Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM 10-Q
_________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-12658
_________________________ 
ALBEMARLE CORPORATION
(Exact name of registrant as specified in its charter)
_________________________ 
VIRGINIA
 
54-1692118
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
4350 CONGRESS STREET, SUITE 700
CHARLOTTE, NORTH CAROLINA
 
28209
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code - (980) 299-5700
_________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Number of shares of common stock, $.01 par value, outstanding as of April 30, 2018: 110,763,247


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,
 
2018
 
2017
Net sales
$
821,629

 
$
722,063

Cost of goods sold
516,650

 
467,107

Gross profit
304,979

 
254,956

Selling, general and administrative expenses
101,370

 
108,928

Research and development expenses
20,986

 
24,323

Operating profit
182,623

 
121,705

Interest and financing expenses
(13,538
)
 
(68,513
)
Other (expenses) income, net
(30,476
)
 
265

Income before income taxes and equity in net income of unconsolidated investments
138,609

 
53,457

Income tax expense
20,361

 
11,971

Income before equity in net income of unconsolidated investments
118,248

 
41,486

Equity in net income of unconsolidated investments (net of tax)
20,677

 
21,171

Net income
138,925

 
62,657

Net income attributable to noncontrolling interests
(7,165
)
 
(11,444
)
Net income attributable to Albemarle Corporation
$
131,760

 
$
51,213

Basic earnings per share
$
1.19

 
$
0.46

Diluted earnings per share
$
1.18

 
$
0.45

Weighted-average common shares outstanding – basic
110,681

 
111,986

Weighted-average common shares outstanding – diluted
111,867

 
113,289

Cash dividends declared per share of common stock
$
0.335

 
$
0.32

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

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

 
Three Months Ended 
 March 31,
 
2018
 
2017
Net income
$
138,925

 
$
62,657

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation
64,891

 
79,055

Pension and postretirement benefits
3

 
(7
)
Net investment hedge
(14,421
)
 
(13,685
)
Interest rate swap
642

 
529

Total other comprehensive income, net of tax
51,115

 
65,892

Comprehensive income
190,040

 
128,549

Comprehensive income attributable to noncontrolling interests
(7,351
)
 
(11,905
)
Comprehensive income attributable to Albemarle Corporation
$
182,689

 
$
116,644

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
 
March 31,
 
December 31,
 
2018
 
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
692,188

 
$
1,137,303

Trade accounts receivable, less allowance for doubtful accounts (2018 – $10,098; 2017 – $10,425)
606,968

 
534,326

Other accounts receivable
43,410

 
37,937

Inventories
666,567

 
592,781

Other current assets
113,763

 
136,064

Assets held for sale
35,829

 
39,152

Total current assets
2,158,725

 
2,477,563

Property, plant and equipment, at cost
4,247,345

 
4,124,335

Less accumulated depreciation and amortization
1,678,139

 
1,631,025

Net property, plant and equipment
2,569,206

 
2,493,310

Investments
524,687

 
534,064

Noncurrent assets held for sale
151,743

 
139,813

Other assets
78,619

 
74,164

Goodwill
1,643,746

 
1,610,355

Other intangibles, net of amortization
429,614

 
421,503

Total assets
$
7,556,340

 
$
7,750,772

Liabilities And Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
481,726

 
$
418,537

Accrued expenses
262,883

 
268,336

Current portion of long-term debt
39,216

 
422,012

Dividends payable
36,885

 
35,165

Liabilities held for sale
2,173

 
1,938

Income taxes payable
45,977

 
54,937

Total current liabilities
868,860

 
1,200,925

Long-term debt
1,436,852

 
1,415,360

Postretirement benefits
52,090

 
52,003

Pension benefits
296,671

 
294,611

Noncurrent liabilities held for sale
682

 
614

Other noncurrent liabilities
588,640

 
599,174

Deferred income taxes
369,115

 
370,389

Commitments and contingencies (Note 10)

 

Equity:
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
Common stock, $.01 par value, issued and outstanding – 110,756 in 2018 and 110,547 in 2017
1,107

 
1,105

Additional paid-in capital
1,855,321

 
1,863,949

Accumulated other comprehensive loss
(174,739
)
 
(225,668
)
Retained earnings
2,118,621

 
2,035,163

Total Albemarle Corporation shareholders’ equity
3,800,310

 
3,674,549

Noncontrolling interests
143,120

 
143,147

Total equity
3,943,430

 
3,817,696

Total liabilities and equity
$
7,556,340

 
$
7,750,772

See accompanying Notes to the Condensed Consolidated Financial Statements.

5

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

(In Thousands, Except Share Data)
 
 
 
 
 
Additional
Paid-in Capital
 
Accumulated Other
Comprehensive (Loss) Income
 
Retained Earnings
 
Total Albemarle
Shareholders’ Equity
 
Noncontrolling
Interests
 
Total Equity
Common Stock
 
 
Shares
 
Amounts
 
 
 
 
 
 
Balance at January 1, 2018
 
110,546,674

 
$
1,105

 
$
1,863,949

 
$
(225,668
)
 
$
2,035,163

 
$
3,674,549

 
$
143,147

 
$
3,817,696

Net income
 
 
 
 
 
 
 
 
 
131,760

 
131,760

 
7,165

 
138,925

Other comprehensive income
 
 
 
 
 
 
 
50,929

 
 
 
50,929

 
186

 
51,115

Cash dividends declared
 
 
 
 
 
 
 
 
 
(37,103
)
 
(37,103
)
 
(7,378
)
 
(44,481
)
Cumulative adjustment from adoption of income tax standard update (Note 18)
 
 
 
 
 
 
 
 
 
(11,199
)
 
(11,199
)
 
 
 
(11,199
)
Stock-based compensation and other
 
 
 
 
 
5,737

 
 
 
 
 
5,737

 
 
 
5,737

Exercise of stock options
 
12,740

 

 
646

 
 
 
 
 
646

 
 
 
646

Issuance of common stock, net
 
319,440

 
3

 
(3
)
 
 
 
 
 

 
 
 

Shares withheld for withholding taxes associated with common stock issuances
 
(122,740
)
 
(1
)
 
(15,008
)
 
 
 
 
 
(15,009
)
 
 
 
(15,009
)
Balance at March 31, 2018
 
110,756,114

 
$
1,107

 
$
1,855,321

 
$
(174,739
)
 
$
2,118,621

 
$
3,800,310

 
$
143,120

 
$
3,943,430

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

See accompanying Notes to the Condensed Consolidated Financial Statements.

