Albemarle - 10-Q quarterly report FY2019 Q2

Albemarle - 10-Q quarterly report FY2019 Q2

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

_________________________________________________

FORM 10-Q

_________________________________________________



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

For Quarterly Period Ended June 30, 2019



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

For the transition period from to

Commission File Number 1-12658

_________________________________________________

ALBEMARLE CORPORATION

(Exact name of registrant as specified in its charter)

_________________________________________________



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

4250 Congress Street, Suite 900

Charlotte, North Carolina 28209

(Address of principal executive offices) (Zip Code)

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

_________________________________________________

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

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

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

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

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

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



Title of each class	Trading Symbol	Name of each exchange on which registered
COMMON STOCK, $.01 Par Value	ALB	New York Stock Exchange

Number of shares of common stock, $.01 par value, outstanding as of July 31, 2019: 105,986,264

Table of Contents

ALBEMARLE CORPORATION

INDEX – FORM 10-Q




		Page Number(s)
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Income - Three Months and Six Months Ended June 30, 2019 and 2018	3

	Consolidated Statements of Comprehensive Income - Three Months and Six Months Ended June 30, 2019 and 2018	4

	Condensed Consolidated Balance Sheets - June 30, 2019 and December 31, 2018	5

	Consolidated Statements of Changes in Equity - Three Months and Six Months Ended June 30, 2019 and 2018	6

	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2019 and 2018	7

	Notes to the Condensed Consolidated Financial Statements	8-24

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 6.	Exhibits	43

SIGNATURES		44

EXHIBITS

Table of Contents

PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements (Unaudited).

ALBEMARLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net sales	$	885,052		$	853,874		$	1,717,116		$	1,675,503
Cost of goods sold	559,138			542,518			1,107,716			1,059,168
Gross profit	325,914			311,356			609,400			616,335
Selling, general and administrative expenses	126,715			123,637			240,070			225,007
Research and development expenses	13,462			16,074			28,439			37,060
Gain on sale of business	—			(218,705		)	—			(218,705		)
Operating profit	185,737			390,350			340,891			572,973
Interest and financing expenses	(11,601		)	(13,308		)	(24,187		)	(26,846		)
Other (expenses) income, net	(7,065		)	(5,223		)	4,226			(35,699		)
Income before income taxes and equity in net income of unconsolidated investments	167,071			371,819			320,930			510,428
Income tax expense	30,411			80,102			67,925			100,463
Income before equity in net income of unconsolidated investments	136,660			291,717			253,005			409,965
Equity in net income of unconsolidated investments (net of tax)	38,310			18,969			73,491			39,646
Net income	174,970			310,686			326,496			449,611
Net income attributable to noncontrolling interests	(20,772		)	(8,225		)	(38,729		)	(15,390		)
Net income attributable to Albemarle Corporation	$	154,198		$	302,461		$	287,767		$	434,221
Basic earnings per share	$	1.46		$	2.76		$	2.72		$	3.94
Diluted earnings per share	$	1.45		$	2.73		$	2.71		$	3.90
Weighted-average common shares outstanding – basic	105,961			109,671			105,880			110,176
Weighted-average common shares outstanding – diluted	106,316			110,659			106,336			111,263

See accompanying Notes to the Condensed Consolidated Financial Statements.

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ALBEMARLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	174,970		$	310,686		$	326,496		$	449,611
Other comprehensive income (loss), net of tax:
Foreign currency translation	10,544			(150,857		)	(311		)	(85,966		)
Pension and postretirement benefits	6			23			13			26
Net investment hedge	(3,037		)	22,989			267			8,568
Interest rate swap	641			642			1,282			1,284
Total other comprehensive income (loss), net of tax	8,154			(127,203		)	1,251			(76,088		)
Comprehensive income	183,124			183,483			327,747			373,523
Comprehensive income attributable to noncontrolling interests	(20,799		)	(7,962		)	(38,709		)	(15,313		)
Comprehensive income attributable to Albemarle Corporation	$	162,325		$	175,521		$	289,038		$	358,210

See accompanying Notes to the Condensed Consolidated Financial Statements.

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ALBEMARLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)



	June 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	398,183		$	555,320
Trade accounts receivable, less allowance for doubtful accounts (2019 – $4,513; 2018 – $4,460)	624,808			605,712
Other accounts receivable	105,207			52,059
Inventories	814,022			700,540
Other current assets	94,417			84,790
Total current assets	2,036,637			1,998,421
Property, plant and equipment, at cost	5,248,994			4,799,063
Less accumulated depreciation and amortization	1,858,369			1,777,979
Net property, plant and equipment	3,390,625			3,021,084
Investments	541,014			528,722
Other assets	186,592			80,135
Goodwill	1,566,464			1,567,169
Other intangibles, net of amortization	373,082			386,143
Total assets	$	8,094,414		$	7,581,674
Liabilities And Equity
Current liabilities:
Accounts payable	$	558,839		$	522,516
Accrued expenses	268,666			257,323
Current portion of long-term debt	490,691			307,294
Dividends payable	38,733			35,169
Current operating lease liability	19,441			—
Income taxes payable	23,611			60,871
Total current liabilities	1,399,981			1,183,173
Long-term debt	1,398,419			1,397,916
Postretirement benefits	46,025			46,157
Pension benefits	279,342			285,396
Other noncurrent liabilities	609,209			526,942
Deferred income taxes	387,035			382,982
Commitments and contingencies (Note 9)
Equity:
Albemarle Corporation shareholders’ equity:
Common stock, $.01 par value, issued and outstanding – 105,971 in 2019 and 105,616 in 2018	1,059			1,056
Additional paid-in capital	1,373,213			1,368,897
Accumulated other comprehensive loss	(349,411		)	(350,682		)
Retained earnings	2,775,940			2,566,050
Total Albemarle Corporation shareholders’ equity	3,800,801			3,585,321
Noncontrolling interests	173,602			173,787
Total equity	3,974,403			3,759,108
Total liabilities and equity	$	8,094,414		$	7,581,674

See accompanying Notes to the Condensed Consolidated Financial Statements.

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ALBEMARLE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)



(In Thousands, Except Share Data)						Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Albemarle Shareholders’ Equity			Noncontrolling Interests			Total Equity
	Common Stock
	Shares		Amounts
Balance at March 31, 2019	105,950,011		$	1,059		$	1,368,069		$	(357,538	)	$	2,660,684		$	3,672,274		$	191,765		$	3,864,039
Net income												154,198			154,198			20,772			174,970
Other comprehensive income									8,127						8,127			27			8,154
Cash dividends declared, $0.3675 per common share												(38,942		)	(38,942		)	(38,962		)	(77,904		)
Stock-based compensation						4,930									4,930						4,930
Exercise of stock options	11,781		—			529									529						529
Issuance of common stock, net	16,713		—			—									—						—
Shares withheld for withholding taxes associated with common stock issuances	(7,041	)	—			(315		)							(315		)				(315		)
Balance at June 30, 2019	105,971,464		$	1,059		$	1,373,213		$	(349,411	)	$	2,775,940		$	3,800,801		$	173,602		$	3,974,403

Balance at March 31, 2018	110,756,114		$	1,107		$	1,855,321		$	(174,739	)	$	2,118,621		$	3,800,310		$	143,120		$	3,943,430
Net income												302,461			302,461			8,225			310,686
Other comprehensive loss									(126,940		)				(126,940		)	(263		)	(127,203		)
Cash dividends declared, $0.335 per common share												(36,437		)	(36,437		)	(7,378		)	(43,815		)
Stock-based compensation						4,991									4,991						4,991
Exercise of stock options	16,226		—			642									642						642
Shares repurchased	(2,354,133	)	(24		)	(249,976		)							(250,000		)				(250,000		)
Issuance of common stock, net	38,487		1			(1		)							—						—
Shares withheld for withholding taxes associated with common stock issuances	(15,331	)	—			(1,451		)							(1,451		)				(1,451		)
Balance at June 30, 2018	108,441,363		$	1,084		$	1,609,526		$	(301,679	)	$	2,384,645		$	3,693,576		$	143,704		$	3,837,280

Balance at January 1, 2019	105,616,028		$	1,056		$	1,368,897		$	(350,682	)	$	2,566,050		$	3,585,321		$	173,787		$	3,759,108
Net income												287,767			287,767			38,729			326,496
Other comprehensive income (loss)									1,271						1,271			(20		)	1,251
Cash dividends declared, $0.735 per common share												(77,877		)	(77,877		)	(38,962		)	(116,839		)
Stock-based compensation						12,197									12,197						12,197
Exercise of stock options	125,909		1			3,204									3,205						3,205
Issuance of common stock, net	356,824		3			(3		)							—						—
Increase in ownership interest of noncontrolling interest						(513		)							(513		)	68			(445		)
Shares withheld for withholding taxes associated with common stock issuances	(127,297	)	(1		)	(10,569		)							(10,570		)				(10,570		)
Balance at June 30, 2019	105,971,464		$	1,059		$	1,373,213		$	(349,411	)	$	2,775,940		$	3,800,801		$	173,602		$	3,974,403

Balance at January 1, 2018	110,546,674		$	1,105		$	1,863,949		$	(225,668	)	$	2,035,163		$	3,674,549		$	143,147		$	3,817,696
Net income												434,221			434,221			15,390			449,611
Other comprehensive loss									(76,011		)				(76,011		)	(77		)	(76,088		)
Cash dividends declared, $0.67 per common share												(73,540		)	(73,540		)	(14,756		)	(88,296		)
Cumulative adjustment from adoption of income tax standard update (Note 1)												(11,199		)	(11,199		)				(11,199		)
Stock-based compensation						10,728									10,728						10,728
Exercise of stock options	28,966		—			1,288									1,288						1,288
Shares repurchased	(2,354,133	)	(24		)	(249,976		)							(250,000		)				(250,000		)
Issuance of common stock, net	357,927		4			(4		)							—						—
Shares withheld for withholding taxes associated with common stock issuances	(138,071	)	(1		)	(16,459		)							(16,460		)				(16,460		)
Balance at June 30, 2018	108,441,363		$	1,084		$	1,609,526		$	(301,679	)	$	2,384,645		$	3,693,576		$	143,704		$	3,837,280

See accompanying Notes to the Condensed Consolidated Financial Statements.

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ALBEMARLE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



	Six Months Ended June 30,
	2019			2018
Cash and cash equivalents at beginning of year	$	555,320		$	1,137,303
Cash flows from operating activities:
Net income	326,496			449,611
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	102,231			100,804
Gain on sale of business	—			(218,705		)
Gain on sale of property	(11,079		)	—
Stock-based compensation and other	10,136			8,076
Equity in net income of unconsolidated investments (net of tax)	(73,491		)	(39,646		)
Dividends received from unconsolidated investments and nonmarketable securities	60,291			30,045
Pension and postretirement expense (benefit)	1,055			(1,793		)
Pension and postretirement contributions	(7,778		)	(7,089		)
Unrealized gain on investments in marketable securities	(577		)	(625		)
Deferred income taxes	3,570			30,708
Working capital changes	(223,238		)	(91,189		)
Other, net	11,672			(36,340		)
Net cash provided by operating activities	199,288			223,857
Cash flows from investing activities:
Acquisitions, net of cash acquired	—			(7,643		)
Capital expenditures	(415,626		)	(280,945		)
Cash proceeds from divestitures, net	—			416,711
Proceeds from sale of property and equipment	10,356			—
Sales of marketable securities, net	908			(439		)
Investments in equity and other corporate investments	(2,549		)	(1,979		)
Net cash (used in) provided by investing activities	(406,911		)	125,705
Cash flows from financing activities:
Other borrowings (repayments), net	183,052			(211,833		)
Dividends paid to shareholders	(74,313		)	(72,484		)
Dividends paid to noncontrolling interests	(38,962		)	(7,378		)
Repurchases of common stock	—			(250,000		)
Proceeds from exercise of stock options	3,205			1,288
Withholding taxes paid on stock-based compensation award distributions	(10,570		)	(16,460		)
Other	(445		)	—
Net cash provided by (used in) financing activities	61,967			(556,867		)
Net effect of foreign exchange on cash and cash equivalents	(11,481		)	(21,854		)
Decrease in cash and cash equivalents	(157,137		)	(229,159		)
Cash and cash equivalents at end of period	$	398,183		$	908,144

See accompanying Notes to the Condensed Consolidated Financial Statements.

