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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 September 30, 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 October 31, 2017: 110,495,651


Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-25
 
 
 
25-44
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Net sales
$
754,866

 
$
654,010

 
$
2,214,187

 
$
1,980,548

Cost of goods sold
479,077

 
415,038

 
1,411,216

 
1,250,938

Gross profit
275,789

 
238,972

 
802,971

 
729,610

Selling, general and administrative expenses
105,582

 
86,302

 
329,269

 
254,988

Research and development expenses
21,763

 
21,012

 
63,423

 
61,384

Gain on sales of businesses, net

 

 

 
(122,298
)
Acquisition and integration related costs

 
6,749

 

 
44,337

Operating profit
148,444

 
124,909

 
410,279

 
491,199

Interest and financing expenses
(15,792
)
 
(15,946
)
 
(98,895
)
 
(46,860
)
Other (expenses) income, net
(3,008
)
 
2,990

 
(6,512
)
 
740

Income from continuing operations before income taxes and equity in net income of unconsolidated investments
129,644

 
111,953

 
304,872

 
445,079

Income tax expense
18,495

 
12,394

 
53,596

 
61,535

Income from continuing operations before equity in net income of unconsolidated investments
111,149

 
99,559

 
251,276

 
383,544

Equity in net income of unconsolidated investments (net of tax)
19,044

 
14,953

 
55,263

 
44,790

Net income from continuing operations
130,193

 
114,512

 
306,539

 
428,334

Income (loss) from discontinued operations (net of tax)

 
23,185

 

 
(357,843
)
Net income
130,193

 
137,697

 
306,539

 
70,491

Net income attributable to noncontrolling interests
(11,523
)
 
(9,477
)
 
(33,323
)
 
(28,906
)
Net income attributable to Albemarle Corporation
$
118,670

 
$
128,220

 
$
273,216

 
$
41,585

Basic earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
1.07

 
$
0.93

 
$
2.46

 
$
3.56

Discontinued operations

 
0.21

 

 
(3.19
)
 
$
1.07

 
$
1.14

 
$
2.46

 
$
0.37

Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
1.06

 
$
0.93

 
$
2.43

 
$
3.53

Discontinued operations

 
0.20

 

 
(3.16
)
 
$
1.06

 
$
1.13

 
$
2.43

 
$
0.37

Weighted-average common shares outstanding – basic
110,476

 
112,429

 
111,049

 
112,343

Weighted-average common shares outstanding – diluted
111,975

 
113,448

 
112,456

 
113,131

Cash dividends declared per share of common stock
$
0.32

 
$
0.305

 
$
0.96

 
$
0.915

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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
130,193

 
$
137,697

 
$
306,539

 
$
70,491

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation
56,179

 
47,712

 
199,303

 
95,425

Pension and postretirement benefits
(7
)
 
206

 
2

 
626

Net investment hedge
(9,681
)
 
(7,395
)
 
(37,600
)
 
(10,312
)
Interest rate swap
529

 
525

 
1,587

 
1,576

Total other comprehensive income, net of tax
47,020

 
41,048

 
163,292

 
87,315

Comprehensive income
177,213

 
178,745

 
469,831

 
157,806

Comprehensive income attributable to noncontrolling interests
(11,653
)
 
(9,500
)
 
(34,146
)
 
(29,364
)
Comprehensive income attributable to Albemarle Corporation
$
165,560

 
$
169,245

 
$
435,685

 
$
128,442

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

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

 
September 30,
 
December 31,
 
2017
 
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,045,339

 
$
2,269,756

Trade accounts receivable, less allowance for doubtful accounts (2017 – $6,378; 2016 – $15,312)
520,076

 
486,035

Other accounts receivable
50,071

 
41,985

Inventories
610,212

 
450,263

Other current assets
101,626

 
58,579

Total current assets
2,327,324

 
3,306,618

Property, plant and equipment, at cost
4,167,065

 
3,910,522

Less accumulated depreciation and amortization
1,682,780

 
1,550,382

Net property, plant and equipment
2,484,285

 
2,360,140

Investments
530,227

 
457,533

Other assets
148,573

 
142,320

Goodwill
1,616,478

 
1,540,032

Other intangibles, net of amortization
416,413

 
354,564

Total assets
$
7,523,300

 
$
8,161,207

Liabilities And Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
361,937

 
$
281,874

Accrued expenses
276,953

 
322,165

Current portion of long-term debt
382,358

 
247,544

Dividends payable
35,142

 
34,104

Income taxes payable
46,627

 
254,416

Total current liabilities
1,103,017

 
1,140,103

Long-term debt
1,407,171

 
2,121,718

Postretirement benefits
50,446

 
50,538

Pension benefits
309,787

 
298,695

Other noncurrent liabilities
199,273

 
194,810

Deferred income taxes
414,034

 
412,739

Commitments and contingencies (Note 11)

