Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM 10-Q
_________________________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-12658
_________________________ 
ALBEMARLE CORPORATION
(Exact name of registrant as specified in its charter)
_________________________
 
VIRGINIA
 
54-1692118
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
4350 CONGRESS STREET, SUITE 700
CHARLOTTE, NORTH CAROLINA
 
28209
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code - (980) 299-5700
_________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Number of shares of common stock, $.01 par value, outstanding as of October 31, 2016: 112,475,939

Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-28
 
 
 
28-48
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBITS
 
 

2
Table of Contents

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

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
654,010

 
$
693,216

 
$
1,980,548

 
$
2,103,819

Cost of goods sold
415,038

 
474,171

 
1,250,938

 
1,481,359

Gross profit
238,972

 
219,045

 
729,610

 
622,460

Selling, general and administrative expenses
86,302

 
81,012

 
254,988

 
252,672

Research and development expenses
21,012

 
21,903

 
61,384

 
67,324

Restructuring and other, net
—

 
(6,804
)
 
—

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

 
—

 
(122,298
)
 
—

Acquisition and integration related costs
6,749

 
36,514

 
44,337

 
117,171

Operating profit
124,909

 
86,420

 
491,199

 
192,097

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

 
124

 
740

 
50,234

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

 
67,250

 
445,079

 
180,138

Income tax expense
12,394

 
13,144

 
61,535

 
41,780

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

 
54,106

 
383,544

 
138,358

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

 
5,736

 
44,790

 
19,955

Net income from continuing operations
114,512

 
59,842

 
428,334

 
158,313

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

 
11,030

 
(357,843
)
 
19,074

Net income
137,697

 
70,872

 
70,491

 
177,387

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

 
$
65,392

 
$
41,585

 
$
160,654

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

 
$
0.48

 
$
3.56

 
$
1.28

Discontinued operations
0.21

 
0.10

 
(3.19
)
 
0.17

 
$
1.14

 
$
0.58

 
$
0.37

 
$
1.45

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

 
$
0.48

 
$
3.53

 
$
1.27

Discontinued operations
0.20

 
0.10

 
(3.16
)
 
0.17

 
$
1.13

 
$
0.58

 
$
0.37

 
$
1.44

Weighted-average common shares outstanding – basic
112,429

 
112,202

 
112,343

 
110,840

Weighted-average common shares outstanding – diluted
113,448

 
112,544

 
113,131

 
111,205

Cash dividends declared per share of common stock
$
0.305

 
$
0.29

 
$
0.915

 
$
0.87

See accompanying Notes to the Condensed Consolidated Financial Statements.

3
Table of Contents

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

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

 
$
70,872

 
$
70,491

 
$
177,387

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

 
(67,526
)
 
95,425

 
(365,843
)
Pension and postretirement benefits
206

 
2

 
626

 
6

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

Interest rate swap
525

 
527

 
1,576

 
1,580

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

 
(70,404
)
 
87,315

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

 
468

 
157,806

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

 
$
(4,615
)
 
$
128,442

 
$
(163,346
)
See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

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

 
September 30,
 
December 31,
 
2016
 
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
233,599

 
$
213,734

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

 
397,912

Other accounts receivable
50,250

 
74,989

Inventories
504,984

 
439,513

Other current assets
72,027

 
62,922

Assets held for sale
255,577

 
641,932

Total current assets
1,557,703

 
1,831,002

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

 
3,700,472

Less accumulated depreciation and amortization
1,545,287

 
1,379,377

Net property, plant and equipment
2,344,967

 
2,321,095

Investments
468,765

 
435,584

Noncurrent assets held for sale
2,975,016

 
2,971,455

Other assets
185,943

 
194,398

Goodwill
1,484,182

 
1,460,552

Other intangibles, net of amortization
380,368

 
383,868

Total assets
$
9,396,944

 
$
9,597,954

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

 
$
239,572

Accrued expenses
240,652

 
313,259

Current portion of long-term debt
400,892

 
674,994

Dividends payable
34,077

 
32,306

Liabilities held for sale
135,735

 
329,598

Income taxes payable
23,967

 
26,956

Total current liabilities
1,076,834

 
1,616,685

Long-term debt
3,048,440

 
3,142,163

Postretirement benefits
49,157

 
49,647

Pension benefits
292,853

 
299,983

Noncurrent liabilities held for sale
466,687

 
464,207

Other noncurrent liabilities
228,270

 
239,104

Deferred income taxes
783,270

 
384,852

Commitments and contingencies (Note 11)

