10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM 10-Q
_________________________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 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 October 30, 2015: 112,203,154


Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-48
 
 
 
49-69
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBITS
 
 

2

Table of Contents

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

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
905,093

 
$
642,418

 
$
2,720,982

 
$
1,846,982

Cost of goods sold
592,883

 
436,972

 
1,849,740

 
1,238,574

Gross profit
312,210

 
205,446

 
871,242

 
608,408

Selling, general and administrative expenses
137,615

 
66,012

 
421,092

 
211,127

Research and development expenses
25,295

 
22,407

 
77,123

 
66,916

Restructuring and other, net
(6,804
)
 
293

 
(6,804
)
 
20,625

Acquisition and integration related costs
42,798

 
10,261

 
126,487

 
15,104

Operating profit
113,306

 
106,473

 
253,344

 
294,636

Interest and financing expenses
(32,058
)
 
(8,749
)
 
(100,986
)
 
(26,255
)
Other income (expenses), net
466

 
(6,618
)
 
50,964

 
(6,454
)
Income from continuing operations before income taxes and equity in net income of unconsolidated investments
81,714

 
91,106

 
203,322

 
261,927

Income tax expense
16,892

 
11,737

 
48,171

 
46,700

Income from continuing operations before equity in net income of unconsolidated investments
64,822

 
79,369

 
155,151

 
215,227

Equity in net income of unconsolidated investments (net of tax)
6,050

 
8,650

 
22,236

 
28,200

Net income from continuing operations
70,872

 
88,019

 
177,387

 
243,427

Loss from discontinued operations (net of tax)

 
(6,679
)
 

 
(68,473
)
Net income
70,872

 
81,340

 
177,387

 
174,954

Net income attributable to noncontrolling interests
(5,480
)
 
(8,546
)
 
(16,733
)
 
(23,130
)
Net income attributable to Albemarle Corporation
$
65,392

 
$
72,794

 
$
160,654

 
$
151,824

 
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
0.58

 
$
1.02

 
$
1.45

 
$
2.79

Discontinued operations

 
(0.09
)
 

 
(0.87
)
 
$
0.58

 
$
0.93

 
$
1.45

 
$
1.92

Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
0.58

 
$
1.01

 
$
1.44

 
$
2.78

Discontinued operations

 
(0.08
)
 

 
(0.87
)
 
$
0.58

 
$
0.93

 
$
1.44

 
$
1.91

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding – basic
112,202

 
78,244

 
110,840

 
78,880

Weighted-average common shares outstanding – diluted
112,544

 
78,659

 
111,205

 
79,287

Cash dividends declared per share of common stock
$
0.29

 
$
0.275

 
$
0.87

 
$
0.825

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

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

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
70,872

 
$
81,340

 
$
177,387

 
$
174,954

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation
(67,520
)
 
(100,318
)
 
(365,867
)
 
(106,380
)
Pension and postretirement benefits
2

 
(147
)
 
6

 
(615
)
Net investment hedge
(3,407
)
 

 
39,709

 

Interest rate swap
527

 
(988
)
 
1,580

 
(11,409
)
Other
(6
)
 
33

 
24

 
105

Total other comprehensive loss, net of tax
(70,404
)
 
(101,420
)
 
(324,548
)
 
(118,299
)
Comprehensive income (loss)
468

 
(20,080
)
 
(147,161
)
 
56,655

Comprehensive income attributable to noncontrolling interests
(5,083
)
 
(8,421
)
 
(16,185
)
 
(22,727
)
Comprehensive income (loss) attributable to Albemarle Corporation
$
(4,615
)
 
$
(28,501
)
 
$
(163,346
)
 
$
33,928

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

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

 
September 30,
 
December 31,
 
2015
 
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
234,490

 
$
2,489,768

Trade accounts receivable, less allowance for doubtful accounts (2015 – $2,486; 2014 – $1,563)
618,301

 
385,212

Other accounts receivable
76,271

 
49,423

Inventories
629,393

 
358,361

Other current assets
162,460

 
66,086

Total current assets
1,720,915

 
3,348,850

Property, plant and equipment, at cost
4,096,921

 
2,620,670

Less accumulated depreciation and amortization
1,496,069

 
1,388,802

Net property, plant and equipment
2,600,852

 
1,231,868

Investments
453,869

 
194,042

Other assets
191,349

 
160,956

Goodwill
2,811,086

 
243,262

Other intangibles, net of amortization
1,896,993

 
44,125

Total assets
$
9,675,064

 
$
5,223,103

Liabilities And Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
371,649

 
$
231,705

Accrued expenses
566,932

 
166,174

Current portion of long-term debt
284,368

 
711,096

Dividends payable
32,295

 
21,458

Income taxes payable
67,304

 
9,453

Total current liabilities
1,322,548

 
1,139,886

Long-term debt
3,558,964

 
2,223,035

Postretirement benefits
55,401

 
56,424

Pension benefits
451,056

 
170,534

Other noncurrent liabilities
250,737

 
87,705

Deferred income taxes
761,844

 
56,884

Commitments and contingencies (Notes 2, 10)