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1—Basis of Presentation:

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Albemarle Corporation and our wholly-owned, majority-owned and controlled subsidiaries (collectively, “Albemarle,” “we,” “us,” “our” or “the Company”) contain all adjustments necessary for a fair statement, in all material respects, of our condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, our consolidated statements of income, consolidated statements of comprehensive income and consolidated statements of changes in equity for the three-month and six-month periods ended June 30, 2019 and 2018 and our condensed consolidated statements of cash flows for the six-month periods ended June 30, 2019 and 2018. All adjustments are of a normal and recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (“SEC”) on February 27, 2019. The December 31, 2018 condensed consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). The results of operations for the three-month and six-month periods ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year. The six-month period ended June 30, 2018 includes an $11.2 million cumulative adjustment to decrease Retained earnings due to the adoption of accounting guidance that eliminated the deferral of tax effects of intra-entity asset transfers other than inventory.

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

As part of this adoption, we have elected the practical expedient relief package allowed by the new standard, which does not require the reassessment of (1) whether existing contracts contain a lease, (2) the lease classification or (3) unamortized initial direct costs for existing leases; and have elected to apply hindsight to the existing leases. Additionally, we have made accounting policy elections such as exclusion of short-term leases (leases with a term of 12 months or less and which do not include a purchase option that we are reasonably certain to exercise) from the balance sheet presentation, use of portfolio approach in determination of discount rate and accounting for non-lease components in a contract as part of a single lease component for all asset classes.

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

Leases

We determine if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As an implicit rate for most of our leases is not determinable, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The lease payments for the initial measurement of lease ROU assets and lease liabilities include fixed and variable payments based on an index or a rate. Variable lease payments that are not index or rate based are recorded as expenses when incurred. Our variable lease payments typically include real estate taxes, insurance costs and common-area maintenance. The operating lease ROU asset also includes any lease payments made, net of lease incentives. The lease term is the non-cancelable period of the lease, including any options to extend, purchase or terminate the lease when it is reasonably certain that we will exercise that option. We amortize the operating lease ROU assets on a straight-line basis over the period of the lease and the finance lease ROU assets on a straight-line basis over the shorter of their estimated useful lives or the lease terms. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term.

NOTE 2—Leases:

We lease certain office space, buildings, transportation and equipment in various countries. The initial lease terms generally range from 1 to 30 years for real estate leases, and from 2 to 15 years for non-real estate leases. Leases with an initial

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term.

Many leases include options to terminate or renew, with renewal terms that can extend the lease term from 1 to 50 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table provides details of our lease contracts for the three-month and six-month periods ended June 30, 2019 (in thousands):



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	8,381	$	17,802
Finance lease cost:
Amortization of right of use assets	136		314
Interest on lease liabilities	32		65
Total finance lease cost	168		379

Short-term lease cost	1,869		3,835
Variable lease cost	1,432		2,518
Total lease cost	$	11,850	$	24,534

Supplemental cash flow information related to our lease contracts for the six months ended June 30, 2019 is as follows (in thousands):



	Six Months Ended
	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	15,775
Operating cash flows from finance leases	65
Financing cash flows from finance leases	341
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	526

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Supplemental balance sheet information related to our lease contracts, including the location on balance sheet, at June 30, 2019 is as follows (in thousands, except as noted):



	June 30, 2019
Operating leases:
Other assets	$	124,872

Current operating lease liability	19,441
Other noncurrent liabilities	106,788
Total operating lease liabilities	126,229
Finance leases:
Net property, plant and equipment	4,089

Current portion of long-term debt	691
Long-term debt	3,459
Total finance lease liabilities	4,150
Weighted average remaining lease term (in years):
Operating leases	11.7
Finance leases	6.2
Weighted average discount rate (%):
Operating leases	3.87		%
Finance leases	2.89		%

Maturities of lease liabilities as of June 30, 2019 were as follows (in thousands):



	Operating Leases		Finance Leases
Remainder of 2019	$	12,495	$	408
2020	21,003		771
2021	12,685		682
2022	10,649		682
2023	10,246		682
Thereafter	93,748		1,364
Total lease payments	160,826		4,589
Less imputed interest	34,597		439
Total	$	126,229	$	4,150

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

NOTE 3—Goodwill and Other Intangibles:

The following table summarizes the changes in goodwill by reportable segment for the six months ended June 30, 2019 (in thousands):



	Lithium			Bromine Specialties		Catalysts			All Other		Total
Balance at December 31, 2018	$	1,354,779		$	20,319	$	185,485		$	6,586	$	1,567,169
Foreign currency translation adjustments	(626		)	—		(79		)	—		(705		)
Balance at June 30, 2019	$	1,354,153		$	20,319	$	185,406		$	6,586	$	1,566,464

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Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the changes in other intangibles and related accumulated amortization for the six months ended June 30, 2019 (in thousands):



	Customer Lists and Relationships			Trade Names and Trademarks^(a)			Patents and Technology			Other			Total
Gross Asset Value
Balance at December 31, 2018	$	428,372		$	18,453		$	55,801		$	43,708		$	546,334
Foreign currency translation adjustments and other	940			(12		)	(46		)	(84		)	798
Balance at June 30, 2019	$	429,312		$	18,441		$	55,755		$	43,624		$	547,132
Accumulated Amortization
Balance at December 31, 2018	$	(95,797	)	$	(8,176	)	$	(35,248	)	$	(20,970	)	$	(160,191	)
Amortization	(11,695		)	—			(707		)	(1,319		)	(13,721		)
Foreign currency translation adjustments and other	(252		)	8			23			83			(138		)
Balance at June 30, 2019	$	(107,744	)	$	(8,168	)	$	(35,932	)	$	(22,206	)	$	(174,050	)
Net Book Value at December 31, 2018	$	332,575		$	10,277		$	20,553		$	22,738		$	386,143
Net Book Value at June 30, 2019	$	321,568		$	10,273		$	19,823		$	21,418		$	373,082


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

NOTE 4—Income Taxes:

The effective income tax rate for the three-month and six-month periods ended June 30, 2019 was 18.2% and 21.2%, respectively, compared to 21.5% and 19.7% for the three-month and six-month periods ended June 30, 2018, respectively. The Company’s effective income tax rate fluctuates based on, among other factors, its level and location of income. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the three-month and six-month periods ended June 30, 2019 and 2018 was impacted by a variety of factors, primarily stemming from the location in which income was earned. Income tax expense for the three-month and six-month periods ended June 30, 2018 included discrete tax adjustments of $42.0 million for the disposition of the polyolefin catalysts and components portion of our Performance Catalyst Solutions (“PCS”) business (“Polyolefin Catalysts Divestiture”) and $8.5 million for a valuation allowance recorded due to a foreign restructuring plan, partially offset by an $8.0 million benefit for tax accounting method changes. In addition, Income tax expense for the six-month period ended June 30, 2018 included discrete tax benefits related to adjustments recorded for the U.S. Tax Cuts and Jobs Act (“TCJA”) and excess tax benefits realized from stock-based compensation arrangements.

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Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 5—Earnings Per Share:

Basic and diluted earnings per share for the three-month and six-month periods ended June 30, 2019 and 2018 are calculated as follows (in thousands, except per share amounts):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Basic earnings per share
Numerator:
Net income attributable to Albemarle Corporation	$	154,198	$	302,461	$	287,767	$	434,221
Denominator:
Weighted-average common shares for basic earnings per share	105,961		109,671		105,880		110,176
Basic earnings per share	$	1.46	$	2.76	$	2.72	$	3.94

Diluted earnings per share
Numerator:
Net income attributable to Albemarle Corporation	$	154,198	$	302,461	$	287,767	$	434,221
Denominator:
Weighted-average common shares for basic earnings per share	105,961		109,671		105,880		110,176
Incremental shares under stock compensation plans	355		988		456		1,087
Weighted-average common shares for diluted earnings per share	106,316		110,659		106,336		111,263
Diluted earnings per share	$	1.45	$	2.73	$	2.71	$	3.90

At June 30, 2019, there were 214,904 common stock equivalents not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

On February 26, 2019, the Company increased the regular quarterly dividend by 10% to $0.3675 per share. On May 8, 2019, the Company declared a cash dividend of $0.3675 per share, which was paid on July 1, 2019 to shareholders of record at the close of business as of June 14, 2019. On July 24, 2019, the Company declared a cash dividend of $0.3675 per share, which is payable on October 1, 2019 to shareholders of record at the close of business as of September 13, 2019.

NOTE 6—Inventories:

The following table provides a breakdown of inventories at June 30, 2019 and December 31, 2018 (in thousands):



	June 30,		December 31,
	2019		2018
Finished goods^(a)	$	574,880	$	482,355
Raw materials and work in process^(b)	172,607		158,290
Stores, supplies and other	66,535		59,895
Total	$	814,022	$	700,540


(a)	Increase primarily due to the build-up of inventory in our Lithium and Catalysts segments to meet higher projected sales during the remainder of 2019.


(b)	Included $69.6 million and $71.4 million at June 30, 2019 and December 31, 2018, respectively, of work in process in our Lithium segment. Raw materials increased primarily in Lithium to meet higher projected sales during the remainder of 2019.

NOTE 7—Investments:

The Company holds a 49% equity interest in Windfield Holdings Pty. Ltd. (“Windfield”), where the ownership parties share risks and benefits disproportionate to their voting interests. As a result, the Company considers Windfield to be a variable interest entity (“VIE”), however this investment is not consolidated as the Company is not the primary beneficiary. The carrying amount of our 49% equity interest in Windfield, which is our most significant VIE, was $358.7 million and $349.6 million at June 30, 2019 and December 31, 2018, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIEs for which the Company is not the primary beneficiary was $8.2 million and $8.1 million at June 30, 2019 and December 31, 2018, respectively. Our unconsolidated VIEs are reported in Investments on the condensed consolidated

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balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of the investments.

NOTE 8—Long-Term Debt:

Long-term debt at June 30, 2019 and December 31, 2018 consisted of the following (in thousands):



	June 30,		December 31,
	2019		2018
1.875% Senior notes, net of unamortized discount and debt issuance costs of $2,355 at June 30, 2019 and $2,841 at December 31, 2018	$	444,287	$	444,155
4.15% Senior notes, net of unamortized discount and debt issuance costs of $2,641 at June 30, 2019 and $2,884 at December 31, 2018	422,359		422,116
4.50% Senior notes, net of unamortized discount and debt issuance costs of $439 at June 30, 2019 and $589 at December 31, 2018	174,777		174,626
5.45% Senior notes, net of unamortized discount and debt issuance costs of $3,927 at June 30, 2019 and $4,004 at December 31, 2018	346,073		345,996
Commercial paper notes	490,000		306,606
Variable-rate foreign bank loans	7,464		7,216
Finance lease obligations	4,150		4,495
Total long-term debt	1,889,110		1,705,210
Less amounts due within one year	490,691		307,294
Long-term debt, less current portion	$	1,398,419	$	1,397,916

Current portion of long-term debt at June 30, 2019 consisted primarily of commercial paper notes with a weighted-average interest rate of approximately 2.67% and a weighted-average maturity of 32 days.

The carrying value of our 1.875% Euro-denominated senior notes has been designated as an effective hedge of our net investment in certain foreign subsidiaries where the Euro serves as the functional currency, and gains or losses on the revaluation of these senior notes to our reporting currency are recorded in accumulated other comprehensive loss. During the three-month and six-month periods ended June 30, 2019, (losses) gains of ($3.0) million and $0.3 million (net of income taxes), respectively, and during the three-month and six-month periods ended June 30, 2018, gains of $23.0 million and $8.6 million (net of income taxes), respectively, were recorded in accumulated other comprehensive loss in connection with the revaluation of these senior notes to our reporting currency.

NOTE 9—Commitments and Contingencies:

Environmental

We had the following activity in our recorded environmental liabilities for the six months ended June 30, 2019 (in thousands):



Beginning balance at December 31, 2018	$	49,569
Expenditures	(3,133		)
Accretion of discount	567
Additions and changes in estimates	1,070
Foreign currency translation adjustments and other	(1,269		)
Ending balance at June 30, 2019	46,804
Less amounts reported in Accrued expenses	9,654
Amounts reported in Other noncurrent liabilities	$	37,150

Environmental remediation liabilities included discounted liabilities of $38.6 million and $40.4 million at June 30, 2019 and December 31, 2018, respectively, discounted at rates with a weighted-average of 3.7%, with the undiscounted amount totaling $72.1 million and $74.5 million at June 30, 2019 and December 31, 2018, respectively. For certain locations where the

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Company is operating groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility.