 

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

 
1,122

Additional paid-in capital
2,078,169

 
2,059,151

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

 
1,615,407

Total Albemarle Corporation shareholders’ equity
3,299,022

 
3,254,392

Noncontrolling interests
152,411

 
146,921

Total equity
3,451,433

 
3,401,313

Total liabilities and equity
$
9,396,944

 
$
9,597,954

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

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

(In Thousands, Except Share Data)
 
 
 
 
 
Additional
Paid-in Capital
 
Accumulated Other
Comprehensive (Loss) Income
 
Retained Earnings
 
Total Albemarle
Shareholders’ Equity
 
Noncontrolling
Interests
 
Total Equity
Common Stock
 
 
Shares
 
Amounts
 
 
 
 
 
 
Balance at January 1, 2016
 
112,219,351

 
$
1,122

 
$
2,059,151

 
$
(421,288
)
 
$
1,615,407

 
$
3,254,392

 
$
146,921

 
$
3,401,313

Net income
 
 
 
 
 
 
 
 
 
41,585

 
41,585

 
28,906

 
70,491

Other comprehensive income
 
 
 
 
 
 
 
86,857

 
 
 
86,857

 
458

 
87,315

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

 
 
 
 
 
12,882

 
 
 
12,882

Exercise of stock options
 
162,438

 
1

 
6,778

 
 
 
 
 
6,779

 
 
 
6,779

Tax benefit related to stock plans
 
 
 
 
 
1,369

 
 
 
 
 
1,369

 
 
 
1,369

Issuance of common stock, net
 
120,160

 
1

 
(1
)
 
 
 
 
 
—

 
 
 
—

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

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

 
$
1,124

 
$
2,078,169

 
$
(334,431
)
 
$
1,554,160

 
$
3,299,022

 
$
152,411

 
$
3,451,433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
 
78,030,524

 
$
780

 
$
10,447

 
$
(62,413
)
 
$
1,410,651

 
$
1,359,465

 
$
129,170

 
$
1,488,635

Net income
 
 
 
 
 
 
 
 
 
160,654

 
160,654

 
16,733

 
177,387

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

 
 
 
 
 
10,473

 
 
 
10,473

Exercise of stock options
 
10,500

 
—

 
342

 
 
 
 
 
342

 
 
 
342

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

 
1

 
(1
)
 
 
 
 
 
—

 
 
 
—

Acquisition of Rockwood
 
34,113,064

 
341

 
2,036,209

 

 

 
2,036,550

 
3,022

 
2,039,572

Noncontrolling interest assumed in acquisition of Shanghai Chemetall
 
 
 
 
 
 
 
 
 
 
 
—

 
4,843

 
4,843

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

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

 
$
1,122

 
$
2,056,082

 
$
(386,413
)
 
$
1,473,698

 
$
3,144,489

 
$
130,025

 
$
3,274,514

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Nine Months Ended 
 September 30,
 
2016
 
2015
Cash and cash equivalents at beginning of year
$
213,734

 
$
2,489,768

Cash flows from operating activities:
 
 
 
Net income
70,491

 
177,387

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

 
200,372

Gain associated with restructuring and other
—

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

Stock-based compensation
13,818

 
11,171

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

 
57,149

Pension and postretirement expense (benefit)
7,911

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

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

Other, net
10,821

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

 
316,903

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

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

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

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

 
57,550

Cash proceeds from divestitures, net
310,599

 
6,133

Return of capital from unconsolidated investment
—

 
98,000

Sales of marketable securities, net
822

 
1,265

Repayments from joint ventures
—

 
2,156

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

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

 
1,000,000

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

 
342

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

 
59

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

 
(4,186
)
Other
—

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

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

 
$
234,490

See accompanying Notes to the Condensed Consolidated Financial Statements.

