Form 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 June 30, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For 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   ¨  (Do not check if a smaller reporting company)    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 July 28, 2010: 91,296,058

 

 

 


Table of Contents

ALBEMARLE CORPORATION

INDEX – FORM 10-Q

 

          Page
Number(s)
PART I. FINANCIAL INFORMATION

Item 1.

  

Financial Statements (Unaudited)

  
  

Consolidated Statements of Income – Three Months and Six Months Ended June 30, 2010 and 2009

   3
  

Condensed Consolidated Balance Sheets – June 30, 2010 and December 31, 2009

   4
  

Consolidated Statements of Changes in Equity – Six Months Ended June 30, 2010 and 2009

   5
  

Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2010 and 2009

   6
  

Notes to the Condensed Consolidated Financial Statements

   7-14

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   15-32

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

   32-33

Item 4.

  

Controls and Procedures

   33
PART II. OTHER INFORMATION

Item 1.

  

Legal Proceedings

   33

Item 1A.

  

Risk Factors

   33

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

   34

Item 6.

  

Exhibits

   34

SIGNATURES

   35

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
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Net sales

   $ 592,483      $ 445,299      $ 1,172,753      $ 931,890   

Cost of goods sold

     404,316        335,481        820,115        731,566   
                                

Gross profit

     188,167        109,818        352,638        200,324   

Selling, general and administrative expenses

     66,865        51,481        133,395        96,915   

Research and development expenses

     14,667        14,953        29,386        31,098   

Restructuring and other charges

     —          —          6,958        —     

Port de Bouc charges

     —          12,393        —          12,393   
                                

Operating profit

     106,635        30,991        182,899        59,918   

Interest and financing expenses

     (5,984     (6,088     (11,920     (12,362

Other (expenses) income, net

     (729     1,276        281        145   
                                

Income before income taxes and equity in net income of unconsolidated investments

     99,922        26,179        171,260        47,701   

Income tax expense (benefit)

     24,331        (7,749     41,031        (7,224
                                

Income before equity in net income of unconsolidated investments

     75,591        33,928        130,229        54,925   

Equity in net income of unconsolidated investments (net of tax)

     10,495        6,204        20,771        12,153   
                                

Net income

     86,086        40,132        151,000        67,078   

Net income attributable to noncontrolling interests

     (4,335     (1,639     (5,941     (3,186
                                

Net income attributable to Albemarle Corporation

   $ 81,751      $ 38,493      $ 145,059      $ 63,892   
                                

Basic earnings per share

   $ 0.90      $ 0.42      $ 1.59      $ 0.70   
                                

Diluted earnings per share

   $ 0.89      $ 0.42      $ 1.57      $ 0.70   
                                

Cash dividends declared per share of common stock

   $ 0.14      $ 0.125      $ 0.28      $ 0.25   
                                

Weighted-average common shares outstanding - basic

     91,308        91,474        91,347        91,427   
                                

Weighted-average common shares outstanding - diluted

     92,111        92,011        92,152        91,904   
                                

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)

 

     June 30,
2010
    December 31,
2009
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 324,123      $ 308,791   

Trade accounts receivable, less allowance for doubtful accounts (2010 - $2,670; 2009 - $2,254)

     357,963        294,192   

Other accounts receivable

     26,422        35,023   

Inventories

     324,695        347,506   

Other current assets

     47,883        46,575   
                

Total current assets

     1,081,086        1,032,087   
                

Property, plant and equipment, at cost

     2,365,696        2,406,129   

Less accumulated depreciation and amortization

     1,388,352        1,379,246   
                

Net property, plant and equipment

     977,344        1,026,883   

Investments

     160,042        146,084   

Other assets

     114,011        123,259   

Goodwill

     261,203        292,721   

Other intangibles, net of amortization

     137,384        150,523   
                

Total assets

   $ 2,731,070      $ 2,771,557   
                

LIABILITIES AND EQUITY

    

Current liabilities:

    

Accounts payable

   $ 162,783      $ 170,287   

Accrued expenses

     123,795        133,268   

Current portion of long-term debt

     8,603        36,310   

Dividends payable

     12,439        11,006   

Income taxes payable

     9,528        2,393   
                

Total current liabilities

     317,148        353,264   
                

Long-term debt

     784,959        776,403   

Postretirement benefits

     53,505        53,851   

Pension benefits

     120,447        148,498   

Other noncurrent liabilities

     110,217        104,782   

Deferred income taxes

     95,332        81,441   

Commitments and contingencies (Note 12)

    

Equity:

    

Albemarle Corporation shareholders’ equity:

    

Common stock, $.01 par value, issued and outstanding – 91,241 in 2010 and 91,509 in 2009

     912        915   

Additional paid-in capital

     3,506        8,658   

Accumulated other comprehensive loss

     (214,408     (91,860

Retained earnings

     1,407,480        1,287,983   
                

Total Albemarle Corporation shareholders’ equity

     1,197,490        1,205,696   
                

Noncontrolling interests

     51,972        47,622   
                

Total equity

     1,249,462        1,253,318   
                

Total liabilities and equity

   $ 2,731,070      $ 2,771,557   
                

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 Data)

   Common Stock     Additional
Paid in
Capital
    Accumulated Other
Comprehensive
(Loss) Income
    Retained
Earnings
    Total Albemarle
Shareholders’
Equity
    Noncontrolling
Interests
    Total Equity  
   Shares     Amounts              

Balance at January 1, 2010

   91,509,099      $915      $ 8,658      $(91,860)      $1,287,983      $1,205,696      $47,622      $1,253,318   

Comprehensive income (loss):

                

Net income

           145,059      145,059      5,941      151,000   

Foreign currency translation (net of deferred tax of $2,590)

         (129,722     (129,722     (129,722

Amortization of realized loss on treasury lock agreements (net of deferred tax of $40)

         68        68        68   

Change in unrealized gain on marketable equity securities (net of deferred tax of $1)

         (2     (2     (2

Amortization of prior service benefit, net transition asset and net loss included in net periodic benefit cost (net of deferred tax of $2,981)

         5,225        5,225        5,225   

Net benefit plan gain arising during period (net of deferred tax of $1,131)

         1,915        1,915        1,915   

Other (net of deferred tax of $22)

         (32     (32     (32
                            

Total comprehensive income

             22,511      5,941      28,452   

Deconsolidation of Stannica LLC

               (8,121   (8,121

Cumulative dividend adjustment on JBC noncontrolling interest

               8,017      8,017   

Cash dividends declared

           (25,562   (25,562   (1,487   (27,049

Stock-based compensation and other

       10,082          10,082        10,082   

Exercise of stock options

   111,000      1      1,770          1,771        1,771   

Shares purchased and retired

   (400,356   (4   (14,941       (14,945     (14,945

Tax benefit related to stock plans

       1,046          1,046        1,046   

Issuance of common stock, net

   92,250      1      (1       —          —     

Shares withheld for withholding taxes associated with common stock issuances

   (70,685   (1   (3,108       (3,109     (3,109
                                                

Balance at June 30, 2010

   91,241,308      $912      $3,506      $(214,408)      $1,407,480      $1,197,490      $51,972      $1,249,462   
                                                

Balance at January 1, 2009

   90,980,309      $910      $—        $(100,642)      $1,165,503      $1,065,771      $50,712      $1,116,483   

Comprehensive income (loss):

                

Net income

           63,892      63,892      3,186      67,078   

Foreign currency translation (net of deferred tax of $1,776)

         17,108        17,108        17,108   

Amortization of realized loss on treasury lock agreements (net of deferred tax $36)

         72        72        72   

Change in unrealized loss on marketable equity securities (net of deferred tax of $1)

         1        1        1   

Amortization of prior service benefit, net transition asset and net loss included in net periodic benefit cost (net of deferred tax of $851)

         1,726        1,726        1,726   

Net benefit plan loss arising during period (net of deferred tax of $4,050)

         (7,418     (7,418     (7,418

Other (net of deferred tax of $366)

         (538     (538     (538
                            

Total comprehensive income

             74,843      3,186      78,029   

Cash dividends declared

           (22,868   (22,868   (12,314   (35,182

Stock-based compensation and other

       857        (5,582   (4,725     (4,725

Exercise of stock options

   192,000      1      2,206          2,207        2,207   

Tax benefit related to stock plans

       1,120          1,120        1,120   

Issuance of common stock, net

   581,235      6      (6       —          —     

Shares withheld for withholding taxes associated with common stock issuances

   (214,052   (2   (253     (4,543   (4,798     (4,798
                                                

Balance at June 30, 2009

   91,539,492      $915      $3,924      $(89,691)      $1,196,402      $1,111,550      $41,584      $1,153,134   
                                                

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)

 

     Six Months Ended
June 30,
 
     2010     2009  

Cash and cash equivalents at beginning of year

   $ 308,791      $ 253,303   
                

Cash flows from operating activities:

    

Net income

     151,000        67,078   

Adjustments to reconcile net income to cash flows from operating activities:

    

Depreciation and amortization

     48,411        50,404   

Restructuring and other charges

     6,958        —     

Port de Bouc charges

     —          12,393   

Stock-based compensation

     8,592        (4,279

Excess tax benefits realized from stock-based compensation arrangements

     (1,046     (1,120

Equity in net income of unconsolidated investments

     (20,771     (12,153

Working capital changes

     (76,779     12,979   

Dividends received from unconsolidated investments and nonmarketable securities

     8,813        5,952   

Pension and postretirement expense

     10,687        4,693   

Pension and postretirement contributions

     (23,528     (7,341

Unrealized gain on investments in marketable securities

     (228     (1,454

Net change in noncurrent income tax payables and receivables

     2,354        (18,431

Net change in noncurrent environmental liabilities

     (1,097     (3,544

Deferred income taxes

     19,241        (6,422

Other, net

     1,537        8,358   
                

Net cash provided from operating activities

     134,144        107,113   
                

Cash flows from investing activities:

    

Capital expenditures

     (33,930     (60,459

Cash payments related to the Port de Bouc facility divestiture

     —          (11,248

Cash impact from deconsolidation of Stannica JV, net

     (13,074     —     

Cash payments related to acquisitions

     (92     (1,793

Sales of (investments in) marketable securities, net

     1,213        (469

Investments in other corporate investments

     (5     (40
                

Net cash used in investing activities

     (45,888     (74,009
                

Cash flows from financing activities:

    

Repayments of long-term debt

     (28,524     (117,762

Proceeds from borrowings

     8,310        32,748   

Dividends paid to shareholders

     (24,129     (21,948

Purchases of common stock

     (14,945     —     

Proceeds from exercise of stock options

     1,771        2,207   

Excess tax benefits realized from stock-based compensation arrangements

     1,046        1,120   

Withholding taxes paid on stock-based compensation award distributions

     (3,109     (4,798

Dividends paid to noncontrolling interests

     —          (8,911
                

Net cash used in financing activities

     (59,580     (117,344
                

Net effect of foreign exchange on cash and cash equivalents

     (13,344     3,413   
                

Increase (decrease) in cash and cash equivalents

     15,332        (80,827
                

Cash and cash equivalents at end of period

   $ 324,123      $ 172,476   
                

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

1. In the opinion of management, the accompanying 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 June 30, 2010 and December 31, 2009, our consolidated statements of income for the three-month and six-month periods ended June 30, 2010 and 2009, and our consolidated statements of changes in equity and cash flows for the six-month periods ended June 30, 2010 and 2009. 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, 2009, which was filed with the Securities and Exchange Commission, or the SEC, on February 26, 2010. The December 31, 2009 consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles, or GAAP, in the United States, or the U.S. The results of operations for the three-month and six-month periods ended June 30, 2010 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.

2. The six-month period ended June 30, 2010 included charges amounting to $7.0 million ($4.6 million after income taxes) associated with restructuring costs related principally to planned reductions in force at our Bergheim, Germany site. Payments under this restructuring plan are expected to occur through 2014. The three-month and six-month periods ended June 30, 2009 included charges amounting to $12.4 million ($8.2 million after income taxes) that relate to the costs of a final contract settlement arising from our 2008 divestiture of the Port de Bouc, France facility. Cash payments associated with the settlement were substantially completed by the end of 2009.

3. Our consolidated statements of income included foreign exchange transaction losses for the three- and six-month periods ended June 30, 2010 in the amount of $(0.9) million and $(0.1) million, respectively, and $(0.1) million and $(2.8) million for the three- and six-month periods ended June 30, 2009, respectively.

4. Our effective tax rate fluctuates based on, among other factors, our level and location of income. The significant differences between the U.S. federal statutory income tax rate and our effective income tax rate for the three-month and six-month periods ended June 30, 2010 and 2009, respectively, are as follows:

 

     % of Income Before Income Taxes  
     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2010     2009     2010     2009  

Federal statutory rate

   35.0   35.0   35.0   35.0

State taxes, net of federal tax benefit

   1.4      0.3      1.2      0.3   

Impact of foreign operations, net

   (10.3   (35.6   (10.4   (30.6

Increase in valuation allowance

   0.1      0.5      0.1      2.9   

Manufacturing tax deduction

   (1.4   —        (1.2   —     

Depletion

   (1.0   (2.0   (1.1   (1.9

Revaluation of unrecognized tax benefits/reserve requirements

   0.1      (31.8   0.1      (23.0

Other items, net

   0.5      4.0      0.3      2.2   
                        

Effective income tax rate

   24.4   (29.6 )%    24.0   (15.1 )% 
                        

The provision for income taxes for the six-month period ended June 30, 2010 included a $2.4 million tax benefit related to restructuring and other charges at our Bergheim, Germany site. Included in the three-month and six-month periods ended June 30, 2009 provisions for income taxes were various non-recurring items totaling net benefits of $13.4 million and $15.9 million, respectively. The three-month period ended June 30, 2009 included $9.2 million in one time net benefits due mainly to decreases in unrecognized tax benefit liabilities and deferred tax assets related to an issue settled in the U.S. Internal Revenue Service, or IRS, examination of years 2005 through 2007, and a net $4.2 million benefit related to the final charges arising from our divestiture of the Port de Bouc, France facility. The six-month period ended June 30, 2009 also included $3.7 million in one-time benefits due mainly from unrecognized tax benefits, partially offset by a $1.2 million increase in a valuation allowance for a net operating loss deferred tax asset at our Brazilian entity.

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements—(Continued)

 

5. Basic and diluted earnings per share for the three-month and six-month periods ended June 30, 2010 and 2009 are calculated as follows:

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
     2010    2009    2010    2009
     (In thousands, except per share amounts)

Basic earnings per share

           

Numerator:

           

Net income attributable to Albemarle Corporation

   $ 81,751    $ 38,493    $ 145,059    $ 63,892
                           

Denominator:

           

Weighted-average common shares for basic earnings per share

     91,308      91,474      91,347      91,427
                           

Basic earnings per share

   $ 0.90    $ 0.42    $ 1.59    $ 0.70
                           

Diluted earnings per share

           

Numerator:

           

Net income attributable to Albemarle Corporation

   $ 81,751    $ 38,493    $ 145,059    $ 63,892
                           

Denominator:

           

Weighted-average common shares for basic earnings per share

     91,308      91,474      91,347      91,427

Incremental shares under stock compensation plans

     803      537      805      477
                           

Total shares

     92,111      92,011      92,152      91,904
                           

Diluted earnings per share

   $ 0.89    $ 0.42    $ 1.57    $ 0.70
                           

6. Cash dividends declared for the three-month period ended June 30, 2010 totaled 14.0 cents per share, and included a dividend of 14.0 cents declared on April 19, 2010 and paid on July 1, 2010. Cash dividends declared for the six-month period ended June 30, 2010 totaled 28.0 cents per share. Cash dividends declared for the three-month period ended June 30, 2009 totaled 12.5 cents per share, which was declared on May 13, 2009 and paid July 1, 2009. Cash dividends declared for the six-month period ended June 30, 2009 totaled 25.0 cents per share. On July 28, 2010, the Company declared a cash dividend of 14.0 cents per share for the third quarter of 2010.