 

Equity:
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
Common stock, $.01 par value, issued and outstanding – 112,202 in 2015 and 78,031 in 2014
1,122

 
780

Additional paid-in capital
2,056,082

 
10,447

Accumulated other comprehensive loss
(386,413
)
 
(62,413
)
Retained earnings
1,473,698

 
1,410,651

Total Albemarle Corporation shareholders’ equity
3,144,489

 
1,359,465

Noncontrolling interests
130,025

 
129,170

Total equity
3,274,514

 
1,488,635

Total liabilities and equity
$
9,675,064

 
$
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
 
 
 
 
 
 
 
 
 
160,654

 
160,654

 
16,733

 
177,387

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

 
 
 
 
 
10,473

 
 
 
10,473

Exercise of stock options
 
10,500

 

 
342

 
 
 
 
 
342

 
 
 
342

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

 
1

 
(1
)
 
 
 
 
 

 
 
 

Acquisition of Rockwood
 
34,113,064

 
341

 
2,036,209

 

 

 
2,036,550

 
3,022

 
2,039,572

Noncontrolling interest assumed in acquisition of Shanghai Chemetall
 
 
 
 
 
 
 
 
 
 
 

 
4,843

 
4,843

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

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

 
$
1,122

 
$
2,056,082

 
$
(386,413
)
 
$
1,473,698

 
$
3,144,489

 
$
130,025

 
$
3,274,514

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
 
 
 
151,824

 
151,824

 
23,130

 
174,954

Other comprehensive loss
 
 
 
 
 
 
 
(117,896
)
 
 
 
(117,896
)
 
(403
)
 
(118,299
)
Cash dividends declared
 
 
 
 
 
 
 
 
 
(64,905
)
 
(64,905
)
 
(7,612
)
 
(72,517
)
Stock-based compensation and other
 
 
 
 
 
10,016

 
 
 
 
 
10,016

 
 
 
10,016

Exercise of stock options
 
77,546

 
1

 
2,712

 
 
 
 
 
2,713

 
 
 
2,713

Shares repurchased
 
(1,967,069
)
 
(20
)
 
(13,321
)
 
 
 
(136,659
)
 
(150,000
)
 
 
 
(150,000
)
Tax benefit related to stock plans
 
 
 
 
 
836

 
 
 
 
 
836

 
 
 
836

Issuance of common stock, net
 
135,578

 
1

 
(1
)
 
 
 
 
 

 
 
 

Shares withheld for withholding taxes associated with common stock issuances
 
(50,144
)
 
(1
)
 
(3,207
)
 
 
 
 
 
(3,208
)
 
 
 
(3,208
)
Balance at September 30, 2014
 
78,248,753

 
$
782

 
$
6,992

 
$
(1,651
)
 
$
1,450,618

 
$
1,456,741

 
$
130,530

 
$
1,587,271

See accompanying Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Nine Months Ended 
 September 30,
 
2015
 
2014
Cash and cash equivalents at beginning of year
$
2,489,768

 
$
477,239

Cash flows from operating activities:
 
 
 
Net income
177,387

 
174,954

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Depreciation and amortization
200,372

 
78,344

(Gain) loss associated with restructuring and other
(6,804
)
 
6,333

Loss on disposal of businesses

 
85,515

Stock-based compensation
11,171

 
10,447

Excess tax benefits realized from stock-based compensation arrangements
(59
)
 
(836
)
Equity in net income of unconsolidated investments (net of tax)
(22,236
)
 
(28,200
)
Dividends received from unconsolidated investments and nonmarketable securities
57,149

 
37,854

Pension and postretirement (benefit) expense
(232
)
 
21,946

Pension and postretirement contributions
(16,673
)
 
(10,718
)
Unrealized gain on investments in marketable securities
(597
)
 
(525
)
Deferred income taxes
(53,593
)
 
(24,412
)
Working capital changes
14,823

 
89,020

Other, net
(43,805
)
 
(9,180
)
Net cash provided by operating activities
316,903

 
430,542

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

Other acquisitions, net of cash acquired
(48,845
)
 

Capital expenditures
(164,568
)
 
(76,682
)
Decrease in restricted cash
57,550

 

Cash proceeds from divestitures, net
6,133

 
104,718

Return of capital
98,000

 