The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, could be an additional $10 million to $30 million before income taxes, in excess of amounts already recorded. The variability of this range is primarily driven by possible environmental remediation activity at a formerly owned site where we indemnify the buyer through a set cutoff date in 2024.

We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would likely not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particular quarterly reporting period.

Litigation

We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.

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

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

Indemnities

We are indemnified by third parties in connection with certain matters related to acquired and divested businesses. Although we believe that the financial condition of those parties who may have indemnification obligations to the Company is generally sound, in the event the Company seeks indemnity under any of these agreements or through other means, there can be no assurance that any party who may have obligations to indemnify us will adhere to their obligations and we may have to resort to legal action to enforce our rights under the indemnities.

The Company may be subject to indemnity claims relating to properties or businesses it divested, including properties or businesses of acquired businesses that were divested prior to the completion of the acquisition. In the opinion of management, and based upon information currently available, the ultimate resolution of any indemnification obligations owed to the Company or by the Company is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows. The Company had approximately $29.0 million and $45.3 million at June 30, 2019 and December 31, 2018, respectively, recorded in Other noncurrent liabilities, and $21.4 million recorded in Accrued expenses at June 30, 2019, related to the indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold, as well as the proposed settlement of an ongoing audit of a previously disposed business in Germany.

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Other

We have contracts with certain of our customers, which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis as well as blanket coverage of multiple shipments under certain customer supply contracts. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.

NOTE 10—Segment Information:

Our three reportable segments include: (1) Lithium; (2) Bromine Specialties; and (3) Catalysts. Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. This business structure aligns with the markets and customers we serve through each of the segments. This structure also facilitates the continued standardization of business processes across the organization, and is consistent with the manner in which information is presently used internally by the Company’s chief operating decision maker to evaluate performance and make resource allocation decisions.

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

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

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

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	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(In thousands)
Net sales:
Lithium	$	324,758		$	317,563		$	616,644		$	615,595
Bromine Specialties	255,433			220,514			504,485			446,153
Catalysts	266,301			284,966			517,949			545,683
All Other	38,560			30,748			78,038			67,913
Corporate	—			83			—			159
Total net sales	$	885,052		$	853,874		$	1,717,116		$	1,675,503

Adjusted EBITDA:
Lithium	$	141,779		$	141,617		$	257,395		$	272,631
Bromine Specialties	81,332			69,367			159,929			139,336
Catalysts	66,875			75,102			126,946			142,932
All Other	11,240			(101		)	18,483			3,761
Corporate	(39,326		)	(27,423		)	(74,986		)	(51,380		)
Total adjusted EBITDA	$	261,900		$	258,562		$	487,767		$	507,280

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

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	Lithium			Bromine Specialties		Catalysts			Reportable Segments Total			All Other			Corporate			Consolidated Total
Three months ended June 30, 2019
Net income (loss) attributable to Albemarle Corporation	$	117,303		$	69,616	$	54,124		$	241,043		$	9,118		$	(95,963	)	$	154,198
Depreciation and amortization	24,365			11,716		12,751			48,832			2,122			1,994			52,948
Acquisition and integration related costs^(a)	—			—		—			—			—			4,990			4,990
Interest and financing expenses	—			—		—			—			—			11,601			11,601
Income tax expense	—			—		—			—			—			30,411			30,411
Non-operating pension and OPEB items	—			—		—			—			—			(676		)	(676		)
Other^(b)	111			—		—			111			—			8,317			8,428
Adjusted EBITDA	$	141,779		$	81,332	$	66,875		$	289,986		$	11,240		$	(39,326	)	$	261,900
Three months ended June 30, 2018
Net income (loss) attributable to Albemarle Corporation	$	117,292		$	59,673	$	280,887		$	457,852		$	(2,079	)	$	(153,312	)	$	302,461
Depreciation and amortization	24,325			9,694		12,920			46,939			1,978			1,557			50,474
Gain on sale of business^(c)	—			—		(218,705		)	(218,705		)	—			—			(218,705		)
Acquisition and integration related costs^(a)	—			—		—			—			—			6,510			6,510
Interest and financing expenses	—			—		—			—			—			13,308			13,308
Income tax expense	—			—		—			—			—			80,102			80,102
Non-operating pension and OPEB items	—			—		—			—			—			(2,204		)	(2,204		)
Legal accrual^(d)	—			—		—			—			—			10,416			10,416
Albemarle Foundation contribution^(e)	—			—		—			—			—			15,000			15,000
Other^(f)	—			—		—			—			—			1,200			1,200
Adjusted EBITDA	$	141,617		$	69,367	$	75,102		$	286,086		$	(101	)	$	(27,423	)	$	258,562
Six months ended June 30, 2019
Net income (loss) attributable to Albemarle Corporation	$	210,472		$	137,096	$	101,983		$	449,551		$	14,324		$	(176,108	)	$	287,767
Depreciation and amortization	46,457			22,833		24,963			94,253			4,159			3,819			102,231
Acquisition and integration related costs^(a)	—			—		—			—			—			10,274			10,274
Gain on sale of property^(g)	—			—		—			—			—			(11,079		)	(11,079		)
Interest and financing expenses	—			—		—			—			—			24,187			24,187
Income tax expense	—			—		—			—			—			67,925			67,925
Non-operating pension and OPEB items	—			—		—			—			—			(1,259		)	(1,259		)
Other^(b)	466			—		—			466			—			7,255			7,721
Adjusted EBITDA	$	257,395		$	159,929	$	126,946		$	544,270		$	18,483		$	(74,986	)	$	487,767
Six months ended June 30, 2018
Net income (loss) attributable to Albemarle Corporation	$	225,626		$	119,209	$	336,547		$	681,382		$	(319	)	$	(246,842	)	$	434,221
Depreciation and amortization	48,390			20,127		25,090			93,607			4,080			3,117			100,804
Gain on sale of business^(c)	—			—		(218,705		)	(218,705		)	—			—			(218,705		)
Acquisition and integration related costs^(a)	—			—		—			—			—			8,712			8,712
Interest and financing expenses	—			—		—			—			—			26,846			26,846
Income tax expense	—			—		—			—			—			100,463			100,463
Non-operating pension and OPEB items	—			—		—			—			—			(4,401		)	(4,401		)
Legal accrual^(d)	—			—		—			—			—			28,044			28,044
Environmental accrual^(h)	—			—		—			—			—			15,597			15,597
Albemarle Foundation contribution^(e)	—			—		—			—			—			15,000			15,000
Other^(f)	(1,385		)	—		—			(1,385		)	—			2,084			699
Adjusted EBITDA	$	272,631		$	139,336	$	142,932		$	554,899		$	3,761		$	(51,380	)	$	507,280


(a)	Included acquisition and integration related costs relating to various significant projects. For the three-month and six-month periods ended June 30, 2019, $5.0 million and $10.3 million was recorded in Selling, general and administrative expenses. For the three-month

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and six-month periods ended June 30, 2018, $1.0 million and $1.9 million was recorded in Cost of goods sold, respectively, and $5.5 million and $6.8 million was recorded in Selling, general and administrative expenses, respectively.


(b)	Included amounts for the three months ended June 30, 2019 recorded in:


▪	Cost of goods sold - $0.1 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements.


▪	Selling, general and administrative expenses - Expected severance payments to be made in 2019 as part of a business reorganization plan of $4.8 million, with the unpaid balance recorded in Accrued expenses as of June 30, 2019, and $1.0 million of shortfall contributions for our multiemployer plan financial improvement plan.


▪	Other (expenses) income, net - $2.5 million of a net loss primarily resulting from the revision of indemnifications related to previously disposed businesses.

Included amounts for the six months ended June 30, 2019 recorded in:


▪	Cost of goods sold - $0.5 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements.


▪	Selling, general and administrative expenses - Expected severance payments to be made in 2019 as part of a business reorganization plan of $5.3 million, with the unpaid balance recorded in Accrued expenses as of June 30, 2019, and $1.0 million of shortfall contributions for our multiemployer plan financial improvement plan.


▪	Other (expenses) income, net - $0.9 million of a net loss primarily resulting from the revision of indemnifications and other liabilities related to previously disposed businesses.


(c)	Gain related to the sale of the Polyolefin Catalysts Divestiture, which closed in the second quarter of 2018.

(d)

Included in Other (expenses) income, net for the three-month and six-month periods ended June 30, 2018 is a $10.4 million expense resulting from a settlement of a legal matter related to guarantees from a previously disposed business. Also included in Other (expenses) income, net, for the six months ended June 30, 2018 is a $17.6 million expense resulting from a jury rendered verdict against Albemarle related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures.

(e)

Included in Selling, general and administrative expenses is a charitable contribution, using a portion of the proceeds received from the Polyolefin Catalysts 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 our employees live and operate. This contribution is in addition to the ordinary 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 the communities where we live and operate.


(f)	Included amounts for the three months ended June 30, 2018 recorded in:


▪	Other (expenses) income, net - $1.2 million related to the revision of previously recorded expenses of disposed businesses.

Included amounts for the six months ended June 30, 2018 recorded in:


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


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


▪	Other (expenses) income, net - $1.0 million related to the revision of previously recorded expenses of disposed businesses.


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


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

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NOTE 11—Pension Plans and Other Postretirement Benefits:

The components of pension and postretirement benefits cost (credit) for the three-month and six-month periods ended June 30, 2019 and 2018 were as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Pension Benefits Cost (Credit):
Service cost	$	1,123		$	1,259		$	2,253		$	2,527
Interest cost	8,220			8,016			16,540			16,043
Expected return on assets	(9,445		)	(10,760		)	(18,897		)	(21,524		)
Amortization of prior service benefit	6			24			12			46
Total net pension benefits credit	$	(96	)	$	(1,461	)	$	(92	)	$	(2,908	)
Postretirement Benefits Cost (Credit):
Service cost	$	25		$	30		$	49		$	59
Interest cost	549			542			1,098			1,084
Expected return on assets	—			(2		)	—			(4		)
Amortization of prior service benefit	—			(12		)	—			(24		)
Total net postretirement benefits cost	$	574		$	558		$	1,147		$	1,115
Total net pension and postretirement benefits cost (credit)	$	478		$	(903	)	$	1,055		$	(1,793	)

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

During the three-month and six-month periods ended June 30, 2019, we made contributions of $3.8 million and $6.5 million, respectively, to our qualified and nonqualified pension plans. During the three-month and six-month periods ended June 30, 2018, we made contributions of $2.8 million and $5.9 million, respectively, to our qualified and nonqualified pension plans.

We paid $0.4 million and $1.3 million in premiums to the U.S. postretirement benefit plan during the three-month and six-month periods ended June 30, 2019, respectively. During the three-month and six-month periods ended June 30, 2018, we paid $0.7 million and $1.2 million, respectively, in premiums to the U.S. postretirement benefit plan.

NOTE 12—Fair Value of Financial Instruments:

In assessing the fair value of financial instruments, we use methods and assumptions that are based on market conditions and other risk factors existing at the time of assessment. Fair value information for our financial instruments is as follows:

Long-Term Debt—the fair values of our senior notes are estimated using Level 1 inputs and account for the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying condensed consolidated balance sheets approximates fair value as substantially all of such debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.



	June 30, 2019				December 31, 2018
	Recorded Amount		Fair Value		Recorded Amount		Fair Value
	(In thousands)
Long-term debt	$	1,895,365	$	1,962,915	$	1,712,003	$	1,731,271

Foreign Currency Forward Contracts—we enter into foreign currency forward contracts in connection with our risk management strategies in an attempt to minimize the financial impact of changes in foreign currency exchange rates. These derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. The fair values of our foreign currency forward contracts are estimated based on current settlement values. At June 30, 2019 and December 31, 2018, we had outstanding foreign currency forward contracts with notional values totaling $895.2 million and $626.5 million, respectively, hedging our exposure to various currencies including the Euro, Chinese Renminbi, Chilean Peso

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and Australian Dollar. Our foreign currency forward contracts outstanding at June 30, 2019 and December 31, 2018 have not been designated as hedging instruments under ASC 815, Derivatives and Hedging. The following table summarizes the fair value of our foreign currency forward contracts included in the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018 (in thousands):



	June 30,		December 31,
	2019		2018
Foreign currency forward contracts - Other accounts receivable	$	—	$	431
Foreign currency forward contracts - Accrued expenses	$	87	$	—

Gains and losses on foreign currency forward contracts are recognized currently in Other (expenses) income, net; further, fluctuations in the value of these contracts are generally expected to be offset by changes in the value of the underlying exposures being hedged, which are also reported in Other (expenses) income, net. The following table summarizes these net gains (losses) recognized in our consolidated statements of income during the three-month and six-month periods ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Foreign currency forward contracts gains (losses)	$	2,099	$	(17,650	)	$	(8,316	)	$	(12,831	)

In addition, for the six-month periods ended June 30, 2019 and 2018, we recorded losses of $8.3 million and $12.8 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash settlements of $7.8 million and $18.0 million, respectively, in Other, net, in our condensed consolidated statements of cash flows.

