Forward-looking statements
Some of the information presented in this Annual Report on Form 10-K, 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 the financial and operational performance of our main customers and
industries and markets we serve;
• the time of orders received from customers;
• the gain or loss of significant customers;
51
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Albemarle Corporation and Subsidiaries•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 its effects on our business and financial results;
•changes regarding the renegotiation of contracts;
•potential deficits in production volume;
•competition from other manufacturers;
•changes in the demand for our products or in the end-user markets in which ours
products are sold;
• limitations or prohibitions on the manufacture and sale of our products;
•availability of raw materials;
•increase in the cost of raw materials and energy, and our ability to overcome
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 regulations affecting our or our operations
products;
• the occurrence of regulatory actions, procedures, claims or litigation
(including with respect to the US Foreign Corrupt Practices Act and abroad
anti-corruption laws);
• the occurrence of breaches of cyber security, terrorist attacks, industrial
accidents or natural disasters;
• the effects of climate change, including the regulatory changes we are making
could be subject;
• risks associated with the manufacture of chemical products;
• the inability to maintain current levels of insurance, including product o
premises liability insurance, or the denial of such coverage;
•political unrest affecting the global economy, including the adverse effects of
terrorism or hostilities;
•political instability affecting our manufacturing operations or joint ventures;
•changes in accounting rules;
•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
fees 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;
•volatility and uncertainties in the debt and equity markets;
•technological or intellectual property infringement, including cyber security
non-compliance 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 of the proposed transactions;
• timing of active and proposed projects;
•continuing uncertainties about the duration and impact of the new coronavirus
pandemic (“COVID-19”) and any future pandemic;
•impacts of the military conflict between Russia and Ukraine and the global
answer to this;
• 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 Catalysts
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 rest of the factors detailed from time to time in the reports we present in the
SEC.
52
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Albemarle Corporation and SubsidiariesWe assume no obligation to provide 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
consolidated financial statements and related notes included in this Annual
Report on Form 10-K.The following is a discussion and analysis of our results of operations for the
years ended December 31, 2022, 2021 and 2020. A discussion of our consolidated
financial condition and sources of additional capital is included under a
separate heading "Financial Condition and Liquidity."
Overview
We are a leading global developer, manufacturer and marketer of
highly-engineered specialty chemicals that are designed to meet our customers'
needs across a diverse range of end markets. Our corporate purpose is making the
world safe and sustainable by powering the potential of people. The end markets
we serve include energy storage, petroleum refining, consumer electronics,
construction, automotive, lubricants, pharmaceuticals and crop protection. We
believe that our commercial and geographic diversity, technical expertise,
access to high-quality resources, innovative capability, flexible, low-cost
global manufacturing base, experienced management team and strategic focus on
our core base technologies will enable us to maintain leading positions in those
areas of the specialty chemicals industry 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 Lithium business contributes to the
growth of clean miles driven with electric vehicles and more efficient use of
renewable energy through grid storage; Bromine 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 the Catalysts
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.2022 Highlights
•In the first quarter of 2022, we increased our quarterly dividend for the 29th
consecutive year, to $0.395 per share.
•In January 2022, we signed a joint development agreement with 6K to explore the
use of 6K UniMelt® patented advanced and sustainable material production
platform to potentially develop new lithium battery materials
disruptive manufacturing processes.
•In February 2022, we announced that we signed a non-binding letter agreement
with our MARBL joint venture partner, MRL, to explore a potential expansion of
the MARBL joint venture, in an effort to expand lithium conversion capacity with
increased optionality and reduced risk.•In May 2022, we issued $1.7 billion of senior notes pursuant to an underwritten
public offering. The proceeds from this issuance were used to redeem the 4.15%
Senior Notes due in 2024 (the "2024 Notes"), repay the balance of commercial
paper outstanding and for general corporate purposes.•Production of spodumene concentrate from the first and second trains at the
Wodgina mine managed by our 60%-owned MARBL joint venture was achieved in May
and July of this year, respectively.
•We announced plans to build integrated lithium operations in the United States,
including the Kings Mountain, North Carolina spodumene mine and a lithium mine
conversion plant in the southeast.
•We announced the conclusion of our strategic review of the Catalysts business.
As a result of the review, we chose to retain the business under a separate,
wholly-owned subsidiary of Albemarle that has been renamed Ketjen in 2023. This
structure is intended to allow the Catalysts business to respond to unique
customer needs and global market dynamics more effectively while also achieving
its growth ambitions.•We announced the realignment of our Lithium and Bromine global business units
into a new corporate structure designed to better meet customer needs and foster
talent required to deliver in a competitive global environment. The realignment
was effective January 1, 2023, and resulted in the following three reportable
segments: (1) Energy Storage; (2) Specialties; and (3) Ketjen (Catalysts).•In October 2022, we announced that we have been awarded a nearly $150 million
grant from the U.S. Department of Energy to expand domestic manufacturing of
batteries for EVs and the electric grid and for materials and components53
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Albemarle Corporation and Subsidiariescurrently 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.•In October 2022, we completed the acquisition of all of the outstanding equity
of Qinzhou, for approximately $200 million in cash. Qinzhou's operations include
a recently constructed lithium processing plant strategically positioned near
the Port of Qinzhou in Guangxi, which began commercial production in the first
half of 2022. The plant has designed annual conversion capacity of up to 25,000
metric tonnes of LCE and is capable of producing battery-grade lithium carbonate
and lithium hydroxide.
•In December 2022, we introduced an innovative product, MercLok™, which
captures mercury from soil and mining waste, helping to eliminate this harmful
element of the food chain.
•In December 2022, we announced the acquisition of a location in Charlotte,
North Carolina, where we intend to invest at least $180 million to establish the
Albemarle Technology Park, a world-class facility designed for novel materials
research, advanced process development, and acceleration of next-generation
lithium products to market. We anticipate that innovations from the new site
will enhance lithium recovery, improve production methods, and introduce new
forms of lithium to enable breakthrough levels of battery performance. In
addition, we anticipate the creation of at least 200 jobs at the site.•We achieved net income of $2.7 billion during 2022 compared to $123.7 million
for 2021. The increase in 2022 net income was primarily driven by increased
lithium prices reflecting tight market conditions and greater volumes sold under
index-referenced and variable-based contracts.
•Cash flows from operations in 2022 were $1.9 billion compared to $344.3 million
in 2021.
Outlook
The current global business environment presents a diverse set of opportunities
and challenges in the markets we serve. In particular, the market for lithium
battery and energy storage, particularly for electric vehicles ("EVs"), 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. Amidst these dynamics, 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.Beginning in the first quarter of 2023, the chief operating decision maker began
evaluating performance, forecasting and making resource allocation decisions
based on our previously announced realignment of the Lithium and Bromine global
business units. The new corporate structure was designed to better meet customer
needs and foster talent required to deliver in a competitive global environment.
The realignment resulted in the following three reportable segments: (1) Energy
Storage; (2) Specialties; and (3) Ketjen (Catalysts). The below segment outlook
is presented in the new segment structure based on how the chief operating
decision maker started reviewing the business starting in 2023.Energy Storage: We expect Energy Storage results to increase year-over-year in
2023, mainly due to increased pricing as well as higher sales volume. The
increased market pricing reflects tight market conditions, primarily in battery-
and tech-grade carbonate and hydroxide, as well as renegotiations of certain of
our long-term agreements. Since the beginning of 2022 market indices have
increased 70% to 200%. Some of our renegotiated contracts include higher prices
on existing long-term agreements that are more reflective of current market
conditions. In other cases, we have moved from previous fixed-price, long-term
agreements towards index-referenced and variable-priced contracts. As a result,
our Energy Storage business is more aligned with changes in market and index
pricing than it has been in the past. While we expect these prices to remain
strong throughout the year, a material decline in these market prices would have
a negative impact on our outlook. The increased sales volume is primarily
expected from new capacity coming on line from La Negra, Chile, Kemerton,
Western Australia, and the recently completed acquisition of Qinzhou, which
includes a lithium hydroxide conversion plant designed to produce up to 25,000
metric tons of LCE per year. While we ramp up our new capacity, we will continue
to utilize tolling arrangements to meet growing customer demand. EV sales are
expected to continue to increase over the prior year as the lithium battery
market remains strong.54
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Albemarle Corporation and SubsidiariesWe announced agreements for a strategic investment in China with plans to build
a battery grade lithium conversion plant in Meishan initially targeting 50,000
metric tons of LCE per year. Construction of the Meishan facility is currently
underway and is expected to be complete by the end of 2024. In addition,
production of spodumene concentrate from the first and second trains at the
Wodgina mine managed by our 60%-owned MARBL joint venture was achieved in May
and July of this year, respectively. In February 2022, we announced that we
signed a non-binding letter agreement with our MARBL joint venture partner, MRL,
to explore a potential expansion of the MARBL joint venture, in an effort to
expand lithium conversion capacity with increased optionality and reduced risk.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 electric
vehicles and full battery electric vehicles 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 increase in 2023 due
to strength in demand across our product portfolio that benefits from diverse
end markets. One anticipated contributor to growth is the December 2022 launch
of MercLok, a groundbreaking new bromine-based product that sequesters elemental
and ionic mercury in the environment. Volumes are expected to increase compared
to 2022 due to the continued successful execution of growth projects, assuming
continued availability of raw materials like chlorine. In addition, Specialties'
ongoing cost savings initiatives and higher pricing are expected to offset
higher freight and raw material costs such as lithium chloride.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
products. We are focused on profitably growing our globally competitive bromine
and derivatives production network to serve all major bromine 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 (Catalysts): Total Ketjen results in 2023 are expected to increase
year-over-year despite inflationary pressures in freight and input costs,
including the volatility of natural gas pricing in Europe related to the war in
Ukraine. These higher costs are expected to be offset by higher pricing in
refining markets. Volume is expected to grow across each of the Ketjen
businesses. The fluidized catalytic cracking ("FCC") market has recovered from
the COVID-19 pandemic as a result of increased travel and depletion of global
gasoline inventories. Hydroprocessing catalysts ("HPC") demand tends to be
lumpier than FCC demand, but is expected to see a prolonged recovery due to
refineries pushing out turnarounds. In addition, the Ketjen business is seeking
contingent business interruption insurance settlements for lost income from 2019
to 2022 due to multiple incidents with one of its customers. If we prevail with
these claims, we could receive these settlements in multiple distributions in
2023, totaling up to an additional $47 million. Our decision to retain this
business as a separate, wholly-owned subsidiary is intended to better meet
customer needs and foster talent required to deliver in a competitive global
environment.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. Longer-term, we believe that the global crude supply will get
heavier and more sour, a trend that bodes well for our catalysts portfolio. With
superior technology and production capacities, and expected growth in end market
demand, we believe that Ketjen remains well-positioned for the future. 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 CHIPS and Science Act of 2022, and other tax
jurisdictions.
