Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
_________________________________
FORM 8-K
_________________________________
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) August 7, 2018
 
_________________________________
ALBEMARLE CORPORATION
(Exact name of Registrant as specified in charter)
_________________________________

Virginia
 
001-12658
 
54-1692118
(State or other jurisdiction
of incorporation)
 
(Commission
file number)
 
(IRS employer
identification no.)
 
 
 
 
 
4350 Congress Street, Suite 700, Charlotte, North Carolina
 
28209
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code
(980) 299-5700
Not applicable
(Former name or former address, if changed since last report)
_________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a- 12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2)
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨






Section 2 - Financial Information

Item 2.02.    Results of Operations and Financial Condition.
On August 7, 2018, Albemarle Corporation (the “Company”) issued a press release reporting its results for the second quarter ended June 30, 2018. A copy of this release is being furnished as Exhibit 99.1 hereto and incorporated herein by reference. In addition, on August 8, 2018, the Company will hold a teleconference for analysts and media to discuss results for the second quarter ended June 30, 2018. The teleconference will be webcast on the Company’s website at www.albemarle.com.
The press release includes presentations of adjusted net income attributable to Albemarle Corporation, adjusted diluted earnings per share, adjusted effective income tax rates, EBITDA, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin. These are financial measures that are not required by, nor presented in accordance with, accounting principles generally accepted in the United States (“GAAP”), but are included to provide additional useful measurements to review our operations, provide transparency to investors and enable period-to-period comparability of financial performance.
Our presentations of adjusted net income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA and adjusted effective income tax rates should not be considered as alternatives to Net income attributable to Albemarle Corporation (“earnings”), diluted earnings per share and effective income tax rates as determined in accordance with GAAP. Further, EBITDA margin and adjusted EBITDA margin should not be considered as alternatives to earnings as a percentage of our consolidated net sales as would be determined in accordance with GAAP. The Company has included in the press release certain reconciliation information for these measures to their most directly comparable financial measures calculated and reported in accordance with GAAP.
In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Section 9 - Financial Statements and Exhibits

Item 9.01.    Financial Statements and Exhibits.

(d) Exhibits.

99.1    Press release, dated August 7, 2018, issued by the Company.





SIGNATURE

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 hereunto duly authorized.

Date: August 7, 2018

ALBEMARLE CORPORATION
By:
/s/ Karen G. Narwold
 
Karen G. Narwold
 
Executive Vice President and Chief Administrative Officer






EXHIBIT INDEX

Exhibit
 
 
Number
 
Exhibit
 
 
 
 



Exhibit

Exhibit 99.1
Contact:
 
Dave Ryan
980.299.5641

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12395205&doc=3




Albemarle reports strong growth and raises guidance - Lithium powers ahead



CHARLOTTE, NC - August 7, 2018

Second quarter 2018 highlights:
Second quarter net sales were $853.9 million, an increase of 16% over the prior year; earnings were $302.5 million, or $2.73 per diluted share, an increase of 197% over the prior year
Second quarter adjusted EBITDA was $258.6 million, an increase of 18% over the prior year; adjusted diluted earnings per share was $1.36, an increase of 20% over the prior year
Closed the sale of the polyolefin catalysts and components portion of the PCS business to W.R. Grace & Co. for net cash proceeds of approximately $417 million on April 3, 2018
Initiated $250 million accelerated share repurchase program, retiring approximately 2.4 million shares in the second quarter
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
In thousands, except per share amounts
2018
 
2017
 
2018
 
2017
Net sales
$
853,874

 
$
737,258

 
$
1,675,503

 
$
1,459,321

Net income attributable to Albemarle Corporation
$
302,461

 
$
103,333

 
$
434,221

 
$
154,546

Adjusted EBITDA
$
258,562

 
$
218,941

 
$
507,280

 
$
430,317

Diluted earnings per share
$
2.73

 
$
0.92

 
$
3.90

 
$
1.37

   Non-operating pension and OPEB items(a)
(0.02
)
 
(0.01
)
 
(0.03
)
 
(0.01
)
   Non-recurring and other unusual items(a)
(1.36
)
 
0.21

 
(1.22
)
 
0.82

Adjusted diluted earnings per share(b)
$
1.36

 
$
1.13

 
$
2.65

 
$
2.18


See accompanying notes (a) through (b) to the condensed consolidated financial information and non-GAAP reconciliations.

Albemarle Corporation (NYSE: ALB) reported second quarter 2018 net sales of $853.9 million, earnings of $302.5 million and adjusted EBITDA of $258.6 million.

"We saw strength in all three businesses in the second quarter, with each delivering double-digit adjusted EBITDA growth," said Luke Kissam, Albemarle’s Chairman, President and CEO. "The company grew adjusted diluted EPS by 28% over 2017, excluding divested businesses. Our lithium capital projects continue to progress on plan. We are confident in a strong 2018 and are raising our guidance for the full year to $5.30 to $5.50 per diluted share."