Sales of marketable securities, net
1,265

 
943

Repayments from (long-term advances to) joint ventures
2,156

 
(7,499
)
Net cash (used in) provided by investing activities
(2,099,954
)
 
21,480

Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(1,332,293
)
 
(3,023
)
Proceeds from borrowings of long-term debt
1,000,000

 

Repayments of other borrowings, net
(16,854
)
 
(23,554
)
Dividends paid to shareholders
(86,770
)
 
(62,827
)
Dividends paid to noncontrolling interests
(23,195
)
 
(7,612
)
Repurchases of common stock

 
(150,000
)
Proceeds from exercise of stock options
342

 
2,713

Excess tax benefits realized from stock-based compensation arrangements
59

 
836

Withholding taxes paid on stock-based compensation award distributions
(1,218
)
 
(3,208
)
Debt financing costs
(4,186
)
 
(3,074
)
Other
(3,882
)
 

Net cash used in financing activities
(467,997
)
 
(249,749
)
Net effect of foreign exchange on cash and cash equivalents
(4,230
)
 
(26,392
)
(Decrease) increase in cash and cash equivalents
(2,255,278
)
 
175,881

Cash and cash equivalents at end of period
$
234,490

 
$
653,120

See accompanying Notes to the Condensed Consolidated Financial Statements.

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


NOTE 1—Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Albemarle Corporation and our wholly-owned, majority-owned and controlled subsidiaries (collectively, “Albemarle,” “we,” “us,” “our” or “the Company”) contain all adjustments necessary for a fair statement, in all material respects, of our condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014, our consolidated statements of income and consolidated statements of comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2015 and 2014 and our condensed consolidated statements of cash flows and consolidated statements of changes in equity for the nine-month periods ended September 30, 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 condensed consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”). The results of operations for the three-month and nine-month periods ended September 30, 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.
Included in Net sales and Net income attributable to Albemarle Corporation for the three-month period ended September 30, 2015 is approximately $359.8 million and $18.2 million, respectively, attributable to the businesses acquired from Rockwood. Included in Net sales and Net income attributable to Albemarle Corporation for the nine-month period ended September 30, 2015 is approximately $1.1 billion and $43.9 million, respectively, attributable to the businesses acquired from Rockwood.
Our consolidated statements of income for the three-month and nine-month periods ended September 30, 2015 include $41.8 million and $120.5 million, respectively, of acquisition and integration related costs directly related to the acquisition of Rockwood (mainly consisting of advisory fees, costs to achieve synergies, relocation costs, and other integration costs) and

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

$1.0 million and $6.0 million, respectively, of costs in connection with other significant projects. Acquisition and integration related costs directly related to the acquisition of Rockwood were $9.3 million during the three months and nine months ended September 30, 2014. Acquisition and integration related costs in connection with other significant projects were $1.0 million and $5.8 million during the three-month and nine-month periods ended September 30, 2014, respectively.
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 $2.7 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
262,947

Inventories
292,503

Other current assets
86,267

Property, plant and equipment
1,395,684

Investments
529,453

Other assets
28,386

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

Trade names and trademarks
258,740

Customer lists and relationships
1,319,060

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

Other
27,450

Current liabilities
(409,799
)
Long-term debt
(1,319,132
)
Pension benefits
(316,086
)
Other noncurrent liabilities
(168,435
)
Deferred income taxes
(830,572
)
Noncontrolling interests
(3,022
)
Total identifiable net assets
3,040,803

Goodwill
2,677,465

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. Significant changes in our purchase price allocation since our initial preliminary estimates reported in the first quarter of 2015 were primarily related to decreases in the estimated fair values of certain current assets, property, plant and equipment, investments,

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

intangible assets, current liabilities and deferred income taxes, which resulted in an increase to recognized goodwill of approximately $52.6 million. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of property, plant and equipment, investments, intangible assets, environmental liabilities, appraisal shares, legal reserves, contingent liabilities, deferred income taxes 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 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, 20 years for trade names and trademarks and 24 years for customer lists and relationships. The weighted-average amortization period for all definite-lived intangible assets acquired is 23 years.
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.
As discussed further in Note 18, “Recently Issued Accounting Pronouncements,” in the third quarter of 2015 the Company early-adopted new accounting guidance that changes the reporting requirements for measurement-period adjustments that occur in periods after a business combination is consummated. There were no significant measurement-period adjustments recorded in the consolidated statement of income for the three-months ended September 30, 2015 that related to previous reporting periods.
Unaudited Pro Forma Financial Information
The following unaudited pro forma results of operations of the Company for the three-month and nine-month periods ended September 30, 2015 and 2014 assume that the Merger occurred on January 1, 2014. The pro forma amounts include certain adjustments, including interest expense, depreciation, amortization expense and income taxes. Pro forma amounts were adjusted to include these costs. The pro forma amounts for the three-month and nine-month periods ended September 30, 2015 were adjusted to exclude approximately $41.8 million and $120.5 million, respectively, of nonrecurring acquisition and integration related costs, and approximately $16.8 million and $102.3 million, respectively, of charges related to the utilization of the inventory markup as further described in Note 11, “Segment Information.” 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.

