|
|
|
|
|
|
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,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net sales
|
$
|
754,866
|
|
|
$
|
654,010
|
|
|
$
|
2,214,187
|
|
|
$
|
1,980,548
|
|
|
Cost of goods sold
|
479,077
|
|
|
415,038
|
|
|
1,411,216
|
|
|
1,250,938
|
|
|
Gross profit
|
275,789
|
|
|
238,972
|
|
|
802,971
|
|
|
729,610
|
|
|
Selling, general and administrative expenses
|
105,582
|
|
|
86,302
|
|
|
329,269
|
|
|
254,988
|
|
|
Research and development expenses
|
21,763
|
|
|
21,012
|
|
|
63,423
|
|
|
61,384
|
|
|
Gain on sales of businesses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(122,298
|
)
|
|
Acquisition and integration related costs
|
—
|
|
|
6,749
|
|
|
—
|
|
|
44,337
|
|
|
Operating profit
|
148,444
|
|
|
124,909
|
|
|
410,279
|
|
|
491,199
|
|
|
Interest and financing expenses
|
(15,792
|
)
|
|
(15,946
|
)
|
|
(98,895
|
)
|
|
(46,860
|
)
|
|
Other (expenses) income, net
|
(3,008
|
)
|
|
2,990
|
|
|
(6,512
|
)
|
|
740
|
|
|
Income from continuing operations before income taxes and equity in net income of unconsolidated investments
|
129,644
|
|
|
111,953
|
|
|
304,872
|
|
|
445,079
|
|
|
Income tax expense
|
18,495
|
|
|
12,394
|
|
|
53,596
|
|
|
61,535
|
|
|
Income from continuing operations before equity in net income of unconsolidated investments
|
111,149
|
|
|
99,559
|
|
|
251,276
|
|
|
383,544
|
|
|
Equity in net income of unconsolidated investments (net of tax)
|
19,044
|
|
|
14,953
|
|
|
55,263
|
|
|
44,790
|
|
|
Net income from continuing operations
|
130,193
|
|
|
114,512
|
|
|
306,539
|
|
|
428,334
|
|
|
Income (loss) from discontinued operations (net of tax)
|
—
|
|
|
23,185
|
|
|
—
|
|
|
(357,843
|
)
|
|
Net income
|
130,193
|
|
|
137,697
|
|
|
306,539
|
|
|
70,491
|
|
|
Net income attributable to noncontrolling interests
|
(11,523
|
)
|
|
(9,477
|
)
|
|
(33,323
|
)
|
|
(28,906
|
)
|
|
Net income attributable to Albemarle Corporation
|
$
|
118,670
|
|
|
$
|
128,220
|
|
|
$
|
273,216
|
|
|
$
|
41,585
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.07
|
|
|
$
|
0.93
|
|
|
$
|
2.46
|
|
|
$
|
3.56
|
|
|
Discontinued operations
|
—
|
|
|
0.21
|
|
|
—
|
|
|
(3.19
|
)
|
|
|
$
|
1.07
|
|
|
$
|
1.14
|
|
|
$
|
2.46
|
|
|
$
|
0.37
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.06
|
|
|
$
|
0.93
|
|
|
$
|
2.43
|
|
|
$
|
3.53
|
|
|
Discontinued operations
|
—
|
|
|
0.20
|
|
|
—
|
|
|
(3.16
|
)
|
|
|
$
|
1.06
|
|
|
$
|
1.13
|
|
|
$
|
2.43
|
|
|
$
|
0.37
|
|
|
Weighted-average common shares outstanding – basic
|
110,476
|
|
|
112,429
|
|
|
111,049
|
|
|
112,343
|
|
|
Weighted-average common shares outstanding – diluted
|
111,975
|
|
|
113,448
|
|
|
112,456
|
|
|
113,131
|
|
|
Cash dividends declared per share of common stock
|
$
|
0.32
|
|
|
$
|
0.305
|
|
|
$
|
0.96
|
|
|
$
|
0.915
|
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net income
|
$
|
130,193
|
|
|
$
|
137,697
|
|
|
$
|
306,539
|
|
|
$
|
70,491
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
56,179
|
|
|
47,712
|
|
|
199,303
|
|
|
95,425
|
|
|
Pension and postretirement benefits
|
(7
|
)
|
|
206
|
|
|
2
|
|
|
626
|
|
|
Net investment hedge
|
(9,681
|
)
|
|
(7,395
|
)
|
|
(37,600
|
)
|
|
(10,312
|
)
|
|
Interest rate swap
|
529
|
|
|
525
|
|
|
1,587
|
|
|
1,576
|
|
|
Total other comprehensive income, net of tax
|
47,020
|
|
|
41,048
|
|
|
163,292
|
|
|
87,315
|
|
|
Comprehensive income
|
177,213
|
|
|
178,745
|
|
|
469,831
|
|
|
157,806
|
|
|
Comprehensive income attributable to noncontrolling interests
|
(11,653
|
)
|
|
(9,500
|
)
|
|
(34,146
|
)
|
|
(29,364
|
)
|
|
Comprehensive income attributable to Albemarle Corporation
|
$
|
165,560
|
|
|
$
|
169,245
|
|
|
$
|
435,685
|
|
|
$
|
128,442
|
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,045,339
|
|
|
$
|
2,269,756
|
|
|
Trade accounts receivable, less allowance for doubtful accounts (2017 – $6,378; 2016 – $15,312)
|
520,076
|
|
|
486,035
|
|
|
Other accounts receivable
|
50,071
|
|
|
41,985
|
|
|
Inventories
|
610,212
|
|
|
450,263
|
|
|
Other current assets
|
101,626
|
|
|
58,579
|
|
|
Total current assets
|
2,327,324
|
|
|
3,306,618
|
|
|
Property, plant and equipment, at cost
|
4,167,065
|
|
|
3,910,522
|
|
|
Less accumulated depreciation and amortization
|
1,682,780
|
|
|
1,550,382
|
|
|
Net property, plant and equipment
|
2,484,285
|
|
|
2,360,140
|
|
|
Investments
|
530,227
|
|
|
457,533
|
|
|
Other assets
|
148,573
|
|
|
142,320
|
|
|
Goodwill
|
1,616,478
|
|
|
1,540,032
|
|
|
Other intangibles, net of amortization
|
416,413
|
|
|
354,564
|
|
|
Total assets
|
$
|
7,523,300
|
|
|
$
|
8,161,207
|
|
|
Liabilities And Equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
361,937
|
|
|
$
|
281,874
|
|
|
Accrued expenses
|
276,953
|
|
|
322,165
|
|
|
Current portion of long-term debt
|
382,358
|
|
|
247,544
|
|
|
Dividends payable
|
35,142
|
|
|
34,104
|
|
|
Income taxes payable
|
46,627
|
|
|
254,416
|
|
|
Total current liabilities
|
1,103,017
|
|
|
1,140,103
|
|
|
Long-term debt
|
1,407,171
|
|
|
2,121,718
|
|
|
Postretirement benefits
|
50,446
|
|
|
50,538
|
|
|
Pension benefits
|
309,787
|
|
|
298,695
|
|
|
Other noncurrent liabilities
|
199,273
|
|
|
194,810
|
|
|
Deferred income taxes
|
414,034
|
|
|
412,739
|
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
Equity:
|
|
|
|
|
Albemarle Corporation shareholders’ equity:
|
|
|
|
|
Common stock, $.01 par value, issued and outstanding – 110,495 in 2017 and 112,524 in 2016
|
1,105
|
|
|
1,125
|
|
|
Additional paid-in capital
|
1,858,753
|
|
|
2,084,418
|
|
|
Accumulated other comprehensive loss
|
(249,943
|
)
|
|
(412,412
|
)
|
|
Retained earnings
|
2,288,904
|
|
|
2,121,931
|
|
|
Total Albemarle Corporation shareholders’ equity
|
3,898,819
|
|
|
3,795,062
|
|
|
Noncontrolling interests
|
140,753
|
|
|
147,542
|
|
|
Total equity
|
4,039,572
|
|
|
3,942,604
|
|
|
Total liabilities and equity
|
$
|
7,523,300
|
|
|
$
|
8,161,207
|
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
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, 2017
|
|
112,523,790
|
|
|
$
|
1,125
|
|
|
$
|
2,084,418
|
|
|
$
|
(412,412
|
)
|
|
$
|
2,121,931
|
|
|
$
|
3,795,062
|
|
|
$
|
147,542
|
|
|
$
|
3,942,604
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
273,216
|
|
|
273,216
|
|
|
33,323
|
|
|
306,539
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
162,469
|
|
|
|
|
162,469
|
|
|
823
|
|
|
163,292
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
(106,243
|
)
|
|
(106,243
|
)
|
|
(27,791
|
)
|
|
(134,034
|
)
|
|
Stock-based compensation and other
|
|
|
|
|
|
12,477
|
|
|
|
|
|
|
12,477
|
|
|
|
|
12,477
|
|
|
Exercise of stock options
|
|
159,432
|
|
|
2
|
|
|
7,009
|
|
|
|
|
|
|
7,011
|
|
|
|
|
7,011
|
|
|
Shares repurchased
|
|
(2,341,083
|
)
|
|
(23
|
)
|
|
(249,977
|
)
|
|
|
|
|
|
|
(250,000
|
)
|
|
|
|
(250,000
|
)
|
|
Issuance of common stock, net
|
|
241,755
|
|
|
2
|
|
|
(2
|
)
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Termination of Tianqi Lithium Corporation option agreement
|
|
|
|
|
|
13,144
|
|
|
|
|
|
|
13,144
|
|
|
(13,144
|
)
|
|
—
|
|
|
Shares withheld for withholding taxes associated with common stock issuances
|
|
(89,057
|
)
|
|
(1
|
)
|
|
(8,316
|
)
|
|
|
|
|
|
(8,317
|
)
|
|
|
|
(8,317
|
)
|
|
Balance at September 30, 2017
|
|
110,494,837
|
|
|
$
|
1,105
|
|
|
$
|
1,858,753
|
|
|
$
|
(249,943
|
)
|
|
$
|
2,288,904
|
|
|
$
|
3,898,819
|
|
|
$
|
140,753
|
|
|
$
|
4,039,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
Cash and cash equivalents at beginning of year
|
$
|
2,269,756
|
|
|
$
|
213,734
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income
|
306,539
|
|
|
70,491
|
|
|
Adjustments to reconcile net income to cash flows from operating activities:
|
|
|
|
|
Depreciation and amortization
|
144,087
|
|
|
176,499
|
|
|
Gain on acquisition
|
(6,025
|
)
|
|
—
|
|
|
Gain on sales of businesses, net
|
—
|
|
|
(122,298
|
)
|
|
Stock-based compensation
|
15,595
|
|
|
13,818
|
|
|
Equity in net income of unconsolidated investments (net of tax)
|
(55,263
|
)
|
|
(46,224
|
)
|
|
Dividends received from unconsolidated investments and nonmarketable securities
|
11,900
|
|
|
34,982
|
|
|
Pension and postretirement expense
|
67
|
|
|
7,911
|
|
|
Pension and postretirement contributions
|
(9,607
|
)
|
|
(13,649
|
)
|
|
Unrealized gain on investments in marketable securities
|
(2,007
|
)
|
|
(3,281
|
)
|
|
Loss on early extinguishment of debt
|
52,801
|
|
|
—
|
|
|
Deferred income taxes
|
4,677
|
|
|
404,728
|
|
|
Working capital changes
|
(398,913
|
)
|
|
(79,684
|
)
|
|
Other, net
|
10,993
|
|
|
10,821
|
|
|
Net cash provided by operating activities
|
74,844
|
|
|
454,114
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Acquisitions, net of cash acquired
|
(45,406
|
)
|
|
—
|
|
|
Cash payments related to acquisitions and other
|
—
|
|
|
(81,988
|
)
|
|
Capital expenditures
|
(187,519
|
)
|
|
(141,301
|
)
|
|
Cash proceeds from divestitures, net
|
6,857
|
|
|
310,599
|
|
|
Sales of marketable securities, net
|
450
|
|
|
822
|
|
|
Repayments from joint ventures
|
1,250
|
|
|
—
|
|
|
Net cash (used in) provided by investing activities
|
(224,368
|
)
|
|
88,132
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Repayments of long-term debt
|
(753,209
|
)
|
|
(382,730
|
)
|
|
Proceeds from borrowings of long-term debt
|
27,000
|
|
|
—
|
|
|
Other borrowings (repayments), net
|
79,203
|
|
|
(9,026
|
)
|
|
Fees related to early extinguishment of debt
|
(46,959
|
)
|
|
—
|
|
|
Dividends paid to shareholders
|
(105,205
|
)
|
|
(101,061
|
)
|
|
Dividends paid to noncontrolling interests
|
(27,791
|
)
|
|
(23,873
|
)
|
|
Repurchases of common stock
|
(250,000
|
)
|
|
—
|
|
|
Proceeds from exercise of stock options
|
7,011
|
|
|
6,779
|
|
|
Withholding taxes paid on stock-based compensation award distributions
|
(8,317
|
)
|
|
(2,008
|
)
|
|
Net cash used in financing activities
|
(1,078,267
|
)
|
|
(511,919
|
)
|
|
Net effect of foreign exchange on cash and cash equivalents
|
3,374
|
|
|
(10,462
|
)
|
|
(Decrease) increase in cash and cash equivalents
|
(1,224,417
|
)
|
|
19,865
|
|
|
Cash and cash equivalents at end of period
|
$
|
1,045,339
|
|
|
$
|
233,599
|
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
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, 2017
and
December 31, 2016
, our consolidated statements of income and consolidated statements of comprehensive income for the
three-month and nine-month
periods ended
September 30, 2017
and
2016
and our consolidated statements of changes in equity and condensed consolidated statements of cash flows for the nine-month periods ended
September 30, 2017
and
2016
. Income tax expense for the nine-month period ended September 30, 2017 includes expense of
$5.1 million
due to an adjustment in the Company's deferred tax liabilities for basis differences in Chilean fixed assets related to the three-month period ended September 30, 2016. The Company does not believe this adjustment is material to the consolidated financial statements for the nine-month period ended September 30, 2017, the three- or nine-month periods ended September 30, 2016, or the year ended December 31, 2016. 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, 2016
, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017. The
December 31, 2016
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, 2017
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. In addition, for the
three-month and nine-month
periods ended
September 30, 2017
, the Company began reporting its acquisition and integration related costs and restructuring and other costs in Cost of goods sold, Selling, general and administrative expenses and Research and development expenses. See Note 2, “Acquisitions,” and Note 12, “Segment Information,” for further details.
As described further in Note 3, “Divestitures,” on December 14, 2016, the Company closed the sale of its Chemetall
®
Surface Treatment business to BASF SE. Financial results of this business have been presented as discontinued operations in the consolidated statements of income and excluded from segment results for the three-month and nine-month periods ended September 30, 2016.
NOTE 2—Acquisitions:
On December 31, 2016, we completed the acquisition of all equity interests in the lithium hydroxide and lithium carbonate conversion business of Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”) for a cash purchase price of approximately
$145 million
. This includes manufacturing assets located in both Jiangxi and Sichuan, China focused on the production of battery-grade lithium carbonate and lithium hydroxide. 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.
The aggregate purchase price was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values as of December 31, 2016, which were based, in part, upon outside preliminary appraisals for certain assets. The preliminary estimated fair values of the assets and liabilities acquired were primarily related to Property, plant and equipment of
$29.0 million
, Other intangibles of
$32.0 million
and Deferred tax liabilities of
$3.7 million
. In addition, the estimated fair value of net working capital acquired was
$6.2 million
, however, an equal liability was recorded in Accrued expenses, as it will be repaid to the previous owners of the acquired business. The excess of the purchase price over the preliminary estimated fair value of the net assets acquired was approximately
$87.7 million
and was recorded as goodwill. The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill, is based upon preliminary information and is subject to change within the measurement period (up to one year from the acquisition date) as additional information concerning final asset and liability valuations is obtained. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the property, plant and equipment, other intangible assets, deferred income taxes, as well as various working capital accounts. The fair values of the assets acquired and liabilities assumed are based on management’s preliminary estimates and assumptions, as well as other information compiled by
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
management, including valuations that utilize customary valuation procedures and techniques. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, it will evaluate any necessary information prior to finalization of the amounts. During the measurement period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date.
During the
nine-month period ended
September 30, 2017
, the Company purchased inventory with a fair value of
$37.1 million
in connection with the Jiangli New Materials acquisition. The fair value included the markup of the underlying book value of
$23.1 million
. The inventory markup was expensed over the estimated remaining selling period, with
$0.6 million
and
$23.1 million
recorded in the
three-month and nine-month
periods ended
September 30, 2017
, respectively.