7. The following table provides a breakdown of inventories at June 30, 2010 and December 31, 2009:

 

     June 30,
2010
   December  31,
2009
     (In thousands)

Finished goods

   $ 227,705    $ 241,127

Raw materials

     54,810      62,991

Stores, supplies and other

     42,180      43,388
             

Total inventories

   $ 324,695    $ 347,506
             

8. During the second quarter 2010, we finalized an agreement with our joint venture partner to adjust the allocation of profits and dividends in connection with our consolidated investment in Jordan Bromine Company Limited. As a result of this agreement, we recorded $8.0 million in cumulative dividend adjustments to noncontrolling interests as reported in our six months ended June 30, 2010 consolidated statement of changes in equity.

Effective January 1, 2010, we entered into a new operating agreement relating to our heretofore consolidated joint venture Stannica LLC and divested ten percent of our interest in the venture to our partner for proceeds of approximately $2.1 million (of which $1.6 million in cash was received in first quarter 2010 with the remainder expected to be received in the third quarter of 2010), reducing our ownership to fifty percent. We have determined that the joint venture is a variable interest entity but that we are not the primary beneficiary of the venture arrangement; accordingly, we have deconsolidated our investment in this venture. We recorded a gain of approximately $1.1 million on the transaction (included in consolidated gross profit), an $8.1 million reduction in noncontrolling interests and $20.4 million reduction in other consolidated net assets comprised of $14.7 million in cash plus other net working capital. Our retained equity investment in the joint venture was recorded at its fair value of $11.3 million (giving rise to the gain amount noted above) and is reported in “Investments” in our condensed consolidated balance sheet. To estimate the fair value of our investment, we used an income approach based on a discounted cash flow model which incorporated estimates and assumptions supported mainly by unobservable inputs, including pricing and

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements—(Continued)

 

volume data, anticipated growth rates, profitability levels, inflation factors, tax and discount rates. Our maximum exposure to loss in connection with our continuing involvement with Stannica LLC is limited to our investment carrying value. Starting in first quarter 2010, the earnings associated with our investment in Stannica LLC are reported in “Equity in net income of unconsolidated investments” in our consolidated statement of income in our Catalysts segment. Prior to this transaction, Stannica LLC was included in our Polymers Solutions segment.

9. Long-term debt at June 30, 2010 and December 31, 2009 consisted of the following:

 

     June 30,
2010
   December  31,
2009
     (In thousands)

Variable-rate domestic bank loans

   $ 390,000    $ 410,000

Senior notes

     324,847      324,830

Fixed rate foreign borrowings

     35,876      38,317

Variable-rate foreign bank loans

     34,854      29,226

Capital lease obligation

     7,422      9,709

Miscellaneous

     563      631
             

Total

     793,562      812,713

Less amounts due within one year

     8,603      36,310
             

Total long-term debt

   $ 784,959    $ 776,403
             

Maturities of long-term debt are as follows: 2010—$4.2 million; 2011—$8.8 million; 2012—$7.3 million; 2013—$434.2 million; and 2014 through 2017—$339.1 million.

During first quarter 2010, approximately $27.8 million in outstanding debt amounts previously reported in current maturities were reclassified to long-term based on our ability to refinance these amounts with available borrowing capacity under our March 2007 credit agreement.

10. We had the following activity in our recorded environmental liabilities for the six months ended June 30, 2010, as follows (in thousands):

 

Beginning balance at December 31, 2009

   $ 15,567   

Changes in estimates

     122   

Payments

     (638

Foreign currency translation

     (1,816
        

Ending balance at June 30, 2010

     13,235   

Less amounts reported in Accrued expenses

     4,540   
        

Amounts reported in Other noncurrent liabilities

   $ 8,695   
        

The amounts recorded represent our future remediation and other anticipated environmental liabilities. Approximately 70% of our recorded liability is related to the closure and post-closure activities at a former landfill associated with our Bergheim, Germany plant, which was recorded at the time of our acquisition of this site in 2001. This closure project has been approved under the authority of the governmental permit for this site and is scheduled for completion in 2013, with post-closure monitoring to occur for 30 years thereafter. The remainder of our recorded liability is associated with sites that are being evaluated under governmental authority but for which final remediation plans have not yet been approved. 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 compliance with environmental protection laws, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, in excess of amounts already recorded, could be up to approximately $17 million before income taxes.

We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded should occur over a period of time and should 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)

 

On July 3, 2006, we received a Notice of Violation, or NOV, from the U.S. Environmental Protection Agency Region 4, or EPA, regarding the implementation of the Pharmaceutical Maximum Achievable Control Technology standards at our plant in Orangeburg, SC. The alleged violations include (i) the applicability of the specific regulations to certain intermediates manufactured at the plant, (ii) failure to comply with certain reporting requirements, (iii) improper evaluation and testing to properly implement the regulations and (iv) the sufficiency of the leak detection and repair program at the plant. We are currently engaged in discussions with the EPA seeking to resolve these allegations, but no assurances can be given that we will be able to reach a resolution that is acceptable to both parties. Any settlement or finding adverse to us could result in the payment by us of fines, penalties, capital expenditures, or some combination thereof. At this time, it is not possible to predict with any certainty the outcome of our discussions with the EPA or the financial impact which may result therefrom. However, we do not expect any financial impact to have a material adverse effect on our results of operations or financial position.

11. Segment income represents operating profit (adjusted for significant non-recurring items) and equity in net income of unconsolidated investments and is reduced by net income attributable to noncontrolling interests. Segment data includes intersegment transfers of raw materials at cost, foreign exchange transaction gains and losses and allocations for certain corporate costs.

Summarized financial information concerning our reportable segments is shown in the following table. Corporate & other includes corporate-related items not allocated to the reportable segments.

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
     (In thousands)  

Net sales:

        

Polymer Solutions

   $ 235,289      $ 172,720      $ 451,942      $ 295,920   

Catalysts

     216,000        168,603        443,653        411,190   

Fine Chemistry

     141,194        103,976        277,158        224,780   
                                

Total net sales

   $ 592,483      $ 445,299      $ 1,172,753      $ 931,890   
                                

Segment operating profit:

        

Polymer Solutions

   $ 46,131      $ 15,882      $ 86,494      $ 4,319   

Catalysts

     58,340        31,708        105,335        61,469   

Fine Chemistry

     19,884        5,760        32,452        16,043   
                                

Subtotal

   $ 124,355      $ 53,350      $ 224,281      $ 81,831   
                                

Equity in net income (loss) of unconsolidated investments:

        

Polymer Solutions

   $ 2,625      $ 222      $ 4,819      $ 270   

Catalysts

     7,898        6,009        16,007        11,937   

Fine Chemistry

     —          —          —          —     

Corporate & other

     (28     (27     (55     (54
                                

Total equity in net income of unconsolidated investments

   $ 10,495      $ 6,204      $ 20,771      $ 12,153   
                                

Net (income) loss attributable to noncontrolling interests:

        

Polymer Solutions

   $ (1,724   $ (1,440   $ (2,514   $ (1,655

Catalysts

     —          —          —          —     

Fine Chemistry

     (2,354     (605     (3,152     (2,158

Corporate & other

     (257     406        (275     627   
                                

Total net income attributable to noncontrolling interests

   $ (4,335   $ (1,639   $ (5,941   $ (3,186
                                

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements—(Continued)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
     (In thousands)  

Segment Income:

        

Polymer Solutions

   $ 47,032      $ 14,664      $ 88,799      $ 2,934   

Catalysts

     66,238        37,717        121,342        73,406   

Fine Chemistry

     17,530        5,155        29,300        13,885   
                                

Total segment income

     130,800        57,536        239,441        90,225   

Corporate & other(1)

     (18,005     (9,587     (34,754     (8,947

Restructuring and other charges(2)

     —          —          (6,958     —     

Port de Bouc charges(3)

     —          (12,393     —          (12,393

Interest and financing expenses

     (5,984     (6,088     (11,920     (12,362

Other (expenses) income, net

     (729     1,276        281        145   

Income tax (expense) benefit

     (24,331     7,749        (41,031     7,224   
                                

Net income attributable to Albemarle Corporation

   $ 81,751      $ 38,493      $ 145,059      $ 63,892   
                                

 

(1) Corporate and other charges for the six-month period ended June 30, 2009 included $7.8 million in adjustments associated with the reversal of certain long-term employee benefit accruals. This adjustment is primarily included in “Selling, general and administrative expenses” in our consolidated statements of income.
(2) The six-month period ended June 30, 2010 included charges amounting to $7.0 million ($4.6 million after income taxes) associated with restructuring costs related principally to planned reductions in force at our Bergheim, Germany site.
(3) The three- and six-month periods ended June 30, 2009 included charges amounting to $12.4 million ($8.2 million after income taxes) that relate to the costs of a final contract settlement arising from our 2008 divestiture of the Port de Bouc, France facility.

12. 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 customer supply contracts, that are executed through certain financial institutions. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.

In connection with the remediation of a local landfill site as required by the German environmental authorities, we have pledged certain of our land and housing facilities at our Bergheim, Germany plant site with a recorded value of $5.4 million.

In addition, we are involved from time to time in legal proceedings of types regarded as common in our businesses, particularly administrative or judicial proceedings seeking remediation under environmental laws, such as Superfund, products liability and premises liability litigation. We maintain a financial accrual for these proceedings that includes defense costs and potential damages, as estimated by our legal counsel. We also maintain insurance to mitigate certain of these risks. See Note 10 above.

13. The following information is provided for domestic and foreign pension and postretirement benefit plans:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
     (In thousands)  

Net Periodic Pension Benefit Cost (Credit):

        

Service cost

   $ 2,947      $ 2,305      $ 5,641      $ 5,147   

Interest cost

     8,027        8,258        15,933        16,318   

Expected return of assets

     (10,731     (10,540     (20,803     (21,166

Net transition asset

     (3     (2     (5     (5

Prior service benefit

     (243     (246     (493     (493

Net loss

     4,491        3,206        8,712        6,312   
                                

Total net periodic pension benefit cost

   $ 4,488      $ 2,981      $ 8,985      $ 6,113   
                                

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements—(Continued)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
     (In thousands)  

Net Periodic Postretirement Benefit Cost (Credit):

        

Service cost

   $ 55      $ 126      $ 191      $ 219   

Interest cost

     881        937        1,782        1,884   

Expected return of assets

     (129     (142     (263     (286

Prior service benefit

     (426     (1,892     (852     (3,785

Net loss

     423        287        844        548   
                                

Total net periodic postretirement benefit cost (credit)

   $ 804      $ (684   $ 1,702      $ (1,420
                                

Total net periodic pension and postretirement benefit cost

   $ 5,292      $ 2,297      $ 10,687      $ 4,693   
                                

We have made $0.7 million and $22.1 million in contributions to our qualified and nonqualified pension plans during the three-month and six-month periods ended June 30, 2010, respectively. Also, we made $4.2 and $5.7 million in contributions to our qualified and nonqualified pension plans during the three-month and six-month periods ended June 30, 2009, respectively.

We paid approximately $0.6 million and $1.4 million in premiums to the U.S. postretirement benefit plan during the three-month and six-month periods ended June 30, 2010, respectively. Also, we paid approximately $0.6 and $1.6 million in premiums to the U.S. postretirement benefit plan during the three-month and six-month periods ended June 30, 2009, respectively.

14. 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:

Cash and Cash Equivalents, Trade and Other Accounts Receivables and Accounts Payable—The carrying value approximates fair value due to their short-term nature.

Long-Term Debt—The carrying value of long-term debt reported in the accompanying consolidated balance sheets, with the exceptions of the senior notes which we sold on January 20, 2005 and foreign currency denominated debt at Jordan Bromine Company, approximates fair value as substantially all of the long-term debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.

 

     June 30, 2010    December 31, 2009
     Recorded
Amount
   Fair Value    Recorded
Amount
   Fair Value
     (In thousands)

Long-term debt

   $ 793,562    $ 817,934    $ 812,713    $ 819,044

Foreign Currency Exchange Contracts—The fair values of our forward currency exchange contracts are estimated based on current settlement values. At June 30, 2010 and December 31, 2009, the fair value of the forward contracts represented minimal net positions on our consolidated balance sheets.

15. 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

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements—(Continued)

 

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2010 and December 31, 2009 (in thousands):

 

    June 30,
2010
  Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
  Quoted Prices
in Active
Markets for
Similar Items
(Level 2)

Assets:

     

Investments under executive deferred compensation plan(a)

  $ 15,903   $ 15,903   $ —  

Equity securities(b)

  $ 24   $ 24   $ —  

Liabilities:

     

Obligations under executive deferred compensation plan(a)

  $ 15,903   $ 15,903   $ —  

Foreign currency exchange contracts(c)

  $ 695   $ —     $ 695
    December 31,
2009
  Quoted Prices
in Active
Markets for
Identical Items
(Level 1)
  Quoted Prices
in Active
Markets for
Similar Items
(Level 2)

Assets:

     

Investments under executive deferred compensation plan(a)

  $ 16,884   $ 16,884   $ —  

Equity securities(b)

  $ 26   $ 26   $ —  

Foreign currency exchange contracts(c)

  $ 342   $ —     $ 342

Liabilities:

     

Obligations under executive deferred compensation plan(a)

  $ 16,884   $ 16,884   $ —  

 

(a)

We maintain an Executive Deferred Compensation Plan, or the Plan, that was adopted in 2001 and subsequently amended. The purpose of the Plan is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The Plan 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, or the Trust, that was created to provide a source of funds to assist in meeting the obligations of the Plan, 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)

Our investments in equity securities are classified as available-for-sale and are recorded as “Investments” in the consolidated balance sheets. The changes in fair value are included in “Accumulated other comprehensive income” in equity. These securities are classified within Level 1.

(c)

As a result of our global operating and financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from interest and foreign currency exchange rate fluctuations through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes, and we do not use leveraged derivative financial instruments. The forward foreign currency exchange 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.

 

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ALBEMARLE CORPORATION AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements—(Continued)

 

16. We had the following activity in our recorded workforce reduction liabilities for the six months ended June 30, 2010, as follows (in thousands):

 

Beginning balance at December 31, 2009(a)

   $ 4,880   

Work force reduction charges(b)

     6,605   

Payments

     (745

Amounts reversed to income

     (169

Foreign currency translation

     (1,127
        

Ending balance at June 30, 2010

     9,444   

Less amounts reported in Accrued expenses

     6,138   
        

Amounts reported in Other noncurrent liabilities

   $ 3,306   
        

 

(a)

The year ended December 31, 2009 balance consisted mainly of $4.9 million in accruals for charges associated with planned reductions in force at various company locations. The majority of the payments under this plan are expected to be completed in 2010.

(b)

The six-month period ended June 30, 2010 included charges amounting to $7.0 million ($4.6 million after income taxes) associated with restructuring costs related principally to planned reductions in force at our Bergheim, Germany site, as reported in “Restructuring and other charges” in our six-months ended June 30, 2010 consolidated statement of income. Payments under this restructuring plan are expected to occur through 2014.

17. In June 2009, the Financial Accounting Standards Board, or FASB, amended its accounting guidance on the consolidation of variable interest entities with an effective date of January 1, 2010. This new guidance eliminated the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary. The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In October 2009, the FASB issued new accounting guidance relating to separating consideration in multiple-deliverable revenue arrangements. Under this guidance, multiple-deliverable arrangements will be accounted for separately (rather than on a combined basis) by selecting the best evidence of selling price among vendor-specific objective evidence, third-party evidence or estimated selling price. The guidance is effective for fiscal years beginning on or after June 15, 2010. We are currently evaluating the impacts of this new guidance on our consolidated financial statements.

In January 2010, new accounting guidance was issued by the FASB that requires additional disclosures surrounding the reporting of fair value measurements and clarifies certain existing disclosure requirements. Depending upon the provision, this guidance is effective for interim and annual periods beginning after December 15, 2009 or for interim and annual periods beginning after December 15, 2010. The adoption of this standard had no material impacts on our interim reporting and we are currently evaluating the potential impacts of this new guidance on our future annual reporting periods.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion and analysis of our financial condition and results of operations since December 31, 2009. A discussion of consolidated financial condition and sources of additional capital is included under a separate heading “Financial Condition and Liquidity” on page 29.

Forward-looking Statements

Some of the information presented in this Quarterly Report on Form 10-Q, including the documents incorporated by reference, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on our current expectations, which are in turn based on assumptions that we believe are reasonable based on our current knowledge of our business and operations. We have used words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and variations of such words and similar expressions to identify such forward-looking statements.