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands, except per share amounts)
Pro forma Net sales
$
905,093

 
$
998,718

 
$
2,754,312

 
$
2,920,082

Pro forma Net income from continuing operations
$
111,211

 
$
143,675

 
$
335,602

 
$
316,238

Pro forma Net income from continuing operations per share:
 
 
 
 
 
 
 
Basic
$
0.99

 
$
1.28

 
$
3.03

 
$
2.79

Diluted
$
0.99

 
$
1.27

 
$
3.02

 
$
2.76

Litigation Related to the Merger
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. On November 2, 2015, the court granted the parties’ jointly stipulated amended scheduling order, which set forth dates for fact and expert discovery, as well as trial. Fact discovery has commenced and remains ongoing, and the Court has set a date of June 27, 2016 for trial on the merits. 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 September 30, 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), as well as the fair value of the noncontrolling interest in Nanjing Chemetall Surface Technologies Co., Ltd., 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.


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

NOTE 3—Goodwill and Other Intangibles:
The following table summarizes the changes in goodwill by reportable segment for the nine months ended September 30, 2015 (in thousands):
Balance at December 31, 2014
$
243,262

Acquisition of Rockwood
2,677,465

Other acquisitions(a)
9,275

Foreign currency translation adjustments
(118,916
)
Balance at September 30, 2015
$
2,811,086


(a)
Primarily relates to the acquisition of the remaining interest in Shanghai Chemetall. See Note 2, “Acquisitions.”
The following table summarizes the changes in other intangibles and related accumulated amortization for the nine months ended September 30, 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
1,319,060

 
363,120

 
227,840

 
27,450

 
1,937,470

Other acquisitions(a)
76,940

 

 
1,433

 
73

 
78,446

Foreign currency translation adjustments and other
(74,388
)
 
(17,722
)
 
(10,735
)
 
(1,917
)
 
(104,762
)
Balance at September 30, 2015
$
1,370,091

 
$
362,953

 
$
258,936

 
$
49,047

 
$
2,041,027

Accumulated Amortization
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
(22,931
)
 
$
(7,912
)
 
$
(32,831
)
 
$
(22,074
)
 
$
(85,748
)
Amortization
(41,796
)
 
(9,216
)
 
(10,157
)
 
(365
)
 
(61,534
)
Foreign currency translation adjustments and other
1,482

 
139

 
1,102

 
525

 
3,248

Balance at September 30, 2015
$
(63,245
)
 
$
(16,989
)
 
$
(41,886
)
 
$
(21,914
)
 
$
(144,034
)
Net Book Value at December 31, 2014
$
25,548

 
$
9,643

 
$
7,567

 
$
1,367

 
$
44,125

Net Book Value at September 30, 2015
$
1,306,846

 
$
345,964

 
$
217,050

 
$
27,133

 
$
1,896,993


(a)
Primarily relates to the acquisition of the remaining interest in Shanghai Chemetall. See Note 2, “Acquisitions.”
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
$
20,588

2016
$
82,350

2017
$
82,350

2018
$
82,350

2019
$
82,350

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.



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

NOTE 4—Foreign Exchange:
Foreign exchange transaction (losses) gains were $(1.2) million and $51.8 million for the three-month and nine-month periods ended September 30, 2015, respectively, and $(0.8) million and $(2.1) million for the three-month and nine-month periods ended September 30, 2014, respectively, and are included in Other income (expenses), net, in our consolidated statements of income, with the unrealized portion included in Other, net, in our condensed consolidated statements of cash flows. The gains in the nine month period ended September 30, 2015 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 and nine-month periods ended September 30, 2015 was 20.7% and 23.7%, respectively, compared to 12.9% and 17.8% for the three-month and nine-month periods ended September 30, 2014, respectively. 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. The increase in the effective tax rates for the three-month and nine-month periods ended September 30, 2015 compared to the same periods in 2014 is primarily driven by the Rockwood acquisition, which caused a reduction in various benefits in our effective tax rate. Our effective income tax rate for the nine-month period ended September 30, 2015 was also affected by discrete net tax expense items of $2.9 million related mainly to prior year uncertain tax position adjustments associated with lapses in statutes of limitations, items associated with U.S. provision to return adjustments, and the OPEB plan termination gain described in Note 12, “Pension Plans and Other Postretirement Benefits.” Our effective income tax rate for the three-month period ended September 30, 2014 was also impacted by discrete net tax benefit items of $3.2 million, related principally to the expiration of the U.S. federal statute of limitations and a pension plan actuarial loss that was recorded in the period. Our effective income tax rate for the nine-month period ended September 30, 2014 was also affected by tax benefits of $14.7 million related to restructuring charges, a pension plan actuarial loss and the release of reserves related principally to the expiration of the U.S. federal statute of limitations that occurred in such period.
Included in Other current assets in our condensed consolidated balance sheets for the periods ended September 30, 2015 and December 31, 2014 are income tax receivables of $93.1 million and $22.8 million, respectively.
Based on management’s continued evaluation of uncertain tax positions acquired in the Rockwood transaction and the progress of various tax audits and other tax matters, the Company believes that it is reasonably possible that a material change in its uncertain tax positions, which is not currently estimable, could occur within twelve months of the reporting date.


