Albemarle Corporation 2021 Form 10-K Summary
Business context and reporting period
Albemarle is a global specialty chemicals producer operating through Lithium, Bromine and Catalysts segments. Products serve energy storage, petroleum refining, consumer electronics, construction, automotive, pharmaceuticals and other markets. The filing covers the fiscal year ended December 31, 2021; it does not provide a separate clear set of fourth-quarter financial results.
The Company served approximately 2,100 customers in about 70 countries, operated more than 25 production and research facilities, and had approximately 6,000 employees. Approximately 78% of sales were to foreign countries.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $3.328 billion | $3.129 billion | Up 6% |
| Gross profit | $998.0 million | $994.9 million | Essentially flat |
| Gross margin | 30.0% | 31.8% | Down 180 basis points |
| Operating profit | $798.4 million | $505.8 million | Up 58% |
| Net income attributable to Albemarle | $123.7 million | $375.8 million | Down 67% |
| Diluted EPS | $1.06 | $3.52 | Down 70% |
| Adjusted EBITDA | $871.0 million | $818.7 million | Up 6% |
| Cash flow from operations | $344.3 million | $798.9 million | Down $454.7 million |
| Capital expenditures | $953.7 million | $850.5 million | Up $103.2 million |
- Segment sales: Lithium $1.363 billion, up 19%; Bromine $1.128 billion, up 17%; Catalysts $761.2 million, down 5%; and All Other $75.1 million, down 66% following the FCS divestiture.
- Segment adjusted EBITDA: Lithium $479.5 million, up 22%; Bromine $360.7 million, up 11%; Catalysts $106.9 million, down 18%.
- Cash and cash equivalents were $439.3 million at year-end versus $746.7 million in 2020, including $374.0 million held by foreign subsidiaries.
- Total long-term debt was $2.394 billion, including $389.9 million classified as current and $2.004 billion classified as noncurrent. Commercial paper outstanding was $388.5 million with a weighted-average maturity of 20 days.
- The Company had no borrowings under its $1.0 billion 2018 revolving credit facility or its amended 2019 credit facility at year-end. Available borrowing capacity under the commercial paper program and credit agreements was approximately $1.36 billion, subject to covenants.
- Management stated that the Company was in compliance with debt covenants and expected cash, operating cash flow, divestiture proceeds and borrowing capacity to fund operations, debt service, capital expenditures, dividends and other obligations.
- Dividends paid to shareholders were $177.9 million, and the quarterly dividend was increased to $0.39 per share. No shares were repurchased.
Material changes versus the prior comparable period
- Higher Lithium and Bromine volumes and pricing drove most of the sales increase. Catalysts declined because of lower refining-related demand and the effects of COVID-19 and a U.S. Gulf Coast winter storm.
- Gross margin declined because of higher freight, raw material, utility and production costs, including approximately $22 million of winter-storm-related costs in Bromine and Catalysts and an $8.7 million out-of-period inventory foreign-exchange adjustment.
- Net income was significantly reduced by a $657.4 million expense related to the settlement of the legacy Rockwood arbitration matter with Huntsman, or $508.5 million after tax. Albemarle agreed to pay Huntsman $665 million in two installments and paid the first installment of $332.5 million in December 2021.
- The FCS business was sold to W. R. Grace for approximately $570 million of proceeds, consisting of $300 million in cash and $270 million of preferred equity. The transaction generated a $428.4 million pretax gain and a $330.8 million after-tax gain, but removed seven months of FCS sales from the year.
- The Company recorded a $132.4 million expense for anticipated cost overruns related to MRL’s 40% interest in Kemerton lithium hydroxide conversion assets.
- In February 2021, Albemarle issued approximately 9.8 million common shares for gross proceeds of approximately $1.5 billion. Proceeds were used primarily to repay debt, including the 2021 senior notes, floating-rate notes, credit facility borrowings and commercial paper.
- Cash flow from operations declined principally because of the $332.5 million Huntsman settlement, lower FCS earnings, higher inventories and accounts receivable.
- Capital expenditures increased to $953.7 million, with approximately $813.1 million allocated to Lithium growth and capacity projects.
Guidance, outlook, risks and unusual items
- 2022 outlook: Management expected Lithium results to increase year over year due to new capacity at La Negra, Kemerton Train I and the expected Tianyuan acquisition, together with higher pricing and continued EV and battery-market strength.
- Bromine sales and profitability were expected to be modestly higher, supported by flame-retardant demand, pricing and cost savings, subject to raw-material availability and higher freight and input costs.
- Catalysts results were expected to improve as refining markets and travel conditions recovered. FCC demand might not return to normal until late 2022 or 2023, while HPC demand remained subject to refinery spending delays.
- Management expected 2022 capital expenditures of $1.3 billion to $1.5 billion, primarily for Lithium growth and capacity additions in Australia, China and Silver Peak, Nevada. Kemerton Train II completion was expected in the second half of 2022, with commercial sales from Train II expected in 2023.
- Albemarle expected to close the approximately $200 million Tianyuan acquisition in the first half of 2022, subject to customary conditions. Tianyuan was expected to provide up to 25,000 metric tons of annual lithium conversion capacity.
- The 60%-owned MARBL joint venture expected to restart Wodgina spodumene concentrate production in the second quarter of 2022. The filing states that timing was not assured.
- Material risks include lithium price and demand volatility, alternative non-lithium battery technologies, resource depletion and permitting, project delays and cost overruns, raw-material and energy inflation, foreign-exchange movements, cyclical refining and electronics markets, environmental and climate regulation, water availability, geopolitical exposure, cybersecurity, industrial accidents and COVID-19 disruptions.
- The Company voluntarily self-reported potential improper payments involving third-party sales representatives in its Catalysts business to the DOJ, SEC and Dutch Public Prosecutor and was discussing a potential SEC resolution. The duration, outcome and costs were not determinable.
- Environmental remediation liabilities were $46.6 million, with a disclosed possible additional exposure of approximately $10 million to $37 million before tax. Management believed the recorded and potential liabilities were not expected to materially affect annual consolidated results, although quarterly effects could be material.
- The filing reports a $270 million preferred-equity investment received from Grace, with 12% payment-in-kind dividends beginning June 1, 2023 if not redeemed earlier.
- Goodwill was $1.598 billion at year-end. The annual impairment test identified no impairment, but the Refining Solutions reporting unit was identified as a critical audit matter because of sensitivity to projected revenue growth and adjusted EBITDA margins.
Most important facts an investor should verify
- Reconcile reported earnings with recurring operating performance, particularly the Huntsman settlement, FCS gain, Kemerton cost-overrun expense, pension gains and debt-extinguishment costs.
- Confirm the timing, cost and ramp-up of Kemerton Trains I and II, the Tianyuan acquisition and the planned China lithium hydroxide projects.
- Monitor Lithium pricing, contract repricing, EV demand, Wodgina’s restart and the pace of new conversion capacity relative to market demand.
- Assess whether the planned $1.3 billion to $1.5 billion of 2022 capital expenditures can be funded while maintaining leverage, dividends and liquidity.
- Review the remaining $388.5 million of commercial paper, the $425 million 2024 senior-note maturity, covenant headroom and refinancing requirements.
- Track the unresolved DOJ, SEC and Dutch Public Prosecutor investigations and any additional legal, compliance or indemnification payments.
- Evaluate environmental, water-rights, climate, permitting and concession risks in Chile, Jordan, Australia, Nevada and Arkansas.