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Albemarle Corporation and SubsidiariesActuarial gains and losses related to our defined benefit pension and OPEB plan
obligations are reflected in Corporate as a component of non-operating pension
and OPEB plan costs under mark-to-market accounting. Results for the year ended
December 31, 2022 include an actuarial gain of $37.0 million ($26.5 million
after income taxes), as compared to a loss of $56.9 million ($43.6 million after
income taxes) for the year ended December 31, 2021.We remain committed to evaluating 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.Discussion of our results of operations for the year ended December 31, 2021
compared to the year ended December 31, 2020 can be found in Part II, Item 7 of
our Annual Report on Form 10-K for the year ended December 31, 2021.Comparison of 2022 to 2021
Selected Financial Data
Net Sales
In thousands 2022 2021 $ Change % Change
Net sales $ 7,320,104 $ 3,327,957 $ 3,992,147 120 %
•$3.5 billion of favorable pricing from each of our businesses, primarily in Lithium
•$698.6 million of higher sales volume from each of our businesses, primarily in Lithium
•$75.1 million decrease in net sales following the sale of the FCS business on June 1, 2021
•$177.8 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currenciesGross Profit
In thousands 2022 2021 $ Change % Change
Gross profit $ 3,074,587 $ 997,971 $ 2,076,616 208 %
Gross profit margin 42.0 % 30.0 %
•Favorable pricing impacts and higher sales volume in all businesses, primarily in Lithium
•Increased commission expenses in Chile resulting from the higher pricing in Lithium
•Increased utility costs, primarily natural gas in Europe, and freight costs in each of our businesses
•Unfavorable currency exchange impacts resulting from the stronger U.S. Dollar against various currencies
Selling, General and Administrative (“SG&A”) Expenses
In thousands
2022 2021 $ Change % Change
Selling, general and administrative
expenses $ 524,145 $ 441,482 $ 82,663 19 %
Percentage of Net sales 7.2 % 13.3 %
•Higher compensation, including incentive-based, expenses across all businesses and Corporate
•Increase in professional fees for various growth and improvement projects
•Partially offset by productivity improvements and a reduction in administrative costs
•2021 included a $20.0 million charitable contribution, using a portion of the proceeds received from the FCS divestiture, to
the Albemarle Foundation, in addition to the normal annual contributions
•2021 also included $11.5 million of legal fees related to a legacy Rockwood legal matter and $9.8 million of expenses in
2021 primarily related to non-routine labor and compensation related costs that are outside normal compensation arrangements56
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Albemarle Corporation and SubsidiariesResearch and Development Expenses
In thousands 2022 2021 $
Change % Change
Research and development expenses $71,981 $54,026 $17,955
33 %
Percentage of Net sales 1.0 % 1.6 %
• Increased spending on research and development in each of our businesses
Loss (Gain) on sale of business/interest in property, net
In thousands
2022 2021 $ Change % Change
Loss (gain) on sale of business/interest in
properties, net $ 8,400 $ (295,971) $ 304,371
•2022 expense related to cost overruns for MRL's 40% interest in lithium hydroxide conversion assets being built in Kemerton,
Western Australia
•2021 included a gain of $428.4 million resulting from the sale of the FCS business on June 1, 2021
•A $132.4 million expense related to cost overruns for MRL's 40% interest in lithium hydroxide conversion assets being built
in Kemerton in 2021Interest and Financing Expenses
In thousands 2022 2021 $ Change % Change
Interest and financing expenses $ (122,973) $ (61,476)
$ (61,497) 100 %
•2022 included a $19.2 million loss on early extinguishment of debt, representing the tender premiums, fees,
unamortized discounts, unamortized deferred financing costs and accelerated amortization of the interest rate swap
balance from the redemption of debt during the second quarter of 2022
•2022 also included an expense of $17.5 million related to the correction of out of period errors regarding overstated
capitalized interest values in prior periods
•2021 included a $29.0 million loss on early extinguishment of debt, representing the tender premiums, fees,
unamortized discounts and unamortized deferred financing costs from the redemption of debt during the first quarter
of 2021
•Increased debt balance during 2022 compared to 2021 following the issuance of $1.7 billion in new senior notesOther Income (Expenses), Net
In thousands 2022 2021 $ Change % Change
Other income (expenses), net $86,356 $ (603,340)
$ 689,696 (114) %
•2021 included $657.4 million of additional expense recorded following the settlement of an arbitration ruling for a
prior legal matter. See Note 17, "Commitments and Contingencies," to our consolidated financial statements included
in Part II, Item 8 of this report for further details
•$39.4 million of indemnification expenses in 2021 primarily to revise an indemnification estimate for an ongoing
tax-related matter of a previously disposed business in Germany
•$21.8 million increase in foreign exchange losses
•$5.3 million increase in income from accretion of discount in preferred equity of Grace subsidiary acquired as a
portion of the proceeds of the FCS sale
•$57.0 million of pension and OPEB credits (including mark-to-market actuarial gains of $37.0 million) in 2022 as
compared to $78.8 million of pension and OPEB credits (including mark-to-market actuarial gains of $56.9 million) in
2021
•The mark-to-market actuarial gain in 2022 is primarily attributable to a significant increase in the
weighted-average discount rate to 5.46% from 2.86% for our U.S. pension plans and to 4.04% from 1.44% for our
foreign pension plans to reflect market conditions as of the December 31, 2022 measurement date. This was partially
offset by a lower return on pension plan assets in 2022 than was expected, as a result of overall market and
investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was
(17.94)% versus an expected return of 6.48%.
•The mark-to-market actuarial loss in 2021 is primarily attributable to a higher return on pension plan assets in
2021 than was expected, as a result of overall market and investment portfolio performance. The weighted-average
actual return on our U.S. and foreign pension plan assets was 8.42% versus an expected return of 6.50%. In addition,
there was an increase in the weighted-average discount rate to 2.86% from 2.50% for our U.S. pension plans and to
1.44% from 0.86% for our foreign pension plans to reflect market conditions as of the December 31, 2021 measurement
date.57
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Albemarle Corporation and SubsidiariesIncome Tax Expense
In thousands 2022 2021 $ Change % Change
Income Tax Expense $ 390,588 $ 29,446 $ 361,142 1,226 %
Effective income tax rate 16.1 % 22.0 %
•2022 includes a $91.8 million tax benefit resulting from the release of a valuation allowance in Australia, a $72.6
million benefit resulting from foreign-derived intangible income, partially offset by a $50.6 million current year tax
reserve related to an uncertain tax position in Chile
•Change in geographic mix in earnings in 2022
•2021 included $148.9 million tax benefit resulting from an accrual recorded following an arbitration ruling related to a
prior legal matter. See Note 17, "Commitments and Contingencies," to our consolidated financial statements included in Part
II, Item 8 of this report for further details
•$97.5 million one-time tax expense recorded for the gain on the sale of the FCS business in 2021
•$27.9 million discrete tax benefit recorded in 2021 related to the indemnification estimate of an ongoing tax-related
matter in Germany
•2021 included a discrete tax expense due to an out-of-period adjustment for an overstated deferred tax liability recorded
during the three-month period ended December 31, 2017
Equity in profits from unconsolidated investments
In thousands
2022 2021 $ Change % Change
Equity in net income of unconsolidated
investments $ 772,275 $ 95,770 $ 676,505 706 %
• Earnings increased due to strong pricing and volume increases from the Talison joint venture
• $10.9 million of favorable foreign exchange impacts from the Talison joint venture
Net Income Attributable to Noncontrolling Interests
In thousands 2022 2021 $ Change % Change
Net income attributable to
noncontrolling interests $ (125,315) $ (76,270) $ (49,045) 64 %
?Increase in consolidated revenue related to our JBC joint venture due to favorable pricing
Net Income Attributable to Albemarle Corporation
In thousands 2022 2021 $ Change % Change
Net income attributable to Albemarle
Corporation $ 2,689,816 $ 123,672 $ 2,566,144 2,075 %
Percentage of Net Sales 36.7 % 3.7 %
Basic earnings per share $ 22.97 $ 1.07 $ 21.90 2,047 %
Diluted earnings per share $ 22.84 $ 1.06 $ 21.78 2,055 %
?Favorable pricing and increased sales volume in all businesses, particularly in Lithium
?Increased earnings from Talison joint venture
?Productivity improvements and a reduction in administrative costs
?Increased commission expenses in Chile resulting from the higher pricing in Lithium
?$504.5 million, net of income taxes, of additional expense recorded following the settlement of an arbitration ruling for
a prior legal matter in 2021
?Gain on sale of FCS business of $330.9 million, net of tax in 2021
?$132.4 million expense related to cost overruns for MRL's 40% interest in lithium hydroxide conversion assets being built
in Kemerton in 2021
?Increased utility, primarily natural gas in Europe, and freight costs in each of our businesses
?Increased SG&A expenses, primarily related to increased compensation expense
?Increased interest and financing expenses due to higher debt balances
?Mark-to-market actuarial gains of $26.5 million, net of income taxes, recorded in 2022 compared to mark-to-market
actuarial gains of $43.6 million, net of income taxes, recorded in 202158
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Albemarle Corporation and SubsidiariesOther Comprehensive (Loss) Income, Net of Tax
In thousands 2022 2021 $ Change % Change
Other comprehensive (loss) income,
net of tax $ (168,295) $ (66,478) $ (101,817) 153 %
•Foreign currency conversion $ (171,295) $ (74,385)
$ (96,910) 130 %
?2022 included unfavorable movements in the Chinese Renminbi of approximately $74 million, the Euro of approximately $64
million, the Japanese Yen of approximately $14 million, the Taiwanese Dollar of approximately $9 million, the South
Korean Won of approximately $5 million and the net unfavorable variance in other currencies totaling approximately $6
million
?2022 included a $0.9 million gain compared to a loss of $5.4 million in 2021, representing adjustments to the fair value
of our available-for-sale debt securities
?2021 included unfavorable movements in the Euro of approximately $62 million, the Japanese Yen of approximately $8
million, the Brazilian Real of approximately $5 million, the South Korean Won of approximately $4 million and the net
unfavorable variance in other currencies totaling approximately $5 million, partially offset by favorable movements in
the Chinese Renminbi of approximately $10 million
•Net investment hedge $ - $ 5,110 $ (5,110) (100) %
•Cash flow hedge $ (4,399) $ 174 $ (4,573) *
•Interest rate swap $ 7,399 $ 2,623 $ 4,776 182 %
?Amortization of the remaining interest rate swap balance in 2022 has been accelerated as a result of the amortization of
4.15% of senior grades in 2024
•Calculating percentages makes no sense
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. During 2022, our reportable business segments consisted of: (1)
Lithium, (2) Bromine and (3) Catalysts.Summarized financial information concerning our reportable segments is shown in
the following tables. The "All Other" category included only the FCS business
that did not fit into any of the Company's core businesses. On June 1, 2021, the
Company completed the sale of the FCS business. Amounts in the "All Other"
category represent activity in this business until divested on June 1, 2021.The Corporate category is not considered to be a segment and includes
corporate-related items not allocated to the operating segments. Pension and
OPEB service cost (which represents the benefits earned by active employees
during the period) and amortization of prior service cost or benefit are
allocated to the reportable segments, All Other, and Corporate, whereas the
remaining components of pension and OPEB benefits cost or credit ("Non-operating
pension and OPEB items") are included in Corporate. Segment data includes
intersegment transfers of raw materials at cost and allocations for certain
corporate costs.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. We define adjusted EBITDA as earnings before interest and
financing expenses, 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 planning purposes and
as a significant component in the calculation of performance-based compensation
for management and other employees. We reported adjusted EBITDA because
management believes it 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,
the generally accepted accounting principles in the United States ("U.S. GAAP").
