Item 8. Financial Statements and Supplementary Data.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with management’s and our directors’ authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria for effective internal control over financial reporting described in the Internal Control—Integrated Framework 2013 set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as of December 31, 2017, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal control. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/S/ LUTHER C. KISSAM IV
Luther C. Kissam IV
Chairman, President and Chief Executive Officer
(principal executive officer)
February 27, 2018

Albemarle Corporation and Subsidiaries

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Albemarle Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Albemarle Corporation and its subsidiaries (or “the Company”) as of December 31, 2017 and December 31, 2016, and the related consolidated statements of income, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We have also audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework 2013 issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Albemarle Corporation and Subsidiaries

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 27, 2018

We have served as the Company’s auditor since 1994.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)
Year Ended December 31	2017				2016				2015
Net sales	$	3,071,976			$	2,677,203			$	2,826,429
Cost of goods sold	1,961,996				1,706,627				1,966,196
Gross profit	1,109,980				970,576				860,233
Selling, general and administrative expenses	437,901				380,464				300,440
Research and development expenses	84,330				80,475				89,187
Restructuring and other, net	—				—				(6,804		)
Gain on sales of businesses, net	—				(122,298		)		—
Acquisition and integration related costs	—				57,384				132,299
Operating profit	587,749				574,551				345,111
Interest and financing expenses	(115,350		)		(65,181		)		(81,650		)
Other (expenses) income, net	(25,601		)		5,894				47,283
Income from continuing operations before income taxes and equity in net income of unconsolidated investments	446,798				515,264				310,744
Income tax expense	431,817				96,263				11,134
Income from continuing operations before equity in net income of unconsolidated investments	14,981				419,001				299,610
Equity in net income of unconsolidated investments (net of tax)	84,487				59,637				27,978
Net income from continuing operations	99,468				478,638				327,588
Income from discontinued operations (net of tax)	—				202,131				32,476
Net income	99,468				680,769				360,064
Net income attributable to noncontrolling interests	(44,618		)		(37,094		)		(25,158		)
Net income attributable to Albemarle Corporation	$	54,850			$	643,675			$	334,906
Basic earnings per share:
Continuing operations	$	0.49			$	3.93			$	2.72
Discontinued operations	—				1.80				0.29
	$	0.49			$	5.73			$	3.01
Diluted earnings per share:
Continuing operations	$	0.49			$	3.90			$	2.71
Discontinued operations	—				1.78				0.29
	$	0.49			$	5.68			$	3.00
Weighted-average common shares outstanding—basic	110,914				112,379				111,182
Weighted-average common shares outstanding—diluted	112,380				113,239				111,556
Cash dividends declared per share of common stock	$	1.28			$	1.22			$	1.16

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)
Year Ended December 31	2017				2016				2015
Net income	$	99,468			$	680,769			$	360,064
Other comprehensive income (loss), net of tax:
Foreign currency translation	227,439				(20,825		)		(412,970		)
Pension and postretirement benefits	(97		)		834				(758		)
Net investment hedge	(41,827		)		26,133				50,861
Interest rate swap	2,116				2,116				2,101
Total other comprehensive income (loss), net of tax	187,631				8,258				(360,766		)
Comprehensive income (loss)	287,099				689,027				(702		)
Comprehensive income attributable to noncontrolling interests	(45,505		)		(36,477		)		(23,267		)
Comprehensive income (loss) attributable to Albemarle Corporation	$	241,594			$	652,550			$	(23,969	)

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS

(In Thousands)
December 31	2017				2016
Assets
Current assets:
Cash and cash equivalents	$	1,137,303			$	2,269,756
Trade accounts receivable, less allowance for doubtful accounts (2017—$10,425; 2016—$15,312)	534,326				486,035
Other accounts receivable	37,937				41,985
Inventories	592,781				450,263
Other current assets	136,064				58,579
Assets held for sale	39,152				—
Total current assets	2,477,563				3,306,618
Property, plant and equipment, at cost	4,124,335				3,910,522
Less accumulated depreciation and amortization	1,631,025				1,550,382
Net property, plant and equipment	2,493,310				2,360,140
Investments	534,064				457,533
Noncurrent assets held for sale	139,813				—
Other assets	74,164				142,320
Goodwill	1,610,355				1,540,032
Other intangibles, net of amortization	421,503				354,564
Total assets	$	7,750,772			$	8,161,207
Liabilities and Equity
Current liabilities:
Accounts payable	$	418,537			$	281,874
Accrued expenses	268,336				322,165
Current portion of long-term debt	422,012				247,544
Dividends payable	35,165				34,104
Liabilities held for sale	1,938				—
Income taxes payable	54,937				254,416
Total current liabilities	1,200,925				1,140,103
Long-term debt	1,415,360				2,121,718
Postretirement benefits	52,003				50,538
Pension benefits	294,611				298,695
Noncurrent liabilities held for sale	614				—
Other noncurrent liabilities	599,174				194,810
Deferred income taxes	370,389				412,739
Commitments and contingencies (Note 17)
Equity:
Albemarle Corporation shareholders’ equity:
Common stock, $.01 par value (authorized 150,000 shares), issued and outstanding — 110,547 in 2017 and 112,524 in 2016	1,105				1,125
Additional paid-in capital	1,863,949				2,084,418
Accumulated other comprehensive loss	(225,668		)		(412,412		)
Retained earnings	2,035,163				2,121,931
Total Albemarle Corporation shareholders’ equity	3,674,549				3,795,062
Noncontrolling interests	143,147				147,542
Total equity	3,817,696				3,942,604
Total liabilities and equity	$	7,750,772			$	8,161,207

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands, Except Share Data)
		Common Stock							Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income				Retained Earnings				Total Albemarle Shareholders’ Equity				Noncontrolling Interests				Total Equity
Shares			Amounts
Balance at January 1, 2015		78,030,524			$	780			$	10,447			$	(62,413	)		$	1,410,651			$	1,359,465			$	129,170			$	1,488,635
Net income																	334,906				334,906				25,158				360,064
Other comprehensive loss													(358,875		)						(358,875		)		(1,891		)		(360,766		)
Cash dividends declared																	(130,150		)		(130,150		)		(23,286		)		(153,436		)
Stock-based compensation and other									13,696												13,696								13,696
Exercise of stock options		18,000			—				517												517								517
Tax deficiency related to stock plans									(167		)										(167		)						(167		)
Issuance of common stock, net		85,900			1				(1		)										—								—
Acquisition of Rockwood		34,113,064			341				2,036,209												2,036,550				17,582				2,054,132
Noncontrolling interest assumed in acquisition of Shanghai Chemetall																					—				4,843				4,843
Purchase of noncontrolling interest																					—				(4,655		)		(4,655		)
Shares withheld for withholding taxes associated with common stock issuances		(28,137	)		—				(1,550		)										(1,550		)						(1,550		)
Balance at December 31, 2015		112,219,351			$	1,122			$	2,059,151			$	(421,288	)		$	1,615,407			$	3,254,392			$	146,921			$	3,401,313
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																	643,675				643,675				37,094				680,769
Other comprehensive income (loss)													8,876								8,876				(618		)		8,258
Cash dividends declared																	(137,151		)		(137,151		)		(35,855		)		(173,006		)
Stock-based compensation and other									16,251												16,251								16,251
Exercise of stock options		212,343			2				9,400												9,402								9,402
Tax benefit related to stock plans									1,811												1,811								1,811
Issuance of common stock, net		131,596			1				(1		)										—								—
Shares withheld for withholding taxes associated with common stock issuances		(39,500	)		—				(2,194		)										(2,194		)						(2,194		)
Balance at December 31, 2016		112,523,790			$	1,125			$	2,084,418			$	(412,412	)		$	2,121,931			$	3,795,062			$	147,542			$	3,942,604
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																	54,850				54,850				44,618				99,468
Other comprehensive income													186,744								186,744				887				187,631
Cash dividends declared																	(141,618		)		(141,618		)		(36,756		)		(178,374		)
Stock-based compensation and other									16,505												16,505								16,505
Exercise of stock options		210,432			2				8,236												8,238								8,238
Shares repurchased		(2,341,083	)		(23		)		(249,977		)										(250,000		)						(250,000		)
Issuance of common stock, net		243,024			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		(89,489	)		(1		)		(8,375		)										(8,376		)						(8,376		)
Balance at December 31, 2017		110,546,674			$	1,105			$	1,863,949			$	(225,668	)		$	2,035,163			$	3,674,549			$	143,147			$	3,817,696

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)
Year Ended December 31	2017				2016				2015
Cash and cash equivalents at beginning of year	$	2,269,756			$	213,734			$	2,489,768
Cash flows from operating activities:
Net income	99,468				680,769				360,064
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	196,928				226,169				260,076
Gain associated with restructuring and other	—				—				(6,804		)
Gain on acquisition	(6,221		)		—				—
Gain on sales of businesses, net	—				(510,278		)		—
Stock-based compensation	19,404				17,031				15,188
Equity in net income of unconsolidated investments (net of tax)	(84,487		)		(61,534		)		(30,999		)
Dividends received from unconsolidated investments and nonmarketable securities	39,386				43,759				59,912
Pension and postretirement (benefit) expense	(12,436		)		41,546				(38,817		)
Pension and postretirement contributions	(13,341		)		(20,068		)		(21,613		)
Unrealized gain on investments in marketable securities	(3,135		)		(3,655		)		(1,239		)
Loss on early extinguishment of debt	52,801				1,921				5,353
Deferred income taxes	(41,941		)		21,121				(136,298		)
Changes in current assets and liabilities, net of effects of acquisitions and divestitures:
(Increase) in accounts receivable	(74,545		)		(42,816		)		(8,788		)
(Increase) decrease in inventories	(101,545		)		25,974				27,649
(Increase) decrease in other current assets	(213		)		1,808				12,756
Increase in accounts payable	53,421				43,953				23,745
(Decrease) increase in accrued expenses and income taxes payable	(269,381		)		210,276				(96,896		)
Other, net	449,816				59,548				(62,479		)
Net cash provided by operating activities	303,979				735,524				360,810
Cash flows from investing activities:
Acquisition of Rockwood, net of cash acquired	—				—				(2,051,645		)
Other acquisitions, net of cash acquired	(44,367		)		(126,747		)		(48,845		)
Cash payments related to acquisitions and other	—				(81,987		)		—
Capital expenditures	(317,703		)		(196,654		)		(227,649		)
Decrease in restricted cash	—				—				57,550
Cash proceeds from divestitures, net	6,857				3,325,571				8,883
Return of capital from unconsolidated investment	—				—				98,000
(Investments in) sales of marketable securities, net	(275		)		305				998
Repayments from joint ventures	1,250				—				2,156
Investments in equity and other corporate investments	(3,565		)		—				—
Net cash (used in) provided by investing activities	(357,803		)		2,920,488				(2,160,552		)
Cash flows from financing activities:
Proceeds from borrowings of other long-term debt	27,000				—				2,250,000
Repayments of long-term debt	(778,209		)		(1,252,302		)		(2,582,901		)
Other borrowings (repayments), net	138,751				(163,721		)		54,625
Fees related to early extinguishment of debt	(46,959		)		—				(43,340		)
Dividends paid to shareholders	(140,557		)		(135,353		)		(119,302		)
Dividends paid to noncontrolling interests	(36,756		)		(35,855		)		(23,286		)
Purchase of noncontrolling interest	—				—				(4,784		)
Repurchases of common stock	(250,000		)		—				—
Proceeds from exercise of stock options	8,238				9,401				517
Withholding taxes paid on stock-based compensation award distributions	(8,376		)		(2,194		)		(1,549		)
Debt financing costs	—				—				(4,544		)
Other	—				—				(3,882		)
Net cash used in financing activities	(1,086,868		)		(1,580,024		)		(478,446		)
Net effect of foreign exchange on cash and cash equivalents	8,239				(19,966		)		2,154
(Decrease) increase in cash and cash equivalents	(1,132,453		)		2,056,022				(2,276,034		)
Cash and cash equivalents at end of year	$	1,137,303			$	2,269,756			$	213,734

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—Summary of Significant Accounting Policies:

Basis of Consolidation

The consolidated financial statements include the accounts and operations of Albemarle Corporation and our wholly owned, majority owned and controlled subsidiaries. Unless the context otherwise indicates, the terms “Albemarle,” “we,” “us,” “our” or “the Company” mean Albemarle Corporation and its consolidated subsidiaries. For entities that we control and are the primary beneficiary, but own less than 100%, we record the minority ownership as noncontrolling interest. We apply the equity method of accounting for investments in which we have an ownership interest from 20% to 50% or where we exercise significant influence over the related investee’s operations. All significant intercompany accounts and transactions are eliminated in consolidation.

As described further in Note 2, “Acquisitions,” we completed our acquisition of Rockwood Holdings, Inc. (“Rockwood”) on January 12, 2015. The consolidated financial statements contained herein include the results of operations of Rockwood, commencing on January 13, 2015.

Discontinued Operations

Effective January 1, 2015, a component or group of components that is classified as held for sale or that has been disposed of by sale, and which represents a strategic shift that has or will have a major effect on our operations and financial results, is reported as discontinued operations beginning in the period when these criteria are met. Our assets and liabilities held for sale at December 31, 2017 related to the polyolefin catalysts and components business did not meet the criteria to be presented as discontinued operations.

On December 14, 2016, the Company closed the sale of the Chemetall Surface Treatment business to BASF SE. In accordance with the applicable accounting guidance, the Company began accounting for this business as discontinued operations in the consolidated statements of income and excluded the business from segment results for all periods presented. See Note 3, “Divestitures,” for additional information.

Estimates, Assumptions and Reclassifications

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Certain amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to the current presentation. Income tax expense for the year ended December 31, 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 year ended December 31, 2016. The Company does not believe this adjustment is material to the consolidated financial statements for the years ended December 31, 2017 or 2016. In addition, for the year ended December 31, 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 24, “Segment and Geographic Area Information,” for further details.

Revenue Recognition

We recognize sales when the revenue is realized or realizable, and has been earned, in accordance with authoritative accounting guidance. We recognize net sales as risk and title to the product transfer to the customer, which usually occurs at the time shipment is made. Significant portions of our sales are sold free on board shipping point or on an equivalent basis, and other transactions are based upon specific contractual arrangements. Our standard terms of delivery are generally included in our contracts of sale, order confirmation documents and invoices. We recognize revenue from services when performance of the services has been completed. Where the Company incurs pre-production design and development costs under long-term supply contracts, these costs are expensed where they relate to the products sold unless contractual guarantees for reimbursement exist. Conversely, these costs are capitalized if they pertain to equipment that we will own and use in producing the products to be supplied and expect to utilize for future revenue generating activities.

Amounts billed to customers in a sales transaction related to shipping and handling have been classified as net sales and the cost incurred by us for shipping and handling has been classified as cost of goods sold in the accompanying consolidated statements of income. In addition, taxes billed to customers in a sales transaction are presented in the consolidated statements of income on a net basis.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

Cash and cash equivalents include cash and money market investments with insignificant interest rate risks and no limitations on access.

Inventories

Inventories are stated at lower of cost and net realizable value with cost determined primarily on the first-in, first-out basis. Cost is determined on the weighted-average basis for a small portion of our inventories at foreign plants and our stores, supplies and other inventory. A portion of our domestic produced finished goods and raw materials are determined on the last-in, first-out basis.

Property, Plant and Equipment

Property, plant and equipment include costs of assets constructed, purchased or leased under a capital lease, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for normal repairs and maintenance are expensed as incurred. Costs associated with yearly planned major maintenance are generally deferred and amortized over 12 months or until the same major maintenance activities must be repeated, whichever is shorter. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in income.

We assign the useful lives of our property, plant and equipment based upon our internal engineering estimates which are reviewed periodically. The estimated useful lives of our property, plant and equipment range from two to sixty years and depreciation is recorded on the straight-line method, with the exception of our long-term mineral rights, which are depleted on a units-of-production method.

We evaluate the recovery of our property, plant and equipment by comparing the net carrying value of the asset group to the undiscounted net cash flows expected to be generated from the use and eventual disposition of that asset group when events or changes in circumstances indicate that its carrying amount may not be recoverable. If the carrying amount of the asset group is not recoverable, the fair value of the asset group is measured and if the carrying amount exceeds the fair value, an impairment loss is recognized.

Resource Development Expenses

We incur costs in resource exploration, evaluation and development during the different phases of our resource development projects. Exploration costs incurred before obtaining legal rights to explore an area are generally expensed as incurred. After obtaining legal rights, exploration costs are expensed in areas where we have uncertainty about obtaining proven resources. In areas where we have substantial knowledge about the area and consider it probable to obtain commercially viable proven resources, exploration and evaluation costs can be capitalized.

If technical feasibility studies have been obtained, resource evaluation expenses are capitalized when the study demonstrates proven or probable resources for which future economic returns are expected, while costs for projects that are not considered viable are expensed. Development costs that are necessary to bring the property to commercial production or increase the capacity or useful life are capitalized. Costs to maintain the production capacity in a property under production are expensed as incurred.