Goodwill arising from this acquisition consists largely of the anticipated synergies and economies of scale from the combined assets and the overall strategic importance of the acquired assets to Albemarle. The goodwill attributable to the acquisition will not be amortizable or deductible for tax purposes. The weighted-average amortization periods for the other intangible assets acquired are
20
years for patents and technology,
18
years for customer lists and relationships and
3
years for other. The weighted-average amortization period for all definite-lived intangible assets acquired is
17
years.
On February 1, 2017, the Company acquired the remaining
50%
interest in the Sales de Magnesio Ltda. (“Salmag”) joint venture in Chile from SQM Salar S.A. for approximately
$8.3 million
, net of cash acquired. In connection with the acquisition, the Company recorded a gain of
$6.0 million
, calculated based on the difference between the purchase price and the book value of the investment in Other (expenses) income, net on the consolidated statements of income for the
nine-month period ended
September 30, 2017
. In the third quarter of 2017, the Company recorded an adjustment to reduce the previously reported gain by
$1.4 million
in Other (expenses) income, net on the consolidated statements of income. The calculation of the gain and the fair values of the assets acquired and liabilities assumed are based on management’s preliminary estimates and assumptions. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, it will evaluate any necessary information prior to finalization of the amounts.
Acquisition and integration related costs for the three-month and nine-month periods ended
September 30, 2017
of
$1.8 million
and
$12.5 million
were included in Cost of goods sold, respectively, and
$3.8 million
and
$13.9 million
were included in Selling, general and administrative expenses, respectively, on our consolidated statements of income. These acquisition and integration related costs relate to various significant projects, including the Jiangli New Materials acquisition, which contains unusual compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s normal compensation arrangements. 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
were
$6.3 million
and
$42.4 million
, respectively, of integration costs resulting from the acquisition of Rockwood Holdings, Inc. (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.
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. On December 14, 2016, the Company closed the sale of this business and received proceeds of approximately
$3.1 billion
, net of purchase price adjustments. During the second quarter of 2017, we received a final working capital settlement of
$6.9 million
related to the sale of this business. The sale of the Chemetall Surface Treatment business, a separate reportable segment, qualified for discontinued operations treatment because it represented a strategic shift that will have a major effect on the Company’s operations and financial results. As a result, the Company accounted for this business as discontinued operations in the consolidated statements of income and excluded the business from segment results for the three-month and nine-month periods ended September 30, 2016. The Company stopped recording depreciation and amortization expense on assets of the Chemetall Surface Treatment business as of the date this business qualified for discontinued operations treatment, in the second quarter of 2016.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The major components of Income (loss) from discontinued operations (net of tax) for the
three-month and nine-month
periods ended
September 30, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2016
|
|
Nine Months Ended
September 30, 2016
|
|
Net sales
|
$
|
211,347
|
|
|
$
|
637,889
|
|
|
Cost of goods sold
|
100,061
|
|
|
333,832
|
|
|
Operating expenses, net
|
70,604
|
|
|
203,052
|
|
|
Interest and financing expenses
(a)
|
9,864
|
|
|
29,912
|
|
|
Other expenses (income), net
|
134
|
|
|
(1,636
|
)
|
|
Income before income taxes
|
30,684
|
|
|
72,729
|
|
|
Income tax expense
(b)
|
7,499
|
|
|
430,572
|
|
|
Income (loss) from discontinued operations (net of tax)
|
$
|
23,185
|
|
|
$
|
(357,843
|
)
|
|
|
|
|
(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, rel
ated to a change in the Company’s assertion over reinvestment of foreign undistributed earnings.
|
Depreciation and amortization and capital expenditures from discontinued operations
for the
nine
-month period ended
September 30, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2016
|
|
Depreciation and amortization
|
$
|
35,194
|
|
|
Capital expenditures
|
$
|
15,525
|
|
Other Divestitures
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, t
he Company closed the sale of this business,
effective for the first day of business in 2016.
We received net proceeds of approximate
ly
$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 in Breitenau, Au
stria. 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.
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.
These businesses did not qualify for discontinued operations treatment because the Company’s management did not consider their sale as representing a strategic shift that had or will have a major effect on the Company’s operations and financial results.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4—Goodwill and Other Intangibles:
The following table summarizes the changes in goodwill by reportable segment for the nine months ended
September 30, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
|
Bromine Specialties
|
|
Refining Solutions
|
|
All Other
|
|
Total
|
|
Balance at December 31, 2016
|
$
|
1,348,261
|
|
|
$
|
20,319
|
|
|
$
|
164,866
|
|
|
$
|
6,586
|
|
|
$
|
1,540,032
|
|
|
Acquisitions
(a)
|
(21,427
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,427
|
)
|
|
Foreign currency translation adjustments and other
|
77,707
|
|
|
—
|
|
|
20,166
|
|
|
—
|
|
|
97,873
|
|
|
Balance at September 30, 2017
|
$
|
1,404,541
|
|
|
$
|
20,319
|
|
|
$
|
185,032
|
|
|
$
|
6,586
|
|
|
$
|
1,616,478
|
|
|
|
|
|
(a)
|
Primarily represents preliminary purchase price adjustments related to the preliminary appraisal of intangible assets during the measurement period for the Jiangli New Materials acquisition. See Note 2, “Acquisitions,” for additional information.
|
The following table summarizes the changes in other intangibles and related accumulated amortization for the nine months ended
September 30, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Lists and Relationships
|
|
Trade Names and Trademarks
(a)
|
|
Patents and Technology
|
|
Other
|
|
Total
|
|
Gross Asset Value
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
$
|
387,893
|
|
|
$
|
16,514
|
|
|
$
|
38,434
|
|
|
$
|
18,844
|
|
|
$
|
461,685
|
|
|
Acquisitions
(b)
|
1,717
|
|
|
1,429
|
|
|
25,555
|
|
|
15,677
|
|
|
44,378
|
|
|
Foreign currency translation adjustments and other
|
28,461
|
|
|
913
|
|
|
3,245
|
|
|
5,277
|
|
|
37,896
|
|
|
Balance at September 30, 2017
|
$
|
418,071
|
|
|
$
|
18,856
|
|
|
$
|
67,234
|
|
|
$
|
39,798
|
|
|
$
|
543,959
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
$
|
(49,165
|
)
|
|
$
|
(7,952
|
)
|
|
$
|
(31,683
|
)
|
|
$
|
(18,321
|
)
|
|
$
|
(107,121
|
)
|
|
Amortization
|
(14,811
|
)
|
|
—
|
|
|
(1,288
|
)
|
|
(1,528
|
)
|
|
(17,627
|
)
|
|
Foreign currency translation adjustments and other
|
(3,620
|
)
|
|
(296
|
)
|
|
(1,816
|
)
|
|
2,934
|
|
|
(2,798
|
)
|
|
Balance at September 30, 2017
|
$
|
(67,596
|
)
|
|
$
|
(8,248
|
)
|
|
$
|
(34,787
|
)
|
|
$
|
(16,915
|
)
|
|
$
|
(127,546
|
)
|
|
Net Book Value at December 31, 2016
|
$
|
338,728
|
|
|
$
|
8,562
|
|
|
$
|
6,751
|
|
|
$
|
523
|
|
|
$
|
354,564
|
|
|
Net Book Value at September 30, 2017
|
$
|
350,475
|
|
|
$
|
10,608
|
|
|
$
|
32,447
|
|
|
$
|
22,883
|
|
|
$
|
416,413
|
|
|
|
|
|
(a)
|
Balances as of September 30, 2017 and December 31, 2016 include only indefinite-lived intangible assets.
|
|
|
|
|
(b)
|
Represents preliminary purchase price adjustments for the Jiangli New Materials acquisition and the acquisition of the remaining equity interest in Salmag. See Note 2, “Acquisitions,” for additional information.
|
NOTE 5—Foreign Exchange:
Foreign exchange transaction and revaluation (losses) gains were
($1.9) million
and
($7.6) million
for the
three-month and nine-month
periods ended
September 30, 2017
, respectively, and
$0.3 million
and
($3.1) million
for the
three-month and nine-month
periods ended
September 30, 2016
, respectively, and were included in Other (expenses) income, net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our condensed consolidated statements of cash flows.
NOTE 6—Income Taxes:
The effective income tax rate for the
three-month and nine-month
periods ended
September 30, 2017
was
14.3%
and
17.6%
, respectively, compared to
11.1%
and
13.8%
for the
three-month and nine-month
periods ended
September 30, 2016
, respectively. The Company’s effective income tax rate fluctuates based on, among other factors, its level and location of
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
income. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the
2017
and
2016
periods was primarily due to the impact of earnings from outside the U.S., and is mainly attributable to our share of the income of our Jordan Bromine Company Limited (“JBC”) joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. In addition, Income tax expense for the nine-month period ended September 30, 2017 included foreign rate changes of
$14.8 million
and a
$5.1 million
out-of-period adjustment as described in Note 1, "Basis of Presentation," partially offset by a
$10.8 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
$6.9 million
reduction from the tax effects of stock-based compensation awards. Our effective tax rate for the
nine-month period ended
September 30, 2016
was driven down by a variety of factors, primarily low tax gains from the sale of the minerals-based flame retardant business, as well as a favorable mix of earnings in lower tax jurisdictions.
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, 2017
and
2016
are calculated as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Basic earnings per share from continuing operations
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
$
|
130,193
|
|
|
$
|
114,512
|
|
|
$
|
306,539
|
|
|
$
|
428,334
|
|
|
Net income from continuing operations attributable to noncontrolling interests
|
(11,523
|
)
|
|
(9,477
|
)
|
|
(33,323
|
)
|
|
(28,906
|
)
|
|
Net income from continuing operations attributable to Albemarle Corporation
|
$
|
118,670
|
|
|
$
|
105,035
|
|
|
$
|
273,216
|
|
|
$
|
399,428
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average common shares for basic earnings per share
|
110,476
|
|
|
112,429
|
|
|
111,049
|
|
|
112,343
|
|
|
Basic earnings per share from continuing operations
|
$
|
1.07
|
|
|
$
|
0.93
|
|
|
$
|
2.46
|
|
|
$
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
$
|
130,193
|
|
|
$
|
114,512
|
|
|
$
|
306,539
|
|
|
$
|
428,334
|
|
|
Net income from continuing operations attributable to noncontrolling interests
|
(11,523
|
)
|
|
(9,477
|
)
|
|
(33,323
|
)
|
|
(28,906
|
)
|
|
Net income from continuing operations attributable to Albemarle Corporation
|
$
|
118,670
|
|
|
$
|
105,035
|
|
|
$
|
273,216
|
|
|
$
|
399,428
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average common shares for basic earnings per share
|
110,476
|
|
|
112,429
|
|
|
111,049
|
|
|
112,343
|
|
|
Incremental shares under stock compensation plans
|
1,499
|
|
|
1,019
|
|
|
1,407
|
|
|
788
|
|
|
Weighted-average common shares for diluted earnings per share
|
111,975
|
|
|
113,448
|
|
|
112,456
|
|
|
113,131
|
|
|
Diluted earnings per share from continuing operations
|
$
|
1.06
|
|
|
$
|
0.93
|
|
|
$
|
2.43
|
|
|
$
|
3.53
|
|
On February 23, 2017, the Company increased the regular quarterly dividend by
5%
to
$0.32
per share. On
July 10, 2017
, the Company declared a cash dividend of
$0.32
per share, which was paid on
October 2, 2017
to shareholders of record at the close of business as of
September 15, 2017
. On
November 6, 2017
, the Company declared a cash dividend of
$0.32
per share, which is payable on
January 2, 2018
to shareholders of record at the close of business as of
December 15, 2017
.
Under our existing Board-authorized share repurchase program, the Company entered into an accelerated share repurchase (“ASR”) agreement with a financial institution on March 1, 2017. Under the ASR agreement, i
n
March 2017, t
he Company paid
$250 million
from available cash on hand and received and retired an initial delivery of
1,948,178
shares of our common sto
ck
.
Under the terms of the ASR agreement, on June 16, 2017, the transaction was completed and we received and retired a final settlement of
392,905
shares, calculated based on
the daily Rule 10b-18 volume-weighted average prices of the Company’s common stock over the term of the ASR agreement, less an agreed discoun
t. The Company determined that the ASR agreement met the criteria to be accounted for as a forward contract indexed to its stock and was therefore treated as an equity instrument. In total, we received and retired
2,341,083
shares under the ASR agreement, which reduced the Company’s
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
weighted average shares outstanding for purposes of calculating basic and diluted earnings per share for the nine-month period ended September 30, 2017.
No more than
15,000,000
shares can be repurchased under the Company’s authorized share repurchase program. As of
September 30, 2017
, there were
12,658,917
remaining shares available for repurchase under the Company’s authorized share repurchase program.
NOTE 8—Inventories:
The following table provides a breakdown of inventories at
September 30, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
Finished goods
(a)
|
$
|
420,059
|
|
|
$
|
289,102
|
|
|
Raw materials and work in process
(b)
|
135,025
|
|
|
109,706
|
|
|
Stores, supplies and other
|
55,128
|
|
|
51,455
|
|
|
Total
|
$
|
610,212
|
|
|
$
|
450,263
|
|
|
|
|
|
(a)
|
Increase primarily due to the Jiangli New Materials acquisition and other lithium sites, as well as the build up of inventory in our Refining Solutions segment for an increase in sales in the fourth quarter.
|
|
|
|
|
(b)
|
Included
$56.0 million
and
$47.1 million
at
September 30, 2017
and
December 31, 2016
, respectively, of work in process related to the Lithium product category.
|
NOTE 9—Investments:
The Company holds a
49%
equity interest in Windfield Holdings Pty. Ltd. (“Windfield”), where the ownership parties share risks and benefits disproportionate to their voting interests. As a result, the Company considers Windfield to be a variable interest entity (“VIE”), however this investment is not consolidated as the Company is not the primary beneficiary. The carrying amount of our
49%
equity interest in Windfield, which is our most significant VIE, was
$352.0 million
and
$288.6 million
at
September 30, 2017
and
December 31, 2016
, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIEs for which the Company is not the primary beneficiary was
$8.4 million
and
$8.8 million
at
September 30, 2017
and
December 31, 2016
, respectively. Our unconsolidated VIEs are reported in Investments on the condensed consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of its investments.
As part of the original Windfield joint venture agreement, Tianqi Lithium Corporation ("Tianqi") was granted an option to purchase from
20%
to
30%
of the equity interests in Rockwood Lithium GmbH, a wholly-owned German subsidiary of Albemarle, and its subsidiaries. In February 2017, Albemarle and Tianqi terminated the option agreement, and as a result, we will retain
100%
of the ownership interest in Rockwood Lithium GmbH and its subsidiaries. Following the termination of the option agreement, the
$13.1 million
fair value of the option agreement originally recorded in Noncontrolling interests was reversed and recorded as an adjustment to Additional paid-in capital.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 10—Long-Term Debt:
Long-term debt at
September 30, 2017
and
December 31, 2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
1.875% Senior notes, net of unamortized discount and debt issuance costs of $4,167 at September 30, 2017 and $7,823 at December 31, 2016
|
$
|
456,665
|
|
|
$
|
719,617
|
|
|
3.00% Senior notes, net of unamortized discount and debt issuance costs of $1,286 at December 31, 2016
|
—
|
|
|
248,714
|
|
|
4.15% Senior notes, net of unamortized discount and debt issuance costs of $3,494 at September 30, 2017 and $3,859 at December 31, 2016
|
421,506
|
|
|
421,141
|
|
|
4.50% Senior notes, net of unamortized discount and debt issuance costs of $966 at September 30, 2017 and $2,380 at December 31, 2016
|
174,249
|
|
|
347,620
|
|
|
5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,197 at September 30, 2017 and $4,313 at December 31, 2016
|
345,803
|
|
|
345,687
|
|
|
Commercial paper notes
|
382,250
|
|
|
247,503
|
|
|
Variable-rate foreign bank loans
|
8,695
|
|
|
38,939
|
|
|
Other
|
361
|
|
|
41
|
|
|
Total long-term debt
|
1,789,529
|
|
|
2,369,262
|
|
|
Less amounts due within one year
|
382,358
|
|
|
247,544
|
|
|
Long-term debt, less current portion
|
$
|
1,407,171
|
|
|
$
|
2,121,718
|
|
In the first quarter of 2017, using a portion of the proceeds from the sale of the Chemetall Surface Treatment business, we repaid the
3.00%
Senior notes in full,
€307.0 million
of the
1.875%
Senior notes and
$174.7 million
of the
4.50%
Senior notes, as well as related tender premiums of
$45.2 million
. As a result, Interest and financing expenses on the consolidated statements of income includes a loss on early extinguishment of debt of
$52.8 million
for the
nine-month period ended September 30, 2017
, representing the tender premiums, fees, unamortized discounts and unamortized deferred financings costs from the redemption of these senior notes.
