Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM 10-Q
_________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-12658
_________________________ 
ALBEMARLE CORPORATION
(Exact name of registrant as specified in its charter)
_________________________ 
VIRGINIA
 
54-1692118
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. 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
_________________________ 
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  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
 
 
 
 
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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Number of shares of common stock, $.01 par value, outstanding as of July 31, 2018: 108,449,763


Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-26
 
 
 
26-45
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBITS
 
 

2

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,
 
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

Cash dividends declared per share of common stock
$
0.335

 
$
0.32

 
$
0.67

 
$
0.64

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
310,686

 
$
113,689

 
$
449,611

 
$
176,346

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation
(150,857
)
 
64,069

 
(85,966
)
 
143,124

Pension and postretirement benefits
23

 
16

 
26

 
9

Net investment hedge
22,989

 
(14,234
)
 
8,568

 
(27,919
)
Interest rate swap
642

 
529

 
1,284

 
1,058

Total other comprehensive (loss) income, net of tax
(127,203
)
 
50,380

 
(76,088
)
 
116,272

Comprehensive income
183,483

 
164,069

 
373,523

 
292,618

Comprehensive income attributable to noncontrolling interests
(7,962
)
 
(10,588
)
 
(15,313
)
 
(22,493
)
Comprehensive income attributable to Albemarle Corporation
$
175,521

 
$
153,481

 
$
358,210

 
$
270,125

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
 
June 30,
 
December 31,
 
2018
 
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
908,144

 
$
1,137,303

Trade accounts receivable, less allowance for doubtful accounts (2018 – $8,645; 2017 – $10,425)
571,032

 
534,326

Other accounts receivable
44,451

 
37,937

Inventories
665,522

 
592,781

Other current assets
93,921

 
136,064

Assets held for sale

 
39,152

Total current assets
2,283,070

 
2,477,563

Property, plant and equipment, at cost
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

Investments
519,518

 
534,064

Noncurrent assets held for sale

 
139,813

Other assets
75,108

 
74,164

Goodwill
1,585,500

 
1,610,355

Other intangibles, net of amortization
405,507

 
421,503

Total assets
$
7,538,363

 
$
7,750,772

Liabilities And Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
460,442

 
$
418,537

Accrued expenses
272,555

 
268,336

Current portion of long-term debt
208,681

 
422,012

Dividends payable
36,220

 
35,165

Liabilities held for sale

 
1,938

Income taxes payable
63,763

 
54,937

Total current liabilities
1,041,661

 
1,200,925

Long-term debt
1,406,724

 
1,415,360

Postretirement benefits
51,936

 
52,003

Pension benefits
281,421

 
294,611

Noncurrent liabilities held for sale

 
614

Other noncurrent liabilities
553,129

 
599,174

Deferred income taxes
366,212

 
370,389

Commitments and contingencies (Note 10)

 

Equity:
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
Common stock, $.01 par value, issued and outstanding – 108,441 in 2018 and 110,547 in 2017
1,084

 
1,105

Additional paid-in capital
1,609,526

 
1,863,949

Accumulated other comprehensive loss
(301,679
)
 
(225,668
)
Retained earnings
2,384,645

 
2,035,163

Total Albemarle Corporation shareholders’ equity
3,693,576

 
3,674,549

Noncontrolling interests
143,704

 
143,147

Total equity
3,837,280

 
3,817,696

Total liabilities and equity
$
7,538,363

 
$
7,750,772

See accompanying Notes to the Condensed Consolidated Financial Statements.

5

Table of Contents

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 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
 
 
 
 
 
 
 
 
 
(73,540
)
 
(73,540
)
 
(14,756
)
 
(88,296
)
Cumulative adjustment from adoption of income tax standard update (Note 18)
 
 
 
 
 
 
 
 
 
(11,199
)
 
(11,199
)
 
 
 
(11,199
)
Stock-based compensation and other
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
112,523,790

 
$
1,125

 
$
2,084,418

 
$
(412,412
)
 
$
2,121,931

 
$
3,795,062

 
$
147,542

 
$
3,942,604

Net income
 
 
 
 
 
 
 
 
 
154,546

 
154,546

 
21,800

 
176,346

Other comprehensive income
 
 
 
 
 
 
 
115,579

 
 
 
115,579

 
693

 
116,272

Cash dividends declared
 
 
 
 
 
 
 
 
 
(70,885
)
 
(70,885
)
 
(17,930
)
 
(88,815
)
Stock-based compensation and other
 
 
 
 
 
8,216

 
 
 
 
 
8,216

 
 
 
8,216

Exercise of stock options
 
62,399

 
1

 
3,336

 
 
 
 
 
3,337

 
 
 
3,337

Shares repurchased
 
(2,341,083
)
 
(23
)
 
(249,977
)
 
 
 
 
 
(250,000
)
 
 
 
(250,000
)
Issuance of common stock, net
 
235,005

 
2

 
(2
)
 
 
 
 
 

 
 
 

Termination of Tianqi Lithium Corporation option agreement
 
 
 
 
 
13,144

 
 
 
 
 
13,144

 
(13,144
)
 

Shares withheld for withholding taxes associated with common stock issuances
 
(88,984
)
 
(1
)
 
(8,168
)
 
 
 
 
 
(8,169
)
 
 
 
(8,169
)
Balance at June 30, 2017
 
110,391,127

 
$
1,104

 
$
1,850,967

 
$
(296,833
)
 
$
2,205,592

 
$
3,760,830

 
$
138,961

 
$
3,899,791

See accompanying Notes to the Condensed Consolidated Financial Statements.

