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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 March 31, 2017
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 April 26, 2017: 110,752,288


Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-23
 
 
 
23-36
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 
 March 31,
 
2017
 
2016
Net sales
$
722,063

 
$
657,211

Cost of goods sold
466,975

 
414,677

Gross profit
255,088

 
242,534

Selling, general and administrative expenses
108,001

 
82,631

Research and development expenses
24,323

 
19,872

Gain on sales of businesses, net

 
(121,324
)
Acquisition and integration related costs

 
18,558

Operating profit
122,764

 
242,797

Interest and financing expenses
(68,513
)
 
(15,114
)
Other (expenses) income, net
(794
)
 
47

Income from continuing operations before income taxes and equity in net income of unconsolidated investments
53,457

 
227,730

Income tax expense
11,971

 
25,485

Income from continuing operations before equity in net income of unconsolidated investments
41,486

 
202,245

Equity in net income of unconsolidated investments (net of tax)
21,171

 
15,991

Net income from continuing operations
62,657

 
218,236

Income from discontinued operations (net of tax)

 
17,312

Net income
62,657

 
235,548

Net income attributable to noncontrolling interests
(11,444
)
 
(7,362
)
Net income attributable to Albemarle Corporation
$
51,213

 
$
228,186

Basic earnings per share:
 
 
 
Continuing operations
$
0.46

 
$
1.88

Discontinued operations

 
0.15

 
$
0.46

 
$
2.03

Diluted earnings per share:
 
 
 
Continuing operations
$
0.45

 
$
1.87

Discontinued operations

 
0.15

 
$
0.45

 
$
2.02

Weighted-average common shares outstanding – basic
111,986

 
112,260

Weighted-average common shares outstanding – diluted
113,289

 
112,770

Cash dividends declared per share of common stock
$
0.32

 
$
0.305

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

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

 
Three Months Ended 
 March 31,
 
2017
 
2016
Net income
$
62,657

 
$
235,548

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation
79,055

 
98,906

Pension and postretirement benefits
(7
)
 
1

Net investment hedge
(13,685
)
 
(9,524
)
Interest rate swap
529

 
525

Total other comprehensive income, net of tax
65,892

 
89,908

Comprehensive income
128,549

 
325,456

Comprehensive income attributable to noncontrolling interests
(11,905
)
 
(7,645
)
Comprehensive income attributable to Albemarle Corporation
$
116,644

 
$
317,811

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)

 
March 31,
 
December 31,
 
2017
 
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,254,536

 
$
2,269,756

Trade accounts receivable, less allowance for doubtful accounts (2017 – $15,403; 2016 – $15,312)
508,460

 
486,035

Other accounts receivable
54,486

 
41,985

Inventories
518,936

 
450,263

Other current assets
53,836

 
58,579

Total current assets
2,390,254

 
3,306,618

Property, plant and equipment, at cost
3,965,656

 
3,910,522

Less accumulated depreciation and amortization
1,584,276

 
1,550,382

Net property, plant and equipment
2,381,380

 
2,360,140

Investments
493,406

 
457,533

Other assets
146,497

 
142,320

Goodwill
1,544,574

 
1,540,032

Other intangibles, net of amortization
410,357

 
354,564

Total assets
$
7,366,468

 
$
8,161,207

Liabilities And Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
336,890

 
$
281,874

Accrued expenses
253,930

 
322,165

Current portion of long-term debt
314,500

 
247,544

Dividends payable
35,215

 
34,104

Income taxes payable
267,412

 
254,416

Total current liabilities
1,207,947

 
1,140,103

Long-term debt
1,398,386

 
2,121,718

Postretirement benefits
50,619

 
50,538

Pension benefits
301,304

 
298,695

Other noncurrent liabilities
201,884

 
194,810

Deferred income taxes
422,356

 
412,739

Commitments and contingencies (Note 11)

 

Equity:
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
Common stock, $.01 par value, issued and outstanding – 110,752 in 2017 and 112,524 in 2016
1,108

 
1,125

Additional paid-in capital
1,845,839

 
2,084,418

Accumulated other comprehensive loss
(346,981
)
 
(412,412
)
Retained earnings
2,137,703

 
2,121,931

Total Albemarle Corporation shareholders’ equity
3,637,669

 
3,795,062

Noncontrolling interests
146,303

 
147,542

Total equity
3,783,972

 
3,942,604

Total liabilities and equity
$
7,366,468

 
$
8,161,207

See accompanying Notes to the Condensed Consolidated Financial Statements.

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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, 2017
 
112,523,790

 
$
1,125

 
$
2,084,418

 
$
(412,412
)
 
$
2,121,931

 
$
3,795,062

 
$
147,542

 
$
3,942,604

Net income
 
 
 
 
 
 
 
 
 
51,213

 
51,213

 
11,444

 
62,657

Other comprehensive income
 
 
 
 
 
 
 
65,431

 
 
 
65,431

 
461

 
65,892

Cash dividends declared
 
 
 
 
 
 
 
 
 
(35,441
)
 
(35,441
)
 

 
(35,441
)
Stock-based compensation and other
 
 
 
 
 
3,945

 
 
 
 
 
3,945

 
 
 
3,945

Exercise of stock options
 
37,146

 

 
2,170

 
 
 
 
 
2,170

 
 
 
2,170

Shares repurchased
 
(1,948,178
)
 
(19
)
 
(249,981
)
 
 
 

 
(250,000
)
 
 
 
(250,000
)
Issuance of common stock, net
 
225,559

 
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
 
(86,117
)
 

 
(7,855
)
 
 
 
 
 
(7,855
)
 
 
 
(7,855
)
Balance at March 31, 2017
 
110,752,200

 
$
1,108

 
$
1,845,839

 
$
(346,981
)
 
$
2,137,703

 
$
3,637,669

 
$
146,303

 
$
3,783,972

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
 
112,219,351

 
$
1,122

 
$
2,059,151

 
$
(421,288
)
 
$
1,615,407

 
$
3,254,392

 
$
146,921

 
$
3,401,313

Net income
 
 
 
 
 
 
 
 
 
228,186

 
228,186

 
7,362

 
235,548

Other comprehensive income
 
 
 
 
 
 
 
89,625

 
 
 
89,625

 
283

 
89,908

Cash dividends declared
 
 
 
 
 
 
 
 
 
(34,251
)
 
(34,251
)
 

 
(34,251
)
Stock-based compensation and other
 
 
 
 
 
4,517

 
 
 
 
 
4,517

 
 
 
4,517

Tax deficiency related to stock plans
 
 
 
 
 
(195
)
 
 
 
 
 
(195
)
 
 
 
(195
)
Issuance of common stock, net
 
112,624

 
1

 
(1
)
 
 
 
 
 

 
 
 

Shares withheld for withholding taxes associated with common stock issuances
 
(35,176
)
 

 
(1,969
)
 
 
 
 
 
(1,969
)
 
 
 
(1,969
)
Balance at March 31, 2016
 
112,296,799

 
$
1,123

 
$
2,061,503

 
$
(331,663
)
 
$
1,809,342

 
$
3,540,305

 
$
154,566

 
$
3,694,871

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2017
 
2016
Cash and cash equivalents at beginning of year
$
2,269,756

 
$
213,734

Cash flows from operating activities:
 