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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 and nine-month periods ended September 30, 2015 and 2014 are calculated as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per share amounts)
Basic earnings per share from continuing operations
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
70,872

 
$
88,019

 
$
177,387

 
$
243,427

Net income from continuing operations attributable to noncontrolling interests
(5,480
)
 
(8,546
)
 
(16,733
)
 
(23,130
)
Net income from continuing operations attributable to Albemarle Corporation
$
65,392

 
$
79,473

 
$
160,654

 
$
220,297

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share(a)
112,202

 
78,244

 
110,840

 
78,880

Basic earnings per share from continuing operations
$
0.58

 
$
1.02

 
$
1.45

 
$
2.79

 
 
 
 
 
 
 
 
Diluted earnings per share from continuing operations
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income from continuing operations
$
70,872

 
$
88,019

 
$
177,387

 
$
243,427

Net income from continuing operations attributable to noncontrolling interests
(5,480
)
 
(8,546
)
 
(16,733
)
 
(23,130
)
Net income from continuing operations attributable to Albemarle Corporation
$
65,392

 
$
79,473

 
$
160,654

 
$
220,297

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share(a)
112,202

 
78,244

 
110,840

 
78,880

Incremental shares under stock compensation plans
342

 
415

 
365

 
407

Weighted-average common shares for diluted earnings per share(a)
112,544

 
78,659

 
111,205

 
79,287

Diluted earnings per share from continuing operations
$
0.58

 
$
1.01

 
$
1.44

 
$
2.78

(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. On July 9, 2015, the Company declared a cash dividend of $0.29 per share, which was paid on October 1, 2015 to shareholders of record at the close of business as of September 16, 2015. On October 5, 2015, the Company declared a cash dividend of $0.29 per share, which is payable on January 4, 2016 to shareholders of record at the close of business as of December 15, 2015.
NOTE 7—Inventories:
The following table provides a breakdown of inventories at September 30, 2015 and December 31, 2014:
 
September 30,
 
December 31,
 
2015
 
2014
 
(In thousands)
Finished goods
$
414,607

 
$
262,769

Raw materials
113,687

 
53,152

Work in process
45,140

 

Stores, supplies and other
55,959

 
42,440

Total inventories
$
629,393

 
$
358,361



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

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 $263.7 million at September 30, 2015. 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 $27.0 million and $6.2 million at September 30, 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.
Included in the condensed consolidated statement of cash flows for the nine months ended September 30, 2015, is a return of capital from Talison of $98.0 million.
NOTE 9—Long-Term Debt:
Long-term debt at September 30, 2015 and December 31, 2014 consisted of the following:
 
September 30,
 
December 31,
 
2015
 
2014
 
(In thousands)
1.875% Senior notes, net of unamortized discount of $5,449 at September 30, 2015 and $6,605 at December 31, 2014
$
781,701

 
$
844,315

3.00% Senior notes, net of unamortized discount of $260 at September 30, 2015 and $306 at December 31, 2014
249,740

 
249,694

4.15% Senior notes, net of unamortized discount of $1,330 at September 30, 2015 and $1,439 at December 31, 2014
423,670

 
423,561

4.50% Senior notes, net of unamortized discount of $1,636 at September 30, 2015 and $1,871 at December 31, 2014
348,364

 
348,129

4.625% Senior notes, including unamortized premium of $38,303 at September 30, 2015
1,287,643

 

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 $1,003 at September 30, 2015 and $1,029 at December 31, 2014
348,997

 
348,971

Commercial paper notes
272,950

 
367,178

Fixed-rate foreign borrowings
4,069

 
1,958

Variable-rate foreign bank loans
86,534

 
25,139

Variable-rate domestic bank loans
18,210

 

Capital lease obligations
21,373

 

Miscellaneous
81

 
189

Total long-term debt
3,843,332

 
2,934,131

Less amounts due within one year
284,368

 
711,096

Long-term debt, less current portion
$
3,558,964

 
$
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 “August 2014 Term Loan Agreement”); (b) $800.0 million under a 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 August 2014 Term Loan Agreement, 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, August 2014 Term Loan Agreement, 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.