6

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(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 flows from operating activities:
 
 
 
Net income
449,611

 
176,346

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
100,804

 
94,192

Gain on acquisition

 
(7,433
)
Gain on sale of business
(218,705
)
 

Stock-based compensation
8,076

 
9,492

Equity in net income of unconsolidated investments (net of tax)
(39,646
)
 
(36,219
)
Dividends received from unconsolidated investments and nonmarketable securities
30,045

 
8,454

Pension and postretirement benefit
(1,793
)
 
(7
)
Pension and postretirement contributions
(7,089
)
 
(6,288
)
Unrealized gain on investments in marketable securities
(625
)
 
(1,553
)
Loss on early extinguishment of debt

 
52,801

Deferred income taxes
30,708

 
(3,204
)
Working capital changes
(91,189
)
 
(353,138
)
Other, net
(36,340
)
 
12,102

Net cash provided by (used in) operating activities
223,857

 
(54,455
)
Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(7,643
)
 
(39,525
)
Capital expenditures
(280,945
)
 
(97,765
)
Cash proceeds from divestitures, net
416,711

 
6,857

Sales of marketable securities, net
(439
)
 
208

Repayments from joint ventures

 
1,250

Investments in equity and other corporate investments
(1,979
)
 

Net cash provided by (used in) investing activities
125,705

 
(128,975
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt

 
(751,209
)
Other (repayments) borrowings, net
(211,833
)
 
58,886

Fees related to early extinguishment of debt

 
(46,959
)
Dividends paid to shareholders
(72,484
)
 
(69,762
)
Dividends paid to noncontrolling interests
(7,378
)
 
(17,930
)
Repurchases of common stock
(250,000
)
 
(250,000
)
Proceeds from exercise of stock options
1,288

 
3,337

Withholding taxes paid on stock-based compensation award distributions
(16,460
)
 
(8,169
)
Net cash used in financing activities
(556,867
)
 
(1,081,806
)
Net effect of foreign exchange on cash and cash equivalents
(21,854
)
 
2,425

Decrease in cash and cash equivalents
(229,159
)
 
(1,262,811
)
Cash and cash equivalents at end of period
$
908,144

 
$
1,006,945

See accompanying Notes to the Condensed Consolidated Financial Statements.

7

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


NOTE 1—Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Albemarle Corporation and our wholly-owned, majority-owned and controlled subsidiaries (collectively, “Albemarle,” “we,” “us,” “our” or “the Company”) contain all adjustments necessary for a fair statement, in all material respects, of our condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017, our consolidated statements of income and consolidated statements of comprehensive income for the three-month and six-month periods ended June 30, 2018 and 2017 and our consolidated statements of changes in equity and condensed consolidated statements of cash flows for the six-month periods ended June 30, 2018 and 2017. 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, 2017, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2018. The December 31, 2017 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, 2018 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the accompanying condensed consolidated financial statements and the notes thereto to conform to the current presentation.
Effective January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” and all related amendments using the modified retrospective method. There was no material impact to our results of operations or financial position upon adoption, and no adjustment was made to Retained earnings in our consolidated balance sheets because such adjustment was determined to be immaterial. In addition, new presentation requirements, including separate disclosure of net sales from sources other than customers on our consolidated statements of income and separate disclosures of contract assets or liabilities on our consolidated balance sheets, generally did not have a material impact. However, business circumstances, including the nature of customer contracts, can change and as such, we are expanding processes and controls to recognize such changes, and as necessary, consider whether any of these currently immaterial items might differ in the future. See Note 18, “Recently Issued Accounting Pronouncements,” for additional information.
Included in Trade accounts receivable at June 30, 2018 is approximately $558.9 million arising from contracts with customers. The remaining balance of Trade accounts receivable at June 30, 2018 primarily includes value-added taxes collected from customers on behalf of various taxing authorities. In addition, see below for a description of our updated revenue recognition accounting policy.
Revenue Recognition
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services, and is recognized when performance obligations are satisfied under the terms of contracts with our customers. A performance obligation is deemed to be satisfied when control of the product or service is transferred to our customer. The transaction price of a contract, or the amount we expect to receive upon satisfaction of all performance obligations, is determined by reference to the contract’s terms and includes adjustments, if applicable, for any variable consideration, such as customer rebates, noncash consideration or consideration payable to the customer, although these adjustments are generally not material. Where a contract contains more than one distinct performance obligation, the transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation, although these situations do not occur frequently and are generally not built into our contracts. Any unsatisfied performance obligations are not material. Standalone selling prices are based on prices we charge to our customers, which in some cases is based on established market prices. Sales and other similar taxes collected from customers on behalf of third parties are excluded from revenue. Our payment terms are generally between 30 to 90 days, however, they vary by market factors, such as customer size, geography and competitive environment.
All of our revenue is derived from contracts with customers, and almost all of our contracts with customers contain one performance obligation for the transfer of goods where such performance obligation is satisfied at a point in time. Control of a product is deemed to be transferred to the customer upon shipment or delivery. Significant portions of our sales are sold free on board shipping point or on an equivalent basis, while delivery terms of other transactions are based upon specific contractual arrangements. Our standard terms of delivery are generally included in our contracts of sale, order confirmation documents and invoices, while the timing between shipment and delivery generally ranges between 1 and 45 days. Costs for shipping and handling activities, whether performed before or after the customer obtains control of the goods, are accounted for as fulfillment costs.

