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, 2018. 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, 2018, 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, 2018 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, 2019

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 (the “Company”) as of December 31, 2018 and 2017, 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, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 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, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2018.

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 consolidated 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 the 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

Albemarle Corporation and Subsidiaries

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.

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
Charlotte, North Carolina
February 27, 2019

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	2018				2017				2016
Net sales	$	3,374,950			$	3,071,976			$	2,677,203
Cost of goods sold	2,157,694				1,965,700				1,706,897
Gross profit	1,217,256				1,106,276				970,306
Selling, general and administrative expenses	446,090				450,286				353,765
Research and development expenses	70,054				84,330				80,475
Gain on sales of businesses, net	(210,428		)		—				(122,298		)
Acquisition and integration related costs	—				—				57,384
Operating profit	911,540				571,660				600,980
Interest and financing expenses	(52,405		)		(115,350		)		(65,181		)
Other expenses, net	(64,434		)		(9,512		)		(20,535		)
Income from continuing operations before income taxes and equity in net income of unconsolidated investments	794,701				446,798				515,264
Income tax expense	144,826				431,817				96,263
Income from continuing operations before equity in net income of unconsolidated investments	649,875				14,981				419,001
Equity in net income of unconsolidated investments (net of tax)	89,264				84,487				59,637
Net income from continuing operations	739,139				99,468				478,638
Income from discontinued operations (net of tax)	—				—				202,131
Net income	739,139				99,468				680,769
Net income attributable to noncontrolling interests	(45,577		)		(44,618		)		(37,094		)
Net income attributable to Albemarle Corporation	$	693,562			$	54,850			$	643,675
Basic earnings per share:
Continuing operations	$	6.40			$	0.49			$	3.93
Discontinued operations	—				—				1.80
	$	6.40			$	0.49			$	5.73
Diluted earnings per share:
Continuing operations	$	6.34			$	0.49			$	3.90
Discontinued operations	—				—				1.78
	$	6.34			$	0.49			$	5.68
Weighted-average common shares outstanding—basic	108,427				110,914				112,379
Weighted-average common shares outstanding—diluted	109,458				112,380				113,239

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)
Year Ended December 31	2018				2017				2016
Net income	$	739,139			$	99,468			$	680,769
Other comprehensive (loss) income, net of tax:
Foreign currency translation	(150,258		)		227,439				(20,825		)
Pension and postretirement benefits	(138		)		(97		)		834
Net investment hedge	25,786				(41,827		)		26,133
Interest rate swap	(585		)		2,116				2,116
Total other comprehensive (loss) income, net of tax	(125,195		)		187,631				8,258
Comprehensive income	613,944				287,099				689,027
Comprehensive income attributable to noncontrolling interests	(45,396		)		(45,505		)		(36,477		)
Comprehensive income attributable to Albemarle Corporation	$	568,548			$	241,594			$	652,550

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS

(In Thousands)
December 31	2018				2017
Assets
Current assets:
Cash and cash equivalents	$	555,320			$	1,137,303
Trade accounts receivable, less allowance for doubtful accounts (2018—$4,460; 2017—$10,425)	605,712				534,326
Other accounts receivable	52,059				37,937
Inventories	700,540				592,781
Other current assets	84,790				136,064
Assets held for sale	—				39,152
Total current assets	1,998,421				2,477,563
Property, plant and equipment, at cost	4,799,063				4,124,335
Less accumulated depreciation and amortization	1,777,979				1,631,025
Net property, plant and equipment	3,021,084				2,493,310
Investments	528,722				534,064
Noncurrent assets held for sale	—				139,813
Other assets	80,135				74,164
Goodwill	1,567,169				1,610,355
Other intangibles, net of amortization	386,143				421,503
Total assets	$	7,581,674			$	7,750,772
Liabilities and Equity
Current liabilities:
Accounts payable	$	522,516			$	418,537
Accrued expenses	257,323				268,336
Current portion of long-term debt	307,294				422,012
Dividends payable	35,169				35,165
Liabilities held for sale	—				1,938
Income taxes payable	60,871				54,937
Total current liabilities	1,183,173				1,200,925
Long-term debt	1,397,916				1,415,360
Postretirement benefits	46,157				52,003
Pension benefits	285,396				294,611
Noncurrent liabilities held for sale	—				614
Other noncurrent liabilities	526,942				599,174
Deferred income taxes	382,982				370,389
Commitments and contingencies (Note 17)
Equity:
Albemarle Corporation shareholders’ equity:
Common stock, $.01 par value (authorized 150,000 shares), issued and outstanding — 105,616 in 2018 and 110,547 in 2017	1,056				1,105
Additional paid-in capital	1,368,897				1,863,949
Accumulated other comprehensive loss	(350,682		)		(225,668		)
Retained earnings	2,566,050				2,035,163
Total Albemarle Corporation shareholders’ equity	3,585,321				3,674,549
Noncontrolling interests	173,787				143,147
Total equity	3,759,108				3,817,696
Total liabilities and equity	$	7,581,674			$	7,750,772

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, 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, $1.22 per common share																	(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, $1.28 per common share																	(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
Balance at January 1, 2018		110,546,674			$	1,105			$	1,863,949			$	(225,668	)		$	2,035,163			$	3,674,549			$	143,147			$	3,817,696
Net income																	693,562				693,562				45,577				739,139
Other comprehensive loss													(125,014		)						(125,014		)		(181		)		(125,195		)
Cash dividends declared, $1.34 per common share																	(144,601		)		(144,601		)		(14,756		)		(159,357		)
Cumulative adjustments from adoption of income tax standard updates (Note 1)																	(18,074		)		(18,074		)						(18,074		)
Stock-based compensation and other									18,506												18,506								18,506
Exercise of stock options		94,031			1				3,632												3,633								3,633
Shares repurchased		(5,262,654	)		(53		)		(499,947		)										(500,000		)						(500,000		)
Issuance of common stock, net		383,974			4				(4		)										—								—
Shares withheld for withholding taxes associated with common stock issuances		(145,997	)		(1		)		(17,239		)										(17,240		)						(17,240		)
Balance at December 31, 2018		105,616,028			$	1,056			$	1,368,897			$	(350,682	)		$	2,566,050			$	3,585,321			$	173,787			$	3,759,108

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)
Year Ended December 31	2018				2017				2016
Cash and cash equivalents at beginning of year	$	1,137,303			$	2,269,756			$	213,734
Cash flows from operating activities:
Net income	739,139				99,468				680,769
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	200,698				196,928				226,169
Gain on acquisition	—				(6,221		)		—
Gain on sales of businesses, net	(210,428		)		—				(510,278		)
Stock-based compensation	15,228				19,404				17,031
Equity in net income of unconsolidated investments (net of tax)	(89,264		)		(84,487		)		(61,534		)
Dividends received from unconsolidated investments and nonmarketable securities	57,415				39,386				43,759
Pension and postretirement expense (benefit)	10,410				(12,436		)		41,546
Pension and postretirement contributions	(15,236		)		(13,341		)		(20,068		)
Unrealized gain on investments in marketable securities	(527		)		(3,135		)		(3,655		)
Loss on early extinguishment of debt	—				52,801				1,921
Deferred income taxes	49,164				(41,941		)		21,121
Changes in current assets and liabilities, net of effects of acquisitions and divestitures:
(Increase) in accounts receivable	(97,448		)		(74,545		)		(42,816		)
(Increase) decrease in inventories	(124,067		)		(101,545		)		25,974
(Increase) decrease in other current assets	(2,181		)		(213		)		1,808
Increase in accounts payable	73,730				53,421				43,953
(Decrease) increase in accrued expenses and income taxes payable	(1,999		)		(269,381		)		210,276
Other, net	(58,469		)		449,816				59,548
Net cash provided by operating activities	546,165				303,979				735,524
Cash flows from investing activities:
Acquisitions, net of cash acquired	(11,403		)		(44,367		)		(126,747		)
Cash payments related to acquisitions and other	—				—				(81,987		)
Capital expenditures	(699,991		)		(317,703		)		(196,654		)
Cash proceeds from divestitures, net	413,569				6,857				3,325,571
(Investments in) sales of marketable securities, net	(270		)		(275		)		305
Repayments from joint ventures	—				1,250				—
Investments in equity and other corporate investments	(5,600		)		(3,565		)		—
Net cash (used in) provided by investing activities	(303,695		)		(357,803		)		2,920,488
Cash flows from financing activities:
Proceeds from borrowings of other long-term debt	—				27,000				—
Repayments of long-term debt	—				(778,209		)		(1,252,302		)
Other (repayments) borrowings, net	(113,567		)		138,751				(163,721		)
Fees related to early extinguishment of debt	—				(46,959		)		—
Dividends paid to shareholders	(144,596		)		(140,557		)		(135,353		)
Dividends paid to noncontrolling interests	(14,756		)		(36,756		)		(35,855		)
Repurchases of common stock	(500,000		)		(250,000		)		—
Proceeds from exercise of stock options	3,633				8,238				9,401
Withholding taxes paid on stock-based compensation award distributions	(17,240		)		(8,376		)		(2,194		)
Net cash used in financing activities	(786,526		)		(1,086,868		)		(1,580,024		)
Net effect of foreign exchange on cash and cash equivalents	(37,927		)		8,239				(19,966		)
(Decrease) increase in cash and cash equivalents	(581,983		)		(1,132,453		)		2,056,022
Cash and cash equivalents at end of year	$	555,320			$	1,137,303			$	2,269,756

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.

Discontinued Operations

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 the year ended December 31, 2016. 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

Effective January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” and all related amendments using the modified retrospective method. There was no material impact to our results of operations or financial position upon adoption, and no adjustment was made to Retained earnings in our consolidated balance sheets because such adjustment was determined to be immaterial. In addition, new presentation requirements, including separate disclosure of net sales from sources other than customers on our consolidated statements of income and separate disclosures of contract assets or liabilities on our consolidated balance sheets, generally did not have a material impact. However, business circumstances, including the nature of customer contracts, can change and as such, we have expanded processes and controls to recognize such changes, and as necessary, consider whether any of these currently immaterial items might differ in the future.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services, and is recognized when performance obligations are satisfied under the terms of contracts with our customers. A performance obligation is deemed to be satisfied when control of the product or service is transferred to our customer. The transaction price of a contract, or the amount we expect to receive upon satisfaction of all performance obligations, is determined by reference to the contract’s terms and includes adjustments, if applicable, for any variable consideration, such as customer rebates, noncash consideration or consideration payable to the customer, although these adjustments are generally not material. Where a contract contains more than one distinct performance obligation, the transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation, although these situations do not

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

occur frequently and are generally not built into our contracts. Any unsatisfied performance obligations are not material. Standalone selling prices are based on prices we charge to our customers, which in some cases is based on established market prices. Sales and other similar taxes collected from customers on behalf of third parties are excluded from revenue. Our payment terms are generally between 30 to 90 days, however, they vary by market factors, such as customer size, creditworthiness, geography and competitive environment.