1


Outlook

Based on our strong performance in the first half of 2018, we are increasing our guidance as follows:
 
2018 Outlook
 
vs Full Year 2017
Net sales
$3.3 - $3.5 billion
 
7% - 14%
Adjusted EBITDA
$990 - $1,020 million
 
12% - 15%
Adjusted EPS (per diluted share)
$5.30 - $5.50
 
15% - 20%

Results

Second quarter 2018 earnings were $302.5 million, or $2.73 per diluted share, compared to $103.3 million, or $0.92 per diluted share in the second quarter 2017. The increase in 2018 was primarily driven by the $1.60 per diluted share gain on sale of the polyolefin catalysts and components portion of the PCS business, as well as earnings growth in each of our reportable segments. Second quarter 2018 adjusted EBITDA increased by $39.6 million, or 18.1%, compared to the prior year. Second quarter 2018 adjusted net income was $150.0 million, or $1.36 per diluted share, compared to $126.5 million, or $1.13 per diluted share, for second quarter 2017, an increase of 20.4%. See notes to the condensed consolidated financial information for further details. The Company reported net sales of $853.9 million in second quarter 2018, up 15.8% from net sales of $737.3 million in the second quarter of 2017, driven by the favorable impact of higher sales volumes, pricing and currency exchange impacts in each of our reportable segments, partially offset by the impact of the divestiture of the polyolefin catalysts and components portion of the Performance Catalyst Solutions (“PCS”) business.

For the six months ended June 30, 2018, earnings were $434.2 million, or $3.90 per diluted share, compared to $154.5 million, or $1.37 per diluted share for the six months ended June 30, 2017. The increase in 2018 was primarily driven by the $1.59 per diluted share gain on sale of the polyolefin catalysts and components portion of the PCS business, earnings growth in each of our reportable segments, and a loss on early extinguishment of debt of $0.34 per diluted share recorded in 2017. For the six months ended June 30, 2018, adjusted EBITDA increased by $77.0 million, or 17.9%, compared to the same period 2017. For the six months ended June 30, 2018, adjusted net income was $295.2 million, or $2.65 per diluted share, compared to $245.5 million, or $2.18 per diluted share, for the same period 2017, an increase of 21.6%. See notes to the condensed consolidated financial information for further details. The Company reported net sales for the six months ended June 30, 2018 of $1.68 billion, up from net sales of $1.46 billion for the six months ended June 30, 2017, driven by the favorable impact of higher sales volumes in our Lithium and Catalysts segments, as well as favorable price and currency exchange impacts in each of our reportable segments, partially offset by the impact of the divestiture of the polyolefin catalysts and components portion of the PCS business.

On April 3, 2018, we closed the sale of the polyolefin catalysts and components portion of the PCS business to W.R. Grace & Co. for net cash proceeds of approximately $416.7 million and recorded an after-tax gain of $176.7 million related to the sale of this business. The transaction includes Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at the Yeosu, South Korea site. The transaction does not include the organometallics or curatives portion of the PCS business. The assets and liabilities of this business are included in Assets held for sale and Liabilities held for sale in the consolidated balance sheets as of December 31, 2017.

Quarterly Segment Results

During 2018, the PCS product category merged with the Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments include: (1) Lithium; (2) Bromine Specialties; and (3) Catalysts. For comparison purposes, prior year periods have been reclassified to conform to the current presentation.

Lithium reported net sales of $317.6 million in the second quarter of 2018, an increase of 30.2% from second quarter 2017 net sales of $243.8 million. The $73.7 million increase in net sales as compared to prior year was primarily due to favorable pricing impacts, increased sales volumes and $7.7 million of favorable currency exchange impacts. Adjusted EBITDA for Lithium was $141.6 million, an increase of 22.9% from second quarter 2017 results of $115.2 million. The $26.4 million increase in adjusted EBITDA as compared to the prior year was primarily due to favorable pricing impacts, increased sales volumes and $0.8 million of favorable currency exchange impacts, partially offset by higher royalty payments.

2



Bromine Specialties reported net sales of $220.5 million in the second quarter of 2018, an increase of 8.1% from second quarter 2017 net sales of $203.9 million. The $16.6 million increase in net sales as compared to the prior year was primarily due to favorable pricing impacts, increased sales volumes and $3.1 million of favorable currency exchange impacts. Adjusted EBITDA for Bromine Specialties was $69.4 million, an increase of 11.7% from second quarter 2017 results of $62.1 million. The $7.3 million increase in adjusted EBITDA as compared to the prior year was primarily due to favorable pricing impacts and $2.7 million of favorable currency exchange impacts, partially offset by higher raw material and production costs.

Catalysts reported net sales of $285.0 million in the second quarter of 2018, an increase of 10.3% from net sales of $258.3 million in the second quarter of 2017. The $26.7 million increase in net sales as compared to the prior year was primarily due to increased sales volume, favorable pricing impacts and $4.8 million of favorable currency exchange impacts, which more than offset the $25.7 million impact of the divestiture of the polyolefin catalysts and components portion of the PCS business. Adjusted EBITDA for Catalysts was $75.1 million in the second quarter of 2018, an increase of 11.4% from second quarter 2017 results of $67.4 million. The $7.7 million increase in adjusted EBITDA as compared to the prior year was primarily due to increased sales volumes, favorable pricing and $0.3 million of favorable currency exchange impacts, partially offset by higher material costs and the impact of the divestiture of the polyolefin catalysts and components portion of the PCS business of $9.8 million.