Current portion of long-term debt at
September 30, 2017
consisted primarily of commercial paper notes with a weighted-average interest rate of approximately
1.76%
and a weighted-average maturity of
36 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 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, 2017
, losses of
$9.7 million
and
$37.6 million
(net of income taxes), respectively, and 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, 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, 2017
, as follows (in thousands):
|
|
|
|
|
|
|
|
Beginning balance at December 31, 2016
|
$
|
34,919
|
|
|
Expenditures
|
(1,320
|
)
|
|
Accretion of discount
|
563
|
|
|
Foreign currency translation adjustments and other
|
2,384
|
|
|
Ending balance at September 30, 2017
|
36,546
|
|
|
Less amounts reported in Accrued expenses
|
2,476
|
|
|
Amounts reported in Other noncurrent liabilities
|
$
|
34,070
|
|
Environmental remediation liabilities included discounted liabilities of
$24.7 million
and
$22.8 million
at
September 30, 2017
and
December 31, 2016
, respectively, discounted at rates with a weighted-average of
3.6%
, with the undiscounted amount
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
totaling
$64.6 million
and
$61.1 million
at
September 30, 2017
and
December 31, 2016
, 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
$17 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 likely not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particular quarterly reporting period.
Litigation
We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.
Indemnities
We are indemnified by third parties in connection with certain matters related to acquired and divested businesses. Although we believe that the financial condition of those parties who may have indemnification obligations to the Company is generally sound, in the event the Company seeks indemnity under any of these agreements or through other means, there can be no assurance that any party who may have obligations to indemnify us will adhere to their obligations and we may have to resort to legal action to enforce our rights under the indemnities.
The Company may be subject to indemnity claims relating to properties or businesses it divested, including properties or businesses of acquired businesses that were divested prior to the completion of the acquisition. In the opinion of management, and based upon information currently available, the ultimate resolution of any indemnification obligations owed to the Company or by the Company is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows. The Company had approximately
$43.4 million
and
$38.2 million
at
September 30, 2017
and
December 31, 2016
, respectively, recorded in Other noncurrent liabilities related to the indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold.
Other
We have contracts with certain of our customers, which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis as well as blanket coverage of multiple shipments under certain customer supply contracts. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.
NOTE 12—Segment Information:
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. This structure aligns with the markets and customers we serve through each of the segments. The structure also facilitates the continued standardization of business processes across the organization, and is consistent with the manner in which information is presently used internally by the Company’s chief operating decision maker to evaluate performance and
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
make resource allocation decisions. Summarized financial information concerning our reportable segments is shown in the following tables.
The “All Other” category comprises operating segments that did not fit into any of our core businesses. 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.” Following the sales of these businesses, the “All Other” category includes only the fine chemistry services business.
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the operating segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the reportable segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
The Company’s chief operating decision maker uses 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 attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(In thousands)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
$
|
343,557
|
|
|
$
|
240,424
|
|
|
$
|
945,791
|
|
|
$
|
689,950
|
|
|
Bromine Specialties
|
212,923
|
|
|
194,496
|
|
|
636,059
|
|
|
597,912
|
|
|
Refining Solutions
|
170,275
|
|
|
190,453
|
|
|
539,904
|
|
|
539,044
|
|
|
All Other
|
28,021
|
|
|
28,272
|
|
|
91,144
|
|
|
150,987
|
|
|
Corporate
|
90
|
|
|
365
|
|
|
1,289
|
|
|
2,655
|
|
|
Total net sales
|
$
|
754,866
|
|
|
$
|
654,010
|
|
|
$
|
2,214,187
|
|
|
$
|
1,980,548
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
$
|
130,218
|
|
|
$
|
91,719
|
|
|
$
|
382,789
|
|
|
$
|
260,861
|
|
|
Bromine Specialties
|
63,936
|
|
|
51,807
|
|
|
194,499
|
|
|
179,977
|
|
|
Refining Solutions
|
43,120
|
|
|
64,960
|
|
|
142,777
|
|
|
181,620
|
|
|
All Other
|
306
|
|
|
5,470
|
|
|
7,906
|
|
|
14,810
|
|
|
Corporate
|
(28,197
|
)
|
|
(25,627
|
)
|
|
(88,271
|
)
|
|
(66,435
|
)
|
|
Total adjusted EBITDA
|
$
|
209,383
|
|
|
$
|
188,329
|
|
|
$
|
639,700
|
|
|
$
|
570,833
|
|
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, from Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
|
Bromine Specialties
|
|
Refining Solutions
|
|
Reportable Segments Total
|
|
All Other
|
|
Corporate
|
|
Consolidated Total
|
|
Three months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Albemarle Corporation
|
$
|
103,199
|
|
|
$
|
53,760
|
|
|
$
|
34,392
|
|
|
$
|
191,351
|
|
|
$
|
(1,776
|
)
|
|
$
|
(70,905
|
)
|
|
$
|
118,670
|
|
|
Depreciation and amortization
|
26,136
|
|
|
10,176
|
|
|
9,978
|
|
|
46,290
|
|
|
2,082
|
|
|
1,523
|
|
|
49,895
|
|
|
Utilization of inventory markup
(a)
|
568
|
|
|
—
|
|
|
—
|
|
|
568
|
|
|
—
|
|
|
—
|
|
|
568
|
|
|
Adjustment to gain on acquisition
(b)
|
1,408
|
|
|
—
|
|
|
—
|
|
|
1,408
|
|
|
—
|
|
|
—
|
|
|
1,408
|
|
|
Acquisition and integration related costs
(c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,635
|
|
|
5,635
|
|
|
Interest and financing expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,792
|
|
|
15,792
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,495
|
|
|
18,495
|
|
|
Non-operating pension and OPEB items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,028
|
)
|
|
(1,028
|
)
|
|
Multiemployer plan shortfall contributions
(d)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,646
|
|
|
1,646
|
|
|
Other
(e)
|
(1,093
|
)
|
|
—
|
|
|
(1,250
|
)
|
|
(2,343
|
)
|
|
—
|
|
|
645
|
|
|
(1,698
|
)
|
|
Adjusted EBITDA
|
$
|
130,218
|
|
|
$
|
63,936
|
|
|
$
|
43,120
|
|
|
$
|
237,274
|
|
|
$
|
306
|
|
|
$
|
(28,197
|
)
|
|
$
|
209,383
|
|
|
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
(c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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
(f)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
462
|
|
|
462
|
|
|
Adjusted EBITDA
|
$
|
91,719
|
|
|
$
|
51,807
|
|
|
$
|
64,960
|
|
|
$
|
208,486
|
|
|
$
|
5,470
|
|
|
$
|
(25,627
|
)
|
|
$
|
188,329
|
|
|
Nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Albemarle Corporation
|
$
|
292,655
|
|
|
$
|
164,193
|
|
|
$
|
115,329
|
|
|
$
|
572,177
|
|
|
$
|
1,622
|
|
|
$
|
(300,583
|
)
|
|
$
|
273,216
|
|
|
Depreciation and amortization
|
74,157
|
|
|
30,306
|
|
|
28,698
|
|
|
133,161
|
|
|
6,284
|
|
|
4,642
|
|
|
144,087
|
|
|
Utilization of inventory markup
(a)
|
23,095
|
|
|
—
|
|
|
—
|
|
|
23,095
|
|
|
—
|
|
|
—
|
|
|
23,095
|
|
|
Restructuring and other
(g)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,141
|
|
|
17,141
|
|
|
Gain on acquisition
(b)
|
(6,025
|
)
|
|
—
|
|
|
—
|
|
|
(6,025
|
)
|
|
—
|
|
|
—
|
|
|
(6,025
|
)
|
|
Acquisition and integration related costs
(c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,395
|
|
|
26,395
|
|
|
Interest and financing expenses
(h)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98,895
|
|
|
98,895
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,596
|
|
|
53,596
|
|
|
Non-operating pension and OPEB items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,144
|
)
|
|
(3,144
|
)
|
|
Multiemployer plan shortfall contributions
(d)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,586
|
|
|
6,586
|
|
|
Other
(e)
|
(1,093
|
)
|
|
—
|
|
|
(1,250
|
)
|
|
(2,343
|
)
|
|
—
|
|
|
8,201
|
|
|
5,858
|
|
|
Adjusted EBITDA
|
$
|
382,789
|
|
|
$
|
194,499
|
|
|
$
|
142,777
|
|
|
$
|
720,065
|
|
|
$
|
7,906
|
|
|
$
|
(88,271
|
)
|
|
$
|
639,700
|
|
|
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
(i)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(123,831
|
)
|
|
1,533
|
|
|
(122,298
|
)
|
|
Acquisition and integration related costs
(c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,337
|
|
|
44,337
|
|
|
Interest and financing expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,860
|
|
|
46,860
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61,535
|
|
|
61,535
|
|
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (net of tax)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
357,843
|
|
|
357,843
|
|
|
Non-operating pension and OPEB items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(779
|
)
|
|
(779
|
)
|
|
Other
(f)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
462
|
|
|
462
|
|
|
Adjusted EBITDA
|
$
|
260,861
|
|
|
$
|
179,977
|
|
|
$
|
181,620
|
|
|
$
|
622,458
|
|
|
$
|
14,810
|
|
|
$
|
(66,435
|
)
|
|
$
|
570,833
|
|
|
|
|
|
(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 inventory markup was expensed over the estimated remaining selling period. For the three-month and nine-month periods ended September 30, 2017,
$0.6 million
and
$23.1 million
, respectively, was included in Cost of goods sold related to the utilization of the inventory markup.
|
|
|
|
|
(b)
|
Gain recorded in Other (expenses) income, net related to the acquisition of the remaining
50%
interest in Salmag. See Note 2, “Acquisitions,” for additional information.
|
|
|
|
|
(c)
|
See Note 2, “Acquisitions,” for additional information.
|
|
|
|
|
(d)
|
Included shortfall contributions for our multiemployer plan financial improvement plan. See Note 13, “Pension Plans and Other Postretirement Benefits,” for additional information.
|
|
|
|
|
(e)
|
Included amounts for the three-month period ended September 30, 2017 recorded in:
|
|
|
|
|
▪
|
Cost of goods sold -
$1.3 million
reversal of deferred income related to an abandoned project at an unconsolidated investment.
|
|
|
|
|
▪
|
Other (expenses) income, net -
$1.1 million
related to a reversal of a liability associated with the previous disposal of a property, partially offset by the revision of tax indemnification expenses of
$0.7 million
primarily related to the filing of tax returns for a previously disposed business.
|
Included amounts for the nine-month period ended September 30, 2017 recorded in:
|
|
|
|
▪
|
Cost of goods sold -
$1.3 million
reversal of deferred income related to an abandoned project at an unconsolidated investment.
|
|
|
|
|
▪
|
Selling, general and administrative expenses -
$1.0 million
related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition.
|
|
|
|
|
▪
|
Other (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, a loss of
$2.1 million
associated with the previous disposal of a business, final settlement claims associated with the previous disposal of a business of
$2.0 million
and the revision of tax indemnification expenses of
$1.9 million
primarily related to the filing of tax returns and a competent authority agreement for a previously disposed business. This is partially offset by
$1.1 million
related to a reversal of a liability associated with the previous disposal of a property.
|
|
|
|
|
(f)
|
Includes the write-off of fixed assets of
$1.4 million
included in Research and development expenses, partially offset by a net gain of
$0.9 million
on the sales of properties included in Other (expenses) income, net.
|
|
|
|
|
(g)
|
During 2017, we initiated action to reduce costs in each of our reportable segments at several locations, primarily at our Lithium sites in Germany. Based on the restructuring plans, we have recorded expenses of
$2.9 million
in Cost of goods sold,
$8.4 million
in Selling, general and administrative expenses and
$5.8 million
in Research and development expenses for the nine-month period ended September 30, 2017, primarily related to expected severance payments. The unpaid balance is recorded in Accrued expenses at September 30, 2017, with the expectation that the majority of these plans will be completed by the end of 2017.
|
|
|
|
|
(h)
|
Included in Interest and financing expenses is a loss on early extinguishment of debt of
$52.8 million
. See Note 10, “Long-term Debt,” for additional information.
|
|
|
|
|
(i)
|
See Note 3, “Divestitures,” for additional information.
|
In November 2017, we announced that during the first quarter of 2018, the Performance Catalyst Solutions ("PCS") product line 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.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 13—Pension Plans and Other Postretirement Benefits:
The components of pension and postretirement benefits cost (credit) from continuing operations for the
three-month and nine-month
periods ended
September 30, 2017
and
2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Pension Benefits Cost (Credit):
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
1,067
|
|
|
$
|
842
|
|
|
$
|
3,090
|
|
|
$
|
3,123
|
|
|
Interest cost
|
8,375
|
|
|
9,115
|
|
|
24,983
|
|
|
27,978
|
|
|
Expected return on assets
|
(9,960
|
)
|
|
(9,920
|
)
|
|
(29,799
|
)
|
|
(30,429
|
)
|
|
Actuarial gain
|
—
|
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
|
Amortization of prior service benefit
|
29
|
|
|
230
|
|
|
102
|
|
|
698
|
|
|
Total net pension benefits (credit) cost
|
$
|
(489
|
)
|
|
$
|
267
|
|
|
$
|
(1,624
|
)
|
|
$
|
1,320
|
|
|
Postretirement Benefits Cost (Credit):
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
30
|
|
|
$
|
29
|
|
|
$
|
91
|
|
|
$
|
86
|
|
|
Interest cost
|
585
|
|
|
620
|
|
|
1,755
|
|
|
1,862
|
|
|
Expected return on assets
|
(28
|
)
|
|
(46
|
)
|
|
(83
|
)
|
|
(140
|
)
|
|
Amortization of prior service benefit
|
(24
|
)
|
|
(24
|
)
|
|
(72
|
)
|
|
(72
|
)
|
|
Total net postretirement benefits cost
|
$
|
563
|
|
|
$
|
579
|
|
|
$
|
1,691
|
|
|
$
|
1,736
|
|
|
Total net pension and postretirement benefits cost
(a)
|
$
|
74
|
|
|
$
|
846
|
|
|
$
|
67
|
|
|
$
|
3,056
|
|
|
|
|
|
(a)
|
For the
three-month and nine-month
periods ended
September 30, 2016
,
$3.7 million
and
$4.9 million
, respectively, of net pension and postretirement benefits cost are included in Income (loss) from discontinued operations (net of tax) in the consolidated statements of income. See Note 3, “Divestitures,” for additional information.
|
During the
three-month and nine-month
periods ended
September 30, 2017
, we made contributions of
$2.6 million
and
$7.7 million
, respectively, to our qualified and nonqualified pension plans for continuing operations. During the
three-month and nine-month
periods ended
September 30, 2016
, we made contributions of
$2.4 million
and
$8.5 million
, respectively, to our qualified and nonqualified pension plans for continuing operations. Contributions to discontinued operations qualified and nonqualified pension plans were
$1.0 million
and
$2.9 million
, respectively, for the
three-month and nine-month
periods ended
September 30, 2016
.
We paid
$0.7 million
and
$1.9 million
in premiums to the U.S. postretirement benefit plan during the
three-month and nine-month
periods ended
September 30, 2017
, respectively. During the
three-month and nine-month
periods ended
September 30, 2016
, we paid
$0.7 million
and
$2.3 million
, respectively, in premiums to the U.S. postretirement benefit plan.
Multiemployer Plan
Our normal contributions to the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf (“DN Pensionskasse”) multiemployer plan for continuing operations were approximately
$0.3 million
and
$0.8 million
during the
three-month and nine-month
periods ended
September 30, 2017
, respectively. During the
three-month and nine-month
periods ended
September 30, 2016
, we made contributions of approximately
$0.3 million
and
$0.8 million
, respectively, to the DN Pensionskasse multiemployer plan for continuing operations. Contributions for discontinued operations were approximately
$0.2 million
and
$0.6 million
during the
three-month and nine-month
periods ended
September 30, 2016
, respectively.