6

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Three Months Ended 
 March 31,
 
2018
 
2017
Cash and cash equivalents at beginning of year
$
1,137,303

 
$
2,269,756

Cash flows from operating activities:
 
 
 
Net income
138,925

 
62,657

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
50,330

 
45,070

Gain on acquisition

 
(7,433
)
Stock-based compensation
2,869

 
5,046

Equity in net income of unconsolidated investments (net of tax)
(20,677
)
 
(21,171
)
Dividends received from unconsolidated investments and nonmarketable securities
25,462

 
2,551

Pension and postretirement benefit
(890
)
 
(26
)
Pension and postretirement contributions
(3,548
)
 
(2,891
)
Unrealized gain on investments in marketable securities
(393
)
 
(873
)
Loss on early extinguishment of debt

 
52,801

Deferred income taxes
29,067

 
1,363

Working capital changes
(95,050
)
 
(63,325
)
Other, net
(4,541
)
 
8,816

Net cash provided by operating activities
121,554

 
82,585

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired

 
(27,742
)
Capital expenditures
(131,815
)
 
(54,143
)
Sales of marketable securities, net
10

 
492

Repayments from joint ventures

 
1,250

Investments in equity and other corporate investments
(735
)
 

Net cash used in investing activities
(132,540
)
 
(80,143
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt

 
(751,209
)
Other (repayments) borrowings, net
(381,159
)
 
66,384

Fees related to early extinguishment of debt

 
(46,959
)
Dividends paid to shareholders
(35,382
)
 
(34,330
)
Dividends paid to noncontrolling interests
(7,378
)
 

Repurchases of common stock

 
(250,000
)
Proceeds from exercise of stock options
646

 
2,170

Withholding taxes paid on stock-based compensation award distributions
(15,009
)
 
(7,855
)
Net cash used in financing activities
(438,282
)
 
(1,021,799
)
Net effect of foreign exchange on cash and cash equivalents
4,153

 
4,137

Decrease in cash and cash equivalents
(445,115
)
 
(1,015,220
)
Cash and cash equivalents at end of period
$
692,188

 
$
1,254,536

See accompanying Notes to the Condensed Consolidated Financial Statements.

7

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


NOTE 1—Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Albemarle Corporation and our wholly-owned, majority-owned and controlled subsidiaries (collectively, “Albemarle,” “we,” “us,” “our” or “the Company”) contain all adjustments necessary for a fair statement, in all material respects, of our condensed consolidated balance sheets as of March 31, 2018 and December 31, 2017, 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, 2018 and 2017. All adjustments are of a normal and recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2018. The December 31, 2017 condensed consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). The results of operations for the three-month period ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the accompanying condensed consolidated financial statements and the notes thereto to conform to the current presentation.
Effective January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” and all related amendments using the modified retrospective method. There was no material impact to our results of operations or financial position upon adoption, and no adjustment was made to Retained earnings in our consolidated balance sheets because such adjustment was determined to be immaterial. In addition, new presentation requirements, including separate disclosure of net sales from sources other than customers on our consolidated statements of income and separate disclosures of contract assets or liabilities on our consolidated balance sheets, generally did not have a material impact. However, business circumstances, including the nature of customer contracts, can change and as such, we are expanding processes and controls to recognize such changes, and as necessary, consider whether any of these currently immaterial items might differ in the future. See Note 18, “Recently Issued Accounting Pronouncements,” for additional information.
Included in Trade accounts receivable at March 31, 2018 is approximately $591.8 million arising from contracts with customers. The remaining balance of Trade accounts receivable at March 31, 2018 includes primarily value-added taxes collected from customers on behalf of various taxing authorities. In addition, see below for a description of our updated revenue recognition accounting policy.
Revenue Recognition
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services, and is recognized when performance obligations are satisfied under the terms of contracts with our customers. A performance obligation is deemed to be satisfied when control of the product or service is transferred to our customer. The transaction price of a contract, or the amount we expect to receive upon satisfaction of all performance obligations, is determined by reference to the contract’s terms and includes adjustments, if applicable, for any variable consideration, such as customer rebates, noncash consideration or consideration payable to the customer, although these adjustments are generally not material. Where a contract contains more than one distinct performance obligation, the transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation, although these situations do not occur frequently and are generally not built into our contracts. Any unsatisfied performance obligations are not material. Standalone selling prices are based on prices we charge to our customers, which in some cases is based on established market prices. Sales and other similar taxes collected from customers on behalf of third parties are excluded from revenue. Our payment terms are generally between 30 to 90 days, however, they vary by market factors, such as customer size, geography and competitive environment.
All of our revenue is derived from contracts with customers, and almost all of our contracts with customers contain one performance obligation for the transfer of goods where such performance obligation is satisfied at a point in time. Control of a product is deemed to be transferred to the customer upon shipment or delivery. Significant portions of our sales are sold free on board shipping point or on an equivalent basis, while delivery terms of other transactions are based upon specific contractual arrangements. Our standard terms of delivery are generally included in our contracts of sale, order confirmation documents and invoices, while the timing between shipment and delivery generally ranges between 1 and 45 days. Costs for shipping and handling activities, whether performed before or after the customer obtains control of the goods, are accounted for as fulfillment costs.

8

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

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

NOTE 2—Divestitures:
Assets Held for Sale
On December 14, 2017, the Company signed a definitive agreement to sell the polyolefin catalysts and components portion of its Performance Catalyst Solutions (“PCS”) business to W.R. Grace & Co., with the sale closing on April 3, 2018. We received net cash proceeds of approximately $416 million. The transaction includes Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at its Yeosu, South Korea site. The sale does not include the Company’s organometallics or curatives portion of its PCS business. The sale of the polyolefin catalysts business and components reflects the Company’s commitment to investing in the future growth of its high priority businesses and returning capital to shareholders. We currently expect to record a gain in the second quarter of 2018 related to this business.
In the fourth quarter of 2017, we determined that the assets held for sale criteria in accordance with ASC 360, Property, Plant and Equipment, were met for this business. As such, the assets and liabilities of this business are included in Assets held for sale and Liabilities held for sale, respectively, in the consolidated balance sheets as of March 31, 2018 and December 31, 2017.

9

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

The carrying amounts of the major classes of assets and liabilities that were classified as held for sale at March 31, 2018 and December 31, 2017, are as follows (in thousands):
 
March 31,
 
December 31,
 
2018
 
2017
Assets
 
 
 
Current assets
$
35,829

 
$
39,152

Net, property, plant and equipment
133,506

 
121,759

Goodwill
14,422

 
14,422

Other intangibles, net of amortization
3,815

 
3,632

Assets held for sale
$
187,572

 
$
178,965

Liabilities
 
 
 
Current liabilities
$
2,173

 
$
1,938

Noncurrent liabilities
682

 
614

Liabilities held for sale
$
2,855

 
$
2,552

The results of operations of the business classified as held for sale is included in the consolidated statements of income. This business did not qualify for discontinued operations treatment because the Company’s management does not consider the sale as representing a strategic shift that had or will have a major effect on the Company’s operations and financial results.

NOTE 3—Goodwill and Other Intangibles:

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

 
$
20,319

 
$
194,361

 
$
6,586

 
$
1,610,355

   Foreign currency translation adjustments and other
26,110

 

 
7,281

 

 
33,391

Balance at March 31, 2018(b)
$
1,415,199

 
$
20,319

 
$
201,642

 
$
6,586

 
$
1,643,746


(a)
The December 31, 2017 balances have been recast to reflect a change in segments. See Note 11, “Segment Information,” for additional information.
(b)
As of March 31, 2018 and December 31, 2017, $14.4 million of Goodwill was classified as Assets held for sale in the condensed consolidated balance sheets. See Note 2, “Divestitures,” for additional information.