 

Equity:
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
Common stock, $.01 par value, issued and outstanding – 110,495 in 2017 and 112,524 in 2016
1,105

 
1,125

Additional paid-in capital
1,858,753

 
2,084,418

Accumulated other comprehensive loss
(249,943
)
 
(412,412
)
Retained earnings
2,288,904

 
2,121,931

Total Albemarle Corporation shareholders’ equity
3,898,819

 
3,795,062

Noncontrolling interests
140,753

 
147,542

Total equity
4,039,572

 
3,942,604

Total liabilities and equity
$
7,523,300

 
$
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
 
 
 
 
 
 
 
 
 
273,216

 
273,216

 
33,323

 
306,539

Other comprehensive income
 
 
 
 
 
 
 
162,469

 
 
 
162,469

 
823

 
163,292

Cash dividends declared
 
 
 
 
 
 
 
 
 
(106,243
)
 
(106,243
)
 
(27,791
)
 
(134,034
)
Stock-based compensation and other
 
 
 
 
 
12,477

 
 
 
 
 
12,477

 
 
 
12,477

Exercise of stock options
 
159,432

 
2

 
7,009

 
 
 
 
 
7,011

 
 
 
7,011

Shares repurchased
 
(2,341,083
)
 
(23
)
 
(249,977
)
 
 
 


 
(250,000
)
 
 
 
(250,000
)
Issuance of common stock, net
 
241,755

 
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
 
(89,057
)
 
(1
)
 
(8,316
)
 
 
 
 
 
(8,317
)
 
 
 
(8,317
)
Balance at September 30, 2017
 
110,494,837

 
$
1,105

 
$
1,858,753

 
$
(249,943
)
 
$
2,288,904

 
$
3,898,819

 
$
140,753

 
$
4,039,572

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
 
 
 
41,585

 
41,585

 
28,906

 
70,491

Other comprehensive income
 
 
 
 
 
 
 
86,857

 
 
 
86,857

 
458

 
87,315

Cash dividends declared
 
 
 
 
 
 
 
 
 
(102,832
)
 
(102,832
)
 
(23,874
)
 
(126,706
)
Stock-based compensation and other
 
 
 
 
 
12,882

 
 
 
 
 
12,882

 
 
 
12,882

Exercise of stock options
 
162,438

 
1

 
6,778

 
 
 
 
 
6,779

 
 
 
6,779

Tax benefit related to stock plans
 
 
 
 
 
1,369

 
 
 
 
 
1,369

 
 
 
1,369

Issuance of common stock, net
 
120,160

 
1

 
(1
)
 
 
 
 
 

 
 
 

Shares withheld for withholding taxes associated with common stock issuances
 
(35,701
)
 

 
(2,010
)
 
 
 
 
 
(2,010
)
 
 
 
(2,010
)
Balance at September 30, 2016
 
112,466,248

 
$
1,124

 
$
2,078,169

 
$
(334,431
)
 
$
1,554,160

 
$
3,299,022

 
$
152,411

 
$
3,451,433

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)
 
Nine Months Ended 
 September 30,
 
2017
 
2016
Cash and cash equivalents at beginning of year
$
2,269,756

 
$
213,734

Cash flows from operating activities:
 
 
 
Net income
306,539

 
70,491

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
144,087

 
176,499

Gain on acquisition
(6,025
)
 

Gain on sales of businesses, net

 
(122,298
)
Stock-based compensation
15,595

 
13,818

Equity in net income of unconsolidated investments (net of tax)
(55,263
)
 
(46,224
)
Dividends received from unconsolidated investments and nonmarketable securities
11,900

 
34,982

Pension and postretirement expense
67

 
7,911

Pension and postretirement contributions
(9,607
)
 
(13,649
)
Unrealized gain on investments in marketable securities
(2,007
)
 
(3,281
)
Loss on early extinguishment of debt
52,801

 

Deferred income taxes
4,677

 
404,728

Working capital changes
(398,913
)
 
(79,684
)
Other, net
10,993

 
10,821

Net cash provided by operating activities
74,844

 
454,114

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(45,406
)
 

Cash payments related to acquisitions and other

 
(81,988
)
Capital expenditures
(187,519
)
 
(141,301
)
Cash proceeds from divestitures, net
6,857

 
310,599

Sales of marketable securities, net
450

 
822

Repayments from joint ventures
1,250

 

