10-K 1 a1231201710-kdocument.htm 10-K Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________

FORM 10-K
________________________________________
x
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017

or
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 001-12658
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
COMMON STOCK, $.01 Par Value
 
NEW YORK STOCK EXCHANGE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
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 at least 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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer
 
x
 
Accelerated filer
 
¨
Non-accelerated filer
 
¨

 
Smaller reporting company
 
¨

 
 
 
 
Emerging growth company
 
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $11.7 billion based on the last reported sale price of common stock on June 30, 2017, the last business day of the registrant’s most recently completed second quarter.
Number of shares of common stock outstanding as of February 20, 2018: 110,638,449
Documents Incorporated by Reference
Portions of Albemarle Corporation’s definitive Proxy Statement for its 2018 Annual Meeting of Shareholders to be filed with the U.S. Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, are incorporated by reference into Part III of this Form 10-K.



Albemarle Corporation and Subsidiaries
 

Index to Form 10-K
Year Ended December 31, 2017
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Albemarle Corporation and Subsidiaries
 

PART I
Item 1.
Business.
Albemarle Corporation was incorporated in Virginia in 1993. Our principal executive offices are located at 4350 Congress Street, Suite 700, Charlotte, North Carolina 28209. Unless the context otherwise indicates, the terms “Albemarle,” “we,” “us,” “our” or “the Company” mean Albemarle Corporation and its consolidated subsidiaries.
We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals that are designed to meet our customers’ needs across a diverse range of end markets. The end markets we serve include energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, crop protection and custom chemistry services. We believe that our commercial and geographic diversity, technical expertise, innovative capability, 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.
On January 12, 2015 (the “Acquisition Closing Date”), we completed the acquisition of Rockwood Holdings, Inc. (“Rockwood”) for a purchase price of approximately $5.7 billion. As a result, Rockwood became a wholly-owned subsidiary of Albemarle. The Chemetall® Surface Treatment business, acquired as a part of Rockwood, was sold on December 14, 2016 to BASF SE for cash proceeds of approximately $3.1 billion, net of purchase price adjustments. For additional information about these transactions, see “Recent Acquisitions, Joint Ventures and Divestitures” beginning on page 8, Note 2, “Acquisitions,” and Note 3, “Divestitures,” to our consolidated financial statements included in Part II, Item 8 of this report.
We and our joint ventures currently operate 31 production and research and development (“R&D”) facilities, as well as a number of administrative and sales offices, around the world. As of December 31, 2017, we served approximately 2,500 customers, none of which individually represents more than 10% of net sales of the Company, in approximately 100 countries. For information regarding our unconsolidated joint ventures see Note 10, “Investments,” to our consolidated financial statements included in Part II, Item 8 of this report.
Business Segments
During 2017, we managed and reported our operations under three reportable segments: 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. Financial results and discussion about our segments included in this Annual Report on Form 10-K are organized according to these categories except where noted otherwise.
For financial information regarding our reportable segments, including revenues generated for each of the last three fiscal years from each of the product categories included in our reportable segments, and geographic area information, see Note 24, “Segment and Geographic Area Information,” to our consolidated financial statements included in Part II, Item 8 of this report.
In November 2017, we announced that during the first quarter of 2018, the Performance Catalyst Solutions ("PCS") product category will merge with the Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments will include: (1) Lithium, (2) Bromine Specialties and (3) Catalysts.
Lithium and Advanced Materials Segment
As of December 31, 2017, our Lithium and Advanced Materials segment consisted of two product categories: Lithium and PCS.
Lithium. Our Lithium business develops advanced materials for a wide range of industries and end markets. Our Lithium business is a low-cost producer of one of the most diverse product portfolios of lithium derivatives in the industry.
We develop and manufacture a broad range of basic lithium compounds, including lithium carbonate, lithium hydroxide, lithium chloride, and value-added lithium specialties and reagents, including butyllithium and lithium aluminum hydride. Lithium is a key component in products and processes used in a variety of applications and industries, which include lithium batteries used in consumer electronics and automobiles, high performance greases, thermoplastic elastomers for car tires, rubber soles and plastic bottles, catalysts for chemical reactions, organic synthesis processes in the areas of steroid chemistry and vitamins, various life science applications, as well as intermediates in the pharmaceutical industry, among other applications. We also develop and manufacture cesium products for the chemical and pharmaceutical industries, and zirconium, barium and titanium products for various pyrotechnical applications, including airbag initiators.

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In addition to developing and supplying lithium compounds, we provide technical services, including the handling and use of reactive lithium products. We also offer our customers recycling services for lithium-containing by-products resulting from synthesis with organolithium products, lithium metal and other reagents. We plan to continue to focus on the development of new products and applications.
LithiumCompetition
The global lithium market consists of producers located in the Americas, Asia-Pacific and, to a lesser extent, Africa. We are a leading global provider of lithium compounds. Major competitors include FMC Corporation, Sociedad Quimica y Minera de Chile S.A., SichuanTianqi Lithium, and Jiangxi Ganfeng Lithium. In the metal-based specialty chemicals business, key competitors include Cabot Corporation and Sigma-Aldrich Corporation. Competition in the global lithium market is largely based on product quality, product diversity, reliability of supply and customer service.
LithiumRaw Materials and Significant Supply Contracts
We obtain lithium through solar evaporation of our ponds at the Salar de Atacama, in Chile, and in Silver Peak, Nevada. After we obtain the lithium brine from the Salar de Atacama, we process it into lithium carbonate and lithium chloride at a plant in nearby La Negra, Chile. The lithium brine from our Silver Peak site is processed into lithium carbonate at our plant in Silver Peak. Subsequently, in other locations in the United States (“U.S.”), Germany, France and Taiwan, we further process the materials into various derivatives, depending on the markets we serve. In addition, we have 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. If necessary, we can also obtain lithium from other sources.
Our mineral rights with respect to the Salar de Atacama in Chile consist exclusively of our right to access lithium brine, covering an area of approximately 16,700 hectares, pursuant to a long-term contract with the Chilean government, originally entered into in January 1975 by one of our predecessors and subsequently amended and restated. In 2016, we were granted approval by the Environmental Assessment Commission of the Antofagasta Region to increase our currently authorized lithium brine removal rate in the Salar de Atacama, in addition to amending our lithium production rights agreement with the Chilean Economic Development Agency (“CORFO”) to both extend the term of that agreement and increase our authorized lithium quota at our facility in the Salar de Atacama, Chile. The agreement provides for commission payments to the Chilean government based on sales price/MT and our support of research and development in Chile in lithium applications and solar energy. The amended agreement provides us with sufficient lithium to produce over 80,000 metric tons annually of technical and battery grade lithium salts over the next 26 years at our expanding battery grade manufacturing facilities in La Negra, Chile. In September 2017, we announced that we have developed an innovative technology that could lead to a sustainable increase in total lithium production in Chile to as much as 125,000 metric tons of lithium carbonate equivalent annually, without the need for additional brine pumping at the Salar de Atacama. As a result of this development, we have requested that CORFO increase our lithium quota. As of the date of this Annual Report, CORFO is yet to conclude on the Company’s request.
Our mineral rights in Silver Peak, Nevada consist of our right to access lithium brine pursuant to our permitted and certified senior water rights, a settlement agreement with the U.S. government, originally entered into in June 1991, and our patented and unpatented land claims. Pursuant to the 1991 agreement, our water rights and our land claims, we have rights to all lithium that we can remove economically from the Clayton Valley Basin in Nevada. We have been operating at the Silver Peak site since 1966. Our Silver Peak site covers a surface of approximately 15,301 acres, 10,826 acres of which we own through a subsidiary. The remaining acres are owned by the U.S. government from whom we lease the land pursuant to unpatented land claims that are renewed annually. Based on our 2017 production levels, we believe that the amount of lithium brine we can economically obtain from our Silver Peak, Nevada site pursuant to our rights could support the current levels of lithium carbonate production for approximately 20 years. Assuming certain operating conditions are satisfied, our annual lithium carbonate production capacity is estimated to be approximately 6,000 metric tons at our Silver Peak facility. However, no assurance can be given that the indicated levels of production of lithium carbonate at either Silver Peak or La Negra will be realized.
We also own a 49% interest in Windfield Holdings Pty. Ltd., which directly owns 100% of the equity of Talison Lithium Pty. Ltd., a company incorporated in Australia (“Talison”). Talison, through its wholly-owned subsidiaries, owns and operates a lithium mine in Greenbushes, Western Australia and mines lithium ore, which is then milled and processed to separate lithium concentrate from the rest of the ore. The ore is processed into battery-grade lithium carbonate and lithium hydroxide at our Jiangxi and Sichuan, China facilities, which were recently acquired by us from Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”). Talison currently sells the lithium concentrate to its shareholders. Talison has a leading position in two categories of lithium concentrates: (i) technical-grade lithium concentrates which have low iron content for use in the manufacture of glass, ceramics and heat-proof cookware; and (ii) a high-yielding chemical-grade lithium concentrate, used to produce lithium chemicals which form the basis for the manufacture of lithium-ion batteries for laptop

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computers, mobile phones, electric bicycles and electric vehicles. Assuming certain operating conditions are satisfied, the annual lithium carbonate equivalent production capacity at the Talison facility is estimated to be approximately 80,000 metric tons. However, no assurance can be given that the indicated levels of production of lithium concentrate at Talison will be realized.
Performance Catalyst Solutions. We have three significant product lines in our PCS division: organometallics, polymer catalysts and curatives. We manufacture organometallic co-catalysts (e.g., aluminum, magnesium and zinc alkyls) as well as metallocene components and co-catalysts (e.g., methylaluminumoxane, organoborons, metallocene compounds, and finished polymerization catalysts comprising these products). We also offer finished single-site catalysts with or without our proprietary ActivCat® activation technology and a line of proprietary Ziegler-Natta catalysts under the Advantage brand. Our co-catalysts and finished catalysts are used in our customers’ production of polyolefin polymers. Such polymers are commodity (i.e., Ziegler-Natta polymerization technology-based) and specialty (i.e., Single Site polymerization technology-based) plastics serving a wide variety of end markets including packaging, non-packaging, films and injection molding. Some of our organometallic products are also used in the manufacture of alpha-olefins (i.e., hexene, octene, decene). Our curatives include a range of curing agents used in polyurethanes, epoxies and other engineered resins.
On December 14, 2017, we signed a definitive agreement to sell the polyolefin catalysts and components portion of the PCS business to W.R. Grace & Co. for proceeds of approximately $416 million in cash. The transaction includes Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at the Yeosu, South Korea site. The transaction does not include the organometallics or curatives portion of the PCS business. The sale is expected to close in the first quarter of 2018, subject to the satisfaction of customary closing conditions, including approvals from regulatory authorities.
PCS—Competition
Our PCS business serves the global market including the Americas, Europe, Asia and the Middle East. Our major competitors in the PCS market include AkzoNobel, Lanxess AG and W.R. Grace & Co. in the polyolefin catalysts and co-catalysts areas. Lonza is our main competitor in the curatives market.
PCSRaw Materials and Significant Supply Contracts
The major raw materials we use in our PCS operations include aluminum, ethylene, alpha-olefins, isobutylene and toluene, most of which are readily available from numerous independent suppliers and are purchased or provided under contracts at prices we believe are competitive. The cost of raw materials is generally based on market prices, although we may use contracts with price caps or other tools, as appropriate, to mitigate price volatility.
Bromine Specialties Segment
Our bromine and bromine-based business includes products used in fire safety solutions and other specialty chemicals applications. Our fire safety technology enables the use of plastics in high performance, high heat applications by enhancing the flame resistant properties of these materials. End market products that benefit from our fire safety technology include plastic enclosures for consumer electronics, printed circuit boards, wire and cable products, electrical connectors, textiles and foam insulation. Our bromine-based business also includes specialty chemicals products such as elemental bromine, alkyl bromides, inorganic bromides, brominated powdered activated carbon and a number of bromine fine chemicals. These specialty products are used in chemical synthesis, oil and gas well drilling and completion fluids, mercury control, water purification, beef and poultry processing and various other industrial applications. Other specialty chemicals that we produce include tertiary amines for surfactants, biocides, and disinfectants and sanitizers. A number of customers of our bromine business operate in cyclical industries, including the consumer electronics and oil field industries. As a result, demand from our customers in such industries is also cyclical.
Competition
Our bromine business serves the markets in the Americas, Asia, Europe and the Middle East, each of which is highly competitive. Product performance and quality, price and contract terms are the primary factors in determining which qualified supplier is awarded a contract. Research and development, product and process improvements, specialized customer services, the ability to attract and retain skilled personnel and maintenance of a good safety record have also been important factors to compete effectively in the marketplace. Our most significant competitors are Lanxess AG and Israel Chemicals Ltd.
Raw Materials and Significant Supply Contracts
The bromine we use is sourced from two locations: Arkansas and the Dead Sea. Our bromine production operations in Arkansas are supported by an active brine rights leasing program. We estimate that, at current production levels, we will be able to produce bromine in Arkansas for more than 50 years. In addition, through our 50% interest in Jordan Bromine Company

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Limited (“JBC”), a consolidated joint venture with operations in Safi, Jordan, we source bromine from the Dead Sea, which is believed to have indefinite quantities of brine.
Refining Solutions Segment
Our two main product lines in this segment are (i) Clean Fuels Technologies (“CFT”), which is primarily composed of hydroprocessing catalysts (“HPC”) together with isomerization and akylation catalysts, and (ii) fluidized catalytic cracking (“FCC”) catalysts and additives. HPC products are widely applied throughout the refining industry. Their application enables the upgrading of oil fractions to clean fuels and other usable oil feedstocks and products by removing sulfur, nitrogen and other impurities from the feedstock. In addition, they improve product properties by adding hydrogen and in some cases improve the performance of downstream catalysts and processes. We continuously seek to add more value to refinery operations by offering HPC products that meet our customers’ requirements for profitability and performance in the very demanding refining market. FCC catalysts assist in the high yield cracking of refinery petroleum streams into derivative, higher-value products such as transportation fuels and petrochemical feedstocks like propylene. Our FCC additives are used to reduce emissions of sulfur dioxide and nitrogen oxide in FCC units and to increase liquefied petroleum gas olefins yield, such as propylene, and to boost octane in gasoline. Albemarle offers unique refinery catalysts to crack and treat the lightest to the heaviest feedstocks while meeting refinery yield and product needs. We offer a wide range of HPC products and provide customized FCC catalyst systems to our customers.
In 2017, the total number of refineries world wide remained at 615. Over the long-term, we expect to see some smaller refineries shutting down and being replaced by larger scale and more complex refineries, with growth concentrated in the Middle East and Asia. Oil refining has again increased moderately compared to the previous year. We estimate that there are currently approximately 565 FCC units being operated globally, each of which requires a constant supply of FCC catalysts. In addition, we estimate that there are approximately 3,200 HPC units being operated globally, or a capacity of approximately 46 million barrels per day, each of which typically requires replacement HPC catalysts once every one to four years.
Competition
Our Refining Solutions segment serves the global market including the Americas, Asia, Europe and the Middle East, each of which is highly competitive and driven by different factors. Product performance and quality, price and contract terms are the primary factors in determining which qualified supplier is awarded a contract.
Research and development, product and process improvements, specialized customer services, the ability to attract and retain skilled personnel and the maintenance of a good safety record have also been important factors to compete effectively in the catalysts marketplace. Through our research and development programs, we strive to differentiate our business by developing value-added products and products based on proprietary technologies.
Our major competitors in the CFT catalysts market include Criterion Catalysts and Technologies, Advanced Refining Technologies and Haldor Topsoe. Our major competitors in the FCC catalysts market include W.R. Grace & Co., BASF Corporation and China Petrochemical Corporation (Sinopec).
Raw Materials and Significant Supply Contracts
The major raw materials we use in our Refining Solutions operations include sodium silicate, sodium aluminate, kaolin, rare earths and metals such as molybdenum, nickel and cobalt, most of which are readily available from numerous independent suppliers and are purchased or provided under contracts at prices we believe are competitive. The cost of raw materials is generally based on market prices, although we may use contracts with price caps or other tools, as appropriate, to mitigate price volatility.
Sales, Marketing and Distribution
We have an international strategic account program that uses cross-functional teams to serve large global customers. This program emphasizes creative strategies to improve and strengthen strategic customer relationships with emphasis on creating value for customers and promoting post-sale service. Complementing this program are regional Albemarle sales personnel around the world who serve numerous additional customers globally. We also utilize commissioned sales representatives and specialists in specific market areas.
Research and Development
We believe that in order to generate revenue growth, maintain our margins and remain competitive, we must continually invest in research and development, product and process improvements and specialized customer services. Our research and development efforts support each of our business segments. The objective of our research and development efforts is to develop innovative chemistries and technologies with applications relevant within targeted key markets through both process and new