These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. There can be no assurance, therefore, that our actual results will not differ materially from the results and expectations expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, without limitation:

 

   

deterioration in economic and business conditions;

 

   

future financial and operating performance of our major customers and industries served by us;

 

   

the timing of orders received from customers;

 

   

the gain or loss of significant customers;

 

   

competition from other manufacturers;

 

   

changes in the demand for our products;

 

   

limitations or prohibitions on the manufacture and sale of our products;

 

   

availability of raw materials;

 

   

changes in the cost of raw materials and energy, and our inability to pass through such increases;

 

   

performance of acquired companies;

 

   

changes in our markets in general;

 

   

fluctuations in foreign currencies;

 

   

changes in laws and increased government regulation of our operations or our products;

 

   

the occurrence of claims or litigation;

 

   

the occurrence of natural disasters;

 

   

the inability to maintain current levels of product or premises liability insurance or the denial of such coverage;

 

   

political unrest affecting the global economy, including adverse effects from terrorism or hostilities;

 

   

changes in accounting standards;

 

   

the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs;

 

   

changes in interest rates, to the extent such rates (1) affect our ability to raise capital or increase our cost of funds, (2) have an impact on the overall performance of our pension fund investments and (3) increase our pension expense and funding obligations;

 

   

volatility and substantial uncertainties in the debt and equity markets; and

 

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the other factors detailed from time to time in the reports we file with the SEC.

We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. The following discussion should be read together with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

Overview

We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals for consumer electronics, petroleum refining, utilities, packaging, construction, automotive/transportation, pharmaceuticals, crop protection, food-safety and custom chemistry services. We are committed to global sustainability and are advancing responsible eco-practices and solutions in our three business segments. We believe that our commercial and geographic diversity, technical expertise, flexible, low-cost global manufacturing base, and experienced management team enable us to maintain leading market positions in those areas of the specialty chemicals industry in which we operate.

Second Quarter 2010

During the second quarter of 2010:

 

   

We achieved record quarterly earnings of 89 cents per share, more than double the prior year.

 

   

Our net sales for the quarter increased 33% from prior year to $592.5 million.

 

   

Our businesses reported outstanding operating performance with strong year over year and sequential profit growth across all three segments, including record segment income for Polymer Solutions and Catalysts for the second consecutive quarter.

Outlook

We continue to see encouraging signs in the global markets that we serve with steady demand improvement across most of our divisions. Our businesses are well positioned to capitalize on opportunities in both recovering markets and emerging markets that bring new demand. We continue to monitor key economic indicators and do our best to manage potential headwinds such as increased raw material and energy costs, pensions and other personnel costs. Current trends continue to indicate that 2010 should be a strong year for Albemarle and will show an excellent recovery from the challenging period of 2009.

Polymer Solutions: Strong demand in consumer electronics continued to drive significant volume improvement in our flame retardants business during the second quarter 2010. We believe this momentum will continue through at least the third quarter of 2010 and should drive improved year over year profitability, although we expect normal seasonal slowing during the fourth quarter in this segment. Improving global standards of living should drive higher demand for electronics, automotive and new construction over the long term. The potential for increasingly stringent fire-safety regulations and global climate initiatives should drive demand for flame retardants.

Our presence in China should continue to grow with the newly added capacity of our antioxidants facility in Shanghai. Also, our phosphorous-based flame-retardant production capability at our Nanjing site is well positioned to serve the Asia-Pacific construction and electronics markets.

GreenarmorTM , the first EarthwiseTM product from our Polymer Solutions segment, is expected to be commercially available by late 2010. The EarthwiseTM portfolio is expected to grow to include products from other business units and segments of Albemarle.

Catalysts: We achieved record profitability in our Catalysts segment during the second quarter 2010 based on strong volumes and stable pricing across our refinery and polyolefin catalysts portfolio while continuing to benefit from more effective metals cost pass-through compared to the corresponding period of 2009. We believe that revenue growth in this segment will be driven by global demand for petroleum products, generally deteriorating quality of crude oil feedstock, implementation of more stringent fuel quality requirements and the growing global polyolefin industry. We continue to expect year over year profit growth in our Catalysts segment in 2010 to come primarily from increased demand for our polyolefins and refinery catalysts products, innovative cost-effective Catalysts product introductions for the refining industry, new markets that we penetrate and more effective metals cost pass-through in our hydroprocessing, or HPC, refinery catalysts business. Our focus in our fluidized catalytic cracking, or FCC, catalysts is on delivering high-performing, superior quality products to meet the unique demands of refiners.

 

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We expect to leverage our existing positions in Asia, Brazil and the Middle East, and work with our joint ventures to capitalize on growth opportunities in those regions as we focus on globalization and leading in emerging markets. Our joint venture in Saudi Arabia with SABIC, expected to be operational in 2012, positions us for the longer term to lead in another key developing region and the fast growing Middle East polyolefins market.

We believe our focus on advanced product development in Catalysts is achieving commercial success. We have introduced new value-added refining solutions and technologies that enable refiners to increase yields, a critical advantage for refiners. Our marketing and research groups are tightly aligned which enable us to continue to bring innovative technologies to the market. Additionally, our alternative fuel technologies business is positioned to serve the rapidly growing biofuels industry. We expect to continue exploring new alternative fuel opportunities by partnering with leading technology developers like Neste Oil Corporation on their second generation renewable diesel, as well as opportunities in Canadian oil sands, gas to liquids (GTL), and coal to liquids (CTL) markets. These opportunities become increasingly viable with oil prices in the range of $60-$70 per barrel or higher on a sustained basis.

Fine Chemistry: Our Fine Chemistry segment continues to benefit from the rapid pace of innovation and the introduction of new products, coupled with the movement by pharmaceutical companies to outsource certain research, product development and manufacturing functions. In our performance chemicals sector, we saw stable growth over the first half of 2010 as we continue to expand the breadth of use of our bromine and bromine derivatives. In addition to an overall focus on margin improvement, our two strategic areas of focus in our Fine Chemistry segment have been to maximize our bromine franchise value in the performance chemicals sector and to continue the growth of our fine chemistry services business. Improving bromine asset utilization rates and operational efficiencies have contributed to year over year profit growth through first half 2010 and should continue to contribute over the balance of the year.

We are focused on profitably growing our globally competitive bromine and derivatives production network to serve all major bromine consuming products and markets. As we supply bromine feed stocks to our Polymer Solutions segment, our profitability should be favorably impacted as market conditions improve in that sector. We believe that the negative impacts from weak market conditions in 2009 are behind us, and we expect steady growth in our bromine derivatives business. Also, our new fine chemistry services products pipeline is strong, and opportunities are expanding. Our technical expertise, manufacturing capabilities and speed to market allow us to develop preferred outsourcing positions serving leading chemical and pharmaceutical innovators in diverse industries. We remain confident in continuing to generate growth in profitable niche products leveraged from this service business.

Corporate and Other: We continue to focus on reducing working capital and maximizing cash generation while monitoring headwinds from pensions and employee benefit costs. We forecast our effective tax rate will be 24.4% (which has and could further be impacted by tax discrete items) in 2010 as incremental income is projected to be earned in locales with higher tax rates, principally in the U.S. We increased our quarterly dividend payout in the first quarter of 2010 to 14.0 cents per share. Under our existing share repurchase program, we expect to periodically repurchase shares in 2010 on an opportunistic basis. In addition, we remain committed to evaluating the merits of any opportunities that may arise for acquisitions or other business development activities that will complement our business footprint.

Additional information regarding our products, markets and financial performance is provided at our web site, www.albemarle.com. Our web site is not a part of this document nor is it incorporated herein by reference.

 

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Results of Operations

The following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.

Second Quarter 2010 Compared with Second Quarter 2009

Selected Financial Data (Unaudited)

 

     Three Months Ended
June 30,
    Percentage
Change
 
     2010     2009     2010 vs. 2009  
     (In thousands, except percentages and per share amounts)  

NET SALES

   $ 592,483      $ 445,299      33

Cost of goods sold

     404,316        335,481      21
                  

GROSS PROFIT

     188,167        109,818      71

GROSS PROFIT MARGIN

     31.8     24.7  

Selling, general and administrative expenses

     66,865        51,481      30

Research and development expenses

     14,667        14,953      (2 )% 

Restructuring and other charges

     —          —        *   

Port de Bouc charges

     —          12,393      *   
                  

OPERATING PROFIT

     106,635        30,991      244

OPERATING PROFIT MARGIN

     18.0     7.0  

Interest and financing expenses

     (5,984     (6,088   (2 )% 

Other (expenses) income, net

     (729     1,276      *   
                  

INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS

     99,922        26,179      282

Income tax expense (benefit)

     24,331        (7,749 )   *   

Effective tax rate

     24.4     (29.6 )%   
                  

INCOME BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS

     75,591        33,928      123

Equity in net income of unconsolidated investments (net of tax)

     10,495        6,204      69
                  

NET INCOME

     86,086        40,132      115

Net income attributable to noncontrolling interests

     (4,335     (1,639   164
                  

NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION

   $ 81,751      $ 38,493      112
                  

PERCENTAGE OF NET SALES

     13.8     8.6  
                  

Basic earnings per share

   $ 0.90      $ 0.42      114
                  

Diluted earnings per share

   $ 0.89      $ 0.42      112
                  

 

* Calculation is not meaningful.

Net Sales

For the three-month period ended June 30, 2010, we recorded net sales of $592.5 million, a 33% increase compared to net sales of $445.3 million for the three-month period ended June 30, 2009. This increase was due primarily to an increase in volumes in all segments mainly as a result of improved year over year conditions in the global economy. Volumes had a favorable impact on sales of 31% and price/mix was favorable 2% compared to the same period last year.

 

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Polymer Solutions net sales increased $62.6 million, or 36%, for the three-month period ended June 30, 2010 compared to the same period in 2009, due mainly to the impact of higher volumes of 34% and favorable price/mix of 2%. Catalysts net sales increased $47.4 million, or 28%, for the three-month period ended June 30, 2010, compared to the same period last year due mainly to an increase in volumes contributing 21% and favorable price/mix of 8%, partly offset by unfavorable foreign currency impacts of 1%. Fine Chemistry net sales increased $37.2 million, or 36%, for the three-month period ended June 30, 2010, compared to the same period last year primarily due to higher volumes contributing 43% of the increase, partly offset by unfavorable price/mix impacts of 7%. For a detailed discussion of revenues and segment income before taxes for each segment, see “Segment Information Overview” below.

Gross Profit

For the three-month period ended June 30, 2010, our gross profit increased $78.3 million, or 71%, from the corresponding 2009 period due mainly to stronger volumes across our segments and related favorable production rate impacts on cost, particularly in our bromine franchise, as well as improved realization of metals cost pass-through impacts on HPC refinery catalysts. Overall, these factors contributed to our improved gross profit margin for the three-month period ended June 30, 2010 of 31.8%, up from 24.7% for the corresponding period in 2009.

Selling, General and Administrative Expenses

For the three-month period ended June 30, 2010, our selling, general and administrative, or SG&A, expenses increased $15.4 million, or 30%, from the three-month period ended June 30, 2009. This increase was primarily due to higher personnel-related costs. As a percentage of net sales, SG&A expenses were 11.3% for the three-month period ended June 30, 2010, compared to 11.6% for the corresponding period in 2009.

Research and Development Expenses

For the three-month period ended June 30, 2010, our research and development, or R&D, expenses were comparable to the three-month period ended June 30, 2009, with a slight decrease of $0.3 million, or 2%. As a percentage of net sales, R&D expenses were 2.5% for the three-month period ended June 30, 2010 compared to 3.4% for the corresponding period in 2009.

Port de Bouc Charges

The three-month period ended June 30, 2009 included charges amounting to $12.4 million ($8.2 million after income taxes) that related to the costs of a final contract settlement arising from the 2008 divestiture of the Port de Bouc, France facility.

Interest and Financing Expenses

Interest and financing expenses for the three-month period ended June 30, 2010 of $6.0 million were comparable with the corresponding 2009 period, decreasing slightly by $0.1 million compared to the three-month period ended June 30, 2009 of $6.1 million.

Other (Expenses) Income, Net

Other (expenses) income, net for the three-month period ended June 30, 2010 was $(0.7) million versus $1.3 million for the corresponding 2009 period. This unfavorable change was due primarily to higher foreign exchange losses and other miscellaneous items.

Income Tax Expense (Benefit)

Our effective tax rate fluctuates based on, among other factors, our level and location of income. For the three-month period ended June 30, 2010, our effective income tax rate was 24.4% as compared to (29.6)% for the three-month period ended June 30, 2009. Our second quarter 2009 income taxes were impacted by various non-recurring items totaling a net benefit of $13.4 million. Included in this amount was a net $9.2 million benefit due mainly to decreases in unrecognized tax benefit liabilities and deferred tax assets related to an issue settled in the IRS examination of years 2005 through 2007, and a net $4.2 million benefit related to the final charges arising from the divestiture of our Port de Bouc, France facility. Based on our current level and location of income, we forecast our effective tax rate will be 24.4% (which has and could further be impacted by tax discrete items) for 2010.

 

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The significant differences between the U.S. federal statutory income tax rate and our effective income tax rate for the three-month periods ended June 30, 2010 and 2009 were as follows:

 

     % of Income Before Income Taxes  
     Three Months Ended
June 30,
 
     2010     2009  

Federal statutory rate

   35.0   35.0

State taxes, net of federal tax benefit

   1.4      0.3   

Impact of foreign operations, net

   (10.3   (35.6

Increase in valuation allowance

   0.1      0.5   

Manufacturing tax deduction

   (1.4   —     

Depletion

   (1.0   (2.0

Revaluation of unrecognized tax benefits/reserve requirements

   0.1      (31.8

Other items, net

   0.5      4.0   
            

Effective income tax rate

   24.4   (29.6 )% 
            

Equity in Net Income of Unconsolidated Investments

Equity in net income of unconsolidated investments was $10.5 million for the three-month period ended June 30, 2010 compared to $6.2 million in the same period last year. This increase of $4.3 million was due primarily to our Magnifin joint venture in our Polymer Solutions segment due to increased demand in the automotive sector, as well as improved results in our Catalysts segment joint venture Nippon Ketjen Company Limited, mainly as a result of favorable material input costs in the current year.

Net Income Attributable to Noncontrolling Interests

For the three-month period ended June 30, 2010, net income attributable to noncontrolling interests was $4.3 million compared to $1.6 million in the same period last year. This increase of $2.7 million was due primarily to improved earnings of Jordan Bromine Company Limited, or JBC, as a result of stronger demand for bromine volumes, offset in part by the impact of the January 1, 2010 deconsolidation of our Stannica LLC joint venture.

Net Income Attributable to Albemarle Corporation

Net income attributable to Albemarle Corporation increased to $81.8 million in the three-month period ended June 30, 2010, from $38.5 million in the three-month period ended June 30, 2009, primarily due to sales and production volume increases and favorable fixed cost absorption across our businesses as a direct result of improved conditions in the global economy, as well as favorable realization of metals costs in HPC refinery catalysts, favorable equity in net income of unconsolidated investments and lower pre-tax special charges. These impacts were partially offset by higher SG&A costs due mainly to increases in personnel related costs, unfavorable other (expenses) income, net, higher income taxes and increases in net income attributable to noncontrolling interests.

 

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Segment Information Overview. We have identified three reportable segments as required by current accounting guidance. Our Polymer Solutions segment is comprised of the flame retardants and stabilizers and curatives product areas. Our Catalysts segment is comprised of the refinery catalysts and polyolefin catalysts product areas. Our Fine Chemistry segment is comprised of the performance chemicals and fine chemistry services and intermediates product areas. Segment income represents operating profit (adjusted for significant non-recurring items) and equity in net income of unconsolidated investments and is reduced by net income attributable to noncontrolling interests. Segment data includes intersegment transfers of raw materials at cost, foreign exchange transaction gains and losses and allocations for certain corporate costs.