 
 
Net income
62,657

 
235,548

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
45,070

 
60,552

Gain on acquisition
(7,433
)
 

Gain on sales of businesses, net

 
(121,324
)
Stock-based compensation
5,046

 
4,007

Equity in net income of unconsolidated investments (net of tax)
(21,171
)
 
(16,566
)
Dividends received from unconsolidated investments and nonmarketable securities
2,551

 
200

Pension and postretirement (benefit) expense
(26
)
 
1,389

Pension and postretirement contributions
(2,891
)
 
(4,224
)
Unrealized (gain) loss on investments in marketable securities
(873
)
 
1,044

Loss on early extinguishment of debt
52,801

 

Deferred income tax expense
1,363

 
816

Working capital changes
(63,325
)
 
10,467

Other, net
8,816

 
799

Net cash provided by operating activities
82,585

 
172,708

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(27,742
)
 

Cash payments related to acquisitions and other

 
(81,988
)
Capital expenditures
(54,143
)
 
(58,120
)
Cash proceeds from divestitures, net

 
307,165

Sales of marketable securities, net
492

 
1,191

Repayments from joint ventures
1,250

 

Net cash (used in) provided by investing activities
(80,143
)
 
168,248

Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(751,209
)
 
(331,595
)
Other borrowings, net
66,384

 
68,829

Fees related to early extinguishment of debt
(46,959
)
 

Dividends paid to shareholders
(34,330
)
 
(32,541
)
Repurchases of common stock
(250,000
)
 

Proceeds from exercise of stock options
2,170

 

Withholding taxes paid on stock-based compensation award distributions
(7,855
)
 
(1,969
)
Net cash used in financing activities
(1,021,799
)
 
(297,276
)
Net effect of foreign exchange on cash and cash equivalents
4,137

 
(5,032
)
(Decrease) increase in cash and cash equivalents
(1,015,220
)
 
38,648

Cash and cash equivalents at end of period
$
1,254,536

 
$
252,382

See accompanying Notes to the Condensed Consolidated Financial Statements.

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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 March 31, 2017 and December 31, 2016, our consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and condensed consolidated statements of cash flows for the three-month periods ended March 31, 2017 and 2016. Income tax expense for the three-month period ended March 31, 2017 includes income tax expense of $5.1 million due to an adjustment in the Company's deferred tax liabilities for basis differences in Chilean fixed assets related to the three-month period ended September 30, 2016. The Company does not believe this adjustment is material to the consolidated financial statements for the three-month period ended March 31, 2017, the three- or nine-month periods ended September 30, 2016, or the year ended December 31, 2016. All other 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, 2016, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017. The December 31, 2016 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 period ended March 31, 2017 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. In addition, for the three-month period ended March 31, 2017, the Company began reporting its acquisition and integration related costs and restructuring and other costs in Cost of goods sold, Selling, general and administrative expenses and Research and development expenses. See Note 2, “Acquisitions,” and Note 12, “Segment Information,” for further details.
As described further in Note 3, “Divestitures,” on December 14, 2016, the Company closed the sale of its Chemetall® Surface Treatment business to BASF SE. Financial results of this business have been presented as discontinued operations in the consolidated statements of income and excluded from segment results for the three-month period ended March 31, 2016.
NOTE 2—Acquisitions:
On December 31, 2016, we completed the acquisition of all equity interests in the lithium hydroxide and lithium carbonate conversion business of Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”) for a cash purchase price of approximately $145 million. This includes manufacturing assets located in both Jiangxi and Sichuan, China focused on the production of battery-grade lithium carbonate and lithium hydroxide. This acquisition will enable us to supply premium lithium salts to an expanded global customer base while solidifying our leading position in the lithium industry.
The aggregate purchase price was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values as of December 31, 2016, which were based, in part, upon outside preliminary appraisals for certain assets. The preliminary estimated fair values of the assets and liabilities acquired were primarily related to Property, plant and equipment of $29.0 million, Other intangibles of $32.0 million and Deferred tax liabilities of $3.9 million. In addition, the estimated fair value of net working capital acquired was $6.2 million, however, an equal liability was recorded in Accrued expenses, as it will be repaid to the previous owners of the acquired business. The excess of the purchase price over the preliminary estimated fair value of the net assets acquired was approximately $87.9 million and was recorded as goodwill. The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill, is based upon preliminary information and is subject to change within the measurement period (up to one year from the acquisition date) as additional information concerning final asset and liability valuations is obtained. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the property, plant and equipment, other intangible assets, deferred income taxes, as well as various working capital accounts. The fair values of the assets acquired and liabilities assumed are based on management’s preliminary estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, it will evaluate any necessary information prior to finalization of the amounts. During the measurement period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date.

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

During the three-month period ended March 31, 2017, the Company purchased inventory with a fair value of $37.0 million in connection with the Jiangli New Materials acquisition, $19.4 million of which was paid during the first quarter. The fair value included the markup of the underlying book value of $23.0 million. The inventory markup is being expensed over the estimated remaining selling period, with $10.6 million recorded in the three-month period ended March 31, 2017.
Goodwill arising from the acquisition consists largely of the anticipated synergies and economies of scale from the combined assets and the overall strategic importance of the acquired assets to Albemarle. The goodwill attributable to the acquisition will not be amortizable or deductible for tax purposes. The weighted-average amortization periods for the other intangible assets acquired are 20 years for patents and technology, 18 years for customer lists and relationships and 3 years for other. The weighted-average amortization period for all definite-lived intangible assets acquired is 17 years.
On February 1, 2017, the Company acquired the remaining 50% interest in the Sales de Magnesio Ltda. (“Salmag”) joint venture in Chile from SQM Salar S.A. for approximately $8.3 million, net of cash acquired. In connection with the acquisition, the Company recorded a gain of $7.4 million, calculated based on the difference between the purchase price and the book value of the investment in Other (expenses) income, net on the consolidated statements of income for the three-month period ended March 31, 2017. The calculation of the gain and the fair values of the assets acquired and liabilities assumed are based on management’s preliminary estimates and assumptions. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, it will evaluate any necessary information prior to finalization of the amounts.
Acquisition and integration related costs of $8.9 million and $5.4 million were included in Cost of goods sold and Selling, general and administrative expenses, respectively, on our consolidated statements of income for the three-month period ended March 31, 2017, primarily resulting from the Jiangli New Materials acquisition, including unusual compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s normal compensation arrangements. Included in Acquisition and integration related costs on our consolidated statements of income for the the three-month period ended March 31, 2016 were $16.9 million of integration costs resulting from the acquisition of Rockwood Holdings, Inc. (mainly consisting of professional services and advisory fees, costs to achieve synergies, relocation costs, and other integration costs) and $1.7 million of costs in connection with other significant projects.