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product development. Through research and development, we continue to seek increased margins by introducing value-added products and proprietary processes and innovative green chemistry technologies. Our green chemistry efforts focus on the development of products in a manner that minimizes waste and the use of raw materials and energy, avoids the use of toxic reagents and solvents and utilizes safe, environmentally friendly manufacturing processes. Green chemistry is encouraged with our researchers through periodic focus group discussions and special rewards and recognition for outstanding new green developments.
We incurred research and development expenses of $84.3 million, $80.5 million and $89.2 million during 2017, 2016 and 2015, respectively.
Intellectual Property
Our intellectual property, including our patents, licenses and trade names, is an important component of our business. As of December 31, 2017, we owned approximately 2,100 active patents and approximately 800 pending patent applications in key strategic markets worldwide. We also have acquired rights under patents and inventions of others through licenses, and we license certain patents and inventions to third parties.
Regulation
Our business is subject to a broad array of employee health and safety laws and regulations, including those under the Occupational Safety and Health Act (“OSHA”). We also are subject to similar state laws and regulations as well as local laws and regulations for our non-U.S. operations. We devote significant resources and have developed and implemented comprehensive programs to promote the health and safety of our employees and we maintain an active health, safety and environmental program. We finished 2017 with an OSHA occupational injury and illness incident rate of 0.63 for Albemarle employees and nested contractors, compared to 0.53 in 2016.
Our business and our customers are subject to significant requirements under the European Community Regulation for the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”). REACH imposes obligations on European Union manufacturers and importers of chemicals and other products into the European Union to compile and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Additionally, substances of high concern, as defined under REACH, are subject to an authorization process. Authorization may result in restrictions in the use of products by application or even banning the product. REACH regulations impose significant additional responsibilities on chemical producers, importers, downstream users of chemical substances and preparations, and the entire supply chain. Our significant manufacturing presence and sales activities in the European Union require significant compliance costs and may result in increases in the costs of raw materials we purchase and the products we sell. Increases in the costs of our products could result in a decrease in their overall demand; additionally, customers may seek products that are not regulated by REACH, which could also result in a decrease in the demand of certain products subject to the REACH regulations.
In June 2016, modifications to the Toxic Substances Control Act (“TSCA”) in the U.S. were signed into law, requiring chemicals to be assessed against a risk-based safety standard and calling for the elimination of unreasonable risks identified during risk evaluation. Other pending initiatives potentially will require toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. These initiatives include the Voluntary Children's Chemical Evaluation Program, and High Production Volume Chemical Initiative in the U.S., as well as new initiatives in Asia and other regions. These assessments may result in heightened concerns about the chemicals involved and additional requirements being placed on the production, handling, labeling or use of the subject chemicals. Such concerns and additional requirements could also increase the cost incurred by our customers to use our chemical products and otherwise limit the use of these products, which could lead to a decrease in demand for these products.
Historically, there has been scrutiny of certain brominated flame retardants by regulatory authorities, legislative bodies and environmental interest groups in various countries. We manufacture a broad range of brominated flame retardant products, which are used in a variety of applications. Concern about the impact of some of our products on human health or the environment may lead to regulation or reaction in our markets independent of regulation.
Environmental Regulation
We are subject to numerous foreign, federal, state and local environmental laws and regulations, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated properties. Ongoing compliance with such laws and regulations is an important consideration for us. Key aspects of our operations are subject to these laws and regulations. In addition, we incur substantial capital and operating costs in our efforts to comply with them.

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We use and generate hazardous substances and wastes in our operations and may become subject to claims for personal injury and/or property damage relating to the release of such substances into the environment. In addition, some of our current properties are, or have been, used for industrial purposes, which could contain currently unknown contamination that could expose us to governmental requirements or claims relating to environmental remediation, personal injury and/or property damage. Liabilities associated with the investigation and cleanup of hazardous substances, as well as personal injury, property damages or natural resource damages arising from the release of, or exposure to, such hazardous substances, may be imposed in many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally (so that a responsible party may be held liable for more than its share of the losses involved, or even the entire loss). Such liabilities also may be imposed on many different entities with a relationship to the hazardous substances at issue, including, for example, entities that formerly owned or operated the property affected by the hazardous substances and entities that arranged for the disposal of the hazardous substances at the affected property, as well as entities that currently own or operate such property. We are subject to such laws, including the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, in the U.S., and similar foreign and state laws. We may have liability as a potentially responsible party (“PRP”) with respect to active off-site locations under CERCLA or state equivalents. We have sought to resolve our liability as a PRP at these sites through indemnification by third parties and settlements, which would provide for payment of our allocable share of remediation costs. Because the cleanup costs are estimates and are subject to revision as more information becomes available about the extent of remediation required, and in some cases we have asserted a defense to any liability, our estimates could change. Moreover, liability under CERCLA and equivalent state statutes may be joint and several. Our understanding of the financial strength of other PRPs has been considered, where appropriate, in estimating our liabilities. Accruals for these matters are included in the environmental reserve. Our management is actively involved in evaluating environmental matters and, based on information currently available to us, we have concluded that our outstanding environmental liabilities for unresolved waste sites currently known to us should not have a material effect on our operations.
See “Safety and Environmental Matters” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details.
Climate Change
The growing concerns about climate change and the related increasingly stringent regulations may provide us with new or expanded business opportunities. We provide solutions to companies pursuing alternative fuel products and technologies (such as renewable fuels, gas-to-liquids and others), emission control technologies (including mercury emissions), alternative transportation vehicles and energy storage technologies and other similar solutions. As demand for, and legislation mandating or incentivizing the use of, alternative fuel technologies that limit or eliminate greenhouse gas emissions increase, we continue to monitor the market and offer solutions where we have appropriate technology and believe we are well positioned to take advantage of opportunities that may arise from such demand or legislation.
Recent Acquisitions, Joint Ventures and Divestitures
Over the last three years, we have devoted resources to acquisitions and joint ventures, including the subsequent integration of acquired businesses. These acquisitions and joint ventures have expanded our base business, provided our customers with a wider array of products and presented new alternatives for discovery through additional chemistries. In addition, we have pursued opportunities to divest businesses which do not fit our high priority business growth profile. Following is a summary of our significant acquisitions, joint ventures and divestitures during recent years.
On December 14, 2017, we signed a definitive agreement to sell the polyolefin catalysts and components portion of our PCS business to W.R. Grace & Co. for proceeds of approximately $416 million in cash. The transaction includes Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at our Yeosu, South Korea site. The sale does not include the organometallics or curatives portion of the PCS business. The sale of the polyolefin catalysts business and components reflects our commitment to investing in the future growth of our high priority businesses and returning capital to shareholders. The sale is expected to close in the first quarter of 2018, subject to the satisfaction of customary closing conditions, including approvals from regulatory authorities.
On December 31, 2016, we completed the acquisition of the lithium hydroxide and lithium carbonate conversion assets of Jiangli New Materials for a purchase price of approximately $145 million. This includes manufacturing assets and supporting business functions located in both Jiangxi and Sichuan, China focused on the production of battery-grade lithium carbonate and lithium hydroxide. We believe this acquisition will enable us to supply premium lithium salts to an expanded global customer base while solidifying our leading position in the lithium industry.

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On December 14, 2016, we completed the sale of the Chemetall Surface Treatment business, originally part of the acquisition of Rockwood, to BASF SE for cash proceeds of approximately $3.1 billion.
On January 4, 2016, we completed the sale of our metal sulfides business to Treibacher Industrie AG for net proceeds of approximately $137 million. Included in the transaction were sites in Vienna and Arnoldstein, Austria, and Tribotecc’s proprietary sulfide synthesis process. On February 1, 2016, we completed the sale of our minerals-based flame retardants and specialty chemicals business to Huber Engineered Materials, a division of J.M. Huber Corporation, for net proceeds of approximately $187 million. 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 January 12, 2015, we completed the acquisition of Rockwood for a purchase price of approximately $5.7 billion, with Rockwood becoming a wholly-owned subsidiary of Albemarle. Through the acquisition of Rockwood, we became a leading integrated and low cost global producer of lithium and lithium compounds used in lithium-ion batteries for electronic devices, alternative transportation vehicles and energy storage technologies, meeting the significant growth in global demand for these products.
These transactions reflect our commitment to investing in future growth of our high priority businesses, reducing leverage and returning capital to shareholders.
Employees
As of December 31, 2017, we had approximately 5,400 employees, including employees of our consolidated joint ventures, of whom 2,600, or 48%, are employed in the U.S. and Latin America; 1,400, or 26%, are employed in Europe; 1,000, or 19%, are employed in Asia and 400, or 7%, are employed in the Middle East. Approximately 35% of these employees are represented by unions or works councils. We believe that we generally have a good relationship with our employees, and with those unions and works councils.
Available Information
Our website address is http://www.albemarle.com. We make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as well as beneficial ownership reports on Forms 3, 4 and 5 filed pursuant to Section 16 of the Exchange Act, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC. These reports may also be obtained at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Albemarle.
Our Corporate Governance Guidelines, Code of Conduct and the charters of the Audit and Finance, Health, Safety and Environment, Executive Compensation, and Nominating and Governance Committees of our Board of Directors are also available on our website and are available in print to any shareholder upon request by writing to Investor Relations, 4350 Congress Street, Suite 700, Charlotte, North Carolina 28209, or by calling (980) 299-5700.

Item 1A.
Risk Factors.
You should consider carefully the following risks when reading the information, including the financial information, contained in this Annual Report on Form 10-K.
Risks Related to Our Business
Our substantial international operations subject us to risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations.
We conduct a substantial portion of our business outside the U.S., with approximately 73% of our sales to foreign countries. In addition, we operate and/or sell our products to customers in approximately 100 countries. We currently have many production facilities, research and development and administrative facilities, as well as sales offices located outside the United States, as detailed in Item 2. Properties. Accordingly, our business is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent in international operations include the following:

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fluctuations in foreign currency exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of products and services we provide in international markets where payment for our products and services is made in the local currency;
transportation and other shipping costs may increase, or transportation may be inhibited;
increased cost or decreased availability of raw materials;
changes in foreign laws and tax rates or U.S. laws and tax rates with respect to foreign income may unexpectedly increase the rate at which our income is taxed, impose new and additional taxes on remittances, repatriation or other payments by subsidiaries, or cause the loss of previously recorded tax benefits;
foreign countries in which we do business may adopt other restrictions on foreign trade or investment, including currency exchange controls;
trade sanctions by or against these countries could result in our losing access to customers and suppliers in those countries;
unexpected adverse changes in foreign laws or regulatory requirements may occur;
our agreements with counterparties in foreign countries may be difficult for us to enforce and related receivables may be difficult for us to collect;
compliance with the variety of foreign laws and regulations may be unduly burdensome;
compliance with anti-bribery and anti-corruption laws (such as the Foreign Corrupt Practices Act) as well as anti-money-laundering laws may be costly;
unexpected adverse changes in export duties, quotas and tariffs and difficulties in obtaining export licenses may occur;
general economic conditions in the countries in which we operate could have an adverse effect on our earnings from operations in those countries;
our foreign operations may experience staffing difficulties and labor disputes;
termination or substantial modification of international trade agreements may adversely affect our access to raw materials and to markets for our products outside the U.S.;
foreign governments may nationalize or expropriate private enterprises;
increased sovereign risk (such as default by or deterioration in the economies and credit worthiness of local governments) may occur; and
political or economic repercussions from terrorist activities, including the possibility of hyperinflationary conditions and political instability, may occur in certain countries in which we do business.
In addition, certain of our joint ventures operate, and we have ongoing capital projects, in regions of the world such as the Middle East and South America, that are of high risk due to significant civil, political and security instability. Unanticipated events, such as geopolitical changes, could result in a write-down of our investment in the affected joint venture or a delay or cause cancellation of those capital projects, which could negatively impact our future growth and profitability. Our success as a global business will depend, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in each location where we and our joint ventures do business.
Furthermore, we are subject to rules and regulations related to anti-bribery prohibitions of the U.S. and other countries and export controls and economic embargoes, violations of which may carry substantial penalties. For example, export control and economic embargo regulations limit the ability of our subsidiaries to market, sell, distribute or otherwise transfer their products or technology to prohibited countries or persons. Failure to comply with these regulations could subject our subsidiaries to fines, enforcement actions and/or have an adverse effect on our reputation and the value of our common stock.
Our inability to secure key raw materials, or to pass through increases in costs and expenses for other raw materials and energy, on a timely basis or at all, could have an adverse effect on the margins of our products and our results of operations.
The long-term profitability of our operations will, in part, depend on our ability to continue to economically obtain resources, including energy and raw materials. For example, our lithium and bromine businesses rely upon our continued ability to produce, or otherwise obtain, lithium and bromine of sufficient quality and in adequate amounts to meet our customers’ demand. If we fail to secure and retain the rights to continue to access these key raw materials, we may have to restrict or suspend our operations that rely upon these key resources, which could harm our business, results of operations and financial condition. In addition, in some cases access to these raw materials by us and our competitors is subject to decisions or actions by governmental authorities, which could adversely impact us. Furthermore, other raw material and energy costs account for a significant percentage of our total costs of products sold, even if they can be obtained on commercially reasonable terms. Our

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raw material and energy costs can be volatile and may increase significantly. Increases are primarily driven by tightening of market conditions and major increases in the pricing of key constituent materials for our products such as crude oil, chlorine and metals (including molybdenum and rare earths which are used in the refinery catalysts business). We generally attempt to pass through changes in the prices of raw materials and energy to our customers, but we may be unable to do so (or may be delayed in doing so). In addition, raising prices we charge to our customers in order to offset increases in the prices we pay for raw materials could cause us to suffer a loss of sales volumes. Our inability to efficiently and effectively pass through price increases, or inventory impacts resulting from price volatility, could adversely affect our margins.
Competition within our industry may place downward pressure on the prices and margins of our products and may adversely affect our businesses and results of operations.
We compete against a number of highly competitive global specialty chemical producers. Competition is based on several key criteria, including product performance and quality, product price, product availability and security of supply, and responsiveness of product development in cooperation with customers and customer service. Some of our competitors are larger than we are and may have greater financial resources. These competitors may also be able to maintain significantly greater operating and financial flexibility. As a result, these competitors may be better able to withstand changes in conditions within our industry. Competitors’ pricing decisions could compel us to decrease our prices, which could negatively affect our margins and profitability. Our ability to maintain or increase our profitability is, and will continue to be, dependent upon our ability to offset decreases in the prices and margins of our products by improving production efficiency and volume and other productivity enhancements, shifting to production of higher margin chemical products and improving existing products through innovation and research and development. If we are unable to do so or to otherwise maintain our competitive position, we could lose market share to our competitors.
In addition, Albemarle’s brands, product image and trademarks represent the unique product identity of each of our products and are important symbols of the Company’s reputation. Accordingly, the performance of our business could be adversely affected by any marketing and promotional materials used by our competitors that make adverse claims, whether with or without merit, against our Company or its products, imply or assert immoral or improper conduct by us, or are otherwise disparaging of our Company or its products. Further, our own actions could hurt such brands, product image and trademarks if our products underperform or we otherwise draw negative publicity.
Our research and development efforts may not succeed in addressing changes in our customers’ needs, and our competitors may develop more effective or successful products.
Our industries and the end markets into which we sell our products experience technological change and product improvement. Manufacturers periodically introduce new products or require new technological capacity to develop customized products. Our future growth depends on our ability to gauge the direction of the commercial and technological progress in all key end markets in which we sell our products and upon our ability to fund and successfully develop, manufacture and market products in such changing end markets. As a result, we must commit substantial resources each year to research and development. There is no assurance that we will be able to continue to identify, develop, market and, in certain cases, secure regulatory approval for, innovative products in a timely manner or at all, as may be required to replace or enhance existing products, and any such inability could have a material adverse effect on our profit margins and our competitive position.
In addition, our customers use our specialty chemicals for a broad range of applications. Changes in our customers’ products or processes may enable our customers to reduce consumption of the specialty chemicals that we produce or make our specialty chemicals unnecessary. Customers may also find alternative materials or processes that do not require our products. Should a customer decide to use a different material due to price, performance or other considerations, we may not be able to supply a product that meets the customer’s new requirements. Consequently, it is important that we develop new products to replace the sales of products that mature and decline in use. Our business, results of operations, cash flows and margins could be materially adversely affected if we are unable to manage successfully the maturation of our existing products and the introduction of new products.
Despite our efforts, we may not be successful in developing new products and/or technology, either alone or with third parties, or licensing intellectual property rights from third parties on a commercially competitive basis. Our new products may not be accepted by our customers or may fail to receive regulatory approval. Moreover, new products may have lower margins than the products they replace. Furthermore, ongoing investments in research and development for the future do not yield an immediate beneficial impact on our operating results and therefore could result in higher costs without a proportional increase in revenues.

