirements, including enhanced
disclosures about significant segment expenses and increased interim
disclosure requirements, among others. This guidance is effective for fiscal
years beginning after December 15, 2023, and interim periods within fiscal
years beginning after December 15, 2024. Early adoption is permitted, and the
amendments should be applied retrospectively. The Company currently does not
expect this guidance to have a significant impact on its consolidated
financial statement disclosures.
In December 2023, the FASB issued guidance to require qualitative and
quantitative updates to the rate reconciliation and income taxes paid
disclosures, among others, in order to enhance the transparency of income tax
disclosures, including consistent categories and greater disaggregation of
information in the rate reconciliation and disaggregation by jurisdiction of
income taxes paid. This guidance is effective for fiscal years beginning after
December 15, 2024, with early adoption permitted. The amendments should be
applied prospectively; however, retrospective application is also permitted.
The Company is currently evaluating the impact this guidance will have on its
financial statement disclosures.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Some of the information presented in this Quarterly Report on Form 10-Q,
including the documents incorporated by reference herein, may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
our current expectations, which are in turn based on assumptions that we
believe are reasonable based on our current knowledge of our business and
operations. We have used words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "would," "will" and
variations of such words and similar expressions to identify such
forward-looking statements.
These forward-looking statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions, which are difficult to
predict and many of which are beyond our control. There can be no assurance
that our actual results will not differ materially from the results and
expectations expressed or implied in the forward-looking statements. Factors
that could cause actual results to differ materially from the outlook
expressed or implied in any forward-looking statement include, without
limitation, information related to:
.
changes in economic and business conditions;
.
product development;
.
changes in financial and operating performance of our major customers and
industries and markets served by us;
.
the timing of orders received from customers;
.
the gain or loss of significant customers;
.
fluctuations in lithium market pricing, which could impact our revenues and
profitability particularly due to our increased exposure to index-referenced
and variable-priced contracts for battery grade lithium sales;
.
inflationary trends in our input costs, such as raw materials, transportation
and energy, and their effects on our business and financial results;
.
changes with respect to contract renegotiations;
.
potential production volume shortfalls;
.
competition from other manufacturers;
.
changes in the demand for our products or the end-user markets in which our
products are sold;
.
limitations or prohibitions on the manufacture and sale of our products;
.
availability of raw materials;
.
increases in the cost of raw materials and energy, and our ability to pass
through such increases to our customers;
.
technological change and development;
.
changes in our markets in general;
.
fluctuations in foreign currencies;
.
changes in laws and government regulation impacting our operations or our
products;
.
the occurrence of regulatory actions, proceedings, claims or litigation
(including with respect to the U.S. Foreign Corrupt Practices Act and foreign
anti-corruption laws);
.
the occurrence of cyber-security breaches, terrorist attacks, industrial
accidents or natural disasters;
.
the effects of climate change, including any regulatory changes to which we
might be subject;
.
hazards associated with chemicals manufacturing;
.
the inability to maintain current levels of insurance, including product or
premises liability insurance, or the denial of such coverage;
.
political unrest affecting the global economy, including adverse effects from
terrorism or hostilities;
.
political instability affecting our manufacturing operations or joint ventures;
.
changes in accounting standards;
.
the inability to achieve results from our global manufacturing cost reduction
initiatives as well as our ongoing continuous improvement and rationalization
programs;
.
changes in the jurisdictional mix of our earnings and changes in tax laws and
rates or interpretation;
.
changes in monetary policies, inflation or interest rates that may impact our
ability to raise capital or increase our cost of funds, impact the performance
of our pension fund investments and increase our pension expense and funding
obligations;
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.
volatility and uncertainties in the debt and equity markets;
.
technology or intellectual property infringement, including cyber-security
breaches, and other innovation risks;
.
decisions we may make in the future;
.
future acquisition and divestiture transactions, including the ability to
successfully execute, operate and integrate acquisitions and divestitures and
incurring additional indebtedness;
.
expected benefits from proposed transactions;
.
timing of active and proposed projects;
.
impact of any future pandemics;
.
impacts of the situation in the Middle East and the military conflict between
Russia and Ukraine, and the global response to it;
.
performance of our partners in joint ventures and other projects;
.
changes in credit ratings;
.
the inability to realize the benefits of our decision to retain our Ketjen
business as a wholly-owned subsidiary and to realign our Lithium and Bromine
global business units into a new corporate structure, including Energy Storage
and Specialties business units; and
.
the other factors detailed from time to time in the reports we file with the
Securities and Exchange Commission ("SEC").
These forward-looking statements speak only as of the date of this Quarterly
Report on Form 10-Q. We assume no obligation to provide any revisions to any
forward-looking statements should circumstances change, except as otherwise
required by securities and other applicable laws. The following discussion
should be read together with our condensed consolidated financial statements
and related notes included in this Quarterly Report on Form 10-Q.
The following is a discussion and analysis of our results of operations for
the three-month periods ended March 31, 2024 and 2023. A discussion of our
consolidated financial condition and sources of additional capital is included
under a separate heading "Financial Condition and Liquidity."
Overview
Albemarle leads the world in transforming essential resources into critical
ingredients for mobility, energy, connectivity, and health. Our purpose is to
enable a more resilient world. We partner to pioneer new ways to move, power,
connect, and protect. The end markets we serve include grid storage,
automotive, aerospace, conventional energy, electronics, construction,
agriculture and food, pharmaceuticals and medical devices. We believe that our
world-class resources with reliable and consistent supply, our leading process
chemistry, high-impact innovation, customer centricity and focus on people and
planet will enable us to maintain a leading position in the industries in
which we operate.
Secular trends favorably impacting demand within the end markets that we serve
combined with our diverse product portfolio, broad geographic presence and
customer-focused solutions will continue to be key drivers of our future
earnings growth. We continue to build upon our existing green solutions
portfolio and our ongoing mission to provide innovative, yet commercially
viable, clean energy products and services to the marketplace to contribute to
our sustainable revenue. For example, our Energy Storage business contributes
to the growth of clean miles driven with electric vehicles and more efficient
use of renewable energy through grid storage; Specialties enables the
prevention of fires starting in electronic equipment, greater fuel efficiency
from rubber tires and the reduction of emissions from coal fired power plants;
and our Ketjen business creates efficiency of natural resources through more
usable products from a single barrel of oil, enables safer, greener production
of alkylates used to produce more environmentally-friendly fuels, and reduced
emissions through cleaner transportation fuels. We believe our disciplined
cost reduction efforts and ongoing productivity improvements, among other
factors, position us well to take advantage of strengthening economic
conditions as they occur, while softening the negative impact of the current
challenging global economic environment.
First Quarter 2024
During the first quarter of 2024:
.
Our board of directors declared a quarterly dividend of $0.40 per share on
February 22, 2024, which was paid on April 1, 2024 to common shareholders of
record at the close of business as of March 15, 2024.
.
Effective January 1, 2024, we changed our definition of adjusted EBITDA for
financial accounting and reporting purposes. The updated definition includes
our share of the pre-tax earnings of the Windfield Holdings Pty Ltd
("Windfield") joint venture, whereas the prior definition included our share
of Windfield earnings net of tax. This
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calculation is consistent with the definition of adjusted EBITDA used in the
leverage financial covenant calculation in the February 2024 amendment to our
revolving, unsecured amended and restated credit agreement dated October 28,
2022 (the "2022 Credit Agreement"). This presentation more closely represents
the materiality and financial contribution of the strategic investment in
Windfield to the Company's earnings, and more closely represents a measure of
EBITDA.
.
We announced that we are taking measures to unlock near term cash flow and
generate long-term financial flexibility by re-phasing organic growth
investments and optimizing our cost structure. This includes a reduction of
planned capital expenditures in 2024 to focus on significantly progressed,
near completion and in startup projects, while deferring spending on certain
projects. In addition, we announced that we are pursuing actions to optimize
our cost structure, aiming to reduce costs by approximately $95 million
annually, including a reduction in headcount and lower spending on contracted
services.
.
We entered into a definitive agreement with the BMW Group to deliver
battery-grade lithium to help the automaker pursue high-performance, premium
electric vehicles. This multi-year agreement, which takes effect in 2025, is
one of the company's largest ever globally by volume and value. In addition to
supplying the BMW Group with lithium hydroxide, the two companies will partner
on technology for safer and more energy dense lithium-ion batteries.
.
On February 9, 2024 we amended the 2022 Credit Agreement to modify the
leverage ratio financial maintenance covenant by (a) temporarily increasing
the 3.50:1.0 maximum leverage ratio permitted by the covenant to (i) 5.00:1.0
(for the second quarter of 2024), (ii) 5.50:1.0 (for the third quarter of
2024), (iii) 4.00:1.0 (for the fourth quarter of 2024) and (iv) 3.75:1.0 (for
the first and second quarters of 2025) and (b) adjusting the calculation of
the EBITDA and net debt components that form the basis of the calculation of
the consolidated leverage ratio. The amendment includes certain other
amendments to the 2022 Credit Agreement, including the addition of a financial
covenant that will require the Company to maintain a specified minimum
interest coverage ratio.
.