Net cash (used in) provided by investing activities
(224,368
)
 
88,132

Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(753,209
)
 
(382,730
)
Proceeds from borrowings of long-term debt
27,000

 

Other borrowings (repayments), net
79,203

 
(9,026
)
Fees related to early extinguishment of debt
(46,959
)
 

Dividends paid to shareholders
(105,205
)
 
(101,061
)
Dividends paid to noncontrolling interests
(27,791
)
 
(23,873
)
Repurchases of common stock
(250,000
)
 

Proceeds from exercise of stock options
7,011

 
6,779

Withholding taxes paid on stock-based compensation award distributions
(8,317
)
 
(2,008
)
Net cash used in financing activities
(1,078,267
)
 
(511,919
)
Net effect of foreign exchange on cash and cash equivalents
3,374

 
(10,462
)
(Decrease) increase in cash and cash equivalents
(1,224,417
)
 
19,865

Cash and cash equivalents at end of period
$
1,045,339

 
$
233,599

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 September 30, 2017 and December 31, 2016, our consolidated statements of income and consolidated statements of comprehensive income for the three-month and nine-month periods ended September 30, 2017 and 2016 and our consolidated statements of changes in equity and condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016. Income tax expense for the nine-month period ended September 30, 2017 includes 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 nine-month period ended September 30, 2017, the three- or nine-month periods ended September 30, 2016, or the year ended December 31, 2016. Other comprehensive income for the three-month period ended September 30, 2016 includes an adjustment of $12.5 million to reduce the Foreign currency translation on the Company’s investment in the Windfield Holdings Pty. Ltd. joint venture related to the three month period ended March 31, 2016. There is no impact to the results for the nine-month period ended September 30, 2016. The Company does not believe this adjustment is material to the condensed consolidated financial statements for the three-month periods ended March 31, 2016 or September 30, 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 and nine-month periods ended September 30, 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 and nine-month periods ended September 30, 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 and nine-month periods ended September 30, 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 $3.7 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 $87.7 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

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

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.
During the nine-month period ended September 30, 2017, the Company purchased inventory with a fair value of $37.1 million in connection with the Jiangli New Materials acquisition. The fair value included the markup of the underlying book value of $23.1 million. The inventory markup was expensed over the estimated remaining selling period, with $0.6 million and $23.1 million recorded in the three-month and nine-month periods ended September 30, 2017, respectively.
Goodwill arising from this 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 $6.0 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 nine-month period ended September 30, 2017. In the third quarter of 2017, the Company recorded an adjustment to reduce the previously reported gain by $1.4 million in Other (expenses) income, net on the consolidated statements of income. 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 for the three-month and nine-month periods ended September 30, 2017 of $1.8 million and $12.5 million were included in Cost of goods sold, respectively, and $3.8 million and $13.9 million were included in Selling, general and administrative expenses, respectively, on our consolidated statements of income. These acquisition and integration related costs relate to various significant projects, including the Jiangli New Materials acquisition, which contains unusual compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s normal compensation arrangements. Included in Acquisition and integration related costs on our consolidated statements of income for the three-month and nine-month periods ended September 30, 2016 were $6.3 million and $42.4 million, respectively, of integration costs resulting from the acquisition of Rockwood Holdings, Inc. (mainly consisting of professional services fees, costs to achieve synergies, relocation costs, and other integration costs) and $0.4 million and $1.9 million, respectively, 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. During the second quarter of 2017, we received a final working capital settlement of $6.9 million related to the sale of this business. 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 and nine-month periods ended September 30, 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.

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

The major components of Income (loss) from discontinued operations (net of tax) for the three-month and nine-month periods ended September 30, 2016 were as follows (in thousands):
 
Three Months Ended 
 September 30, 2016
 
Nine Months Ended 
 September 30, 2016
Net sales
$
211,347

 
$
637,889

Cost of goods sold
100,061

 
333,832

Operating expenses, net
70,604

 
203,052

Interest and financing expenses(a)
9,864

 
29,912

Other expenses (income), net
134

 
(1,636
)
Income before income taxes
30,684

 
72,729

Income tax expense(b)
7,499

 
430,572

Income (loss) from discontinued operations (net of tax)
$
23,185

 
$
(357,843
)

(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.
(b)
Income tax expense for the nine-month period ended September 30, 2016 included a discrete non-cash charge of ($381.5) million due to a change in the Company’s assertion over book and tax basis differences related to a U.S. entity being sold. In addition, Income tax expense for the three-month and nine-month periods ended September 30, 2016 included discrete non-cash benefits (charges) of $5.4 million and ($29.8) million, respectively, related to a change in the Company’s assertion over reinvestment of foreign undistributed earnings.
Depreciation and amortization and capital expenditures from discontinued operations for the nine-month period ended September 30, 2016 were as follows (in thousands):
 
Nine Months Ended 
 September 30, 2016
Depreciation and amortization
$
35,194

Capital expenditures
$
15,525

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 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 in 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 $112.3 million before income taxes in 2016 related to the sale of these businesses.
Also included in Gain on sales of businesses, net, for the nine-month period ended September 30, 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.