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Adverse conditions in the economy and volatility and disruption of financial markets can negatively impact our customers, suppliers and other business partners and therefore have a material adverse effect on our business and results of operations.
A global, regional or localized economic downturn may reduce customer demand or inhibit our ability to produce our products, negatively impacting our operating results. Our business and operating results have been and will continue to be sensitive to the many challenges that can affect national, regional and global economies, including economic downturns (including credit market tightness, which can impact our liquidity as well as that of our customers, suppliers and other business partners), declining consumer and business confidence, fluctuating commodity prices and volatile exchange rates. Our customers may experience deterioration of their businesses, cash flow shortages and difficulty obtaining financing, leading them to delay or cancel plans to purchase products, and they may not be able to fulfill their obligations in a timely fashion. Further, suppliers and other business partners may experience similar conditions, which could impact their ability to fulfill their obligations to us. Also, it could be difficult to find replacements for business partners without incurring significant delays or cost increases.
Downturns in our customers’ industries could adversely affect our sales and profitability.
Downturns in the businesses that use our specialty chemicals may adversely affect our sales. Many of our customers are in industries, including the electronics, building and construction, oilfield and automotive industries, which are cyclical in nature, or which are subject to secular market downturns. Historically, cyclical or secular industry downturns have resulted in diminished demand for our products, excess manufacturing capacity and lower average selling prices, and we may experience similar problems in the future. A decline in our customers’ industries may have a material adverse effect on our sales and profitability.
Our results are subject to fluctuation because of irregularities in the demand for our HPC catalysts and certain of our agrichemicals.
Our HPC catalysts are used by petroleum refiners in their processing units to reduce the quantity of sulfur and other impurities in petroleum products. The effectiveness of HPC catalysts diminishes with use, requiring the HPC catalysts to be replaced, on average, once every one to four years. The sales of our HPC catalysts, therefore, are largely dependent on the useful life cycle of the HPC catalysts in the processing units and may vary materially by quarter. In addition, the timing and profitability of HPC catalysts sales can have a significant impact on revenue and profit in any one quarter. Sales of our agrichemicals are also subject to fluctuation as demand varies depending on climate and other environmental conditions, which may prevent or reduce farming for extended periods. In addition, crop pricing and the timing of when farms alternate from one crop to another crop in a particular year can also alter sales of agrichemicals.
Regulation, or the threat of regulation, of some of our products could have an adverse effect on our sales and profitability.
We manufacture or market a number of products that are or have been the subject of attention by regulatory authorities and environmental interest groups. For example, over the past decade, there has been increasing scrutiny of certain brominated flame retardants by regulatory authorities, legislative bodies and environmental interest groups in various countries. We manufacture a broad range of brominated flame retardant products, which are used in a variety of applications to protect people, property and the environment from injury and damage caused by fire. Concern about the impact of some of our products on human health or the environment may lead to regulation, or reaction in our markets independent of regulation, that could reduce or eliminate markets for such products.
Agencies in the European Union continue to evaluate the risks to human health and the environment associated with certain brominated flame retardants such as tetrabromobisphenol A and decabromodiphenylethane, both of which we manufacture. Additional government regulations, including limitations or bans on the use of brominated flame retardants, could result in a decline in our net sales of brominated flame retardants and have an adverse effect on our sales and profitability. In addition, the threat of additional regulation or concern about the impact of brominated flame retardants on human health or the environment could lead to a negative reaction in our markets that could reduce or eliminate our markets for these products, which could have an adverse effect on our sales and profitability.
Our business and our customers are subject to significant requirements under REACH, which imposes obligations on European Union manufacturers and importers of chemicals and other products into the European Union to compile and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Additionally, substances of high concern, as defined under REACH, are subject to an authorization process, which may result in restrictions in the use of products by application or even banning the product. REACH regulations impose significant additional burdens on chemical producers, importers, downstream users of chemical substances and preparations, and the entire supply chain. See “Regulation” in Item 1. Business. Our significant manufacturing presence and sales activities in the European Union

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requires significant compliance costs and may result in increases in the costs of raw materials we purchase and the products we sell. Increases in the costs of our products could result in a decrease in their overall demand; additionally, customers may seek products that are not regulated by REACH, which could also result in a decrease in the demand of certain products subject to the REACH regulations.
In June 2016, modifications to the TSCA in the U.S. were signed into law, requiring chemicals to be assessed against a risk-based safety standard and for the elimination of unreasonable risks identified during risk evaluation. Other pending initiatives potentially will require toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. These initiatives include the Voluntary Children's Chemical Evaluation Program, and High Production Volume Chemical Initiative in the U.S., as well as new initiatives in Asia and other regions. These assessments may result in heightened concerns about the chemicals involved and additional requirements being placed on the production, handling, labeling or use of the subject chemicals. Such concerns and additional requirements could also increase the cost incurred by our customers to use our chemical products and otherwise limit the use of these products, which could lead to a decrease in demand for these products. Such a decrease in demand would likely have an adverse impact on our business and results of operations.
We could be subject to damages based on claims brought against us by our customers or lose customers as a result of the failure of our products to meet certain quality specifications.
Our products provide important performance attributes to our customers’ products. If a product fails to perform in a manner consistent with quality specifications or has a shorter useful life than guaranteed, a customer of ours could seek the replacement of the product or damages for costs incurred as a result of the product failing to perform as guaranteed. These risks apply to our refinery catalysts in particular because, in certain instances, we sell our refinery catalysts under agreements that contain limited performance and life cycle guarantees. Also, because many of our products are integrated into our customers’ products, we may be requested to participate in, or fund in whole or in part the costs of, a product recall conducted by a customer. For example, some of our businesses supply products to customers in the automotive industry. In the event one of these customers conducts a product recall that it believes is related to one of our products, we may be asked to participate in, or fund in whole or in part, such a recall.
Our customers often require our subsidiaries to represent that our products conform to certain product specifications provided by our customers. Any failure to comply with such specifications could result in claims or legal action against us. 
A successful claim or series of claims against us could have a material adverse effect on our financial condition and results of operations and could result in our loss of one or more customers.
Our business is subject to hazards common to chemical and resource extraction businesses, any of which could injure our employees or other persons, damage our facilities or other properties, interrupt our production and adversely affect our reputation and results of operations.
Our business is subject to hazards common to chemical manufacturing, storage, handling and transportation, including explosions, fires, inclement weather, natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, remediation, chemical spills, discharges or releases of toxic or hazardous substances or gases and other risks. These hazards can cause personal injury and loss of life to our employees and other persons, severe damage to, or destruction of, property and equipment and environmental contamination. In addition, the occurrence of disruptions or material operating problems at our facilities due to any of these hazards may diminish our ability to meet our output goals. Accordingly, these hazards and their consequences could adversely affect our reputation and have a material adverse effect on our operations as a whole, including our results of operations and cash flows, both during and after the period of operational difficulties.
Our business could be adversely affected by environmental, health and safety laws and regulations.
The nature of our business, including historical operations at our current and former facilities, exposes us to risks of liability under environmental laws and regulations due to the production, storage, use, transportation and sale of materials that can cause contamination or personal injury if released into the environment. In the jurisdictions in which we operate, we are subject to numerous federal, state and local environmental, health and safety laws and regulations, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated properties. We currently use, and in the past have used, hazardous substances at many of our facilities, and we have in the past been, and may in the future be, subject to claims relating to exposure to hazardous materials. We also have generated, and continue to generate, hazardous wastes at a number of our facilities. Some of our facilities also have lengthy histories of manufacturing or other activities that may have resulted in site contamination. Liabilities associated with the investigation and cleanup of hazardous substances, as well as personal injury, property damages or natural resource damages arising from the release of, or exposure to, such hazardous substances, may be imposed in many situations without

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regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally (so that a responsible party may be held liable for more than its share of the losses involved, or even the entire loss). Such liabilities may also be imposed on many different entities, including, for example, current and prior property owners or operators, as well as entities that arranged for the disposal of the hazardous substances. Such liabilities may be material and can be difficult to identify or quantify.
Further, some of the raw materials we handle are subject to government regulation. These regulations affect the manufacturing processes, handling, uses and applications of our products. In addition, our production facilities and a number of our distribution centers require numerous operating permits. Due to the nature of these requirements and changes in our operations, our operations may exceed limits under permits or we may not have the proper permits to conduct our operations. Ongoing compliance with such laws, regulations and permits is an important consideration for us and we incur substantial capital and operating costs in our compliance efforts.
Compliance with environmental laws generally increases the costs of manufacturing, registration/approval requirements, transportation and storage of raw materials and finished products, and storage and disposal of wastes, and could have a material adverse effect on our results of operations. We may incur substantial costs, including fines, damages, criminal or civil sanctions and remediation costs, or experience interruptions in our operations, for violations arising under these laws or permit requirements. Additional information may arise in the future concerning the nature or extent of our liability with respect to identified sites, and additional sites may be identified for which we are alleged to be liable, that could cause us to materially increase our environmental accrual or the upper range of the costs we believe we could reasonably incur for such matters. Furthermore, environmental laws are subject to change and have become increasingly stringent in recent years. We expect this trend to continue and to require materially increased capital expenditures and operating and compliance costs.
We may be subject to indemnity claims and liable for other payments relating to properties or businesses we have divested. 
In connection with the sale of certain properties and businesses, we have agreed to indemnify the purchasers of such properties for certain types of matters, such as certain breaches of representations and warranties, taxes and certain environmental matters. With respect to environmental matters, the discovery of contamination arising from properties that we have divested may expose us to indemnity obligations under the sale agreements with the buyers of such properties or cleanup obligations and other damages under applicable environmental laws. We may not have insurance coverage for such indemnity obligations or cash flows to make such indemnity or other payments. Further, we cannot predict the nature of and the amount of any indemnity or other obligations we may have to the applicable purchaser. Such payments may be costly and may adversely affect our financial condition and results of operations.
At several of our properties where hazardous substances are known to exist (including some sites where hazardous substances are being investigated or remediated), we believe we are entitled to contractual indemnification from one or more former owners or operators; however, in the event we make a claim, the indemnifier may disagree with us regarding, or not have the financial capacity to fulfill, its indemnity obligation. If our contractual indemnity is not upheld or effective, our accrual and/or our costs for the investigation and cleanup of hazardous substances could increase materially.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws.
The U.S. Foreign Corrupt Practices Act (the “FCPA”) and similar foreign anti-corruption laws in other jurisdictions around the world generally prohibit companies and their intermediaries from making improper payments or providing anything of value to non-U.S. government officials for the purpose of obtaining or retaining business or securing an unfair advantage. We operate in some parts of the world that have experienced governmental corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Although we have established formal policies or procedures for prohibiting or monitoring this conduct, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. In the event that we believe or have reason to believe that our employees, agents or distributors have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. If we are found to be liable for violations of the FCPA or other applicable anti-corruption laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others, including employees of our joint ventures), we could suffer from civil and criminal penalties or other sanctions, which could have a material adverse effect on our business and results of operations.
Following receipt of information regarding potential improper payments being made by third party sales representatives of our Refining Solutions business, we promptly retained outside counsel and forensic accountants to investigate potential violations of the Company’s Code of Conduct, the FCPA, and other potentially applicable laws. Based on this internal

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investigation, we have voluntarily self-reported potential issues relating to the use of third party sales representatives in our Refining Solutions business to the U.S. Department of Justice (“DOJ”) and SEC, and intend to cooperate with the DOJ and SEC in their review of these matters. In connection with our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures.
At this time, we are unable to predict the duration, scope, result or related costs associated with any investigations by the DOJ or SEC. We also are unable to predict what, if any, action may be taken by the DOJ or SEC or what penalties or remedial actions they may seek. Any determination that our operations or activities are not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses.
We are subject to extensive foreign government regulation that can negatively impact our business.
We are subject to government regulation in non-U.S. jurisdictions in which we conduct our business. The requirements for compliance with these laws and regulations may be unclear or indeterminate and may involve significant costs, including additional capital expenditures or increased operating expenses, or require changes in business practice, in each case that could result in reduced profitability for our business. Our having to comply with these foreign laws or regulations can require may provide a competitive advantage to competitors who are not subject to comparable restrictions or prevent us from taking advantage of growth opportunities. Determination of noncompliance can result in penalties or sanctions that could also adversely impact our operating results and financial condition.
Our inability to protect our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
Protection of our proprietary processes, methods and compounds and other technology is important to our business. We generally rely on patent, trade secret, trademark and copyright laws of the United States and certain other countries in which our products are produced or sold, as well as licenses and nondisclosure and confidentiality agreements, to protect our intellectual property rights. The patent, trade secret, trademark and copyright laws of some countries, or their enforcement, may not protect our intellectual property rights to the same extent as the laws of the United States. Failure to protect our intellectual property rights may result in the loss of valuable proprietary technologies. Additionally, some of our technologies are not covered by any patent or patent application and, even if a patent application has been filed, it may not result in an issued patent. If patents are issued to us, those patents may not provide meaningful protection against competitors or against competitive technologies. We cannot assure you that our intellectual property rights will not be challenged, invalidated, circumvented or rendered unenforceable.
We also conduct research and development activities with third parties and license certain intellectual property rights from third parties and we plan to continue to do so in the future. We endeavor to license or otherwise obtain intellectual property rights on terms favorable to us. However, we may not be able to license or otherwise obtain intellectual property rights on such terms or at all. Our inability to license or otherwise obtain such intellectual property rights could have a material adverse effect on our ability to create a competitive advantage and create innovative solutions for our customers, which will adversely affect our net sales and our relationships with our customers.
We could face patent infringement claims from our competitors or others alleging that our processes or products infringe on their proprietary technologies. If we are found to be infringing on the proprietary technology of others, we may be liable for damages and we may be required to change our processes, redesign our products partially or completely, pay to use the technology of others, stop using certain technologies or stop producing the infringing product entirely. Even if we ultimately prevail in an infringement suit, the existence of the suit could prompt customers to switch to products that are not the subject of infringement suits. We may not prevail in intellectual property litigation and such litigation may result in significant legal costs or otherwise impede our ability to produce and distribute key products.
We also rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, we cannot assure you that our confidentiality agreements will not be breached, that they will provide meaningful protection for our trade secrets and proprietary manufacturing expertise or that adequate remedies will be available in the event of an unauthorized use or disclosure of our trade secrets or manufacturing expertise. In addition, our trade secrets and know-how may be improperly obtained by other means, such as a breach of our information technologies security systems or direct theft.

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Our business and operations could suffer in the event of cybersecurity breaches, information technology system failures, or network disruptions.
Attempts to gain unauthorized access to our information technology systems become more sophisticated over time. These attempts, which might be related to industrial or other espionage, include covertly introducing malware to our computers and networks and impersonating authorized users, among others. We seek to detect and investigate all security incidents and to prevent their recurrence, but in some cases we might be unaware of an incident or its magnitude and effects. The theft, unauthorized use or publication of our intellectual property and/or confidential business information could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business. To the extent that any cybersecurity breach results in inappropriate disclosure of our customers’ or licensees’ confidential information, we may incur liability as a result. The devotion of additional resources to the security of our information technology systems in the future could significantly increase the cost of doing business or otherwise adversely impact our financial results.
In addition, risks associated with information technology systems failures or network disruptions, including risks associated with upgrading our systems or in successfully integrating information technology and other systems in connection with the integration of businesses we acquire, could disrupt our operations by impeding our processing of transactions, financial reporting and our ability to protect our customer or company information, which could adversely effect our business or results of operations.
The occurrence or threat of extraordinary events, including domestic and international terrorist attacks, may disrupt our operations and decrease demand for our products.
Chemical-related assets may be at greater risk of future terrorist attacks than other possible targets in the U.S. and around the world. As a result, we are subject to existing federal rules and regulations (and may be subject to additional legislation or regulations in the future) that impose site security requirements on chemical manufacturing facilities, which increase our overhead expenses.
We are also subject to federal regulations that have heightened security requirements for the transportation of hazardous chemicals in the United States. We believe we have met these requirements but additional federal and local regulations that limit the distribution of hazardous materials are being considered. We ship and receive materials that are classified as hazardous. Bans on movement of hazardous materials through cities, like Washington, D.C., could affect the efficiency of our logistical operations. Broader restrictions on hazardous material movements could lead to additional investment to produce hazardous raw materials and change where and what products we manufacture.
The Chemical Facility Anti-Terrorism Standards program (“CFATS Program”), which is administered by the Department of Homeland Security (“DHS”), identifies and regulates chemical facilities to ensure that they have security measures in place to reduce the risks associated with potential terrorist attacks on chemical plants located in the U.S. In December 2014, the Protecting and Securing Chemical Facilities from Terrorist Attacks Act of 2014 (“CFATS Act”) was enacted. The CFATS Act reauthorizes the CFATS Program for four years. DHS has released an interim final rule under the CFATS Program that imposes comprehensive federal security regulations for high-risk chemical facilities in possession of specified quantities of chemicals of interest. This rule establishes risk-based performance standards for the security of the U.S.'s chemical facilities. It requires covered chemical facilities to prepare Security Vulnerability Assessments, which identify facility security vulnerabilities, and to develop and implement Site Security Plans, which include measures that satisfy the identified risk-based performance standards. We cannot determine with certainty the costs associated with any security measures that DHS may require.
The occurrence of extraordinary events, including future terrorist attacks and the outbreak or escalation of hostilities, cannot be predicted, and their occurrence can be expected to continue to negatively affect the economy in general, and the markets for our products in particular. The resulting damage from a direct attack on our assets, or assets used by us, could include loss of life and property damage. In addition, available insurance coverage may not be sufficient to cover all of the damage incurred or, if available, may be prohibitively expensive.
Natural disasters and weather-related matters could impact our results of operations.
Historically, major hurricanes have caused significant disruption to the operations on the U.S. Gulf Coast for many of our customers and our suppliers of certain raw materials, which had an adverse impact on volume and cost for some of our products. Our operations in Chile could be subject to significant rain events and earthquakes. If similar weather-related matters or other natural disasters occur in the future, they could negatively affect the results of operations at our sites in the affected regions as well as have adverse impacts on the global economy.