Effective July 1, 2016, the DN Pensionskasse is subject to a financial improvement plan which expires on December 31, 2022, with the final contribution in the second quarter of 2023. This financial improvement plan calls for increased capital reserves to avoid future underfunding risk. During the
nine-month period ended
September 30, 2017
, we made contributions for our employees covered under this plan of approximately
$2.0 million
, recorded in Selling, general and administrative expenses, as a result of this financial improvement plan. In addition, during the
three-month and nine-month
periods ended
September 30, 2017
, we made contributions relating to this financial improvement plan to indemnify previously divested businesses of approximately
$1.6 million
and
$4.6 million
, respectively, recorded in Other (expenses) income, net.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 14—Fair Value of Financial Instruments:
In assessing the fair value of financial instruments, we use methods and assumptions that are based on market conditions and other risk factors existing at the time of assessment. Fair value information for our financial instruments is as follows:
Long-Term Debt—the fair values of our senior notes are estimated using Level 1 inputs and account for the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying condensed consolidated balance sheets approximates fair value as substantially all of such debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
Recorded
Amount
|
|
Fair Value
|
|
Recorded
Amount
|
|
Fair Value
|
|
|
(In thousands)
|
|
Long-term debt
|
$
|
1,797,714
|
|
|
$
|
1,913,900
|
|
|
$
|
2,381,370
|
|
|
$
|
2,472,813
|
|
Foreign Currency Forward Contracts—we enter into foreign currency forward contracts in connection with our risk management strategies in an attempt to minimize the financial impact of changes in foreign currency exchange rates. These derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. The fair values of our foreign currency forward contracts are estimated based on current settlement values. At
September 30, 2017
and
December 31, 2016
, we had outstanding foreign currency forward contracts with notional values totaling
$357.7 million
and
$251.6 million
, respectively. Our foreign currency forward contracts outstanding at
September 30, 2017
and
December 31, 2016
were not designated as hedging instruments under Accounting Standards Codification (“ASC”) 815,
Derivatives and Hedging
. At
September 30, 2017
and
December 31, 2016
, less than
$0.1 million
and
$0.2 million
, respectively, was included in Accrued expenses associated with the fair value of our foreign currency forward contracts.
Gains and losses on foreign currency forward contracts are recognized in Other (expenses) income, net; further, fluctuations in the value of these contracts are generally expected to be offset by changes in the value of the underlying exposures being hedged, which are also reported in Other (expenses) income, net. For the
three-month and nine-month
periods ended
September 30, 2017
, we recognized gains of
$0.8 million
and
$9.0 million
, respectively, in Other (expenses) income, net, in our consolidated statements of income related to the change in fair value of our foreign currency forward contracts. For the
three-month and nine-month
periods ended
September 30, 2016
, we recognized gains (losses) of
$3.0 million
and
($1.9) million
, respectively, in Other (expenses) income, net, in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. Also, for the
nine
-month periods ended
September 30, 2017
and
2016
, we recorded (gains) losses of
($9.0) million
and
$1.9 million
, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash receipts (settlements) of
$8.9 million
and
($2.0) million
, respectively, in Other, net, in our condensed consolidated statements of cash flows.
The counterparties to our foreign currency forward contracts are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties.
NOTE 15—Fair Value Measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
|
|
|
|
|
|
Level 1
|
Unadjusted quoted prices in active markets for identical assets or liabilities
|
|
|
|
|
Level 2
|
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
|
|
|
|
|
Level 3
|
Unobservable inputs for the asset or liability
|
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
There were no transfers between Levels 1 and 2 during the
nine-month period ended
September 30, 2017
. The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of
September 30, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Quoted Prices in Active Markets for Identical Items (Level 1)
|
|
Quoted Prices in Active Markets for Similar Items (Level 2)
|
|
Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Investments under executive deferred compensation plan
(a)
|
$
|
23,646
|
|
|
$
|
23,646
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Private equity securities
(b)
|
$
|
33
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Private equity securities measured at net asset value
(b)(c)
|
$
|
5,113
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Obligations under executive deferred compensation plan
(a)
|
$
|
23,646
|
|
|
$
|
23,646
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency forward contracts
(d)
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Quoted Prices in Active Markets for Identical Items (Level 1)
|
|
Quoted Prices in Active Markets for Similar Items (Level 2)
|
|
Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Investments under executive deferred compensation plan
(a)
|
$
|
22,037
|
|
|
$
|
22,037
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Private equity securities
(b)
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Private equity securities measured at net asset value
(b)(c)
|
$
|
5,498
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Obligations under executive deferred compensation plan
(a)
|
$
|
22,037
|
|
|
$
|
22,037
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency forward contracts
(d)
|
$
|
182
|
|
|
$
|
—
|
|
|
$
|
182
|
|
|
$
|
—
|
|
|
|
|
|
(a)
|
We maintain an Executive Deferred Compensation Plan (“EDCP”) that was adopted in 2001 and subsequently amended. The purpose of the EDCP is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended to aid in attracting and retaining employees of exceptional ability by providing them with these benefits. We also maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of the EDCP, subject to the claims of our creditors in the event of our insolvency. Assets of the Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fund investments (which are accounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statements of income) and cash and cash equivalents. As such, these assets and obligations are classified within Level 1.
|
|
|
|
|
(b)
|
Primarily consists of private equity securities classified as available-for-sale and are reported in Investments in the condensed consolidated balance sheets. The changes in fair value are reported in Other (expenses) income, net, in our consolidated statements of income.
|
|
|
|
|
(c)
|
Holdings in certain private equity securities are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy.
|
|
|
|
|
(d)
|
As a result of our global operating and financing activities, we are exposed to market risks from changes in foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from foreign currency exchange rate fluctuations through the use of foreign currency forward contracts. Unless otherwise noted, these derivative financial instruments are not designated as hedging instruments under ASC 815,
Derivatives and Hedging
. The foreign currency forward contracts are valued using broker quotations or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within Level 2.
|
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE 16—Accumulated Other Comprehensive (Loss) Income:
The components and activity in Accumulated other comprehensive (loss) income (net of deferred income taxes) consisted of the following during the periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
|
Pension and Postretirement Benefits
(a)
|
|
Net Investment Hedge
|
|
Interest Rate Swap
(b)
|
|
Total
|
|
Three months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2017
|
$
|
(341,690
|
)
|
|
$
|
85
|
|
|
$
|
60,459
|
|
|
$
|
(15,687
|
)
|
|
$
|
(296,833
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
56,179
|
|
|
—
|
|
|
(9,681
|
)
|
|
—
|
|
|
46,498
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
529
|
|
|
522
|
|
|
Other comprehensive income (loss), net of tax
|
56,179
|
|
|
(7
|
)
|
|
(9,681
|
)
|
|
529
|
|
|
47,020
|
|
|
Other comprehensive income attributable to noncontrolling interests
|
(130
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(130
|
)
|
|
Balance at September 30, 2017
|
$
|
(285,641
|
)
|
|
$
|
78
|
|
|
$
|
50,778
|
|
|
$
|
(15,158
|
)
|
|
$
|
(249,943
|
)
|
|
Three months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2016
|
$
|
(416,636
|
)
|
|
$
|
(338
|
)
|
|
$
|
59,328
|
|
|
$
|
(17,810
|
)
|
|
$
|
(375,456
|
)
|
|
Other comprehensive income (loss) before reclassifications
(c)
|
47,712
|
|
|
—
|
|
|
(7,395
|
)
|
|
—
|
|
|
40,317
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
206
|
|
|
—
|
|
|
525
|
|
|
731
|
|
|
Other comprehensive income (loss), net of tax
|
47,712
|
|
|
206
|
|
|
(7,395
|
)
|
|
525
|
|
|
41,048
|
|
|
Other comprehensive income attributable to noncontrolling interests
|
(23
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
Balance at September 30, 2016
|
$
|
(368,947
|
)
|
|
$
|
(132
|
)
|
|
$
|
51,933
|
|
|
$
|
(17,285
|
)
|
|
$
|
(334,431
|
)
|
|
Nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
$
|
(484,121
|
)
|
|
$
|
76
|
|
|
$
|
88,378
|
|
|
$
|
(16,745
|
)
|
|
$
|
(412,412
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
199,303
|
|
|
—
|
|
|
(37,600
|
)
|
|
—
|
|
|
161,703
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
2
|
|
|
—
|
|
|
1,587
|
|
|
1,589
|
|
|
Other comprehensive income (loss), net of tax
|
199,303
|
|
|
2
|
|
|
(37,600
|
)
|
|
1,587
|
|
|
163,292
|
|
|
Other comprehensive income attributable to noncontrolling interests
|
(823
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(823
|
)
|
|
Balance at September 30, 2017
|
$
|
(285,641
|
)
|
|
$
|
78
|
|
|
$
|
50,778
|
|
|
$
|
(15,158
|
)
|
|
$
|
(249,943
|
)
|
|
Nine months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
$
|
(463,914
|
)
|
|
$
|
(758
|
)
|
|
$
|
62,245
|
|
|
$
|
(18,861
|
)
|
|
$
|
(421,288
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
95,425
|
|
|
—
|
|
|
(10,312
|
)
|
|
—
|
|
|
85,113
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
626
|
|
|
—
|
|
|
1,576
|
|
|
2,202
|
|
|
Other comprehensive income (loss), net of tax
|
95,425
|
|
|
626
|
|
|
(10,312
|
)
|
|
1,576
|
|
|
87,315
|
|
|
Other comprehensive income attributable to noncontrolling interests
|
(458
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(458
|
)
|
|
Balance at September 30, 2016
|
$
|
(368,947
|
)
|
|
$
|
(132
|
)
|
|
$
|
51,933
|
|
|
$
|
(17,285
|
)
|
|
$
|
(334,431
|
)
|
|
|
|
|
(a)
|
The pre-tax portion of amounts reclassified from accumulated other comprehensive loss consists of amortization of prior service benefit, which is a component of pension and postretirement benefits cost (credit). See Note 13, “Pension Plans and Other Postretirement Benefits.”
|
|
|
|
|
(b)
|
The pre-tax portion of amounts reclassified from accumulated other comprehensive loss is included in interest expense.
|
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
(c)
|
Foreign currency translation includes an adjustment of
$12.5 million
to reduce our investment in the Windfield Holdings Pty. Ltd. joint venture related to the three month period ended March 31, 2016. See Note 1, “Basis of Presentation,” for further details.
|
The amount of income tax benefit (expense) allocated to each component of Other comprehensive income (loss) for the
three-month and nine-month
periods ended
September 30, 2017
and
2016
is provided in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
Foreign Currency Translation
|
|
Pension and Postretirement Benefits
|
|
Net Investment Hedge
|
|
Interest Rate Swap
|
|
Foreign Currency Translation
|
|
Pension and Postretirement Benefits
|
|
Net Investment Hedge
|
|
Interest Rate Swap
|
|
Other comprehensive income (loss), before tax
|
$
|
56,156
|
|
|
$
|
—
|
|
|
$
|
(15,266
|
)
|
|
$
|
834
|
|
|
$
|
47,787
|
|
|
$
|
209
|
|
|
$
|
(11,740
|
)
|
|
$
|
834
|
|
|
Income tax benefit (expense)
|
23
|
|
|
(7
|
)
|
|
5,585
|
|
|
(305
|
)
|
|
(75
|
)
|
|
(3
|
)
|
|
4,345
|
|
|
(309
|
)
|
|
Other comprehensive income (loss), net of tax
|
$
|
56,179
|
|
|
$
|
(7
|
)
|
|
$
|
(9,681
|
)
|
|
$
|
529
|
|
|
$
|
47,712
|
|
|
$
|
206
|
|
|
$
|
(7,395
|
)
|
|
$
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
|
Foreign Currency Translation
|
|
Pension and Postretirement Benefits
|
|
Net Investment Hedge
|
|
Interest Rate Swap
|
|
Foreign Currency Translation
|
|
Pension and Postretirement Benefits
|
|
Net Investment Hedge
|
|
Interest Rate Swap
|
|
Other comprehensive income (loss), before tax
|
$
|
200,366
|
|
|
$
|
10
|
|
|
$
|
(59,292
|
)
|
|
$
|
2,502
|
|
|
$
|
96,326
|
|
|
$
|
635
|
|
|
$
|
(16,371
|
)
|
|
$
|
2,502
|
|
|
Income tax (expense) benefit
|
(1,063
|
)
|
|
(8
|
)
|
|
21,692
|
|
|
(915
|
)
|
|
(901
|
)
|
|
(9
|
)
|
|
6,059
|
|
|
(926
|
)
|
|
Other comprehensive income (loss), net of tax
|
$
|
199,303
|
|
|
$
|
2
|
|
|
$
|
(37,600
|
)
|
|
$
|
1,587
|
|
|
$
|
95,425
|
|
|
$
|
626
|
|
|
$
|
(10,312
|
)
|
|
$
|
1,576
|
|
NOTE 17—Related Party Transactions:
Our condensed consolidated financial statements include sales to and purchases from unconsolidated affiliates in the ordinary course of business as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Sales to unconsolidated affiliates
|
$
|
7,309
|
|
|
$
|
5,047
|
|
|
$
|
23,753
|
|
|
$
|
19,452
|
|
|
Purchases from unconsolidated affiliates
|
$
|
51,983
|
|
|
$
|
30,591
|
|
|
$
|
148,502
|
|
|
$
|
93,372
|
|
NOTE 18—Supplemental Cash Flow Information:
Supplemental information related to the condensed consolidated statements of cash flows is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
Supplemental non-cash disclosure related to investing activities:
|
|
|
|
|
Capital expenditures included in Accounts payable
|
$
|
53,421
|
|
|
$
|
19,354
|
|
NOTE 19—Recently Issued Accounting Pronouncements:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance designed to enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that revenue recognized from a transaction or event that arises from a contract with a customer should reflect the consideration to which an entity expects to be entitled in exchange for goods or services provided. To achieve that core principle the new guidance sets forth a five-step revenue recognition model that will need to be applied consistently to all contracts with customers, except those that are within the scope of other topics in the ASC. Also required are new disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. The new disclosures include qualitative and quantitative information about contracts with customers,
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
significant judgments made in applying the revenue guidance, and assets recognized related to the costs to obtain or fulfill a contract. In March 2016 and April 2016, the FASB issued amendments to this new guidance that provides clarification about principal versus agent considerations, identification of performance obligations and accounting for the licensing of intellectual property. In May 2016, the FASB issued an amendment to the guidance that provides clarification about collectibility, noncash consideration, presentation of sales tax, and transition. In December 2016, the FASB issued an amendment to the guidance that provides narrow-scope improvements and practical expedient regarding collectibility, presentation of sales tax collected from customers, non-cash considerations, contract modifications at transition, completed contracts at transition and other technical corrections. These new requirements become effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted for annual and interim reporting periods beginning after December 15, 2016. We expect to adopt the new standard in the first quarter of 2018 using the modified retrospective method. We have made significant progress in evaluating our existing contracts and accounting policies to determine the impact this standard will have on the condensed consolidated financial statements and related disclosures. We continue to make progress on implementing appropriate changes to the business processes and controls to support recognition and disclosure under the new standard, as well as continuing to assess the new disclosures that will be required in the first quarter of 2018, following the adoption of this new standard. At this time, we do not expect to make any significant changes to our existing systems as a result of this new standard.
In July 2015, the FASB issued accounting guidance that requires inventory to be measured at the lower of cost and net realizable value. The scope of this guidance excludes inventory measured using the last-in first-out method or the retail inventory method. This new requirement became effective on January 1, 2017 and did not have a significant impact on our condensed consolidated financial statements.
In February 2016, the FASB issued accounting guidance that requires assets and liabilities arising from leases to be recorded on the balance sheet. Additional disclosures are required regarding the amount, timing, and uncertainty of cash flows from leases. This new guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied using a modified retrospective approach. Early adoption is permitted. The impact of this new requirement on our financial statements is being assessed and is not yet known.
In March 2016, the FASB issued accounting guidance that simplifies several aspects of the accounting for share-based payment awards. Among other things, this guidance requires all tax effects related to share-based payment awards to be recognized as income tax expense or benefit on the income statement, thus eliminating all additional paid-in capital pools. An entity should recognize excess tax benefits regardless of whether the benefit reduces income taxes payable in the current period. For interim reporting purposes, excess tax benefits and tax deficiencies should be accounted for as discrete items in the reporting period in which they occur. Additionally, this new guidance requires all tax related cash flows resulting from share-based payments to be presented as an operating activity on the statement of cash flows rather than as a financing activity. This guidance became effective on January 1, 2017. The impact of recognizing excess tax benefits in the income statement resulted in a
$2.2 million
and
$6.9 million
reduction in Income tax expense for the three-month and nine-month periods ended September 30, 2017, respectively. The remaining aspects of adopting this guidance did not have a material impact on our condensed consolidated financial statements.
In August 2016, the FASB issued accounting guidance which clarifies the proper presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance addresses cash flow issues including, but not limited to, debt prepayment or debt extinguishment costs and distributions received from equity method investments. As allowed by the provisions of this new guidance, we early-adopted this new guidance in the first quarter of 2017. The adoption of this new guidance did not have a significant impact on our condensed consolidated financial statements.
In November 2016, the FASB issued accounti
ng guidance that requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the statement of cash flows. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied on a retrospective basis. Early adoption is permitted. We do not expect this guidance to have a significant impact on our financial statements.
In January 2017, the FASB issued accounting guidance to clarify the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied on a prospective basis. Early adoption is permitted. We currently do not expect this guidance to have a significant impact on our financial statements.
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
In January 2017, the FASB issued accounting guidance to simplify the accounting for goodwill imp
airment. The guidance removes Step 2 of the goodwill impairment test, which requires a reporting unit to calculate the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit has been acquired in a business combination. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. This guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be applied on a prospective basis. Early adoption is permitted for goodwill impairment tests performed after January 1, 2017.
We do not expect this guidance to have a significant impact on our financial statements.
In March 2017, the FASB issued accounting guidance that changes the presentation of net periodic pension and postretirement benefit cost (“net benefit cost”) in the income statement. This new guidance requires service cost to be presented as part of operating income (expense) and all other components of net benefit cost are to be shown outside of operations. This guidance will be effective for periods beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied on a retrospective basis. Early adoption is permitted as of the beginning of an annual period for which an entity’s financial statements have not been issued or made available for issuance. We do not expect this guidance to have a significant impact on our financial statements.
In May 2017, the FASB issued accounting guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This new guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and is to be applied on a prospective basis. Early adoption is permitted. We currently do not expect this guidance to have a significant impact on our financial statements.
In August 2017, the FASB issued accounting guidance to better align an entity’s risk management activities with hedge accounting, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. This guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. This new guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied on a prospective basis. Early adoption is permitted. We currently do not expect this guidance to have a significant impact on our financial statements.
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Forward-looking Statements
Some of the information presented in this Quarterly Report on Form 10-Q, including the documents incorporated by reference, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on our current expectations, which are in turn based on assumptions that we believe are reasonable based on our current knowledge of our business and operations. We have used words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “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 and financial condition to differ materially from those indicated in the forward-looking statements include, among others:
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•
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changes in economic and business conditions;
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•
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changes in financial and operating performance of our major customers and industries and markets served by us;
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•
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the timing of orders received from customers;
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•
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the gain or loss of significant customers;
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•
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competition from other manufacturers;
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•
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changes in the demand for our products or the end-user markets in which our products are sold;
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•
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limitations or prohibitions on the manufacture and sale of our products;
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•
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availability of raw materials;
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•
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increases in the cost of raw materials and energy, and our ability to pass through such increases;
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•
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changes in our markets in general;
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•
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fluctuations in foreign currencies;
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•
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changes in laws and government regulation impacting our operations or our products;
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•
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the occurrence of regulatory proceedings, claims or litigation;
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•
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the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change;
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•
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hazards associated with chemicals manufacturing;
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•
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the inability to maintain current levels of product or premises liability insurance or the denial of such coverage;
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•
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political unrest affecting the global economy, including adverse effects from terrorism or hostilities;
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•
|
political instability affecting our manufacturing operations or joint ventures;
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•
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changes in accounting standards;
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•
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the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs;
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•
|
changes in the jurisdictional mix of our earnings and changes in tax laws and rates;
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•
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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;
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•
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volatility and uncertainties in the debt and equity markets;
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•
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technology or intellectual property infringement, including cyber-security breaches, and other innovation risks;
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•
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decisions we may make in the future;
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•
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the ability to successfully execute, operate and integrate acquisitions and divestitures; and
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•
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the other factors detailed from time to time in the reports we file with the SEC.
|
We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. The following discussion should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.
The following is a discussion and analysis of our results of operations for the
three-month and nine-month
periods ended
September 30, 2017
and
2016
. A discussion of our consolidated financial condition and sources of additional capital is included under a separate heading “Financial Condition and Liquidity” on page 41.
Overview
We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals to customers across a widely diverse range of end markets. The end markets we serve include the petroleum refining, consumer electronics, energy storage, construction, automotive, lubricants, pharmaceuticals, crop protection, food safety and custom chemistry services. We believe that our commercial and geographic diversity, technical expertise, innovative capability, flexible, low-cost global manufacturing base, experienced management team and strategic focus on our core base technologies primarily 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 global marketplace. We believe our disciplined cost reduction efforts and ongoing productivity improvements, among other factors, position us well to overcome economic challenges and to take advantage of future opportunities in the industries and markets in which we operate.
Third Quarter
2017
During the
third
quarter of
2017
:
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•
|
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 Quarterly Report, CORFO is yet to consider the Company’s request.
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•
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Our board of directors declared a quarterly dividend of
$0.32
per share on
July 10, 2017
, which was paid on
October 2, 2017
to shareholders of record at the close of business as of
September 15, 2017
.
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|
|
|
|
•
|
Our net sales for the quarter were
$754.9 million
, up
15%
from net sales of
$654.0 million
in the
third
quarter of
2016
. Net sales from our reportable segments for the quarter were $726.8 million, an increase of 16% from net sales of $625.4 million in the
third
quarter of
2016
.
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|
|
|
|
•
|
Earnings per share were
$1.06
(on a diluted basis), an increase from
third
quarter
2016
results of
$0.93
per diluted share from continuing operations.
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|
•
|
Cash provided by operating activities was
$129.3 million
in the
third
quarter, a decrease from
$201.3 million
in the
third
quarter 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.
Lithium and Advanced Materials:
We expect continued strong year over year growth for the remainder of 2017, led by strong underlying demand in battery-grade applications, increased lithium carbonate and hydroxide conversion capacity and price improvement in Lithium. PCS experienced weaker profitability in 2016 due to weakness in the curatives market and the bankruptcy filing of one of our customers which resulted in a $10 million impact to Income from continuing operations before income taxes and adjusted EBITDA during the year. While we experienced further negative impacts from the bankruptcy filing in 2017, we expect PCS profitability to stabilize in 2017 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 adoption of plug-in hybrid electric vehicles and battery electric vehicles accelerates. In addition, we expect growth in PCS from growing global demand for plastics driven by rising standards of living and infrastructure spending, particularly in Asia and the Middle East.
Bromine Specialties:
The Bromine Specialties segment performed well in the first nine months of 2017, with year over year adjusted EBITDA growth driven by strong fire safety and other derivative volume increases and productivity improvements. We are encouraged by the results in the first nine months, and are optimistic about the remainder of the year.
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 and marked improvement in catalyst product mix, our clean fuels technology business continues to perform as expected with fewer refining change-outs and a weaker year over year product mix. We expect solid performance from our Fluid Catalytic Cracking (“FCC”) division despite a number of scheduled maintenance shutdowns, plant turnarounds at refiners and impacts from hurricane Harvey. We also continue to face headwinds from rising input costs in 2017 following historically low prices in 2016.
On a longer term basis, we believe increased global demand for transportation fuels from a growing population and increasing mobility and the implementation of more stringent fuel quality requirements will be 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:
During the first quarter of
2016
, we closed the previously announced sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business. The cash generated from the sale of these businesses was used to reduce borrowings outstanding under the September 2015 Term Loan Agreement. In April 2016, we concluded that we would suspend efforts to sell the fine chemistry services business. This business will continue to be reported outside the Company’s reportable segments. 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
2017
to be approximately
16.7%
; however, our rate will vary based on the locations globally where income is actually earned and the potential volatility resulting from changing legislation in the U.S. and other tax jurisdictions. We also anticipate the potential for increased periodic 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
2017
, we increased our quarterly dividend rate to
$0.32
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.
In November 2017, we announced that during the first quarter of 2018, the Performance Catalyst Solutions ("PCS") product line 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.
We remain committed to evaluating opportunities that may arise for acquisitions or other business development activities that will complement our business footprint. Additional information regarding our products, markets and financial performance is provided at our website,
www.albemarle.com
. Our website is not a part of this document nor is it incorporated herein by reference.
Results of Operations
The following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.
Third Quarter
2017
Compared to
Third Quarter
2016
Selected Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Percentage Change
|
|
|
2017
|
|
2016
|
|
2017 vs. 2016
|
|
|
(In thousands, except percentages and per share amounts)
|
|
NET SALES
|
$
|
754,866
|
|
|
$
|
654,010
|
|
|
15
|
%
|
|
Cost of goods sold
|
479,077
|
|
|
415,038
|
|
|
15
|
%
|
|
GROSS PROFIT
|
275,789
|
|
|
238,972
|
|
|
15
|
%
|
|
GROSS PROFIT MARGIN
|
36.5
|
%
|
|
36.5
|
%
|
|
|
|
Selling, general and administrative expenses
|
105,582
|
|
|
86,302
|
|
|
22
|
%
|
|
Research and development expenses
|
21,763
|
|
|
21,012
|
|
|
4
|
%
|
|
Acquisition and integration related costs
|
—
|
|
|
6,749
|
|
|
(100
|
)%
|
|
OPERATING PROFIT
|
148,444
|
|
|
124,909
|
|
|
19
|
%
|
|
OPERATING PROFIT MARGIN
|
19.7
|
%
|
|
19.1
|
%
|
|
|
|
Interest and financing expenses
|
(15,792
|
)
|
|
(15,946
|
)
|
|
(1
|
)%
|
|
Other (expenses) income, net
|
(3,008
|
)
|
|
2,990
|
|
|
(201
|
)%
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
|
129,644
|
|
|
111,953
|
|
|
16
|
%
|
|
Income tax expense
|
18,495
|
|
|
12,394
|
|
|
49
|
%
|
|
Effective tax rate
|
14.3
|
%
|
|
11.1
|
%
|
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
|
111,149
|
|
|
99,559
|
|
|
12
|
%
|
|
Equity in net income of unconsolidated investments (net of tax)
|
19,044
|
|
|
14,953
|
|
|
27
|
%
|
|
NET INCOME FROM CONTINUING OPERATIONS
|
130,193
|
|
|
114,512
|
|
|
14
|
%
|
|
Income from discontinued operations (net of tax)
|
—
|
|
|
23,185
|
|
|
(100
|
)%
|
|
NET INCOME
|
130,193
|
|
|
137,697
|
|
|
(5
|
)%
|
|
Net income attributable to noncontrolling interests
|
(11,523
|
)
|
|
(9,477
|
)
|
|
22
|
%
|
|
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION
|
$
|
118,670
|
|
|
$
|
128,220
|
|
|
(7
|
)%
|
|
NET INCOME FROM CONTINUING OPERATIONS AS A PERCENTAGE OF NET SALES
|
17.2
|
%
|
|
17.5
|
%
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.07
|
|
|
$
|
0.93
|
|
|
15
|
%
|
|
Discontinued operations
|
—
|
|
|
0.21
|
|
|
(100
|
)%
|
|
|
$
|
1.07
|
|
|
$
|
1.14
|
|
|
(6
|
)%
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.06
|
|
|
$
|
0.93
|
|
|
14
|
%
|
|
Discontinued operations
|
—
|
|
|
0.20
|
|
|
(100
|
)%
|
|
|
$
|
1.06
|
|
|
$
|
1.13
|
|
|
(6
|
)%
|
Net Sales
For the three-month period ended
September 30, 2017
, we recorded net sales of
$754.9 million
,
an increase
of
$100.9 million
, or
15%
, compared to net sales of
$654.0 million
for the three-month period ended
September 30, 2016
. Net sales increased due to $46.3 million of higher volumes resulting from market demand, $51.1 million of favorable price impacts and $3.0 million of favorable currency exchange impacts.
Gross Profit
For the three-month period ended
September 30, 2017
, our gross profit
increased
$36.8 million
, or
15%
, from the corresponding
2016
period. Included in Costs of goods sold for the three-month period ended
September 30, 2017
are
$1.8 million
of acquisition and integration related costs resulting from the acquisition of the lithium hydroxide and lithium carbonate conversion business of Jiangxi Jiangli New Materials Science and Technology Co. Ltd. (“Jiangli New Materials”) and a
$0.6 million
charge related to the markup of inventory purchased from the Jiangli New Materials acquisition. In addition, gross profit decreased $1.3 million related to the divested minerals-based flame retardants and specialty chemicals business. Excluding the impact of these items, gross profit increased by $40.5 million, or 17%, due primarily to higher overall sales volumes and $51.1 million in favorable price impacts, partially offset by a $11.4 million negative impact from hurricane Harvey. Overall, these factors contributed to a gross profit margin for the three-month period ended
September 30, 2017
of
36.5%
, the same as in the corresponding period in
2016
. Excluding the impact of the charges noted above, gross profit margin was 36.9% for the three-month period ended
September 30, 2017
as compared to 36.3% in the corresponding period in
2016
.
Selling, General and Administrative Expenses
For the three-month period ended
September 30, 2017
, our selling, general and administrative (“SG&A”) expenses
increased
$19.3 million
, or
22%
, from the three-month period ended
September 30, 2016
. The three-month period ended
September 30, 2017
includes $3.8 million of acquisition and integration related costs, primarily resulting from the acquisition of Jiangli New Materials. Excluding the impact of these charges, SG&A expenses increased $15.5 million primarily due to increased compensation related costs, Lithium growth spending and professional fees. As a percentage of net sales, SG&A expenses were
14.0%
for the three-month period ended
September 30, 2017
, compared to
13.2%
for the corresponding period in
2016
.
Research and Development Expenses
For the three-month period ended
September 30, 2017
, our research and development (“R&D”) expenses
increased
$0.8 million
, or
4%
, from the three-month period ended
September 30, 2016
. As a percentage of net sales, R&D expenses were
2.9%
and
3.2%
for the three-month periods ended
September 30, 2017
and
2016
, respectively.
Acquisition and Integration Related Costs
The three-month period ended
September 30, 2016
included
$6.3 million
of integration costs resulting from the acquisition of Rockwood Holdings, Inc. (mainly consisting of professional services, costs to achieve synergies, relocation costs, and other integration costs) and
$0.4 million
of costs in connection with other significant projects. Acquisition and integration related costs for the three-month period ended
September 30, 2017
are reported in Cost of goods sold and SG&A, as noted above.
Interest and Financing Expenses
Interest and financing expenses for the three-month period ended
September 30, 2017
decreased
$0.2 million
to
$15.8 million
from the corresponding
2016
period, due mainly to the repayment of the 3.00% Senior notes in full, €307.0 million of the 1.875% Senior notes and $174.7 million of the 4.50% Senior notes in the first quarter of 2017.
Other (Expenses) Income, Net
Other (expenses) income, net, for the three-month period ended
September 30, 2017
was
($3.0) million
compared to
$3.0 million
for the corresponding
2016
period. The three-month period ended
September 30, 2016
included a $2.9 million gain in the fair value of our investment in private equity securities. During the three-month period ended
September 30, 2017
, we recorded
$1.6 million
of multiemployer plan financial improvement plan shortfall contributions to indemnify previously divested businesses, a
$1.4 million
decrease adjustment to the gain recorded for the acquisition of the remaining 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, partially offset by the revision of tax indemnification expenses of
$0.7 million
primarily related to the filing of tax returns for a previously disposed business. The remaining change was primarily due to an increase in interest income and foreign exchange losses of $2.2 million.
Income Tax Expense
The effective income tax rate for the
third
quarter of
2017
was
14.3%
compared to
11.1%
for the
third
quarter of
2016
. Our effective income tax rate differs from the U.S. Federal statutory income tax rates in the comparative periods primarily due to the impact of earnings from outside the U.S, and is mainly attributable to our share of the income of our Jordan Bromine Company Limited (“JBC”) joint venture, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. The increase in the effective tax rate for the three-month period ended September 30, 2017 compared to the same period last year, was driven by a variety of factors, primarily stemming from the $6.1 million discrete tax benefit in 2016 related mainly to foreign provision to return adjustments.
Equity in Net Income of Unconsolidated Investments
Equity in net income of unconsolidated investments was
$19.0 million
for the three-month period ended
September 30, 2017
compared to
$15.0 million
in the same period last year. This increase of $4.0 million was primarily due to higher equity income reported by our Lithium and Advanced Materials segment joint venture, Windfield Holdings Pty. Ltd., resulting from higher sales volumes.
Income from Discontinued Operations
The three-month period ended
September 30, 2016
includes income from discontinued operations, after income taxes, of
$23.2 million
related to our Chemetall Surface Treatment business which was sold in the fourth quarter of 2016.
Net Income Attributable to Noncontrolling Interests
For the three-month period ended
September 30, 2017
, net income attributable to noncontrolling interests was
$11.5 million
compared to
$9.5 million
in the same period last year. This
increase
of $2.0 million was due primarily to an increase in consolidated income related to our JBC joint venture from higher sales volumes in the quarter.