Adjusted EBITDA should not be considered as an alternative to Net (loss) income
attributable to Albemarle Corporation, the most directly comparable financial
measure calculated and reported in accordance with U.S. GAAP, or any other
financial measure reported in accordance with U.S. GAAP.
59
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Albemarle Corporation and SubsidiariesYear Ended December 31, Percentage Change
2022 % 2021 % 2022 vs. 2021
(In thousands, except percentages)
Net sales:
Lithium $ 5,008,850 68.4 % $ 1,363,284 41.0 % 267 %
Bromine 1,411,682 19.3 % 1,128,343 33.9 % 25 %
Catalysts 899,572 12.3 % 761,235 22.9 % 18 %
All Other - - % 75,095 2.2 % (100) %Total net sales $ 7,320,104 100.0 % $ 3,327,957 100.0 % 120 %
Adjusted EBITDA:
Lithium $ 3,102,662 89.3 % $ 479,538 55.1 % 547 %
Bromine 456,916 13.1 % 360,682 41.4 % 27 %
Catalysts 28,732 0.8 % 106,941 12.3 % (73) %
All Other - - % 29,858 3.4 % (100) %
Corporate (112,453) (3.2) % (106,045) (12.2) % 6 %
Total adjusted EBITDA $ 3,475,857 100.0 % $ 870,974 100.0 % 299 %60
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Albemarle Corporation and SubsidiariesSee below for a reconciliation of adjusted EBITDA, the non-GAAP financial
measure, from Net income attributable to Albemarle Corporation, the most
directly comparable financial measure calculated and reported in accordance with
U.S. GAAP, (in thousands):
Consolidated
Lithium Bromine Catalysts All Other Corporate Total
2022
Net income (loss) attributable to
Albemarle Corporation $ 2,903,076 $ 402,820 $ (27,104) $ - $ (588,976) $
2,689,816
Depreciation and amortization 189,347 54,096 51,417 - 5,981
300,841
Loss on sale of interest in
properties(a) 8,400 - - - -
8,400
Acquisition and integration related
costs(b) - - - - 16,259
16,259
Interest and financing expenses(c) - - - - 122,973 122,973
Income tax expense - - - - 390,588 390,588Non-operating pension and OPEB items - - - - (57,032) (57,032)
Other(d) 1,839 - 4,419 - (2,246) 4,012
Adjusted EBITDA $ 3,102,662 $ 456,916 $ 28,732 $ - $ (112,453) $ 3,475,857
2021
Net income (loss) attributable to
Albemarle Corporation $ 192,244 $ 309,501 $ 55,353 $ 27,988 $ (461,414) $
123,672
Depreciation and amortization 138,772 51,181 51,588 1,870 10,589 254,000
Restructuring and other(e) - - - - 3,027 3,027
Loss (gain) on sale of
business/interest in properties,
net(f) 132,400 - - - (428,371)
(295,971)
Acquisition and integration related
costs(b) - - - - 12,670
12,670
Interest and financing expenses(c) - - - - 61,476 61,476
Income tax expense - - - - 29,446 29,446Non-operating pension and OPEB items - - - - (78,814) (78,814)
Legal accrual(g) - - - - 657,412 657,412
Albemarle Foundation contribution(h) - - - - 20,000
20,000
Indemnification adjustments(i) - - - - 39,381 39,381
Other(j) 16,122 - - - 28,553 44,675
Adjusted EBITDA $ 479,538 $ 360,682 $ 106,941 $ 29,858 $ (106,045) $ 870,974(a)Expense recorded as a result of revised estimates of the obligation to
construct certain lithium hydroxide conversion assets in Kemerton, Western
Australia, due to cost overruns from supply chain, labor and COVID-19 pandemic
related issues. The corresponding obligation was recorded in Accrued liabilities
to be transferred to Mineral Resources Limited ("MRL"), which maintains a 40%
ownership interest in these Kemerton assets.
(b)See Note 2, "Acquisitions," for additional information.
(c)Included in Interest and financing expenses is a loss on early extinguishment
of debt of $19.2 million and $29.0 million for the years ended December 31, 2022
and 2021, respectively. See Note 14, "Long-term Debt," for additional
information. In addition, Interest and financing expenses for the year ended
December 31, 2022 includes the correction of an out of period error of
$17.5 million related to the overstatement of capitalized interest in prior
periods.
(d)Included amounts for the year ended December 31, 2022 recorded in:
•Cost of goods sold - $2.7 million of expense related to one-time retention
payments for certain employees during the Catalysts strategic review and
business unit realignment, and $0.5 million related to the settlement of a legal
matter resulting from a prior acquisition.
•SG&A - $4.3 million related to facility closure expenses of offices in Germany,
$2.8 million of charges for environmental reserves at sites not part of our
operations, $2.8 million of shortfall contributions for our multiemployer plan
financial improvement plan, $1.9 million of expense primarily related to
one-time retention payments for certain employees during the Catalysts strategic
review, partially offset by $4.3 million of gains from the sale of legacy
properties not part of our operations.
•Other income (expenses), net - $4.3 million net gain related to the fair value
adjustment of equity securities in a public company, a $3.0 million gain from
the reversal of a liability related to a previous divestiture, a $2.0 million
gain relating to the adjustment of an environmental reserve at non-operating
businesses we have previously divested and a $0.6 million gain related to a
61
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Albemarle Corporation and Subsidiariessettlement received from a legal matter in a prior period, partially offset by a
$3.2 million loss resulting from the adjustment of indemnification related to
previously disposed businesses.
(e)In 2021, we recorded facility closure related to offices in Germany, and
severance expenses in Germany and Belgium, in SG&A.
(f)Includes a $428.4 million gain related to the FCS divestiture recorded during
the year ended December 31, 2021. In addition, includes a $132.4 million expense
related to anticipated cost overruns for MRL's 40% interest in lithium hydroxide
conversion assets being built in Kemerton.
(g)Loss recorded in Other income (expenses), net for the year ended December 31,
2021 related to the settlement of an arbitration ruling for a prior legal
matter. See Note 17, "Commitments and Contingencies," for further details.
(h)Included in SG&A is a charitable contribution, using a portion of the
proceeds received from the FCS divestiture, to the Albemarle Foundation, a
non-profit organization that sponsors grants, health and social projects,
educational initiatives, disaster relief, matching gift programs, scholarships
and other charitable initiatives in locations where the Company's employees live
and the Company operates. This contribution is in addition to the normal annual
contribution made to the Albemarle Foundation by the Company, and is significant
in size and nature in that it is intended to provide more long-term benefits in
these communities.
(i)Included in Other income (expenses), net to revise an indemnification
estimate for an ongoing tax-related matter of a previously disposed business in
Germany. A corresponding discrete tax benefit of $27.9 million was recorded in
Income tax expense during the same period, netting to an expected cash
obligation of approximately $11.5 million.
(j)Included amounts for the year ended December 31, 2021 recorded in:
•Cost of goods sold - $10.5 million of expense related to a legal matter as part
of a prior acquisition in our Lithium business.