All Other net sales were $30.7 million in both the second quarter of 2018 and 2017. All Other adjusted EBITDA was ($0.1) million in the second quarter of 2018, a decrease of 104.1% from second quarter 2017 results of $2.4 million. The $2.5 million decrease in adjusted EBITDA as compared to the prior year was primarily due to the unfavorable pricing impacts and product mix in our fine chemistry services business.

Corporate Results

Corporate adjusted EBITDA was a charge of $27.4 million in the second quarter of 2018 compared to a charge of $28.2 million in the second quarter of 2017. The improvement in Corporate adjusted EBITDA was primarily due to lower selling, general and administrative spend.

Income Taxes

In December 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted, requiring companies, among other things, to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and reducing the U.S. federal corporate income tax rate from 35% to 21%. The SEC staff issued SAB 118, which will allow us to record provisional amounts during a measurement period, which should not extend beyond one year from the enactment date. In the six months ended June 30, 2018, we recorded a discrete tax benefit of $2.8 million to adjust amounts previously recorded for the one-time transition tax and a discrete tax benefit of $3.7 million for other adjustments.

Our effective income tax rates for the second quarter of 2018 and 2017 of 21.5% and 19.0%, respectively, are influenced by non-recurring, other unusual and non-operating pension and OPEB items (see notes to the condensed consolidated financial information). The increase in the effective tax rate in the second quarter of 2018 compared to 2017 was impacted by a variety of factors, primarily stemming from a change in the geographic mix of earnings. Our adjusted effective income tax rates, which exclude non-recurring, other unusual and non-operating pension and OPEB items, were 24.4% and 19.1% for the second quarter of 2018 and 2017, respectively, and continue to be influenced by the level and geographic mix of income. Our effective income tax rates for the six months ended June 30, 2018 and 2017 were 19.7% and 20.0%, respectively, and our adjusted effective income tax rates for the six months ended June 30, 2018 and 2017 were 23.8% and 20.7%, respectively.

Cash Flow

Our cash from operations was approximately $223.9 million for the six months ended June 30, 2018, an increase of $278.3 million versus the same period in 2017, primarily due to changes in working capital, including the payment of approximately $255 million in taxes related to the sale of the Chemetall Surface Treatment business in 2017, as well as increased earnings in each of our reportable segments and increased dividends received from unconsolidated investments in 2018. Capital expenditures were $280.9 million as compared to $97.8 million in the first six months of 2017, with the increase driven largely by expansion investment in our Lithium business. We had $908.1 million in cash and cash equivalents at June 30, 2018, as compared to $1.14 billion at

3


December 31, 2017. During the first six months of 2018, cash on hand, cash provided by operations and net proceeds from divestitures funded $213.3 million of commercial paper note repayments, net of borrowings, $280.9 million of capital expenditures for plant, machinery and equipment, dividends to shareholders of $72.5 million and a $250.0 million accelerated share repurchase program, of which we received and retired approximately 2.4 million shares of our common stock during the second quarter. Any remaining shares to be delivered under this accelerated share repurchase program will be received and retired by the end of the third quarter of 2018.

Earnings Call

The Company’s performance for the second quarter ended June 30, 2018 will be discussed on a conference call at 9:00 AM Eastern time on August 8, 2018. The call can be accessed by dialing 800-219-3192 (International Dial-In # 617-597-5412), and entering conference ID 17275571. The Company’s earnings presentation and supporting material can be accessed through Albemarle’s website under Investors at www.albemarle.com.

About Albemarle

Albemarle Corporation (NYSE: ALB), headquartered in Charlotte, NC, is a global specialty chemicals company with leading positions in lithium, bromine and refining catalysts. We power the potential of companies in many of the world’s largest and most critical industries, from energy and communications to transportation and electronics. Working side-by-side with our customers, we develop value-added, customized solutions that make them more competitive. Our solutions combine the finest technology and ingredients with the knowledge and know-how of our highly experienced and talented team of operators, scientists and engineers.

Discovering and implementing new and better performance-based sustainable solutions is what motivates all of us. We think beyond business-as-usual to drive innovations that create lasting value. Albemarle employs approximately 5,000 people and serves customers in approximately 100 countries. We regularly post information to www.albemarle.com, including notification of events, news, financial performance, investor presentations and webcasts, non-GAAP reconciliations, SEC filings and other information regarding our company, its businesses and the markets it serves.