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


NOTE 1—Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Albemarle Corporation and our wholly-owned, majority-owned and controlled subsidiaries (collectively, “Albemarle,” “we,” “us,” “our” or “the Company”) contain all adjustments necessary for a fair statement, in all material respects, of our condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015, our consolidated statements of income and consolidated statements of comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2016 and 2015 and our consolidated statements of changes in equity and condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2016 and 2015. Other comprehensive income for the three-month period ended September 30, 2016 includes an adjustment of $12.5 million to reduce the Foreign currency translation on the Company’s investment in the Windfield Holdings Pty Ltd joint venture related to the three month period ended March 31, 2016. There is no impact to the results for the nine-month period ended September 30, 2016. The Company does not believe this adjustment is material to the condensed consolidated financial statements for the three-month periods ended March 31, 2016 or September 30, 2016. All other adjustments are of a normal and recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, which was filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016. The December 31, 2015 condensed consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). The results of operations for the three-month and nine-month periods ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the accompanying condensed consolidated financial statements and the notes thereto to conform to the current presentation.
On June 17, 2016, the Company signed a definitive agreement to sell its Chemetall® Surface Treatment business to BASF SE. In the second quarter of 2016, the Company began accounting for this business as discontinued operations in the consolidated statements of income and excluded the business from segment results for all periods presented. Related assets and liabilities are classified as held for sale for all periods presented in accordance with accounting standards for reporting discontinued operations. See Note 3, “Divestitures,” for additional information.
As described further in Note 2, “Acquisitions,” we completed our acquisition of Rockwood Holdings, Inc. (“Rockwood”) on January 12, 2015. The unaudited condensed consolidated financial statements contained herein include the results of operations of Rockwood, commencing on January 13, 2015.
NOTE 2—Acquisitions:
On January 12, 2015 (the “Acquisition Closing Date”), we completed the acquisition of all the outstanding shares of Rockwood (the “Merger”) for a purchase price of approximately $5.7 billion. As a result, Rockwood became a wholly-owned subsidiary of Albemarle.
Purchase Price Allocation
The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values at the Acquisition Closing Date, which were based, in part, upon third-party appraisals for certain assets, including specifically-identified intangible assets. The excess of the purchase price over the estimated fair value of the net assets acquired was approximately $2.8 billion and was recorded as goodwill.

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

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

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

Trade and other accounts receivable
262,947

Inventories
290,496

Other current assets
86,267

Property, plant and equipment
1,383,480

Investments
529,453

Other assets
25,538

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

Trade names and trademarks
234,610

Customer lists and relationships
1,280,142

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

Other
26,670

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

Goodwill
2,818,627

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

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

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

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

 
$
2,754,312

Pro forma Net income
$
111,211

 
$
335,602

Pro forma Net income per share:
 
 
 
Basic
$
0.99

 
$
3.03

Diluted
$
0.99

 
$
3.02

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

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

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

 
$
211,877

 
$
637,889

 
$
617,163

Cost of goods sold
100,061

 
118,712

 
333,832

 
368,381

Operating expenses, net
70,604

 
66,280

 
203,052

 
187,536

Interest and financing expenses(a)
9,864

 
12,763

 
29,912

 
38,792

Other expenses (income), net
134

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

 
14,778

 
72,729

 
25,465

Income tax expense(b)
7,499

 
3,748

 
430,572

 
6,391

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

 
$
11,030

 
$
(357,843
)
 
$
19,074


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

 
$
237,447

Net property, plant and equipment
164,860

 
163,643

Goodwill
1,456,214

 
1,433,259

Other intangibles, net of amortization
1,328,799

 
1,349,179

All other noncurrent assets
25,143

 
25,374

Assets held for sale
$
3,230,593

 
$
3,208,902

Liabilities
 
 
 
Current liabilities
$
135,735

 
$
200,892

Deferred income taxes
355,368

 
351,465

All other noncurrent liabilities
111,319

 
112,742

Liabilities held for sale
$
602,422

 
$
665,099





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

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

 
$
57,567

Capital expenditures
$
15,525

 
$
11,521

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

Net property, plant and equipment
115,865

Goodwill
46,794

Other intangibles, net of amortization
66,324

All other noncurrent assets
19,081

Assets held for sale
$
404,485

Liabilities
 
Current liabilities
$
72,756

Deferred income taxes
24,947

All other noncurrent liabilities
31,003

Liabilities held for sale
$
128,706


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


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

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

 
$
20,319

 
$
172,728

 
$
—

 
$
1,460,552

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

 
—

 
—

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

 
—

 
—

 
6,586

 
6,586

Foreign currency translation adjustments
14,169

 
—

 
4,581

 
—

 
18,750

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

 
$
20,319

 
$
177,309

 
$
6,586

 
$
1,484,182


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

 
$
16,923

 
$
40,144

 
$
17,779

 
$
473,571

Reclass from assets held for sale(b)
—

 
—

 
—

 
1,454

 
1,454

Foreign currency translation adjustments and other
11,720

 
170

 
(241
)
 