10

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

NOTE 4—Goodwill and Other Intangibles:

The following table summarizes the changes in goodwill by reportable segment for the nine months ended September 30, 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)
(21,427
)
 

 

 

 
(21,427
)
   Foreign currency translation adjustments and other
77,707

 

 
20,166

 

 
97,873

Balance at September 30, 2017
$
1,404,541

 
$
20,319

 
$
185,032

 
$
6,586

 
$
1,616,478


(a)
Primarily represents preliminary purchase price adjustments related to the preliminary appraisal of intangible assets during the measurement period for the Jiangli New Materials acquisition. See Note 2, “Acquisitions,” for additional information.

The following table summarizes the changes in other intangibles and related accumulated amortization for the nine months ended September 30, 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

 
1,429

 
25,555

 
15,677

 
44,378

Foreign currency translation adjustments and other
28,461

 
913

 
3,245

 
5,277

 
37,896

  Balance at September 30, 2017
$
418,071

 
$
18,856

 
$
67,234

 
$
39,798

 
$
543,959

Accumulated Amortization
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2016
$
(49,165
)
 
$
(7,952
)
 
$
(31,683
)
 
$
(18,321
)
 
$
(107,121
)
    Amortization
(14,811
)
 

 
(1,288
)
 
(1,528
)
 
(17,627
)
Foreign currency translation adjustments and other
(3,620
)
 
(296
)
 
(1,816
)
 
2,934

 
(2,798
)
  Balance at September 30, 2017
$
(67,596
)
 
$
(8,248
)
 
$
(34,787
)
 
$
(16,915
)
 
$
(127,546
)
Net Book Value at December 31, 2016
$
338,728

 
$
8,562

 
$
6,751

 
$
523

 
$
354,564

Net Book Value at September 30, 2017
$
350,475

 
$
10,608

 
$
32,447

 
$
22,883

 
$
416,413


(a)
Balances as of September 30, 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 and revaluation (losses) gains were ($1.9) million and ($7.6) million for the three-month and nine-month periods ended September 30, 2017, respectively, and $0.3 million and ($3.1) million for the three-month and nine-month periods ended September 30, 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 and nine-month periods ended September 30, 2017 was 14.3% and 17.6%, respectively, compared to 11.1% and 13.8% for the three-month and nine-month periods ended September 30, 2016, respectively. The Company’s effective income tax rate fluctuates based on, among other factors, its level and location of

11

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

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 nine-month period ended September 30, 2017 included foreign rate changes of $14.8 million and a $5.1 million out-of-period adjustment as described in Note 1, "Basis of Presentation," partially offset by a $10.8 million benefit from the release of valuation allowances due to a foreign restructuring plan that was initiated during the second quarter of 2017 and a $6.9 million reduction from the tax effects of stock-based compensation awards. Our effective tax rate for the nine-month period ended September 30, 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.

NOTE 7—Earnings Per Share:
Basic and diluted earnings per share from continuing operations for the three-month and nine-month periods ended September 30, 2017 and 2016 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Basic earnings per share from continuing operations
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
130,193

 
$
114,512

 
$
306,539

 
$
428,334

Net income from continuing operations attributable to noncontrolling interests
(11,523
)
 
(9,477
)
 
(33,323
)
 
(28,906
)
Net income from continuing operations attributable to Albemarle Corporation
$
118,670

 
$
105,035

 
$
273,216

 
$
399,428

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
110,476

 
112,429

 
111,049

 
112,343

Basic earnings per share from continuing operations
$
1.07

 
$
0.93

 
$
2.46

 
$
3.56

 
 
 
 
 
 
 
 
Diluted earnings per share from continuing operations
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
130,193

 
$
114,512

 
$
306,539

 
$
428,334

Net income from continuing operations attributable to noncontrolling interests
(11,523
)
 
(9,477
)
 
(33,323
)
 
(28,906
)
Net income from continuing operations attributable to Albemarle Corporation
$
118,670