On March 8, 2024, the Company issued 46,000,000 depositary shares, each
representing a 1/20th interest in a share of Series A Mandatory Convertible
Preferred Stock ("Mandatory Convertible Preferred Stock"). The 2,300,000
shares of Mandatory Convertible Preferred Stock issued had a $1,000 per share
liquidation preference. As a result of this transaction, we received net cash
proceeds of $2.2 billion.
Outlook
The current global business environment presents a diverse set of
opportunities and challenges in the markets we serve. In particular, we
believe that the market for lithium battery and energy storage, particularly
for electric vehicles ("EV"), remains strong, providing the opportunity to
continue to develop high quality and innovative products while managing the
high cost of expanding capacity. The other markets we serve continue to
present various opportunities for value and growth as we have positioned
ourselves to manage the impact on our business of changing global conditions,
such as slow and uneven global growth, currency exchange volatility, crude oil
price fluctuation, a dynamic pricing environment, an ever-changing landscape
in electronics, the continuous need for cutting edge catalysts and technology
by our refinery customers and increasingly stringent environmental standards.
During the course of 2023, lithium index pricing dropped significantly, and
remained relatively steady at these lower levels during the first quarter of
2024. Amidst these dynamics, and despite recent downward lithium price
pressure, we believe our business fundamentals are sound and that we are
strategically well-positioned as we remain focused on increasing sales
volumes, optimizing and improving the value of our portfolio primarily through
pricing and product development, managing costs and delivering value to our
customers and shareholders. We believe that our businesses remain
well-positioned to capitalize on new business opportunities and long-term
trends driving growth within our end markets and to respond quickly to changes
in economic conditions in these markets. At this time, relating to the current
situation in the Middle East, our business operations has continued as normal
with some shipping and raw material delays. We are monitoring the situation
and will continue to make efforts to protect the safety of our employees and
the health of our business.
Energy Storage:
We expect Energy Storage net sales and profitability to decrease year-over-year
in 2024 if lithium market prices remain at their current levels. Due to many
of our contracts being index-referenced and variable-priced, our business is
more aligned with changes in market and index pricing. The first part of 2023
saw record high lithium price levels which increased prior year results. As a
result, increases or further decreases in lithium market pricing could have a
material impact on our results. We do expect the lower pricing to be partially
offset by higher sales volume driven primarily by additional capacity from La
Negra, Chile, Kemerton, Western Australia, and Qinzhou, China, as well as
additional tolling volume supported by increased spodumene production out of
Australia. The Meishan, China lithium conversion plant achieved mechanical
completion and has moved to the commissioning phase. During the fourth quarter
of 2023, we recorded a $604 million charge to reduce the value of certain
spodumene and finished goods to their net realizable value following the
decline in lithium market pricing at the end of the year. We could record
additional inventory valuation charges in 2024 if lithium prices continue to
deteriorate during the projected period of conversion and sale. While we ramp
up our new capacity, we will
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continue to utilize tolling arrangements to meet growing customer demand. EV
sales are expected to continue to increase over the prior year, driving
continued for lithium batteries.
On a longer-term basis, we believe that demand for lithium will continue to
grow as new lithium applications advance and the use of plug-in hybrid EVs and
full battery EVs increases. This demand for lithium is supported by a
favorable backdrop of steadily declining lithium-ion battery costs, increasing
battery performance, continuing significant investments in the battery and EV
supply chain by cathode and battery producers and automotive OEMs and
favorable global public policy toward e-mobility/renewable energy usage. Our
outlook is also bolstered by long-term supply agreements with key strategic
customers, reflecting our standing as a preferred global lithium partner,
highlighted by our scale, access to geographically diverse, low-cost resources
and long-term track record of reliability of supply and operating execution.
Specialties:
We expect both net sales and profitability to be lower in 2024 year-over-year
as we recover from reduced customer demand in certain markets, including
consumer and industrial electronics, and maintain strong demand in other
end-markets, such as pharmaceuticals, agriculture and oilfield services. We
have taken measures to reduce the negative impact of lower demand, which we
expect to partially offset the lower results in 2024.
On a longer-term basis, we continue to believe that improving global standards
of living, widespread digitization, increasing demand for data management
capacity and the potential for increasingly stringent fire safety regulations
in developing markets are likely to drive continued demand for fire safety,
bromine and lithium specialties products. We are focused on profitably growing
our globally competitive production networks to serve all major bromine and
lithium specialties consuming products and markets. The combination of our
solid, long-term business fundamentals, strong cost position, product
innovations and effective management of raw material costs should enable us to
manage our business through end-market challenges and to capitalize on
opportunities that are expected with favorable market trends in select end
markets.
Ketjen:
Total Ketjen results in 2024 are expected to increase year-over-year due to
higher revenue and lower input costs. Higher revenue is expected to be driven
by volume growth across each of the Ketjen businesses. The fluidized catalytic
cracking ("FCC") market has recovered from the COVID-19 pandemic and is
expected to remain stable. Hydroprocessing catalysts ("HPC") demand is
lumpier, but we have seen increased demand as refineries are taking
turnarounds. Additionally, we have signed an agreement to supply unique
technologies to new markets, such as the hydrotreated vegetable oil market,
which supports the energy transition for sustainable aviation fuels and
supports our business growth.
On a longer-term basis, we believe increased global demand for transportation
fuels, new refinery start-ups and ongoing adoption of cleaner fuels will be
the primary drivers of growth in our Ketjen business. We believe delivering
superior end-use performance continues to be the most effective way to create
sustainable value in the refinery catalysts industry. We also believe our
technologies continue to provide significant performance and financial
benefits to refiners challenged to meet tighter regulations around the world,
including those managing new contaminants present in North America tight oil,
and those in the Middle East and Asia seeking to use heavier feedstock while
pushing for higher propylene yields. In performance catalyst solutions
("PCS"), we expect growth on a longer-term basis in our organometallics
business due to growing global demand for plastics driven by rising standards
of living and infrastructure spending.
Corporate:
We continue to focus on cash generation, working capital management and
process efficiencies. We expect our global effective tax rate will vary based
on the locales in which income is actually earned and remains subject to
potential volatility from changing legislation in the United States, such as
the Inflation Reduction Act and the recently released Pillar II effective in
2024, and other tax jurisdictions. In January 2024 we announced that we are
taking measures to unlock near term cash flow and generate long-term financial
flexibility by re-phasing organic growth investments and optimizing our cost
structure. This includes a reduction of planned capital expenditures in 2024
to focus on significantly progressed, near completion and in startup projects,
while deferring spending on certain projects such as the previously announced
mega-flex facility in Richburg, South Carolina and the Albemarle Technology
Park in Charlotte, North Carolina. In addition, we announced that we are
pursuing actions to optimize our cost structure, aiming to reduce costs by
approximately $95 million annually, including a reduction in headcount and
lower spending on contracted services.
From time to time we may evaluate the merits of any opportunities that may
arise for acquisitions or other business development activities that will
complement our business footprint. Additional information regarding our
products, markets and financial performance is provided at our website,
www.albemarle.com
. Our website is not a part of this document nor is it incorporated herein by
reference.
Results of Operations
The following data and discussion provides an analysis of certain significant
factors affecting our results of operations during the periods included in the
accompanying consolidated statements of income.
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First Quarter 2024 Compared to First Quarter 2023
Net Sales
In thousands Q1 2024 Q1 2023 $ Change % Change
Net sales $ 1,360,736 $ 2,580,252 $ (1,219,516) (47) %
.
$1.8 billion decrease primarily attributable to lower lithium carbonate and hydroxide market pricing in Energy Storage
.
$595.8 million increase attributable to higher sales volume in Energy Storage and Ketjen, partially offset by lower sales volume in
.
$14.6 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies
Gross Profit
In thousands Q1 2024 Q1 2023 $ Change % Change
Gross profit $ 38,938 $ 1,276,540 $ (1,237,602) (97) %
Gross profit margin 2.9 % 49.5 %
Unfavorable pricing impacts primarily in Energy Storage
Unfavorable currency exchange impacts resulting from the stronger U.S. Dollar against various currencies
Partially offset by higher sales volume in Energy Storage
Selling, General and Administrative ("SG&A") Expenses
In thousands Q1 2024 Q1 2023 $ Change % Change
Selling, general and administrative expenses $ 194,912 $ 154,306 $ 40,606 26 %
Percentage of Net sales 14.3 % 6.0 %
Higher compensation-related expenses across Corporate and each business, including severance expenses of
$16.3 million recorded during the first quarter of 2024
$17.2 million of losses related to the cancellation of certain capital expenditure projects resulting
from the announced re-phasing organic growth investments and optimizing its cost structure
Partially offset by a reduction in outside services as part of announced cost reduction efforts
Research and Development Expenses
In thousands Q1 2024 Q1 2023 $ Change % Change
Research and development expenses $ 23,532 $ 20,471 $ 3,061 15 %
Percentage of Net sales 1.7 % 0.8 %
Interest and Financing Expenses
In thousands Q1 2024 Q1 2023 $ Change % Change
Interest and $ (37,969) $ (26,777) $ (11,192) 42 %
financing
expenses
.
Increased debt balance outstanding during the first quarter of 2024, primarily in variable-rate commercial paper paid off in March 2
Other Income, Net
In thousands Q1 2024 Q1 2023 $ Change % Change
Other income, net $ 49,901 $ 82,492 $ (32,591) (40) %
.