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Our insurance may not fully cover all potential exposures.
We maintain property, business interruption, casualty, and other insurance, but such insurance may not cover all risks associated with the hazards of our business and is subject to limitations, including deductibles and coverage limits. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including liabilities for environmental remediation. In addition, from time to time, various types of insurance for companies in the specialty chemical industry have not been available on commercially acceptable terms or, in some cases, have not been available at all. We are potentially at additional risk if one or more of our insurance carriers fail. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the ratings and survival of some insurers. Future downgrades in the ratings of enough insurers could adversely impact both the availability of appropriate insurance coverage and its cost. In the future, we may not be able to obtain coverage at current levels, if at all, and our premiums may increase significantly on coverage that we maintain.
We may be exposed to certain regulatory and financial risks related to climate change.
Growing concerns about climate change may result in the imposition of additional regulations or restrictions to which we may become subject. Climate changes include changes in rainfall and in storm patterns and intensities, water shortages, significantly changing sea levels and increasing atmospheric and water temperatures, among others. For example, there have been concerns regarding the declining water level of the Dead Sea, from which our joint venture, JBC, produces bromine. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to climate change, including regulating greenhouse gas emissions. Potentially, additional U.S. federal regulation will be forthcoming with respect to greenhouse gas emissions (including carbon dioxide) and/or “cap and trade” legislation that could impact our operations. In addition, we have operations in the European Union, Brazil, China, Japan, Jordan, Saudi Arabia, Singapore and the United Arab Emirates, which have implemented measures to achieve objectives under the Kyoto Protocol, an international agreement linked to the United Nations Framework Convention on Climate Change (“UNFCC”), which set binding targets for reducing greenhouse gas emissions.
The outcome of new legislation or regulation in the U.S. and other jurisdictions in which we operate may result in new or additional requirements, additional charges to fund energy efficiency activities, and fees or restrictions on certain activities. While certain climate change initiatives may result in new business opportunities for us in the area of alternative fuel technologies and emissions control, compliance with these initiatives may also result in additional costs to us, including, among other things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us or our industry could harm us. We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our business and negatively impact our growth. Furthermore, the potential impact of climate change and related regulation on our customers is highly uncertain and there can be no assurance that it will not have an adverse effect on our financial condition and results of operations.
Economic conditions and regulatory changes relating to the United Kingdom’s withdrawal from the European Union could adversely impact our business.
Following a referendum in 2016, voters in the United Kingdom (“U.K.”) approved that country’s exit from the European Union (“E.U.”), a process often referred to as “Brexit.” Subsequently, in March 2017, the U.K. invoked Article 50 of the Lisbon Treaty, which provides a two-year time period through March 2019 for the U.K. and the remaining E.U. countries to negotiate a withdrawal agreement. The future effects of Brexit will depend on any agreements the U.K. makes to retain access to the E.U. or other markets either during a transitional period or more permanently. Given the lack of comparable precedent and the uncertainty around the terms upon which the U.K. will leave the E.U., it is unclear what financial, trade and legal implications Brexit would have and how such withdrawal would affect our Company. We derive a significant portion of our revenues from sales outside the U.S., including 17% from E.U. countries. The consequences of Brexit, together with what may be protracted negotiations around the terms of Brexit, could introduce significant uncertainties into global financial markets, including volatility in foreign currencies, and adversely impact the markets in which we and our customers operate. Although we are not experiencing any immediate adverse impact on our financial condition as a result of Brexit, adverse consequences such as deterioration in economic conditions, volatility in currency exchange rates or adverse changes in regulation could have a negative impact on our future operations, operating results and financial condition. All of these potential consequences could be further magnified if additional countries were to exit the E.U.

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If we are unable to retain key personnel or attract new skilled personnel, it could have an adverse effect on our business.
Our success depends on our ability to attract and retain key personnel, including our management team. In light of the specialized and technical nature of our business, our performance is dependent on the continued service of, and on our ability to attract and retain, qualified management, scientific, technical, marketing and support personnel. Competition for such personnel is intense, and we may be unable to continue to attract or retain such personnel. In addition, because of our reliance on our senior management team, the unanticipated departure of any key member of our management team could have an adverse effect on our business. Our future success depends, in part, on our ability to identify and develop or recruit talent to succeed our senior management and other key positions throughout the organization. If we fail to identify and develop or recruit successors, we are at risk of being harmed by the departures of these key employees. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution.
Some of our employees are unionized, represented by works councils or are employed subject to local laws that are less favorable to employers than the laws of the U.S.
As of December 31, 2017, we had approximately 5,400 employees, including employees of our consolidated joint ventures. Approximately 35% of these employees are represented by unions or works councils. In addition, a large number of our employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws of the United States. Such employment rights require us to work collaboratively with the legal representatives of those employees to effect any changes to labor arrangements. For example, most of our employees in Europe are represented by works councils that must approve any changes in conditions of employment, including salaries and benefits and staff changes, and may impede efforts to restructure our workforce. Although we believe that we have a good working relationship with our employees, a strike, work stoppage, slowdown or significant dispute with our employees could result in a significant disruption of our operations or higher labor costs.
Our joint ventures may not operate according to their business plans if our partners fail to fulfill their obligations, which may adversely affect our results of operations and may force us to dedicate additional resources to these joint ventures.
We currently participate in a number of joint ventures and may enter into additional joint ventures in the future. The nature of a joint venture requires us to share control with unaffiliated third parties. If our joint venture partners do not fulfill their obligations, the affected joint venture may not be able to operate according to its business plan. In that case, our results of operations may be adversely affected and we may be required to materially change the level of our commitment to the joint venture. Also, differences in views among joint venture participants may result in delayed decisions or failures to agree on major issues. If these differences cause the joint ventures to deviate from their business plans, our results of operations could be adversely affected.
Risks Related to Our Financial Condition
Our required capital expenditures can be complex, may experience delays or other difficulties, and the costs may exceed our estimates.
Our capital expenditures generally consist of expenditures to maintain and improve existing equipment or facilities, or substantial investments in new or expanded equipment and facilities. Execution of these capital expenditures can be complex, and commencement of production requires start-up, commission and certification of product quality by our customers, which may impact the expected output and timing of sales of product from such facilities. Construction of large chemical operations is subject to numerous risks and uncertainties, including, among others, the ability to complete a project on a timely basis and in accordance with the estimated budget for such project and our ability to estimate future demand for our products.
Future capital expenditures may be significantly higher, depending on the investment requirements of each of our business lines, and may also vary substantially if we are required to undertake actions to compete with new technologies in our industry. We may not have the capital necessary to undertake these capital investments. If we are unable to do so, we may not be able to effectively compete in some of our markets.
We will need a significant amount of cash to service our indebtedness and our ability to generate cash depends on many factors beyond our control.
Our ability to generate sufficient cash flow from operations or use existing cash balances to make scheduled payments on our debt depends on a range of economic, competitive and business factors, many of which are outside our control. Our business may not generate sufficient cash flow from operations to service our debt obligations. If we are unable to service our debt obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, reduce or delay capital

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expenditures, sell assets or raise additional equity. We may not be able to refinance any of our indebtedness, sell assets or raise additional equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity. Our inability to generate sufficient cash flow or use existing cash balances to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, could have a material adverse effect on our business and financial condition.
Restrictive covenants in our debt instruments may adversely affect our business.
Our senior credit facilities and the indentures governing our senior notes contain select restrictive covenants. These covenants provide constraints on our financial flexibility. The failure to comply with these or other covenants governing other indebtedness, including indebtedness incurred in the future, could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations, including cross-defaults to other debt facilities. See “Financial Condition and Liquidity—Long-Term Debt” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Changes in credit ratings issued by nationally recognized statistical rating organizations could adversely affect our cost of financing, the market price of our securities and our debt service obligations.
Credit rating agencies rate our debt securities on factors that include our operating results, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading or downgrading the current rating or placing us on a watch list for possible future downgrades. Downgrading the credit rating of our debt securities or placing us on a watch list for possible future downgrades would likely increase our cost of future financing, limit our access to the capital markets and have an adverse effect on the market price of our securities.
Borrowings under a portion of our debt facilities bear interest at floating rates, and are subject to adjustment based on the ratings of our senior unsecured long-term debt. The downgrading of any of our ratings or an increase in any of the benchmark interest rates would result in an increase of the interest expense on our variable rate borrowings.
We are exposed to fluctuations in currency exchange rates, which may adversely affect our operating results and net income.
We conduct our business and incur costs in the local currency of most of the countries in which we operate. Changes in exchange rates between foreign currencies and the U.S. Dollar will affect the recorded levels of our assets, liabilities, net sales, cost of goods sold and operating margins and could result in exchange losses. The primary currencies to which we have exposure are the European Union Euro, Japanese Yen, Chinese Renminbi, South Korean Won, Australian Dollar, Chilean Peso and Taiwan Dollar. Exchange rates between these currencies and the U.S. Dollar in recent years have fluctuated significantly and may do so in the future. With respect to our potential exposure to foreign currency fluctuations and devaluations, for the year ended December 31, 2017, approximately 34% of our net sales were denominated in currencies other than the U.S. Dollar. Significant changes in these foreign currencies relative to the U.S. Dollar could also have an adverse effect on our ability to meet interest and principal payments on any foreign currency-denominated debt outstanding. In addition to currency translation risks, we incur currency transaction risks whenever one of our operating subsidiaries or joint ventures enters into either a purchase or a sales transaction using a different currency from its functional currency. Our operating results and net income may be affected by any volatility in currency exchange rates and our ability to manage effectively our currency transaction and translation risks.
Changes in, or the interpretation of, tax legislation or rates throughout the world could materially impact our results.
Our effective tax rate and related tax balance sheet attributes could be impacted by changes in tax legislation throughout the world. Currently, the majority of our net sales are generated from customers located outside the United States, and a substantial portion of our assets and employees are located outside of the United States.
We have not accrued income taxes or foreign withholding taxes on undistributed earnings for most non-U.S. subsidiaries, because those earnings are intended to be indefinitely reinvested in the operations of those subsidiaries. Certain tax proposals with respect to such earnings could substantially increase our tax expense, which would substantially reduce our income and have a material adverse effect on our results of operations and cash flows from operating activities. We have provided deferred income taxes on the portion of undistributed foreign earnings determined not to be indefinitely reinvested in our foreign operations. In January 2018, we repatriated approximately $600 million of cash associated with earnings that were previously asserted to be indefinitely reinvested to fund our investment program. These repatriations do not change our assertion on the remaining foreign earnings that are deemed indefinitely reinvested.

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Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, expirations of tax holidays or rulings, changes in the assessment regarding the realization of the valuation of deferred tax assets, or changes in tax laws and regulations or their interpretation. Recent developments, including the European Commission’s investigations on illegal state aid, the Organisation for Economic Co-operation and Development (“OECD”) project on Base Erosion and Profit Shifting and the enacted U.S tax reform legislation commonly referred to as the U.S. Tax Cuts and Jobs Act (“TCJA”) during the fourth quarter of 2017 may result in changes to long-standing tax principles, which could adversely affect our effective tax rates or result in higher cash tax liabilities.
We are subject to the regular examination of our income tax returns by various tax authorities. Examinations in material jurisdictions or changes in laws, rules, regulations or interpretations by local taxing authorities could result in impacts to tax years open under statute or to foreign operating structures currently in place. We regularly assess the likelihood of adverse outcomes resulting from these examinations or changes in laws, rules, regulations or interpretations to determine the adequacy of our provision for taxes. It is possible the outcomes from these examinations will have a material adverse effect on our financial condition and operating results.
We may be subject to increased tax exposure resulting from Rockwood pre-acquisition periods. 
Under the terms of certain purchase agreements, third party sellers have agreed to substantially indemnify us for tax liabilities pertaining to Rockwood’s periods prior to its acquisition by us. These indemnity obligations will continue generally until the applicable statutes of limitations expire. To the extent that such companies fail to indemnify or satisfy their obligations, or if any amount is not covered by the terms of the indemnity, our earnings could be negatively impacted in future periods through increased tax expense.
Future events may impact our deferred tax asset position and U.S. deferred federal income taxes on undistributed earnings of international affiliates that are considered to be indefinitely reinvested.
We evaluate our ability to utilize deferred tax assets and our need for valuation allowances based on available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results. We are required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be utilized. In making this determination, we evaluate all positive and negative evidence as of the end of each reporting period. Future adjustments (either increases or decreases), to the deferred tax asset valuation allowance are determined based upon changes in the expected realization of the net deferred tax assets. The utilization of our deferred tax assets ultimately depends on the existence of sufficient taxable income in either the carry-back or carry-forward periods under the applicable tax law. Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record adjustments to the valuation allowance in future reporting periods. Changes to the valuation allowance or the amount of deferred tax liabilities could have a materially adverse effect on our business, financial condition and results of operations. Further, should we change our assertion regarding the permanent reinvestment of the undistributed earnings in foreign operations, a deferred tax liability may need to be established.
Our business and financial results may be adversely affected by various legal and regulatory proceedings.
We are involved from time to time in legal and regulatory proceedings, which may be material in the future. The outcome of proceedings, lawsuits and claims may differ from our expectations, leading us to change estimates of liabilities and related insurance receivables.
Legal and regulatory proceedings, whether with or without merit, and associated internal investigations, may be time-consuming and expensive to prosecute, defend or conduct, may divert management’s attention and other resources, inhibit our ability to sell our products, result in adverse judgments for damages, injunctive relief, penalties and fines, and otherwise negatively affect our business.
Because a significant portion of our operations is conducted through our subsidiaries and joint ventures, our ability to service our debt may be dependent on our receipt of distributions or other payments from our subsidiaries and joint ventures.
A significant portion of our operations is conducted through our subsidiaries and joint ventures. As a result, our ability to service our debt may be partially dependent on the earnings of our subsidiaries and joint ventures and the payment of those earnings to us in the form of dividends, loans or advances and through repayment of loans or advances from us. Payments to us by our subsidiaries and joint ventures are contingent upon our subsidiaries’ or joint ventures’ earnings and other business

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considerations and may be subject to statutory or contractual restrictions. In addition, there may be significant tax and other legal restrictions on the ability of our non-U.S. subsidiaries or joint ventures to remit money to us.
Although our pension plans currently meet minimum funding requirements, events could occur that would require us to make significant contributions to the plans and reduce the cash available for our business.
We have several defined benefit pension plans around the world, including in the U.S., U.K., Germany, Belgium and Japan. We are required to make cash contributions to our pension plans to the extent necessary to comply with minimum funding requirements imposed by the various countries’ benefit and tax laws. The amount of any such required contributions will be determined annually based on an actuarial valuation of the plans as performed by the plans’ actuaries.
In previous years, we have made voluntary contributions to our U.S. qualified defined benefit pension plans. We anticipate approximately $7.9 million of required cash contributions during 2018 for our defined benefit pension plans. Additional voluntary pension contributions in and after 2018 may vary depending on factors such as asset returns, interest rates, and legislative changes. The amounts we may elect or be required to contribute to our pension plans in the future may increase significantly. These contributions could be substantial and would reduce the cash available for our business.
Further, an economic downturn or recession or market disruption in the capital and credit markets may adversely impact the value of our pension plan assets, our results of operations, our statement of changes in stockholders’ equity and our liquidity. Our funding obligations could change significantly based on the investment performance of the pension plan assets and changes in actuarial assumptions for local statutory funding valuations. Any deterioration of the capital markets or returns available in such markets may negatively impact our pension plan assets and increase our funding obligations for one or more of these plans and negatively impact our liquidity. We cannot predict the impact of this or any further market disruption on our pension funding obligations.
We may not be able to consummate future acquisitions or integrate acquisitions into our business, which could result in unanticipated expenses and losses.
We believe that our customers are increasingly looking for strong, long-term relationships with a few key suppliers that help them improve product performance, reduce costs, and support new product development. To satisfy these growing customer requirements, our competitors have been consolidating within product lines through mergers and acquisitions.
As part of our business growth strategy, we have acquired businesses and entered into joint ventures in the past and intend to pursue acquisitions and joint venture opportunities in the future. Our ability to implement this component of our growth strategy will be limited by our ability to identify appropriate acquisition or joint venture candidates and our financial resources, including available cash and borrowing capacity. The expense incurred in consummating acquisitions or entering into joint ventures, the time it takes to integrate an acquisition or our failure to integrate businesses successfully, could result in unanticipated expenses and losses. Furthermore, we may not be able to realize any of the anticipated benefits from acquisitions or joint ventures.
The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Some of the risks associated with the integration of acquisitions include:
potential disruption of our ongoing business and distraction of management;
unforeseen claims and liabilities, including unexpected environmental exposures;
unforeseen adjustments, charges and write-offs;
problems enforcing the indemnification obligations of sellers of businesses or joint venture partners for claims and liabilities;
unexpected losses of customers of, or suppliers to, the acquired business;
difficulty in conforming the acquired businesses’ standards, processes, procedures and controls with our operations;
in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;
variability in financial information arising from the implementation of purchase price accounting;
inability to coordinate new product and process development;
loss of senior managers and other critical personnel and problems with new labor unions and cultural challenges associated with integrating employees from the acquired company into our organization; and
challenges arising from the increased scope, geographic diversity and complexity of our operations.