 

     Three Months Ended June 30,     Percentage
Change
 
     2010     % of
net sales
    2009     % of
net sales
    2010 vs 2009  
     (In thousands, except percentages)  

Net sales:

  

Polymer Solutions

   $ 235,289      39.7   $ 172,720      38.8   36

Catalysts

     216,000      36.5     168,603      37.9   28

Fine Chemistry

     141,194      23.8     103,976      23.3   36
                              

Total net sales

   $ 592,483      100.0   $ 445,299      100.0   33
                              

Segment operating profit:

          

Polymer Solutions

   $ 46,131      19.6   $ 15,882      9.2   190

Catalysts

     58,340      27.0     31,708      18.8   84

Fine Chemistry

     19,884      14.1     5,760      5.5   245
                      

Subtotal

   $ 124,355        $ 53,350        133
                      

Equity in net income of unconsolidated investments:

          

Polymer Solutions

   $ 2,625        $ 222        *   

Catalysts

     7,898          6,009        31

Fine Chemistry

     —            —          —     

Corporate & other

     (28       (27     4
                      

Total equity in net income of unconsolidated investments

   $ 10,495        $ 6,204        69
                      

Net (income) loss attributable to noncontrolling interests:

          

Polymer Solutions

   $ (1,724     $ (1,440     20

Catalysts

     —            —          —     

Fine Chemistry

     (2,354       (605     289

Corporate & other

     (257       406        *   
                      

Total net income attributable to noncontrolling interests

   $ (4,335     $ (1,639     164
                      

Segment income:

          

Polymer Solutions

   $ 47,032      20.0   $ 14,664      8.5   221

Catalysts

     66,238      30.7     37,717      22.4   76

Fine Chemistry

     17,530      12.4     5,155      5.0   240
                      

Total segment income

     130,800          57,536        127

Corporate & other

     (18,005       (9,587     88

Restructuring and other charges

     —            —          *   

Port de Bouc charges

     —            (12,393     *   

Interest and financing expenses

     (5,984       (6,088     (2 )% 

Other (expenses) income, net

     (729       1,276        *   

Income tax (expense) benefit

     (24,331       7,749        *   
                      

Net income attributable to Albemarle Corporation

   $ 81,751        $ 38,493        112
                      

 

* Calculation is not meaningful.

 

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Our segment information includes measures we refer to as “segment operating profit” and “segment income” which are financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). The Company has reported segment operating profit and segment income because management believes that these financial measures provide transparency to investors and enable period-to-period comparability of financial performance. Segment operating profit and segment income should not be considered as an alternative to operating profit or net income attributable to Albemarle Corporation, respectively, as determined in accordance with GAAP.

See below for a reconciliation of segment operating profit and segment income, the non-GAAP financial measures, to operating profit and net income attributable to Albemarle Corporation, respectively, the most directly comparable financial measures calculated and reported in accordance with GAAP.

 

     Three months ended
June 30,
 

In Thousands

   2010     2009  

Total Segment Operating Profit

   $ 124,355      $ 53,350   

Add (Less):

    

Corporate and other(a)

     (17,720     (9,966

Restructuring and other charges

     —          —     

Port de Bouc charges

     —          (12,393
                

GAAP Operating Profit

   $ 106,635      $ 30,991   
                

Total Segment Income

   $ 130,800      $ 57,536   

Add (Less):

    

Corporate and other

     (18,005     (9,587

Restructuring and other charges

     —          —     

Port de Bouc charges

     —          (12,393

Interest and financing expenses

     (5,984     (6,088

Other (expenses) income, net

     (729     1,276   

Income tax (expense) benefit

     (24,331     7,749   
                

GAAP Net income attributable to Albemarle Corporation

   $ 81,751      $ 38,493   
                

 

(a) Includes corporate noncontrolling interest and equity adjustments of $285 and $(379) for the three-month periods ended June 30, 2010 and 2009, respectively.

 

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Polymer Solutions

Polymer Solutions segment net sales for the three-month period ended June 30, 2010 were $235.3 million, up $62.6 million, or 36%, compared to the same period in 2009, due mainly to the impact of higher volumes of 34% directly resulting from higher customer demand over 2009, as well as price/mix of 2%. The increase in volumes was primarily in our flame retardants portfolio particularly in the consumer electronics, automotive and construction sectors, while our stabilizers and curatives product lines showed higher volumes in antioxidants and special intermediates, partly offset by a $12.0 million net sales impact associated with the deconsolidation of our Stannica LLC joint venture. Segment income was up 221%, or $32.4 million, to $47.0 million for the three-month period ended June 30, 2010 versus the same period in 2009, due mainly to the sales volume improvement noted above as well as higher production volumes which contributed to favorable fixed cost absorption. Also, Polymer Solutions segment results for the second quarter 2010 benefited from higher equity in net income from its unconsolidated investment Magnifin of $2.4 million versus 2009 as a result of increased demand in the automotive sector, as well as the elimination of segment noncontrolling interests in connection with the Stannica LLC deconsolidation of $1.3 million from second quarter 2009. These favorable items were offset in part by higher SG&A/R&D costs for the segment of $1.4 million compared to the corresponding period in 2009 and $1.6 million in higher net income in noncontrolling interests in connection with improved performance in our JBC joint venture.

Catalysts

Catalysts segment net sales for the three-month period ended June 30, 2010 were $216.0 million, an increase of $47.4 million, or 28%, versus the three-month period ended June 30, 2009. This increase was due mainly to an increase in volumes contributing 21% and favorable price/mix impacts of 8%, partly offset by unfavorable foreign currency impacts of 1%. The higher volumes were due mainly to improved demand and price/mix in hydroprocessing catalysts, as well as favorable volume impacts in polyolefin catalysts. Catalysts segment income increased 76%, or $28.5 million, to $66.2 million for the three-month period ended June 30, 2010 in comparison to the three-month period ended June 30, 2009. This increase was mainly in our hydroprocessing catalysts business due to higher volumes and favorable realization of metals costs impacts year over year as well as favorable costs in FCC refinery catalysts. Second quarter 2010 segment income for Catalysts also benefited from year over year improvement in equity in net income from its unconsolidated joint venture Nippon Ketjen due mainly to favorable material input costs impacts in the current year. These favorable impacts on segment profit for Catalysts were offset in part by higher SG&A/R&D spending of $3.6 million in the segment compared to the corresponding period in 2009.

Fine Chemistry

Fine Chemistry segment net sales for the three-month period ended June 30, 2010 were $141.2 million, an increase of $37.2 million, or 36%, versus the three-month period ended June 30, 2009. This increase was primarily attributable to higher volumes in our performance chemicals and fine chemistry services businesses, contributing a 43% increase resulting mainly from improved customer demand versus the corresponding period of 2009, partly offset by unfavorable price/mix impacts of 7%. Segment income for the three-month period ended June 30, 2010 was $17.5 million, up $12.4 million from the corresponding period in 2009. These significantly improved results were due mainly to higher sales and production volumes in the segment, particularly in performance chemicals, offset in part by higher SG&A/R&D spending of $2.5 million and $1.7 million in higher net income in noncontrolling interests as a result of improved performance in our JBC joint venture versus second quarter 2009.

Corporate and other

For the three-month period ended June 30, 2010, our Corporate and other expenses were $18.0 million versus $9.6 million for the corresponding period in 2009. This increase was primarily due to higher employee related costs, reflected mainly in selling, general and administrative expenses.

 

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Six-Months 2010 Compared with Six-Months 2009

Selected Financial Data (Unaudited)

 

     Six Months Ended
June  30,
    Percentage
Change
 
     2010     2009     2010 vs. 2009  
     (In thousands, except percentages and per share amounts)  

NET SALES

   $ 1,172,753      $ 931,890      26

Cost of goods sold

     820,115        731,566      12
                  

GROSS PROFIT

     352,638        200,324      76

GROSS PROFIT MARGIN

     30.1     21.5  

Selling, general and administrative expenses

     133,395        96,915      38

Research and development expenses

     29,386        31,098      (6 )% 

Restructuring and other charges

     6,958        —        *   

Port de Bouc charges

     —          12,393      *   
                  

OPERATING PROFIT

     182,899        59,918      205

OPERATING PROFIT MARGIN

     15.6     6.4  

Interest and financing expenses

     (11,920     (12,362   (4 )% 

Other income, net

     281        145      *   
                  

INCOME BEFORE INCOME TAXES AND EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS

     171,260        47,701      259

Income tax expense (benefit)

     41,031        (7,224   *   

Effective tax rate

     24.0     (15.1 )%   
                  

INCOME BEFORE EQUITY IN NET INCOME OF UNCONSOLIDATED INVESTMENTS

     130,229        54,925      137

Equity in net income of unconsolidated investments (net of tax)

     20,771        12,153      71
                  

NET INCOME

     151,000        67,078      125

Net income attributable to noncontrolling interests

     (5,941     (3,186   86
                  

NET INCOME ATTRIBUTABLE TO ALBEMARLE CORPORATION

   $ 145,059      $ 63,892      127
                  

PERCENTAGE OF NET SALES

     12.4     6.9  
                  

Basic earnings per share

   $ 1.59      $ 0.70      127
                  

Diluted earnings per share

   $ 1.57      $ 0.70      124
                  

 

* Calculation is not meaningful.

Net Sales

For the six-month period ended June 30, 2010, we reported net sales of $1.17 billion, a 26% increase compared to net sales of $931.9 million for the six-month period ended June 30, 2009. This increase was due primarily to an increase in volumes in all segments which have benefited from the global economic recovery. Volumes had a positive impact on sales of 28% as well as foreign exchange of 1%, partly offset by unfavorable price/mix impacts of 3%.

Polymer Solutions net sales increased $156.0 million, or 53%, for the six-month period ended June 30, 2010 versus the same period in 2009. This increase was mainly due to the impact of higher volumes of 54% and favorable foreign exchange impacts of 1%, offset in part by unfavorable price/mix impacts of 2%. Catalysts net sales increased $32.5 million, or 8%, compared to the same period last year due mainly to higher volumes. Fine Chemistry net sales increased $52.4 million, or 23%, compared to the same period last year mainly due to the impact of higher volumes of 31%, partly offset by unfavorable price/mix impacts of 8%. For a detailed discussion of revenues and segment income before taxes for each segment see “Segment Information Overview” below.

 

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Gross Profit

For the six-month period ended June 30, 2010, our gross profit increased $152.3 million, or 76%, from the corresponding 2009 period, due mainly to volume improvements, favorable production rate impacts on cost in our bromine franchise and improved realization of metals costs in HPC refinery catalysts. During the six-month period ended June 30, 2010, we operated our manufacturing facilities at higher rates to meet current sales demands, which contributed to favorable profit effects from higher fixed cost absorption. These key factors contributed to overall improvement in our gross profit margin for the six-month period ended June 30, 2010 to 30.1%, up from 21.5% for the corresponding period in 2009.

Selling, General and Administrative Expenses

For the six-month period ended June 30, 2010, our SG&A expenses increased $36.5 million, or 38%, from the six-month period ended June 30, 2009. This increase was primarily due to higher employee related expenses during 2010 versus the corresponding period in 2009. Also, first half 2009 included adjustments of $7.0 million associated with the reversal of certain long-term employee benefit accruals. As a percentage of net sales, SG&A expenses were 11.4% for the six-month period ended June 30, 2010 as compared to 10.4% for the corresponding period in 2009.

Research and Development Expenses

For the six-month period ended June 30, 2010, our R&D expenses decreased $1.7 million, or 6%, from the six-month period ended June 30, 2009. As a percentage of net sales, R&D expenses were 2.5% for the six-month period ended June 30, 2010 in comparison to 3.3% for the corresponding period in 2009.

Restructuring and other charges

The six-month period ended June 30, 2010 included first quarter 2010 charges amounting to $7.0 million ($4.6 million after income taxes) for restructuring costs related principally to planned reductions in force at our Bergheim, Germany site.

Port de Bouc Charges

The six-month period ended June 30, 2009 included charges amounting to $12.4 million ($8.2 million after income taxes) that related to the costs of a final contract settlement arising from the 2008 divestiture of the Port de Bouc, France facility.

Interest and Financing Expenses

Interest and financing expenses for the six-month period ended June 30, 2010 decreased $0.4 million to $11.9 million from the corresponding 2009 period, due mainly to lower average outstanding debt balances.

Other Income, Net

Other income, net for the six-month period ended June 30, 2010 increased $0.1 million from the corresponding 2009 period due primarily to an increase in net foreign currency exchange gains and other miscellaneous items, offset by lower interest income.

Income Tax Expense (Benefit)

For the six-month period ended June 30, 2010, our effective income tax rate was 24.0% as compared to (15.1)% for the six-month period ended June 30, 2009. The effective income tax rate for the six-month period ended June 30, 2009 was impacted by various non-recurring items totaling a net benefit of $15.9 million. Included in this amount was a net $9.2 million benefit due mainly to decreases in unrecognized tax benefit liabilities and deferred tax assets related to an issue settled in the U.S. IRS examination of years 2005 through 2007 and a net $4.2 million benefit related to the final charges arising from the divestiture of our Port de Bouc, France facility. Also included was a $3.7 million benefit due mainly from unrecognized tax benefits, partially offset by a $1.2 million increase in a valuation allowance for losses at our Brazilian entity. Based on our current level and location of income, we forecast our effective tax rate for 2010 will be 24.4% (which has and could further be impacted by tax discrete items).

 

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The significant differences between the U.S. federal statutory income tax rate and our effective income tax rate for the six-month periods ended June 30, 2010 and 2009 were as follows:

 

     % of Income Before Income Taxes  
     Six Months Ended
June 30,
 
     2010     2009  

Federal statutory rate

   35.0   35.0

State taxes, net of federal tax benefit

   1.2      0.3   

Impact of foreign operations, net

   (10.4   (30.6

Increase in valuation allowance

   0.1      2.9   

Manufacturing tax deduction

   (1.2   —     

Depletion

   (1.1   (1.9

Revaluation of unrecognized tax benefits/reserve requirements

   0.1      (23.0

Other items, net

   0.3      2.2   
            

Effective income tax rate

   24.0   (15.1 )% 
            

Equity in Net Income of Unconsolidated Investments

Equity in net income of unconsolidated investments was $20.8 million for the six-month period ended June 30, 2010 compared to $12.2 million in the same period last year. This increase of $8.6 million was due primarily to higher equity earnings from our Magnifin joint venture in our Polymer Solutions segment due to increased demand in the automotive sector as well as higher overall equity earnings from our various Catalysts segment joint ventures, particularly in our Nippon Ketjen joint venture due mainly as a result of favorable material input costs in the current year.

Net Income Attributable to Noncontrolling Interests

For the six-month period ended June 30, 2010, net income attributable to noncontrolling interests was $5.9 million compared to $3.2 million in the same period last year. This increase was due primarily to higher earnings of JBC as a result of improvements in bromine sales volumes, offset in part by the impacts of the deconsolidation of our Stannica LLC joint venture.

Net Income Attributable to Albemarle Corporation

Net income attributable to Albemarle Corporation increased to $145.1 million in the six-month period ended June 30, 2010 from $63.9 million in the same period last year primarily due to sales and production volume increases, favorable fixed cost absorption across our businesses, favorable metals cost realization in our HPC refinery catalysts business, favorable equity in net income of our unconsolidated investments, and lower special charges. These favorable impacts were partially offset by higher SG&A costs, higher income taxes and higher net income in noncontrolling interests.