•SG&A - $11.5 million of legal fees related to a legacy Rockwood legal matter
noted above, $9.8 million of expenses primarily related to non-routine labor and
compensation related costs that are outside normal compensation arrangements, a
$4.0 million loss resulting from the sale of property, plant and equipment and
$3.8 million of charges for environmental reserves at a sites not part of our
operations.
•Other income (expenses), net - $4.8 million of net expenses primarily related
to asset retirement obligation charges to update of an estimate at a site
formerly owned by Albemarle.Lithium
In thousands 2022 2021 $ Change % Change
Net sales $ 5,008,850 $ 1,363,284 $ 3,645,566 267 %
?$3.2 billion of favorable pricing impacts, reflecting tight market conditions, primarily in battery- and tech-grade
carbonate and hydroxide, as well as greater volumes sold under index-referenced and variable-priced contracts, and mix
?$549.2 million of higher sales volume, driven by the La Negra III/IV expansion in Chile and increased tolling volume to
meet growing customer demand
?$133.1 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies
Adjusted EBITDA $ 3,102,662 $ 479,538 $ 2,623,124 547 %
•Favorable pricing impacts and higher sales volume
•Higher equity in net income from the Talison joint venture, driven by increased pricing and sales volume
•Savings from designed productivity improvements
•Increased commission expenses in Chile resulting from the higher pricing in Lithium
•Increased SG&A expenses from higher compensation and other administrative costs
•Increased utility and freight costs
•Increased spending for investments to support business growth
•$2.2 million of unfavorable currency translation resulting from a stronger Chilean PesoBromine
In thousands 2022 2021 $ Change % Change
Net sales $ 1,411,682 $ 1,128,343 $ 283,339 25 %
•$260.6 million of favorable pricing impacts, primarily in the fire safety solutions division
•$49.8 million of higher sales volume related to increased demand across all products
•$26.9 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies
Adjusted EBITDA $ 456,916 $ 360,682 $ 96,234 27 %
•Favorable pricing impacts and higher sales volume
•Increased freight costs, partially due to trucker strikes in Jordan during the fourth quarter of 2022
•Increased utility costs and raw material prices, primarily due to the higher costs of bisphenol A (BPA)
•Increased SG&A expenses from higher compensation costs
•2021 included higher production and utility costs of approximately $6 million resulting from the U.S. Gulf Coast
winter storm
•$19.9 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies62
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Albemarle Corporation and SubsidiariesCatalysts
In thousands 2022 2021 $ Change % Change
Net sales $ 899,572 $ 761,235 $ 138,337 18 %
•$99.7 million of higher sales volume, primarily from the timing of clean fuel technologies sales, which has lumpier
demand; sales volume was negatively affected by the impacts of a winter freeze in the U.S. during the fourth quarter of
2022
•$56.5 million of favorable pricing impacts, primarily in clean fuel technologies and PCS
•$17.8 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies
Adjusted EBITDA $ 28,732 $ 106,941 $ (78,209) (73) %
•Increased utility costs, primarily natural gas in Europe
•Increased raw material and freight costs
•Higher sales volume and favorable pricing impacts; adjusted EBITDA was negatively affected by the impacts of a winter
freeze in the U.S. during the fourth quarter of 2022
•2022 benefited from $7 million of government grants from the Netherlands in response to losses during the COVID-19
pandemic as compared to $19 million of these grants in 2021
•Recorded $10 million gain from contingent business interruption insurance settlements resulting from lost income during
2019 to 2022 due to multiple incidents at one of its customers
•2021 included higher production and utility costs of approximately $16 million resulting from the U.S. Gulf Coast
winter storm
•2021 included a $3.1 million out-of-period adjustment expense recorded in Cost of goods sold to correct inventory
foreign exchange values relating to prior year periodsAll Other
In thousands 2022 2021 $ Change % Change
Net sales $ - $ 75,095 $ (75,095) (100) %
?Decreased volume as a result of the sale of the FCS business in the second quarter of 2021
Adjusted EBITDA
$ - $ 29,858 $ (29,858) (100) %
?Decreased volume resulting from the sale of the FCS business in the second quarter of 2021Corporate
In thousands 2022 2021 $ Change % Change
Adjusted EBITDA $ (112,453) $ (106,045) $ (6,408) 6 %
?Increased compensation costs, including incentive-based compensation
?$10.9 million of unfavorable currency exchange impacts, including a $10.9 million increase in foreign currency
impacts of our Talison joint venture
Summary of critical accounting policies and estimates
Estimates, assumptions and reclassifications
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Listed below are the
estimates and assumptions that we consider to be critical in the preparation of
our financial statements.Property, Plant and Equipment. We assign the useful lives of our property, plant
and equipment based upon our internal engineering estimates which are reviewed
periodically. The estimated useful lives of our property, plant and equipment
range from two to sixty years and depreciation is recorded on the straight-line
method, with the exception of our mineral rights and reserves, which are
depleted on a units-of-production method. We evaluate the recovery of our
property, plant and equipment by comparing the net carrying value of the asset
group to the undiscounted net cash flows expected to be generated from the use
and eventual disposition of that asset group when events or changes in
circumstances indicate that its carrying amount may not be recoverable. If the
carrying amount of the asset group is not recoverable, the fair value of the
asset group is measured and if the carrying amount exceeds the fair value, an
impairment loss is recognized.Acquisition Method of Accounting. We recognize the identifiable assets acquired,
the liabilities assumed and any noncontrolling interest in the acquiree at their
estimated fair values on the date of acquisition for acquired businesses.
Determining the fair value of these items requires management's judgment and the
utilization of independent valuation
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Albemarle Corporation and Subsidiariesspecialists and involves the use of significant estimates and assumptions with
respect to the timing and amounts of future cash flows and discount rates, among
other items. When acquiring mineral reserves, the fair value is estimated using
an excess earnings approach, which requires management to estimate future cash
flows, net of capital investments in the specific operation. Management's cash
flow projections involved the use of significant estimates and assumptions with
respect to the expected production of the mine over the estimated time period,
sales prices, shipment volumes, and expected profit margins. The present value
of the projected net cash flows represents the preliminary fair value assigned
to mineral reserves. The discount rate is a significant assumption used in the
valuation model. The judgments made in the determination of the estimated fair
value assigned to the assets acquired, the liabilities assumed and any
noncontrolling interest in the investee, as well as the estimated useful life of
each asset and the duration of each liability, can materially impact the
financial statements in periods after acquisition, such as through depreciation
and amortization expense. For more information on our acquisitions and
application of the acquisition method, see Note 2, "Acquisitions," to our
consolidated financial statements included in Part II, Item 8 of this report.Income Taxes. We assume the deductibility of certain costs in our income tax
filings, and we estimate the future recovery of deferred tax assets, uncertain
tax positions and indefinite investment assertions.Environmental Remediation Liabilities. We estimate and accrue the costs required
to remediate a specific site depending on site-specific facts and circumstances.
Cost estimates to remediate each specific site are developed by assessing
(i) the scope of our contribution to the environmental matter, (ii) the scope of
the anticipated remediation and monitoring plan and (iii) the extent of other
parties' share of responsibility.
Actual results could differ materially from the estimates and assumptions that
we use in the preparation of our financial statements.
Revenue recognition
Revenue is measured as the amount of consideration we expect to receive in
exchange for transferring goods or providing services, and is recognized when
performance obligations are satisfied under the terms of contracts with our
customers. A performance obligation is deemed to be satisfied when control of
the product or service is transferred to our customer. The transaction price of
a contract, or the amount we expect to receive upon satisfaction of all
performance obligations, is determined by reference to the contract's terms and
includes adjustments, if applicable, for any variable consideration, such as
customer rebates, noncash consideration or consideration payable to the
customer, although these adjustments are generally not material. Where a
contract contains more than one distinct performance obligation, the transaction
price is allocated to each performance obligation based on the standalone
selling price of each performance obligation, although these situations do not
occur frequently and are generally not built into our contracts. Any unsatisfied
performance obligations are not material. Standalone selling prices are based on
prices we charge to our customers, which in some cases are based on established
market prices. Sales and other similar taxes collected from customers on behalf
of third parties are excluded from revenue. Our payment terms are generally
between 30 to 90 days, however, they vary by market factors, such as customer
size, creditworthiness, geography and competitive environment.All of our revenue is derived from contracts with customers, and almost all of
our contracts with customers contain one performance obligation for the transfer
of goods where such performance obligation is satisfied at a point in time.
Control of a product is deemed to be transferred to the customer upon shipment
or delivery. Significant portions of our sales are sold free on board shipping
point or on an equivalent basis, while delivery terms of other transactions are
based upon specific contractual arrangements. Our standard terms of delivery are
generally included in our contracts of sale, order confirmation documents and
invoices, while the timing between shipment and delivery generally ranges
between 1 and 45 days. Costs for shipping and handling activities, whether
performed before or after the customer obtains control of the goods, are
accounted for as fulfillment costs.The Company currently utilizes the following practical expedients, as permitted
by Accounting Standards Codification ("ASC") 606, Revenue from Contracts with
Customers:
•All sales and other transfer taxes are excluded from the contract value;
•Using the modified retrospective transition method, no adjustment was made
required for contracts that were not crossed during the reporting year;
•We will not consider the possibility of a contract having a significant
financing component (which would effectively attribute a portion of the sales
price to interest income) unless, if at contract inception, the expected payment
terms (from time of delivery or other relevant criterion) are more than one
year;
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Albemarle Corporation and Subsidiaries
•If our right to payment from the customer is directly related to the value of our
performance completed, we recognize revenue consistent with the billing right;
i
•We expense as incurred all costs of obtaining a contract incremental to any
costs/compensation attributable to individual product sales/shipments for
contracts where the amortization period for such costs would otherwise be one
year or less.Certain products we produce are made to our customer's specifications where such
products have no alternative use or would need significant rework costs in order
to be sold to another customer. In management's judgment, control of these
arrangements is transferred to the customer at a point in time (upon shipment or
delivery) and not over the time they are produced. Therefore revenue is
recognized upon shipment or delivery of these products.Costs incurred to obtain contracts with customers are not significant and are
expensed immediately as the amortization period would be one year or less. When
the Company incurs pre-production or other fulfillment costs in connection with
an existing or specific anticipated contract and such costs are recoverable
through margin or explicitly reimbursable, such costs are capitalized and
amortized to Cost of goods sold on a systematic basis that is consistent with
the pattern of transfer to the customer of the goods or services to which the
asset relates, which is less than one year. We record bad debt expense in
specific situations when we determine the customer is unable to meet its
financial obligation.