2024 included losses of $43.2 million related to the sale and fair market
value adjustment of equity securities in public companies compared to $45.8
million of net gains for similar fair value adjustments in 2023
.
$29.2 million increase attributable to foreign exchange gains
.
$17.3 million gain primarily from the sale of assets at a site not part of
our operations in 2024
.
$8.7 million gain from PIK dividends of preferred equity in a W.R. Grace &
Co. ("Grace") subsidiary in 2024
.
$2.7 million increase attributable to interest income from higher cash
balances in 2024
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Income Tax (Benefit) Expense
In thousands Q1 2024 Q1 2023 $ Change % Change
Income tax $ (3,721) $ 276,963 $ (280,684) (101) %
(benefit)
expense
Effective income tax rate 2.2 % 23.9 %
.
Change in geographic mix of earnings, with lower 2024 earnings in various jurisdictions
.
2024 included the impact of the adoption of a 15% global minimum tax under the Pillar Two Global Anti-Base Erosion Rules ("Pillar Tw
.
2023 included an increase to a tax reserve related to an uncertain tax position in Chile, while 2024 included a reduction to the res
Equity in Net Income of Unconsolidated Investments
In thousands Q1 2024 Q1 2023 $ Change % Change
Equity in net income of unconsolidated investments $ 180,500 $ 396,188 $ (215,688) (54) %
Decreased earnings from lower pricing from the Windfield joint venture in Energy Storage
$13.3 million decrease attributable to unfavorable foreign exchange impacts from the Windfield joint venture
Net Income Attributable to Noncontrolling Interests
In thousands Q1 2024 Q1 2023 $ Change % Change
Net income $ (14,199) $ (38,123) $ 23,924 (63) %
attributable
to
noncontrolling
interests
Decrease in consolidated income related to our Jordan Bromine Company Limited ("JBC") joint venture primarily due to lower volume an
Net Income Attributable to Albemarle Corporation
In thousands Q1 2024 Q1 2023 $ Change % Change
Net income attributable $ 2,448 $ 1,238,580 $ (1,236,132) (100) %
to Albemarle Corporation
Percentage of Net sales 0.2 % 48.0 %
Net (loss) income attributable to $ (9,136) $ 1,238,580 $ (1,247,716) (101) %
Albemarle Corporation common shareholders
Basic (loss) earnings per share $ (0.08) $ 10.57 $ (10.65) (101) %
attributable to common shareholders
Diluted (loss) earnings per share $ (0.08) $ 10.51 $ (10.59) (101) %
attributable to common shareholders
Unfavorable pricing impacts primarily in Energy Storage
2024 included losses of $43.2 million related to the sale and fair market value adjustment of equity
securities in public companies compared to $45.8 million of net gains for similar fair value adjustments in
2023
Higher compensation-related expenses across Corporate and each business, including severance expenses of
$16.3 million recorded during the first quarter of 2024
$17.2 million of losses related to the cancellation of certain capital expenditure projects resulting from
the announced re-phasing organic growth investments and optimizing its cost structure
Decreased earnings from Windfield joint venture
$11.6 million of mandatory convertible preferred stock dividends accrued in 2024, further decreasing the net
loss and earnings per share attributable to Albemarle Corporation common shareholders
Higher sales volume in Energy Storage
$29.2 million increase attributable to foreign exchange gains
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Other Comprehensive (Loss) Income, Net of Tax
In thousands Q1 2024 Q1 2023 $ Change % Change
Other comprehensive (loss) income, net of tax $ (68,880) $ 47,317 $ (116,197) (246) %
$ (50,220) $ 46,216 $ (96,436) (209) %
Foreign currency translation and other
2024 included unfavorable movements in the Euro of approximately $39 million, the Japanese Yen of
approximately $7 million and a net unfavorable variance in various other currencies of $10 million,
partially offset by favorable movements in the Chinese Renminbi of approximately $6 million
2023 included favorable movements in the Euro of approximately $28 million, the Chinese Renminbi of
approximately $14 million, the Japanese Yen of approximately $2 million and a net favorable variance in
various other currencies of $3 million
$ (18,660) $ 1,101 $ (19,761) (1,795) %
Cash flow hedge
Segment Information Overview.
We have identified three reportable segments according to the nature and
economic characteristics of our products as well as the manner in which the
information is used internally by the Company's chief operating decision maker
to evaluate performance and make resource allocation decisions. Our reportable
business segments consist of: (1) Energy Storage, (2) Specialties and (3)
Ketjen.
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 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.
Our 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. Effective January 1, 2024, the Company changed its
definition of adjusted EBITDA for financial accounting purposes. The updated
definition includes Albemarle's share of the pre-tax earnings of the Windfield
joint venture, whereas the prior definition included Albemarle's share of
Windfield earnings net of tax. This calculation is consistent with the
definition of adjusted EBITDA used in the leverage financial covenant
calculation in the February 2024 amendment to the 2022 Credit Agreement, which
is a material agreement for the Company and aligns the information presented
to various stakeholders. This presentation more closely represents the
materiality and financial contribution of the strategic investment in
Windfield to the Company's earnings, and more closely represents a measure of
EBITDA. The Company's updated definition of adjusted EBITDA is earnings before
interest and financing expenses, income tax expenses, the proportionate share
of Windfield income tax expense, depreciation and amortization, as adjusted on
a consistent basis for certain non-operating, non-recurring or unusual items
in a balanced manner and on a segment basis. These non-operating,
non-recurring or unusual items may include acquisition and integration related
costs, gains or losses on sales of businesses, restructuring charges, facility
divestiture charges, certain litigation and arbitration costs and charges,
non-operating pension and OPEB items and other significant non-recurring
items. In addition, management uses adjusted EBITDA for business and
enterprise planning purposes and as a significant component in the calculation
of performance-based compensation for management and other employees. The
Company has reported adjusted EBITDA because management believes it provides
additional useful measurements to review the Company's operations, provides
transparency to investors and enables period-to-period comparability of
financial performance. Total adjusted EBITDA is a financial measure that is
not required by, or presented in accordance with, U.S. GAAP. Total adjusted
EBITDA should not be considered as an alternative to Net 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. Adjusted EBITDA for the prior
period has been recast to conform to the current year presentation.
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Three Months Ended March 31, Percentage Change
2024 % 2023 % 2024 vs 2023
(In thousands, except percentages)
Net sales:
Energy Storage $ 800,898 58.9 % $ 1,943,682 75.3 % (59) %
Specialties 316,065 23.2 % 418,778 16.3 % (25) %
Ketjen 243,773 17.9 % 217,792 8.4 % 12 %
Total net sales $ 1,360,736 100.0 % $ 2,580,252 100.0 % (47) %
Adjusted EBITDA:
Energy Storage $ 197,996 68.0 % $ 1,567,692 89.0 % (87) %
Specialties 45,181 15.5 % 162,158 9.2 % (72) %
Ketjen 21,979 7.5 % 14,543 0.8 % 51 %
Total segment adjusted EBITDA 265,156 91.0 % 1,744,393 99.0 % (85) %
Corporate 26,080 9.0 % 17,311 1.0 % 51 %
Total adjusted EBITDA $ 291,236 100.0 % $ 1,761,704 100.0 % (83) %
See below for a reconciliation of total segment adjusted EBITDA to
consolidated Net income attributable to Albemarle Corporation, the most
directly comparable financial measure calculated and reported in accordance
with U.S. GAAP (in thousands):
Three Months Ended
March 31,
2024 2023
Total segment adjusted EBITDA $ 265,156 $ 1,744,393
Corporate expenses, net 26,080 17,311
Depreciation and amortization (123,751) (87,271)
Interest and financing expenses (37,969) (26,777)
Income tax benefit (expense) 3,721 (276,963)
Proportionate share of Windfield income tax expense (73,689) (165,985)
(a)
Acquisition and integration related costs (1,907) (5,108)
(b)
Restructuring and other charges (36,285) -
(c)
Non-operating pension and OPEB items 325 (601)
(Loss) gain in fair value of public equity securities (43,159) 45,826
(d)
Other 23,926 (6,245)
(e)
Net income attributable to Albemarle Corporation $ 2,448 $ 1,238,580
(a)
Albemarle's 49% ownership interest in the reported income tax expense of the
Windfield joint venture.
(b)
Costs related to the acquisition, integration and potential divestitures for
various significant projects, recorded in SG&A.
(c)
In January 2024, the Company announced it was taking measures to unlock near
term cash flow and generate long-term financial flexibility by re-phasing
organic growth investments and optimizing its cost structure. As a result, the
Company recorded severance costs for employees in Corporate and each of the
businesses, and losses related to the cancellation of certain capital
expenditure projects. During the three months ended March 31, 2024, $33.5
million of these expenses were recorded in SG&A and $2.8 million were recorded
in Other income, net. The severance has primarily been paid, with the
remainder expected to be paid in 2024.
(d)
Loss of $33.7 million recorded in Other income, net for the three months ended
March 31, 2024 resulting from the sale of investments in public equity
securities and a (loss) gain of ($9.4) million and $45.8 million recorded in
Other income, net for the three months ended March 31, 2024 and 2023,
respectively, resulting from the net change in fair value of investments in
public equity securities
.
(e)
Included amounts for the three months ended March 31, 2024 recorded in:
.