8

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

The Company currently utilizes the following practical expedients, as permitted by Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers:
All sales and other pass-through taxes are excluded from contract value;
In utilizing the modified retrospective transition method, no adjustment would be necessary for contracts that do not cross over a reporting year;
We will not consider the possibility of a contract having a significant financing component (which would effectively attribute a portion of the sales price to interest income) unless, if at contract inception, the expected payment terms (from time of delivery or other relevant criterion) are more than one year;
If our right to customer payment is directly related to the value of our completed performance, we recognize revenue consistent with the invoicing right; and
We expense as incurred all costs of obtaining a contract incremental to any costs/compensation attributable to individual product sales/shipments for contracts where the amortization period for such costs would otherwise be one year or less.
Certain products we produce are made to our customer’s specifications where such products have no alternative use or would need significant rework costs in order to be sold to another customer. In management’s judgment, control of these arrangements is transferred to the customer at a point in time (upon shipment or delivery) and not over the time they are produced. Therefore revenue is recognized upon shipment or delivery of these products.
Costs incurred to obtain contracts with customers are not significant and are expensed immediately as the amortization period would be one year or less. When the Company incurs pre-production or other fulfillment costs in connection with an existing or specific anticipated contract and such costs are recoverable through margin or explicitly reimbursable, such costs are capitalized and amortized to Cost of goods sold on a systematic basis that is consistent with the pattern of transfer to the customer of the goods or services to which the asset relates, which is less than one year. We record bad debt expense in specific situations when we determine the customer is unable to meet its financial obligation.

NOTE 2—Divestitures:
On December 14, 2017, the Company signed a definitive agreement to sell the polyolefin catalysts and components portion of its Performance Catalyst Solutions (“PCS”) business to W.R. Grace & Co., with the sale closing on April 3, 2018. We received net cash proceeds of approximately $416.7 million and have recorded a gain of $218.7 million before income taxes in the second quarter of 2018 related to the sale of this business. The transaction includes Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at its Yeosu, South Korea site. The sale does not include the Company’s organometallics or curatives portion of its PCS business. The sale of the polyolefin catalysts business and components reflects the Company’s commitment to investing in the future growth of its high priority businesses and returning capital to shareholders.
In the fourth quarter of 2017, we determined that the assets held for sale criteria in accordance with ASC 360, Property, Plant and Equipment, were met for this business. As such, the assets and liabilities of this business were included in Assets held for sale and Liabilities held for sale, respectively, in the consolidated balance sheet as of December 31, 2017.

9

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

The carrying amounts of the major classes of assets and liabilities that were classified as held for sale at December 31, 2017, are as follows (in thousands):
 
December 31,
 
2017
Assets
 
Current assets
$
39,152

Net, property, plant and equipment
121,759

Goodwill
14,422

Other intangibles, net of amortization
3,632

Assets held for sale
$
178,965

Liabilities
 
Current liabilities
$
1,938

Noncurrent liabilities
614

Liabilities held for sale
$
2,552

The results of operations of the business classified as held for sale is included in the consolidated statements of income. This business did not qualify for discontinued operations treatment because the Company’s management does not consider the sale as representing a strategic shift that had or will have a major effect on the Company’s operations and financial results.
In addition, during the second quarter of 2017, we received the final working capital settlement of $6.9 million related to the sale of the Chemetall Surface Treatment business to BASF SE, which closed on December 14, 2016.

NOTE 3—Goodwill and Other Intangibles:

The following table summarizes the changes in goodwill by reportable segment for the six months ended June 30, 2018 (in thousands):
 
Lithium
 
Bromine Specialties
 
Catalysts
 
All Other
 
Total
Balance at December 31, 2017(a)(b)
$
1,389,089

 
$
20,319

 
$
194,361

 
$
6,586

 
$
1,610,355

   Foreign currency translation adjustments and other
(19,677
)
 

 
(5,178
)
 

 
(24,855
)
Balance at June 30, 2018
$
1,369,412

 
$
20,319

 
$
189,183

 
$
6,586

 
$
1,585,500


(a)
The December 31, 2017 balances have been recast to reflect a change in segments. See Note 11, “Segment Information,” for additional information.
(b)
As of December 31, 2017, $14.4 million of Goodwill was classified as Assets held for sale in the condensed consolidated balance sheets. See Note 2, “Divestitures,” for additional information.