NOTE 3—Divestitures:
Discontinued Operations
On June 17, 2016, we entered into a definitive agreement to sell the Chemetall Surface Treatment business to BASF SE. On December 14, 2016, the Company closed the sale of this business and received proceeds of approximately $3.1 billion, net of purchase price adjustments. The sale of the Chemetall Surface Treatment business, a separate reportable segment, qualified for discontinued operations treatment because it represented a strategic shift that will have a major effect on the Company’s operations and financial results. As a result, the Company accounted for this business as discontinued operations in the consolidated statements of income and excluded the business from segment results for the three-month period ended March 31, 2016. The Company stopped recording depreciation and amortization expense on assets of the Chemetall Surface Treatment business as of the date this business qualified for discontinued operations treatment, in the second quarter of 2016.
The major components of Income from discontinued operations (net of tax) for the three-month period ended March 31, 2016 were as follows (in thousands):
 
Three Months Ended March 31, 2016
Net sales
$
208,187

Cost of goods sold
113,323

Operating expenses, net
62,853

Interest and financing expenses(a)
10,137

Other income, net
(938
)
Income before income taxes
22,812

Income tax expense
5,500

Income from discontinued operations (net of tax)
$
17,312



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

(a)
Interest and financing expenses included the allocation of interest expense not directly attributable to other operations as well as interest expense related to debt to be assumed by the buyer. The allocation of interest expense to discontinued operations was based on the ratio of net assets held for sale to the sum of total net assets plus consolidated debt.
Depreciation and amortization and capital expenditures from discontinued operations for the three-month period ended March 31, 2016 were as follows (in thousands):
 
Three Months Ended March 31, 2016
Depreciation and amortization
$
16,943

Capital expenditures
$
5,747

Other Divestitures
On November 5, 2015, the Company signed a definitive agreement to sell its Tribotecc metal sulfides business to Treibacher Industrie AG. Included in the transaction were sites in Vienna and Arnoldstein, Austria, and Tribotecc’s proprietary sulfide synthesis process. On January 4, 2016, the Company closed the sale of this business, effective for the first day of business in 2016. We received net proceeds of approximately $137 million and recorded a gain of $11.5 million before income taxes in the first quarter of 2016 related to the sale of this business.
On December 16, 2015, the Company signed a definitive agreement to sell its minerals-based flame retardants and specialty chemicals business to Huber Engineered Materials, a division of J.M. Huber Corporation. The transaction included Albemarle’s Martinswerk GmbH subsidiary and manufacturing facility located in Bergheim, Germany, and Albemarle’s 50% ownership interest in Magnifin Magnesiaprodukte GmbH, a joint-venture with Radex Heraklith Industriebeteiligung AG at Breitenau, Austria. On February 1, 2016, the Company closed the sale of these businesses. We received net proceeds of approximately $187 million and recorded a gain of $111.3 million before income taxes in the first quarter of 2016 related to the sale of these businesses.
Also included in Gain on sales of businesses, net, for the first quarter of 2016 was a loss of $1.5 million on the sale of our wafer reclaim business.
These businesses did not qualify for discontinued operations treatment because the Company’s management did not consider their sale as representing a strategic shift that had or will have a major effect on the Company’s operations and financial results.
NOTE 4—Goodwill and Other Intangibles:

The following table summarizes the changes in goodwill by reportable segment for the three months ended March 31, 2017 (in thousands):
 
Lithium and Advanced Materials
 
Bromine Specialties
 
Refining Solutions
 
All Other
 
Total
Balance at December 31, 2016
$
1,348,261

 
$
20,319

 
$
164,866

 
$
6,586

 
$
1,540,032

   Acquisitions(a)
(21,822
)
 

 

 

 
(21,822
)
   Foreign currency translation adjustments
20,694

 

 
5,670

 

 
26,364

Balance at March 31, 2017
$
1,347,133

 
$
20,319

 
$
170,536

 
$
6,586

 
$
1,544,574


(a)
Primarily represents preliminary purchase price adjustments for the Jiangli New Materials acquisition. See Note 2, “Acquisitions,” for additional information.


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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 three months ended March 31, 2017 (in thousands):
 
Customer Lists and Relationships
 
Trade Names and Trademarks(a)
 
Patents and Technology
 
Other
 
Total
Gross Asset Value
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2016
$
387,893

 
$
16,514

 
$
38,434

 
$
18,844

 
$
461,685

    Acquisitions(b)
1,717

 

 
25,555

 
19,917

 
47,189

Foreign currency translation adjustments and other
10,340

 
264

 
514

 
1,774

 
12,892

  Balance at March 31, 2017
$
399,950

 
$
16,778

 
$
64,503

 
$
40,535

 
$
521,766

Accumulated Amortization
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2016
$
(49,165
)
 
$
(7,952
)
 
$
(31,683
)
 
$
(18,321
)
 
$
(107,121
)
    Amortization
(4,801
)
 

 
(413
)
 
(526
)
 
(5,740
)
Foreign currency translation adjustments and other
(1,164
)
 
(94
)
 
(503
)
 
3,213

 
1,452

  Balance at March 31, 2017
$
(55,130
)
 
$
(8,046
)
 
$
(32,599
)
 
$
(15,634
)
 
$
(111,409
)
Net Book Value at December 31, 2016
$
338,728

 
$
8,562

 
$
6,751

 
$
523

 
$
354,564

Net Book Value at March 31, 2017
$
344,820

 
$
8,732

 
$
31,904

 
$
24,901

 
$
410,357


(a)
Balances as of March 31, 2017 and December 31, 2016 include only indefinite-lived intangible assets.
(b)
Represents preliminary purchase price adjustments for the Jiangli New Materials acquisition and the acquisition of the remaining equity interest in Salmag. See Note 2, “Acquisitions,” for additional information.

NOTE 5—Foreign Exchange:
Foreign exchange transaction losses were $4.9 million and $0.1 million for the three-month periods ended March 31, 2017 and 2016, respectively, and were included in Other (expenses) income, net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our condensed consolidated statements of cash flows.

NOTE 6—Income Taxes:
The effective income tax rate for the three-month period ended March 31, 2017 was 22.4%, compared to 11.2% for the three-month period ended March 31, 2016. The Company’s effective income tax rate fluctuates based on, among other factors, its level and location of income. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the 2017 and 2016 periods 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 three-month period ended March 31, 2017 included a $5.1 million out-of-period adjustment as described in Note 1, "Basis of Presentation," partially offset by a $4.1 million reduction from the tax effects of share-based compensation awards. Our effective tax rate for the three-month period ended March 31, 2016 was driven down by a variety of factors, primarily low tax gains from the sale of the minerals-based flame retardant business, as well as a favorable mix of earnings in lower tax jurisdictions.