Cost of goods sold - $1.4 million of expenses related to non-routine labor and
compensation related costs that are outside normal compensation arrangements.
.
SG&A - $0.1 million of expenses related to certain legal costs.
.
Other income, net - $17.3 million gain primarily from the sale of assets at a
site not part of our operations, an $8.7 million gain from PIK dividends of
preferred equity in a Grace subsidiary and a $2.4 million gain primarily
resulting from the adjustment of indemnification related to a previously
disposed business, partially offset by $2.9 million of charges for asset
retirement obligations at a site not part of our operations.
Included amounts for the three-month period ended March 31, 2023 recorded in:
.
SG&A - $1.9 million of charges primarily for environmental reserves at sites
not part of our operations and $0.7 million of facility closure expenses
related to offices in Germany.
.
Other income, net - $3.6 million of charges for asset retirement obligations
at a site not part of our operations.
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Energy Storage
In thousands Q1 2024 Q1 2023 $ Change % Change
Net sales $ 800,898 $ 1,943,682 $ (1,142,784) (59) %
.
$1.7 billion decrease attributable to unfavorable pricing impacts, primarily in battery- and tech-grade carbonate and hydroxide sold
under index-referenced and variable-priced contracts, and mix
.
$598.8 million increase attributable to higher sales volume, primarily driven by the La Negra III/IV expansion in Chile, as well as
sales of chemical-grade spodumene to meet growing customer demand
.
$14.3 million decrease attributable to unfavorable currency translation resulting from the stronger U.S. Dollar against various
currencies
Adjusted $ 197,996 $ 1,567,692 $ (1,369,696) (87) %
EBITDA
.
Unfavorable pricing impacts in lithium carbonate and hydroxide
.
Decreased equity in net income from the Windfield joint venture, driven by lower spodumene pricing
.
Higher sales volume
.
Savings from designed restructuring and productivity improvements
.
$32.4 million increase attributable to favorable currency translation resulting from the weaker U.S. Dollar against various currenci
Specialties
In thousands Q1 2024 Q1 2023 $ Change % Change
Net sales $ 316,065 $ 418,778 $ (102,713) (25) %
.
$78.2 million decrease attributable to unfavorable pricing impacts across several divisions
.
$23.7 million decrease attributable to lower sales volumes related to decreased demand across all products, primarily consumer elect
.
$0.8 million increase attributable to favorable currency translation resulting from the stronger U.S. Dollar against various currenc
Adjusted $ 45,181 $ 162,158 $ (116,977) (72) %
EBITDA
.
Lower sales volume and unfavorable pricing impacts, primarily in consumer electronics applications
.
Increased manufacturing costs resulting primarily from increased material costs
.
Decrease in noncontrolling interests to JBC joint venture resulting from lower volume and pricing
.
$2.0 million decrease attributable to unfavorable currency translation resulting from the stronger U.S. Dollar against various curre
Ketjen
In thousands Q1 2024 Q1 2023 $ Change % Change
Net sales $ 243,773 $ 217,792 $ 25,981 12 %
.
$20.7 million increase attributable to higher sales volume, primarily from the timing of clean fuel technologies sales and shipments
.
$5.1 million increase attributable to favorable pricing impacts, primarily in clean fuel technologies and PCS
Adjusted EBITDA $ 21,979 $ 14,543 $ 7,436 51 %
.
Favorable pricing impacts and higher sales volume
.
Decreased inflation costs in utilities and raw materials
.
Increased freight costs
Corporate
In thousands Q1 2024 Q1 2023 $ Change % Change
Adjusted EBITDA $ 26,080 $ 17,311 $ 8,769 51 %
$16.0 million increase attributable to favorable currency exchange
impacts, net of a $13.3 million decrease in foreign exchange impacts
from our Windfield joint venture
Higher compensation-related expenses
Financial Condition and Liquidity
Overview
The principal uses of cash in our business generally have been capital
investments and resource development costs, funding working capital, and
service of debt. We also make contributions to our defined benefit pension
plans, pay dividends to
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our shareholders and have the ability to repurchase shares of our common
stock. Historically, cash to fund the needs of our business has been
principally provided by cash from operations, debt financing and equity
issuances.
We are continually focused on working capital efficiency particularly in the
areas of accounts receivable, payables and inventory. We anticipate that cash
on hand, cash provided by operating activities, proceeds from divestitures and
borrowings will be sufficient to pay our operating expenses, satisfy debt
service obligations, fund capital expenditures and other investing activities,
fund pension contributions and pay dividends for the foreseeable future.
Cash Flow
During the first three months of 2024, cash on hand, cash provided by
operations and net proceeds from the issuance of mandatory convertible
preferred stock of $2.2 billion funded the repayment of a net balance of
$620.8 million of commercial paper, $579.3 million of capital expenditures for
plant, machinery and equipment and dividends to common shareholders of $46.9
million. Our operations provided $98.0 million of cash flows during the first
three months of 2024, as compared to $721.0 million for the first three months
of 2023. The change compared to prior year was primarily due to decreased
earnings from the Energy Storage segment, driven by lower lithium market
prices, and lower dividends received from unconsolidated investments,
partially offset by lower working capital usage year-over-year of $711.8
million. The decreased outflow from working capital in 2024 was primarily
driven by the impact of lower lithium pricing in accounts receivable and
inventories. This was partially offset by lower accounts payable driven by
similar lower lithium pricing. Overall, our cash and cash equivalents
increased by $1.2 billion to $2.1 billion at March 31, 2024 from $889.9
million at December 31, 2023.
Capital expenditures for the three-month period ended March 31, 2024 of $579.3
million were primarily associated with plant, machinery and equipment. We
expect our capital expenditures to be between $1.6 billion and $1.8 billion in
2024, primarily for Energy Storage growth and capacity increases, including in
Australia, Chile, China and the U.S., as well as productivity and continuity
of operations projects in all segments. Train I of our Kemerton, Western
Australia plant is operating and producing battery-grade product subject to
customer qualification. Train II has achieved mechanical completion and
transitioned to the commissioning stage. In addition, our lithium conversion
plant in Meishan, China has reached mechanical completion and has moved into
the commissioning phase.
In January 2024, the Company sold equity securities of a public company for
proceeds of approximately $81.5 million. As a result of the sale, the Company
realized a loss of $33.7 million in the three months ended March 31, 2024.
On March 8, 2024, the Company issued 46,000,000 depositary shares, each
representing a 1/20th interest in a share of Preferred Stock. The 2,300,000
shares of Mandatory Convertible Preferred Stock issued had a $1,000 per share
liquidation preference. As a result of this transaction, the Company received
cash proceeds of approximately $2.2 billion, net of underwriting fees and
offering costs. The Company intends to use the proceeds for general corporate
purposes, which may include, among other uses, funding growth capital
expenditures, such as the construction and expansion of lithium operations in
Australia and China that are significantly progressed or near completion,
following the repayment of commercial paper in the first quarter of 2024. See
Note 7, "Equity," for additional information.
Net current assets were $3.8 billion and $1.7 billion at March 31, 2024 and
December 31, 2023, respectively. The increase is primarily due to the
increased cash and cash equivalents balance as a result of the $2.2 billion of
net proceeds from the issuance of Mandatory Convertible Preferred Stock in
March 2024, and the resulting paydown of commercial paper. In addition,
accounts receivable, inventory and accounts payable balances all decreased
from December 31, 2023 due to the lower lithium market prices. Additional
changes in the components of net current assets are primarily due to the
timing of the sale of goods and other ordinary transactions leading up to the
balance sheet dates. The additional changes are not the result of any policy
changes by the Company, and do not reflect any change in either the quality of
our net current assets or our expectation of success in converting net working
capital to cash in the ordinary course of business.
On February 22, 2024, our board of directors declared a cash dividend of
$0.40, which was paid on April 1, 2024 to shareholders of record at the close
of business as of March 15, 2024.
At March 31, 2024 and December 31, 2023, our cash and cash equivalents
included $932.2 million and $857.6 million, respectively, held by our foreign
subsidiaries. The majority of these foreign cash balances are associated with
earnings that we have asserted are indefinitely reinvested and which we plan
to use to support our continued growth plans outside the U.S. through funding
of capital expenditures, acquisitions, research, operating expenses or other
similar cash needs of our foreign operations. From time to time, we repatriate
cash associated with earnings from our foreign subsidiaries to the U.S. for
normal operating needs through intercompany dividends, but only from
subsidiaries whose earnings we have not asserted to be indefinitely reinvested
or whose earnings qualify as "previously taxed income" as defined by the
Internal Revenue Code. There were no repatriations of cash from foreign
operations during the first three months of 2024 and 2023.
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While we continue to closely monitor our cash generation, working capital
management and capital spending in light of continuing uncertainties in the
global economy, we believe that we will continue to have the financial
flexibility and capability to opportunistically fund future growth
initiatives. Additionally, we anticipate that future capital spending,
including business acquisitions and other cash outlays, should be financed
primarily with cash flow provided by operations, cash on hand and additional
issuances of debt or equity securities, as needed.