Goodwill and other intangible assets
We account for goodwill and other intangible assets acquired in a business combination
in accordance with current accounting guidelines that require goodwill and
unamortized indefinite-lived intangible assets.
We test goodwill for impairment by comparing the estimated fair value of our
reporting units to the related carrying value. Our reporting units are either
our operating business segments or one level below our operating business
segments for which discrete financial information is available and for which
operating results are regularly reviewed by the business management. In applying
the goodwill impairment test, we initially perform a qualitative test ("Step
0"), where we first assess qualitative factors to determine whether it is more
likely than not that the fair value of the reporting units is less than its
carrying value. Qualitative factors may include, but are not limited to,
economic conditions, industry and market considerations, cost factors, overall
financial performance of the reporting units and other entity and reporting unit
specific events. If after assessing these qualitative factors, we determine it
is "more-likely-than-not" that the fair value of the reporting unit is less than
the carrying value, we perform a quantitative test ("Step 1"). During Step 1, we
estimate the fair value based on present value techniques involving future cash
flows. Future cash flows for all reporting units include assumptions about
revenue growth rates, adjusted EBITDA margins, discount rate as well as other
economic or industry-related factors. For the Refining Solutions reporting unit,
the revenue growth rates, adjusted EBITDA margins and the discount rate were
deemed to be significant assumptions. Significant management judgment is
involved in estimating these variables and they include inherent uncertainties
since they are forecasting future events. We use a Weighted Average Cost of
Capital ("WACC") approach to determine our discount rate for goodwill
recoverability testing. Our WACC calculation incorporates industry-weighted
average returns on debt and equity from a market perspective. The factors in
this calculation are largely external to Albemarle and, therefore, are beyond
our control. We perform a sensitivity analysis by using a range of inputs to
confirm the reasonableness of these estimates being used in the goodwill
impairment analysis. We test our recorded goodwill for impairment in the fourth
quarter of each year or upon the occurrence of events or changes in
circumstances that would more likely than not reduce the fair value of our
reporting units below their carrying amounts. We performed our annual goodwill
impairment test as of October 31, 2022 and no evidence of impairment was noted
from the analysis. As a result, we concluded there was no impairment as of that
date. However, if the adjusted EBITDA or discount rate estimates for the
Refining Solutions reporting unit negatively changed by 10%, the Refining
Solutions fair value would be below its carrying value.We assess our indefinite-lived intangible assets, which include trade names and
trademarks, for impairment annually and between annual tests if events or
changes in circumstances indicate that it is more likely than not that the asset
is impaired. The indefinite-lived intangible asset impairment standard allows us
to first assess qualitative factors to determine if a quantitative impairment
test is necessary. Further testing is only required if we determine, based on
the qualitative assessment, that it is more likely than not that the
indefinite-lived intangible asset's fair value is less than its carrying amount.
If we determine based on the qualitative assessment that it is more likely than
not that the asset is impaired, an impairment test is performed by comparing the
fair value of the indefinite-lived intangible asset to its carrying amount.
During the year ended December 31, 2022, no evidence of impairment was noted
from the analysis for our indefinite-lived intangible assets.Definite-lived intangible assets, such as purchased technology, patents and
customer lists, are amortized over their estimated useful lives generally for
periods ranging from five to twenty-five years. Except for customer lists and
relationships associated with the majority of our Lithium business, which are
amortized using the pattern of economic benefit method,65
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Albemarle Corporation and Subsidiariesdefinite-lived intangible assets are amortized using the straight-line method.
We evaluate the recovery of our definite-lived intangible assets by comparing
the net carrying value of the asset group to the undiscounted net cash flows
expected to be generated from the use and eventual disposition of that asset
group when events or changes in circumstances indicate that its carrying amount
may not be recoverable. If the carrying amount of the asset group is not
recoverable, the fair value of the asset group is measured and if the carrying
amount exceeds the fair value, an impairment loss is recognized. See Note 12,
"Goodwill and Other Intangibles," to our consolidated financial statements
included in Part II, Item 8 of this report.
Pension plans and other post-retirement benefits
Under authoritative accounting standards, assumptions are made regarding the
valuation of benefit obligations and the performance of plan assets. As
required, we recognize a balance sheet asset or liability for each of our
pension and OPEB plans equal to the plan's funded status as of the measurement
date. The primary assumptions are as follows:•Discount Rate-The discount rate is used in calculating the present value of
benefits, which is based on projections of benefit payments to be made in the
future.•Expected Return on Plan Assets-We project the future return on plan assets
based on prior performance and future expectations for the types of investments
held by the plans as well as the expected long-term allocation of plan assets
for these investments. These projected returns reduce the net benefit costs
recorded currently.•Rate of Compensation Increase-For salary-related plans, we project employees'
annual pay increases, which are used to project employees' pension benefits at
retirement.
•Mortality hypotheses: hypotheses about the life expectancy of plan participants
are used to the extent of obligations related to the plan.
Actuarial gains and losses are recognized annually in our consolidated
statements of income in the fourth quarter and whenever a plan is determined to
qualify for a remeasurement during a fiscal year. The remaining components of
pension and OPEB plan expense, primarily service cost, interest cost and
expected return on assets, are recorded on a monthly basis. The market-related
value of assets equals the actual market value as of the date of measurement.
During 2022, we made changes to assumptions related to discount rates and
the expected rates of return on plan assets. We consider the available information that
we consider relevant when selecting each of these assumptions.
Our U.S. defined benefit plans for non-represented employees are closed to new
participants, with no additional benefits accruing under these plans as
participants' accrued benefits have been frozen. In selecting the discount rates
for the U.S. plans, we consider expected benefit payments on a plan-by-plan
basis. As a result, the Company uses different discount rates for each plan
depending on the demographics of participants and the expected timing of benefit
payments. For 2022, the discount rates were calculated using the results from a
bond matching technique developed by Milliman, which matched the future
estimated annual benefit payments of each respective plan against a portfolio of
bonds of high quality to determine the discount rate. We believe our selected
discount rates are determined using preferred methodology under authoritative
accounting guidance and accurately reflect market conditions as of the
December 31, 2022 measurement date.In selecting the discount rates for the foreign plans, we look at long-term
yields on AA-rated corporate bonds when available. Our actuaries have developed
yield curves based on the yields of constituent bonds in the various indices as
well as on other market indicators such as swap rates, particularly at the
longer durations. For the Eurozone, we apply the Aon Hewitt yield curve to
projected cash flows from the relevant plans to derive the discount rate. For
the U.K., the discount rate is determined by applying the Aon Hewitt yield curve
for typical schemes of similar duration to projected cash flows of Albemarle's
U.K. plan. In other countries where there is not a sufficiently deep market of
high-quality corporate bonds, we set the discount rate by referencing the yield
on government bonds of an appropriate duration.At December 31, 2022, the weighted-average discount rate for the U.S. and
foreign pension plans increased to 5.46% and 4.04%, respectively, from 2.86% and
1.44%, respectively, at December 31, 2021 to reflect market conditions as of the
December 31, 2022 measurement date. The discount rate for the OPEB plans at
December 31, 2022 and 2021 was 5.45% and 2.85%, respectively.In estimating the expected return on plan assets, we consider past performance
and future expectations for the types of investments held by the plan as well as
the expected long-term allocations of plan assets to these investments. For the
years 2022 and 2021, the weighted-average expected rate of return on U.S.
pension plan assets was 6.89%, and the weighted-average expected rate of return
on foreign pension plan assets was 3.85% and 3.98%, respectively. Effective
January 1, 2023, the weighted-average expected rate of return on U.S. and
foreign pension plan assets is 6.88% and 4.86%, respectively.
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Albemarle Corporation and SubsidiariesIn projecting the rate of compensation increase, we consider past experience in
light of changes in inflation rates. At December 31, 2022 and 2021, the assumed
weighted-average rate of compensation increase was 3.67% and 3.20%,
respectively, for our foreign pension plans.For the purpose of measuring our U.S. pension and OPEB obligations at December
31, 2022 and 2021, we used the Pri-2012 Mortality Tables along with the MP-2021
Mortality Improvement Scale, respectively, published by the SOA.At December 31, 2022, the assumed rate of increase in the pre-65 and post-65 per
capita cost of covered health care benefits for U.S. retirees was zero as the
employer-paid premium caps (pre-65 and post-65) were met starting January 1,
2013.A variance in the assumptions discussed above would have an impact on the
projected benefit obligations, the accrued OPEB liabilities, and the annual net
periodic pension and OPEB cost. The following table reflects the sensitivities
associated with a hypothetical change in certain assumptions, primarily in the
U.S. (in thousands):(Favorable) Unfavorable
1% Increase 1% Decrease
Increase (Decrease) Increase (Decrease) Increase (Decrease) Increase (Decrease)
in Benefit Obligation in Benefit Cost in Benefit Obligation in Benefit Cost
Actuarial Assumptions
Discount Rate:
Pension $ (60,603) $ 2,670 $ 71,494 $ (3,289)
Other postretirement benefits $ (2,822) $ 158 $ 3,293 $
(193)
Expected return on plan assets:
Pension * $ (5,066) * $ 5,066
Other postretirement benefits * $ - * $ -* Not applicable.