 

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Segment Information Overview

 

     Six Months Ended June 30,     Percentage
Change
 
     2010     % of
net sales
    2009     % of
net sales
    2010 vs 2009  
     (In thousands, except percentages)  

Net sales:

  

Polymer Solutions

   $ 451,942      38.6   $ 295,920      31.8   53

Catalysts

     443,653      37.8     411,190      44.1   8

Fine Chemistry

     277,158      23.6     224,780      24.1   23
                              

Total net sales

   $ 1,172,753      100.0   $ 931,890      100.0   26
                              

Segment operating profit:

          

Polymer Solutions

   $ 86,494      19.1   $ 4,319      1.5   *   

Catalysts

     105,335      23.7     61,469      15.0   71

Fine Chemistry

     32,452      11.7     16,043      7.1   102
                      

Subtotal

   $ 224,281        $ 81,831        174
                      

Equity in net income of unconsolidated investments:

          

Polymer Solutions

   $ 4,819        $ 270        *   

Catalysts

     16,007          11,937        34

Fine Chemistry

     —            —          —     

Corporate & other

     (55       (54     2
                      

Total equity in net income of unconsolidated investments

   $ 20,771        $ 12,153        71
                      

Net (income) loss attributable to noncontrolling interests:

          

Polymer Solutions

   $ (2,514     $ (1,655     52

Catalysts

     —            —          —     

Fine Chemistry

     (3,152       (2,158     46

Corporate & other

     (275       627        *   
                      

Total net income attributable to noncontrolling interests

   $ (5,941     $ (3,186     86
                      

Segment income:

          

Polymer Solutions

   $ 88,799      19.6   $ 2,934      1.0   *   

Catalysts

     121,342      27.4     73,406      17.9   65

Fine Chemistry

     29,300      10.6     13,885      6.2   111
                      

Total segment income

     239,441          90,225        165

Corporate & other

     (34,754       (8,947     *   

Restructuring and other charges

     (6,958       —          *   

Port de Bouc charges

     —            (12,393     *   

Interest and financing expenses

     (11,920       (12,362     (4 )% 

Other income, net

     281          145        *   

Income tax (expense) benefit

     (41,031       7,224        *   
                      

Net income attributable to Albemarle Corporation

   $ 145,059        $ 63,892        127
                      

 

* Calculation is not meaningful.

 

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Our segment information includes measures we refer to as “segment operating profit” and “segment income” which are financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). The Company has reported segment operating profit and segment income because management believes that these financial measures provide transparency to investors and enable period-to-period comparability of financial performance. Segment operating profit and segment income should not be considered as an alternative to operating profit or net income attributable to Albemarle Corporation, respectively, as determined in accordance with GAAP.

See below for a reconciliation of segment operating profit and segment income, the non-GAAP financial measures, to operating profit and net income attributable to Albemarle Corporation, respectively, the most directly comparable financial measures calculated and reported in accordance with GAAP.

 

     Six months ended June 30,  

In Thousands

   2010     2009  

Total Segment Operating Profit

   $ 224,281      $ 81,831   

Add (Less):

    

Corporate and other(a)

     (34,424     (9,520

Restructuring and other charges

     (6,958     —     

Port de Bouc charges

     —          (12,393
                

GAAP Operating Profit

   $ 182,899      $ 59,918   
                

Total Segment Income

   $ 239,441      $ 90,225   

Add (Less):

    

Corporate and other

     (34,754     (8,947

Restructuring and other charges

     (6,958     —     

Port de Bouc charges

     —          (12,393

Interest and financing expenses

     (11,920     (12,362

Other income, net

     281        145   

Income tax (expense) benefit

     (41,031     7,224   
                

GAAP Net income attributable to Albemarle Corporation

   $ 145,059      $ 63,892   
                

 

(a) Includes corporate noncontrolling interest and equity adjustments of $330 and $(573) for the six-month periods ended June 30, 2010 and 2009, respectively.

Polymer Solutions

Polymer Solutions segment net sales for the six-month period ended June 30, 2010 were $451.9 million, up $156.0 million, or 53%, in comparison to the six-month period ended June 30, 2009. This increase was mainly due to the impact of higher volumes of 54% (net of $21.8 million in net sales impact from the January 1, 2010 Stannica LLC deconsolidation) and foreign exchange of 1%, offset in part by unfavorable price/mix impacts of 2%. The increase in volumes, directly resulting from improved economic conditions over 2009, was primarily in our flame retardants portfolio in the consumer electronics, automotive and construction sectors, while our stabilizers and curatives product lines also showed higher volumes in antioxidants and special intermediates. Segment income for the six-month period ended June 30, 2010 was $88.8 million versus $2.9 million for the corresponding period in 2009. This dramatic year over year turnaround in operating performance was due mainly to the sales volume improvements noted above, as well as higher production volumes which contributed to favorable fixed cost absorption. Also, Polymers Solutions segment income for the period benefited from higher equity in net income from its unconsolidated investment Magnifin for the six-month period of 2010 of $4.5 million as a result of increased demand in the automotive sector, as well as a $1.5 million favorable impact from the elimination of segment noncontrolling interest attributable to the Stannica LLC deconsolidation. These favorable items were offset in part by higher SG&A/R&D costs of $1.0 million for the segment compared to the corresponding period in 2009, and $2.4 million in higher net income in noncontrolling interests resulting from improved performance in our JBC joint venture.

 

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Catalysts

Catalysts segment net sales for the six-month period ended June 30, 2010 were $443.7 million, an increase of $32.5 million, or 8%, versus the six-month period ended June 30, 2009. This increase was due mainly to an increase in volumes in polyolefin catalysts arising from stronger customer demand over the challenged 2009 year. Catalysts segment income increased 65%, or $47.9 million, to $121.3 million for the six-month period ended June 30, 2010 compared to the corresponding period last year. This increase was mainly in our hydroprocessing catalysts business primarily relating to improved realization of metals cost pass-though impacts year over year, as well as favorable costs in FCC refinery catalysts. First half 2010 Catalysts segment income also benefited $4.1 million from higher equity in net income from unconsolidated joint ventures, particularly Nippon Ketjen based mainly on favorable material input costs versus the prior year. These favorable impacts on segment profit for Catalysts were offset in part by higher SG&A/R&D spending of $7.9 million compared to the corresponding period in 2009.

Fine Chemistry

Fine Chemistry segment net sales for the six-month period ended June 30, 2010 were $277.2 million, an increase of $52.4 million, or 23%, versus the six-month period ended June 30, 2009, primarily due to higher volumes (mainly in performance chemicals and resulting from overall improved customer demand) contributing 31% of the increase, partly offset by unfavorable price/mix impacts of 8%. Segment income for the six-month period ended June 30, 2010 was $29.3 million, up $15.4 million from the corresponding period in 2009. These significantly improved results were due to higher sales and production volumes in the segment, mainly in performance chemicals, offset in part by higher SG&A/R&D spending of $3.1 million, and $1.0 million in higher net income in noncontrolling interests in connection with improved performance in our JBC joint venture.

Corporate and other

For the six-month period ended June 30, 2010, our Corporate and other expenses were $34.8 million versus $8.9 million for the corresponding period in 2009. This increase was primarily due to higher employee related costs. Also, first half 2009 included adjustments of $7.0 million associated with the reversal of certain long-term employee benefit accruals, reflected mainly in selling, general and administrative expenses.

Financial Condition and Liquidity

Overview

The principal uses of cash in our business generally have been investment in our assets, funding working capital and repayment of debt. We also make contributions to our U.S. defined benefit pension plans. Historically, cash to fund the needs of our business has been principally provided by cash from operations, debt financing and equity issuances.

We are continuing our program to improve working capital efficiency and working capital metrics particularly in the areas of accounts receivable and inventory. We expect the combination of our current cash balances and availability under our March 2007 credit agreement, which is discussed below, to remain sufficient to fund working capital requirements for the foreseeable future.

Cash Flow

Our cash balance increased by $15.3 million to $324.1 million at June 30, 2010, up from $308.8 million at December 31, 2009. For the six-month period ended June 30, 2010, our operations provided $134.1 million of cash compared to $107.1 million in the six-month period ended June 30, 2009. This increase of $27.0 million is primarily due to an increase in profitability partially offset by an increase in working capital. Cash on hand funded capital expenditures for plant, machinery and equipment of $33.9 million, net repayments of long-term debt of $20.2 million, dividends to shareholders of $24.1 million, and common stock repurchases of $14.9 million. Also, our cash balances were unfavorably impacted by $13.1 million as a result of the deconsolidation of Stannica LLC on January 1, 2010. For the six months ended June 30, 2009, we made $11.2 million in payments associated with the Port de Bouc divestiture.

Net current assets increased $85.1 million to $763.9 million at June 30, 2010 from $678.8 million at December 31, 2009. The increase in net current assets was due primarily to an increase in cash and accounts receivable and a decrease in the current portion of long term debt, partially offset by a decrease in inventory.

Capital expenditures for the six-month period ended June 30, 2010 of $33.9 million were used for plant, machinery and equipment improvements. We expect our capital expenditures to be approximately $100 million in 2010 mainly due to

 

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capital projects associated with increased capacity, cost reduction and continuity of operations. While we continue to closely monitor our capital spending and cash generation in light of the recent economic downturn seen in 2009, we are confident that we will have the financial flexibility and capability to fund future growth initiatives. Additionally, we anticipate that future capital spending should be financed primarily with cash flow provided from operations with additional cash needed, if any, to be provided by borrowings including amounts available under our March 2007 credit agreement. The amount and timing of any additional borrowings will depend on our specific cash requirements.

Long-Term Debt

We currently have outstanding $325.0 million of 5.10% senior notes due in 2015. The senior notes are senior unsecured obligations and rank equally with all of our other senior unsecured indebtedness outstanding from time to time. The senior notes will be effectively subordinated to any of our future secured indebtedness and to the existing and future indebtedness of our subsidiaries. We may redeem the senior notes before their maturity, in whole at any time or in part from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the senior notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the indenture governing the senior notes) plus 15 basis points, plus, in each case, accrued interest thereon to the date of redemption.

The principal amount of the senior notes becomes immediately due and payable upon the occurrence of certain bankruptcy or insolvency events involving us or certain of our subsidiaries and may be declared immediately due and payable by the trustee or the holders of not less than 25% of the senior notes upon the occurrence of an event of default. Events of default include, among other things: failure to pay principal or interest at required times; failure to perform or remedy a breach of covenants within prescribed periods; an event of default on any of our other indebtedness or certain indebtedness of our subsidiaries of $40.0 million or more that is caused by a failure to make a payment when due or that results in the acceleration of that indebtedness before its maturity; and certain bankruptcy or insolvency events involving us or certain of our subsidiaries. We believe that as of June 30, 2010, we were, and currently are, in compliance with all of the covenants of the indenture governing the senior notes.

For additional funding and liquidity purposes, we currently maintain a $675.0 million five-year unsecured revolving senior credit facility, which we refer to as the March 2007 credit agreement. The March 2007 credit agreement provides for an additional $200.0 million in credit, if needed, upon additional loan commitments by our existing and/or additional lenders. Currently, $85 million and $590 million in commitments under the credit agreement have a maturity date of March 2012 and March 2013, respectively. Borrowings under this credit agreement bear interest at variable rates, with total spreads and fees ranging from 0.32% to 0.675% over the London inter-bank offered rate, or LIBOR, applicable to the currency of denomination of the borrowing and are based upon our credit rating from one of the major credit rating agencies. We had aggregate borrowings outstanding under the March 2007 credit agreement of $390.0 million at June 30, 2010. Borrowings under the March 2007 credit agreement bear interest at variable rates, which was a weighted average of 0.63% during the three-month period ended June 30, 2010.

Borrowings under our March 2007 credit agreement are conditioned upon compliance with the following covenants: (a) consolidated funded debt, as defined in the March 2007 credit agreement, must be less than or equal to 3.50 times consolidated EBITDA, as defined in the March 2007 credit agreement, as of the end of any fiscal quarter; (b) consolidated tangible domestic assets, as defined in the March 2007 credit agreement, must be greater than or equal to $750.0 million for us to make investments in entities and enterprises that are organized outside the U.S.; and (c) with the exception of liens specified in our March 2007 credit agreement, liens may not attach to assets when the aggregate amount of all indebtedness secured by such liens plus unsecured indebtedness, other than indebtedness incurred by our subsidiaries under the March 2007 credit agreement, would exceed 20% of consolidated net worth as defined in the March 2007 credit agreement. We believe that as of June 30, 2010, we were, and currently are, in compliance with all of the debt covenants under the March 2007 credit agreement.

The non-current portion of our long-term debt amounted to $785.0 million at June 30, 2010, compared to $776.4 million at December 31, 2009. In addition, at June 30, 2010, we had the ability to borrow $285.0 million under our March 2007 credit agreement and $184.0 million under other existing lines of credit, subject to various financial covenants under our March 2007 credit agreement. We have the ability to refinance our borrowings under credit lines with borrowings under the March 2007 credit agreement, as applicable. Therefore, these amounts are classified as long-term debt.

 

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Off-Balance Sheet Arrangements

In the normal course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, including bank guarantees and letters of credit, which totaled approximately $48 million at June 30, 2010. None of these off-balance sheet arrangements either has, or is likely to have, a material effect on our current or future financial condition, results of operations, liquidity or capital resources.

Other Obligations

The following table summarizes our contractual obligations for plant construction, purchases of equipment, various take or pay and throughput agreements, and other contractual obligations (in thousands):

 

    3Q
2010
   4Q
2010
   Sub-total
2010
   2011    2012    2013    2014    2015    Thereafter

Long-term debt obligations(a)

  $ 5    $ 2,427    $ 2,432    $ 5,126    $ 5,406    $ 434,163    $ 6,013    $ 326,914    $ 6,086

Capital lease obligation

    —        1,778      1,778      3,710      1,934      —        —        —        —  

Expected interest payments on long-term debt obligations*

    5,181      6,169      11,350      23,344      23,842      20,563      19,045      5,039      30

Operating lease obligations (rental)

    2,319      2,319      4,638      6,378      4,382      2,865      2,412      2,178      12,109

Take or pay / throughput agreements(a) **

    8,911      8,911      17,822      13,596      10,733      8,660      7,680      6,825      8,127

Letters of credit and guarantees

    24,166      5,102      29,268      13,167      1,757      463      —        —        3,756

Capital projects

    16,537      3,180      19,717      1,385      —        —        —        —        —  

Facility divestiture obligation

    470      —        470      —        —        —        —        —        —  
                                                             

Total

  $ 57,589    $ 29,886    $ 87,475    $ 66,706    $ 48,054    $ 466,714    $ 35,150    $ 340,956    $ 30,108
                                                             

 

* These amounts are based on a weighted-average interest rate of 0.6% for the March 2007 credit agreement, 5.1% for the senior notes, and 4.3% for our remaining long-term debt obligations and capital lease for 2010. The weighted average interest rate for years 2011 and thereafter is 1.0% for the March 2007 credit agreement, 5.1% for the senior notes, and 4.1% for our remaining long-term debt obligations and capital lease.
** These amounts primarily relate to contracts entered into with certain third party vendors in the normal course of business to secure raw materials for our production processes. In order to secure materials, sometimes for long durations, these contracts mandate a minimum amount of product to be purchased at predetermined rates over a set timeframe.
( a )

During second quarter 2010, we made adjustments to our calculation of take or pay and long-term debt obligation amounts presented in the above table. These adjustments, individually or in the aggregate, had no impact on our reported financial statements and footnotes for June 30, 2010 or prior periods.

Amounts in the table above exclude required employer pension contributions. We have determined that the total expected 2010 contributions to our domestic (nonqualified plans only) and foreign pension plans should approximate $4.6 million. We may choose to make additional pension contributions above this amount. We have made $22.1 million in total contributions to our domestic and foreign pension plans (both qualified and nonqualified) during the six-month period ended June 30, 2010.

The liability related to uncertain tax positions, including interest and penalties, recorded in “Other Noncurrent Liabilities” totaled $25.3 million and $22.3 million at June 30, 2010 and December 31, 2009, respectively. Related assets for corresponding offsetting benefits recorded in “Other Assets” totaled $15.6 million and $14.9 million at June 30, 2010 and December 31, 2009, respectively. We cannot estimate the amounts of any cash payments associated with these liabilities for the remainder of 2010 or the next twelve months, and we are unable to estimate the timing of any such cash payments in the future at this time.

We are subject to federal, state, local, and foreign requirements regulating the handling, manufacture and use of materials (some of which may be classified as hazardous or toxic by one or more regulatory agencies), the discharge of

 

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materials into the environment and the protection of the environment. To our knowledge, we are currently complying and expect to continue to comply in all material respects with applicable environmental laws, regulations, statutes and ordinances. Compliance with existing federal, state, local, and foreign environmental protection laws is not expected to have a material effect on earnings or our competitive position, but the costs associated with increased legal or regulatory requirements could have an adverse effect on our results.