Long-Term Debt
We currently have the following notes outstanding:
Issue Month/Year Principal (in millions) Interest Rate Interest Payment Dates Maturity Date
November 2019 377.1 1.125% November 25 November 25, 2025
May 2022 $650.0 4.65% June 1 and December 1 June 1, 2027
(a)
November 2019 500.0 1.625% November 25 November 25, 2028
November 2019 $171.6 3.45% May 15 and November 15 November 15, 2029
(a)
May 2022 $600.0 5.05% June 1 and December 1 June 1, 2032
(a)
November 2014 $350.0 5.45% June 1 and December 1 December 1, 2044
(a)
May 2022 $450.0 5.65% June 1 and December 1 June 1, 2052
(a)
(a) Denotes senior notes.
Our senior notes are senior unsecured obligations and rank equally with all
our other senior unsecured indebtedness from time to time outstanding. The
notes are effectively subordinated to all of our existing or future secured
indebtedness and to the existing and future indebtedness of our subsidiaries.
As is customary for such long-term debt instruments, each series of notes
outstanding has terms that allow us to redeem the notes before maturity, in
whole at any time or in part from time to time, at a redemption price equal to
the greater of (i) 100% of the principal amount of these notes to be redeemed,
or (ii) the sum of the present values of the remaining scheduled payments of
principal and interest thereon (exclusive of interest accrued to the date of
redemption) discounted to the redemption date on a semi-annual basis using the
comparable government rate (as defined in the indentures governing these
notes) plus between 25 and 40 basis points, depending on the series of notes,
plus, in each case, accrued interest thereon to the date of redemption.
Holders may require us to purchase such notes at 101% upon a change of control
triggering event, as defined in the indentures. These notes are subject to
typical events of default, including bankruptcy and insolvency events,
nonpayment and the acceleration of certain subsidiary indebtedness of $40
million or more caused by a nonpayment default.
Our Euro notes issued in 2019 are unsecured and unsubordinated obligations and
rank equally in right of payment to all our other unsecured senior
obligations. The Euro notes are effectively subordinated to all of our
existing or future secured indebtedness and to the existing and future
indebtedness of our subsidiaries. As is customary for such long-term debt
instruments, each series of notes outstanding has terms that allow us to
redeem the notes before their maturity, in whole at any time or in part from
time to time, at a redemption price equal to the greater of (i) 100% of the
principal amount of the notes to be redeemed and (ii) the sum of the present
values of the remaining scheduled payments of principal thereof and interest
thereon (exclusive of interest accrued to, but excluding, the date of
redemption) discounted to the redemption date on an annual basis using the
bond rate (as defined in the indentures governing these notes) plus between 25
and 35 basis points, depending on the series of notes, plus, in each case,
accrued and unpaid interest on the principal amount being redeemed to, but
excluding, the date of redemption. Holders may require us to purchase such
notes at 101% upon a change of control triggering event, as defined in the
indentures. These notes are subject to typical events of default, including
bankruptcy and insolvency events, nonpayment and the acceleration of certain
subsidiary indebtedness exceeding $100 million caused by a nonpayment default.
Given the current economic conditions, specifically around the market pricing
of lithium, and the related impact on the Company's future earnings, on
February 9, 2024 we amended our revolving, unsecured amended and restated
credit agreement dated October 28, 2022 (the "2022 Credit Agreement"), which
provides for borrowings of up to $1.5 billion and matures on October 28, 2027.
Borrowings under the 2022 Credit Agreement bear interest at variable rates
based on a benchmark rate depending on the currency in which the loans are
denominated, plus an applicable margin which ranges from 0.910% to 1.375%,
depending on the Company's credit rating from Standard & Poor's Ratings
Services LLC ("S&P"), Moody's Investors Services, Inc. ("Moody's") and Fitch
Ratings, Inc. ("Fitch"). With respect to loans denominated in U.S. dollars,
interest is calculated using the term Secured Overnight Financing Rate
("SOFR") plus a term SOFR adjustment of 0.10%, plus the applicable margin. The
applicable margin on the facility was 1.125% as of March 31, 2024. As of March
31, 2024 there were no borrowings outstanding under the 2022 Credit Agreement.
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Borrowings under the 2022 Credit Agreement are conditioned upon satisfaction
of certain customary conditions precedent, including the absence of defaults.
The February 2024 amendment was entered into to modify the financial covenants
under the 2022 Credit Agreement to avoid a potential covenant violation over
the following 18 months given the current market pricing of lithium. Following
the February 2024 amendment, the 2022 Credit Agreement subjects the Company to
two financial covenants, as well as customary affirmative and negative
covenants. The first financial covenant requires that the ratio of (a) the
Company's consolidated net funded debt plus a proportionate amount of
Windfield's net funded debt to (b) consolidated Windfield-Adjusted EBITDA (as
such terms are defined in the 2022 Credit Agreement) be less than or equal to
(i) 3.50:1 prior to the second quarter of 2024, (ii) 5.00:1 for the second
quarter of 2024, (iii) 5.50:1 for the third quarter of 2024, (iv) 4.00:1 for
the fourth quarter of 2024, (v) 3.75:1 for the first and second quarters of
2025 and (vi) 3.50:1 after the second quarter of 2025. The maximum permitted
leverage ratios described above are subject to adjustment in accordance with
the terms of the 2022 Credit Agreement upon the consummation of an acquisition
after June 30, 2025 if the consideration includes cash proceeds from issuance
of funded debt in excess of $500 million.
Beginning in the fourth quarter of 2024, the second financial covenant
requires that the ratio of the Company's consolidated EBITDA to consolidated
interest charges (as such terms are defined in the 2022 Credit Agreement) be
no less than 2.00:1 for fiscal quarters through June 30, 2025, and no less
than 3.00:1 for all fiscal quarters thereafter. The 2022 Credit Agreement also
contains customary default provisions, including defaults for non-payment,
breach of representations and warranties, insolvency, non-performance of
covenants and cross-defaults to other material indebtedness. The occurrence of
an event of default under the 2022 Credit Agreement could result in all loans
and other obligations becoming immediately due and payable and the commitments
under the 2022 Credit Agreement being terminated. Following the $2.2 billion
issuance of mandatory convertible preferred stock in March 2024 and the
amendments to the financial covenants, the Company expects to maintain
compliance with the amended financial covenants in the near future. However, a
significant downturn in lithium market prices or demand could impact the
Company's ability to maintain compliance with its amended financial covenants
and it could require the Company to seek additional amendments to the 2022
Credit Agreement and/or issue debt or equity securities to fund its activities
and maintain financial flexibility. If the Company were unable to obtain such
necessary additional amendments, this could lead to an event of default and
its lenders could require the Company to repay its outstanding debt. In that
situation, the Company may not be able to raise sufficient debt or equity
capital, or divest assets, to refinance or repay the lenders.
On May 29, 2013, we entered into agreements to initiate a commercial paper
program on a private placement basis under which we may issue unsecured
commercial paper notes (the "Commercial Paper Notes") from time-to-time. On
May 17, 2023, we entered into definitive documentation to increase the size of
our existing commercial paper program. The maximum aggregate face amount of
Commercial Paper Notes outstanding at any time is $1.5 billion (up from $750
million prior to the increase). The proceeds from the issuance of the
Commercial Paper Notes are expected to be used for general corporate purposes,
including the repayment of other debt of the Company. The 2022 Credit
Agreement is available to repay the Commercial Paper Notes, if necessary.
Aggregate borrowings outstanding under the 2022 Credit Agreement and the
Commercial Paper Notes will not exceed the $1.5 billion current maximum amount
available under the 2022 Credit Agreement. The Commercial Paper Notes will be
sold at a discount from par, or alternatively, will be sold at par and bear
interest at rates that will vary based upon market conditions at the time of
issuance. The maturities of the Commercial Paper Notes will vary but may not
exceed 397 days from the date of issue. The definitive documents relating to
the commercial paper program contain customary representations, warranties,
default and indemnification provisions. During the three months ended March
31, 2024, we repaid a net amount of $620.0 million of commercial paper notes
using the net proceeds received from the issuance of mandatory convertible
preferred stock.
In the second quarter of 2023, the Company received a loan of $300.0 million
to be repaid in five equal annual installments beginning on December 31, 2026.
This interest-free loan was discounted using an imputed interest rate of 5.5%
and the Company will amortize that discount through Interest and financing
expenses over the term of the loan.
When constructing new facilities or making major enhancements to existing
facilities, we may have the opportunity to enter into incentive agreements
with local government agencies in order to reduce certain state and local tax
expenditures. Under these agreements, we transfer the related assets to
various local government entities and receive bonds. We immediately lease the
facilities from the local government entities and have an option to repurchase
the facilities for a nominal amount upon tendering the bonds to the local
government entities at various predetermined dates. The bonds and the
associated obligations for the leases of the facilities offset, and the
underlying assets are recorded in property, plant and equipment. We currently
have the ability to transfer up to $540 million in assets under these
arrangements. At March 31, 2024 and December 31, 2023, there were $74.5
million and $14.3 million, respectively, of bonds outstanding under these
arrangements.
The non-current portion of our long-term debt amounted to $3.52 billion at
March 31, 2024, compared to $3.54 billion at December 31, 2023. In addition,
at March 31, 2024, we had the ability to borrow $1.5 billion under our
commercial paper program and the 2022 Credit Agreement, and $124.3 million
under other existing lines of credit, subject to various financial
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covenants under the 2022 Credit Agreement. We have the ability and intent to
refinance our borrowings under our other existing lines of credit with
borrowings under the 2022 Credit Agreement, as applicable. Therefore, the
amounts outstanding under those lines of credit, if any, are classified as
long-term debt. We believe that at March 31, 2024 we were, and currently are,
in compliance with all of our debt covenants.