The counterparties to our foreign currency forward contracts are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties.

NOTE 13—Fair Value Measurement:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:



Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2	Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Level 3	Unobservable inputs for the asset or liability

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We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 (in thousands):



	June 30, 2019		Quoted Prices in Active Markets for Identical Items (Level 1)		Quoted Prices in Active Markets for Similar Items (Level 2)		Unobservable Inputs (Level 3)
	June 30, 2019				Quoted Prices in Active Markets for Similar Items (Level 2)		Unobservable Inputs (Level 3)
Assets:
Investments under executive deferred compensation plan^(a)	$	25,961	$	25,961	$	—	$	—
Private equity securities^(b)	$	30	$	30	$	—	$	—
Private equity securities measured at net asset value^(b)(c)	$	7,178	$	—	$	—	$	—

Liabilities:
Obligations under executive deferred compensation plan^(a)	$	25,961	$	25,961	$	—	$	—
Foreign currency forward contracts^(d)	$	87	$	—	$	87	$	—



	December 31, 2018		Quoted Prices in Active Markets for Identical Items (Level 1)		Quoted Prices in Active Markets for Similar Items (Level 2)		Unobservable Inputs (Level 3)
	December 31, 2018				Quoted Prices in Active Markets for Similar Items (Level 2)		Unobservable Inputs (Level 3)
Assets:
Investments under executive deferred compensation plan^(a)	$	26,292	$	26,292	$	—	$	—
Private equity securities^(b)	$	26	$	26	$	—	$	—
Private equity securities measured at net asset value^(b)(c)	$	7,195	$	—	$	—	$	—
Foreign currency forward contracts^(d)	$	431	$	—	$	431	$	—

Liabilities:
Obligations under executive deferred compensation plan^(a)	$	26,292	$	26,292	$	—	$	—

(a)

We maintain an Executive Deferred Compensation Plan (“EDCP”) that was adopted in 2001 and subsequently amended. The purpose of the EDCP is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended to aid in attracting and retaining employees of exceptional ability by providing them with these benefits. We also maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of the EDCP, subject to the claims of our creditors in the event of our insolvency. Assets of the Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fund investments (which are accounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statements of income) and cash and cash equivalents. As such, these assets and obligations are classified within Level 1.


(b)	Primarily consists of private equity securities classified as available-for-sale and are reported in Investments in the condensed consolidated balance sheets. The changes in fair value are reported in Other (expenses) income, net, in our consolidated statements of income.


(c)	Holdings in certain private equity securities are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy.

(d)

As a result of our global operating and financing activities, we are exposed to market risks from changes in foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from foreign currency exchange rate fluctuations through the use of foreign currency forward contracts. Unless otherwise noted, these derivative financial instruments are not designated as hedging instruments under ASC 815, Derivatives and Hedging. The foreign currency forward contracts are valued using broker quotations or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within Level 2.

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

NOTE 14—Accumulated Other Comprehensive (Loss) Income:

The components and activity in Accumulated other comprehensive (loss) income (net of deferred income taxes) consisted of the following during the periods indicated below (in thousands):



	Foreign Currency Translation			Pension and Postretirement Benefits^(a)			Net Investment Hedge			Interest Rate Swap^(b)			Total
Three months ended June 30, 2019
Balance at March 31, 2019	$	(418,454	)	$	(152	)	$	75,641		$	(14,573	)	$	(357,538	)
Other comprehensive income (loss) before reclassifications	10,544			—			(3,037		)	—			7,507
Amounts reclassified from accumulated other comprehensive loss	—			6			—			641			647
Other comprehensive income (loss), net of tax	10,544			6			(3,037		)	641			8,154
Other comprehensive income attributable to noncontrolling interests	(27		)	—			—			—			(27		)
Balance at June 30, 2019	$	(407,937	)	$	(146	)	$	72,604		$	(13,932	)	$	(349,411	)
Three months ended June 30, 2018
Balance at March 31, 2018	$	(192,864	)	$	(18	)	$	32,130		$	(13,987	)	$	(174,739	)
Other comprehensive (loss) income before reclassifications	(150,857		)	—			22,989			—			(127,868		)
Amounts reclassified from accumulated other comprehensive loss	—			23			—			642			665
Other comprehensive (loss) income, net of tax	(150,857		)	23			22,989			642			(127,203		)
Other comprehensive loss attributable to noncontrolling interests	263			—			—			—			263
Balance at June 30, 2018	$	(343,458	)	$	5		$	55,119		$	(13,345	)	$	(301,679	)
Six months ended June 30, 2019
Balance at December 31, 2018	$	(407,646	)	$	(159	)	$	72,337		$	(15,214	)	$	(350,682	)
Other comprehensive (loss) income before reclassifications	(311		)	—			267			—			(44		)
Amounts reclassified from accumulated other comprehensive loss	—			13			—			1,282			1,295
Other comprehensive (loss) income, net of tax	(311		)	13			267			1,282			1,251
Other comprehensive loss attributable to noncontrolling interests	20			—			—			—			20
Balance at June 30, 2019	$	(407,937	)	$	(146	)	$	72,604		$	(13,932	)	$	(349,411	)
Six months ended June 30, 2018
Balance at December 31, 2017	$	(257,569	)	$	(21	)	$	46,551		$	(14,629	)	$	(225,668	)
Other comprehensive (loss) income before reclassifications	(85,966		)	—			8,568			—			(77,398		)
Amounts reclassified from accumulated other comprehensive loss	—			26			—			1,284			1,310
Other comprehensive (loss) income, net of tax	(85,966		)	26			8,568			1,284			(76,088		)
Other comprehensive loss attributable to noncontrolling interests	77			—			—			—			77
Balance at June 30, 2018	$	(343,458	)	$	5		$	55,119		$	(13,345	)	$	(301,679	)


(a)	The pre-tax portion of amounts reclassified from accumulated other comprehensive loss consists of amortization of prior service benefit, which is a component of pension and postretirement benefits cost (credit). See Note 11, “Pension Plans and Other Postretirement Benefits,” for additional information.


(b)	The pre-tax portion of amounts reclassified from accumulated other comprehensive loss is included in interest expense.

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The amount of income tax benefit (expense) allocated to each component of Other comprehensive income (loss) for the three-month and six-month periods ended June 30, 2019 and 2018 is provided in the following tables (in thousands):



	Three Months Ended June 30,
	2019											2018
	Foreign Currency Translation			Pension and Postretirement Benefits		Net Investment Hedge			Interest Rate Swap			Foreign Currency Translation			Pension and Postretirement Benefits			Net Investment Hedge			Interest Rate Swap
Other comprehensive income (loss), before tax	$	10,544		$	6	$	(3,951	)	$	834		$	(150,858	)	$	27		$	29,864		$	834
Income tax benefit (expense)	—			—		914			(193		)	1			(4		)	(6,875		)	(192		)
Other comprehensive income (loss), net of tax	$	10,544		$	6	$	(3,037	)	$	641		$	(150,857	)	$	23		$	22,989		$	642

	Six Months Ended June 30,
	2019											2018
	Foreign Currency Translation			Pension and Postretirement Benefits		Net Investment Hedge			Interest Rate Swap			Foreign Currency Translation			Pension and Postretirement Benefits			Net Investment Hedge			Interest Rate Swap
Other comprehensive (loss) income, before tax	$	(310	)	$	13	$	348		$	1,668		$	(85,967	)	$	30		$	11,130		$	1,668
Income tax (expense) benefit	(1		)	—		(81		)	(386		)	1			(4		)	(2,562		)	(384		)
Other comprehensive (loss) income, net of tax	$	(311	)	$	13	$	267		$	1,282		$	(85,966	)	$	26		$	8,568		$	1,284

NOTE 15—Related Party Transactions:

Our consolidated statements of income include sales to and purchases from unconsolidated affiliates in the ordinary course of business as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Sales to unconsolidated affiliates	$	5,372	$	11,033	$	9,663	$	15,638
Purchases from unconsolidated affiliates^(a)	$	55,617	$	57,059	$	119,116	$	125,975


(a)	Purchases from unconsolidated affiliates primarily relate to purchases from our Windfield joint venture.

Our condensed consolidated balance sheets include accounts receivable due from and payable to unconsolidated affiliates in the ordinary course of business as follows (in thousands):



	June 30, 2019		December 31, 2018
Receivables from unconsolidated affiliates	$	3,698	$	14,348
Payables to unconsolidated affiliates	$	57,031	$	68,357

NOTE 16—Supplemental Cash Flow Information:

Supplemental information related to the condensed consolidated statements of cash flows is as follows (in thousands):



	Six Months Ended June 30,
	2019		2018
Supplemental non-cash disclosure related to investing activities:
Capital expenditures included in Accounts payable	$	170,776	$	95,080

Other, net within Cash flows from operating activities on the condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 included $14.4 million and $33.9 million, respectively, representing the reclassification

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

of the current portion of the one-time transition tax resulting from the enactment of the TCJA, from Other noncurrent liabilities to Income taxes payable within current liabilities.

NOTE 17—Recently Issued Accounting Pronouncements:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that requires assets and liabilities arising from leases to be recorded on the balance sheet. Additional disclosures are required regarding the amount, timing, and uncertainty of cash flows from leases. In July 2018, the FASB issued an amendment which would allow entities to initially apply this new standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of Retained earnings. The Company adopted this standard on January 1, 2019 using this transition method. See Note 1, “Basis of Presentation,” for further details.

In June 2016, the FASB issued accounting guidance that, among other things, changes the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of the financial asset. Additional disclosures are required regarding an entity’s assumptions, models and methods for estimating the expected credit loss. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be applied using a modified retrospective approach. Early adoption is permitted. We currently do not expect this guidance to have a significant impact on our financial statements.

In January 2017, the FASB issued accounting guidance to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a reporting unit to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit has been acquired in a business combination. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be applied on a prospective basis. Early adoption is permitted for goodwill impairment tests performed after January 1, 2017. We expect to adopt this guidance on January 1, 2020 and do not expect it to have a significant impact on our financial statements.

In August 2017, the FASB issued accounting guidance to better align an entity’s risk management activities with hedge accounting, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. This guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. In October 2018, the FASB issued additional guidance that permits the use of the Overnight Index Swap Rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815, Derivatives and Hedging. These new requirements became effective on January 1, 2019 and did not have a significant impact on our financial statements.

In August 2018, the FASB issued accounting guidance that requires implementation costs incurred in a cloud computing arrangement that is a service contract to be capitalized. Entities will be required to recognize the capitalized implementation costs to expense over the noncancellable term of the cloud computing arrangement. As allowed by its provisions, we early-adopted this new guidance in the first quarter of 2019. The adoption of this new guidance did not have a significant impact on our financial statements.



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking Statements

Some of the information presented in this Quarterly Report on Form 10-Q, including the documents incorporated by reference, 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.

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Factors that could cause actual results to differ materially from the outlook expressed or implied in any forward-looking statement include, without limitation:


•	changes in economic and business conditions;


•	changes in financial and operating performance of our major customers and industries and markets served by us;


•	the timing of orders received from customers;


•	the gain or loss of significant customers;


•	competition from other manufacturers;


•	changes in the demand for our products or the end-user markets in which our products are sold;


•	limitations or prohibitions on the manufacture and sale of our products;


•	availability of raw materials;


•	increases in the cost of raw materials and energy, and our ability to pass through such increases to our customers;


•	changes in our markets in general;


•	fluctuations in foreign currencies;


•	changes in laws and government regulation impacting our operations or our products;


•	the occurrence of regulatory actions, proceedings, claims or litigation;


•	the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change;


•	hazards associated with chemicals manufacturing;


•	the inability to maintain current levels of product or premises liability insurance or the denial of such coverage;


•	political unrest affecting the global economy, including adverse effects from terrorism or hostilities;


•	political instability affecting our manufacturing operations or joint ventures;


•	changes in accounting standards;


•	the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs;


•	changes in the jurisdictional mix of our earnings and changes in tax laws and rates;


•	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;


•	technology or intellectual property infringement, including through cyber-security breaches, and other innovation risks;


•	decisions we may make in the future;


•	the ability to successfully execute, operate and integrate acquisitions and divestitures; and


•	the other factors detailed from time to time in the reports we file with the Securities and Exchange Commission (“SEC”).