All of our revenue is derived from contracts with customers, and almost all of our contracts with customers contain one performance obligation for the transfer of goods where such performance obligation is satisfied at a point in time. Control of a product is deemed to be transferred to the customer upon shipment or delivery. Significant portions of our sales are sold free on board shipping point or on an equivalent basis, while delivery terms of 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, while the timing between shipment and delivery generally ranges between 1 and 45 days. Costs for shipping and handling activities, whether performed before or after the customer obtains control of the goods, are accounted for as fulfillment costs.

The Company currently utilizes the following practical expedients, as permitted by Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers:

•	All sales and other pass-through taxes are excluded from contract value;

•	In utilizing the modified retrospective transition method, no adjustment was necessary for contracts that did not cross over the reporting year;

•	We will not consider the possibility of a contract having a significant financing component (which would effectively attribute a portion of the sales price to interest income) unless, if at contract inception, the expected payment terms (from time of delivery or other relevant criterion) are more than one year;

•	If our right to customer payment is directly related to the value of our completed performance, we recognize revenue consistent with the invoicing right; and

•	We expense as incurred all costs of obtaining a contract incremental to any costs/compensation attributable to individual product sales/shipments for contracts where the amortization period for such costs would otherwise be one year or less.

Certain products we produce are made to our customer’s specifications where such products have limited alternative use or would need significant rework costs in order to be sold to another customer. In management’s judgment, control of these arrangements is transferred to the customer at a point in time (upon shipment or delivery) and not over the time they are produced. Therefore revenue is recognized upon shipment or delivery of these products.

Costs incurred to obtain contracts with customers are not significant and are expensed immediately as the amortization period would be one year or less. When the Company incurs pre-production or other fulfillment costs in connection with an existing or specific anticipated contract and such costs are recoverable through margin or explicitly reimbursable, such costs are capitalized and amortized to Cost of goods sold on a systematic basis that is consistent with the pattern of transfer to the customer of the goods or services to which the asset relates, which is less than one year. We record bad debt expense in specific situations when we determine the customer is unable to meet its financial obligation.

Included in Trade accounts receivable at December 31, 2018 is approximately $590.3 million arising from contracts with customers. The remaining balance of Trade accounts receivable at December 31, 2018 primarily includes value-added taxes collected from customers on behalf of various taxing authorities.

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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 are 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 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.

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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. 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 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, 2018 and concluded there was no impairment as of that date. In addition, no material 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.”

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 2018, 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 2018, 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, 2018 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 (“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 2017, the Society of Actuaries (“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. In October 2018, the SOA published an updated Mortality Improvement Scale, MP-2018. The updated Improvement Scale incorporates an additional year of mortality (2016). 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-2018 Mortality Improvement Scale for purposes of measuring our U.S. pension and OPEB obligations at December 31, 2018.

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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”) 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. Tax effects are released from Accumulated Other Comprehensive Income using either the specific identification approach or the portfolio approach based on the nature of the underlying item.

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. Our foreign 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. Management’s assertion of indefinite reinvestment of undistributed foreign earnings was unchanged within the measurement period ending December 22, 2018, as allowed under Staff Accounting Bulletin (“SAB”) 118. We will continue to evaluate our permanent investment assertion taking into consideration all relevant, current tax laws.

On December 22, 2017, the Tax Cuts and Jobs Act (“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”). A company can elect an accounting policy to account for GILTI as a period charge in the future period the tax arises or as part of deferred taxes related to the investment or subsidiary. The Company has elected to account for GILTI as a period cost.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss 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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 ($10.5) million, ($11.1) million and $2.4 million for the years ended December 31, 2018, 2017 and 2016, respectively, and are included in Other expenses, net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our consolidated statements of cash flows.

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, 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, 2018 and 2017 have not been designated as hedging instruments under 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 relevance to the Company include principal versus agent considerations, collectability, presentation of sales tax from customers, contract modifications at transition and accounting transition. These new requirements became effective on January 1, 2018 and did not have a material impact on our consolidated financial statements. We adopted the new standard using the modified retrospective method. We have implemented 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 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. In July 2018, the FASB issued an amendment which would allow entities to initially apply this new standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings. The Company adopted this standard on January 1, 2019 using this transition method. We evaluated our existing lease contracts and believe this standard will have a material impact on the consolidated financial statements and related disclosures. The implementation of this standard will result in the addition of right-of-use assets and lease liabilities on our balance sheet by approximately $135 million. We have made the decision to adopt several practical expedients as allowed by this new standard, such as the short-term lease exemption and the relief package. In addition, we have implemented new software, as well as changes to controls that support recognition and disclosure under this new standard.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In June 2016, the FASB issued accounting guidance that, among other things, changes the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of the financial asset. Additional disclosures are required regarding an entity’s assumptions, models and methods for estimating the expected credit loss. 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 using a modified retrospective approach. Early adoption is permitted. We currently do not expect this guidance to have a significant impact on our consolidated financial statements.

In October 2016, the FASB issued accounting guidance that eliminated the deferral of tax effects of intra-entity asset transfers other than inventory. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized as they are eliminated in consolidation. This guidance was effective using the modified retrospective method as of January 1, 2018, which resulted in an $11.2 million cumulative adjustment to decrease Retained earnings and is not reflected in periods prior to this date.

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 became effective on January 1, 2018 and did not 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 became effective on January 1, 2018 and did not 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 expect to adopt this guidance on January 1, 2020 and do not expect it to have a significant impact on our 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 became effective on January 1, 2018 and did not have a significant impact on our consolidated financial statements. The consolidated statements of income for the years ended December 31, 2017 and 2016 have been recast to conform to the current presentation required by this guidance. See Note 15, “Pension Plans and Other Postretirement Benefits,” for additional details.

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 became effective on January 1, 2018 and did not 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. In October 2018, the FASB issued additional guidance that permits the use of the Overnight Index Swap Rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815, Derivatives and Hedging. These new requirements will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and are 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In February 2018, the FASB issued accounting guidance that gives companies the option to reclassify stranded tax effects caused by the TCJA from accumulated other comprehensive income to retained earnings. As allowed by its provisions, we early-adopted this new guidance in the fourth quarter of 2018, which resulted in a $6.9 million cumulative adjustment to decrease Retained earnings and is not reflected in periods prior to this date.

In August 2018, the FASB issued accounting guidance that, among other things, eliminates certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose (a) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and (b) the policy for timing of transfers between levels of the fair value hierarchy. As allowed by its provisions, we early-adopted this new guidance in the third quarter of 2018. The adoption of this new guidance did not have a significant impact on our consolidated financial statements.

In August 2018, the FASB issued accounting guidance that, among other things, eliminates certain disclosure requirements for defined benefit pension and other postretirement benefit plans. Under the new guidance, entities will no longer be required to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. As allowed by its provisions, we early-adopted this new guidance in the third quarter of 2018. The adoption of this new guidance did not have a significant impact on our consolidated financial statements.

In August 2018, the FASB issued accounting guidance that requires implementation costs incurred in a cloud computing arrangement that is a service contract to be capitalized. Entities will be required to recognize the capitalized implementation costs to expense over the noncancellable term of the cloud computing arrangement. As allowed by its provisions, we early-adopted this new guidance in the first quarter of 2019, although we do not expect it to have a material impact on our consolidated financial statements.

NOTE 2—Acquisitions:

Sales de Magnesio, Ltda.

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, net on the consolidated statements of income for the year ended December 31, 2017.

Jiangxi Jiangli New Materials Science and Technology Co. Ltd.

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 has enabled 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.

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 years ended December 31, 2018 and 2017 of $3.7 million and $14.3 million, respectively, were included in Cost of goods sold and $15.7 million and $19.6 million, respectively, 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 non-routine compensation related costs negotiated specifically as a result of this acquisition that are outside of the Company’s ordinary compensation arrangements. Included in Acquisition and integration related costs on our consolidated statements of income for the year ended December 31, 2016 is $52.1 million of integration costs resulting from the acquisition of Rockwood Holdings, Inc. (“Rockwood”) (mainly consisting of professional services fees, costs to achieve synergies, relocation costs, and other integration costs) and $5.3 million of costs in connection with other significant projects.

NOTE 3—Divestitures:

Polyolefin Catalysts and Components Business

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 (“Polyolefin Catalysts Divestiture”) to W.R. Grace & Co., with the sale closing on April 3, 2018. We received net cash proceeds of approximately $413.6 million and have recorded a gain of $210.4 million before income taxes in 2018 related to the sale of this business. 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 Polyolefin Catalysts Divestiture reflects the Company’s commitment to investing in the future growth of its high priority businesses and returning capital to shareholders.

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 were 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):

	December 31, 2017
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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

The Chemetall Surface Treatment business, a separate reportable segment, was acquired on January 12, 2015 as part of the acquisition of Rockwood. This sale 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 year ended December 31, 2016. 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 year ended December 31, 2016 were as follows (in thousands):

	Year Ended December 31, 2016
Net sales	$	813,285
Cost of goods sold	416,934
Operating expenses, net(a)	268,402
Interest and financing expenses(b)	38,227
Other income, net	(2,485		)
Gain on sale of discontinued operations	(387,980		)
Income before income taxes	480,187
Income tax expense(c)	278,056
Income from discontinued operations (net of tax)	$	202,131

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

(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 year ended December 31, 2016 were as follows (in thousands):

	Year Ended December 31, 2016
Depreciation and amortization	$	35,194
Capital expenditures	$	19,281

Other Divestitures

On January 4, 2016, we completed the sale of our metal sulfides business to Treibacher Industrie AG for net proceeds of $137 million and recorded a gain of $11.5 million before income taxes in 2016 related to the sale of this business. Included in the transaction were sites in Vienna and Arnoldstein, Austria, and Tribotecc’s proprietary sulfide synthesis process. In addition, on February 1, 2016, we completed the sale of our minerals-based flame retardants and specialty chemicals business to Huber Engineered Materials, a division of J.M. Huber Corporation, for net proceeds of approximately $187 million and recorded a gain of $112.3 million before income taxes in 2016 related to the sale of these businesses. The transaction included Albemarle’s Martinswerk GmbH subsidiary and manufacturing facility located in Bergheim, Germany, and Albemarle’s 50% ownership

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

interest in Magnifin Magnesiaprodukte GmbH, a joint-venture with Radex Heraklith Industriebeteiligung AG at Breitenau, Austria. 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.

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.

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,
	2018				2017				2016
Cash paid during the year for:
Income taxes (net of refunds of $21,459, $17,522 and $9,270 in 2018, 2017 and 2016, respectively)(a)	$	157,758			$	320,222			$	143,404
Interest (net of capitalization)	$	49,762			$	61,243			$	96,948
Supplemental non-cash disclosures related to investing activities:
Capital expenditures included in Accounts payable	$	134,784			$	89,188			$	33,622

(a)	Includes approximately $41 million of income taxes paid in 2018 from the gain on sale of the Polyolefin Catalysts Divestiture, and $257 million of income taxes paid in 2017 from the gain on sale of the Chemetall Surface Treatment business.

Other, net within Cash flows from operating activities on the consolidated statements of cash flows for the year ended December 31, 2018 included $28.4 million representing the reclassification of the current portion of the one-time transition tax resulting from the enactment of the TCJA, from Other noncurrent liabilities to Income taxes payable within current liabilities. Included in Other, net for the year ended December 31, 2017 is $394.9 million related to the 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, 2018, 2017 and 2016 is $10.5 million, $11.1 million and $40.8 million, respectively, related to losses on fluctuations in foreign currency exchange rates.

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,
	2018				2017				2016
Basic earnings per share from continuing operations
Numerator:
Net income from continuing operations	$	739,139			$	99,468			$	478,638
Net income from continuing operations attributable to noncontrolling interests	(45,577		)		(44,618		)		(37,094		)
Net income from continuing operations attributable to Albemarle Corporation	$	693,562			$	54,850			$	441,544
Denominator:
Weighted-average common shares for basic earnings per share	108,427				110,914				112,379
Basic earnings per share from continuing operations	$	6.40			$	0.49			$	3.93
Diluted earnings per share from continuing operations
Numerator:
Net income from continuing operations	$	739,139			$	99,468			$	478,638
Net income from continuing operations attributable to noncontrolling interests	(45,577		)		(44,618		)		(37,094		)
Net income from continuing operations attributable to Albemarle Corporation	$	693,562			$	54,850			$	441,544
Denominator:
Weighted-average common shares for basic earnings per share	108,427				110,914				112,379
Incremental shares under stock compensation plans	1,031				1,466				860
Weighted-average common shares for diluted earnings per share	109,458				112,380				113,239
Diluted earnings per share from continuing operations	$	6.34			$	0.49			$	3.90

At December 31, 2018, there were 123,730 common stock equivalents not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Included in the calculation of basic earnings per share are unvested restricted stock awards that contain nonforfeitable rights to dividends. At December 31, 2018, there were 8,400 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, 2018, 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, during 2018, the Company entered into two separate accelerated share repurchase (“ASR”) agreements with financial institutions. Under each ASR agreement, the Company paid $250 million from available cash on hand. Under the terms of the first ASR agreement, which was completed on September 28, 2018, the Company received and retired a total of 2,680,704 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. Under the terms of the second ASR agreement, which was completed on December 7, 2018, the company received and retired a total of 2,581,950 shares, calculated based on the daily Rule 10b-18 weighted average prices of the Company’s common stock over the terms of the ASR agreement, less an agreed discount. The Company determined that each 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 5,262,654 shares under these agreements, 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, 2018.

Under our existing Board authorized share repurchase program, the Company entered into an ASR agreement with a financial institution on March 1, 2017. Under the ASR agreement, in March 2017, the Company paid $250 million from available cash on hand and received and retired an initial delivery of 1,948,178 shares of our common stock. Under the terms of

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 year ended December 31, 2016. As of December 31, 2018, there were 7,396,263 remaining shares available for repurchase under the Company’s authorized share repurchase program.

NOTE 6—Other Accounts Receivable:

Other accounts receivable consist of the following at December 31, 2018 and 2017 (in thousands):

	December 31,
	2018				2017
Value added tax/consumption tax	$	40,480			$	23,158
Other	11,579				14,779
Total	$	52,059			$	37,937

NOTE 7—Inventories:

The following table provides a breakdown of inventories at December 31, 2018 and 2017 (in thousands):

	December 31,
	2018				2017
Finished goods(a)	$	482,355			$	404,239
Raw materials and work in process(b)	158,290				132,891
Stores, supplies and other	59,895				55,651
Total(c)	$	700,540			$	592,781

(a)	Increase primarily due to the build-up of inventory in our Lithium segment for a forecasted increase in sales in 2019.

(b)	Included $71.4 million and $59.6 million at December 31, 2018 and 2017, respectively, of work in process related to lithium brine.

(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 10% and 17% of our inventories are valued using the last-in, first-out (“LIFO”) method at December 31, 2018 and 2017, respectively. The portion of our domestic inventories stated on the LIFO basis amounted to $69.2 million and $99.6 million at December 31, 2018 and 2017, respectively, which are below replacement cost by approximately $32.8 million and $33.1 million, respectively.

NOTE 8—Other Current Assets:

Other current assets consist of the following at December 31, 2018 and 2017 (in thousands):

	December 31,
	2018				2017
Income tax receivables	$	40,116			$	47,130
Prepaid expenses	43,172				86,348
Other	1,502				2,586
Total	$	84,790			$	136,064

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9—Property, Plant and Equipment:

Property, plant and equipment, at cost, consist of the following at December 31, 2018 and 2017 (in thousands):

		Useful Lives (Years)		December 31,
2018				2017
Land		—		$	123,518			$	118,428
Land improvements		10 – 30		63,349				63,328
Buildings and improvements		10 – 45		251,980				245,482
Machinery and equipment(a)		2 – 45		2,780,478				2,627,667
Long-term mineral rights and production equipment costs		7 – 60		696,033				675,832
Construction in progress		—		883,705				393,598
Total(b)				$	4,799,063			$	4,124,335

(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, including depletion, amounted to $170.0 million, $169.5 million and $178.8 million during the years ended December 31, 2018, 2017 and 2016, respectively. Depreciation expense related to discontinued operations was $8.9 million during the year ended December 31, 2016. Interest capitalized on significant capital projects in 2018, 2017 and 2016 was $19.3 million, $7.4 million and $6.8 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, 2018 and 2017 (in thousands):

		December 31,
		2018				2017
Joint ventures		$	486,032			$	499,756
Nonmarketable securities		9,177				3,655
Marketable equity securities		33,513				30,653
Total		$	528,722			$	534,064

Our ownership positions in significant unconsolidated investments are shown below:

			December 31,
			2018			2017			2016
*		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	%
*		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	%

Our investment in the significant unconsolidated joint ventures above amounted to $466.1 million and $479.1 million as of December 31, 2018 and 2017, respectively, and the amount included in Equity in net income of unconsolidated investments (net of tax) in the consolidated statements of income totaled $88.8 million, $86.8 million and $56.8 million for the years ended

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018, 2017 and 2016, respectively. Undistributed earnings attributable to our significant unconsolidated investments represented approximately $159.9 million and $127.5 million of our consolidated retained earnings at December 31, 2018 and 2017, 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.

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

		December 31,
		2018				2017
Summary of Balance Sheet Information:
Current assets		$	476,460			$	503,043
Noncurrent assets		1,159,866				1,041,519
Total assets		$	1,636,326			$	1,544,562
Current liabilities		$	191,971			$	133,670
Noncurrent liabilities		422,769				405,662
Total liabilities		$	614,740			$	539,332

		Year Ended December 31,
		2018				2017				2016
Summary of Statements of Income Information:
Net sales		$	829,590			$	687,561			$	590,980
Gross profit		$	456,518			$	353,577			$	267,241
Income before income taxes		$	332,632			$	267,805			$	189,016
Net income		$	225,791			$	184,777			$	126,872

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 $56.4 million, $38.1 million and $42.1 million in 2018, 2017 and 2016, respectively.

At December 31, 2018 and 2017, the carrying amount of our investments in unconsolidated joint ventures differed from the amount of underlying equity in net assets by approximately $0.4 million and $13.8 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, 2018 and 2017, $0.1 million and $0.4 million, respectively, remained to be amortized over the remaining useful lives of the assets with the balance of the difference primarily representing 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 $349.6 million and $355.2 million at December 31, 2018 and December 31, 2017, 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 $8.1 million and $8.7 million at December 31, 2018 and December 31, 2017, respectively. Our unconsolidated VIEs 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.

As part of the original Windfield joint venture agreement, Tianqi Lithium Corporation (“Tianqi”) was granted an option to purchase from 20% to 30% of the equity interests in Rockwood Lithium GmbH, a wholly-owned German subsidiary of Albemarle, and its subsidiaries. In February 2017, Albemarle and Tianqi terminated the option agreement, and as a result, we will retain 100% of the ownership interest in Rockwood Lithium GmbH and its subsidiaries. Following the termination of the option agreement, the $13.1 million fair value of the option agreement originally recorded in Noncontrolling interests was reversed and recorded as an adjustment to Additional paid-in capital.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 2018 and 2017, these marketable securities amounted to $26.3 million and $25.5 million, respectively.

NOTE 11—Other Assets:

Other assets consist of the following at December 31, 2018 and 2017 (in thousands):

	December 31,
	2018				2017
Deferred income taxes(a)	$	17,029			$	25,108
Assets related to unrecognized tax benefits(a)	12,984				14,601
Other(b)	50,122				34,455
Total	$	80,135			$	74,164

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

(b)	As of December 31, 2018 and 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, 2018 and 2017 (in thousands):

	Lithium				Bromine Specialties				Catalysts				All Other				Total
Balance at December 31, 2016(a)	$	1,326,980			$	20,319			$	186,147			$	6,586			$	1,540,032
Acquisitions(b)	(26,151		)		—				—				—				(26,151		)
Reclass to assets held for sale(c)	—				—				(14,422		)		—				(14,422		)
Foreign currency translation adjustments and other	88,260				—				22,636				—				110,896
Balance at December 31, 2017(a)	1,389,089				20,319				194,361				6,586				1,610,355
Foreign currency translation adjustments and other	(34,310		)		—				(8,876		)		—				(43,186		)
Balance at December 31, 2018	$	1,354,779			$	20,319			$	185,485			$	6,586			$	1,567,169

(a)	The December 31, 2016 and 2017 balances have been recast to reflect a change in segments. See Note 24, “Segment and Geographic Area Information,” for additional information.

(b)	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.

(c)	Represents Goodwill of the Polyolefin Catalysts Divestiture. See Note 3, “Divestitures,” for additional information.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Other intangibles consist of the following at December 31, 2018 and 2017 (in thousands):

	Customer Lists and Relationships				Trade Names and Trademarks(a)				Patents and Technology				Other				Total
Gross Asset Value
Balance at December 31, 2016	$	387,893			$	16,514			$	38,434			$	18,844			$	461,685
Acquisitions(b)	19,225				1,429				20,381				18,847				$	59,882
Reclass to assets held for sale(c)	—				—				—				(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
Foreign currency translation adjustments and other	(10,940		)		(528		)		(5,817		)		6,452				(10,833		)
Balance at December 31, 2018	$	428,372			$	18,453			$	55,801			$	43,708			$	546,334
Accumulated Amortization
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(c)	—				—				—				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		)
Amortization	(23,402		)		—				(1,450		)		(3,127		)		(27,979		)
Foreign currency translation adjustments and other	2,309				119				1,405				(381		)		3,452
Balance at December 31, 2018	$	(95,797	)		$	(8,176	)		$	(35,248	)		$	(20,970	)		$	(160,191	)
Net Book Value at December 31, 2017	$	364,608			$	10,686			$	26,415			$	19,794			$	421,503
Net Book Value at December 31, 2018	$	332,575			$	10,277			$	20,553			$	22,738			$	386,143

(a)	Includes only indefinite-lived intangible assets.

(b)	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.

(c)	Represents Other intangibles and related amortization of the Polyolefin Catalysts Divestiture. See Note 3, “Divestitures,” for additional information.

Useful lives range from 13 – 25 years for customer lists and relationships; 8 – 20 years for patents and technology; and primarily 5 – 25 years for other.

Amortization of other intangibles amounted to $28.0 million, $25.1 million and $19.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. Included in amortization for the years ended December 31, 2018, 2017 and 2016 is $19.7 million, $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 for the year ended December 31, 2016.

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

	Estimated Amortization Expense
2019	$	27,219
2020	$	24,878
2021	$	24,600
2022	$	24,006
2023	$	23,395

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13—Accrued Expenses:

Accrued expenses consist of the following at December 31, 2018 and 2017 (in thousands):

	December 31,
	2018				2017
Employee benefits, payroll and related taxes	$	77,814			$	93,393
Other(a)	179,509				174,943
Total	$	257,323			$	268,336

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

NOTE 14—Long-Term Debt:

Long-term debt consisted of the following at December 31, 2018 and 2017 (in thousands):

	December 31,
	2018				2017
1.875% Senior notes, net of unamortized discount and debt issuance costs of $2,841 at December 31, 2018 and $3,971 at December 31, 2017	444,155				463,575
4.15% Senior notes, net of unamortized discount and debt issuance costs of $2,884 at December 31, 2018 and $3,372 at December 31, 2017	422,116				421,628
4.50% Senior notes, net of unamortized discount and debt issuance costs of $589 at December 31, 2018 and $891 at December 31, 2017	174,626				174,325
5.45% Senior notes, net of unamortized discount and debt issuance costs of $4,004 at December 31, 2018 and $4,159 at December 31, 2017	345,996				345,841
Commercial paper notes	306,606				421,321
Variable-rate foreign bank loans	7,216				5,298
Other	4,495				5,384
Total long-term debt	1,705,210				1,837,372
Less amounts due within one year	307,294				422,012
Long-term debt, less current portion	$	1,397,916			$	1,415,360

Aggregate annual maturities of long-term debt as of December 31, 2018 are as follows (in millions): 2019—$307.3; 2020—$175.3; 2021—$447.0; 2022—$0.0; 2023—$7.2; thereafter—$778.7.

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,

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 2018, 2017 and 2016, gains (losses) of $25.8 million, ($41.8) million and $26.1 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.

September 2015 Term Loan Agreement

On September 14, 2015, we entered into a new $1.25 billion term loan agreement (the “September 2015 Term Loan Agreement”) with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and certain other lenders. During the year ended December 31, 2016, the Company repaid the September 2015 Term Loan Agreement 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

On June 21, 2018, we entered into a revolving, unsecured credit agreement (“2018 Credit Agreement”) to replace our revolving, unsecured credit agreement dated as of February 7, 2014, as amended. The 2018 Credit Agreement currently provides for borrowings of up to $1.0 billion and matures on June 21, 2023. Borrowings under the 2018 Credit Agreement bear interest at variable rates based on an average London inter-bank offered rate (“LIBOR”) for deposits in the relevant currency plus an applicable margin which ranges from 0.910% to 1.500%, 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 1.125% as of December 31, 2018. There were no borrowings outstanding under the 2018 Credit Agreement as of December 31, 2018.

Borrowings under the 2018 Credit Agreement are conditioned upon satisfaction of certain conditions precedent, including the absence of defaults. The Company is subject to one financial covenant, as well as customary affirmative and negative covenants. The financial covenant requires that the Company’s consolidated funded debt to consolidated EBITDA ratio (as such terms are defined in the 2018 Credit Agreement) to be less than or equal to 3.50:1.00, subject to adjustments in accordance with the terms of the 2018 Credit Agreement relating to a consummation of an acquisition where the consideration includes cash proceeds from issuance of funded debt in excess of $500 million. The 2018 Credit Agreement also contains customary default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-performance of covenants and cross-defaults to other material indebtedness. The occurrence of an event of default under the 2018 Credit Agreement could result in all loans and other obligations becoming immediately due and payable and the credit facility being terminated.

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 2018 Credit Agreement is available to repay the Commercial Paper Notes, if necessary. Aggregate borrowings outstanding under the 2018 Credit Agreement and the Commercial Paper Notes will not exceed the $1.0 billion current maximum amount available under the 2018 Credit Agreement. The Commercial Paper Notes will be sold at a discount from par, or alternatively, will be

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

sold at par and bear interest at rates that will vary based upon market conditions at the time of issuance. The maturities of the Commercial Paper Notes will vary but may not exceed 397 days from the date of issue. The definitive documents relating to the commercial paper program contain customary representations, warranties, default and indemnification provisions. At December 31, 2018, we had $306.6 million of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately 2.91% and a weighted-average maturity of 38 days. During the year ended December 31, 2018, we repaid a net amount of $114.7 million of commercial paper notes using cash on hand.

Other

We have additional uncommitted credit lines with various U.S. and foreign financial institutions that provide for borrowings of up to approximately $263 million at December 31, 2018. Outstanding borrowings under these agreements were $7.2 million and $5.3 million at December 31, 2018 and 2017, respectively. The average interest rate on borrowings under these agreements during 2018, 2017 and 2016 was approximately 0.69%, 1.26% and 0.94%, respectively.

At December 31, 2018 and 2017, we had the ability and intent to refinance our borrowings under our other existing credit lines with borrowings under the 2018 Credit Agreement. Therefore, the amounts outstanding under those credit lines, if any, are classified as long-term debt at December 31, 2018 and 2017. At December 31, 2018, we had the ability to borrow $693.4 million under our commercial paper program and the 2018 Credit Agreement.

We believe that as of December 31, 2018, 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, 2018								Year Ended December 31, 2017
	U.S. Pension Plans				Foreign Pension Plans				U.S. Pension Plans				Foreign Pension Plans
Change in benefit obligations:
Benefit obligation at January 1	$	685,963			$	275,006			$	665,688			$	246,280
Service cost	1,043				3,919				985				2,547
Interest cost	26,804				5,144				28,614				5,128
Plan amendments	—				233				—				—
Actuarial (gain) loss	(36,844		)		(17,885		)		30,539				2,783
Benefits paid	(41,100		)		(9,974		)		(39,863		)		(9,524		)
Employee contributions	—				182				—				215
Foreign exchange (gain) loss	—				(12,632		)		—				30,711
Settlements/curtailments	—				(3,628		)		—				(3,065		)
Other	—				(62		)		—				(69		)
Benefit obligation at December 31	$	635,866			$	240,303			$	685,963			$	275,006
Change in plan assets:
Fair value of plan assets at January 1	$	580,396			$	79,478			$	538,082			$	68,875
Actual return on plan assets	(28,457		)		(1,593		)		80,613				6,260
Employer contributions	2,236				10,700				1,564				9,316
Benefits paid	(41,100		)		(9,974		)		(39,863		)		(9,524		)
Employee contributions	—				182				—				215
Foreign exchange (loss) gain	—				(4,519		)		—				7,470
Settlements/curtailments	—				(3,628		)		—				(3,065		)
Other	—				(62		)		—				(69		)
Fair value of plan assets at December 31	$	513,075			$	70,584			$	580,396			$	79,478
Funded status at December 31	$	(122,791	)		$	(169,719	)		$	(105,567	)		$	(195,528	)

	December 31, 2018								December 31, 2017
	U.S. Pension Plans				Foreign Pension Plans				U.S. Pension Plans				Foreign Pension Plans
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(1,342	)		$	(5,772	)		$	(1,267	)		$	(5,217	)
Noncurrent liabilities (pension benefits)	(121,449		)		(163,947		)		(104,300		)		(190,311		)
Net pension liability	$	(122,791	)		$	(169,719	)		$	(105,567	)		$	(195,528	)
Amounts recognized in accumulated other comprehensive (loss) income:
Prior service benefit	$	—			$	(409	)		$	(60	)		$	(269	)
Net amount recognized	$	—			$	(409	)		$	(60	)		$	(269	)
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate	4.59		%		2.15		%		4.03		%		1.94		%
Rate of compensation increase	—		%		3.63		%		—		%		3.18		%

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The accumulated benefit obligation for all defined benefit pension plans was $867.4 million and $949.0 million at December 31, 2018 and 2017, 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,
	2018				2017
	Other Postretirement Benefits				Other Postretirement Benefits
Change in benefit obligations:
Benefit obligation at January 1	$	56,647			$	56,141
Service cost	117				121
Interest cost	2,168				2,340
Actuarial (gain) loss	(5,661		)		2,008
Benefits paid	(2,881		)		(3,963		)
Benefit obligation at December 31	$	50,390			$	56,647
Change in plan assets:
Fair value of plan assets at January 1	$	834			$	2,232
Actual return on plan assets	(253		)		104
Employer contributions	2,300				2,461
Benefits paid	(2,881		)		(3,963		)
Fair value of plan assets at December 31	$	—			$	834
Funded status at December 31	$	(50,390	)		$	(55,813	)

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	December 31,
	2018				2017
	Other Postretirement Benefits				Other Postretirement Benefits
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(4,233	)		$	(3,810	)
Noncurrent liabilities (postretirement benefits)	(46,157		)		(52,003		)
Net postretirement liability	$	(50,390	)		$	(55,813	)
Amounts recognized in accumulated other comprehensive (loss) income:
Prior service benefit	$	—			$	48
Net amount recognized	$	—			$	48
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate	4.55		%		3.99		%
Rate of compensation increase	3.50		%		3.50		%

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

	Year Ended								Year Ended								Year Ended
	December 31, 2018								December 31, 2017								December 31, 2016
	U.S. Pension Plans				Foreign Pension Plans				U.S. Pension Plans				Foreign Pension Plans				U.S. Pension Plans				Foreign Pension Plans
Service cost	$	1,043			$	3,919			$	985			$	2,547			$	1,028			$	3,133
Interest cost	26,804				5,144				28,614				5,128				30,514				6,570
Expected return on assets	(38,621		)		(4,204		)		(36,243		)		(4,441		)		(36,445		)		(4,027		)
Actuarial loss (gain)	30,234				(10,833		)		(13,910		)		483				5,988				19,418
Amortization of prior service benefit	60				34				75				56				75				859
Total net pension benefits cost (credit)(a)	$	19,520			$	(5,940	)		$	(20,479	)		$	3,773			$	1,160			$	25,953
Weighted-average assumption percentages:
Discount rate	4.03		%		1.94		%		4.43		%		2.00		%		4.67		%		2.76		%
Expected return on plan assets	6.89		%		5.52		%		6.89		%		6.16		%		6.89		%		6.66		%
Rate of compensation increase	—		%		3.18		%		—		%		3.18		%		—		%		3.16		%

(a)	For the year ended December 31, 2016, $10.8 million 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, 2019, the weighted-average expected rate of return on plan assets for the U.S. and foreign defined benefit pension plans is 6.89% and 5.69%, respectively.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

	Year Ended December 31,
	2018				2017				2016
	Other Postretirement Benefits				Other Postretirement Benefits				Other Postretirement Benefits
Service cost	$	117			$	121			$	115
Interest cost	2,168				2,340				2,483
Expected return on assets	(7		)		(110		)		(187		)
Actuarial (gain) loss	(5,400		)		2,014				1,275
Amortization of prior service benefit	(48		)		(95		)		(95		)
Total net postretirement benefits (credit) cost	$	(3,170	)		$	4,270			$	3,591
Weighted-average assumption percentages:
Discount rate	3.99		%		4.35		%		4.59		%
Expected return on plan assets	7.00		%		7.00		%		7.00		%
Rate of compensation increase	3.50		%		3.50		%		3.50		%

As a result of the adoption of new accounting guidance effective January 1, 2018, on a retrospective basis, all components of net benefit cost (credit), other than service cost, are to be shown outside of operations on the consolidated statements of income. We recast these components of net benefit cost (credit), which resulted in an increase (reduction) of $3.7 million and $0.3 million in Cost of goods sold, respectively, and $12.4 million and ($26.7) million in Selling, general and administrative expenses, respectively, with an offsetting impact of $16.1 million and ($26.4) million in Other expenses, net, respectively, for the years ended December 31, 2017 and 2016. There was no impact to Net income attributable to Albemarle Corporation.

The mark-to-market actuarial loss in 2018 is primarily attributable to a lower return on pension plan assets in 2018 than was expected, as a result of overall market and investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was (4.55)% versus an expected return of 6.73%. The mark-to-market actuarial loss in 2018 was partially offset by an increase in the weighted-average discount rate to 4.59% from 4.03% for our U.S. pension plans and to 2.15% from 1.94% for our foreign pension plans to reflect market conditions as of the December 31, 2018 measurement date.

The mark-to-market actuarial gain in 2017 is primarily attributable to a higher return on pension plan assets in 2017 than was expected, as a result of overall market and investment portfolio performance. The weighted-average actual return on our U.S. and foreign pension plan assets was 14.31% versus an expected return of 6.73%. The mark-to-market actuarial gain in 2017 was partially offset by a decrease in the weighted-average discount rate to 4.03% from 4.43% for our U.S. pension plans and to 1.94% from 2.00% for our foreign pension plans to reflect market conditions as of the December 31, 2017 measurement date.

The mark-to-market actuarial loss in 2016 is primarily attributable to a decrease in the weighted-average discount rate to 4.43% from 4.67% for our U.S. pension plans and to 2.00% form 2.76% for our foreign pension plans to reflect market conditions as of the December 31, 2016 measurement date. The mark-to-market actuarial loss in 2016 was partially offset by a higher return on pension plan assets in 2016 than was expected, as a result of overall market and investment portfolio performance. The weighted-average return on our U.S. and foreign pension plan assets was 8.11% versus an expected return of 6.85%.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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. 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.

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, 2018 and 2017 (in thousands):

	December 31, 2018				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)	$	113,355			$	111,665			$	1,690			$	—
International Equity(b)	114,554				90,651				23,903				—
Fixed Income(c)	254,437				219,124				35,313				—
Absolute Return Measured at Net Asset Value(d)	71,987				—				—				—
Cash	29,326				29,326				—				—
Total Pension Assets	$	583,659			$	450,766			$	60,906			$	—

	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			$	—

(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 $72.0 million and $96.4 million as of

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018 and 2017, 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 97% 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, 2018 and 2017, 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	%

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 $15.2 million, $13.3 million and $20.1 million during the years ended December 31, 2018, 2017 and 2016, respectively, related to continuing and discontinued operations. We expect contributions to our domestic nonqualified and foreign qualified and nonqualified pension plans to approximate $12 million in 2019. Also, we expect to pay approximately $4 million in premiums to our U.S. postretirement benefit plan in 2019. 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
2019	$	42.0			$	12.9			$	4.2
2020	$	43.0			$	9.4			$	4.0
2021	$	43.5			$	9.7			$	3.8
2022	$	43.9			$	9.2			$	3.8
2023	$	44.3			$	12.1			$	3.7
2024-2028	$	220.6			$	52.1			$	17.4

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. (Credits) costs relating to our SERP were ($0.8) million, $2.6 million and $1.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. The projected benefit obligation for the SERP recognized in the consolidated balance sheets at December 31, 2018 and 2017 was $21.9 million and $24.8 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 2019. 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

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2018, 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 $11.8 million, $10.3 million, and $15.1 million in 2018, 2017 and 2016, 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 $12.7 million, $11.3 million and $12.7 million in 2018, 2017 and 2016, respectively, related to continuing and discontinued operations.

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 $10.2 million, $9.9 million and $9.5 million in 2018, 2017 and 2016, 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 due to financial inability to provide funding, 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, 2017, 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 in 2018 and 2017 and $1.7 million in 2016. Contributions for discontinued operations were approximately $1.3 million in 2016. The Company’s contributions represented more than 5% of total contributions to the DN Pensionskasse in 2018.

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 years ended December 31, 2018 and 2017, we made contributions for our employees covered under this plan of approximately $2.3 million and $3.3 million, respectively, recorded in Selling, general and administrative expenses, as a result of this financial improvement plan. The value of the additional funding required under

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

NOTE 16—Other Noncurrent Liabilities:

Other noncurrent liabilities consist of the following at December 31, 2018 and 2017 (in thousands):

	December 31,
	2018				2017
Transition tax on foreign earnings(a)	$	317,745			$	394,878
Liabilities related to uncertain tax positions(b)	22,877				24,369
Executive deferred compensation plan obligation	26,292				25,494
Environmental liabilities(c)	40,376				37,518
Asset retirement obligations(c)	41,489				40,450
Tax indemnification liability(d)	45,347				42,707
Other(e)	32,816				33,758
Total	$	526,942			$	599,174

(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, as well as the proposed settlement of an ongoing audit of a previously disposed business in Germany.

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

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, 2018, 2017 and 2016 (in thousands):

	Year Ended December 31,
	2018				2017				2016
Balance, beginning of year	$	39,808			$	34,919			$	31,436
Expenditures	(6,885		)		(1,818		)		(2,667		)
Accretion of discount	1,283				896				793
Additions and changes in estimates(a)	17,039				3,344				4,004
Foreign currency translation adjustments and other	(1,676		)		2,467				1,353
Balance, end of year	49,569				39,808				34,919
Less amounts reported in Accrued expenses	9,193				2,290				2,324
Amounts reported in Other noncurrent liabilities	$	40,376			$	37,518			$	32,595

(a)	Increase in additions primarily related to the indemnification of the buyer of a formerly owned site. As defined in the agreement of sale, this indemnification has a set cutoff date in 2024, at which point we will no longer be required to provide financial coverage.

Environmental remediation liabilities included discounted liabilities of $40.4 million and $28.1 million at December 31, 2018 and 2017, respectively, discounted at rates with a weighted-average of 3.7% and 3.6%, respectively, with the undiscounted amount totaling $74.5 million and $68.2 million at December 31, 2018 and 2017, respectively. For certain locations where the Company is operating groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility.

The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, could be an additional $10 million to $35 million before income taxes, in excess of amounts already recorded. The variability of this range is primarily driven by possible environmental remediation activity at a formerly owned site where we indemnify the buyer through a set cutoff date in 2024.

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 2018 and 2017 (in thousands):

	Year Ended December 31,
	2018				2017
Balance, beginning of year	$	40,450			$	36,296
Additions and changes in estimates	740				3,859
Accretion of discount	1,500				1,532
Liabilities settled	(786		)		(789		)
Foreign currency translation adjustments and other	(415		)		(448		)
Balance, end of year	$	41,489			$	40,450

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
2019	$	25,608
2020	$	17,918
2021	$	12,478
2022	$	10,794
2023	$	10,109
Thereafter	$	87,085

Rental expense was approximately $37.6 million, $31.2 million, and $31.4 million for 2018, 2017 and 2016, respectively. Rental expense related to discontinued operations was approximately $11.8 million for 2016. Rental expense is shown net of sublease income which was minimal during 2018, 2017 and 2016.

Litigation

We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability,

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

As previously reported in 2018, following receipt of information regarding potential improper payments being made by third party sales representatives of our Refining Solutions business, within our Catalysts segment, 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, within our Catalysts segment, to the U.S. Department of Justice (“DOJ”), the Securities and Exchange Commission (“SEC”), and the Dutch Public Prosecutor (“DPP”), and are cooperating with the DOJ, the SEC, and DPP 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 the investigations by the DOJ, the SEC, or DPP. We are unable to predict what, if any, action may be taken by the DOJ, the SEC, or DPP, or what penalties or remedial actions they may seek to impose. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses. We do not believe, however, that any such fines, penalties, disgorgement, equitable relief or other losses would have a material adverse effect on our financial condition or liquidity.

During the year ended December 31, 2018, we recorded a charge of $16.2 million in Other expenses, net resulting from a jury rendering a verdict against Albemarle in a legal matter related to certain business concluded under a 2014 sales agreement for products that Albemarle no longer manufactures. In addition, during the year ended December 31, 2018, we recorded a charge of $10.8 million in Other expenses, net due to a settlement of a legal matter related to guarantees from a previously disposed business. Both matters have been resolved and paid during the year ended December 31, 2018.

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 and other divested businesses.

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):

	2019				2020				2021				2022				2023				Thereafter
Letters of credit and other guarantees	$	45,342			$	12,924			$	1,883			$	1,277			$	—			$	10,389

The outstanding letters of credit are primarily related to insurance claim payment guarantees. 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, 2018. 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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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 63,259, 82,204 and 141,661 stock options during 2018, 2017 and 2016, respectively. There were no significant modifications made to any share-based grants during these periods.

In May 2017, the Company adopted the Albemarle Corporation 2017 Incentive Plan (the “Incentive Plan”), which replaced the Albemarle Corporation 2008 Incentive Plan. The maximum number of shares available for issuance to participants under the Incentive Plan is 4,500,000 shares. The adoption of the Incentive Plan did not affect awards already granted under the Albemarle Corporation 2008 Incentive Plan. Under the Albemarle Corporation 2013 Stock Compensation and Deferral Election Plan for Non-Employee Directors (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, 2018, there were 4,280,607 shares available for grant under the Incentive Plan and 388,179 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, 2018, 2017 and 2016 amounted to $15.2 million, $19.4 million and $17.0 million, respectively, and is included in Cost of goods sold and Selling, general and administrative expenses in the consolidated statements of income. Total related recognized tax benefits for the years ended December 31, 2018, 2017 and 2016 amounted to $2.6 million, $7.0 million and $6.2 million, respectively. As a result of the sale of the Chemetall Surface Treatment business in 2016, 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, 2018, $2.2 million and $1.2 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, 2018:

	Shares			Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017	1,401,718			$	56.10			5.1		$	100,632
Granted	63,259			118.75
Exercised	(94,031	)		38.64
Forfeited	(54,213	)		75.72
Outstanding at December 31, 2018	1,316,733			$	59.55			4.3		$	26,438
Exercisable at December 31, 2018	911,011			$	54.28			3.2		$	20,872

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each option granted during the years ended December 31, 2018, 2017 and 2016 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2018				2017				2016
Dividend yield	1.44		%		1.56		%		1.84		%
Volatility	32.48		%		32.70		%		33.08		%
Average expected life (years)	6				6				6
Risk-free interest rate	3.06		%		2.51		%		1.96		%
Fair value of options granted	$	37.35			$	27.99			$	16.06

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, 2018, 2017 and 2016 was $6.2 million, $15.6 million and $7.9 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, 2018 is approximately $3.0 million and is expected to be recognized over a remaining weighted-average period of 1.5 years. Cash proceeds from stock options exercised and tax benefits related to stock options exercised were $3.6 million and $1.5 million for the year ended December 31, 2018, 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, 2018:

	Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested, beginning of period	433,003			$	75.55
Granted	70,274			155.65
Vested	(164,303	)		61.72
Forfeited	(21,537	)		120.49
Nonvested, end of period	317,437			97.39

The weighted average grant date fair value of performance unit awards granted in 2018, 2017 and 2016 was $10.9 million, $9.6 million and $10.9 million, respectively. The fair value of each performance unit awards was estimated on the date of grant using the Monte Carlo simulation model as these equity awards are tied to a service and market condition. The calculation used the following weighted-average assumptions:

	Year Ended December 31,
	2018			2017			2016
Volatility	29.92	%		30.34	%		27.69	%
Risk-free interest rate	2.36	%		1.34	%		0.91	%

The weighted average fair value of performance unit awards that vested during 2018, 2017 and 2016 was $20.0 million, $11.9 million and $4.6 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, 2018 is approximately $11.6 million, calculated based on current expectation of specific performance criteria, and is expected to be recognized over a remaining weighted-average period of approximately 1.0 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, 2018:

	Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested, beginning of period	223,338			$	71.95
Granted	104,513			104.36
Vested	(48,178	)		66.93
Forfeited	(22,155	)		78.98
Nonvested, end of period	257,518			85.44

The weighted average grant date fair value of restricted stock and restricted stock unit awards granted in 2018, 2017 and 2016 was $10.9 million, $8.2 million and $8.8 million, respectively. The weighted average fair value of restricted stock and restricted stock unit awards that vested in 2018, 2017 and 2016 was $4.9 million, $3.1 million and $3.2 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, 2018 is approximately $12.6 million and is expected to be recognized over a remaining weighted-average period of 2.0 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, 2018, 2017 and 2016 (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, 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	)
Other comprehensive (loss) income before reclassifications	(150,258		)		—				15,695				—				(134,563		)
Amounts reclassified from accumulated other comprehensive loss(d)	—				(138		)		10,091				(585		)		9,368
Other comprehensive (loss) income, net of tax	(150,258		)		(138		)		25,786				(585		)		(125,195		)
Other comprehensive loss attributable to noncontrolling interests	181				—				—				—				181
Accumulated other comprehensive (loss) income - balance at December 31, 2018	$	(407,646	)		$	(159	)		$	72,337			$	(15,214	)		$	(350,682	)

(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 cost (credit). 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.

(d)	Amounts reclassified from accumulated other comprehensive loss include a net benefit of $6.9 million, which was reclassified to Retained earnings for stranded tax effects caused by the TCJA. See “Recently Issued Accounting Pronouncements,” included in Note 1, “Summary of Significant Accounting Policies,” for additional information.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The amount of income tax benefit (expense) allocated to each component of Other comprehensive (loss) income for the years ended December 31, 2018, 2017 and 2016 is provided in the following tables (in thousands):

	Foreign Currency Translation				Pension and Postretirement Benefits				Net Investment Hedge				Interest Rate Swap
2018
Other comprehensive (loss) income, before tax	$	(150,262	)		$	(128	)		$	20,424			$	3,336
Income tax benefit (expense)	4				(10		)		5,362				(3,921		)
Other comprehensive (loss) income, net of tax	$	(150,258	)		$	(138	)		$	25,786			$	(585	)
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

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 GILTI.

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 allowed us to record provisional amounts during a measurement period ending December 22, 2018. In accordance with SAB 118, income tax effects of the TCJA could be refined as additional analysis was completed based on obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that were not initially reported as provisional amounts. In addition, the provisional amounts could also be affected upon additional TCJA guidance issued during the measurement period.

As of December 31, 2018, we have completed our accounting for the effects of enactment of the TCJA and adjustments made to the provisional amounts allowed under SAB 118 were identified and recorded. During the year ended December 31, 2018, we recorded income tax expense of $0.4 million related to the remeasurement of our deferred tax assets and liabilities for the reduction in the Federal statutory tax rate. We also recognized an income tax benefit of $42.3 million for the refinement of the tax liability calculation related to the one-time transition tax. Additionally, during the year ended December 31, 2018 we recognized income tax expense of $2.1 million related to excess executive employee remuneration for awards determined not to be grandfathered consistent with Notice 2018-68.

The TCJA provides for a territorial tax system, beginning in 2018, which includes tax imposed on GILTI. The Company has elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. As of December 31, 2018, we recorded income tax expense of $6.4 million for GILTI, as well as $4.1 million related to excess employee remuneration that became effective in 2018 under the TCJA.

As additional regulations or guidance in relation to TCJA continues to be issued, the Company will analyze and record the necessary impacts in the quarter in which guidance is received.

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,
	2018				2017				2016
Income from continuing operations before income taxes and equity in net income of unconsolidated investments:
Domestic	$	223,702			$	(8,293	)		$	49,630
Foreign	570,999				455,091				465,634
Total	$	794,701			$	446,798			$	515,264
Current income tax expense (benefit):
Federal	$	(2,712	)		$	394,747			$	7,717
State	6,793				323				1,407
Foreign	91,581				78,688				63,957
Total	$	95,662			$	473,758			$	73,081
Deferred income tax (benefit) expense:
Federal	$	15,573			$	(58,640	)		$	12,230
State	1,614				(2,288		)		(1,715		)
Foreign	31,977				18,987				12,667
Total	$	49,164			$	(41,941	)		$	23,182
Total income tax expense	$	144,826			$	431,817			$	96,263

The decrease in the current income tax expense is primarily related to the tax impact of the one-time transition tax imposed by the TCJA in 2017. The increase in the deferred tax expense in 2018 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% recorded in 2017.

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

	% of Income Before Income Taxes
	2018			2017			2016
Federal statutory rate	21.0	%		35.0	%		35.0	%
State taxes, net of federal tax benefit	0.9			(0.5	)		(0.1	)
Change in valuation allowance (a)	0.7			(1.4	)		3.7
Impact of foreign earnings, net(b)	(0.3	)		(13.5	)		(19.3	)
Global intangible low tax inclusion	0.8			—			—
Change in U.S. federal statutory rate(c)	0.1			(14.0	)		—
Transition tax on deferred foreign earnings(d)	(5.3	)		96.1			—
Subpart F income	0.9			2.0			0.2
Undistributed earnings of foreign subsidiaries	—			(2.2	)		0.1
Stock-based compensation	(0.7	)		(1.9	)		—
Depletion	(0.6	)		(1.4	)		(1.0	)
Revaluation of unrecognized tax benefits/reserve requirements	—			(0.7	)		(0.4	)
Domestic manufacturing tax deduction	—			—			(0.9	)
Other items, net	0.7			(0.9	)		1.4
Effective income tax rate	18.2	%		96.6	%		18.7	%

(a)	The year ended December 31, 2018 includes an $8.2 million expense due to the establishment of a valuation allowance due to a foreign restructuring plan and a $1.5 million benefit due to the release of a foreign valuation allowance due to changes in expected profitability. 2017 includes a $10.9 million benefit from the release of valuation allowances due to a foreign restructuring plan.

(b)	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 applicable provisions of the Jordanian law, and applicable regulations thereunder, do not have a termination provision and

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 3.3%, 8.9%, and 7.3% for 2018, 2017, and 2016, respectively.

(c)

At December 31, 2017 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%. In 2018, the updates to our calculation of the remeasurement of deferred tax assets and liabilities resulted in income tax expense of $0.4 million.

(d)	At December 31, 2017 we made a reasonable estimate of the tax impact of the U.S. enacted tax law on our business and our consolidated financial statements and recognized a provisional tax expense of $429.2 million for the one-time transition tax. During 2018, the impact of the refined one-time transition tax calculation was an income tax benefit of $42.3 million.

Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2018 and 2017 consist of the following (in thousands):

	December 31,
	2018				2017
Deferred tax assets:
Accrued employee benefits	$	18,462			$	21,463
Operating loss carryovers(a)	1,210,377				459,644
Pensions	61,308				64,799
Tax credit carryovers	1,270				11,634
Other	35,895				44,714
Gross deferred tax assets	1,327,312				602,254
Valuation allowance(a)	(1,213,750		)		(458,288		)
Deferred tax assets	113,562				143,966
Deferred tax liabilities:
Depreciation	(337,503		)		(334,162		)
Intangibles	(88,871		)		(113,792		)
Hedge of net investment of foreign subsidiary	(21,854		)		(17,028		)
Other	(31,287		)		(24,265		)
Deferred tax liabilities	(479,515		)		(489,247		)
Net deferred tax liabilities	$	(365,953	)		$	(345,281	)
Classification in the consolidated balance sheets:
Noncurrent deferred tax assets	$	17,029			$	25,108
Noncurrent deferred tax liabilities	(382,982		)		(370,389		)
Net deferred tax liabilities	$	(365,953	)		$	(345,281	)

(a)	During 2018, the Company recognized intercompany losses at a foreign entity related to international restructuring resulting in an increase to the deferred tax asset for net operating losses and an associated and equal valuation allowance of $749.8 million.

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

	Year Ended December 31,
	2018				2017				2016
Balance at January 1	$	(458,288	)		$	(69,900	)		$	(84,137	)
Additions	(766,012		)		(408,252		)		(20,568		)
Deductions	10,550				19,864				34,805
Balance at December 31	$	(1,213,750	)		$	(458,288	)		$	(69,900	)

At December 31, 2018, we had approximately $1.3 million of domestic credits available to offset future payments of income taxes, expiring in varying amounts between 2019 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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2018, we have on a pre-tax basis, domestic state net operating losses of $152.7 million, expiring between 2019 and 2038, which have pre-tax valuation allowances of $58.3 million established. In addition, we have on a pre-tax basis $4.64 billion of foreign net operating losses, of which a majority have an indefinite life, which have pre-tax valuation allowances for $4.61 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 $9.9 million and $55.2 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.

As of December 31, 2018, we have not recorded taxes on approximately $505.6 million of cumulative undistributed earnings of our non-U.S. subsidiaries and joint ventures. We generally do not provide for taxes related to our undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. 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 due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated.

Liabilities related to uncertain tax positions were $22.9 million and $24.4 million at December 31, 2018 and 2017, respectively, inclusive of interest and penalties of $3.2 million and $2.9 million at December 31, 2018 and 2017, respectively, and are reported in Other noncurrent liabilities as provided in Note 16, “Other Noncurrent Liabilities.” These liabilities at December 31, 2018 and 2017 were reduced by $13.0 million and $14.6 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 $6.7 million and $6.9 million at December 31, 2018 and 2017, respectively, if recognized and released, would favorably affect earnings.

The liabilities related to uncertain tax positions, exclusive of interest, were $19.7 million and $21.4 million at December 31, 2018 and 2017, respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2018, 2017 and 2016 (in thousands):

	Year Ended December 31,
	2018				2017				2016
Balance at January 1	$	21,438			$	25,384			$	95,715
Divestitures(a)	—				—				(55,881		)
Additions for tax positions related to prior years	874				—				548
Reductions for tax positions related to prior years	—				(1,933		)		(1,253		)
Additions for tax positions related to current year	1,091				1,132				1,271
Lapses in statutes of limitations/settlements	(3,578		)		(4,198		)		(12,591		)
Foreign currency translation adjustment	(83		)		1,053				(2,425		)
Balance at December 31	$	19,742			$	21,438			$	25,384

(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 2017 related to Germany, Taiwan, Italy, India, Belgium, and Chile, 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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 $4.4 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 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,
	2018								2017
	Recorded Amount				Fair Value				Recorded Amount				Fair Value
	(In thousands)
Long-term debt	$	1,712,003			$	1,731,271			$	1,845,309			$	1,949,638

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, 2018 and 2017, we had outstanding foreign currency forward contracts with notional values totaling $626.5 million and $357.4 million, respectively, hedging our exposure to various currencies including the Euro and Chinese Renminbi. Our foreign currency forward contracts outstanding at December 31, 2018 and 2017 have not been designated as hedging instruments under ASC 815, Derivatives and Hedging. The following table summarizes the fair value of our foreign currency forward contracts included in the consolidated balance sheets as of December 31, 2018 and 2017 (in thousands):

	December 31,
	2018				2017
Foreign currency forward contracts - Other accounts receivable	$	431			$	—
Foreign currency forward contracts - Accrued expenses	$	—			$	4,954

Gains and losses on foreign currency forward contracts are recognized currently in Other expenses, net; further, fluctuations in the value of these contracts are generally expected to be offset by changes in the value of the underlying exposures being hedged, which are also reported in Other expenses, net. The following table summarizes these net (losses) gains recognized in our consolidated statements of income during the years ended December 31, 2018, 2017 and 2016 (in thousands):

	Year Ended December 31,
	2018				2017				2016
Foreign currency forward contracts (losses) gains	$	(19,851	)		$	4,588			$	16,095

In addition, for the years ended December 31, 2018, 2017 and 2016, we recorded losses (gains) of $19.9 million, ($4.6) million and ($16.1) million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash (settlements) receipts of ($25.2) million, $9.4 million and $16.0 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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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. 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, 2018 and 2017 (in thousands):

	December 31, 2018				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)	$	26,292			$	26,292			$	—			$	—
Private equity securities(b)	$	26			$	26			$	—			$	—
Private equity securities measured at net asset value(b)(c)	$	7,195			$	—			$	—			$	—
Foreign currency forward contracts(d)	$	431			$	—			$	431			$	—
Liabilities:
Obligations under executive deferred compensation plan (a)	$	26,292			$	26,292			$	—			$	—

	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			$	—			$	—			$	—
Liabilities:
Obligations under executive deferred compensation plan (a)	$	25,494			$	25,494			$	—			$	—
Foreign currency forward contracts(d)	$	4,954			$	—			$	4,954			$	—

(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, 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 $7.2 million and $5.1 million as of December 31,

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2018 and 2017, respectively, are included in this table to permit reconciliation to the marketable equity securities presented in Note 10, “Investments.”

(d)

As a result of our global operating and financing activities, we are exposed to market risks from changes in foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from foreign currency exchange rate fluctuations through the use of foreign currency forward contracts. Unless otherwise noted, these derivative financial instruments are not designated as hedging instruments under ASC 815, Derivatives and Hedging. The foreign currency forward contracts are valued using broker quotations or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are classified within Level 2.

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,
	2018				2017				2016
Sales to unconsolidated affiliates	$	35,094			$	29,514			$	29,651
Purchases from unconsolidated affiliates(a)	$	256,701			$	209,266			$	130,287

(a)	Purchases from unconsolidated affiliates primarily relate to purchases from our Windfield joint venture.

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,
	2018				2017
Receivables from related parties(a)	$	14,348			$	2,406
Payables to related parties	$	68,357			$	55,801

(a)	Increase in receivables from related parties balance due to timing of payments in the normal course of business from one of our Catalysts joint ventures.

NOTE 24—Segment and Geographic Area Information:

In the first quarter of 2018, the PCS product category merged with our former Refining Solutions reportable segment to form a global business focused on catalysts. As a result, our three reportable segments include: (1) Lithium; (2) Bromine Specialties; and (3) Catalysts. 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. Results for 2017 and 2016 have been recast to reflect the change in segments noted above.

The “All Other” category includes only the fine chemistry services business that does not fit into any of our core businesses.

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

The Company’s chief operating decision maker uses adjusted EBITDA (as defined below) to assess the ongoing performance of the Company’s business segments and to allocate resources. The Company defines adjusted EBITDA as

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

earnings before interest, taxes, depreciation and amortization, as adjusted on a consistent basis for certain non-recurring or unusual items in a balanced manner and on a segment basis. These non-recurring or unusual items may include 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. 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.