Capitalized resource costs are depleted using the units-of-production method. Our resource development assets are evaluated for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Investments

Investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s board of directors and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, we record our investments in equity-method investees in the consolidated balance sheets as Investments and our share of investees’ earnings or losses together with other-than-temporary impairments in value as Equity in net income of unconsolidated investments in the consolidated statements of income. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

Our 50%-owned Saudi Organometallic Chemicals Company (“SOCC”) joint venture in Saudi Arabia, included in our Lithium and Advanced Materials segment, experienced a net loss, which affected our equity in income from unconsolidated investments by approximately $3.8 million for the year ended December 31, 2017, indicating the carrying value potentially may be impaired. As a result, we assessed the recoverability of the investment in this venture as of December 31, 2017. As of December 31, 2017, the carrying amount of our equity interest in SOCC was $4.5 million. Based on our assessment, we concluded not to record any impairment of the investment carrying value as of December 31, 2017. We estimated the fair value based on present value techniques involving future cash flows. Future cash flows include assumptions about sales volumes, selling prices, raw material prices, labor and other employee benefit costs, capital additions, income taxes, working capital, and other economic or market-related factors. Significant management judgment is involved in estimating these variables, and they include inherent uncertainties since they are forecasting future events.

Certain mutual fund investments are accounted for as trading equities and are marked-to-market on a periodic basis through the consolidated statements of income. Investments in joint ventures and nonmarketable securities of immaterial entities are estimated based upon the overall performance of the entity where financial results are not available on a timely basis.

Environmental Compliance and Remediation

Environmental compliance costs include the cost of purchasing and/or constructing assets to prevent, limit and/or control pollution or to monitor the environmental status at various locations. These costs are capitalized and depreciated based on estimated useful lives. Environmental compliance costs also include maintenance and operating costs with respect to pollution prevention and control facilities and other administrative costs. Such operating costs are expensed as incurred. Environmental remediation costs of facilities used in current operations are generally immaterial and are expensed as incurred. We accrue for environmental remediation costs and post-remediation costs that relate to existing conditions caused by past operations at facilities or off-plant disposal sites in the accounting period in which responsibility is established and when the related costs are estimable. In developing these cost estimates, we evaluate currently available facts regarding each site, with consideration given to existing technology, presently enacted laws and regulations, prior experience in remediation of contaminated sites, the financial capability of other potentially responsible parties and other factors, subject to uncertainties inherent in the estimation process. If the amount and timing of the cash payments for a site are fixed or reliably determinable, the liability is discounted, if the calculated discount is material. Additionally, these estimates are reviewed periodically, with adjustments to the accruals recorded as necessary.

Research and Development Expenses

Our research and development expenses related to present and future products are expensed as incurred. These expenses consist primarily of personnel-related costs and other overheads, as well as outside service and consulting costs incurred for specific programs. Our U.S. facilities in Michigan, Pennsylvania, Texas and Louisiana and our global facilities in the Netherlands, Germany, Belgium and Korea form the capability base for our contract research and custom manufacturing businesses. These business areas provide research and scale-up services primarily to innovative life science companies.

Goodwill and Other Intangible Assets

We account for goodwill and other intangibles acquired in a business combination in conformity with current accounting guidance that requires that goodwill and indefinite-lived intangible assets not be amortized.

We test goodwill for impairment by comparing the estimated fair value of our reporting units to the related carrying value. Our reporting units are either our operating business segments or one level below our operating business segments for which discrete financial information is available and for which operating results are regularly reviewed by the business management and the chief operating decision maker. We estimate the fair value based on present value techniques involving future cash flows. Future cash flows include assumptions about sales volumes, selling prices, raw material prices, labor and other employee benefit costs, capital additions, income taxes, working capital, and other economic or market-related factors. Significant management judgment is involved in estimating these variables and they include inherent uncertainties since they are forecasting future events. We perform a sensitivity analysis by using a range of inputs to confirm the reasonableness of these estimates being used in the goodwill impairment analysis. We use a Weighted Average Cost of Capital (“WACC”) approach to determine our discount rate for goodwill recoverability testing. Our WACC calculation incorporates industry-weighted average returns on debt and equity from a market perspective. The factors in this calculation are largely external to the Company and, therefore, are beyond our control. We test our recorded goodwill for impairment in the fourth quarter of each

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year or upon the occurrence of events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts. The Company performed its annual goodwill impairment test as of October 31, 2017 and concluded there was no impairment as of that date. In addition, no indications of impairment in any of our reporting units were indicated by the sensitivity analysis.

We assess our indefinite-lived intangible assets, which include trade names, for impairment annually and between annual tests if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The indefinite-lived intangible asset impairment standard allows us to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if we determine, based on the qualitative assessment, that it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying amount. If we determine based on the qualitative assessment that it is more likely than not that the asset is impaired, an impairment test is performed by comparing the fair value of the indefinite-lived intangible asset to its carrying amount.

Definite-lived intangible assets, such as purchased technology, patents and customer lists, are amortized over their estimated useful lives generally for periods ranging from five to twenty-five years. Except for customer lists and relationships associated with the majority of our Lithium business, which are amortized using the pattern of economic benefit method, definite-lived intangible assets are amortized using the straight-line method. We evaluate the recovery of our definite-lived intangible assets by comparing the net carrying value of the asset group to the undiscounted net cash flows expected to be generated from the use and eventual disposition of that asset group when events or changes in circumstances indicate that its carrying amount may not be recoverable. If the carrying amount of the asset group is not recoverable, the fair value of the asset group is measured and if the carrying amount exceeds the fair value, an impairment loss is recognized. See Note 12, “Goodwill and Other Intangibles.”

Pension Plans and Other Postretirement Benefits

Under authoritative accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. As required, we recognize a balance sheet asset or liability for each of our pension and other postretirement benefit (“OPEB”) plans equal to the plan’s funded status as of the measurement date. The primary assumptions are as follows:

•	Discount Rate—The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future.

•	Expected Return on Plan Assets—We project the future return on plan assets based on prior performance and future expectations for the types of investments held by the plans, as well as the expected long-term allocation of plan assets for these investments. These projected returns reduce the net benefit costs recorded currently.

•	Rate of Compensation Increase—For salary-related plans, we project employees’ annual pay increases, which are used to project employees’ pension benefits at retirement.

•	Mortality Assumptions—Assumptions about life expectancy of plan participants are used in the measurement of related plan obligations.

Actuarial gains and losses are recognized annually in our consolidated statements of income in the fourth quarter and whenever a plan is determined to qualify for a remeasurement during a fiscal year. The remaining components of pension and OPEB plan expense, primarily service cost, interest cost and expected return on assets, are recorded on a monthly basis. The market-related value of assets equals the actual market value as of the date of measurement.

During 2017, we made changes to assumptions related to discount rates and expected rates of return on plan assets. We consider available information that we deem relevant when selecting each of these assumptions.

In selecting the discount rates for the U.S. plans, we consider expected benefit payments on a plan-by-plan basis. As a result, the Company uses different discount rates for each plan depending on the demographics of participants and the expected timing of benefit payments. For 2017, the discount rates were calculated using the results from a bond matching technique developed by Milliman, which matched the future estimated annual benefit payments of each respective plan against a portfolio of bonds of high quality to determine the discount rate. We believe our selected discount rates are determined using preferred methodology under authoritative accounting guidance and accurately reflect market conditions as of the December 31, 2017 measurement date.

In selecting the discount rates for the foreign plans, we look at long-term yields on AA-rated corporate bonds when available. Our actuaries have developed yield curves based on the yields on the constituent bonds in the various indices as well as on other market indicators such as swap rates, particularly at the longer durations. For the Eurozone, we apply the Aon Hewitt yield curve to projected cash flows from the relevant plans to derive the discount rate. For the United Kingdom

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(“U.K.”), the discount rate is determined by applying the Aon Hewitt yield curve for typical schemes of similar duration to projected cash flows of Albemarle’s U.K. plan. In other countries where there is not a sufficiently deep market of high-quality corporate bonds, we set the discount rate by referencing the yield on government bonds of an appropriate duration.

In estimating the expected return on plan assets, we consider past performance and future expectations for the types of investments held by the plan as well as the expected long-term allocation of plan assets to these investments. In projecting the rate of compensation increase, we consider past experience in light of movements in inflation rates.

In October 2016, the Society of Actuaries (“SOA”) published an updated Mortality Improvement Scale, MP-2016. The updated improvement scale incorporates three additional years of mortality data (2012 – 2014) and a modification of two other input values to improve the model’s year-over-year stability. We utilized the same base mortality, SOA RP-2014 Adjusted to 2006 Total Dataset Mortality, but we revised our mortality assumption to incorporate the MP-2016 Mortality Improvement Scale for purposes of measuring our U.S. pension and OPEB obligations at December 31, 2016. In October 2017, the SOA published an updated Mortality Improvement Scale, MP-2017. The updated improvement scale incorporates an additional year of mortality data (2015). We utilized the same base mortality, SOA RP-2014 Adjusted to 2006 Total Dataset Mortality, but we revised our mortality assumption to incorporate the MP-2017 Mortality Improvement Scale for purposes of measuring our U.S. pension and OPEB obligations at December 31, 2017.

Stock-based Compensation Expense

The fair value of restricted stock awards, restricted stock unit awards and performance unit awards with a service condition are determined based on the number of shares or units granted and the quoted price of our common stock on the date of grant, and the fair value of stock options is determined using the Black-Scholes valuation model. The fair value of performance unit awards with a service condition and a market condition are estimated on the date of grant using a Monte Carlo simulation model. The fair value of these awards is determined after giving effect to estimated forfeitures. Such value is recognized as expense over the service period, which is generally the vesting period of the equity grant. To the extent restricted stock awards, restricted stock unit awards, performance unit awards and stock options are forfeited prior to vesting in excess of the estimated forfeiture rate, the corresponding previously recognized expense is reversed as an offset to operating expenses.

Income Taxes

We use the liability method for determining our income taxes, under which current and deferred tax liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. In order to record deferred tax assets and liabilities, we are following guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2015-17, which requires deferred tax assets and liabilities to be classified as noncurrent on the balance sheet, along with any related valuation allowance.

Deferred income taxes are provided for the estimated income tax effect of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred tax assets are also provided for operating losses, capital losses and certain tax credit carryovers. A valuation allowance, reducing deferred tax assets, is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of such deferred tax assets is dependent upon the generation of sufficient future taxable income of the appropriate character. Although realization is not assured, we do not establish a valuation allowance when we believe it is more likely than not that a net deferred tax asset will be realized.

We only recognize a tax benefit after concluding that it is more likely than not that the benefit will be sustained upon audit by the respective taxing authority based solely on the technical merits of the associated tax position. Once the recognition threshold is met, we recognize a tax benefit measured as the largest amount of the tax benefit that, in our judgment, is greater than 50% likely to be realized. Under current accounting guidance for uncertain tax positions, interest and penalties related to income tax liabilities are included in Income tax expense on the consolidated statements of income.

We have designated the undistributed earnings of a portion of our foreign operations as indefinitely reinvested and as a result we do not provide for deferred income taxes on the unremitted earnings of these subsidiaries. If it is determined that cash can be repatriated with little to no tax consequences, we may choose to repatriate cash at that time. The enactment of the Tax Cuts and Jobs Act (“TCJA”) during the fourth quarter of 2017 includes a one-time transition tax on earnings of certain foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued are now subject to U.S tax. Despite the U.S. taxation of these amounts, we intend to invest most or all of these earnings indefinitely outside of the U.S and do not provide for deferred income taxes on the unremitted earnings of these subsidiaries. Our foreign

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

earnings are computed under U.S. federal tax earnings and profits, or E&P, principles. In general, to the extent our financial reporting book basis over tax basis of a foreign subsidiary exceeds these E&P amounts, deferred taxes have not been provided as they are essentially permanent in duration. The determination of the amount of such unrecognized deferred tax liability is not practicable. We provide for deferred income taxes on our undistributed earnings of foreign operations that are not deemed to be indefinitely invested. We will continue to evaluate our permanent reinvestment assertion taking into consideration the TCJA. The accounting is expected to be completed within the measurement period, as allowed under Staff Accounting Bulletin (“SAB”) 118.

Accumulated Other Comprehensive (Loss) Income

Accumulated other comprehensive (loss) income comprises principally foreign currency translation adjustments, amounts related to the revaluation of our euro-denominated senior notes which were designated as a hedge of our net investment in foreign operations in 2014, a realized loss on a forward starting interest rate swap entered into in 2014 which was designated as a cash flow hedge, and deferred income taxes related to the aforementioned items.

Foreign Currency Translation

The assets and liabilities of all foreign subsidiaries were prepared in their respective functional currencies and translated into U.S. Dollars based on the current exchange rate in effect at the balance sheet dates, while income and expenses were translated at average exchange rates for the periods presented. Translation adjustments are reflected as a separate component of equity.

Foreign exchange transaction and revaluation (losses) gains were ($11.1) million, $2.4 million and $51.8 million for the years ended December 31, 2017, 2016 and 2015, respectively, and are included in Other (expenses) income, net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our consolidated statements of cash flows. The gains in 2015 are primarily related to cash denominated in U.S. Dollars held by foreign subsidiaries where the European Union Euro serves as the functional currency, which was repatriated using the applicable transaction rates during the first quarter of 2015.

Derivative Financial Instruments

We manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies and through the use of foreign currency forward contracts from time to time, which generally expire within one year. The principal objective of such contracts is to minimize the financial impact of changes in foreign currency exchange rates. While these contracts are subject to fluctuations in value, such fluctuations are generally expected to be offset by changes in the value of the underlying foreign currency exposures being hedged. Unless otherwise noted, gains and losses on foreign currency forward contracts are recognized currently in Other (expenses) income, net, and generally do not have a significant impact on results of operations.

We may also enter into interest rate swaps, collars or similar instruments from time to time, with the objective of reducing interest rate volatility relating to our borrowing costs.

The counterparties to these contractual agreements 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. We do not utilize financial instruments for trading or other speculative purposes. Our foreign currency forward contracts outstanding at December 31, 2017 and 2016 have not been designated as hedging instruments under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued accounting guidance designed to enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that revenue recognized from a transaction or event that arises from a contract with a customer should reflect the consideration to which an entity expects to be entitled in exchange for goods or services provided. To achieve that core principle the new guidance sets forth a five-step revenue recognition model that will need to be applied consistently to all contracts with customers, except those that are within the scope of other topics in the ASC. Also required are new disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. The new disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized related to the costs to obtain or fulfill a contract. During 2016, the FASB issued amendments to this new guidance that provided clarification, technical corrections and practical expedients. Topics of potential

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

relevance to the Company include principal versus agent considerations, collectability, presentation of sales tax from customers, contract modifications at transition and accounting transition. We will adopt the new standard in the first quarter of 2018 using the modified retrospective method. We have evaluated our existing contracts and accounting policies and do not expect the adoption of this standard to have a material impact on our consolidated financial statements. We have implemented, or will implement in the first quarter of 2018, appropriate changes to the business processes, controls and control activities to support recognition, presentation and disclosure under the new standard for the first quarter of 2018, however, we have not made any significant changes to our existing systems as a result of this new standard. In addition, we continue to assess the new presentation and disclosures that will be required in our first quarter 2018 Form 10-Q.

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 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 application is permitted. The impact of this new requirement on our consolidated 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 $8.8 million reduction in Income tax expense for the year ended December 31, 2017. The remaining aspects of adopting this guidance did not have a material impact on our 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 prepayments 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 consolidated financial statements.

In November 2016, the FASB issued accounting 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 consolidated 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 consolidated financial statements.

In January 2017, the FASB issued accounting guidance to simplify the accounting for goodwill impairment. 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 consolidated financial statements.

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NOTES TO THE CONSOLIDATED 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 consolidated 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 consolidated financial statements.

In August 2017, the FASB issued accounting guidance to better align an entity’s risk management activities with hedge accounting, simply 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 consolidated financial statements.

In February 2018, the FASB issued accounting guidance that will give companies the option to reclassify stranded tax effects caused by the newly-enacted TCJA from accumulated other comprehensive income to retained earnings. This new guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted for reporting periods for which financial statements have not yet been issued or made available for issuance. Entities will have the option to apply this guidance retrospectively or to record the reclassification as of the beginning of the period of adoption. We are currently assessing the impact of this new guidance on our financial statements.

NOTE 2—Acquisitions:

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 $6.2 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 year ended December 31, 2017.

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 allocation of the Jiangli New Materials acquisition was finalized in the fourth quarter of 2017. The fair values of the assets and liabilities acquired were primarily related to Accounts receivable of $0.6 million, Property, plant and equipment of $24.1 million, Other intangibles of $46.3 million, Accounts payable of $2.8 million and Deferred tax liabilities of $6.3 million. In addition, the estimated fair value of the remaining 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 estimated fair value of the net assets acquired was approximately $83.1 million and was recorded as goodwill.

During the year ended December 31, 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, which was expensed in Cost of goods sold during the year ended December 31, 2017, the estimated remaining selling period.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Goodwill arising from the 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, 13 years for customer lists and relationships and 20 years for other. The weighted-average amortization period for all definite-lived intangible assets acquired is 17 years.

Acquisition and integration related costs for the year ended December 31, 2017 of $14.3 million were included in Cost of goods sold and $19.6 million were included in Selling, general and administrative expenses 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 ordinary compensation arrangements.

Rockwood Merger

On January 12, 2015 (the “Acquisition Closing Date”), we completed the acquisition of all outstanding shares of Rockwood (the “Merger”) for a purchase price of approximately $5.7 billion. As a result, Rockwood became a wholly-owned subsidiary of Albemarle. Through the acquisition of Rockwood, we became a leading integrated and low cost global producer of lithium and lithium compounds used in lithium-ion batteries for electronic devices, alternative transportation vehicles and energy storage technologies, meeting the significant growth in global demand for these products.