10

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

The following table summarizes the changes in other intangibles and related accumulated amortization for the three months ended March 31, 2018 (in thousands):
 
Customer Lists and Relationships
 
Trade Names and Trademarks(a)
 
Patents and Technology
 
Other
 
Total
Gross Asset Value
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2017
$
439,312

 
$
18,981

 
$
61,618

 
$
37,256

 
$
557,167

Foreign currency translation adjustments and other
13,054

 
324

 
1,668

 
3,862

 
18,908

  Balance at March 31, 2018
$
452,366

 
$
19,305

 
$
63,286

 
$
41,118

 
$
576,075

Accumulated Amortization
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2017
$
(74,704
)
 
$
(8,295
)
 
$
(35,203
)
 
$
(17,462
)
 
$
(135,664
)
    Amortization
(5,962
)
 

 
(368
)
 
(1,088
)
 
(7,418
)
Foreign currency translation adjustments and other
(2,005
)
 
(102
)
 
(727
)
 
(545
)
 
(3,379
)
  Balance at March 31, 2018
$
(82,671
)
 
$
(8,397
)
 
$
(36,298
)
 
$
(19,095
)
 
$
(146,461
)
Net Book Value at December 31, 2017(b)
$
364,608

 
$
10,686

 
$
26,415

 
$
19,794

 
$
421,503

Net Book Value at March 31, 2018(b)
$
369,695

 
$
10,908

 
$
26,988

 
$
22,023

 
$
429,614


(a)
Balances as of March 31, 2018 and December 31, 2017 include only indefinite-lived intangible assets.
(b)
As of March 31, 2018 and December 31, 2017, $3.8 million and $3.6 million, respectively, of Other intangibles, net of amortization were classified as Assets held for sale in the condensed consolidated balance sheets. See Note 2, “Divestitures,” for additional information.

NOTE 4—Foreign Exchange:
Foreign exchange transaction and revaluation losses were $3.2 million and $4.9 million for the three-month periods ended March 31, 2018 and 2017, 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 5—Income Taxes:
The effective income tax rate for the three-month period ended March 31, 2018 was 14.7%, compared to 22.4% for the three-month period ended March 31, 2017. The Company’s effective income tax rate fluctuates based on, among other factors, its level and location of income. The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three-months ended March 31, 2018 was impacted by a variety of factors, primarily stemming from discrete tax benefits related to adjustments recorded for the U.S. Tax Cuts and Jobs Act (“TCJA”) as noted below and excess tax benefits realized from stock-based compensation arrangements. The difference between the U.S. federal statutory income tax rate of 35% and our effective income tax rate for the three-months ended March 31, 2017 was primarily due to the impact of earnings from outside the U.S., and is mainly attributable to our share of the income of our Jordan Bromine Company Limited (“JBC”) joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan.
In connection with the TCJA, we recorded a provisional amount of income tax expense of $429.2 million related to the one-time transition tax and income tax benefit of $62.3 million related to the remeasurement of deferred tax balances for the year ended December 31, 2017. In accordance with SEC Staff Accounting Bulletin (“SAB”) 118, the effects of the TCJA may be adjusted within a one-year measurement period from the enactment date for the items that were previously reported as provisional, or where a provisional estimate could not be made. The income tax provision for the three-months ended March 31, 2018 reflected a discrete tax benefit of $2.8 million related to an adjustment of our estimate of the one-time transition tax and a discrete tax benefit of $3.7 million related to other provisions of the TCJA. The effective income tax rate for the three-months ended March 31, 2018, included a $3.0 million tax expense on global intangible low-taxed income enacted by the TCJA. For the global intangible low-taxed income provisions of the TCJA, we have not yet elected an accounting policy with respect to either recognizing deferred taxes for basis differences expected to impact global intangible low-taxed income, or to record such as period costs if and when incurred. We also continue to evaluate our indefinite reinvestment assertion as a result of the TCJA. We will continue to assess forthcoming guidance and accounting interpretations on the effects of the TCJA and expect to finalize our analysis within the measurement period in accordance with the SEC guidance.


11

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

NOTE 6—Earnings Per Share:
Basic and diluted earnings per share for the three-month periods ended March 31, 2018 and 2017 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended 
 March 31,
 
2018
 
2017
Basic earnings per share
 
 
 
Numerator:
 
 
 
Net income attributable to Albemarle Corporation
$
131,760

 
$
51,213

Denominator:
 
 
 
Weighted-average common shares for basic earnings per share
110,681

 
111,986

Basic earnings per share
$
1.19

 
$
0.46

 
 
 
 
Diluted earnings per share
 
 
 
Numerator:
 
 
 
Net income attributable to Albemarle Corporation
$
131,760

 
$
51,213

Denominator:
 
 
 
Weighted-average common shares for basic earnings per share
110,681

 
111,986

Incremental shares under stock compensation plans
1,186

 
1,303

Weighted-average common shares for diluted earnings per share
111,867

 
113,289

Diluted earnings per share
$
1.18

 
$
0.45

On February 23, 2018, the Company increased the regular quarterly dividend by 5% to $0.335 per share and declared a cash dividend of said amount for the first quarter of 2018, which was paid on April 2, 2018 to shareholders of record at the close of business as of March 15, 2018. On May 8, 2018, the Company declared a cash dividend of $0.335 per share, which is payable on July 2, 2018 to shareholders of record at the close of business as of June 15, 2018.
NOTE 7—Inventories:
The following table provides a breakdown of inventories at March 31, 2018 and December 31, 2017 (in thousands):
 
March 31,
 
December 31,
 
2018
 
2017
Finished goods(a)
$
453,662

 
$
404,239

Raw materials and work in process(b)
154,679

 
132,891

Stores, supplies and other
58,226

 
55,651

Total(c)
$
666,567

 
$
592,781


(a)
Increase primarily due to the build up of inventory in our Catalysts segment due to the timing of net sales expected in the second quarter, and an increased net sales in the near term for our Lithium segment.
(b)
Increase primarily due to higher forecasted production levels in the second quarter from our Catalysts segment. Included $66.2 million and $59.6 million at March 31, 2018 and December 31, 2017, respectively, of work in process related to the Lithium product category.
(c)
As of March 31, 2018 and December 31, 2017, $23.0 million and $24.7 million, respectively, of Inventories were classified as Assets held for sale in the condensed consolidated balance sheets. See Note 2, “Divestitures,” for additional information.