Of the $528.1 million total pension and postretirement assets at December 31,
2022, $68.7 million, or approximately 13%, are measured using the net asset
value as a practical expedient. Gains or losses attributable to these assets are
recognized in the consolidated balance sheets as either an increase or decrease
in plan assets. See Note 15, "Pension Plans and Other Postretirement Benefits,"
to our consolidated financial statements included in Part II, Item 8 of this
report.Income Taxes
We use the liability method for determining our income taxes, under which
current and deferred tax liabilities and assets are recorded in accordance with
enacted tax laws and rates. Under this method, the amounts of deferred tax
liabilities and assets at the end of each period are determined using the tax
rate expected to be in effect when taxes are actually paid or recovered. Future
tax benefits are recognized to the extent that realization of such benefits is
more likely than not. In order to record deferred tax assets and liabilities, we
are following guidance under ASU 2015-17, which requires deferred tax assets and
liabilities to be classified as noncurrent on the balance sheet, along with any
related valuation allowance. Tax effects are released from Accumulated Other
Comprehensive Income using either the specific identification approach or the
portfolio approach based on the nature of the underlying item.Deferred income taxes are provided for the estimated income tax effect of
temporary differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities. Deferred tax assets are also
provided for operating losses, capital losses and certain tax credit carryovers.
A valuation allowance, reducing deferred tax assets, is established when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The realization of such deferred tax assets is dependent upon
the generation of sufficient future taxable income of the appropriate character.
Although realization is not assured, we do not establish a valuation allowance
when we believe it is more likely than not that a net deferred tax asset will be
realized. We elected to not consider the estimated impact of potential future
Corporate Alternative Minimum Tax liabilities for purposes of assessing
valuation allowances on its deferred tax balances.We only recognize a tax benefit after concluding that it is more likely than not
that the benefit will be sustained upon audit by the respective taxing authority
based solely on the technical merits of the associated tax position. Once the
recognition threshold is met, we recognize a tax benefit measured as the largest
amount of the tax benefit that, in our judgment, is greater than 50% likely to
be realized. Interest and penalties related to income tax liabilities are
included in Income tax expense on the consolidated statements of income.67
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Albemarle Corporation and SubsidiariesWe are subject to income taxes in the U.S. and numerous foreign jurisdictions.
Due to the statute of limitations, we are no longer subject to U.S. federal
income tax audits by the Internal Revenue Service ("IRS") for years prior to
2019. Due to the statute of limitations, we also are no longer subject to U.S.
state income tax audits prior to 2017.With respect to jurisdictions outside the U.S., several audits are in process.
We have audits ongoing for the years 2011 through 2022 in Germany, Italy,
Belgium, South Africa, China, Canada and Chile, some of which are for entities
that have since been divested.While we believe we have adequately provided for all tax positions, amounts
asserted by taxing authorities could be greater than our accrued position.
Accordingly, additional provisions on federal and foreign tax-related matters
could be recorded in the future as revised estimates are made or the underlying
matters are settled or otherwise resolved.Since the timing of resolutions and/or closure of tax audits are uncertain, it
is difficult to predict with certainty the range of reasonably possible
significant increases or decreases in the liability related to uncertain tax
positions that may occur within the next twelve months. Our current view is that
it is reasonably possible that we could record a decrease in the liability
related to uncertain tax positions, relating to a number of issues, up to
approximately $0.3 million as a result of closure of tax statutes. As a result
of the sale of the Chemetall Surface Treatment business in 2016, we agreed to
indemnify certain income and non-income tax liabilities, including uncertain tax
positions, associated with the entities sold. The associated liability is
recorded in Other noncurrent liabilities. See Note 16, "Other Noncurrent
Liabilities," and Note 21, "Income Taxes," to our consolidated financial
statements included in Part II, Item 8 of this report for further details.We have designated the undistributed earnings of a portion of our foreign
operations as indefinitely reinvested and as a result we do not provide for
deferred income taxes on the unremitted earnings of these subsidiaries. Our
foreign earnings are computed under U.S. federal tax earnings and profits
("E&P") principles. In general, to the extent our financial reporting book basis
over tax basis of a foreign subsidiary exceeds these E&P amounts, deferred taxes
have not been provided, as they are essentially permanent in duration. The
determination of the amount of such unrecognized deferred tax liability is not
practicable. We provide for deferred income taxes on our undistributed earnings
of foreign operations that are not deemed to be indefinitely invested. We will
continue to evaluate our permanent investment assertion taking into
consideration all relevant and current tax laws.
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 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
Our cash and cash equivalents were $1.5 billion at December 31, 2022 as compared
to $439.3 million at December 31, 2021. Cash provided by operating activities
was $1.9 billion, $344.3 million and $798.9 million during the years ended
December 31, 2022, 2021 and 2020, respectively.The increase in cash provided by operating activities in 2022 versus 2021 was
primarily due to significantly higher earnings from the Lithium and Bromine
segments and higher dividends received from unconsolidated investments,
primarily from the Talison joint venture. This increase was partially offset by
an increase in working capital outflow driven by higher inventory and accounts
receivable balances from higher lithium pricing and increased sales. The
decrease in cash provided by operating activities in 2021 versus 2020 was
primarily due to the $332.5 million payment to settle a prior legal matter,
lower earnings from the FCS business sold on June 1, 2021, as well as increased
inventory balances and accounts receivable due to the timing of payments. This
was partially offset by increased sales in our Lithium and Bromine segments.During 2022, cash on hand, cash provided by operations and the proceeds of $2.0
billion in long-term debt and credit agreements funded $1.3 billion of capital
expenditures for plant, machinery and equipment, the repayment of long-term debt68
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Albemarle Corporation and Subsidiariesand credit agreements of $705.0 million, the net repayment of $391.7 million of
commercial paper, the final payment of $332.5 million of a settlement of an
arbitration ruling for a prior legal matter and dividends to shareholders of
$184.4 million. During 2021, cash on hand, cash provided by operations, net cash
proceeds of $289.8 million from the sale of the FCS business, $388.5 million of
commercial paper borrowings and the $1.5 billion net proceeds from our
underwritten public offering of common stock funded debt principal payments of
approximately $1.5 billion, early extinguishment of debt fees of $24.9 million,
$332.5 million of a settlement of an arbitration ruling for a prior legal
matter, $953.7 million of capital expenditures for plant, machinery and
equipment, dividends to shareholders of $177.9 million, and pension and
postretirement contributions of $30.3 million. During 2020, cash on hand, cash
provided by operations and proceeds from borrowings of $200 million from one of
our credit facilities funded $850.0 million of capital expenditures for plant,
machinery and equipment, dividends to shareholders of $161.8 million, and
pension and postretirement contributions of $16.4 million. In addition, during
2020 we received $11.0 million in proceeds from the sale of our ownership
interest in the SOCC joint venture during and paid $22.6 million of agreed upon
purchase price adjustments for the Wodgina Project acquisition. In addition,
during the years ended December 31, 2022, 2021 and 2020, our consolidated joint
venture, JBC, declared dividends of $274.5 million, $274.6 million and $89.9
million, respectively, which resulted in dividends paid to noncontrolling
interests of $44.2 million ($53.1 million declared in 2022 was paid in the first
quarter of 2023), $96.1 million and $32.1 million, respectively.On October 25, 2022, the Company completed the acquisition of all of the
outstanding equity of Qinzhou, for approximately $200 million in cash, which
includes a deferral of approximately $29 million to be paid in installments
within a year of the acquisition closing date. Qinzhou's operations include a
recently constructed lithium processing plant strategically positioned near the
Port of Qinzhou in Guangxi, which began commercial production in the first half
of 2022. The plant has designed annual conversion capacity of up to 25,000
metric tonnes of LCE and is capable of producing battery-grade lithium carbonate
and lithium hydroxide.
On May 13, 2022, the Company issued a series of notes (collectively, the “2022
Notes”) as follows:
•$650.0 million aggregate principal amount of senior notes, bearing interest at
a rate of 4.65% payable semi-annually on June 1 and December 1 of each year,
beginning on December 1, 2022. The effective interest rate on these senior notes
is approximately 4.84%. These senior notes mature on June 1, 2027.
•$600.0 million aggregate principal amount of senior notes, bearing interest at
a rate of 5.05% payable semi-annually on June 1 and December 1 of each year,
beginning on December 1, 2022. The effective interest rate on these senior notes
is approximately 5.18%. These senior notes mature on June 1, 2032.