 
$
105,035

 
$
273,216

 
$
399,428

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
110,476

 
112,429

 
111,049

 
112,343

Incremental shares under stock compensation plans
1,499

 
1,019

 
1,407

 
788

Weighted-average common shares for diluted earnings per share
111,975

 
113,448

 
112,456

 
113,131

Diluted earnings per share from continuing operations
$
1.06

 
$
0.93

 
$
2.43

 
$
3.53

On February 23, 2017, the Company increased the regular quarterly dividend by 5% to $0.32 per share. On July 10, 2017, the Company declared a cash dividend of $0.32 per share, which was paid on October 2, 2017 to shareholders of record at the close of business as of September 15, 2017. On November 6, 2017, the Company declared a cash dividend of $0.32 per share, which is payable on January 2, 2018 to shareholders of record at the close of business as of December 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. Under the terms of the ASR agreement, on June 16, 2017, the transaction was completed and we received and retired a final settlement of 392,905 shares, calculated 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 determined that the ASR agreement met the criteria to be accounted for as a forward contract indexed to its stock and was therefore treated as an equity instrument. In total, we received and retired 2,341,083 shares under the ASR agreement, which reduced the Company’s

12

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

weighted average shares outstanding for purposes of calculating basic and diluted earnings per share for the nine-month period ended September 30, 2017.
No more than 15,000,000 shares can be repurchased under the Company’s authorized share repurchase program. As of September 30, 2017, there were 12,658,917 remaining shares available for repurchase under the Company’s authorized share repurchase program.
NOTE 8—Inventories:
The following table provides a breakdown of inventories at September 30, 2017 and December 31, 2016 (in thousands):
 
September 30,
 
December 31,
 
2017
 
2016
Finished goods(a)
$
420,059

 
$
289,102

Raw materials and work in process(b)
135,025

 
109,706

Stores, supplies and other
55,128

 
51,455

Total
$
610,212

 
$
450,263


(a)
Increase primarily due to the Jiangli New Materials acquisition and other lithium sites, as well as the build up of inventory in our Refining Solutions segment for an increase in sales in the fourth quarter.
(b)
Included $56.0 million and $47.1 million at September 30, 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”), where the ownership parties share risks and benefits disproportionate to their voting interests. As a result, the Company considers Windfield to be a variable interest entity (“VIE”), however this investment is not consolidated as the Company is not the primary beneficiary. The carrying amount of our 49% equity interest in Windfield, which is our most significant VIE, was $352.0 million and $288.6 million at September 30, 2017 and December 31, 2016, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIEs for which the Company is not the primary beneficiary was $8.4 million and $8.8 million at September 30, 2017 and December 31, 2016, respectively. Our unconsolidated VIEs are reported in Investments on the condensed consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of its investments.
As part of the original Windfield joint venture agreement, Tianqi Lithium Corporation ("Tianqi") was granted an option to purchase from 20% to 30% of the equity interests in Rockwood Lithium GmbH, a wholly-owned German subsidiary of Albemarle, and its subsidiaries. In February 2017, Albemarle and Tianqi terminated the option agreement, and as a result, we 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.


13

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

NOTE 10—Long-Term Debt:
Long-term debt at September 30, 2017 and December 31, 2016 consisted of the following (in thousands):
 
September 30,
 
December 31,
 
2017
 
2016
1.875% Senior notes, net of unamortized discount and debt issuance costs of $4,167 at September 30, 2017 and $7,823 at December 31, 2016
$
456,665

 
$
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 $3,494 at September 30, 2017 and $3,859 at December 31, 2016
421,506

 
421,141

4.50% Senior notes, net of unamortized discount and debt issuance costs of $966 at September 30, 2017 and $2,380 at December 31, 2016
174,249

 
347,620

5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,197 at September 30, 2017 and $4,313 at December 31, 2016
345,803

 
345,687

Commercial paper notes
382,250

 
247,503

Variable-rate foreign bank loans
8,695

 
38,939

Other
361

 
41

Total long-term debt
1,789,529

 
2,369,262

Less amounts due within one year
382,358

 
247,544

Long-term debt, less current portion
$
1,407,171

 
$
2,121,718

In the first quarter of 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 the 4.50% Senior notes, as well as related tender premiums of $45.2 million. As a result, Interest and financing expenses on the consolidated statements of income includes a loss on early extinguishment of debt of $52.8 million for the nine-month period ended September 30, 2017, 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 September 30, 2017 consisted primarily of commercial paper notes with a weighted-average interest rate of approximately 1.76% and a weighted-average maturity of 36 days.
The carrying value of our 1.875% Euro-denominated senior notes has been designated as an effective hedge of our net investment in certain foreign subsidiaries where the Euro serves as the functional currency, and gains or losses on the revaluation of these senior notes to our reporting currency are recorded in accumulated other comprehensive loss. During the three-month and nine-month periods ended September 30, 2017, losses of $9.7 million and $37.6 million (net of income taxes), respectively, and during the three-month and nine-month periods ended September 30, 2016, losses of $7.4 million and $10.3 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 nine months ended September 30, 2017, as follows (in thousands):
Beginning balance at December 31, 2016
$
34,919