NOTE 8—Investments:
The Company holds a 49% equity interest in Windfield Holdings Pty. Ltd. (“Windfield”), where the ownership parties share risks and benefits disproportionate to their voting interests. As a result, the Company considers Windfield to be a variable interest entity (“VIE”), however this investment is not consolidated as the Company is not the primary beneficiary. The carrying amount of our 49% equity interest in Windfield, which is our most significant VIE, was $338.7 million and $355.2 million at March 31, 2018 and December 31, 2017, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIEs for which the Company is not the primary beneficiary was $8.5 million and $8.7 million at March 31, 2018 and December 31, 2017, respectively. Our unconsolidated VIEs are reported in Investments on the condensed consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these

12

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

entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of its investments.
As part of the original Windfield joint venture agreement, Tianqi Lithium Corporation ("Tianqi") was granted an option to purchase from 20% to 30% of the equity interests in Rockwood Lithium GmbH, a wholly-owned German subsidiary of Albemarle, and its subsidiaries. In February 2017, Albemarle and Tianqi terminated the option agreement, and as a result, we retained 100% of the ownership interest in Rockwood Lithium GmbH and its subsidiaries. Following the termination of the option agreement, the $13.1 million fair value of the option agreement originally recorded in Noncontrolling interests was reversed and recorded as an adjustment to Additional paid-in capital.

NOTE 9—Long-Term Debt:
Long-term debt at March 31, 2018 and December 31, 2017 consisted of the following (in thousands):
 
March 31,
 
December 31,
 
2018
 
2017
1.875% Senior notes, net of unamortized discount and debt issuance costs of $3,859 at March 31, 2018 and $3,971 at December 31, 2017
$
482,567

 
$
463,575

4.15% Senior notes, net of unamortized discount and debt issuance costs of $3,250 at March 31, 2018 and $3,372 at December 31, 2017
421,750

 
421,628

4.50% Senior notes, net of unamortized discount and debt issuance costs of $815 at March 31, 2018 and $891 at December 31, 2017
174,401

 
174,325

5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,120 at March 31, 2018 and $4,159 at December 31, 2017
345,880

 
345,841

Commercial paper notes
38,500

 
421,321

Variable-rate foreign bank loans
7,560

 
5,298

Other
5,410

 
5,384

Total long-term debt
1,476,068

 
1,837,372

Less amounts due within one year
39,216

 
422,012

Long-term debt, less current portion
$
1,436,852

 
$
1,415,360

Current portion of long-term debt at March 31, 2018 consisted primarily of commercial paper notes with a weighted-average interest rate of approximately 2.37% and a weighted-average maturity of 31 days. During the first quarter of 2018, we repaid a net amount of $382.8 million of commercial paper notes using cash on hand.
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, 2018 and 2017, losses of $14.4 million and $13.7 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.


13

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

NOTE 10—Commitments and Contingencies:
Environmental
We had the following activity in our recorded environmental liabilities for the three months ended March 31, 2018, as follows (in thousands):
Beginning balance at December 31, 2017
$
39,808

Expenditures
(2,612
)
Accretion of discount
225

Additions and revisions of estimates
16,236

Foreign currency translation adjustments
786

Ending balance at March 31, 2018
54,443

Less amounts reported in Accrued expenses
5,060

Amounts reported in Other noncurrent liabilities
$
49,383

Environmental remediation liabilities included discounted liabilities of $44.1 million and $28.1 million at March 31, 2018 and December 31, 2017, respectively, discounted at rates with a weighted-average of 3.7% and 3.6%, respectively, with the undiscounted amount totaling $85.5 million and $68.2 million at March 31, 2018 and December 31, 2017, respectively. For certain locations where the Company is operating groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility.
The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, could be an additional $10 million to $20 million before income taxes, in excess of amounts already recorded.
We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would likely not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particular quarterly reporting period.
Litigation
We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.
Following receipt of information regarding potential improper payments being made by third party sales representatives of our Refining Solutions business, within our Catalysts segment, we promptly retained outside counsel and forensic accountants to investigate potential violations of the Company’s Code of Conduct, the Foreign Corrupt Practices Act (“FCPA”) and other potentially applicable laws. Based on this internal investigation, we have voluntarily self-reported potential issues relating to the use of third party sales representatives in our Refining Solutions business, within our Catalysts segment, to the U.S. Department of Justice (“DOJ”) and SEC, and are cooperating with the DOJ and SEC in their review of these matters. In connection with our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures.
At this time, we are unable to predict the duration, scope, result or related costs associated with any investigations by the DOJ or SEC. We also are unable to predict what, if any, action may be taken by the DOJ or SEC or what penalties or remedial actions they may seek. Any determination that our operations or activities are not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief or other losses. We do not

14

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

believe, however, that any fines, penalties, disgorgement, equitable relief or other losses would have a material adverse effect on our financial condition or liquidity.
In the first quarter of 2018, a jury rendered a verdict against Albemarle in a legal matter related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures. Although Albemarle has filed post trial motions to set aside the verdict, we have recorded an estimated accrual of $17.6 million in the three months ended March 31, 2018, and in Accrued liabilities as of the balance sheet date, to reflect this matter.
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 $32.4 million and $42.7 million at March 31, 2018 and December 31, 2017, respectively, recorded in Other noncurrent liabilities related to the indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold.
Other
We have contracts with certain of our customers, which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis as well as blanket coverage of multiple shipments under certain customer supply contracts. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.

NOTE 11—Segment Information:
In the first quarter of 2018, the PCS product category merged with our former Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments include: (1) Lithium; (2) Bromine Specialties; and (3) Catalysts. Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. This business structure aligns with the markets and customers we serve through each of the segments. The structure also facilitates the continued standardization of business processes across the organization, and is consistent with the manner in which information is presently used internally by the Company’s chief operating decision maker to evaluate performance and make resource allocation decisions.
Summarized financial information concerning our reportable segments is shown in the following tables. Results for 2017 have been recast to reflect the change in segments noted above.
The “All Other” category includes only the fine chemistry services business that does not fit into any of our core businesses.
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the operating segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the reportable segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
The Company’s chief operating decision maker uses adjusted EBITDA (as defined below) to assess the ongoing performance of the Company’s business segments and to allocate resources. The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items in a balanced manner and on a segment basis. These non-recurring or unusual items may include acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility

15

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

divestiture charges, non-operating pension and OPEB items and other significant non-recurring items. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.
 