10

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
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, 2018 (in thousands):
 
Customer Lists and Relationships
 
Trade Names and Trademarks(a)
 
Patents and Technology
 
Other
 
Total
Gross Asset Value
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2017
$
439,312

 
$
18,981

 
$
61,618

 
$
37,256

 
$
557,167

Foreign currency translation adjustments and other
(5,157
)
 
(200
)
 
(4,902
)
 
6,980

 
(3,279
)
  Balance at June 30, 2018
$
434,155

 
$
18,781

 
$
56,716

 
$
44,236

 
$
553,888

Accumulated Amortization
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2017
$
(74,704
)
 
$
(8,295
)
 
$
(35,203
)
 
$
(17,462
)
 
$
(135,664
)
    Amortization
(11,896
)
 

 
(738
)
 
(1,788
)
 
(14,422
)
Foreign currency translation adjustments and other
1,194

 
69

 
1,020

 
(578
)
 
1,705

  Balance at June 30, 2018
$
(85,406
)
 
$
(8,226
)
 
$
(34,921
)
 
$
(19,828
)
 
$
(148,381
)
Net Book Value at December 31, 2017(b)
$
364,608

 
$
10,686

 
$
26,415

 
$
19,794

 
$
421,503

Net Book Value at June 30, 2018
$
348,749

 
$
10,555

 
$
21,795

 
$
24,408

 
$
405,507


(a)
Balances as of June 30, 2018 and December 31, 2017 include only indefinite-lived intangible assets.
(b)
As of December 31, 2017, $3.6 million of Other intangibles, net of amortization were classified as Assets held for sale in the condensed consolidated balance sheets. See Note 2, “Divestitures,” for additional information.

NOTE 4—Foreign Exchange:
Foreign exchange transaction and revaluation losses were $1.2 million and $4.4 million for the three-month and six-month periods ended June 30, 2018, respectively, and $0.8 million and $5.7 million for the three-month and six-month periods ended June 30, 2017, respectively, and were included in Other expenses, net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our condensed consolidated statements of cash flows.

NOTE 5—Income Taxes:
The effective income tax rate for the three-month and six-month periods ended June 30, 2018 was 21.5% and 19.7%, respectively, compared to 19.0% and 20.0% for the three-month and six-month periods ended June 30, 2017, 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 of 21% and our effective income tax rate for the three-month and six-month periods ended June 30, 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 period ended June 30, 2018 included discrete tax adjustments of $42.0 million for the disposition of the polyolefin catalysts and components portion of our PCS business as described in Note 2, “Divestitures,” 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 a $6.5 million benefit for adjustments related to the accounting for the U.S. Tax Cuts and Jobs Act (“TCJA”) as noted below and $7.2 million in excess tax benefits realized from stock-based compensation arrangements. The difference between the U.S. federal statutory income tax rate of 35% and our effective income tax rate for the three-month and six-month periods ended June 30, 2017 was primarily due to the impact of earnings from outside the U.S., and is mainly attributable to our share of the income of our Jordan Bromine Company Limited (“JBC”) joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. In addition, Income tax expense for the six-month period ended June 30, 2017 included foreign rate changes of $13.1 million and a $5.1 million out-of-period adjustment due to changes in our deferred tax liabilities for basis differences in Chilean fixed assets, partially offset by a $9.8 million benefit from the release of valuation allowances due to a foreign restructuring plan that was initiated during the quarter and a $4.7 million reduction from the tax effects of share-based compensation awards.
In connection with the TCJA, we recorded a provisional amount of income tax expense of $429.2 million related to the one-time transition tax and income tax benefit of $62.3 million related to the remeasurement of deferred tax balances for the year ended December 31, 2017. In accordance with SEC Staff Accounting Bulletin (“SAB”) 118, the effects of the TCJA may

11

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

be adjusted within a one-year measurement period from the enactment date for the items that were previously reported as provisional, or where a provisional estimate could not be made. The income tax provision for the six-month period ended June 30, 2018 reflects a discrete tax benefit of $2.8 million related to an adjustment of our estimate of the one-time transition tax and a discrete tax benefit of $3.7 million related to other provisions of the TCJA. In addition, the effective income tax rate for the three-month and six-month periods ended June 30, 2018, includes a $3.1 million and $6.1 million, respectively, net tax expense, primarily related to global intangible low-taxed income enacted by the TCJA. For the global intangible low-taxed income provisions of the TCJA, we have not yet elected an accounting policy with respect to either recognizing deferred taxes for basis differences expected to impact global intangible low-taxed income, or to record such as period costs if and when incurred. We also continue to evaluate our indefinite reinvestment assertion as a result of the TCJA. We will continue to assess forthcoming guidance and accounting interpretations on the effects of the TCJA and expect to finalize our analysis within the measurement period in accordance with the SEC guidance.