Off-Balance Sheet Arrangements
In the ordinary course of business with customers, vendors and others, we have
entered into off-balance sheet arrangements, including bank guarantees and
letters of credit, which totaled approximately $199.5 million at March 31,
2024. None of these off-balance sheet arrangements has, or is likely to have,
a material effect on our current or future financial condition, results of
operations, liquidity or capital resources.
Other Obligations
Our contractual obligations have not significantly changed, based on our
ordinary business activities and projected capital expenditures noted above,
from the information we provided in our Annual Report on Form 10-K for the
year ended December 31, 2023.
Total expected 2024 contributions to our domestic and foreign qualified and
nonqualified pension plans, including the Albemarle Corporation Supplemental
Executive Retirement Plan, are expected to approximate $14 million. We may
choose to make additional pension contributions in excess of this amount. We
have made contributions of $4.6 million to our domestic and foreign pension
plans (both qualified and nonqualified) during the three-month period ended
March 31, 2024.
The liability related to uncertain tax positions, including interest and
penalties, recorded in Other noncurrent liabilities totaled $213.0 million at
March 31, 2024 and $220.6 million at December 31, 2023. Related assets for
corresponding offsetting benefits recorded in Other assets totaled $74.2
million at March 31, 2024 and $73.0 million at December 31, 2023. We cannot
estimate the amounts of any cash payments associated with these liabilities
for the remainder of 2024 or the next twelve months, and we are unable to
estimate the timing of any such cash payments in the future at this time.
We are subject to federal, state, local and foreign requirements regulating
the handling, manufacture and use of materials (some of which may be
classified as hazardous or toxic by one or more regulatory agencies), the
discharge of materials into the environment and the protection of the
environment. To our knowledge, we are currently complying, and expect to
continue to comply, in all material respects with applicable environmental
laws, regulations, statutes and ordinances. Compliance with existing federal,
state, local and foreign environmental protection laws is not expected to have
a material effect on capital expenditures, earnings or our competitive
position, but the costs associated with increased legal or regulatory
requirements could have an adverse effect on our operating results.
Among other environmental requirements, we are subject to the federal
Superfund law, and similar state laws, under which we may be designated as a
potentially responsible party ("PRP"), and may be liable for a share of the
costs associated with cleaning up various hazardous waste sites. Management
believes that in cases in which we may have liability as a PRP, our liability
for our share of cleanup is de minimis. Further, almost all such sites
represent environmental issues that are quite mature and have been
investigated, studied and in many cases settled. In de minimis situations, our
policy generally is to negotiate a consent decree and to pay any apportioned
settlement, enabling us to be effectively relieved of any further liability as
a PRP, except for remote contingencies. In other than de minimis PRP matters,
our records indicate that unresolved PRP exposures should be immaterial. We
accrue and expense our proportionate share of PRP costs. Because management
has been actively involved in evaluating environmental matters, we are able to
conclude that the outstanding environmental liabilities for unresolved PRP
sites should not have a material adverse effect upon our results of operations
or financial condition.
Liquidity Outlook
We anticipate that cash on hand and cash provided by operating activities,
divestitures and borrowings will be sufficient to pay our operating expenses,
satisfy debt service obligations, fund any capital expenditures, make
acquisitions, make pension contributions and pay dividends for the foreseeable
future. We also could issue additional debt or equity securities to fund these
activities in an effort to maintain our financial flexibility. Our main focus
in the short-term, during the continued uncertainty surrounding the global
economy, including lithium market pricing and recent inflationary trends, is
to continue to maintain financial flexibility by continuing our cost savings
initiative, while still protecting our employees and customers, committing to
shareholder returns and maintaining an investment grade rating. Over the next
three years, in terms of uses of cash, we will continue to invest in growth of
the businesses and return value to shareholders. Additionally, we will
continue to evaluate the merits of any opportunities that may arise for
acquisitions of businesses or assets, which may require additional liquidity.
Financing the purchase price of any such acquisitions could involve borrowing
under existing or new credit facilities and/or the issuance of debt or equity
securities, in addition to cash on hand. We expect 2024 capital expenditures
to be down from 2023 levels, as part of an intentional re-phasing of larger
projects to focus on those that are significantly progressed, near completion
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and in start up. We are also pursuing actions to optimize our cost structure
by reducing costs primarily related to sales, general and administrative
expenses, including a reduction in headcount and lower spending on contracted
services, as announced in January 2024.
On April 25, 2024, we entered into a Master Receivables Purchase Agreement
under which we may sell up to $250.0 million of available and eligible
outstanding customer accounts receivable generated by sales to two specified
customers. The agreement is uncommitted and has an initial term that expires
April 25, 2025, unless earlier terminated by the purchaser. Transactions under
this agreement are accounted for as sales of accounts receivable, and the
receivables sold are removed from the consolidated balance sheets at the time
of the sales transaction.
Our growth investments include strategic investments in China with plans to
build a battery grade lithium conversion plant in Meishan initially targeting
50,000 metric tonnes of LCE per year. The Meishan lithium conversion plant
achieved mechanical completion and has moved to the commissioning phase. We
are also building an additional processing train at the Kemerton lithium
hydroxide plant in Western Australia. The additional train would increase the
facility's production by 25,000 metric tonnes per year.
In October 2022, we announced we had been awarded a nearly $150 million grant
from the U.S. Department of Energy to expand domestic manufacturing of
batteries for EVs and the electrical grid and for materials and components
currently imported from other countries. The grant funding is intended to
support a portion of the anticipated cost to construct a new, commercial-scale
U.S.-based lithium concentrator facility at our Kings Mountain, North
Carolina, location. We expect the concentrator facility to create hundreds of
construction and full-time jobs, and to supply up to 350,000 metric tonnes per
year of spodumene concentrate to our previously announced mega-flex lithium
conversion facility. To further support the restart of the the Kings Mountain
mine, in August 2023, we announced a $90 million critical materials award from
the U.S. Department of Defense.
Our cash flows from operations may be negatively affected by adverse
consequences to our customers and the markets in which we compete as a result
of moderating global economic conditions, continuing inflationary trends and
reduced capital availability. We have experienced, and may continue to
experience, volatility and increases in the price of certain raw materials and
in transportation and energy costs as a result of global market and supply
chain disruptions and the broader inflationary environment. As a result, we
are planning for various economic scenarios and actively monitoring our
balance sheet to maintain the financial flexibility needed.
Although we maintain business relationships with a diverse group of financial
institutions as sources of financing, an adverse change in their credit
standing could lead them to not honor their contractual credit commitments to
us, decline funding under our existing but uncommitted lines of credit with
them, not renew their extensions of credit or not provide new financing to us.
While the global corporate bond and bank loan markets remain strong, periods
of elevated uncertainty related to the stability of the banking system, future
pandemics or global economic and/or geopolitical concerns may limit efficient
access to such markets for extended periods of time. If such concerns
heighten, we may incur increased borrowing costs and reduced credit capacity
as our various credit facilities mature. If the U.S. Federal Reserve or
similar national reserve banks in other countries decide to continue
tightening the monetary supply, we may incur increased borrowing costs (as
interest rates increase on our variable rate credit facilities, as our various
credit facilities mature or as we refinance any maturing fixed rate debt
obligations), although these cost increases would be partially offset by
increased income rates on portions of our cash deposits.
Overall, with generally strong cash-generative businesses and no significant
long-term debt maturities before 2025, we believe we have, and will be able to
maintain, a solid liquidity position.
We had cash and cash equivalents totaling $2.1 billion at March 31, 2024, of
which $932.2 million is held by our foreign subsidiaries. This cash represents
an important source of our liquidity and is invested in bank accounts or money
market investments with no limitations on access. The cash held by our foreign
subsidiaries is intended for use outside of the U.S. We anticipate that any
needs for liquidity within the U.S. in excess of our cash held in the U.S. can
be readily satisfied with borrowings under our existing U.S. credit facilities
or our commercial paper program.
Guarantor Financial Information
Albemarle Wodgina Pty Ltd Issued Notes
Albemarle Wodgina Pty Ltd (the "Issuer"), a wholly-owned subsidiary of
Albemarle Corporation, issued $300.0 million aggregate principal amount of
3.45% Senior Notes due 2029 (the "3.45% Senior Notes") in November 2019. The
3.45% Senior Notes are fully and unconditionally guaranteed (the "Guarantee")
on a senior unsecured basis by Albemarle Corporation (the "Parent Guarantor").
No direct or indirect subsidiaries of the Parent Guarantor guarantee the 3.45%
Senior Notes (such subsidiaries are referred to as the "Non-Guarantors").
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In 2019, we completed the acquisition of a 60% interest in MRL's Wodgina hard
rock lithium mine project ("Wodgina Project") in Western Australia and formed
an unincorporated joint venture with MRL, named MARBL Lithium Joint Venture,
for the exploration, development, mining, processing and production of lithium
and other minerals (other than iron ore and tantalum) from the Wodgina
spodumene mine and for the operation of the Kemerton assets in Western
Australia. We participate in the Wodgina Project through our ownership
interest in the Issuer. On October 18, 2023 we amended the joint venture
agreements, resulting in a decrease of our ownership interest in the MARBL
joint venture and the Wodgina Project to 50%.