We 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 condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

The following is a discussion and analysis of our results of operations for the three-month and six-month periods ended June 30, 2019 and 2018. A discussion of our consolidated financial condition and sources of additional capital is included under a separate heading “Financial Condition and Liquidity” on page 37.

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. The end markets we serve include energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, crop protection and custom chemistry services. We believe that our commercial and geographic diversity, technical expertise, 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 market 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

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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. 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.

Second Quarter 2019

During the second quarter of 2019:


•	Our board of directors declared a quarterly dividend of $0.3675 per share on May 8, 2019, which was paid on July 1, 2019 to shareholders of record at the close of business as of June 14, 2019.


•	Our net sales for the quarter were $885.1 million, up 4% from net sales of $853.9 million in the second quarter of 2018.


•	Diluted earnings per share were $1.45. This represented a decrease from second quarter 2018 results of $2.73 per diluted share, which included the $176.7 million, or $1.60 per diluted share, after tax gain on sale of business.

•

Announced a revised agreement with Mineral Resources Limited (“MRL”) to acquire 60% ownership of MRL’s Wodgina hard rock lithium mine in Western Australia and form a 60-40 joint venture with MRL to operate the mine and battery grade lithium hydroxide production facilities. Albemarle will pay $820 million in cash and transfer a 40% interest in certain lithium hydroxide conversion assets being built in Kermerton, Western Australia.

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 continues to accelerate, 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 volume, 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.

Lithium: We expect strong year-over-year growth for the remainder of 2019 in Lithium, led by continued strong demand in battery-grade applications and increased conversion capacity.

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 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.

Bromine Specialties: We expect to see continued growth in net sales and profitability in 2019, due to healthy demand and pricing for our flame retardants and other derivatives. However, with sustained low oil prices, we expect stable, albeit low, drilling completion fluid demand throughout the year. While it is possible oil prices could continue to rebound some in 2019, the short-term impact will be to increase raw material costs. Offshore well completions lag oil pricing, so any benefit in completion fluid volume would likely extend throughout the year.

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. Absent an increase in regulatory pressure on offshore drilling, we would expect this business to follow a long-term growth trajectory once oil prices recover from prevailing levels as we expect that deep water drilling will continue to increase around the world. We are focused on profitably growing our globally competitive bromine and derivatives production network to serve all major bromine consuming products and markets. We believe the global supply/demand gap could tighten as demand for existing and possible new uses of bromine expands over time. The combination of solid, long-term business fundamentals, with our strong cost position, product

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innovations and effective management of raw material costs will 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.

Catalysts: 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 Catalysts 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 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 Catalysts remains well-positioned for the future. In Performance Catalyst Solutions (“PCS”), we expect growth on a longer term basis in our organometallic business due to growing global demand for plastics driven by rising standards of living and infrastructure spending.

All Other: The fine chemistry services business will continue to be reported outside the Company’s reportable segments as it does not fit in the Company’s core businesses. We expect the near future prospects for the fine chemistry services business to be impacted by a challenging agriculture industry environment and the timing of customer orders in pharmaceuticals. We continue to work to reinvigorate the pipeline of new products and services to these markets.

Corporate: In the first quarter of 2019, we increased our quarterly dividend rate to $0.3675 per share. We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax rate for 2019 to be approximately 20%; however, our rate will vary based on the locales in which income is actually earned and remains subject to potential volatility from changing legislation in the U.S., including the U.S. Tax Cuts and Jobs Act (“TCJA”), and other tax jurisdictions.

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.

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Results of Operations

The following data and discussion provide an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.

Second Quarter 2019 Compared to Second Quarter 2018

Selected Financial Data (Unaudited)



	Three Months Ended June 30,						Percentage Change
	2019			2018			2019 vs. 2018
	(In thousands, except percentages and per share amounts)
NET SALES	$	885,052		$	853,874		4	%
Cost of goods sold	559,138			542,518			3	%
GROSS PROFIT	325,914			311,356			5	%
GROSS PROFIT MARGIN	36.8		%	36.5		%
Selling, general and administrative expenses	126,715			123,637			2	%
Research and development expenses	13,462			16,074			(16	)%
Gain on sale of business	—			(218,705		)	(100	)%
OPERATING PROFIT	185,737			390,350			(52	)%
OPERATING PROFIT MARGIN	21.0		%	45.7		%
Interest and financing expenses	(11,601		)	(13,308		)	(13	)%
Other expenses, net	(7,065		)	(5,223		)	35	%
INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS	167,071			371,819			(55	)%
Income tax expense	30,411			80,102			(62	)%
Effective tax rate	18.2		%	21.5		%
INCOME BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS	136,660			291,717			(53	)%
Equity in net income of unconsolidated investments (net of tax)	38,310			18,969			102	%
NET INCOME	174,970			310,686			(44	)%
Net income attributable to noncontrolling interests	(20,772		)	(8,225		)	153	%
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION	$	154,198		$	302,461		(49	)%
PERCENTAGE OF NET SALES	17.4		%	35.4		%
Basic earnings per share	$	1.46		$	2.76		(47	)%
Diluted earnings per share	$	1.45		$	2.73		(47	)%

Net Sales

For the three-month period ended June 30, 2019, we recorded net sales of $885.1 million, an increase of $31.2 million, or 4%, compared to net sales of $853.9 million for the three-month period ended June 30, 2018. The increase was driven by $26.0 million of favorable pricing impacts in each of our reportable segments and higher volume in Lithium and Bromine Specialties. Partially offsetting this was $19.5 million in lower Catalysts volume, driven by the impact on Fluid Catalytic Cracking, or FCC catalysts, of lighter global crude, and $16.2 million of unfavorable currency exchange resulting from the stronger U.S. Dollar against various currencies.

Gross Profit

For the three-month period ended June 30, 2019, our gross profit increased $14.6 million, or 5%, from the corresponding 2018 period. The increase was primarily due to favorable pricing impacts in each of our reportable segments and higher volume in Bromine Specialties and fine chemistry services. This was partially offset by the higher tolled product costs in our Lithium segment and higher raw material costs in our Catalysts segment. Overall, these factors contributed to a gross profit margin for the three-month period ended June 30, 2019 of 36.8%, up from 36.5% in the corresponding period in 2018.

Selling, General and Administrative Expenses

For the three-month period ended June 30, 2019, our selling, general and administrative (“SG&A”) expenses increased $3.1 million, or 2%, from the three-month period ended June 30, 2018. SG&A expenses for the three-month period ended June

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30, 2018 included a $15.0 million contribution to the Albemarle Foundation to further support the communities in which we operate, while the three-month period ended June 30, 2019 included $4.8 million of severance payments as part of a business reorganization plan. Excluding the impact of these charges, SG&A expenses increased $13.3 million, primarily due to higher professional fees to support planned projects and higher compensation-related spend. As a percentage of net sales, SG&A expenses were 14.3% for the three-month period ended June 30, 2019, compared to 14.5% for the corresponding period in 2018.

Research and Development Expenses

For the three-month period ended June 30, 2019, our research and development (“R&D”) expenses decreased $2.6 million, or 16%, from the three-month period ended June 30, 2018 due to the lower second quarter spend in our Lithium and Catalysts segments. As a percentage of net sales, R&D expenses were 1.5% and 1.9% for the three-month periods ended June 30, 2019 and 2018, respectively.

Gain on Sale of Business

In the second quarter of 2018, we closed the sale of the polyolefin catalysts and components portion of the PCS business (“Polyolefin Catalysts Divestiture”) and recorded a gain before income taxes of $218.7 million.

Interest and Financing Expenses

Interest and financing expenses for the three-month period ended June 30, 2019 decreased $1.7 million to $11.6 million from the corresponding 2018 period. This decrease is primarily due to the impact of higher capitalized interest from a continued increase in capital expenditures in 2019, partially offset by higher commercial paper loan balances in 2019.

Other Expenses, Net

Other expenses, net, for the three-month period ended June 30, 2019 was $7.1 million compared to $5.2 million for the corresponding 2018 period. During the three-month period ended June 30, 2018, we recorded a $10.4 million legal expense relating to a previously disposed business. The remaining difference was primarily due to an increase in foreign exchange losses of $8.1 million and a decrease in interest income.

Income Tax Expense

The effective income tax rate for the second quarter of 2019 was 18.2% compared to 21.5% for the second quarter of 2018. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the three months ended June 30, 2019 and 2018 was impacted by a variety of factors, primarily stemming from the location in which income was earned. The decrease in the effective tax rate for the three month period ended June 30, 2019 compared to the same period last year was primarily driven by a change in the geographic mix of earnings.

Equity in Net Income of Unconsolidated Investments

Equity in net income of unconsolidated investments was $38.3 million for the three-month period ended June 30, 2019 compared to $19.0 million in the same period last year. This increase of $19.3 million was primarily due to higher equity income reported by our Lithium segment joint venture, Windfield Holdings Pty. Ltd., as well as an increase in equity income in our Catalysts segment.

Net Income Attributable to Noncontrolling Interests

For the three-month period ended June 30, 2019, net income attributable to noncontrolling interests was $20.8 million compared to $8.2 million in the same period last year. This increase of $12.5 million was primarily due to an increase in consolidated income related to our Jordan Bromine Company (“JBC”) joint venture from higher sales volume in the quarter.

Net Income Attributable to Albemarle Corporation

Net income attributable to Albemarle Corporation decreased to $154.2 million in the three-month period ended June 30, 2019, from $302.5 million in the three-month period ended June 30, 2018. The three-month period ended June 30, 2018 included an after tax gain of $176.7 million related to the Polyolefin Catalysts Divestiture. Excluding this gain, Net income attributable to Albemarle Corporation increased due to favorable pricing impacts in each of our reportable segments, increased volume in Lithium and Bromine Specialties and a lower effective tax rate in 2019. This was partially offset by higher input costs in Lithium, higher raw material costs in Catalysts and unfavorable currency exchange impacts resulting from the stronger U.S. Dollar against various currencies. In addition, during the three-month period ended June 30, 2018, we recorded a $15.0 million charitable contribution to the Albemarle Foundation and a $10.4 million legal expense relating to a previously disposed business.

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Other Comprehensive Income (Loss), Net of Tax

Total other comprehensive income (loss), after income taxes, was $8.2 million for the three-month period ended June 30, 2019 compared to ($127.2) million for the corresponding period in 2018. The majority of these amounts are the result of translating our foreign subsidiary financial statements from their local currencies to U.S. Dollars. In the 2019 period, other comprehensive income from foreign currency translation adjustments was $10.5 million, primarily as a result of favorable movements in the Euro of approximately $12 million and various other currencies totaling approximately $5 million, partially offset by an unfavorable variance in the Chinese Renminbi of approximately $6 million. Also included in total other comprehensive income for the 2019 period is a loss of $3.0 million in connection with the revaluation of our Euro-based 1.875% Senior notes, which have been designated as a hedge of our net investment in foreign operations. In the 2018 period, other comprehensive loss from foreign currency translation adjustments was $150.9 million, mainly as a result of unfavorable movements in the Euro of approximately $110 million, the Chinese Renminbi of approximately $14 million, the Brazilian Real of approximately $12 million and a net unfavorable variance in various other currencies totaling approximately $15 million. Also included in total other comprehensive loss for the 2018 period is income of $23.0 million in connection with the revaluation of our Euro-based 1.875% Senior notes.

Segment Information Overview. We have identified three reportable segments according to the nature and economic characteristics of our products as well as the manner in which the information is used internally by the Company’s chief operating decision maker to evaluate performance and make resource allocation decisions. Our reportable business segments consist of: (1) Lithium, (2) Bromine Specialties and (3) Catalysts.