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

Upon completion of the Rockwood acquisition, we assumed Rockwood’s senior notes with an aggregate principal amount of $1.25 billion. These senior notes bore interest at a rate of 4.625% payable semi-annually on April 15 and October 15 of each year, and had a scheduled maturity of October 15, 2020. At September 30, 2015, the carrying amount of the 4.625% senior notes included an unamortized premium of $38.3 million, which resulted from an adjustment to fair value upon our assumption of the notes from Rockwood. The effective interest rate of the notes was approximately 3.95%.
Under the terms of the indenture governing the 4.625% senior notes, as amended and supplemented, on October 15, 2015, our wholly-owned subsidiary, Rockwood Specialties Group, Inc., redeemed all of the outstanding 4.625% senior notes at a redemption price equal to 103.469% of the principal amount of the notes, representing a premium of $43.3 million, plus accrued and unpaid interest to the redemption date. The guarantees of the 4.625% senior notes and the 2014 Senior Notes, as more fully described in Note 19, “Consolidating Guarantor Financial Information,” were released upon repayment of the 4.625% senior notes. We expect to recognize a loss on early extinguishment of the 4.625% senior notes of approximately $5.4 million in the fourth quarter of 2015.
The 4.625% senior notes were repaid with proceeds from a new term loan agreement the Company entered into with JPMorgan Chase Bank, N.A. (the “Administrative Agent”) and certain other lenders on September 14, 2015 (the “September 2015 Term Loan Agreement”). Initial borrowings under the September 2015 Term Loan Agreement, which occurred on October 15, 2015, consisted of a 364-day term loan facility in an aggregate principal amount of $300 million (the “364-Day Facility”) and a five-year term loan facility in an aggregate principal amount of $950 million (the “Five-Year Facility”). Borrowings under the facilities bear interest equal to, at the option of the Company: (a) the London Inter-Bank Offered Rate (“LIBOR”) plus a margin ranging from 1.000% to 1.875% per annum depending upon the long-term, unsecured, senior, non-credit enhanced debt rating of the Company, or (b) a base rate (defined as the highest of (i) the Federal Funds Rate plus 0.50%; (ii) the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its “prime rate”; or (iii) one-month LIBOR plus 1.00%) plus a margin of 0.000% to 0.875% per annum depending upon the long-term, unsecured, senior, non-credit enhanced debt rating of the Company. As of October 15, 2015, the date of initial funding, the interest rate on both facilities was LIBOR plus 1.375%.
Borrowings under the 364-Day Facility are required to be repaid 364 days after initial funding. Borrowings under the Five-Year Facility are required to be repaid in equal quarterly installments on the last business day of each of March, June, September and December, beginning with September 30, 2016, and ending with the last such day to occur prior to the fifth anniversary after initial funding (each a “Payment Date”), in an aggregate principal amount equal to (a) in the case of each Payment Date occurring on or after the first anniversary and prior to the second anniversary of initial funding, 1.25% of the aggregate principal amount of such loans, and (b) in the case of each Payment Date occurring on or after the second anniversary of initial funding, equal to 2.5% of the aggregate principal amount of such loans. On the fifth anniversary after initial funding, any remaining amounts outstanding under the Five-Year Facility become due and payable. Additionally, the agreement requires that proceeds from the Company’s previously announced intended divestitures of its Minerals, Fine Chemistry Services and Metal Sulfides businesses must be used to repay amounts outstanding under the September 2015 Term Loan Agreement. Borrowings under the September 2015 Term Loan Agreement are subject to customary affirmative and negative covenants, including a maximum leverage ratio requirement that is aligned with the maximum leverage ratio requirement of our February 2014 Credit Agreement.
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 in the condensed consolidated balance sheet at December 31, 2014.
Current portion of long-term debt at September 30, 2015 consists primarily of commercial paper notes with a weighted-average interest rate of approximately 0.84% and a weighted-average maturity of 21 days.
On September 14, 2015, certain amendments were made to the February 2014 Credit Agreement which include the following, among other things: (a) an extension of the maturity date to February 7, 2020 from February 7, 2019; (b) with regard to the borrowing rate, the margin over LIBOR, previously ranging from 0.900% to 1.500%, will now range from 1.000% to 1.700%; and (c) the Company’s credit rating as determined by Fitch Ratings will now be considered in the determination of the applicable margin over LIBOR.
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 the three-month and nine-month periods ended September 30, 2015, (losses) gains of $(3.4) million and $39.7 million (net of income taxes),

