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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM 10-Q
_________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 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 October 31, 2018: 106,205,885

Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-27
 
 
 
27-45
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBITS
 
 

2
Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited).
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Net sales
$
777,748

 
$
754,866

 
$
2,453,251

 
$
2,214,187

Cost of goods sold
497,211

 
479,210

 
1,556,379

 
1,411,614

Gross profit
280,537

 
275,656

 
896,872

 
802,573

Selling, general and administrative expenses
100,167

 
106,471

 
325,174

 
331,984

Research and development expenses
16,610

 
21,763

 
53,670

 
63,423

Gain on sale of business
—

 
—

 
(218,705
)
 
—

Operating profit
163,760

 
147,422

 
736,733

 
407,166

Interest and financing expenses
(12,988
)
 
(15,792
)
 
(39,834
)
 
(98,895
)
Other income (expenses), net
3,793

 
(1,986
)
 
(31,906
)
 
(3,399
)
Income before income taxes and equity in net income of unconsolidated investments
154,565

 
129,644

 
664,993

 
304,872

Income tax expense
33,167

 
18,495

 
133,630

 
53,596

Income before equity in net income of unconsolidated investments
121,398

 
111,149

 
531,363

 
251,276

Equity in net income of unconsolidated investments (net of tax)
22,081

 
19,044

 
61,727

 
55,263

Net income
143,479

 
130,193

 
593,090

 
306,539

Net income attributable to noncontrolling interests
(13,734
)
 
(11,523
)
 
(29,124
)
 
(33,323
)
Net income attributable to Albemarle Corporation
$
129,745

 
$
118,670

 
$
563,966

 
$
273,216

Basic earnings per share
$
1.21

 
$
1.07

 
$
5.16

 
$
2.46

Diluted earnings per share
$
1.20

 
$
1.06

 
$
5.11

 
$
2.43

Weighted-average common shares outstanding – basic
107,315

 
110,476

 
109,223

 
111,049

Weighted-average common shares outstanding – diluted
108,302

 
111,975

 
110,276

 
112,456

Cash dividends declared per share of common stock
$
0.335

 
$
0.32

 
$
1.005

 
$
0.96

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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
143,479

 
$
130,193

 
$
593,090

 
$
306,539

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation
(9,549
)
 
56,179

 
(95,515
)
 
199,303

Pension and postretirement benefits
11

 
(7
)
 
37

 
2

Net investment hedge
(3,621
)
 
(9,681
)
 
4,947

 
(37,600
)
Interest rate swap
642

 
529

 
1,926

 
1,587

Total other comprehensive (loss) income, net of tax
(12,517
)
 
47,020

 
(88,605
)
 
163,292

Comprehensive income
130,962

 
177,213

 
504,485

 
469,831

Comprehensive income attributable to noncontrolling interests
(13,729
)
 
(11,653
)
 
(29,042
)
 
(34,146
)
Comprehensive income attributable to Albemarle Corporation
$
117,233

 
$
165,560

 
$
475,443

 
$
435,685

See accompanying Notes to the Condensed Consolidated Financial Statements.

4
Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
 
September 30,
 
December 31,
 
2018
 
2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
641,226

 
$
1,137,303

Trade accounts receivable, less allowance for doubtful accounts (2018 – $6,300; 2017 – $10,425)
550,788

 
534,326

Other accounts receivable
41,961

 
37,937

Inventories
727,381

 
592,781

Other current assets
98,221

 
136,064

Assets held for sale
—

 
39,152

Total current assets
2,059,577

 
2,477,563

Property, plant and equipment, at cost
4,571,779

 
4,124,335

Less accumulated depreciation and amortization
1,746,414

 
1,631,025

Net property, plant and equipment
2,825,365

 
2,493,310

Investments
535,292

 
534,064

Noncurrent assets held for sale
—

 
139,813

Other assets
78,054

 
74,164

Goodwill
1,590,906

 
1,610,355

Other intangibles, net of amortization
398,001

 
421,503

Total assets
$
7,487,195

 
$
7,750,772

Liabilities And Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
474,229

 
$
418,537

Accrued expenses
258,371

 
268,336

Current portion of long-term debt
286,188

 
422,012

Dividends payable
35,462

 
35,165

Liabilities held for sale
—

 
1,938

Income taxes payable
72,759

 
54,937

Total current liabilities
1,127,009

 
1,200,925

Long-term debt
1,411,605

 
1,415,360

Postretirement benefits
51,669

 
52,003

Pension benefits
278,682

 
294,611

Noncurrent liabilities held for sale
—

 
614

Other noncurrent liabilities
553,469

 
599,174

Deferred income taxes
378,484

 
370,389

Commitments and contingencies (Note 9)

 

Equity:
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
Common stock, $.01 par value, issued and outstanding – 106,187 in 2018 and 110,547 in 2017
1,062

 
1,105

Additional paid-in capital
1,363,262

 
1,863,949

Accumulated other comprehensive loss
(314,191
)
 
(225,668
)
Retained earnings
2,478,711

 
2,035,163

Total Albemarle Corporation shareholders’ equity
3,528,844

 
3,674,549

Noncontrolling interests
157,433

 
143,147

Total equity
3,686,277

 
3,817,696

Total liabilities and equity
$
7,487,195

 
$
7,750,772

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

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

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

 
$
1,105

 
$
1,863,949

 
$
(225,668
)
 
$
2,035,163

 
$
3,674,549

 
$
143,147

 
$
3,817,696

Net income
 
 
 
 
 
 
 
 
 
563,966

 
563,966

 
29,124

 
593,090

Other comprehensive loss
 
 
 
 
 
 
 
(88,523
)
 
 
 
(88,523
)
 
(82
)
 
(88,605
)
Cash dividends declared
 
 
 
 
 
 
 
 
 
(109,219
)
 
(109,219
)
 
(14,756
)
 
(123,975
)
Cumulative adjustment from adoption of income tax standard update (Note 17)
 
 
 
 
 
 
 
 
 
(11,199
)
 
(11,199
)
 
 
 
(11,199
)
Stock-based compensation and other
 
 
 
 
 
14,015

 
 
 
 
 
14,015

 
 
 
14,015

Exercise of stock options
 
71,649

 
1

 
2,301

 
 
 
 
 
2,302

 
 
 
2,302

Shares repurchased
 
(4,665,618
)
 
(47
)
 
(499,953
)
 
 
 


 
(500,000
)
 
 
 
(500,000
)
Issuance of common stock, net
 
378,006

 
4

 
(4
)
 
 
 
 
 
—

 
 
 
—

Shares withheld for withholding taxes associated with common stock issuances
 
(144,208
)
 
(1
)
 
(17,046
)
 
 
 
 
 
(17,047
)
 
 
 
(17,047
)
Balance at September 30, 2018
 
106,186,503

 
$
1,062

 
$
1,363,262

 
$
(314,191
)
 
$
2,478,711

 
$
3,528,844

 
$
157,433

 
$
3,686,277

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
112,523,790

 
$
1,125

 
$
2,084,418

 
$
(412,412
)
 
$
2,121,931

 
$
3,795,062

 
$
147,542

 
$
3,942,604

Net income
 
 
 
 
 
 
 
 
 
273,216

 
273,216

 
33,323

 
306,539

Other comprehensive income
 
 
 
 
 
 
 
162,469

 
 
 
162,469

 
823

 
163,292

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

 
 
 
 
 
12,477

 
 
 
12,477

Exercise of stock options
 
159,432

 
2

 
7,009

 
 
 
 
 
7,011

 
 
 
7,011

Shares repurchased
 
(2,341,083
)
 
(23
)
 
(249,977
)
 
 
 
 
 
(250,000
)
 
 
 
(250,000
)
Issuance of common stock, net
 
241,755

 
2

 
(2
)
 
 
 
 
 
—

 
 
 
—

Termination of Tianqi Lithium Corporation option agreement
 
 
 
 
 
13,144

 
 
 
 
 
13,144

 
(13,144
)
 
—

Shares withheld for withholding taxes associated with common stock issuances
 
(89,057
)
 
(1
)
 
(8,316
)
 
 
 
 
 
(8,317
)
 
 
 
(8,317
)
Balance at September 30, 2017
 
110,494,837

 
$
1,105

 
$
1,858,753

 
$
(249,943
)
 
$
2,288,904

 
$
3,898,819

 
$
140,753

 
$
4,039,572

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Nine Months Ended 
 September 30,
 
2018
 
2017
Cash and cash equivalents at beginning of year
$
1,137,303

 
$
2,269,756

Cash flows from operating activities:
 
 
 
Net income
593,090

 
306,539

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
150,511

 
144,087

Gain on acquisition
—

 
(6,025
)
Gain on sale of business
(218,705
)
 
—

Stock-based compensation
11,785

 
15,595

Equity in net income of unconsolidated investments (net of tax)
(61,727
)
 
(55,263
)
Dividends received from unconsolidated investments and nonmarketable securities
32,794

 
11,900

Pension and postretirement (benefit) expense
(2,708
)
 
67

Pension and postretirement contributions
(11,068
)
 
(9,607
)
Unrealized gain on investments in marketable securities
(1,615
)
 
(2,007
)
Loss on early extinguishment of debt
—

 
52,801

Deferred income taxes
43,400

 
4,677

Working capital changes
(131,813
)
 
(398,913
)
Other, net
(27,003
)
 
10,993

Net cash provided by operating activities
376,941

 
74,844

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(11,403
)
 
(45,406
)
Capital expenditures
(471,675
)
 
(187,519
)
Cash proceeds from divestitures, net
413,479

 
6,857

(Investments in) sales of marketable securities, net
(761
)
 
450

Repayments from joint ventures
—

 
1,250

Investments in equity and other corporate investments
(5,346
)
 
—

Net cash used in investing activities
(75,706
)
 
(224,368
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt
—

 
(753,209
)
Proceeds from borrowings of long-term debt
—

 
27,000

Other (repayments) borrowings, net
(134,505
)
 
79,203

Fees related to early extinguishment of debt
—

 
(46,959
)
Dividends paid to shareholders
(108,922
)
 
(105,205
)
Dividends paid to noncontrolling interests
(14,756
)
 
(27,791
)
Repurchases of common stock
(500,000
)
 
(250,000
)
Proceeds from exercise of stock options
2,302

 
7,011

Withholding taxes paid on stock-based compensation award distributions
(17,047
)
 
(8,317
)
Net cash used in financing activities
(772,928
)
 
(1,078,267
)
Net effect of foreign exchange on cash and cash equivalents
(24,384
)
 
3,374

Decrease in cash and cash equivalents
(496,077
)
 
(1,224,417
)
Cash and cash equivalents at end of period
$
641,226

 
$
1,045,339

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 September 30, 2018 and December 31, 2017, our consolidated statements of income and consolidated statements of comprehensive income for the three-month and nine-month periods ended September 30, 2018 and 2017 and our consolidated statements of changes in equity and condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2018 and 2017. All adjustments are of a normal and recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2018. The December 31, 2017 condensed consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). The results of operations for the three-month and nine-month periods ended September 30, 2018 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the accompanying condensed consolidated financial statements and the notes thereto to conform to the current presentation.
Effective January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” and all related amendments using the modified retrospective method. There was no material impact to our results of operations or financial position upon adoption, and no adjustment was made to Retained earnings in our consolidated balance sheets because such adjustment was determined to be immaterial. In addition, new presentation requirements, including separate disclosure of net sales from sources other than customers on our consolidated statements of income and separate disclosures of contract assets or liabilities on our consolidated balance sheets, generally did not have a material impact. However, business circumstances, including the nature of customer contracts, can change and as such, we are expanding processes and controls to recognize such changes, and as necessary, consider whether any of these currently immaterial items might differ in the future. See Note 17, “Recently Issued Accounting Pronouncements,” for additional information.
Included in Trade accounts receivable at September 30, 2018 is approximately $538.4 million arising from contracts with customers. The remaining balance of Trade accounts receivable at September 30, 2018 primarily includes value-added taxes collected from customers on behalf of various taxing authorities. In addition, see below for a description of our updated revenue recognition accounting policy.
Revenue Recognition
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services, and is recognized when performance obligations are satisfied under the terms of contracts with our customers. A performance obligation is deemed to be satisfied when control of the product or service is transferred to our customer. The transaction price of a contract, or the amount we expect to receive upon satisfaction of all performance obligations, is determined by reference to the contract’s terms and includes adjustments, if applicable, for any variable consideration, such as customer rebates, noncash consideration or consideration payable to the customer, although these adjustments are generally not material. Where a contract contains more than one distinct performance obligation, the transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation, although these situations do not occur frequently and are generally not built into our contracts. Any unsatisfied performance obligations are not material. Standalone selling prices are based on prices we charge to our customers, which in some cases is based on established market prices. Sales and other similar taxes collected from customers on behalf of third parties are excluded from revenue. Our payment terms are generally between 30 to 90 days, however, they vary by market factors, such as customer size, creditworthiness, 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.

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

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

NOTE 2—Divestitures:
On December 14, 2017, the Company signed a definitive agreement to sell the polyolefin catalysts and components portion of its Performance Catalyst Solutions (“PCS”) business (“Polyolefin Catalysts Divestiture”) to W.R. Grace & Co., with the sale closing on April 3, 2018. We received net cash proceeds of approximately $413.5 million and have recorded a gain of $218.7 million before income taxes during the nine months ended September 30, 2018 related to the sale of this business. The transaction includes Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at its Yeosu, South Korea site. The sale does not include the Company’s organometallics or curatives portion of its PCS business. The Polyolefin Catalysts Divestiture reflects the Company’s commitment to investing in the future growth of its high priority businesses and returning capital to shareholders.
In the fourth quarter of 2017, we determined that the assets held for sale criteria in accordance with ASC 360, Property, Plant and Equipment, were met for this business. As such, the assets and liabilities of this business were included in Assets held for sale and Liabilities held for sale, respectively, in the consolidated balance sheet as of December 31, 2017.

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

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

Net, property, plant and equipment
121,759

Goodwill
14,422

Other intangibles, net of amortization
3,632

Assets held for sale
$
178,965

Liabilities
 
Current liabilities
$
1,938

Noncurrent liabilities
614

Liabilities held for sale
$
2,552

The results of operations of the business classified as held for sale is included in the consolidated statements of income. This business did not qualify for discontinued operations treatment because the Company’s management does not consider the sale as representing a strategic shift that had or will have a major effect on the Company’s operations and financial results.
In addition, during the nine months ended September 30, 2017, we received the final working capital settlement of $6.9 million related to the sale of the Chemetall Surface Treatment business to BASF SE, which closed on December 14, 2016.

NOTE 3—Goodwill and Other Intangibles:

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

 
$
20,319

 
$
194,361

 
$
6,586

 
$
1,610,355

   Foreign currency translation adjustments and other
(15,766
)
 
—

 
(3,683
)
 
—

 
(19,449
)
Balance at September 30, 2018
$
1,373,323

 
$
20,319

 
$
190,678

 
$
6,586

 
$
1,590,906


(a)
The December 31, 2017 balances have been recast to reflect a change in segments. See Note 10, “Segment Information,” for additional information.
(b)
As of December 31, 2017, $14.4 million of Goodwill was classified as Assets held for sale in the condensed consolidated balance sheets. See Note 2, “Divestitures,” for additional information.


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

The following table summarizes the changes in other intangibles and related accumulated amortization for the nine months ended September 30, 2018 (in thousands):
 
Customer Lists and Relationships
 
Trade Names and Trademarks(a)
 
Patents and Technology
 
Other
 
Total
Gross Asset Value
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2017
$
439,312

 
$
18,981

 
$
61,618

 
$
37,256

 
$
557,167

Foreign currency translation adjustments and other
(4,653
)
 
(284
)
 
(5,335
)
 
6,579

 
(3,693
)
  Balance at September 30, 2018
$
434,659

 
$
18,697

 
$
56,283

 
$
43,835

 
$
553,474

Accumulated Amortization
 
 
 
 
 
 
 
 
 
  Balance at December 31, 2017
$
(74,704
)
 
$
(8,295
)
 
$
(35,203
)
 
$
(17,462
)
 
$
(135,664
)
    Amortization
(17,682
)
 
—

 
(1,100
)
 
(2,464
)
 
(21,246
)
Foreign currency translation adjustments and other
1,003

 
41

 
919

 
(526
)
 
1,437

  Balance at September 30, 2018
$
(91,383
)
 
$
(8,254
)
 
$
(35,384
)
 
$
(20,452
)
 
$
(155,473
)
Net Book Value at December 31, 2017(b)
$
364,608

 
$
10,686

 
$
26,415

 
$
19,794

 
$
421,503

Net Book Value at September 30, 2018
$
343,276

 
$
10,443

 
$
20,899

 
$
23,383

 
$
398,001


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

NOTE 4—Income Taxes:
The effective income tax rate for the three-month and nine-month periods ended September 30, 2018 was 21.5% and 20.1%, respectively, compared to 14.3% and 17.6% for the three-month and nine-month periods ended September 30, 2017, respectively. The Company’s effective income tax rate fluctuates based on, among other factors, its level and location of income. The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three-month and nine-month periods ended September 30, 2018 was impacted by a variety of factors, primarily stemming from the location in which income was earned. Income tax expense for the three-month period ended September 30, 2018 includes discrete tax expenses of $1.9 million from stock-based compensation arrangements and $1.7 million related to the accounting for the U.S. Tax Cuts and Jobs Act (“TCJA”) as noted below, partially offset by discrete tax benefits of $2.0 million from foreign accrual to return adjustments and $1.2 million from the release of foreign valuation allowances. Income tax expense for the nine-month period ended September 30, 2018 includes discrete tax expenses of $42.0 million for the Polyolefin Catalysts Divestiture as described in Note 2, “Divestitures,” and $7.3 million for adjustments to foreign valuation allowances, partially offset by discrete tax benefits of $8.0 million for tax accounting method changes, $4.8 million for adjustments related to the accounting for the TCJA as noted below, $5.4 million from stock-based compensation arrangements and $2.0 million from foreign accrual to return adjustments.
The difference between the U.S. federal statutory income tax rate of 35% and our effective income tax rate for the three-month and nine-month periods ended September 30, 2017 was primarily due to the impact of earnings from outside the U.S., and is mainly attributable to our share of the income of our Jordan Bromine Company Limited (“JBC”) joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. Income tax expense for the nine-month period ended September 30, 2017 included discrete tax expenses from foreign rate changes of $14.8 million and a $5.1 million out-of-period adjustment due to changes in our deferred tax liabilities for basis differences in Chilean fixed assets, partially offset by discrete tax benefits of $10.8 million from the release of valuation allowances due to a foreign restructuring plan that was initiated during the second quarter of 2017 and $6.9 million from stock-based compensation arrangements.
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 nine-month period ended September 30, 2018 reflects a discrete tax benefit of $2.8 million related to an adjustment of our estimate of the one-time

11
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

transition tax and a discrete tax benefit of $2.0 million related to other provisions of the TCJA. In addition, the effective income tax rate for the three-month and nine-month periods ended September 30, 2018, includes a $1.1 million and $7.2 million, respectively, net tax expense, primarily related to global intangible low-taxed income enacted by the TCJA. For the global intangible low-taxed income provisions of the TCJA, we have not yet elected an accounting policy with respect to either recognizing deferred taxes for basis differences expected to impact global intangible low-taxed income, or to record such as period costs if and when incurred. We also continue to evaluate our indefinite reinvestment assertion as a result of the TCJA. We will continue to assess forthcoming guidance and accounting interpretations on the effects of the TCJA and expect to finalize our analysis within the measurement period in accordance with the SEC guidance.
During the nine months ended September 30, 2018, the Company's uncertain tax positions did not materially change, however, it is reasonably possible the positions could increase within the next 12 months due to ongoing tax audits in Germany.

NOTE 5—Earnings Per Share:
Basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2018 and 2017 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Basic earnings per share
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income attributable to Albemarle Corporation
$
129,745

 
$
118,670

 
$
563,966

 
$
273,216

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
107,315

 
110,476

 
109,223

 
111,049

Basic earnings per share
$
1.21

 
$
1.07

 
$
5.16

 
$
2.46

 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income attributable to Albemarle Corporation
$
129,745

 
$
118,670

 
$
563,966

 
$
273,216

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
107,315

 
110,476

 
109,223

 
111,049

Incremental shares under stock compensation plans
987

 
1,499

 
1,053

 
1,407

Weighted-average common shares for diluted earnings per share
108,302

 
111,975

 
110,276

 
112,456

Diluted earnings per share
$
1.20

 
$
1.06

 
$
5.11

 
$
2.43

On February 23, 2018, the Company increased the regular quarterly dividend by 5% to $0.335 per share. On July 26, 2018, the Company declared a cash dividend of $0.335 per share, which was paid on October 1, 2018 to shareholders of record at the close of business as of September 14, 2018. On October 30, 2018, the Company declared a cash dividend of $0.335 per share, which is payable on January 2, 2019 to shareholders of record at the close of business as of December 14, 2018.
Under our existing Board authorized share repurchase program, during 2018, the Company entered into two separate accelerated share repurchase (“ASR”) agreements with financial institutions. Under each ASR agreement, the Company paid $250 million from available cash on hand. Under the terms of the first ASR agreement, which was completed on September 28, 2018, the Company received and retired a total of 2,680,704 shares, calculated based on the daily Rule 10b-18 volume-weighted average prices of the Company’s common stock over the term of the ASR agreement, less an agreed discount. Under the terms of the second ASR agreement, the Company received and retired an initial delivery of 1,984,914 shares of our common stock with a fair market value of $200 million. The Company determined that the ASR agreement met the criteria to be accounted for as a forward contract indexed to its stock and was therefore treated as an equity instrument. The total number of shares to ultimately be delivered under this ASR agreement will be determined upon completion of the second ASR agreement, which is expected to be by the end of the fourth quarter of 2018, and will generally be based on the daily Rule 10b-18 volume-weighted average prices of the Company’s common stock over the term of the second ASR agreement, less an agreed discount. Although the second ASR agreement can be settled, at the Company’s option, in cash or in shares of common stock, the Company intends to settle in shares of common stock. In total, through September 30, 2018, we received and retired 4,665,618 shares under these agreements, which reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2018.

12
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

No more than 15,000,000 shares can be repurchased under the Company’s authorized share repurchase program. As of September 30, 2018, there were 7,993,299 remaining shares available for repurchase under the Company’s authorized share repurchase program due to shares previously repurchased under this program to date.
NOTE 6—Inventories:
The following table provides a breakdown of inventories at September 30, 2018 and December 31, 2017 (in thousands):
 
September 30,
 
December 31,
 
2018
 
2017
Finished goods(a)
$
503,970

 
$
404,239

Raw materials and work in process(b)
165,874

 
132,891

Stores, supplies and other
57,537

 
55,651

Total(c)
$
727,381

 
$
592,781


(a)
Increase primarily due to the build-up of inventory in our Lithium and Catalysts segments resulting from higher forecasted sales.
(b)
Increase primarily due to higher forecasted production levels in the fourth quarter from our Catalysts segment. Included $68.9 million and $59.6 million at September 30, 2018 and December 31, 2017, respectively, of work in process related to lithium brine.
(c)
As of December 31, 2017, $24.7 million of Inventories were classified as Assets held for sale in the condensed consolidated balance sheets. See Note 2, “Divestitures,” for additional information.

NOTE 7—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 $350.3 million and $355.2 million at September 30, 2018 and December 31, 2017, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIEs for which the Company is not the primary beneficiary was $8.0 million and $8.7 million at September 30, 2018 and December 31, 2017, respectively. Our unconsolidated VIEs are reported in Investments on the condensed consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of its investments.
As part of the original Windfield joint venture agreement, Tianqi Lithium Corporation ("Tianqi") was granted an option to purchase from 20% to 30% of the equity interests in Rockwood Lithium GmbH, a wholly-owned German subsidiary of Albemarle, and its subsidiaries. In February 2017, Albemarle and Tianqi terminated the option agreement, and as a result, we retained 100% of the ownership interest in Rockwood Lithium GmbH and its subsidiaries. Following the termination of the option agreement, the $13.1 million fair value of the option agreement originally recorded in Noncontrolling interests was reversed and recorded as an adjustment to Additional paid-in capital.


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

NOTE 8—Long-Term Debt:
Long-term debt at September 30, 2018 and December 31, 2017 consisted of the following (in thousands):
 
September 30,
 
December 31,
 
2018
 
2017
1.875% Senior notes, net of unamortized discount and debt issuance costs of $3,173 at September 30, 2018 and $3,971 at December 31, 2017
$
457,909

 
$
463,575

4.15% Senior notes, net of unamortized discount and debt issuance costs of $3,006 at September 30, 2018 and $3,372 at December 31, 2017
421,994

 
421,628

4.50% Senior notes, net of unamortized discount and debt issuance costs of $664 at September 30, 2018 and $891 at December 31, 2017
174,551

 
174,325

5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,043 at September 30, 2018 and $4,159 at December 31, 2017
345,957

 
345,841

Commercial paper notes
285,500

 
421,321

Variable-rate foreign bank loans
7,080

 
5,298

Other
4,802

 
5,384

Total long-term debt
1,697,793

 
1,837,372

Less amounts due within one year
286,188

 
422,012

Long-term debt, less current portion
$
1,411,605

 
$
1,415,360

Current portion of long-term debt at September 30, 2018 consisted primarily of commercial paper notes with a weighted-average interest rate of approximately 2.39% and a weighted-average maturity of 31 days. During the first nine months of 2018, we repaid a net amount of $135.8 million of commercial paper notes using cash on hand.
On June 21, 2018, we entered into a revolving, unsecured credit agreement (“2018 Credit Agreement”) to replace our revolving, unsecured credit agreement dated as of February 7, 2014, as amended. The 2018 Credit Agreement currently provides for borrowings of up to $1.0 billion and matures on June 21, 2023. Borrowings under the 2018 Credit Agreement bear interest at variable rates based on an average London inter-bank offered rate (“LIBOR”) for deposits in the relevant currency plus an applicable margin which ranges from 0.910% to 1.500%, depending on the Company’s credit rating from Standard & Poor’s Ratings Services, Moody’s Investors Services and Fitch Ratings. The applicable margin on the facility was 1.125% as of September 30, 2018. There were no borrowings outstanding under the 2018 Credit Agreement as of September 30, 2018.
The carrying value of our 1.875% Euro-denominated senior notes has been designated as an effective hedge of our net investment in certain foreign subsidiaries where the Euro serves as the functional currency, and gains or losses on the revaluation of these senior notes to our reporting currency are recorded in accumulated other comprehensive loss. During the three-month and nine-month periods ended September 30, 2018, (losses) gains of ($3.6) million and $4.9 million (net of income taxes), respectively, and during the three-month and nine-month periods ended September 30, 2017, losses of $9.7 million and $37.6 million (net of income taxes), respectively, were recorded in accumulated other comprehensive loss in connection with the revaluation of these senior notes to our reporting currency.

NOTE 9—Commitments and Contingencies:
Environmental
We had the following activity in our recorded environmental liabilities for the nine months ended September 30, 2018, as follows (in thousands):
Beginning balance at December 31, 2017
$
39,808

Expenditures
(3,564
)
Accretion of discount
669

Additions and changes in estimates
16,236

Foreign currency translation adjustments
(346
)
Ending balance at September 30, 2018
52,803

Less amounts reported in Accrued expenses
5,012

Amounts reported in Other noncurrent liabilities
$
47,791


14
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Environmental remediation liabilities included discounted liabilities of $42.8 million and $28.1 million at September 30, 2018 and December 31, 2017, respectively, discounted at rates with a weighted-average of 3.7% and 3.6%, respectively, with the undiscounted amount totaling $85.0 million and $68.2 million at September 30, 2018 and December 31, 2017, respectively. For certain locations where the Company is operating groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility.
The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, could be an additional $10 million to $25 million before income taxes, in excess of amounts already recorded.
We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would likely not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particular quarterly reporting period.
Litigation
We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.
Following receipt of information regarding potential improper payments being made by third party sales representatives of our Refining Solutions business, within our Catalysts segment, we promptly retained outside counsel and forensic accountants to investigate potential violations of the Company’s Code of Conduct, the Foreign Corrupt Practices Act and other potentially applicable laws. Based on this internal investigation, we have voluntarily self-reported potential issues relating to the use of third party sales representatives in our Refining Solutions business, within our Catalysts segment, to the U.S. Department of Justice (“DOJ”) and SEC, and are cooperating with the DOJ and SEC in their review of these matters. In connection with our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures.
At this time, we are unable to predict the duration, scope, result or related costs associated with any investigations by the DOJ or SEC. We also are unable to predict what, if any, action may be taken by the DOJ or SEC or what penalties or remedial actions they may seek. Any determination that our operations or activities are not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief or other losses. We do not believe, however, that any fines, penalties, disgorgement, equitable relief or other losses would have a material adverse effect on our financial condition or liquidity.
In the first quarter of 2018, a jury rendered a verdict against Albemarle in a legal matter related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures. As a result, we have recorded a charge of $16.2 million in Other income (expenses), net during the nine months ended September 30, 2018. In addition, in 2018, we recorded a charge of $10.8 million in Other income (expenses), net resulting from a settlement of a legal matter related to guarantees from a previously disposed business. Both matters have been resolved and paid during the three months ended September 30, 2018.
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.

15
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

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 $27.0 million and $42.7 million at September 30, 2018 and December 31, 2017, respectively, recorded in Other noncurrent liabilities related to the indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold.
Other
We have contracts with certain of our customers, which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis as well as blanket coverage of multiple shipments under certain customer supply contracts. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.

NOTE 10—Segment Information:
In the first quarter of 2018, the PCS product category merged with our former Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments include: (1) Lithium; (2) Bromine Specialties; and (3) Catalysts. Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. This business structure aligns with the markets and customers we serve through each of the segments. The structure also facilitates the continued standardization of business processes across the organization, and is consistent with the manner in which information is presently used internally by the Company’s chief operating decision maker to evaluate performance and make resource allocation decisions.
Summarized financial information concerning our reportable segments is shown in the following tables. Results for 2017 have been recast to reflect the change in segments noted above.
The “All Other” category includes only the fine chemistry services business that does not fit into any of our core businesses.
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the operating segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the reportable segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
The Company’s chief operating decision maker uses adjusted EBITDA (as defined below) to assess the ongoing performance of the Company’s business segments and to allocate resources. The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items in a balanced manner and on a segment basis. These non-recurring or unusual items may include acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, non-operating pension and OPEB items and other significant non-recurring items. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.

16
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Net sales:
 
 
 
 
 
 
 
Lithium
$
270,928

 
$
269,238

 
$
886,523

 
$
729,288

Bromine Specialties
232,616

 
212,923

 
678,769

 
636,059

Catalysts
251,139

 
244,594

 
796,822

 
756,407

All Other
23,065

 
28,021

 
90,978

 
91,144

Corporate
—

 
90

 
159

 
1,289

Total net sales
$
777,748

 
$
754,866

 
$
2,453,251

 
$
2,214,187

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Lithium
$
113,629

 
$
112,944

 
$
386,260

 
$
327,996

Bromine Specialties
78,585

 
63,936

 
217,921

 
194,499

Catalysts
62,602

 
60,394

 
205,534

 
197,570

All Other
3,968

 
306

 
7,729

 
7,906

Corporate
(23,702
)
 
(28,197
)
 
(75,082
)
 
(88,271
)
Total adjusted EBITDA
$
235,082

 
$
209,383

 
$
742,362

 
$
639,700


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 September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
90,313

 
$
67,967

 
$
50,491

 
$
208,771

 
$
1,978

 
$
(81,004
)
 
$
129,745

Depreciation and amortization
23,370

 
10,618

 
12,111

 
46,099

 
1,990

 
1,618

 
49,707

Restructuring and other(a)
—

 
—

 
—

 
—

 
—

 
3,724

 
3,724

Acquisition and integration related costs(b)
—

 
—

 
—

 
—

 
—

 
4,305

 
4,305

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
12,988

 
12,988

Income tax expense
—

 
—

 
—

 
—

 
—

 
33,167

 
33,167

Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(2,195
)
 
(2,195
)
Legal accrual(c)
—

 
—

 
—

 
—

 
—

 
(1,017
)
 
(1,017
)
Other(d)
(54
)
 
—

 
—

 
(54
)
 
—

 
4,712

 
4,658

Adjusted EBITDA
$
113,629

 
$
78,585

 
$
62,602

 
$
254,816

 
$
3,968

 
$
(23,702
)
 
$
235,082

Three months ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
89,745

 
$
53,760

 
$
47,846

 
$
191,351

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

Depreciation and amortization
22,316

 
10,176

 
13,798

 
46,290

 
2,082

 
1,523

 
49,895

Utilization of inventory markup(e)
568

 
—

 
—

 
568

 
—

 
—

 
568

Adjustment to gain on acquisition(f)
1,408

 
—

 
—

 
1,408

 
—

 
—

 
1,408

Acquisition and integration related costs(b)
—

 
—

 
—

 
—

 
—

 
5,635

 
5,635

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
15,792

 
15,792

Income tax expense
—

 
—

 
—

 
—

 
—

 
18,495

 
18,495

Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(1,028
)
 
(1,028
)
Multiemployer plan shortfall contributions(g)
—

 
—

 
—

 
—

 
—

 
1,646

 
1,646

Other(h)
(1,093
)
 
—

 
(1,250
)
 
(2,343
)
 
—

 
645

 
(1,698
)
Adjusted EBITDA
$
112,944

 
$
63,936

 
$
60,394

 
$
237,274

 
$
306

 
$
(28,197
)
 
$
209,383

Nine months ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 

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

Net income (loss) attributable to Albemarle Corporation
$
315,939

 
$
187,176

 
$
387,038

 
$
890,153

 
$
1,659

 
$
(327,846
)
 
$
563,966

Depreciation and amortization
71,760

 
30,745

 
37,201

 
139,706

 
6,070

 
4,735

 
150,511

Restructuring and other(a)
—

 
—

 
—

 
—

 
—

 
3,724

 
3,724

Gain on sale of business(i)
—

 
—

 
(218,705
)
 
(218,705
)
 
—

 
—

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

 
—

 
—

 
—

 
—

 
13,016

 
13,016

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
39,834

 
39,834

Income tax expense
—

 
—

 
—

 
—

 
—

 
133,630

 
133,630

Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(6,596
)
 
(6,596
)
Legal accrual(c)
—

 
—

 
—

 
—

 
—

 
27,027

 
27,027

Albemarle Foundation contribution(j)
—

 
—

 
—

 
—

 
—

 
15,000

 
15,000

Other(d)
(1,439
)
 
—

 
—

 
(1,439
)
 
—

 
22,394

 
20,955

Adjusted EBITDA
$
386,260

 
$
217,921

 
$
205,534

 
$
809,715

 
$
7,729

 
$
(75,082
)
 
$
742,362

Nine months ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
249,178

 
$
164,193

 
$
158,806

 
$
572,177

 
$
1,622

 
$
(300,583
)
 
$
273,216

Depreciation and amortization
62,841

 
30,306

 
40,014

 
133,161

 
6,284

 
4,642

 
144,087

Utilization of inventory markup(e)
23,095

 
—

 
—

 
23,095

 
—

 
—

 
23,095

Restructuring and other(k)
—

 
—

 
—

 
—

 
—

 
17,141

 
17,141

Gain on acquisition(f)
(6,025
)
 
—

 
—

 
(6,025
)
 
—

 
—

 
(6,025
)
Acquisition and integration related costs(b)
—

 
—

 
—

 
—

 
—

 
26,395

 
26,395

Interest and financing expenses(l)
—

 
—

 
—

 
—

 
—

 
98,895

 
98,895

Income tax expense
—

 
—

 
—

 
—

 
—

 
53,596

 
53,596

Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(3,144
)
 
(3,144
)
Multiemployer plan shortfall contributions(g)
—

 
—

 
—

 
—

 
—

 
6,586

 
6,586

Other(h)
(1,093
)
 
—

 
(1,250
)
 
(2,343
)
 
—

 
8,201

 
5,858

Adjusted EBITDA
$
327,996

 
$
194,499

 
$
197,570

 
$
720,065

 
$
7,906

 
$
(88,271
)
 
$
639,700


(a)
Expected severance payments as part of a business reorganization plan, recorded in Selling, general and administrative expenses. The unpaid balance is recorded in Accrued expenses at September 30, 2018, and is expected to be paid out by the end of 2018.
(b)
Included amounts for the three-month and nine-month periods ended September 30, 2018 recorded in (1) Cost of goods sold of $0.9 million and $2.9 million, respectively; and (2) Selling, general and administrative expenses of $3.4 million and $10.2 million, respectively, relating to various significant projects. Included amounts for the three-month and nine-month periods ended September 30, 2017 recorded in (1) Cost of goods sold of $1.8 million and $12.5 million, respectively; and (2) Selling, general and administrative expenses of $3.8 million and $13.9 million, respectively, relating to various significant projects, including the Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”) acquisition, which contains unusual compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s normal compensation arrangements.
(c)
Included in Other income (expenses), net. See Note 9, “Commitments and Contingencies,” for additional information.
(d)
Included amounts for the three months ended September 30, 2018 recorded in:
▪
Cost of goods sold - $3.8 million for the write-off of fixed assets related to a major capacity expansion in our Jordanian joint venture.
▪
Selling, general and administrative expenses - $0.1 million gain related to a refund from Chilean authorities due to an overpayment made in a prior year, partially offset by a $1.2 million contribution, using a portion of the proceeds received from the Polyolefin Catalysts Divestiture, to schools in the state of Louisiana for qualified tuition purposes. This contribution is significant in size and is intended to provide long-term benefits for families in the Louisiana community.
▪
Other income (expenses), net - $0.2 million gain related to the revision of previously recorded expenses of disposed businesses.
Included amounts for the nine months ended September 30, 2018 recorded in:
▪
Cost of goods sold - $4.9 million for the write-off of fixed assets related to a major capacity expansion in our Jordanian joint venture.
▪
Selling, general and administrative expenses - $1.5 million gain related to a refund from Chilean authorities due to an overpayment made in a prior year, partially offset by a $1.2 million contribution, using a portion of the proceeds received from Polyolefin Catalysts Divestiture, to schools in the state of Louisiana for qualified tuition purposes. This contribution is significant in size and is intended to provide long-term benefits for families in the Louisiana community.
▪
Other income (expenses), net - $15.6 million of environmental charges related to a site formerly owned by Albemarle and $0.8 million related to the revision of previously recorded expenses of disposed businesses.
(e)
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

18
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

markup was expensed over the estimated remaining selling period. For the three-month and nine-month periods ended September 30, 2017, $0.6 million and $23.1 million, respectively, was included in Cost of goods sold related to the utilization of the inventory markup.
(f)
Gain recorded in Other income (expenses), net related to the acquisition of the remaining 50% interest in the Sales de Magnesio Ltda. joint venture in Chile.
(g)
Included shortfall contributions for our multiemployer plan financial improvement plan. See Note 11, “Pension Plans and Other Postretirement Benefits,” for additional information.
(h)
Included amounts for the three-month period ended September 30, 2017 recorded in:
▪
Cost of goods sold - $1.3 million reversal of deferred income related to an abandoned project at an unconsolidated investment.
▪
Other income (expenses), net - $1.1 million related to a reversal of a liability associated with the previous disposal of a property, partially offset by the revision of tax indemnification expenses of $0.7 million primarily related to the filing of tax returns for a previously disposed business.
Included amounts for the nine-month period ended September 30, 2017 recorded in:
▪
Cost of goods sold - $1.3 million reversal of deferred income related to an abandoned project at an unconsolidated investment.
▪
Selling, general and administrative expenses - $1.0 million related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition.
▪
Other income (expenses), net - $3.2 million of asset retirement obligation charges related to the revision of an estimate at a site formerly owned by Albemarle, losses of $4.1 million associated with the previous disposal of businesses and the revision of tax indemnification expenses of $1.9 million primarily related to the filing of tax returns and a competent authority agreement for a previously disposed business. This is partially offset by $1.1 million related to a reversal of a liability associated with the previous disposal of a property.
(i)
See Note 2, “Divestitures,” for additional information.
(j)
Included in Selling, general and administrative expenses is a charitable contribution, using a portion of the proceeds received from the Polyolefin Catalysts Divestiture, to the Albemarle Foundation, a non-profit organization that sponsors grants, health and social projects, educational initiatives, disaster relief, matching gift programs, scholarships and other charitable initiatives in locations where our employees live and operate. This contribution is in addition to the normal annual contribution made to the Albemarle Foundation by the Company, and is significant in size and nature in that it is intended to provide more long-term benefits in the communities where we live and operate.
(k)
During 2017, we initiated action to reduce costs in each of our reportable segments at several locations, primarily at our Lithium sites in Germany. Based on the restructuring plans, we have recorded expenses of $2.9 million in Cost of goods sold, $8.4 million in Selling, general and administrative expenses and $5.8 million in Research and development expenses for the nine-month period ended September 30, 2017, primarily related to expected severance payments. The unpaid balance is recorded in Accrued expenses at September 30, 2018, with the expectation that the majority of these plans will be completed by the end of 2018.
(l)
During the first quarter of 2017, we repaid the 3.00% Senior notes in full, €307.0 million of the 1.875% Senior notes and $174.7 million of the 4.50% Senior notes, as well as related tender premiums of $45.2 million. As a result, included in Interest and financing expenses is a loss on early extinguishment of debt of $52.8 million, representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of these senior notes.


19
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

NOTE 11—Pension Plans and Other Postretirement Benefits:
The components of pension and postretirement benefits cost (credit) for the three-month and nine-month periods ended September 30, 2018 and 2017 were as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Pension Benefits Cost (Credit):
 
 
 
 
 
 
 
Service cost
$
1,238

 
$
1,067

 
$
3,765

 
$
3,090

Interest cost
7,967

 
8,375

 
24,010

 
24,983

Expected return on assets
(10,703
)
 
(9,960
)
 
(32,227
)
 
(29,799
)
Amortization of prior service benefit
25

 
29

 
71

 
102

Total net pension benefits credit
$
(1,473
)
 
$
(489
)
 
$
(4,381
)
 
$
(1,624
)
Postretirement Benefits Cost (Credit):
 
 
 
 
 
 
 
Service cost
$
29

 
$
30

 
$
88

 
$
91

Interest cost
542

 
585

 
1,626

 
1,755

Expected return on assets
(1
)
 
(28
)
 
(5
)
 
(83
)
Amortization of prior service benefit
(12
)
 
(24
)
 
(36
)
 
(72
)
Total net postretirement benefits cost
$
558

 
$
563

 
$
1,673

 
$
1,691

Total net pension and postretirement benefits (credit) cost
$
(915
)
 
$
74

 
$
(2,708
)
 
$
67

As a result of the adoption of new accounting guidance effective January 1, 2018, on a retrospective basis, all components of net benefit cost (credit), other than service cost, are to be shown outside of operations on the consolidated statements of income. We recast these components of net benefit cost (credit), which resulted in a reduction of $0.1 million and $0.4 million in Cost of goods sold, respectively, and $0.9 million and $2.7 million in Selling, general and administrative expenses, respectively, with an offsetting increase of $1.0 million and $3.1 million in Other income (expenses), net, respectively, for the three-month and nine-month periods ended September 30, 2017. There was no impact to Net income attributable to Albemarle Corporation.
During the three-month and nine-month periods ended September 30, 2018, we made contributions of $3.1 million and $9.0 million, respectively, to our qualified and nonqualified pension plans. During the three-month and nine-month periods ended September 30, 2017, we made contributions of $2.6 million and $7.7 million, respectively, to our qualified and nonqualified pension plans.
We paid $0.8 million and $2.0 million in premiums to the U.S. postretirement benefit plan during the three-month and nine-month periods ended September 30, 2018, respectively. During the three-month and nine-month periods ended September 30, 2017, we paid $0.7 million and $1.9 million, respectively, in premiums to the U.S. postretirement benefit plan.
Multiemployer Plan
Effective July 1, 2016, the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf multiemployer plan is subject to a financial improvement plan which expires on December 31, 2022, with the final contribution in the second quarter of 2023. This financial improvement plan calls for increased capital reserves to avoid future underfunding risk. During the nine-month period ended September 30, 2017, we made contributions for our employees covered under this plan of approximately $2.0 million, recorded in Selling, general and administrative expenses, as a result of this financial improvement plan. In addition, during the three-month and nine-month periods ended September 30, 2017, we made contributions relating to this financial improvement plan to indemnify previously divested businesses of approximately $1.6 million and $4.6 million, respectively, recorded in Other income (expenses), net. There were no contributions made under the financial improvement plan during the three-month and nine-month periods ended September 30, 2018.

NOTE 12—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:

20
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Long-Term Debt—the fair values of our senior notes are estimated using Level 1 inputs and account for the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying condensed consolidated balance sheets approximates fair value as substantially all of such debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.
 
September 30, 2018
 
December 31, 2017
 
Recorded
Amount
 
Fair Value
 
Recorded
Amount
 
Fair Value
 
(In thousands)
Long-term debt
$
1,704,894

 
$
1,744,139

 
$
1,845,309

 
$
1,949,638

Foreign Currency Forward Contracts—we enter into foreign currency forward contracts in connection with our risk management strategies in an attempt to minimize the financial impact of changes in foreign currency exchange rates. These derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. The fair values of our foreign currency forward contracts are estimated based on current settlement values. At September 30, 2018 and December 31, 2017, we had outstanding foreign currency forward contracts with notional values totaling $531.0 million and $357.4 million, respectively, hedging our exposure to various currencies including the Euro and Chinese Renminbi. Our foreign currency forward contracts outstanding at September 30, 2018 and December 31, 2017 were not designated as hedging instruments under ASC 815, Derivatives and Hedging. The following table summarizes the fair value of our foreign currency forward contracts included in the condensed consolidated balance sheets as of September 30, 2018 and December 31, 2017 (in thousands):
 
September 30,
 
December 31,
 
2018
 
2017
Foreign currency forward contracts - Other accounts receivable
$
142

 
$
—

Foreign currency forward contracts - Accrued expenses
$
—

 
$
4,954

Gains and losses on foreign currency forward contracts are recognized in Other income (expenses), net; further, fluctuations in the value of these contracts are generally expected to be offset by changes in the value of the underlying exposures being hedged, which are also reported in Other income (expenses), net. The following table summarizes these net (losses) gains recognized in our consolidated statements of income during the three-month and nine-month periods ended September 30, 2018 and 2017 (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Foreign currency forward contracts (losses) gains
$
(203
)
 
$
803

 
$
(13,034
)
 
$
9,010

In addition, for the nine-month periods ended September 30, 2018 and 2017, we recorded losses (gains) of $13.0 million and ($9.0) million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash (settlements) receipts of ($18.1) million and $8.9 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.


21
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

NOTE 13—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. The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 (in thousands):
 
September 30, 2018
 
Quoted Prices in Active Markets for Identical Items (Level 1)
 
Quoted Prices in Active Markets for Similar Items (Level 2)
 
Unobservable Inputs (Level 3)
 
 
 
 
Assets:
 
 
 
 
 
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