Expenditures
(1,320
)
Accretion of discount
563

Foreign currency translation adjustments and other
2,384

Ending balance at September 30, 2017
36,546

Less amounts reported in Accrued expenses
2,476

Amounts reported in Other noncurrent liabilities
$
34,070

Environmental remediation liabilities included discounted liabilities of $24.7 million and $22.8 million at September 30, 2017 and December 31, 2016, respectively, discounted at rates with a weighted-average of 3.6%, with the undiscounted amount

14

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

totaling $64.6 million and $61.1 million at September 30, 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 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 $43.4 million and $38.2 million at September 30, 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

15

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

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. Adjusted EBITDA should not be considered as an alternative to Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net sales:
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
343,557

 
$
240,424

 
$
945,791

 
$
689,950

Bromine Specialties
212,923

 
194,496

 
636,059

 
597,912

Refining Solutions
170,275

 
190,453

 
539,904

 
539,044

All Other
28,021

 
28,272

 
91,144

 
150,987

Corporate
90

 
365

 
1,289

 
2,655

Total net sales
$
754,866

 
$
654,010

 
$
2,214,187

 
$
1,980,548

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
130,218

 
$
91,719

 
$
382,789

 
$
260,861

Bromine Specialties
63,936

 
51,807

 
194,499

 
179,977

Refining Solutions
43,120

 
64,960

 
142,777

 
181,620

All Other
306

 
5,470

 
7,906

 
14,810

Corporate
(28,197
)
 
(25,627
)
 
(88,271
)
 
(66,435
)
Total adjusted EBITDA
$
209,383

 
$
188,329

 
$
639,700

 
$
570,833



16

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 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 September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
103,199

 
$
53,760

 
$
34,392

 
$
191,351

 
$
(1,776
)
 
$
(70,905
)
 
$
118,670

Depreciation and amortization
26,136

 
10,176

 
9,978

 
46,290

 
2,082

 
1,523

 
49,895

Utilization of inventory markup(a)
568

 

 

 
568

 

 

 
568

Adjustment to gain on acquisition(b)
1,408

 

 

 
1,408

 

 

 
1,408

Acquisition and integration related costs(c)

 

 

 

 

 
5,635

 
5,635

Interest and financing expenses

 

 

 

 

 
15,792

 
15,792

Income tax expense

 

 

 

 

 
18,495

 
18,495

Non-operating pension and OPEB items

 

 

 

 

 
(1,028
)
 
(1,028
)
Multiemployer plan shortfall contributions(d)

 

 

 

 

 
1,646

 
1,646

Other(e)
(1,093
)
 

 
(1,250
)
 
(2,343
)
 

 
645

 
(1,698
)
Adjusted EBITDA
$
130,218

 
$
63,936

 
$
43,120

 
$
237,274

 
$
306

 
$
(28,197
)
 
$
209,383

Three months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
66,166

 
$
41,621

 
$
55,981

 
$
163,768

 
$
3,806

 
$
(39,354
)
 
$
128,220

Depreciation and amortization
25,553

 
10,186

 
8,979

 
44,718

 
1,664

 
1,592

 
47,974

Acquisition and integration related costs(c)

 

 

 

 

 
6,749

 
6,749

Interest and financing expenses

 

 

 

 

 
15,946

 
15,946

Income tax expense

 

 

 

 

 
12,394

 
12,394

Income from discontinued operations (net of tax)

 

 

 

 

 
(23,185
)
 
(23,185
)
Non-operating pension and OPEB items

 

 

 

 

 
(231
)
 
(231
)
Other(f)

 

 

 

 

 
462

 
462

Adjusted EBITDA
$
91,719

 
$
51,807

 
$
64,960

 
$
208,486

 
$
5,470

 
$
(25,627
)
 
$
188,329

Nine months ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
292,655

 
$
164,193

 
$
115,329

 
$
572,177

 
$
1,622

 
$
(300,583
)
 
$
273,216

Depreciation and amortization
74,157

 
30,306

 
28,698

 
133,161

 
6,284

 
4,642

 
144,087

Utilization of inventory markup(a)
23,095

 

 

 
23,095

 

 

 
23,095

Restructuring and other(g)

 

 

 

 

 
17,141

 
17,141

Gain on acquisition(b)
(6,025
)
 

 

 
(6,025
)
 