Three Months Ended 
 March 31,
 
2018
 
2017
 
(In thousands)
Net sales:
 
 
 
Lithium
$
298,032

 
$
216,229

Bromine Specialties
225,639

 
219,191

Catalysts
260,717

 
253,558

All Other
37,165

 
32,419

Corporate
76

 
666

Total net sales
$
821,629

 
$
722,063

 
 
 
 
Adjusted EBITDA:
 
 
 
Lithium
$
131,014

 
$
99,852

Bromine Specialties
69,969

 
68,488

Catalysts
67,830

 
69,749

All Other
3,862

 
5,156

Corporate
(23,957
)
 
(31,869
)
Total adjusted EBITDA
$
248,718

 
$
211,376



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
 
Bromine Specialties
 
Catalysts
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
Three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
108,334

 
$
59,536

 
$
55,660

 
$
223,530

 
$
1,760

 
$
(93,530
)
 
$
131,760

Depreciation and amortization
24,065

 
10,433

 
12,170

 
46,668

 
2,102

 
1,560

 
50,330

Acquisition and integration related costs(a)

 

 

 

 

 
2,201

 
2,201

Interest and financing expenses

 

 

 

 

 
13,538

 
13,538

Income tax expense

 

 

 

 

 
20,361

 
20,361

Non-operating pension and OPEB items

 

 

 

 

 
(2,197
)
 
(2,197
)
Legal accrual(b)

 

 

 

 

 
17,628

 
17,628

Other(c)
(1,385
)
 

 

 
(1,385
)
 

 
16,482

 
15,097

Adjusted EBITDA
$
131,014

 
$
69,969

 
$
67,830

 
$
268,813

 
$
3,862

 
$
(23,957
)
 
$
248,718

Three months ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
77,614

 
$
58,694

 
$
56,966

 
$
193,274

 
$
3,246

 
$
(145,307
)
 
$
51,213

Depreciation and amortization
19,065

 
9,794

 
12,783

 
41,642

 
1,910

 
1,518

 
45,070

Utilization of inventory markup(d)
10,606

 

 

 
10,606

 

 

 
10,606

Restructuring and other, net(e)

 

 

 

 

 
12,905

 
12,905

Gain on acquisition(f)
(7,433
)
 

 

 
(7,433
)
 

 

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

 

 

 

 

 
14,281

 
14,281

Interest and financing expenses(g)

 

 

 

 

 
68,513

 
68,513

Income tax expense

 

 

 

 

 
11,971

 
11,971

Non-operating pension and OPEB items

 

 

 

 

 
(1,063
)
 
(1,063
)
Other(h)

 

 

 

 

 
5,313

 
5,313

Adjusted EBITDA
$
99,852

 
$
68,488

 
$
69,749

 
$
238,089

 
$
5,156

 
$
(31,869
)
 
$
211,376


(a)
Included amounts for the three-month periods ended March 31, 2018 and 2017 recorded in (1) Cost of goods sold of $1.0 million and $8.9 million, respectively; and (2) Selling, general and administrative expenses of $1.2 million and $5.4 million, respectively, relating to various significant projects, including the Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”) acquisition, which contains unusual compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s normal compensation arrangements.
(b)
Included in Other (expenses) income, see Note 10, “Commitments and Contingencies” for additional information.
(c)
Included amounts for the three months ended March 31, 2018 recorded in:
Cost of goods sold - $1.1 million related to the write-off of fixed assets in our JBC joint venture.
Selling, general and administrative expenses - $1.4 million gain related to a refund from Chilean authorities due to an overpayment made in a prior year.
Other (expenses) income, net - $15.6 million of environmental charges related to a site formerly owned by Albemarle, partially offset by a net gain of $0.2 million related to the the reversal of previously recorded expenses of disposed businesses.
(d)
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 period ended March 31, 2017, $10.6 million was included in Cost of goods sold related to the utilization of the inventory markup.
(e)
During the first quarter of 2017, we initiated actions 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, 2018, with the expectation that the majority of these plans will be completed by the end of 2018.
(f)
Gain recorded in Other (expenses) income, net related to the acquisition of the remaining 50% interest in the Sales de Magnesio Ltda. joint venture in Chile. The calculation of the initial gain recorded during the three months ended March 31, 2017 was based on management’s preliminary estimates and assumptions available at that time.
(g)
During the first quarter of 2017, we repaid the 3.00% Senior notes in full, €307.0 million of the 1.875% Senior notes and $174.7 million of the 4.50% Senior notes, as well as related tender premiums of $45.2 million. As a result, included in Interest and financing expenses is

17

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

a loss on early extinguishment of debt of $52.8 million, representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of these senior notes.
(h)
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.

NOTE 12—Pension Plans and Other Postretirement Benefits:
The components of pension and postretirement benefits cost (credit) for the three-month periods ended March 31, 2018 and 2017 were as follows (in thousands):
 
Three Months Ended 
 March 31,
 
2018
 
2017
Pension Benefits Cost (Credit):
 
 
 
Service cost
$
1,268

 
$
1,003

Interest cost
8,027

 
8,288

Expected return on assets
(10,764
)
 
(9,908
)
Amortization of prior service benefit
22

 
27

Total net pension benefits credit
$
(1,447
)
 
$
(590
)
Postretirement Benefits Cost (Credit):
 
 
 
Service cost
$
29

 
$
31

Interest cost
542

 
585

Expected return on assets
(2
)
 
(28
)
Amortization of prior service benefit
(12
)
 
(24
)
Total net postretirement benefits cost
$
557

 
$
564

Total net pension and postretirement benefits credit
$
(890
)
 
$
(26
)
As a result of the adoption of new accounting guidance effective January 1, 2018, on a retrospective basis, all components of net benefit cost (credit), other than service cost, are to be shown outside of operations on the consolidated statements of income. We recast these components of net benefit cost (credit), which resulted in a reduction of $0.2 million in Cost of goods sold and $0.9 million in Selling, general and administrative expenses, with an offsetting increase of $1.1 million in Other (expenses) income, net for the three months ended March 31, 2017. There was no impact to Net income attributable to Albemarle Corporation.
During the three-month periods ended March 31, 2018 and 2017, we made contributions of $3.1 million and $2.4 million, respectively, to our qualified and nonqualified pension plans.
We paid $0.5 million in premiums to the U.S. postretirement benefit plan during both the three-month periods ended March 31, 2018 and 2017.

NOTE 13—Fair Value of Financial Instruments:
In assessing the fair value of financial instruments, we use methods and assumptions that are based on market conditions and other risk factors existing at the time of assessment. Fair value information for our financial instruments is as follows:
Long-Term Debt—the fair values of our senior notes are estimated using Level 1 inputs and account for the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying condensed consolidated balance sheets approximates fair value as substantially all of such debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.
 