Forward-Looking Statements

Some of the information presented in this press release, the conference call and discussions that follow, including, without limitation, product development, changes in productivity, market trends, price, expected growth, earnings and demand for our products, input costs, surcharges, tax rates, stock repurchases, dividends, cash flow generation, costs and cost synergies, portfolio diversification, economic trends, outlook and all other information relating to matters that are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from the views expressed. 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 proceedings, claims or litigation; the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change; 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 form 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 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 SEC, including those described under “Risk Factors” in

4


our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. These forward-looking statements speak only as of the date of this press release. We assume no obligation to provide any revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

Albemarle Corporation and Subsidiaries
Consolidated Statements of Income
(In Thousands Except Per Share Amounts) (Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Net sales
$
853,874

 
$
737,258

 
$
1,675,503

 
$
1,459,321

Cost of goods sold
542,518

 
465,297

 
1,059,168

 
932,404

Gross profit
311,356

 
271,961

 
616,335

 
526,917

Selling, general and administrative expenses
123,637

 
116,585

 
225,007

 
225,513

Research and development expenses
16,074

 
17,337

 
37,060

 
41,660

Gain on sale of business
(218,705
)
 

 
(218,705
)
 

Operating profit
390,350

 
138,039

 
572,973

 
259,744

Interest and financing expenses
(13,308
)
 
(14,590
)
 
(26,846
)
 
(83,103
)
Other expenses, net
(5,223
)
 
(1,678
)
 
(35,699
)
 
(1,413
)
Income before income taxes and equity in net income of unconsolidated investments
371,819

 
121,771

 
510,428

 
175,228

Income tax expense
80,102

 
23,130

 
100,463

 
35,101

Income before equity in net income of unconsolidated investments
291,717

 
98,641

 
409,965

 
140,127

Equity in net income of unconsolidated investments (net of tax)
18,969

 
15,048

 
39,646

 
36,219

Net income
310,686

 
113,689

 
449,611

 
176,346

Net income attributable to noncontrolling interests
(8,225
)
 
(10,356
)
 
(15,390
)
 
(21,800
)
Net income attributable to Albemarle Corporation
$
302,461

 
$
103,333

 
$
434,221

 
$
154,546

Basic earnings per share
$
2.76

 
$
0.93

 
$
3.94

 
$
1.39

Diluted earnings per share
$
2.73

 
$
0.92

 
$
3.90

 
$
1.37

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding – basic
109,671

 
110,686

 
110,176

 
111,336

Weighted-average common shares outstanding – diluted
110,659

 
112,105

 
111,263

 
112,697


See accompanying notes to the condensed consolidated financial information.


5


Albemarle Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands) (Unaudited)

 
June 30,
 
December 31,
 
2018
 
2017
ASSETS
 
 
 
Cash and cash equivalents
$
908,144

 
$
1,137,303

Other current assets
1,374,926

 
1,301,108

Assets held for sale

 
39,152

Total current assets
2,283,070

 
2,477,563

Property, plant and equipment
4,375,335

 
4,124,335

Less accumulated depreciation and amortization
1,705,675

 
1,631,025

Net property, plant and equipment
2,669,660

 
2,493,310

Noncurrent assets held for sale

 
139,813

Other assets and intangibles
2,585,633

 
2,640,086

Total assets
$
7,538,363

 
$
7,750,772

LIABILITIES AND EQUITY
 
 
 
Current portion of long-term debt
$
208,681

 
$
422,012

Other current liabilities
832,980

 
776,975

Liabilities held for sale

 
1,938

Total current liabilities
1,041,661

 
1,200,925

Long-term debt
1,406,724

 
1,415,360

Noncurrent liabilities held for sale

 
614

Other noncurrent liabilities
886,486

 
945,788

Deferred income taxes
366,212

 
370,389

Albemarle Corporation shareholders’ equity
3,693,576

 
3,674,549

Noncontrolling interests
143,704

 
143,147

Total liabilities and equity
$
7,538,363


$
7,750,772


See accompanying notes to the condensed consolidated financial information.

6


Albemarle Corporation and Subsidiaries
Selected Consolidated Cash Flow Data
(In Thousands) (Unaudited)

 
Six Months Ended
 
June 30,
 
2018
 
2017
Cash and cash equivalents at beginning of year
$
1,137,303

 
$
2,269,756

Cash and cash equivalents at end of period
$
908,144

 
$
1,006,945

Sources of cash and cash equivalents:
 
 
 
Net income
$
449,611

 
$
176,346

Cash proceeds from divestitures, net
416,711

 
6,857

Other borrowings, net

 
58,886

Dividends received from unconsolidated investments and nonmarketable securities
30,045

 
8,454

Proceeds from exercise of stock options
1,288

 
3,337

Uses of cash and cash equivalents:
 
 
 
Working capital changes
(91,189
)
 
(353,138
)
Capital expenditures
(280,945
)
 
(97,765
)
Acquisitions, net of cash acquired
(7,643
)
 
(39,525
)
Repayments of long-term debt

 
(751,209
)
Repurchases of common stock
(250,000
)
 
(250,000
)
Repayments of other borrowings, net
(211,833
)
 

Pension and postretirement contributions
(7,089
)
 
(6,288
)
Dividends paid to shareholders
(72,484
)
 
(69,762
)
Fees related to early extinguishment of debt

 
(46,959
)
Dividends paid to noncontrolling interests
(7,378
)
 
(17,930
)
Non-cash and other items:
 
 
 
Depreciation and amortization
100,804

 
94,192

Gain on sale of business
(218,705
)
 

Gain on acquisition

 
(7,433
)
Pension and postretirement benefit
(1,793
)
 
(7
)
Loss on early extinguishment of debt

 
52,801

Deferred income taxes
30,708

 
(3,204
)
Equity in net income of unconsolidated investments (net of tax)
(39,646
)
 
(36,219
)

See accompanying notes to the condensed consolidated financial information.