155

 
11,804

Balance at September 30, 2016
$
410,445

 
$
17,093

 
$
39,903

 
$
19,388

 
$
486,829

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

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

 
—

 
—

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

 
$
8,837

 
$
8,136

 
$
826

 
$
383,868

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

 
$
8,946

 
$
7,216

 
$
637

 
$
380,368


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

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

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

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


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

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

 
$
59,842

 
$
428,334

 
$
158,313

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

 
$
54,395

 
$
399,428

 
$
141,633

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

 
112,202

 
112,343

 
110,840

Basic earnings per share from continuing operations
$
0.93

 
$
0.48

 
$
3.56

 
$
1.28

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

 
$
59,842

 
$
428,334

 
$
158,313

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

 
$
54,395

 
$
399,428

 
$
141,633

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

 
112,202

 
112,343

 
110,840

Incremental shares under stock compensation plans
1,019

 
342

 
788

 
365

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

 
112,544

 
113,131

 
111,205

Diluted earnings per share from continuing operations
$
0.93

 
$
0.48

 
$
3.53

 
$
1.27

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

 
$
264,025

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

 
122,038

Stores, supplies and other
51,335

 
53,450

Total inventories(b)
$
504,984

 
$
439,513


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

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

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

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

 
$
1,247,167

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

 
759,151

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

 
248,274

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

 
420,654

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

 
347,018

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

 
345,532

Commercial paper notes
400,851

 
351,349

Variable-rate foreign bank loans
41,935

 
77,452

Variable-rate domestic bank loans
—

 
20,479

Miscellaneous
30

 
81

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

 
3,817,157

Less amounts due within one year
400,892

 
674,994

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

 
$
3,142,163


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

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

revaluation of these senior notes to our reporting currency are recorded in accumulated other comprehensive loss. During the three-month and nine-month periods ended September 30, 2016, losses of $7.4 million and $10.3 million (net of income taxes), respectively, and during the three-month and nine-month periods ended September 30, 2015, (losses) gains of ($3.4) million and $39.7 million (net of income taxes), respectively, were recorded in accumulated other comprehensive loss in connection with the revaluation of these senior notes to our reporting currency.

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

Expenditures
(2,013
)
Accretion of discount
596

Additions and revisions of estimates
1,055

Foreign currency translation adjustments and other
2,572

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

Less amounts reported in Accrued expenses
3,051

Amounts reported in Other noncurrent liabilities
$
30,595


(a)
As of September 30, 2016 and December 31, 2015, $3.9 million of environmental liabilities were classified as Liabilities held for sale in the condensed consolidated balance sheets. See Note 3, “Divestitures,” for additional information.
Environmental remediation liabilities included discounted liabilities of $23.8 million and $22.0 million at September 30, 2016 and December 31, 2015, respectively, discounted at rates with a weighted-average of 3.5%, with the undiscounted amount totaling $63.3 million and $59.5 million at September 30, 2016 and December 31, 2015, respectively. For certain locations where the Company is operating groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility.
The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, in excess of amounts already recorded, could be up to approximately $16 million before income taxes.
We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded would likely occur over a period of time and would not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particular quarterly reporting period.
Litigation
We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.



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

Indemnities
We are indemnified by third parties in connection with certain matters related to acquired and divested businesses. Although we believe that the financial condition of those parties who may have indemnification obligations to the Company is generally sound, there can be no assurance that any party who may have obligations to indemnify us will adhere to their obligations and we may have to resort to legal action to enforce our rights under the indemnities.
The Company may be subject to indemnity claims relating to properties or businesses it divested, including properties or businesses that Rockwood divested prior to the Acquisition Closing Date. In the opinion of management, and based upon information currently available, the ultimate resolution of any indemnification obligations owed to the Company or by the Company is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.
Other
We have contracts with certain of our customers, which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis as well as blanket coverage of multiple shipments under certain customer supply contracts. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.
NOTE 12—Segment Information:

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

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

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

 
$
208,820

 
$
689,950

 
$
620,597

Bromine Specialties
194,496

 
190,716

 
597,912

 
604,267

Refining Solutions
190,453

 
185,102

 
539,044

 
528,841

All Other
28,272

 
102,224

 
150,987

 
337,997

Corporate
365

 
6,354

 
2,655

 
12,117

Total net sales
$
654,010

 
$
693,216

 
$
1,980,548

 
$
2,103,819

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Lithium and Advanced Materials
$
91,719

 
$
77,408

 
$
260,861

 
$
234,988

Bromine Specialties
51,807

 
58,801

 
179,977

 
180,431

Refining Solutions
64,960

 
54,517

 
181,620

 
144,910

All Other
5,470

 
6,262

 
14,810

 
29,540

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

 
$
180,681

 
$
570,833

 
$
581,519


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

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

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

 
$
41,621

 
$
55,981

 
$
163,768

 
$
3,806

 
$
(39,354
)
 
$
128,220

Depreciation and amortization
25,553

 
10,186

 
8,979

 
44,718

 
1,664

 
1,592

 
47,974

Acquisition and integration related costs(a)
—

 
—

 
—

 
—

 
—

 
6,749

 
6,749

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
15,946

 
15,946

Income tax expense
—

 
—

 
—

 
—

 
—

 
12,394

 
12,394

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
(231
)
 
(231
)
Other(b)
—

 
—

 
—

 
—

 
—

 
462

 
462

Adjusted EBITDA
$
91,719

 
$
51,807

 
$
64,960

 
$
208,486

 
$
5,470

 
$
(25,627
)
 
$
188,329

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

 
$
49,395

 
$
45,713

 
$
133,606

 
$
617

 
$
(68,831
)
 
$
65,392

Depreciation and amortization
22,076

 
9,406

 
8,804

 
40,286

 
5,645

 
2,712

 
48,643

Utilization of inventory markup(c)
16,834

 
—

 
—

 
16,834

 
—

 
—

 
16,834

Restructuring and other, net(d)
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
36,514

 
36,514

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
19,294

 
19,294

Income tax expense
—

 
—

 
—

 
—

 
—

 
13,144

 
13,144

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

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

 
$
58,801

 
$
54,517

 
$
190,726

 
$
6,262

 
$
(16,307
)
 
$
180,681

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

 
$
150,221

 
$
154,767

 
$
491,361

 
$
133,012

 
$
(582,788
)
 
$
41,585

Depreciation and amortization
74,488

 
29,756

 
26,853

 
131,097

 
5,629

 
4,562

 
141,288

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

 
—

 
—

 
—

 
(123,831
)
 
1,533

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

 
—

 
—

 
—

 
—

 
44,337

 
44,337

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
46,860

 
46,860

Income tax expense
—

 
—

 
—

 
—

 
—

 
61,535

 
61,535

Loss from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

 
357,843

 
357,843

Non-operating pension and OPEB items
—

 
—

 
—

 
—

 
—

 
(779
)
 
(779
)
Other(b)
—

 
—

 
—

 
—

 
—

 
462

 
462

Adjusted EBITDA
$
260,861

 
$
179,977

 
$
181,620

 
$
622,458

 
$
14,810

 
$
(66,435
)
 
$
570,833

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

 
$
154,353

 
$
119,513

 
$
362,085

 
$
9,644

 
$
(211,075
)
 
$
160,654

Depreciation and amortization
67,530

 
26,078

 
25,397

 
119,005

 
16,867

 
6,933

 
142,805

Utilization of inventory markup(c)
79,239

 
—

 
—

 
79,239

 
3,029

 
—

 
82,268

Restructuring and other, net(d)
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
117,171

 
117,171

Interest and financing expenses
—

 
—

 
—

 
—

 
—

 
62,193

 
62,193

Income tax expense
—

 
—

 
—

 
—

 
—

 
41,780

 
41,780

Income from discontinued operations (net of tax)
—

 
—

 
—

 
—

 
—

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