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

NOTE 7—Earnings Per Share:
Basic and diluted earnings per share from continuing operations for the three-month periods ended March 31, 2017 and 2016 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended 
 March 31,
 
2017
 
2016
Basic earnings per share from continuing operations
 
 
 
Numerator:
 
 
 
Net income from continuing operations
$
62,657

 
$
218,236

Net income from continuing operations attributable to noncontrolling interests
(11,444
)
 
(7,362
)
Net income from continuing operations attributable to Albemarle Corporation
$
51,213

 
$
210,874

Denominator:
 
 
 
Weighted-average common shares for basic earnings per share
111,986

 
112,260

Basic earnings per share from continuing operations
$
0.46

 
$
1.88

 
 
 
 
Diluted earnings per share from continuing operations
 
 
 
Numerator:
 
 
 
Net income from continuing operations
$
62,657

 
$
218,236

Net income from continuing operations attributable to noncontrolling interests
(11,444
)
 
(7,362
)
Net income from continuing operations attributable to Albemarle Corporation
$
51,213

 
$
210,874

Denominator:
 
 
 
Weighted-average common shares for basic earnings per share
111,986

 
112,260

Incremental shares under stock compensation plans
1,303

 
510

Weighted-average common shares for diluted earnings per share
113,289

 
112,770

Diluted earnings per share from continuing operations
$
0.45

 
$
1.87

On February 23, 2017, the Company increased the regular quarterly dividend by 5% to $0.32 per share and declared a cash dividend of said amount for the first quarter of 2017, which was paid on April 3, 2017 to shareholders of record at the close of business as of March 15, 2017.
Under our existing Board authorized share repurchase program, the Company entered into an accelerated share repurchase (“ASR”) agreement with a financial institution on March 1, 2017. Under the ASR agreement, in March 2017, the Company paid $250 million from available cash on hand and received and retired an initial delivery of 1,948,178 shares of our common stock with a fair market value of $200 million, which reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share for the three-month period ended March 31, 2017. 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 second quarter of 2017, 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 March 31, 2017, there were 13,051,822 remaining shares available for repurchase under the Company’s authorized share repurchase program.





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

NOTE 8—Inventories:
The following table provides a breakdown of inventories at March 31, 2017 and December 31, 2016 (in thousands):
 
March 31,
 
December 31,
 
2017
 
2016
Finished goods
$
345,892

 
$
289,102

Raw materials and work in process(a)
120,759

 
109,706

Stores, supplies and other
52,285

 
51,455

Total inventories
$
518,936

 
$
450,263


(a)
Included $50.1 million and $47.1 million at March 31, 2017 and December 31, 2016, respectively, of work in process related to the Lithium product category.

NOTE 9—Investments:
The Company holds a 49% equity interest in Windfield Holdings Pty. Ltd. (“Windfield”). With regard to the Company’s ownership in Windfield, the 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, the Company does not consolidate Windfield as it is not the primary beneficiary. The carrying amount of our 49% equity interest in Windfield, which is our most significant VIE, was $318.8 million and $288.6 million at March 31, 2017 and December 31, 2016, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIE’s for which the Company is not the primary beneficiary was $9.1 million and $8.8 million at March 31, 2017 and December 31, 2016, respectively. Our unconsolidated VIE’s are reported in Investments in 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 the 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 will retain 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.

NOTE 10—Long-Term Debt:
Long-term debt at March 31, 2017 and December 31, 2016 consisted of the following (in thousands):
 
March 31,
 
December 31,
 
2017
 
2016
1.875% Senior notes, net of unamortized discount and debt issuance costs of $4,305 at March 31, 2017 and $7,823 at December 31, 2016
$
418,471

 
$
719,617

3.00% Senior notes, net of unamortized discount and debt issuance costs of $1,286 at December 31, 2016

 
248,714

4.15% Senior notes, net of unamortized discount and debt issuance costs of $3,737 at March 31, 2017 and $3,859 at December 31, 2016
421,262

 
421,141

4.50% Senior notes, net of unamortized discount and debt issuance costs of $1,116 at March 31, 2017 and $2,380 at December 31, 2016
174,098

 
347,620

5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,274 at March 31, 2017 and $4,313 at December 31, 2016
345,726

 
345,687

Commercial paper notes
314,500

 
247,503

Variable-rate foreign bank loans
38,829

 
38,939

Miscellaneous

 
41

Total long-term debt
1,712,886

 
2,369,262

Less amounts due within one year
314,500

 
247,544

Long-term debt, less current portion
$
1,398,386

 
$
2,121,718

In the three-month period ended March 31, 2017, using a portion of the proceeds from the sale of the Chemetall Surface Treatment business, we repaid the 3.00% Senior notes in full, €307.0 million of the 1.875% Senior notes and $174.7 million of

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

the 4.50% Senior notes, as well as related tender premiums of $45.2 million. As a result, during the three-month period ended March 31, 2017, we recorded a loss on early extinguishment of debt of $52.8 million in Interest and financing expenses on the consolidated statements of income, representing the tender premiums, fees, unamortized discounts and unamortized deferred financings costs from the redemption of these senior notes.
Current portion of long-term debt at March 31, 2017 consisted of commercial paper notes with a weighted-average interest rate of approximately 1.54% and a weighted-average maturity of 29 days.
The carrying value of our 1.875% Euro-denominated senior notes has been designated as an effective hedge of our net investment in certain foreign subsidiaries where the Euro serves as the functional currency, and gains or losses on the revaluation of these senior notes to our reporting currency are recorded in accumulated other comprehensive loss. During the three-month periods ended March 31, 2017 and 2016, losses of $13.7 million and $9.5 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 11—Commitments and Contingencies:
Environmental
We had the following activity in our recorded environmental liabilities for the three months ended March 31, 2017, as follows (in thousands):
Beginning balance at December 31, 2016
$
34,919

Expenditures
(303
)
Accretion of discount
183

Foreign currency translation adjustments and other
640

Ending balance at March 31, 2017
35,439

Less amounts reported in Accrued expenses
2,345

Amounts reported in Other noncurrent liabilities
$
33,094

Environmental remediation liabilities included discounted liabilities of $24.2 million and $22.8 million at March 31, 2017 and December 31, 2016, respectively, discounted at rates with a weighted-average of 3.6%, with the undiscounted amount totaling $62.1 million and $61.1 million at March 31, 2017 and December 31, 2016, 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, in excess of amounts already recorded, could be up to approximately $17 million before income taxes.
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

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

proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.
Indemnities
We are indemnified by third parties in connection with certain matters related to acquired and divested businesses. Although we believe that the financial condition of those parties who may have indemnification obligations to the Company is generally sound, in the event the Company seeks indemnity under any of these agreements or through other means, there can be no assurance that any party who may have obligations to indemnify us will adhere to their obligations and we may have to resort to legal action to enforce our rights under the indemnities.
The Company may be subject to indemnity claims relating to properties or businesses it divested, including properties or businesses of acquired businesses that were divested prior to the completion of the acquisition. In the opinion of management, and based upon information currently available, the ultimate resolution of any indemnification obligations owed to the Company or by the Company is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows. The Company had approximately $39.5 million and $38.2 million at March 31, 2017 and December 31, 2016, 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 12—Segment Information:

Our three reportable segments include Lithium and Advanced Materials, Bromine Specialties and Refining Solutions. 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 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.
The “All Other” category comprises operating segments that did not fit into any of our core businesses. During the first quarter of 2016, we completed the sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals businesses. For additional information about these businesses, see Note 3, “Divestitures.” Following the sales of these businesses, the “All Other” category includes only the fine chemistry services business.
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 earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items such as 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 (“adjusted EBITDA”), in a balanced manner and on a segment basis to assess the ongoing performance of the Company’s business segments and to allocate resources. 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.