7


Notes to the Condensed Consolidated Financial Information

(a)
See Non-GAAP Reconciliations for a description of the Non-operating pension and OPEB items and Non-recurring and other unusual items.

(b)
Totals may not add due to rounding.

Additional Information

It should be noted that adjusted net income attributable to Albemarle Corporation, adjusted diluted earnings per share, non-operating pension and OPEB items per diluted share, non-recurring and other unusual items per diluted share, adjusted effective income tax rates, EBITDA, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin are financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States, or GAAP. These non-GAAP measures should not be considered as alternatives to Net income attributable to Albemarle Corporation (“earnings”). These measures are presented here to provide additional useful measurements to review our operations, provide transparency to investors and enable period-to-period comparability of financial performance. The Company’s chief operating decision maker uses these measures to assess the ongoing performance of the Company and its segments, as well as for business and enterprise planning purposes.

A description of other non-GAAP financial measures that we use to evaluate our operations and financial performance, and reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP can be found on the following pages of this press release, which is also posted in the Investors section of our website at www.albemarle.com. The Company does not provide a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP, as the Company is unable to estimate significant non-recurring or unusual items without unreasonable effort. The amounts and timing of these items are uncertain and could be material to the Company's results calculated in accordance with GAAP.

8


Albemarle Corporation and Subsidiaries
Consolidated Summary of Segment Results
(In Thousands) (Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Net sales:
 
 
 
 
 
 
 
Lithium
$
317,563

 
$
243,821

 
$
615,595

 
$
460,050

Bromine Specialties
220,514

 
203,945

 
446,153

 
423,136

Catalysts
284,966

 
258,255

 
545,683

 
511,813

All Other
30,748

 
30,704

 
67,913

 
63,123

Corporate
83

 
533

 
159

 
1,199

Total net sales
$
853,874

 
$
737,258

 
$
1,675,503

 
$
1,459,321

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Lithium
$
141,617

 
$
115,200

 
$
272,631

 
$
215,052

Bromine Specialties
69,367

 
62,075

 
139,336

 
130,563

Catalysts
75,102

 
67,427

 
142,932

 
137,176

All Other
(101
)
 
2,444

 
3,761

 
7,600

Corporate
(27,423
)
 
(28,205
)
 
(51,380
)
 
(60,074
)
Total adjusted EBITDA
$
258,562

 
$
218,941

 
$
507,280

 
$
430,317


See accompanying non-GAAP reconciliations below.

9


ALBEMARLE CORPORATION AND SUBSIDIARIES
Non-GAAP Reconciliations
(Unaudited)
See below for a reconciliation of adjusted net income attributable to Albemarle Corporation, EBITDA and adjusted EBITDA, the non-GAAP financial measures, to Net income attributable to Albemarle Corporation (“earnings”), the most directly comparable financial measure calculated and reported in accordance with GAAP. Adjusted earnings is defined as earnings before the non-recurring, other unusual and non-operating pension and OPEB items as listed below. EBITDA is defined as earnings before interest and financing expenses, income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA and the non-recurring, other unusual and non-operating pension and OPEB items as listed below.


Three Months Ended

Six Months Ended

June 30,

June 30,
In thousands, except percentages and per share amounts
2018

2017

2018

2017
Net income attributable to Albemarle Corporation
$
302,461


$
103,333


$
434,221


$
154,546

Add back:
 
 
 
 
 
 
 
Non-operating pension and OPEB items (net of tax)
(1,873
)

(589
)

(3,739
)

(1,399
)
Non-recurring and other unusual items (net of tax)
(150,618
)

23,738


(135,299
)

92,343

Adjusted net income attributable to Albemarle Corporation
$
149,970


$
126,482


$
295,183


$
245,490













Adjusted diluted earnings per share
$
1.36


$
1.13


$
2.65


$
2.18













Weighted-average common shares outstanding – diluted
110,659


112,105


111,263


112,697













Net income attributable to Albemarle Corporation
$
302,461


$
103,333


$
434,221


$
154,546

Add back:











Interest and financing expenses
13,308


14,590


26,846


83,103

Income tax expense
80,102


23,130


100,463


35,101

Depreciation and amortization
50,474


49,122


100,804


94,192

EBITDA
446,345


190,175


662,334


366,942

Non-operating pension and OPEB items
(2,204
)

(1,053
)

(4,401
)

(2,116
)
Non-recurring and other unusual items (excluding items associated with interest expense)
(185,579
)

29,819


(150,653
)

65,491

Adjusted EBITDA
$
258,562


$
218,941


$
507,280


$
430,317













Net sales
$
853,874


$
737,258


$
1,675,503


$
1,459,321

EBITDA margin
52.3
%

25.8
%

39.5
%

25.1
%
Adjusted EBITDA margin
30.3
%

29.7
%

30.3
%

29.5
%


10


See below for a reconciliation of adjusted EBITDA on a segment basis, the non-GAAP financial measure, to Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reporting in accordance with GAAP (in thousands, except percentages).
 