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

respectively, were recorded in accumulated other comprehensive loss in connection with the revaluation of these senior notes to our reporting currency.
During the nine months ended September 30, 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 (expenses), net, in our consolidated statement of income for the nine months ended September 30, 2015. Also, during the nine months ended September 30, 2015, we paid approximately $4.2 million of debt financing costs primarily related to the 2014 Senior Notes, the September 2015 Term Loan, and amendments to the February 2014 Credit Agreement.

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 nine months ended September 30, 2015, as follows (in thousands):
Beginning balance at December 31, 2014
$
9,235

Expenditures
(2,526
)
Acquisition of Rockwood
35,367

Divestitures
(1,826
)
Accretion of discount
710

Revisions of estimates
9

Foreign currency translation adjustments
(1,628
)
Ending balance at September 30, 2015
39,341

Less amounts reported in Accrued expenses
3,085

Amounts reported in Other noncurrent liabilities
$
36,256

As part of the Rockwood acquisition, we assumed $35.4 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 $25.7 million, discounted at rates ranging from 2.8% to 4.3%, with the undiscounted amount totaling $43.9 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.
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.

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

Asset Retirement Obligations
The following is a summary of the activity in our asset retirement obligations for the nine months ended September 30, 2015 (in thousands):
Beginning balance at December 31, 2014
$
15,085

Acquisition of Rockwood
17,265

Liabilities incurred
1,025

Accretion of discount
932

Foreign currency translation adjustments
(34
)
Ending balance at September 30, 2015
$
34,273

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 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.
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, Performance Catalyst Solutions (“PCS”) and Bromine product categories. The Refining Solutions segment consists of the Company’s Heavy Oil Upgrading and Clean Fuels Technologies (“CFT”) 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

18

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

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, “Discontinued Operations”.
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 borrowings outstanding under the September 2015 Term Loan Agreement. 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.
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Net sales:
 
 
 
 
 
 
 
Performance Chemicals
$
399,536

 
$
299,947

 
$
1,224,864

 
$
856,221

Refining Solutions
185,102

 
218,950

 
528,841

 
618,635

Chemetall Surface Treatment
211,877

 

 
617,163

 

All Other
102,224

 
123,521

 
337,997

 
372,126

Corporate
6,354

 

 
12,117

 

Total net sales
$
905,093

 
$
642,418

 
$
2,720,982

 
$
1,846,982

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Performance Chemicals
$
136,209

 
$
82,329

 
$
415,419

 
$
232,668

Refining Solutions
54,517

 
61,674

 
144,910

 
189,259

Chemetall Surface Treatment
53,898

 

 
148,344

 

All Other
6,262

 
20,971

 
29,540

 
63,482

Corporate
(15,890
)
 
(20,370
)
 
(7,508
)
 
(60,087
)
Total adjusted EBITDA
$
234,996

 
$
144,604

 
$
730,705

 
$
425,322


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):

19

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

 
Performance Chemicals
 
Refining Solutions
 
Chemetall Surface Treatment
 
Reportable Segments Total
 
All Other
 
Corporate
 
Consolidated Total
Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
136,209

 
$
54,517

 
$
53,898

 
$
244,624

 
$
6,262

 
$
(15,890
)
 
$
234,996

Depreciation and amortization
(31,482
)
 
(8,804
)
 
(20,260
)
 
(60,546
)
 
(5,645
)
 
(2,712
)
 
(68,903
)
Utilization of inventory markup(a)
(16,834
)
 

 

 
(16,834
)
 

 

 
(16,834
)
Restructuring and other, net(c)

 

 

 

 

 
6,804

 
6,804

Acquisition and integration related costs(b)

 

 

 

 

 
(42,798
)
 
(42,798
)
Interest and financing expenses

 

 

 

 

 
(32,058
)
 
(32,058
)
Income tax expense

 

 

 

 

 
(16,892
)
 
(16,892
)
Non-operating pension and OPEB items

 

 

 

 

 
1,077

 
1,077

Net income (loss) attributable to Albemarle Corporation
$
87,893

 
$
45,713

 
$
33,638

 
$
167,244

 
$
617

 
$
(102,469
)
 
$
65,392

Three months ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
82,329

 
$
61,674

 
$

 
$
144,003

 
$
20,971

 
$
(20,370
)
 
$
144,604

Depreciation and amortization
(12,593
)
 
(8,823
)
 