Prior to January 1, 2024, the Parent Guarantor conducted its U.S. Specialties
and Ketjen operations directly, and conducted its other operations (other than
operations conducted through the Issuer) through the Non-Guarantors. Effective
January 1, 2024, the Company split its U.S. Ketjen operations to a separate
non-guarantor subsidiary and its results are no longer included within the
summarized Parent Guarantor and Issuer financial information below for the
2024 periods presented.
The 3.45% Senior Notes are the Issuer's senior unsecured obligations and rank
equally in right of payment to the senior indebtedness of the Issuer,
effectively subordinated to all of the secured indebtedness of the Issuer, to
the extent of the value of the assets securing that indebtedness, and
structurally subordinated to all indebtedness and other liabilities of its
subsidiaries. The Guarantee is the senior unsecured obligation of the Parent
Guarantor and ranks equally in right of payment to the senior indebtedness of
the Parent Guarantor, effectively subordinated to the secured debt of the
Parent Guarantor to the extent of the value of the assets securing the
indebtedness and structurally subordinated to all indebtedness and other
liabilities of its subsidiaries.
For cash management purposes, the Parent Guarantor transfers cash among
itself, the Issuer and the Non-Guarantors through intercompany financing
arrangements, contributions or declaration of dividends between the respective
parent and its subsidiaries. The transfer of cash under these activities
facilitates the ability of the recipient to make specified third-party
payments for principal and interest on the Issuer and/or the Parent
Guarantor's outstanding debt, common stock dividends and common stock
repurchases. There are no significant restrictions on the ability of the
Issuer or the Parent Guarantor to obtain funds from subsidiaries by dividend
or loan.
The following tables present summarized financial information for the Parent
Guarantor and the Issuer on a combined basis after elimination of (i)
intercompany transactions and balances among the Issuer and the Parent
Guarantor and (ii) equity in earnings from and investments in any subsidiary
that is a Non-Guarantor. Each entity in the combined financial information
follows the same accounting policies as described herein and in our Annual
Report on Form 10-K for the year ended December 31, 2023.
Summarized Statement of Operations
$ in thousands Three Months Ended Year Ended December 31, 2023
March 31, 2024
Net sales $ 264,039 $ 2,392,057
(a)
Gross profit (20,271) 802,653
Income before income taxes and equity in (149,636) 254,066
net income of unconsolidated investments
(b)
Net income attributable to the (222,799) (216,033)
Parent Guarantor and the Issuer
(a) Includes net sales to Non-Guarantors of $136.2 million and $1.5 billion
for the three months ended March 31, 2024 and year ended December 31, 2023,
respectively.
(b) Includes intergroup expenses to Non-Guarantors of $13.2 million and
$70.2 million for the three months ended March 31, 2024 and year ended
December 31, 2023, respectively.
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Summarized Balance Sheet
$ in thousands March 31, 2024 December 31, 2023
Current assets $ 1,591,890 $ 723,518
(a)
Net property, plant and equipment 1,867,612 2,246,404
Other noncurrent assets 2,597,816 2,619,575
(b)
Current liabilities $ 1,722,241 $ 2,374,074
(c)
Long-term debt 2,253,156 2,252,540
Other noncurrent liabilities 7,144,957 7,409,175
(d)
(a) Includes receivables from Non-Guarantors of $217.0 million and $293.8
million at March 31, 2024 and December 31, 2023, respectively.
(b) Includes noncurrent receivables from Non-Guarantors of $2.0 billion and
$2.0 billion at March 31, 2024 and December 31, 2023, respectively.
(c) Includes current payables to Non-Guarantors of $1.2 billion and $1.0
billion at March 31, 2024 and December 31, 2023, respectively.
(d) Includes noncurrent payables to Non-Guarantors of $6.5 billion and $6.9
billion at March 31, 2024 and December 31, 2023, respectively.
The 3.45% Senior Notes are structurally subordinated to the indebtedness and
other liabilities of the Non-Guarantors. The Non-Guarantors are separate and
distinct legal entities and have no obligation, contingent or otherwise, to
pay any amounts due pursuant to the 3.45% Senior Notes or the Indenture under
which the 3.45% Senior Notes were issued, or to make any funds available
therefor, whether by dividends, loans, distributions or other payments. Any
right that the Parent Guarantor has to receive any assets of any of the
Non-Guarantors upon the liquidation or reorganization of any Non-Guarantor,
and the consequent rights of holders of the 3.45% Senior Notes to realize
proceeds from the sale of any of a Non-Guarantor's assets, would be
effectively subordinated to the claims of such Non-Guarantor's creditors,
including trade creditors and holders of preferred equity interests, if any,
of such Non-Guarantor. Accordingly, in the event of a bankruptcy, liquidation
or reorganization of any of the Non-Guarantors, the Non-Guarantors will pay
the holders of their debts, holders of preferred equity interests, if any, and
their trade creditors before they will be able to distribute any of their
assets to the Parent Guarantor.
The 3.45% Senior Notes are obligations of the Issuer. The Issuer's cash flow
and ability to make payments on the 3.45% Senior Notes could be dependent upon
the earnings it derives from the production from MARBL for the Wodgina
Project. Absent income received from sales of its share of production from
MARBL, the Issuer's ability to service the 3.45% Senior Notes could be
dependent upon the earnings of the Parent Guarantor's subsidiaries and other
joint ventures and the payment of those earnings to the Issuer in the form of
equity, loans or advances and through repayment of loans or advances from the
Issuer.
The Issuer's obligations in respect of MARBL are guaranteed by the Parent
Guarantor. Further, under MARBL pursuant to a deed of cross security between
the Issuer, the joint venture partner and the manager of the project (the
"Manager"), each of the Issuer, and the joint venture partner have granted
security to each other and the Manager for the obligations each of the Issuer
and the joint venture partner have to each other and to the Manager. The
claims of the joint venture partner, the Manager and other secured creditors
of the Issuer will have priority as to the assets of the Issuer over the
claims of holders of the 3.45% Senior Notes.
Albemarle Corporation Issued Notes
In March 2021, Albemarle New Holding GmbH (the "Subsidiary Guarantor"), a
wholly-owned subsidiary of Albemarle Corporation, added a full and
unconditional guarantee (the "Upstream Guarantee") to all securities of
Albemarle Corporation (the "Parent Issuer") issued and outstanding as of such
date and, subject to the terms of the applicable amendment or supplement,
securities issuable by the Parent Issuer pursuant to the Indenture, dated as
of January 20, 2005, as amended and supplemented from time to time (the
"Indenture"). No other direct or indirect subsidiaries of the Parent Issuer
guarantee these securities (such subsidiaries are referred to as the "Upstream
Non-Guarantors"). See Long-term debt section above for a description of the
securities issued by the Parent Issuer.
The current securities outstanding under the Indenture are the Parent Issuer's
unsecured and unsubordinated obligations and rank equally in right of payment
with all other unsecured and unsubordinated indebtedness of the Parent Issuer.
All securities currently outstanding under the Indenture are effectively
subordinated to the Parent Issuer's existing and future secured indebtedness
to the extent of the value of the assets securing that indebtedness. With
respect to any series of securities issued under the Indenture that is subject
to the Upstream Guarantee (which series of securities does not include the
2022 Notes), the Upstream Guarantee is, and will be, an unsecured and
unsubordinated obligation of the Subsidiary Guarantor,
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ranking pari passu with all other existing and future unsubordinated and
unsecured indebtedness of the Subsidiary Guarantor.
All securities currently outstanding under the Indenture (other than the 2022
Notes) are effectively subordinated to all existing and future indebtedness
and other liabilities of the Parent's Subsidiaries other than the Subsidiary
Guarantor.
The 2022 Notes are effectively subordinated to all existing and future
indebtedness and other liabilities of the Parent's Subsidiaries, including the
Subsidiary Guarantor.
For cash management purposes, the Parent Issuer transfers cash among itself,
the Subsidiary Guarantor and the Upstream Non-Guarantors through intercompany
financing arrangements, contributions or declaration of dividends between the
respective parent and its subsidiaries. The transfer of cash under these
activities facilitates the ability of the recipient to make specified
third-party payments for principal and interest on the Parent Issuer and/or
the Subsidiary Guarantor's outstanding debt, common stock dividends and common
stock repurchases. There are no significant restrictions on the ability of the
Parent Issuer or the Subsidiary Guarantor to obtain funds from subsidiaries by
dividend or loan.
The following tables present summarized financial information for the
Subsidiary Guarantor and the Parent Issuer on a combined basis after
elimination of (i) intercompany transactions and balances among the Parent
Issuer and the Subsidiary Guarantor and (ii) equity in earnings from and
investments in any subsidiary that is an Upstream Non-Guarantor. Each entity
in the combined financial information follows the same accounting policies as
described herein and in the Company's Annual Report on Form 10-K for the year
ended December 31, 2023.