Among other environmental requirements, we are subject to the federal Superfund law, and similar state laws, under which we may be designated as a potentially responsible party, or PRP, and may be liable for a share of the costs associated with cleaning up various hazardous waste sites. Management believes that in most cases, our participation is de minimis. Further, almost all such sites represent environmental issues that are quite mature and have been investigated, studied and in many cases settled. In de minimis situations, our policy generally is to negotiate a consent decree and to pay any apportioned settlement, enabling us to be effectively relieved of any further liability as a PRP, except for remote contingencies. In other than de minimis PRP matters, our records indicate that unresolved PRP exposures should be immaterial. We accrue and expense our proportionate share of PRP costs. Because management has been actively involved in evaluating environmental matters, we are able to conclude that the outstanding environmental liabilities for unresolved PRP sites should not be material to operations.

Liquidity Outlook

We anticipate that cash on hand, cash provided from operating activities in the future, and borrowings under our March 2007 credit agreement will be sufficient to pay our operating expenses, satisfy debt service obligations, fund capital expenditures and pension contributions, and make dividend payments for the foreseeable future. In addition, as we have historically done, we will continue to evaluate the merits of any opportunities that may arise for acquisitions of businesses or assets, which may require additional liquidity.

While we maintain business relationships with a diverse group of financial institutions, their continued viability is not certain and could lead them to not honor their contractual credit commitments or to not renew their extensions of credit or provide new sources of credit. While the corporate bond markets have recovered in recent quarters, availability of bank debt remains far more limited than prior to the market disruptions in 2008 and 2009, which severely impacted many financial institutions. If capital availability remains less prevalent, we may incur increased borrowing costs and reduced credit capacity as our various credit facilities mature. In addition, it is possible that our ability to access the capital markets may be limited by these or other factors at a time when we would need or desire to do so, which could have an impact on our ability to finance our businesses or react to changing economic and business conditions. In addition, our cash flows from operations may be adversely affected by adverse consequences to our customers and the markets in which we compete as a result of moderating global economic conditions and reduced capital availability.

At June 30, 2010, we had the total additional capacity to borrow in excess of $468 million under our March 2007 credit agreement and other existing lines of credit, subject to various financial covenants under our March 2007 credit agreement. With generally strong cash generative businesses and no significant debt maturities before 2013, we believe we have and will maintain a solid liquidity position.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no significant changes in our interest rate risk, foreign currency exchange rate exposure, marketable securities price risk, or raw material price risk from the information we provided in the Annual Report on Form 10-K for the year ended December 31, 2009 except as noted below.

We had outstanding variable interest rate borrowings at June 30, 2010 of $424.9 million, bearing an average interest rate of 0.98%. A hypothetical 10% change (approximately 10 basis points) in the interest rate applicable to these borrowings would change our annualized interest expense by approximately $0.4 million as of June 30, 2010. We may enter into interest rate swaps, collars or similar instruments with the objective of reducing interest rate volatility relating to our borrowing costs.

Our financial instruments, which are subject to foreign currency exchange risk, consist of foreign currency forward contracts and represented a net liability position of a minimal amount at June 30, 2010. We conducted a sensitivity analysis on the fair value of our foreign currency hedge portfolio assuming instantaneous 10% changes in select foreign currency exchange rates from their levels as of June 30, 2010, with all other variables held constant. A 10% appreciation of the U.S. Dollar against foreign currencies that we have hedging contracts against would result in a decrease of $2.3 million in the fair value of our foreign currency exchange hedging contracts. A 10% depreciation of the U.S. Dollar against these foreign currencies would result in an increase of $2.2 million in the fair value of our foreign currency exchange hedging contracts. The sensitivity in fair value of our foreign currency hedge portfolio represents changes in fair values estimated based on

 

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market conditions as of June 30, 2010, without reflecting the effects of underlying anticipated transactions. When those anticipated transactions are realized, actual effects of changing foreign currency exchange rates could have a material impact on our earnings and cash flows in future periods.

In 2004, we entered into treasury lock agreements, or T-locks, with a notional value of $275.0 million, to fix the yield on the U.S. Treasury security used to set the yield for approximately 85% of our January 2005 public offering of the senior notes. The T-locks fixed the yield on the U.S. Treasury security at approximately 4.25%. The value of the T-locks resulted from the difference between (1) the yield-to-maturity of the 10-year U.S. Treasury security that had the maturity date most comparable to the maturity date of the senior notes issued and (2) the fixed rate of approximately 4.25%. The cumulative loss effect of the T-lock agreements was $2.2 million and is being amortized over the life of the senior notes as an adjustment to the senior notes’ interest expense. At June 30, 2010, there were losses of approximately $1.0 million ($0.6 million after income taxes) in accumulated other comprehensive loss that remain to be expensed.

In addition, certain of our operations use natural gas as a source of energy which can expose our business to market risk when the price of natural gas changes suddenly. In an attempt to mitigate the impact and volatility of price swings in the natural gas market, we purchase natural gas contracts, when appropriate, for a portion of our 12-month rolling forecast for North American natural gas requirements.

We also enter into natural gas hedge transactions from time to time with major financial institutions. Such derivatives are held to secure natural gas at fixed prices and not for trading. Our natural gas hedge contracts qualify as cash flow hedges and are marked to market. The unrealized gains and losses on these contracts are deferred and accounted for in accumulated other comprehensive loss to the extent that the unrealized gains and losses are offset by the forecasted transaction. At June 30, 2010, we had no natural gas hedge contracts outstanding and none were purchased in the three-month period ended June 30, 2010. Additionally, any unrealized gains and losses on the derivative instrument that are not offset by the forecasted transaction are recorded in earnings as appropriate, but generally do not have a significant impact on results of operations.

 

Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter ended June 30, 2010 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

We are involved from time to time in legal proceedings of types regarded as common in our businesses, particularly administrative or judicial proceedings seeking remediation under environmental laws, such as Superfund, products liability and premises liability litigation. We maintain a financial accrual for these proceedings that includes defense costs and potential damages, as estimated by our general counsel. We also maintain insurance to mitigate certain of such risks. Additional information with respect to this Item 1 is contained in Note 10 to the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

 

Item 1A. Risk Factors.

        While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009 describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our results of operations and our financial condition. We do not believe that there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table summarizes our repurchases of equity securities for the three-month period ended June 30, 2010:

 

Period

   Total Number
of Shares
Repurchased
   Average Price
Paid Per share
   Total Number of  Shares
Repurchased as Part of
Publicly Announced Plan

or Program *
   Maximum Number of
Shares that May Yet Be
Repurchased Under  the

Plans or Programs *

April 1, 2010 to April 30, 2010

   —        —      —      3,985,100

May 1, 2010 to May 31, 2010

   95,256    $ 39.24    95,256    3,889,844

June 1, 2010 to June 30, 2010

   65,100    $ 39.51    65,100    3,824,744
                     

Total

   160,356    $ 39.35    160,356    3,824,744
                     

 

* The stock repurchase plan, which was authorized by our Board of Directors, became effective on October 25, 2000 and included ten million shares. On February 27, 2008 after 98% of the originally authorized repurchase was executed, our Board of Directors approved an increase to five million shares authorized for repurchase under our stock repurchase plan. The stock repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder, unless the repurchase plan is earlier terminated by action of our Board of Directors or further shares are authorized for repurchase.

 

Item 6. Exhibits.

(a) Exhibits

 

10.1    Credit Agreement, dated as of March 23, 2007, among Albemarle Corporation, Albemarle Europe SPRL and Albemarle Netherlands BV, as borrowers, and certain of the Company’s subsidiaries that from time to time become parties thereto, as guarantors, the several banks and other financial institutions as may from time to time become parties thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issue.
10.2    364-Day Credit Agreement dated as of July 29, 2004, among Albemarle Catalysts International, L.L.C., as Borrower, Albemarle Corporation and certain subsidiaries of the Company and the Lenders thereto.
10.3    Albemarle Corporation 2008 Incentive Plan, as amended and restated as of April 20, 2010 [filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (No. 333-166828) filed on May 14, 2010, and incorporated herein by reference]
31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350
32.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350
101    Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended June 30, 2010, furnished in XBRL (eXtensible Business Reporting Language)).

Attached as Exhibit 101 to this report are the following documents formatted in XBRL: (i) the Consolidated Statements of Income for the three months and six months ended June 30, 2010 and 2009, (ii) the Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009, (iii) the Consolidated Statements of Changes in Equity for the six months ended June 30, 2010 and 2009, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

34


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  ALBEMARLE CORPORATION
  (Registrant)  
Date: August 6, 2010   By:  

/S/    RICHARD J. DIEMER, JR.        

   

Richard J. Diemer, Jr.

Senior Vice President and

Chief Financial Officer

(principal financial and accounting officer)

 

35

Exhibit 10.1

Exhibit 10.1

 

 

 

Published CUSIP Number: 01265LAD3

CREDIT AGREEMENT

Dated as of March 23, 2007

among

ALBEMARLE CORPORATION,

(the “Company”),

CERTAIN OTHER SUBSIDIARIES OF THE COMPANY,

THE LENDERS PARTY HERETO,

BANK OF AMERICA, N.A.,

as Administrative Agent, Swing Line Lender and L/C Issuer,

and

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Syndication Agent

Arranged By:

BANC OF AMERICA SECURITIES LLC

and

WACHOVIA CAPITAL MARKETS, LLC

as Joint Lead Arrangers and Joint Book Managers

 

 

 


TABLE OF CONTENTS

 

Section

        Page

ARTICLE I.

   DEFINITIONS AND ACCOUNTING TERMS    1

1.01

   Defined Terms    1

1.02

   Other Interpretive Provisions    20

1.03

   Accounting Terms    21

1.04

   Rounding    21

1.05

   References to Agreements and Laws    21

1.06

   Times of Day    21

1.07

   Letter of Credit Amounts    22

1.08

   Exchange Rates; Currency Equivalents    22

1.09

   Additional Alternative Currencies    22

1.10

   Redenomination of Certain Alternative Currencies; Change of Currency    23

ARTICLE II.

   THE COMMITMENTS AND CREDIT EXTENSIONS    23

2.01

   Committed Loans    23

2.02

   Borrowings, Conversions and Continuations of Committed Loans    25

2.03

   Letters of Credit    26

2.04

   Swing Line Loans    34

2.05

   Prepayments    36

2.06

   Termination or Reduction of Commitments    37

2.07

   Repayment of Loans    38

2.08

   Interest    38

2.09

   Fees    38

2.10

   Computation of Interest and Fees    40

2.11

   Evidence of Debt    40

2.12

   Payments Generally; Administrative Agent’s Clawback    40

2.13

   Sharing of Payments    42

2.14

   Designated Borrowers    43

2.15

   Extension of Maturity Date    44

ARTICLE III.

   TAXES, YIELD PROTECTION AND ILLEGALITY    45

3.01

   Taxes    45

3.02

   Illegality    47

3.03

   Inability to Determine Rates    47

3.04

   Increased Cost and Reduced Return; Capital Adequacy    47

3.05

   Funding Losses    48

3.06

   Matters Applicable to all Requests for Compensation    49

3.07

   Survival    49

ARTICLE IV.

   GUARANTY    49

4.01

   The Guaranty    49

4.02

   Obligations Unconditional    50

4.03

   Reinstatement    50

4.04

   Certain Additional Waivers    51

4.05

   Remedies    51

4.06

   Rights of Contribution    51

4.07

   Guarantee of Payment; Continuing Guarantee    51

ARTICLE V.

   CONDITIONS PRECEDENT TO CREDIT EXTENSIONS    51

5.01

   Conditions of Initial Credit Extension    51

5.02

   Conditions to all Credit Extensions    53


ARTICLE VI.

   REPRESENTATIONS AND WARRANTIES    54

6.01

   Existence, Qualification and Power; Compliance with Laws    54

6.02

   Authorization; No Contravention    54

6.03

   Governmental Authorization; Other Consents    54

6.04

   Binding Effect    54

6.05

   Financial Statements; No Material Adverse Change    54

6.06

   Litigation    55

6.07

   No Default    55

6.08

   Ownership of Property; Liens    55

6.09

   Environmental Compliance    55

6.10

   Insurance    56

6.11

   Taxes    56

6.12

   ERISA Compliance    56

6.13

   Margin Regulations; Investment Company Act    57

6.14

   Disclosure    57

6.15

   Compliance with Laws    57

6.16

   Intellectual Property; Licenses, Etc.    57

6.17

   Subsidiaries    58

6.18

   Solvency    58

6.19

   Foreign Subsidiary Borrowers    58

ARTICLE VII.

   AFFIRMATIVE COVENANTS    59

7.01

   Financial Statements    59

7.02

   Certificates; Other Information    59

7.03

   Notices    61

7.04

   Payment of Obligations    61

7.05

   Preservation of Existence, Etc.    62

7.06

   Maintenance of Properties    62

7.07

   Maintenance of Insurance    62

7.08

   Compliance with Laws    62

7.09

   Books and Records    62

7.10

   Inspection Rights    62

7.11

   Use of Proceeds    63

7.12

   Joinder of Guarantors    63

ARTICLE VIII.

   NEGATIVE COVENANTS    63

8.01

   Liens    63

8.02

   Mergers, Dispositions, etc.    65

8.03

   Change in Nature of Business    66

8.04

   Transactions with Affiliates    66

8.05

   Use of Proceeds    66

8.06

   Financial Covenant    66

8.07

   Assets in Loan Parties    66

8.08

   Subsidiary Indebtedness    67

ARTICLE IX.

   EVENTS OF DEFAULT AND REMEDIES    67

9.01

   Events of Default    67

9.02

   Remedies Upon Event of Default    69

9.03

   Application of Funds    70

ARTICLE X.

   ADMINISTRATIVE AGENT    70

10.01

   Appointment and Authority    70


10.02

   Rights of a Lender    71

10.03

   Exculpatory Provisions    71

10.04

   Reliance by Administrative Agent    72

10.05

   Delegation of Duties    72

10.06

   Resignation of Administrative Agent    72

10.07

   Non-Reliance on Administrative Agent and Other Lenders    73

10.08

   No Other Duties, Etc.    73

10.09

   Administrative Agent May File Proofs of Claim    73

10.10

   Guaranty Matters    74

ARTICLE XI.

   MISCELLANEOUS    74

11.01

   Amendments, Etc.    74

11.02

   Notices; Effectiveness; Electronic Communication    75

11.03

   No Waiver; Cumulative Remedies    77

11.04

   Expenses; Indemnity; Damage Waiver    77

11.05

   Concerning Joint and Several Liability of the Domestic Borrowers    79

11.06

   Payments Set Aside    80

11.07

   Successors and Assigns    81

11.08

   Confidentiality    84

11.09

   Set-off    85

11.10

   Interest Rate Limitation    85

11.11

   Counterparts    85

11.12

   Integration    86

11.13

   Survival of Representations and Warranties    86

11.14

   Severability    86

11.15

   Tax Forms    86

11.16

   Replacement of Lenders    88

11.17

   USA PATRIOT Act Notice    89

11.18

   Governing Law; Jurisdiction; Etc.    89

11.19

   Waiver of Right to Trial by Jury    90

11.20

   Judgment Currency    90

11.21

   No Advisory or Fiduciary Responsibility    91


SCHEDULES

 

1.01

   Mandatory Cost Formulae

2.01

   Commitments and Pro Rata Shares

2.03

   Existing Letters of Credit

6.09

   Environmental Matters

6.17

   Subsidiaries

8.01

   Existing Liens

11.02

   Eurocurrency and Domestic Lending Offices; Notice Addresses

EXHIBITS

 

A

   Form of Committed Loan Notice

B

   Form of Swing Line Loan Notice

C

   Form of Note

D

   Form of Compliance Certificate

E

   Form of Assignment and Assumption

F

   Form of Joinder Agreement

G

   Designated Borrower Request and Assumption Agreement

H

   Designated Borrower Notice


CREDIT AGREEMENT

This CREDIT AGREEMENT is entered into as of March 23, 2007 among ALBEMARLE CORPORATION, a Virginia corporation (the “Company”), ALBEMARLE EUROPE SPRL, a Belgium private limited company (the “Belgian Borrower”), and ALBEMARLE NETHERLANDS BV, a private company with limited liability (besloten vennootschap) incorporated under the laws of The Netherlands (the “Netherlands Borrower”, and together with the Company, the Belgian Borrower and any other Subsidiary of the Company party hereto pursuant to Section 2.14, collectively, the “Borrowers”), the Guarantors (defined herein), the Lenders (defined herein), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.