•$450.0 million aggregate principal amount of senior notes, bearing interest at
a rate of 5.65% payable semi-annually on June 1 and December 1 of each year,
beginning on December 1, 2022. The effective interest rate on these senior notes
is approximately 5.71%. These senior notes mature on June 1, 2052.The net proceeds from the issuance of the 2022 Notes were used to repay the
balance of the commercial paper notes, the remaining balance of $425.0 million
of the 4.15% Senior Notes due 2024 (the "2024 Notes") and for general corporate
purposes. The 2024 Notes were originally due to mature on December 15, 2024 and
bore interest at a rate of 4.15%. During the year ended December 31, 2022, the
Company recorded a loss on early extinguishment of debt of $19.2 million in
Interest and financing expenses, representing the tender premiums, fees,
unamortized discounts and unamortized deferred financing costs from the
redemption of the 2024 Notes. In addition, the loss on early extinguishment of
debt includes the accelerated amortization of the interest rate swap associated
with the 2024 Notes from Accumulated other comprehensive income.On June 1, 2021, we completed the sale of the FCS business to Grace for proceeds
of approximately $570 million, consisting of $300 million in cash and the
issuance to Albemarle of preferred equity of a Grace subsidiary having an
aggregate stated value of $270 million. The preferred equity can be redeemed at
Grace's option under certain conditions and will accrue payment-in-kind
dividends at an annual rate of 12% beginning on June 1, 2023, two years after
issuance.On February 8, 2021, we completed an underwritten public offering of 8,496,773
shares of our common stock at a price to the public of $153.00 per share. We
also granted to the underwriters an option to purchase up to an additional
1,274,509 shares, which was exercised. The total gross proceeds from this
offering were approximately $1.5 billion, before deducting expenses,
underwriting discounts and commissions. In the first quarter of 2021, we made
the following debt principal payments using the net proceeds from this
underwritten public offering:•€123.8 million of the 1.125% notes due in November 2025
•€393.0 million, the remaining balance, of the 1.875% Senior notes originally
due in December 2021
•$128.4 million of the 3.45% senior notes due in November 2029
•$200.0 million, the remaining balance, of the floating rate notes originally
due in November 2022
69
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Albemarle Corporation and Subsidiaries•€183.3 million, the outstanding balance, of the unsecured credit facility
originally entered into on August 14, 2019, as amended and restated on December
15, 2020 (the "2019 Credit Facility")
•$325.0 million, the outstanding balance, of the commercial paper notesCapital expenditures were $1.3 billion, $953.7 million and $850.5 million for
the years ended December 31, 2022, 2021 and 2020, respectively, and were
incurred mainly for plant, machinery and equipment. We expect our capital
expenditures to be between $1.7 billion and $1.9 billion in 2023 primarily for
Energy Storage growth and capacity increases, including in Australia, Chile,
China and Silver Peak, Nevada, as well as productivity and continuity of
operations projects in all segments. Our La Negra, Chile plant has completed the
qualification stage and is running as expected. Train I of our Kemerton, Western
Australia plant is complete and ramping through the commissioning stage. Train
II has achieved mechanical completion and transitioned to the commissioning
stage, with commercial sales volume from Train II expected to begin in 2023. In
addition, construction of our announced lithium conversion plant in Meishan,
China is progressing on schedule, with estimated completion by the end of 2024.The Company is permitted to repurchase up to a maximum of 15,000,000 shares
under a share repurchase program authorized by our Board of Directors. There
were no shares of our common stock repurchased during 2022, 2021 or 2020. At
December 31, 2022, there were 7,396,263 remaining shares available for
repurchase under the Company's authorized share repurchase program.Net current assets increased to approximately $2.4 billion at December 31, 2022
from $119.3 million at December 31, 2021. The increase is primarily due to
increases in cash and cash equivalents from the issuance of the 2022 Notes, as
well as increased inventory and accounts receivable balances from higher lithium
pricing. 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.At December 31, 2022 and 2021, our cash and cash equivalents included $1.3
billion and $374.0 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.
For the years ended December 31, 2022, 2021 and 2020, we repatriated
approximately $1.7 million, $0.9 million and $1.8 million of cash, respectively,
as part of these foreign earnings cash repatriation activities.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, share repurchases and other cash outlays, should be financed
primarily with cash flow provided by operations and cash on hand, with
additional cash needed, if any, provided by borrowings. The amount and timing of
any additional borrowings will depend on our specific cash requirements.
Long term debt
We currently have the following notes pending:
Issue Month/Year Principal (in millions) Interest Rate Interest Payment Dates Maturity Date
November 2019 €371.7 1.125% November 25 November 25, 2025
May 2022(a) $650.0 4.65% June 1 and December 1 June 1, 2027
November 2019 €500.0 1.625% November 25 November 25, 2028
November 2019(a) $171.6 3.45% May 15 and November 15 November 15, 2029
May 2022(a) $600.0 5.05% June 1 and December 1 June 1, 2032
November 2014(a) $350.0 5.45% June 1 and December 1 December 1, 2044
May 2022(a) $450.0 5.65% June 1 and December 1 June 1, 205270
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Albemarle Corporation and Subsidiaries
(a) Denotes senior grades.
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.On October 28, 2022, we amended our revolving, unsecured credit agreement (the
"2018 Credit Agreement"), which provides for borrowings of up to $1.5 billion
and matures on October 28, 2027. The 2018 Credit Agreement was originally dated
as of June 21, 2018, and was previously amended on August 14, 2019, May 11, 2020
and December 10, 2021. Borrowings under the 2018 Credit Agreement bear interest
at variable rates based on a benchmark rate depending on the currency in which
the loans are denominated, plus an applicable margin which ranges from 0.910% to
1.375%, depending on the Company's credit rating from Standard & Poor's Ratings
Services LLC ("S&P"), Moody's Investors Services, Inc. ("Moody's") and Fitch
Ratings, Inc. ("Fitch"). With respect to loans denominated in U.S. dollars,
interest is calculated using the term Secured Overnight Financing Rate ("SOFR")
plus a term SOFR adjustment of 0.10%, plus the applicable margin. The applicable
margin on the facility was 1.125% as of December 31, 2022. There were no
borrowings outstanding under the 2018 Credit Agreement as of December 31, 2022.On August 14, 2019, the Company entered into a $1.2 billion unsecured credit
facility with several banks and other financial institutions, which was amended
and restated on December 15, 2020 and again on December 10, 2021 (the "2019
Credit Facility"). On October 24, 2022, the 2019 Credit Facility was terminated,
with the outstanding balance of $250 million repaid using cash on hand.Borrowings under the 2018 Credit Agreement are conditioned upon satisfaction of
certain conditions precedent, including the absence of defaults. The Company is
subject to one financial covenant, as well as customary affirmative and negative
covenants. The financial covenant requires that the Company's consolidated net
funded debt to consolidated EBITDA ratio (as such terms are defined in the 2018
Credit Agreement) be less than or equal to 3.50:1 for all fiscal quarters,
subject to adjustments in accordance with the terms of the 2018 Credit Agreement
relating to a consummation of an acquisition where the consideration includes
cash proceeds from issuance of funded debt in excess of $500 million. The 2018
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 2018 Credit Agreement could
result in all loans and other obligations becoming immediately due and payable
and the 2018 Credit Agreement being terminated.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 up to a
maximum aggregate principal amount outstanding at any time of $750.0 million.
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 201871
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Albemarle Corporation and SubsidiariesCredit Agreement is available to repay the Commercial Paper Notes, if necessary.
Aggregate borrowings outstanding under the 2018 Credit Agreement and the
Commercial Paper Notes will not exceed the $1.5 billion current maximum amount
available under the 2018 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. There were no Commercial Paper Notes outstanding
at December 31, 2022.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, however, at
December 31, 2022, there are no amounts outstanding under these arrangements.The non-current portion of our long-term debt amounted to $3.2 billion at
December 31, 2022, compared to $2.0 billion at December 31, 2021. In addition,
at December 31, 2022, we had the ability to borrow $1.5 billion under our
commercial paper program and the 2018 Credit Agreement, and $179.0 million under
other existing lines of credit, subject to various financial covenants under the
2018 Credit Agreement. We have the ability and intent to refinance our
borrowings under our other existing credit lines with borrowings under the 2018
Credit Agreement, as applicable. Therefore, the amounts outstanding under those
credit lines, if any, are classified as long-term debt. We believe that as of
December 31, 2022 we were, and currently are, in compliance with all of our debt
covenants. For additional information about our long-term debt obligations, see
Note 14, "Long-Term Debt," to our consolidated financial statements included in
Part II, Item 8 of this report.
Off-balance sheet arrangements
In the normal 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 $142.3 million at December 31,
2022. 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.