The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values at the Acquisition Closing Date, which were based, in part, upon third-party appraisals for certain assets, including specifically-identified intangible assets. The excess of the purchase price over the estimated fair value of the net assets acquired was approximately $2.8 billion and was recorded as goodwill. Goodwill arising from the acquisition consists largely of the anticipated synergies and economies of scale from the combined companies and the overall strategic importance of the acquired businesses to Albemarle. The goodwill attributable to the acquisition is not amortizable or deductible for tax purposes.

Included in Acquisition and integration related costs on our consolidated statements of income for the years ended December 31, 2016 and 2015 is $52.1 million and $123.9 million, respectively, of integration costs resulting from the acquisition of Rockwood (mainly consisting of professional services fees, costs to achieve synergies, relocation costs, and other integration costs) and $5.3 million and $8.4 million, respectively, of costs in connection with other significant projects.

Unaudited Pro Forma Financial Information

The following unaudited pro forma results of operations of the Company for the year ended December 31, 2015 assume that the Merger occurred on January 1, 2014. The pro forma amounts include certain adjustments, including interest expense, depreciation, amortization expense and income taxes. The pro forma amounts for the year ended December 31, 2015 were adjusted to exclude approximately $137.7 million of nonrecurring acquisition and integration related costs. Additionally, pro forma amounts for the year ended December 31, 2015 were adjusted to exclude approximately $103.4 million of charges related to the utilization of the inventory markup as further described in Note 24, “Segment and Geographic Area Information.” The pro forma results do not include adjustments related to cost savings or other synergies anticipated as a result of the Merger. In addition, pro forma amounts are not adjusted to reflect the Chemetall Surface Treatment business as discontinued operations. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred as of January 1, 2014, nor are they indicative of future results of operations.

	Year Ended
	December 31, 2015
	(in thousands, except per share amounts)
Pro forma Net sales	$	3,684,665
Pro forma Net income	$	527,997
Pro forma Net income per share:
Basic	$	4.75
Diluted	$	4.73

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Other Acquisitions

In 2015, our former Chemetall Surface Treatment business completed several additional acquisitions, including (1) all remaining shares of its Shanghai Chemetall joint venture for a purchase price of $57.6 million, (2) the aluminum finishing business of Chemal GmbH & Co. KG (“Chemal GmbH”), based in Hamm, Germany for a purchase price of $2.2 million and (3) the remaining noncontrolling interests’ share of Nanjing Chemetall Surface Technologies Co., Ltd for a purchase price of $4.8 million. The ownership interests of each of these acquisitions were transferred to BASF SE in the sale of the Chemetall Surface Treatment business on December 14, 2016. See Note 3, “Divestitures,” for additional information about the sale of the Chemetall Surface Treatment business.

NOTE 3—Divestitures:

Assets Held for Sale

On December 14, 2017, the Company signed a definitive agreement to sell the polyolefin catalysts and components portion of its Performance Catalyst Solutions (“PCS”) business to W.R. Grace & Co. for proceeds of approximately $416 million in cash. The transaction includes Albemarle’s Product Development Center located in Baton Rouge, Louisiana, and operations at its Yeosu, South Korea site. The sale does not include the Company’s organometallics or curatives portion of its PCS business. The sale of the polyolefin catalysts business and components reflects the Company’s commitment to investing in the future growth of its high priority businesses and returning capital to shareholders. The sale is expected to close in the first quarter of 2018, subject to the satisfaction of customary closing conditions, including approvals from regulatory authorities. We currently expect to record a gain in the first quarter of 2018 related to the sale of this business.

In the fourth quarter of 2017, we determined that the assets held for sale criteria in accordance with ASC 360, Property, Plant and Equipment, were met for this business. As such, the assets and liabilities of this business are included in Assets held for sale and Liabilities held for sale, respectively, in the consolidated balance sheet as of December 31, 2017.

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

Assets
Current assets	$	39,152
Net property, plant and equipment	121,759
Goodwill	14,422
Other intangibles, net of amortization	3,632
Assets held for sale	$	178,965
Liabilities
Current liabilities	$	1,938
Noncurrent liabilities	614
Liabilities held for sale	$	2,552

The results of operations of the business classified as held for sale is included in continuing operations within the consolidated statements of income. This business did not qualify for discontinued operations treatment because the Company’s management does not consider the sale as representing a strategic shift that had or will have a major effect on the Company’s operations and financial results.

Chemetall Surface Treatment Business

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 cash proceeds of approximately $3.1 billion. Included in Income from discontinued operations (net of tax) for the year ended December 31, 2016 is a pre-tax gain of $388.0 million ($135.0 million after income taxes) related to the sale of this business, which included a reversal of $81.4 million of foreign currency translation loss out of Accumulated other comprehensive loss. This gain represents the difference between the carrying value of the related net assets and their fair value as determined by the sales price less estimated costs to sell. During the second quarter of 2017, we received a final working capital settlement of $6.9 million related to the sale of this business.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The sale of the Chemetall Surface Treatment business reflects the Company’s commitment to investing in the future growth of its high priority businesses, reducing leverage and returning capital to shareholders.

The Chemetall Surface Treatment business was acquired on January 12, 2015 as part of the acquisition of Rockwood, see Note 2, “Acquisitions,” for further details. 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, in the second quarter of 2016, the Company accounted for this business as discontinued operations in the consolidated statements of income and excluded the business from segment results for the years ended December 31, 2016 and 2015, the periods this business was owned by Albemarle. As of the date this business qualified for discontinued operations treatment, the Company stopped recording depreciation and amortization expense on assets of the Chemetall Surface Treatment business.

The major components of Income from discontinued operations (net of tax) for the years ended December 31, 2016 and 2015 were as follows (in thousands):

	Year Ended December 31,
	2016				2015
Net sales	$	813,285			$	824,906
Cost of goods sold	416,934				488,267
Operating expenses, net(a)	268,402				239,316
Interest and financing expenses(b)	38,227				51,072
Other income, net	(2,485		)		(4,214		)
Gain on sale of discontinued operations	(387,980		)		—
Income before income taxes	480,187				50,465
Income tax expense(c)	278,056				17,989
Income from discontinued operations (net of tax)	$	202,131			$	32,476

(a)	Operating expenses, net for discontinued operations includes mark-to market actuarial (losses) gains of ($8.5) million and $8.9 million during the years ended December 31, 2016 and 2015, respectively.

(b)	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.

(c)	Income tax expense for the year ended December 31, 2016 included a charge of $253.0 million related to the gain on sale of discontinued operations.

Depreciation and amortization and capital expenditures from discontinued operations for the years ended December 31, 2016 and 2015 were as follows (in thousands):

	Year Ended December 31,
	2016				2015
Depreciation and amortization	$	35,194			$	78,903
Capital expenditures	$	19,281			$	23,738

Other Divestitures

In 2015, we announced our intention to pursue strategic alternatives, including divestitures, related to certain businesses which include minerals-based flame retardants and specialty chemicals, fine chemistry services and metal sulfides. 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.

On November 5, 2015, the Company signed a definitive agreement to sell its Tribotecc metal sulfides business to Treibacher Industrie AG. Included in the transaction were sites in Vienna and Arnoldstein, Austria, and Tribotecc’s proprietary sulfide synthesis process. On January 4, 2016, the Company closed the sale of this business, effective for the first day of business in 2016. We received net proceeds of approximately $137 million and recorded a gain of $11.5 million before income taxes in 2016 related to the sale of this business.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, Austria. On February 1, 2016, the Company closed the sale of these businesses. We received net proceeds of approximately $187 million and recorded a gain of $112.3 million before income taxes in 2016 related to the sale of these businesses.

In April 2016, the Company concluded that it would discontinue efforts to sell its fine chemistry services business, and as a result, this business is accounted for as held and used beginning in the second quarter of 2016.

Also included in Gain on sales of businesses, net, for the year ended December 31, 2016 was a loss of $1.5 million on the sale of our wafer reclaim business.

NOTE 4—Supplemental Cash Flow Information:

Supplemental information related to the consolidated statements of cash flows is as follows (in thousands):

	Year Ended December 31,
	2017				2016				2015
Cash paid during the year for:
Income taxes (net of refunds of $17,522, $9,270 and $7,333 in 2017, 2016 and 2015, respectively)(a)	$	320,222			$	143,404			$	162,408
Interest (net of capitalization)	$	61,243			$	96,948			$	153,271
Supplemental non-cash disclosures related to investing activities:
Capital expenditures included in Accounts payable	$	89,188			$	33,622			$	45,826

(a)	Includes approximately $257 million of income taxes paid in 2017 from the gain on sale of the Chemetall Surface Treatment business and approximately $111 million of income taxes paid in 2015 on repatriation of earnings from legacy Rockwood entities.

Other, net within Cash flows from operating activities on the consolidated statements of cash flows for the year ended December 31, 2017 included the $394.9 million noncurrent portion of the one-time transition tax resulting from the enactment of the TCJA. For additional information, see Note 20, “Income Taxes.” In addition, included in Other, net for the years ended December 31, 2017, 2016 and 2015 is $11.1 million, $40.8 million and ($70.7) million, respectively, related to losses (gains) on fluctuations in foreign currency exchange rates, as well as, a working capital settlement of $7.6 million related to a previously disposed business for the year ended December 31, 2015.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5—Earnings Per Share:

Basic and diluted earnings per share from continuing operations are calculated as follows (in thousands, except per share amounts):

	Year Ended December 31,
	2017				2016				2015
Basic earnings per share from continuing operations
Numerator:
Net income from continuing operations	$	99,468			$	478,638			$	327,588
Net income from continuing operations attributable to noncontrolling interests	(44,618		)		(37,094		)		(25,158		)
Net income from continuing operations attributable to Albemarle Corporation	$	54,850			$	441,544			$	302,430
Denominator:
Weighted-average common shares for basic earnings per share	110,914				112,379				111,182
Basic earnings per share from continuing operations	$	0.49			$	3.93			$	2.72
Diluted earnings per share from continuing operations
Numerator:
Net income from continuing operations	$	99,468			$	478,638			$	327,588
Net income from continuing operations attributable to noncontrolling interests	(44,618		)		(37,094		)		(25,158		)
Net income from continuing operations attributable to Albemarle Corporation	$	54,850			$	441,544			$	302,430
Denominator:
Weighted-average common shares for basic earnings per share	110,914				112,379				111,182
Incremental shares under stock compensation plans	1,466				860				374
Weighted-average common shares for diluted earnings per share	112,380				113,239				111,556
Diluted earnings per share from continuing operations	$	0.49			$	3.90			$	2.71

At December 31, 2017, all common stock equivalents were included in the computation of diluted earnings per share.

Included in the calculation of basic earnings per share are unvested restricted stock awards that contain nonforfeitable rights to dividends. At December 31, 2017, there were 8,050 unvested shares of restricted stock awards outstanding.

We have the authority to issue 15 million shares of preferred stock in one or more classes or series. As of December 31, 2017, no shares of preferred stock have been issued.

In November 2016, our Board of Directors authorized an increase in the number of shares the Company is permitted to repurchase under our share repurchase program, pursuant to which the Company is now permitted to repurchase up to a maximum of 15 million shares, including those previously authorized but not yet repurchased.

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, 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 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 discount. 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 weighted average shares outstanding for purposes of calculating basic and diluted earnings per share for the year ended December 31, 2017.

There were no shares of the Company’s common stock repurchased during the years ended December 31, 2016 and 2015. As of December 31, 2017, there were 12,658,917 remaining shares available for repurchase under the Company’s authorized share repurchase program.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6—Other Accounts Receivable:

Other accounts receivable consist of the following at December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
Value added tax/consumption tax	$	23,158			$	15,324
Other	14,779				26,661
Total	$	37,937			$	41,985

NOTE 7—Inventories:

The following table provides a breakdown of inventories at December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
Finished goods(a)	$	404,239			$	289,102
Raw materials and work in process(b)	132,891				109,706
Stores, supplies and other	55,651				51,455
Total(c)	$	592,781			$	450,263

(a)	Increase primarily due to the Jiangli New Materials acquisition and the build up of inventory at other Lithium sites for an increase in sales in 2018.

(b)	Included $59.6 million and $47.1 million at December 31, 2017 and 2016, respectively, of work in process related to the Lithium product category.

(c)	As of December 31, 2017, $24.7 million of Inventories were classified as Assets held for sale in the consolidated balance sheets. See Note 3, “Divestitures,” for additional information.

Approximately 17% and 19% of our inventories are valued using the last-in, first-out (“LIFO”) method at December 31, 2017 and 2016, respectively. The portion of our domestic inventories stated on the LIFO basis amounted to $99.6 million and $87.5 million at December 31, 2017 and 2016, respectively, which are below replacement cost by approximately $33.1 million and $33.8 million, respectively.

NOTE 8—Other Current Assets:

Other current assets consist of the following at December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
Income tax receivables	$	47,130			$	15,085
Prepaid expenses	86,348				42,240
Other	2,586				1,254
Total	$	136,064			$	58,579

NOTE 9—Property, Plant and Equipment:

Property, plant and equipment, at cost, consist of the following at December 31, 2017 and 2016 (in thousands):

		Useful Lives (Years)		December 31,
2017				2016
Land		—		$	118,428			$	120,842
Land improvements		10 – 30		63,328				59,387
Buildings and improvements		10 – 45		245,482				256,603
Machinery and equipment(a)		2 – 45		2,627,667				2,501,481
Long-term mineral rights and production equipment costs		7 – 60		675,832				654,006
Construction in progress		—		393,598				318,203
Total(b)				$	4,124,335			$	3,910,522

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(a)

Consists primarily of (1) short-lived production equipment components, office and building equipment and other equipment with estimated lives ranging 2 – 7 years, (2) production process equipment (intermediate components) with estimated lives ranging 8 – 19 years, (3) production process equipment (major unit components) with estimated lives ranging 20 – 29 years, and (4) production process equipment (infrastructure and other) with estimated lives ranging 30 – 45 years.

(b)	As of December 31, 2017, $215.9 million of Property, plant and equipment, at cost, was classified as Assets held for sale in the consolidated balance sheets. See Note 3, “Divestitures,” for additional information.

The cost of property, plant and equipment is depreciated generally by the straight-line method. Depletion of long-term mineral rights is based on the units-of-production method. Depreciation expense amounted to $169.5 million, $178.8 million and $162.2 million during the years ended December 31, 2017, 2016 and 2015, respectively. Depreciation expense related to discontinued operations was $8.9 million and $18.5 million during the years ended December 31, 2016 and 2015, respectively. Interest capitalized on significant capital projects in 2017, 2016 and 2015 was $7.4 million, $6.8 million and $11.2 million, respectively.

NOTE 10—Investments:

Investments include our share of unconsolidated joint ventures, nonmarketable securities and marketable equity securities. The following table details our investment balances at December 31, 2017 and 2016 (in thousands):

		December 31,
		2017				2016
Joint ventures		$	499,756			$	429,794
Nonmarketable securities		3,655				169
Marketable equity securities		30,653				27,570
Total		$	534,064			$	457,533

Our ownership positions in significant unconsolidated investments are shown below:

			December 31,
			2017			2016			2015
*		Windfield Holdings Pty. Ltd. - a joint venture with Sichuan Tianqi Lithium Industries, Inc., that mines lithium ore and produces lithium concentrate	49	%		49	%		49	%
*		Nippon Aluminum Alkyls - a joint venture with Mitsui Chemicals, Inc. that produces aluminum alkyls	50	%		50	%		50	%
*		Magnifin Magnesiaprodukte GmbH & Co. KG - a joint venture with Radex Heraklith Industriebeteiligung AG that produces specialty magnesium hydroxide products(a)	—	%		—	%		50	%
*		Nippon Ketjen Company Limited - a joint venture with Sumitomo Metal Mining Company Limited that produces refinery catalysts	50	%		50	%		50	%
*		Eurecat S.A. - a joint venture with Axens Group for refinery catalysts regeneration services	50	%		50	%		50	%
*		Fábrica Carioca de Catalisadores S.A. - a joint venture with Petrobras Quimica S.A. - PETROQUISA that produces catalysts and includes catalysts research and product development activities	50	%		50	%		50	%

(a)	On February 1, 2016, we sold our investment in Magnifin as part of the sale of the minerals-based flame retardants and specialty chemicals business. Refer to Note 3, “Divestitures,” for additional information.

Our investment in the significant unconsolidated joint ventures above amounted to $479.1 million and $404.6 million as of December 31, 2017 and 2016, respectively, and the amount included in Equity in net income of unconsolidated investments (net of tax) in the consolidated statements of income totaled $86.8 million, $56.8 million and $25.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. As further described in Note 24, “Segment and Geographic Area Information,” Equity in net income of unconsolidated investments (net of tax) for the year ended December 31, 2015 was reduced by $27.1 million related to the utilization of the inventory markup to fair value in connection with the acquisition of Rockwood. Undistributed earnings attributable to our significant unconsolidated investments represented approximately $127.5 million and $99.4 million of our consolidated retained earnings at December 31, 2017 and 2016, respectively. All of the unconsolidated joint ventures in which we have investments are private companies and accordingly do not have a quoted market price available.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following summary lists our assets, liabilities and results of operations for our significant unconsolidated joint ventures presented herein (in thousands):

		December 31,
		2017				2016
Summary of Balance Sheet Information:
Current assets		$	503,043			$	383,203
Noncurrent assets		1,041,519				913,643
Total assets		$	1,544,562			$	1,296,846
Current liabilities		$	133,670			$	138,474
Noncurrent liabilities		405,662				319,801
Total liabilities		$	539,332			$	458,275

		Year Ended December 31,
		2017				2016				2015
Summary of Statements of Income Information:
Net sales		$	687,561			$	590,980			$	560,376
Gross profit		$	353,577			$	267,241			$	253,569
Income before income taxes		$	267,805			$	189,016			$	157,501
Net income		$	184,777			$	126,872			$	111,491

We have evaluated each of the unconsolidated investments pursuant to current accounting guidance and none qualify for consolidation. Dividends received from our significant unconsolidated investments were $38.1 million, $42.1 million and $58.1 million in 2017, 2016 and 2015, respectively.

At December 31, 2017 and 2016, the carrying amount of our investments in unconsolidated joint ventures differed from the amount of underlying equity in net assets by approximately $13.8 million and ($6.8) million, respectively. These amounts represent the differences between the value of certain assets of the joint ventures and our related valuation on a U.S. GAAP basis. As of December 31, 2017 and 2016, $0.4 million and $0.6 million, respectively, remained to be amortized over the remaining useful lives of the assets with the balance of the difference representing primarily our share of the joint ventures’ goodwill.

The Company holds a 49% equity interest in Windfield Holdings Pty. Ltd. (“Windfield”), which we acquired in the Rockwood acquisition. With regards to the Company’s ownership in Windfield, the 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, the Company does not consolidate Windfield as it is not the primary beneficiary. The carrying amount of our 49% equity interest in Windfield, which is our most significant VIE, was $355.2 million and $288.6 million at December 31, 2017 and December 31, 2016, respectively. The Company’s aggregate net investment in all other entities which it considers to be VIE’s for which the Company is not the primary beneficiary was $8.7 million and $8.8 million at December 31, 2017 and December 31, 2016, respectively. Our unconsolidated VIE’s are reported in Investments in the consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of the investments. Included in the consolidated statement of cash flows for the year ended December 31, 2015, is a return of capital from Windfield of $98.0 million.

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.

The Company holds a 50% equity interest in Jordan Bromine Company Limited (“JBC”), reported in the Bromine Specialties segment. The Company consolidates this venture as it is considered the primary beneficiary due to its operational and financial control.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

We maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of our Executive Deferred Compensation Plan (“EDCP”), subject to the claims of our creditors in the event of our insolvency. Assets of the Trust, in conjunction with our EDCP, are accounted for as trading securities in accordance with authoritative accounting guidance. The assets of the Trust consist primarily of mutual fund investments and are marked-to-market on a monthly basis through the consolidated statements of income. As of December 31, 2017 and 2016, these marketable securities amounted to $25.5 million and $22.0 million, respectively.

Our 50%-owned SOCC joint venture in Saudi Arabia, included in our Lithium and Advanced Materials segment, experienced a net loss, which affected our equity in income from unconsolidated investments by approximately $3.8 million for the year ended December 31, 2017, indicating the carrying value potentially may be impaired. As a result, we assessed the recoverability of the investment in this venture as of December 31, 2017. As of December 31, 2017, the carrying amount of our equity interest in SOCC was $4.5 million. Based on our assessment, we concluded not to record any impairment of the investment carrying value as of December 31, 2017.

NOTE 11—Other Assets:

Other assets consist of the following at December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
Deferred income taxes(a)	$	25,108			$	61,132
Assets related to unrecognized tax benefits(a)	14,601				15,076
Other(b)	34,455				66,112
Total	$	74,164			$	142,320

(a)	See Note 1, “Summary of Significant Accounting Policies” and Note 20, “Income Taxes.”

(b)	As of December 31, 2017, a $28.7 million reserve was recorded against a note receivable on one of our European entities no longer deemed probable of collection.

NOTE 12—Goodwill and Other Intangibles:

The following table summarizes the changes in goodwill by reportable segment for the years ended December 31, 2017 and 2016 (in thousands):

	Lithium and Advanced Materials				Bromine Specialties				Refining Solutions				All Other				Total
Balance at December 31, 2015	$	1,267,505			$	20,319			$	172,728			$	—			$	1,460,552
Acquisition of Rockwood(a)	(1,706		)		—				—				—				(1,706		)
Other acquisitions(b)	113,555				—				—				—				113,555
Reclass from assets held for sale(c)	—				—				—				6,586				6,586
Foreign currency translation adjustments	(31,093		)		—				(7,862		)		—				(38,955		)
Balance at December 31, 2016	1,348,261				20,319				164,866				6,586				1,540,032
Other acquisitions(d)	(26,151		)		—				—				—				(26,151		)
Reclass to assets held for sale(e)	(14,422		)		—				—				—				(14,422		)
Foreign currency translation adjustments and other	88,452				—				22,444				—				110,896
Balance at December 31, 2017	$	1,396,140			$	20,319			$	187,310			$	6,586			$	1,610,355

(a)	Represents final purchase price adjustments for the Rockwood acquisition recorded for the year ended December 31, 2016. Excludes $3.2 million of final purchase price adjustments for businesses reported as discontinued operations.

(b)	Represents preliminary purchase price adjustments for the Jiangli New Materials acquisition recorded for the year ended December 31, 2016. See Note 2, “Acquisitions,” for additional information.

(c)	Represents Goodwill of the fine chemistry services business, which was reported in Assets held for sale on the consolidated balance sheets as of December 31, 2015, but reclassified back to Goodwill during the year end December 31, 2016. See Note 3, “Divestitures,” for additional information.

(d)	Primarily represents final purchase price adjustments for the Jiangli New Materials acquisition recorded for the year ended December 31, 2017. See Note 2, “Acquisitions,” for additional information.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(e)	Represents Goodwill of the polyolefin catalysts and components portion of the PCS business. See Note 3, “Divestitures,” for additional information.

Other intangibles consist of the following at December 31, 2017 and 2016 (in thousands):

	Customer Lists and Relationships				Trade Names and Trademarks (a)				Patents and Technology				Other				Total
Gross Asset Value
Balance at December 31, 2015	$	398,725			$	16,923			$	40,144			$	17,779			$	473,571
Reclass from assets held for sale(b)	—				—				—				1,454				1,454
Foreign currency translation adjustments and other	(10,832		)		(409		)		(1,710		)		(389		)		(13,340		)
Balance at December 31, 2016	387,893				16,514				38,434				18,844				461,685
Acquisitions(c)	19,225				1,429				20,381				18,847				59,882
Reclass to assets held for sale(d)	—				—				—				(4,228		)		(4,228		)
Foreign currency translation adjustments and other	32,194				1,038				2,803				3,793				39,828
Balance at December 31, 2017	$	439,312			$	18,981			$	61,618			$	37,256			$	557,167
Accumulated Amortization
Balance at December 31, 2015	$	(32,656	)		$	(8,086	)		$	(32,008	)		$	(16,953	)		$	(89,703	)
Amortization	(18,034		)		—				(574		)		(431		)		(19,039		)
Reclass from assets held for sale(b)	—				—				—				(1,322		)		(1,322		)
Foreign currency translation adjustments and other	1,525				134				899				385				2,943
Balance at December 31, 2016	(49,165		)		(7,952		)		(31,683		)		(18,321		)		(107,121		)
Amortization	(21,288		)		—				(1,412		)		(2,379		)		(25,079		)
Reclass to assets held for sale(d)	—				—				—				596				596
Foreign currency translation adjustments and other	(4,251		)		(343		)		(2,108		)		2,642				(4,060		)
Balance at December 31, 2017	$	(74,704	)		$	(8,295	)		$	(35,203	)		$	(17,462	)		$	(135,664	)
Net Book Value at December 31, 2016	$	338,728			$	8,562			$	6,751			$	523			$	354,564
Net Book Value at December 31, 2017	$	364,608			$	10,686			$	26,415			$	19,794			$	421,503

(a)	Balances as of December 31, 2016 and 2017 include only indefinite-lived intangible assets.

(b)	Represents Other intangibles and related amortization of the fine chemistry services business, which was reported in Assets held for sale on the consolidated balance sheets as of December 31, 2015, but reclassified back to Other intangibles during the year end December 31, 2016. See Note 3, “Divestitures,” for additional information.

(c)	Represents final 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.

(d)	Represents Other intangibles and related amortization of the polyolefin catalysts and components portion of the PCS business. See Note 3, “Divestitures,” for additional information.

Useful lives range from 13 – 25 years for customer lists and relationships; 17 – 20 years for patents and technology; and primarily 5 – 25 years for other.

Amortization of other intangibles amounted to $25.1 million, $19.0 million and $16.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Included in amortization for the year ended December 31, 2017 and 2016 is $17.7 million and $15.9 million, respectively, of amortization using the pattern of economic benefit method. Amortization of other intangibles related to discontinued operations was $26.3 million and $60.4 million for the years ended December 31, 2016 and 2015, respectively.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Total estimated amortization expense of other intangibles for the next five fiscal years is as follows (in thousands):

	Estimated Amortization Expense
2018	$	27,166
2019	$	27,461
2020	$	25,035
2021	$	24,756
2022	$	24,162

NOTE 13—Accrued Expenses:

Accrued expenses consist of the following at December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
Employee benefits, payroll and related taxes	$	93,393			$	92,478
Obligations in connection with acquisitions(a)	—				47,082
Other(b)	174,943				182,605
Total(c)	$	268,336			$	322,165

(a)	As of December 31, 2016 included accruals related to net working capital amounts arising from the acquisition of the lithium business of Jiangli New Materials.

(b)	No individual component exceeds 5% of total current liabilities.

(c)	As of December 31, 2017, $0.8 million of Accrued expenses were classified as Liabilities held for sale in the consolidated balance sheets. See Note 3, “Divestitures,” for additional information.

NOTE 14—Long-Term Debt:

Long-term debt consisted of the following at December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
1.875% Senior notes, net of unamortized discount and debt issuance costs of $3,971 at December 31, 2017 and $7,823 at December 31, 2016	463,575				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 $3,372 at December 31, 2017 and $3,859 at December 31, 2016	421,628				421,141
4.50% Senior notes, net of unamortized discount and debt issuance costs of $891 at December 31, 2017 and $2,380 at December 31, 2016	174,325				347,620
5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,159 at December 31, 2017 and $4,313 at December 31, 2016	345,841				345,687
Commercial paper notes	421,321				247,503
Variable-rate foreign bank loans	5,298				38,939
Other	5,384				41
Total long-term debt	1,837,372				2,369,262
Less amounts due within one year	422,012				247,544
Long-term debt, less current portion	$	1,415,360			$	2,121,718

Aggregate annual maturities of long-term debt as of December 31, 2017 are as follows (in millions): 2018—$422.0; 2019—$0.2; 2020—$180.5; 2021—$467.5; 2022—$0.0; thereafter—$779.5.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Senior Notes

In the fourth quarter of 2014, we issued a series of senior notes (collectively, the “2014 Senior Notes”) as follows:

•	€700.0 million aggregate principal amount of senior notes, issued on December 8, 2014, bearing interest at a rate of 1.875% payable annually on December 8 of each year, beginning in 2015. The effective interest rate on these senior notes is approximately 2.10%. These senior notes mature on December 8, 2021.

•	$250.0 million aggregate principal amount of senior notes, issued on November 24, 2014, bearing interest at a rate of 3.00% payable semi-annually on June 1 and December 1 of each year, beginning June 1, 2015. The effective interest rate on these senior notes is approximately 3.18%. These senior notes mature on December 1, 2019.

•	$425.0 million aggregate principal amount of senior notes, issued on November 24, 2014, bearing interest at a rate of 4.15% payable semi-annually on June 1 and December 1 of each year, beginning June 1, 2015. The effective interest rate on these senior notes is approximately 5.06%. These senior notes mature on December 1, 2024.

•	$350.0 million aggregate principal amount of senior notes, issued on November 24, 2014, bearing interest at a rate of 5.45% payable semi-annually on June 1 and December 1 of each year, beginning June 1, 2015. The effective interest rate on these senior notes is approximately 5.50%. These senior notes mature on December 1, 2044.

Our $350.0 million aggregate principal amount of senior notes, issued on December 10, 2010, bear interest at a rate of 4.50% payable semi-annually on June 15 and December 15 of each year. The effective interest rate on these senior notes is approximately 4.70%. These senior notes mature on December 15, 2020.

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 year ended December 31, 2017, representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of these senior notes.

Upon completion of the Rockwood acquisition, we assumed Rockwood’s senior notes with an aggregate principal amount of $1.25 billion. Under the terms of the indenture governing the senior notes, as amended and supplemented, on October 15, 2015, our wholly-owned subsidiary, Rockwood Specialties Group, Inc., redeemed all of the outstanding Rockwood senior notes at a redemption price equal to 103.469% of the principal amount of the notes, representing a premium of $43.3 million, plus accrued and unpaid interest to the redemption date. The guarantees of these senior notes and the 2014 Senior Notes were released upon repayment of these senior notes. Included in Interest and financing expenses in our consolidated statements of income and Loss on early extinguishment of debt in our consolidated statements of cash flows for the year ended December 31, 2015 is a loss on early extinguishment of approximately $5.4 million related to these senior notes.

Our $325.0 million aggregate principal amount of senior notes, which were issued on January 20, 2005 and bore interest at a rate of 5.10%, matured and were repaid on February 1, 2015. The effective interest rate on these senior notes was approximately 5.19%.

On January 22, 2014, we entered into a pay fixed, receive variable rate forward starting interest rate swap, with a notional amount of $325.0 million, with J.P. Morgan Chase Bank, N.A., to be effective October 15, 2014. Our risk management objective and strategy for undertaking this hedge was to eliminate the variability in the interest rate and partial credit spread on the 20 future semi-annual coupon payments that we will pay in connection with our 4.15% senior notes. On October 15, 2014, the swap was settled, resulting in a payment to the counterparty of $33.4 million. This amount was recorded in Accumulated other comprehensive loss and is being amortized to interest expense over the life of the 4.15% senior notes. The amount to be reclassified to interest expense from Accumulated other comprehensive loss during the next twelve months is approximately $3.3 million.

On December 18, 2014, the carrying value of the 1.875% Euro-denominated senior notes was designated as an effective hedge of our net investment in foreign subsidiaries where the Euro serves as the functional currency, and beginning on the date of designation, gains or losses on the revaluation of these senior notes to our reporting currency have been and will be recorded in Accumulated other comprehensive loss. During the years ended December 31, 2017, 2016 and 2015, (losses) gains of ($41.8) million, $26.1 million and $50.9 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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 2015 Term Loan Agreement

The senior notes we assumed from Rockwood were repaid with proceeds from a new term loan agreement we entered into on September 14, 2015 (the “September 2015 Term Loan Agreement”) with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and certain other lenders. The September 2015 Term Loan Agreement provided for borrowings under a 364-day term loan facility (the “364-Day Facility”) and a five-year term loan facility (the “Five-Year Facility”), or collectively, the “Term loan facilities.” During the year ended December 31, 2016, the Company repaid the 364-Day Facility and Five-Year Facility in full, primarily with proceeds from the sales of the Chemetall Surface Treatment business, the metal sulfides business and the minerals-based flame retardants and specialty chemicals business. The interest rate on both Term loan facilities was LIBOR plus 1.375%.

Credit Agreement

Our revolving, unsecured credit agreement dated as of February 7, 2014, as amended, (the “February 2014 Credit Agreement”) currently provides for borrowings of up to $1.0 billion and matures on February 7, 2020. Borrowings bear interest at variable rates based on the LIBOR for deposits in the relevant currency plus an applicable margin which ranges from 1.000% to 1.700%, depending on the Company’s credit rating from Standard & Poor’s Ratings Services (“S&P”), Moody’s Investors Services (“Moody’s”) and Fitch Ratings (“Fitch”). The applicable margin on the facility was 1.10% as of December 31, 2017. There were no borrowings outstanding under the February 2014 Credit Agreement as of December 31, 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 acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility divestiture charges and other significant non-recurring items), or herein “consolidated 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.

Commercial Paper Notes

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. Using a portion of the proceeds from the sale of the Chemetall Surface Treatment business, we repaid approximately $153 million of Commercial Paper Notes in December 2016. At December 31, 2017, we had $421.3 million of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately 1.80% and a weighted-average maturity of 36 days.

August 2014 Term Loan Agreement and Cash Bridge Facility

In 2014, we entered into bridge financing arrangements to fund a portion of the cash consideration for the Rockwood acquisition and pay related fees and expenses: (1) a term loan credit agreement providing for a tranche of senior unsecured term loan in an aggregate amount of $1.0 billion and (2) a senior unsecured cash bridge facility (the “Cash Bridge Facility”) pursuant to which the lenders thereunder would provide up to $1.15 billion in loans. In the first quarter of 2015, we borrowed and repaid $1.0 billion under the term loan credit agreement and $800.0 million under the senior unsecured cash bridge facility. The weighted-average interest rate on borrowings under the financing agreements were approximately 1.67%. In connection with bridge financing arrangements, structuring and underwriting fees of approximately $19.0 million were capitalized and expensed over the life of the facilities, $2.3 million of which is reflected in Other (expenses) income, net, in the consolidated statements of income for the year ended December 31, 2015.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Financing Costs

In 2015, we paid approximately $4.5 million of debt financing costs primarily related to the 2014 Senior Notes, the September 2015 Term Loan Agreement and amendments to the February 2014 Credit Agreement.

Other

We have additional uncommitted credit lines with various U.S. and foreign financial institutions that provide for borrowings of up to approximately $266 million at December 31, 2017. Outstanding borrowings under these agreements were $5.3 million and $38.9 million at December 31, 2017 and 2016, respectively. The average interest rate on borrowings under these agreements during 2017, 2016 and 2015 was approximately 1.26%, 0.94% and 0.74%, respectively.

At December 31, 2017 and 2016, we had the ability and intent to refinance our borrowings under our other existing credit lines with borrowings under the February 2014 Credit Agreement. Therefore, the amounts outstanding under those credit lines, if any, are classified as long-term debt at December 31, 2017 and 2016. At December 31, 2017, we had the ability to borrow $578.7 million under our commercial paper program and the February 2014 Credit Agreement.

We believe that as of December 31, 2017, we were, and currently are, in compliance with all of our debt covenants.

NOTE 15—Pension Plans and Other Postretirement Benefits:

We maintain various noncontributory defined benefit pension plans covering certain employees, primarily in the U.S., the U.K., Germany and Japan. We also have a contributory defined benefit plan covering certain Belgian employees. The benefits for these plans are based primarily on compensation and/or years of service. Our U.S. and U.K. defined benefit plans for non-represented employees are closed to new participants, with no additional benefits accruing under these plans as participants’ accrued benefits have been frozen. The funding policy for each plan complies with the requirements of relevant governmental laws and regulations. The pension information for all periods presented includes amounts related to salaried and hourly plans.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following provides a reconciliation of benefit obligations, plan assets and funded status, as well as a summary of significant assumptions, for our defined benefit pension plans (in thousands):

	Year Ended December 31, 2017								Year Ended December 31, 2016
	U.S. Pension Plans				Foreign Pension Plans				U.S. Pension Plans				Foreign Pension Plans
Change in benefit obligations:
Benefit obligation at January 1	$	665,688			$	246,280			$	682,839			$	245,747
Service cost	985				2,547				1,028				3,133
Interest cost	28,614				5,128				30,514				6,570
Actuarial loss	30,539				2,783				7,357				28,083
Benefits paid	(39,863		)		(9,524		)		(56,050		)		(9,793		)
Divestitures	—				—				—				(6,372		)
Employee contributions	—				215				—				245
Foreign exchange loss (gain)	—				30,711				—				(21,724		)
Settlements/curtailments	—				(3,065		)		—				(427		)
Other	—				(69		)		—				818
Benefit obligation at December 31	$	685,963			$	275,006			$	665,688			$	246,280
Change in plan assets:
Fair value of plan assets at January 1	$	538,082			$	68,875			$	555,084			$	64,911
Actual return on plan assets	80,613				6,260				37,725				12,534
Employer contributions	1,564				9,316				1,323				10,911
Benefits paid	(39,863		)		(9,524		)		(56,050		)		(9,793		)
Employee contributions	—				215				—				245
Foreign exchange gain (loss)	—				7,470				—				(10,492		)
Settlements/curtailments	—				(3,065		)		—				—
Other	—				(69		)		—				559
Fair value of plan assets at December 31	$	580,396			$	79,478			$	538,082			$	68,875
Funded status at December 31	$	(105,567	)		$	(195,528	)		$	(127,606	)		$	(177,405	)

	December 31, 2017								December 31, 2016
	U.S. Pension Plans				Foreign Pension Plans				U.S. Pension Plans				Foreign Pension Plans
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(1,267	)		$	(5,217	)		$	(1,100	)		$	(5,216	)
Noncurrent liabilities (pension benefits)	(104,300		)		(190,311		)		(126,506		)		(172,189		)
Net pension liability	$	(105,567	)		$	(195,528	)		$	(127,606	)		$	(177,405	)
Amounts recognized in accumulated other comprehensive (loss) income:
Prior service benefit	$	(60	)		$	(269	)		$	(136	)		$	(322	)
Net amount recognized	$	(60	)		$	(269	)		$	(136	)		$	(322	)
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate	4.03		%		1.94		%		4.43		%		2.00		%
Rate of compensation increase	—		%		3.18		%		—		%		3.18		%

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The accumulated benefit obligation for all defined benefit pension plans was $949.0 million and $901.4 million at December 31, 2017 and 2016, respectively.

Postretirement medical benefits and life insurance is provided for certain groups of U.S. retired employees. Medical and life insurance benefit costs have been funded principally on a pay-as-you-go basis. Although the availability of medical coverage after retirement varies for different groups of employees, the majority of employees who retire before becoming eligible for Medicare can continue group coverage by paying a portion of the cost of a monthly premium designed to cover the claims incurred by retired employees subject to a cap on payments allowed. The availability of group coverage for Medicare-eligible retirees also varies by employee group with coverage designed either to supplement or coordinate with Medicare. Retirees generally pay a portion of the cost of the coverage. Plan assets for retiree life insurance are held under an insurance contract and are reserved for retiree life insurance benefits. In 2005, the postretirement medical benefit available to U.S. employees was changed to provide that employees who are under age 50 as of December 31, 2005 would no longer be eligible for a company-paid retiree medical premium subsidy. Employees who are of age 50 and above as of December 31, 2005 and who retire after January 1, 2006 will have their retiree medical premium subsidy capped. Effective January 1, 2008, our medical insurance for certain groups of U.S. retired employees is now insured through a medical carrier.

The following provides a reconciliation of benefit obligations, plan assets and funded status, as well as a summary of significant assumptions, for our postretirement benefit plans (in thousands):

	Year Ended December 31,
	2017				2016
	Other Postretirement Benefits				Other Postretirement Benefits
Change in benefit obligations:
Benefit obligation at January 1	$	56,141			$	56,499
Service cost	121				115
Interest cost	2,340				2,483
Actuarial loss	2,008				1,529
Benefits paid	(3,963		)		(4,485		)
Benefit obligation at December 31	$	56,647			$	56,141
Change in plan assets:
Fair value of plan assets at January 1	$	2,232			$	3,292
Actual return on plan assets	104				442
Employer contributions	2,461				2,983
Benefits paid	(3,963		)		(4,485		)
Fair value of plan assets at December 31	$	834			$	2,232
Funded status at December 31	$	(55,813	)		$	(53,909	)

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	December 31,
	2017				2016
	Other Postretirement Benefits				Other Postretirement Benefits
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(3,810	)		$	(3,371	)
Noncurrent liabilities (postretirement benefits)	(52,003		)		(50,538		)
Net postretirement liability	$	(55,813	)		$	(53,909	)
Amounts recognized in accumulated other comprehensive (loss) income:
Prior service benefit	$	48			$	143
Net amount recognized	$	48			$	143
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate	3.99		%		4.35		%
Rate of compensation increase	3.50		%		3.50		%

The components of pension benefits (credit) cost from continuing operations are as follows (in thousands):

	Year Ended								Year Ended								Year Ended
	December 31, 2017								December 31, 2016								December 31, 2015
	U.S. Pension Plans				Foreign Pension Plans				U.S. Pension Plans				Foreign Pension Plans				U.S. Pension Plans				Foreign Pension Plans
Service cost	$	985			$	2,547			$	1,028			$	3,133			$	1,233			$	3,909
Interest cost	28,614				5,128				30,514				6,570				30,235				6,405
Expected return on assets	(36,243		)		(4,441		)		(36,445		)		(4,027		)		(40,495		)		(3,670		)
Actuarial (gain) loss	(13,910		)		483				5,988				19,418				2,665				(27,043		)
Amortization of prior service benefit	75				56				75				859				75				43
Total net pension benefits (credit) cost(a)	$	(20,479	)		$	3,773			$	1,160			$	25,953			$	(6,287	)		$	(20,356	)
Weighted-average assumption percentages:
Discount rate	4.43		%		2.00		%		4.67		%		2.76		%		4.19		%		2.22		%
Expected return on plan assets	6.89		%		6.16		%		6.89		%		6.66		%		6.88		%		5.76		%
Rate of compensation increase	—		%		3.18		%		—		%		3.16		%		—		%		3.15		%

(a)	For the years ended December 31, 2016 and 2015, $10.8 million and $6.2 million, respectively, of net pension benefits credit is included in Income from discontinued operations (net of tax) in the consolidated statements of income. See Note 3, “Divestitures,” for additional information.

Effective January 1, 2018, the weighted-average expected rate of return on plan assets for the U.S. and foreign defined benefit pension plans is 6.89% and 5.52%, respectively.

The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic pension costs during 2018 are as follows (in thousands):

	U.S. Pension Plans				Foreign Pension Plans
Amortization of prior service benefit	$	60			$	40

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The components of postretirement benefits cost (credit) from continuing operations are as follows (in thousands):

	Year Ended December 31,
	2017				2016				2015
	Other Postretirement Benefits				Other Postretirement Benefits				Other Postretirement Benefits
Service cost	$	121			$	115			$	137
Interest cost	2,340				2,483				2,573
Expected return on assets	(110		)		(187		)		(263		)
Actuarial loss (gain)	2,014				1,275				(5,707		)
Amortization of prior service benefit	(95		)		(95		)		(95		)
Total net postretirement benefits cost (credit)(a)	$	4,270			$	3,591			$	(3,355	)
Weighted-average assumption percentages:
Discount rate	4.35		%		4.59		%		4.15		%
Expected return on plan assets	7.00		%		7.00		%		7.00		%
Rate of compensation increase	3.50		%		3.50		%		3.50		%

(a)	For the year ended December 31, 2015, $2.6 million of net postretirement benefits credit is included in Income from discontinued operations (net of tax) in the consolidated statements of income. See Note 3, “Divestitures,” for additional information.

Effective January 1, 2018, the weighted-average expected rate of return on plan assets for our postretirement benefit plans is 7.00%.

The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic postretirement costs during 2018 are as follows (in thousands):

	Other Postretirement Benefits
Amortization of prior service benefit	$	(48	)

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:

Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2	Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
Level 3	Unobservable inputs for the asset or liability

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the year ended December 31, 2017. Investments for which market quotations are readily available are valued at the closing price on the last business day of the year. Listed securities for which no sale was reported on such date are valued at the mean between the last reported bid and asked price. Securities traded in the over-the-counter market are valued at the closing price on the last business day of the year or at bid price. The net asset value of shares or units is based on the quoted market value of the underlying assets. The market value of corporate bonds is based on institutional trading lots and is most often reflective of bid price. Government securities are valued at the mean between bid and ask prices. Holdings in private equity securities are typically valued using the net asset valuations provided by the underlying private investment companies.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth the assets of our pension and postretirement plans that were accounted for at fair value on a recurring basis as of December 31, 2017 and 2016 (in thousands):

	December 31, 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)
Pension Assets:
Domestic Equity(a)	$	163,160			$	160,976			$	2,184			$	—
International Equity(b)	130,935				101,366				29,569				—
Fixed Income(c)	269,365				231,506				37,859				—
Absolute Return Measured at Net Asset Value(d)	96,414				—				—				—
Total Pension Assets	$	659,874			$	493,848			$	69,612			$	—
Postretirement Assets:
Fixed Income(c)	$	834			$	—			$	834			$	—

	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)
Pension Assets:
Domestic Equity(a)	$	146,683			$	143,987			$	2,696			$	—
International Equity(b)	116,649				83,839				32,810				—
Fixed Income(c)	255,401				230,309				25,092				—
Absolute Return Measured at Net Asset Value(d)	86,112				—				—				—
Cash	2,112				2,112				—				—
Total Pension Assets	$	606,957			$	460,247			$	60,598			$	—
Postretirement Assets:
Fixed Income(c)	$	2,232			$	—			$	2,232			$	—

(a)	Consists primarily of U.S. stock funds that track or are actively managed and measured against the S&P 500 index.

(b)	Consists primarily of international equity funds which invest in common stocks and other securities whose value is based on an international equity index or an underlying equity security or basket of equity securities.

(c)	Consists primarily of debt obligations issued by governments, corporations, municipalities and other borrowers. Also includes insurance policies.

(d)

Consists primarily of funds with holdings in private investment companies. See additional information about the Absolute Return investments below. Holdings in private investment companies are measured at fair value using the net asset value per share as a practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts of $96.4 million and $86.1 million as of December 31, 2017 and 2016, respectively, are included in this table to permit reconciliation to the reconciliation of plan assets table above.

The Company’s pension plan assets in the U.S. and U.K. represent approximately 98% of the total pension plan assets. The investment objective of these pension plan assets is to achieve solid returns while preserving capital to meet current plan cash flow requirements. Assets should participate in rising markets, with defensive action in declining markets expected to an even greater degree. Depending on market conditions, the broad asset class targets may range up or down by approximately 10%. These asset classes include but are not limited to hedge fund of funds, bonds and other fixed income vehicles, high yield fixed income securities, equities and distressed debt. At December 31, 2017 and 2016, equity securities held by our pension and OPEB plans did not include direct ownership of Albemarle common stock.

The weighted-average target allocations as of the measurement date are as follows:

	Target Allocation
Equity securities	43	%
Fixed income	44	%
Absolute return	13	%

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Our Absolute Return investments consist primarily of our investments in hedge fund of funds. These are holdings in private investment companies with fair values that are based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers or fund managers associated with these investments provide valuations of the investments on a monthly basis utilizing the net asset valuation approach for determining fair values. These valuations are reviewed by the Company for reasonableness based on applicable sector, benchmark and company performance to validate the appropriateness of the net asset values as a fair value measurement. Where available, audited financial statements are obtained and reviewed for the investments as support for the manager’s investment valuation. In general, the investment objective of these funds is high risk-adjusted returns with an emphasis on preservation of capital. The investment strategies of each of the funds vary; however, the objective of our Absolute Return investments is complementary to the overall investment objective of our U.S. pension plan assets.

We made contributions to our defined benefit pension and OPEB plans of $13.3 million, $20.1 million and $21.6 million during the years ended December 31, 2017, 2016 and 2015, respectively, related to continuing and discontinued operations. We expect contributions to our domestic nonqualified and foreign qualified and nonqualified pension plans to approximate $13 million in 2018. Also, we expect to pay approximately $3 million in premiums to our U.S. postretirement benefit plan in 2018. However, we may choose to make additional voluntary pension contributions in excess of these amounts.

The current forecast of benefit payments, which reflects expected future service, amounts to (in millions):

	U.S. Pension Plans				Foreign Pension Plans				Other Postretirement Benefits
2018	$	41.2			$	13.9			$	4.6
2019	$	43.2			$	9.1			$	4.4
2020	$	43.9			$	10.2			$	4.2
2021	$	44.3			$	10.8			$	3.9
2022	$	44.6			$	10.0			$	3.9
2023-2027	$	224.2			$	59.0			$	18.2

We have a supplemental executive retirement plan (“SERP”), which provides unfunded supplemental retirement benefits to certain management or highly compensated employees. The SERP provides for incremental pension benefits to offset the limitations imposed on qualified plan benefits by federal income tax regulations. Costs (credits) relating to our SERP were $2.6 million, $1.6 million and ($2.1) million for the years ended December 31, 2017, 2016 and 2015, respectively. The projected benefit obligation for the SERP recognized in the consolidated balance sheets at December 31, 2017 and 2016 was $24.8 million and $23.5 million, respectively. The benefit expenses and obligations of this SERP are included in the tables above. Benefits of $1.3 million are expected to be paid to SERP retirees in 2018. On October 1, 2012, our Board of Directors approved amendments to the SERP, such that effective December 31, 2014, no additional benefits shall accrue under this plan and participants’ accrued benefits shall be frozen as of that date to reflect the same changes as were made under the U.S. qualified defined benefit plan.

At December 31, 2017, the assumed rate of increase in the pre-65 and post-65 per capita cost of covered health care benefits for U.S. retirees was zero as the employer-paid premium caps (pre-65 and post-65) were met starting January 1, 2013.

Defined Contribution Plans

On March 31, 2004, a new defined contribution pension plan benefit was adopted under the qualified defined contribution plan for U.S. non-represented employees hired after March 31, 2004. On October 1, 2012 our Board of Directors approved certain plan amendments, such that effective January 1, 2013, the defined contribution pension plan benefit is expanded to include non-represented employees hired prior to March 31, 2004, and revised the contribution for all participants to be based on 5% of eligible employee compensation. The employer portion of contributions to our U.S. defined contribution pension plan amounted to $10.3 million, $15.1 million, and $12.8 million in 2017, 2016 and 2015, respectively, related to continuing and discontinued operations.

Certain of our employees participate in our defined contribution 401(k) employee savings plan, which is generally available to all U.S. full-time salaried and non-union hourly employees and to employees who are covered by a collective bargaining agreement that provides for such participation. This U.S. defined contribution plan is funded with contributions made by the participants and us. Our contributions to the 401(k) plan amounted to $11.3 million, $12.7 million and $11.7 million in 2017, 2016 and 2015, respectively, related to continuing and discontinued operations. Contributions for 2015 include

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

our contributions to Rockwood’s former 401(k) plan which was merged into Albemarle’s 401(k) plan effective December 1, 2015.

In 2006, we formalized a new plan in the Netherlands similar to a collective defined contribution plan. The collective defined contribution plan is supported by annuity contracts through an insurance company. The insurance company unconditionally undertakes the legal obligation to provide specific benefits to specific individuals in return for a fixed amount of premiums. Our obligation under this plan is limited to a variable calculated employer match for each participant plus an additional fixed amount of contributions to assist in covering estimated cost of living and salary increases (indexing) and administrative costs for the overall plan. We paid approximately $9.9 million, $9.5 million and $7.2 million in 2017, 2016 and 2015, respectively, in annual premiums and related costs pertaining to this plan.

Multiemployer Plan

Certain current and former employees participate in a multiemployer plan in Germany, the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf (“DN Pensionskasse”), that provides monthly payments in the case of disability, death or retirement. The risks of participating in a multiemployer plan are different from single-employer plans in the following ways: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, and (b) if a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by remaining participating employers.

Some participants in the plan are subject to collective bargaining arrangements, which have no fixed expiration date. The contribution and benefit levels are not negotiated or significantly influenced by these collective bargaining arrangements. Also, the benefit levels generally are not subject to reduction. Under German insurance law, the DN Pensionskasse must be fully funded at all times. The DN Pensionskasse was fully funded as of December 31, 2016, the date of the most recently available information for the plan. This funding level would correspond to the highest funding zone status (at least 80% funded) under U.S. pension regulation. Since the plan liabilities need to be fully funded at all times according to local funding requirements, it is unlikely that the DN Pensionskasse plan will fail to fulfill its obligations, however, in such an event, the Company is liable for the benefits of its employees who participate in the plan. Additional information of the DN Pensionskasse is available in the public domain.

The majority of the Company’s contributions are tied to employees’ contributions, which are generally calculated as a percentage of base compensation, up to a certain statutory ceiling. Our normal contributions to this plan for continuing operations were approximately $1.5 million, $1.7 million and $1.8 million in 2017, 2016 and 2015, respectively. Contributions for discontinued operations were approximately $1.3 million in 2016 and 2015. The Company’s contributions represented more than 5% of total contributions to the DN Pensionskasse in 2017.

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 year ended December 31, 2017, we made contributions for our employees covered under this plan of approximately $3.3 million, recorded in Selling, general and administrative expenses, as a result of this financial improvement plan. In addition, during the year ended December 31, 2017, we made contributions relating to this financial improvement plan to indemnify previously divested businesses of approximately $4.6 million, recorded in Other (expenses) income, net. The value of the additional funding required under the financial improvement plan each year is determined upon the completion of the annual financial statements and are payable in the second quarter of the following year. A portion of the additional funding necessary for the year will be based on an estimate prepared on September 30 of each year and payable in the fourth quarter of that same year.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16—Other Noncurrent Liabilities:

Other noncurrent liabilities consist of the following at December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
Transition tax on foreign earnings(a)	$	394,878			$	—
Liabilities related to uncertain tax positions(b)	24,369				27,919
Executive deferred compensation plan obligation	25,494				22,037
Environmental liabilities(c)	37,518				32,595
Asset retirement obligations(c)	40,450				36,296
Tax indemnification liability(d)	42,707				38,255
Other(e)	33,758				37,708
Total(f)	$	599,174			$	194,810

(a)	Noncurrent portion of one-time transition tax on foreign earnings. See Note 20, “Income Taxes,” for additional information.

(b)	See Note 20, “Income Taxes.”

(c)	See Note 17, “Commitments and Contingencies.”

(d)	Indemnification of certain income and non-income tax liabilities associated with the Chemetall Surface Treatment entities sold.

(e)	No individual component exceeds 5% of total liabilities.

(f)	As of December 31, 2017, $0.6 million of Other noncurrent liabilities were classified as Liabilities held for sale in the consolidated balance sheets. See Note 3, “Divestitures,” for additional information.

NOTE 17—Commitments and Contingencies:

In the ordinary course of business, we have commitments in connection with various activities. We believe that amounts recorded are adequate for known items which might become due in the current year. The most significant commitments are as follows:

Environmental

We had the following activity in our recorded environmental liabilities for the years ended December 31, 2017, 2016 and 2015 (in thousands):

	Year Ended December 31,
	2017				2016				2015
Balance, beginning of year	$	34,919			$	31,436			$	9,235
Expenditures	(1,818		)		(2,667		)		(4,039		)
Acquisition of Rockwood	—				—				34,626
Divestitures	—				—				(1,826		)
Accretion of discount	896				793				902
Additions and revisions of estimates	3,344				4,004				150
Reclass to liabilities held for sale(a)	—				—				(5,253		)
Foreign currency translation adjustments and other	2,467				1,353				(2,359		)
Balance, end of year	39,808				34,919				31,436
Less amounts reported in Accrued expenses	2,290				2,324				1,443
Amounts reported in Other noncurrent liabilities	$	37,518			$	32,595			$	29,993

(a)	Represents environmental liabilities of the metal sulfides and minerals-based flame retardants and specialty chemicals businesses. See Note 3, “Divestitures,” for additional information.

Environmental remediation liabilities included discounted liabilities of $28.1 million and $22.8 million at December 31, 2017 and 2016, respectively, discounted at rates with a weighted-average of 3.6% and 3.5%, respectively, with the undiscounted amount totaling $68.2 million and $61.1 million at December 31, 2017 and 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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 $18 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.

Asset Retirement Obligations

The following is a reconciliation of our beginning and ending asset retirement obligation balances for 2017 and 2016 (in thousands):

	Year Ended December 31,
	2017				2016
Balance, beginning of year	$	36,296			$	37,230
Additions and revisions of estimates	3,859				—
Accretion of discount	1,532				1,354
Liabilities settled	(789		)		(370		)
Foreign currency translation adjustments and other	(448		)		(1,918		)
Balance, end of year	$	40,450			$	36,296

Our asset retirement obligations are recorded in Other noncurrent liabilities in the consolidated balance sheets. Asset retirement obligations primarily relate to post-closure reclamation of brine wells and sites involved in the surface mining and manufacturing of lithium. We are not aware of any conditional asset retirement obligations that would require recognition in our consolidated financial statements.

Rental Expense

Our rental expenses include a number of operating lease agreements, primarily for office space, transportation equipment and storage facilities. The following schedule details the future non-cancelable minimum lease payments for the next five years and thereafter (in thousands):

	Operating Leases
2018	$	27,576
2019	$	25,609
2020	$	24,184
2021	$	23,722
2022	$	21,476
Thereafter	$	20,220

Rental expense was approximately $31.2 million, $31.4 million, and $34.8 million for 2017, 2016 and 2015, respectively. Rental expense related to discontinued operations was approximately $11.8 million and $10.2 million for 2016 and 2015, respectively. Rental expense is shown net of sublease income which was minimal during 2017, 2016 and 2015.

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

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.

Following receipt of information regarding potential improper payments being made by third party sales representatives of our Refining Solutions business, we promptly retained outside counsel and forensic accountants to investigate potential violations of the Company’s Code of Conduct, the Foreign Corrupt Practices Act (“FCPA”), and other potentially applicable laws. Based on this internal investigation, we have voluntarily self-reported potential issues relating to the use of third party sales representatives in our Refining Solutions business to the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”), and intend to cooperate with the DOJ and SEC in their review of these matters. In connection with our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures.

At this time, we are unable to predict the duration, scope, result or related costs associated with any investigations by the DOJ or SEC. We also are unable to predict what, if any, action may be taken by the DOJ or SEC or what penalties or remedial actions they may seek. Any determination that our operations or activities are not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses. We do not believe, however, that any fines, penalties, disgorgement, equitable relief or other losses would have a material adverse effect on our financial condition or liquidity.

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. See Note 16, “Other Noncurrent Liabilities,” for the tax indemnification liability related to the sale of the Chemetall Surface Treatment business.

Other

The Company has standby letters of credit and guarantees with various financial institutions. The following table summarizes our letters of credit and guarantee agreements (in thousands):

	2018				2019				2020				2021				2022				Thereafter
Letters of credit and other guarantees	$	40,347			$	5,830			$	1,672			$	975			$	1,074			$	13,581

The outstanding letters of credit are primarily related to insurance claim payment guarantees with expiration dates ranging from 2018 to 2022. The majority of the Company’s other guarantees have terms of one year and mainly consist of performance and environmental guarantees, as well as guarantees to customs and port authorities. The guarantees arose during the ordinary course of business.

We do not have recorded reserves for the letters of credit and guarantees as of December 31, 2017. We are unable to estimate the maximum amount of the potential future liability under guarantees and letters of credit. However, we accrue for any potential loss for which we believe a future payment is probable and a range of loss can be reasonably estimated. We believe our liability under such obligations is immaterial.

We currently, and are from time to time, subject to transactional audits in various taxing jurisdictions and to customs audits globally. We do not expect the financial impact of any of these audits to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18—Stock-based Compensation Expense:

Incentive Plans

We have various share-based compensation plans that authorize the granting of (i) stock options to purchase shares of our common stock, (ii) restricted stock and restricted stock units, (iii) performance unit awards and (iv) stock appreciation rights (“SARs”) to employees and non-employee directors. The plans provide for payment of incentive awards in one or more of the following at our option: cash, shares of our common stock, qualified and non-qualified stock options, SARs, restricted stock awards, restricted stock unit awards and performance unit awards. The share-based awards granted by us generally contain vesting provisions ranging from one to five years, and with respect to stock options granted by us, have a term of not more than ten years from the date of grant. Stock options granted to employees generally vest over three years and have a term of ten years. Restricted stock and restricted stock unit awards vest in periods ranging from one to five years from the date of grant. Performance unit awards are earned at a level ranging from 0% to 200% contingent upon the achievement of specific performance criteria over periods ranging from one to three years. Distribution of earned units occurs generally 50% upon completion of the applicable measurement period with the remaining 50% distributed one year thereafter.

We granted 82,204, 141,661 and 313,803 stock options during 2017, 2016 and 2015, respectively. There were no significant modifications made to any share-based grants during these periods.

On April 20, 2010, the maximum number of shares available for issuance to participants under the Albemarle Corporation 2008 Incentive Plan (the “Incentive Plan”) increased by 4,470,000 shares to 7,470,000 shares. With respect to any awards, other than stock options or SARs, the number of shares available for awards under the Incentive Plan were reduced by 1.6 shares for each share covered by such award or to which such award related. Effective May 7, 2013, the Albemarle Corporation 2008 Stock Compensation Plan for Non-Employee Directors and the 1996 Directors’ Deferred Compensation Plan (as amended and restated in 2005) were merged into the Albemarle Corporation 2013 Stock Compensation and Deferral Election Plan for Non-Employee Directors (the “Non-Employee Directors Plan”). Under the Non-Employee Directors Plan, a maximum aggregate number of 500,000 shares of our common stock is authorized for issuance to the Company’s non-employee directors; any shares remaining available for issuance under the prior plans were canceled. The aggregate fair market value of shares that may be issued to a director during any compensation year (as defined in the agreement, generally July 1 to June 30) shall not exceed $150,000. At December 31, 2017, there were 1,873,159 shares available for grant under the Incentive Plan and 408,591 shares available for grant under the Non-Employee Directors Plan.

Total stock-based compensation expense associated with our incentive plans for the years ended December 31, 2017, 2016 and 2015 amounted to $19.4 million, $17.0 million and $15.2 million, respectively, and is included in Cost of goods sold and SG&A expenses in the consolidated statements of income. Total related recognized tax benefits for the years ended December 31, 2017, 2016 and 2015 amounted to $7.0 million, $6.2 million and $5.6 million, respectively. As a result of the sale of the Chemetall Surface Treatment business, we converted previously granted incentive awards owed to Chemetall employees to a cash liability to be paid on the original vesting dates of the awards. The Company recognized expense of $5.8 million, included in Income from discontinued operations for the year ended December 31, 2016 related to these awards. At December 31, 2017, $2.3 million and $3.4 million of this cash liability were included in Accrued liabilities and Other noncurrent liabilities, respectively.

The following table summarizes information about the Company’s fixed-price stock options as of and for the year ended December 31, 2017:

	Shares			Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016	1,542,244			$	51.85			5.5		$	52,798
Granted	82,204			92.93
Exercised	(210,432	)		39.15
Forfeited	(12,298	)		59.05
Outstanding at December 31, 2017	1,401,718			$	56.10			5.1		$	100,632
Exercisable at December 31, 2017	768,436			$	50.35			3.3		$	59,585

The fair value of each option granted during the years ended December 31, 2017, 2016 and 2015 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Year Ended December 31,
	2017				2016				2015
Dividend yield	1.56		%		1.84		%		1.80		%
Volatility	32.70		%		33.08		%		32.92		%
Average expected life (years)	6				6				6
Risk-free interest rate	2.51		%		1.96		%		2.17		%
Fair value of options granted	$	27.99			$	16.06			$	16.04

Dividend yield is the average of historical yields and those estimated over the average expected life. The stock volatility is based on historical volatilities of our common stock. The average expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns. The risk-free interest rate is based on the U.S. Treasury strip rate with stripped coupon interest for the period equal to the contractual term of the share option grant in effect at the time of grant.

The intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $15.6 million, $7.9 million and $0.5 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

Total compensation cost not yet recognized for nonvested stock options outstanding as of December 31, 2017 is approximately $5.0 million and is expected to be recognized over a remaining weighted-average period of 1.6 years. Cash proceeds from stock options exercised and tax benefits related to stock options exercised were $8.2 million and $5.7 million for the year ended December 31, 2017, respectively. The Company issues new shares of common stock upon exercise of stock options and vesting of restricted common stock awards.

The following table summarizes activity in performance unit awards as of and for the year ended December 31, 2017:

	Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested, beginning of period	494,691			$	66.42
Granted	82,396			116.43
Vested	(131,374	)		67.59
Forfeited	(12,710	)		67.36
Nonvested, end of period	433,003			75.55

The weighted average grant date fair value of performance unit awards granted in 2017, 2016 and 2015 was $9.6 million, $10.9 million and $11.9 million, respectively.

The weighted average fair value of performance unit awards that vested during 2017, 2016 and 2015 was $11.9 million, $4.6 million and $2.5 million, respectively, based on the closing prices of our common stock on the dates of vesting. Total compensation cost not yet recognized for nonvested performance unit awards outstanding as of December 31, 2017 is approximately $11.5 million, calculated based on current expectation of specific performance criteria, and is expected to be recognized over a remaining weighted-average period of approximately 1.1 years. Each performance unit represents one share of common stock.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity in non-performance based restricted stock and restricted stock unit awards as of and for the year ended December 31, 2017:

	Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested, beginning of period	180,656			$	57.99
Granted	84,528			97.49
Vested	(32,675	)		63.45
Forfeited	(9,171	)		60.17
Nonvested, end of period	223,338			71.95

The weighted average grant date fair value of restricted stock and restricted stock unit awards granted in 2017, 2016 and 2015 was $8.2 million, $8.8 million and $3.5 million, respectively. The weighted average fair value of restricted stock and restricted stock unit awards that vested in 2017, 2016 and 2015 was $3.1 million, $3.2 million and $2.2 million, respectively, based on the closing prices of our common stock on the dates of vesting. Total compensation cost not yet recognized for nonvested, non-performance based restricted stock and restricted stock units as of December 31, 2017 is approximately $9.7 million and is expected to be recognized over a remaining weighted-average period of 2.1 years. The fair value of the non-performance based restricted stock and restricted stock units was estimated on the date of grant adjusted for a dividend factor, if necessary.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19—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 years ended December 31, 2017, 2016 and 2015 (in thousands):

	Foreign Currency Translation(a)				Pension and Post-Retirement Benefits(b)				Net Investment Hedge				Interest Rate Swap(c)				Total
Accumulated other comprehensive (loss) income - balance at December 31, 2014	$	(52,835	)		$	—			$	11,384			$	(20,962	)		$	(62,413	)
Other comprehensive (loss) income before reclassifications	(412,997		)		(774		)		50,861				—				(362,910		)
Amounts reclassified from accumulated other comprehensive loss	27				16				—				2,101				2,144
Other comprehensive (loss) income, net of tax	(412,970		)		(758		)		50,861				2,101				(360,766		)
Other comprehensive loss attributable to noncontrolling interests	1,891				—				—				—				1,891
Accumulated other comprehensive (loss) income - balance at December 31, 2015	$	(463,914	)		$	(758	)		$	62,245			$	(18,861	)		$	(421,288	)
Other comprehensive (loss) income before reclassifications	(102,246		)		—				26,133				—				(76,113		)
Amounts reclassified from accumulated other comprehensive loss	81,421				834				—				2,116				84,371
Other comprehensive (loss) income, net of tax	(20,825		)		834				26,133				2,116				8,258
Other comprehensive loss attributable to noncontrolling interests	618				—				—				—				618
Accumulated other comprehensive (loss) income - balance at December 31, 2016	$	(484,121	)		$	76			$	88,378			$	(16,745	)		$	(412,412	)
Other comprehensive income (loss) before reclassifications	227,439				—				(41,827		)		—				185,612
Amounts reclassified from accumulated other comprehensive loss	—				(97		)		—				2,116				2,019
Other comprehensive income (loss), net of tax	227,439				(97		)		(41,827		)		2,116				187,631
Other comprehensive income attributable to noncontrolling interests	(887		)		—				—				—				(887		)
Accumulated other comprehensive (loss) income - balance at December 31, 2017	$	(257,569	)		$	(21	)		$	46,551			$	(14,629	)		$	(225,668	)

(a)

Amount reclassified from accumulated other comprehensive loss for the year ended December 31, 2016 is included in Income from discontinued operations (net of tax) for the year ended December 31, 2016 and resulted from the release of cumulative foreign currency translation adjustments into earnings upon the sale of our Chemetall Surface Treatment business which closed on December 14, 2016. See Note 3, “Divestitures,” for additional information.

(b)	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 (credit) cost. See Note 15, “Pension Plans and Other Postretirement Benefits,” for additional information.

(c)	The pre-tax portion of amounts reclassified from accumulated other comprehensive loss is included in interest expense.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The amount of income tax (expense) benefit allocated to each component of Other comprehensive income (loss) for the years ended December 31, 2017, 2016 and 2015 is provided in the following tables (in thousands):

	Foreign Currency Translation				Pension and Postretirement Benefits				Net Investment Hedge				Interest Rate Swap
2017
Other comprehensive income (loss), before tax	$	228,508			$	(96	)		$	(65,958	)		$	3,336
Income tax (expense) benefit	(1,069		)		(1		)		24,131				(1,220		)
Other comprehensive income (loss), net of tax	$	227,439			$	(97	)		$	(41,827	)		$	2,116
2016
Other comprehensive (loss) income, before tax	$	(20,849	)		$	839			$	41,209			$	3,336
Income tax benefit (expense)	24				(5		)		(15,076		)		(1,220		)
Other comprehensive (loss) income, net of tax	$	(20,825	)		$	834			$	26,133			$	2,116
2015
Other comprehensive (loss) income, before tax	$	(451,762	)		$	(751	)		$	80,746			$	3,336
Income tax benefit (expense)	38,792				(7		)		(29,885		)		(1,235		)
Other comprehensive (loss) income, net of tax	$	(412,970	)		$	(758	)		$	50,861			$	2,101

NOTE 20—Income Taxes:

On December 22, 2017, the TCJA was signed into law in the U.S. The TCJA contains several key tax provisions including, among other things, the reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018, the requirement of companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and the creation of new taxes on certain foreign sourced earnings such as global intangible low-taxed income (“GILTI”). Subsequent to December 31, 2017 the U.S. Department of the Treasury has issued additional interpretive guidance on the application of the rules around the one-time transition tax. The Company has incorporated guidance in all material respects issued through January 31, 2018, however, any additional guidance issued after this date has not been incorporated into the provisional estimate as the Company is still evaluating its impact.

Under ASC 740, Income Taxes, the effect of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. However, the SEC staff issued SAB 118, which will allow us to record provisional amounts during a measurement period, which should not extend beyond one year from the enactment date. In accordance with SAB 118, income tax effects of the TCJA may be refined as additional analysis is completed based on obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that was not initially reported as provisional amounts. In addition, the provisional amounts may also be affected upon additional TCJA guidance being issued during the measurement period.

As of December 31, 2017, we have not completed our accounting for the effects of enactment of the TCJA; however, in certain cases, as described below, we have recorded a provisional tax benefit of $62.3 million related to the remeasurement of our existing deferred tax balances from 35% to 21% and a provisional tax expense of $429.2 million related to the one-time transition tax. The prospective release of additional guidance may require us to refine our calculations and adjust our estimate. Each of the provisional estimates have been included as a component of income tax from continuing operations.

As of December 31, 2017, we have not completed the accounting for the tax effects of the GILTI tax law provision and an accounting policy has not yet been elected. The effect of the GILTI international provision is uncertain. Quantifying the impacts of GILTI is not estimable at this time due, among other things, to the inherent complexities involved.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Income from continuing operations before income taxes and equity in net income of unconsolidated investments, and current and deferred income tax expense (benefit) are composed of the following (in thousands):

	Year Ended December 31,
	2017				2016				2015
Income from continuing operations before income taxes and equity in net income of unconsolidated investments:
Domestic	$	(8,293	)		$	49,630			$	(15,861	)
Foreign	455,091				465,634				326,605
Total	$	446,798			$	515,264			$	310,744
Current income tax expense (benefit):
Federal	$	394,747			$	7,717			$	76,778
State	323				1,407				(983		)
Foreign	78,688				63,957				58,710
Total	$	473,758			$	73,081			$	134,505
Deferred income tax (benefit) expense:
Federal	$	(58,640	)		$	12,230			$	(127,212	)
State	(2,288		)		(1,715		)		(1,267		)
Foreign	18,987				12,667				5,108
Total	$	(41,941	)		$	23,182			$	(123,371	)
Total income tax expense	$	431,817			$	96,263			$	11,134

The increase in the Federal current expense of $387.0 million is primarily related to the tax impact of the one-time transition tax imposed by the TCJA of $429.2 million. The increase in Federal deferred benefit of $70.8 million is primarily related to the tax impact associated with the remeasurement of deferred tax assets and liabilities under the recently enacted tax legislation from a statutory rate of 35% to 21%. This resulted in a deferred tax benefit of $62.3 million.

The reconciliation of the U.S. federal statutory rate to the effective income tax rate is as follows:

	% of Income Before Income Taxes
	2017			2016			2015
Federal statutory rate	35.0	%		35.0	%		35.0	%
State taxes, net of federal tax benefit	(0.5	)		(0.1	)		1.4
Change in valuation allowance	(1.4	)		3.7			5.7
Impact of foreign earnings, net(a)	(13.5	)		(19.3	)		(22.0	)
Change in U.S. federal statutory rate(b)	(14.0	)		—			—
Transition tax on deferred foreign earnings(b)	96.1			—			—
Subpart F income	2.0			0.2			7.8
Deemed repatriation of foreign income(c)	—			—			105.5
Undistributed earnings of foreign subsidiaries(a)(c)	(2.2	)		0.1			(114.8	)
Stock-based compensation	(1.9	)		—			—
Nondeductible transaction costs	—			—			2.0
Depletion	(1.4	)		(1.0	)		(1.8	)
Revaluation of unrecognized tax benefits/reserve requirements(d)	(0.7	)		(0.4	)		(14.4	)
Domestic manufacturing tax deduction	—			(0.9	)		(0.5	)
Other items, net	(0.9	)		1.4			(0.3	)
Effective income tax rate	96.6	%		18.7	%		3.6	%

(a)

During 2017, 2016 and 2015, we received actual and deemed distributions of $42.5 million, $308.4 million and $1.4 billion, respectively, from various foreign subsidiaries and joint ventures, and realized income tax expense, net of foreign tax credits, of $9.1 million, $67.5 million and $350.2 million, respectively, related to the repatriation of these earnings, which impacted our effective tax rate. Our statutory rate is decreased by of our share of the income of JBC, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. The

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

applicable provisions of the Jordanian law, and applicable regulations thereunder, do not have a termination provision and the exemption is indefinite. As a Free Zones company, JBC is not subject to income taxes on the profits of products exported from Jordan, and currently, substantially all of the profits are from exports. This resulted in a rate benefit of 8.9%, 7.3%, and 8.2% for 2017, 2016, and 2015, respectively.

(b)

We have made a reasonable estimate of the tax impact of the U.S. enacted tax law on our business and our consolidated financial statements and have recorded a provisional tax benefit of $62.3 million related to the remeasurement of our deferred tax assets and liabilities for the reduction in the Federal statutory tax rate from 35% to 21%. We have also recognized a provisional tax expense of $429.2 million for the one-time transition tax.

(c)

In prior years, we designated the undistributed earnings of substantially all of our foreign subsidiaries as indefinitely reinvested. In 2015, we were not indefinitely reinvested in a portion of earnings from legacy Rockwood entities that were part of the repatriation planning, for which a deferred tax liability of $387.0 million was established in the opening balance sheet. This liability reversed upon the completion of the repatriation with $356.2 million impacting earnings and $30.8 million from foreign exchange differences. The reversal of this liability offsets the tax amount of $327.9 million from legacy Rockwood entities included in the deemed repatriation of foreign income.

(d)	In 2015, the main impact is from the release of reserves on the close of a U.S. federal audit, and lapse of statute of limitations. These releases provided a net benefit of approximately $42.7 million.

Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2017 and 2016 consist of the following (in thousands):

	December 31,
	2017				2016
Deferred tax assets:
Accrued employee benefits	$	21,463			$	32,622
Accrued expenses	—				10,065
Operating loss carryovers(a)	459,644				91,934
Pensions	64,799				96,635
Tax credit carryovers	11,634				1,029
Other	44,714				34,866
Gross deferred tax assets	602,254				267,151
Valuation allowance(a)	(458,288		)		(69,900		)
Deferred tax assets	143,966				197,251
Deferred tax liabilities:
Depreciation	(334,162		)		(379,161		)
Intangibles	(113,792		)		(99,969		)
Hedge of Net Investment of Foreign Subsidiary	(17,028		)		(51,192		)
Other	(24,265		)		(18,536		)
Deferred tax liabilities	(489,247		)		(548,858		)
Net deferred tax liabilities	$	(345,281	)		$	(351,607	)
Classification in the consolidated balance sheets:
Noncurrent deferred tax assets	$	25,108			$	61,132
Noncurrent deferred tax liabilities	(370,389		)		(412,739		)
Net deferred tax liabilities	$	(345,281	)		$	(351,607	)

(a)	During 2017, the Company recorded a change in estimate related to a foreign entity that resulted in an increase to the deferred tax asset for net operating losses and an associated and equal valuation allowance of approximately $400.6 million.

Changes in the balance of our deferred tax asset valuation allowance are as follows (in thousands):

	Year Ended December 31,
	2017				2016				2015
Balance at January 1	$	(69,900	)		$	(84,137	)		$	(30,768	)
Additions	(408,252		)		(20,568		)		(59,889		)
Deductions	19,864				34,805				6,520
Balance at December 31	$	(458,288	)		$	(69,900	)		$	(84,137	)

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2017, we had approximately $11.6 million of domestic credits available to offset future payments of income taxes, expiring in varying amounts between 2018 and 2027. We have established valuation allowances for $0.3 million of those domestic credits since we believe that it is more likely than not that the related deferred tax assets will not be realized. We believe that sufficient taxable income will be generated during the carryover period in order to utilize the other remaining credit carryovers.

At December 31, 2017, we have on a pre-tax basis, domestic state net operating losses of $156.1 million, expiring between 2018 and 2037, which have pre-tax valuation allowances of $39.3 million established. In addition, we have on a pre-tax basis $1.75 billion of foreign net operating losses of which a majority have an indefinite life, which have pre-tax valuation allowances for $1.73 billion established. We have established valuation allowances for these deferred tax assets since we believe that it is more likely than not that the related deferred tax assets will not be realized. For the same reason, we established pre-tax valuation allowances of $8.7 million and $34.4 million for other state and foreign deferred tax assets, respectively, unrelated to net operating losses. The realization of the deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. Although realization is not assured, we believe it is more likely than not that the remaining deferred tax assets will be realized. However, the amount considered realizable could be reduced if estimates of future taxable income change. We believe that it is more likely than not that the Company will generate sufficient taxable income in the future to fully utilize all other deferred tax assets.

At December 31, 2017, as part of the TCJA, we recorded a provisional amount for our one-time transition tax liability of $429.2 million based on approximately $4.8 billion of cumulative undistributed earnings and profits of our non-U.S. subsidiaries and joint ventures, which in prior year, had been indefinitely reinvested or subject to a tax-free liquidation and do not give rise to significant incremental taxes. At December 31, 2017, no additional U.S. federal income taxes, U.S. state and local taxes, or foreign withholding or income taxes have been provided with respect to accumulated earnings of foreign subsidiaries, as the Company continues to evaluate is indefinite reinvestment assertion as a result of the TCJA. The accounting is expected to be completed within the one-year measurement period as allowed by SAB 118. During that period, if it is determined that cash can be repatriated with little to no tax consequences, we may choose to repatriate cash at that time. If in the foreseeable future, we can no longer demonstrate that these earnings are indefinitely reinvested, a deferred tax liability will be recognized. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable.

During the year ended December 31, 2017, we recorded an income tax benefit of $9.7 million related to previously taxed foreign earnings that we expect to repatriate within the foreseeable future. No additional amounts of income tax expense or benefit related to the previously taxed foreign earnings have been recorded as of December 31, 2017, as the Company continues to evaluate its indefinite reinvestment assertion as a result of the TCJA.

Liabilities related to uncertain tax positions were $24.4 million and $27.9 million at December 31, 2017 and 2016, respectively, inclusive of interest and penalties of $2.9 million and $3.0 million at December 31, 2017 and 2016, respectively, and are reported in Other noncurrent liabilities as provided in Note 16, “Other Noncurrent Liabilities.” These liabilities at December 31, 2017 and 2016 were reduced by $14.6 million and $15.1 million, respectively, for offsetting benefits from the corresponding effects of potential transfer pricing adjustments, state income taxes and rate arbitrage related to foreign structure. These offsetting benefits are recorded in Other assets as provided in Note 11, “Other Assets.” The resulting net liabilities of $6.9 million and $9.8 million at December 31, 2017 and 2016, respectively, if recognized and released, would favorably affect earnings.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The liabilities related to uncertain tax positions, exclusive of interest, were $21.4 million and $25.4 million at December 31, 2017 and 2016, respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2017, 2016 and 2015 (in thousands):

	Year Ended December 31,
	2017				2016				2015
Balance at January 1	$	25,384			$	95,715			$	24,969
Acquisition of Rockwood	—				—				124,758
Divestitures(a)	—				(55,881		)		—
Additions for tax positions related to prior years	—				548				4,329
Reductions for tax positions related to prior years	(1,933		)		(1,253		)		(46,211		)
Additions for tax positions related to current year	1,132				1,271				202
Lapses in statutes of limitations/settlements	(4,198		)		(12,591		)		(6,736		)
Foreign currency translation adjustment	1,053				(2,425		)		(5,596		)
Balance at December 31	$	21,438			$	25,384			$	95,715

(a)	Reclassified to Other noncurrent liabilities as a result of the indemnification of certain income tax liabilities associated with the Chemetall Surface Treatment entities sold. See Note 16, “Other Noncurrent Liabilities.”

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Due to the statute of limitations, we are no longer subject to U.S. federal income tax audits by the Internal Revenue Service (“IRS”) for years prior to 2011. Due to the statute of limitations, we also are no longer subject to U.S. state income tax audits prior to 2011.

With respect to jurisdictions outside the U.S., several audits are in process. We have audits ongoing for the years 2006 through 2015 related to Germany, Taiwan, Canada, Italy, India, and France, some of which are for entities that have since been divested.

While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than our accrued position. Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.

Since the timing of resolutions and/or closure of tax audits is uncertain, it is difficult to predict with certainty the range of reasonably possible significant increases or decreases in the liability related to uncertain tax positions that may occur within the next twelve months. Our current view is that it is reasonably possible that we could record a decrease in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $1.6 million as a result of closure of tax statutes.

NOTE 21—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 majority of the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying 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.

	December 31,
	2017								2016
	Recorded Amount				Fair Value				Recorded Amount				Fair Value
	(In thousands)
Long-term debt	$	1,845,309			$	1,949,638			$	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 December 31, 2017 and 2016, we had outstanding foreign currency forward contracts with notional values totaling $357.4 million and $251.6 million, respectively. Our foreign currency forward contracts outstanding at December 31, 2017 and 2016 have not been designated as

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

hedging instruments under ASC 815, Derivatives and Hedging. As of December 31, 2017 and December 31, 2016, $5.0 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 currently 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. For the years ended December 31, 2017, 2016 and 2015 we recognized gains (losses) of $4.6 million, $16.1 million and ($38.5) 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. These amounts 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. Also, for the years ended December 31, 2017, 2016 and 2015, we recorded (gains) losses of ($4.6) million, ($16.1) million and $38.5 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash receipts (settlements) of $9.4 million, $16.0 million and ($37.6) million, respectively, in Other, net, in our 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 22—Fair Value Measurement:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:

Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2	Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
Level 3	Unobservable inputs for the asset or liability

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the year ended December 31, 2017. The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2017 and 2016 (in thousands):

	December 31, 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)	$	25,494			$	25,494			$	—			$	—
Private equity securities(b)	$	38			$	38			$	—			$	—
Private equity securities measured at net asset value(b)(c)	$	5,121			$	—			$	—			$	—
Pension assets(d)	$	563,460			$	493,848			$	69,612			$	—
Pension assets measured at net asset value(d)	$	96,414			$	—			$	—			$	—
Postretirement assets(d)	$	834			$	—			$	834			$	—
Liabilities:
Obligations under executive deferred compensation plan (a)	$	25,494			$	25,494			$	—			$	—
Foreign currency forward contracts(e)	$	4,954			$	—			$	4,954			$	—

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	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			$	—			$	—			$	—
Pension assets(d)	$	520,845			$	460,247			$	60,598			$	—
Pension assets measured at net asset value(d)	$	86,112			$	—			$	—			$	—
Postretirement assets(d)	$	2,232			$	—			$	2,232			$	—
Liabilities:
Obligations under executive deferred compensation plan (a)	$	22,037			$	22,037			$	—			$	—
Foreign currency forward contracts(e)	$	182			$	—			$	182			$	—

(a)

We maintain an 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 consolidated balance sheets. The changes in fair value are reported in Other (expenses) income, net, in our consolidated statements of income.

(c)

Holdings in 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. The fair value amounts of $5.1 million and $5.5 million as of December 31, 2017 and 2016, respectively, are included in this table to permit reconciliation to the marketable equity securities presented in Note 10, “Investments.”

(d)	See Note 15 “Pension Plans and Other Postretirement Benefits” for further information about fair value measurements of our pension and postretirement plan assets.

(e)

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.