The Company has requested that the Lenders provide a $675,000,000 revolving credit facility, and the Lenders are willing to do so on the terms and conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS

 

  1.01 Defined Terms.

As used in this Agreement, the following terms shall have the meanings set forth below:

Acquisition” by any Person, means the acquisition by such Person, in a single transaction or in a series of related transactions, of all or substantially all of the Property of, or of a business unit or division of, another Person or at least a majority of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent of another Person, in each case whether or not involving a merger or consolidation with such other Person and whether for cash, property, services, assumption of Indebtedness, securities or otherwise.

Additional Commitment Lender” has the meaning specified in Section 2.15.

Administrative Agent” means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

Administrative Agent’s Office” means, with respect to any currency, the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 11.02 with respect to such currency or such other address or account with respect to such currency as the Administrative Agent may from time to time notify the Company and the Lenders.

Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto. Without limiting the generality of the foregoing, for purposes of determining Affiliates of a member of the Consolidated Group, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote 10% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.

 

1


Agent Parties” has the meaning specified in Section 11.02.

Aggregate Revolving Commitments” means the aggregate amount of Revolving Commitments of all the Lenders. The initial Aggregate Revolving Commitment is referenced in Section 2.01(a).

Agreement” means this Credit Agreement.

Alternative Currency” means each of British Pounds Sterling, Euro, Japanese Yen, Swiss Francs and Canadian Dollars and each other lawful currency (other than Dollars) that is freely available and freely transferable and convertible into Dollars and that is approved by all the Lenders in accordance with Section 1.09.

Alternative Currency Equivalent” means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Alternative Currency as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with Dollars.

Applicable Currency” means Dollars or Alternative Currency, as applicable.

Applicable Rate” means, from time to time, the following percentages per annum, based upon the Debt Rating as set forth below:

 

Pricing

Level

   Debt Rating
S&P/Moody’s
   Applicable Rate
for  Eurocurrency
Rate Loans
    Applicable
Rate for  Base
Rate Loans
    Letter of Credit
Fee
    Facility
Fee
 

1

   BBB+/Baa1or

better

   0.320   0.000   0.320   0.080

2

   BBB/Baa2    0.350   0.000   0.350   0.100

3

   BBB-/Baa3    0.500   0.000   0.500   0.125

4

   BB+/Ba1    0.600   0.000   0.600   0.150

5

   BB/Ba2 or

worse or unrated

   0.675   0.000   0.675   0.200

Debt Rating” means, as of any date of determination, the rating as determined by either S&P or Moody’s of the Company’s non-credit-enhanced, senior unsecured long-term debt; provided that if there is a split in the Debt Rating of S&P and Moody’s, then (a) in the case of a split between Pricing Levels 1, 2 and 3, the higher (better) of such Debt Ratings shall apply and (b) in the case of a split between Pricing Levels 3, 4 and 5, the lower (worse) of such Debt Ratings shall apply; provided, however, in the case of a split in Debt Ratings of more than one Pricing Level, the Pricing Level that is one level higher than the Pricing Level of the lower Debt Rating shall apply.

Initially, the Applicable Rate shall be determined based upon Pricing Level 3. Thereafter, each change in the Applicable Rate resulting from a publicly announced change in the Debt Rating shall be effective, in the case of an upgrade, during the period commencing on the date of delivery by the Company to the Administrative Agent of notice thereof pursuant to Section 7.03(f) and ending on the date immediately

 

2


preceding the effective date of the next such change and, in the case of a downgrade, during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change.

Determinations by the Administrative Agent of the appropriate Pricing Level shall be conclusive absent manifest error.

Applicable Time” means, with respect to any borrowings and payments in Alternative Currencies, the local times in the place of settlement for such Alternative Currencies as may be determined by the Administrative Agent or the L/C Issuer, as the case may be, to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.

Applicant Borrower” has the meaning specified in Section 2.14.

Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.07(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.

Attorney Costs” means and includes all reasonable fees, expenses and disbursements of any law firm or other external counsel and, following the occurrence and during the continuation of an Event of Default, shall also include the allocated cost of internal legal services and all expenses and disbursements of internal counsel.

Attributable Principal Amount” means (a) in the case of capital leases, the amount of capital lease obligations determined in accordance with GAAP, (b) in the case of Synthetic Leases, an amount determined by capitalization of the remaining lease payments thereunder as if it were a capital lease determined in accordance with GAAP, (c) in the case of Securitization Transactions, the outstanding principal amount of such financing, after taking into account reserve accounts and making appropriate adjustments, as determined by the Administrative Agent in its reasonable judgment and (d) in the case of any Sale and Lease Back Transaction, the present value (discounted in accordance with GAAP at the debt rate implied in the applicable lease) of the obligations of the lessee for rental payments during the term of such lease.

Availability Period” means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Revolving Commitments pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 9.02.

Bank of America” means Bank of America, N.A. and its successors.

BAS” means Banc of America Securities LLC, in its capacity as joint lead arranger and joint book manager, and its successors.

 

3


Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus  1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.” The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

Base Rate Loan” means a Loan that bears interest based on the Base Rate. All Base Rate Loans shall be denominated in Dollars.

Belgian Borrower” means has the meaning specified in the introductory paragraph hereto.

Borrower Materials” has the meaning specified in Section 7.02.

Borrowers” means the Company, the Belgian Borrower and the Netherlands Borrower and, if the conditions of Section 2.14 are satisfied, any other Designated Borrower, and “Borrower” means any one of the Borrowers.

Borrowing” means a Committed Borrowing or a Swing Line Borrowing, as the context may require.

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office with respect to Obligations denominated in Dollars is located and:

(a) if such day relates to any interest rate settings as to a Eurocurrency Rate Loan denominated in Dollars, any fundings, disbursements, settlements and payments in Dollars in respect of any such Eurocurrency Rate Loan, or any other dealings in Dollars to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Loan, means any such day on which dealings in deposits in Dollars are conducted by and between banks in the London interbank eurodollar market;

(b) if such day relates to any interest rate settings as to a Eurocurrency Rate Loan denominated in Euro, any fundings, disbursements, settlements and payments in Euro in respect of any such Eurocurrency Rate Loan, or any other dealings in Euro to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Loan, means a TARGET Day;

(c) if such day relates to any interest rate settings as to a Eurocurrency Rate Loan denominated in a currency other than Dollars or Euro, means any such day on which dealings in deposits in the relevant currency are conducted by and between banks in the London or other applicable offshore interbank market for such currency; and

(d) if such day relates to any fundings, disbursements, settlements or payments in a currency other than Dollars or Euro in respect of a Eurocurrency Rate Loan denominated in a currency other than Dollars or Euro, or any other dealings in any currency other than Dollars or Euro to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Loan (other than any interest rate settings), means any such day on which banks are open for foreign exchange business in the principal financial center of the country of such currency.

Cash Collateralize” has the meaning specified in Section 2.03(g).

 

4


Change of Control” means an event or series of events by which (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) other than Floyd D. Gottwald, Jr., or members of his family, the estate, heirs and legatees, and the legal representatives of any of the foregoing, including, without limitation, the trustee of any trust of which one or more of the foregoing are the principle beneficiaries (together, the “Gottwalds”), or any investment entities owned by them, shall own directly or indirectly, beneficially or of record, shares representing more than the greater of (i) 20% and (ii) the percentage owned by the Gottwalds of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Company or any Person directly or indirectly Controlling the Company; or (b) a majority of the seats (other than vacant seats) on the board of directors of the Company or any Person directly or indirectly Controlling the Company shall at any time be occupied by persons who were neither (i) nominated by the management of the Company or by persons who were members of the board of directors as of the Closing Date or members elected by two thirds of such members, nor (ii) appointed by directors so nominated.

Closing Date” means the date hereof.

Commitment” means the Revolving Commitment.

Committed Borrowing” means a Revolving Borrowing.

Committed Loan” means a Revolving Loan.

Committed Loan Notice” means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurocurrency Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

Company” has the meaning specified in the introductory paragraph hereto.

Compliance Certificate” means a certificate substantially in the form of Exhibit D.

Consolidated EBITDA” means, for any period, for the Consolidated Group, an amount equal to the sum of (a) Consolidated Net Income for such period plus (b) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges for such period, (ii) the provision for federal, state, local and foreign income taxes payable by the Consolidated Group for such period, (iii) the amount of depreciation and amortization expense for such period and (iv) non-cash expenses (excluding any non-cash expense to the extent that it represents an accrual of or reserve for cash payments in any future period), minus (c) to the extent included in calculating such Consolidated Net Income, non-cash income during such period, all as determined in accordance with GAAP.

Consolidated Funded Debt” means Funded Debt of the Consolidated Group determined on a consolidated basis in accordance with GAAP; provided, however, up to $50,000,000 of Funded Debt of non-wholly owned Subsidiaries that are not Loan Parties shall be excluded from “Consolidated Funded Debt” to the extent that such Funded Debt is not Guaranteed by and is otherwise non-recourse to the Loan Parties.

Consolidated Group” means the Company and its consolidated Subsidiaries as determined in accordance with GAAP.

Consolidated Interest Charges” means, for any period, for the Consolidated Group, all interest expense, including the amortization of debt discount and premium, the interest component under capital leases and the implied interest component under Securitization Transactions, in each case on a consolidated basis determined in accordance with GAAP.

 

5


Consolidated Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Funded Debt as of such date to (b) Consolidated EBITDA for the period of the four fiscal quarters ending on such date.

Consolidated Net Income” means, for any period for the Consolidated Group, the sum, without duplication of (i) net income of the Consolidated Group (excluding extraordinary items and related tax effects) for that period plus (ii) to the extent not included in the amount determined pursuant to clause (i) above and to the extent paid in cash to a member of the Consolidated Group, equity earnings of unconsolidated Affiliates for such period minus (iii) to the extent included in the amount determined pursuant to clause (i) above and to the extent not paid in cash to a member of the Consolidated Group, equity earnings of Affiliates that are not consolidated (on the consolidation basis) with the Company for such period minus (iv) to the extent included in the amount determined pursuant to clause (i) above, the income of any Subsidiary to the extent the payment of such income in the form of a distribution or repayment of any Indebtedness to the Borrower or a Subsidiary is not permitted, whether on account of any Organization Document restriction, any agreement, instrument, deed or lease or any Law applicable to such Subsidiary, all as determined in accordance with GAAP.

Consolidated Net Worth” means, as of any date of determination, consolidated shareholders’ equity of the Consolidated Group as of that date determined in accordance with GAAP (excluding, for purposes hereof, changes in the cumulative foreign currency translation adjustment and any mark to market of a derivative or hedging instrument (or any other adjustment related thereto) required under FAS 133).

Consolidated Tangible Domestic Assets” means, as of any date, the total book value of assets of members of the Consolidated Group that are organized under the laws of any political subdivision of the United States, which assets are located in the United States, minus (i) intercompany loans and advances from such members of the Consolidated Group to other members of the Consolidated Group and (ii) the book value of intangible assets of such members of the Consolidated Group, including goodwill, patents, trade names, trademarks, copyrights, franchises, experimental expense, organizational expense, unamortized debt discount and expense and deferred assets (other than prepaid insurance and prepaid taxes), determined in accordance with GAAP.

Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

Control” has the meaning specified in the definition of “Affiliate.”

Credit Extension” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.

Debt Rating” has the meaning set forth in the definition of “Applicable Rate.”

Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

 

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Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

Default Rate” means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurocurrency Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate and any Mandatory Cost) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum.

Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

Designated Borrower” means any Borrower designated in accordance with the terms of Section 2.14.

Designated Borrower Notice” has the meaning specified in Section 2.14.

Designated Borrower Request and Assumption Agreement” has the meaning specified in Section 2.14.

Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any Sale and Leaseback Transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

Dollar” and “$” mean lawful money of the United States.

Dollar Equivalent” means, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any Alternative Currency, the equivalent amount thereof in Dollars as determined by the Administrative Agent or the L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Alternative Currency.

Domestic Borrower” means any Borrower that is not a Foreign Subsidiary Borrower.

Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

Eligible Assignee” means (a) a Lender; (b) an Affiliate of a Lender (other than an Affiliate that is a Foreign Lender); (c) an Approved Fund (other than an Approved Fund that is a Foreign Lender); and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, and (ii) the L/C Issuer and the Swing Line Lender, and unless an Event of Default has occurred and is continuing, the Company (each such approval not to be unreasonably withheld or delayed, provided that it shall be reasonable for the Company to withhold consent if such Person does not provide to the Company the information required under Section 11.15). Notwithstanding the foregoing, “Eligible Assignee” shall not include the Company or any of the Company’s Affiliates or Subsidiaries.

 

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EMU Legislation” means the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency (whether known as the “euro” or otherwise).

Environmental Laws” means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to human health and the natural environment.

Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Company, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) the release or threatened release of any Hazardous Materials into the natural environment or (d) any contract, agreement or other consensual arrangement pursuant to which environmental liability is assumed or imposed with respect to any of the foregoing.

ERISA” means the Employee Retirement Income Security Act of 1974.

ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Internal Revenue Code (and Sections 414(m) and (o) of the Internal Revenue Code for purposes of provisions relating to Section 412 of the Internal Revenue Code).

ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate.

Euro” and “EUR” mean the lawful currency of the Participating Member States introduced in accordance with the EMU Legislation.

Eurocurrency Base Rate” has the meaning specified in the definition of Eurocurrency Rate.

Eurocurrency Rate” means for any Interest Period with respect to a Eurocurrency Rate Loan, a rate per annum determined by the Administrative Agent pursuant to the following formula:

 

Eurodollar Rate  =

 

                Eurodollar Base Rate                

 

1.00 – Eurodollar Reserve Percentage

Where, “Eurocurrency Base Rate” means for such Interest Period, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by

 

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Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for deposits in the relevant currency (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the “Eurocurrency Base Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in the relevant currency for delivery on the first day of such Interest Period in Same Day Funds in the approximate amount of the Eurocurrency Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch (or other Bank of America branch or Affiliate) to major banks in the London or other offshore interbank market for such currency at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

Eurocurrency Rate Loan” means a Committed Loan that bears interest at a rate based on the Eurocurrency Rate. Eurocurrency Rate Loans may be denominated in Dollars or in an Alternative Currency. All Committed Loans denominated in an Alternative Currency must be Eurocurrency Rate Loans.

Eurocurrency Reserve Percentage” means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”). The Eurocurrency Rate for each outstanding Eurocurrency Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurocurrency Reserve Percentage.

Event of Default” has the meaning specified in Section 9.01.

Existing Credit Agreement” means the Credit Agreement dated as of July 29, 2004 among the Company, the Subsidiaries of the Company party thereto, the banks named therein and Bank of America, N.A., as Administrative Agent, as amended.

Existing Letters of Credit” means the letters of credit outstanding on the Closing Date and identified on Schedule 2.03.

Extending Lender” has the meaning specified in Section 2.15.

Existing Maturity Date” has the meaning specified in Section 2.15.

Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of   1/100th of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

 

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Foreign Lender” means, with respect to a particular Loan, any Lender that is organized under the Laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction, and a similar rule shall apply with respect to The Netherlands and Belgium.

Foreign Subsidiary Borrowers” means the Belgian Borrower and the Netherlands Borrower, and “Foreign Subsidiary Borrower” means either of them.

Foreign Subsidiary Borrower Sublimit” means an amount equal to the lesser of the Aggregate Revolving Commitments and $100,000,000. The Foreign Subsidiary Borrower Sublimit is part of, and not in addition to, the Aggregate Revolving Commitments.

FRB” means the Board of Governors of the Federal Reserve System of the United States.

Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

Funded Debt” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all obligations for borrowed money, whether current or long-term (including the Obligations hereunder), and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, including convertible debt instruments;

(b) all purchase money indebtedness (including indebtedness and obligations in respect of conditional sales and title retention arrangements, except for customary conditional sales and title retention arrangements with suppliers that are entered into in the ordinary course of business) and all indebtedness and obligations in respect of the deferred purchase price of property or services (other than trade accounts payable incurred in the ordinary course of business and payable on customary trade terms);

(c) all direct obligations under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(d) the Attributable Principal Amount of capital leases and Synthetic Leases;

(e) the Attributable Principal Amount of Securitization Transactions;

(f) all preferred stock and comparable equity interests providing for mandatory redemption, sinking fund or other like payments within three years of the date thereof;

(g) Guarantees in respect of Funded Debt of another Person;

(h) Funded Debt of any partnership or joint venture or other similar entity in which such Person is a general partner or joint venturer, and, as such, has personal liability for such obligations, but only to the extent there is recourse to such Person for payment thereof unless the partnership interest, joint venture interest or equity interest in such other similar entity is the sole asset of such Person.