Lithium
 
Bromine Specialties
 
Catalysts
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
 
% of Net Sales
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

 
35.4
 %
Depreciation and amortization
24,325

 
9,694

 
12,920

 
46,939

 
1,978

 
1,557

 
50,474

 
5.9
 %
Non-recurring and other unusual items

 

 
(218,705
)
 
(218,705
)
 

 
33,126

 
(185,579
)
 
(21.7
)%
Interest and financing expenses

 

 

 

 

 
13,308

 
13,308

 
1.6
 %
Income tax expense

 

 

 

 

 
80,102

 
80,102

 
9.4
 %
Non-operating pension and OPEB items

 

 

 

 

 
(2,204
)
 
(2,204
)
 
(0.3
)%
Adjusted EBITDA
$
141,617

 
$
69,367

 
$
75,102

 
$
286,086

 
$
(101
)
 
$
(27,423
)
 
$
258,562

 
30.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
81,819

 
$
51,739

 
$
53,994

 
$
187,552

 
$
152

 
$
(84,371
)
 
$
103,333

 
14.0
 %
Depreciation and amortization
21,460

 
10,336

 
13,433

 
45,229

 
2,292

 
1,601

 
49,122

 
6.7
 %
Non-recurring and other unusual items
11,921

 

 

 
11,921

 

 
17,898

 
29,819

 
4.0
 %
Interest and financing expenses

 

 

 

 

 
14,590

 
14,590

 
2.0
 %
Income tax expense

 

 

 

 

 
23,130

 
23,130

 
3.1
 %
Non-operating pension and OPEB items

 

 

 

 

 
(1,053
)
 
(1,053
)
 
(0.1
)%
Adjusted EBITDA
$
115,200

 
$
62,075

 
$
67,427

 
$
244,702

 
$
2,444

 
$
(28,205
)
 
$
218,941

 
29.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
25.9
 %
Depreciation and amortization
48,390

 
20,127

 
25,090

 
93,607

 
4,080

 
3,117

 
100,804

 
6.0
 %
Non-recurring and other unusual items
(1,385
)
 

 
(218,705
)
 
(220,090
)
 

 
69,437

 
(150,653
)
 
(9.0
)%
Interest and financing expenses

 

 

 

 

 
26,846

 
26,846

 
1.6
 %
Income tax expense

 

 

 

 

 
100,463

 
100,463

 
6.0
 %
Non-operating pension and OPEB items

 

 

 

 

 
(4,401
)
 
(4,401
)
 
(0.2
)%
Adjusted EBITDA
$
272,631

 
$
139,336

 
$
142,932

 
$
554,899

 
$
3,761

 
$
(51,380
)
 
$
507,280

 
30.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
159,433

 
$
110,433

 
$
110,960

 
$
380,826

 
$
3,398

 
$
(229,678
)
 
$
154,546

 
10.6
 %
Depreciation and amortization
40,525

 
20,130

 
26,216

 
86,871

 
4,202

 
3,119

 
94,192

 
6.5
 %
Non-recurring and other unusual items (excluding items associated with interest expense)
15,094

 

 

 
15,094

 

 
50,397

 
65,491

 
4.5
 %
Interest and financing expenses

 

 

 

 

 
83,103

 
83,103

 
5.7
 %
Income tax expense

 

 

 

 

 
35,101

 
35,101

 
2.4
 %
Non-operating pension and OPEB items

 

 

 

 

 
(2,116
)
 
(2,116
)
 
(0.2
)%
Adjusted EBITDA
$
215,052

 
$
130,563

 
$
137,176

 
$
482,791

 
$
7,600

 
$
(60,074
)
 
$
430,317

 
29.5
 %



11


Non-operating pension and OPEB items, consisting of MTM actuarial gains/losses, settlements/curtailments, interest cost and expected return on assets, are not allocated to our operating segments and are included in the Corporate category. In addition, we believe that these components of pension cost are mainly driven by market performance, and we manage these separately from the operational performance of our businesses. In accordance with GAAP, these non-operating pension and OPEB items are included in Other expenses, net. Non-operating pension and OPEB items were as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Interest cost
$
8,558

 
$
8,905

 
$
17,127

 
$
17,778

Expected return on assets
(10,762
)
 
(9,958
)
 
(21,528
)
 
(19,894
)
Total
$
(2,204
)
 
$
(1,053
)
 