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

Adjusted EBITDA should not be considered as an alternative to Net income (loss) 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.
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In thousands)
Net sales:
 
 
 
Lithium and Advanced Materials
$
284,375

 
$
216,173

Bromine Specialties
219,191

 
196,553

Refining Solutions
185,412

 
170,579

All Other
32,419

 
72,089

Corporate
666

 
1,817

Total net sales
$
722,063

 
$
657,211

 
 
 
 
Adjusted EBITDA:
 
 
 
Lithium and Advanced Materials
$
120,022

 
$
86,474

Bromine Specialties
68,488

 
61,608

Refining Solutions
49,579

 
55,074

All Other
5,156

 
8,464

Corporate
(31,869
)
 
(19,587
)
Total adjusted EBITDA
$
211,376

 
$
192,033



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

See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, from Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP (in thousands):
 
Lithium and Advanced Materials
 
Bromine Specialties
 
Refining Solutions
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
Three months ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
94,106

 
$
58,694

 
$
40,474

 
$
193,274

 
$
3,246

 
$
(145,307
)
 
$
51,213

Depreciation and amortization
22,743

 
9,794

 
9,105

 
41,642

 
1,910

 
1,518

 
45,070

Utilization of inventory markup(a)
10,606

 

 

 
10,606

 

 

 
10,606

Restructuring and other(b)

 

 

 

 

 
12,905

 
12,905

Gain on acquisition(c)
(7,433
)
 

 

 
(7,433
)
 

 

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

 

 

 

 

 
14,281

 
14,281

Interest and financing expenses(e)

 

 

 

 

 
68,513

 
68,513

Income tax expense

 

 

 

 

 
11,971

 
11,971

Non-operating pension and OPEB items

 

 

 

 

 
(1,063
)
 
(1,063
)
Other(f)

 

 

 

 

 
5,313

 
5,313

Adjusted EBITDA
$
120,022

 
$
68,488

 
$
49,579

 
$
238,089

 
$
5,156

 
$
(31,869
)
 
$
211,376

Three months ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
63,327

 
$
51,853

 
$
46,314

 
$
161,494

 
$
130,709

 
$
(64,017
)
 
$
228,186

Depreciation and amortization
23,147

 
9,755

 
8,760

 
41,662

 
612

 
1,335

 
43,609

(Gain) loss on sales of businesses, net(g)

 

 

 

 
(122,857
)
 
1,533

 
(121,324
)
Acquisition and integration related costs(d)

 

 

 

 

 
18,558

 
18,558

Interest and financing expenses

 

 

 

 

 
15,114

 
15,114

Income tax expense

 

 

 

 

 
25,485

 
25,485

Income from discontinued operations (net of tax)

 

 

 

 

 
(17,312
)
 
(17,312
)
Non-operating pension and OPEB items

 

 

 

 

 
(283
)
 
(283
)
Adjusted EBITDA
$
86,474

 
$
61,608

 
$
55,074

 
$
203,156

 
$
8,464

 
$
(19,587
)
 
$
192,033


(a)
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 $23.0 million. The inventory markup is being expensed over the estimated remaining selling period. For the three-month period ended March 31, 2017, $10.6 million was included in Cost of goods sold related to the utilization of the inventory markup.
(b)
During the first quarter of 2017, we initiated action to reduce costs at several locations, primarily at our Lithium site in Germany. Based on the restructuring plans, we have recorded expenses of $2.9 million in Cost of goods sold, $4.2 million in Selling, general and administrative expenses and $5.8 million in Research and development expenses, primarily related to severance, expected to be incurred. The unpaid balance is recorded in Accrued expenses at March 31, 2017, with the expectation that the majority of this plan will be completed by the end of 2017.
(c)
Gain recorded in Other (expenses) income, net related to the acquisition of the remaining 50% interest in Salmag. See Note 2, “Acquisitions,” for additional information.
(d)
See Note 2, “Acquisitions,” for additional information.
(e)
Included in Interest and financing expenses is a loss on early extinguishment of debt of $52.8 million. See Note 10, “Long-term Debt,” for additional information.
(f)
Included in Other (expenses) income, net 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.
(g)
See Note 3, “Divestitures,” for additional information.



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

NOTE 13—Pension Plans and Other Postretirement Benefits:
The components of pension and postretirement benefits cost (credit) from continuing operations for the three-month periods ended March 31, 2017 and 2016 were as follows (in thousands):
 
Three Months Ended 
 March 31,
 
2017
 
2016
Pension Benefits Cost (Credit):
 
 
 
Service cost
$
1,003

 
$
1,048

Interest cost
8,288

 
9,366

Expected return on assets
(9,908
)
 
(10,173
)
Actuarial gain

 
(50
)
Amortization of prior service benefit
27

 
28

Total net pension benefits (credit) cost
$
(590
)
 
$
219

Postretirement Benefits Cost (Credit):
 
 
 
Service cost
$
31

 
$
29

Interest cost
585

 
621

Expected return on assets
(28
)
 
(47
)
Amortization of prior service benefit
(24
)
 
(24
)
Total net postretirement benefits cost
$
564

 
$
579

Total net pension and postretirement benefits (credit) cost(a)
$
(26
)
 
$
798

(a)
For the three-month period ended March 31, 2016, $0.6 million of net pension and postretirement benefits cost are included in Income from discontinued operations (net of tax) in the consolidated statements of income. See Note 3, “Divestitures,” for additional information.
During the three-month periods ended March 31, 2017 and 2016, we made contributions of $2.4 million to our qualified and nonqualified pension plans for continuing operations. Contributions to discontinued operations qualified and nonqualified pension plans were $1.0 million for the three-month period ended March 31, 2016.
We paid $0.5 million and $0.8 million in premiums to the U.S. postretirement benefit plan during the three-month periods ended March 31, 2017 and 2016, respectively.
Multiemployer Plan
Our contributions to the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf (“DN Pensionskasse”) multiemployer plan for continuing operations were €0.2 million (approximately $0.2 million and $0.3 million) during the three-month periods ended March 31, 2017 and 2016, respectively. Contributions for discontinued operations were €0.2 million (approximately $0.2 million) during the three-month period ended March 31, 2016.

NOTE 14—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.
 
March 31, 2017
 
December 31, 2016
 
Recorded
Amount
 
Fair Value
 
Recorded
Amount
 
Fair Value
 
(In thousands)
Long-term debt
$
1,721,455

 
$
1,807,576

 
$
2,381,370

 
$
2,472,813


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

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 March 31, 2017 and December 31, 2016, we had outstanding foreign currency forward contracts with notional values totaling $285.9 million and $251.6 million, respectively. Our foreign currency forward contracts outstanding at March 31, 2017 and December 31, 2016 were not designated as hedging instruments under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. At March 31, 2017, less than $0.1 million was included in Other accounts receivable associated with the fair value of our foreign currency forward contracts, and at December 31, 2016, $0.2 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) income, net; further, fluctuations in the value of these contracts are generally expected to be offset by changes in the value of the underlying exposures being hedged, which are also reported in Other (expenses) income, net. For the three-month periods ended March 31, 2017 and 2016, we recognized gains of $4.5 million and $5.8 million, respectively, in Other (expenses) income, net, in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. Also, for the three-month periods ended March 31, 2017 and 2016, we recorded gains of $4.5 million and $5.8 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash receipts of $4.3 million and $5.1 million, respectively, in Other, net, in our condensed consolidated statements of cash flows.
The counterparties to our foreign currency forward contracts are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties.