Net Income Attributable to Albemarle Corporation
Net income attributable to Albemarle Corporation
decreased
to
$118.7 million
in the three-month period ended
September 30, 2017
, from
$128.2 million
in the three-month period ended
September 30, 2016
. The three-month period ended September 30, 2016 included income from discontinued operations of $23.2 million from our Chemetall Surface Treatment business sold in the fourth quarter of 2016. Excluding this amount, net income attributable to Albemarle increased by $13.7 million. The increase is primarily due to the increase in gross profit from higher overall sales volumes and favorable price impacts, partially offset by an increase in SG&A expenses, a higher effective income tax rate and the negative impact of hurricane Harvey.
Other Comprehensive Income, Net of Tax
Total other comprehensive income, after income taxes, was
$47.0 million
for the three-month period ended
September 30, 2017
compared to
$41.0 million
for the corresponding period in
2016
. The majority of these amounts are the result of translating our foreign subsidiary financial statements from their local currencies to U.S. Dollars. In the
2017
period, other comprehensive income from foreign currency translation adjustments was
$56.2 million
, mainly as a result of favorable movements in the European Union Euro of approximately $50 million, the Brazilian Real of approximately $4 million and the Chinese Renminbi of approximately $4 million, partially offset by a net unfavorable variance in various other currencies totaling approximately $2 million. Also included in total other comprehensive income for the 2017 period is a loss of
$9.7 million
in connection with the revaluation of our Euro-based 1.875% Senior notes which have been designated as a hedge of our net investment in foreign operations. In the
2016
period, other comprehensive income from foreign currency translation adjustments was
$47.7 million
, mainly as a result of favorable movements in the European Union Euro of approximately $38 million and the Korean Won of approximately $8 million. The movement in the European Union Euro includes an adjustment of $12.5 million to reduce the Foreign currency translation on our investment in the Windfield Holdings Pty. Ltd. joint venture related to the three-month period March 31, 2016. Also included in total other comprehensive income for the 2016 period is a loss of
$7.4 million
in connection with the revaluation of our 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 includes only the fine chemistry services business, that does not fit into any of our core businesses.
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the reportable segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
The Company’s chief operating decision maker uses earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items such as acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, non-operating pension and OPEB items and other significant non-recurring items (“adjusted EBITDA”), in a balanced manner and on a segment basis to assess the ongoing performance of the Company’s business segments and to allocate resources. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, or any other financial measure reported in accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Percentage Change
|
|
|
2017
|
|
%
|
|
2016
|
|
%
|
|
2017 vs. 2016
|
|
|
(In thousands, except percentages)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
$
|
343,557
|
|
|
45.5
|
%
|
|
$
|
240,424
|
|
|
36.8
|
%
|
|
43
|
%
|
|
Bromine Specialties
|
212,923
|
|
|
28.2
|
%
|
|
194,496
|
|
|
29.7
|
%
|
|
9
|
%
|
|
Refining Solutions
|
170,275
|
|
|
22.6
|
%
|
|
190,453
|
|
|
29.1
|
%
|
|
(11
|
)%
|
|
All Other
|
28,021
|
|
|
3.7
|
%
|
|
28,272
|
|
|
4.3
|
%
|
|
(1
|
)%
|
|
Corporate
|
90
|
|
|
—
|
%
|
|
365
|
|
|
0.1
|
%
|
|
(75
|
)%
|
|
Total net sales
|
$
|
754,866
|
|
|
100.0
|
%
|
|
$
|
654,010
|
|
|
100.0
|
%
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
$
|
130,218
|
|
|
62.2
|
%
|
|
$
|
91,719
|
|
|
48.7
|
%
|
|
42
|
%
|
|
Bromine Specialties
|
63,936
|
|
|
30.5
|
%
|
|
51,807
|
|
|
27.5
|
%
|
|
23
|
%
|
|
Refining Solutions
|
43,120
|
|
|
20.6
|
%
|
|
64,960
|
|
|
34.5
|
%
|
|
(34
|
)%
|
|
All Other
|
306
|
|
|
0.2
|
%
|
|
5,470
|
|
|
2.9
|
%
|
|
(94
|
)%
|
|
Corporate
|
(28,197
|
)
|
|
(13.5
|
)%
|
|
(25,627
|
)
|
|
(13.6
|
)%
|
|
10
|
%
|
|
Total adjusted EBITDA
|
$
|
209,383
|
|
|
100.0
|
%
|
|
$
|
188,329
|
|
|
100.0
|
%
|
|
11
|
%
|
See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, from Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
|
Bromine Specialties
|
|
Refining Solutions
|
|
Reportable Segments Total
|
|
All Other
|
|
Corporate
|
|
Consolidated Total
|
|
Three months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Albemarle Corporation
|
$
|
103,199
|
|
|
$
|
53,760
|
|
|
$
|
34,392
|
|
|
$
|
191,351
|
|
|
$
|
(1,776
|
)
|
|
$
|
(70,905
|
)
|
|
$
|
118,670
|
|
|
Depreciation and amortization
|
26,136
|
|
|
10,176
|
|
|
9,978
|
|
|
46,290
|
|
|
2,082
|
|
|
1,523
|
|
|
49,895
|
|
|
Utilization of inventory markup
(a)
|
568
|
|
|
—
|
|
|
—
|
|
|
568
|
|
|
—
|
|
|
—
|
|
|
568
|
|
|
Adjustment to gain on acquisition
(b)
|
1,408
|
|
|
—
|
|
|
—
|
|
|
1,408
|
|
|
—
|
|
|
—
|
|
|
1,408
|
|
|
Acquisition and integration related costs
(c)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,635
|
|
|
5,635
|
|
|
Interest and financing expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,792
|
|
|
15,792
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,495
|
|
|
18,495
|
|
|
Non-operating pension and OPEB items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,028
|
)
|
|
(1,028
|
)
|
|
Multiemployer plan shortfall contributions
(d)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,646
|
|
|
1,646
|
|
|
Other
(e)
|
(1,093
|
)
|
|
—
|
|
|
(1,250
|
)
|
|
(2,343
|
)
|
|
—
|
|
|
645
|
|
|
(1,698
|
)
|
|
Adjusted EBITDA
|
$
|
130,218
|
|
|
$
|
63,936
|
|
|
$
|
43,120
|
|
|
$
|
237,274
|
|
|
$
|
306
|
|
|
$
|
(28,197
|
)
|
|
$
|
209,383
|
|
|
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
(f)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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
(g)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
462
|
|
|
462
|
|
|
Adjusted EBITDA
|
$
|
91,719
|
|
|
$
|
51,807
|
|
|
$
|
64,960
|
|
|
$
|
208,486
|
|
|
$
|
5,470
|
|
|
$
|
(25,627
|
)
|
|
$
|
188,329
|
|
|
|
|
|
(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 inventory markup was expensed over the estimated remaining selling period. For the three-month period ended September 30, 2017,
$0.6 million
was included in Cost of goods sold related to the utilization of the inventory markup.
|
|
|
|
|
(b)
|
Adjustment to gain recorded in Other (expenses) income, net related to the acquisition of the remaining 50% interest in Salmag. See Item 1 Financial Statements - Note 2, “Acquisitions,” for additional information.
|
|
|
|
|
(c)
|
Acquisition and integration related costs of
$1.8 million
and
$3.8 million
were included in Cost of goods sold and SG&A expenses, respectively, for the three-month period ended
September 30, 2017
, related to various significant projects, including the Jiangli New Materials acquisition, which contains unusual compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s normal compensation arrangements.
|
|
|
|
|
(d)
|
Included in Other (expenses) income, net, is
$1.6 million
for additional capital reserve contributions to a multiemployer plan, which is subject to a financial improvement plan, to indemnify previously divested businesses.
|
|
|
|
|
(e)
|
Included amounts recorded in:
|
|
|
|
|
▪
|
Cost of goods sold -
$1.3 million
reversal of deferred income related to an abandoned project at an unconsolidated investment.
|
|
|
|
|
▪
|
Other (expenses) income, net -
$1.1 million
related to a reversal of a liability associated with the previous disposal of a property, partially offset by the revision of tax indemnification expenses of
$0.7 million
primarily related to the filing of tax returns for a previously disposed business.
|
|
|
|
|
(f)
|
See “
Acquisition and Integration Related Costs
” on page 30 for a description of these items.
|
|
|
|
|
(g)
|
Includes the write-off of fixed assets of
$1.4 million
included in Research and development expenses, partially offset by a net gain of
$0.9 million
on the sales of properties included in Other (expenses) income, net.
|
Lithium and Advanced Materials
Lithium and Advanced Materials segment net sales for the three-month period ended
September 30, 2017
were
$343.6 million
,
up
$103.1 million
, or
43%
, compared to the corresponding period of
2016
. The
increase
was primarily driven by $53.2 million of favorable Lithium price impacts primarily related to our battery grade and technical grade lithium carbonate applications, $47.9 million of favorable Lithium sales volumes due to market demand and $1.6 million of favorable currency
translation impacts. Adjusted EBITDA for Lithium and Advanced Materials was
up
42%
, or
$38.5 million
, to
$130.2 million
for the three-month period ended
September 30, 2017
, compared to the same period in
2016
, primarily due to favorable pricing and higher overall sales volumes, partially offset by Lithium growth spending, a $3.9 million negative impact from hurricane Harvey on PCS and $0.2 million of unfavorable currency translation impacts.
Bromine Specialties
Bromine Specialties segment net sales for the three-month period ended
September 30, 2017
were
$212.9 million
,
up
$18.4 million
, or
9%
, compared to the corresponding period of
2016
. The
increase
was driven mainly by $16.2 million in favorable volume related to flame retardants and $2.2 million of favorable pricing impacts. Adjusted EBITDA for Bromine Specialties was
up
23%
, or
$12.1 million
, to
$63.9 million
for the three-month period ended
September 30, 2017
, compared to the same period in
2016
, primarily due to higher volumes and favorable pricing, partially offset by higher SG&A expenses and a $2.7 million negative impact from hurricane Harvey.
Refining Solutions
Refining Solutions segment net sales for the three-month period ended
September 30, 2017
were
$170.3 million
,
a decrease
of
$20.2 million
, or
11%
, compared to the corresponding period of
2016
. This
decrease
was primarily due to $18.0 million of lower volumes and $3.6 million of unfavorable price impacts due to customer and product mix, partially offset by $1.4 million of favorable currency exchange impacts. Refining Solutions adjusted EBITDA
decreased
34%
, or
$21.8 million
, to
$43.1 million
for the three-month period ended
September 30, 2017
in comparison to the corresponding period of
2016
. This
decrease
was primarily due to unfavorable volume and mix impacts, as well as a $4.8 million negative impact from hurricane Harvey.
All Other
All Other net sales for the three-month period ended
September 30, 2017
were
$28.0 million
,
a decrease
of
$0.3 million
, or
1%
, compared to the three-month period ended
September 30, 2016
. This decrease was primarily due to lower sales volumes, partially offset by favorable pricing for the fine chemistry services business. All Other adjusted EBITDA was down
94%
, or
$5.2 million
, for the three-month period ended
September 30, 2017
in comparison to the corresponding period of 2016. The three-month period ended
September 30, 2016
included a $2.9 million gain in the fair value of our investment in private equity securities. Excluding this and the impact of the sale of the minerals-based flame retardants and specialty chemicals business of $1.3 million, All Other adjusted EBITDA decreased by $1.0 million primarily due to lower volumes and slightly higher costs for the fine chemistry services business.
Corporate
Corporate adjusted EBITDA was a loss of
$28.2 million
for the three-month period ended
September 30, 2017
, compared to a loss of
$25.6 million
for the corresponding period of 2016. The change was primarily due to $2.1 million of unfavorable currency exchange impacts.
Nine
Months
2017
Compared to
Nine
Months
2016
Selected Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Percentage Change
|
|
|
2017
|
|
2016
|
|
2017 vs. 2016
|
|
|
(In thousands, except percentages and per share amounts)
|
|
NET SALES
|
$
|
2,214,187
|
|
|
$
|
1,980,548
|
|
|
12
|
%
|
|
Cost of goods sold
|
1,411,216
|
|
|
1,250,938
|
|
|
13
|
%
|
|
GROSS PROFIT
|
802,971
|
|
|
729,610
|
|
|
10
|
%
|
|
GROSS PROFIT MARGIN
|
36.3
|
%
|
|
36.8
|
%
|
|
|
|
Selling, general and administrative expenses
|
329,269
|
|
|
254,988
|
|
|
29
|
%
|
|
Research and development expenses
|
63,423
|
|
|
61,384
|
|
|
3
|
%
|
|
Gain on sales of businesses, net
|
—
|
|
|
(122,298
|
)
|
|
(100
|
)%
|
|
Acquisition and integration related costs
|
—
|
|
|
44,337
|
|
|
(100
|
)%
|
|
OPERATING PROFIT
|
410,279
|
|
|
491,199
|
|
|
(16
|
)%
|
|
OPERATING PROFIT MARGIN
|
18.5
|
%
|
|
24.8
|
%
|
|
|
|
Interest and financing expenses
|
(98,895
|
)
|
|
(46,860
|
)
|
|
111
|
%
|
|
Other (expenses) income, net
|
(6,512
|
)
|
|
740
|
|
|
*
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
|
304,872
|
|
|
445,079
|
|
|
(32
|
)%
|
|
Income tax expense
|
53,596
|
|
|
61,535
|
|
|
(13
|
)%
|
|
Effective tax rate
|
17.6
|
%
|
|
13.8
|
%
|
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS
|
251,276
|
|
|
383,544
|
|
|
(34
|
)%
|
|
Equity in net income of unconsolidated investments (net of tax)
|
55,263
|
|
|
44,790
|
|
|
23
|
%
|
|
NET INCOME FROM CONTINUING OPERATIONS
|
306,539
|
|
|
428,334
|
|
|
(28
|
)%
|
|
Loss from discontinued operations (net of tax)
|
—
|
|
|
(357,843
|
)
|
|
(100
|
)%
|
|
NET INCOME
|
306,539
|
|
|
70,491
|
|
|
*
|
|
|
Net income attributable to noncontrolling interests
|
(33,323
|
)
|
|
(28,906
|
)
|
|
15
|
%
|
|
NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION
|
$
|
273,216
|
|
|
$
|
41,585
|
|
|
*
|
|
|
NET INCOME FROM CONTINUING OPERATIONS AS A PERCENTAGE OF NET SALES
|
13.8
|
%
|
|
21.6
|
%
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
Continuing operations
|
$
|
2.46
|
|
|
$
|
3.56
|
|
|
(31
|
)%
|
|
Discontinued operations
|
—
|
|
|
(3.19
|
)
|
|
(100
|
)%
|
|
|
$
|
2.46
|
|
|
$
|
0.37
|
|
|
*
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
Continuing operations
|
$
|
2.43
|
|
|
$
|
3.53
|
|
|
(31
|
)%
|
|
Discontinued operations
|
—
|
|
|
(3.16
|
)
|
|
(100
|
)%
|
|
|
$
|
2.43
|
|
|
$
|
0.37
|
|
|
*
|
|
*Percentage calculation is not meaningful.
Net Sales
For the
nine-month period ended
September 30, 2017
, we recorded net sales of
$2.21 billion
,
an increase
of
$233.6 million
, or
12%
, compared to net sales of
$1.98 billion
for the
nine-month period ended
September 30, 2016
. Net sales increased due to $181.0 million of higher volumes resulting from market demand and $95.9 million of favorable price impacts, partially offset by the impact of the sale of the minerals-based flame retardants and specialty chemicals business of $38.6 million and $4.7 million of unfavorable currency exchange impacts.
Gross Profit
For the
nine-month period ended
September 30, 2017
, our gross profit
increased
$73.4 million
, or
10%
, from the corresponding 2016 period. Included in Costs of goods sold for the
nine-month period ended
September 30, 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) $12.5 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 $3.6 million related to the divested minerals-based flame retardants and specialty chemicals business. Excluding the impact of these items, gross profit increased by $115.5 million, or 15.9%, due primarily to higher overall sales volumes and $95.9 million in favorable price impacts, partially offset by a $11.4 million negative impact from hurricane Harvey. Overall, these factors contributed to a lower gross profit margin for the
nine-month period ended
September 30, 2017
of
36.3%
, down from
36.8%
in the corresponding period in 2016. Excluding the impact of the charges noted above, gross profit margin was 38.0% for the
nine-month period ended
September 30, 2017
as compared to 37.4% in the corresponding period in 2016.
Selling, General and Administrative Expenses
For the
nine-month period ended
September 30, 2017
, our SG&A expenses
increased
$74.3 million
, or
29%
, from the
nine-month period ended
September 30, 2016
. The
nine-month period ended
September 30, 2017
includes $13.9 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 $2.0 million of multiemployer plan financial improvement plan shortfall contributions for our employees. Excluding the impact of these charges, SG&A expenses increased $50.0 million primarily due to increased compensation related costs, Lithium growth spending and professional fees. As a percentage of net sales, SG&A expenses were
14.9%
for the
nine-month period ended
September 30, 2017
, compared to
12.9%
for the corresponding period of 2016.
Research and Development
For the
nine-month period ended
September 30, 2017
, our R&D expenses
increased
$2.0 million
, or
3%
, from the
nine-month period ended
September 30, 2016
. Included in R&D expenses for the
nine-month period ended
September 30, 2017
are $5.8 million of restructuring costs related to our Lithium sites in Germany. As a percentage of net sales, R&D expenses were
2.9%
and
3.1%
for the
nine
-month periods ended
September 30, 2017
and 2016, respectively.
Gain on Sales of Businesses, Net
The
nine-month period ended
September 30, 2016
included gains before income taxes of
$11.5 million
and
$112.3 million
related to the sale of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business, respectively, which closed in the first quarter of 2016. In addition, Gain on sales of businesses, net, for the
nine-month period ended
September 30, 2016
includes a loss of
$1.5 million
on the sale of our wafer reclaim business.
Acquisition and Integration Related Costs
The
nine-month period ended
September 30, 2016
included
$42.4 million
of integration costs resulting from the acquisition of Rockwood Holdings, Inc. (mainly consisting of professional services, costs to achieve synergies, relocation costs, and other integration costs) and
$1.9 million
of costs in connection with other significant projects. Acquisition and integration related costs for the
nine-month period ended
September 30, 2017
are reported in Cost of goods sold and SG&A expenses, as noted above.
Interest and Financing Expenses
Interest and financing expenses for the
nine-month period ended
September 30, 2017
increased
$52.0 million
to
$98.9 million
from the corresponding 2016 period, due mainly to a loss on early extinguishment of debt of
$52.8 million
related to the tender premiums, fees, unamortized discounts and unamortized deferred financings 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
nine-month period ended
September 30, 2017
was
($6.5) million
compared to
$0.7 million
for the corresponding period of 2016. During the
nine-month period ended
September 30, 2017
, we recorded
$3.2 million
of asset retirement obligation charges related to the revision of an estimate at a site formerly owned by Albemarle, a loss of
$2.1 million
associated with the previous disposal of a business, final settlement claims associated with the previous disposal of a business of
$2.0 million
and the revision of tax indemnification expenses of
$1.9 million
primarily related to the filing of tax returns and a competent authority agreement for a previously disposed business. This is partially offset by a
$6.0 million
gain related to the acquisition of the remaining 50% interest of an equity investment in 2017,
$1.1 million
related to a reversal of a liability associated with the previous disposal of a property. The remaining change was primarily due to an increase in foreign exchange losses of $4.5 million and a $2.9 million gain in the fair value of our investment in private equity securities recorded during the
nine-month period ended
September 30, 2016
.
Income Tax Expense
The effective income tax rate for the first nine months of
2017
was
17.6%
compared to
13.8%
for the first nine months of 2016. Our effective income tax rate differs from the U.S. Federal statutory income tax rates in the comparative periods primarily due to the impact of earnings from outside the U.S, and is 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
nine-month period ended
September 30, 2017
included foreign rate changes of $14.8 million and a $5.1 million out-of-period adjustment due to changes in our deferred tax liabilities for basis differences in Chilean fixed assets, partially offset by a $10.8 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 $6.9 million benefit from excess tax benefits realized from stock-based compensation arrangements. Our effective income tax rate for the
nine-month period ended
September 30, 2016
was driven down by a variety of factors, primarily low tax gains from the sale of the metal sulfides business and the minerals-based flame retardant and specialty chemicals business, as well as a favorable mix of earnings in lower tax jurisdictions.
Equity in Net Income of Unconsolidated Investments
Equity in net income of unconsolidated investments was
$55.3 million
for the
nine-month period ended
September 30, 2017
compared to
$44.8 million
in the same period last year. This increase of $10.5 million was primarily due to higher equity income reported by our Lithium and Advanced Materials segment joint venture Windfield Holdings Pty. Ltd. resulting from higher sales volumes.
Loss from Discontinued Operations
The
nine-month period ended
September 30, 2016
loss from discontinued operations, after income taxes, of
$357.8 million
included a non-recurring, non-cash tax charge of $411.3 million related to the change in the Company’s assertion over book and tax basis differences for certain entities included in the sale of the Chemetall Surface Treatment business, partially offset by higher earnings and lower interest expense.
Net Income Attributable to Noncontrolling Interests
For the
nine-month period ended
September 30, 2017
, net income attributable to noncontrolling interests was
$33.3 million
compared to
$28.9 million
in the corresponding period of 2016. This
increase
of $4.4 million was due primarily to an increase 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
$273.2 million
in the
nine-month period ended
September 30, 2017
, from
$41.6 million
in the
nine-month period ended
September 30, 2016
. The
nine-month period ended
September 30, 2016
included a non-recurring, non-cash tax charge of $411.3 million related to the decision to sell the Chemetall Surface Treatment business and a
$122.3 million
gain on sales of businesses, while the
nine-month period ended
September 30, 2017
included a $52.8 million loss on early extinguishment of debt and $17.1 million of restructuring and other costs. Excluding these items, net income attributable to Albemarle increased by $12.5 million. The increase is primarily due to the increase in gross profit from higher overall sales volumes and favorable price impacts, and lower acquisition and integration related costs, partially offset by an increase in SG&A expenses, a higher effective income tax rate, 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
$163.3 million
for the
nine-month period ended
September 30, 2017
compared to
$87.3 million
for the corresponding period in 2016. The majority of these amounts are the result of translating our foreign subsidiary financial statements from their local currencies to U.S. Dollars. In the 2017 period, other comprehensive income from foreign currency translation adjustments was
$199.3 million
, mainly as a result of favorable movements in the European Union Euro of approximately $174 million, the Chinese Renminbi of approximately $9 million, the Korean Won of approximately $8 million, and a net favorable variance in various other currencies totaling approximately $7 million (each approximately $4 million or less). Also included in total other comprehensive income for the 2017 period is a loss of
$37.6 million
in connection with the revaluation of our Euro-based 1.875% Senior notes which have been designated as a hedge of our net investment in foreign operations. In the 2016 period, other comprehensive income from foreign currency translation adjustments was
$95.4 million
, mainly as a result of favorable movements in the European Union Euro of
approximately $82 million, the Brazilian Real of approximately $14 million, the Korean Won of approximately $7 million, the Japanese Yen of approximately $6 million and a net favorable variance in various other currencies totaling approximately $11 million (each approximately $4 million or less), partially offset by unfavorable movements in the British Pound Sterling of approximately $19 million and the Chinese Renminbi of approximately $5 million. Also included in total other comprehensive income for the 2016 period is a loss of
$10.3 million
in connection with the revaluation of our Euro-based 1.875% Senior notes which have been designated as a hedge of our net investment in foreign operations.
Segment Information Overview.
Summarized financial information concerning our reportable segments is shown in the following tables. The “All Other” category comprises operating segments that did not fit into any of our core businesses. 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 Item 1 Financial Statements - Note 3, “Divestitures.” Following the sales of these businesses, the “All Other” category includes only the fine chemistry services business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Percentage Change
|
|
|
2017
|
|
%
|
|
2016
|
|
%
|
|
2017 vs. 2016
|
|
|
(In thousands, except percentages)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
$
|
945,791
|
|
|
42.7
|
%
|
|
$
|
689,950
|
|
|
34.8
|
%
|
|
37
|
%
|
|
Bromine Specialties
|
636,059
|
|
|
28.7
|
%
|
|
597,912
|
|
|
30.2
|
%
|
|
6
|
%
|
|
Refining Solutions
|
539,904
|
|
|
24.4
|
%
|
|
539,044
|
|
|
27.2
|
%
|
|
—
|
%
|
|
All Other
|
91,144
|
|
|
4.1
|
%
|
|
150,987
|
|
|
7.6
|
%
|
|
(40
|
)%
|
|
Corporate
|
1,289
|
|
|
0.1
|
%
|
|
2,655
|
|
|
0.2
|
%
|
|
(51
|
)%
|
|
Total net sales
|
$
|
2,214,187
|
|
|
100.0
|
%
|
|
$
|
1,980,548
|
|
|
100.0
|
%
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
$
|
382,789
|
|
|
59.8
|
%
|
|
$
|
260,861
|
|
|
45.7
|
%
|
|
47
|
%
|
|
Bromine Specialties
|
194,499
|
|
|
30.4
|
%
|
|
179,977
|
|
|
31.5
|
%
|
|
8
|
%
|
|
Refining Solutions
|
142,777
|
|
|
22.3
|
%
|
|
181,620
|
|
|
31.8
|
%
|
|
(21
|
)%
|
|
All Other
|
7,906
|
|
|
1.3
|
%
|
|
14,810
|
|
|
2.6
|
%
|
|
(47
|
)%
|
|
Corporate
|
(88,271
|
)
|
|
(13.8
|
)%
|
|
(66,435
|
)
|
|
(11.6
|
)%
|
|
33
|
%
|
|
Total adjusted EBITDA
|
$
|
639,700
|
|
|
100.0
|
%
|
|
$
|
570,833
|
|
|
100.0
|
%
|
|
12
|
%
|
See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, from Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with U.S. GAAP, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium and Advanced Materials
|
|
Bromine Specialties
|
|
Refining Solutions
|
|
Reportable Segments Total
|
|
All Other
|
|
Corporate
|
|
Consolidated Total
|
|
Nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Albemarle Corporation
|
$
|
292,655
|
|
|
$
|
164,193
|
|
|
$
|
115,329
|
|
|
$
|
572,177
|
|
|
$
|
1,622
|
|
|
$
|
(300,583
|
)
|
|
$
|
273,216
|
|
|
Depreciation and amortization
|
74,157
|
|
|
30,306
|
|
|
28,698
|
|
|
133,161
|
|
|
6,284
|
|
|
4,642
|
|
|
144,087
|
|
|
Utilization of inventory markup
(a)
|
23,095
|
|
|
—
|
|
|
—
|
|
|
23,095
|
|
|
—
|
|
|
—
|
|
|
23,095
|
|
|
Restructuring and other
(b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,141
|
|
|
17,141
|
|
|
Gain on acquisition
(c)
|
(6,025
|
)
|
|
—
|
|
|
—
|
|
|
(6,025
|
)
|
|
—
|
|
|
—
|
|
|
(6,025
|
)
|
|
Acquisition and integration related costs
(d)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,395
|
|
|
26,395
|
|
|
Interest and financing expenses
(e)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98,895
|
|
|
98,895
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,596
|
|
|
53,596
|
|
|
Non-operating pension and OPEB items
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,144
|
)
|
|
(3,144
|
)
|
|
Multiemployer plan shortfall contributions
(f)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,586
|
|
|
6,586
|
|
|
Other
(g)
|
(1,093
|
)
|
|
—
|
|
|
(1,250
|
)
|
|
(2,343
|
)
|
|
—
|
|
|
8,201
|
|
|
5,858
|
|
|
Adjusted EBITDA
|
$
|
382,789
|
|
|
$
|
194,499
|
|
|
$
|
142,777
|
|
|
$
|
720,065
|
|
|
$
|
7,906
|
|
|
$
|
(88,271
|
)
|
|
$
|
639,700
|
|
|
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
(h)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(123,831
|
)
|
|
1,533
|
|
|
(122,298
|
)
|
|
Acquisition and integration related costs
(i)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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
(j)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
462
|
|
|
462
|
|
|
Adjusted EBITDA
|
$
|
260,861
|
|
|
$
|
179,977
|
|
|
$
|
181,620
|
|
|
$
|
622,458
|
|
|
$
|
14,810
|
|
|
$
|
(66,435
|
)
|
|
$
|
570,833
|
|
|
|
|
|
(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 inventory markup was expensed over the estimated remaining selling period. For the nine-month period ended September 30, 2017,
$23.1 million
was included in Cost of goods sold related to the utilization of the inventory markup.
|
|
|
|
|
(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
$5.8 million
in Research and development expenses, primarily related to restructuring costs. The unpaid balance is recorded in Accrued expenses at September 30, 2017, with the expectation that the majority of this plan will be completed by the end of 2017.
|
|
|
|
|
(c)
|
Gain recorded in Other (expenses) income, net related to the acquisition of the remaining 50% interest in Salmag. See Item 1 Financial Statements - Note 2, “Acquisitions,” for additional information.
|
|
|
|
|
(d)
|
Acquisition and integration related costs of
$12.5 million
and
$13.9 million
were included in Cost of goods sold and SG&A expenses, respectively, for the nine-month period ended September 30, 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 of early extinguishment of debt of
$52.8 million
. See Item 1 Financial Statements - Note 10, “Long-term Debt,” for additional information.
|
|
|
|
|
(f)
|
Included in SG&A expenses is $2.0 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)
|
Included amounts 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, a loss of
$2.1 million
associated with the previous disposal of a business, final settlement claims associated with the previous disposal of a business of
$2.0 million
and the revision of tax indemnification expenses of
$1.9 million
primarily related to the filing of tax returns and a competent authority agreement for a previously disposed business. This is partially offset by
$1.1 million
related to a reversal of a liability associated with the previous disposal of a property.
|
|
|
|
|
(h)
|
See “
Gain on Sales of Businesses, Net
” on page 36 for a description of these items.
|
|
|
|
|
(i)
|
See “
Acquisition and Integration Related Costs
” on page 36 for a description of these items.
|
|
|
|
|
(j)
|
Includes the write-off of fixed assets of $1.4 million included in Research and development expenses, partially offset by a net gain of $0.9 million on the sales of properties included in Other (expenses) income, net.
|
Lithium and Advanced Materials
Lithium and Advanced Materials segment net sales for the
nine-month period ended
September 30, 2017
were
$945.8 million
,
up
$255.8 million
, or
37%
, compared to the corresponding period of
2016
. The
increase
was primarily driven by $140.1 million of favorable Lithium sales volumes, largely from battery grade applications, due to market demand and $131.0 million of favorable Lithium price impacts due primarily to price increases in our battery grade lithium carbonate and hydroxide applications. The increase was partially offset by $12.8 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, and $2.4 million of unfavorable currency translation impacts in Lithium business. Adjusted EBITDA for Lithium and Advanced Materials was
up
47%
, or
$121.9 million
, to
$382.8 million
for the
nine-month period ended
September 30, 2017
, compared to the corresponding period of
2016
, primarily due to favorable pricing and higher sales volumes, partially offset by Lithium growth spending, a $3.9 million negative impact from hurricane Harvey on PCS and $3.5 million of unfavorable currency translation impacts.
Bromine Specialties
Bromine Specialties segment net sales for the
nine-month period ended
September 30, 2017
were
$636.1 million
,
up
$38.1 million
, or
6%
, compared to the corresponding period of
2016
. The
increase
was driven mainly by $42.2 million of higher sales volumes due to market demand, partially offset by $3.4 million of unfavorable pricing and $0.7 million of unfavorable currency translation impacts. Adjusted EBITDA for Bromine Specialties was
up
8%
, or
$14.5 million
, to
$194.5 million
for the
nine-month period ended
September 30, 2017
, compared to the corresponding period of
2016
, primarily due to higher overall sales volumes, partially offset by unfavorable pricing, higher variable and fixed costs, and a $2.7 million negative impact from hurricane Harvey.
Refining Solutions
Refining Solutions segment net sales for the
nine-month period ended
September 30, 2017
were
$539.9 million
,
an increase
of
$0.9 million
, or less than 1%, compared to the corresponding period of
2016
. This
increase
was primarily due to $13.0 million of higher volumes primarily from market conditions, partially offset by $10.6 million of unfavorable price impacts due to customer and product mix and $1.6 million of unfavorable currency exchange impacts. Refining Solutions adjusted EBITDA
decreased
21%
, or
$38.8 million
, to
$142.8 million
for the
nine-month period ended
September 30, 2017
compared to the corresponding period of 2016. This
decrease
was primarily due to unfavorable volume and mix impacts, higher costs and a $4.8 million negative impact from hurricane Harvey, partially offset by $0.8 million of favorable currency translation impacts.
All Other
All Other net sales for the
nine-month period ended
September 30, 2017
were
$91.1 million
,
a decrease
of
$59.8 million
, or
40%
, compared to the
nine-month period ended
September 30, 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 the unfavorable fine chemistry services pricing impacts due to a contract formula change which did not impact earnings and lower sales volumes for fine chemistry services. All Other adjusted EBITDA was down
47%
, or
$6.9 million
, for the
nine-month period ended
September 30, 2017
in comparison to the corresponding period of 2016. The nine-month period ended
September 30, 2016
included a $2.9 million gain in the fair value of our investment in private equity securities and the impact of the sale of the minerals-based flame retardants and specialty chemicals business of $4.0 million.
Corporate
Corporate adjusted EBITDA was a loss of
$88.3 million
for the
nine-month period ended
September 30, 2017
, compared to a loss of
$66.4 million
for the corresponding period of 2016. The change was primarily due to increased compensation costs, professional fees and $4.3 million of unfavorable currency impacts.
Financial Condition and Liquidity
Overview
The principal uses of cash in our business generally have been capital investments, funding working capital, acquisitions and repayment of debt. We also make contributions to our defined benefit pension plans, pay dividends to our shareholders and repurchase shares of our common stock. Historically, cash to fund the needs of our business has been principally provided by cash from operations, debt financing and equity issuances.
We are continually focused on working capital efficiency particularly in the areas of accounts receivable and inventory. We anticipate that cash on hand, cash provided by operating activities and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations, fund capital expenditures and other investing activities, fund pension contributions and pay dividends for the foreseeable future.
Cash Flow
During the first
nine
months of
2017
, cash on hand, cash provided by operations and net borrowings of
$106.2 million
funded
$753.2 million
of debt repayments, a
$250.0 million
accelerated share repurchase program,
$187.5 million
of capital expenditures for plant, machinery and equipment, and dividends to shareholders of
$105.2 million
. Our operations provided
$74.8 million
of cash flows during the first
nine
months of
2017
, as compared to
$454.1 million
for the first
nine
months of
2016
. Our cash from operations in
2017
included an outflow from working capital changes of
$398.9 million
, primarily due to the payment of federal and state taxes during the second quarter of 2017, approximately $255 million of which resulted from the sale of the Chemetall Surface Treatment business in 2016, as well as the build up of inventory in the Refining Solutions and Lithium and Advanced Materials reportable segments in 2017. Overall, our cash and cash equivalents decreased by approximately
$1.22 billion
to
$1.05 billion
at
September 30, 2017
, down from
$2.27 billion
at
December 31, 2016
.
During the
nine-month period ended
September 30, 2017
, using a portion of the proceeds from the sale of the Chemetall Surface Treatment business, 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.
Under our existing Board authorized share repurchase program, the Company entered into an ASR agreement with a financial institution on March 1, 2017. Under the ASR agreement, in March 2017, the Company paid
$250 million
from available cash on hand and received and retired an initial delivery of
1,948,178
shares of our common stock. Under the terms of the ASR agreement, on June 16, 2017, the transaction was completed and we received a final settlement of
392,905
shares, calculated based on the daily Rule 10b-18 volume-weighted average prices of the Company’s common stock over the term of the ASR agreement, less an agreed discount. In total we received and retired
2,341,083
shares under this agreement, which reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share for the nine-month period ended September 30, 2017. As of
September 30, 2017
, there were
12,658,917
remaining shares available for repurchase under the Company’s authorized share repurchase program.
Capital expenditures for the
nine
-month period ended
September 30, 2017
of
$187.5 million
were associated with property, plant and equipment additions. We expect our capital expenditures to approximate $310 to $350 million in
2017
for Lithium growth and capacity increases, productivity and continuity of operations projects. Of the total capital expenditures, our projects related to the continuity of operations is expected to remain in the range of 4-6% of net sales, similar to prior years.
Net current assets were
$1.22 billion
and
$2.17 billion
at
September 30, 2017
and
December 31, 2016
, respectively, with the decrease being largely due to the reduction in cash used to repay a portion of the senior notes and to fund the accelerated share repurchase program during first quarter of 2017. Other changes in the components of net current assets are due to the timing of the sale of goods and other ordinary transactions leading up to the balance sheet dates and are not the result of any policy changes by the Company, and do not reflect any change in either the quality of our net current assets or our expectation of success in converting net working capital to cash in the ordinary course of business.
On February 23, 2017, we increased our quarterly dividend rate to
$0.32
per share, a 5% increase from the quarterly rate of $0.305 per share paid in 2016.
At
September 30, 2017
and
December 31, 2016
, our cash and cash equivalents included
$1.0 billion
and
$846.4 million
, respectively, held by our foreign subsidiaries. The majority of these foreign cash balances are associated with earnings that we have asserted are indefinitely reinvested and which we plan to use to support our continued growth plans outside the U.S. through funding of capital expenditures, acquisitions, research, operating expenses or other similar cash needs of our foreign operations. From time to time, we repatriate cash associated with earnings from our foreign subsidiaries to the U.S. for normal operating needs through intercompany dividends, but only from subsidiaries whose earnings we have not asserted to be indefinitely reinvested or whose earnings qualify as “previously taxed income” as defined by the Internal Revenue Code. During the first
nine
months of
2017
and
2016
, we repatriated approximately
$7.5 million
and
$27.3 million
of cash, respectively, as part of these foreign earnings cash repatriation activities.
While we continue to closely monitor our cash generation, working capital management and capital spending in light of continuing uncertainties in the global economy, we believe that we will continue to have the financial flexibility and capability to opportunistically fund future growth initiatives. Additionally, we anticipate that future capital spending, including business acquisitions, share repurchases and other cash outlays, should be financed primarily with cash flow provided by operations and cash on hand, with additional cash needed, if any, provided by borrowings. The amount and timing of any additional borrowings will depend on our specific cash requirements.
Long-Term Debt
We currently have the following senior notes outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Month/Year
|
|
Principal (in millions)
|
|
Interest Rate
|
|
Interest Payment Dates
|
|
Maturity Date
|
|
December 2014
|
|
€393.0
|
|
1.875%
|
|
December 8
|
|
December 8, 2021
|
|
November 2014
|
|
$425.0
|
|
4.15%
|
|
June 1
|
December 1
|
|
December 1, 2024
|
|
November 2014
|
|
$350.0
|
|
5.45%
|
|
June 1
|
December 1
|
|
December 1, 2044
|
|
December 2010
|
|
$175.3
|
|
4.50%
|
|
June 15
|
December 15
|
|
December 15, 2020
|
Our senior notes are senior unsecured obligations and rank equally with all our other senior unsecured indebtedness from time to time outstanding. The senior notes are effectively subordinated to any of our existing or future secured indebtedness and to the existing and future indebtedness of our subsidiaries. As is customary for such long-term debt instruments, each senior note outstanding has terms that allow us to redeem the notes before its maturity, in whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of the senior notes to be redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis using the comparable government rate (as defined in the indentures governing the senior notes) plus between 25 and 40 basis points, depending on the note, plus, in each case, accrued interest thereon to the date of redemption. Holders may require us to purchase such notes at 101% upon a change of control triggering event, as defined in the indentures. The senior notes are subject to typical events of default, including bankruptcy and insolvency events, nonpayment and the acceleration of certain subsidiary indebtedness of $40 million or more caused by a nonpayment default.
Our revolving, unsecured credit agreement dated as of February 7, 2014, as amended, (the “February 2014 Credit Agreement”) currently provides for borrowings of up to $1.0 billion and matures on February 7, 2020. Borrowings bear interest at variable rates based on the LIBOR for deposits in the relevant currency plus an applicable margin which ranges from 1.000% to 1.700%, depending on the Company’s credit rating from Standard & Poor’s Ratings Services, Moody’s Investors Services and Fitch Ratings. The applicable margin on the facility was 1.300% as of
September 30, 2017
. There were no borrowings outstanding under the February 2014 Credit Agreement as of
September 30, 2017
.
Borrowings under the February 2014 Credit Agreement are conditioned upon compliance with the following covenants: (a) consolidated funded debt, as defined in the agreement, must be less than or equal to 3.50 times consolidated EBITDA, as defined in the agreement, which reflects adjustments for certain non-recurring or unusual items such as restructuring charges, facility divestiture charges and other significant non-recurring items (herein “consolidated adjusted EBITDA” or “adjusted EBITDA”) as of the end of any fiscal quarter; (b) with the exception of certain liens as specified in the agreement, liens may not attach to assets when the aggregate amount of all indebtedness secured by such liens plus unsecured subsidiary indebtedness, other than indebtedness incurred by our subsidiaries under the February 2014 Credit Agreement, would exceed 20% of consolidated net worth, as defined in the agreement; and (c) with the exception of certain indebtedness as specified in the agreement, subsidiary indebtedness may not exceed the difference between 20% of consolidated net worth, as defined in the agreement, and indebtedness secured by liens permitted under the agreement.
On May 29, 2013, we entered into agreements to initiate a commercial paper program on a private placement basis under which we may issue unsecured commercial paper notes (the “Commercial Paper Notes”) from time-to-time up to a maximum aggregate principal amount outstanding at any time of $750.0 million. The proceeds from the issuance of the Commercial Paper Notes are expected to be used for general corporate purposes, including the repayment of other debt of the Company. Our February 2014 Credit Agreement is available to repay the Commercial Paper Notes, if necessary. Aggregate borrowings outstanding under the February 2014 Credit Agreement and the Commercial Paper Notes will not exceed the $1.0 billion current maximum amount available under the February 2014 Credit Agreement. The Commercial Paper Notes will be sold at a discount from par, or alternatively, will be sold at par and bear interest at rates that will vary based upon market conditions at the time of issuance. The maturities of the Commercial Paper Notes will vary but may not exceed 397 days from the date of issue. The definitive documents relating to the commercial paper program contain customary representations, warranties, default and indemnification provisions. At
September 30, 2017
, we had
$382.3 million
of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately
1.76%
and a weighted-average maturity of
36 days
. The Commercial Paper Notes are classified as Current portion of long-term debt in our condensed consolidated balance sheets at
September 30, 2017
and
December 31, 2016
.
The non-current portion of our long-term debt amounted to
$1.41 billion
at
September 30, 2017
, compared to
$2.12 billion
at
December 31, 2016
. In addition, at
September 30, 2017
, we had the ability to borrow
$617.7 million
under our commercial paper program and the February 2014 Credit Agreement, and
$244.7 million
under other existing lines of credit, subject to various financial covenants under our February 2014 Credit Agreement. We have the ability and intent to refinance our borrowings under our other existing credit lines with borrowings under the February 2014 Credit Agreement, as applicable. Therefore, the amounts outstanding under those credit lines, if any, are classified as long-term debt. We believe that as of
September 30, 2017
, we were, and currently are, in compliance with all of our long term debt covenants.
Off-Balance Sheet Arrangements
In the ordinary course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, including bank guarantees and letters of credit, which totaled approximately
$69.4 million
at
September 30, 2017
. None of these off-balance sheet arrangements has, or is likely to have, a material effect on our current or future financial condition, results of operations, liquidity or capital resources.
Other Obligations
There have been no significant changes in our contractual obligations from the information we provided in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
Total expected
2017
contributions to our domestic and foreign qualified and nonqualified pension plans, including our SERP, should approximate
$10 million
. We may choose to make additional pension contributions in excess of this amount. We have made contributions of
$7.7 million
to our domestic and foreign pension plans (both qualified and nonqualified) during the
nine
-month period ended
September 30, 2017
.
The liability related to uncertain tax positions, including interest and penalties, recorded in Other noncurrent liabilities totaled
$22.9 million
at
September 30, 2017
and
$27.9 million
at
December 31, 2016
. Related assets for corresponding offsetting benefits recorded in Other assets totaled
$14.0 million
at
September 30, 2017
and
$15.1 million
at
December 31, 2016
. We cannot estimate the amounts of any cash payments associated with these liabilities for the remainder of
2017
or the next twelve months, and we are unable to estimate the timing of any such cash payments in the future at this time.
We are subject to federal, state, local and foreign requirements regulating the handling, manufacture and use of materials (some of which may be classified as hazardous or toxic by one or more regulatory agencies), the discharge of materials into the environment and the protection of the environment. To our knowledge, we are currently in compliance, and expect to continue to comply, in all material respects with applicable environmental laws, regulations, statutes and ordinances. Compliance with existing federal, state, local and foreign environmental protection laws is not expected to have a material effect on capital expenditures, earnings or our competitive position, but the costs associated with increased legal or regulatory requirements could have an adverse effect on our results.
Among other environmental requirements, we are subject to the federal Superfund law, and similar state laws, under which we may be designated as a potentially responsible party (“PRP”) and may be liable for a share of the costs associated with cleaning up various hazardous waste sites. Management believes that in cases in which we may have liability as a PRP, our liability for our share of cleanup is de minimis. Further, almost all such sites represent environmental issues that are quite mature and have been investigated, studied and in many cases settled. In de minimis situations, our policy generally is to negotiate a consent decree and to pay any apportioned settlement, enabling us to be effectively relieved of any further liability as a PRP, except for remote contingencies. In other than de minimis PRP matters, our records indicate that unresolved PRP exposures should be immaterial. We accrue and expense our proportionate share of PRP costs. Because management has been
actively involved in evaluating environmental matters, we are able to conclude that the outstanding environmental liabilities for unresolved PRP sites should not have a material adverse effect upon our results of operations or financial condition.
Liquidity Outlook
We anticipate that cash on hand, cash provided by operating activities and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations, fund any capital expenditures and share repurchases, make pension contributions and pay dividends for the foreseeable future. Our main focus over the next three years, in terms of uses of cash, will be investing in growth of the businesses and the return of value to shareholders. Additionally, we will continue to evaluate the merits of any opportunities that may arise for acquisitions of businesses or assets, which may require additional liquidity.
Our cash flows from operations may be negatively affected by adverse consequences to our customers and the markets in which we compete as a result of moderating global economic conditions and reduced capital availability.
While we maintain business relationships with a diverse group of financial institutions, an adverse change in their credit standing could lead them to not honor their contractual credit commitments, decline funding under existing but uncommitted lines of credit, not renew their extensions of credit or not provide new financing. While the global corporate bond and bank loan markets remain strong, periods of elevated uncertainty related to global economic and/or geopolitical concerns may limit efficient access to such markets for extended periods of time. If such concerns heighten, we may incur increased borrowing costs and reduced credit capacity as our various credit facilities mature. When the U.S. Federal Reserve or similar national reserve banks in other countries decide to tighten the monetary supply in response, for example, to improving economic conditions, we may incur increased borrowing costs as interest rates increase on our variable rate credit facilities, as our various credit facilities mature or as we refinance any maturing fixed rate debt obligations.
Overall, with generally strong cash-generative businesses and no significant long-term debt maturities before 2020, we believe we have and will maintain a solid liquidity position.
We had cash and cash equivalents totaling
$1.05 billion
as of
September 30, 2017
, of which
$1.0 billion
is held by our foreign subsidiaries. This cash represents an important source of our liquidity and is invested in bank accounts or money market investments with no limitations on access. The cash held by our foreign subsidiaries is intended for use outside of the U.S. We anticipate that any needs for liquidity within the U.S. in excess of our cash held in the U.S. can be readily satisfied with borrowings under our existing U.S. credit facilities or our commercial paper program.
Summary of Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates from the information we provided in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Item 1 Financial Statements – Note 19, “Recently Issued Accounting Pronouncements.”
|
|
|
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
There have been no significant changes in our interest rate risk, foreign currency exchange rate exposure, marketable securities price risk or raw material price risk from the information we provided in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
We had variable interest rate borrowings of
$390.9 million
outstanding at
September 30, 2017
, bearing a weighted average interest rate of
1.73%
and representing approximately
22%
of our total outstanding debt. A hypothetical 10% change (approximately
17
basis points) in the interest rate applicable to these borrowings would change our annualized interest expense by approximately
$0.7 million
as of
September 30, 2017
. We may enter into interest rate swaps, collars or similar instruments with the objective of reducing interest rate volatility relating to our borrowing costs.
Our financial instruments which are subject to foreign currency exchange risk consist of foreign currency forward contracts with an aggregate notional value of
$357.7 million
and with a fair value representing a net liability position of less than $0.1 million at
September 30, 2017
. Fluctuations in the value of these contracts are generally offset by the value of the underlying exposures being hedged. We conducted a sensitivity analysis on the fair value of our foreign currency hedge portfolio assuming an instantaneous 10% change in select foreign currency exchange rates from their levels as of
September 30, 2017
, with all other variables held constant. A 10% appreciation of the U.S. Dollar against foreign currencies that we hedge would result in an
decrease
of approximately
$6.1 million
in the fair value of our foreign currency forward contracts. A 10% depreciation of the U.S. Dollar against these foreign currencies would result in a
increase
of approximately
$8.5 million
in the fair value of our foreign currency forward contracts. The sensitivity of the fair value of our foreign currency hedge portfolio represents changes in fair values estimated based on market conditions as of
September 30, 2017
, without reflecting the effects of underlying anticipated transactions. When those anticipated transactions are realized, actual effects of changing foreign currency exchange rates could have a material impact on our earnings and cash flows in future periods.