 

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For purposes hereof, the amount of Funded Debt shall be determined based on the outstanding principal amount in the case of borrowed money indebtedness under clause (a) and purchase money indebtedness and the deferred purchase obligations under clause (b), based on the maximum amount available to be drawn in the case of letter of credit obligations and the other obligations under clause (c), and based on the outstanding principal amount of Funded Debt that is the subject of the Guarantees in the case of Guarantees under clause (g).

GAAP” means generally accepted accounting principles in the United States as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, subject to the provisions of Section 1.03.

Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

Guarantors” means the Company (with respect to the Obligations of the Foreign Subsidiary Borrowers), each Subsidiary of the Company identified as a “Guarantor” on the signature pages hereto and each Material Domestic Subsidiary that joins as a Guarantor pursuant to Section 7.12, together with their successors and permitted assigns.

Guaranty” means the Guarantee of the Obligations provided by the applicable Loan Parties pursuant to Article IV.

Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes regulated pursuant to any Environmental Law.

Immaterial Subsidiary” means (a) any Domestic Subsidiary of the Company that neither (i) owns assets with an aggregate book value in excess of $25,000 nor (ii) has annual revenues in excess of $25,000 and (b) any foreign Subsidiary of the Company that neither (i) owns assets with an aggregate book value in excess of $25,000,000 nor (ii) has annual revenues in excess of $25,000,000.

 

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Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all Funded Debt;

(b) all contingent obligations under letters of credit (including standby and commercial letters of credit), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(c) net obligations under any Swap Contract;

(d) Guarantees in respect of Indebtedness of another Person; and

(e) Indebtedness of any partnership or joint venture or other similar entity in which such Person is a general partner or joint venturer, and, as such, has personal liability for such obligations, but only to the extent there is recourse to such Person for payment thereof.

For purposes hereof, the amount of Indebtedness shall be determined based on Swap Termination Value in the case of net obligations under Swap Contracts under clause (c) and based on the outstanding principal amount of Indebtedness that is the subject of the Guarantees in the case of Guarantees under clause (d).

Indemnitees” has the meaning set forth in Section 11.04(b).

Interest Payment Date” means (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurocurrency Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the last Business Day of each March, June, September and December and the Maturity Date.

Internal Revenue Code” means the Internal Revenue Code of 1986.

Interest Period” means, as to each Eurocurrency Rate Loan, the period commencing on the date such Eurocurrency Rate Loan is disbursed or converted to or continued as a Eurocurrency Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Company in its Committed Loan Notice; provided that:

(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(c) no Interest Period shall extend beyond the Maturity Date.

 

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IRS” means the United States Internal Revenue Service.

ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).

Issuer Documents” means with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Company (or any Subsidiary) or in favor of the L/C Issuer and relating to any such Letter of Credit.

Joinder Agreement” means a joinder agreement substantially in the form of Exhibit F executed and delivered by a Material Domestic Subsidiary in accordance with the provisions of Section 7.12.

Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

L/C Advance” means, with respect to each Lender, such Lender’s funding of its participation in a L/C Borrowing. All L/C Advances shall be denominated in Dollars.

L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit that has not been reimbursed on the date when made or refinanced as a Revolving Borrowing. All L/C Borrowings shall be denominated in Dollars.

L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the renewal or increase of the amount thereof.

L/C Issuer” means Bank of America in its capacity as issuer of the Letters of Credit, and its successors in such capacity.

L/C Obligations” means as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit, plus the aggregate amount of all Unreimbursed Amounts in respect of Letters of Credit, including L/C Borrowings. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

Lender” means each of the Persons identified as a “Lender” on the signature pages hereto and their successors and assigns and, as the context requires, includes the L/C Issuer and the Swing Line Lender.

Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Company and the Administrative Agent.

 

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Letter of Credit” means (i) the Existing Letters of Credit and (ii) any letter of credit issued under the Revolving Commitments under the provisions of Section 2.03(a). Letters of Credit may be commercial letters of credit or standby letters of credit.

Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.

Letter of Credit Expiration Date” means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).

Letter of Credit Fee” means any of the fees described in clause (A) of Section 2.09(b).

Letter of Credit Sublimit” shall have the meaning given such term in Section 2.03(a)(i).

Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

Loan” means an extension of credit by a Lender to a Borrower under Article II in the form of a Committed Loan or a Swing Line Loan.

Loan Documents” means this Agreement, each Note, each Designated Borrower Request and Assumption Agreement, each Issuer Document, each Joinder Agreement, each Request for Credit Extension and each Compliance Certificate.

Loan Parties” means, collectively, each Borrower and each Guarantor.

Mandatory Cost” means, with respect to any period, the percentage rate per annum determined in accordance with Schedule 1.01.

Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or financial condition of the Company or the Consolidated Group taken as a whole; (b) a material impairment of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

Material Domestic Subsidiary” means any Domestic Subsidiary of the Borrower that is not an Immaterial Subsidiary; provided, however, that (i) special purpose Subsidiaries created in connection with any Securitization Transaction permitted hereunder and (ii) non wholly-owned Subsidiaries that are prohibited by their Organization Documents from becoming Guarantors hereunder shall not constitute Material Domestic Subsidiaries.

Maturity Date” means the later of (a) March 23, 2012 and (b) if maturity is extended pursuant to Section 2.15, such extended maturity date as determined pursuant to such Section; provided however that, in each case, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.

Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

 

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Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

Netherlands Borrower” has the meaning specified in the introductory paragraph hereto.

Note” means a promissory note made by a Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C.

Notice Date” has the meaning specified in Section 2.15.

Non-Extending Lender” has the meaning specified in Section 2.15.

Obligations” means, without duplication, (i) the Revolving Loan Obligations, (ii) all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding, and (iii) any Swap Contract of any Loan Party to which a Lender or any Affiliate of such Lender is a party.

Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

Outstanding Amount” means (i) with respect to Revolving Loans and Swing Line Loans on any date, the aggregate outstanding principal Dollar Equivalent thereof after giving effect to any borrowings and prepayments or repayments of Revolving Loans and Swing Line Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the Dollar Equivalent of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date.

Overnight Rate” means, for any day, (a) with respect to any amount denominated in Dollars, the greater of (i) the Federal Funds Rate and (ii) an overnight rate determined by the Administrative Agent, the L/C Issuer, or the Swing Line Lender, as the case may be, in accordance with banking industry rules on interbank compensation, and (b) with respect to any amount denominated in an Alternative Currency, the rate of interest per annum at which overnight deposits in the applicable Alternative Currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by a branch or Affiliate of Bank of America in the applicable offshore interbank market for such currency to major banks in such interbank market.

 

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Participant” has the meaning specified in Section 11.07(d).

Participating Member State” means each state so described in any EMU Legislation.

PBGC” means the Pension Benefit Guaranty Corporation.

Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Company or any ERISA Affiliate or to which the Company or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by the Company or, with respect to any such plan that is subject to Section 412 of the Internal Revenue Code or Title IV of ERISA, any ERISA Affiliate.

Platform” has the meaning specified in Section 7.02.

Pro Forma Basis” means, for purposes of determining compliance with the financial covenant hereunder, that the subject Acquisition shall be deemed to have occurred as of the first day of the period of four consecutive fiscal quarters ending as of the end of the most recent fiscal quarter for which annual or quarterly financial statements shall have been delivered in accordance with the provisions hereof. Further, for purposes of making calculations on a “Pro Forma Basis” hereunder, (a) income statement items (whether positive or negative) attributable to the property, entities or business units that are the subject of the subject Acquisition shall be included to the extent relating to any period prior to the date of subject transaction, and (b) Indebtedness incurred in connection with the subject Acquisition shall be deemed to have been incurred as of the first day of the applicable period (and interest expense shall be imputed for the applicable period assuming prevailing interest rates hereunder).

Pro Rata Share” means with respect to each Lender, a fraction (expressed as percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Revolving Commitment of such Lender at such time and the denominator of which is the amount of the Aggregate Revolving Commitments at such time; provided that if the Revolving Commitments shall have been terminated pursuant to Section 9.02, then the Pro Rata Share of each Lender shall be determined based on the Pro Rata Share of such Lender immediately prior to such termination and after giving effect to any subsequent assignments made pursuant to the terms hereof. The initial Pro Rata Shares of each Lender is set forth as such on Schedule 2.01.

Public Lender” has the meaning specified in Section 7.02.

Ratings Condition” means, at any time, the attainment by the Company of Debt Ratings of BBB (stable) or better from S&P and Baa2 (stable) or better from Moody’s.

Register” has the meaning set forth in Section 11.07(c).

 

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Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty-day notice period has been waived.

Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

Required Lenders” means, as of any date of determination, Lenders holding in the aggregate more than fifty percent (50%) of (a) the Aggregate Revolving Commitments or (b) if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 9.02, Lenders holding in the aggregate more than 50% of the Obligations (including, in each case, the aggregate amount of each Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans); provided that the Commitment of, and the portion of the Obligations held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

Revaluation Date” means each of the following: (a) with respect to any Loan, each of the following (i) each date of a Borrowing of a Eurocurrency Rate Loan denominated in an Alternative Currency, (ii) each date of a continuation of a Eurocurrency Rate Loan denominated in an Alternative Currency pursuant to Section 2.02, and (iii) such additional dates as the Administrative Agent shall determine or the Required Lenders shall require; and (b) with respect to any Letter of Credit, each of the following: (i) each date of issuance of a Letter of Credit denominated in an Alternative Currency, (ii) each date of an amendment of any such Letter of Credit having the effect of increasing the amount thereof (solely with respect to the increased amount), (iii) each date of any payment by the L/C Issuer under any Letter of Credit denominated in an Alternative Currency, (iv) in the case of Existing Letters of Credit, the Closing Date, and (v) such additional dates as the Administrative Agent or the L/C Issuer shall determine or the Required Lenders shall require.

Revolving Loan Obligations” means Revolving Loans, L/C Obligations and Swing Line Loans.

Revolving Borrowing” means a borrowing consisting of simultaneous Revolving Loans of the same Type, in the same currency and, in the case of Eurocurrency Rate Loans, having the same Interest Period made by each of the Lenders as provided herein.

Revolving Commitment” means, as to each Lender, the commitment of such Lender to make Revolving Loans and to participate in L/C Obligations in an aggregate principal amount at any one time outstanding not to exceed the amount set forth as such Lender’s “Revolving Commitment” as set forth on Schedule 2.01 or in the Assignment and Assumption or other documentation delivered pursuant to Section 2.01(c) pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

 

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Revolving Loans” has the meaning provided in Section 2.01(a).

Sale and Leaseback Transaction” means, with respect to the Company or any Subsidiary, any arrangement, directly or indirectly, with any person whereby the Company or such Subsidiary shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred.

Same Day Funds” means (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to disbursements and payments in an Alternative Currency, same day or other funds as may be determined by the Administrative Agent or the L/C Issuer, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Alternative Currency.

S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.

SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

Securitization Transaction” means any financing or factoring or similar transaction (or series of such transactions) that has been or may be entered into by a member of the Consolidated Group pursuant to which such member of the Consolidated Group may sell, convey or otherwise transfer, or may grant a security interest in, any accounts receivable, payment intangibles, notes receivable, rights to future lease payments or residuals or other similar rights to payment to a special purpose Subsidiary or Affiliate or any other Person.

Solvent” means, with respect to any Person as of a particular date, after giving full effect to rights of contribution against or reimbursement from other Persons under applicable Law or any Contractual Obligation, that on such date (a) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s assets would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the assets of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person and (e) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability reduced by the amount of any contribution or indemnity that can reasonably be expected to be received.

Special Notice Currency” means at any time an Alternative Currency, other than the currency of a country that is a member of the Organization for Economic Cooperation and Development at such time located in North America or Europe.

Spot Rate” for a currency means the rate determined by the Administrative Agent or the L/C Issuer, as applicable, to be the rate quoted by the Person acting in such capacity as the spot rate for the

 

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purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date as of which the foreign exchange computation is made; provided that the Administrative Agent or the L/C Issuer may obtain such spot rate from another financial institution designated by the Administrative Agent or the L/C Issuer if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency; and provided further that the L/C Issuer may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit denominated in an Alternative Currency.

Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Company.

Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, that are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.

Swing Line Lender” means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

Swing Line Loan” has the meaning specified in Section 2.04(a).

Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.

Swing Line Sublimit” has the meaning specified in Section 2.04(a).

 

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Synthetic Lease” means any synthetic, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease under GAAP.

TARGET Day” means any day on which the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) payment system (or, if such payment system ceases to be operative, such other payment system (if any) determined by the Administrative Agent to be a suitable replacement) is open for the settlement of payments in Euro.

Threshold Amount” means FIFTY MILLION DOLLARS ($50,000,000).

Type” means, with respect to a Committed Loan, its character as a Base Rate Loan or a Eurocurrency Rate Loan.

Unfunded Pension Liability” means, the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined as of the date of the most recently completed actuarial valuation report for that Pension Plan in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Internal Revenue Code.

United States” and “U.S.” mean the United States of America.

Unreimbursed Amount” has the meaning set forth in Section 2.03(c)(i).

 

  1.02 Other Interpretive Provisions.

With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b) (i) The words “herein,” “hereto,” “hereof” and “hereunder” and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof.

(ii) Article, Section, Exhibit and Schedule references are to the Loan Document in which such reference appears unless otherwise expressly referenced.

(iii) The term “including” is by way of example and not limitation.

(iv) The term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.

(c) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including.”

(d) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

 

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  1.03 Accounting Terms.

(a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, except as otherwise specifically prescribed herein.

(b) At the Company’s election, determinations of compliance with the financial covenant hereunder may be made on a Pro Forma Basis with respect to one or more Acquisitions consummated after the Closing Date; provided that with respect to any Acquisition (i) the Company must elect to treat such Acquisition on a Pro Forma Basis on or before the delivery of the Compliance Certificate relating to the first fiscal quarter period ending after the date of such Acquisition, (ii) the Company must indicate such election on such Compliance Certificate and (iii) such election shall be irrevocable. Absent the Company’s election to treat an Acquisition on a Pro Forma Basis in accordance with this subsection (b), determinations of compliance with the financial covenant hereunder shall not be made on a Pro Forma Basis with respect to such Acquisition.

(c) The Company will provide a written summary of material changes in GAAP or in the consistent application thereof with each annual and quarterly Compliance Certificate delivered in accordance with Section 7.02(b). If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Company or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Company shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

 

  1.04 Rounding.

Any financial ratios required to be maintained by the Company pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

 

  1.05 References to Agreements and Laws.

Unless otherwise expressly provided herein, (a) references to Organization Documents, agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.

 

  1.06 Times of Day.

Unless otherwise specified, all references herein to times of day shall be references to New York time (Eastern daylight or standard, as applicable).

 

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  1.07 Letter of Credit Amounts.

Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Dollar Equivalent of the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the Dollar Equivalent of the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

 

  1.08 Exchange Rates; Currency Equivalents.

(a) The Administrative Agent or the L/C Issuer, as applicable, shall determine the Spot Rates as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of Credit Extensions and Outstanding Amounts denominated in Alternative Currencies. Such Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating the financial covenant hereunder or except as otherwise provided herein, the applicable amount of any currency for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or the L/C Issuer, as applicable.

(b) Wherever in this Agreement in connection with a Borrowing, conversion, continuation or prepayment of a Loan or the issuance of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Borrowing, Loan or Letter of Credit is denominated in an Alternative Currency, such amount shall be the relevant Alternative Currency Equivalent of such Dollar amount (rounded to the nearest unit of such Alternative Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the L/C Issuer, as the case may be.

 

  1.09 Additional Alternative Currencies.

(a) The Company may from time to time request that Eurocurrency Rate Loans