NOTE 15—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 three-month period ended March 31, 2017. The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 (in thousands):
 
March 31, 2017
 
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)
$
22,417

 
$
22,417

 
$

 
$

Private equity securities(b)
$
36

 
$
36

 
$

 
$

Private equity securities measured at net asset value(b)(c)
$
5,492

 
$

 
$

 
$

Foreign currency forward contracts(d)
$
7

 
$

 
$
7

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
22,417

 
$
22,417

 
$

 
$


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

 
December 31, 2016
 
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)
$
22,037

 
$
22,037

 
$

 
$

Private equity securities(b)
$
35

 
$
35

 
$

 
$

Private equity securities measured at net asset value(b)(c)
$
5,498

 
$

 
$

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
22,037

 
$
22,037

 
$

 
$

Foreign currency forward contracts(d)
$
182

 
$

 
$
182

 
$

(a)
We maintain an Executive Deferred Compensation Plan (“EDCP”) that was adopted in 2001 and subsequently amended. The purpose of the EDCP is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended to aid in attracting and retaining employees of exceptional ability by providing them with these benefits. We also maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of the EDCP, subject to the claims of our creditors in the event of our insolvency. Assets of the Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fund investments (which are accounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statements of income) and cash and cash equivalents. As such, these assets and obligations are classified within Level 1.
(b)
Primarily consists of private equity securities classified as available-for-sale and are reported in Investments in the condensed consolidated balance sheets. The changes in fair value are reported in Other (expenses) income, net, in our consolidated statements of income.
(c)
Holdings in private equity securities are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy.
(d)
As a result of our global operating and financing activities, we are exposed to market risks from changes in foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from foreign currency exchange rate fluctuations through the use of foreign currency forward contracts. Unless otherwise noted, these derivative financial instruments are not designated as hedging instruments under ASC 815, Derivatives and Hedging. The foreign currency forward contracts are valued using broker quotations or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within Level 2.


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

NOTE 16—Accumulated Other Comprehensive (Loss) Income:
The components and activity in Accumulated other comprehensive (loss) income (net of deferred income taxes) consisted of the following during the periods indicated below (in thousands):
 
Foreign Currency Translation
 
Pension and Postretirement Benefits(a)
 
Net Investment Hedge
 
Interest Rate Swap(b)
 
Total
Three months ended March 31, 2017
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
$
(484,121
)
 
$
76

 
$
88,378

 
$
(16,745
)
 
$
(412,412
)
Other comprehensive income (loss) before reclassifications
79,055

 

 
(13,685
)
 

 
65,370

Amounts reclassified from accumulated other comprehensive loss

 
(7
)
 

 
529

 
522

Other comprehensive income (loss), net of tax
79,055

 
(7
)
 
(13,685
)
 
529

 
65,892

Other comprehensive income attributable to noncontrolling interests
(461
)
 

 

 

 
(461
)
Balance at March 31, 2017
$
(405,527
)
 
$
69

 
$
74,693

 
$
(16,216
)
 
$
(346,981
)
Three months ended March 31, 2016
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
(463,914
)
 
$
(758
)
 
$
62,245

 
$
(18,861
)
 
$
(421,288
)
Other comprehensive income (loss) before reclassifications
98,906

 

 
(9,524
)
 

 
89,382

Amounts reclassified from accumulated other comprehensive loss

 
1

 

 
525

 
526

Other comprehensive income (loss), net of tax
98,906

 
1

 
(9,524
)
 
525

 
89,908

Other comprehensive income attributable to noncontrolling interests
(283
)
 

 

 

 
(283
)
Balance at March 31, 2016
$
(365,291
)
 
$
(757
)
 
$
52,721

 
$
(18,336
)
 
$
(331,663
)

(a)
The pre-tax portion of amounts reclassified from accumulated other comprehensive loss consists of amortization of prior service benefit, which is a component of pension and postretirement benefits cost (credit). See Note 13, “Pension Plans and Other Postretirement Benefits.”
(b)
The pre-tax portion of amounts reclassified from accumulated other comprehensive loss is included in interest expense.
The amount of income tax (expense) benefit allocated to each component of Other comprehensive income (loss) for the three-month periods ended March 31, 2017 and 2016 is provided in the following tables (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
 
Foreign Currency Translation
 
Pension and Postretirement Benefits
 
Net Investment Hedge
 
Interest Rate Swap
 
Foreign Currency Translation
 
Pension and Postretirement Benefits
 
Net Investment Hedge
 
Interest Rate Swap
Other comprehensive income (loss), before tax
$
80,141

 
$
(6
)
 
$
(21,580
)
 
$
834

 
$
99,277

 
$
4

 
$
(15,121
)
 
$
834

Income tax (expense) benefit
(1,086
)
 
(1
)
 
7,895

 
(305
)
 
(371
)
 
(3
)
 
5,597

 
(309
)
Other comprehensive income (loss), net of tax
$
79,055

 
$
(7
)
 
$
(13,685
)
 
$
529

 
$
98,906

 
$
1

 
$
(9,524
)
 
$
525



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

NOTE 17—Related Party Transactions:
Our condensed consolidated financial statements include sales to and purchases from unconsolidated affiliates in the ordinary course of business as follows (in thousands):
 
Three Months Ended 
 March 31,
 
2017
 
2016
Sales to unconsolidated affiliates
$
7,189

 
$
6,174

Purchases from unconsolidated affiliates
40,570

 
35,621


NOTE 18—Recently Issued Accounting Pronouncements:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance designed to enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that revenue recognized from a transaction or event that arises from a contract with a customer should reflect the consideration to which an entity expects to be entitled in exchange for goods or services provided. To achieve that core principle the new guidance sets forth a five-step revenue recognition model that will need to be applied consistently to all contracts with customers, except those that are within the scope of other topics in the ASC. Also required are new disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. The new disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized related to the costs to obtain or fulfill a contract. In March 2016 and April 2016, the FASB issued amendments to this new guidance that provides clarification about principal versus agent considerations, identification of performance obligations and accounting for the licensing of intellectual property. In May 2016, the FASB issued an amendment to the guidance that provides clarification about collectibility, noncash consideration, presentation of sales tax, and transition. In December 2016, the FASB issued an amendment to the guidance that provides narrow-scope improvements and practical expedient regarding collectibility, presentation of sales tax collected from customers, non-cash considerations, contract modifications at transition, completed contracts at transition and other technical corrections. These new requirements become effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted for annual and interim reporting periods beginning after December 15, 2016. We expect to adopt the new standard in the first quarter of 2018 using the modified retrospective method. We have made significant progress in evaluating our existing contracts and accounting policies to determine the impact this standard will have on the condensed consolidated financial statements and related disclosures.
In July 2015, the FASB issued accounting guidance that requires inventory to be measured at the lower of cost and net realizable value. The scope of this guidance excludes inventory measured using the last-in first-out method or the retail inventory method. This new requirement became effective on January 1, 2017 and did not have a significant impact on our condensed consolidated financial statements.
In February 2016, the FASB issued accounting guidance that requires assets and liabilities arising from leases to be recorded on the balance sheet. Additional disclosures are required regarding the amount, timing, and uncertainty of cash flows from leases. This new guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied using a modified retrospective approach. Early adoption is permitted. The impact of this new requirement on our financial statements is being assessed and is not yet known.
In March 2016, the FASB issued accounting guidance that simplifies several aspects of the accounting for share-based payment awards. Among other things, this guidance requires all tax effects related to share-based payment awards to be recognized as income tax expense or benefit on the income statement, thus eliminating all additional paid-in capital pools. An entity should recognize excess tax benefits regardless of whether the benefit reduces income taxes payable in the current period. For interim reporting purposes, excess tax benefits and tax deficiencies should be accounted for as discrete items in the reporting period in which they occur. Additionally, this new guidance requires all tax related cash flows resulting from share-based payments to be presented as an operating activity on the statement of cash flows rather than as a financing activity. This guidance became effective on January 1, 2017. The impact of recognizing excess tax benefits in the income statement resulted in a $4.1 million reduction in Income tax expense for the three-month period ended March 31, 2017. The remaining aspects of adopting this guidance did not have a material impact on our condensed consolidated financial statements.
In August 2016, the FASB issued accounting guidance which clarifies the proper presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance addresses cash flow issues including, but not