 

 
(6,025
)
Acquisition and integration related costs(c)

 

 

 

 

 
26,395

 
26,395

Interest and financing expenses(h)

 

 

 

 

 
98,895

 
98,895

Income tax expense

 

 

 

 

 
53,596

 
53,596

Non-operating pension and OPEB items

 

 

 

 

 
(3,144
)
 
(3,144
)
Multiemployer plan shortfall contributions(d)

 

 

 

 

 
6,586

 
6,586

Other(e)
(1,093
)
 

 
(1,250
)
 
(2,343
)
 

 
8,201

 
5,858

Adjusted EBITDA
$
382,789

 
$
194,499

 
$
142,777

 
$
720,065

 
$
7,906

 
$
(88,271
)
 
$
639,700

Nine months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
186,373

 
$
150,221

 
$
154,767

 
$
491,361

 
$
133,012

 
$
(582,788
)
 
$
41,585

Depreciation and amortization
74,488

 
29,756

 
26,853

 
131,097

 
5,629

 
4,562

 
141,288

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

 

 

 

 
(123,831
)
 
1,533

 
(122,298
)
Acquisition and integration related costs(c)

 

 

 

 

 
44,337

 
44,337

Interest and financing expenses

 

 

 

 

 
46,860

 
46,860

Income tax expense

 

 

 

 

 
61,535

 
61,535


17

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

Loss from discontinued operations (net of tax)

 

 

 

 

 
357,843

 
357,843

Non-operating pension and OPEB items

 

 

 

 

 
(779
)
 
(779
)
Other(f)

 

 

 

 

 
462

 
462

Adjusted EBITDA
$
260,861

 
$
179,977

 
$
181,620

 
$
622,458

 
$
14,810

 
$
(66,435
)
 
$
570,833


(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 $23.1 million. The inventory markup was expensed over the estimated remaining selling period. For the three-month and nine-month periods ended September 30, 2017, $0.6 million and $23.1 million, respectively, was included in Cost of goods sold related to the utilization of the inventory markup.
(b)
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.
(c)
See Note 2, “Acquisitions,” for additional information.
(d)
Included shortfall contributions for our multiemployer plan financial improvement plan. See Note 13, “Pension Plans and Other Postretirement Benefits,” for additional information.
(e)
Included amounts for the three-month period ended September 30, 2017 recorded in:
Cost of goods sold - $1.3 million reversal of deferred income related to an abandoned project at an unconsolidated investment.
Other (expenses) income, net - $1.1 million related to a reversal of a liability associated with the previous disposal of a property, partially offset by the revision of tax indemnification expenses of $0.7 million primarily related to the filing of tax returns for a previously disposed business.
Included amounts for the nine-month period ended September 30, 2017 recorded in:
Cost of goods sold - $1.3 million reversal of deferred income related to an abandoned project at an unconsolidated investment.
Selling, general and administrative expenses - $1.0 million related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition.
Other (expenses) income, net - $3.2 million of asset retirement obligation charges related to the revision of an estimate at a site formerly owned by Albemarle, a loss of $2.1 million associated with the previous disposal of a business, final settlement claims associated with the previous disposal of a business of $2.0 million and the revision of tax indemnification expenses of $1.9 million primarily related to the filing of tax returns and a competent authority agreement for a previously disposed business. This is partially offset by $1.1 million related to a reversal of a liability associated with the previous disposal of a property.
(f)
Includes the write-off of fixed assets of $1.4 million included in Research and development expenses, partially offset by a net gain of $0.9 million on the sales of properties included in Other (expenses) income, net.
(g)
During 2017, we initiated action to reduce costs in each of our reportable segments at several locations, primarily at our Lithium sites in Germany. Based on the restructuring plans, we have recorded expenses of $2.9 million in Cost of goods sold, $8.4 million in Selling, general and administrative expenses and $5.8 million in Research and development expenses for the nine-month period ended September 30, 2017, primarily related to expected severance payments. The unpaid balance is recorded in Accrued expenses at September 30, 2017, with the expectation that the majority of these plans will be completed by the end of 2017.
(h)
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.
(i)
See Note 3, “Divestitures,” for additional information.

In November 2017, we announced that during the first quarter of 2018, the Performance Catalyst Solutions ("PCS") product line will merge with the Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments will include: (1) Lithium, (2) Bromine Specialties and (3) Catalysts.