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

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	Three Months Ended June 30,										Percentage Change
	2019			%		2018			%		2019 vs. 2018
	(In thousands, except percentages)
Net sales:
Lithium	$	324,758		36.7	%	$	317,563		37.2	%	2	%
Bromine Specialties	255,433			28.9	%	220,514			25.8	%	16	%
Catalysts	266,301			30.1	%	284,966			33.4	%	(7	)%
All Other	38,560			4.3	%	30,748			3.6	%	25	%
Corporate	—			—	%	83			—	%	(100	)%
Total net sales	$	885,052		100.0	%	$	853,874		100.0	%	4	%

Adjusted EBITDA:
Lithium	$	141,779		54.1	%	$	141,617		54.8	%	—	%
Bromine Specialties	81,332			31.1	%	69,367			26.8	%	17	%
Catalysts	66,875			25.5	%	75,102			29.0	%	(11	)%
All Other	11,240			4.3	%	(101		)	—	%	*
Corporate	(39,326		)	(15.0	)%	(27,423		)	(10.6	)%	43	%
Total adjusted EBITDA	$	261,900		100.0	%	$	258,562		100.0	%	1	%

* Percentage calculation is not meaningful.



	Lithium		Bromine Specialties		Catalysts			Reportable Segments Total			All Other			Corporate			Consolidated Total
Three months ended June 30, 2019
Net income (loss) attributable to Albemarle Corporation	$	117,303	$	69,616	$	54,124		$	241,043		$	9,118		$	(95,963	)	$	154,198
Depreciation and amortization	24,365		11,716		12,751			48,832			2,122			1,994			52,948
Acquisition and integration related costs^(a)	—		—		—			—			—			4,990			4,990
Interest and financing expenses	—		—		—			—			—			11,601			11,601
Income tax expense	—		—		—			—			—			30,411			30,411
Non-operating pension and OPEB items	—		—		—			—			—			(676		)	(676		)
Other^(b)	111		—		—			111			—			8,317			8,428
Adjusted EBITDA	$	141,779	$	81,332	$	66,875		$	289,986		$	11,240		$	(39,326	)	$	261,900
Three months ended June 30, 2018
Net income (loss) attributable to Albemarle Corporation	$	117,292	$	59,673	$	280,887		$	457,852		$	(2,079	)	$	(153,312	)	$	302,461
Depreciation and amortization	24,325		9,694		12,920			46,939			1,978			1,557			50,474
Gain on sales of business^(c)	—		—		(218,705		)	(218,705		)	—			—			(218,705		)
Acquisition and integration related costs^(a)	—		—		—			—			—			6,510			6,510
Interest and financing expenses	—		—		—			—			—			13,308			13,308
Income tax expense	—		—		—			—			—			80,102			80,102
Non-operating pension and OPEB items	—		—		—			—			—			(2,204		)	(2,204		)
Legal accrual^(d)	—		—		—			—			—			10,416			10,416
Albemarle Foundation contribution^(e)	—		—		—			—			—			15,000			15,000
Other^(f)	—		—		—			—			—			1,200			1,200
Adjusted EBITDA	$	141,617	$	69,367	$	75,102		$	286,086		$	(101	)	$	(27,423	)	$	258,562


(a)	Included acquisition and integration related costs relating to various significant projects. For the three-month period ended June 30, 2019, $5.0 million was recorded in SG&A expenses. For the three-month period ended June 30, 2018, $1.0 million was recorded in Cost of goods sold and $5.5 million was recorded in SG&A expenses.


(b)	Included amounts for the three months ended June 30, 2019 recorded in:

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▪	Cost of goods sold - $0.1 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements.


▪	Selling, general and administrative expenses - Expected severance payments to be made in 2019 as part of a business reorganization plan of $4.8 million, with the unpaid balance recorded in Accrued expenses as of June 30, 2019 and $1.0 million of shortfall contributions for our multiemployer plan financial improvement plan.


▪	Other expenses, net - $2.5 million of a net loss primarily resulting from the revision of indemnifications related to previously disposed businesses.


(c)	See “Gain on Sale of business” on page 29 for a description of this gain.


(d)	Included in Other expenses, net is a $10.4 million expense resulting from a settlement of a legal matter related to guarantees from a previously disposed business.

(e)

Included in SG&A expenses is a charitable contribution, using a portion of the proceeds received from the Polyolefin Catalysts 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 our employees live and operate. This contribution is in addition to the ordinary 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 the communities where we live and operate.


(f)	Included Other expenses, net is $1.2 million related to the revision of previously recorded expenses of disposed businesses.

Lithium

Lithium segment net sales for the three-month period ended June 30, 2019 were $324.8 million, up $7.2 million, or 2%, compared to the corresponding period of 2018. The increase was primarily driven by $8.3 million of favorable pricing impacts, mainly on lithium hydroxide and $6.0 million of higher sales volume, primarily in battery grade salts. This was partially offset by $7.3 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies. Adjusted EBITDA for Lithium increased $0.2 million, to $141.8 million for the three-month period ended June 30, 2019, compared to the corresponding period of 2018, primarily driven by favorable pricing impacts and higher sales volumes. This was partially offset by increased cost of goods sold, mainly related to higher tolling product costs, and investments to support future operational savings.

Bromine Specialties

Bromine Specialties segment net sales for the three-month period ended June 30, 2019 were $255.4 million, up $34.9 million, or 16%, compared to the corresponding period of 2018. The increase was primarily driven by $24.7 million in higher sales volume in flame-retardants and other bromine derivatives due to continued strong demand, and $13.7 million in favorable pricing due to high demand, partially offset by $3.4 million of unfavorable currency translation resulting from the stronger U.S. Dollar. Adjusted EBITDA for Bromine Specialties was up 17%, or $12.0 million, to $81.3 million for the three-month period ended June 30, 2019, compared to the corresponding period of 2018. This increase was primarily due to the higher sales volume and favorable pricing and $2.1 million of unfavorable currency translation.

Catalysts

Catalysts segment net sales for the three-month period ended June 30, 2019 were $266.3 million, a decrease of $18.7 million, or 7%, compared to the corresponding period of 2018. This decrease was primarily due to $19.5 million of lower volume driven by the impact on FCC catalysts of lighter global crude, and $5.4 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies. This decrease was partially offset by favorable pricing impacts of $6.3 million driven by refining catalyst products. Catalysts adjusted EBITDA decreased 11%, or $8.2 million, to $66.9 million for the three-month period ended June 30, 2019 in comparison to the corresponding period of 2018. This decrease was primarily due to lower sales volume, higher raw material costs and $2.3 million of unfavorable currency translation, partially offset by favorable pricing impacts.

All Other

All Other net sales for the three-month period ended June 30, 2019 were $38.6 million, an increase of $7.8 million, or 25%, compared to the three-month period ended June 30, 2018. This increase was primarily due to higher sales volume and favorable pricing impacts in our fine chemistry services business. All Other adjusted EBITDA increased $11.3 million for the three-month period ended June 30, 2019 in comparison to the corresponding period of 2018. This increase was primarily due to increased sales volume and favorable pricing impacts, partially offset by higher material costs in our fine chemistry services business.

Corporate

Corporate adjusted EBITDA was a charge of $39.3 million for the three-month period ended June 30, 2019, compared to a charge of $27.4 million for the corresponding period of 2018. The change was primarily due to higher SG&A spending related to professional fees to support planned projects and $8.1 million of unfavorable currency exchange impacts.

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Six Months 2019 Compared to Six Months 2018

Selected Financial Data (Unaudited)



	Six Months Ended June 30,						Percentage Change
	2019			2018			2019 vs 2018
	(In thousands, except percentages and per share amounts)
NET SALES	$	1,717,116		$	1,675,503		2	%
Cost of goods sold	1,107,716			1,059,168			5	%
GROSS PROFIT	609,400			616,335			(1	)%
GROSS PROFIT MARGIN	35.5		%	36.8		%
Selling, general and administrative expenses	240,070			225,007			7	%
Research and development expenses	28,439			37,060			(23	)%
Gain on sale of business	—			(218,705		)	(100	)%
OPERATING PROFIT	340,891			572,973			(41	)%
OPERATING PROFIT MARGIN	19.9		%	34.2		%
Interest and financing expenses	(24,187		)	(26,846		)	(10	)%
Other income (expenses), net	4,226			(35,699		)	(112	)%
INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS	320,930			510,428			(37	)%
Income tax expense	67,925			100,463			(32	)%
Effective tax rate	21.2		%	19.7		%
INCOME BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS	253,005			409,965			(38	)%
Equity in net income of unconsolidated investments (net of tax)	73,491			39,646			85	%
NET INCOME	326,496			449,611			(27	)%
Net income attributable to noncontrolling interests	(38,729		)	(15,390		)	152	%
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION	$	287,767		$	434,221		(34	)%
PERCENTAGE OF NET SALES	16.8		%	25.9		%
Basic earnings per share	$	2.72		$	3.94		(31	)%
Diluted earnings per share	$	2.71		$	3.90		(31	)%

Net Sales

For the six-month period ended June 30, 2019, we recorded net sales of $1.72 billion, an increase of $41.6 million, or 2%, compared to net sales of $1.68 billion for the six-month period ended June 30, 2018. Excluding the impact of $27.1 million related to the Polyolefin Catalysts Divestiture and $29.5 million of unfavorable currency exchange resulting from a stronger U.S. Dollar, net sales increased $98.2 million driven by $49.5 million of favorable pricing impacts in each of our reportable segments and $48.7 million of higher volume primarily in Bromine Specialties.

Gross Profit

For the six-month period ended June 30, 2019, our gross profit decreased $6.9 million, or 1%, from the corresponding 2018 period. Excluding the impact of $10.7 million in gross profit related to the Polyolefin Catalysts Divestiture, gross profit increased by $3.8 million, primarily due to favorable pricing impacts in each of our reportable segments and higher volume in Bromine Specialties. This was partially offset by higher input costs in our Lithium segment, higher raw material costs primarily in our Bromine Specialties and Catalysts segments and unfavorable currency exchange impacts resulting from the stronger U.S. Dollar against various currencies. Overall, these factors contributed to a gross profit margin for the six-month period ended June 30, 2019 of 35.5%, down from 36.8% for the corresponding period in 2018.

Selling, General and Administrative Expenses

For the six-month period ended June 30, 2019, our SG&A expenses increased $15.1 million, or 7%, from the six-month period ended June 30, 2018. The six-month period ended June 30, 2018 included a $15.0 million contribution to the Albemarle Foundation to further support the communities in which we operate, while the six-month period ended June 30, 2019 included

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$5.3 million of severance payments as part of a business reorganization plan and $3.5 million of increased acquisition and integration related costs. Excluding the impact of these charges, SG&A expenses increased $21.3 million, primarily due to higher professional fees to support planned projects and higher compensation-related spend. As a percentage of net sales, SG&A expenses were 14.0% for the six-month period ended June 30, 2019, compared to 13.4% for the corresponding period in 2018.

Research and Development Expenses

For the six-month period ended June 30, 2019, our R&D expenses decreased $8.6 million, or 23%, from the six-month period ended June 30, 2018 due to the lower spend in our Lithium and Catalyst segments. As a percentage of net sales, R&D expenses were 1.7% and 2.2% for the six-month periods ended June 30, 2019 and 2018, respectively.

Gain on Sale of Business

The six-month period ended June 30, 2018 includes a gain before income taxes of $218.7 million related to the Polyolefin Catalysts Divestiture, which closed in the second quarter of 2018.

Interest and Financing Expenses

Interest and financing expenses for the six-month period ended June 30, 2019 decreased $2.7 million to $24.2 million from the corresponding 2018 period. This decrease is primarily due to the impact of higher capitalized interest from a continued increase in capital expenditures in 2019, partially offset by higher commercial paper loan balances in 2019.

Other Income (Expenses), net

Other income (expenses), net, for the six-month period ended June 30, 2019 was $4.2 million compared to ($35.7) million for the corresponding 2018 period. During the six-month period ended June 30, 2019, we recorded a gain of $11.1 million related to the sale of land in Pasadena, Texas. During the six-month period ended June 30, 2018, we recorded $28.0 million of legal expenses, related to products that Albemarle no longer manufactures and a previously disposed business and $15.6 million of environmental charges related to a site formerly owned by Albemarle. The remaining difference was primarily due to an increase in foreign exchange losses of $10.6 million and a decrease in interest income.