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

limited to, debt prepayment or debt extinguishment costs and distributions received from equity method investments. As allowed by the provisions of this new guidance, we early-adopted this new guidance in the first quarter of 2017. The adoption of this new guidance did not have a significant impact on our condensed consolidated financial statements.
In November 2016, the FASB issued accounting guidance that requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the statement of cash flows. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied on a retrospective basis. Early adoption is permitted. We do not expect this guidance to have a significant impact on our financial statements.
In January 2017, the FASB issued accounting guidance to clarify the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied on a prospective basis. Early adoption is permitted. We currently do not expect this guidance to have a significant impact on our financial statements.
In January 2017, the FASB issued accounting guidance to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a reporting unit to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit has been acquired in a business combination. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be applied on a prospective basis. Early adoption is permitted for goodwill impairment tests performed after January 1, 2017. We do not expect this guidance to have a significant impact on our financial statements.
In March 2017, the FASB issued accounting guidance that changes the presentation of net periodic pension and postretirement benefit cost (“net benefit cost”) in the income statement. This new guidance requires service cost to be presented as part of operating income (expense) and all other components of net benefit cost are to be shown outside of operations. This guidance will be effective for periods beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied on a retrospective basis. Early adoption is permitted as of the beginning of an annual period for which an entity’s financial statements have not been issued or made available for issuance. We do not expect this guidance to have a significant impact on our financial statements.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Some of the information presented in this Quarterly Report on Form 10-Q, including the documents incorporated by reference, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on our current expectations, which are in turn based on assumptions that we believe are reasonable based on our current knowledge of our business and operations. We have used words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “would,” “will” and variations of such words and similar expressions to identify such forward-looking statements.
These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, there can be no assurance that our actual results will not differ materially from the results and expectations expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially 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;

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availability of raw materials;
increases in the cost of raw materials and energy, and our ability to pass through such increases;
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;
hazards associated with chemicals manufacturing;
the inability to maintain current levels of product or premises liability insurance or the denial of such coverage;
political unrest affecting the global economy, including adverse effects from terrorism or hostilities;
political instability affecting our manufacturing operations or joint ventures;
changes in accounting standards;
the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs;
changes in the jurisdictional mix of our earnings and changes in tax laws and rates;
changes in monetary policies, inflation or interest rates that may impact our ability to raise capital or increase our cost of funds, impact the performance of our pension fund investments and increase our pension expense and funding obligations;
volatility and uncertainties in the debt and equity markets;
technology or intellectual property infringement, including 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.
We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. The following discussion should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.
The following is a discussion and analysis of results of operations for the three-month periods ended March 31, 2017 and 2016. A discussion of consolidated financial condition and sources of additional capital is included under a separate heading “Financial Condition and Liquidity” on page 32.
Overview
We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals that meet customer needs across an exceptionally diverse range of end markets. The end markets we serve include the petroleum refining, consumer electronics, energy storage, construction, automotive, lubricants, pharmaceuticals, crop protection, food safety and custom chemistry services. We believe that our commercial and geographic diversity, technical expertise, innovative capability, flexible, low-cost global manufacturing base, experienced management team and strategic focus on our core base technologies will enable us to maintain leading market positions in those areas of the specialty chemicals industry in which we operate.
Secular trends favorably impacting demand within the end markets that we serve combined with our diverse product portfolio, broad geographic presence and customer-focused solutions will continue to be key drivers to our future earnings growth. We continue to build upon our existing green solutions portfolio and our ongoing mission to provide innovative, yet commercially viable, clean energy products and services to the marketplace. We believe our disciplined cost reduction efforts and ongoing productivity improvements position us well to take advantage of strengthening economic conditions as they occur while softening the negative impact of the current challenging global economic environment.
First Quarter 2017
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, using a portion of the proceeds from the sale of the Chemetall Surface Treatment business.
We announced that Albemarle and Tianqi Lithium Corporation (“Tianqi”) terminated the option agreement for Tianqi to acquire a 20% indirect ownership interest in Rockwood Lithium GmbH, a wholly-owned German subsidiary of

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Albemarle, and its subsidiaries. As a result, we will retain 100% of the ownership interest in Rockwood Lithium GmbH.
We announced the approval for the expansion of lithium concentrate production at our Greenbushes, Australia site through our 50% owned Talison joint venture. Commissioning of the expansion is expected to begin in the second quarter of 2019 and would more than double the current lithium carbonate capacity.
We entered into a $250 million accelerated share repurchase (“ASR”) agreement, receiving and retiring an initial delivery of 1,948,178 shares of our common stock pursuant to the terms of the ASR agreement and our share repurchase program.
Our board of directors declared a quarterly dividend of $0.32 per share on February 23, 2017, which was paid on April 3, 2017 to shareholders of record at the close of business as of March 15, 2017.
Our net sales for the quarter were $722.1 million, up 10% from net sales of $657.2 million in the first quarter of 2016. Net sales from our reportable segments for the quarter were $689.0 million, an increase of 18% from net sales of $583.3 million in the first quarter of 2016.
Earnings per share were $0.45 (on a diluted basis), a decrease from first quarter 2016 results of $1.87 per diluted share from continuing operations.
Cash provided by operating activities was $82.6 million in the first quarter, a decrease from $172.7 million in the first quarter 2016.