18

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 and nine-month periods ended September 30, 2017 and 2016 were as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Pension Benefits Cost (Credit):
 
 
 
 
 
 
 
Service cost
$
1,067

 
$
842

 
$
3,090

 
$
3,123

Interest cost
8,375

 
9,115

 
24,983

 
27,978

Expected return on assets
(9,960
)
 
(9,920
)
 
(29,799
)
 
(30,429
)
Actuarial gain

 

 

 
(50
)
Amortization of prior service benefit
29

 
230

 
102

 
698

Total net pension benefits (credit) cost
$
(489
)
 
$
267

 
$
(1,624
)
 
$
1,320

Postretirement Benefits Cost (Credit):
 
 
 
 
 
 
 
Service cost
$
30

 
$
29

 
$
91

 
$
86

Interest cost
585

 
620

 
1,755

 
1,862

Expected return on assets
(28
)
 
(46
)
 
(83
)
 
(140
)
Amortization of prior service benefit
(24
)
 
(24
)
 
(72
)
 
(72
)
Total net postretirement benefits cost
$
563

 
$
579

 
$
1,691

 
$
1,736

Total net pension and postretirement benefits cost(a)
$
74

 
$
846

 
$
67

 
$
3,056

(a)
For the three-month and nine-month periods ended September 30, 2016, $3.7 million and $4.9 million, respectively, of net pension and postretirement benefits cost are included in Income (loss) from discontinued operations (net of tax) in the consolidated statements of income. See Note 3, “Divestitures,” for additional information.
During the three-month and nine-month periods ended September 30, 2017, we made contributions of $2.6 million and $7.7 million, respectively, to our qualified and nonqualified pension plans for continuing operations. During the three-month and nine-month periods ended September 30, 2016, we made contributions of $2.4 million and $8.5 million, respectively, to our qualified and nonqualified pension plans for continuing operations. Contributions to discontinued operations qualified and nonqualified pension plans were $1.0 million and $2.9 million, respectively, for the three-month and nine-month periods ended September 30, 2016.
We paid $0.7 million and $1.9 million in premiums to the U.S. postretirement benefit plan during the three-month and nine-month periods ended September 30, 2017, respectively. During the three-month and nine-month periods ended September 30, 2016, we paid $0.7 million and $2.3 million, respectively, in premiums to the U.S. postretirement benefit plan.
Multiemployer Plan
Our normal contributions to the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf (“DN Pensionskasse”) multiemployer plan for continuing operations were approximately $0.3 million and $0.8 million during the three-month and nine-month periods ended September 30, 2017, respectively. During the three-month and nine-month periods ended September 30, 2016, we made contributions of approximately $0.3 million and $0.8 million, respectively, to the DN Pensionskasse multiemployer plan for continuing operations. Contributions for discontinued operations were approximately $0.2 million and $0.6 million during the three-month and nine-month periods ended September 30, 2016, respectively.
Effective July 1, 2016, the DN Pensionskasse is subject to a financial improvement plan which expires on December 31, 2022, with the final contribution in the second quarter of 2023. This financial improvement plan calls for increased capital reserves to avoid future underfunding risk. During the nine-month period ended September 30, 2017, we made contributions for our employees covered under this plan of approximately $2.0 million, recorded in Selling, general and administrative expenses, as a result of this financial improvement plan. In addition, during the three-month and nine-month periods ended September 30, 2017, we made contributions relating to this financial improvement plan to indemnify previously divested businesses of approximately $1.6 million and $4.6 million, respectively, recorded in Other (expenses) income, net.


19

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

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.
 
September 30, 2017
 
December 31, 2016
 
Recorded
Amount
 
Fair Value
 
Recorded
Amount
 
Fair Value
 
(In thousands)
Long-term debt
$
1,797,714

 
$
1,913,900

 
$
2,381,370

 
$
2,472,813

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 September 30, 2017 and December 31, 2016, we had outstanding foreign currency forward contracts with notional values totaling $357.7 million and $251.6 million, respectively. Our foreign currency forward contracts outstanding at September 30, 2017 and December 31, 2016 were not designated as hedging instruments under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. At September 30, 2017 and December 31, 2016, less than $0.1 million and $0.2 million, respectively, 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 and nine-month periods ended September 30, 2017, we recognized gains of $0.8 million and $9.0 million, respectively, in Other (expenses) income, net, in our consolidated statements of income related to the change in fair value of our foreign currency forward contracts. For the three-month and nine-month periods ended September 30, 2016, we recognized gains (losses) of $3.0 million and ($1.9) 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 nine-month periods ended September 30, 2017 and 2016, we recorded (gains) losses of ($9.0) million and $1.9 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash receipts (settlements) of $8.9 million and ($2.0) million, respectively, in Other, net, in our condensed consolidated statements of cash flows.
The counterparties to our foreign currency forward contracts are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties.

NOTE 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: