03.31.2015 10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM 10-Q
_________________________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-12658
_________________________ 
ALBEMARLE CORPORATION
(Exact name of registrant as specified in its charter)
_________________________
 
VIRGINIA
 
54-1692118
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
451 FLORIDA STREET
BATON ROUGE, LOUISIANA
 
70801
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code - (225) 388-8011
_________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Number of shares of common stock, $.01 par value, outstanding as of April 30, 2015: 112,186,098


Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-39
 
 
 
40-52
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBITS
 
 

2

Table of Contents

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

 
Three Months Ended 
 March 31,
 
2015
 
2014
Net sales
$
884,404

 
$
599,843

Cost of goods sold
625,938

 
404,244

Gross profit
258,466

 
195,599

Selling, general and administrative expenses
135,765

 
78,104

Research and development expenses
26,492

 
22,572

Restructuring and other charges, net

 
17,000

Acquisition and integration related costs
59,523

 

Operating profit
36,686

 
77,923

Interest and financing expenses
(35,746
)
 
(8,773
)
Other income, net
49,957

 
1,143

Income from continuing operations before income taxes and equity in net income of unconsolidated investments
50,897

 
70,293

Income tax expense
14,140

 
13,190

Income from continuing operations before equity in net income of unconsolidated investments
36,757

 
57,103

Equity in net income of unconsolidated investments (net of tax)
10,392

 
8,901

Net income from continuing operations
47,149

 
66,004

Loss from discontinued operations (net of tax)

 
(1,769
)
Net income
47,149

 
64,235

Net income attributable to noncontrolling interests
(4,034
)
 
(7,652
)
Net income attributable to Albemarle Corporation
$
43,115

 
$
56,583

 
 
 
 
Basic earnings (loss) per share:
 
 
 
Continuing operations
$
0.40

 
$
0.73

Discontinued operations

 
(0.02
)
 
$
0.40

 
$
0.71

Diluted earnings (loss) per share:
 
 
 
Continuing operations
$
0.40

 
$
0.73

Discontinued operations

 
(0.02
)
 
$
0.40

 
$
0.71

 
 
 
 
Weighted-average common shares outstanding – basic
108,130

 
79,735

Weighted-average common shares outstanding – diluted
108,464

 
80,112

Cash dividends declared per share of common stock
$
0.29

 
$
0.275

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In Thousands)
(Unaudited)
 
 
Three Months Ended 
 March 31,
 
2015
 
2014
Net income
$
47,149

 
$
64,235

Other comprehensive (loss) income, net of tax:
 
 
 
Foreign currency translation
(354,571
)
 
(5,258
)
Pension and postretirement benefits
2

 
(301
)
Net investment hedge
54,046

 

Interest rate swap
527

 
(4,011
)
Other
27

 
35

Total other comprehensive loss, net of tax
(299,969
)
 
(9,535
)
Comprehensive (loss) income
(252,820
)
 
54,700

Comprehensive income attributable to noncontrolling interests
(3,934
)
 
(7,435
)
Comprehensive (loss) income attributable to Albemarle Corporation
$
(256,754
)
 
$
47,265

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

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

 
March 31,
 
December 31,
 
2015
 
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
261,421

 
$
2,489,768

Trade accounts receivable, less allowance for doubtful accounts (2015 – $1,991; 2014 – $1,563)
626,965

 
385,212

Other accounts receivable
83,033

 
49,423

Inventories
620,177

 
358,361

Other current assets
94,947

 
66,086

Total current assets
1,686,543

 
3,348,850

Property, plant and equipment, at cost
4,021,633

 
2,620,670

Less accumulated depreciation and amortization
1,404,606

 
1,388,802

Net property, plant and equipment
2,617,027

 
1,231,868

Investments
652,972

 
194,042

Other assets
180,212

 
160,956

Goodwill
2,709,670

 
243,262

Other intangibles, net of amortization
1,948,335

 
44,125

Total assets
$
9,794,759

 
$
5,223,103

Liabilities And Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
340,815

 
$
231,705

Accrued expenses
553,947

 
166,174

Current portion of long-term debt
471,809

 
711,096

Dividends payable
32,261

 
21,458

Income taxes payable
57,512

 
9,453

Total current liabilities
1,456,344

 
1,139,886

Long-term debt
3,541,312

 
2,223,035

Postretirement benefits
55,298

 
56,424

Pension benefits
451,192

 
170,534

Other noncurrent liabilities
241,971

 
87,705

Deferred income taxes
801,312

 
56,884

Commitments and contingencies (Notes 2, 8)

 

Equity:
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
Common stock, $.01 par value, issued and outstanding – 112,185 in 2015 and 78,031 in 2014
1,122

 
780

Additional paid-in capital
2,049,309

 
10,447

Accumulated other comprehensive loss
(362,282
)
 
(62,413
)
Retained earnings
1,421,234

 
1,410,651

Total Albemarle Corporation shareholders’ equity
3,109,383

 
1,359,465

Noncontrolling interests
137,947

 
129,170

Total equity
3,247,330

 
1,488,635

Total liabilities and equity
$
9,794,759

 
$
5,223,103

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

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

(In Thousands, Except Share
 
 
 
 
 
Additional
Paid-in Capital
 
Accumulated Other
Comprehensive (Loss) Income
 
Retained Earnings
 
Total Albemarle
Shareholders’ Equity
 
Noncontrolling
Interests
 
Total Equity
Common Stock
 
Data)
 
Shares
 
Amounts
 
 
 
 
 
 
Balance at January 1, 2015
 
78,030,524

 
$
780

 
$
10,447

 
$
(62,413
)
 
$
1,410,651

 
$
1,359,465

 
$
129,170

 
$
1,488,635

Net income
 
 
 
 
 
 
 
 
 
43,115

 
43,115

 
4,034

 
47,149

Other comprehensive loss
 
 
 
 
 
 
 
(299,869
)
 
 
 
(299,869
)
 
(100
)
 
(299,969
)
Cash dividends declared
 
 
 
 
 
 
 
 
 
(32,532
)
 
(32,532
)
 

 
(32,532
)
Stock-based compensation and other
 
 
 
 
 
3,863

 
 
 
 
 
3,863

 
 
 
3,863

Exercise of stock options
 
4,000

 

 
90

 
 
 
 
 
90

 
 
 
90

Tax benefit related to stock plans
 
 
 
 
 
(125
)
 
 
 
 
 
(125
)
 
 
 
(125
)
Issuance of common stock, net
 
58,064

 
1

 
(1
)
 
 
 
 
 

 
 
 

Acquisition of Rockwood
 
34,113,064

 
341

 
2,036,209

 

 

 
2,036,550

 

 
2,036,550

Noncontrolling interest assumed in acquisition of Shanghai Chemetall
 
 
 
 
 
 
 
 
 
 
 

 
4,843

 
4,843

Shares withheld for withholding taxes associated with common stock issuances
 
(20,707
)
 

 
(1,174
)
 
 
 
 
 
(1,174
)
 
 
 
(1,174
)
Balance at March 31, 2015
 
112,184,945

 
$
1,122

 
$
2,049,309

 
$
(362,282
)
 
$
1,421,234

 
$
3,109,383

 
$
137,947

 
$
3,247,330

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
 
80,052,842

 
$
801

 
$
9,957

 
$
116,245

 
$
1,500,358

 
$
1,627,361

 
$
115,415

 
$
1,742,776

Net income
 
 
 
 
 
 
 
 
 
56,583

 
56,583

 
7,652

 
64,235

Other comprehensive loss
 
 
 
 
 
 
 
(9,318
)
 
 
 
(9,318
)
 
(217
)
 
(9,535
)
Cash dividends declared
 
 
 
 
 
 
 
 
 
(21,873
)
 
(21,873
)
 

 
(21,873
)
Stock-based compensation and other
 
 
 
 
 
3,099

 
 
 
 
 
3,099

 
 
 
3,099

Exercise of stock options
 
41,680

 

 
1,281

 
 
 
 
 
1,281

 
 
 
1,281

Shares repurchased
 
(623,248
)
 
(6
)
 
(8,842
)
 
 
 
(41,152
)
 
(50,000
)
 
 
 
(50,000
)
Tax benefit related to stock plans
 
 
 
 
 
586

 
 
 
 
 
586

 
 
 
586

Issuance of common stock, net
 
119,685

 
1

 
(1
)
 
 
 
 
 

 
 
 

Shares withheld for withholding taxes associated with common stock issuances
 
(46,667
)
 
(1
)
 
(2,967
)
 
 
 
 
 
(2,968
)
 
 
 
(2,968
)
Balance at March 31, 2014
 
79,544,292

 
$
795

 
$
3,113

 
$
106,927

 
$
1,493,916

 
$
1,604,751

 
$
122,850

 
$
1,727,601

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

 
Three Months Ended 
 March 31,
 
2015
 
2014
Cash and cash equivalents at beginning of year
$
2,489,768

 
$
477,239

Cash flows from operating activities:
 
 
 
Net income
47,149

 
64,235

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
63,986

 
27,809

Write-offs associated with restructuring and other

 
3,000

Stock-based compensation
4,912

 
3,402

Excess tax benefits realized from stock-based compensation arrangements
(23
)
 
(586
)
Equity in net income of unconsolidated investments (net of tax)
(10,392
)
 
(8,901
)
Dividends received from unconsolidated investments and nonmarketable securities
3,048

 
3,085

Pension and postretirement (benefit) expense
(1,458
)
 
16,669

Pension and postretirement contributions
(5,986
)
 
(2,540
)
Unrealized gain on investments in marketable securities
(462
)
 
(635
)
Deferred income taxes
(32,845
)
 
4,139

Working capital changes
28,881

 
39,826

Other, net
(51,019
)
 
(330
)
Net cash provided by operating activities
45,791

 
149,173

Cash flows from investing activities:
 
 
 
Acquisition of Rockwood, net of cash acquired
(2,051,645
)
 

Acquisition of remaining interest in Shanghai Chemetall, net of cash acquired
(45,550
)
 

Capital expenditures
(56,741
)
 
(23,667
)
Decrease in restricted cash
57,550

 

Sales of marketable securities, net
1,557

 
2,151

Proceeds from repayment of advance to joint venture
2,156

 

Net cash used in investing activities
(2,092,673
)
 
(21,516
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(1,326,263
)
 
(101
)
Proceeds from borrowings of long-term debt
1,000,000

 

Other borrowings (repayments), net
167,571

 
(8,434
)
Dividends paid to shareholders
(21,730
)
 
(19,582
)
Repurchases of common stock

 
(50,000
)
Proceeds from exercise of stock options
90

 
1,255

Excess tax benefits realized from stock-based compensation arrangements
23

 
586

Withholding taxes paid on stock-based compensation award distributions
(1,174
)
 
(2,968
)
Debt financing costs
(1,164
)
 
(1,370
)
Net cash used in financing activities
(182,647
)
 
(80,614
)
Net effect of foreign exchange on cash and cash equivalents
1,182

 
(239
)
(Decrease) increase in cash and cash equivalents
(2,228,347
)
 
46,804

Cash and cash equivalents at end of period
$
261,421

 
$
524,043

See accompanying Notes to the Condensed Consolidated Financial Statements.

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


NOTE 1—Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Albemarle Corporation and our wholly-owned, majority-owned and controlled subsidiaries (collectively, “Albemarle,” “we,” “us,” “our” or “the Company”) contain all adjustments necessary for a fair statement, in all material respects, of our condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014, and our consolidated statements of income, consolidated statements of comprehensive (loss) income, consolidated statements of changes in equity and condensed consolidated statements of cash flows for the three-month periods ended March 31, 2015 and 2014. All adjustments are of a normal and recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the Securities and Exchange Commission (“SEC”) on March 2, 2015. The December 31, 2014 consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). The results of operations for the three-month period ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the accompanying consolidated financial statements and the notes thereto to conform to the current presentation.
As described further in Note 2, “Acquisitions,” we completed our acquisition of Rockwood Holdings, Inc. (“Rockwood”) on January 12, 2015. The unaudited condensed consolidated financial statements contained herein include the results of operations of Rockwood, commencing on January 13, 2015.
NOTE 2—Acquisitions:
On July 15, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire all the outstanding shares of Rockwood (the “Merger”). On January 12, 2015 (the “Acquisition Closing Date”), we completed the acquisition of Rockwood for a purchase price of approximately $5.7 billion. As a result, Rockwood became a wholly-owned subsidiary of Albemarle. The cash consideration was funded with proceeds from our 2014 Senior Notes, Term Loan, Cash Bridge Facility and February 2014 Credit Agreement, each of which is more fully described in Item 8 Financial Statements and Supplementary Data—Note 13, “Long-Term Debt,” in our Annual Report on Form 10-K for the year ended December 31, 2014. The fair value of the equity consideration was based on the closing price of Albemarle’s common stock on the Acquisition Closing Date of $59.70 per share, as reported on the New York Stock Exchange.
Pursuant to the Merger Agreement, at the Acquisition Closing Date each issued and outstanding share of Rockwood common stock, par value $0.01 per share, (other than shares owned directly or indirectly by Albemarle, Rockwood or the Merger Sub, as defined in the Merger Agreement, and Appraisal Shares as defined in the Merger Agreement) was canceled and extinguished and converted into the right to receive (i) $50.65 in cash, without interest, and (ii) 0.4803 of a share of Albemarle common stock, par value $0.01 per share, (the “Merger Consideration”). Pursuant to the Merger Agreement, equity awards relating to shares of Rockwood’s common stock were canceled and converted into the right to receive the cash value of the Merger Consideration. On the Acquisition Closing Date, we issued approximately 34.1 million shares of Albemarle common stock.
Subsequent to the acquisition of Rockwood, Albemarle continues to be a leading global developer, manufacturer and marketer of technologically advanced and high value-added specialty chemicals. We are a leading integrated and low cost global producer of lithium and lithium compounds used in lithium ion batteries for electronic devices, alternative transportation vehicles and energy storage technologies, meeting the significant growth in global demand for these products. We are also one of the largest global producers of surface treatments and coatings for metal processing, servicing the automotive, aerospace and general industrial markets.
Net sales and Net income attributable to Albemarle Corporation for the three months ended March 31, 2015 include approximately $328.8 million and $8.9 million, respectively, attributable to the businesses acquired from Rockwood from January 13, 2015 through March 31, 2015. Also, our consolidated statement of income for the three months ended March 31, 2015 includes $57.4 million of acquisition and integration related costs directly related to the acquisition of Rockwood (mainly consisting of advisory fees, costs to achieve synergies, and other integration costs) and $2.1 million of costs in connection with other significant projects.

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

Preliminary Purchase Price Allocation
The aggregate purchase price noted above was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values at the Acquisition Closing Date, which were based, in part, upon outside preliminary appraisals for certain assets, including specifically-identified intangible assets. The excess of the purchase price over the preliminary estimated fair value of the net assets acquired was approximately $2.6 billion and was recorded as goodwill.
The following table summarizes the consideration paid for Rockwood and the amounts of the assets acquired and liabilities assumed as of the acquisition date, which have been allocated on a preliminary basis (in thousands):
Purchase price:
 
Cash paid
$
3,606,784

Shares issued
2,036,550

Appraisal shares
74,934

Total purchase price
$
5,718,268

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

Trade and other accounts receivable
266,363

Inventories
292,435

Other current assets
86,275

Property, plant and equipment
1,429,024

Investments
549,263

Other assets
28,243

Definite-lived intangible assets:
 
Patents and technology
226,650

Trade names and trademarks
363,120

Customer lists and relationships
1,339,860

Indefinite-lived intangible assets
27,130

Current liabilities
(414,342
)
Long-term debt
(1,319,132
)
Pension benefits
(316,835
)
Other noncurrent liabilities
(166,167
)
Deferred income taxes
(853,634
)
Total identifiable net assets
3,093,392

Goodwill
2,624,876

Total net assets acquired
$
5,718,268

The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill, is based upon preliminary information and is subject to change within the measurement period (up to one year from the acquisition date) as additional information concerning final asset and liability valuations is obtained. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of inventories, property, plant and equipment, investments, intangible assets, environmental liabilities, appraisal shares, legal reserves, contingent liabilities, and other assets and liabilities. The fair values of the assets acquired and liabilities assumed are based on management’s preliminary estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, it will evaluate any necessary information prior to finalization of the amounts. During the measurement period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date. The impact of all changes that do not qualify as measurement period adjustments will be included in current period earnings. If the actual results

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

differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could be subject to a possible impairment of the intangible assets or goodwill, or require acceleration of the amortization of intangible assets in subsequent periods.
Goodwill arising from the acquisition consists largely of the anticipated synergies and economies of scale from the combined companies and the overall strategic importance of the acquired businesses to Albemarle. The goodwill attributable to the acquisition will not be amortizable or deductible for tax purposes.
The weighted-average amortization periods for the intangible assets acquired are 17 years for patents and technology, 24 years for trade names and trademarks and 24 years for customer lists and relationships. The weighted average amortization period for all definite-lived intangible assets acquired is 23 years.
Long-term debt assumed primarily includes Rockwood’s 4.625% senior notes with an aggregate principal amount of $1.25 billion and a fair value adjustment of approximately $43.7 million related to the senior notes. The fair value adjustment was based primarily on reported market values using Level 1 inputs.
Unaudited Pro Forma Financial Information
The following unaudited pro forma results of operations of the Company for the three months ended March 31, 2015 and 2014 assume that the Merger occurred at the beginning of the periods presented. The pro forma amounts include certain adjustments, including interest expense, depreciation, amortization expense and taxes. Pro forma amounts for the three months ended March 31, 2015 and 2014 were adjusted to include these costs. The pro forma amounts for the three months ended March 31, 2015 were adjusted to exclude approximately $57.4 million of nonrecurring acquisition and integration related costs and approximately $48.2 million of charges related to the utilization of the inventory markup as further described in Note 11. The pro forma results do not include adjustments related to cost savings or other synergies that are anticipated as a result of the Merger. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred as of January 1, 2014, nor are they indicative of future results of operations.
 
Three Months Ended March 31,
 
2015
 
2014
 
(in thousands)
Pro forma Net sales
$
917,734

 
$
954,340

Pro forma Net income from continuing operations
$
122,145

 
$
60,730

Litigation Related to the Merger
On July 22, 2014, a putative class action complaint was filed in the Chancery Division of the Superior Court of New Jersey, Mercer County (“Superior Court of New Jersey”) relating to the Merger. On July 24, 2014, an additional putative class action complaint was filed in the Superior Court of New Jersey relating to the Merger. Both suits named the same plaintiff but were filed by different law firms. On August 1, 2014 and August 12, 2014, three additional putative class action complaints were filed in the Court of Chancery of the State of Delaware (“Delaware Chancery Court”) relating to the Merger. The lawsuits filed in New Jersey, Thwaites v. Rockwood Holdings Inc., et al. (“Thwaites I”), Thwaites v. Rockwood Holdings, Inc., et al. (“Thwaites II”), and the lawsuits filed in Delaware, Rudman Partners, L.P. v. Rockwood Holdings, Inc., et al., Riley v. Rockwood Holdings, Inc., et al., and North Miami Beach Police Officers & Firefighters’ Retirement Plan v. Rockwood Holdings, Inc., et al., each named Rockwood, its former directors, and Albemarle as defendants. Thwaites II and the cases filed in Delaware also named Albemarle Holdings Corporation, a wholly-owned subsidiary of Albemarle, as a defendant. The lawsuits, which contained substantially similar allegations, included allegations that Rockwood’s former board of directors breached their fiduciary duties in connection with the Merger by failing to ensure that Rockwood shareholders would receive the maximum value for their shares, failing to conduct an appropriate sale process and putting their own interests ahead of those of Rockwood shareholders. Rockwood and Albemarle are alleged to have aided and abetted the alleged fiduciary breaches. The lawsuits sought a variety of equitable relief, including enjoining the former Rockwood board of directors from proceeding with the proposed Merger unless they acted in accordance with their fiduciary duties to maximize shareholder value and rescission of the Merger to the extent implemented, in addition to damages arising from the defendants’ alleged breaches and attorneys’ fees and costs. On August 12, 2014, the plaintiff in Thwaites I filed a Notice of Voluntary Dismissal Without Prejudice as to all defendants. On August 27, 2014, the Delaware Court of Chancery ordered the three Delaware cases consolidated and appointed co-lead counsel. The court also ordered that no response to the complaints would be due until after plaintiffs filed an amended

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

consolidated complaint. On September 19, 2014, the plaintiff in Thwaites II filed an amended complaint which included allegations that the registration statement failed to disclose material information.
Plaintiffs in Thwaites II and in the Delaware consolidated action subsequently coordinated their litigation efforts, and the Delaware consolidated action was stayed pending the outcome of the Thwaites II litigation. In Thwaites II, the parties (including the Delaware plaintiffs) entered into a Memorandum of Understanding on November 6, 2014, provisionally settling all claims in the pending actions and declaring the parties’ intent to submit a settlement agreement for the court’s approval within 90 days. On December 2, 2014, the parties submitted a joint stipulation to extend the defendants’ time to respond to the amended complaint in Thwaites II until February 4, 2015. The parties executed a final Stipulation of Settlement and Release (“Stipulation”) on February 4, 2015. In addition to extinguishing the current claims, the Stipulation contemplates broad releases of any and all actual and potential claims, whether known or unknown, by any member of the putative shareholder class against the defendants relating to or arising out of the Merger, the Merger Agreement, or the registration statement. On February 26, 2015, plaintiffs filed a motion for preliminary approval of the settlement, which was unopposed. The Superior Court of New Jersey granted the motion on March 31, 2015, and scheduled the final settlement hearing for July 30, 2015 at 2:00 p.m. In accordance with the terms of the Stipulation and the Court’s Order preliminarily approving the settlement, notice of the settlement and final hearing date was provided to former Rockwood stockholders on April 14, 2015. On April 28, 2015, plaintiffs filed a motion for final approval of the settlement. Upon final approval of the settlement by the Superior Court of New Jersey, plaintiffs in the Delaware actions will move to dismiss the pending consolidated action with prejudice, thereby terminating the litigation.
On February 19, 2015, Verition Multi-Strategy Master Fund Ltd and Verition Partners Master Fund Ltd, who collectively owned approximately 882,000 shares of Rockwood common stock immediately prior to the Merger, commenced an action in the Delaware Chancery Court seeking appraisal of their shares of Rockwood common stock pursuant to Delaware General Corporation Law § 262. These shareholders exercised their right not to receive the Merger Consideration for each share of Rockwood common stock owned by such shareholders. Following the Merger, these shareholders ceased to have any rights with respect to their Rockwood shares, except for their rights to seek an appraisal of the cash value of their Rockwood shares under Delaware law. On March 16, 2015, Albemarle, on behalf of Rockwood, filed an Answer and Verified List in response to the appraisal petition. Fact discovery has commenced and remains ongoing. While Albemarle intends to vigorously defend against this action, the outcome of the appraisal process cannot be predicted with any certainty at this time. Included in Accrued expenses in our condensed consolidated balance sheet at March 31, 2015 is an estimated liability of $74.9 million in connection with this portion of the Merger Consideration. The fair value of the liability was considered a Level 2 measurement as the value was based on inputs other than quoted prices that are observable for the liability.
Acquisition of Remaining Interest in Shanghai Chemetall Chemicals Co., Ltd.
On January 29, 2015, we acquired the remaining 40% interest in Shanghai Chemetall Chemicals Co., Ltd., (“Shanghai Chemetall”) for approximately $57.6 million ($45.6 million net of cash acquired), the proceeds of which came from the release of restricted cash acquired from Rockwood at closing. As of the acquisition date, Shanghai Chemetall became a wholly-owned subsidiary of Albemarle and is being consolidated into the Chemetall® Surface Treatment segment. The purchase price and the fair value of our equity interest immediately before the date of acquisition (approximately $60 million) have been allocated to the net assets acquired at the acquisition date. The purchase price allocation, including the residual amount allocated to goodwill, is preliminary and subject to change based on the finalization of the valuation of assets and liabilities and the fair value of the previously held equity investment.
NOTE 3—Goodwill and Other Intangibles:
The following table summarizes the changes in goodwill for the three months ended March 31, 2015 (in thousands):
Balance at December 31, 2014
$
243,262

Acquisition of Rockwood
2,624,876

Acquisition of remaining interest in Shanghai Chemetall
18,168

Foreign currency translation
(176,636
)
Balance at March 31, 2015
$
2,709,670


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

The following table summarizes the changes in other intangibles and related accumulated amortization for the three months ended March 31, 2015 (in thousands):
 
Customer Lists and Relationships
 
Trade Names and Trademarks
 
Patents and Technology
 
Other
 
Total
Gross Asset Value
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
48,479

 
$
17,555

 
$
40,398

 
$
23,441

 
$
129,873

Acquisition of Rockwood
1,339,860

 
363,120

 
226,650

 
27,130

 
1,956,760

Acquisition of remaining interest in Shanghai Chemetall
76,537

 

 
1,328

 

 
77,865

Foreign currency translation adjustments and other
(64,318
)
 
(27,723
)
 
(19,855
)
 
(2,538
)
 
(114,434
)
Balance at March 31, 2015
$
1,400,558

 
$
352,952

 
$
248,521

 
$
48,033

 
$
2,050,064

Accumulated Amortization
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
(22,931
)
 
(7,912
)
 
(32,831
)
 
(22,074
)
 
(85,748
)
Amortization
(13,003
)
 
(3,521
)
 
(3,282
)
 
(107
)
 
(19,913
)
Foreign currency translation adjustments and other
1,318

 
380

 
1,765

 
469

 
3,932

Balance at March 31, 2015
$
(34,616
)
 
$
(11,053
)
 
$
(34,348
)
 
$
(21,712
)
 
$
(101,729
)
Net Book Value at December 31, 2014
$
25,548

 
$
9,643

 
$
7,567

 
$
1,367

 
$
44,125

Net Book Value at March 31, 2015
$
1,365,942

 
$
341,899

 
$
214,173

 
$
26,321

 
$
1,948,335

Total estimated amortization expense of other intangibles acquired in the Rockwood acquisition for the next five years is as follows (in thousands):
 
Estimated Amortization Expense
Remainder of 2015
$
64,560

2016
$
86,080

2017
$
86,080

2018
$
86,080

2019
$
86,080

As discussed in Note 2, “Acquisitions,” amounts of goodwill and other intangibles recorded in connection with the Rockwood and Shanghai Chemetall acquisitions are preliminary. Additionally, the preliminary allocation of goodwill and identifiable assets to our reportable segments has not been completed as of the date the financial statements have been issued.

NOTE 4—Foreign Exchange:
Foreign exchange transaction gains were $52.4 million for the three-month period ended March 31, 2015 and are included in Other income, net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our condensed consolidated statements of cash flows. These gains are primarily related to cash denominated in U.S. Dollars held by foreign subsidiaries where the European Union Euro serves as the functional currency.
NOTE 5—Income Taxes:
The effective income tax rate for the three-month period ended March 31, 2015 was 27.8%, compared to 18.8% for the three-month period ended March 31, 2014. The Company’s effective income tax rate fluctuates based on, among other factors, our level and location of income. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the 2015 and 2014 periods is mainly due to the impact of earnings from outside the U.S. Our effective income tax rate in the 2015 period was affected by $3.2 million of discrete tax expense items related mainly to U.S. tax provision to return adjustments, and by the OPEB plan termination gain described in Note 12, while our effective income tax rate in the 2014 period was impacted by a tax benefit of approximately $5.8 million related to the restructuring charges described in Note 15, and by the pension plan actuarial loss described in Note 12.


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

NOTE 6—Earnings Per Share:
Basic and diluted earnings per share from continuing operations for the three-month periods ended March 31, 2015 and 2014 are calculated as follows:
 
Three Months Ended 
 March 31,
 
2015
 
2014
 
(In thousands, except per share amounts)
Basic earnings per share from continuing operations
 
 
 
Numerator:
 
 
 
Net income from continuing operations
$
47,149

 
$
66,004

Net income from continuing operations attributable to noncontrolling interests
(4,034
)
 
(7,652
)
Net income from continuing operations attributable to Albemarle Corporation
$
43,115

 
$
58,352

Denominator:
 
 
 
Weighted-average common shares for basic earnings per share(a)
108,130

 
79,735

Basic earnings per share from continuing operations
$
0.40

 
$
0.73

 
 
 
 
Diluted earnings per share from continuing operations
 
 
 
Numerator:
 
 
 
Net income from continuing operations
$
47,149

 
$
66,004

Net income from continuing operations attributable to noncontrolling interests
(4,034
)
 
(7,652
)
Net income from continuing operations attributable to Albemarle Corporation
$
43,115

 
$
58,352

Denominator:
 
 
 
Weighted-average common shares for basic earnings per share(a)
108,130

 
79,735

Incremental shares under stock compensation plans
334

 
377

Weighted-average common shares for diluted earnings per share(a)
108,464

 
80,112

Diluted earnings per share from continuing operations
$
0.40

 
$
0.73

(a)
2015 includes the impact of 34,113 shares issued in connection with the Rockwood acquisition.
On February 24, 2015, the Company increased the regular quarterly dividend by 5% to $0.29 per share and declared a cash dividend of said amount for the first quarter of 2015, which was paid on April 1, 2015 to shareholders of record at the close of business as of March 16, 2015. On May 5, 2015, the Company declared a cash dividend of $0.29 per share, which is payable on July 1, 2015 to shareholders of record at the close of business as of June 16, 2015.
NOTE 7—Inventories:
The following table provides a breakdown of inventories at March 31, 2015 and December 31, 2014:
 
March 31,
 
December 31,
 
2015
 
2014
 
(In thousands)
Finished goods
$
412,391

 
$
262,769

Raw materials
97,287

 
53,152

Work in process
58,136

 

Stores, supplies and other
52,363

 
42,440

Total inventories
$
620,177

 
$
358,361


NOTE 8—Investments:
The Company holds a 49% equity interest in Talison Lithium Pty. Ltd. (“Talison”), which we acquired in the Rockwood acquisition. With regards to the Company’s ownership in Talison, the parties share risks and benefits disproportionate to their voting interests. As a result, the Company considers Talison to be a variable interest entity (“VIE”). However, the Company does not consolidate Talison as it is not the primary beneficiary. The carrying amount of our 49% equity interest in Talison, which is our most significant VIE, was $444.8 million at March 31, 2015. The Company’s aggregate net investment in all other

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

entities which it considers to be VIE’s for which the Company is not the primary beneficiary was $32.9 million and $6.2 million at March 31, 2015 and December 31, 2014, respectively. Our unconsolidated VIE’s are reported in Investments in the condensed consolidated balance sheets. The Company does not guarantee debt for, or have other financial support obligations to, these entities, and its maximum exposure to loss in connection with its continuing involvement with these entities is limited to the carrying value of the investments.

NOTE 9—Long-Term Debt:
Long-term debt at March 31, 2015 and December 31, 2014 consisted of the following:
 
March 31,
 
December 31,
 
2015
 
2014
 
(In thousands)
1.875% Senior notes, net of unamortized discount of $5,717 at March 31, 2015 and $6,605 at December 31, 2014
$
758,438

 
$
844,315

3.00% Senior notes, net of unamortized discount of $291 at March 31, 2015 and $306 at December 31, 2014
249,709

 
249,694

4.15% Senior notes, net of unamortized discount of $1,403 at March 31, 2015 and $1,439 at December 31, 2014
423,597

 
423,561

4.50% Senior notes, net of unamortized discount of $1,793 at March 31, 2015 and $1,871 at December 31, 2014
348,207

 
348,129

4.625% Senior notes, including unamortized premium of $42,102 at March 31, 2015
1,291,442

 

5.10% Senior notes, net of unamortized discount of $3 at December 31, 2014

 
324,997

5.45% Senior notes, net of unamortized discount of $1,020 at March 31, 2015 and $1,029 at December 31, 2014
348,980

 
348,971

Commercial paper notes
461,717

 
367,178

Fixed-rate foreign borrowings
10,679

 
1,958

Variable-rate foreign bank loans
38,390

 
25,139

Variable-rate domestic bank loans
59,880

 

Capital lease obligations
21,994

 

Miscellaneous
88

 
189

Total long-term debt
4,013,121

 
2,934,131

Less amounts due within one year
471,809

 
711,096

Long-term debt, less current portion
$
3,541,312

 
$
2,223,035

The cash consideration paid in connection with the acquisition of Rockwood was funded with proceeds from senior notes we issued in 2014 (the “2014 Senior Notes”) and borrowings in January 2015 consisting of the following: (a) $1.0 billion under our August 15, 2014 term loan credit agreement (the “Term Loan”); (b) $800.0 million under our senior unsecured cash bridge facility (the “Cash Bridge Facility”); and (c) $250.0 million under our revolving credit agreement (the “February 2014 Credit Agreement”). In the first quarter of 2015, amounts borrowed under the Term Loan, Cash Bridge Facility and February 2014 Credit Agreement in connection with the Rockwood acquisition were repaid in full. Such repayments were made with a combination of existing cash, cash acquired from Rockwood, cash from operations and borrowings under our commercial paper program. For further details about the 2014 Senior Notes, Term Loan, Cash Bridge Facility and the February 2014 Credit Agreement, see Item 8 Financial Statements and Supplementary Data—Note 13, “Long-Term Debt,” in our Annual Report on Form 10-K for the year ended December 31, 2014.
Upon completion of the Rockwood acquisition, we assumed Rockwood’s senior notes with an aggregate principal amount of $1.25 billion. These senior notes bear interest at a rate of 4.625% payable semi-annually on April 15 and October 15 of each year, and mature on October 15, 2020. The carrying amount of these senior notes at March 31, 2015 includes an unamortized premium of $42.1 million which originated from an adjustment to fair value upon our assumption of the notes from Rockwood. The effective interest rate of the notes is approximately 3.95%. The 4.625% senior notes rank equally with all of our other senior unsecured indebtedness from time to time outstanding. We may redeem some or all of these senior notes prior to their maturity, subject to certain restrictions and the payment of an applicable make-whole premium in certain instances.
Our $325.0 million aggregate principal amount of senior notes, which were issued on January 20, 2005 and bore interest at a rate of 5.10%, matured and were repaid on February 1, 2015. These senior notes were classified as Current portion of long-term debt at December 31, 2014.

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

Current portion of long-term debt at March 31, 2015 consists primarily of commercial paper notes with a weighted-average interest rate of approximately 0.87% and a weighted-average maturity of 21 days.
The carrying value of our 1.875% Euro-denominated senior notes has been designated as an effective hedge of our net investment in foreign subsidiaries where the Euro serves as the functional currency, and gains or losses on the revaluation of these senior notes to our reporting currency are recorded in accumulated other comprehensive loss. During three months ended March 31, 2015, a gain of $54.0 million (net of income taxes) was recorded in accumulated other comprehensive loss in connection with the revaluation of these senior notes to our reporting currency.
During the three months ended March 31, 2015, we expensed the remaining $2.3 million of structuring and underwriting fees paid in 2014 for bridge financing arrangements in connection with the Rockwood acquisition. This amount is included in Other income, net, in our consolidated statement of income for the three months ended March 31, 2015. Also, during the three months ended March 31, 2015, we paid $1.2 million of debt financing costs that were accrued at December 31, 2014, primarily related to the 2014 Senior Notes issued in the fourth quarter of 2014.

NOTE 10—Commitments and Contingencies:
In connection with the closing of the Rockwood acquisition on January 12, 2015, we have become liable for both recorded and unrecorded contingencies of Rockwood. We are not aware of any unrecorded contingencies assumed in connection with the Rockwood acquisition whose ultimate outcome will have a material adverse effect on our consolidated results of operations, financial condition or cash flows on an 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. We believe that amounts recorded are adequate for known items which might become due in the current year.
Environmental
We had the following activity in our recorded environmental liabilities for the three months ended March 31, 2015, as follows (in thousands):
Beginning balance at December 31, 2014
$
9,235

Expenditures
(975
)
Acquisition of Rockwood
31,391

Accretion of discount
111

Revisions of estimates
8

Foreign currency translation
(2,426
)
Ending balance at March 31, 2015
37,344

Less amounts reported in Accrued expenses
5,009

Amounts reported in Other noncurrent liabilities
$
32,335

As part of the Rockwood acquisition, we assumed $31.4 million of environmental remediation liabilities globally, the majority of which relate to sites in Germany and the U.S. where the Company is currently operating groundwater monitoring and/or remediation systems. For certain locations where the Company is operating these groundwater monitoring and/or remediation systems, prior owners or insurers have assumed all or most of the responsibility. Environmental remediation liabilities assumed as part of the Rockwood acquisition includes discounted liabilities of $21.4 million, discounted at rates ranging from 2.8% to 4.3%, with the undiscounted amount totaling $34.5 million.
The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, in excess of amounts already recorded, could be up to approximately $22 million before income taxes.

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

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 summary of the activity in our asset retirement obligations for the three months ended March 31, 2015 (in thousands):
Beginning Balance at December 31, 2014
$
15,085

Acquisition of Rockwood
17,362

Accretion of discount
230

Revisions of estimates
52

Foreign currency translation
(49
)
Ending balance at March 31, 2015
$
32,680

Our asset retirement obligations are recorded in Other noncurrent liabilities in the condensed consolidated balance sheets. Asset retirement obligations assumed through the acquisition of Rockwood primarily relate to post-closure reclamation of sites involved in the surface mining and manufacturing of lithium.
Litigation
We are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.
Indemnities
We are indemnified by third parties in connection with certain matters related to acquired and divested businesses. Although we believe that the financial condition of those parties who may have indemnification obligations to the Company is generally sound, in the event the Company seeks indemnity under any of these agreements or through other means, there can be no assurance that any party who may have obligations to indemnify the us will adhere to their obligations and we may have to resort to legal action to enforce our rights under the indemnities.
The Company may be subject to indemnity claims relating to properties or businesses it divested, including properties or businesses that Rockwood divested prior to the Acquisition Closing Date. In the opinion of management, and based upon information currently available, the ultimate resolution of any indemnification obligations owed to the Company or by the Company is not expected to have a material effect on the Company’s financial condition, results of operations or cash flows.
Other
We have contracts with certain of our customers, which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis as well as blanket coverage of multiple shipments under certain customer supply contracts. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.
Also, see Note 2, “Acquisitions” for a discussion about litigation in connection with the acquisition of Rockwood.


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

NOTE 11—Segment Information:
As a result of the Rockwood acquisition, we have realigned our organizational structure under three reportable segments. Our new reportable business segments consist of the following: Performance Chemicals, Refining Solutions and Chemetall Surface Treatment. The Performance Chemicals segment includes the Lithium, PCS and Bromine product categories. The Refining Solutions segment consists of the Company’s Heavy Oil Upgrading and Clean Fuels Technologies product categories. The Chemetall Surface Treatment segment consists of the Surface Treatment product category.
Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. The new business structure aligns with the markets and customers we serve through each of the segments. The new structure also facilitates the continued standardization of business processes across the organization, and is consistent with the manner in which information is presently used internally by the Company’s chief operating decision maker to evaluate performance and make resource allocation decisions.
Summarized financial information concerning our reportable segments is shown in the following tables. Results for 2014 have been recast to reflect the change in segments noted above and a change in our measure of segment profit or loss to adjusted EBITDA as discussed below. Segment results for all periods presented exclude discontinued operations as further described in Note 17.
During the first quarter we announced our intention to pursue strategic alternatives for three operating segments - Minerals, Fine Chemistry Services and Metal Sulfides, which together comprise the “All Other” category. All three operating segments have been and are expected to continue to be profitable, but do not fit into any of our core businesses subsequent to the acquisition of Rockwood. We expect to use the cash generated from the sale of these businesses to reduce the debt incurred for the acquisition of Rockwood. We have considered the accounting guidance in Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment, and determined that the relevant asset groups did not meet the criteria to be accounted for as assets held for sale as of the balance sheet date.
The Corporate category is not considered to be a segment and includes corporate-related items not allocated to the reportable segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to the reportable segments, All Other, and Corporate, whereas the remaining components of pension and OPEB benefits cost or credit (“Non-operating pension and OPEB items”) are included in Corporate. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
Beginning in 2015, the Company uses earnings before interest, taxes, depreciation and amortization, as adjusted for certain non-recurring or unusual items such as restructuring charges, facility divestiture charges and other significant non-recurring items (“adjusted EBITDA”), on a segment basis to assess the ongoing performance of the Company’s business segments. Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with, GAAP. 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 should not be considered as an alternative to Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with GAAP.

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

 
Three Months Ended 
 March 31,
 
2015
 
2014
 
(In thousands)
Net sales:
 
 
 
Performance Chemicals
$
388,366

 
$
275,897

Refining Solutions
179,166

 
194,661

Chemetall Surface Treatment
192,091

 

All Other
122,369

 
129,285

Corporate
2,412

 

Total net sales
$
884,404

 
$
599,843

 
 
 
 
Adjusted EBITDA:
 
 
 
Performance Chemicals
$
130,528

 
$
73,385

Refining Solutions
42,193

 
61,034

Chemetall Surface Treatment
46,004

 

All Other
13,564

 
20,695

Corporate
33,339

 
(19,084
)
Total Adjusted EBITDA
$
265,628

 
$
136,030


See below for a reconciliation of adjusted EBITDA, the non-GAAP financial measure, to Net income (loss) attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with GAAP, (in thousands):
 
Performance Chemicals
 
Refining Solutions
 
Chemetall Surface Treatment
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
Three months ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
130,528

 
$
42,193

 
$
46,004

 
$
218,725

 
$
13,564

 
$
33,339

 
$
265,628

Depreciation and amortization
(30,283
)
 
(8,110
)
 
(18,196
)
 
(56,589
)
 
(5,498
)
 
(1,899
)
 
(63,986
)
Utilization of inventory markup(a)
(28,582
)
 

 
(16,953
)
 
(45,535
)
 
(2,651
)
 

 
(48,186
)
Acquisition and integration related costs(b)

 

 

 

 

 
(59,523
)
 
(59,523
)
Interest and financing expenses

 

 

 

 

 
(35,746
)
 
(35,746
)
Income tax expense

 

 

 

 

 
(14,140
)
 
(14,140
)
Non-operating pension and OPEB items

 

 

 

 

 
3,509

 
3,509

Other(c)

 

 

 

 

 
(4,441
)
 
(4,441
)
Net income (loss) attributable to Albemarle Corporation
$
71,663

 
$
34,083

 
$
10,855

 
$
116,601

 
$
5,415

 
$
(78,901
)
 
$
43,115

Three months ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
73,385

 
$
61,034

 
$

 
$
134,419

 
$
20,695

 
$
(19,084
)
 
$
136,030

Depreciation and amortization(d)
(12,056
)
 
(8,680
)
 

 
(20,736
)
 
(3,364
)
 
(544
)
 
(24,644
)
Restructuring and other charges, net(e)

 

 

 

 

 
(17,000
)
 
(17,000
)
Interest and financing expenses

 

 

 

 

 
(8,773
)
 
(8,773
)
Income tax expense

 

 

 

 

 
(13,190
)
 
(13,190
)
Loss from discontinued operations (net of tax)

 

 

 

 

 
(1,769
)
 
(1,769
)
Non-operating pension and OPEB items

 

 

 

 

 
(14,071
)
 
(14,071
)
Net income (loss) attributable to Albemarle Corporation
$
61,329

 
$
52,354

 
$

 
$
113,683

 
$
17,331

 
$
(74,431
)
 
$
56,583


(a)
In connection with the acquisition of Rockwood, the Company valued Rockwood’s existing inventory at fair value as of the Acquisition Closing Date, which resulted in a markup of the underlying net book value of the inventory totaling approximately $103 million. The

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

inventory markup is being expensed over the estimated remaining selling period. For the three-month period ended March 31, 2015, $40.3 million was included in Cost of goods sold, and Equity in net income of unconsolidated investments was reduced by $7.9 million, related to the utilization of the inventory markup.
(b)
See Note 2, “Acquisitions.”
(c)
Financing-related fees expensed in the 2015 period in connection with the acquisition of Rockwood.
(d)
Excludes discontinued operations.
(e)
See Note 15, “Restructuring and Other.”

NOTE 12—Pension Plans and Other Postretirement Benefits:
In connection with the acquisition of Rockwood, in the first quarter of 2015 we assumed the obligations of various defined benefit pension plans that were maintained by Rockwood which cover certain employees, primarily in the U.S., the United Kingdom and Germany. The majority of the plans’ assets are invested in diversified equity mutual funds, government and corporate bonds and other fixed income funds.
The following table sets forth the benefit obligations, plan assets, funded status and weighted-average assumption percentages for the defined benefit pension plans acquired in the Rockwood acquisition, as of the Acquisition Closing Date (in thousands):
 
U.S.
 
Foreign
Benefit obligation
$
39,126

 
$
417,312

Fair value of plan assets
29,314

 
110,289

Funded status
$
(9,812
)
 
$
(307,023
)
 
 
 
 
Weighted-average assumption percentages:
 
 
 
Discount rate
4.09
%
 
2.36
%
Expected return on plan assets
6.03
%
 
5.78
%
Rate of compensation increase
%
 
2.79
%
The current forecast of benefit payments related to the defined benefit pension plans acquired in the Rockwood acquisition, which reflect expected future service, amounts to (in millions):
 
U.S.
 
Foreign
Remainder of 2015
$
1.4

 
$
12.0

2016
$
1.6

 
$
16.4

2017
$
1.7

 
$
16.0

2018
$
1.9

 
$
16.8

2019
$
2.0

 
$
16.9

2020-2024
$
11.1

 
$
89.8

For the remainder of 2015, contributions related to the defined benefit pension plans acquired in the Rockwood acquisition are expected to be approximately $3.4 million.

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

The components of pension and postretirement benefits cost (credit) for the three-month periods ended March 31, 2015 and 2014 are shown the table below. The 2015 period includes results of the plans we acquired in the Rockwood acquisition.
 
Three Months Ended 
 March 31,
 
2015
 
2014
 
(In thousands)
Pension Benefits Cost (Credit):
 
 
 
Service cost
$
1,979

 
$
2,841

Interest cost
9,564

 
8,169

Expected return on assets
(11,082
)
 
(10,205
)
Actuarial loss(a)

 
15,432

Amortization of prior service benefit
30

 
(273
)
Total net pension benefits cost
$
491

 
$
15,964

Postretirement Benefits Cost (Credit):
 
 
 
Service cost
$
66

 
$
54

Interest cost
668

 
760

Expected return on assets
(65
)
 
(85
)
Amortization of prior service benefit
(24
)
 
(24
)
Settlements/curtailments(b)
(2,594
)
 

Total net postretirement benefits cost (credit)
$
(1,949
)
 
$
705

Total net pension and postretirement benefits cost (credit)
$
(1,458
)
 
$
16,669

(a)
In connection with a realignment of our operating segments effective January 1, 2014, in the fourth quarter of 2013 we initiated a workforce reduction plan which resulted in a reduction of approximately 230 employees worldwide. This workforce reduction triggered a net curtailment gain of approximately $0.8 million in the first quarter of 2014 for our U.S. defined benefit plan which covers non-represented employees and our supplemental executive retirement plan (SERP). In connection with the curtailment, we were required to remeasure the related assets and obligations for these two plans. As of the January 31, 2014 remeasurement date, the weighted-average discount rate for all of our domestic pension plans was 4.97% compared to 5.14% at December 31, 2013. Taking into account the discount rate reduction and actual return on plan assets through January 31, 2014, we recorded a mark-to-market actuarial loss (net of the curtailment gain) of $15.4 million in the first quarter of 2014 related to these two plans.
(b)
We assumed responsibility for one domestic OPEB plan in connection with the acquisition of Rockwood which covered a small number of active employees and retirees. This plan was terminated in the first quarter of 2015 and provisions were made for the affected employees and retirees to receive benefits under an existing plan. A gain of $2.6 million was recognized in the first quarter of 2015 related to the termination of this plan.
During the three-month periods ended March 31, 2015 and 2014, we made contributions of $4.5 million and $1.1 million, respectively, to our qualified and nonqualified pension plans.
We paid $1.5 million and $1.4 million in premiums to the U.S. postretirement benefit plan during the three-month periods ended March 31, 2015 and 2014, respectively.
Multiemployer Plan
Certain current and former employees of Rockwood participate in a multiemployer plan in Germany, the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf (“DN Pensionskasse”), that provides monthly payments in the case of disability, death or retirement. The risks of participating in a multiemployer plan are different from single-employer plans in the following ways: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, and (b) if a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by remaining participating employers.
Some participants in the plan are subject to collective bargaining arrangements, which have no fixed expiration date. The contribution and benefit levels are not negotiated or significantly influenced by these collective bargaining arrangements. Also, the benefit levels generally are not subject to reduction. Under German insurance law, the DN Pensionskasse must be fully funded at all times. The DN Pensionskasse was fully funded as of December 31, 2014, the most recent year-end date of 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

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

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 contributions to this plan were €0.3 million (approximately $0.4 million) during the three months ended March 31, 2015. As of the most recent year-end date of the plan, Rockwood’s contributions in 2014 represented more than 5% of total contributions to the DN Pensionskasse in 2014.
The DN Pensionskasse was subject to a financial improvement plan (“FIP”) which expired at the end of 2014. The solvency requirements of the FIP have been met as of December 31, 2014.
NOTE 13—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 and other fixed rate foreign borrowings are estimated using Level 1 inputs and account for the majority of the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying condensed consolidated balance sheets approximates fair value as substantially all of such debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.

 
March 31, 2015
 
December 31, 2014
 
Recorded
Amount
 
Fair Value
 
Recorded
Amount
 
Fair Value
 
(In thousands)
Long-term debt
$
4,013,121

 
$
4,142,435

 
$
2,934,131

 
$
2,994,935

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 March 31, 2015 and December 31, 2014, we had outstanding foreign currency forward contracts with notional values totaling $364.9 million and $479.9 million, respectively. Our foreign currency forward contracts outstanding at March 31, 2015 and December 31, 2014 have not been designated as hedging instruments under ASC 815, Derivatives and Hedging. At March 31, 2015, $0.1 million was included in Accrued expenses associated with the fair value of our foreign currency forward contracts, and at December 31, 2014, $0.6 million was included in Other accounts receivable associated with the fair value of our foreign currency forward contracts.
Gains and losses on foreign currency forward contracts are recognized currently in Other income (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. For the three-month periods ended March 31, 2015 and 2014, we recognized losses of $(20.4) million, and $(1.1) million, respectively, in Other income, net, in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. These amounts are generally expected to be offset by changes in the value of the underlying exposures being hedged which are also reported in Other income, net. Also, for the three-month periods ended March 31, 2015 and 2014, we recorded $20.4 million and $1.1 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash settlements of $(19.7) million and $(0.8) million, respectively, in Other, net in our condensed consolidated statements of cash flows.
The counterparties to our foreign currency forward contracts are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties.


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

NOTE 14—Fair Value Measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities
 
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
 
 
Level 3
Unobservable inputs for the asset or liability
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the three-month period ended March 31, 2015. The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2015 and December 31, 2014 (in thousands):
 
March 31, 2015
 
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)
$
21,073

 
$
21,073

 
$

 
$

Private equity securities(b)
$
1,806

 
$
21

 
$

 
$
1,785

Foreign currency forward contracts(c)
$
19

 
$

 
$
19

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
21,073

 
$
21,073

 
$

 
$

Liability for appraisal shares(d)
$
74,934

 
$

 
$
74,934

 
$

Foreign currency forward contracts(c)
$
93

 
$

 
$
93

 
$

 
December 31, 2014
 
Quoted Prices in Active Markets for Identical Items (Level 1)
 
Quoted Prices in Active Markets for Similar Items (Level 2)
 
Unobservable Inputs (Level 3)
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investments under executive deferred compensation plan(a)
$
22,168

 
$
22,168

 
$

 
$

Private equity securities(b)
$
1,806

 
$
21

 
$

 
$
1,785

Foreign currency forward contracts(c)
$
631

 
$

 
$
631

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
$
22,168

 
$
22,168

 
$

 
$

(a)
We maintain an Executive Deferred Compensation Plan (EDCP) that was adopted in 2001 and subsequently amended. The purpose of the EDCP is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended to aid in attracting and retaining employees of exceptional ability by providing them with these benefits. We also maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of the EDCP, subject to the claims of our creditors in the event of our insolvency. Assets of the Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fund investments (which are accounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statements of income) and cash and cash equivalents. As such, these assets and obligations are classified within Level 1.
(b)
Primarily consists of private equity securities classified as available-for-sale and are reported in Investments in the condensed consolidated balance sheets. The changes in fair value are reported in Other income, net, in our consolidated statements of income. Holdings in private equity securities are typically valued using the net asset valuations provided by the underlying private investment companies and as such are classified within Level 3.

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

(c)
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.
(d)
See Note 2, “Acquisitions.”

The following table presents the fair value reconciliation of Level 3 assets measured at fair value on a recurring basis for the periods indicated:
 
Three Months Ended 
 March 31,
 
2015
 
2014
 
(In thousands)
Beginning balance
$
1,785

 
$
750

Total unrealized losses included in earnings relating to assets still held at the reporting date

 
(33
)
Ending balance
$
1,785

 
$
717


NOTE 15—Restructuring and Other:
During the first quarter of 2014, we initiated action to reduce high cost supply capacity of certain aluminum alkyl products, primarily through the termination of a third party manufacturing contract. Based on the contract termination, we estimated costs of approximately $14.0 million for contract termination and volume commitments. Additionally, in the first quarter of 2014 we recorded an impairment charge of $3.0 million for certain capital project costs also related to aluminum alkyls capacity which we do not expect to recover. After income taxes, these charges were approximately $11.1 million. In the fourth quarter of 2014 we concluded the contract termination agreement which resulted in an additional charge of $6.5 million ($4.3 million after income taxes). At March 31, 2015, a remaining amount of $12.5 million related to this agreement is included in Accrued expenses.
NOTE 16—Accumulated Other Comprehensive (Loss) Income:
The components and activity in Accumulated other comprehensive (loss) income (net of deferred income taxes) consisted of the following during the periods indicated below (in thousands):

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

 
Foreign Currency Translation
 
Pension and Postretirement Benefits(a)
 
Net Investment Hedge
 
Interest Rate Swap(b)
 
Other
 
Total
Three months ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
(52,264
)
 
$

 
$
11,384

 
$
(20,962
)
 
$
(571
)
 
$
(62,413
)
Other comprehensive (loss) income before reclassifications
(354,571
)
 

 
54,046

 

 

 
(300,525
)
Amounts reclassified from accumulated other comprehensive (loss) income

 
2

 

 
527

 
27

 
556

Other comprehensive (loss) income, net of tax
(354,571
)
 
2

 
54,046

 
527

 
27

 
(299,969
)
Other comprehensive loss attributable to noncontrolling interests
100

 

 

 

 

 
100

Balance at March 31, 2015
$
(406,735
)
 
$
2

 
$
65,430

 
$
(20,435
)
 
$
(544
)
 
$
(362,282
)
Three months ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
$
116,465

 
$
487

 
$

 
$

 
$
(707
)
 
$
116,245

Other comprehensive loss before reclassifications
(5,258
)
 

 

 
(4,011
)
 

 
(9,269
)
Amounts reclassified from accumulated other comprehensive (loss) income

 
(301
)
 

 

 
35

 
(266
)
Other comprehensive (loss) income, net of tax
(5,258
)
 
(301
)
 

 
(4,011
)
 
35

 
(9,535
)
Other comprehensive loss attributable to noncontrolling interests
217

 

 

 

 

 
217

Balance at March 31, 2014
$
111,424

 
$
186

 
$

 
$
(4,011
)
 
$
(672
)
 
$
106,927


(a)
The pre-tax portion of amounts reclassified from accumulated other comprehensive (loss) income consists of amortization of prior service benefit, which is a component of pension and postretirement benefits cost (credit). See Note 12, “Pension Plans and Other Postretirement Benefits.”
(b)
The pre-tax portion of amounts reclassified from accumulated other comprehensive (loss) income is included in interest expense.
The amount of income tax benefit (expense) allocated to each component of Other comprehensive income (loss) for the three-month periods ended March 31, 2015 and 2014 is provided in the following (in thousands):
 
Three Months Ended March 31,
 
2015
 
2014
 
Foreign Currency Translation
 
Pension and Postretirement Benefits
 
Net Investment Hedge
 
Interest Rate Swap
 
Other
 
Foreign Currency Translation
 
Pension and Postretirement Benefits
 
Interest Rate Swap
 
Other
Other comprehensive (loss) income, before tax
$
(387,812
)
 
$
6

 
$
85,577

 
$
834

 
$
18

 
$
(4,723
)
 
$
(297
)
 
$
(6,319
)
 
$
54

Income tax benefit (expense)
33,241

 
(4
)
 
(31,531
)
 
(307
)
 
9

 
(535
)
 
(4
)
 
2,308

 
(19
)
Other comprehensive (loss) income, net of tax
$
(354,571
)
 
$
2

 
$
54,046

 
$
527

 
$
27

 
$
(5,258
)
 
$
(301
)
 
$
(4,011
)
 
$
35




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

NOTE 17—Discontinued Operations:
On April 15, 2014, the Company signed a definitive agreement to sell its antioxidant, ibuprofen and propofol businesses and assets to SI Group, Inc. Included in the transaction were Albemarle’s manufacturing sites in Orangeburg, South Carolina and Jinshan, China, along with Albemarle’s antioxidant product lines manufactured in Ningbo, China. On September 1, 2014, the Company closed the sale of these businesses and assets and received net proceeds of $104.7 million. A working capital settlement of $7.6 million (recorded in Other accounts receivable at December 31, 2014) was received in the first quarter of 2015. Financial results of the disposed group have been presented as discontinued operations in the consolidated statements of income for the 2014 period shown below. A summary of results of discontinued operations is as follows (in thousands):
 
Three Months Ended 
 March 31,
 
2015
 
2014
Net sales
$

 
$
56,836

 
 
 
 
Loss from discontinued operations
$

 
$
(2,513
)
Income tax benefit

 
(744
)
Loss from discontinued operations (net of tax)
$

 
$
(1,769
)

NOTE 18—Recently Issued Accounting Pronouncements:
In April 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that changed the criteria for reporting discontinued operations and modifies related disclosure requirements to provide users of financial statements with more information about the assets, liabilities, revenues and expenses of discontinued operations. The guidance modified the definition of discontinued operations by limiting its scope to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. Additionally, these new requirements require entities to disclose the pretax profit or loss related to disposals of significant components that do not qualify as discontinued operations. These new requirements became effective on January 1, 2015. The impact of these new requirements is dependent on the nature of dispositions, if any, after adoption.
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. These new requirements become effective for annual and interim reporting periods beginning after December 15, 2016, and early adoption is prohibited. We are assessing the impact of these new requirements on our financial statements.
In June 2014, the FASB issued accounting guidance which clarifies the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The accounting guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. These new requirements become effective for annual and interim reporting periods beginning after December 15, 2015, and early adoption is permitted. We do not expect this guidance to have a significant impact on our financial statements.
In February 2015, the FASB issued accounting guidance that changes the analysis that reporting entities must perform to determine whether certain types of legal entities should be consolidated. Specifically, the amendments affect (a) limited partnerships and similar legal entities; (b) the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships; and (c) certain investment funds. These amendments are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.

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

Early adoption is permitted, including adoption in an interim period. We are assessing the impact of these amendments on our financial statements.
In April 2015, the FASB issued accounting guidance that changes the balance sheet presentation of debt issuance costs. The guidance requires debt issuance costs relating to a recognized debt liability to be presented as a direct deduction from the carrying amount of the associated debt liability in the balance sheet. This new requirement will be effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be applied on a retrospective basis. Early adoption is permitted. We are assessing the impact of this new requirement on our financial statements.
In April 2015, the FASB issued accounting guidance that, among other things, provides for a practical expedient related to interim period remeasurements of defined benefit plan assets and obligations. The practical expedient permits entities to remeasure plan assets and obligations using the month-end that is closest to the date of the actual event. Disclosure of such election and related month-end remeasurement date is required. This guidance will be effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be applied prospectively. Early application is permitted. We do not expect this guidance to have a significant impact on our financial statements.
In April 2015, the FASB issued accounting guidance which clarifies the proper method of accounting for fees paid in a cloud computing arrangement. The guidance requires software licenses included in a cloud computing arrangement to be accounted for consistently with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. This new requirement will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. We are assessing the impact of this new requirement on our financial statements.

NOTE 19—Consolidating Guarantor Financial Information:
The 2014 Senior Notes issued by Albemarle Corporation (the “Issuer”) are fully and unconditionally guaranteed, jointly and severally, on an unsecured and unsubordinated basis by Rockwood Holdings, Inc. (“RHI”) and Rockwood Specialties Group, Inc. (“RSGI”) (the “Guarantor Subsidiaries”). The Guarantor Subsidiaries are 100% owned subsidiaries of the Issuer. The guarantees are general senior unsecured obligations of the Guarantor Subsidiaries and rank equally in right of payment with all existing and future senior unsecured indebtedness and other obligations of the Guarantor Subsidiaries that are not, by their terms, otherwise expressly subordinated. The note guarantees will be released when the 4.625% senior notes assumed by Albemarle upon the acquisition of Rockwood are repaid or otherwise discharged.
The Company applies the equity method of accounting to its subsidiaries. For cash management purposes, the Company transfers cash among the Issuer, Guarantor Subsidiaries and all other non-guarantor subsidiaries (the “Non-Guarantor Subsidiaries”) through intercompany financing arrangements, contributions or declaration of dividends between the respective parent and its subsidiaries. The transfer of cash under these activities facilitates the ability of the recipient to make specified third-party payments for principal and interest on the Company’s outstanding debt, common stock dividends and common stock repurchases. The consolidating statements of cash flows for the periods included herein present such intercompany financing activities, contributions and dividends consistent with how such activity would be presented in a stand-alone statement of cash flows. There are no significant restrictions on the ability of the Issuer or the Guarantor Subsidiaries to obtain funds from subsidiaries by dividend or loan.
The following consolidating financial information presents the financial condition, results of operations and cash flows of the Issuer, Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries, together with consolidating adjustments necessary to present Albemarle’s results on a consolidated basis, and should be read in conjunction with the notes to the condensed consolidated financial statements. Each entity in the consolidating financial information follows the same accounting policies as described herein and in our Annual Report on Form 10-K for the year ended December 31, 2014.


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

Condensed Consolidating Statement of Income
Three Months Ended March 31, 2015
(In Thousands)
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating Adjustments
 
Consolidated Total
Net sales
$
378,172

 
$

 
$
687,615

 
$
(181,383
)
 
$
884,404

Cost of goods sold
258,124

 

 
546,776

 
(178,962
)
 
625,938

Gross profit
120,048

 

 
140,839

 
(2,421
)