Liquidity prospects
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 and share
repurchases, make acquisitions, make pension contributions and pay dividends for
the foreseeable future. Our main focus in the short-term, during the continued
uncertainty surrounding the global economy, including caused by the ongoing
COVID-19 pandemic 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.Our growth investments include the recently completed acquisition all of the
outstanding equity of Qinzhou for approximately $200 million in cash. Qinzhou's
operations include a recently constructed lithium processing plant that has
designed annual conversion capacity of up to 25,000 metric tons of LCE and is
capable of producing battery-grade lithium carbonate and lithium hydroxide. In
addition, we announced agreements for a strategic investment in China with plans
to build a battery grade lithium conversion plant in Meishan initially targeting
50,000 metric tons of LCE per year. Construction of the Meishan facility is
currently underway and is expected to be complete by the end of 2024.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 tons per year of spodumene
concentrate to our previously announced mega-flex lithium conversion facility.72
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Albemarle Corporation and SubsidiariesOverall, with generally strong cash-generative businesses and no significant
long-term debt maturities before November 2025, we believe we have, and will be
able to maintain a solid liquidity position. Our annual maturities of long-term
debt as of December 31, 2022 are as follows (in millions): 2023-$2.1; 2024-$0.0;
2025-$401.3; 2026-$0.0; 2027-$650.0; thereafter-$2,192.4. In addition, we expect
to make interest payments on those long-term debt obligations as follows (in
millions): 2023-$124.5; 2024-$124.5; 2025-$124.1; 2026-$119.8; 2027-$102.3;
thereafter-$1,098.5. For variable-rate debt obligations, projected interest
payments are calculated using the December 31, 2022 weighted average interest
rate of approximately 0.07%.In addition, we expect our capital expenditures to be between $1.7 billion and
$1.9 billion in 2023, primarily for Energy Storage growth and capacity
increases, including in Australia, Chile, China and Silver Peak, Nevada, as well
as productivity and continuity of operations projects in all segments. As of
December 31, 2022, we have also committed to approximately $350.7 million of
payments to third-party vendors in the normal course of business to secure raw
materials for our production processes, with approximately $161.2 million to be
paid in 2023. In order to secure materials, sometimes for long durations, these
contracts mandate a minimum amount of product to be purchased at predetermined
rates over a set timeframe.See Note 18, "Leases," to our consolidated financial statements included in Part
II, Item 8 of this report for our annual expected payments under our operating
lease obligations at December 31, 2022.In 2023, we expect to pay $41.8 million of the $233.5 million balance remaining
from the transition tax on foreign earnings as a result of the Tax Cuts and Jobs
Act ("TCJA") signed into law in December 2017. The one-time transition tax
imposed by the TCJA is based on our total post-1986 earnings and profits that we
previously deferred from U.S. income taxes and is payable over an eight-year
period, with the final payment made in 2026.Contributions to our domestic and foreign qualified and nonqualified pension
plans, including our supplemental executive retirement plan, are expected to
approximate $15 million in 2023. We may choose to make additional pension
contributions in excess of this amount. We made contributions of approximately
$13.4 million to our domestic and foreign pension plans (both qualified and
nonqualified) during the year ended December 31, 2022.The liability related to uncertain tax positions, including interest and
penalties, recorded in Other noncurrent liabilities totaled $83.7 million and
$27.7 million at December 31, 2022 and 2021, respectively. Related assets for
corresponding offsetting benefits recorded in Other assets totaled $32.4 million
and $32.9 million at December 31, 2022 and 2021, respectively. We cannot
estimate the amounts of any cash payments during the next twelve months
associated with these liabilities and are unable to estimate the timing of any
such cash payments in the future at this time.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. In addition, the COVID-19
pandemic has not had a material impact on our liquidity to date; however, we
cannot predict the overall impact in terms of cash flow generation as that will
depend on the length and severity of the outbreak and any future pandemics and
its and their impact. 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 COVID-19 pandemic or future pandamic 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.On February 6, 2017, Huntsman International LLC ("Huntsman"), a subsidiary of
Huntsman Corporation, filed a lawsuit in New York state court against Rockwood
Holdings, Inc. ("Rockwood"), Rockwood Specialties, Inc., certain former
executives of Rockwood and its subsidiaries, Seifollah Ghasemi, Thomas Riordan,
Andrew Ross, and Michael Valente, and Albemarle. The lawsuit arises out of
Huntsman's acquisition of certain Rockwood subsidiaries in connection with a
stock purchase agreement (the "SPA"), dated September 17, 2013. Before that
transaction closed on October 1, 2014, Albemarle began discussions with Rockwood
to purchase all outstanding equity of Rockwood and did so in a transaction that
closed on73
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Albemarle Corporation and SubsidiariesJanuary 12, 2015. Huntsman's complaint asserted that certain technology that
Rockwood had developed for a production facility in Augusta, Georgia, and which
was among the assets that Huntsman acquired pursuant to the SPA, did not work,
and that Rockwood and the defendant executives had intentionally misled Huntsman
about that technology in connection with the Huntsman-Rockwood transaction. The
complaint asserted claims for, among other things, fraud, negligent
misrepresentation, and breach of the SPA, and sought certain costs for
completing construction of the production facility.On March 10, 2017, Albemarle moved in New York state court to compel
arbitration, which was granted on January 8, 2018 (although Huntsman
unsuccessfully appealed that decision). Huntsman's arbitration demand asserted
claims substantially similar to those asserted in its state court complaint, and
sought various forms of legal remedies, including cost overruns, compensatory
damages, expectation damages, punitive damages, and restitution. After a trial,
the arbitration panel issued an award on October 28, 2021, awarding
approximately $600 million (including interest) to be paid by Albemarle to
Huntsman, in addition to the possibility of attorney's fees, costs and expenses.
Following the arbitration panel decision, Albemarle reached a settlement with
Huntsman to pay $665 million in two equal installments, with the first payment
made in December 2021. The second and final payment of $332.5 million was made
in May 2022. As a result, the consolidated statements of income for the year
ended December 31, 2021, includes expense of $657.4 million ($508.5 million net
of income tax), inclusive of estimated possible legal fees incurred by Huntsman
and other related obligations, to reflect the increase in liabilities for this
legal matter.As first reported in 2018, following receipt of information regarding potential
improper payments being made by third-party sales representatives of our
Refining Solutions business, within our Catalysts segment, we promptly retained
outside counsel and forensic accountants to investigate potential violations of
the Company's Code of Conduct, the Foreign Corrupt Practices Act, and other
potentially applicable laws. Based on this internal investigation, we have
voluntarily self-reported potential issues relating to the use of third-party
sales representatives in our Refining Solutions business, within our Catalysts
segment, to the U.S. Department of Justice ("DOJ"), the SEC, and the Dutch
Public Prosecutor ("DPP"), and are cooperating with the DOJ, the SEC, and the
DPP in their review of these matters. In connection with our internal
investigation, we have implemented, and are continuing to implement, appropriate
remedial measures. We have commenced discussions with the SEC, DOJ and DPP about
a potential resolution of these matters.At this time, we are unable to predict the duration, scope, result, or related
costs associated with the investigations. We also are unable to predict what
action may be taken by the DOJ, the SEC, or the DPP, or what penalties or
remedial actions they may ultimately seek. Any determination that our operations
or activities are not, or were not, in compliance with existing laws or
regulations could result in the imposition of fines, penalties, disgorgement,
equitable relief, or other losses. We do not believe, however, that any such
fines, penalties, disgorgement, equitable relief, or other losses would have a
material adverse effect on our financial condition or liquidity. However, an
adverse resolution could have a material adverse effect on our results of
operations in a particular period.We had cash and cash equivalents totaling $1.5 billion as of December 31, 2022,
of which $1.3 billion 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.
Financial information of the guarantor
Albemarle Wodgina Pty Ltd has 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").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.
The Parent Guarantor conducts its US bromine and catalysts operations
directly, and performs its other operations (other than the operations performed
through the Issuer) through the Non-Guarantors.
74
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Albemarle Corporation and SubsidiariesThe 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.
Summary Operations Status
Year ended
December 31,
$ in thousands 2022
Net sales(a) $ 2,981,170
Gross profit 636,894
Loss before income taxes and equity in unconsolidated earnings
investments (b)
52,048
Net loss attributable to the Guarantor and the Issuer
119,551
(a) Includes net sales to Non-Guarantors of $2,155.7 million for the year ended
December 31, 2022.
(b) Includes intergroup expenses to Non-Guarantors of $134.2 million for the
year ended December 31, 2022.Summarized Balance Sheet
At December 31,
$ in thousands 2022
Current assets(a) $ 1,274,018
Net property, plant and equipment 3,379,369
Other non-current assets(b) 687,603Current liabilities(c) $ 2,103,749
Long-term debt 2,260,397
Other non-current liabilities(d) 7,173,636(a) Includes receivables from Non-Guarantors of $605.3 million at December 31,
2022.
(b) Includes non-curent receivables from Non-Guarantors of $109.3 million at
December 31, 2022.
(c) Includes current payables to Non-Guarantors of $1.6 billion at December 31,
2022.
(d) Includes non-current payables to Non-Guarantors of $6.6 billion at
December 31, 2022.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 of75
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Albemarle Corporation and Subsidiariespreferred 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 has 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, 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.76
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Albemarle Corporation and Subsidiaries
Summary Operations Status
Year ended
December 31,
$ in thousands 2022
Net sales(a) $ 2,557,914
Gross profit 353,515
Loss before income taxes and equity in unconsolidated earnings
investments (b)
(121,421)
Net loss attributable to the Subsidiary Guarantor and the Parent Company
(77,487)
(a) Includes net sales to Non-Guarantors of $1,752.5 million for the year ended
December 31, 2022.
(b) Includes intergroup expenses to Non-Guarantors of $25.4 million for the
year ended December 31, 2022.Summarized Balance Sheet
At December 31,
$ in thousands 2022
Current assets(a) $ 1,261,682
Net property, plant and equipment 893,715
Other non-current assets(b) 1,783,357Current liabilities(c) $ 1,981,456
Long-term debt 2,955,934
Other non-current liabilities(d) 6,393,534(a) Includes current receivables from Non-Guarantors of $644.0 million at
December 31, 2022.
(b) Includes noncurrent receivables from Non-Guarantors of $1.2 billion at
December 31, 2022.
(c) Includes current payables to Non-Guarantors of $1.6 billion at December 31,
2022.
(d) Includes non-current payables to Non-Guarantors of $5.8 billion at
December 31, 2022.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 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.
Safety and environmental issues
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 currently 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 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 any77
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Albemarle Corporation and Subsidiariesapportioned 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.Our environmental and safety operating costs charged to expense were $46.3
million, $43.2 million and $44.9 million in 2022, 2021 and 2020, respectively,
excluding depreciation of previous capital expenditures, and are expected to be
in the same range in the next few years. Costs for remediation have been accrued
and payments related to sites are charged against accrued liabilities, which at
December 31, 2022 totaled approximately $38.2 million, a decrease of $8.4
million from $46.6 million at December 31, 2021. See Note 17, "Commitments and
Contingencies" to our consolidated financial statements included in Part II,
Item 8 of this report for a reconciliation of our environmental liabilities for
the years ended December 31, 2022, 2021 and 2020.We believe that any sum we may be required to pay in connection with
environmental remediation and asset retirement obligation matters in excess of
the amounts recorded should occur over a period of time and should 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.Capital expenditures for pollution-abatement and safety projects, including such
costs that are included in other projects, were approximately $75.6 million,
$55.4 million and $40.4 million in 2022, 2021 and 2020, respectively. In the
future, capital expenditures for these types of projects may increase due to
more stringent environmental regulatory requirements and our efforts in reaching
sustainability goals. Management's estimates of the effects of compliance with
governmental pollution-abatement and safety regulations are subject to (a) the
possibility of changes in the applicable statutes and regulations or in judicial
or administrative construction of such statutes and regulations and
(b) uncertainty as to whether anticipated solutions to pollution problems will
be successful, or whether additional expenditures may prove necessary.
Recently issued accounting statements
See Note 1, "Summary of Significant Accounting Policies" to our consolidated
financial statements included in Part II, Item 8 of this report for a discussion
of our Recently Issued Accounting Pronouncements.
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