Summarized Statement of Operations
$ in thousands Three Months Ended Year Ended December 31, 2023
March 31, 2024
Net sales $ 206,189 $ 1,297,308
(a)
Gross profit (1,578) 68,743
Loss before income taxes and equity in (112,815) (444,249)
net income of unconsolidated investments
(b)
Loss attributable to the Subsidiary (185,978) (697,911)
Guarantor and the Parent Issuer
(a) Includes net sales to Non-Guarantors of $78.4 million and $482.0
million for the three months ended March 31, 2024 and year ended December 31,
2023, respectively.
(b) Includes intergroup income to Non-Guarantors of $27.4 million and
$146.0 million for the three months ended March 31, 2024 and year ended
December 31, 2023, respectively.
Summarized Balance Sheet
$ in thousands March 31, 2024 December 31, 2023
Current assets $ 1,799,969 $ 872,571
(a)
Net property, plant and equipment 716,105 1,090,112
Other non-current assets 1,758,636 1,731,960
(b)
Current liabilities $ 1,448,605 $ 2,024,190
(c)
Long-term debt 2,977,609 2,994,732
Other noncurrent liabilities 6,559,348 6,828,262
(d)
(a) Includes receivables from Non-Guarantors of $469.8 million and $472.5
million at March 31, 2024 and December 31, 2023, respectively.
(b) Includes noncurrent receivables from Non-Guarantors of $1.1 billion and
$1.1 billion at March 31, 2024 and December 31, 2023, respectively.
(c) Includes current payables to Non-Guarantors of $1.2 billion and $1.0
billion at March 31, 2024 and December 31, 2023, respectively.
(d) Includes noncurrent payables to Non-Guarantors of $6.0 billion and $6.4
billion at March 31, 2024 and December 31, 2023, respectively.
These securities are structurally subordinated to the indebtedness and other
liabilities of the Upstream Non-Guarantors. The Upstream Non-Guarantors are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to these securities or the
Indenture under which these securities were issued, or to make any funds
available therefor, whether by dividends, loans, distributions or other
payments. Any right that the Subsidiary Guarantor has to receive any assets of
any of the Upstream Non-Guarantors upon the liquidation or reorganization of
any Upstream Non-Guarantors, and the consequent rights of holders of these
securities to realize proceeds from the sale of any of an Upstream
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Non-Guarantor's assets, would be effectively subordinated to the claims of
such Upstream Non-Guarantor's creditors, including trade creditors and holders
of preferred equity interests, if any, of such Upstream Non-Guarantor.
Accordingly, in the event of a bankruptcy, liquidation or reorganization of
any of the Upstream Non-Guarantors, the Upstream Non-Guarantors will pay the
holders of their debts, holders of preferred equity interests, if any, and
their trade creditors before they will be able to distribute any of their
assets to the Subsidiary Guarantor.
Summary of
Cr
itical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and
estimates from the information we provided in our Annual Report on Form 10-K
for the year ended December 31, 2023.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Item 1 Financial
Statements - Note 17, "Recently Issued Accounting Pronouncements" to the Notes
to the Condensed Consolidated Financial Statements in this Quarterly Report on
Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant changes in our interest rate risk, foreign
currency exchange rate exposure, marketable securities price risk or raw
material price risk from the information we provided in our Annual Report on
Form 10-K for the year ended December 31, 2023, except as noted below.
We had variable interest rate borrowings of $28.4 million outstanding at March
31, 2024, bearing a weighted average interest rate of 0.33% and representing
1% of our total outstanding debt. A hypothetical 100 basis point increase in
the interest rate applicable to these borrowings would change our annualized
interest expense by $0.3 million as of March 31, 2024. We may enter into
interest rate swaps, collars or similar instruments with the objective of
reducing interest rate volatility relating to our borrowing costs.
Our financial instruments, which are subject to foreign currency exchange
risk, consist of foreign currency forward contracts with an aggregate notional
value of $6.4 billion and with a fair value representing a net liability
position of $14.9 million at March 31, 2024. Fluctuations in the value of
these contracts are generally offset by the value of the underlying exposures
being hedged. We conducted a sensitivity analysis on the fair value of our
foreign currency hedge portfolio assuming an instantaneous 10% change in
select foreign currency exchange rates from their levels as of March 31, 2024,
with all other variables held constant. A 10% appreciation of the U.S. Dollar
against foreign currencies that we hedge would result in an increase of
approximately $54.9 million in the fair value of our foreign currency forward
contracts. A 10% depreciation of the U.S. Dollar against these foreign
currencies would result in a decrease of approximately $103.1 million in the
fair value of our foreign currency forward contracts. The sensitivity of the
fair value of our foreign currency hedge portfolio represents changes in fair
values estimated based on market conditions as of March 31, 2024, without
reflecting the effects of underlying anticipated transactions. When those
anticipated transactions are realized, actual effects of changing foreign
currency exchange rates could have a material impact on our earnings and cash
flows in future periods.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted
an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act), as of the end of the period covered by this
report. Based on this evaluation, our principal executive officer and
principal financial officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures are effective
to ensure that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms,
and that such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
No change in our internal control over financial reporting (as such term is
defined in Exchange Act Rule 13a-15(f)) occurred during the first quarter
ended March 31, 2024 that materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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 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. Additional
information with respect to this Item 1 is contained in Note 6 to the Notes to
the Condensed Consolidated Financial Statements in this Quarterly Report on
Form 10-Q.
Item 1A. Risk Factors.
While we attempt to identify, manage and mitigate risks and uncertainties
associated with our business to the extent practical under the circumstances,
some level of risk and uncertainty will always be present. The risk factors
set forth in Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2023 describe some of the risks and uncertainties associated with
our business. These risks and uncertainties have the potential to materially
affect our results of operations and our financial condition. We do not
believe that there have been any material changes to the risk factors
previously disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2023.
Item 5. Other Information.
N/A.
Item 6. Exhibits.
(a) Exhibits
3.1 Articles of Amendment, filed with the State Corporation Commission of
the Commonwealth of Virginia and effective on March 8, 2024 [filed
as Exhibit 3.1 to the Company's Current Report on Form 8-K (No.
1-12658) filed on March 8, 2024, and incorporated herein by reference].
10.1 First Amendment to Credit Agreement, dated as of February 9, 2024, among Albemarle Corporation,
certain other subsidiaries of the Company, the Lenders Party thereto, and Bank of America, N.A.,
as Administrative Agent for the Lenders [filed as Exhibit 10.52 to the Company's Annual Report
on Form 10-K (No. 1-12658) filed on February 14, 2024, and incorporated herein by reference].
*31.1 Certification of Principal Executive
Officer pursuant to Rule 13a-14(a).
*31.2 Certification of Principal Financial
Officer pursuant to Rule 13a-14(a).
*32.1 Certification of Principal Executive Officer pursuant
to Rule 13a-14(b) and 18 U.S.C. Section 1350.
*32.2 Certification of Principal Financial Officer pursuant
to Rule 13a-14(b) and 18 U.S.C. Section 1350.
*101 Interactive Data File (Quarterly Report
on Form 10-Q, for the quarterly period
ended March 31, 2024, furnished in XBRL
(eXtensible Business Reporting Language)).
*104 Cover Page Interactive Data File (formatted
as inline XBRL and contained in Exhibit 101).
* Included with this filing.
Attached as Exhibit 101 to this report are the following documents formatted
in XBRL: (i) the Consolidated Statements of Income for the three months ended
March 31, 2024 and 2023, (ii) the Consolidated Statements of Comprehensive
(Loss) Income for the three months ended March 31, 2024 and 2023, (iii) the
Consolidated Balance Sheets at March 31, 2024 and December 31, 2023, (iv) the
Consolidated Statements of Changes in Equity for the three months ended March
31, 2024 and 2023, (v) the Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2024 and 2023 and (vi) the Notes to the
Condensed Consolidated Financial Statements.
45
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALBEMARLE CORPORATION
(Registrant)
Date: May 1, 2024 By: /s/ N
EAL
R. S
HEOREY
Neal R. Sheorey
Executive Vice President and Chief Financial Officer
(principal financial officer)
46
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, J. Kent Masters, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Albemarle Corporation
for the period ended March 31, 2024;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 1, 2024
/s/ J. K
ENT
M
ASTERS
J. Kent Masters
Chairman, President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Neal R. Sheorey, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Albemarle Corporation
for the period ended March 31, 2024;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: May 1, 2024
/s/ N
EAL
R. S
HEOREY
Neal R. Sheorey
Executive Vice President and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Albemarle Corporation
(the "Company") for the period ended March 31, 2024 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, J.
Kent Masters, principal executive officer of the Company, certify, pursuant to
18 U.S.C. (s) 1350, as adopted pursuant to (s) 906 of the Sarbanes-Oxley Act
of 2002, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ J. K
ENT
M
ASTERS
J. Kent Masters
Chairman, President and Chief Executive Officer
May 1, 2024
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Albemarle Corporation
(the "Company") for the period ended March 31, 2024 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Neal
R. Sheorey, principal financial officer of the Company, certify, pursuant to
18 U.S.C. (s) 1350, as adopted pursuant to (s) 906 of the Sarbanes-Oxley Act
of 2002, that:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ N
EAL
R. S
HEOREY
Neal R. Sheorey
Executive Vice President and Chief Financial Officer
May 1, 2024
{graphic omitted}
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