NOTE 23—Related Party Transactions:

Our consolidated statements of income include sales to and purchases from unconsolidated affiliates in the ordinary course of business as follows (in thousands):

	Year Ended December 31,
	2017				2016				2015
Sales to unconsolidated affiliates	$	29,514			$	29,651			$	24,180
Purchases from unconsolidated affiliates(a)	$	209,266			$	130,287			$	115,697

(a)	Increase in 2017 primarily due to material purchases from our Windfield joint venture.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Our consolidated balance sheets include accounts receivable due from and payable to unconsolidated affiliates in the ordinary course of business as follows (in thousands):

	December 31,
	2017				2016
Receivable from related parties	$	2,406			$	2,159
Payable to related parties	$	55,801			$	38,466

NOTE 24—Segment and Geographic Area Information:

As of December 31, 2017 our three reportable segments include Lithium and Advanced Materials, Bromine Specialties and Refining Solutions. On June 17, 2016, the Company signed a definitive agreement to sell its Chemetall Surface Treatment business, a separate reportable segment, to BASF SE. This business was classified as discontinued operations and its results are excluded from segment results for all periods presented. Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. This business structure aligns with the markets and customers we serve through each of the segments. This structure also facilitates the continued standardization of business processes across the organization, and is consistent with the manner in which information is presently used internally by the Company’s chief operating decision maker to evaluate performance and make resource allocation decisions.

Summarized financial information concerning our reportable segments is shown in the following tables.

The “All Other” category comprises operating segments that do not fit into any of our core businesses subsequent to the acquisition of Rockwood: minerals-based flame retardants and specialty chemicals, fine chemistry services and metal sulfides. During the first quarter of 2016, we completed the sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business. For additional information about these businesses, see Note 3, “Divestitures.”

The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the reportable segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the reportable segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.

The Company’s chief operating decision maker uses earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items such as acquisition and integration related costs, utilization of inventory markup, gains or losses on sales of businesses, restructuring charges, facility divestiture charges, non-operating pension and OPEB items and other significant non-recurring items (“adjusted EBITDA”), in a balanced manner and on a segment basis to assess the ongoing performance of the Company’s business segments and to allocate resources. In addition, management uses adjusted EBITDA for business planning purposes and as a significant component in the calculation of performance-based compensation for management and other employees. The Company has reported adjusted EBITDA because management believes it provides transparency to investors and enables period-to-period comparability of financial performance. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to Net income 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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Year Ended December 31,
	2017				2016				2015
	(In thousands)
Net sales:
Lithium and Advanced Materials	$	1,308,153			$	968,216			$	834,590
Bromine Specialties	855,143				792,425				775,729
Refining Solutions	778,304				732,137				729,261
All Other	128,914				180,988				471,434
Corporate	1,462				3,437				15,415
Total net sales	$	3,071,976			$	2,677,203			$	2,826,429
Adjusted EBITDA:
Lithium and Advanced Materials	$	518,530			$	363,360			$	312,867
Bromine Specialties	258,901				226,926				222,653
Refining Solutions	212,005				238,963				197,595
All Other	13,878				14,772				53,993
Corporate	(117,834		)		(85,804		)		(31,108		)
Total adjusted EBITDA	$	885,480			$	758,217			$	756,000

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, to 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
2017
Net income (loss) attributable to Albemarle Corporation	$	400,360			$	218,839			$	173,297			$	792,496			$	5,521			$	(743,167	)		$	54,850
Depreciation and amortization	102,389				40,062				39,958				182,409				8,357				6,162				196,928
Utilization of inventory markup(a)	23,095				—				—				23,095				—				—				23,095
Restructuring and other, net(b)	—				—				—				—				—				17,056				17,056
Gain on acquisition(c)	(6,221		)		—				—				(6,221		)		—				—				(6,221		)
Acquisition and integration related costs(d)	—				—				—				—				—				33,954				33,954
Interest and financing expenses(e)	—				—				—				—				—				115,350				115,350
Income tax expense	—				—				—				—				—				431,817				431,817
Non-operating pension and OPEB items	—				—				—				—				—				(16,125		)		(16,125		)
Multiemployer plan shortfall contributions(f)	—				—				—				—				—				7,887				7,887
Note receivable reserve(g)	—				—				—				—				—				28,730				28,730
Other(h)	(1,093		)		—				(1,250		)		(2,343		)		—				502				(1,841		)
Adjusted EBITDA	$	518,530			$	258,901			$	212,005			$	989,436			$	13,878			$	(117,834	)		$	885,480
2016
Net income (loss) attributable to Albemarle Corporation	$	261,394			$	187,364			$	202,874			$	651,632			$	131,301			$	(139,258	)		$	643,675
Depreciation and amortization	101,966				39,562				36,089				177,617				7,302				6,056				190,975
(Gain) loss on sales of businesses, net(i)	—				—				—				—				(123,831		)		1,533				(122,298		)
Acquisition and integration related costs(d)	—				—				—				—				—				57,384				57,384
Interest and financing expenses	—				—				—				—				—				65,181				65,181
Income tax expense	—				—				—				—				—				96,263				96,263
Income from discontinued operations (net of tax)	—				—				—				—				—				(202,131		)		(202,131		)
Non-operating pension and OPEB items	—				—				—				—				—				25,589				25,589
Other(j)	—				—				—				—				—				3,579				3,579
Adjusted EBITDA	$	363,360			$	226,926			$	238,963			$	829,249			$	14,772			$	(85,804	)		$	758,217
2015
Net income (loss) attributable to Albemarle Corporation	$	148,821			$	186,474			$	161,585			$	496,880			$	32,781			$	(194,755	)		$	334,906
Depreciation and amortization	84,069				36,179				34,039				154,287				18,183				8,703				181,173
Utilization of inventory markup(k)	79,977				—				—				79,977				3,029				—				83,006
Restructuring and other, net(l)	—				—				—				—				—				(6,804		)		(6,804		)
Acquisition and integration related costs(d)	—				—				—				—				—				132,299				132,299
Interest and financing expenses	—				—				—				—				—				81,650				81,650
Income tax expense	—				—				—				—				—				11,134				11,134
Income from discontinued operations (net of tax)	—				—				—				—				—				(32,476		)		(32,476		)
Non-operating pension and OPEB items	—				—				—				—				—				(35,300		)		(35,300		)
Other(m)	—				—				1,971				1,971				—				4,441				6,412
Adjusted EBITDA	$	312,867			$	222,653			$	197,595			$	733,115			$	53,993			$	(31,108	)		$	756,000

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(a)

In connection with the acquisition of Jiangli New Materials, the Company valued inventory purchased from Jiangli New Materials at fair value, which resulted in a markup of the underlying net book value of the inventory totaling approximately $23.1 million. The utilization of this inventory markup was included in Costs of goods sold during the year ended December 31, 2017, the estimated remaining selling period.

(b)

During 2017, we initiated action to reduce costs in each of our reportable segments at several locations, primarily at our Lithium sites in Germany. Based on the restructuring plans, we have recorded expenses of $2.9 million in Cost of goods sold, $8.4 million in Selling, general and administrative expenses, and $5.7 million in Research and development expenses for the year ended December 31, 2017, primarily related to expected severance payments. The unpaid balance is recorded in Accrued expenses at December 31, 2017, with the expectation that the majority of these plans will be completed by the end of 2018.

(c)	Gain recorded in Other (expenses) income, net related to the acquisition of the remaining 50% interest in Salmag. See Note 2, “Acquisitions,” for additional information.

(d)	See Note 2, “Acquisitions,” for additional information.

(e)	Included in Interest and financing expenses is a loss on early extinguishment of debt of $52.8 million. See Note 14, “Long-Term Debt,” for additional information.

(f)	Shortfall contributions for our multiemployer plan financial improvement plan. See Note 15, “Pension Plans and Other Postretirement Benefits,” for additional information.

(g)	Reserve recorded in Other (expenses) income, net against a note receivable on one of our European entities no longer deemed probable of collection.

(h)	Included amounts for the year ended December 31, 2017 recorded in:

▪	Cost of goods sold - $1.3 million reversal of deferred income related to an abandoned project at an unconsolidated investment.

▪	Selling, general and administrative expenses - $1.0 million related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition.

▪

Other (expenses) income, net - $3.2 million of asset retirement obligation charges related to the revision of an estimate at a site formerly owned by Albemarle, losses of $4.1 million related to final settlements of previously disposed businesses, the revision of tax indemnification expenses of $3.7 million primarily related to the filing of tax returns and a competent authority agreement for a previously disposed business and $1.0 million related to the settlement of a legal claim. This is partially offset by gains of $10.6 million and $1.1 million related to the reversal of liabilities recorded as part of purchase accounting from a previous acquisition and the previous disposal of a property, respectively.

(i)	See Note 3, “Divestitures,” for additional information.

(j)	Included amounts for the year ended December 31, 2016 recorded in:

▪	Research and development expenses - $1.4 million related to the write-off of fixed assets in China.

▪	Selling, general and administrative expenses - $0.9 million related to the net loss on the sales of properties.

▪	Other (expenses) income, net -$2.4 million related to environmental charges related to a site formerly owned by Albemarle, partially offset by a gain related to a previously disposed of site in China of $1.1 million.

(k)

In connection with the acquisition of Rockwood, the Company valued Rockwood’s existing inventory at fair value as of the Acquisition Closing Date, which resulted in a markup of the underlying net book value of the inventory totaling approximately $103.4 million. The inventory markup was expensed over the estimated remaining selling period. For the year ended December 31, 2015, $55.9 million was included in Cost of goods sold, and Equity in net income of unconsolidated investments was reduced by $27.1 million related to the utilization of the inventory markup.

(l)

Included in Restructuring and other, net, for the year ended December 31, 2015 is a gain of $6.8 million recognized upon the sale of land in Avonmouth, U.K., which was utilized by the phosphorus flame retardants business we exited in 2012. In 2012, charges in connection with our exit of the phosphorus flame retardants business were recorded in Restructuring and other, net, on our consolidated statements of income.

(m)	Refining Solutions included an impairment charge of approximately $2.0 million related to our unconsolidated investment in Fábrica Carioca de Catalisadores SA. Corporate included approximately $4.4 million of financing-related fees expensed in connection with the acquisition of Rockwood.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	As of December 31,
	2017				2016				2015
					(In thousands)
Identifiable assets:
Lithium and Advanced Materials	$	4,057,242			$	3,809,883			$	3,658,669
Bromine Specialties	745,007				724,218				699,929
Refining Solutions	1,016,519				913,923				937,445
Discontinued Operations	—				—				3,208,902
All Other	126,486				130,595				517,695
Corporate(a)	1,805,518				2,582,588				575,314
Total identifiable assets	$	7,750,772			$	8,161,207			$	9,597,954
Goodwill:
Lithium and Advanced Materials	$	1,396,140			$	1,348,261			$	1,267,505
Bromine Specialties	20,319				20,319				20,319
Refining Solutions	187,310				164,866				172,728
All Other	6,586				6,586				—
Total goodwill	$	1,610,355			$	1,540,032			$	1,460,552

(a)	As of December 31, 2016, Corporate included the net proceeds received from the sale of the Chemetall Surface Treatment business completed on December 14, 2016, less the repayment of the term loans and commercial paper using those proceeds. See Note 3, “Divestitures,” and Note 14, “Long-Term Debt” for additional details about these transactions.

	Year Ended December 31,
	2017				2016				2015
					(In thousands)
Depreciation and amortization:
Lithium and Advanced Materials	$	102,389			$	101,966			$	84,069
Bromine Specialties	40,062				39,562				36,179
Refining Solutions	39,958				36,089				34,039
Discontinued Operations	—				35,194				78,903
All Other	8,357				7,302				18,183
Corporate	6,162				6,056				8,703
Total depreciation and amortization	$	196,928			$	226,169			$	260,076
Capital expenditures:
Lithium and Advanced Materials	$	207,410			$	91,967			$	104,344
Bromine Specialties	46,427				46,414				54,994
Refining Solutions	31,716				27,546				28,836
Discontinued Operations	—				19,281				23,738
All Other	3,657				9,251				13,054
Corporate	28,493				2,195				2,683
Total capital expenditures	$	317,703			$	196,654			$	227,649

	Year Ended December 31,
	2017				2016				2015
					(In thousands)
Net Sales:
United States	$	840,589			$	797,267			$	911,519
Foreign(a)	2,231,387				1,879,936				1,914,910
Total	$	3,071,976			$	2,677,203			$	2,826,429

(a)	In 2017 and 2016, net sales to China represented 15% and 13%, respectively, of total net sales. No net sales in any other foreign country exceed 10% of total net sales. Also, net sales are attributed to countries based upon shipments to final destination.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	As of December 31,
	2017				2016				2015
					(In thousands)
Long-Lived Assets(a):
United States	$	833,002			$	850,689			$	800,214
Chile	1,069,859				922,878				916,965
Netherlands	171,980				145,917				155,128
Jordan	242,626				227,222				230,460
Australia	364,624				288,553				280,222
Brazil	47,255				46,380				39,299
Germany	115,305				117,027				137,890
China	50,532				31,564				4,773
France	40,852				39,470				39,344
Korea(b)	495				65,963				72,685
Other foreign countries	60,131				57,936				58,899
Total	$	2,996,661			$	2,793,599			$	2,735,879

(a)	Long-lived assets are comprised of the Company’s Property, plant and equipment and Investments.

(b)	The reduction as of December 31, 2017, relates to the assets of the polyolefin catalysts and components portion of the PCS business that are included in Assets held for sale in the consolidated balance sheet.

Net sales to external customers by product category in each of the segments consists of the following:

	Year Ended December 31,
	2017				2016				2015
					(In thousands)
Lithium and Advanced Materials:
Lithium	$	1,018,885			$	668,852			$	508,844
Performance Catalyst Solutions	289,268				299,364				325,746
Total Lithium and Advanced Materials	$	1,308,153			$	968,216			$	834,590
Bromine Specialties	$	855,143			$	792,425			$	775,729
Refining Solutions	$	778,304			$	732,137			$	729,261

In November 2017, we announced that during the first quarter of 2018, the PCS product category will merge with the Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments will include: (1) Lithium, (2) Bromine Specialties and (3) Catalysts.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 25—Quarterly Financial Summary (Unaudited):

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(In thousands, except per share amounts)
2017
Net sales	$	722,063			$	737,258			$	754,866			$	857,789
Gross profit	$	255,088			$	272,094			$	275,789			$	307,009
Net income (loss) from continuing operations	$	62,657			$	113,689			$	130,193			$	(207,071	)
Net income attributable to noncontrolling interests	(11,444		)		(10,356		)		(11,523		)		(11,295		)
Net income (loss) attributable to Albemarle Corporation	$	51,213			$	103,333			$	118,670			$	(218,366	)
Basic earnings (loss) per share	$	0.46			$	0.93			$	1.07			$	(1.98	)
Shares used to compute basic earnings per share	111,986				110,686				110,476				110,510
Diluted earnings (loss) per share	$	0.45			$	0.92			$	1.06			$	(1.95	)
Shares used to compute diluted earnings per share	113,289				112,105				111,975				112,152

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(In thousands, except per share amounts)
2016
Net sales	$	657,211			$	669,327			$	654,010			$	696,655
Gross profit	$	242,534			$	248,104			$	238,972			$	240,966
Gain on sales of businesses, net(a)	$	(121,324	)		$	(974	)		$	—			$	—
Acquisition and integration related costs(b)	$	18,558			$	19,030			$	6,749			$	13,047
Net income from continuing operations	$	218,236			$	95,586			$	114,512			$	50,304
Income (loss) from discontinued operations (net of tax)(c)	17,312				(398,340		)		23,185				559,974
Net income attributable to noncontrolling interests	(7,362		)		(12,067		)		(9,477		)		(8,188		)
Net income (loss) attributable to Albemarle Corporation	$	228,186			$	(314,821	)		$	128,220			$	602,090
Basic earnings (loss) per share:
Continuing operations	$	1.88			$	0.74			$	0.93			$	0.37
Discontinued operations	0.15				(3.54		)		0.21				4.98
	$	2.03			$	(2.80	)		$	1.14			$	5.35
Shares used to compute basic earnings per share	112,260				112,339				112,429				112,487
Diluted earnings (loss) per share:
Continuing operations	$	1.87			$	0.74			$	0.93			$	0.37
Discontinued operations	0.15				(3.52		)		0.20				4.93
	$	2.02			$	(2.78	)		$	1.13			$	5.30
Shares used to compute diluted earnings per share	112,770				113,175				113,448				113,563

(a)

Included in Gain on sales of businesses, net for the year ended December 31, 2016 is $11.5 million and $112.3 million related to the sales of the metal sulfides business and the minerals-based flame retardants and specialty chemicals business, respectively, both of which closed in the first quarter of 2016. In addition, Gain on sales of businesses, net for the year ended December 31, 2016 includes a loss of $1.5 million on the sale of our wafer reclaim business. See Note 3, “Divestitures,” for additional information.

(b)	See Note 2, “Acquisitions,” for additional information.

(c)

Included in Income (loss) from discontinued operations (net of tax) for the second quarter of 2016 is a nonrecurring, non-cash tax charge of $416.7 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. In the fourth quarter of 2016, this non-cash tax charge was reversed as a result of the completion of the sale. In addition, the fourth quarter of 2016 includes an after-tax gain of $135.0 million as a result of the sale of the Chemetall Surface Treatment business.

As discussed in Note 1, “Summary of Significant Accounting Policies,” actuarial gains and losses related to our defined benefit pension and OPEB plan obligations are recognized annually in our consolidated statements of income in the fourth quarter and whenever a plan is determined to qualify for a remeasurement during a fiscal year. During the year ended December

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31, 2017, actuarial gains were recognized as follows: fourth quarter—$11.4 million ($7.3 million after income taxes) as a result of the annual remeasurement process. During the year ended December 31, 2016, actuarial losses were recognized as follows: fourth quarter—$26.7 million ($18.3 million after income taxes) as a result of the annual remeasurement process.

Albemarle Corporation and Subsidiaries