NOTE 6—Earnings Per Share:
Basic and diluted earnings per share for the three-month and six-month periods ended June 30, 2018 and 2017 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2018
 
2017
 
2018
 
2017
Basic earnings per share
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income attributable to Albemarle Corporation
$
302,461

 
$
103,333

 
$
434,221

 
$
154,546

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
109,671

 
110,686

 
110,176

 
111,336

Basic earnings per share
$
2.76

 
$
0.93

 
$
3.94

 
$
1.39

 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income attributable to Albemarle Corporation
$
302,461

 
$
103,333

 
$
434,221

 
$
154,546

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
109,671

 
110,686

 
110,176

 
111,336

Incremental shares under stock compensation plans
988

 
1,419

 
1,087

 
1,361

Weighted-average common shares for diluted earnings per share
110,659

 
112,105

 
111,263

 
112,697

Diluted earnings per share
$
2.73

 
$
0.92

 
$
3.90

 
$
1.37

On February 23, 2018, the Company increased the regular quarterly dividend by 5% to $0.335 per share. On May 8, 2018, the Company declared a cash dividend of $0.335 per share, which was paid on July 2, 2018 to shareholders of record at the close of business as of June 15, 2018. On July 26, 2018, the Company declared a cash dividend of $0.335 per share, which is payable on October 1, 2018 to shareholders of record at the close of business as of September 14, 2018.
Under our existing Board authorized share repurchase program, the Company entered into an accelerated share repurchase (“ASR”) agreement with a financial institution on May 11, 2018. Under the ASR agreement, in the second quarter of 2018, the Company paid $250 million from available cash on hand and received and retired 2,354,133 shares of our common stock with a fair market value of $230 million, which reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share for the three-month and six-month periods ended June 30, 2018. The total number of shares to ultimately be delivered under the ASR agreement will be determined upon completion of the ASR agreement, which will be by the end of the third quarter of 2018, and will generally be based on the daily Rule 10b-18 volume-weighted average prices of the Company’s common stock over the term of the ASR agreement, less an agreed discount. The Company has determined that the ASR agreement meets the criteria to be accounted for as a forward contract indexed to its stock and is therefore being treated as an equity instrument. Although the ASR agreement can be settled, at the Company’s option, in cash or in shares of common stock, the Company intends to settle in shares of common stock.
No more than 15,000,000 shares can be repurchased under the Company’s authorized share repurchase program. As of June 30, 2018, there were 10,304,784 remaining shares available for repurchase under the Company’s authorized share repurchase program due to shares previously repurchased under this program to date.

12

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

NOTE 7—Inventories:
The following table provides a breakdown of inventories at June 30, 2018 and December 31, 2017 (in thousands):
 
June 30,
 
December 31,
 
2018
 
2017
Finished goods(a)
$
452,958

 
$
404,239

Raw materials and work in process(b)
156,723

 
132,891

Stores, supplies and other
55,841

 
55,651

Total(c)
$
665,522

 
$
592,781


(a)
Increase primarily due to the build up of inventory in our Lithium segment resulting from increased sales, and the timing of net sales expected in the second half of our Catalysts segment.
(b)
Increase primarily due to higher forecasted production levels in the third quarter from our Catalysts segment. Included $67.0 million and $59.6 million at June 30, 2018 and December 31, 2017, respectively, of work in process related to the Lithium product category.
(c)
As of December 31, 2017, $24.7 million of Inventories were classified as Assets held for sale in the condensed consolidated balance sheets. See Note 2, “Divestitures,” for additional information.

NOTE 8—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 $341.7 million and $355.2 million at June 30, 2018 and December 31, 2017, 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 $8.4 million and $8.7 million at June 30, 2018 and December 31, 2017, respectively. Our unconsolidated VIEs are reported in Investments on the condensed consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of its investments.
As part of the original Windfield joint venture agreement, Tianqi Lithium Corporation ("Tianqi") was granted an option to purchase from 20% to 30% of the equity interests in Rockwood Lithium GmbH, a wholly-owned German subsidiary of Albemarle, and its subsidiaries. In February 2017, Albemarle and Tianqi terminated the option agreement, and as a result, we retained 100% of the ownership interest in Rockwood Lithium GmbH and its subsidiaries. Following the termination of the option agreement, the $13.1 million fair value of the option agreement originally recorded in Noncontrolling interests was reversed and recorded as an adjustment to Additional paid-in capital.