$
(4,401
)
 
$
(2,116
)

In addition to the non-operating pension and OPEB items disclosed above, we have identified certain other items and excluded them from our adjusted net income calculation for the periods presented. A listing of these items, as well as a detailed description of each follows below (per diluted share):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Utilization of inventory markup(1)
$

 
$
0.08

 
$

 
$
0.16

Restructuring and other(2)

 
0.02

 

 
0.11

Acquisition and integration related costs(3)
0.05

 
0.04

 
0.06

 
0.15

Albemarle Foundation contribution(4)
0.11

 

 
0.11

 

Gain on sale of business(5)
(1.60
)
 

 
(1.59
)
 

Gain on acquisition(6)

 

 

 
(0.05
)
Legal accrual(7)
0.07

 

 
0.19

 

Loss on extinguishment of debt(8)

 

 

 
0.34

Multiemployer plan shortfall contributions(9)

 
0.03

 

 
0.03

Other(10)
0.01

 
0.02

 
0.12

 
0.05

Discrete tax items(11)

 
0.02

 
(0.11
)
 
0.03

Total non-recurring and other unusual items
$
(1.36
)
 
$
0.21

 
$
(1.22
)
 
$
0.82


(1)
In connection with the acquisition of the lithium hydroxide and lithium carbonate conversion business of Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”), the Company valued inventory purchased from Jiangli New Materials at fair value, which resulted in a markup of the underlying net book value of the inventory totaling approximately $23.1 million. The inventory markup was expensed over the estimated remaining selling period. For the three and six months ended June 30, 2017, $11.9 million and $22.5 million ($8.9 million and $17.5 million after income taxes, or $0.08 and $0.16 per share), respectively, was included in Cost of goods sold related to the utilization of the inventory markup.

12



(2)
The three and six months ended June 30, 2017 included restructuring costs at several locations, primarily at our Lithium sites in Germany. These restructuring costs are included in the consolidated statements of income as follows (in millions, except per share amounts):
 
 
Three Months Ended
 
Six Months Ended
 
June 30, 2017
 
June 30, 2017
Restructuring and other costs:
 
 
 
Cost of goods sold
$

 
$
2.9

Selling, general and administrative expenses
4.2

 
8.4

Research and development expenses

 
5.8

Total
$
4.2

 
$
17.1

Total restructuring and other costs, after income taxes
$
2.8

 
$
13.0

Total restructuring and other costs, per diluted share
$
0.02

 
$
0.11


(3)
Acquisition and integration related costs for the three and six months ended June 30, 2018 and 2017 related to various significant projects. Acquisition and integration related costs are included in the consolidated statements of income as follows (in millions, except per share amounts):

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Acquisition and integration related costs:
 
 
 
 
 
 
 
Cost of goods sold
$
1.0

 
$
1.8

 
$
1.9

 
$
10.7

Selling, general and administrative expenses
5.5

 
4.7

 
6.8

 
10.1

Total
$
6.5

 
$
6.5

 
$
8.7

 
$
20.8

Total acquisition and integration related costs, after income taxes
$
5.2

 
$
4.8

 
$
7.1

 
$
17.6

Total acquisition and integration related costs, per diluted share
$
0.05

 
$
0.04

 
$
0.06

 
$
0.15


(4)
Included in Selling, general and administrative expenses for the three and six months ended June 30, 2018 is a $15.0 million ($11.5 million after income taxes, or $0.11 per share) charitable contribution, using a portion of the proceeds received from the sale of the polyolefin catalysts and components portion of the PCS business, 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 normal annual contribution made to the Albemarle Foundation by the Company, and is significant in size and nature in that it is intended to provide more long-term benefits in the communities where we live and operate.

(5)
Included in Gain on sale of business, for the three and six months ended June 30, 2018 is $218.7 million ($176.7 million after discrete income taxes, or $1.60 per share and $1.59 per share for the three and six months ended June 30, 2018, respectively, due to differences in the weighted average share count between periods) related to the sale of the polyolefin catalysts and components portion of the PCS business.

(6)
Included in Other expenses, net for the six months ended June 30, 2017 is $7.4 million ($6.0 million after income taxes, or $0.05 per share) relating to the acquisition of the remaining 50% interest in the Sales de Magnesio Ltda. joint venture in Chile. The gain was calculated based on the difference between the purchase price and the book value of the investment.


13


(7)
Included in Other expenses, net, for the three and six months ended June 30, 2018 is a $10.4 million ($8.0 million after income taxes, or $0.07 per share) legal accrual resulting from a proposed settlement in a legal matter related to guarantees from a previously disposed business. Also included in Other expenses, net, for the six months ended June 30, 2018 is a $17.6 million ($13.6 million after income taxes, or $0.12 per share) legal accrual relating to a jury rendered verdict against Albemarle related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures. Albemarle is currently evaluating its appeal options.