	Year Ended December 31,
	2018				2017				2016
	(In thousands)
Net sales:
Lithium	$	1,228,171			$	1,018,885			$	668,852
Bromine Specialties	917,880				855,143				792,425
Catalysts	1,101,554				1,067,572				1,031,501
All Other	127,186				128,914				180,988
Corporate	159				1,462				3,437
Total net sales	$	3,374,950			$	3,071,976			$	2,677,203
Adjusted EBITDA:
Lithium	$	530,773			$	446,652			$	285,714
Bromine Specialties	288,116				258,901				226,926
Catalysts	284,307				283,883				316,609
All Other	14,091				13,878				14,772
Corporate	(110,623		)		(117,834		)		(85,804		)
Total adjusted EBITDA	$	1,006,664			$	885,480			$	758,217

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

	Lithium				Bromine Specialties				Catalysts				Reportable Segments Total				All Other				Corporate				Consolidated Total
2018
Net income (loss) attributable to Albemarle Corporation	$	428,212			$	246,509			$	445,604			$	1,120,325			$	6,018			$	(432,781	)		$	693,562
Depreciation and amortization	95,193				41,607				49,131				185,931				8,073				6,694				200,698
Restructuring and other(a)	—				—				—				—				—				3,838				3,838
Gain on sale of business(b)	—				—				(210,428		)		(210,428		)		—				—				(210,428		)
Acquisition and integration related costs(c)	—				—				—				—				—				19,377				19,377
Interest and financing expenses	—				—				—				—				—				52,405				52,405
Income tax expense	—				—				—				—				—				144,826				144,826
Non-operating pension and OPEB items	—				—				—				—				—				5,285				5,285
Legal accrual(d)	—				—				—				—				—				27,027				27,027
Environmental accrual(e)	—				—				—				—				—				15,597				15,597
Albemarle Foundation contribution(f)	—				—				—				—				—				15,000				15,000
Indemnification adjustments(g)	—				—				—				—				—				25,240				25,240
Other(h)	7,368				—				—				7,368				—				6,869				14,237
Adjusted EBITDA	$	530,773			$	288,116			$	284,307			$	1,103,196			$	14,091			$	(110,623	)		$	1,006,664
2017
Net income (loss) attributable to Albemarle Corporation	$	342,992			$	218,839			$	230,665			$	792,496			$	5,521			$	(743,167	)		$	54,850
Depreciation and amortization	87,879				40,062				54,468				182,409				8,357				6,162				196,928
Utilization of inventory markup(i)	23,095				—				—				23,095				—				—				23,095
Restructuring and other(j)	—				—				—				—				—				17,056				17,056
Gain on acquisition(k)	(6,221		)		—				—				(6,221		)		—				—				(6,221		)
Acquisition and integration related costs(c)	—				—				—				—				—				33,954				33,954
Interest and financing expenses(l)	—				—				—				—				—				115,350				115,350
Income tax expense	—				—				—				—				—				431,817				431,817
Non-operating pension and OPEB items	—				—				—				—				—				(16,125		)		(16,125		)
Note receivable reserve(m)	—				—				—				—				—				28,730				28,730
Other(n)	(1,093		)		—				(1,250		)		(2,343		)		—				8,389				6,046
Adjusted EBITDA	$	446,652			$	258,901			$	283,883			$	989,436			$	13,878			$	(117,834	)		$	885,480
2016
Net income (loss) attributable to Albemarle Corporation	$	198,852			$	187,364			$	265,416			$	651,632			$	131,301			$	(139,258	)		$	643,675
Depreciation and amortization	86,862				39,562				51,193				177,617				7,302				6,056				190,975
(Gain) loss on sales of businesses, net(b)	—				—				—				—				(123,831		)		1,533				(122,298		)
Acquisition and integration related costs(c)	—				—				—				—				—				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(o)	—				—				—				—				—				3,579				3,579
Adjusted EBITDA	$	285,714			$	226,926			$	316,609			$	829,249			$	14,772			$	(85,804	)		$	758,217

(a)	Expected severance payments as part of a business reorganization plan, $0.1 million recorded in Cost of goods sold and $3.7 million recorded in Selling, general and administrative expenses. These severance payments have been made during the year ended December 31, 2018.

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

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

(d)	Included in Other expenses, net. See Note 17, “Commitments and Contingencies,” for additional information.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(e)	Increase in environmental reserve to indemnify the buyer of a formerly owned site recorded in Other expenses, net. As defined in the agreement of sale, this indemnification has a set cutoff date in 2024, at which point we will no longer be required to provide financial coverage.

(f)

Including in Selling, general and administrative expenses is a charitable contribution, using a portion of the proceeds received from the Polyolefin Catalysts Divestiture, to the Albemarle Foundation, a non-profit organization that sponsors grants, health and social projects, educational initiatives, disaster relief, matching gift programs, scholarships and other charitable initiatives in locations where our employees live and operate. This contribution is in addition to the normal annual contribution made to the Albemarle Foundation by the Company, and is significant in size and nature in that it is intended to provide more long-term benefits in the communities where we live and operate.

(g)	Included in Other expenses, net is $19.7 million related to the proposed settlement of an ongoing audit of a previously disposed business in Germany, and $5.5 million related to the revision of indemnifications previously recorded from disposed businesses.

(h)	Included amounts for the year ended December 31, 2018 recorded in:

•	Cost of goods sold - $4.9 million for the write-off of fixed assets related to a major capacity expansion in our Jordanian joint venture and $8.8 million related to non-routine labor and compensation related costs in Chile that are outside normal compensation arrangements.

•

Selling, general and administrative expenses - $2.3 million of shortfall contributions for our multiemployer plan financial improvement plan and a $1.2 million contribution, using a portion of the proceeds received from the Polyolefin Catalysts Divestiture, to schools in the state of Louisiana for qualified tuition purposes. This contribution is significant in size and is intended to provide long-term benefits for families in the Louisiana community. This was partially offset by a $1.5 million gain related to a refund from Chilean authorities due to an overpayment made in a prior year.

•	Other expenses, net - $1.5 million gain related to the reversal of previously recorded liabilities of disposed businesses.

(i)

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.

(j)

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, primarily related to expected severance payments. The unpaid balance is recorded in Accrued expenses at December 31, 2018, with the expectation that the remaining balance will be paid by the end of 2019.

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

(l)	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.

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

(n)	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 - $3.3 million of shortfall contributions for our multiemployer plan financial improvement plan, partially offset by $1.0 million related to a reversal of an accrual recorded as part of purchase accounting from a previous acquisition.

•

Other expenses, 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 $8.7 million related to adjustments of settlements and indemnifications 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.

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

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

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

•	Other expenses, 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.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	December 31,
	2018				2017				2016
					(In thousands)
Identifiable assets:
Lithium(a)	$	4,605,070			$	3,979,615			$	3,499,302
Bromine Specialties	753,157				745,007				724,218
Catalysts	1,134,975				1,332,599				1,224,504
All Other	128,185				126,486				130,595
Corporate(a)(b)	960,287				1,567,065				2,582,588
Total identifiable assets	$	7,581,674			$	7,750,772			$	8,161,207
Goodwill:
Lithium	$	1,354,779			$	1,389,089			$	1,326,980
Bromine Specialties	20,319				20,319				20,319
Catalysts	185,485				194,361				186,147
All Other	6,586				6,586				6,586
Total goodwill	$	1,567,169			$	1,610,355			$	1,540,032

(a)	The identifiable assets at December 31, 2017, have been revised to correct an error in the previously reported amounts, which understated the Lithium segment and overstated the Corporate category by $238.5 million. There is no impact to the financial statements or total identifiable assets at December 31, 2017.

(b)

Decrease in Corporate identifiable assets at December 31, 2018 primarily due to the net use of cash and cash equivalents for items such as capital expenditures, share repurchases and commercial paper repayments. 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,
	2018				2017				2016
					(In thousands)
Depreciation and amortization:
Lithium	$	95,193			$	87,879			$	86,862
Bromine Specialties	41,607				40,062				39,562
Catalysts	49,131				54,468				51,193
Discontinued Operations	—				—				35,194
All Other	8,073				8,357				7,302
Corporate	6,694				6,162				6,056
Total depreciation and amortization	$	200,698			$	196,928			$	226,169
Capital expenditures:
Lithium	$	500,849			$	192,318			$	72,038
Bromine Specialties	79,357				46,427				46,414
Catalysts	52,019				46,808				47,475
Discontinued Operations	—				—				19,281
All Other	5,232				3,657				9,251
Corporate	62,534				28,493				2,195
Total capital expenditures	$	699,991			$	317,703			$	196,654

	Year Ended December 31,
	2018				2017				2016
					(In thousands)
Net Sales(a):
United States	$	887,416			$	840,589			$	797,267
Foreign(b)	2,487,534				2,231,387				1,879,936
Total	$	3,374,950			$	3,071,976			$	2,677,203

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(a)	Net sales are attributed to countries based upon shipments to final destination.

(b)	In 2018, net sales to Korea, China and Japan represented 13%, 12%, and 10%, respectively, of total net sales. 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.

	As of December 31,
	2018				2017				2016
					(In thousands)
Long-Lived Assets(a):
United States	$	929,291			$	833,002			$	850,689
Chile	1,406,478				1,069,859				922,878
Australia	407,141				364,624				288,553
Jordan	254,800				242,626				227,222
Netherlands	166,853				171,980				145,917
Germany	101,168				115,305				117,027
China	91,160				50,532				31,564
France	43,698				40,852				39,470
Brazil	40,464				47,255				46,380
Korea(b)	111				495				65,963
Other foreign countries	65,826				60,131				57,936
Total	$	3,506,990			$	2,996,661			$	2,793,599

(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 Divestiture that are included in Assets held for sale in the consolidated balance sheet.

NOTE 25—Quarterly Financial Summary (Unaudited):

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(In thousands, except per share amounts)
2018
Net sales	$	821,629			$	853,874			$	777,748			$	921,699
Gross profit	$	304,979			$	311,356			$	280,537			$	320,384
(Gain) loss on sales of businesses, net(a)	$	—			$	(218,705	)		$	—			$	8,277
Net income	$	138,925			$	310,686			$	143,479			$	146,049
Net income attributable to noncontrolling interests	(7,165		)		(8,225		)		(13,734		)		(16,453		)
Net income attributable to Albemarle Corporation	$	131,760			$	302,461			$	129,745			$	129,596
Basic earnings per share	$	1.19			$	2.76			$	1.21			$	1.22
Shares used to compute basic earnings per share	110,681				109,671				107,315				106,042
Diluted earnings per share	$	1.18			$	2.73			$	1.20			$	1.21
Shares used to compute diluted earnings per share	111,867				110,659				108,302				107,005

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	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	$	254,956			$	271,960			$	275,657			$	303,703
Net income (loss)	$	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

(a)	Represents the gain (loss) on the Polyolefin Catalysts Divestiture. See Note 3, “Divestitures,” for additional information.

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 31, 2018, actuarial losses were recognized as follows: fourth quarter—$14.0 million ($10.6 million after income taxes) as a result of the annual remeasurement process. During the year ended December 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.

Albemarle Corporation and Subsidiaries