13

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

NOTE 9—Long-Term Debt:
Long-term debt at June 30, 2018 and December 31, 2017 consisted of the following (in thousands):
 
June 30,
 
December 31,
 
2018
 
2017
1.875% Senior notes, net of unamortized discount and debt issuance costs of $3,389 at June 30, 2018 and $3,971 at December 31, 2017
$
452,958

 
$
463,575

4.15% Senior notes, net of unamortized discount and debt issuance costs of $3,128 at June 30, 2018 and $3,372 at December 31, 2017
421,872

 
421,628

4.50% Senior notes, net of unamortized discount and debt issuance costs of $740 at June 30, 2018 and $891 at December 31, 2017
174,475

 
174,325

5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,082 at June 30, 2018 and $4,159 at December 31, 2017
345,918

 
345,841

Commercial paper notes
208,000

 
421,321

Variable-rate foreign bank loans
7,256

 
5,298

Other
4,926

 
5,384

Total long-term debt
1,615,405

 
1,837,372

Less amounts due within one year
208,681

 
422,012

Long-term debt, less current portion
$
1,406,724

 
$
1,415,360

Current portion of long-term debt at June 30, 2018 consisted primarily of commercial paper notes with a weighted-average interest rate of approximately 2.44% and a weighted-average maturity of 37 days. During the first six months of 2018, we repaid a net amount of $213.3 million of commercial paper notes using cash on hand.
On June 21, 2018, we entered into a revolving, unsecured credit agreement (“2018 Credit Agreement”) to replace our revolving, unsecured credit agreement dated as of February 7, 2014, as amended. 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, 2018. There were no borrowings outstanding under the 2018 Credit Agreement as of June 30, 2018.
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, 2018, gains of $23.0 million and $8.6 million (net of income taxes), respectively, and during the three-month and six-month periods ended June 30, 2017, losses of $14.2 million and $27.9 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 10—Commitments and Contingencies:
Environmental
We had the following activity in our recorded environmental liabilities for the six months ended June 30, 2018, as follows (in thousands):
Beginning balance at December 31, 2017
$
39,808

Expenditures
(3,219
)
Accretion of discount
449

Additions and changes in estimates
16,236

Foreign currency translation adjustments
(590
)
Ending balance at June 30, 2018
52,684

Less amounts reported in Accrued expenses
4,981

Amounts reported in Other noncurrent liabilities
$
47,703


14

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Environmental remediation liabilities included discounted liabilities of $42.8 million and $28.1 million at June 30, 2018 and December 31, 2017, respectively, discounted at rates with a weighted-average of 3.7% and 3.6%, respectively, with the undiscounted amount totaling $84.7 million and $68.2 million at June 30, 2018 and December 31, 2017, respectively. For certain locations where the Company is operating groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility.
The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, could be an additional $10 million to $25 million before income taxes, in excess of amounts already recorded.
We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would likely not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particular quarterly reporting period.
Litigation
We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.
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”) and SEC, and are cooperating with the DOJ and SEC 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 or SEC. We also are unable to predict what, if any, action may be taken by the DOJ or SEC or what penalties or remedial actions they may seek. Any determination that our operations or activities are not in compliance with existing laws or regulations, however, 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.
In the first quarter of 2018, a jury rendered a verdict against Albemarle in a legal matter related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures. In July 2018, the court denied our motion to set aside the judgment. As a result, we have recorded an estimated accrual of $17.6 million in Other expenses, net during the six months ended June 30, 2018 and are currently evaluating our appeal options. In addition, during the second quarter of 2018, we recorded an estimated charge of $10.4 million in Other expenses, net resulting from a proposed settlement in a legal matter related to guarantees from a previously disposed business. Both matters are included in Accrued liabilities as of the balance sheet date.
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

15

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

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 $25.1 million and $42.7 million at June 30, 2018 and December 31, 2017, respectively, recorded in Other noncurrent liabilities related to the indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold.
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 11—Segment Information:
In the first quarter of 2018, the PCS product category merged with our former 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. 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. The 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. Results for 2017 have been recast to reflect the change in segments noted above.
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, utilization of inventory markup, 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.

16

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
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 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):
 
Lithium
 
Bromine Specialties
 
Catalysts
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
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(a)

 

 
(218,705
)
 
(218,705
)
 

 

 
(218,705
)
Acquisition and integration related costs(b)

 

 

 

 

 
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(c)

 

 

 

 

 
10,416

 
10,416

Albemarle Foundation contribution(d)

 

 

 

 

 
15,000

 
15,000

Other(e)

 

 

 

 

 
1,200

 
1,200

Adjusted EBITDA
$
141,617

 
$
69,367

 
$
75,102

 
$
286,086

 
$
(101
)
 
$
(27,423
)
 
$
258,562

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

Depreciation and amortization
21,460

 
10,336

 
13,433

 
45,229

 
2,292

 
1,601

 
49,122

Utilization of inventory markup(f)
11,921

 

 

 
11,921

 

 

 
11,921

Restructuring and other(g)

 

 

 

 

 
4,235

 
4,235

Acquisition and integration related costs(b)

 

 

 

 

 
6,479

 
6,479

Interest and financing expenses

 

 

 

 

 
14,590

 
14,590

Income tax expense

 

 

 

 

 
23,130

 
23,130

Non-operating pension and OPEB items

 

 

 

 

 
(1,053
)
 
(1,053
)
Multiemployer plan shortfall contributions(h)

 

 

 

 

 
4,940

 
4,940

Other(i)

 

 

 

 

 
2,244

 
2,244

Adjusted EBITDA
$
115,200

 
$
62,075

 
$
67,427

 
$
244,702

 
$
2,444

 
$
(28,205
)
 
$
218,941


17

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

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(a)