Outlook
The current global business environment presents a diverse set of opportunities and challenges in the markets we serve, from slow and uneven global growth, currency exchange volatility, significantly lower crude oil prices, a dynamic pricing environment and an ever-changing landscape in electronics, to the continuous need for cutting edge catalysts and technology by our refinery customers, diverse energy storage needs including exciting opportunities in electric vehicles, and increasingly stringent environmental standards. Amidst these dynamics, we believe our business fundamentals are sound and that we are strategically well-positioned as we remain focused on increasing sales volumes, optimizing and improving the value of our portfolio through pricing and product development, managing costs and delivering value to our customers and shareholders. We believe that our businesses remain positioned to capitalize on new business opportunities and long-term trends driving growth within our end markets and to respond quickly to improved economic conditions.
Lithium and Advanced Materials: We expect continued strong growth for the remainder of 2017, led by strong underlying demand in battery-grade applications, increased lithium carbonate and hydroxide conversion capacity and continued price improvement in Lithium. PCS experienced weaker profitability in 2016 due to weakness in the curatives market and the bankruptcy filing of one of our customers which resulted in a $10 million impact to Income from continuing operations before income taxes and adjusted EBITDA during the year. While we expect further negative impacts from the bankruptcy filing in 2017, we expect PCS profitability to stabilize in 2017 due to productivity gains and increased volumes due to market demand, offset slightly by unfavorable pricing due to excess supply.
On a longer term basis, we believe that demand for lithium will continue to grow as new applications for lithium power continue to be developed and the use of plug-in hybrid electric vehicles and battery electric vehicles escalates. In addition, we expect growth in PCS from growing global demand for plastics driven by rising standards of living and infrastructure spending, particularly in Asia and the Middle East.
Bromine Specialties: The Bromine Specialties business got off to a strong start to 2017, with double digit year over year adjusted EBITDA growth in the first quarter driven by strong fire safety and other derivative volume increases and productivity improvements. While encouraged by the first quarter 2017 results, we are cautiously optimistic for the remainder of the year due to sustained low oil prices impacting our drilling fluids business and overall demand and supply economics in fire safety and other derivatives.
On a longer term basis, we continue to believe that improving global standards of living, widespread digitization, increasing demand for data management capacity and the potential for increasingly stringent fire safety regulations in developing markets are likely to drive continued demand for fire safety products. Absent an increase in regulatory pressure on offshore drilling, we would expect this business to follow a long-term growth trajectory once oil prices recover from recent levels as we expect that deep water drilling will continue to increase around the world. We are focused on profitably growing our globally competitive bromine and derivatives production network to serve all major bromine consuming products and markets. We believe the global supply/demand gap could tighten as demand for existing and possible new uses of bromine expands over time. The combination of solid, long-term business fundamentals, with our strong cost position, product

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innovations and effective management of raw material costs will enable us to manage our business through end market challenges and to capitalize on opportunities that are expected with favorable market trends in select end markets.
Refining Solutions: Following the downturn in 2015 (primarily caused by cash preservation measures from oil companies, triggered by oil price volatility), in 2016 we saw a significant increase in the number of “Hydro treating unit” catalyst change-outs and related catalyst demand. In addition to catalyst demand increase, we also saw a marked improvement in catalyst product mix year over year. Despite ongoing uncertainty of oil prices and the ensuing impact on crude slates used by refiners and resulting demand for catalysts, we expect sustained performance in our clean fuels technology business driven by refining change-outs and balanced product mix. We also expect solid performance from our Fluid Catalytic Cracking (“FCC”)division despite a number of scheduled maintenance shutdowns and plant turnarounds at refiners, which could dampen FCC demand in 2017. We also anticipate headwinds from rising input costs in 2017 following historically low prices in 2016.
On a longer term basis, we believe increased global demand for transportation fuels from a growing population and increasing mobility and the implementation of more stringent fuel quality requirements will drive growth in our Refining Solutions business. Delivering superior end-use performance continues to be the most effective way to create sustainable value in the refinery catalysts industry, and we believe our technologies continue to provide significant performance and financial benefits to refiners challenged to meet tighter regulations around the world, those managing new contaminants present in North America tight oil, and those in the Middle East and Asia seeking to use heavier feedstock while pushing for higher propylene yields. Longer term, we believe that the global crude supply will get heavier and more sour, a trend that bodes well for our catalysts portfolio. With superior technology and production capacities, and expected growth in end market demand, we believe that Refining Solutions remains well-positioned for the future.
All Other: During the first quarter of 2016, we closed the previously announced sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business. The cash generated from the sale of these businesses was used to reduce borrowings outstanding under the September 2015 Term Loan Agreement. In April 2016, we concluded that we would suspend efforts to sell the fine chemistry services business. This business will continue to be reported outside the Company’s reportable segments. We expect the next few years to be a challenge for fine chemistry services due to a challenging agriculture industry environment, as well as customer order timing in pharmaceuticals.
Corporate: We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax rate for 2017 to be approximately 21.0%; however, our rate will vary based on the locales in which income is actually earned and remains subject to potential volatility from changing legislation in the U.S. and other tax jurisdictions. We also anticipate the potential for increased periodic volatility in future effective tax rates from the continuing impact of the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-09, which was adopted in the first quarter of 2017.
In the first quarter of 2017, we increased our quarterly dividend rate to $0.32 per share. During the three months ended March 31, 2017, we received and retired approximately 1.9 million shares of our common stock under our share repurchase program and the ASR agreement. 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 second quarter of 2017. In addition, following the completion of this ASR agreement, we may periodically repurchase shares in the future on an opportunistic basis as approved by our share repurchase program.
We remain committed to evaluating the merits of any opportunities that may arise for acquisitions or other business development activities that will complement our business footprint. Additional information regarding our products, markets and financial performance is provided at our website, www.albemarle.com. Our website is not a part of this document nor is it incorporated herein by reference.


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Results of Operations
The following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.
First Quarter 2017 Compared to First Quarter 2016
Selected Financial Data (Unaudited)
 
Three Months Ended March 31,
 
Percentage Change
 
2017
 
2016
 
2017 vs. 2016
 
(In thousands, except percentages and per share amounts)
NET SALES
$
722,063

 
$
657,211

 
10
 %
Cost of goods sold
466,975

 
414,677

 
13
 %
GROSS PROFIT
255,088

 
242,534

 
5
 %
GROSS PROFIT MARGIN
35.3
%
 
36.9
%
 
 
Selling, general and administrative expenses
108,001

 
82,631

 
31
 %
Research and development expenses
24,323

 
19,872

 
22
 %
Gain on sales of businesses, net

 
(121,324
)
 
(100
)%
Acquisition and integration related costs

 
18,558

 
(100
)%
OPERATING PROFIT
122,764

 
242,797

 
(49
)%
OPERATING PROFIT MARGIN
17.0
%
 
36.9
%
 
 
Interest and financing expenses
(68,513
)
 
(15,114
)
 
353
 %
Other (expenses) income, net
(794
)
 
47

 
*

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
53,457

 
227,730

 
(77
)%
Income tax expense
11,971

 
25,485

 
(53
)%
Effective tax rate
22.4
%
 
11.2
%
 
 
INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
41,486

 
202,245

 
(79
)%
Equity in net income of unconsolidated investments (net of tax)
21,171

 
15,991

 
32
 %
NET INCOME FROM CONTINUING OPERATIONS
62,657

 
218,236

 
(71
)%
Income from discontinued operations (net of tax)

 
17,312

 
(100
)%
NET INCOME
62,657

 
235,548

 
(73
)%
Net income attributable to noncontrolling interests
(11,444
)
 
(7,362
)
 
55
 %
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION
$
51,213

 
$
228,186

 
(78
)%
NET INCOME FROM CONTINUING OPERATIONS AS A PERCENTAGE OF NET SALES
8.7
%
 
33.2
%
 
 
Basic earnings per share:
 
 
 
 
 
Continuing operations
$
0.46

 
$
1.88

 
(76
)%
Discontinued operations

 
0.15

 
(100
)%
 
$
0.46

 
$
2.03

 
(77
)%
Diluted earnings per share: