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ALBEMARLE CORP - Quarter Report: 2016 September (Form 10-Q)

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, 2016
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
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, 2016: 112,475,939

Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-28
 
 
 
28-48
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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,
 
2016
 
2015
 
2016
 
2015
Net sales
$
654,010

 
$
693,216

 
$
1,980,548

 
$
2,103,819

Cost of goods sold
415,038

 
474,171

 
1,250,938

 
1,481,359

Gross profit
238,972

 
219,045

 
729,610

 
622,460

Selling, general and administrative expenses
86,302

 
81,012

 
254,988

 
252,672

Research and development expenses
21,012

 
21,903

 
61,384

 
67,324

Restructuring and other, net
—

 
(6,804
)
 
—

 
(6,804
)
Gain on sales of businesses, net
—

 
—

 
(122,298
)
 
—

Acquisition and integration related costs
6,749

 
36,514

 
44,337

 
117,171

Operating profit
124,909

 
86,420

 
491,199

 
192,097

Interest and financing expenses
(15,946
)
 
(19,294
)
 
(46,860
)
 
(62,193
)
Other income, net
2,990

 
124

 
740

 
50,234

Income from continuing operations before income taxes and equity in net income of unconsolidated investments
111,953

 
67,250

 
445,079

 
180,138

Income tax expense
12,394

 
13,144

 
61,535

 
41,780

Income from continuing operations before equity in net income of unconsolidated investments
99,559

 
54,106

 
383,544

 
138,358

Equity in net income of unconsolidated investments (net of tax)
14,953

 
5,736

 
44,790

 
19,955

Net income from continuing operations
114,512

 
59,842

 
428,334

 
158,313

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

 
11,030

 
(357,843
)
 
19,074

Net income
137,697

 
70,872

 
70,491

 
177,387

Net income attributable to noncontrolling interests
(9,477
)
 
(5,480
)
 
(28,906
)
 
(16,733
)
Net income attributable to Albemarle Corporation
$
128,220

 
$
65,392

 
$
41,585

 
$
160,654

Basic earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
0.93

 
$
0.48

 
$
3.56

 
$
1.28

Discontinued operations
0.21

 
0.10

 
(3.19
)
 
0.17

 
$
1.14

 
$
0.58

 
$
0.37

 
$
1.45

Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
0.93

 
$
0.48

 
$
3.53

 
$
1.27

Discontinued operations
0.20

 
0.10

 
(3.16
)
 
0.17

 
$
1.13

 
$
0.58

 
$
0.37

 
$
1.44

Weighted-average common shares outstanding – basic
112,429

 
112,202

 
112,343

 
110,840

Weighted-average common shares outstanding – diluted
113,448

 
112,544

 
113,131

 
111,205

Cash dividends declared per share of common stock
$
0.305

 
$
0.29

 
$
0.915

 
$
0.87

See accompanying Notes to the Condensed Consolidated Financial Statements.

3
Table of Contents

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

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
137,697

 
$
70,872

 
$
70,491

 
$
177,387

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation
47,712

 
(67,526
)
 
95,425

 
(365,843
)
Pension and postretirement benefits
206

 
2

 
626

 
6

Net investment hedge
(7,395
)
 
(3,407
)
 
(10,312
)
 
39,709

Interest rate swap
525

 
527

 
1,576

 
1,580

Total other comprehensive income (loss), net of tax
41,048

 
(70,404
)
 
87,315

 
(324,548
)
Comprehensive income (loss)
178,745

 
468

 
157,806

 
(147,161
)
Comprehensive income attributable to noncontrolling interests
(9,500
)
 
(5,083
)
 
(29,364
)
 
(16,185
)
Comprehensive income (loss) attributable to Albemarle Corporation
$
169,245

 
$
(4,615
)
 
$
128,442

 
$
(163,346
)
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,
 
2016
 
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
233,599

 
$
213,734

Trade accounts receivable, less allowance for doubtful accounts (2016 – $14,078; 2015 – $3,390)
441,266

 
397,912

Other accounts receivable
50,250

 
74,989

Inventories
504,984

 
439,513

Other current assets
72,027

 
62,922

Assets held for sale
255,577

 
641,932

Total current assets
1,557,703

 
1,831,002

Property, plant and equipment, at cost
3,890,254

 
3,700,472

Less accumulated depreciation and amortization
1,545,287

 
1,379,377

Net property, plant and equipment
2,344,967

 
2,321,095

Investments
468,765

 
435,584

Noncurrent assets held for sale
2,975,016

 
2,971,455

Other assets
185,943

 
194,398

Goodwill
1,484,182

 
1,460,552

Other intangibles, net of amortization
380,368

 
383,868

Total assets
$
9,396,944

 
$
9,597,954

Liabilities And Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
241,511

 
$
239,572

Accrued expenses
240,652

 
313,259

Current portion of long-term debt
400,892

 
674,994

Dividends payable
34,077

 
32,306

Liabilities held for sale
135,735

 
329,598

Income taxes payable
23,967

 
26,956

Total current liabilities
1,076,834

 
1,616,685

Long-term debt
3,048,440

 
3,142,163

Postretirement benefits
49,157

 
49,647

Pension benefits
292,853

 
299,983

Noncurrent liabilities held for sale
466,687

 
464,207

Other noncurrent liabilities
228,270

 
239,104

Deferred income taxes
783,270

 
384,852

Commitments and contingencies (Note 11)

 

Equity:
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
Common stock, $.01 par value, issued and outstanding – 112,466 in 2016 and 112,219 in 2015
1,124

 
1,122

Additional paid-in capital
2,078,169

 
2,059,151

Accumulated other comprehensive loss
(334,431
)
 
(421,288
)
Retained earnings
1,554,160

 
1,615,407

Total Albemarle Corporation shareholders’ equity
3,299,022

 
3,254,392

Noncontrolling interests
152,411

 
146,921

Total equity
3,451,433

 
3,401,313

Total liabilities and equity
$
9,396,944

 
$
9,597,954

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, 2016
 
112,219,351

 
$
1,122

 
$
2,059,151

 
$
(421,288
)
 
$
1,615,407

 
$
3,254,392

 
$
146,921

 
$
3,401,313

Net income
 
 
 
 
 
 
 
 
 
41,585

 
41,585

 
28,906

 
70,491

Other comprehensive income
 
 
 
 
 
 
 
86,857

 
 
 
86,857

 
458

 
87,315

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

 
 
 
 
 
12,882

 
 
 
12,882

Exercise of stock options
 
162,438

 
1

 
6,778

 
 
 
 
 
6,779

 
 
 
6,779

Tax benefit related to stock plans
 
 
 
 
 
1,369

 
 
 
 
 
1,369

 
 
 
1,369

Issuance of common stock, net
 
120,160

 
1

 
(1
)
 
 
 
 
 
—

 
 
 
—

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

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

 
$
1,124

 
$
2,078,169

 
$
(334,431
)
 
$
1,554,160

 
$
3,299,022

 
$
152,411

 
$
3,451,433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
 
78,030,524

 
$
780

 
$
10,447

 
$
(62,413
)
 
$
1,410,651

 
$
1,359,465

 
$
129,170

 
$
1,488,635

Net income
 
 
 
 
 
 
 
 
 
160,654

 
160,654

 
16,733

 
177,387

Other comprehensive loss
 
 
 
 
 
 
 
(324,000
)
 
 
 
(324,000
)
 
(548
)
 
(324,548
)
Cash dividends declared
 
 
 
 
 
 
 
 
 
(97,607
)
 
(97,607
)
 
(23,195
)
 
(120,802
)
Stock-based compensation and other
 
 
 
 
 
10,473

 
 
 
 
 
10,473

 
 
 
10,473

Exercise of stock options
 
10,500

 
—

 
342

 
 
 
 
 
342

 
 
 
342

Tax deficiency related to stock plans
 
 
 
 
 
(170
)
 
 
 
 
 
(170
)
 
 
 
(170
)
Issuance of common stock, net
 
69,166

 
1

 
(1
)
 
 
 
 
 
—

 
 
 
—

Acquisition of Rockwood
 
34,113,064

 
341

 
2,036,209

 

 

 
2,036,550

 
3,022

 
2,039,572

Noncontrolling interest assumed in acquisition of Shanghai Chemetall
 
 
 
 
 
 
 
 
 
 
 
—

 
4,843

 
4,843

Shares withheld for withholding taxes associated with common stock issuances
 
(21,276
)
 
—

 
(1,218
)
 
 
 
 
 
(1,218
)
 
 
 
(1,218
)
Balance at September 30, 2015
 
112,201,978

 
$
1,122

 
$
2,056,082

 
$
(386,413
)
 
$
1,473,698

 
$
3,144,489

 
$
130,025

 
$
3,274,514

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)
 
Nine Months Ended 
 September 30,
 
2016
 
2015
Cash and cash equivalents at beginning of year
$
213,734

 
$
2,489,768

Cash flows from operating activities:
 
 
 
Net income
70,491

 
177,387

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
176,499

 
200,372

Gain associated with restructuring and other
—

 
(6,804
)
Gain on sales of businesses, net
(122,298
)
 
—

Stock-based compensation
13,818

 
11,171

Excess tax benefits realized from stock-based compensation arrangements
(1,679
)
 
(59
)
Equity in net income of unconsolidated investments (net of tax)
(46,224
)
 
(22,236
)
Dividends received from unconsolidated investments and nonmarketable securities
34,982

 
57,149

Pension and postretirement expense (benefit)
7,911

 
(232
)
Pension and postretirement contributions
(13,649
)
 
(16,673
)
Unrealized gain on investments in marketable securities
(3,281
)
 
(597
)
Deferred income taxes
404,728

 
(53,593
)
Working capital changes
(79,684
)
 
14,823

Other, net
10,821

 
(43,805
)
Net cash provided by operating activities
452,435

 
316,903

Cash flows from investing activities:
 
 
 
Acquisition of Rockwood, net of cash acquired
—

 
(2,051,645
)
Other acquisitions, net of cash acquired
—

 
(48,845
)
Cash payments related to acquisitions and other
(81,988
)
 
—

Capital expenditures
(141,301
)
 
(164,568
)
Decrease in restricted cash
—

 
57,550

Cash proceeds from divestitures, net
310,599

 
6,133

Return of capital from unconsolidated investment
—

 
98,000

Sales of marketable securities, net
822

 
1,265

Repayments from joint ventures
—

 
2,156

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

 
(2,099,954
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(382,730
)
 
(1,332,293
)
Proceeds from borrowings of long-term debt
—

 
1,000,000

Repayments of other borrowings, net
(9,026
)
 
(16,854
)
Dividends paid to shareholders
(101,061
)
 
(86,770
)
Dividends paid to noncontrolling interests
(23,873
)
 
(23,195
)
Proceeds from exercise of stock options
6,779

 
342

Excess tax benefits realized from stock-based compensation arrangements
1,679

 
59

Withholding taxes paid on stock-based compensation award distributions
(2,008
)
 
(1,218
)
Debt financing costs
—

 
(4,186
)
Other
—

 
(3,882
)
Net cash used in financing activities
(510,240
)
 
(467,997
)
Net effect of foreign exchange on cash and cash equivalents
(10,462
)
 
(4,230
)
Increase (decrease) in cash and cash equivalents
19,865

 
(2,255,278
)
Cash and cash equivalents at end of period
$
233,599

 
$
234,490

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, 2016 and December 31, 2015, our consolidated statements of income and consolidated statements of comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2016 and 2015 and our consolidated statements of changes in equity and condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2016 and 2015. Other comprehensive income for the three-month period ended September 30, 2016 includes an adjustment of $12.5 million to reduce the Foreign currency translation on the Company’s investment in the Windfield Holdings Pty Ltd joint venture related to the three month period ended March 31, 2016. There is no impact to the results for the nine-month period ended September 30, 2016. The Company does not believe this adjustment is material to the condensed consolidated financial statements for the three-month periods ended March 31, 2016 or September 30, 2016. All other adjustments are of a normal and recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016. The December 31, 2015 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, 2016 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.
On June 17, 2016, the Company signed a definitive agreement to sell its Chemetall® Surface Treatment business to BASF SE. In the second quarter of 2016, the Company began accounting for this business as discontinued operations in the consolidated statements of income and excluded the business from segment results for all periods presented. Related assets and liabilities are classified as held for sale for all periods presented in accordance with accounting standards for reporting discontinued operations. See Note 3, “Divestitures,” for additional information.
As described further in Note 2, “Acquisitions,” we completed our acquisition of Rockwood Holdings, Inc. (“Rockwood”) on January 12, 2015. The unaudited condensed consolidated financial statements contained herein include the results of operations of Rockwood, commencing on January 13, 2015.
NOTE 2—Acquisitions:
On January 12, 2015 (the “Acquisition Closing Date”), we completed the acquisition of all the outstanding shares of Rockwood (the “Merger”) for a purchase price of approximately $5.7 billion. As a result, Rockwood became a wholly-owned subsidiary of Albemarle.
Purchase Price Allocation
The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values at the Acquisition Closing Date, which were based, in part, upon third-party appraisals for certain assets, including specifically-identified intangible assets. The excess of the purchase price over the estimated fair value of the net assets acquired was approximately $2.8 billion and was recorded as goodwill.

8
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

The allocation of the Rockwood purchase price was finalized in the first quarter of 2016. The following table summarizes the allocation of the purchase price paid and the amounts of assets acquired and liabilities assumed for the Rockwood acquisition based upon estimated fair values at the date of acquisition (in thousands):
Total purchase price
$
5,725,321

 
 
Net assets acquired:
 
Cash and cash equivalents
$
1,555,139

Trade and other accounts receivable
262,947

Inventories
290,496

Other current assets
86,267

Property, plant and equipment
1,383,480

Investments
529,453

Other assets
25,538

Definite-lived intangible assets:
 
Patents and technology
227,840

Trade names and trademarks
234,610

Customer lists and relationships
1,280,142

Indefinite-lived intangible assets:
 
Trade names and trademarks
104,380

Other
26,670

Current liabilities
(406,532
)
Long-term debt
(1,319,132
)
Pension benefits
(316,086
)
Other noncurrent liabilities
(195,052
)
Deferred income taxes
(845,884
)
Noncontrolling interests
(17,582
)
Total identifiable net assets
2,906,694

Goodwill
2,818,627

Total net assets acquired(a)
$
5,725,321

(a)
Total net assets acquired includes amounts for the Chemetall Surface Treatment business, which is reported as discontinued operations. See Note 3, “Divestitures,” for additional information.
Significant changes to the purchase price allocation since our initial preliminary estimates reported in the first quarter of 2015 were primarily related to decreases in the estimated fair values of certain current assets, property, plant and equipment, investments and intangible assets and increases in certain other noncurrent liabilities and noncontrolling interests, which resulted in an increase to recognized goodwill of approximately $193.8 million. This increase to recognized goodwill includes approximately $1.5 million that was recognized during the nine-month period ended September 30, 2016 based on changes to intangible assets, property, plant and equipment and deferred taxes.
Goodwill arising from the acquisition consists largely of the anticipated synergies and economies of scale from the combined companies and the overall strategic importance of the acquired businesses to Albemarle. The goodwill attributable to the acquisition is not amortizable or deductible for tax purposes.
Included in Acquisition and integration related costs on our consolidated statements of income for the three-month and nine-month periods ended September 30, 2016 is $6.3 million and $42.4 million, respectively, of integration costs resulting from the acquisition of Rockwood (mainly consisting of professional services fees, costs to achieve synergies, relocation costs, and other integration costs) and $0.4 million and $1.9 million, respectively, of costs in connection with other significant projects. The consolidated statements of income for the three-month and nine-month periods ended September 30, 2015 include

9
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

$35.5 million and $111.2 million, respectively, of integration costs resulting from the acquisition of Rockwood (mainly consisting of professional services and advisory fees, costs to achieve synergies, relocation costs, and other integration costs) and $1.0 million and $6.0 million, respectively, of costs in connection with other significant projects.
The weighted-average amortization periods for the intangible assets acquired are 20 years for patents and technology, 20 years for trade names and trademarks and 24 years for customer lists and relationships. The weighted-average amortization period for all definite-lived intangible assets acquired is 23 years.
For the nine-month period ended September 30, 2016, Depreciation and amortization expense included in Cost of goods sold was reduced by approximately $0.2 million as a result of measurement-period adjustments related to previous reporting periods. In addition, Income (loss) from discontinued operations (net of tax) was reduced by approximately $4.1 million for the nine-month period ended September 30, 2016 as a result of measurement-period adjustments related to previous reporting periods.
Unaudited Pro Forma Financial Information
The following unaudited pro forma results of operations of the Company for the three-month and nine-month periods ended September 30, 2015 assume that the Merger occurred on January 1, 2015. The pro forma amounts include certain adjustments, including interest expense, depreciation, amortization expense and income taxes. The pro forma amounts are also adjusted to exclude approximately $41.8 million and $120.5 million, respectively, of nonrecurring acquisition and integration related costs, and approximately $16.8 million and $102.3 million, respectively, of charges related to the utilization of the inventory markup as further described in Note 12, “Segment Information.” The pro forma results do not include adjustments related to cost savings or other synergies anticipated as a result of the Merger. In addition, the pro forma amounts are not adjusted to reflect the Chemetall Surface Treatment business as discontinued operations. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred as of January 1, 2015, nor are they necessarily indicative of future results of operations.
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
 
(in thousands, except per share amounts)
Pro forma Net sales
$
905,093

 
$
2,754,312

Pro forma Net income
$
111,211

 
$
335,602

Pro forma Net income per share:
 
 
 
Basic
$
0.99

 
$
3.03

Diluted
$
0.99

 
$
3.02

See Item 8 Financial Statements and Supplementary Data—Note 2, “Acquisitions,” in our Annual Report on Form 10-K for the year ended December 31, 2015 for further details about the Rockwood acquisition.
NOTE 3—Divestitures:
Discontinued Operations
On June 17, 2016, we entered into a definitive agreement to sell the Chemetall Surface Treatment business to BASF SE for proceeds of approximately $3.2 billion in cash, subject to adjustment with respect to certain pension liabilities, cash, working capital and indebtedness. The sale of the Chemetall Surface Treatment business reflects the Company’s commitment to investing in the future growth of its high priority businesses, reducing leverage and returning capital to shareholders. The sale is expected to close in the fourth quarter of 2016, subject to the satisfaction of customary closing conditions, including approvals from regulatory authorities. At closing, any difference between the sales price and the proportionate carrying value of the interests being sold would be recognized.
The sale of the Chemetall Surface Treatment business, a separate reportable segment, qualifies for discontinued operations treatment because it represents a strategic shift that will have a major effect on the Company’s operations and financial results. As a result, in the second quarter of 2016, the Company began accounting for this business as discontinued operations in the consolidated statements of income and excluded the business from segment results for all periods presented. Related assets and liabilities are classified as held for sale for all periods presented. As of the date this business qualified for discontinued

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

operations treatment, the Company stopped recording depreciation and amortization expense on assets of the Chemetall Surface Treatment business.
The major components of Income (loss) from discontinued operations (net of tax) for the three-month and nine-month periods ended September 30, 2016 and 2015 were as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
211,347

 
$
211,877

 
$
637,889

 
$
617,163

Cost of goods sold
100,061

 
118,712

 
333,832

 
368,381

Operating expenses, net
70,604

 
66,280

 
203,052

 
187,536

Interest and financing expenses(a)
9,864

 
12,763

 
29,912

 
38,792

Other expenses (income), net
134

 
(656
)
 
(1,636
)
 
(3,011
)
Income before income taxes
30,684

 
14,778

 
72,729

 
25,465

Income tax expense(b)
7,499

 
3,748

 
430,572

 
6,391

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

 
$
11,030

 
$
(357,843
)
 
$
19,074


(a)
Interest and financing expenses included the allocation of interest expense not directly attributable to other operations as well as interest expense related to debt to be assumed by the buyer. The allocation of interest expense to discontinued operations was based on the ratio of net assets held for sale to the sum of total net assets plus consolidated debt.
(b)
Income tax expense for the nine-month period ended September 30, 2016 included a discrete non-cash charge of ($381.5) million due to a change in the Company’s assertion over book and tax basis differences related to a U.S. entity being sold. In addition, Income tax expense for the three-month and nine-month periods ended September 30, 2016 included discrete non-cash benefits (charges) of $5.4 million and ($29.8) million, respectively, related to a change in the Company’s assertion over reinvestment of foreign undistributed earnings. The associated liability of $411.3 million has been recorded in Deferred income taxes on the condensed consolidated balance sheets as of September 30, 2016. Upon completion of the sale, the buyer will not assume these outside basis differences, thus the liability is ultimately the responsibility of the Company, and as such, this amount is not recorded as a Liability held for sale. The sale is expected to close in the fourth quarter of 2016, at which time any difference between the sales price and the proportionate carrying value of the interests being sold would be recognized.
The carrying amounts of the major classes of assets and liabilities for the Chemetall Surface Treatment business classified as held for sale at September 30, 2016 and December 31, 2015, were as follows (in thousands):
 
September 30,
 
December 31,
 
2016
 
2015
Assets
 
 
 
Current assets
$
255,577

 
$
237,447

Net property, plant and equipment
164,860

 
163,643

Goodwill
1,456,214

 
1,433,259

Other intangibles, net of amortization
1,328,799

 
1,349,179

All other noncurrent assets
25,143

 
25,374

Assets held for sale
$
3,230,593

 
$
3,208,902

Liabilities
 
 
 
Current liabilities
$
135,735

 
$
200,892

Deferred income taxes
355,368

 
351,465

All other noncurrent liabilities
111,319

 
112,742

Liabilities held for sale
$
602,422

 
$
665,099





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

Depreciation and amortization and capital expenditures from discontinued operations for the nine-month periods ended September 30, 2016 and 2015 were as follows (in thousands):
 
Nine Months Ended 
 September 30,
 
2016
 
2015
Depreciation and amortization
$
35,194

 
$
57,567

Capital expenditures
$
15,525

 
$
11,521

Other Assets Held for Sale
In 2015, we announced our intention to pursue strategic alternatives, including divestitures, related to certain businesses, including the minerals-based flame retardants and specialty chemicals, fine chemistry services and metal sulfides businesses. In the fourth quarter of 2015, we determined that the assets held for sale criteria were met for these businesses as well as a small group of assets at an idled site. As of the December 31, 2015 balance sheet date, the Company expected to complete the sales of the businesses included in assets and liabilities held for sale and therefore such amounts were classified as current. These businesses did not qualify for discontinued operations treatment because the Company’s management did not consider their sale or potential sale as representing a strategic shift that had or will have a major effect on the Company’s operations and financial results.
On November 5, 2015, the Company signed a definitive agreement to sell its Tribotecc metal sulfides business to Treibacher Industrie AG. Included in the transaction were sites in Vienna and Arnoldstein, Austria, and Tribotecc’s proprietary sulfide synthesis process. On January 4, 2016, the Company closed the sale of this business, effective for the first day of business in 2016. We received net proceeds of approximately $137 million and recorded a gain of $11.5 million before income taxes in 2016 related to the sale of this business.
On December 16, 2015, the Company signed a definitive agreement to sell its minerals-based flame retardants and specialty chemicals business to Huber Engineered Materials, a division of J.M. Huber Corporation. The transaction included Albemarle’s Martinswerk GmbH subsidiary and manufacturing facility located in Bergheim, Germany, and Albemarle’s 50% ownership interest in Magnifin Magnesiaprodukte GmbH, a joint-venture with Radex Heraklith Industriebeteiligung AG at Breitenau, Austria. On February 1, 2016, the Company closed the sale of these businesses. We received net proceeds of approximately $187 million and recorded a gain of $112.3 million before income taxes in 2016 related to the sale of these businesses.
In April 2016, the Company concluded that it would discontinue efforts to sell its fine chemistry services business, and as a result, this business is accounted for as held and used beginning in the second quarter of 2016.
The carrying amounts of the major classes of assets and liabilities of these businesses classified as held for sale at December 31, 2015, were as follows (in thousands):
 
December 31,
 
2015
Assets
 
Current assets
$
156,421

Net property, plant and equipment
115,865

Goodwill
46,794

Other intangibles, net of amortization
66,324

All other noncurrent assets
19,081

Assets held for sale
$
404,485

Liabilities
 
Current liabilities
$
72,756

Deferred income taxes
24,947

All other noncurrent liabilities
31,003

Liabilities held for sale
$
128,706


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


Also included in Gain on sales of businesses, net, for the nine-month period ended September 30, 2016 was a loss of $1.5 million on the sale of our wafer reclaim business.

NOTE 4—Goodwill and Other Intangibles:
The following table summarizes the changes in goodwill by reportable segment for the nine months ended September 30, 2016 (in thousands):
 
Lithium and Advanced Materials
 
Bromine Specialties
 
Refining Solutions
 
All Other
 
Total
Balance at December 31, 2015(a)(b)
$
1,267,505

 
$
20,319

 
$
172,728

 
$
—

 
$
1,460,552

Acquisition of Rockwood(c)
(1,706
)
 
—

 
—

 
—

 
(1,706
)
Reclass from assets held for sale(d)
—

 
—

 
—

 
6,586

 
6,586

Foreign currency translation adjustments
14,169

 
—

 
4,581

 
—

 
18,750

Balance at September 30, 2016(b)
$
1,279,968

 
$
20,319

 
$
177,309

 
$
6,586

 
$
1,484,182


(a)
The December 31, 2015 balances have been recast to reflect a change in segments. See Note 12, “Segment Information,” for further details.
(b)
As of September 30, 2016 and December 31, 2015, $1.5 billion of Goodwill was classified as Assets held for sale in the condensed consolidated balance sheets. See Note 3, “Divestitures,” for additional information.
(c)
Represents final purchase price adjustments for the Rockwood acquisition recorded in the nine-month period ended September 30, 2016. Excludes $3.2 million of final purchase price adjustments for businesses reported as discontinued operations.
(d)
Represents Goodwill of the fine chemistry services business, which was reported in Assets held for sale on the condensed consolidated balance sheets as of December 31, 2015. See Note 3, “Divestitures,” for additional information.
The following table summarizes the changes in other intangibles and related accumulated amortization for the nine months ended September 30, 2016 (in thousands):
 
Customer Lists and Relationships
 
Trade Names and Trademarks(a)
 
Patents and Technology
 
Other
 
Total
Gross Asset Value
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
398,725

 
$
16,923

 
$
40,144

 
$
17,779

 
$
473,571

Reclass from assets held for sale(b)
—

 
—

 
—

 
1,454

 
1,454

Foreign currency translation adjustments and other
11,720

 
170

 
(241
)
 
155

 
11,804

Balance at September 30, 2016
$
410,445

 
$
17,093

 
$
39,903

 
$
19,388

 
$
486,829

Accumulated Amortization
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
(32,656
)
 
$
(8,086
)
 
$
(32,008
)
 
$
(16,953
)
 
$
(89,703
)
Amortization
(13,489
)
 
—

 
(434
)
 
(327
)
 
(14,250
)
Reclass from assets held for sale(b)
—

 
—

 
—

 
(1,322
)
 
(1,322
)
Foreign currency translation adjustments and other
(731
)
 
(61
)
 
(245
)
 
(149
)
 
(1,186
)
Balance at September 30, 2016
$
(46,876
)
 
$
(8,147
)
 
$
(32,687
)
 
$
(18,751
)
 
$
(106,461
)
Net Book Value at December 31, 2015(c)
$
366,069

 
$
8,837

 
$
8,136

 
$
826

 
$
383,868

Net Book Value at September 30, 2016(c)
$
363,569

 
$
8,946

 
$
7,216

 
$
637

 
$
380,368


(a)
Included in Trade Names and Trademarks were indefinite-lived intangible assets with a gross carrying amount of $8.8 million and $8.7 million at September 30, 2016 and December 31, 2015, respectively.
(b)
Represents Other intangibles and related amortization of the fine chemistry services business, which was reported in Assets held for sale on the condensed consolidated balance sheets as of December 31, 2015. See Note 3 “Divestitures,” for additional information.

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

(c)
As of September 30, 2016 and December 31, 2015, $1.3 billion and $1.4 billion, respectively, of Other intangibles, net of amortization were classified as Assets held for sale in the condensed consolidated balance sheets. See Note 3 “Divestitures,” for additional information.

NOTE 5—Foreign Exchange:
Foreign exchange transaction gains (losses) were $0.3 million and ($3.1) million for the three-month and nine-month periods ended September 30, 2016, respectively, and ($1.2) million and $51.8 million for the three-month and nine-month periods ended September 30, 2015, respectively, and were included in Other income, net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our condensed consolidated statements of cash flows. The gains in the nine-month period ended September 30, 2015 were primarily related to cash denominated in U.S. Dollars held by foreign subsidiaries where the European Union Euro serves as the functional currency, which was repatriated using the applicable transaction rates during the first quarter of 2015.
NOTE 6—Income Taxes:
The effective income tax rate for the three-month and nine-month periods ended September 30, 2016 was 11.1% and 13.8%, respectively, compared to 19.5% and 23.2% for the three-month and nine-month periods ended September 30, 2015, 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 and our effective income tax rate for the 2016 and 2015 periods was primarily due to the impact of earnings from outside the U.S. The decrease in our effective tax rate for the three-month period ended September 30, 2016 compared to the same period in 2015 was primarily driven by a tax discrete benefit of $5.5 million related mainly to foreign provision to return adjustments. The decrease in the effective tax rate for the nine-month period ended September 30, 2016 compared to the same period in 2015 was primarily driven by income of $122.3 million from the sales of businesses with associated tax expense of $6.7 million, that was subject to tax at a rate below our effective tax rate and changes in impacts of earnings from outside the U.S.


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

NOTE 7—Earnings Per Share:
Basic and diluted earnings per share from continuing operations for the three-month and nine-month periods ended September 30, 2016 and 2015 are calculated as follows (in thousands, except per share amounts):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Basic earnings per share from continuing operations
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
114,512

 
$
59,842

 
$
428,334

 
$
158,313

Net income from continuing operations attributable to noncontrolling interests
(9,477
)
 
(5,447
)
 
(28,906
)
 
(16,680
)
Net income from continuing operations attributable to Albemarle Corporation
$
105,035

 
$
54,395

 
$
399,428

 
$
141,633

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
112,429

 
112,202

 
112,343

 
110,840

Basic earnings per share from continuing operations
$
0.93

 
$
0.48

 
$
3.56

 
$
1.28

 
 
 
 
 
 
 
 
Diluted earnings per share from continuing operations
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
114,512

 
$
59,842

 
$
428,334

 
$
158,313

Net income from continuing operations attributable to noncontrolling interests
(9,477
)
 
(5,447
)
 
(28,906
)
 
(16,680
)
Net income from continuing operations attributable to Albemarle Corporation
$
105,035

 
$
54,395

 
$
399,428

 
$
141,633

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
112,429

 
112,202

 
112,343

 
110,840

Incremental shares under stock compensation plans
1,019

 
342

 
788

 
365

Weighted-average common shares for diluted earnings per share
113,448

 
112,544

 
113,131

 
111,205

Diluted earnings per share from continuing operations
$
0.93

 
$
0.48

 
$
3.53

 
$
1.27

On February 26, 2016, the Company increased the regular quarterly dividend by 5% to $0.305 per share. On July 11, 2016, the Company declared a cash dividend of $0.305 per share, which was paid on October 3, 2016 to shareholders of record at the close of business as of September 15, 2016. On November 3, 2016, the Company declared a cash dividend of $0.305 per share, which is payable on January 2, 2017 to shareholders of record at the close of business as of December 15, 2016.
NOTE 8—Inventories:
The following table provides a breakdown of inventories at September 30, 2016 and December 31, 2015 (in thousands):
 
September 30,
 
December 31,
 
2016
 
2015
Finished goods
$
335,694

 
$
264,025

Raw materials and work in process(a)
117,955

 
122,038

Stores, supplies and other
51,335

 
53,450

Total inventories(b)
$
504,984

 
$
439,513


(a)
Included $45.9 million and $39.1 million at September 30, 2016 and December 31, 2015, respectively, of work in process related to the Lithium product category.
(b)
As of September 30, 2016 and December 31, 2015, $74.5 million and $162.8 million, respectively, of inventories were classified as Assets held for sale in the condensed consolidated balance sheets. See Note 3, “Divestitures,” for additional information.

NOTE 9—Investments:
The Company holds a 49% equity interest in Windfield Holdings Pty Ltd (“Windfield”). With regard to the Company’s ownership in Windfield, the parties share risks and benefits disproportionate to their voting interests. As a result, the Company

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

considers Windfield to be a variable interest entity (“VIE”). However, the Company does not consolidate Windfield as it is not the primary beneficiary. The carrying amount of our 49% equity interest in Windfield, which is our most significant VIE, was $295.8 million and $280.2 million at September 30, 2016 and December 31, 2015, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIE’s for which the Company is not the primary beneficiary was $8.6 million and $7.8 million at September 30, 2016 and December 31, 2015, respectively. Our unconsolidated VIE’s are reported in Investments in the condensed consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of the investments.
Included in the condensed consolidated statement of cash flows for the nine months ended September 30, 2015, was a return of capital from Windfield of $98.0 million.
NOTE 10—Long-Term Debt:
Long-term debt at September 30, 2016 and December 31, 2015 consisted of the following (in thousands):
 
September 30,
 
December 31,
 
2016
 
2015
Term loan facilities, net of unamortized debt issuance costs of $2,008 at September 30, 2016 and $2,833 at December 31, 2015
$
866,992

 
$
1,247,167

1.875% Senior notes, net of unamortized discount and debt issuance costs of $8,826 at September 30, 2016 and $9,904 at December 31, 2015
776,784

 
759,151

3.00% Senior notes, net of unamortized discount and debt issuance costs of $1,396 at September 30, 2016 and $1,726 at December 31, 2015
248,604

 
248,274

4.15% Senior notes, net of unamortized discount and debt issuance costs of $3,981 at September 30, 2016 and $4,346 at December 31, 2015
421,019

 
420,654

4.50% Senior notes, net of unamortized discount and debt issuance costs of $2,531 at September 30, 2016 and $2,982 at December 31, 2015
347,469

 
347,018

5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,352 at September 30, 2016 and $4,468 at December 31, 2015
345,648

 
345,532

Commercial paper notes
400,851

 
351,349

Variable-rate foreign bank loans
41,935

 
77,452

Variable-rate domestic bank loans
—

 
20,479

Miscellaneous
30

 
81

Total long-term debt(a)
3,449,332

 
3,817,157

Less amounts due within one year
400,892

 
674,994

Long-term debt, less current portion
$
3,048,440

 
$
3,142,163


(a)
As of September 30, 2016 and December 31, 2015, $16.5 million and $20.3 million, respectively, of long-term debt was classified as Liabilities held for sale in the condensed consolidated balance sheets. See Note 3, “Divestitures,” for additional information.
As a result of the adoption of new accounting guidance effective January 1, 2016 on a retrospective basis, unamortized debt issuance costs are now deducted from the carrying amount of the associated debt liability on the balance sheet. The reclassification of these unamortized debt issuance costs resulted in reductions of $17.1 million in Long-term debt and Other assets on the condensed consolidated balance sheets as of December 31, 2015. See Note 18, “Recently Issued Accounting Pronouncements,” for additional information.
Initial borrowings under our September 2015 Term Loan Agreement, which occurred on October 15, 2015, consisted of a 364-day term loan facility in an aggregate principal amount of $300 million (the “364-Day Facility”) and a five-year term loan facility in an aggregate principal amount of $950 million (the “Five-Year Facility”), or collectively, the “Term Loan Facilities.” In the nine-month period ended September 30, 2016, we repaid the 364-Day Facility in full and repaid approximately $81 million of borrowings under the Five-Year Facility, each primarily with proceeds from the sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business, which closed in the first quarter of 2016.
Current portion of long-term debt at September 30, 2016 consisted primarily of commercial paper notes with a weighted-average interest rate of approximately 1.38% and a weighted-average maturity of 39 days.
The carrying value of our 1.875% Euro-denominated senior notes has been designated as an effective hedge of our net investment in certain foreign subsidiaries where the Euro serves as the functional currency, and gains or losses on the

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

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, 2016, losses of $7.4 million and $10.3 million (net of income taxes), respectively, and during the three-month and nine-month periods ended September 30, 2015, (losses) gains of ($3.4) million and $39.7 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.

NOTE 11—Commitments and Contingencies:
Environmental
We had the following activity in our recorded environmental liabilities for the nine months ended September 30, 2016, as follows (in thousands):
Beginning balance at December 31, 2015(a)
$
31,436

Expenditures
(2,013
)
Accretion of discount
596

Additions and revisions of estimates
1,055

Foreign currency translation adjustments and other
2,572

Ending balance at September 30, 2016(a)
33,646

Less amounts reported in Accrued expenses
3,051

Amounts reported in Other noncurrent liabilities
$
30,595


(a)
As of September 30, 2016 and December 31, 2015, $3.9 million of environmental liabilities were classified as Liabilities held for sale in the condensed consolidated balance sheets. See Note 3, “Divestitures,” for additional information.
Environmental remediation liabilities included discounted liabilities of $23.8 million and $22.0 million at September 30, 2016 and December 31, 2015, respectively, discounted at rates with a weighted-average of 3.5%, with the undiscounted amount totaling $63.3 million and $59.5 million at September 30, 2016 and December 31, 2015, respectively. For certain locations where the Company is operating groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility.
The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, in excess of amounts already recorded, could be up to approximately $16 million before income taxes.
We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would 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.



17
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

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, 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 that Rockwood divested prior to the Acquisition Closing Date. 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.
Other
We have contracts with certain of our customers, which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis as well as blanket coverage of multiple shipments under certain customer supply contracts. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.
NOTE 12—Segment Information:

Effective January 1, 2016, our former Performance Chemicals reportable segment was split into two reportable segments: (1) Lithium and Advanced Materials and (2) Bromine Specialties. In addition, on June 17, 2016, the Company signed a definitive agreement to sell its Chemetall Surface Treatment business to BASF SE. This business, a separate reportable segment, is classified as discontinued operations and its results are excluded from segment results for all periods presented. As a result, our three reportable segments include Lithium and Advanced Materials, Bromine Specialties and Refining Solutions. Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. The new business structure aligns with the markets and customers we serve through each of the segments. The new 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 2015 have been recast to reflect the change in segments noted above.
The “All Other” category comprises three operating segments that do not fit into any of our core businesses subsequent to the acquisition of Rockwood: minerals-based flame retardants and specialty chemicals, fine chemistry services and metal sulfides. During the first quarter of 2016, we completed the sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals businesses. For additional information about these businesses, see Note 3, “Divestitures.”
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the reportable segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the reportable segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
The Company’s chief operating decision maker uses earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items such as acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, non-operating pension and OPEB items and other significant non-recurring items (“adjusted EBITDA”), in a balanced manner and on a segment basis to assess the ongoing performance of the Company’s business segments and to allocate resources. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income (loss) attributable to Albemarle Corporation, the

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

most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Net sales:
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
240,424

 
$
208,820

 
$
689,950

 
$
620,597

Bromine Specialties
194,496

 
190,716

 
597,912

 
604,267

Refining Solutions
190,453

 
185,102

 
539,044

 
528,841

All Other
28,272

 
102,224

 
150,987

 
337,997

Corporate
365

 
6,354

 
2,655

 
12,117

Total net sales
$
654,010

 
$
693,216

 
$
1,980,548

 
$
2,103,819

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
91,719

 
$
77,408

 
$
260,861

 
$
234,988

Bromine Specialties
51,807

 
58,801

 
179,977

 
180,431

Refining Solutions
64,960

 
54,517

 
181,620

 
144,910

All Other
5,470

 
6,262

 
14,810

 
29,540

Corporate
(25,627
)
 
(16,307
)
 
(66,435
)
 
(8,350
)
Total adjusted EBITDA
$
188,329

 
$
180,681

 
$
570,833

 
$
581,519


See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, to Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, (in thousands):

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

 
Lithium and Advanced Materials
 
Bromine Specialties
 
Refining Solutions
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
Three months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
66,166

 
$
41,621

 
$
55,981

 
$
163,768

 
$
3,806

 
$
(39,354
)
 
$
128,220

Depreciation and amortization
25,553

 
10,186

 
8,979

 
44,718

 
1,664

 
1,592

 
47,974

Acquisition and integration related costs(a)
—

 
—

 
—

 
—

 
—

 
6,749

 
6,749

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
15,946

 
15,946

Income tax expense
—

 
—

 
—

 
—

 
—

 
12,394

 
12,394

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
(231
)
 
(231
)
Other(b)
—

 
—

 
—

 
—

 
—

 
462

 
462

Adjusted EBITDA
$
91,719

 
$
51,807

 
$
64,960

 
$
208,486

 
$
5,470

 
$
(25,627
)
 
$
188,329

Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
38,498

 
$
49,395

 
$
45,713

 
$
133,606

 
$
617

 
$
(68,831
)
 
$
65,392

Depreciation and amortization
22,076

 
9,406

 
8,804

 
40,286

 
5,645

 
2,712

 
48,643

Utilization of inventory markup(c)
16,834

 
—

 
—

 
16,834

 
—

 
—

 
16,834

Restructuring and other, net(d)
—

 
—

 
—

 
—

 
—

 
(6,804
)
 
(6,804
)
Acquisition and integration related costs(a)
—

 
—

 
—

 
—

 
—

 
36,514

 
36,514

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
19,294

 
19,294

Income tax expense
—

 
—

 
—

 
—

 
—

 
13,144

 
13,144

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

 
(11,030
)
 
(11,030
)
Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(1,306
)
 
(1,306
)
Adjusted EBITDA
$
77,408

 
$
58,801

 
$
54,517

 
$
190,726

 
$
6,262

 
$
(16,307
)
 
$
180,681

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

 
$
150,221

 
$
154,767

 
$
491,361

 
$
133,012

 
$
(582,788
)
 
$
41,585

Depreciation and amortization
74,488

 
29,756

 
26,853

 
131,097

 
5,629

 
4,562

 
141,288

(Gain) loss on sales of businesses, net(e)
—

 
—

 
—

 
—

 
(123,831
)
 
1,533

 
(122,298
)
Acquisition and integration related costs(a)
—

 
—

 
—

 
—

 
—

 
44,337

 
44,337

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
46,860

 
46,860

Income tax expense
—

 
—

 
—

 
—

 
—

 
61,535

 
61,535

Loss from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

 
357,843

 
357,843

Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(779
)
 
(779
)
Other(b)
—

 
—

 
—

 
—

 
—

 
462

 
462

Adjusted EBITDA
$
260,861

 
$
179,977

 
$
181,620

 
$
622,458

 
$
14,810

 
$
(66,435
)
 
$
570,833

Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
88,219

 
$
154,353

 
$
119,513

 
$
362,085

 
$
9,644

 
$
(211,075
)
 
$
160,654

Depreciation and amortization
67,530

 
26,078

 
25,397

 
119,005

 
16,867

 
6,933

 
142,805

Utilization of inventory markup(c)
79,239

 
—

 
—

 
79,239

 
3,029

 
—

 
82,268

Restructuring and other, net(d)
—

 
—

 
—

 
—

 
—

 
(6,804
)
 
(6,804
)
Acquisition and integration related costs(a)
—

 
—

 
—

 
—

 
—

 
117,171

 
117,171

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
62,193

 
62,193

Income tax expense
—

 
—

 
—

 
—

 
—

 
41,780

 
41,780

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

 
(19,074
)
 
(19,074
)
Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(3,915
)
 
(3,915
)
Other(f)
—

 
—

 
—

 
—

 
—

 
4,441

 
4,441

Adjusted EBITDA
$
234,988

 
$
180,431

 
$
144,910

 
$
560,329

 
$
29,540

 
$
(8,350
)
 
$
581,519


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


(a)
See Note 2, “Acquisitions,” for additional information.
(b)
Includes the write-off of fixed assets of $1.4 million included in Research and development expenses, partially offset by a net gain of $0.9 million on the sales of properties included in Other income, net.
(c)
In connection with the acquisition of Rockwood, the Company valued Rockwood’s existing inventory at fair value as of the Acquisition Closing Date, which resulted in a markup of the underlying net book value of the inventory totaling approximately $103.4 million. The inventory markup was expensed over the estimated remaining selling period. For the three-month and nine-month periods ended September 30, 2015, $7.7 million and $55.4 million, respectively, was included in Cost of goods sold, and Equity in net income of unconsolidated investments was reduced by $9.1 million and $26.9 million, respectively, related to the utilization of the inventory markup.
(d)
Gain recognized upon the sale of land in Avonmouth, UK, which was utilized by the phosphorus flame retardants business we exited in 2012.
(e)
See Note 3, “Divestitures,” for additional information.
(f)
Financing-related fees expensed in connection with the acquisition of Rockwood.

NOTE 13—Pension Plans and Other Postretirement Benefits:
The components of pension and postretirement benefits cost (credit) from continuing operations for the three-month and nine-month periods ended September 30, 2016 and 2015 were as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Pension Benefits Cost (Credit):
 
 
 
 
 
 
 
Service cost
$
842

 
$
1,301

 
$
3,123

 
$
3,927

Interest cost
9,115

 
9,228

 
27,978

 
27,479

Expected return on assets
(9,920
)
 
(11,111
)
 
(30,429
)
 
(33,076
)
Actuarial gain
—

 
—

 
(50
)
 
(51
)
Amortization of prior service benefit
230

 
30

 
698

 
89

Total net pension benefits cost (credit)
$
267

 
$
(552
)
 
$
1,320

 
$
(1,632
)
Postretirement Benefits Cost (Credit):
 
 
 
 
 
 
 
Service cost
$
29

 
$
36

 
$
86

 
$
107

Interest cost
620

 
643

 
1,862

 
1,930

Expected return on assets
(46
)
 
(66
)
 
(140
)
 
(197
)
Amortization of prior service benefit
(24
)
 
(24
)
 
(72
)
 
(72
)
Total net postretirement benefits cost
$
579

 
$
589

 
$
1,736

 
$
1,768

Total net pension and postretirement benefits cost(a)
$
846

 
$
37

 
$
3,056

 
$
136

(a)
For the three-month and nine-month periods ended September 30, 2016, $3.7 million and $4.9 million, respectively, of net pension and postretirement benefits cost are included in Income (loss) from discontinued operations (net of tax) in the consolidated statements of income. For the three-month and nine-month periods ended September 30, 2015, $0.8 million and ($0.4) million, respectively, of net pension and postretirement benefits cost (credit) are included in Income (loss) from discontinued operations (net of tax) in the consolidated statements of income. See Note 3, “Divestitures,” for additional information.
During the three-month and nine-month periods ended September 30, 2016, we made contributions of $3.4 million and $11.4 million, respectively, to our qualified and nonqualified pension plans related to continuing and discontinued operations. During the three-month and nine-month periods ended September 30, 2015, we made contributions of $4.8 million and $13.8 million, respectively, to our qualified and nonqualified pension plans related to continuing and discontinued operations.
We paid $0.7 million and $2.3 million in premiums to the U.S. postretirement benefit plan during the three-month and nine-month periods ended September 30, 2016, respectively. During the three-month and nine-month periods ended September 30, 2015, we paid $0.9 million and $2.9 million, respectively, in premiums to the U.S. postretirement benefit plan.
Multiemployer Plan
Our contributions to the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf (“DN Pensionskasse”) multiemployer plan for continuing and discontinued operations were €0.4 million and €1.3 million (approximately $0.5 million and $1.4 million) during the three-month and nine-month periods ended September 30, 2016,

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

respectively. During the three-month and nine-month periods ended September 30, 2015, we made contributions of €0.5 million and €1.2 million (approximately $0.6 million and $1.4 million), respectively, to the DN Pensionskasse multiemployer plan for continuing and discontinued operations.
Effective July 1, 2016, the DN Pensionskasse is subject to a financial improvement plan which expires on December 31, 2022. This financial improvement plan calls for increased capital reserves to avoid future underfunding risk.
NOTE 14—Fair Value of Financial Instruments:
In assessing the fair value of financial instruments, we use methods and assumptions that are based on market conditions and other risk factors existing at the time of assessment. Fair value information for our financial instruments is as follows:
Long-Term Debt—the fair values of our senior notes and other fixed rate foreign borrowings are estimated using Level 1 inputs and account for the majority of 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, 2016
 
December 31, 2015
 
Recorded
Amount
 
Fair Value
 
Recorded
Amount
 
Fair Value
 
(In thousands)
Long-term debt
$
3,464,193

 
$
3,638,142

 
$
3,834,217

 
$
3,793,179

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, 2016 and December 31, 2015, we had outstanding foreign currency forward contracts with notional values totaling $465.5 million and $217.7 million, respectively. Our foreign currency forward contracts outstanding at September 30, 2016 and December 31, 2015 were not designated as hedging instruments under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. As of September 30, 2016 and December 31, 2015, $0.2 million and $0.3 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 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 income, net. For the three-month and nine-month periods ended September 30, 2016, we recognized gains (losses) of $3.0 million and ($1.9) million, respectively, in Other income, net, in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. For the three-month and nine-month periods ended September 30, 2015, we recognized gains (losses) of $2.5 million and ($14.1) million, respectively, in Other income, net, in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. Also, for the nine-month periods ended September 30, 2016 and 2015, we recorded losses of $1.9 million and $14.1 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash settlements of $2.0 million and $13.0 million, respectively, in Other, net, in our condensed consolidated statements of cash flows.
The counterparties to our foreign currency forward contracts are major financial institutions with which we generally have other financial relationships. We are exposed to, but do not anticipate, credit loss in the event of nonperformance by these counterparties.


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

NOTE 15—Fair Value Measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities
 
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
 
 
Level 3
Unobservable inputs for the asset or liability
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the nine-month period ended September 30, 2016. 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, 2016 and December 31, 2015 (in thousands):
 
September 30, 2016
 
Quoted Prices in Active Markets for Identical Items (Level 1)
 
Quoted Prices in Active Markets for Similar Items (Level 2)
 
Unobservable Inputs (Level 3)
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investments under executive deferred compensation plan(a)
$
21,146

 
$
21,146

 
$
—

 
$
—

Private equity securities(b)
$
5,542

 
$
35

 
$
—

 
$
5,507

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
21,146

 
$
21,146

 
$
—

 
$
—

Foreign currency forward contracts(c)
$
183

 
$
—

 
$
183

 
$
—

 
December 31, 2015
 
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)
$
21,631

 
$
21,631

 
$
—

 
$
—

Private equity securities(b)
$
2,626

 
$
31

 
$
—

 
$
2,595

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
21,631

 
$
21,631

 
$
—

 
$
—

Foreign currency forward contracts(c)
$
250

 
$
—

 
$
250

 
$
—

(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”), 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 accounting 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 income, net, in our consolidated statements of income. Holdings in private equity securities are typically valued using the net asset valuations provided by the underlying private investment companies and as such are classified within Level 3.
(c)
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

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

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.

The following table presents the fair value reconciliation of Level 3 assets measured at fair value on a recurring basis for the periods indicated (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Beginning balance
$
2,573

 
$
1,772

 
$
2,595

 
$
1,785

Total unrealized gains included in earnings relating to assets still held at the reporting date
2,934

 
836

 
2,912

 
823

Ending balance
$
5,507

 
$
2,608

 
$
5,507

 
$
2,608


24
Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

NOTE 16—Accumulated Other Comprehensive (Loss) Income:
The components and activity in Accumulated other comprehensive (loss) income (net of deferred income taxes) consisted of the following during the periods indicated below (in thousands):
 
Foreign Currency Translation
 
Pension and Postretirement Benefits(a)
 
Net Investment Hedge
 
Interest Rate Swap(b)
 
Total
Three months ended September 30, 2016
 
 
 
 
 
 
 
 
 
Balance at June 30, 2016
$
(416,636
)
 
$
(338
)
 
$
59,328

 
$
(17,810
)
 
$
(375,456
)
Other comprehensive income (loss) before reclassifications(c)
47,712

 
—

 
(7,395
)
 
—

 
40,317

Amounts reclassified from accumulated other comprehensive (loss) income
—

 
206

 
—

 
525

 
731

Other comprehensive income (loss), net of tax
47,712

 
206

 
(7,395
)
 
525

 
41,048

Other comprehensive income attributable to noncontrolling interests
(23
)
 
—

 
—

 
—

 
(23
)
Balance at September 30, 2016
$
(368,947
)
 
$
(132
)
 
$
51,933

 
$
(17,285
)
 
$
(334,431
)
Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
Balance at June 30, 2015
$
(351,001
)
 
$
4

 
$
54,500

 
$
(19,909
)
 
$
(316,406
)
Other comprehensive loss before reclassifications
(67,526
)
 
—

 
(3,407
)
 
—

 
(70,933
)
Amounts reclassified from accumulated other comprehensive (loss) income
—

 
2

 
—

 
527

 
529

Other comprehensive (loss) income, net of tax
(67,526
)
 
2

 
(3,407
)
 
527

 
(70,404
)
Other comprehensive loss attributable to noncontrolling interests
397

 
—

 
—

 
—

 
397

Balance at September 30, 2015
$
(418,130
)
 
$
6

 
$
51,093

 
$
(19,382
)
 
$
(386,413
)
Nine months ended September 30, 2016
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
$
(463,914
)
 
$
(758
)
 
$
62,245

 
$
(18,861
)
 
$
(421,288
)
Other comprehensive income (loss) before reclassifications
95,425

 
—

 
(10,312
)
 
—

 
85,113

Amounts reclassified from accumulated other comprehensive (loss) income
—

 
626

 
—

 
1,576

 
2,202

Other comprehensive income (loss), net of tax
95,425

 
626

 
(10,312
)
 
1,576

 
87,315

Other comprehensive income attributable to noncontrolling interests
(458
)
 
—

 
—

 
—

 
(458
)
Balance at September 30, 2016
$
(368,947
)
 
$
(132
)
 
$
51,933

 
$
(17,285
)
 
$
(334,431
)
Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
(52,835
)
 
$
—

 
$
11,384

 
$
(20,962
)
 
$
(62,413
)
Other comprehensive (loss) income before reclassifications
(365,870
)
 
—

 
39,709

 
—

 
(326,161
)
Amounts reclassified from accumulated other comprehensive (loss) income
27

 
6

 
—

 
1,580

 
1,613

Other comprehensive (loss) income, net of tax
(365,843
)
 
6

 
39,709

 
1,580

 
(324,548
)
Other comprehensive loss attributable to noncontrolling interests
548

 
—

 
—

 
—

 
548

Balance at September 30, 2015
$
(418,130
)
 
$
6

 
$
51,093

 
$
(19,382
)
 
$
(386,413
)

(a)
The pre-tax portion of amounts reclassified from accumulated other comprehensive (loss) income consists of amortization of prior service benefit, which is a component of pension and postretirement benefits cost (credit). See Note 13, “Pension Plans and Other Postretirement Benefits.”
(b)
The pre-tax portion of amounts reclassified from accumulated other comprehensive (loss) income is included in interest expense.

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

(c)
Foreign currency translation includes an adjustment of $12.5 million to reduce our investment in the Windfield Holdings Pty Ltd joint venture related to the three month period ended March 31, 2016. See Note 1, “Basis of Presentation,” for further details.
The amount of income tax expense allocated to each component of Other comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2016 and 2015 is provided in the following tables (in thousands):
 
Three Months Ended September 30,
 
2016
 
2015
 
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
$
47,787

 
$
209

 
$
(11,740
)
 
$
834

 
$
(66,582
)
 
$
6

 
$
(5,394
)
 
$
834

Income tax (expense) benefit
(75
)
 
(3
)
 
4,345

 
(309
)
 
(944
)
 
(4
)
 
1,987

 
(307
)
Other comprehensive income (loss), net of tax
$
47,712

 
$
206

 
$
(7,395
)
 
$
525

 
$
(67,526
)
 
$
2

 
$
(3,407
)
 
$
527

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2016
 
2015
 
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
$
96,326

 
$
635

 
$
(16,371
)
 
$
2,502

 
$
(394,911
)
 
$
17

 
$
62,876

 
$
2,502

Income tax (expense) benefit
(901
)
 
(9
)
 
6,059

 
(926
)
 
29,068

 
(11
)
 
(23,167
)
 
(922
)
Other comprehensive income (loss), net of tax
$
95,425

 
$
626

 
$
(10,312
)
 
$
1,576

 
$
(365,843
)
 
$
6

 
$
39,709

 
$
1,580


NOTE 17—Related Party Transactions:
Our condensed consolidated financial statements include sales to and purchases from unconsolidated affiliates in the ordinary course of business as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Sales to unconsolidated affiliates
$
5,047

 
$
5,738

 
$
19,452

 
$
19,744

Purchases from unconsolidated affiliates
30,591

 
42,698

 
93,372

 
95,837


NOTE 18—Recently Issued Accounting Pronouncements:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance designed to enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that revenue recognized from a transaction or event that arises from a contract with a customer should reflect the consideration to which an entity expects to be entitled in exchange for goods or services provided. To achieve that core principle the new guidance sets forth a five-step revenue recognition model that will need to be applied consistently to all contracts with customers, except those that are within the scope of other topics in the ASC. Also required are new disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. The new disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized related to the costs to obtain or fulfill a contract. In March 2016 and April 2016, the FASB issued amendments to this new guidance that provides clarification about principal versus agent considerations, identification of performance obligations and accounting for the licensing of intellectual property. In addition, in May 2016, the FASB issued an amendment to the guidance that provides clarification about collectibility, noncash consideration, presentation of sales tax, and transition. These new requirements become effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted for annual and interim reporting periods beginning after December 15, 2016. The impact of these new requirements on our financial statements is being assessed and is not yet known.

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

In February 2015, the FASB issued accounting guidance that changes the analysis that reporting entities must perform to determine whether certain types of legal entities should be consolidated. Specifically, the amendments affect (a) limited partnerships and similar legal entities; (b) the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships; and (c) certain investment funds. These amendments became effective on January 1, 2016 and did not have a material effect on our condensed consolidated financial statements.
In April and August 2015, the FASB issued accounting guidance that changes the balance sheet presentation of debt issuance costs (except for debt issuance costs related to line-of-credit arrangements). The guidance requires debt issuance costs relating to a recognized debt liability to be presented as a direct deduction from the carrying amount of the associated debt liability in the balance sheet. This new requirement became effective on January 1, 2016. See Note 10, “Long-Term Debt” for additional information.
In April 2015, the FASB issued accounting guidance that, among other things, provides for a practical expedient related to interim period remeasurements of defined benefit plan assets and obligations. The practical expedient permits entities to remeasure plan assets and obligations using the month-end that is closest to the date of the actual event. Disclosure of such election and related month-end remeasurement date is required. This guidance became effective on January 1, 2016 and did not have a material effect on our condensed consolidated financial statements.
In April 2015, the FASB issued accounting guidance which clarifies the proper method of accounting for fees paid in a cloud computing arrangement. The guidance requires software licenses included in a cloud computing arrangement to be accounted for consistently with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. This guidance became effective on January 1, 2016 and did not have a material effect on our condensed consolidated financial statements.
In May 2015, the FASB issued accounting guidance for which investments measured at net asset value per share (or its equivalent) using the practical expedient should no longer be categorized within the fair value hierarchy. Although removed from the fair value hierarchy, disclosure of the nature, risks and amount of investments for which fair value is measured using the practical expedient is still required. This guidance became effective on January 1, 2016 and did not have a material effect on our condensed consolidated financial statements.
In July 2015, the FASB issued accounting guidance that requires inventory to be measured at the lower of cost and net realizable value. The scope of this guidance excludes inventory measured using the last-in first-out method or the retail inventory method. This new requirement will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and is to be applied prospectively. Early adoption is permitted. We do not expect this guidance to have a significant impact on our financial statements.
In February 2016, the FASB issued accounting guidance that requires assets and liabilities arising from leases to be recorded on the balance sheet. Additional disclosures are required regarding the amount, timing, and uncertainty of cash flows from leases. This new guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied using a modified retrospective approach. Early adoption is permitted. The impact of this new requirement on our financial statements is being assessed and is not yet known.
In March 2016, the FASB issued accounting guidance that simplifies several aspects of the accounting for share-based payment awards. Among other things, this guidance requires all tax effects related to share-based payment awards to be recognized as income tax expense or benefit on the income statement, thus eliminating all additional paid-in capital pools. An entity should recognize excess tax benefits regardless of whether the benefit reduces income taxes payable in the current period. For interim reporting purposes, excess tax benefits and tax deficiencies should be accounted for as discrete items in the reporting period in which they occur. Additionally, this new guidance requires all tax related cash flows resulting from share-based payments to be presented as an operating activity on the statement of cash flows rather than as a financing activity. This guidance will be effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The impact of this new requirement on our financial statements is being assessed and is not yet known.
In August 2016, the FASB issued accounting guidance which clarifies the proper presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance addresses cash flow issues including, but not limited to, debt prepayment or debt extinguishment costs and distributions received from equity method investments. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal

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

years, and is to be applied on a retrospective basis. Early adoption is permitted. We do not expect this guidance to have a significant impact on our financial statements.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Some of the information presented in this Quarterly Report on Form 10-Q, including the documents incorporated by reference, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on our current expectations, which are in turn based on assumptions that we believe are reasonable based on our current knowledge of our business and operations. We have used words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and variations of such words and similar expressions to identify such forward-looking statements.
These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, there can be no assurance that our actual results will not differ materially from the results and expectations expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, without limitation:
•
changes in economic and business conditions;
•
changes in financial and operating performance of our major customers and industries and markets served by us;
•
the timing of orders received from customers;
•
the gain or loss of significant customers;
•
competition from other manufacturers;
•
changes in the demand for our products or the end-user markets in which our products are sold;
•
limitations or prohibitions on the manufacture and sale of our products;
•
availability of raw materials;
•
changes in the cost of raw materials and energy, and our ability to pass through such increases;
•
changes in our markets in general;
•
fluctuations in foreign currencies;
•
changes in laws and government regulation impacting our operations or our products;
•
the occurrence of regulatory proceedings, claims or litigation;
•
the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change;
•
hazards associated with chemicals manufacturing;
•
the inability to maintain current levels of product or premises liability insurance or the denial of such coverage;
•
political unrest affecting the global economy, including adverse effects from terrorism or hostilities;
•
political instability affecting our manufacturing operations or joint ventures;
•
changes in accounting standards;
•
the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs;
•
changes in the jurisdictional mix of our earnings and changes in tax laws and rates;
•
changes in monetary policies, inflation or interest rates that may impact our ability to raise capital or increase our cost of funds, impact the performance of our pension fund investments and increase our pension expense and funding obligations;
•
volatility and uncertainties in the debt and equity markets;
•
technology or intellectual property infringement, including cyber-security breaches, and other innovation risks;
•
decisions we may make in the future;
•
the ability to successfully execute, operate and integrate acquisitions and divestitures, including the integration of Rockwood’s operations, and realize anticipated synergies and other benefits, or the sale of the Chemetall Surface Treatment business; and
•
the other factors detailed from time to time in the reports we file with the SEC.

28
Table of Contents

We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. The following discussion should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.
The following is a discussion and analysis of results of operations for the three-month and nine-month periods ended September 30, 2016 and 2015. A discussion of consolidated financial condition and sources of additional capital is included under a separate heading “Financial Condition and Liquidity” on page 44.
Overview
We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals that meets customer needs across an exceptionally diverse range of end markets. The end markets we serve include the petroleum refining, consumer electronics, energy storage, construction, automotive, steel and aerospace, lubricants, pharmaceuticals, crop protection, household appliances, heating, ventilation, aluminum finishing, food safety and custom chemistry services. We believe that our commercial and geographic diversity, technical expertise, innovative capability, flexible, low-cost global manufacturing base, experienced management team and strategic focus on our core base technologies will enable us to maintain leading market positions in those areas of the specialty chemicals industry in which we operate.
Secular trends favorably impacting demand within the end markets that we serve combined with our diverse product portfolio, broad geographic presence and customer-focused solutions will continue to be key drivers to our future earnings growth. We continue to build upon our existing green solutions portfolio and our ongoing mission to provide innovative, yet commercially viable, clean energy products and services to the marketplace. We believe our disciplined cost reduction efforts, ongoing productivity improvements and the acquisition of Rockwood 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.
Third Quarter 2016
During the third quarter of 2016:
•
We signed a definitive agreement to acquire the lithium hydroxide and lithium carbonate conversion assets of Jiangxi Jiangli New Materials Science and Technology Co. Ltd. The transaction is expected to close by the end of the first quarter of 2017, subject to regulatory approvals and other customary closing conditions.
•
We entered an agreement with Bolland Minera S.A., for the exclusive exploration and acquisition rights to a lithium resource in Antofalla, within the Catamarca Province of Argentina.
•
Our board of directors declared a quarterly dividend of $0.305 per share on July 11, 2016, which was paid on October 3, 2016 to shareholders of record at the close of business as of September 15, 2016.
•
Our net sales for the quarter were $654.0 million, down 6% from net sales of $693.2 million in the third quarter of 2015. Net sales from our reportable segments for the quarter were $625.4 million, an increase of 7% from net sales of $584.6 million in the third quarter of 2015.
•
Earnings per share from continuing operations were $0.93 (on a diluted basis), an increase from third quarter 2015 results of $0.48 per diluted share.
•
Cash provided by operating activities was $199.9 million in the third quarter, an increase from $183.7 million in the third quarter 2015.

Outlook
Effective January 1, 2016, the former Performance Chemicals segment was split into two reportable segments: (1) Lithium and Advanced Materials, which includes Performance Catalyst Solutions and Curatives (“PCS”), and (2) Bromine Specialties. 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.
On June 17, 2016, we entered into a definitive agreement to sell the Chemetall Surface Treatment business to BASF SE for consideration of approximately $3.2 billion in cash, subject to adjustment with respect to certain pension liabilities, cash, working capital and indebtedness. The sale is expected to close in the fourth quarter of 2016.
The current global business environment presents a diverse set of opportunities and challenges in the markets we serve, from slow and uneven global growth, currency exchange volatility, significantly lower crude oil prices, a dynamic pricing environment in bromine derivatives and an ever-changing landscape in electronics, to the continuous need for cutting edge catalysts and technology by our refinery customers, diverse energy storage needs including exciting opportunities in electric

29
Table of Contents

vehicles, and increasingly stringent environmental standards. Amidst these dynamics, we believe our business fundamentals are sound and that we are strategically well-positioned as we remain focused on increasing sales volumes, significant deleveraging, optimizing and improving the value of our portfolio through pricing and product development, managing costs and delivering value to our customers. We believe that our businesses remain positioned to capitalize on new business opportunities and long-term trends driving growth within our end markets and to respond quickly to improved economic conditions. Additionally, we are well on track to exceed our initial expectations regarding synergies from the acquisition of the Rockwood businesses in 2015.
Lithium and Advanced Materials: We expect continued strong growth for the remainder of 2016, led by demand in battery-grade applications and continued price improvement in Lithium. PCS experienced strong growth in 2015 due to market demand in general and due to certain competitor outages. While we expect most of the PCS business to maintain a similar level of profitability in 2016, weakness in the curatives market and the bankruptcy filing of one of our customers is expected to result in a $15 million impact to Income from continuing operations before income taxes and adjusted EBITDA over the course of the current year.
On a longer term basis, we believe that demand for lithium will continue to grow as new applications for lithium power continue to be developed and the use of plug-in hybrid electric vehicles and battery electric vehicles escalates. In addition, we expect growth in PCS to come from growing global demand for plastics driven by rising standards of living and infrastructure spending, particularly in Asia and the Middle East.
Bromine Specialties: We continue to expect the second half of 2016 results to be below first half on sales and profitability due to expected decline in demand for clear brine fluids used in offshore drilling projects, lower flame retardant volumes due to order timing and seasonality, and inventory rebalancing. Through working capital discipline and strong controls on costs, we expect to generate healthy cash flows in the Bromine business despite these second-half challenges. We believe that 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.
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. Demand for drilling completion fluids in the first half of 2016 held up better than expected, but we have seen lower demand since mid-year as a result of sustained low oil prices impacting offshore drilling projects around the world. Longer term, absent an increase in regulatory pressure on offshore drilling, we would expect this business to follow a solid growth trajectory once oil prices recover from recent levels as we expect that deep water drilling will continue to increase around the world. Net sales of flame retardants were also stronger than expected in the first half of 2016 due to favorable bid results as well as customer order timing. 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 will tighten as demand for existing and possible new uses of bromine expands over time.
Refining Solutions: In 2016, despite some near-term concerns about how the price of oil will continue to impact the crude slate used by refineries and the resulting demand for catalysts, we expect to see continued, sustained high level performance from heavy oil upgrading as well as improvement in clean fuels technology results due to increased change outs by refiners and an improved product mix, although certain domestic oil companies, among others, are expected to look for ways to delay catalysts change outs due to the current oil economic environment.
On a longer term basis, we believe increased global demand for transportation fuels and implementation of more stringent fuel quality requirements will drive growth in our Refining Solutions business. Delivering superior end-use performance continues to be the most effective way to create sustainable value in the refinery catalysts industry, and we believe our technologies continue to provide significant performance and financial benefits to refiners challenged to meet tighter regulations around the world, those managing new contaminants present in North America tight oil, and those in the Middle East and Asia seeking to use heavier feedstock while pushing for higher propylene yields. While lower oil prices may impact the overall crude slate for a period of time, longer term, we believe that the global crude supply will get heavier and more sour, trends that bode well for catalysts demand. Given this and based on our technology, current production capacities and expected growth in end market demand, we believe that we remain well-positioned for the future.
All Other: During the first quarter of 2016, we closed the previously announced sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business. The cash generated from the sale of these businesses was used to reduce borrowings outstanding under the September 2015 Term Loan Agreement.

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In April 2016, we concluded that we would suspend efforts to sell the fine chemistry services business. This business will continue to be reported outside the Company’s reportable segments.
Corporate: In the first quarter of 2016, we increased our quarterly dividend rate to $0.305 per share. We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax rate for 2016 to be approximately 15.9%; however, our rate will vary based on the locales in which income is actually earned and remains subject to potential volatility from changing legislation in the U.S. and other tax jurisdictions.
We 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 web site, www.albemarle.com. Our web site is not a part of this document nor is it incorporated herein by reference.


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Results of Operations
The following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.
Third Quarter 2016 Compared to Third Quarter 2015
Selected Financial Data (Unaudited)
 
Three Months Ended September 30,
 
Percentage Change
 
2016
 
2015
 
2016 vs. 2015
 
(In thousands, except percentages and per share amounts)
NET SALES
$
654,010

 
$
693,216

 
(6
)%
Cost of goods sold
415,038

 
474,171

 
(12
)%
GROSS PROFIT
238,972

 
219,045

 
9
 %
GROSS PROFIT MARGIN
36.5
%
 
31.6
%
 
 
Selling, general and administrative expenses
86,302

 
81,012

 
7
 %
Research and development expenses
21,012

 
21,903

 
(4
)%
Restructuring and other, net
—

 
(6,804
)
 
*

Acquisition and integration related costs
6,749

 
36,514

 
(82
)%
OPERATING PROFIT
124,909

 
86,420

 
45
 %
OPERATING PROFIT MARGIN
19.1
%
 
12.5
%
 
 
Interest and financing expenses
(15,946
)
 
(19,294
)
 
(17
)%
Other income, net
2,990

 
124

 
*

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
111,953

 
67,250

 
66
 %
Income tax expense
12,394

 
13,144

 
(6
)%
Effective tax rate
11.1
%
 
19.5
%
 
 
INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
99,559

 
54,106

 
84
 %
Equity in net income of unconsolidated investments (net of tax)
14,953

 
5,736

 
161
 %
NET INCOME FROM CONTINUING OPERATIONS
114,512

 
59,842

 
91
 %
Income from discontinued operations (net of tax)
23,185

 
11,030

 
110
 %
NET INCOME
137,697

 
70,872

 
94
 %
Net income attributable to noncontrolling interests
(9,477
)
 
(5,480
)
 
73
 %
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION
$
128,220

 
$
65,392

 
96
 %
NET INCOME FROM CONTINUING OPERATIONS AS A PERCENTAGE OF NET SALES
17.5
%
 
8.6
%
 
 
Basic earnings per share:
 
 
 
 
 
Continuing operations
$
0.93

 
$
0.48

 
94
 %
Discontinued operations
0.21

 
0.10

 
110
 %
 
$
1.14

 
$
0.58

 
97
 %
Diluted earnings per share:
 
 
 
 
 
Continuing operations
$
0.93

 
$
0.48

 
94
 %
Discontinued operations
0.20

 
0.10

 
100
 %
 
$
1.13

 
$
0.58

 
95
 %
*Percentage calculation is not meaningful.

32
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Net Sales
For the three-month period ended September 30, 2016, we recorded net sales of $654.0 million, a decrease of $39.2 million, or 6%, compared to net sales of $693.2 million for the three-month period ended September 30, 2015. On January 4, 2016, we closed the sale of the metal sulfides business and on February 1, 2016, we closed the sale of the minerals-based flame retardants and specialty chemicals business. The divestiture of these businesses reduced net sales by $73.3 million as compared to the three-month period ended September 30, 2015. Excluding the impact of the divested businesses noted above, net sales increased by $34.1 million due to $31.2 million of higher volumes resulting from market demand and $2.7 million of favorable currency exchange impacts.
Gross Profit
For the three-month period ended September 30, 2016, our gross profit increased $19.9 million, or 9%, from the corresponding 2015 period. Gross profit includes charges of $7.7 million in the three-month period ended September 30, 2015 for the utilization of the inventory markup recorded as part of purchase accounting for the acquisition of Rockwood. The divestiture of our metal sulfides and minerals-based flame retardants businesses in the first quarter of 2016 reduced gross profit by $9.2 million as compared to the three-month period ended September 30, 2015. Excluding the inventory markup charges and the impact of divestitures, gross profit increased by $21.4 million, or 9.8%, due primarily to higher overall sales volumes and $4.6 million in lower variable and fixed costs. Overall, these factors contributed to a higher gross profit margin for the three-month period ended September 30, 2016 of 36.5%, up from 31.6% in the corresponding period in 2015. Excluding the inventory markup charges and the impact of divestitures, gross profit margin was 36.3% for the three-month period ended September 30, 2016 as compared to 34.9% in the corresponding period in 2015.
Selling, General and Administrative Expenses
For the three-month period ended September 30, 2016, our selling, general and administrative (“SG&A”) expenses increased $5.3 million, or 7%, from the three-month period ended September 30, 2015. The increase is primarily due to timing of expenses and increased compensation costs, partially offset by a reduction in SG&A costs associated with the divested businesses. As a percentage of net sales, SG&A expenses were 13.2% for the three-month period ended September 30, 2016, compared to 11.7% for the corresponding period in 2015.
Research and Development Expenses
For the three-month period ended September 30, 2016, our research and development (“R&D”) expenses decreased $0.9 million, or 4%, from the three-month period ended September 30, 2015. As a percentage of net sales, R&D expenses were 3.2% for the three-month periods ended September 30, 2016 and 2015.
Restructuring and Other, Net
Included in restructuring and other, net, for the third quarter of 2015 is a gain of $6.8 million ($4.7 million after income taxes) recognized upon the sale of the land in Avonmouth, UK, which was utilized by the phosphorus flame retardants business we exited in 2012.
Acquisition and Integration Related Costs
The three-month period ended September 30, 2016 includes $6.3 million of integration costs resulting from the acquisition of Rockwood (mainly consisting of professional services, costs to achieve synergies, relocation costs, and other integration costs) and $0.4 million of costs in connection with other significant projects. The three-month period ended September 30, 2015 includes $35.5 million of acquisition and integration related costs directly related to the acquisition of Rockwood and $1.0 million of costs in connection with other significant projects.
Interest and Financing Expenses
Interest and financing expenses for the three-month period ended September 30, 2016 decreased $3.3 million to $15.9 million from the corresponding 2015 period, due mainly to lower debt levels as well as the favorable impact of the refinancing of the senior notes assumed from Rockwood that was completed on October 15, 2015.
Other Income, Net
Other income, net, for the three-month period ended September 30, 2016 was $3.0 million versus $0.1 million for the corresponding 2015 period. The change was primarily due to a $2.9 million gain in the fair value of our investment in private equity securities recorded during the third quarter of 2016.
Income Tax Expense
The effective income tax rate for the third quarter of 2016 was 11.1% compared to 19.5% for the third quarter of 2015. Our effective income tax rate differs from the U.S. federal statutory income tax rates in the comparative periods primarily due

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to the impact of earnings from outside the U.S. The decrease in the effective tax rate for the three-month period ended September 30, 2016 compared to the same period in 2015 was primarily driven by a tax discrete benefit of $5.5 million related mainly to foreign provision to return adjustments.
Equity in Net Income of Unconsolidated Investments
Equity in net income of unconsolidated investments was $15.0 million for the three-month period ended September 30, 2016 compared to $5.7 million in the same period last year. Equity in net income of unconsolidated investments for the three-month period ended September 30, 2015 includes a $9.1 million charge for utilization of fair value adjustments to inventories in connection with the Rockwood acquisition. Excluding this charge, equity in net income of unconsolidated investments increased by $0.2 million primarily due to higher equity income reported by our Lithium and Advanced Materials segment joint venture Windfield Holdings Pty Ltd primarily due to higher sales volumes. This was partially offset by the sale of our ownership interest in Magnifin Magnesiaprodukte GmbH during 2016.
Income from Discontinued Operations
Income from discontinued operations, after income taxes, was $23.2 million for the three-month period ended September 30, 2016 compared to $11.0 million in the same period last year. The change was primarily due to favorable sales prices and volumes due to market demand, no depreciation and amortization expense in the three-month period ended September 30, 2016 because of discontinued operations accounting, as well as lower interest expense, partially offset by increased SG&A expenses of the Chemetall Surface Treatment business.
Net Income Attributable to Noncontrolling Interests
For the three-month period ended September 30, 2016, net income attributable to noncontrolling interests was $9.5 million compared to $5.5 million in the same period last year. This increase of $4.0 million was due primarily to an increase in consolidated income related to our Jordanian joint venture from higher sales volumes.
Net Income Attributable to Albemarle Corporation
Net income attributable to Albemarle Corporation increased to $128.2 million in the three-month period ended September 30, 2016, from $65.4 million in the three-month period ended September 30, 2015. The three-month period ended September 30, 2015 included a $13.6 million charge after income taxes for utilization of fair value adjustments to inventories. Excluding this charge, net income attributable to Albemarle increased by $49.2 million. The increase is primarily due to higher gross profit associated with stronger business results, a reduction in acquisition and integration costs, lower interest associated with lower debt levels and the favorable impact of the refinancing that was completed on October 15, 2015, in addition to a lower overall effective tax rate, partially offset by the impact of the divestitures and higher SG&A expenses.
Other Comprehensive Income (Loss), Net of Tax
Total other comprehensive income (loss), after income taxes, was $41.0 million for the three-month period ended September 30, 2016 compared to ($70.4) million for the corresponding period in 2015. 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 2016 period, other comprehensive income from foreign currency translation adjustments was $47.7 million, mainly as a result of favorable movements in the European Union Euro of approximately $38 million and the Korean Won of approximately $8 million. The movement in the European Union Euro includes an adjustment of $12.5 million to reduce the Foreign currency translation on our investment in the Windfield Holdings Pty Ltd joint venture related to the three month period ended March 31, 2016. Also included in total other comprehensive income for the 2016 period is a loss of $7.4 million in connection with the revaluation of our €700.0 million senior notes which have been designated as a hedge of our net investment in foreign operations. In the 2015 period, other comprehensive loss from foreign currency translation adjustments was $67.5 million, mainly as a result of unfavorable movements in the British Pound Sterling of approximately $30 million, the Brazilian Real of approximately $18 million, the Chinese Renminbi of approximately $7 million, the Korean Won of approximately $7 million, and a net unfavorable variance in various other currencies totaling approximately $29 million (each approximately $5 million or less), partially offset by a favorable movement in the European Union Euro of approximately $25 million. Also included in total other comprehensive loss for the 2015 period is a loss of $3.4 million in connection with the revaluation of our €700.0 million 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 Company’s chief operating decision maker to evaluate performance and make resource allocation decisions. Our reportable business segments consist of: (1) Lithium and Advanced Materials, (2) Bromine Specialties and (3) Refining Solutions.
Summarized financial information concerning our reportable segments is shown in the following tables. Results for 2015 have been recast to reflect the change in segments previously noted. The “All Other” category is comprised of three operating

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segments that do not fit into any of our core businesses subsequent to the acquisition of Rockwood: minerals-based flame retardants and specialty chemicals, fine chemistry services and metal sulfides. During the first quarter of 2016, we completed the sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business.
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the reportable 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 segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
The Company’s chief operating decision maker uses earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items such as acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, non-operating pension and OPEB items and other significant non-recurring items (“adjusted EBITDA”), in a balanced manner and on a segment basis to assess the ongoing performance of the Company’s business segments and to allocate resources. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.
 
Three Months Ended September 30,
 
Percentage Change
 
2016
 
%
 
2015
 
%
 
2016 vs. 2015
 
(In thousands, except percentages)
Net sales:
 
 
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
240,424

 
36.8
 %
 
$
208,820

 
30.1
 %
 
15
 %
Bromine Specialties
194,496

 
29.7
 %
 
190,716

 
27.5
 %
 
2
 %
Refining Solutions
190,453

 
29.1
 %
 
185,102

 
26.7
 %
 
3
 %
All Other
28,272

 
4.3
 %
 
102,224

 
14.7
 %
 
(72
)%
Corporate
365

 
0.1
 %
 
6,354

 
1.0
 %
 
(94
)%
Total net sales
$
654,010

 
100.0
 %
 
$
693,216

 
100.0
 %
 
(6
)%
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
91,719

 
48.7
 %
 
$
77,408

 
42.8
 %
 
18
 %
Bromine Specialties
51,807

 
27.5
 %
 
58,801

 
32.5
 %
 
(12
)%
Refining Solutions
64,960

 
34.5
 %
 
54,517

 
30.2
 %
 
19
 %
All Other
5,470

 
2.9
 %
 
6,262

 
3.5
 %
 
(13
)%
Corporate
(25,627
)
 
(13.6
)%
 
(16,307
)
 
(9.0
)%
 
57
 %
Total adjusted EBITDA
$
188,329

 
100.0
 %
 
$
180,681

 
100.0
 %
 
4
 %



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See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, to Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, (in thousands):
 
Lithium and Advanced Materials
 
Bromine Specialties
 
Refining Solutions
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
Three months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
66,166

 
$
41,621

 
$
55,981

 
$
163,768

 
$
3,806

 
$
(39,354
)
 
$
128,220

Depreciation and amortization
25,553

 
10,186

 
8,979

 
44,718

 
1,664

 
1,592

 
47,974

Acquisition and integration related costs(a)
—

 
—

 
—

 
—

 
—

 
6,749

 
6,749

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
15,946

 
15,946

Income tax expense
—

 
—

 
—

 
—

 
—

 
12,394

 
12,394

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
(231
)
 
(231
)
Other(b)
—

 
—

 
—

 
—

 
—

 
462

 
462

Adjusted EBITDA
$
91,719

 
$
51,807

 
$
64,960

 
$
208,486

 
$
5,470

 
$
(25,627
)
 
$
188,329

Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
38,498

 
$
49,395

 
$
45,713

 
$
133,606

 
$
617

 
$
(68,831
)
 
$
65,392

Depreciation and amortization
22,076

 
9,406

 
8,804

 
40,286

 
5,645

 
2,712

 
48,643

Utilization of inventory markup(c)
16,834

 
—

 
—

 
16,834

 
—

 
—

 
16,834

Restructuring and other, net(d)
—

 
—

 
—

 
—

 
—

 
(6,804
)
 
(6,804
)
Acquisition and integration related costs(a)
—

 
—

 
—

 
—

 
—

 
36,514

 
36,514

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
19,294

 
19,294

Income tax expense
—

 
—

 
—

 
—

 
—

 
13,144

 
13,144

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

 
(11,030
)
 
(11,030
)
Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(1,306
)
 
(1,306
)
Adjusted EBITDA
$
77,408

 
$
58,801

 
$
54,517

 
$
190,726

 
$
6,262

 
$
(16,307
)
 
$
180,681


(a)
See “Acquisition and Integration Related Costs” on page 33 for a description of these costs.
(b)
Includes the write-off of fixed assets of $1.4 million included in Research and development expenses, partially offset by a net gain of $0.9 million on the sales of properties included in Other income, net.
(c)
In connection with the acquisition of Rockwood, the Company valued Rockwood’s existing inventory at fair value as of the Acquisition Closing Date, which resulted in a markup of the underlying net book value of the inventory totaling approximately $103.4 million. The inventory markup was expensed over the estimated remaining selling period. For the three-month period ended September 30, 2015, $7.7 million was included in Cost of goods sold, and Equity in net income of unconsolidated investments was reduced by $9.1 million, related to the utilization of the inventory markup.
(d)
See “Restructuring and Other, Net” on page 33 for a description of these costs.
Lithium and Advanced Materials
Lithium and Advanced Materials segment net sales for the three-month period ended September 30, 2016 were $240.4 million, up $31.6 million, or 15%, in comparison to the same period in 2015. The increase was primarily driven by $20.1 million of favorable Lithium price impacts due primarily to price increases in our battery grade lithium carbonate and hydroxide applications, $16.8 million of favorable Lithium sales volumes due to market demand, and $1.5 million of favorable currency translation impacts, partially offset by $6.8 million of unfavorable PCS volume and price impacts due primarily to weakness in the curatives market and the bankruptcy filing of one of our customers. Adjusted EBITDA for Lithium and Advanced Materials was up 18%, or $14.3 million, to $91.7 million for the three-month period ended September 30, 2016, compared to the same period in 2015, primarily due to higher overall sales volumes, favorable pricing and $1.2 million of favorable currency translation impacts.
Bromine Specialties
Bromine Specialties segment net sales for the three-month period ended September 30, 2016 were $194.5 million, up $3.8 million, or 2%, in comparison to the same period in 2015. The increase was driven mainly by $13.9 million of higher sales

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volumes due to market demand and $1.7 million of favorable impacts from currency translation, partially offset by $11.8 million unfavorable price impacts. Adjusted EBITDA for Bromine Specialties was down 12%, or $7.0 million, to $51.8 million for the three-month period ended September 30, 2016, compared to the same period in 2015, primarily due to unfavorable sales mix and price impacts offset partly by lower variable and fixed costs and $1.3 million of favorable impacts from currency translation.
Refining Solutions
Refining Solutions segment net sales for the three-month period ended September 30, 2016 were $190.5 million, an increase of $5.4 million, or 3%, compared to the three-month period ended September 30, 2015. This increase was primarily due to $10.8 million of higher Clean Fuels Technology volumes and $3.9 million of favorable Clean Fuels Technology price impacts due to market conditions, partially offset by $7.5 million of lower Heavy Oil Upgrading volumes and $0.5 million of unfavorable currency exchange impacts. Refining Solutions adjusted EBITDA increased 19%, or $10.4 million, to $65.0 million for the three-month period ended September 30, 2016 in comparison to the corresponding period of 2015. This increase was due primarily to higher overall sales volumes, an improved Clean Fuels Technology sales mix, and $1.6 million of lower variable and fixed costs.
All Other
On January 4, 2016, we closed the sale of the metal sulfides business, and on February 1, 2016, we closed the sale of the minerals-based flame retardants and specialty chemicals business. The divestiture of these businesses reduced net sales and adjusted EBITDA for the third quarter of 2016 as compared to the prior year period by $73.3 million and $8.7 million, respectively.

All Other net sales for the three-month period ended September 30, 2016 were $28.3 million, a decrease of $74.0 million, or 72%, compared to the three-month period ended September 30, 2015. Excluding the impact of the divested businesses noted above, All Other net sales decreased by $0.7 million due to unfavorable fine chemistry services pricing impacts, partially offset by higher sales volumes. All Other adjusted EBITDA was down 13%, or $0.8 million, for the three-month period ended September 30, 2016 in comparison to the corresponding period of 2015. Excluding the impact of the divested businesses noted above, All Other adjusted EBITDA increased by $7.9 million due to favorable raw material and utility prices, lower SG&A expenses, and higher sales volumes, partially offset by unfavorable pricing impacts for fine chemistry services.
Corporate
Corporate adjusted EBITDA was a loss of $25.6 million for the three-month period ended September 30, 2016, compared to a loss of $16.3 million for the corresponding period of 2015. The change was primarily due to timing of SG&A expenses, as well as increased compensation costs.



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Table of Contents

Nine Months 2016 Compared to Nine Months 2015

Selected Financial Data (Unaudited)
 
Nine Months Ended September 30,
 
Percentage Change
 
2016
 
2015
 
2016 vs. 2015
 
(In thousands, except percentages and per share amounts)
NET SALES
$
1,980,548

 
$
2,103,819

 
(6
)%
Cost of goods sold
1,250,938

 
1,481,359

 
(16
)%
GROSS PROFIT
729,610

 
622,460

 
17
 %
GROSS PROFIT MARGIN
36.8
%
 
29.6
%
 
 
Selling, general and administrative expenses
254,988

 
252,672

 
1
 %
Research and development expenses
61,384

 
67,324

 
(9
)%
Restructuring and other, net
—

 
(6,804
)
 
(100
)%
Gain on sales of businesses, net
(122,298
)
 
—

 
*

Acquisition and integration related costs
44,337

 
117,171

 
(62
)%
OPERATING PROFIT
491,199

 
192,097

 
156
 %
OPERATING PROFIT MARGIN
24.8
%
 
9.1
%
 
 
Interest and financing expenses
(46,860
)
 
(62,193
)
 
(25
)%
Other income, net
740

 
50,234

 
(99
)%
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
445,079

 
180,138

 
147
 %
Income tax expense
61,535

 
41,780

 
47
 %
Effective tax rate
13.8
%
 
23.2
%
 
 
INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
383,544

 
138,358

 
177
 %
Equity in net income of unconsolidated investments (net of tax)
44,790

 
19,955

 
124
 %
NET INCOME FROM CONTINUING OPERATIONS
428,334

 
158,313

 
171
 %
(Loss) income from discontinued operations (net of tax)
(357,843
)
 
19,074

 
*

NET INCOME
70,491

 
177,387

 
(60
)%
Net income attributable to noncontrolling interests
(28,906
)
 
(16,733
)
 
73
 %
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION
$
41,585

 
$
160,654

 
(74
)%
NET INCOME FROM CONTINUING OPERATIONS AS A PERCENTAGE OF NET SALES
21.6
%
 
7.5
%
 
 
Basic earnings (loss) per share:
 
 
 
 
 
Continuing operations
$
3.56

 
$
1.28

 
178
 %
Discontinued operations
(3.19
)
 
0.17

 
*

 
$
0.37

 
$
1.45

 
(74
)%
Diluted earnings (loss) per share:
 
 
 
 
 
Continuing operations
$
3.53

 
$
1.27

 
178
 %
Discontinued operations
(3.16
)
 
0.17

 
*

 
$
0.37

 
$
1.44

 
(74
)%
*Percentage calculation is not meaningful.


38
Table of Contents

Net Sales
For the nine-month period ended September 30, 2016, we recorded net sales of $2.0 billion, a decrease of $123.3 million, or 6%, compared to net sales of $2.1 billion for the nine-month period ended September 30, 2015. On January 4, 2016, we closed the sale of the metal sulfides business and on February 1, 2016, we closed the sale of the minerals-based flame retardants and specialty chemicals business. The divestiture of these businesses reduced net sales by $194.4 million as compared to the nine-month period ended September 30, 2015. Excluding the impact of the divested businesses noted above, net sales increased by $71.1 million due to $67.8 million of higher volumes due to market demand, and $4.9 million of favorable price impacts partially offset by $1.6 million of unfavorable currency exchange impacts.
Gross Profit
For the nine-month period ended September 30, 2016, our gross profit increased $107.2 million, or 17%, from the corresponding 2015 period. Gross profit includes charges of $55.3 million in the nine-month period ended September 30, 2015 for the utilization of the inventory markup recorded as part of purchase accounting for the acquisition of Rockwood. The divestiture of our metal sulfides and minerals-based flame retardants businesses in the first quarter of 2016 reduced gross profit by $28.9 million as compared to the nine-month period ended September 30, 2015. Excluding the inventory markup charges and the impact of divestitures, gross profit increased by $80.8 million, or 11.9%, due primarily to higher overall sales volumes, favorable pricing impacts, and $27.7 million in lower variable and fixed costs. Overall, these factors contributed to a higher gross profit margin for the nine-month period ended September 30, 2016 of 36.8%, up from 29.6% in the corresponding period in 2015. Excluding the inventory markup charges and the impact of divestitures, gross profit margin was 37.4% for the nine-month period ended September 30, 2016 as compared to 34.5% in the corresponding period in 2015.
Selling, General and Administrative Expenses
For the nine-month period ended September 30, 2016, our SG&A expenses increased $2.3 million, or 1%, from the nine-month period ended September 30, 2015. The increase is primarily due to a $2.3 million decrease in non-operating pension and OPEB gains and an increase in compensation costs, partially offset by a reduction in SG&A costs associated with the divested businesses. As a percentage of net sales, SG&A expenses were 12.9% for the nine-month period ended September 30, 2016, compared to 12.0% for the corresponding period in 2015.
Research and Development
For the nine-month period ended September 30, 2016, our R&D expenses decreased $5.9 million, or 9%, from the nine-month period ended September 30, 2015. As a percentage of net sales, R&D expenses were 3.1% and 3.2% for the nine-month periods ended September 30, 2016 and 2015, respectively.
Restructuring and Other, Net
Included in Restructuring and other, net, for the nine-month period ended September 30, 2015 is a gain of $6.8 million ($4.7 million after income taxes) recognized upon the sale of land in Avonmouth, UK, which was utilized by the phosphorus flame retardants business we exited in 2012.
Gain on Sales of Businesses, Net
The nine-month period ended September 30, 2016 includes gains before income taxes of $11.5 million and $112.3 million related to the sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business, respectively, both of which closed in the first quarter of 2016. In addition, Gain on sales of businesses, net, for the nine-month period ended September 30, 2016 includes a loss of $1.5 million on the sale of our wafer reclaim business.
Acquisition and Integration Related Costs
The nine-month period ended September 30, 2016 includes $42.4 million of integration costs resulting from the acquisition of Rockwood (mainly consisting of professional services, costs to achieve synergies, relocation costs, and other integration costs) and $1.9 million of costs in connection with other significant projects. The nine-month period ended September 30, 2015 includes $111.2 million of acquisition and integration related costs directly related to the acquisition of Rockwood and $6.0 million of costs in connection with other significant projects.
Interest and Financing Expenses
Interest and financing expenses for the nine-month period ended September 30, 2016 decreased $15.3 million to $46.9 million from the corresponding 2015 period, due mainly to lower debt levels as well as the favorable impact of the refinancing of the senior notes assumed from Rockwood that was completed on October 15, 2015.



39
Table of Contents

Other Income, Net
Other income, net, for the nine-month period ended September 30, 2016 was $0.7 million versus $50.2 million for the corresponding 2015 period. The change was primarily due to $54.1 million of favorable foreign currency translation gains in 2015. The foreign currency gains were primarily related to cash denominated in U.S. Dollars held by foreign subsidiaries where the European Union Euro serves as the functional currency. This was partially offset by a $2.9 million gain in the fair value of our investment in private equity securities recorded during the third quarter of 2016 and $4.4 million in amortization of bridge facility fees and other financing fees related to the acquisition of Rockwood recorded in 2015.
Income Tax Expense
The effective income tax rate for the first nine months of 2016 was 13.8% compared to 23.2% for the first nine months of 2015. Our effective income tax rate differs from the U.S. federal statutory income tax rates in the comparative periods primarily due to the impact of earnings from outside the U.S. The decrease in the effective tax rate for the nine-month period ended September 30, 2016 compared to the same period in 2015 is primarily driven by income of $122.3 million from the sales of businesses with associated tax expense of $6.7 million, that was subject to tax at a rate below our effective tax rate and changes in impacts of earnings from outside the U.S.
Equity in Net Income of Unconsolidated Investments
Equity in net income of unconsolidated investments was $44.8 million for the nine-month period ended September 30, 2016 compared to $20.0 million in the same period last year. Equity in net income of unconsolidated investments for the nine-month period ended September 30, 2015 includes a $26.9 million charge for utilization of fair value adjustments to inventories in connection with the Rockwood acquisition. Excluding this charge, equity in net income of unconsolidated investments decreased by $2.1 million primarily due to the sale of our ownership interest in Magnifin Magnesiaprodukte GmbH during the nine-month period ended September 30, 2016. This was partially offset by higher equity income reported by our Refining Solutions segment joint venture Nippon Ketjen Company Limited primarily due to higher sales volumes.
(Loss) income from Discontinued Operations
(Loss) income from discontinued operations, after income taxes, was ($357.8) million for the nine-month period ended September 30, 2016 compared to $19.1 million in the same period last year. The change was primarily due to a non-recurring, non-cash tax charge of $411.3 million related to the change in the Company’s assertion over book and tax basis differences for certain entities included in the sale of the Chemetall Surface Treatment business recorded in 2016, no depreciation and amortization expense in the three-month period ended September 30, 2016 because of discontinued operations accounting and a $20.0 million charge of fair value adjustments to inventories in connection with the Rockwood acquisition in 2015, partially offset by favorable sales prices and volumes due to market demand, as well as lower interest expense.
Net Income Attributable to Noncontrolling Interests
For the nine-month period ended September 30, 2016, net income attributable to noncontrolling interests was $28.9 million compared to $16.7 million in the same period last year. This increase of $12.2 million was due primarily to an increase in consolidated income related to our Jordanian joint venture from higher sales volumes.
Net Income Attributable to Albemarle Corporation
Net income attributable to Albemarle Corporation decreased to $41.6 million in the nine-month period ended September 30, 2016, from $160.7 million in the nine-month period ended September 30, 2015. The nine-month period ended September 30, 2015 includes a $64.4 million charge after income taxes for utilization of fair value adjustments to inventories and the current year includes a non-recurring, non-cash tax charge of $411.3 million related to the decision sell the Chemetall Surface Treatment business and a $115.6 million gain after income taxes on sales of businesses. Excluding these items, net income attributable to Albemarle increased by $112.2 million. The increase was primarily due to higher gross profit associated with stronger business results, a reduction in acquisition and integration costs, lower interest associated with lower debt levels and the favorable impact of the refinancing that was completed on October 15, 2015, and a lower overall effective tax rate, partially offset by $54.1 million of favorable foreign currency translation gains in 2015 related to cash denominated in U.S. Dollars held by foreign subsidiaries where the European Union Euro serves as the functional currency and the impact of the divestitures.
Other Comprehensive Income (Loss), Net of Tax
Total other comprehensive income (loss), after income taxes, was $87.3 million for the nine-month period ended September 30, 2016 compared to ($324.5) million for the corresponding period in 2015. The majority of these amounts were the result of translating our foreign subsidiary financial statements from their local currencies to U.S. Dollars. In the 2016 period, other comprehensive income from foreign currency translation adjustments was $95.4 million, mainly as a result of favorable movements in the European Union Euro of approximately $82 million, the Brazilian Real of approximately $14

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million, the Korean Won of approximately $7 million, the Japanese Yen of approximately $6 million and a net favorable variance in various other currencies totaling approximately $11 million (each approximately $4 million or less), partially offset by unfavorable movements in the British Pound Sterling of approximately $19 million and the Chinese Renminbi of approximately $5 million. Also included in total other comprehensive income for the 2016 period is a loss of $10.3 million in connection with the revaluation of our €700.0 million senior notes which have been designated as a hedge of our net investment in foreign operations. In the 2015 period, other comprehensive loss from foreign currency translation adjustments was $365.8 million, mainly as a result of unfavorable movements in the European Union Euro of approximately $226 million, the British Pound Sterling of approximately $55 million, the Brazilian Real of approximately $30 million, the Turkish Lira of approximately $12 million, the Korean Won of approximately $10 million, the Chinese Renminbi of approximately $6 million, the South African Rand of approximately $6 million and a net unfavorable variance in various other currencies totaling approximately $20 million (each approximately $5 million or less). Also included in total other comprehensive loss for the 2015 period is income of $39.7 million in connection with the revaluation of our €700.0 million senior notes which have been designated as a hedge of our net investment in foreign operations.
Segment Information Overview. Summarized financial information concerning our reportable segments is shown in the following tables. Results for 2015 have been recast to reflect the change in segments previously noted. The “All Other” category is comprised of three operating segments that do not fit into any of our core businesses subsequent to the acquisition of Rockwood: minerals-based flame retardants and specialty chemicals, fine chemistry services and metal sulfides. During the first quarter of 2016, we completed the sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business.
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the reportable 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 segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
The Company’s chief operating decision maker uses earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items such as acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, non-operating pension and OPEB items and other significant non-recurring items (“adjusted EBITDA”), in a balanced manner and on a segment basis to assess the ongoing performance of the Company’s business segments and to allocate resources. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.

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Nine Months Ended September 30,
 
Percentage Change
 
2016
 
%
 
2015
 
%
 
2016 vs. 2015
 
(In thousands, except percentages)
Net sales:
 
 
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
689,950

 
34.8
 %
 
$
620,597

 
29.5
 %
 
11
 %
Bromine Specialties
597,912

 
30.2
 %
 
604,267

 
28.7
 %
 
(1
)%
Refining Solutions
539,044

 
27.2
 %
 
528,841

 
25.1
 %
 
2
 %
All Other
150,987

 
7.6
 %
 
337,997

 
16.1
 %
 
(55
)%
Corporate
2,655

 
0.2
 %
 
12,117

 
0.6
 %
 
(78
)%
Total net sales
$
1,980,548

 
100.0
 %
 
$
2,103,819

 
100.0
 %
 
(6
)%
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
260,861

 
45.7
 %
 
$
234,988

 
40.4
 %
 
11
 %
Bromine Specialties
179,977

 
31.5
 %
 
180,431

 
31.0
 %
 
—
 %
Refining Solutions
181,620

 
31.8
 %
 
144,910

 
24.9
 %
 
25
 %
All Other
14,810

 
2.6
 %
 
29,540

 
5.1
 %
 
(50
)%
Corporate
(66,435
)
 
(11.6
)%
 
(8,350
)
 
(1.4
)%
 
*

Total adjusted EBITDA
$
570,833

 
100.0
 %
 
$
581,519

 
100.0
 %
 
(2
)%
*Percentage calculation is not meaningful.

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See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, to Net (loss) income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, (in thousands):
 
Lithium and Advanced Materials
 
Bromine Specialties
 
Refining Solutions
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
Nine months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
186,373

 
$
150,221

 
$
154,767

 
$
491,361

 
$
133,012

 
$
(582,788
)
 
$
41,585

Depreciation and amortization
74,488

 
29,756

 
26,853

 
131,097

 
5,629

 
4,562

 
141,288

(Gain) loss on sales of businesses, net(a)
—

 
—

 
—

 
—

 
(123,831
)
 
1,533

 
(122,298
)
Acquisition and integration related costs(b)
—

 
—

 
—

 
—

 
—

 
44,337

 
44,337

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
46,860

 
46,860

Income tax expense
—

 
—

 
—

 
—

 
—

 
61,535

 
61,535

Loss from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

 
357,843

 
357,843

Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(779
)
 
(779
)
Other(c)
—

 
—

 
—

 
—

 
—

 
462

 
462

Adjusted EBITDA
$
260,861

 
$
179,977

 
$
181,620

 
$
622,458

 
$
14,810

 
$
(66,435
)
 
$
570,833

Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
88,219

 
$
154,353

 
$
119,513

 
$
362,085

 
$
9,644

 
$
(211,075
)
 
$
160,654

Depreciation and amortization
67,530

 
26,078

 
25,397

 
119,005

 
16,867

 
6,933

 
142,805

Utilization of inventory markup(d)
79,239

 
—

 
—

 
79,239

 
3,029

 
—

 
82,268

Restructuring and other, net(e)
—

 
—

 
—

 
—

 
—

 
(6,804
)
 
(6,804
)
Acquisition and integration related costs(b)
—

 
—

 
—

 
—

 
—

 
117,171

 
117,171

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
62,193

 
62,193

Income tax expense
—

 
—

 
—

 
—

 
—

 
41,780

 
41,780

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

 
(19,074
)
 
(19,074
)
Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(3,915
)
 
(3,915
)
Other(f)
—

 
—

 
—

 
—

 
—

 
4,441

 
4,441

Adjusted EBITDA
$
234,988

 
$
180,431

 
$
144,910

 
$
560,329

 
$
29,540

 
$
(8,350
)
 
$
581,519

(a)
See “Gain on Sales of Businesses, Net” on page 39 for a description of these items.
(b)
See “Acquisition and Integration Related Costs” on page 39 for a description of these costs.
(c)
Includes the write-off of fixed assets of $1.4 million included in Research and development expenses, partially offset by a net gain of $0.9 million on the sales of properties included in Other income, net.
(d)
In connection with the acquisition of Rockwood, the Company valued Rockwood’s existing inventory at fair value as of the Acquisition Closing Date, which resulted in a markup of the underlying net book value of the inventory totaling approximately $103.4 million. The inventory markup was expensed over the estimated remaining selling period. For the nine-month period ended September 30, 2015, $55.4 million was included in Cost of goods sold, and Equity in net income of unconsolidated investments was reduced by $26.9 million, related to the utilization of the inventory markup.
(e)
See “Restructuring and Other, Net” on page 39 for a description of these items.
(f)
Financing-related fees expensed in connection with the acquisition of Rockwood.

Lithium and Advanced Materials
Lithium and Advanced Materials segment net sales for the nine-month period ended September 30, 2016 were $690.0 million, up $69.4 million, or 11%, in comparison to the same period in 2015. The increase was primarily driven by $61.1 million of favorable Lithium sales volumes due to market demand and $30.3 million of favorable Lithium price impacts due primarily to price increases in our battery grade lithium carbonate and hydroxide applications, partially offset by $21.8 million of unfavorable PCS volume and price impacts due primarily to weakness in the curatives market and the bankruptcy filing of one of our customers, and $0.2 million of unfavorable currency translation impacts. Adjusted EBITDA for Lithium and Advanced Materials was up 11%, or $25.9 million, to $260.9 million for the nine-month period ended September 30, 2016, compared to the same period in 2015, primarily due to higher overall sales volumes and favorable price impacts.

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Bromine Specialties
Bromine Specialties segment net sales for the nine-month period ended September 30, 2016 were $597.9 million, down $6.4 million, or 1%, in comparison to the same period in 2015. The decrease was driven mainly by $8.9 million of unfavorable price impacts, partially offset by $1.4 million of higher sales volumes due to market demand and $1.2 million of currency translation impacts. Adjusted EBITDA for Bromine Specialties was down less than 1%, or $0.5 million, to $180.0 million for the nine-month period ended September 30, 2016, compared to the same period in 2015, primarily due to unfavorable sales mix and price impacts, partially offset by $12.9 million of lower variable and fixed costs and $1.3 million of favorable currency translation impacts.
Refining Solutions
Refining Solutions segment net sales for the nine-month period ended September 30, 2016 were $539.0 million, an increase of $10.2 million, or 2%, compared to the nine-month period ended September 30, 2015. This increase was primarily due to $11.8 million of higher Heavy Oil Upgrading volumes due to continued strong demand partly offset by $2.6 million of unfavorable currency translation impacts. Refining Solutions adjusted EBITDA increased 25%, or $36.7 million, to $181.6 million for the nine-month period ended September 30, 2016 in comparison to the corresponding period of 2015. This increase was due primarily to $15.4 million of lower variable and fixed costs, higher Heavy Oil Upgrading volumes, and a favorable Clean Fuels Technology sales mix impact.
All Other
On January 4, 2016, we closed the sale of the metal sulfides business, and on February 1, 2016, we closed the sale of the minerals-based flame retardants and specialty chemicals business. The divestiture of these businesses reduced net sales and adjusted EBITDA for the nine-month period ended September 30, 2016 as compared to the prior year period by $194.4 million and $26.4 million, respectively.

All Other net sales for the nine-month period ended September 30, 2016 were $151.0 million, a decrease of $187.0 million, or 55%, compared to the nine-month period ended September 30, 2015. Excluding the impact of the divested businesses noted above, All Other net sales increased by $7.4 million due to higher sales volumes from the fine chemistry services business. All Other adjusted EBITDA was down 50%, or $14.7 million, for the nine-month period ended September 30, 2016 in comparison to the corresponding period of 2015. Excluding the impact of the divested businesses noted above, All Other adjusted EBITDA increased by $11.7 million due to higher overall sales volumes and lower raw material costs from the fine chemistry services business.
Corporate
Corporate adjusted EBTIDA was a loss of $66.4 million for the nine-month period ended September 30, 2016, compared to a loss of $8.4 million for the corresponding period of 2015. The change was primarily due to $54.1 million of foreign currency translation gains in 2015 and $3.1 million of foreign currency translation losses in 2016.
Financial Condition and Liquidity
Overview
The principal uses of cash in our business generally have been capital investments, funding working capital, acquisitions and repayment of debt. We also make contributions to our defined benefit pension plans, pay dividends to our shareholders and repurchase shares of our common stock. Historically, cash to fund the needs of our business has been principally provided by cash from operations, debt financing and equity issuances.
We are continually focused on working capital efficiency particularly in the areas of accounts receivable and inventory. We anticipate that cash on hand, cash provided by operating activities, divestitures and long-term borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations, fund capital expenditures and other investing activities, fund pension contributions and pay dividends for the foreseeable future.
Cash Flow
During the first nine months of 2016, cash on hand, cash provided by operations and $310.6 million of net proceeds from divestitures funded $382.7 million of debt repayments, $141.3 million of capital expenditures for plant, machinery and equipment, and dividends to shareholders of $101.1 million. Our operations provided $452.4 million of cash flows during the first nine months of 2016, as compared to $316.9 million for the first nine months of 2015. Our cash from operations included an outflow from working capital changes of $79.7 million, primarily due to tax payments made during the year and the increase in receivables from higher sales in certain regions with longer payment terms. Overall, our cash and cash equivalents increased by approximately $19.9 million to $233.6 million at September 30, 2016, up from $213.7 million at December 31, 2015.

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Net current assets were $480.9 million and $214.3 million at September 30, 2016 and December 31, 2015, respectively, with the increase being largely due to the reduction in the current portion of long-term debt using proceeds from divestitures completed in the first quarter of 2016. Included in net current assets at September 30, 2016 and December 31, 2015 is $119.8 million and $312.3 million, respectively, of assets held for sale, net of related liabilities. Other changes in the components of net current assets are due to the timing of the sale of goods and other normal transactions leading up to the balance sheet dates and are not the result of any policy changes by the Company, nor do they reflect any change in either the quality of our net current assets or our expectation of success in converting net working capital to cash in the normal course of business.
Capital expenditures for the nine-month period ended September 30, 2016 of $141.3 million, $15.5 million of which related to discontinued operations, were associated with property, plant and equipment additions. We expect our capital expenditures to approximate $185 million from continuing operations in 2016 for capacity increases, cost reduction and continuity of operations projects.
On June 17, 2016, we entered into a definitive agreement to sell the Chemetall Surface Treatment business to BASF SE for proceeds of approximately $3.2 billion in cash, subject to adjustment with respect to certain pension liabilities, cash, working capital and indebtedness. We intend to use the proceeds to significantly reduce leverage, invest heavily in growth in remaining businesses and return capital to shareholders. In connection with the agreement to sell the Chemetall Surface Treatment business, we have recorded a deferred tax liability of $411.3 million related to the outside basis difference of the investment in this business. The sale is expected to close in the fourth quarter of 2016, at which time, any difference between the sales price and the proportionate carrying value of the interests being sold would be recognized and will become a cash liability.
On February 26, 2016, we increased our quarterly dividend rate to $0.305 per share, a 5% increase from the quarterly rate of $0.29 per share paid in 2015.
At September 30, 2016 and December 31, 2015, our cash and cash equivalents included $228.9 million and $200.7 million, respectively, held by our foreign subsidiaries. For our continuing operations, the majority of these foreign cash balances are associated with earnings that we have asserted are indefinitely invested and which we plan to use to support our continued growth plans outside the U.S. through funding of capital expenditures, acquisitions, research, operating expenses or other similar cash needs of our foreign operations. As a result of the agreement to sell the Chemetall Surface Treatment business, our assertion of indefinite reinvestment of the earnings of the foreign Chemetall Surface Treatment businesses changed, and resulted in a discrete non-cash charge of $29.8 million in 2016. From time to time, we repatriate cash associated with earnings from our foreign subsidiaries to the U.S. for normal operating needs through intercompany dividends, but only from subsidiaries whose earnings we have not asserted to be indefinitely invested or whose earnings qualify as “previously taxed income” as defined by the Internal Revenue Code. During the first nine months of 2016 and 2015, we repatriated approximately $27.3 million and $122.4 million of cash, respectively, as part of these foreign cash repatriation activities.
While we continue to closely monitor our cash generation, working capital management and capital spending in light of continuing uncertainties in the global economy, we believe that we will continue to have the financial flexibility and capability to opportunistically fund future growth initiatives. Additionally, we anticipate that future capital spending including business acquisitions, share repurchases and other cash outlays should be financed primarily with cash flow provided by operations and cash on hand, with additional cash needed, if any, provided by borrowings. The amount and timing of any additional borrowings will depend on our specific cash requirements.
Long-Term Debt
We currently have the following senior notes outstanding:
Issue Month/Year
 
Principal (in millions)
 
Interest Rate
 
Interest Payment Dates
 
Maturity Date
December 2014
 
€700.0
 
1.875%
 
December 8
 
December 8, 2021
November 2014
 
$250.0
 
3.00%
 
June 1
December 1
 
December 1, 2019
November 2014
 
$425.0
 
4.15%
 
June 1
December 1
 
December 1, 2024
November 2014
 
$350.0
 
5.45%
 
June 1
December 1
 
December 1, 2044
December 2010
 
$350.0
 
4.50%
 
June 15
December 15
 
December 15, 2020
Our senior notes are senior unsecured obligations and rank equally with all our other outstanding senior unsecured indebtedness. The senior notes are effectively subordinated to any of our existing or future secured indebtedness and to the existing and future indebtedness of our subsidiaries. As is customary for such long-term debt instruments, each senior note has terms that allow us to redeem it before its maturity, in whole at any time or in part from time to time, at a redemption price

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equal to the greater of (i) 100% of the principal amount of the senior notes to be redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis using the comparable government rate (as defined in the indentures governing the senior notes) plus between 25 and 40 basis points, depending on the note, plus, in each case, accrued interest thereon to the date of redemption. Holders may require us to purchase such notes at 101% upon a change of control triggering event, as defined in the indentures. The senior notes are subject to typical events of default, including bankruptcy and insolvency events, nonpayment and the acceleration of certain subsidiary indebtedness of $40 million or more caused by a nonpayment default.
The Company entered into a new term loan agreement with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and certain other lenders on September 14, 2015 (the “September 2015 Term Loan Agreement”). The September 2015 Term Loan Agreement provided for borrowings under a 364-day term loan facility (the “364-Day Facility”) and a five-year term loan facility (the “Five-Year Facility”). During the nine-month period ended September 30, 2016, we repaid the 364-Day Facility in full and we repaid $81 million of borrowings under the Five-Year Facility, each primarily with proceeds from the sale of the Company’s metal sulfides business and the sale of the Company’s minerals-based flame retardants and specialty chemicals business, both of which closed in the first quarter of 2016. As of September 30, 2016, the aggregate amount outstanding under the Five-Year Facility was $869.0 million, excluding unamortized debt issuance costs. Borrowings under the facilities bear interest equal to, at the option of the Company: (a) the London Inter-Bank Offered Rate (“LIBOR”) plus a margin ranging from 1.000% to 1.875% per annum depending upon the long-term, unsecured, senior, non-credit enhanced debt rating of the Company, or (b) a base rate (defined as the highest of (i) the Federal Funds Rate plus 0.50%; (ii) the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its “prime rate” or (iii) one-month LIBOR plus 1.00%) plus a margin of 0.000% to 0.875% per annum depending upon the long-term, unsecured, senior, non-credit enhanced debt rating of the Company. As of September 30, 2016, the interest rate on the Five-Year Facility was LIBOR plus 1.375%.
Borrowings under the Five-Year Facility are required to be repaid in equal quarterly installments on the last business day of each March, June, September and December, beginning with September 30, 2016, and ending with the last such day to occur prior to the fifth anniversary after initial funding (each a “Payment Date”), in an aggregate principal amount equal to (a) in the case of each Payment Date occurring on or after the first anniversary and prior to the second anniversary of initial funding, 1.25% of the aggregate principal amount of such loans, and (b) in the case of each Payment Date occurring on or after the second anniversary of initial funding, equal to 2.5% of the aggregate principal amount of such loans. As a result of the repayments to the Five-Year Facility noted above, we will not be required to make a quarterly installment until December 31, 2017. On the fifth anniversary after initial funding, any remaining amounts outstanding under the Five-Year Facility become due and payable. Borrowings under the September 2015 Term Loan Agreement are subject to customary affirmative and negative covenants, including a maximum leverage ratio requirement that is aligned with the maximum leverage ratio requirement of our February 2014 Credit Agreement.
Our revolving, unsecured credit agreement dated as of February 7, 2014, as amended, (the “February 2014 Credit Agreement”) currently provides for borrowings of up to $1.0 billion and matures on February 7, 2020. Borrowings bear interest at variable rates based on the LIBOR for deposits in the relevant currency plus an applicable margin which ranges from 1.000% to 1.700%, 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 1.300% as of September 30, 2016. There were no borrowings outstanding under the February 2014 Credit Agreement as of September 30, 2016.
Borrowings under the February 2014 Credit Agreement are conditioned upon compliance with the following covenants: (a) consolidated funded debt, as defined in the agreement, must be less than or equal to 3.50 times consolidated EBITDA, as defined in the agreement, which reflects adjustments for certain non-recurring or unusual items such as acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility divestiture charges and other significant non-recurring items (herein “consolidated adjusted EBITDA” or “adjusted EBITDA”) as of the end of any fiscal quarter; (b) with the exception of certain liens as specified in the agreement, liens may not attach to assets when the aggregate amount of all indebtedness secured by such liens plus unsecured subsidiary indebtedness, other than indebtedness incurred by our subsidiaries under the February 2014 Credit Agreement, would exceed 20% of consolidated net worth, as defined in the agreement; and (c) with the exception of certain indebtedness as specified in the agreement, subsidiary indebtedness may not exceed the difference between 20% of consolidated net worth, as defined in the agreement, and indebtedness secured by liens permitted under the agreement. On August 15, 2014, certain amendments were made to the February 2014 Credit Agreement which includes, among other things, an increase in the maximum leverage ratio (as described above) from 3.50 to 4.50 for the first four quarters following the completion of the acquisition of Rockwood, stepping down by 0.25 on a quarterly basis thereafter until reaching 3.50.

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On May 29, 2013, we entered into agreements to initiate a commercial paper program on a private placement basis under which we may issue unsecured commercial paper notes (the “Commercial Paper Notes”) from time-to-time up to a maximum aggregate principal amount outstanding at any time of $750.0 million. The proceeds from the issuance of the Commercial Paper Notes are used for general corporate purposes, including the repayment of other debt of the Company. Our February 2014 Credit Agreement is available to repay the Commercial Paper Notes, if necessary. Aggregate borrowings outstanding under the February 2014 Credit Agreement and the Commercial Paper Notes will not exceed the $1.0 billion current maximum amount available under the February 2014 Credit Agreement. The Commercial Paper Notes may be sold at a discount from par, or alternatively, at par, and bear interest at rates that varies based upon market conditions at the time of issuance. The maturities of the Commercial Paper Notes vary but may not exceed 397 days from the date of issue. The definitive documents relating to the commercial paper program contain customary representations, warranties, default and indemnification provisions. At September 30, 2016, we had $400.9 million of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately 1.38% and a weighted-average maturity of 39 days. The Commercial Paper Notes are classified as Current portion of long-term debt in our condensed consolidated balance sheets at September 30, 2016 and December 31, 2015.
The non-current portion of our long-term debt was $3.0 billion at September 30, 2016 and $3.1 billion at December 31, 2015. In addition, at September 30, 2016, we had the ability to borrow $599.1 million under our commercial paper program and the February 2014 Credit Agreement, and $223.7 million under other existing lines of credit, subject to various financial covenants under our February 2014 Credit Agreement. We have the ability and intent to refinance our borrowings under our other existing credit lines with borrowings under the February 2014 Credit Agreement, as applicable. Therefore, the amounts outstanding under those credit lines, if any, are classified as long-term debt. We believe that as of September 30, 2016, we were, and currently are, in compliance with all of our debt covenants.
Off-Balance Sheet Arrangements
In the normal course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, including bank guarantees and letters of credit, which totaled approximately $60.0 million at September 30, 2016. None of these off-balance sheet arrangements has, or is likely to have, a material effect on our current or future financial condition, results of operations, liquidity or capital resources.
Other Obligations
Total expected 2016 contributions to our domestic and foreign qualified and nonqualified pension plans from continuing and discontinued operations, including our SERP, approximate $16.6 million. We may choose to make additional pension contributions in excess of this amount. We have made contributions of $11.4 million to our domestic and foreign pension plans (both qualified and nonqualified) during the nine-month period ended September 30, 2016.
The liability related to uncertain tax positions, including interest and penalties, recorded in Other noncurrent liabilities totaled $99.1 million at September 30, 2016 and $101.7 million at December 31, 2015. Related assets for corresponding offsetting benefits recorded in Other assets totaled $50.7 million at September 30, 2016 and $50.9 million at December 31, 2015. We cannot estimate the amounts of any cash payments associated with these liabilities for the remainder of 2016 or the next twelve months, and we are unable to estimate the timing of any such cash payments in the future at this time.
We are subject to federal, state, local and foreign requirements regulating the handling, manufacture and use of materials (some of which may be classified as hazardous or toxic by one or more regulatory agencies), the discharge of materials into the environment and the protection of the environment. To our knowledge, we are currently complying and expect to continue to comply in all material respects with applicable environmental laws, regulations, statutes and ordinances. Compliance with existing federal, state, local and foreign environmental protection laws is not expected to have a material effect on capital expenditures, earnings or our competitive position, but the costs associated with increased legal or regulatory requirements could have an adverse effect on our results.
Among other environmental requirements, we are subject to the federal Superfund law, and similar state laws, under which we may be designated as a potentially responsible party (“PRP”) and may be liable for a share of the costs associated with cleaning up various hazardous waste sites. Management believes that in cases in which we may have liability as a PRP, our liability for our share of cleanup is de minimis. Further, almost all such sites represent environmental issues that are quite mature and have been investigated, studied and in many cases settled. In de minimis situations, our policy generally is to negotiate a consent decree and to pay any apportioned settlement, enabling us to be effectively relieved of any further liability as a PRP, except for remote contingencies. In other than de minimis PRP matters, our records indicate that unresolved PRP exposures should be immaterial. We accrue and expense our proportionate share of PRP costs. Because management has been actively involved in evaluating environmental matters, we are able to conclude that the outstanding environmental liabilities for unresolved PRP sites should not have a material adverse effect upon our results of operations or financial condition.


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Liquidity Outlook
We anticipate that cash on hand, cash provided by operating activities, divestitures and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations, fund any capital expenditures and share repurchases, make pension contributions and pay dividends for the foreseeable future. Our main focus over the next three years, in terms of uses of cash, will be deleveraging to restore our borrowings to more normal levels, capital expenditures for business growth and capturing synergies related to the integration of Rockwood. Additionally, we will continue to evaluate the merits of any opportunities that may arise for acquisitions of businesses or assets, which may require additional liquidity.
Our cash flows from operations may be negatively affected by adverse consequences to our customers and the markets in which we compete as a result of moderating global economic conditions and reduced capital availability.
While we maintain business relationships with a diverse group of financial institutions, an adverse change in their credit standing could lead them to not honor their contractual credit commitments, decline funding under existing but uncommitted lines of credit, not renew their extensions of credit or not provide new financing. While the global corporate bond and bank loan markets remain strong, periods of elevated uncertainty related to global economic and/or geopolitical concerns may limit efficient access to such markets for extended periods of time. If such concerns heighten, we may incur increased borrowing costs and reduced credit capacity as our various credit facilities mature. When the U.S. Federal Reserve or similar national reserve banks in other countries decide to tighten the monetary supply in response, for example, to improving economic conditions, we may incur increased borrowing costs as interest rates increase on our variable rate credit facilities, as our various credit facilities mature or as we refinance any maturing fixed rate debt obligations.
Overall, with generally strong cash-generative businesses and no significant long-term debt maturities before 2019, we believe we have and will maintain a solid liquidity position.
We had cash and cash equivalents totaling $233.6 million as of September 30, 2016, of which $228.9 million is held by our foreign subsidiaries. This cash represents an important source of our liquidity and is invested in short-term investments including time deposits and readily marketable securities with relatively short maturities. Substantially all of this cash is held, and intended for use, outside of the U.S. We anticipate that any needs for liquidity within the U.S. in excess of our cash held in the U.S. can be readily satisfied with borrowings under our existing U.S. credit facilities or our commercial paper program.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Item 1 Financial Statements – Note 18, “Recently Issued Accounting Pronouncements.”
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant changes in our interest rate risk, foreign currency exchange rate exposure, marketable securities price risk or raw material price risk from the information we provided in our Annual Report on Form 10-K for the year ended December 31, 2015.
We had variable interest rate borrowings of $1.3 billion outstanding at September 30, 2016, bearing a weighted average interest rate of 1.64% and representing approximately 38% of our total outstanding debt. A hypothetical 10% change (approximately 16 basis points) in the interest rate applicable to these borrowings would change our annualized interest expense by approximately $2.2 million as of September 30, 2016. We may enter into interest rate swaps, collars or similar instruments with the objective of reducing interest rate volatility relating to our borrowing costs.
Our financial instruments which are subject to foreign currency exchange risk consist of foreign currency forward contracts with an aggregate notional value of $465.5 million and with a fair value representing a net liability position of approximately $0.2 million at September 30, 2016. Fluctuations in the value of these contracts are generally offset by the value of the underlying exposures being hedged. We conducted a sensitivity analysis on the fair value of our foreign currency hedge portfolio assuming an instantaneous 10% change in select foreign currency exchange rates from their levels as of September 30, 2016, with all other variables held constant. A 10% appreciation of the U.S. Dollar against foreign currencies that we hedge would result in a increase of approximately $14.0 million in the fair value of our foreign currency forward contracts. A 10% depreciation of the U.S. Dollar against these foreign currencies would result in an decrease of approximately $16.3 million in the fair value of our foreign currency forward contracts. The sensitivity of the fair value of our foreign currency hedge portfolio represents changes in fair values estimated based on market conditions as of September 30, 2016, without reflecting the effects of underlying anticipated transactions. When those anticipated transactions are realized, actual effects of changing foreign currency exchange rates could have a material impact on our earnings and cash flows in future periods.

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Item 4.
Controls and Procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
No change in internal controls over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the third quarter ended September 30, 2016 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings.
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 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. Additional information with respect to this Item 1 is contained in Note 11 to the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Item 1A.
Risk Factors.
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. The risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our results of operations and our financial condition. We do not believe that there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
NONE

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Item 6.
Exhibits.
(a) Exhibits
31.1

 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
 
 
 
31.2

 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
 
 
 
32.1

 
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
 
 
 
32.2

 
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.
 
 
 
101

 
Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended September 30, 2016, furnished in XBRL (eXtensible Business Reporting Language)).
Attached as Exhibit 101 to this report are the following documents formatted in XBRL: (i) the Consolidated Statements of Income for the three months and nine months ended September 30, 2016 and 2015, (ii) the Consolidated Statements of Comprehensive Income (Loss) for the three months and nine months ended September 30, 2016 and 2015, (iii) the Condensed Consolidated Balance Sheets at September 30, 2016 and December 31, 2015, (iv) the Consolidated Statements of Changes in Equity for the nine months ended September 30, 2016 and 2015, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 and (vi) the Notes to the Condensed Consolidated Financial Statements.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
ALBEMARLE CORPORATION
 
 
 
(Registrant)
 
 
 
 
Date:
November 7, 2016
 
By:
 
/S/    SCOTT A. TOZIER        
 
 
 
 
 
Scott A. Tozier
 
 
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 
(principal financial officer)

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