 
(21,416
)
 
(3,492
)
 
(722
)
 
(25,630
)
Restructuring and other, net(c)

 

 

 

 

 
(293
)
 
(293
)
Acquisition and integration related costs(b)

 

 

 

 

 
(10,261
)
 
(10,261
)
Interest and financing expenses

 

 

 

 

 
(8,749
)
 
(8,749
)
Income tax expense

 

 

 

 

 
(11,737
)
 
(11,737
)
Loss from discontinued operations (net of tax)

 

 

 

 

 
(6,679
)
 
(6,679
)
Non-operating pension and OPEB items

 

 

 

 

 
(1,440
)
 
(1,440
)
Other(d)

 

 

 

 

 
(7,021
)
 
(7,021
)
Net income (loss) attributable to Albemarle Corporation
$
69,736

 
$
52,851

 
$

 
$
122,587

 
$
17,479

 
$
(67,272
)
 
$
72,794

Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
415,419

 
$
144,910

 
$
148,344

 
$
708,673

 
$
29,540

 
$
(7,508
)
 
$
730,705

Depreciation and amortization
(93,608
)
 
(25,397
)
 
(57,567
)
 
(176,572
)
 
(16,867
)
 
(6,933
)
 
(200,372
)
Utilization of inventory markup(a)
(79,239
)
 

 
(20,030
)
 
(99,269
)
 
(3,029
)
 

 
(102,298
)
Restructuring and other, net(c)

 

 

 

 

 
6,804

 
6,804

Acquisition and integration related costs(b)

 

 

 

 

 
(126,487
)
 
(126,487
)
Interest and financing expenses

 

 

 

 

 
(100,986
)
 
(100,986
)
Income tax expense

 

 

 

 

 
(48,171
)
 
(48,171
)
Non-operating pension and OPEB items

 

 

 

 

 
5,900

 
5,900

Other(d)

 

 

 

 

 
(4,441
)
 
(4,441
)
Net income (loss) attributable to Albemarle Corporation
$
242,572

 
$
119,513

 
$
70,747

 
$
432,832

 
$
9,644

 
$
(281,822
)
 
$
160,654

Nine months ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
232,668

 
$
189,259

 
$

 
$
421,927

 
$
63,482

 
$
(60,087
)
 
$
425,322

Depreciation and amortization(e)
(37,742
)
 
(25,351
)
 

 
(63,093
)
 
(10,279
)
 
(1,807
)
 
(75,179
)
Restructuring and other, net(c)

 

 

 

 

 
(20,625
)
 
(20,625
)
Acquisition and integration related costs(b)

 

 

 

 

 
(15,104
)
 
(15,104
)
Interest and financing expenses

 

 

 

 

 
(26,255
)
 
(26,255
)
Income tax expense

 

 

 

 

 
(46,700
)
 
(46,700
)
Loss from discontinued operations (net of tax)

 

 

 

 

 
(68,473
)
 
(68,473
)
Non-operating pension and OPEB items

 

 

 

 

 
(14,141
)
 
(14,141
)
Other(d)

 

 

 

 

 
(7,021
)
 
(7,021
)
Net income (loss) attributable to Albemarle Corporation
$
194,926

 
$
163,908

 
$

 
$
358,834

 
$
53,203

 
$
(260,213
)
 
$
151,824


(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 inventory markup is being expensed over the estimated remaining selling period. For the three-month and nine-month periods ended

20

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

September 30, 2015, $7.7 million and $75.4 million, respectively, was included in Cost of goods sold, and Equity in net income of unconsolidated investments was reduced by $9.1 million and $26.9 million, respectively, related to the utilization of the inventory markup.
(b)
See Note 2, “Acquisitions.”
(c)
See Note 15, “Restructuring and Other.”
(d)
Financing-related fees expensed in connection with the acquisition of Rockwood.
(e)
Excludes discontinued operations.
On October 26, 2015 we announced that effective January 1, 2016, Performance Chemicals will be split into two separate global business units: (1) Bromine Specialties, and (2) Lithium and Advanced Materials, which will include Performance Catalyst Solutions and Curatives.

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
$
39,125

 
$
416,150

Fair value of plan assets
29,314

 
109,875

Funded status
$
(9,811
)
 
$
(306,275
)
 
 
 
 
Weighted-average assumption percentages:
 
 
 
Discount rate
4.09
%
 
2.35
%
Expected return on plan assets
6.03
%
 
5.78
%
Rate of compensation increase
%
 
3.15
%
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
$
0.6

 
$
3.9

2016
$
1.6

 
$
16.4

2017
$
1.7

 
$
16.0

2018
$
1.9

 
$
16.8

2019
$
2.0

 
$
16.9<