March 31, 2018
 
December 31, 2017
 
Recorded
Amount
 
Fair Value
 
Recorded
Amount
 
Fair Value
 
(In thousands)
Long-term debt
$
1,483,794

 
$
1,553,114

 
$
1,845,309

 
$
1,949,638


18

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, 2018 and December 31, 2017, we had outstanding foreign currency forward contracts with notional values totaling $494.7 million and $357.4 million, respectively. Our foreign currency forward contracts outstanding at March 31, 2018 and December 31, 2017 were not designated as hedging instruments under ASC 815, Derivatives and Hedging. At March 31, 2018 and December 31, 2017, $0.2 million and $5.0 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 periods ended March 31, 2018 and 2017, we recognized gains of $4.8 million and $4.5 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, 2018 and 2017, we recorded gains of $4.8 million and $4.5 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash receipts of $0.1 million and $4.3 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 14—Fair Value Measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities
 
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
 
 
Level 3
Unobservable inputs for the asset or liability
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the three-month period ended March 31, 2018. 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, 2018 and December 31, 2017 (in thousands):
 
March 31, 2018
 
Quoted Prices in Active Markets for Identical Items (Level 1)
 
Quoted Prices in Active Markets for Similar Items (Level 2)
 
Unobservable Inputs (Level 3)
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investments under executive deferred compensation plan(a)
$
25,878

 
$
25,878

 
$

 
$

Private equity securities(b)
$
37

 
$
37

 
$

 
$

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

 
$

 
$

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
25,878

 
$
25,878

 
$

 
$

Foreign currency forward contracts(d)
$
241

 
$

 
$
241

 
$


19

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

 
December 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)
$
25,494

 
$
25,494

 
$

 
$

Private equity securities(b)
$
38

 
$
38

 
$

 
$

Private equity securities measured at net asset value(b)(c)
$
5,121

 
$

 
$

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
25,494

 
$
25,494

 
$

 
$

Foreign currency forward contracts(d)
$
4,954

 
$

 
$
4,954

 
$

(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 certain 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.


20

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

NOTE 15—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, 2018
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
(257,569
)
 
$
(21
)
 
$
46,551

 
$
(14,629
)
 
$
(225,668
)
Other comprehensive income (loss) before reclassifications
64,891

 

 
(14,421
)
 

 
50,470

Amounts reclassified from accumulated other comprehensive loss

 
3

 

 
642

 
645

Other comprehensive income (loss), net of tax
64,891

 
3

 
(14,421
)
 
642

 
51,115

Other comprehensive income attributable to noncontrolling interests
(186
)
 

 

 

 
(186
)
Balance at March 31, 2018
$
(192,864
)
 
$
(18
)
 
$
32,130

 
$
(13,987
)
 
$
(174,739
)
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
)

(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 credit. See Note 12, “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 benefit (expense) allocated to each component of Other comprehensive income (loss) for the three-month periods ended March 31, 2018 and 2017 is provided in the following tables (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
 
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
$
64,891

 
$
3

 
$
(18,734
)
 
$
834

 
$
80,141

 
$
(6
)
 
$
(21,580
)
 
$
834

Income tax benefit (expense)

 

 
4,313

 
(192
)
 
(1,086
)
 
(1
)
 
7,895

 
(305
)
Other comprehensive income (loss), net of tax
$
64,891

 
$
3

 
$
(14,421
)
 
$
642

 
$
79,055

 
$
(7
)
 
$
(13,685
)
 
$
529


NOTE 16—Related Party Transactions:
Our consolidated statements of income include sales to and purchases from unconsolidated affiliates in the ordinary course of business as follows (in thousands):
 
Three Months Ended 
 March 31,
 
2018
 
2017
Sales to unconsolidated affiliates
$
4,605

 
$
7,189

Purchases from unconsolidated affiliates
$
68,916

 
$
40,570



21

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

Our condensed consolidated balance sheets include accounts receivable due from and payable to unconsolidated affiliates in the ordinary course of business as follows (in thousands):
 
March 31, 2018
 
December 31, 2017
Receivable from related parties
$
2,184

 
$
2,406

Payable to related parties
$
67,244

 
$
55,801


NOTE 17—Supplemental Cash Flow Information:
Supplemental information related to the condensed consolidated statements of cash flows is as follows (in thousands):
 
Three Months Ended 
 March 31,
 
2018
 
2017
Supplemental non-cash disclosure related to investing activities:
 
 
 
Capital expenditures included in Accounts payable
$
74,906

 
$
18,874


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. During 2016, the FASB issued amendments to this new guidance that provides clarification, technical corrections and practical expedients. Topics of potential relevance to the Company include principal versus agent considerations, collectability, presentation of sales tax from customers, contract modifications at transition and accounting transition. These new requirements became effective on January 1, 2018 and did not have a material impact on our condensed consolidated financial statements. We adopted the new standard using the modified retrospective method. We have implemented appropriate changes to the business processes, controls and control activities to support recognition, presentation and disclosure under the new standard for the first quarter of 2018, however, we have not made any significant changes to our existing systems as a result of this new standard.
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. We have made significant progress in evaluating our existing lease contracts and accounting policies to determine the impact this standard will have on the condensed consolidated financial statements and related disclosures. In addition, we are in the process of reviewing the impact of this standard on our current business processes and existing systems.
In October 2016, the FASB issued accounting guidance that eliminated the deferral of tax effects of intra-entity asset transfers other than inventory. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized as they are eliminated in consolidation. This guidance was effective using the modified retrospective method as of January 1, 2018, which resulted in a $11.2 million cumulative adjustment to decrease Retained earnings and is not reflected in periods prior to this date.
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 became effective on January 1, 2018 and did not have a significant impact on our financial statements.

22

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

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 became effective on January 1, 2018 and did not 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 became effective on January 1, 2018 and did not have a significant impact on our financial statements. The prior year consolidated statements of income have been recast to conform to the current presentation required by this guidance. See Note 12, “Pension Plans and Other Postretirement Benefits,” for additional details.
In May 2017, the FASB issued accounting guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This new guidance became effective on January 1, 2018 and did not have a significant impact on our financial statements.
In August 2017, the FASB issued accounting guidance to better align an entity’s risk management activities with hedge accounting, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. This guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. 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 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 February 2018, the FASB issued accounting guidance that will give companies the option to reclassify stranded tax effects caused by the TCJA from accumulated other comprehensive income to retained earnings. This new guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Entities will have the option to apply this guidance retrospectively or to record the reclassification as of the beginning of the period of adoption. We are currently assessing the impact of this new guidance on our financial statements. In March 2018, the FASB issued additional guidance pursuant to the issuance of SAB 118, that provides clarification for a company’s ability to comply with the accounting requirements for the income tax effects of the TCJA in the period of enactment, effective immediately. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the TCJA are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. We have accounted for the tax effects of the TCJA under the guidance of SAB 118, on a provisional basis. Our accounting for certain income tax effects is incomplete, but we have determined reasonable estimates for those effects and have recorded provisional amounts in our condensed consolidated 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

23

Table of Contents

“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. 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 from the outlook expressed or implied in any forward-looking statement include, without limitation:
changes in economic and business conditions;
changes in financial and operating performance of our major customers and industries and markets served by us;
the timing of orders received from customers;
the gain or loss of significant customers;
competition from other manufacturers;
changes in the demand for our products or the end-user markets in which our products are sold;
limitations or prohibitions on the manufacture and sale of our products;
availability of raw materials;
increases in the cost of raw materials and energy, and our ability to pass through such increases to our customers;
changes in our markets in general;
fluctuations in foreign currencies;
changes in laws and government regulation impacting our operations or our products;
the occurrence of regulatory proceedings, claims or litigation;
the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change;
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 our results of operations for the three-month periods ended March 31, 2018 and 2017. A discussion of our 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 are designed to meet our customers’ needs across a diverse range of end markets. The end markets we serve include energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, crop protection and custom chemistry services. We believe that our commercial and geographic diversity, technical expertise, innovative capability,

24

Table of Contents

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 of 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, among other factors, 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 2018
During the first quarter of 2018:
We received approval from Chile’s Economic Development Agency (“CORFO”) for an increase in our lithium quota to sustainably increase lithium production in Chile to as much as 145,000 metric tons of lithium carbonate equivalent annually through 2043.
We repaid a net amount of $382.8 million of commercial paper notes using a portion of the $611.3 million in cash repatriations.
Our board of directors declared a quarterly dividend of $0.335 per share on February 23, 2018, which was paid on April 2, 2018 to shareholders of record at the close of business as of March 15, 2018.
Our net sales for the quarter were $821.6 million, up 14% from net sales of $722.1 million in the first quarter of 2017.
Earnings per share were $1.18 (on a diluted basis), an increase from first quarter 2017 results of $0.45 per diluted share.
Cash provided by operating activities was $121.6 million in the first quarter, an increase from $82.6 million in the first quarter 2017.

Outlook
Effective January 1, 2018, the Performance Catalyst Solutions (“PCS”) product category merged with our former Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments include Lithium, Bromine Specialties and Catalysts. Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. We expect this change to provide further clarity into the performance of each business.
The current global business environment presents a diverse set of opportunities and challenges in the markets we serve. In particular, the market for lithium battery and energy storage continues to accelerate, providing the opportunity to continue to develop high quality and innovative products while managing the high cost of expanding capacity. The other markets we serve continue to present various opportunities for value and growth as we have positioned ourselves to manage the impact on our business of changing global conditions, such as slow and uneven global growth, currency exchange volatility, crude oil price fluctuation, a dynamic pricing environment, an ever-changing landscape in electronics, the continuous need for cutting edge catalysts and technology by our refinery customers 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 primarily through pricing and product development, managing costs and delivering value to our customers and shareholders. We believe that our businesses remain well-positioned to capitalize on new business opportunities and long-term trends driving growth within our end markets and to respond quickly to changes in economic conditions in these markets.
Lithium: We expect continued strong year over year growth for the remainder of 2018 in Lithium, led by continued strong demand in battery-grade applications, price improvement and increased conversion capacity.
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, against a favorable backdrop of steadily declining electric battery costs, increasing electric battery performance and constructive global public policy toward acceptance of e-mobility/renewables. Our long-term outlook is also bolstered by our successful negotiation of long-term supply agreements with a number of strategic customers, reflecting our standing as a preferred global lithium partner due to our scale, access to geographically diverse, low cost resources and long-term execution track record.

25

Table of Contents

Bromine Specialties: We expect to see low to mid single digit growth on net sales and profitability in 2018, due to healthy demand and pricing for our flame retardants and other derivatives. However, with sustained low oil prices, we expect stable, albeit low, drilling completion fluid demand throughout the year. While it is possible oil prices could rebound some in 2018, the short-term impact will be to increase raw material costs. Offshore well completions lag oil pricing, so any benefit in completion fluid volumes would likely extend into 2019.
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 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.
Catalysts: We expected to see continued headwinds from rising raw material costs in both our Clean Fuels Technologies (“CFT”) and Fluid Catalytic Cracking (“FCC”) businesses, similar to 2017. In our PCS division, we expect our curatives business to be negatively impacted by a temporary supply shortage of a key raw material. We also anticipate that the profitability in our organometallics business will stabilize with productivity gains and increased volumes due to market demand.
On a longer term basis, we believe increased global demand for transportation fuels, new refinery start-ups and ongoing adoption of cleaner fuels will be the primary drivers of growth in our Catalysts business. We believe delivering superior end-use performance continues to be the most effective way to create sustainable value in the refinery catalysts industry. We believe our technologies continue to provide significant performance and financial benefits to refiners challenged to meet tighter regulations around the world, including 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 Catalysts remains well-positioned for the future. In PCS, we expect growth in our organometallic business due to growing global demand for plastics driven by rising standards of living and infrastructure spending.
On April 3, 2018, we completed the sale of the polyolefin catalysts and components portion of the PCS business to W.R. Grace & Co. for cash proceeds of approximately $416 million.
All Other: The fine chemistry services business will continue to be reported outside the Company’s reportable segments as it does not fit in the Company’s core businesses. 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: In the first quarter of 2018, we increased our quarterly dividend rate to $0.335 per share. We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax rate for 2018 to be approximately 23.1%; 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., including the TCJA, and other tax jurisdictions. We also anticipate the potential for increased periodic volatility in future effective tax rates from the continuing impact of excess tax benefits realized from stock-based compensation arrangements.
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.


26

Table of Contents

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 2018 Compared to First Quarter 2017
Selected Financial Data (Unaudited)
 
Three Months Ended March 31,
 
Percentage Change
 
2018
 
2017
 
2018 vs. 2017
 
(In thousands, except percentages and per share amounts)
NET SALES
$
821,629

 
$
722,063

 
14
 %
Cost of goods sold
516,650

 
467,107

 
11
 %
GROSS PROFIT
304,979

 
254,956

 
20
 %
GROSS PROFIT MARGIN
37.1
%
 
35.3
%
 
 
Selling, general and administrative expenses
101,370

 
108,928

 
(7
)%
Research and development expenses
20,986

 
24,323

 
(14
)%
OPERATING PROFIT
182,623

 
121,705

 
50
 %
OPERATING PROFIT MARGIN
22.2
%
 
16.9
%
 
 
Interest and financing expenses
(13,538
)
 
(68,513
)
 
(80
)%
Other (expenses) income, net
(30,476
)
 
265

 
*

INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
138,609

 
53,457

 
159
 %
Income tax expense
20,361

 
11,971

 
70
 %
Effective tax rate
14.7
%
 
22.4
%
 
 
INCOME BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
118,248

 
41,486

 
185
 %
Equity in net income of unconsolidated investments (net of tax)
20,677

 
21,171

 
(2
)%
NET INCOME
138,925

 
62,657

 
122
 %
Net income attributable to noncontrolling interests
(7,165
)
 
(11,444
)
 
(37
)%
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION
$
131,760

 
$
51,213

 
157
 %
PERCENTAGE OF NET SALES
16.0
%
 
7.1
%
 
 
Basic earnings per share
$
1.19

 
$
0.46

 
159
 %
Diluted earnings per share
$
1.18

 
$
0.45

 
162
 %
* Percentage calculation is not meaningful

Net Sales
For the three-month period ended March 31, 2018, we recorded net sales of $821.6 million, an increase of $99.6 million, or 14%, compared to net sales of $722.1 million for the three-month period ended March 31, 2017. Net sales increased due to $34.6 million of higher volumes primarily in our Lithium segment, $45.1 million of favorable pricing impacts and $19.8 million of favorable currency exchange impacting all three reportable segments.
Gross Profit
For the three-month period ended March 31, 2018, our gross profit increased $50.0 million, or 20%, from the corresponding 2017 period. Included in Costs of goods sold for the three-month period ended March 31, 2018 is a decrease of $7.9 million in acquisition and integration related costs compared to the corresponding period in 2017, resulting from the acquisition of the lithium hydroxide and lithium carbonate conversion business of Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”). In addition, gross profit in 2017 included a $10.6 million charge related to the markup of inventory purchased as part of the Jiangli New Materials acquisition. Excluding the impact of these items, gross profit increased by $31.5 million, or 11%, primarily due to $45.1 million in favorable price impacts more than offsetting higher costs. Overall, these factors contributed to a gross profit margin for the three-month period ended March 31, 2018 of 37.1%, up from 35.3% in the corresponding period in 2017.

27

Table of Contents

Selling, General and Administrative Expenses
For the three-month period ended March 31, 2018, our selling, general and administrative (“SG&A”) expenses decreased $7.6 million, or 7%, from the three-month period ended March 31, 2017. The three-month period ended March 31, 2018 includes a $1.4 million gain related to a refund from Chilean authorities due to an overpayment made in a prior year and $4.2 million less acquisition and integration related costs than the corresponding 2017 period, primarily resulting from the acquisition of Jiangli New Materials. In addition, the three-month period ended March 31, 2017 included $4.2 million of restructuring costs related to our Lithium site in Germany. Excluding the impact of these charges, SG&A expenses increased $2.2 million, primarily due to Lithium growth spending, partially offset by lower Corporate SG&A spend. As a percentage of net sales, SG&A expenses were 12.3% for the three-month period ended March 31, 2018, compared to 15.1% for the corresponding period in 2017.
Research and Development Expenses
For the three-month period ended March 31, 2018, our research and development (“R&D”) expenses decreased $3.3 million, or 14%, from the three-month period ended March 31, 2017. Included in R&D expenses for the three-month period ended March 31, 2017 were $5.8 million of restructuring costs related to our Lithium site in Germany. As a percentage of net sales, R&D expenses were 2.6% and 3.4% for the three-month periods ended March 31, 2018 and 2017, respectively.
Interest and Financing Expenses
Interest and financing expenses for the three-month period ended March 31, 2018 decreased $55.0 million to $13.5 million from the corresponding 2017 period, due mainly to a loss on early extinguishment of debt of $52.8 million in 2017. This was related to the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the repayment of 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 in the first quarter of 2017.
Other (Expenses) Income, Net
Other (expenses) income, net, for the three-month period ended March 31, 2018 was ($30.5) million compared to $0.3 million for the corresponding 2017 period. During the three-month period ended March 31, 2018, we recorded a $17.6 million legal accrual resulting from a jury rendered verdict against Albemarle related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures and $15.6 million of environmental charges related to a site formerly owned by Albemarle. During the three-month period ended March 31, 2017, we recorded $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, partially offset by a $7.4 million gain related to the acquisition of the remaining 50% interest of equity investment in 2017. The remaining change was primarily due to an increase in interest income and decrease in foreign exchange losses totaling $2.8 million.
Income Tax Expense
The effective income tax rate for the first quarter of 2018 was 14.7% compared to 22.4% for the first quarter of 2017. The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three-months ended March 31, 2018 was impacted by a variety of factors, primarily stemming from discrete tax benefits related to adjustments recorded for the TCJA and excess tax benefits realized from stock-based compensation arrangements. The difference between the U.S. federal statutory income tax rate of 35% and our effective income tax rate for the three-months ended March 31, 2017 was primarily due to the impact of earnings from outside the U.S., and is mainly attributable to our share of the income of our Jordan Bromine Company Limited (“JBC”) joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. The decrease in the effective tax rate for the three-month period ended March 31, 2018 compared to the same period last year, was driven by a variety of factors, primarily stemming from discrete tax benefits recorded in the first quarter of 2018 related to adjustments recorded for the TCJA and excess tax benefits realized from stock-based compensation arrangements. Income tax expense for the three-month period ended March 31, 2017 included a $5.1 million out-of-period adjustment due to changes in our deferred tax liabilities for basis differences in Chilean fixed assets, partially offset by a $4.1 million reduction from the tax effects of share-based compensation awards.
Equity in Net Income of Unconsolidated Investments
Equity in net income of unconsolidated investments was $20.7 million for the three-month period ended March 31, 2018 compared to $21.2 million in the same period last year. This decrease of $0.5 million was primarily due to a decrease in equity income in our Catalyst segment, partially offset by higher equity income reported by our Lithium joint venture, Windfield Holdings Pty. Ltd.

28

Table of Contents

Net Income Attributable to Noncontrolling Interests
For the three-month period ended March 31, 2018, net income attributable to noncontrolling interests was $7.2 million compared to $11.4 million in the same period last year. This decrease of $4.3 million was primarily due to a decrease in consolidated income related to our JBC joint venture from lower sales volumes in the quarter.
Net Income Attributable to Albemarle Corporation
Net income attributable to Albemarle Corporation increased to $131.8 million in the three-month period ended March 31, 2018, from $51.2 million in the three-month period ended March 31, 2017. The increase is primarily due to favorable pricing impacts in all reportable segments, favorable volumes in the Lithium segment and a $12.1 million decrease in acquisition and integration costs in 2018, as well as a $52.8 million loss on early extinguishment of debt related to the repayment of senior notes, $12.9 million of restructuring costs and a higher effective tax rate in 2017. This was partially offset by a $17.6 million legal accrual resulting from a jury rendered verdict against Albemarle related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures and $15.6 million related to environmental charges related to a site formerly owned by Albemarle recorded in 2018, and a $7.4 million gain related to the acquisition of the remaining 50% interest of equity investment in 2017.
Other Comprehensive Income, Net of Tax
Total other comprehensive income, after income taxes, was $51.1 million for the three-month period ended March 31, 2018 compared to $65.9 million for the corresponding period in 2017. The majority of these amounts are the result of translating our foreign subsidiary financial statements from their local currencies to U.S. Dollars. In the 2018 period, other comprehensive income from foreign currency translation adjustments was $64.9 million, primarily as a result of favorable movements in the Euro of approximately $47 million, the Chinese Renminbi of approximately $10 million and a net favorable variance in various other currencies totaling approximately $8 million. Also included in total other comprehensive income for the 2018 period is a loss of $14.4 million in connection with the revaluation of our Euro-based 1.875% Senior notes which have been designated as a hedge of our net investment in foreign operations. In the 2017 period, other comprehensive income from foreign currency translation adjustments was $79.1 million, mainly as a result of favorable movements in the Euro of approximately $57 million, the Korean Won of approximately $11 million and a net favorable variance in various other currencies totaling approximately $11 million (each approximately $4 million or less). Also included in total other comprehensive income for the 2017 period is a loss of $13.7 million in connection with the revaluation of our Euro-based 1.875% Senior notes which have been designated as a hedge of our net investment in foreign operations.

Segment Information Overview. We have identified three reportable segments according to the nature and economic characteristics of our products as well as the manner in which the information is used internally by the Compan