Income Tax Expense

The effective income tax rate for the first six months of 2019 was 21.2% compared to 19.7% for the first six months of 2018. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the six-months ended June 30, 2019 and 2018 was impacted by a variety of factors, primarily stemming from the location in which income was earned. The increase in the effective tax rate for the six-month period ended June 30, 2019 compared to the same period last year was primarily driven by a change in the geographic mix of earnings and discrete net tax expenses primarily related to uncertain tax positions for the six-month period ended June 30, 2019, compared to discrete tax benefits for TCJA adjustments and excess tax benefits from stock-based compensation arrangements for the six-month period ended June 30, 2018.

Equity in Net Income of Unconsolidated Investments

Equity in net income of unconsolidated investments was $73.5 million for the six-month period ended June 30, 2019 compared to $39.6 million in the same period last year. This increase of $33.8 million was primarily due to higher equity income reported by our Lithium segment joint venture, Windfield Holdings Pty. Ltd., as well as an increase in equity income in our Catalysts segment.

Net Income Attributable to Noncontrolling Interests

For the six-month period ended June 30, 2019, net income attributable to noncontrolling interests was $38.7 million compared to $15.4 million in the same period last year. This increase of $23.3 million was primarily due to an increase in consolidated income related to our JBC joint venture from higher sales volume in the current year.

Net Income Attributable to Albemarle Corporation

Net income attributable to Albemarle Corporation decreased to $287.8 million in the six-month period ended June 30, 2019, from $434.2 million in the six-month period ended June 30, 2018. The six-month period ended June 30, 2018 included an after tax gain of $176.7 million related to the Polyolefin Catalysts Divestiture. Excluding this gain, Net income attributable to Albemarle Corporation increased due to favorable pricing impacts in each of our reportable segments and increased volume in Bromine Specialties, partially offset by higher input costs in Lithium, increased SG&A spend to support planned projects, unfavorable currency exchange impact and a higher effective income tax rate in 2019. In addition, during the six-month period ended June 30, 2018, we recorded $28.0 million of legal expenses related to products that Albemarle no longer manufactures and a previously disposed business, $15.6 million of environmental charges related to a site formerly owned by Albemarle and a $15.0 million charitable contribution to the Albemarle Foundation.

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Other Comprehensive Income (Loss), Net of Tax

Total other comprehensive income (loss), after income taxes, was $1.3 million for the six-month period ended June 30, 2019 compared to ($76.1) million for the corresponding period in 2018. The majority of these amounts are the result of translation our foreign subsidiary financial statements from their local currencies to U.S. Dollars. In the six-month period ended June 30, 2019, other comprehensive loss from foreign currency translation adjustments was $0.3 million, primarily as a result of unfavorable movements in the Euro of approximately $2 million and various other currencies totaling less than $1 million, partially offset by a favorable variance in the Japanese Yen of approximately $2 million, partially offset by a net favorable variance in various other currencies totaling approximately $1 million. Also included in total other comprehensive income for the 2019 period is income of $0.3 million in connection with the revaluation of our Euro-based 1.875% Senior notes, which have been designated as a hedge of our net investment in foreign operations. In the corresponding 2018 period, other comprehensive loss from foreign currency translation adjustments was $86.0 million, primarily as a result of unfavorable movements in the Euro of approximately $63 million, the Brazilian Real of approximately $12 million, the Chinese Renminbi of approximately $4 million and a net unfavorable variance in various other currencies totaling approximately $7 million. Also included in total other comprehensive loss for the 2018 period is income of $8.6 million in connection with the revaluation of our Euro-based 1.875% Senior notes.

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



	Six Months Ended June 30,										Percentage Change
	2019			%		2018			%		2019 vs. 2018
	(In thousands, except percentages)
Net sales:
Lithium	$	616,644		35.9	%	$	615,595		36.7	%	—	%
Bromine Specialties	504,485			29.4	%	446,153			26.6	%	13	%
Catalysts	517,949			30.2	%	545,683			32.6	%	(5	)%
All Other	78,038			4.5	%	67,913			4.1	%	15	%
Corporate	—			—	%	159			—	%	(100	)%
Total net sales	$	1,717,116		100.0	%	$	1,675,503		100.0	%	2	%

Adjusted EBITDA:
Lithium	$	257,395		52.8	%	$	272,631		53.7	%	(6	)%
Bromine Specialties	159,929			32.8	%	139,336			27.5	%	15	%
Catalysts	126,946			26.0	%	142,932			28.2	%	(11	)%
All Other	18,483			3.8	%	3,761			0.7	%	391	%
Corporate	(74,986		)	(15.4	)%	(51,380		)	(10.1	)%	46	%
Total adjusted EBITDA	$	487,767		100.0	%	$	507,280		100.0	%	(4	)%

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	Lithium			Bromine Specialties		Catalysts			Reportable Segments Total			All Other			Corporate			Consolidated Total
Six Months Ended June 30, 2019
Net income (loss) attributable to Albemarle Corporation	$	210,472		$	137,096	$	101,983		$	449,551		$	14,324		$	(176,108	)	$	287,767
Depreciation and amortization	46,457			22,833		24,963			94,253			4,159			3,819			102,231
Acquisition and integration related costs^(a)	—			—		—			—			—			10,274			10,274
Gain on sale of property^(b)	—			—		—			—			—			(11,079		)	(11,079		)
Interest and financing expenses	—			—		—			—			—			24,187			24,187
Income tax expense	—			—		—			—			—			67,925			67,925
Non-operating pension and OPEB items	—			—		—			—			—			(1,259		)	(1,259		)
Other^(c)	466			—		—			466			—			7,255			7,721
Adjusted EBITDA	$	257,395		$	159,929	$	126,946		$	544,270		$	18,483		$	(74,986	)	$	487,767
Six Months Ended June 30, 2018
Net income (loss) attributable to Albemarle Corporation	$	225,626		$	119,209	$	336,547		$	681,382		$	(319	)	$	(246,842	)	$	434,221
Depreciation and amortization	48,390			20,127		25,090			93,607			4,080			3,117			100,804
Gain on sale of business^(d)	—			—		(218,705		)	(218,705		)	—			—			(218,705		)
Acquisition and integration related costs^(a)	—			—		—			—			—			8,712			8,712
Interest and financing expenses	—			—		—			—			—			26,846			26,846
Income tax expense	—			—		—			—			—			100,463			100,463
Non-operating pension and OPEB items	—			—		—			—			—			(4,401		)	(4,401		)
Legal accrual^(e)	—			—		—			—			—			28,044			28,044
Environmental accrual^(f)	—			—		—			—			—			15,597			15,597
Albemarle Foundation contribution^(g)	—			—		—			—			—			15,000			15,000
Other^(h)	(1,385		)	—		—			(1,385		)	—			2,084			699
Adjusted EBITDA	$	272,631		$	139,336	$	142,932		$	554,899		$	3,761		$	(51,380	)	$	507,280


(a)	Included acquisition and integration related costs relating to various significant projects. For the six-month period ended June 30, 2019, $10.3 million was recorded in SG&A expenses. For the six-month period ended June 30, 2018, $1.9 million was recorded in Cost of goods sold and $6.8 million was recorded in SG&A expenses.


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


(c)	Included amounts for the six months ended June 30, 2019 recorded in:


▪	Cost of goods sold - $0.5 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements.


▪	Selling, general and administrative expenses - Expected severance payments to be made in 2019 as part of a business reorganization plan of $5.3 million, with the unpaid balance recorded in Accrued expenses as of June 30, 2019 and $1.0 million of shortfall contributions for our multiemployer plan financial improvement plan.


▪	Other income (expenses), net - $0.9 million of a net loss primarily resulting from the revision of indemnifications and other liabilities related to previously disposed businesses.


(d)	See “Gain on Sale of Business” on page 34 for a description of this gain.


(e)	Included in Other income (expenses), net is a $17.6 million expense resulting from a jury rendered verdict against Albemarle related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures and a $10.4 million expense resulting from a settlement of a legal matter related to guarantees from a previously disposed business.


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

(g)


(h)	Included amounts for the six months ended June 30, 2018 recorded in:


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

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


▪	Other income (expenses), net - $1.0 million related to the revision of previously recorded expenses of disposed businesses.

Lithium

Lithium segment net sales for the six-month period ended June 30, 2019 were $616.6 million, up $1.0 million compared to the corresponding period of 2018. The increase was primarily driven by $13.9 million of favorable pricing impacts, partially offset by $13.0 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies. The sales volume was flat compared to the corresponding period of 2018, as it was negatively impacted by a disruption due to a rain event in Chile at the beginning of the year. Adjusted EBITDA for Lithium was down 6%, or $15.2 million, to $257.4 million for the six-month period ended June 30, 2019, compared to the corresponding period of 2018, primarily driven by increased cost of goods sold, mainly related to higher input costs, and lower sales volume. This was partially offset by the favorable pricing impacts and $2.2 million of favorable currency translation.

Bromine Specialties

Bromine Specialties segment net sales for the six-month period ended June 30, 2019 were $504.5 million, up $58.3 million, or 13%, compared to the corresponding period of 2018. The increase was primarily driven by $39.1 million in higher sales volume in flame-retardants and other bromine derivatives due to continued strong demand, and $25.8 million in favorable pricing impacts due to high demand, partially offset by $6.5 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies. Adjusted EBITDA for Bromine Specialties was up 15%, or $20.6 million, to $159.9 million for the six-month period ended June 30, 2019, compared to the corresponding period of 2018. This increase was primarily due to the higher sales volume and favorable pricing impacts, which was partially offset by higher production and raw material costs and $4.8 million of unfavorable currency translation.

Catalysts

Catalysts segment net sales for the six-month period ended June 30, 2019 were $517.9 million, a decrease of $27.7 million, or 5%, compared to the corresponding period of 2018. This decrease was primarily due to the $27.1 million impact of the Polyolefin Catalysts Divestiture and $10.0 million of unfavorable currency translation resulting from the stronger U.S. Dollar against various currencies, partially offset by favorable pricing impacts of $8.1 million. Catalysts adjusted EBITDA decreased 11%, or $16.0 million, to $126.9 million for the six-month period ended June 30, 2019 in comparison to the corresponding period of 2018. This decrease was primarily due to the $10.9 million impact of the Polyolefin Catalysts Divestiture, higher raw material costs and $4.8 million of unfavorable currency translation, partially offset by favorable pricing impacts.

All Other

All Other net sales for the six-month period ended June 30, 2019 were $78.0 million, an increase of $10.1 million, or 15%, compared to the six-month period ended June 30, 2018. This increase was primarily due to higher sales volume and favorable pricing impacts in our fine chemistry services business. All Other adjusted EBITDA increased $14.7 million for the six-month period ended June 30, 2019 in comparison to the corresponding period of 2018. This increase was primarily due to increased sales volume and favorable pricing impacts in our fine chemistry services business.

Corporate

Corporate adjusted EBITDA was a charge of $75.0 million for the six-month period ended June 30, 2019, compared to a charge of $51.4 million for the corresponding period of 2018. The change was primarily due to higher SG&A spending related to professional fees to support planned projects and $10.6 million of unfavorable currency exchange impacts.

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 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 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.

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Cash Flow

During the first six months of 2019, cash on hand, cash provided by operations and commercial paper note borrowings funded $415.6 million of capital expenditures for plant, machinery and equipment, and dividends to shareholders of $74.3 million. Our operations provided $199.3 million of cash flows during the first six months of 2019, as compared to $223.9 million for the first six months of 2018, with the decrease primarily arising from a higher working capital outflow and lower cash earnings in Catalysts. This was partially offset by higher dividends received from unconsolidated investments, as well as increased cash earnings in Bromine Specialties. Our outflow from working capital changes in 2019 of $223.2 million was primarily due to the build-up of inventory in the Lithium and Catalysts segments to meet higher projected sales during the remainder of 2019, the timing on collection of certain receivables and higher cash taxes paid. Overall, our cash and cash equivalents decreased by $157.1 million to $398.2 million at June 30, 2019 from $555.3 million at December 31, 2018.

Capital expenditures for the six-month period ended June 30, 2019 of $415.6 million were associated with plant, machinery and equipment. We expect our capital expenditures to approximate between $900 million to $1 billion in 2019 for Lithium growth and capacity increases, as well as productivity and continuity of operations projects in all segments. Of the total capital expenditures, our projects related to the continuity of operations are expected to remain in the range of 4-6% of net sales, similar to prior years.

Net current assets were $636.7 million and $815.2 million at June 30, 2019 and December 31, 2018, respectively. The decrease is primarily due to the increase in commercial paper notes outstanding and the reduction in cash and cash equivalents used primarily to fund the increase in capital expenditures during 2019. 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, are not the result of any policy changes by the Company, and do not reflect any change in either the quality of our net current assets or our expectation of success in converting net working capital to cash in the ordinary course of business.

On February 26, 2019, we increased our quarterly dividend rate to $0.3675 per share, a 10% increase from the quarterly rate of $0.335 per share paid in 2018.

At June 30, 2019 and December 31, 2018, our cash and cash equivalents included $385.2 million and $525.8 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. During the first six months of 2019 and 2018, we repatriated $7.4 million and $611.3 million, respectively, of cash as part of these foreign earnings cash repatriation activities.

In August 2019, we entered into an amended agreement to acquire a 60% interest in MRL's Wodgina hard rock lithium mine project (“Wodgina Project”) and 60% interest in Wodgina Lithium Operations Pty. Ltd., which will manage the Wodgina Project and Kemerton assets, for a total purchase price of $1.3 billion. The purchase price will be comprised of $820 million in cash, subject to certain adjustments, and the transfer of 40% interest in certain lithium hydroxide conversion assets being built by Albemarle in Kermerton, Western Australia, valued at $480 million. This transaction is subject to customary closing conditions, and is expected to close in the second half of 2019.

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.

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Long-Term Debt

We currently have the following senior notes outstanding:



Issue Month/Year	Principal (in millions)	Interest Rate	Interest Payment Dates		Maturity Date
December 2014	€393.0	1.875%	December 8		December 8, 2021
November 2014	$425.0	4.15%	June 1	December 1	December 1, 2024
November 2014	$350.0	5.45%	June 1	December 1	December 1, 2044
December 2010	$175.3	4.50%	June 15	December 15	December 15, 2020

Our senior notes are senior unsecured obligations and rank equally with all our other senior unsecured indebtedness from time to time outstanding. The senior notes are effectively subordinated to any 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 senior note outstanding has terms that allow us to redeem the notes before its 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 senior 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 the senior notes) plus between 25 and 40 basis points, depending on the note, 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. The senior 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 revolving, unsecured credit agreement dated as of June 21, 2018 (the “2018 Credit Agreement”) currently provides for borrowings of up to $1.0 billion and matures on June 21, 2023. Borrowings under the 2018 Credit Agreement bear interest at variable rates based on an average London inter-bank offered rate (“LIBOR”) for deposits in the relevant currency plus an applicable margin which ranges from 0.910% to 1.500%, depending on the Company’s credit rating from Standard & Poor’s Ratings Services, Moody’s Investors Services and Fitch Ratings. The applicable margin on the facility was 1.125% as of June 30, 2019. There were no borrowings outstanding under the 2018 Credit Agreement as of June 30, 2019.

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 funded debt to consolidated EBITDA ratio (as such terms are defined in the 2018 Credit Agreement) to be less than or equal to 3.50:1, 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 credit facility 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. Our 2018 Credit 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 $1.0 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. At June 30, 2019, we had $490.0 million of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately 2.67% and a weighted-average maturity of 32 days. The Commercial Paper Notes are classified as Current portion of long-term debt in our condensed consolidated balance sheets at June 30, 2019 and December 31, 2018.

The non-current portion of our long-term debt amounted to $1.40 billion at June 30, 2019 and December 31, 2018. In addition, at June 30, 2019, we had availability to borrow $510.0 million under our commercial paper program and the 2018 Credit Agreement, and $583.0 million under other existing lines of credit, subject to various financial covenants under our 2018 Credit Agreement. We have the ability and intent to refinance our borrowings under our other existing credit lines with

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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 June 30, 2019, we were, and currently are, in compliance with all of our long-term debt covenants.

Off-Balance Sheet Arrangements

In the ordinary course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, including bank guarantees and letters of credit, which totaled approximately $79.5 million at June 30, 2019. None of these off-balance sheet arrangements has, or is likely to have, a material effect on our current or future financial condition, results of operations, liquidity or capital resources.

Other Obligations

Our contractual obligations have not significantly changed based on our ordinary business activities and projected capital expenditures from the information we provided in our Annual Report on Form 10-K for the year ended December 31, 2018.

Total expected 2019 contributions to our domestic and foreign qualified and nonqualified pension plans, including our SERP, should approximate $12 million. We may choose to make additional pension contributions in excess of this amount. We have made contributions of $6.5 million to our domestic and foreign pension plans (both qualified and nonqualified) during the six-month period ended June 30, 2019.

The liability related to uncertain tax positions, including interest and penalties, recorded in Other noncurrent liabilities totaled $26.4 million at June 30, 2019 and $22.9 million at December 31, 2018. Related assets for corresponding offsetting benefits recorded in Other assets totaled $12.3 million at June 30, 2019 and $13.0 million at December 31, 2018. We cannot estimate the amounts of any cash payments associated with these liabilities for the remainder of 2019 or the next twelve months, and we are unable to estimate the timing of any such cash payments in the future at this time.

We are subject to federal, state, local and foreign requirements regulating the handling, manufacture and use of materials (some of which may be classified as hazardous or toxic by one or more regulatory agencies), the discharge of materials into the environment and the protection of the environment. To our knowledge, we are currently complying and expect to continue to comply in all material respects with applicable environmental laws, regulations, statutes and ordinances. Compliance with existing federal, state, local and foreign environmental protection laws is not expected to have a material effect on capital expenditures, earnings or our competitive position, but the costs associated with increased legal or regulatory requirements could have an adverse effect on our operating results.

Among other environmental requirements, we are subject to the federal Superfund law, and similar state laws, under which we may be designated as a potentially responsible party (“PRP”), and may be liable for a share of the costs associated with cleaning up various hazardous waste sites. Management believes that in cases in which we may have liability as a PRP, our liability for our share of cleanup is de minimis. Further, almost all such sites represent environmental issues that are quite mature and have been investigated, studied and in many cases settled. In de minimis situations, our policy generally is to negotiate a consent decree and to pay any apportioned settlement, enabling us to be effectively relieved of any further liability as a PRP, except for remote contingencies. In other than de minimis PRP matters, our records indicate that unresolved PRP exposures should be immaterial. We accrue and expense our proportionate share of PRP costs. Because management has been actively involved in evaluating environmental matters, we are able to conclude that the outstanding environmental liabilities for unresolved PRP sites should not have a material adverse effect upon our results of operations or financial condition.

Liquidity Outlook

We anticipate that cash on hand and cash provided by operating activities, divestitures and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations, fund any capital expenditures and share repurchases, make acquisitions, make pension contributions and pay dividends for the foreseeable future. Our main focus over the next three years, in terms of uses of cash, will be investing in growth of the businesses and the return of 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. For example, we expect that the cash portion of the purchase price for the announced 60% ownership of MRL’s Wodgina hard rock mine and processing facility in Western Australia of $820 million will primarily be funded with new debt borrowings.

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 and reduced capital availability.

While we maintain business relationships with a diverse group of financial institutions, an adverse change in their credit standing could lead them to not honor their contractual credit commitments, decline funding under existing but uncommitted lines of credit, not renew their extensions of credit or not provide new financing. While the global corporate bond and bank

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loan markets remain strong, periods of elevated uncertainty related to 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. When the U.S. Federal Reserve or similar national reserve banks in other countries decide to tighten the monetary supply in response, for example, to improving economic conditions, we may incur increased borrowing costs as interest rates increase on our variable rate credit facilities, as our various credit facilities mature or as we refinance any maturing fixed rate debt obligations, although these cost increases would be partially offset by increased income rates on portions of our cash deposits.

Overall, with generally strong cash-generative businesses and no significant long-term debt maturities before 2020, we believe we have, and will maintain, a solid liquidity position.

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

We had cash and cash equivalents totaling $398.2 million at June 30, 2019, of which $385.2 million is held by our foreign subsidiaries. This cash represents an important source of our liquidity and is invested in bank accounts or money market investments with no limitations on access. The cash held by our foreign subsidiaries is intended for use outside of the U.S. We anticipate that any needs for liquidity within the U.S. in excess of our cash held in the U.S. can be readily satisfied with borrowings under our existing U.S. credit facilities or our commercial paper program.

Summary of Critical Accounting Policies and Estimates

Effective January 1, 2019, we adopted ASU 2016-12, “Leases.” As a result, we have updated our lease accounting policy, see Item 1 Financial Statements – Note 1, “Basis of Presentation,” for additional details. There have been no other significant changes in our critical accounting policies and estimates from the information we provided in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Item 1 Financial Statements – Note 17, “Recently Issued Accounting Pronouncements.”



Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes in our interest rate risk, foreign currency exchange rate exposure, marketable securities price risk or raw material price risk from the information we provided in our Annual Report on Form 10-K for the year ended December 31, 2018.

We had variable interest rate borrowings of $497.5 million outstanding at June 30, 2019, bearing a weighted average interest rate of 2.63% and representing approximately 26% of our total outstanding debt. A hypothetical 10% change (approximately 26 basis points) in the interest rate applicable to these borrowings would change our annualized interest expense by approximately $1.3 million as of June 30, 2019. We may enter into interest rate swaps, collars or similar instruments with the objective of reducing interest rate volatility relating to our borrowing costs.

Our financial instruments which are subject to foreign currency exchange risk consist of foreign currency forward contracts with an aggregate notional value of $895.2 million and with a fair value representing a net liability position of $0.1 million at June 30, 2019. Fluctuations in the value of these contracts are generally offset by the value of the underlying exposures being hedged. We conducted a sensitivity analysis on the fair value of our foreign currency hedge portfolio assuming an instantaneous 10% change in select foreign currency exchange rates from their levels as of June 30, 2019, with all other

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variables held constant. A 10% appreciation of the U.S. Dollar against foreign currencies that we hedge would result in a decrease of approximately $32.4 million in the fair value of our foreign currency forward contracts. A 10% depreciation of the U.S. Dollar against these foreign currencies would result in an increase of approximately $29.3 million in the fair value of our foreign currency forward contracts. The sensitivity of the fair value of our foreign currency hedge portfolio represents changes in fair values estimated based on market conditions as of June 30, 2019, without reflecting the effects of underlying anticipated transactions. When those anticipated transactions are realized, actual effects of changing foreign currency exchange rates could have a material impact on our earnings and cash flows in future periods.



Item 4.	Controls and Procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company has begun the implementation of a new enterprise resource platform system to increase the overall efficiency and productivity of our processes, which will result in changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) throughout the implementation process in 2019. There have been no other changes during the second quarter ended June 30, 2019 to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION



Item 1.	Legal Proceedings.

We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Additional information with respect to this Item 1 is contained in Note 9 to the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.



Item 1A.	Risk Factors.

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. The risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our results of operations and our financial condition. We do not believe that there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

NONE



Item 6.	Exhibits.

(a) Exhibits



3.1			Amended and Restated Bylaws, effective July 23, 2019, of Albemarle Corporation

10.1			Form of Letter Agreement, dated June 13, 2019, among Wodgina Lithium Pty Ltd, Albemarle Wodgina Pty Ltd, Mineral Resources Limited and the Company

10.2			Form of Amendment Deed to Asset Sale and Share Subscription Agreement, dated August 1, 2019, among Wodgina Lithium Pty Ltd, Albemarle Wodgina Pty Ltd, Mineral Resources Limited and the Company

10.3			Form of MRL Kemerton Asset Sale Agreement among Wodgina Lithium Pty Ltd, Albemarle Wodgina Pty Ltd, Mineral Resources Limited, Albemarle Lithium Pty Ltd and the Company

10.4			Form of break fee letter, dated August 1, 2019, between the Company and Mineral Resources Limited

31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a).

31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a).

32.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.

32.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.

101			Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended June 30, 2019, furnished in XBRL (eXtensible Business Reporting Language)).

Attached as Exhibit 101 to this report are the following documents formatted in XBRL: (i) the Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018, (ii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018, (iii) the Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018, (iv) the Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2019 and 2018, (v) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 and (vi) the Notes to the Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		ALBEMARLE CORPORATION
		(Registrant)

Date:	August 7, 2019	By:	/S/ SCOTT A. TOZIER
			Scott A. Tozier
			Executive Vice President and Chief Financial Officer
			(principal financial officer)

Large accelerated filer

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Smaller reporting company

Emerging growth company