 

 
(218,705
)
 
(218,705
)
 

 

 
(218,705
)
Acquisition and integration related costs(b)

 

 

 

 

 
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(c)

 

 

 

 

 
28,044

 
28,044

Albemarle Foundation contribution(d)

 

 

 

 

 
15,000

 
15,000

Other(e)
(1,385
)
 

 

 
(1,385
)
 

 
17,681

 
16,296

Adjusted EBITDA
$
272,631

 
$
139,336

 
$
142,932

 
$
554,899

 
$
3,761

 
$
(51,380
)
 
$
507,280

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

Depreciation and amortization
40,525

 
20,130

 
26,216

 
86,871

 
4,202

 
3,119

 
94,192

Utilization of inventory markup(f)
22,527

 

 

 
22,527

 

 

 
22,527

Restructuring and other(g)

 

 

 

 

 
17,141

 
17,141

Gain on acquisition(j)
(7,433
)
 

 

 
(7,433
)
 

 

 
(7,433
)
Acquisition and integration related costs(b)

 

 

 

 

 
20,760

 
20,760

Interest and financing expenses(k)

 

 

 

 

 
83,103

 
83,103

Income tax expense

 

 

 

 

 
35,101

 
35,101

Non-operating pension and OPEB items

 

 

 

 

 
(2,116
)
 
(2,116
)
Multiemployer plan shortfall contributions(h)

 

 

 

 

 
4,940

 
4,940

Other(i)

 

 

 

 

 
7,556

 
7,556

Adjusted EBITDA
$
215,052

 
$
130,563

 
$
137,176

 
$
482,791

 
$
7,600

 
$
(60,074
)
 
$
430,317


(a)
See Note 2, “Divestitures,” for additional information.
(b)
Included amounts for the three-month and six-month periods ended June 30, 2018 recorded in (1) Cost of goods sold of $1.0 million and $1.9 million, respectively; and (2) Selling, general and administrative expenses of $5.5 million and $6.8 million, respectively, relating to various significant projects. Included amounts for the three-month and six-month periods ended June 30, 2017 recorded in (1) Cost of goods sold of $1.8 million and $10.7 million, respectively; and (2) Selling, general and administrative expenses of $4.7 million and $10.1 million, respectively, relating to various significant projects, including the Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”) acquisition, which contains unusual compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s normal compensation arrangements.
(c)
Included in Other expenses, net. See Note 10, “Commitments and Contingencies,” for additional information.
(d)
Included in Selling, general and administrative expenses is a 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.
(e)
Included amounts for the three months ended June 30, 2018 recorded in:
Other expenses, 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, net - $15.6 million of environmental charges related to a site formerly owned by Albemarle and $1.0 million related to the revision of previously recorded expenses of disposed businesses.
(f)
In connection with the acquisition of 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-month and six-month periods ended June 30, 2017, $11.9 million and $22.5 million, respectively, was included in Cost of goods sold related to the utilization of the inventory markup.

18

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

(g)
During 2017, we initiated action to reduce costs in each of our reportable segments at several locations, primarily at our Lithium sites in Germany. Based on the restructuring plans, we have recorded expenses of $4.2 million in Selling, general and administrative expenses for the three-month period ended June 30, 2017 and $2.9 million in Cost of goods sold, $8.4 million in Selling, general and administrative expenses and $5.8 million in Research and development expenses for the six-month period ended June 30, 2017, primarily related to expected severance payments. The unpaid balance is recorded in Accrued expenses at June 30, 2018, with the expectation that the majority of these plans will be completed by the end of 2018.
(h)
Included shortfall contributions for our multiemployer plan financial improvement plan. See Note 12, “Pension Plans and Other Postretirement Benefits,” for additional information.
(i)
Included amounts for the three-month and six-month periods ended June 30, 2017 recorded in (1) Selling, general and administrative expenses related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition of $1.0 million; and (2) Other expenses, net related to final settlement claims associated with the previous disposal of a business of $2.0 million and the revision of tax indemnification expenses of $1.2 million primarily related to a competent authority agreement for a previously disposed business. Also included in Other expenses, net for the six-month period ended June 30, 2017 are $3.2 million of asset retirement obligation charges related to the revision of an estimate at a site formerly owned by Albemarle and a loss of $2.1 million associated with the previous disposal of a business.
(j)
Gain recorded in Other expenses, net related to the acquisition of the remaining 50% interest in the Sales de Magnesio Ltda. joint venture in Chile.
(k)
During the first quarter of 2017, we repaid the 3.00% Senior notes in full, €307.0 million of the 1.875% Senior notes and $174.7 million of the 4.50% Senior notes, as well as related tender premiums of $45.2 million. As a result, included in Interest and financing expenses is a loss on early extinguishment of debt of $52.8 million, representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of these senior notes.

NOTE 12—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, 2018 and 2017 were as follows (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2018
 
2017
 
2018
 
2017
Pension Benefits Cost (Credit):
 
 
 
 
 
 
 
Service cost
$
1,259

 
$
1,020

 
$
2,527

 
$
2,023

Interest cost
8,016

 
8,320

 
16,043

 
16,608

Expected return on assets
(10,760
)
 
(9,931
)
 
(21,524
)
 
(19,839
)
Amortization of prior service benefit
24

 
46

 
46

 
73

Total net pension benefits credit
$
(1,461
)
 
$
(545
)
 
$
(2,908
)
 
$
(1,135
)
Postretirement Benefits Cost (Credit):
 
 
 
 
 
 
 
Service cost
$
30

 
$
30

 
$
59

 
$
61

Interest cost
542

 
585

 
1,084

 
1,170

Expected return on assets
(2
)
 
(27
)
 
(4
)
 
(55
)
Amortization of prior service benefit
(12
)
 
(24
)
 
(24
)
 
(48
)
Total net postretirement benefits cost
$
558

 
$
564

 
$
1,115

 
$
1,128

Total net pension and postretirement benefits (credit) cost
$
(903
)
 
$
19

 
$
(1,793
)
 
$
(7
)
As a result of the adoption of new accounting guidance effective January 1, 2018, on a retrospective basis, all components of net benefit cost (credit), other than service cost, are to be shown outside of operations on the consolidated statements of income. We recast these components of net benefit cost (credit), which resulted in a reduction of $0.1 million and $0.3 million in Cost of goods sold, respectively, and $0.9 million and $1.8 million in Selling, general and administrative expenses, respectively, with an offsetting increase of $1.0 million and $2.1 million in Other expenses, net, respectively, for the three-month and six-month periods ended June 30, 2017. There was no impact to Net income attributable to Albemarle Corporation.
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. During the three-month and six-month periods ended June 30, 2017, we made contributions of $2.7 million and $5.1 million, respectively, to our qualified and nonqualified pension plans.

19

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

We paid $0.7 million and $1.2 million in premiums to the U.S. postretirement benefit plan during both the three-month and six-month periods ended June 30, 2018 and 2017, respectively.
Multiemployer Plan
Effective July 1, 2016, the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf multiemployer plan is subject to a financial improvement plan which expires on December 31, 2022, with the final contribution in the second quarter of 2023. This financial improvement plan calls for increased capital reserves to avoid future underfunding risk. During the three-month and six-month periods ended June 30, 2017, we made contributions for our employees covered under this plan of approximately $2.0 million, recorded in Selling, general and administrative expenses, as a result of this financial improvement plan. In addition, during the three-month and six-month periods ended June 30, 2017, we made contributions relating to this financial improvement plan to indemnify previously divested businesses of approximately $2.9 million, recorded in Other expenses, net. There were no contributions made under the financial improvement plan during the three-month and six-month periods ended June 30, 2018.

NOTE 13—Fair Value of Financial Instruments:
In assessing the fair value of financial instruments, we use methods and assumptions that are based on market conditions and other risk factors existing at the time of assessment. Fair value information for our financial instruments is as follows:
Long-Term Debt—the fair values of our 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, 2018
 
December 31, 2017
 
Recorded
Amount
 
Fair Value
 
Recorded
Amount
 
Fair Value
 
(In thousands)
Long-term debt
$
1,622,762

 
$
1,674,541

 
$
1,845,309

 
$
1,949,638

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, 2018 and December 31, 2017, we had outstanding foreign currency forward contracts with notional values totaling $493.1 million and $357.4 million, respectively. Our foreign currency forward contracts outstanding at June 30, 2018 and December 31, 2017 were not designated as hedging instruments under ASC 815, Derivatives and Hedging. At June 30, 2018, $0.2 million was included in Other accounts receivable associated with the fair value of our foreign currency forward contracts, and at December 31, 2017, $5.0 million was included in Accrued expenses associated with the fair value of our foreign currency forward contracts.
Gains and losses on foreign currency forward contracts are recognized in Other expenses, 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, net. For the three-month and six-month periods ended June 30, 2018, we recognized losses of $17.6 million and $12.8 million, respectively, in Other expenses, net, in our consolidated statements of income related to the change in fair value of our foreign currency forward contracts. For the three-month and six-month periods ended June 30, 2017, we recognized gains of $3.7 million and $8.2 million, respectively, in Other expenses, net, in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. Also, for the six-month periods ended June 30, 2018 and 2017, we recorded losses (gains) of $12.8 million and ($8.2) million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash (settlements) receipts of ($18.0) million and $7.7 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.


20

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

NOTE 14—Fair Value Measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities
 
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
 
 
Level 3
Unobservable inputs for the asset or liability
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. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the six-month period ended June 30, 2018. 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, 2018 and December 31, 2017 (in thousands):
 
June 30, 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)
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investments under executive deferred compensation plan(a)
$
26,559

 
$
26,559

 
$

 
$

Private equity securities(b)
$
32

 
$
32

 
$

 
$

Private equity securities measured at net asset value(b)(c)
$
5,117

 
$

 
$

 
$

Foreign currency forward contracts(d)
$
247

 
$

 
$
247

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
26,559

 
$
26,559

 
$

 
$