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Albemarle Corporation and Subsidiaries
 

We may continue to expand our business through acquisitions and we may incur additional indebtedness, including indebtedness related to acquisitions.
We have historically expanded our business primarily through acquisitions. A part of our business strategy is to continue to grow through acquisitions that complement our existing technologies and accelerate our growth. Our credit facilities have limited financial maintenance covenants. In addition, the indenture and other agreements governing our senior notes do not limit our ability to incur additional indebtedness in connection with acquisitions or otherwise. As a result, we may incur substantial additional indebtedness in connection with acquisitions.
Any such additional indebtedness and the related debt service obligations could have important consequences and risks for us, including:
reducing flexibility in planning for, or reacting to, changes in our businesses, the competitive environment and the industries in which we operate, and to technological and other changes;
lowering credit ratings;
reducing access to capital and increasing borrowing costs generally or for any additional indebtedness to finance future operating and capital expenses and for general corporate purposes;
reducing funds available for operations, capital expenditures and other activities; and
creating competitive disadvantages relative to other companies with lower debt levels.
If our goodwill, intangible assets or long-lived assets become impaired, we may be required to record a significant charge to earnings.
Under U.S. Generally Accepted Accounting Principles (“GAAP”), we review our intangible assets and long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment on October 31 of each year, or more frequently if required. Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill, intangible assets or long-lived assets may not be recoverable, include, but are not limited to, a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in our industry. We may be required to record a significant charge in our financial statements during the period in which any impairment of our goodwill, intangible assets or long-lived assets is determined, negatively impacting our results of operations and financial condition.
Item 1B.
Unresolved Staff Comments.
NONE
Item 2.
Properties.
We operate globally, with our principal executive offices located in Charlotte, NC, our corporate office located in Baton Rouge, LA and regional shared services offices located in Budapest, Hungary and Dalian, China. All of these properties are leased. We and our affiliates also operate regional sales and administrative offices in various locations throughout the world, which are generally leased.
We believe that our production facilities, research and development facilities, and sales and administrative offices are generally well maintained, effectively used and are adequate to operate our business. During 2017, the Company’s manufacturing plants operated at approximately 73% capacity, in the aggregate.
Set forth below is information regarding our significant production facilities operated by us and our affiliates:
Location
 
Business Segment in 2017
 
Principal Use
 
Owned/Leased
Amsterdam, the Netherlands
 
Refining Solutions(a)
 
Production of refinery catalysts, research and product development activities
 
Owned
 
 
 
 
 
 
 
Baton Rouge, Louisiana
 
Lithium and Advanced Materials(b); Bromine Specialties
 
Research and product development activities, and production of flame retardants, catalysts and additives
 
Owned; on leased land
 
 
 
 
 
 
 
Bitterfeld, Germany
 
Refining Solutions(a)
 
Refinery catalyst regeneration, rejuvenation, and sulfiding
 
Owned by Eurecat S.A., a joint venture owned 50% by each of Axens Group and us
 
 
 
 
 
 
 

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Albemarle Corporation and Subsidiaries
 

Location
 
Business Segment in 2017
 
Principal Use
 
Owned/Leased
Cambridge, U.K.
 
Lithium and Advanced Materials(a)
 
Production of performance catalysts
 
Leased
 
 
 
 
 
 
 
Greenbushes, Australia
 
Lithium and Advanced Materials
 
Production of lithium spodumene minerals and lithium concentrate
 
Owned by Windfield Holdings Pty Ltd, a joint venture in which we own 49%, and Sichuan Tianqi Lithium Industries Inc. which owns the remaining interest
 
 
 
 
 
 
 
Jubail, Saudi Arabia
 
Lithium and Advanced Materials(a)
 
Manufacturing and marketing of organometallics
 
Owned by Saudi Organometallic Chemicals Company LLC, a joint venture owned 50% by each of Saudi Specialty Chemicals Company (a SABIC affiliate) and us
 
 
 
 
 
 
 
Kings Mountain, North Carolina
 
Lithium and Advanced Materials
 
Production of technical and battery grade lithium hydroxide, lithium salts and battery grade lithium metal products
 
Owned
 
 
 
 
 
 
 
La Negra, Chile
 
Lithium and Advanced Materials
 
Production of lithium carbonate and lithium chloride
 
Owned
 
 
 
 
 
 
 
Langelsheim, Germany
 
Lithium and Advanced Materials
 
Production of butyllithium, lithium chloride, specialty products, lithium hydrides, cesium and special metals
 
Owned
 
 
 
 
 
 
 
Louvain-la-Neuve, Belgium
 
Lithium and Advanced Materials; Bromine Specialties; Refining Solutions(a); All Other
 
Regional offices and research and customer technical service activities
 
Owned
 
 
 
 
 
 
La Voulte, France
 
Refining Solutions(a)
 
Refinery catalysts regeneration and treatment, research and development activities
 
Owned by Eurecat S.A., a joint venture owned 50% by each of Axens Group and us
 
 
 
 
 
 
Magnolia, Arkansas
 
Bromine Specialties
 
Production of flame retardants, bromine, inorganic bromides, agricultural intermediates and tertiary amines
 
Owned
 
 
 
 
 
 
McAlester, Oklahoma
 
Refining Solutions(a)
 
Refinery catalyst regeneration, rejuvenation, pre-reclaim burn off, as well as specialty zeolites and additives marketing activities
 
Owned by Eurecat S.A., a joint venture owned 50% by each of Axens Group and us
 
 
 
 
 
 
 
Meishan, China
 
Lithium and Advanced Materials
 
Production of lithium carbonate and lithium hydroxide
 
Owned
 
 
 
 
 
 
Mobile, Alabama
 
Lithium and Advanced Materials(a)
 
Production of tin stabilizers
 
Owned by PMC Group, Inc. which operates the plant for Stannica LLC, a joint venture owned 50% by each of PMC Group Inc. and us
 
 
 
 
 
 
 
New Johnsonville, Tennessee
 
Lithium and Advanced Materials
 
Production of specialty products

 
Owned
 
 
 
 
 
 
 
Niihama, Japan
 
Refining Solutions(a)
 
Production of refinery catalysts
 
Leased by Nippon Ketjen Company Limited, a joint venture owned 50% by each of Sumitomo Metal Mining Company Limited and us
 
 
 
 
 
 
Pasadena, Texas
 
Lithium and Advanced Materials(a); All Other
 
Production of aluminum alkyls, alkenyl succinic anhydride, orthoalkylated anilines, and other specialty chemicals
 
Owned
 
 
 
 
 
 
 
Pasadena, Texas
 
Refining Solutions(a)
 
Production of refinery catalysts, research and development activities
 
Owned
 
 
 
 
 
 
 

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Albemarle Corporation and Subsidiaries
 

Location
 
Business Segment in 2017
 
Principal Use
 
Owned/Leased
Pasadena, Texas
 
Refining Solutions(a)
 
Refinery catalysts regeneration services
 
Owned by Eurecat U.S. Incorporated, a joint venture in which we own a 57.5% interest and a consortium of entities in various proportions owns the remaining interest
 
 
 
 
 
 
 
Safi, Jordan
 
Bromine Specialties
 
Production of bromine and derivatives and flame retardants
 
Owned and leased by JBC, a joint venture owned 50% by each of Arab Potash Company Limited and us
 
 
 
 
 
 
 
Salar de Atacama, Chile
 
Lithium and Advanced Materials
 
Production of lithium brine and potash
 
Owned; however ownership will revert to the Chilean government once we have sold all remaining amounts under our contract with the Chilean government pursuant to which we obtain lithium brine in Chile
 
 
 
 
 
 
 
Santa Cruz, Brazil
 
Refining Solutions(a)
 
Production of catalysts, research and product development activities
 
Owned by Fábrica Carioca de Catalisadores S.A, a joint venture owned 50% by each of Petrobras Química S.A.—PETROQUISA and us
 
 
 
 
 
 
 
Silver Peak, Nevada
 
Lithium and Advanced Materials
 
Production of lithium brine and lithium carbonate
 
Owned
 
 
 
 
 
 
 
South Haven, Michigan
 
All Other
 
Production of custom fine chemistry products including pharmaceutical actives
 
Owned
 
 
 
 
 
 
 
Taichung, Taiwan
 
Lithium and Advanced Materials
 
Production of butyllithium
 
Owned
 
 
 
 
 
 
 
Takaishi City, Osaka, Japan
 
Lithium and Advanced Materials(a)
 
Production of aluminum alkyls
 
Owned by Nippon Aluminum Alkys, a joint venture owned 50% by each of Mitsui Chemicals, Inc. and us
 
 
 
 
 
 
 
Twinsburg, Ohio
 
Bromine Specialties
 
Production of bromine-activated carbon
 
Leased
 
 
 
 
 
 
 
Tyrone, Pennsylvania
 
All Other
 
Production of custom fine chemistry products, agricultural intermediates, performance polymer products and research and development activities
 
Owned
 
 
 
 
 
 
 
Xinyu, China
 
Lithium and Advanced Materials
 
Production of lithium carbonate and lithium hydroxide
 
Owned
 
 
 
 
 
 
 
Yeosu, South Korea
 
Lithium and Advanced Materials(b)
 
Research and product development activities/small scale production of catalysts and catalyst components
 
Owned
(a)
During the first quarter of 2018, the PCS product category will merge with the Refining Solutions reportable segment to form the Catalysts reportable segment, a global business focused on catalysts. These significant production facilities will be part of the Catalysts reportable segment beginning in 2018.
(b)
Facility included in the sale of the polyolefin catalysts and components portion of the PCS business, which is expected to close in the first quarter of 2018.
Item 3.
Legal Proceedings.
We are involved in litigation incidental to our business and are a party to a number of legal actions and claims, various governmental proceedings and private civil lawsuits, including, but not limited to, those related to environmental and hazardous material exposure matters, product liability, and breach of contract. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the legal defenses available and liabilities that have been recorded along with applicable insurance, it is currently the opinion of management that none of these pending items will have a material adverse effect on our financial condition, results of operations or liquidity.

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Following receipt of information regarding potential improper payments being made by third party sales representatives of our Refining Solutions business, we promptly retained outside counsel and forensic accountants to investigate potential violations of the Company’s Code of Conduct, the FCPA, and other potentially applicable laws. Based on this internal investigation, we have voluntarily self-reported potential issues relating to the use of third party sales representatives in our Refining Solutions business to the U.S. DOJ and SEC, and intend to cooperate with the DOJ and SEC in their review of these matters. In connection with our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures.
At this time, we are unable to predict the duration, scope, result or related costs associated with any investigations by the DOJ or SEC. We also are unable to predict what, if any, action may be taken by the DOJ or SEC or what penalties or remedial actions they may seek. Any determination that our operations or activities are not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses. We do not believe, however, that any fines, penalties, disgorgement, equitable relief or other losses would have a material adverse effect on our financial condition or liquidity.
An unexpected adverse resolution of one or more of these items, however, could have a material adverse effect on our financial condition, results of operations or liquidity in that particular period.
Item 4.
Mine Safety Disclosures.
Not applicable.
Executive Officers of the Registrant.
The names, ages and biographies of our executive officers, as of February 20, 2018, are set forth below. The term of office of each officer is until the meeting of the Board of Directors following the next annual shareholders’ meeting (May 8, 2018).
Name
 
Age
 
Position
Luther C. Kissam IV
 
53
 
Chairman, President and Chief Executive Officer
Matthew K. Juneau
 
57
 
Executive Vice President, Corporate Strategy and Investor Relations
Karen G. Narwold
 
58
 
Executive Vice President, Chief Administrative Officer
Scott A. Tozier
 
52
 
Executive Vice President, Chief Financial Officer
Donald J. LaBauve, Jr.
 
51
 
Vice President, Corporate Controller, Chief Accounting Officer
Luther C. Kissam IV was elected as Chairman of the Board of Directors in November 2016. Mr. Kissam was first elected to our Board of Directors effective November 2011. He was elected as Chief Executive Officer effective September 2011 and as our President effective May 2013. Previously, Mr. Kissam served as President from March 2010 until March 2012, Executive Vice President, Manufacturing, Law and HS&E from May 2009 until March 2010, and as Senior Vice President, Manufacturing and Law and Corporate Secretary from January 2008 until May 2009. Mr. Kissam joined us in October 2003 and served as Vice President, General Counsel and Corporate Secretary from that time until December 2005, when he was promoted to Senior Vice President, General Counsel and Corporate Secretary. Before joining us, Mr. Kissam served as Vice President, General Counsel and Secretary of Merisant Company (manufacturer and marketer of sweetener and consumer food products), having previously served as Associate General Counsel of Monsanto Company (provider of agricultural products and solutions).
Matthew K. Juneau was elected as our Executive Vice President of Corporate Strategy and Investor Relations effective May 2015. On January 17, 2018, Mr. Juneau gave notice of his decision to retire from the Company in March 2018 following over 35 years of service. Previously, Mr. Juneau served as Senior Vice President, President Performance Chemicals since December 2013, Vice President, Polymer Solutions since March 2012, Vice President, Global Sales and Services from May 2009 to February 2012, and prior to that as Division Vice President of our performance chemicals business in the Fine Chemistry division since January 2007. Prior to that, Mr. Juneau held various positions of increasing responsibility in research and development and business management with us including Managing Director of our European operations from January 2003 until December 2007. Mr. Juneau joined us as a chemical engineer in June 1982.
Karen G. Narwold joined us in September of 2010 and currently serves as Executive Vice President and Chief Administrative Officer. Ms. Narwold has over 25 years of legal, management and business experience with global industrial and chemical companies. After five years in private practice, she served as Vice President, General Counsel, Human Resources and Secretary of GrafTech International Ltd., a global graphite and carbon manufacturer and former subsidiary of Union

25

Albemarle Corporation and Subsidiaries
 

Carbide. She then served as Vice President and Strategic Counsel of Barzel Industries, a North American steel processor and distributor. Ms. Narwold resigned from Barzel in November 2009, after Barzel reached an agreement to sell substantially all of its assets in a planned transaction that was consummated in a sale pursuant to Section 363 of the U.S. Bankruptcy Code. Prior to joining Albemarle, Ms. Narwold served as Special Counsel with Kelley Drye & Warren LLP and with Symmetry Advisors where she worked in the areas of strategic, financial and capital structure planning and restructuring for public and private companies.
Scott A. Tozier was elected as our Executive Vice President and Chief Financial Officer effective January 2011. Mr. Tozier also served as our Chief Accounting Officer from January 2013 until February 2014. Mr. Tozier has over 25 years of diversified international financial management experience. Following four years of assurance services with the international firm Ernst & Young, LLP, Mr. Tozier joined Honeywell International, Inc., where his 16 year career spanned senior financial positions in the U.S., Australia and Europe. His roles of increasing responsibilities included management of financial planning, analysis and reporting, global credit and treasury services and Chief Financial Officer of Honeywell’s Transportation Systems, Turbo Technologies and Building Solutions divisions. Most recently, Mr. Tozier served as Vice President of Finance, Operations and Transformation of Honeywell International, Inc.
Donald J. LaBauve Jr. was elected Vice President, Corporate Controller effective February 2013, and Chief Accounting Officer effective February 2014, after having previously served as Vice President, Finance - Business Operations since April 2009. Mr. LaBauve served as Chief Financial Officer, Fine Chemistry from April 2007 until April 2009, and prior to that time held the role of Controller, Polymer Solutions from January 2006 through March 2007. Since joining the Company as Ethyl Corporation in April 1990, Mr. LaBauve has held various staff and leadership positions of increasing responsibility within the finance function, including an assignment to our European headquarters in Belgium in April 2000, where he held the regional finance leadership role from July 2002 through June 2005.

PART II

Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “ALB.” The following table sets forth on a per share basis the high and low sales prices for our common stock for the periods indicated, as reported on the NYSE composite transactions reporting system, and the dividends declared per share on our common stock.
 
Common Stock Price Range
 
Dividends
Declared Per
Share of
Common Stock
 
High
 
Low
 
2016
 
 
 
 
 
First Quarter
$
64.33

 
$
45.78

 
$
0.305

Second Quarter
$
84.99

 
$
63.40

 
$
0.305

Third Quarter
$
87.29

 
$
75.11

 
$
0.305

Fourth Quarter
$
92.24

 
$
76.32

 
$
0.305

2017
 
 
 
 
 
First Quarter
$
107.56

 
$
86.98

 
$
0.32

Second Quarter
$
116.64

 
$
103.42

 
$
0.32

Third Quarter
$
137.48

 
$
105.34

 
$
0.32

Fourth Quarter
$
144.99

 
$
126.31

 
$
0.32

There were 110,638,449 shares of common stock held by 2,532 shareholders of record as of February 20, 2018. On February 23, 2018, we declared a dividend of $0.335 per share of common stock, payable April 2, 2018. We expect to continue to declare and pay dividends to our shareholders in the future, however, dividends are declared solely at the discretion of our Board of Directors and there is no guarantee that the Board of Directors will continue to declare dividends in the future.
The information required by Item 201(d) of Regulation S-K is contained in our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders to be filed with the SEC pursuant to Regulation 14A under the Exchange Act, or the Proxy Statement, and is incorporated herein by reference.

26

Albemarle Corporation and Subsidiaries
 

Stock Performance Graph
The graph below shows the cumulative total shareholder return assuming the investment of $100 in our common stock on December 31, 2012 and the reinvestment of all dividends thereafter. The information contained in the graph below is furnished and therefore not to be considered “filed” with the SEC, and is not incorporated by reference into any document that incorporates this Annual Report on Form 10-K by reference.

stockperformancegraph2017.jpg
Item 6.
Selected Financial Data.
The information for the five years ended December 31, 2017, is contained in the “Five-Year Summary” included in Part IV, Item 15, Exhibit 99.1 and incorporated herein by reference.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Some of the information presented in this Annual Report on Form 10-K, including the documents incorporated by reference, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on our current expectations, which are in turn based on assumptions that we believe are reasonable based on our current knowledge of our business and operations. We have used words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “would,” “will” and variations of such words and similar expressions to identify such forward-looking statements.
These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. There can be no assurance that our actual results will not differ materially from the results and expectations expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially from the outlook expressed or implied in any forward-looking statement include, without limitation:
changes in economic and business conditions;
changes in financial and operating performance of our major customers and industries and markets served by us;
the timing of orders received from customers;
the gain or loss of significant customers;
competition from other manufacturers;
changes in the demand for our products or the end-user markets in which our products are sold;

27

Albemarle Corporation and Subsidiaries
 

limitations or prohibitions on the manufacture and sale of our products;
availability of raw materials;
increases in the cost of raw materials and energy, and our ability to pass through such increases to our customers;
changes in our markets in general;
fluctuations in foreign currencies;
changes in laws and government regulation impacting our operations or our products;
the occurrence of regulatory proceedings, claims or litigation;
the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change;
hazards associated with chemicals manufacturing;
the inability to maintain current levels of product or premises liability insurance or the denial of such coverage;
political unrest affecting the global economy, including adverse effects from terrorism or hostilities;
political instability affecting our manufacturing operations or joint ventures;
changes in accounting standards;
the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs;
changes in the jurisdictional mix of our earnings and changes in tax laws and rates;
changes in monetary policies, inflation or interest rates that may impact our ability to raise capital or increase our cost of funds, impact the performance of our pension fund investments and increase our pension expense and funding obligations;
volatility and uncertainties in the debt and equity markets;
technology or intellectual property infringement, including cyber-security breaches, and other innovation risks;
decisions we may make in the future;
the ability to successfully execute, operate and integrate acquisitions and divestitures; and
the other factors detailed from time to time in the reports we file with the SEC.
We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. The following discussion should be read together with our consolidated financial statements and related notes included in this Annual Report on Form 10-K.
The following is a discussion and analysis of our results of operations for the years ended December 31, 2017, 2016 and 2015. A discussion of our consolidated financial condition and sources of additional capital is included under a separate heading “Financial Condition and Liquidity” on page 49.
Overview
We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals that are designed to meet our customers’ needs across a diverse range of end markets. The end markets we serve include energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, crop protection and custom chemistry services. We believe that our commercial and geographic diversity, technical expertise, innovative capability, flexible, low-cost global manufacturing base, experienced management team and strategic focus on our core base technologies will enable us to maintain leading market positions in those areas of the specialty chemicals industry in which we operate.
Secular trends favorably impacting demand within the end markets that we serve combined with our diverse product portfolio, broad geographic presence and customer-focused solutions will continue to be key drivers of our future earnings growth. We continue to build upon our existing green solutions portfolio and our ongoing mission to provide innovative, yet commercially viable, clean energy products and services to the marketplace. We believe our disciplined cost reduction efforts and ongoing productivity improvements, among other factors, position us well to take advantage of strengthening economic conditions as they occur, while softening the negative impact of the current challenging global economic environment.


28

Albemarle Corporation and Subsidiaries
 

2017 Highlights
In the first quarter, we increased our quarterly dividend for the 23rd consecutive year, to $0.32 per share.
We repaid the 3.00% Senior notes in full, €307.0 million of the 1.875% Senior notes and $174.7 million of the 4.50% Senior notes, as well as related tender premiums of $45.2 million, using a portion of the proceeds from the sale of the Chemetall Surface Treatment business.
We announced that Albemarle and Tianqi Lithium Corporation (“Tianqi”) terminated the option agreement for Tianqi to acquire a 20% indirect ownership interest in Rockwood Lithium GmbH, a wholly-owned German subsidiary of Albemarle, and its subsidiaries. As a result, we will retain 100% of the ownership interest in Rockwood Lithium GmbH.
We announced the approval for the expansion of lithium concentrate production at our Greenbushes, Australia site through our 49% owned Talison joint venture. Commissioning of the expansion is expected to begin in the second quarter of 2019 and would more than double the current lithium carbonate capacity.
We completed a $250 million accelerated share repurchase (“ASR”) program, receiving and retiring 2,341,083 shares of our common stock pursuant to the terms of the ASR agreement and our share repurchase program.
We announced that we have developed an innovative technology that could lead to a sustainable increase in total lithium production in Chile to as much as 125,000 metric tons of lithium carbonate equivalent annually, without the need for additional brine pumping at the Salar de Atacama. As a result of this development, we have requested that Chile’s Economic Development Agency (“CORFO”) increase our lithium quota. As of the date of this Annual Report, CORFO is yet to conclude on the Company’s request.
In November 2017, we announced that during the first quarter of 2018, the PCS product category will merge with the Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments will include: (1) Lithium, (2) Bromine Specialties and (3) Catalysts.
On December 14, 2017, we signed a definitive agreement to sell the polyolefin catalysts and components portion of our PCS business to W.R. Grace & Co. for proceeds of approximately $416 million in cash. The transaction includes Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at its Yeosu, South Korea site, and is expected to close in the first quarter of 2018.
We announced a new technology for the FCC catalyst market called Granite. The Granite technology expands the catalyst formulation window and enables refiners to maximize their profitability through better bottoms upgrading, improved coke selectivity, and higher zeolite stability while achieving targeted product yields.
We achieved earnings from continuing operations of $99.5 million during 2017 as compared to $478.6 million for 2016. Cash flows from operations in 2017 were $304.0 million. Earnings from continuing operations for 2017 includes pension and other postretirement benefit (“OPEB”) actuarial gains of $7.3 million after income taxes, compared to pension and OPEB actuarial losses of $18.3 million after income taxes in 2016.
Outlook
The current global business environment presents a diverse set of opportunities and challenges in the markets we serve. In particular, the market for lithium battery and energy storage continues to accelerate, providing the opportunity to continue to develop high quality and innovative products while managing the high cost of expanding capacity. The other markets we serve continue to present various opportunities for value and growth as we have positioned ourselves to manage changing global conditions, such as slow and uneven global growth, currency exchange volatility, crude oil price fluctuation, a dynamic pricing environment and an ever-changing landscape in electronics, the continuous need for cutting edge catalysts and technology by our refinery customers and increasingly stringent environmental standards. Amidst these dynamics, we believe our business fundamentals are sound and that we are strategically well-positioned as we remain focused on increasing sales volumes, optimizing and improving the value of our portfolio primarily through pricing and product development, managing costs and delivering value to our customers and shareholders. We believe that our businesses remain well-positioned to capitalize on new business opportunities and long-term trends driving growth within our end markets and to respond quickly to changes in economic conditions in these markets.
In 2017, our operations were managed and reported under three reportable segments: Lithium and Advanced Materials, Bromine Specialties and Refining Solutions. Financial results and discussion about our segments included in this Annual Report on Form 10-K are organized according to these categories except where noted.
Lithium and Advanced Materials: We expect continued strong year over year growth for the remainder of 2018 in Lithium, led by continued strong demand in battery-grade applications, price improvement and increased conversion capacity. In 2017, PCS experienced weaker profitability due to pricing pressure and the impact of hurricane Harvey, partially offset by

29

Albemarle Corporation and Subsidiaries
 

productivity and cost savings initiatives. We expect PCS profitability to stabilize in 2018 due to productivity gains and increased volumes due to market demand, offset by unfavorable pricing due to excess supply.
On a longer term basis, we believe that demand for lithium will continue to grow as new applications for lithium power continue to be developed and the use of plug-in hybrid electric vehicles and battery electric vehicles escalates, against a favorable backdrop of steadily declining electric battery costs, increasing electric battery performance and constructive global public policy toward acceptance of e-mobility/renewables. Our long-term outlook is also bolstered by our successful negotiation of long-term supply agreements with a number of strategic customers, reflecting our standing as a preferred global lithium partner due to our scale, access to geographically diverse, low cost resources and long-term execution track record. In PCS, we expect growth in the organometallic business due to growing global demand for plastics driven by rising standards of living and infrastructure spending.
On December 14, 2017, we signed a definitive agreement to sell the polyolefin catalysts and components portion of the PCS business to W.R. Grace & Co. for proceeds of approximately $416 million in cash. The sale is expected to close in the first quarter of 2018, subject to the satisfaction of customary closing conditions, including approvals from regulatory authorities. In addition, during the first quarter of 2018, the PCS product category will merge with the Refining Solutions reportable segment to form a global business focused on catalysts and be reported in a separate reportable segment.
Bromine Specialties: The Bromine Specialties business had a solid 2017, with strong volume growth in fire safety and other derivatives driving double digit earnings growth year over year. We expect to see relatively flat growth on net sales and profitability in 2018. With sustained low oil prices, we expect stable, albeit low, drilling completion fluid demand throughout the year. While it is possible oil prices could rebound some in 2018, the short-term impact will be to increase raw material costs. Offshore well completions lag oil pricing, so any benefit in completion fluid volumes would likely extend into 2019. We are expecting relatively stable fire safety and other derivative net sales and profits in 2018.
On a longer term basis, we continue to believe that improving global standards of living, widespread digitization, increasing demand for data management capacity and the potential for increasingly stringent fire safety regulations in developing markets are likely to drive continued demand for fire safety products. Absent an increase in regulatory pressure on offshore drilling, we would expect this business to follow a long-term growth trajectory once oil prices recover from recent levels as we expect that deep water drilling will continue to increase around the world. We are focused on profitably growing our globally competitive bromine and derivatives production network to serve all major bromine consuming products and markets. We believe the global supply/demand gap could tighten as demand for existing and possible new uses of bromine expands over time. The combination of solid, long-term business fundamentals, with our strong cost position, product innovations and effective management of raw material costs will enable us to manage our business through end market challenges and to capitalize on opportunities that are expected with favorable market trends in select end markets.
Refining Solutions: Following a year of significant increases in the number of “Hydro treating unit” catalyst change-outs and marked improvement in catalyst product mix, our CFT business performed as expected. Our FCC business also performed as expected, despite impacts from hurricane Harvey. Both businesses faced headwinds from rising raw material costs in 2017 and we expect that trend to continue in 2018.
On a longer term basis, we believe increased global demand for transportation fuels, new refinery start-ups and ongoing adoption of cleaner fuels will be the primary drivers of growth in our Refining Solutions business. We believe delivering superior end-use performance continues to be the most effective way to create sustainable value in the refinery catalysts industry. We believe our technologies continue to provide significant performance and financial benefits to refiners challenged to meet tighter regulations around the world, including those managing new contaminants present in North America tight oil, and those in the Middle East and Asia seeking to use heavier feedstock while pushing for higher propylene yields. Longer term, we believe that the global crude supply will get heavier and more sour, a trend that bodes well for our catalysts portfolio. With superior technology and production capacities, and expected growth in end market demand, we believe that Refining Solutions remains well-positioned for the future.
All Other: The fine chemistry services business will continue to be reported outside the Company’s reportable segments as it does not fit in the Company’s core businesses. We expect the next few years to be a challenge for fine chemistry services due to a challenging agriculture industry environment, as well as customer order timing in pharmaceuticals.
Corporate: We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax rate for 2018 to be between 23% and 24%; 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. In December 2017, the TCJA was signed into law in the U.S., which among other things, lowers the U.S.

30

Albemarle Corporation and Subsidiaries
 

corporate income tax rate from 35% to 21%, implementing a territorial tax system for non-U.S. earnings and imposing a one-time transition tax on the undistributed earnings of certain non-U.S. subsidiaries. We also anticipate the potential for increased volatility in future effective tax rates from the continuing impact of the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-09, which was adopted in the first quarter of 2017.
In the first quarter of 2018, we increased our quarterly dividend rate to $0.335 per share. During 2017, we received and retired approximately 2.3 million shares of our common stock under our share repurchase program and the ASR agreement, and we may periodically repurchase shares in the future on an opportunistic basis as approved by our share repurchase program.
Actuarial gains and losses related to our defined benefit pension and OPEB plan obligations are reflected in Corporate as a component of non-operating pension and OPEB plan costs under mark-to-market accounting. Results for the year ended December 31, 2017 include an actuarial gain of $11.4 million ($7.3 million after income taxes), as compared to a loss of $26.7 million ($18.3 million after income taxes) from continuing operations for the year ended December 31, 2016.
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.


31

Albemarle Corporation and Subsidiaries
 

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.
Selected Financial Data
Year Ended December 31,
 
Percentage Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
 
(In thousands, except percentages and per share amounts)
NET SALES
$
3,071,976

 
$
2,677,203

 
$
2,826,429

 
15
 %
 
(5
)%
Cost of goods sold
1,961,996

 
1,706,627

 
1,966,196

 
15
 %
 
(13
)%
GROSS PROFIT
1,109,980

 
970,576

 
860,233

 
14
 %
 
13
 %
GROSS PROFIT MARGIN
36.1
%
 
36.3
%
 
30.4
%
 
 
 
 
Selling, general and administrative expenses
437,901

 
380,464

 
300,440

 
15
 %
 
27
 %
Research and development expenses
84,330

 
80,475

 
89,187

 
5
 %
 
(10
)%
Restructuring and other, net

 

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

 
(122,298
)
 

 
(100
)%
 
*

Acquisition and integration related costs

 
57,384

 
132,299

 
(100
)%
 
(57
)%
OPERATING PROFIT
587,749

 
574,551

 
345,111

 
2
 %
 
66
 %
OPERATING PROFIT MARGIN
19.1
%
 
21.5
%
 
12.2
%
 
 
 
 
Interest and financing expenses
(115,350
)
 
(65,181
)
 
(81,650
)
 
77
 %
 
(20
)%
Other (expenses) income, net
(25,601
)
 
5,894

 
47,283

 
*

 
(88
)%
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
446,798

 
515,264

 
310,744

 
(13
)%
 
66
 %
Income tax expense
431,817

 
96,263

 
11,134

 
349
 %
 
*

Effective tax rate
96.6
%
 
18.7
%
 
3.6
%
 
 
 
 
INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
14,981

 
419,001

 
299,610

 
(96
)%
 
40
 %
Equity in net income of unconsolidated investments (net of tax)
84,487

 
59,637

 
27,978

 
42
 %
 
113
 %
NET INCOME FROM CONTINUING OPERATIONS
99,468

 
478,638

 
327,588

 
(79
)%
 
46
 %
Income from discontinued operations (net of tax)

 
202,131

 
32,476

 
(100
)%
 
*

NET INCOME
99,468

 
680,769

 
360,064

 
(85
)%
 
89
 %
Net income attributable to noncontrolling interests
(44,618
)
 
(37,094
)
 
(25,158
)
 
20
 %
 
47
 %
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION
$
54,850

 
$
643,675

 
$
334,906

 
(91
)%
 
92
 %
NET INCOME FROM CONTINUING OPERATIONS AS A PERCENTAGE OF NET SALES
3.2
%
 
17.9
%
 
11.6
%
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.49

 
$
3.93

 
$
2.72

 
(88
)%
 
44
 %
Discontinued operations

 
1.80

 
0.29

 
(100
)%
 
*

 
$
0.49

 
$
5.73

 
$
3.01

 
(91
)%
 
90
 %
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.49

 
$
3.90

 
$
2.71

 
(87
)%
 
44
 %
Discontinued operations

 
1.78

 
0.29

 
(100
)%
 
*

 
$
0.49

 
$
5.68

 
$
3.00

 
(91
)%
 
89
 %
* Percentage calculation is not meaningful.

32

Albemarle Corporation and Subsidiaries
 

Comparison of 2017 to 2016
Net Sales
For the year ended December 31, 2017, we recorded net sales of $3.07 billion, a 15% increase compared to net sales of $2.68 billion for the corresponding period of 2016. Net sales increased due to $272.2 million of higher volumes, $157.8 million of favorable pricing impacts and $3.4 million of favorable currency exchange impacts, partially offset by the $38.6 million impact of the sale of the minerals-based flame retardants and specialty chemicals business.
Gross Profit
For the year ended December 31, 2017, our gross profit increased $139.4 million, or 14%, compared to the corresponding period of 2016. Included in Cost of goods sold for the year ended December 31, 2017 are: (1) a $23.1 million charge related to the markup of inventory purchased as part of the acquisition of the lithium hydroxide and lithium carbonate conversion business of Jiangli New Materials; (2) $14.3 million of acquisition and integration related costs resulting from the Jiangli New Materials acquisition; and (3) restructuring costs of $2.9 million related to a plan to reduce costs at several locations. In addition, gross profit decreased $3.1 million related to the divested minerals-based flame retardants and specialty chemicals business in the first quarter of 2016. Excluding the impact of these items, gross profit increased by $182.8 million, or 19%, due primarily to higher overall sales volumes and favorable price impacts, partially offset by increased costs in Lithium and a $15.4 million negative impact from hurricane Harvey. Overall, these factors contributed to a gross profit margin for the years ended December 31, 2017 and 2016 of 36.1% and 36.3%, respectively. Excluding the impact of the charges noted above, gross profit margin was 37.4% for the year ended December 31, 2017 as compared to 36.7% for the year ended December 31, 2016.
Selling, General and Administrative Expenses
For the year ended December 31, 2017, our selling, general and administrative (“SG&A”) expenses increased $57.4 million, or 15%, from the year ended December 31, 2016. SG&A expenses for 2017 included approximately $10.0 million of pension and OPEB benefits (including mark-to-market actuarial gains of $8.8 million) allocated to SG&A expenses, as compared to $29.3 million of pension and OPEB costs (including mark-to-market actuarial losses of $26.3 million) allocated to SG&A expenses in 2016. In addition, the year ended December 31, 2017 includes $19.6 million of acquisition and integration related costs, primarily resulting from the acquisition of Jiangli New Materials, $8.4 million of restructuring costs related to several locations, primarily our Lithium sites in Germany and $3.3 million of multiemployer plan financial improvement plan shortfall contributions for our employees. Excluding the impact of these charges and the mark-to-market actuarial gains and losses, SG&A expenses increased by $61.2 million, or 17%, primarily due to increased compensation costs, Lithium growth spending and professional fees, partially offset by savings from our restructuring. As a percentage of net sales, SG&A expenses were 14.3% in 2017, compared to 14.2% in 2016. Excluding the impact of these charges and the mark-to-market actuarial gains and losses, SG&A expenses as a percentage of net sales were 13.5% in 2017 and 13.2% in 2016.
The mark-to-market actuarial gain in 2017 is primarily attributable to a higher return on pension plan assets in 2017 than was expected, as a result of overall market and investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was 14.31% versus an expected return of 6.73%. The mark-to-market actuarial gain in 2017 was partially offset by a decrease in the weighted-average discount rate to 4.03% from 4.43% for our U.S. pension plans and to 1.94% from 2.00% for our foreign pension plans to reflect market conditions as of the December 31, 2017 measurement date.
The mark-to-market actuarial loss in 2016 is primarily attributable to a decrease in the weighted-average discount rate to 4.43% from 4.67% for our U.S. pension plans and to 2.00% from 2.76% for our foreign pension plans to reflect market conditions as of the December 31, 2016 measurement date. The mark-to-market actuarial loss in 2016 was partially offset by a higher return on pension plan assets in 2016 than was expected, as a result of overall market and investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was 8.11% versus an expected return of 6.85%.
Research and Development Expenses
For the year ended December 31, 2017, our R&D expenses increased $3.9 million, or 5%, from the year ended December 31, 2016. Included in R&D expenses for the year ended December 31, 2017 are $5.7 million of restructuring costs related to our Lithium sites in Germany. As a percentage of net sales, R&D expenses were 2.7% in 2017, compared to 3.0% in 2016.

33

Albemarle Corporation and Subsidiaries
 

Gain on Sales of Businesses, Net
The year ended December 31, 2016 included 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 year ended December 31, 2016 included a loss of $1.5 million on the sale of our wafer reclaim business.
Acquisition and Integration Related Costs
Acquisition and integration related costs for the year ended December 31, 2017 are reported in Cost of goods sold and SG&A expenses, as noted above. The year ended December 31, 2016 included $52.1 million of acquisition and integration related costs directly related to the acquisition of Rockwood (mainly consisting of professional services, costs to achieve synergies, relocation costs, and other integration costs) and $5.3 million of costs in connection with other significant projects.
Interest and Financing Expenses
Interest and financing expenses for the year ended December 31, 2017 increased $50.2 million to $115.4 million from the corresponding 2016 period, due mainly to a loss of $52.8 million on early extinguishment of debt related to the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the repayment of the 3.00% Senior notes in full, €307.0 million of the 1.875% Senior notes and $174.7 million of the 4.50% Senior notes.
Other (Expenses) Income, Net
Other (expenses) income, net, for the year ended December 31, 2017 was ($25.6) million versus $5.9 million for the corresponding 2016 period. During the year ended December 31, 2017, we recorded a $28.7 million reserve recorded against a note receivable in one of our European entities no longer deemed probable of collection, $3.2 million of asset retirement obligation charges related to the revision of an estimate at a site formerly owned by Albemarle, losses of $4.1 million related to the final settlements of previously disposed businesses and the revision of tax indemnification expenses of $3.7 million primarily related to the filing of tax returns and a competent authority agreement for a previously disposed business. This is partially offset by a $10.6 million gain related to the reversal of liabilities recorded as part of purchase accounting from a previous acquisition, a $6.2 million gain related to the acquisition of the 50% interest of an equity investment and $1.1 million related to a reversal of a liability associated with the previous disposal of a property in 2017. The remaining change was primarily due to an increase in foreign exchange losses of $13.5 million and 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 2017 was 96.6% compared to 18.7% for 2016. Our effective income tax rate for 2017 was primarily affected by the enactment of the TCJA in December 2017. The tax effects of the TCJA are recorded in connection with the one-time transition tax expense of $429.2 million, partially offset by the remeasurement of deferred tax assets and liabilities due to a decrease in corporate tax rate from 35% to 21% of $62.3 million tax benefit. Exclusive of the enactment of the TCJA, the Company’s effective tax rate differs from the U.S. Federal statutory income tax rate due to the impact of earnings from outside the U.S., mainly attributable to our share of the income of our JBC joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. In addition, income tax expense for the year ended December 31, 2017, included foreign rate changes of $16.2 million and a $5.1 million out-of-period adjustment due to changes in our deferred tax liabilities for basis differences in Chilean fixed assets offset by a $10.9 million benefit from the release of valuation allowances due to a foreign restructuring plan that was initiated during the second quarter of 2017 and a $8.8 million benefit from excess tax benefits realized from stock-based compensation arrangements.
Our effective tax rate for 2016 was affected by discrete net tax expense items of $20.2 million related mainly to a tax gain from restructuring the ownership of a foreign subsidiary, foreign tax rate changes, provision to return adjustments and changes in valuation allowances necessary due to the restructuring. See Note 20, “Income Taxes” to our consolidated financial statements included in Part II, Item 8 of this report for a reconciliation of the U.S. Federal statutory income tax rate to our effective rate for 2017 and 2016.
Equity in Net Income of Unconsolidated Investments
Equity in net income of unconsolidated investments was $84.5 million for the year ended December 31, 2017 compared to $59.6 million in the same period last year. This increase of $24.9 million was primarily due to higher equity income reported by our Lithium and Advanced Materials segment joint venture Windfield Holdings Pty. Ltd. resulting from favorable pricing and volumes in our lithium business.

34

Albemarle Corporation and Subsidiaries
 

Income from Discontinued Operations (Net of Tax)
The year ended December 31, 2016 income from discontinued operations, after income taxes, of $202.1 million included a pre-tax gain of $388.0 million ($135.0 million after income taxes) related to the sale of our Chemetall Surface Treatment business, which closed on December 14, 2016. This gain represents the difference between the carrying value of the related assets and their fair value as determined by the sales price less estimated costs to sell, and included the reversal of $81.4 million of foreign currency translation loss out of Accumulated other comprehensive loss.
Net Income Attributable to Noncontrolling Interests
For the year ended December 31, 2017, net income attributable to noncontrolling interests was $44.6 million compared to $37.1 million in the same period of 2016. This increase of $7.5 million was due primarily to changes in consolidated income related to our JBC joint venture resulting from higher sales volumes.
Net Income Attributable to Albemarle Corporation
Net income attributable to Albemarle Corporation decreased to $54.9 million for the year ended December 31, 2017, from $643.7 million for the corresponding period of 2016. The year ended December 31, 2017 was negatively impacted by the one-time transition tax expense of $429.2 million recorded as a result of the enactment of the TCJA in December 2017. In addition, the year ended December 31, 2017 included a $52.8 million loss on early extinguishment of debt and $17.1 million of restructuring and other costs, while the year ended December 31, 2016 included net gains of $250.5 million after income taxes related to the sale of businesses, including discontinued operations. Excluding these items, net income attributable to Albemarle increased by $160.8 million. The increase was primarily due to the increase in gross profit from higher overall sales volumes and favorable price impacts, the remeasurement of deferred tax assets and liabilities due to a decrease in corporate tax rate from 35% to 21% of $62.3 million tax benefit resulting from the enactment of the TCJA, and lower acquisition and integration related costs, partially offset by an increase in SG&A expenses, income before taxes from discontinued operations in 2016 and the negative impact of hurricane Harvey.
Other Comprehensive Income, Net of Tax
Total other comprehensive income, after income taxes, was $187.6 million in 2017 compared to $8.3 million in 2016. This change is primarily due to changes in foreign currency translations. We translate our foreign subsidiary financial statements from their local currencies to U.S. Dollars. In 2017, other comprehensive income from foreign currency translation adjustments was $227.4 million, mainly as a result of favorable movements in the European Union Euro of approximately $192 million, the Korean Won of approximately $16 million, the Chinese Renminbi of approximately $13 million and the Taiwan Dollar of approximately $4 million. Also included in total other comprehensive income for 2017 is a loss of $41.8 million in connection with the revaluation of our Euro-based 1.875% Senior notes which have been designated as a hedge of our net investment in foreign operations. In 2016, other comprehensive loss from foreign currency translation adjustments was $20.8 million, mainly as a result of unfavorable movements in the British Pound Sterling of approximately $25 million, the Chinese Renminbi of approximately $12 million, the Korean Won of approximately $6 million, the Turkish Lira of approximately $6 million, partially offset by favorable movements in the European Union Euro of approximately $15 million and the Brazilian Real of approximately $13 million. Included in the currency movements for 2016 is the favorable effect of $81.4 million in accumulated foreign currency translation losses that were reversed as a result of the sale of the Chemetall Surface Treatment business. Also included in total other comprehensive income for 2016 is income of $26.1 million in connection with the revaluation of our Euro-based 1.875% Senior notes which have been designated as a hedge of our net investment in foreign operations.
Segment Information Overview. We have identified three reportable segments according to the nature and economic characteristics of our products as well as the manner in which the information is used internally by the 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. 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 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

35

Albemarle Corporation and Subsidiaries
 

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.
 
 
Year Ended December 31,
 
Percentage Change
 
 
2017
 
%
 
2016
 
%
 
2017 vs. 2016
 
 
(In thousands, except percentages)
Net sales:
 
 
 
 
 
 
 
 
 
 
Lithium and Advanced Materials
 
$
1,308,153

 
42.6
 %
 
$
968,216

 
36.2
 %
 
35
 %
Bromine Specialties
 
855,143

 
27.8
 %
 
792,425

 
29.6
 %
 
8
 %
Refining Solutions
 
778,304

 
25.3
 %
 
732,137

 
27.3
 %
 
6
 %
All Other
 
128,914

 
4.2
 %
 
180,988

 
6.8
 %
 
(29
)%
Corporate
 
1,462

 
0.1
 %
 
3,437

 
0.1
 %
 
(57
)%
Total net sales
 
$
3,071,976

 
100.0
 %
 
$
2,677,203

 
100.0
 %
 
15
 %
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
Lithium and Advanced Materials
 
$
518,530

 
58.6
 %
 
$
363,360

 
48.0
 %
 
43
 %
Bromine Specialties
 
258,901

 
29.2
 %
 
226,926

 
29.9
 %
 
14
 %
Refining Solutions
 
212,005

 
23.9
 %
 
238,963

 
31.5
 %
 
(11
)%
All Other
 
13,878

 
1.6
 %
 
14,772

 
1.9
 %
 
(6
)%
Corporate
 
(117,834
)
 
(13.3
)%
 
(85,804
)
 
(11.3
)%
 
37
 %
Total adjusted EBITDA
 
$
885,480

 
100.0
 %
 
$
758,217

 
100.0
 %
 
17
 %



36

Albemarle Corporation and Subsidiaries
 

See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, from Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, (in thousands):
 
Lithium and Advanced Materials
 
Bromine Specialties
 
Refining Solutions
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
400,360

 
$
218,839

 
$
173,297

 
$
792,496

 
$
5,521

 
$
(743,167
)
 
$
54,850

Depreciation and amortization
102,389

 
40,062

 
39,958

 
182,409

 
8,357

 
6,162

 
196,928

Utilization of inventory markup(a)
23,095

 

 

 
23,095

 

 

 
23,095

Restructuring and other(b)

 

 

 

 

 
17,056

 
17,056

Gain on acquisition(c)
(6,221
)
 

 

 
(6,221
)
 

 

 
(6,221
)
Acquisition and integration related costs(d)

 

 

 

 

 
33,954

 
33,954

Interest and financing expenses(e)

 

 

 

 

 
115,350

 
115,350

Income tax expense

 

 

 

 

 
431,817

 
431,817

Non-operating pension and OPEB items

 

 

 

 

 
(16,125
)
 
(16,125
)
Multiemployer plan shortfall contributions(f)

 

 

 

 

 
7,887

 
7,887

Note receivable reserve(g)

 

 

 

 

 
28,730

 
28,730

Other(h)
(1,093
)
 

 
(1,250
)
 
(2,343
)
 

 
502

 
(1,841
)
Adjusted EBITDA
$
518,530

 
$
258,901

 
$
212,005

 
$
989,436

 
$
13,878

 
$
(117,834
)
 
$
885,480

2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
261,394

 
$
187,364

 
$
202,874

 
$
651,632

 
$
131,301

 
$
(139,258
)
 
$
643,675

Depreciation and amortization
101,966

 
39,562

 
36,089

 
177,617

 
7,302

 
6,056

 
190,975

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

 

 

 

 
(123,831
)
 
1,533

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

 

 

 

 

 
57,384

 
57,384

Interest and financing expenses

 

 

 

 

 
65,181

 
65,181

Income tax expense

 

 

 

 

 
96,263

 
96,263

Income from discontinued operations (net of tax)

 

 

 

 

 
(202,131
)
 
(202,131
)
Non-operating pension and OPEB items

 

 

 

 

 
25,589

 
25,589

Other(k)

 

 

 

 

 
3,579

 
3,579

Adjusted EBITDA
$
363,360

 
$
226,926

 
$
238,963

 
$
829,249

 
$
14,772

 
$
(85,804
)
 
$
758,217


(a)
In connection with the acquisition of Jiangli New Materials, the Company valued inventory purchased from Jiangli New Materials at fair value, which resulted in a markup of the underlying net book value of the inventory totaling approximately $23.1 million. The utilization of this inventory markup was included in Costs of goods sold during the year ended December 31, 2017, the estimated remaining selling period.
(b)
During 2017, we initiated action to reduce costs in each of our reportable segments at several locations, primarily at our Lithium sites in Germany. Based on the restructuring plans, we have recorded expenses of $2.9 million in Cost of goods sold, $8.4 million in SG&A expenses, and $5.7 million in Research and development expenses, primarily related to restructuring costs. The unpaid balance is recorded in Accrued expenses at December 31, 2017, with the expectation that the majority of these plans will be completed by the end of 2018.
(c)
Gain recorded in Other (expenses) income, net related to the acquisition of the remaining 50% interest in Salmag. See Note 2, “Acquisitions,” to our consolidated financial statements included in Part II, Item 8 of this report for additional information.
(d)
Acquisition and integration related costs of $14.3 million and $19.6 million were included in Cost of goods sold and SG&A expenses, respectively, for the year ended December 31, 2017 primarily resulting from the Jiangli New Materials acquisition, including unusual compensation related costs negotiated specifically as a result of this acquisition that are outside the Company’s normal compensation arrangements.
(e)
Included in Interest and financing expenses is a loss on early extinguishment of debt of $52.8 million. See Note 14, “Long-Term Debt,” to our consolidated financial statements included in Part II, Item 8 of this report for additional information.

37

Albemarle Corporation and Subsidiaries
 

(f)
Included in SG&A expenses is $3.3 million for additional capital reserve contributions to a multiemployer plan, which is subject to a financial improvement plan. In addition, additional capital reserve contributions for this multiemployer plan of $4.6 million, included in Other (expenses) income, net, have been made to indemnify previously divested businesses.
(g)
Reserve recorded in Other (expenses) income, net against a note receivable on one of our European entities no longer deemed probable of collection.
(h)
Included amounts for the year ended December 31, 2017 recorded in:
Cost of goods sold - $1.3 million reversal of deferred income related to an abandoned project at an unconsolidated investment.
Selling, general and administrative expenses - $1.0 million related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition.
Other (expenses) income, net - $3.2 million of asset retirement obligation charges related to the revision of an estimate at a site formerly owned by Albemarle, losses of $4.1 million related to the final settlements of previously disposed businesses, the revision of tax indemnification expenses of $3.7 million primarily related to the filing of tax returns and a competent authority agreement for a previously disposed business and $1.0 million related to the settlement of a legal claim. This is partially offset by gains of $10.6 million and $1.1 million related to the reversal of liabilities recorded as part of purchase accounting from a previous acquisition and the previous disposal of a property, respectively.
(h)
See “Gain on Sales of Businesses, Net” on page 34 for a description of these items.    
(i)
See “Acquisition and Integration Related Costs” on page 34 for a description of these items.
(j)
Included amounts for the year ended December 31, 2016 recorded in:
Research and development expenses - $1.4 million related to the write-off of fixed assets in China.
Selling, general and administrative expenses - $0.9 million related to the net loss on the sales of properties.
Other (expenses) income, net - $2.4 million related to environmental charges related to a site formerly owned by Albemarle, partially offset by a gain related to a previously disposed of site in China of $1.1 million.
Lithium and Advanced Materials
Lithium and Advanced Materials segment net sales for the year ended December 31, 2017 were $1.3 billion, up $339.9 million, or 35%, compared to the corresponding period of 2016. The increase was primarily driven by $163.2 million of favorable Lithium sales volumes, largely from battery grade applications, due to market demand and $186.3 million of favorable Lithium price impacts due primarily to price increases in our battery grade lithium salts. The increase was partially offset by $10.2 million of unfavorable PCS volumes and price impacts, primarily due to weakness in the organometallics product family and the bankruptcy filing of one of our customers. Adjusted EBITDA for Lithium and Advanced Materials increased 43%, or $155.2 million, to $518.5 million for the year ended December 31, 2017, compared to the corresponding period of 2016, primarily due to favorable pricing and higher overall sales volumes, partially offset by Lithium growth spending, a $3.5 million negative impact from hurricane Harvey on PCS and $0.6 million of unfavorable currency translation impacts.
Bromine Specialties
Bromine Specialties segment net sales for the year ended December 31, 2017 were $855.1 million, up $62.7 million, or 8%, compared to the corresponding period of 2016. The increase was driven primarily by $60.4 million of higher sales volumes due to strong demand in flame retardants and reduced production in 2017 by Chinese bromine companies, and $2.3 million of favorable pricing on certain bromine derivatives. Adjusted EBITDA for Bromine Specialties increased 14%, or $32.0 million, to $258.9 million for the year ended December 31, 2017, compared to the corresponding period of 2016, primarily due to higher overall sales volumes and favorable pricing, partially offset by higher variable and fixed costs and a $1.5 million negative impact from hurricane Harvey.
Refining Solutions
Refining Solutions segment net sales for the year ended December 31, 2017 were $778.3 million, an increase of $46.2 million, or 6%, compared to the corresponding period of 2016. This increase was primarily due to $50.0 million of higher volumes from strong demand in our customer base and $2.7 million of favorable currency exchange impacts, partially offset by $6.6 million of unfavorable price impacts due to customer and product mix. Refining Solutions adjusted EBITDA decreased 11%, or $27.0 million, to $212.0 million for the year ended December 31, 2017 compared to the corresponding period of 2016, primarily due to unfavorable price and mix impacts, higher costs and a $10.3 million of negative impact from hurricane Harvey, partially offset by $2.5 million of favorable currency translation impacts.
All Other
All Other net sales for the year ended December 31, 2017 were $128.9 million, a decrease of $52.1 million compared to the year ended December 31, 2016. This decrease was primarily due to the impact of the sale of the minerals-based flame retardants and specialty chemicals business of $38.6 million, as well as unfavorable fine chemistry services pricing impacts due

38

Albemarle Corporation and Subsidiaries
 

to a contract formula change which did not impact earnings. All Other adjusted EBITDA was down 6%, or $0.9 million, for the year ended December 31, 2017 in comparison to the same period of 2016. The year ended December 31, 2016 included the impact of the sale of the minerals-based flame retardants and specialty chemicals business of $3.4 million and a $2.9 million gain in the fair value of our investment in private equity securities.
Corporate
Corporate adjusted EBITDA was a charge of $117.8 million for the year ended December 31, 2017, an increase of $32.0 million, compared to the year ended December 31, 2016, primarily due to increased compensation costs, professional fees and $13.5 million of unfavorable currency impacts.
Comparison of 2016 to 2015
Net Sales
For the year ended December 31, 2016, we recorded net sales of $2.68 billion, a 5% decrease compared to net sales of $2.83 billion for the corresponding period of 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 $265.3 million for 2016 as compared to corresponding period of 2015. Excluding the impact of the divested businesses noted above, net sales increased by $116.1 million due to $78.8 million of higher volumes resulting from market demand and $37.2 million of favorable price impacts.
Gross Profit
For the year ended December 31, 2016, our gross profit increased $110.3 million, or 13%, from the corresponding period of 2015. Gross profit includes charges of $55.9 million for the year ended December 31, 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 $40.6 million as compared to the year ended December 31, 2015. Excluding the inventory markup charges and the impact of divestitures, gross profit increased by $95.1 million, or 10.4%, due primarily to higher overall sales volumes, favorable pricing impacts, and $24.6 million in lower variable and fixed costs. Overall, these factors contributed to a higher gross profit margin for the year ended December 31, 2016 of 36.3%, up from 30.4% in the corresponding period of 2015. Excluding the inventory markup charges and the impact of divestitures, gross profit margin was 36.7% for the year ended December 31, 2016 as compared to 34.6% in the corresponding period in 2015.
Selling, General and Administrative Expenses
For the year ended December 31, 2016, our SG&A expenses increased $80.0 million, or 27%, compared to the year ended December 31, 2015. SG&A expenses for 2016 included approximately $29.3 million of pension and OPEB costs (including mark-to-market actuarial losses of $26.3 million) allocated to SG&A expenses, as compared to $28.3 million of pension and OPEB benefits (including mark-to-market actuarial gains of $28.1 million) allocated to SG&A expenses in 2015. Excluding the $57.6 million increase in SG&A expenses related to pension and OPEB plans, SG&A expenses increased by $22.4 million, or 6.8%, primarily due to increased compensation costs. As a percentage of net sales, SG&A expenses were 14.2% in 2016, compared to 10.6% in 2015. Excluding the impact of pension and OPEB mark-to-market actuarial losses and gains, SG&A expenses as a percentage of net sales were 13.2% in 2016 and 11.6% in 2015.
The mark-to-market actuarial loss in 2016 is primarily attributable to a decrease in the weighted-average discount rate to 4.43% from 4.67% for our U.S. pension plans and to 2.00% from 2.76% for our foreign pension plans to reflect market conditions as of the December 31, 2016 measurement date. The mark-to-market actuarial loss in 2016 was partially offset by a higher return on pension plan assets in 2016 than was expected, as a result of overall market and investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was 8.11% versus an expected return of 6.85%.
The mark-to-market actuarial gain in 2015 is primarily attributable to: (a) an increase in the weighted-average discount rate to 4.67% from 4.19% for our U.S. pension plans and to 2.76% from 2.22% for our foreign pension plans to reflect market conditions as of the December 31, 2015 measurement date, and (b) changes in mortality assumptions. The mark-to-market actuarial gain in 2015 was partially offset by a lower return on pension plan assets in 2015 than was expected, as a result of overall market and investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was (2.58)% versus an expected return of 6.77%.

39

Albemarle Corporation and Subsidiaries
 

Research and Development Expenses
For the year ended December 31, 2016, our R&D expenses decreased $8.7 million, or 10%, from the year ended December 31, 2015. As a percentage of net sales, R&D expenses were 3.0% in 2016, compared to 3.2% in 2015.
Restructuring and Other, Net
Included in Restructuring and other, net, for the year ended December 31, 2015 is a gain of $6.8 million recognized upon the sale of land in Avonmouth, U.K., which was utilized by the phosphorus flame retardants business we exited in 2012.
Gain on Sales of Businesses, Net
The year ended December 31, 2016 included 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 year ended December 31, 2016, included a loss of $1.5 million on the sale of our wafer reclaim business.    
Acquisition and Integration Related Costs
The year ended December 31, 2016 included $52.1 million of acquisition and integration related costs directly related to the acquisition of Rockwood (mainly consisting of professional services, costs to achieve synergies, relocation costs, and other integration costs) and $5.3 million of costs in connection with other significant projects. The year ended December 31, 2015 included $123.9 million of acquisition and integration related costs directly related to the acquisition of Rockwood (mainly consisting of professional services and advisory fees, costs to achieve synergies, relocation costs, and other integration costs) and $8.4 million of costs in connection with other significant projects.
Interest and Financing Expenses
Interest and financing expenses for the year ended December 31, 2016 decreased $16.5 million to $65.2 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, partially offset by $1.9 million of accelerated deferred financing costs as a result of the repayment of our term loan in December 2016.
Other Income, Net
Other income, net, for the year ended December 31, 2016 was $5.9 million versus $47.3 million for the corresponding 2015 period. The change was primarily due to $51.8 million of favorable foreign currency transaction gains in 2015. The foreign currency gains are 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 financing fees and other financing fees related to the acquisition of Rockwood recorded in 2015.
Income Tax Expense
The effective income tax rate for 2016 was 18.7% compared to 3.6% for 2015. Our effective income tax rate differs from the U.S. Federal statutory income tax rates in the comparative periods mainly due to the impact of earnings from outside the U.S. The rate for 2015 also differs as a result of net impacts from the tax on the deemed repatriation of foreign income from legacy Rockwood offset by the reversal of a deferred tax liability established in the opening balance sheet for the portion of legacy Rockwood earnings that were not indefinitely reinvested. Our effective tax rate for 2016 was affected by discrete net tax expense items of $20.2 million related mainly to a tax gain from restructuring the ownership of a foreign subsidiary, foreign tax rate changes, provision to return adjustments and changes in valuation allowances necessary due to the restructuring. Our effective income tax rate in 2015 was affected by discrete net tax benefit items of $41.2 million related mainly to the release of prior year uncertain tax positions associated with lapses in statutes of limitations and audit closures, and items associated with U.S. provision to return adjustments. See Note 20, “Income Taxes” to our consolidated financial statements included in Part II, Item 8 of this report for a reconciliation of the U.S. Federal statutory income tax rate to our effective rate for 2016 and 2015.
Equity in Net Income of Unconsolidated Investments
Equity in net income of unconsolidated investments was $59.6 million for the year ended December 31, 2016 compared to $28.0 million in the same period last year. The equity in net income of unconsolidated investments for the year ended December 31, 2015 included a $27.1 million charge for utilization of fair value adjustments to inventories as well as a $2.0 million impairment charge related to our unconsolidated investment in Fábrica Carioca de Catalisadores SA. Excluding these

40

Albemarle Corporation and Subsidiaries
 

charges, equity in net income of unconsolidated investments increased by $2.5 million primarily due to higher equity income reported by our Refining Solutions segment joint venture, Nippon Ketjen Company Limited, primarily due to higher sales volumes and higher equity income reported by our Lithium and Advanced Materials joint venture, Windfield Holdings Pty. Ltd., resulting from higher sales volumes, partially offset by the sale of our ownership interest in Magnifin Magnesiaprodukte GmbH (which was included in the minerals-based flamed retardants business) in 2016.
Income from Discontinued Operations
Income from discontinued operations, after income taxes, was $202.1 million for the year ended December 31, 2016 compared to $32.5 million in the same period last year. The year ended December 31, 2016 included a pre-tax gain of $388.0 million ($135.0 million after income taxes) related to the sale of our Chemetall Surface Treatment business, which closed on December 14, 2016. This gain represents the difference between the carrying value of the related assets and their fair value as determined by the sales price less estimated costs to sell, and included the reversal of $81.4 million of foreign currency translation loss out of Accumulated other comprehensive loss. Excluding this gain, the change relates to the discontinuation of depreciation and amortization expense in the second half of 2016 due to discontinued operations accounting, favorable sales prices and volumes due to market demands, lower interest expense, as well as a $20.0 million charge of fair value adjustments to inventories in connection with the Rockwood acquisition in 2015.
Net Income Attributable to Noncontrolling Interests
For the year ended December 31, 2016, net income attributable to noncontrolling interests was $37.1 million compared to $25.2 million in the same period last year. This increase of $11.9 million was due primarily to changes in consolidated income related to our JBC joint venture from higher sales volumes.
Net Income Attributable to Albemarle Corporation
Net income attributable to Albemarle Corporation increased to $643.7 million for the year ended December 31, 2016, from $334.9 million for the corresponding period of 2015. The year ended December 31, 2016 included net gains of $250.5 million after income taxes related to the sale of businesses, including discontinued operations. The year ended December 31, 2015 included a $67.1 million charge after income taxes for utilization of fair value adjustments to inventories. Excluding these items, net income attributable to Albemarle decreased by $8.8 million. The decrease was primarily due to $51.8 million of favorable foreign currency transaction 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 operations of the divestitures completed in 2016, partially offset by 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, our effective tax rate increased in 2016 due to discrete net tax expense items of $20.2 million related mainly to a tax gain from restructuring the ownership of a foreign subsidiary, foreign tax rate changes, provision to return adjustments and changes in valuation allowances necessary due to the restructuring, as compared to discrete net tax benefit items in 2015 of $41.2 million related mainly to the release of prior year uncertain tax positions associated with lapses in statutes of limitations and audit closures, and items associated with U.S. provision to return adjustments.
Other Comprehensive Income (Loss), Net of Tax
Total other comprehensive income (loss), after income taxes, was $8.3 million in 2016 compared to ($360.8) million 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 2016, other comprehensive loss from foreign currency translation adjustments was $20.8 million, mainly as a result of unfavorable movements in the British Pound Sterling of approximately $25 million, the Chinese Renminbi of approximately $12 million, the Korean Won of approximately $6 million, the Turkish Lira of approximately $6 million, partially offset by favorable movements in the European Union Euro of approximately $15 million and the Brazilian Real of approximately $13 million. Included in the currency movements for 2016 is the favorable effect of $81.4 million in accumulated foreign currency translation losses that were reversed as a result of the sale of the Chemetall Surface Treatment business. Also included in total other comprehensive income for 2016 is income of $26.1 million in connection with the revaluation of our Euro-based 1.875% Senior notes which have been designated as a hedge of our net investment in foreign operations. In 2015, other comprehensive loss from foreign currency translation adjustments was $413.0 million, mainly as a result of unfavorable movements in the European Union Euro of approximately $279 million, the British Pound Sterling of approximately $49 million, the Brazilian Real of approximately $30 million, the Turkish Lira of approximately $10 million, the Korean Won of approximately $7 million, the Chinese Renminbi of approximately $8 million, the South African Rand of approximately $8 million and a net unfavorable variance in various other currencies totaling approximately $23 million (each approximately $5 million or less). Also included in total other comprehensive loss for 2015 is income of $50.9 million in

41

Albemarle Corporation and Subsidiaries
 

connection with the revaluation of our Euro-based 1.875% Senior notes and settlement of related foreign currency forward contracts, both of 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.
 
 
Year Ended December 31,
 
Percentage Change
 
 
2016
 
%
 
2015
 
%
 
2016 vs. 2015
 
 
(In thousands, except percentages)
Net sales:
 
 
 
 
 
 
 
 
 
 
Lithium and Advanced Materials
 
$
968,216

 
36.2
 %
 
$
834,590

 
29.5
 %
 
16
 %
Bromine Specialties
 
792,425

 
29.6
 %
 
775,729

 
27.4
 %
 
2
 %
Refining Solutions
 
732,137

 
27.3
 %
 
729,261

 
25.8
 %
 
 %
All Other
 
180,988

 
6.8
 %
 
471,434

 
16.7
 %
 
(62
)%
Corporate
 
3,437

 
0.1
 %
 
15,415

 
0.6
 %
 
(78
)%
Total net sales
 
$
2,677,203

 
100.0
 %
 
$
2,826,429

 
100.0
 %
 
(5
)%
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
Lithium and Advanced Materials
 
$
363,360

 
48.0
 %
 
$
312,867

 
41.4
 %
 
16
 %
Bromine Specialties
 
226,926

 
29.9
 %
 
222,653

 
29.5
 %
 
2
 %
Refining Solutions
 
238,963

 
31.5
 %
 
197,595

 
26.1
 %
 
21
 %
All Other
 
14,772

 
1.9
 %
 
53,993

 
7.1
 %
 
(73
)%
Corporate
 
(85,804
)
 
(11.3
)%
 
(31,108
)
 
(4.1
)%
 
176
 %
Total adjusted EBITDA
 
$
758,217

 
100.0
 %
 
$
756,000

 
100.0
 %
 
 %


42

Albemarle Corporation and Subsidiaries
 

See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, from Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with GAAP, (in thousands):
 
Lithium and Advanced Materials
 
Bromine Specialties
 
Refining Solutions
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
261,394

 
$
187,364

 
$
202,874

 
$
651,632

 
$
131,301

 
$
(139,258
)
 
$
643,675

Depreciation and amortization
101,966

 
39,562

 
36,089

 
177,617

 
7,302

 
6,056

 
190,975

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

 

 

 

 
(123,831
)
 
1,533

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

 

 

 

 

 
57,384

 
57,384

Interest and financing expenses

 

 

 

 

 
65,181

 
65,181

Income tax expense

 

 

 

 

 
96,263

 
96,263

Income from discontinued operations (net of tax)

 

 

 

 

 
(202,131
)
 
(202,131
)
Non-operating pension and OPEB items

 

 

 

 

 
25,589

 
25,589

Other(c)

 

 

 

 

 
3,579

 
3,579

Adjusted EBITDA
$
363,360

 
$
226,926

 
$
238,963

 
$
829,249

 
$
14,772

 
$
(85,804
)
 
$
758,217

2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Albemarle Corporation
$
148,821

 
$
186,474

 
$
161,585

 
$
496,880

 
$
32,781

 
$
(194,755
)
 
$
334,906

Depreciation and amortization
84,069

 
36,179

 
34,039

 
154,287

 
18,183

 
8,703

 
181,173

Utilization of inventory markup(d)
79,977

 

 

 
79,977

 
3,029

 

 
83,006

Restructuring and other, net(e)

 

 

 

 

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

 

 

 

 

 
132,299

 
132,299

Interest and financing expenses

 

 

 

 

 
81,650

 
81,650

Income tax expense

 

 

 

 

 
11,134

 
11,134

Income from discontinued operations (net of tax)