(8)
Included in Interest and financing expenses for the six months ended June 30, 2017 is a loss on early extinguishment of debt of $52.8 million ($38.1 million after income taxes, or $0.34 per share) related to the tender premiums, fees, unamortized discounts and unamortized deferred financings costs from the redemption of the 3.00% Senior notes, €307.0 million of the 1.875% Senior notes and $174.7 million of the 4.50% Senior notes.

(9)
Included in Selling, general and administrative expenses for the three and six months ended June 30, 2017 is $2.0 million ($1.4 million after income taxes, or $0.01 per share) for increased capital reserve contributions to a multiemployer plan, which is subject to a financial improvement plan. In addition, capital reserve contributions for this multiemployer plan of $2.9 million ($2.2 million after income taxes, or $0.02 per share), included in Other expenses, net, have been made to indemnify previously divested businesses.

(10)
Other adjustments for the three months ended June 30, 2018 included charges of $1.2 million ($1.0 million after income taxes, or $0.01 per share) related to the revision of previously recorded expenses of disposed businesses recorded in Other expenses, net.

Other adjustments for the six months ended June 30, 2018 included amounts 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, net - $15.6 million related to environmental charges related to a site formerly owned by Albemarle and $1.0 million of charges related to the revision of previously recorded expenses of disposed businesses.
After income taxes, these charges totaled $12.9 million, or $0.12 per share.

Other adjustments for the three months ended June 30, 2017 included amounts recorded in:
Selling, general and administrative expenses - $1.0 million gain related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition.
Other expenses, net - $2.0 million of charges associated with the final settlements of previously disposed businesses and $1.2 million of tax indemnification expenses primarily related to a competent authority agreement for a previously disposed business.
After income taxes, these charges totaled $1.6 million, or $0.02 per share.

Other adjustments for the six months ended June 30, 2017 included amounts recorded in:
Selling, general and administrative expenses - $1.0 million gain related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition.
Other expenses, net - $4.1 million of charges associated with the final settlements of previously disposed businesses, $3.2 million of asset retirement obligation charges related to the revision of an estimate at a site formerly owned by Albemarle and $1.2 million of tax indemnification expenses primarily related to a competent authority agreement for a previously disposed business.
After income taxes, these charges totaled $5.6 million, or $0.05 per share.

(11)
Included in Income tax expense for the three and six months ended June 30, 2018 are discrete net tax expenses (benefits), excluding the discrete tax expense on the gain of sale of business noted above, of $0.3 million, or less than $0.01 per share, and ($11.8) million, or ($0.11) per share, respectively. The net expense for the three months is primarily related to $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. The net benefit for the six months is primarily related to an $8.0 million benefit for tax accounting method changes, a $6.5 million benefit for adjustments related to the accounting for the TCJA and $7.2 million

14


excess tax benefits realized from stock-based compensation arrangements, partially offset by $8.5 million for a valuation allowance recorded due to a foreign restructuring plan.

Included in Income tax expense for the three and six months ended June 30, 2017 are discrete net tax expenses of $2.2 million, or $0.02 per share, and $3.1 million, or $0.03 per share, respectively. The net expense for the three months is primarily related to foreign rate changes of $13.9 million, partially offset by a $9.8 million benefit from the release of valuation allowances due to a foreign restructuring plan. The net expense for the six months is primarily related to foreign rate changes of $13.1 million and a loss from prior year true up of $5.1 million, partially offset by a $9.8 million benefit from the release of valuation allowances due to a foreign restructuring plan and a $4.7 million benefit from excess tax benefits realized from stock-based compensation arrangements.

See below for a reconciliation of the adjusted effective income tax rate, the non-GAAP financial measure, to the effective income tax rate, the most directly comparable financial measure calculated and reporting in accordance with GAAP (in thousands, except percentages).

 
Income before income taxes and equity in net income of unconsolidated investments
 
Income tax expense
 
Effective income tax rate
Three months ended June 30, 2018:
 
 
 
 
 
As reported
$
371,819

 
$
80,102

 
21.5
%
Non-recurring, other unusual and non-operating pension and OPEB items
(187,783
)
 
(35,292
)
 
 
As adjusted
$
184,036

 
$
44,810

 
24.4
%

 
 
 
 
 
Three months ended June 30, 2017:
 
 
 
 
 
As reported
$
121,771

 
$
23,130

 
19.0
%
Non-recurring, other unusual and non-operating pension and OPEB items
28,766

 
5,617

 
 
As adjusted
$
150,537

 
$
28,747

 
19.1
%
 
 
 
 
 
 
Six months ended June 30, 2018:
 
 
 
 
 
As reported
$
510,428

 
$
100,463

 
19.7
%
Non-recurring, other unusual and non-operating pension and OPEB items
(155,054
)
 
(16,016
)
 
 
As adjusted
$
355,374

 
$
84,447

 
23.8
%
 
 
 
 
 
 
Six months ended June 30, 2017:
 
 
 
 
 
As reported
$
175,228

 
$
35,101

 
20.0
%
Non-recurring, other unusual and non-operating pension and OPEB items
116,176

 
25,232

 
 
As adjusted
$
291,404

 
$
60,333

 
20.7
%


15