Item 8. Financial Statements and Supplementary Data.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria for effective internal control over financial reporting described in the Internal Control—Integrated Framework 2013 set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as of December 31, 2014, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal control. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/S/ LUTHER C. KISSAM IV		/S/ SCOTT A. TOZIER
Luther C. Kissam IV		Scott A. Tozier
President, Chief Executive Officer and Director		Senior Vice President, Chief Financial Officer
(principal executive officer)		(principal financial officer)
February 27, 2015		February 27, 2015

Albemarle Corporation and Subsidiaries

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Albemarle Corporation:

In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 15(a) (1) present fairly, in all material respects, the financial position of Albemarle Corporation and its subsidiaries at December 31, 2014 and December 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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

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

/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 27, 2015

Albemarle Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS

(In Thousands)
December 31	2014				2013
Assets
Current assets:
Cash and cash equivalents	$	2,489,768			$	477,239
Trade accounts receivable, less allowance for doubtful accounts (2014—$1,563; 2013—$1,614)	385,212				446,864
Other accounts receivable	49,423				45,094
Inventories:
Finished goods	262,769				340,863
Raw materials	53,152				47,784
Stores, supplies and other	42,440				47,402
	358,361				436,049
Other current assets	66,086				77,669
Total current assets	3,348,850				1,482,915
Property, plant and equipment, at cost	2,620,670				2,972,084
Less accumulated depreciation and amortization	1,388,802				1,615,015
Net property, plant and equipment	1,231,868				1,357,069
Investments	194,042				212,178
Other assets	160,956				160,229
Goodwill	243,262				284,203
Other intangibles, net of amortization	44,125				88,203
Total assets	$	5,223,103			$	3,584,797
Liabilities and Equity
Current liabilities:
Accounts payable	$	231,705			$	208,181
Accrued expenses	166,174				176,416
Current portion of long-term debt	711,096				24,554
Dividends payable	21,458				19,197
Income taxes payable	9,453				8,015
Total current liabilities	1,139,886				436,363
Long-term debt	2,223,035				1,054,310
Postretirement benefits	56,424				53,903
Pension benefits	170,534				57,647
Other noncurrent liabilities	87,705				110,610
Deferred income taxes	56,884				129,188
Commitments and contingencies (Note 16)
Equity:
Albemarle Corporation shareholders’ equity:
Common stock, $.01 par value (authorized 150,000 shares), issued and outstanding — 78,031 in 2014 and 80,053 in 2013	780				801
Additional paid-in capital	10,447				9,957
Accumulated other comprehensive (loss) income	(62,413		)		116,245
Retained earnings	1,410,651				1,500,358
Total Albemarle Corporation shareholders’ equity	1,359,465				1,627,361
Noncontrolling interests	129,170				115,415
Total equity	1,488,635				1,742,776
Total liabilities and equity	$	5,223,103			$	3,584,797

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)
Year Ended December 31	2014				2013				2012
Net sales	$	2,445,548			$	2,394,270			$	2,519,154
Cost of goods sold	1,674,700				1,543,799				1,620,311
Gross profit	770,848				850,471				898,843
Selling, general and administrative expenses	355,135				158,189				308,456
Research and development expenses	88,310				82,246				78,919
Restructuring and other charges, net (Note 20)	25,947				33,361				111,685
Acquisition and integration related costs (Note 23)	30,158				—				—
Operating profit	271,298				576,675				399,783
Interest and financing expenses	(41,358		)		(31,559		)		(32,800		)
Other (expenses) income, net	(16,761		)		(6,674		)		1,229
Income from continuing operations before income taxes and equity in net income of unconsolidated investments	213,179				538,442				368,212
Income tax expense	18,484				134,445				80,433
Income from continuing operations before equity in net income of unconsolidated investments	194,695				403,997				287,779
Equity in net income of unconsolidated investments (net of tax)	35,742				31,729				38,067
Net income from continuing operations	230,437				435,726				325,846
(Loss) income from discontinued operations (net of tax)	(69,531		)		4,108				4,281
Net income	160,906				439,834				330,127
Net income attributable to noncontrolling interests	(27,590		)		(26,663		)		(18,591		)
Net income attributable to Albemarle Corporation	$	133,316			$	413,171			$	311,536
Basic earnings (loss) per share:
Continuing operations	$	2.57			$	4.88			$	3.44
Discontinued operations	(0.88		)		0.05				0.05
	$	1.69			$	4.93			$	3.49
Diluted earnings (loss) per share:
Continuing operations	$	2.57			$	4.85			$	3.42
Discontinued operations	(0.88		)		0.05				0.05
	$	1.69			$	4.90			$	3.47
Weighted-average common shares outstanding—basic	78,696				83,839				89,189
Weighted-average common shares outstanding—diluted	79,102				84,322				89,884
Cash dividends declared per share of common stock	$	1.10			$	0.96			$	0.80

See accompanying notes to the consolidated financial statements.

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

(In Thousands)
Year Ended December 31	2014				2013				2012
Net income	$	160,906			$	439,834			$	330,127
Other comprehensive (loss) income, net of tax:
Foreign currency translation	(168,809		)		31,704				28,769
Pension and postretirement benefits	(487		)		(502		)		(4,071		)
Net investment hedge	11,384				—				—
Interest rate swap	(20,962		)		—				—
Other	136				135				134
Total other comprehensive (loss) income, net of tax	(178,738		)		31,337				24,832
Comprehensive (loss) income	(17,832		)		471,171				354,959
Comprehensive income attributable to noncontrolling interests	(27,510		)		(27,019		)		(18,488		)
Comprehensive (loss) income attributable to Albemarle Corporation	$	(45,342	)		$	444,152			$	336,471

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands, Except Share Data)
		Common Stock							Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Total Albemarle Shareholders’ Equity				Noncontrolling Interests				Total Equity
Shares			Amounts
Balance at January 1, 2012		88,841,240			$	888			$	15,194			$	60,329			$	1,514,866			$	1,591,277			$	87,550			$	1,678,827
Net income for 2012																	311,536				311,536				18,591				330,127
Other comprehensive income (loss)													24,935								24,935				(103		)		24,832
Cash dividends declared for 2012																	(71,347		)		(71,347		)		(7,628		)		(78,975		)
Stock-based compensation and other									13,939												13,939								13,939
Exercise of stock options		949,170			9				21,139												21,148								21,148
Shares repurchased		(1,092,767	)		(11		)		(53,193		)						(10,371		)		(63,575		)						(63,575		)
Tax benefit related to stock plans									14,809												14,809								14,809
Issuance of common stock, net		341,620			4				(4		)										—								—
Shares withheld for withholding taxes associated with common stock issuances		(140,054	)		(1		)		(9,123		)										(9,124		)						(9,124		)
Balance at December 31, 2012		88,899,209			$	889			$	2,761			$	85,264			$	1,744,684			$	1,833,598			$	98,410			$	1,932,008
Balance at January 1, 2013		88,899,209			$	889			$	2,761			$	85,264			$	1,744,684			$	1,833,598			$	98,410			$	1,932,008
Net income for 2013																	413,171				413,171				26,663				439,834
Other comprehensive income													30,981								30,981				356				31,337
Cash dividends declared for 2013																	(79,833		)		(79,833		)		(10,014		)		(89,847		)
Stock-based compensation and other									9,072												9,072								9,072
Exercise of stock options		191,732			2				5,551												5,553								5,553
Shares repurchased		(9,198,056	)		(92		)		(4,542		)						(577,664		)		(582,298		)						(582,298		)
Tax benefit related to stock plans									3,266												3,266								3,266
Issuance of common stock, net		256,834			3				(3		)										—								—
Shares withheld for withholding taxes associated with common stock issuances		(96,877	)		(1		)		(6,148		)										(6,149		)						(6,149		)
Balance at December 31, 2013		80,052,842			$	801			$	9,957			$	116,245			$	1,500,358			$	1,627,361			$	115,415			$	1,742,776
Balance at January 1, 2014		80,052,842			$	801			$	9,957			$	116,245			$	1,500,358			$	1,627,361			$	115,415			$	1,742,776
Net income for 2014																	133,316				133,316				27,590				160,906
Other comprehensive loss													(178,658		)						(178,658		)		(80		)		(178,738		)
Cash dividends declared for 2014																	(86,364		)		(86,364		)		(15,535		)		(101,899		)
Noncontrolling interests’ share of contributed capital in subsidiary																					—				1,780				1,780
Stock-based compensation and other									13,556												13,556								13,556
Exercise of stock options		77,546			1				2,712												2,713								2,713
Shares repurchased		(2,190,254	)		(22		)		(13,319		)						(136,659		)		(150,000		)						(150,000		)
Tax benefit related to stock plans									826												826								826
Issuance of common stock, net		141,937			1				(1		)										—								—
Shares withheld for withholding taxes associated with common stock issuances		(51,547	)		(1		)		(3,284		)										(3,285		)						(3,285		)
Balance at December 31, 2014		78,030,524			$	780			$	10,447			$	(62,413	)		$	1,410,651			$	1,359,465			$	129,170			$	1,488,635

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)
Year Ended December 31	2014				2013				2012
Cash and cash equivalents at beginning of year	$	477,239			$	477,696			$	469,416
Cash flows from operating activities:
Net income	160,906				439,834				330,127
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization	103,572				107,370				99,020
Write-offs associated with restructuring and other	6,333				—				61,809
Loss on disposal of businesses	85,515				—				—
Stock-based compensation	14,267				10,164				15,211
Excess tax benefits realized from stock-based compensation arrangements	(826		)		(3,266		)		(14,809		)
Equity in net income of unconsolidated investments (net of tax)	(35,742		)		(31,729		)		(38,067		)
Dividends received from unconsolidated investments and nonmarketable securities	40,688				21,632				26,908
Pension and postretirement expense (benefit)	133,681				(132,707		)		77,442
Pension and postretirement contributions	(13,916		)		(13,294		)		(21,610		)
Unrealized gain on investments in marketable securities	(825		)		(3,681		)		(1,872		)
Deferred income taxes	(64,947		)		64,865				(14,587		)
Changes in current assets and liabilities, net of effects of acquisitions and divestitures:
Decrease (increase) in accounts receivable	36,221				(65,906		)		(25,992		)
(Increase) decrease in inventories	(6,486		)		(1,810		)		7,364
Decrease (increase) in other current assets excluding deferred income taxes	5,809				5,261				(19,590		)
Increase (decrease) in accounts payable	28,296				19,267				(11,473		)
(Decrease) increase in accrued expenses and income taxes payable	(6,680		)		12,185				1,981
Other, net	6,743				4,674				16,904
Net cash provided by operating activities	492,609				432,859				488,766
Cash flows from investing activities:
Capital expenditures	(110,576		)		(155,346		)		(280,873		)
Cash payments related to acquisitions and other	—				(2,565		)		(3,360		)
Cash proceeds from divestitures, net	104,718				—				9,646
Payment for settlement of interest rate swap	(33,425		)		—				—
Sales of (investments in) marketable securities, net	649				169				(1,615		)
Long-term advances to joint ventures	(7,499		)		—				(24,959		)
Net cash used in investing activities	(46,133		)		(157,742		)		(301,161		)
Cash flows from financing activities:
Proceeds from issuance of senior notes	1,888,197				—				—
Proceeds from borrowings of other long-term debt	—				117,000				—
Repayments of long-term debt	(6,017		)		(135,733		)		(14,390		)
Other (repayments) borrowings, net	(5,825		)		398,544				(49,421		)
Dividends paid to shareholders	(84,102		)		(78,107		)		(69,113		)
Dividends paid to noncontrolling interests	(15,535		)		(10,014		)		(7,628		)
Repurchases of common stock	(150,000		)		(582,298		)		(63,575		)
Proceeds from exercise of stock options	2,713				5,553				21,148
Excess tax benefits realized from stock-based compensation arrangements	826				3,266				14,809
Withholding taxes paid on stock-based compensation award distributions	(3,284		)		(6,149		)		(9,124		)
Debt financing costs	(17,644		)		(108		)		—
Net cash provided by (used in) financing activities	1,609,329				(288,046		)		(177,294		)
Net effect of foreign exchange on cash and cash equivalents	(43,276		)		12,472				(2,031		)
Increase (decrease) in cash and cash equivalents	2,012,529				(457		)		8,280
Cash and cash equivalents at end of year	$	2,489,768			$	477,239			$	477,696

See accompanying notes to the consolidated financial statements.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—Summary of Significant Accounting Policies:

Basis of Consolidation

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

Organizational Realignment

Effective January 1, 2014, the Company’s assets and businesses were realigned under two operating segments. The Performance Chemicals segment includes the Fire Safety Solutions, Specialty Chemicals and Fine Chemistry Services product categories, and the Catalyst Solutions segment includes the Refinery Catalyst Solutions and Performance Catalyst Solutions product categories. Throughout this document, including these consolidated financial statements and related footnotes, current and prior year financial information is presented as if there were only two reporting segments for all periods presented.

Discontinued Operations

Long-lived assets and asset groups are classified as held for sale and reported as discontinued operations in the periods in which the specific criteria are met in accordance with applicable accounting standards.

On September 1, 2014, the Company closed the sale of its antioxidant, ibuprofen and propofol businesses and assets to SI Group, Inc. and, as such, the financial results of the disposed group have been presented as discontinued operations in the consolidated statements of income and excluded from segment results for all periods presented. See Note 2, “Discontinued Operations” for additional information.

Estimates, Assumptions and Reclassifications

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

Certain amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to the current presentation.

Revenue Recognition

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

Performance and Life Cycle Guarantees

We provide customers certain performance guarantees and life cycle guarantees. These guarantees entitle the customer to claim compensation if the product does not conform to performance standards originally agreed upon. Performance guarantees relate to minimum technical specifications that products produced with the delivered product must meet, such as yield and product quality. Life cycle guarantees relate to minimum periods for which performance of the delivered product is guaranteed. When either performance guarantees or life cycle guarantees are contractually agreed upon, an assessment of the appropriate revenue recognition treatment is evaluated. When testing or modeling of historical results predict that the performance or life cycle criteria will be satisfied, revenue is recognized in accordance with shipping terms at the time of delivery. When testing or modeling of historical results predict that the performance or life cycle criteria may not be satisfied, we bill the customer upon

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

shipment and defer the related revenue and cost associated with these products. These deferrals are released to earnings when the contractual period expires, and are generally not significant.

Shipping and Handling Costs

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

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with insignificant interest rate risks and original maturities of three months or less.

Inventories

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

Property, Plant and Equipment

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

The Company records depreciation and amortization in its consolidated statements of income primarily in Cost of goods sold, with minor amounts also recorded in Selling, general and administrative expenses and Research and development expenses depending on the functional utilization of the related assets. Depreciation is computed by the straight-line method based on the estimated useful lives of the assets. We have a policy where our internal engineering group provides asset life guidelines for book purposes. These guidelines are reviewed against the economic life of the business for each project and asset life is determined as the lesser of the manufacturing life or the “business” life. The engineering guidelines are reviewed periodically.

We evaluate historical and expected undiscounted operating cash flows of our reporting units to determine the future recoverability of any property, plant and equipment recorded. Property, plant and equipment is re-evaluated whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

The costs of brine wells, leases and royalty interests are primarily amortized over the estimated average life of the field on a straight-line basis. On a yearly basis for all fields, this approximates a units-of-production method based upon estimated reserves and production volumes.

Investments

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

Certain mutual fund investments are accounted for as trading equities and are marked-to-market on a monthly basis through the consolidated statements of income. Investments in joint ventures and nonmarketable securities of immaterial

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

entities are estimated based upon the overall performance of the entity where financial results are not available on a timely basis.

Environmental Compliance and Remediation

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

Research and Development Expenses

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

Goodwill and Other Intangible Assets

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

We test goodwill for impairment by comparing the estimated fair value of our reporting units to the related carrying value. We estimate the fair value based on present value techniques involving future cash flows. Future cash flows include assumptions for sales volumes, selling prices, raw material prices, labor and other employee benefit costs, capital additions and other economic or market related factors. Significant management judgment is involved in estimating these variables and they include inherent uncertainties since they are forecasting future events. We use a Weighted Average Cost of Capital (“WACC”) approach to determine our discount rate for goodwill recoverability testing. Our WACC calculation incorporates industry-weighted average returns on debt and equity from a market perspective. The factors in this calculation are largely external to our company, and therefore, are beyond our control. We test our recorded goodwill balances for impairment in the fourth quarter of each year or upon the occurrence of events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts. The Company performed its annual goodwill impairment test as of October 31, 2014 and concluded there was no impairment as of that date.

Definite-lived intangible assets, such as purchased technology, patents, customer lists and trade names are amortized over their estimated useful lives, generally for periods ranging from five to twenty-five years. We continually evaluate the reasonableness of the useful lives of these assets and test for impairment in accordance with current accounting guidance. See Note 11, “Goodwill and Other Intangibles.”

Pension Plans and Other Postretirement Benefits

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

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

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

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

During 2014, we made changes to the assumptions related to the discount rate and mortality scales. We consider available information that we deem relevant when selecting each of these assumptions.

In selecting the discount rates for the U.S. plans, we consider expected benefit payments on a plan-by-plan basis. As a result, the Company uses different discount rates for each plan depending on the demographics of participants and the expected timing of benefit payments. For 2014, the discount rates were calculated using the results from a bond matching technique developed by Milliman, which matched the future estimated annual benefit payments of each respective plan against a portfolio of bonds of high quality to determine the discount rate. We believe our selected discount rates are determined using preferred methodology under authoritative accounting guidance and accurately reflect market conditions as of the December 31, 2014 measurement date.

In selecting the discount rates for the foreign plans, we relied on Aon Hewitt methods, including the Aon Hewitt Top-Quartile and a yield curve derived from fixed-income security yields. The yield curve is generally based on a universe containing Aa-graded corporate bonds in the Euro zone without special features or options, which could affect the duration. In some countries, the yield curve is based on local government bond rates with a premium added to reflect corporate bond risk. Payments we expect to be made from our retirement plans are applied to the resulting yield curve. For each plan, the discount rate was developed as the level equivalent rate that would produce the same present value as that using spot rates aligned with the projected benefit payments.

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

In October 2014, the Society of Actuaries published updated mortality tables which reflect increased life expectancy. We revised our mortality assumptions to incorporate the new set of mortality tables issued by the Society of Actuaries for purposes of measuring our U.S. pension and OPEB obligations at December 31, 2014.

Employee Savings Plans

Certain of our employees participate in our defined contribution 401(k) employee savings plan, which is generally available to all U.S. full-time salaried and non-union hourly employees and to employees who are covered by a collective bargaining agreement that provides for such participation. With respect to our foreign subsidiaries, we have a plan in the Netherlands similar to a collective defined contribution plan.

Deferred Compensation Plan

We maintain an Executive Deferred Compensation Plan (“EDCP”) that was adopted in 2001 and subsequently amended. The purpose of the EDCP is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended to aid in attracting and retaining employees of exceptional ability by providing them with these benefits. We also maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of the EDCP, subject to the claims of our creditors in the event of our insolvency. Assets of the Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fund investments (which are accounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statements of income) and cash and cash equivalents.

Stock-based Compensation Expense

The fair value of restricted stock awards, restricted stock unit awards and performance unit awards with a service condition are determined based on the number of shares or units granted and the quoted price of our common stock on the date of grant, and the fair value of stock options is determined using the Black-Scholes valuation model. The fair value of

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

Income Taxes

We use the liability method for determining our income taxes, under which current and deferred tax liabilities and assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not.

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

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

We have designated the undistributed earnings of substantially all of our foreign operations as indefinitely invested and as a result we do not provide for deferred income taxes on the unremitted earnings of these subsidiaries. Our foreign earnings are computed under U.S. federal tax earnings and profits, or E&P, principles. In general, to the extent our financial reporting book basis over tax basis of a foreign subsidiary exceeds these E&P amounts, deferred taxes have not been provided as they are essentially permanent in duration. The determination of the amount of such unrecognized deferred tax liability is not practicable. We provide for deferred income taxes on our undistributed earnings of foreign operations that are not deemed to be indefinitely invested.

Accumulated Other Comprehensive (Loss) Income

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

Foreign Currency Translation

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

Foreign exchange transaction losses were $3.7 million, $10.6 million and $4.9 million for the years ended December 31, 2014, 2013 and 2012, respectively, and are included in Other (expenses) income, net, in our consolidated statements of income.

Derivative Financial Instruments

We manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies and through the use of foreign currency forward contracts from time to time, which generally expire within one year. The principal objective of such contracts is to minimize the financial impact of changes in foreign currency exchange rates. While these contracts are subject to fluctuations in value, such fluctuations are generally expected to be offset by changes in the value of the underlying foreign currency exposures being hedged. Unless otherwise noted, gains and losses on foreign currency

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

forward contracts are recognized currently in Other (expenses) income, net, and generally do not have a significant impact on results of operations.

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

The counterparties to these contractual agreements are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties. We do not utilize financial instruments for trading or other speculative purposes. At December 31, 2014 and 2013, we had outstanding foreign currency forward contracts with notional values totaling $479.9 million and $321.4 million, respectively. Our foreign currency forward contracts outstanding at December 31, 2014 and 2013 have not been designated as hedging instruments under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging.

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that requires entities that have obligations resulting from joint and several liability arrangements and for which the total amount is fixed at the reporting date to measure such obligations as the sum of (a) the amount the entity agreed to pay on the basis of its arrangement among its co-obligors, and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. Entities are also required to disclose the nature, amount and any other relevant information about such obligations. These amendments became effective on January 1, 2014 and had no impact on our consolidated financial statements.

In March 2013, the FASB issued accounting guidance that clarifies a parent company’s accounting for the cumulative foreign currency translation adjustment when the parent sells a part or all of its investment in a foreign entity. The guidance clarifies that the sale of an investment in a foreign entity includes both (a) events that result in the loss of a controlling financial interest in a foreign entity, and (b) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step acquisition). Accordingly, the cumulative foreign currency translation adjustment should be released into net income upon the occurrence of those events. These amendments became effective on January 1, 2014 and had no impact on our accounting for the sale of our antioxidant, ibuprofen and propofol businesses and assets in 2014.

In July 2013, the FASB issued accounting guidance designed to reduce diversity in practice of financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These new requirements became effective on January 1, 2014 and did not have a material effect on our consolidated financial statements.

In April 2014, the FASB issued accounting guidance that changes the criteria for reporting discontinued operations and modifies related disclosure requirements to provide users of financial statements with more information about the assets, liabilities, revenues and expenses of discontinued operations. The guidance modifies the definition of discontinued operations by limiting its scope to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. Additionally, these new requirements require entities to disclose the pretax profit or loss related to disposals of significant components that do not qualify as discontinued operations. These new requirements become effective for public entities in annual periods beginning on or after December 15, 2014 and interim periods within those years. The impact of these new requirements is dependent on the nature of dispositions, if any, after adoption.

In May 2014, the FASB issued accounting guidance designed to enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that revenue recognized from a transaction or event that arises from a contract with a customer should reflect the consideration to which an entity expects to be entitled in exchange for goods or services provided. To achieve that core principle the new guidance sets forth a five-step revenue recognition model that will need to be applied consistently to all contracts with customers, except those that are within the scope of other topics in the ASC. Also required are new disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. The new disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized related to the costs to obtain or fulfill a contract. These new requirements become effective for annual and interim reporting periods beginning after December 15, 2016, and early adoption is prohibited. We are assessing the impact of these new requirements on our financial statements.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In June 2014, the FASB issued accounting guidance which clarifies the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The accounting guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. These new requirements become effective for annual and interim reporting periods beginning after December 15, 2015, and early adoption is permitted. We do not expect this guidance to have a significant impact on our financial statements.

In February 2015, the FASB issued accounting guidance that changes the analysis that reporting entities must perform to determine whether certain types of legal entities should be consolidated. Specifically, the amendments affect (a) limited partnerships and similar legal entities; (b) the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships; and (c) certain investment funds. These amendments are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We are assessing the impact of these amendments on our financial statements.

NOTE 2—Discontinued Operations:

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

	Year Ended December 31,
	2014				2013				2012
Net sales	$	154,273			$	222,146			$	226,266
(Loss) income from discontinued operations	$	(90,439	)		$	5,985			$	6,381
Income tax (benefit) expense	(20,908		)		1,877				2,100
(Loss) income from discontinued operations (net of tax)	$	(69,531	)		$	4,108			$	4,281

Included in (Loss) income from discontinued operations for the year ended December 31, 2014 are pre-tax charges of $85.5 million ($65.7 million after income taxes) related to the loss on the sale of the disposed group, representing the difference between the carrying value of the related assets and their fair value as determined by the sales price less estimated costs to sell. The loss is primarily attributable to the write-off of goodwill, intangibles and long-lived assets, net of cumulative foreign currency translation gains of $17.8 million.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3—Supplemental Cash Flow Information:

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

	Year Ended December 31,
	2014				2013				2012
Cash paid during the year for:
Income taxes (net of refunds of $6,035, $14,296 and $1,849 in 2014, 2013 and 2012, respectively)	$	56,174			$	51,772			$	112,442
Interest (net of capitalization)	$	33,604			$	29,629			$	31,144
Supplemental non-cash disclosures related to exit of phosphorus flame retardants business:
Decrease in property, plant and equipment	$	—			$	—			$	(41,120	)
Decrease in accumulated depreciation	—				—				(17,870		)
Decrease in other intangibles, net of amortization	—				—				(27,384		)
Increase in accumulated other comprehensive income	—				—				12,268
Supplemental non-cash disclosures related to defined benefit pension plan net curtailment gain:
Decrease in accumulated other comprehensive income	$	—			$	—			$	(4,507	)
Supplemental non-cash disclosures related to other restructuring charges:
Decrease in property, plant and equipment	$	—			$	—			$	(5,002	)
Decrease in accumulated depreciation	—				—				(1,588		)

NOTE 4—Earnings Per Share:

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

	Year Ended December 31,
	2014				2013				2012
Basic earnings per share from continuing operations
Numerator:
Net income from continuing operations	$	230,437			$	435,726			$	325,846
Net income from continuing operations attributable to noncontrolling interests	(27,590		)		(26,663		)		(18,591		)
Net income from continuing operations attributable to Albemarle Corporation	$	202,847			$	409,063			$	307,255
Denominator:
Weighted-average common shares for basic earnings per share	78,696				83,839				89,189
Basic earnings per share from continuing operations	$	2.57			$	4.88			$	3.44
Diluted earnings per share from continuing operations
Numerator:
Net income from continuing operations	$	230,437			$	435,726			$	325,846
Net income from continuing operations attributable to noncontrolling interests	(27,590		)		(26,663		)		(18,591		)
Net income from continuing operations attributable to Albemarle Corporation	$	202,847			$	409,063			$	307,255
Denominator:
Weighted-average common shares for basic earnings per share	78,696				83,839				89,189
Incremental shares under stock compensation plans	406				483				695
Weighted-average common shares for diluted earnings per share	79,102				84,322				89,884
Diluted earnings per share from continuing operations	$	2.57			$	4.85			$	3.42

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company’s policy on how to determine windfalls and shortfalls for purposes of calculating assumed stock award proceeds under the treasury stock method when determining the denominator for diluted earnings per share is to exclude the impact of pro forma deferred tax assets (i.e. the windfall or shortfall that would be recognized in the financial statements upon exercise of the award). At December 31, 2014, there were 662,259 common stock equivalents not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Included in the calculation of basic earnings per share are unvested restricted stock awards that contain nonforfeitable rights to dividends. At December 31, 2014, there were 5,600 unvested shares of restricted stock awards outstanding.

We have the authority to issue 15 million shares of preferred stock in one or more classes or series. As of December 31, 2014, no shares of preferred stock have been issued.

On October 13, 2011, our Board of Directors authorized an increase in the number of shares the Company is permitted to repurchase under our share repurchase program up to a maximum of five million shares. On February 12, 2013, our Board of Directors authorized another increase in the number of shares the Company is permitted to repurchase under our share repurchase program, pursuant to which the Company is now permitted to repurchase up to a maximum of fifteen million shares, including those shares previously authorized but not yet repurchased.

Under its existing Board authorized share repurchase program, on May 9, 2013, the Company entered into an accelerated share repurchase (“ASR”) agreement with JPMorgan Chase Bank, National Association (“JPMorgan”), acting through its agent J.P. Morgan Securities LLC, relating to a fixed-dollar, uncollared ASR program. Pursuant to the terms of the agreement, JPMorgan immediately borrowed shares of Albemarle common stock that were sold to the Company, thereby decreasing the Company’s issued and outstanding shares (with no change to its authorized shares). On May 10, 2013, the Company paid $450 million to JPMorgan and received an initial delivery of 5,680,921 shares with a fair market value of approximately $360 million. This purchase was funded through a combination of available cash on hand and debt. The Company determined that the ASR agreement met the criteria to be accounted for as a forward contract indexed to its stock and was therefore treated as an equity instrument. Under the terms of the agreement, on December 19, 2013, the transaction was completed and we received a final settlement of 1,384,011 shares, calculated based on the daily Rule 10b-18 volume-weighted average prices of the Company’s common stock over the term of the agreement, less a forward price adjustment amount of approximately $1.01. The total number of shares repurchased under this agreement (7,064,932 shares) reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share during the year ended December 31, 2013.

Under its existing Board authorized share repurchase program, on February 3, 2014, the Company entered into an ASR agreement with Merrill Lynch International (“Merrill Lynch”), acting through its agent Merrill Lynch, Pierce, Fenner and Smith Incorporated, relating to a fixed-dollar, uncollared ASR program pursuant to which we purchased $50 million of our common stock from Merrill Lynch in two $25 million tranches. Pursuant to the terms of the agreement, Merrill Lynch immediately borrowed shares of Albemarle common stock that were sold to the Company, thereby decreasing the Company’s issued and outstanding shares (with no change to its authorized shares). On February 3, 2014, the Company paid $50 million to Merrill Lynch and received an initial delivery of 623,248 shares of our common stock with a fair market value of approximately $40 million. This purchase was funded with cash on hand. The Company determined that the ASR agreement with Merrill Lynch met the criteria to be accounted for as a forward contract indexed to its stock and was therefore treated as an equity instrument. Under the terms of the agreement, on April 30, 2014, the transaction was completed and we received a final settlement of 150,504 shares, calculated based on the daily Rule 10b-18 volume-weighted average prices of the Company’s common stock over the term of the agreement, less a forward price adjustment amount of approximately $0.77. The total number of shares repurchased under this agreement (773,752 shares) reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share during the year ended December 31, 2014.

Under its existing Board authorized share repurchase program, on April 30, 2014, the Company entered into an ASR agreement with JPMorgan relating to a fixed-dollar, uncollared ASR program pursuant to which we purchased $100 million of our common stock from JPMorgan in two $50 million tranches. Pursuant to the terms of the agreement, JPMorgan immediately borrowed shares of Albemarle common stock that were sold to the Company, thereby decreasing the Company’s issued and outstanding shares (with no change to its authorized shares). On May 1, 2014, the Company paid $100 million to JPMorgan and received an initial delivery of 1,193,317 shares of our common stock with a fair market value of approximately $80 million. This purchase was funded with cash on hand and commercial paper notes. The Company determined that this agreement met the criteria to be accounted for as a forward contract indexed to its stock and was therefore treated as an equity instrument. Under the terms of the agreement, on November 17, 2014, the transaction was completed and we received a final settlement of 223,185 shares which was calculated generally based on the daily Rule 10b-18 volume-weighted average prices of the Company’s common stock over the term of the agreement. The total number of shares repurchased under this agreement

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(1,416,502 shares) reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share during the year ended December 31, 2014.

During the years ended December 31, 2014, 2013 and 2012, the Company repurchased 2,190,254, 9,198,056 and 1,092,767 shares of its common stock, respectively, pursuant to the terms of its share repurchase program. As of December 31, 2014, there were 3,749,340 remaining shares available for repurchase under the Company’s authorized share repurchase program.

NOTE 5—Other Accounts Receivable:

Other accounts receivable consist of the following at December 31, 2014 and 2013 (in thousands):

	December 31,
	2014				2013
Value added tax/consumption tax	$	23,205			$	21,956
Other	26,218				23,138
Total	$	49,423			$	45,094

NOTE 6—Inventories:

Approximately 28% of our inventories are valued using the last-in, first-out (“LIFO”) method at December 31, 2014 and 2013. The portion of our domestic inventories stated on the LIFO basis amounted to $100.7 million and $121.9 million at December 31, 2014 and 2013, respectively, which are below replacement cost by approximately $43.0 million and $41.7 million, respectively.

NOTE 7—Other Current Assets:

Other current assets consist of the following at December 31, 2014 and 2013 (in thousands):

	December 31,
	2014				2013
Deferred income taxes—current(a)	$	1,801			$	3,912
Income tax receivables	22,837				26,310
Prepaid expenses	41,448				47,447
Total	$	66,086			$	77,669

(a)	See Note 19, “Income Taxes.”

NOTE 8—Property, Plant and Equipment:

Property, plant and equipment, at cost, consist of the following at December 31, 2014 and 2013 (in thousands):

		Useful Lives (Years)		December 31,
2014				2013
Land		—		$	56,249			$	63,153
Land improvements		5 – 30		49,099				52,452
Buildings and improvements		10 – 45		214,364				235,929
Machinery and equipment(a)		2 – 19		1,443,154				1,731,247
Machinery and equipment (major plant components)(b)		20 – 45		663,297				688,284
Long-term mineral rights and production equipment costs		7 – 60		85,888				85,514
Construction in progress		—		108,619				115,505
Total				$	2,620,670			$	2,972,084

(a)	Consists primarily of (1) short-lived production equipment components, office and building equipment and other equipment with estimated lives ranging 2 – 7 years, and (2) production process equipment (intermediate components) with estimated lives ranging 8 – 19 years.

(b)	Consists primarily of (1) production process equipment (major unit components) with estimated lives ranging 20 – 29 years, and (2) production process equipment (infrastructure and other) with estimated lives ranging 30 – 45 years.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The cost of property, plant and equipment is depreciated generally by the straight-line method. Depreciation expense amounted to $97.9 million, $99.3 million and $88.3 million during the years ended December 31, 2014, 2013 and 2012, respectively. Depreciation expense related to discontinued operations was $2.3 million, $8.6 million and $8.7 million during the years ended December 31, 2014, 2013 and 2012, respectively. Interest capitalized on significant capital projects in 2014, 2013 and 2012 was $2.4 million, $6.1 million and $5.8 million, respectively.

In 2014, we sold our antioxidant, ibuprofen and propofol businesses and assets to SI Group, Inc. Included in the transaction were our manufacturing sites in Orangeburg, South Carolina and Jinshan, China, along with our antioxidant product lines manufactured in Ningbo, China. In connection with the sale, net property, plant and equipment was reduced by $100.0 million. See Note 2 “Discontinued Operations” for additional information about this transaction.

In 2012, we announced our plan to exit the phosphorus flame retardants business, whose products were sourced mainly at our Avonmouth, United Kingdom and Nanjing, China manufacturing sites. In connection with our exit of this business, net property, plant and equipment was written down by $30.9 million, and in the fourth quarter of 2012 we received cash proceeds of $7.7 million from the sale of our Nanjing, China manufacturing site, which resulted in the recognition of a gain of approximately $2 million. See Note 3 “Supplemental Cash Flow Information” and Note 20 “Restructuring and Other” for additional details about our exit of the phosphorus flame retardants business.

In the fourth quarter of 2012, we received proceeds of $1.9 million in connection with the sale of land adjacent to our regional offices in Belgium.

NOTE 9—Investments:

Investments include our share of unconsolidated joint ventures, nonmarketable securities and marketable equity securities. The following table details our investment balances at December 31, 2014 and 2013 (in thousands).

		December 31,
		2014				2013
Joint ventures		$	169,891			$	187,843
Nonmarketable securities		177				534
Marketable equity securities		23,974				23,801
Total		$	194,042			$	212,178

Our ownership positions in significant unconsolidated investments are shown below:

			December 31,
			2014			2013			2012
*		Nippon Aluminum Alkyls - a joint venture with Mitsui Chemicals, Inc. that produces aluminum alkyls	50	%		50	%		50	%
*		Magnifin Magnesiaprodukte GmbH & Co. KG - a joint venture with Radex Heraklith Industriebeteiligung AG that produces specialty magnesium hydroxide products	50	%		50	%		50	%
*		Nippon Ketjen Company Limited - a joint venture with Sumitomo Metal Mining Company Limited that produces refinery catalysts	50	%		50	%		50	%
*		Eurecat S.A. - a joint venture with IFP Investissements for refinery catalysts regeneration services	50	%		50	%		50	%
*		Fábrica Carioca de Catalisadores S.A. - a joint venture with Petrobras Quimica S.A. - PETROQUISA that produces catalysts and includes catalysts research and product development activities	50	%		50	%		50	%
*		Stannica, LLC - a joint venture with PMC Group, Inc. that produces tin stabilizers	50	%		50	%		50	%

Our investment in the significant unconsolidated joint ventures above amounted to $154.4 million and $172.9 million as of December 31, 2014 and 2013, respectively, and the amount included in Equity in net income of unconsolidated investments (net of tax) in the consolidated statements of income totaled $35.4 million, $31.5 million and $37.0 million for the years ended December 31, 2014, 2013 and 2012, respectively. Undistributed earnings attributable to our significant unconsolidated investments represented approximately $112.9 million and $117.1 million of our consolidated retained earnings at December 31, 2014 and 2013, respectively. All of the unconsolidated joint ventures in which we have investments are private companies and accordingly do not have a quoted market price available.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

		December 31,
		2014				2013
Summary of Balance Sheet Information:
Current assets		$	246,795			$	313,446
Noncurrent assets		181,509				198,776
Total assets		$	428,304			$	512,222
Current liabilities		$	81,613			$	100,469
Noncurrent liabilities		63,585				77,734
Total liabilities		$	145,198			$	178,203

		Year Ended December 31,
		2014				2013				2012
Summary of Statements of Income Information:
Net sales		$	609,728			$	598,459			$	601,233
Gross profit		$	167,156			$	169,406			$	165,650
Income before income taxes		$	102,764			$	101,652			$	105,329
Net income		$	72,247			$	71,294			$	71,561

We have evaluated each of the unconsolidated investments pursuant to current accounting guidance and none qualify for consolidation. Dividends received from our significant unconsolidated investments were $39.6 million, $20.5 million and $25.6 million in 2014, 2013 and 2012, respectively.

At December 31, 2014 and 2013, the carrying amount of our investments in unconsolidated joint ventures exceeded the amount of underlying equity in net assets by approximately $7.0 million and $8.4 million, respectively. These amounts represent the differences between the value of certain assets of the joint ventures and our related valuation on a U.S. GAAP basis. As of December 31, 2014 and 2013, $1.0 million and $1.4 million, respectively, remained to be amortized over the remaining useful lives of the assets with the balance of the difference representing primarily our share of the joint ventures’ goodwill.

The carrying value of our unconsolidated investment in Stannica LLC, a variable interest entity for which we are not the primary beneficiary, was $6.2 million and $5.5 million at December 31, 2014 and 2013, respectively. Our maximum exposure to loss in connection with our continuing involvement with Stannica LLC is limited to our investment carrying value.

Assets of the Benefit Protection Trust, in conjunction with our EDCP, are accounted for as trading securities in accordance with authoritative accounting guidance. The assets of the Trust consist primarily of mutual fund investments and are marked-to-market on a monthly basis through the consolidated statements of income. As of December 31, 2014 and 2013, these marketable securities amounted to $22.2 million and $23.0 million, respectively.

During the year ended December 31, 2012, we and our joint venture partner each advanced $22.5 million to our 50%-owned joint venture, Saudi Organometallic Chemicals Company (“SOCC”), pursuant to a long-term loan arrangement. Our loan bears quarterly interest at the London Inter-Bank Offered Rate (“LIBOR”) plus 1.275% per annum (1.53% and 1.52% as of December 31, 2014 and 2013, respectively), with interest receivable on a semi-annual basis on January 1 and July 1. Principal repayments on amounts outstanding under this arrangement are required as mutually agreed upon by the joint venture partners, but with any outstanding balances receivable in full no later than December 31, 2021. The recorded value of this receivable approximates fair value as it bears interest based on prevailing variable market rates. We and our joint venture partner also each advanced 28.1 million Riyals (approximately $7.5 million at December 31, 2014) to SOCC during the year ended December 31, 2014, pursuant to a long-term loan arrangement. During the year ended December 31, 2012, we and our joint venture partner each advanced €1.9 million (approximately $2.3 million and $2.6 million at December 31, 2014 and 2013, respectively) to our 50%-owned joint venture, Eurecat S.A., pursuant to a long-term loan arrangement. These loans have been recorded in Other assets in our consolidated balance sheets at December 31, 2014 and 2013.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10—Other Assets:

Other assets consist of the following at December 31, 2014 and 2013 (in thousands):

	December 31,
	2014				2013
Deferred income taxes—noncurrent(a)	$	62,440			$	65,667
Assets related to unrecognized tax benefits(a)	22,100				25,730
Long-term advances to joint ventures(b)	34,084				25,124
Deferred financing costs(c)	23,583				4,150
Other	18,749				39,558
Total	$	160,956			$	160,229

(a)	See Note 19, “Income Taxes.”

(b)	See Note 9, “Investments.”

(c)	See Note 13, “Long-Term Debt.”

NOTE 11—Goodwill and Other Intangibles:

Goodwill and other intangibles consist principally of goodwill, customer lists, trade names, patents and other intangibles.

The following table summarizes the changes in goodwill by operating segment for the years ended December 31, 2014 and 2013 (in thousands):

	Performance Chemicals				Catalyst Solutions				Total
Balance at December 31, 2012	$	43,519			$	233,447			$	276,966
Foreign currency translation adjustments	84				7,153				7,237
Balance at December 31, 2013	43,603				240,600				284,203
Divestitures(a)	—				(15,088		)		(15,088		)
Foreign currency translation adjustments	(1,321		)		(24,532		)		(25,853		)
Balance at December 31, 2014	$	42,282			$	200,980			$	243,262

(a)	In 2014 we reduced Catalyst Solutions segment goodwill by $15.1 million in connection with the sale of our antioxidant, ibuprofen and propofol businesses and assets which closed on September 1, 2014. See Note 2 “Discontinued Operations” for additional information about this transaction.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Other intangibles consist of the following at December 31, 2014 and 2013 (in thousands):

	Customer Lists and Relationships				Trade Names (a)				Patents and Technology				Land Use Rights				Manufacturing Contracts and Supply/Service Agreements				Other				Total
Gross Asset Value
Balance at December 31, 2012	$	85,167			$	26,943			$	47,876			$	6,203			$	8,523			$	23,412			$	198,124
Foreign currency translation adjustments and other	1,259				(36		)		867				173				(185		)		216				2,294
Balance at December 31, 2013	86,426				26,907				48,743				6,376				8,338				23,628				200,418
Acquisitions (b)	—				—				5,228				—				—				—				5,228
Divestitures (c)	(34,892		)		(8,171		)		(11,316		)		(4,929		)		(4,474		)		(4,758		)		(68,540		)
Foreign currency translation adjustments and other	(3,055		)		(1,181		)		(2,257		)		(40		)		—				(700		)		(7,233		)
Balance at December 31, 2014	$	48,479			$	17,555			$	40,398			$	1,407			$	3,864			$	18,170			$	129,873
Accumulated Amortization
Balance at December 31, 2012	$	(31,484	)		$	(8,486	)		$	(38,778	)		$	(1,079	)		$	(6,512	)		$	(17,321	)		$	(103,660	)
Amortization	(4,332		)		(995		)		(797		)		(166		)		(647		)		(1,129		)		(8,066		)
Foreign currency translation adjustments and other	(172		)		511				(779		)		(23		)		185				(211		)		(489		)
Balance at December 31, 2013	(35,988		)		(8,970		)		(40,354		)		(1,268		)		(6,974		)		(18,661		)		(112,215		)
Amortization	(2,839		)		(824		)		(388		)		(42		)		(368		)		(1,276		)		(5,737		)
Divestitures (c)	14,487				1,539				5,738				(100		)		4,164				1,756				27,584
Foreign currency translation adjustments and other	1,409				343				2,173				3				—				692				4,620
Balance at December 31, 2014	$	(22,931	)		$	(7,912	)		$	(32,831	)		$	(1,407	)		$	(3,178	)		$	(17,489	)		$	(85,748	)
Net Book Value at December 31, 2013	$	50,438			$	17,937			$	8,389			$	5,108			$	1,364			$	4,967			$	88,203
Net Book Value at December 31, 2014	$	25,548			$	9,643			$	7,567			$	—			$	686			$	681			$	44,125

(a)	Trade names include a gross carrying amount of $9.2 million for an indefinite-lived intangible asset.

(b)	Increase in Patents and Technology relates to a purchase accounting adjustment in connection with our acquisition of Cambridge Chemical Company, Ltd.

(c)	In 2014 we reduced intangible assets by $68.5 million and related accumulated amortization by $27.6 million in connection with the sale of our antioxidant, ibuprofen and propofol businesses and assets which closed on September 1, 2014. See Note 2 “Discontinued Operations” for additional information about this transaction.

Useful lives range from 15 – 25 years for customer lists and relationships; 11 years for trade names; 17 – 20 years for patents and technology; 6 years for manufacturing contracts and supply/service agreements; and 5 – 15 years for other.

Amortization of other intangibles amounted to $5.7 million, $8.1 million and $10.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. Amortization of other intangibles related to discontinued operations was $0.9 million, $3.5 million and $3.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. Total estimated amortization expense of other intangibles for the next five fiscal years is as follows (in thousands):

	Estimated Amortization Expense
2015	$	3,482
2016	$	3,050
2017	$	2,858
2018	$	2,682
2019	$	2,567

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12—Accrued Expenses:

Accrued expenses consist of the following at December 31, 2014 and 2013 (in thousands):

	December 31,
	2014				2013
Employee benefits, payroll and related taxes	$	49,072			$	42,035
Taxes other than income taxes and payroll taxes	10,101				9,747
Deferred revenue	10,370				17,896
Deferred income taxes—current(a)	6,806				2,853
Accrued sales commissions	7,768				7,241
Accrued interest payable	13,212				7,716
Accrued utilities	7,510				8,608
Reduction in force accruals(b)	4,039				39,104
Aluminum alkyl supply capacity reduction(b)	15,777				—
Other	41,519				41,216
Total	$	166,174			$	176,416

(a)	See Note 19, “Income Taxes.”

(b)	See Note 20, “Restructuring and Other.”

NOTE 13—Long-Term Debt:

Long-term debt consists of the following at December 31, 2014 and 2013 (in thousands):

	December 31,
	2014				2013
1.875% Senior notes, net of unamortized discount of $6,605 at December 31, 2014	$	844,315			$	—
3.00% Senior notes, net of unamortized discount of $306 at December 31, 2014	249,694				—
4.15% Senior notes, net of unamortized discount of $1,439 at December 31, 2014	423,561				—
4.50% Senior notes, net of unamortized discount of $1,871 at December 31, 2014 and $2,186 at December 31, 2013	348,129				347,814
5.10% Senior notes, net of unamortized discount of $3 at December 31, 2014 and $36 at December 31, 2013	324,997				324,964
5.45% Senior notes, net of unamortized discount of $1,029 at December 31, 2014	348,971				—
Commercial paper notes	367,178				363,000
Fixed rate foreign borrowings	1,958				7,879
Variable-rate foreign bank loans	25,139				34,910
Miscellaneous	189				297
Total long-term debt	2,934,131				1,078,864
Less amounts due within one year	711,096				24,554
Long-term debt, less current portion	$	2,223,035			$	1,054,310

Aggregate annual maturities of long-term debt as of December 31, 2014 are as follows (in millions): 2015—$711.1; 2016—$0.0; 2017—$0.0; 2018—$0.0; 2019—$258.3; thereafter—$1,975.9.

Senior Notes

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

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

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

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

The net proceeds from the 2014 Senior Notes, together with borrowings from our Commercial Paper Notes, Term Loan and Cash Bridge Facility (each as defined below) were used to finance the cash portion of the consideration for the acquisition of Rockwood Holdings, Inc. (“Rockwood”) which closed on January 12, 2015, pay fees and expenses related to the acquisition, repay the 5.10% senior notes on February 1, 2015, with the remainder, if any, to be used for general corporate purposes. For additional information about the acquisition of Rockwood, see “Subsequent Event—Acquisition of Rockwood Holdings, Inc.” within Note 23, “Acquisitions.”

Our $325.0 million aggregate principal amount of senior notes, issued on January 20, 2005, bore interest at a rate of 5.10% payable semi-annually on February 1 and August 1 of each year. The effective interest rate on these senior notes was approximately 5.19%. These senior notes matured and were repaid on February 1, 2015. As a result of the refinancing of these senior notes prior to December 31, 2014, these senior notes were included in Current portion of long-term debt at December 31, 2014.

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

In anticipation of refinancing our 5.10% senior notes in the fourth quarter of 2014, on January 22, 2014, we entered into a pay fixed, receive variable rate forward starting interest rate swap with J.P. Morgan Chase Bank, N.A., to be effective October 15, 2014. Our risk management objective and strategy for undertaking this hedge was to eliminate the variability in the interest rate and partial credit spread on the 20 future semi-annual coupon payments that we will pay in connection with our 4.15% senior notes. The notional amount of the swap was $325.0 million and the fixed rate was 3.281%, with the cash settlement determined by reference to the changes in the U.S. dollar 3-month LIBOR and credit spreads from the date we entered into the swap until the date the swap was settled (October 15, 2014). This derivative financial instrument was designated and accounted for as a cash flow hedge under ASC 815, Derivatives and Hedging. We determined there was no ineffectiveness during the term of the swap. On October 15, 2014, the swap was settled, resulting in a payment to the counterparty of $33.4 million. This amount was recorded in Accumulated other comprehensive (loss) income and is being amortized to interest expense over the life of the 4.15% senior notes. The amount to be reclassified to interest expense from Accumulated other comprehensive (loss) income during the next twelve months is approximately $3.3 million.

In connection with the offering of the 1.875% Euro-denominated senior notes which were priced on December 1, 2014, we entered into two forward contracts on November 24, 2014, each with a notional value of €350.0 million, to exchange a total of €700.0 million for U.S. dollars, with settlement occurring on December 18, 2014, and with the total notional value representing an amount equivalent to the gross proceeds from the offering of the 1.875% Euro-denominated senior notes. The objective of entering into these forward contracts was to minimize the financial impact of changes in the Euro-to-U.S. Dollar exchange rate with respect to our foreign subsidiaries where the Euro serves as the functional currency. From the effective date of the contracts until the date of settlement, the forward contracts were designated as effective hedges of our net investment in these foreign subsidiaries. Upon settlement, a gain of $5.2 million was recorded in accumulated other comprehensive (loss) income, and such amount is expected to remain in accumulated other comprehensive (loss) income until the complete or substantially complete liquidation of our investment in these foreign subsidiaries. On December 18, 2014, the carrying value of the 1.875% Euro-denominated senior notes was designated as an effective hedge of our net investment in foreign subsidiaries where the Euro serves as the functional currency, and beginning on the date of designation, gains or losses on the revaluation of these senior notes to our reporting currency have been and will be recorded in accumulated other comprehensive (loss) income. During the year ended December 31, 2014, a gain of $12.8 million was recorded in accumulated other comprehensive (loss) income in connection with the revaluation of these senior notes to our reporting currency.

Credit Agreement

On February 7, 2014, we entered into a new $750.0 million credit facility. The five-year, revolving, unsecured credit agreement (hereinafter referred to as the February 2014 Credit Agreement) matures on February 7, 2019 and replaced our previous $750.0 million amended and restated credit agreement dated as of September 22, 2011. Borrowings bear interest at variable rates based on the LIBOR for deposits in the relevant currency plus an applicable margin which ranges from 0.900% to

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.500%, depending on the Company’s credit rating from Standard & Poor’s Ratings Services (“S&P”) and Moody’s Investors Services (“Moody’s”). The applicable margin on the facility was 1.300% as of December 31, 2014.

Borrowings under the February 2014 Credit Agreement are conditioned upon compliance with the following covenants: (a) consolidated funded debt, as defined in the agreement, must be less than or equal to 3.50 times consolidated EBITDA, as defined in the agreement, (which reflects adjustments for certain non-recurring or unusual items such as restructuring charges, facility divestiture charges and other significant non-recurring items), or herein “consolidated adjusted EBITDA,” as of the end of any fiscal quarter; (b) with the exception of certain liens as specified in the agreement, liens may not attach to assets when the aggregate amount of all indebtedness secured by such liens plus unsecured subsidiary indebtedness, other than indebtedness incurred by our subsidiaries under the February 2014 Credit Agreement, would exceed 20% of consolidated net worth, as defined in the agreement; and (c) with the exception of certain indebtedness as specified in the agreement, subsidiary indebtedness may not exceed the difference between 20% of consolidated net worth, as defined in the agreement, and indebtedness secured by liens permitted under the agreement.

On August 15, 2014, certain amendments were made to the February 2014 Credit Agreement which include the following: (a) an increase in the maximum leverage ratio (as described above) from 3.50 to 4.50 for the first four quarters following the completion of the acquisition of Rockwood, stepping down by 0.25 on a quarterly basis thereafter until reaching 3.50; (b) modification of the indebtedness covenant to permit the incurrence of indebtedness represented by Rockwood’s former senior notes due in 2020; and (c) requiring subsidiaries of Albemarle that guarantee Rockwood’s former senior notes or that guarantee the 2014 Senior Notes to also guarantee the February 2014 Credit Agreement.

On December 22, 2014, the February 2014 Credit Agreement was further amended to provide for, among other things, an increase in the aggregate commitments under the facility to $1.0 billion. As of December 31, 2014, there were no borrowings outstanding under the February 2014 Credit Agreement.

Commercial Paper Notes

On May 29, 2013, we entered into agreements to initiate a commercial paper program on a private placement basis under which we may issue unsecured commercial paper notes (the “Commercial Paper Notes”) from time-to-time up to a maximum aggregate principal amount outstanding at any time of $750.0 million. The proceeds from the issuance of the Commercial Paper Notes are expected to be used for general corporate purposes, including the repayment of other debt of the Company. Our February 2014 Credit Agreement is available to repay the Commercial Paper Notes, if necessary. Aggregate borrowings outstanding under the February 2014 Credit Agreement and the Commercial Paper Notes will not exceed the $1.0 billion current maximum amount available under the February 2014 Credit Agreement. The Commercial Paper Notes will be sold at a discount from par, or alternatively, will be sold at par and bear interest at rates that will vary based upon market conditions at the time of issuance. The maturities of the Commercial Paper Notes will vary but may not exceed 397 days from the date of issue. The definitive documents relating to the commercial paper program contain customary representations, warranties, default and indemnification provisions. At December 31, 2014, we had $367.2 million of Commercial Paper Notes outstanding bearing a weighted-average interest rate of approximately 0.79% and a weighted-average maturity of 25 days. In order to maintain flexibility with regard to our liquidity strategy, in the second quarter of 2014 the Commercial Paper Notes were reclassified from Long-term debt to Current portion of long-term debt.

Term Loan and Bridge Financing

On August 15, 2014, we entered into a term loan credit agreement (the “Term Loan”) providing for a tranche of senior unsecured term loans in an aggregate amount of $1.0 billion. Amounts borrowed under the Term Loan were used as short-term borrowings to fund a portion of the cash consideration payable in connection with the acquisition of Rockwood and pay related fees and expenses. Borrowings bear interest at variable rates based on an average LIBOR for deposits in dollars plus an applicable margin which ranges from 1.125% to 2.000%, depending on our credit rating from S&P and Moody’s. As of December 31, 2014, the applicable margin over LIBOR was 1.500%. Term Loan borrowings are guaranteed by the subsidiaries of Albemarle that guarantee Rockwood’s former senior notes or that guarantee the 2014 Senior Notes. The Term Loan matures 364 days following the date of funding, which occurred on January 12, 2015. Borrowings are conditioned upon compliance with one financial covenant which requires that our maximum leverage ratio must be less than or equal to 4.50 times consolidated adjusted EBITDA as of the end of any fiscal quarter. As of December 31, 2014, there were no borrowings outstanding under the Term Loan.

On July 15, 2014, we entered into a commitment letter (the “Commitment Letter”) with Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Commitment Letter provided for the following, if needed: (a) a senior unsecured cash bridge facility (the “Cash Bridge Facility”) in an aggregate principal amount of up to $1.15 billion; and (b) a

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

senior unsecured bridge facility, which was subsequently eliminated upon the attainment of permanent financing in the form of the Term Loan and the 2014 Senior Notes.

On December 2, 2014, we entered into a new senior unsecured credit facility agreement documenting the Cash Bridge Facility pursuant to which the lenders thereunder will provide up to $1.15 billion in loans. The Cash Bridge Facility is guaranteed by each of the Company’s subsidiaries that guarantee the February 2014 Credit Agreement. Amounts borrowed under the Cash Bridge Facility were used as short-term borrowings to fund a portion of the cash consideration payable in connection with the acquisition of Rockwood and pay related fees and expenses, and mature 60 days following the completion of Rockwood acquisition, which occurred on January 12, 2015. The interest rate on amounts outstanding will be either (a) LIBOR, or (b) an alternate base rate (defined as the highest of (i) Bank of America’s prime rate, (ii) the Federal Funds rate plus 0.50% and (iii) a daily rate equal to one-month LIBOR plus 1.00%), plus, in each case, an applicable margin based on our credit rating. As of December 31, 2014, there were no borrowings outstanding under the Cash Bridge Facility.

Structuring and underwriting fees of approximately $19.0 million were paid in 2014 in connection with the bridge facilities, and are reflected in Other, net, in our consolidated statements of cash flows. These costs were capitalized and we expense them over the term of the facilities or until the date at which permanent financing is obtained and the facilities are eliminated. Accordingly, we recorded approximately $16.7 million of expense in 2014, which is reflected in Other (expenses) income, net, in the consolidated statements of income and Other, net, in our consolidated statements of cash flows.

Financing Costs

Debt financing costs incurred and paid in 2014 were $18.9 million and $17.6 million, respectively, in connection with the 2014 Senior Notes, Term Loan and February 2014 Credit Agreement.

Other

We have additional credit lines in the U.S. with financial institutions that provide for borrowings under uncommitted credit lines up to a maximum of $60.0 million. There were no outstanding borrowings under these agreements at either December 31, 2014 or December 31, 2013. The average interest rate on borrowings under these agreements during 2013 and 2012 was 0.89% and 1.49%, respectively.

We have an agreement with a foreign bank that provides immediate U.S Dollar or Euro-denominated borrowings under uncommitted credit lines up to a maximum of $48.0 million or the Euro equivalent. At December 31, 2014 and 2013, there were no outstanding borrowings under this agreement.

One of our foreign subsidiaries has agreements with several foreign banks, which provide immediate borrowings under uncommitted credit lines up to a maximum of 4.5 billion Japanese Yen (approximately $37.3 million at December 31, 2014, based on applicable exchange rates). At December 31, 2014 and 2013 there were outstanding borrowings of $8.3 million and $16.4 million, respectively, under these agreements. The weighted average interest rate on borrowings under these agreements during 2014 and 2013 was 0.50% and 0.52%, respectively (there were no borrowings in 2012).

Certain of our remaining foreign subsidiaries have additional agreements with foreign institutions that provide immediate uncommitted credit lines, on a short term basis, up to an aggregate maximum of approximately $67.8 million, of which $60.0 million supports foreign subsidiaries based in China. We have guaranteed these agreements. At December 31, 2014 and 2013, there were no outstanding borrowings under these agreements.

At December 31, 2014 and 2013, we had the ability and intent to refinance our borrowings under our other existing credit lines with borrowings under the February 2014 Credit Agreement. Therefore, the amounts outstanding under those credit lines, if any, are classified as long-term debt at December 31, 2014 and 2013. At December 31, 2014, we had the ability to borrow $632.8 million under our commercial paper program and the February 2014 Credit Agreement.

Our consolidated joint venture, Jordan Bromine Company Limited (“JBC”), has foreign currency denominated debt, which amounted to $18.8 million and $26.4 million at December 31, 2014 and 2013, respectively, and principally includes (i) foreign plant-related construction borrowings maturing in April 2015 amounting to $2.0 million and $7.9 million at December 31, 2014 and 2013, respectively, which bore interest at rates ranging from 2.09% to 5.5% at December 31, 2014, and (ii) short-term borrowings of $16.8 million and $18.5 million at December 31, 2014 and 2013, respectively, bearing interest at 1.47% as of December 31, 2014. At December 31, 2014, JBC had additional borrowing capacity of approximately $7.6 million.

We believe that as of December 31, 2014, we were, and currently are, in compliance with all of our debt covenants.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14—Other Noncurrent Liabilities:

Other noncurrent liabilities consist of the following at December 31, 2014 and 2013 (in thousands):

	December 31,
	2014				2013
Liabilities related to uncertain tax positions(a)	$	25,340			$	29,834
Executive deferred compensation plan obligation	22,168				23,030
Deferred revenue—long-term	2,010				2,444
Environmental liabilities(b)	4,841				9,213
Asset retirement obligations(b)	15,085				16,930
Other	18,261				29,159
Total	$	87,705			$	110,610

(a)	See Note 19, “Income Taxes.”

(b)	See Note 16, “Commitments and Contingencies.”

NOTE 15—Stock-based Compensation Expense:

Incentive Plans

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

We granted 222,939, 297,924 and 263,200 stock options during 2014, 2013 and 2012, respectively. There were no significant modifications made to any share-based grants during these periods.

On April 20, 2010, the maximum number of shares available for issuance to participants under the Albemarle Corporation 2008 Incentive Plan (the “Incentive Plan”) increased by 4,470,000 shares to 7,470,000 shares. With respect to any awards, other than stock options or SARs, the number of shares available for awards under the Incentive Plan were reduced by 1.6 shares for each share covered by such award or to which such award related. Effective May 7, 2013, the Albemarle Corporation 2008 Stock Compensation Plan for Non-Employee Directors and the 1996 Directors’ Deferred Compensation Plan (as amended and restated in 2005) were merged into the Albemarle Corporation 2013 Stock Compensation and Deferral Election Plan for Non-Employee Directors (the “Non-Employee Directors Plan”). Under the Non-Employee Directors Plan, a maximum aggregate number of 500,000 shares of our common stock is authorized for issuance to the Company’s non-employee directors; any shares remaining available for issuance under the prior plans were canceled. The aggregate fair market value of shares that may be issued to a director during any compensation year (as defined in the agreement, generally July 1 to June 30) shall not exceed $150,000. At December 31, 2014, there were 3,032,741 shares available for grant under the Incentive Plan and 473,000 shares available for grant under the Non-Employee Directors Plan.

Total stock-based compensation expense associated with our incentive plans for the years ended December 31, 2014, 2013 and 2012 amounted to $14.3 million, $10.2 million and $15.2 million, respectively, and is included in cost of goods sold and selling, general and administrative (“SG&A”) expenses on the consolidated statements of income. Total related recognized tax benefits for the years ended December 31, 2014, 2013 and 2012 amounted to $5.2 million, $3.7 million and $5.6 million, respectively.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about the Company’s fixed-price stock options as of and for the year ended December 31, 2014:

	Shares			Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2013	1,369,116			$	47.55			7.0		$	22,795
Granted	222,939			63.84
Exercised	(77,546	)		34.99
Forfeited	(26,133	)		64.93
Expired	(4,133	)		62.60
Outstanding at December 31, 2014	1,484,243			$	50.30			6.5		$	17,887
Exercisable at December 31, 2014	958,599			$	42.33			5.4		$	17,887

The fair value of each option granted during the years ended December 31, 2014, 2013 and 2012 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2014				2013				2012
Dividend yield	1.71		%		1.58		%		1.59		%
Volatility	33.03		%		33.55		%		34.04		%
Average expected life (years)	6				6				6
Risk-free interest rate	2.94		%		2.18		%		2.05		%
Fair value of options granted	$	19.56			$	19.73			$	20.00

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

The intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $2.4 million, $7.0 million and $37.4 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

Total compensation cost not yet recognized for nonvested stock options outstanding as of December 31, 2014 is approximately $6.8 million and is expected to be recognized over a remaining weighted-average period of 2.4 years. Cash proceeds from stock options exercised and tax benefits related to stock options exercised were $2.7 million and $0.8 million for the year ended December 31, 2014, respectively. The Company issues new shares of common stock upon exercise of stock options and vesting of restricted common stock awards.

The following table summarizes activity in performance unit awards as of and for the year ended December 31, 2014:

	Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested, beginning of period	371,403			$	63.08
Granted	300,644			66.83
Vested	(116,620	)		58.02
Forfeited	(99,409	)		65.97
Nonvested, end of period	456,018			66.21

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The weighted average grant date fair value of performance unit awards granted in 2014, 2013 and 2012 was $20.1 million, $16.9 million and $19.7 million, respectively. Performance units awarded in 2013 include shares with a weighted average grant date fair value of $6.3 million related to awards granted in 2011 that earned at a rate of 200% based upon the achievement of specific performance criteria. Performance units awarded in 2012 include shares with a weighted average grant date fair value of $8.9 million related to awards granted in 2011 and 2010 that earned at a rate of 200% based upon the achievement of specific performance criteria.

The weighted average fair value of performance unit awards that vested during 2014, 2013 and 2012 was $7.4 million, $14.5 million and $18.3 million, respectively, based on the closing prices of our common stock on the dates of vesting. Total compensation cost not yet recognized for nonvested performance unit awards outstanding as of December 31, 2014 is approximately $13.4 million, calculated based on current expectation of specific performance criteria, and is expected to be recognized over a remaining weighted-average period of approximately 1.5 years. Each performance unit represents one share of common stock.

The following table summarizes activity in non-performance based restricted stock and restricted stock unit awards as of and for the year ended December 31, 2014:

	Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested, beginning of period	111,195			$	59.32
Granted	44,811			60.96
Vested	(32,850	)		60.75
Forfeited	(17,868	)		48.93
Nonvested, end of period	105,288			61.34

The weighted average grant date fair value of restricted stock and restricted stock unit awards granted in 2014, 2013 and 2012 was $2.7 million, $3.4 million and $2.9 million, respectively. The weighted average fair value of restricted stock and restricted stock unit awards that vested in 2014, 2013 and 2012 was $2.1 million, $3.2 million and $7.4 million, respectively, based on the closing prices of our common stock on the dates of vesting. Total compensation cost not yet recognized for nonvested, non-performance based restricted stock and restricted stock units as of December 31, 2014 is approximately $3.2 million and is expected to be recognized over a remaining weighted-average period of 2.0 years. The fair value of the non-performance based restricted stock and restricted stock units was estimated on the date of grant adjusted for a dividend factor, if necessary.

NOTE 16—Commitments and Contingencies:

In the ordinary course of business, we have commitments in connection with various activities, the most significant of which are as follows:

Environmental

We had the following activity in our recorded environmental liabilities for the years ended December 31, 2014, 2013 and 2012 (in thousands):

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Year Ended December 31,
	2014				2013				2012
Balance, beginning of year	$	16,599			$	20,322			$	12,359
Expenditures	(4,548		)		(3,013		)		(1,451		)
Divestitures	(1,954		)		—				—
Changes in estimates recorded to earnings and other	34				(902		)		227
Exit of phosphorus flame retardants business	—				—				8,700
Foreign currency translation	(896		)		192				487
Balance, end of year	9,235				16,599				20,322
Less amounts reported in Accrued expenses	4,394				7,386				3,109
Amounts reported in Other noncurrent liabilities	$	4,841			$	9,213			$	17,213

The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normal course of our operational and environmental management activities or at the time of acquisition of the site, and are based on internal analysis as well as input from outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatory requirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will be determined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, management estimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our past operations, in excess of amounts already recorded, could be up to approximately $12 million before income taxes.

Approximately $5.1 million of our recorded liability is related to the closure and post-closure activities at a former landfill associated with our Bergheim, Germany site, 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 2017, 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. In connection with the remediation activities at our Bergheim, Germany site as required by the German environmental authorities, we have pledged certain of our land and housing facilities at this site which has an estimated fair value of $5.4 million.

During the second quarter of 2012, the Company recorded $8.7 million in estimated site remediation liabilities at our Avonmouth, United Kingdom site as part of the charges associated with our exit of the phosphorus flame retardant business. Included in these estimated charges are anticipated costs of site investigation, remediation and cleanup activities. Remediation activities at this site were substantially completed in 2014.

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.

Rental Expense

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

	Minimum Operating Lease Payments
2015	$	8,045
2016	$	5,674
2017	$	4,638
2018	$	2,551
2019	$	2,029
Thereafter	$	4,036

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Rental expense was approximately $31.9 million, $30.7 million, and $33.1 million for 2014, 2013 and 2012, respectively. Rental expense related to discontinued operations was approximately $1.3 million, $1.6 million and $1.4 million for 2014, 2013 and 2012, respectively. Rental expense is shown net of rental income which was minimal during 2014, 2013 and 2012.

Litigation

On July 3, 2006, we received a Notice of Violation (the “2006 NOV”) from the U.S. Environmental Protection Agency Region 4 (“EPA”) regarding the implementation of the Pharmaceutical Maximum Achievable Control Technology standards at our former plant in Orangeburg, South Carolina. The alleged violations involved (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. In the second quarter of 2011, the Company was served with a complaint by the EPA in the U.S. District Court for the District of South Carolina, based on the alleged violations set out in the 2006 NOV seeking civil penalties and injunctive relief. The complaint was subsequently amended to add the State of South Carolina as a plaintiff. On June 11, 2014, we entered into a consent decree with the EPA and the South Carolina Department of Health and Environmental Control (“DHEC”) to settle this matter. Pursuant to the consent decree, in 2014 we paid a civil penalty to the EPA in the amount of approximately $332,000. A civil penalty of approximately $112,000 was waived pursuant to the consent decree and we will not be required to pay this amount to the DHEC.

In addition, we are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.

Also see Note 23, “Acquisitions” for a discussion about litigation matters in connection with the Acquisition of Rockwood.

Other

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

	2015				2016				2017				2018				2019				Thereafter
Letters of credit and other guarantees	$	17,774			$	3,528			$	4,011			$	1,187			$	14			$	3,629

The outstanding letters of credit are primarily related to insurance claim payment guarantees with expiration dates ranging from 2015 to 2022. The majority of the Company’s other guarantees have terms of one year and mainly consist of performance and environmental guarantees, as well as guarantees to customs and port authorities. The guarantees arose during the ordinary course of business.

We do not have recorded reserves for the letters of credit and guarantees as of December 31, 2014. We are unable to estimate the maximum amount of the potential future liability under guarantees and letters of credit. However, we accrue for any potential loss for which we believe a future payment is probable and a range of loss can be reasonably estimated. We believe our liability under such obligations is immaterial.

Our estimated asset retirement obligations associated with certain property and equipment were $15.1 million and $16.9 million at December 31, 2014 and 2013, respectively. We have not recognized conditional asset retirement obligations for which a fair value cannot be reasonably estimated in our consolidated financial statements. It is the opinion of our management that the possibility is remote that such conditional asset retirement obligations, when estimable, will have a material adverse impact on our consolidated financial statements based on current costs.

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

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17—Accumulated Other Comprehensive (Loss) Income:

The components and activity in Accumulated other comprehensive (loss) income consisted of the following during the years ended December 31, 2014, 2013 and 2012 (in thousands):

	Foreign Currency Translation(a)				Pension and Post-Retirement Benefits(b)				Net Investment Hedge(c)				Interest Rate Swap(d)				Other				Total
Balance at December 31, 2011	$	56,245			$	5,060			$	—			$	—			$	(976	)		$	60,329
Current period change	26,846				(6,533		)		—				—				212				20,525
Tax benefit (expense)	2,026				2,462				—				—				(78		)		4,410
Balance at December 31, 2012	85,117				989				—				—				(842		)		85,264
Current period change	29,539				(781		)		—				—				214				28,972
Tax benefit (expense)	1,809				279				—				—				(79		)		2,009
Balance at December 31, 2013	116,465				487				—				—				(707		)		116,245
Current period change	(163,456		)		(772		)		17,971				(33,091		)		217				(179,131		)
Tax benefit (expense)	(5,273		)		285				(6,587		)		12,129				(81		)		473
Balance at December 31, 2014	$	(52,264	)		$	—			$	11,384			$	(20,962	)		$	(571	)		$	(62,413	)

(a)

Current period change for the year ended December 31, 2012 includes $12.3 million related to a non-cash write-off of foreign currency translation adjustments from Accumulated other comprehensive (loss) income in connection with our exit of the phosphorus flame retardants business. See Note 20, “Restructuring and Other.” Current period change for the year ended December 31, 2014 includes $17.8 million related to a non-cash write-off of foreign currency translation adjustments from Accumulated other comprehensive (loss) income in connection with the sale of our antioxidant, ibuprofen and propofol businesses and assets which closed on September 1, 2014. See Note 2, “Discontinued Operations.”

(b)

Current period change for the year ended December 31, 2012 includes $6.5 million related to a supplemental executive retirement plan settlement in connection with the retirement of our former CEO and executive chairman, and ($4.5) million related to various amendments to certain of our U.S. pension and defined contribution plans that were approved by our Board of Directors in the fourth quarter of 2012.

(c)

Current period change for the year ended December 31, 2014 includes $12.8 million related to the revaluation of our euro-denominated senior notes and a $5.2 million gain on the settlement of related foreign currency forward contracts, both of which were designated as a hedge of our net investment in foreign operations. See Note 13, “Long-Term Debt” for additional information about these transactions.

(d)	Current period change for the year ended December 31, 2014 includes a realized loss of ($33.4) million on the settlement of our forward starting interest rate swap which was designated and accounted for as a cash flow hedge under ASC 815, Derivatives and Hedging. See Note 13, “Long-Term Debt” for additional information about this interest rate swap.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In accordance with accounting guidance issued by the FASB in February 2013 which became effective for us in the first quarter of 2013 on a prospective basis, below is information about amounts reclassified from accumulated other comprehensive (loss) income, net of deferred income taxes, for the years ended December 31, 2014 and 2013 (in thousands):

	Foreign Currency Translation(a)				Pension and Post-Retirement Benefits(b)				Net Investment Hedge				Interest Rate Swap(c)				Other				Total
Accumulated other comprehensive income (loss) - balance at December 31, 2012	$	85,117			$	989			$	—			$	—			$	(842	)		$	85,264
Other comprehensive income (loss) before reclassifications	31,704				—				—				—				(2		)		31,702
Amounts reclassified from accumulated other comprehensive income (loss)	—				(502		)		—				—				137				(365		)
Other comprehensive income (loss), net of tax	31,704				(502		)		—				—				135				31,337
Other comprehensive income attributable to noncontrolling interests	(356		)		—				—				—				—				(356		)
Accumulated other comprehensive income (loss) - balance at December 31, 2013	$	116,465			$	487			$	—			$	—			$	(707	)		$	116,245
Other comprehensive (loss) income before reclassifications	(151,059		)		—				11,384				(21,174		)		—				(160,849		)
Amounts reclassified from accumulated other comprehensive income (loss)	(17,750		)		(487		)		—				212				136				(17,889		)
Other comprehensive (loss) income, net of tax	(168,809		)		(487		)		11,384				(20,962		)		136				(178,738		)
Other comprehensive loss attributable to noncontrolling interests	80				—				—				—				—				80
Accumulated other comprehensive (loss) income - balance at December 31, 2014	$	(52,264	)		$	—			$	11,384			$	(20,962	)		$	(571	)		$	(62,413	)

(a)

Amounts reclassified from accumulated other comprehensive income (loss) for the year ended December 31, 2014 are included in (Loss) income from discontinued operations (net of tax) and resulted from the release of cumulative foreign currency translation adjustments into earnings upon the sale of our antioxidant, ibuprofen and propofol businesses and assets which closed on September 1, 2014. See Note 2, “Discontinued Operations.”

(b)	The pre-tax portion of amounts reclassified from accumulated other comprehensive (loss) income consists of amortization of prior service benefit, which is a component of pension and postretirement benefits cost (credit). See Note 18, “Pension Plans and Other Postretirement Benefits.”

(c)	The pre-tax portion of amounts reclassified from accumulated other comprehensive (loss) income is included in interest expense. See Note 13, “Long-Term Debt.”

NOTE 18—Pension Plans and Other Postretirement Benefits:

We have certain noncontributory defined benefit pension plans covering certain U.S., German and Japanese employees. We also have a contributory defined benefit plan covering certain Belgian employees. The benefits for these plans are based primarily on compensation and/or years of service. The funding policy for each plan complies with the requirements of relevant governmental laws and regulations. The pension information for all periods presented includes amounts related to salaried and hourly plans.

Our U.S. defined benefit plan for non-represented employees was closed to new participants effective March 31, 2004. On October 1, 2012, our Board of Directors approved certain plan amendments, such that effective December 31, 2014, no additional benefits shall accrue under this plan and participants’ accrued benefits shall be frozen as of that date. In addition, for participants who retire on or after December 31, 2012 and before December 31, 2013, final average earnings shall be determined as of December 31, 2012. For participants who retire on or after December 31, 2013 and before December 31, 2014, final average earnings shall be determined as of December 31, 2013. And for participants who retire on or after December 31, 2014, final average earnings shall be determined as of December 31, 2014. In addition to freezing the accrued benefits as of December 31, 2014, our Board of Directors also authorized application of a higher benefit formula for calculating accrued

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

benefits in 2013 and 2014 only, as well as including an offset factor that would be applied to accrued benefits earned in 2013 and 2014. In connection with the plan amendments approved on October 1, 2012, we recorded a net curtailment gain of $4.5 million, which is included in Restructuring and other charges, net, on our consolidated statements of income for the year ended December 31, 2012.

On March 31, 2004, a new defined contribution pension plan benefit was adopted under the qualified defined contribution plan for U.S. non-represented employees hired after March 31, 2004. On October 1, 2012 our Board of Directors approved certain plan amendments, such that effective January 1, 2013, the defined contribution pension plan benefit is expanded to include non-represented employees hired prior to March 31, 2004, and revised the contribution for all participants to be based on 5% of eligible employee compensation. Furthermore, our Board of Directors approved a one-time contribution to be made in December 2012 for active participants still in the U.S. defined benefit plan; the one-time contribution, in the amount of $10.1 million, was made into the defined contribution pension plan and into the EDCP for the amount of the one-time contribution that exceeded U.S. Internal Revenue Service (“IRS”) limits. The employer portion of contributions to our U.S. defined contribution pension plan amounted to $8.4 million, $8.8 million, and $14.8 million (including the one-time contribution made in the fourth quarter of 2012) in 2014, 2013 and 2012, respectively.

Pension coverage for the employees of our other foreign subsidiaries is provided through separate plans. The plans are funded in conformity with the funding requirements of applicable governmental regulations. The pension cost, actuarial present value of benefit obligations and plan assets for all plans are combined in the other pension disclosure information presented.

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

	Year Ended December 31, 2014								Year Ended December 31, 2013
	Total Pension Benefits				Domestic Pension Benefits				Total Pension Benefits				Domestic Pension Benefits
Change in benefit obligations:
Benefit obligation at January 1	$	678,582			$	629,337			$	762,395			$	714,158
Service cost	8,775				7,029				13,962				12,177
Interest cost	32,062				30,491				29,883				28,406
Actuarial loss (gain)	141,228				130,887				(88,392		)		(85,774		)
Benefits paid	(41,779		)		(37,866		)		(41,132		)		(39,630		)
Divestitures(a)	(30,226		)		(30,226		)		—				—
Employee contributions	283				—				320				—
Foreign exchange (gain) loss	(6,161		)		—				1,546				—
Benefit obligation at December 31	$	782,764			$	729,652			$	678,582			$	629,337
Change in plan assets:
Fair value of plan assets at January 1	$	616,545			$	605,604			$	563,303			$	554,179
Actual return on plan assets	54,195				53,696				83,853				83,499
Employer contributions	9,982				7,042				9,790				7,556
Benefits paid	(41,779		)		(37,866		)		(41,132		)		(39,630		)
Divestitures(a)	(30,226		)		(30,226		)		—				—
Employee contributions	283				—				320				—
Foreign exchange (loss) gain	(1,306		)		—				411				—
Fair value of plan assets at December 31	$	607,694			$	598,250			$	616,545			$	605,604
Funded status at December 31	$	(175,070	)		$	(131,402	)		$	(62,037	)		$	(23,733	)

(a)	Reduction in benefit obligations and plan assets is in connection with the sale of our antioxidant, ibuprofen and propofol businesses and assets which closed on September 1, 2014. See Note 2 “Discontinued Operations” for additional information about this transaction.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	December 31, 2014								December 31, 2013
	Total Pension Benefits				Domestic Pension Benefits				Total Pension Benefits				Domestic Pension Benefits
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(4,535	)		$	(3,219	)		$	(4,390	)		$	(2,856	)
Noncurrent liabilities (pension benefits)	(170,534		)		(128,183		)		(57,647		)		(20,877		)
Net pension liability	$	(175,069	)		$	(131,402	)		$	(62,037	)		$	(23,733	)
Amounts recognized in accumulated other comprehensive (loss) income:
Prior service benefit	$	(607	)		$	(286	)		$	70			$	441
Net amount recognized	$	(607	)		$	(286	)		$	70			$	441
Weighted-average assumption percentages:
Discount rate	4.03		%		4.19		%		5.00		%		5.14		%
Rate of compensation increase	3.40		%		—		%		2.78		%		3.50		%

The accumulated benefit obligation for all defined benefit pension plans was $776.6 million and $669.1 million at December 31, 2014 and 2013, respectively.

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

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

	Year Ended December 31,
	2014				2013
	Total Other Postretirement Benefits				Total Other Postretirement Benefits
Change in benefit obligations:
Benefit obligation at January 1	$	62,832			$	70,787
Service cost	216				309
Interest cost	3,040				2,764
Actuarial loss (gain)	3,741				(6,165		)
Benefits paid	(5,329		)		(4,863		)
Benefit obligation at December 31	$	64,500			$	62,832
Change in plan assets:
Fair value of plan assets at January 1	$	5,620			$	6,611
Actual return on plan assets	214				368
Employer contributions	3,934				3,504
Benefits paid	(5,329		)		(4,863		)
Fair value of plan assets at December 31	$	4,439			$	5,620
Funded status at December 31	$	(60,061	)		$	(57,212	)

	December 31,
	2014				2013
	Total Other Postretirement Benefits				Total Other Postretirement Benefits
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(3,637	)		$	(3,309	)
Noncurrent liabilities (postretirement benefits)	(56,424		)		(53,903		)
Net postretirement liability	$	(60,061	)		$	(57,212	)
Amounts recognized in accumulated other comprehensive (loss) income:
Prior service benefit	$	334			$	429
Net amount recognized	$	334			$	429
Weighted-average assumption percentages:
Discount rate	4.15		%		5.03		%
Rate of compensation increase	3.50		%		3.50		%

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

	Year Ended								Year Ended								Year Ended
	December 31, 2014								December 31, 2013								December 31, 2012
	Total Pension Benefits				Domestic Pension Benefits				Total Pension Benefits				Domestic Pension Benefits				Total Pension Benefits				Domestic Pension Benefits
Service cost	$	8,775			$	7,029			$	13,962			$	12,177			$	12,741			$	11,274
Interest cost	32,062				30,491				29,883				28,406				31,636				29,843
Expected return on assets	(40,141		)		(39,714		)		(39,392		)		(38,975		)		(44,752		)		(44,342		)
Actuarial loss (gain)(a)	126,975				116,705				(132,916		)		(130,297		)		72,550				65,603
Amortization of prior service benefit	(677		)		(727		)		(689		)		(741		)		(757		)		(812		)
Total net pension benefits cost (credit)	$	126,994			$	113,784			$	(129,152	)		$	(129,430	)		$	71,418			$	61,566
Weighted-average assumption percentages:
Discount rate	5.00		%		5.14		%		4.04		%		4.10		%		5.04		%		5.07		%
Expected return on plan assets	6.86		%		6.91		%		7.20		%		7.25		%		8.19		%		8.25		%
Rate of compensation increase	2.78		%		3.50		%		3.37		%		3.50		%		3.96		%		4.11		%

(a)

In the second quarter of 2013, we identified that our consolidated statement of income for the year ended December 31, 2012 included a correction of $5.8 million (recorded in the second quarter of 2012) for pension plan actuarial gains that related to 2011. This amount was deemed to be not material with respect to our financial statements for the year ended December 31, 2012 and any prior period financial statements.

The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic pension costs during 2015 are as follows (in thousands):

	Total Pension Benefits				Domestic Pension Benefits
Amortization of prior service benefit	$	126			$	75

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

	Year Ended December 31,
	2014				2013				2012
	Total Other Postretirement Benefits				Total Other Postretirement Benefits				Total Other Postretirement Benefits
Service cost	$	216			$	309			$	274
Interest cost	3,040				2,764				3,172
Expected return on assets	(342		)		(413		)		(488		)
Actuarial loss (gain)(a)	3,868				(6,120		)		3,161
Amortization of prior service benefit	(95		)		(95		)		(95		)
Total net postretirement benefits cost (credit)	$	6,687			$	(3,555	)		$	6,024
Weighted-average assumption percentages:
Discount rate	5.03		%		4.00		%		5.10		%
Expected return on plan assets	7.00		%		7.00		%		7.00		%
Rate of compensation increase	3.50		%		3.50		%		4.00		%

(a)

In the second quarter of 2013, we identified that our consolidated statement of income for the year ended December 31, 2012 included a correction of $4.4 million (recorded in the second quarter of 2012) for postretirement plan actuarial gains that related to 2011. This amount was deemed to be not material with respect to our financial statements for the year ended December 31, 2012 and any prior period financial statements.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic postretirement costs during 2015 are as follows (in thousands):

	Total Other Postretirement Benefits
Amortization of prior service benefit	$	(95	)

In estimating the expected return on plan assets, consideration is given to past performance and future performance expectations for the types of investments held by the plan, as well as the expected long-term allocations of plan assets to these investments. For the years 2014 and 2013, the weighted-average expected rate of return on domestic pension plan assets was 6.91% and 7.25%, respectively. The weighted-average expected rate of return on our domestic pension plan assets is 6.89% effective January 1, 2015. The weighted-average expected rate of return on plan assets for our OPEB plans was 7.00% during 2014 and 2013. There has been no change to the assumed rate of return on OPEB plan assets effective January 1, 2015. The weighted-average expected rate of return on pension plan assets for foreign plans was 4.00% during 2014 and 2013.

In projecting the rate of compensation increase, we consider past experience in light of movements in inflation rates. At December 31, 2014, the assumed weighted-average rate of compensation increase changed to 3.40% from 2.78% for the pension plans. The assumed weighted-average rate of compensation increase was 3.50% for the OPEB plans at December 31, 2014 and 2013.

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

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

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the year ended December 31, 2014. Investments for which market quotations are readily available are valued at the closing price on the last business day of the year. Listed securities for which no sale was reported on such date are valued at the mean between the last reported bid and asked price. Securities traded in the over-the-counter market are valued at the closing price on the last business day of the year or at bid price. The net asset value of shares or units is based on the quoted market value of the underlying assets. The market value of corporate bonds is based on institutional trading lots and is most often reflective of bid price. Government securities are valued at the mean between bid and ask prices. Holdings in private equity securities are typically valued using the net asset valuations provided by the underlying private investment companies.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the assets of our pension and postretirement plans that were accounted for at fair value on a recurring basis as of December 31, 2014 (in thousands):

	December 31, 2014				Quoted Prices in Active Markets for Identical Items (Level 1)				Quoted Prices in Active Markets for Similar Items (Level 2)				Unobservable Inputs (Level 3)
Pension Assets:
Domestic Equity(a)	$	169,581			$	169,581			$	—			$	—
International Equity(b)	85,007				85,007				—				—
Fixed Income(c)	268,911				255,828				13,083				—
Absolute Return(d)	80,740				—				—				80,740
Cash	3,455				3,455				—				—
Total Pension Assets	$	607,694			$	513,871			$	13,083			$	80,740
Postretirement Assets:
Fixed Income(c)	$	4,439			$	—			$	4,439			$	—

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

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

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

(d)	Consists primarily of funds with holdings in private investment companies. See additional information about the Absolute Return investments below.

The table below sets forth a summary of changes in the fair value of the plans’ Level 3 assets for the year ended December 31, 2014 (in thousands):

Absolute Return:	Year Ended December 31, 2014
Beginning Balance	$	123,599
Total losses relating to assets sold during the period(a)	(10,112		)
Total unrealized gains relating to assets still held at the reporting date(a)	13,144
Purchases	50,506
Sales	(96,397		)
Ending Balance	$	80,740

(a)	These (losses) gains are recognized in the consolidated balance sheets and are included as changes in plan assets in the tables above.

The following table sets forth the assets of our pension and postretirement plans that were accounted for at fair value on a recurring basis as of December 31, 2013 (in thousands):

	December 31, 2013				Quoted Prices in Active Markets for Identical Items (Level 1)				Quoted Prices in Active Markets for Similar Items (Level 2)				Unobservable Inputs (Level 3)
Pension Assets:
Domestic Equity(a)	$	167,627			$	167,627			$	—			$	—
International Equity(b)	70,609				70,609				—				—
Fixed Income(c)	248,095				237,151				10,944				—
Absolute Return(d)	125,137				1,538				—				123,599
Cash	5,077				5,077				—				—
Total Pension Assets	$	616,545			$	482,002			$	10,944			$	123,599
Postretirement Assets:
Fixed Income(c)	$	5,620			$	—			$	5,620			$	—

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

(d)	Consists primarily of funds with holdings in private investment companies. See additional information about the Absolute Return investments below.

The table below sets forth a summary of changes in the fair value of the plans’ Level 3 assets for the year ended December 31, 2013 (in thousands):

Absolute Return:	Year Ended December 31, 2013
Beginning Balance	$	70,829
Total gains relating to assets sold during the period(a)	994
Total unrealized losses relating to assets still held at the reporting date(a)	(4,511		)
Purchases	76,643
Sales	(20,356		)
Ending Balance	$	123,599

(a)	These gains (losses) are recognized in the consolidated balance sheets and are included as changes in plan assets in the tables above.

The investment objective of the U.S. pension plan assets is preservation of capital while achieving solid returns. Assets should participate in rising markets, with defensive action in declining markets expected to an even greater degree. Target asset allocations include 65% in return enhancement exposure and the remaining 35% in risk management exposure. Depending on market conditions, the broad asset class targets may range up or down by approximately 10%. These asset classes include but are not limited to hedge fund of funds, bonds and other fixed income vehicles, high yield fixed income securities, equities and distressed debt. At December 31, 2014 and 2013, equity securities held by our pension and OPEB plans did not include direct ownership of Albemarle common stock.

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

We made contributions to our defined benefit pension and OPEB plans of $13.9 million, $13.3 million and $21.6 million during the years ended December 31, 2014, 2013 and 2012, respectively. Included in contributions for the year ended December 31, 2012 is a contribution of $14.1 million to our supplemental executive retirement plan (“SERP”) in connection with the retirement of our former CEO and executive chairman. We expect contributions to our domestic nonqualified and foreign qualified and nonqualified pension plans to approximate $5 million in 2015. Also, we expect to pay approximately $4 million in premiums to our U.S. postretirement benefit plan in 2015. However, we may choose to make additional voluntary pension contributions in excess of these amounts.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

	Total Pension Benefits				Domestic Pension Benefits				Total Postretirement Benefits
2015	$	41.6			$	40.1			$	5.0
2016	$	40.6			$	39.1			$	4.9
2017	$	42.5			$	40.1			$	4.6
2018	$	45.2			$	43.8			$	4.4
2019	$	43.4			$	41.9			$	4.2
2020-2024	$	230.8			$	216.7			$	19.1

We have a SERP, which provides unfunded supplemental retirement benefits to certain management or highly compensated employees. The SERP provides for incremental pension benefits to offset the limitations imposed on qualified plan benefits by federal income tax regulations. Costs (credits) relating to our SERP were $7.3 million, $(1.5) million and $10.3 million for the years ended December 31, 2014, 2013 and 2012, respectively. The projected benefit obligation for the SERP recognized in the consolidated balance sheets at December 31, 2014 and 2013 was $26.4 million and $21.8 million, respectively. The benefit expenses and obligations of this SERP are included in the tables above. Benefits of $3.2 million are expected to be paid to SERP retirees in 2015. On October 1, 2012, our Board of Directors approved amendments to the SERP, such that effective December 31, 2014, no additional benefits shall accrue under this plan and participants’ accrued benefits shall be frozen as of that date to reflect the same changes as were made under the U.S. qualified defined benefit plan. For participants who retire on or after December 31, 2012, and before December 31, 2013, final average earnings shall be determined as of December 31, 2012. For participants who retire on or after December 31, 2013 and before December 31, 2014, final average earnings shall be determined as of December 31, 2013. And for participants who retire on or after December 31, 2014, final average earnings shall be determined as of December 31, 2014. In addition to freezing the accrued benefits as of December 31, 2014, our Board of Directors also authorized the application in 2013 and 2014 of the higher benefit formula approved for the U.S. qualified defined benefit plan and an offset factor that will be applied to accrued benefits earned in 2013 and 2014.

At December 31, 2014, the assumed rate of increase in the pre-65 and post-65 per capita cost of covered health care benefits for U.S. retirees was zero as the employer-paid premium caps (pre-65 and post-65) were met starting January 1, 2013.

Employee Savings Plans

Certain of our employees participate in our defined contribution 401(k) employee savings plan, which is generally available to all U.S. full-time salaried and non-union hourly employees and to employees who are covered by a collective bargaining agreement that provides for such participation. This U.S. defined contribution plan is funded with contributions made by the participants and us. Our contributions to the 401(k) plan amounted to $10.0 million, $10.6 million and $9.5 million in 2014, 2013 and 2012, respectively. We amended our 401(k) plan in 2004 to allow pension contributions to be made by us to participants hired or rehired on or after April 1, 2004 as these participants are not eligible to participate in the Company’s defined benefit pension plan.

In 2006, we formalized a new plan in the Netherlands similar to a collective defined contribution plan. The collective defined contribution plan is supported by annuity contracts through an insurance company. The insurance company unconditionally undertakes the legal obligation to provide specific benefits to specific individuals in return for a fixed amount of premiums. Our obligation under this plan is limited to a variable calculated employer match for each participant plus an additional fixed amount of contributions to assist in covering estimated cost of living and salary increases (indexing) and administrative costs for the overall plan. We paid approximately $10.1 million, $10.3 million and $9.5 million in 2014, 2013 and 2012, respectively, in annual premiums and related costs pertaining to this plan.

Other Postemployment Benefits

Certain postemployment benefits to former or inactive employees who are not retirees are funded on a pay-as-you-go basis. These benefits include salary continuance, severance and disability health care and life insurance, which are accounted for in accordance with authoritative guidance. The accrued postemployment benefit liability was $0.8 million at December 31, 2014 and $0.8 million at December 31, 2013.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19—Income Taxes:

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

	Year Ended December 31,
	2014				2013				2012
Income from continuing operations before income taxes and equity in net income of unconsolidated investments:
Domestic	$	45,689			$	351,731			$	311,195
Foreign	167,490				186,711				57,017
Total	$	213,179			$	538,442			$	368,212
Current income tax expense:
Federal	$	36,708			$	53,953			$	67,022
State	3,209				2,195				6,107
Foreign	25,700				18,414				19,672
Total	$	65,617			$	74,562			$	92,801
Deferred income tax expense (benefit):
Federal	$	(32,890	)		$	69,817			$	928
State	(1,139		)		2,416				648
Foreign	(13,104		)		(12,350		)		(13,944		)
Total	$	(47,133	)		$	59,883			$	(12,368	)
Total income tax expense	$	18,484			$	134,445			$	80,433

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

	% of Income Before Income Taxes
	2014			2013			2012
Federal statutory rate	35.0	%		35.0	%		35.0	%
State taxes, net of federal tax benefit	0.2			0.7			1.4
Change in valuation allowance(a)	1.0			(2.2	)		3.4
Impact of foreign earnings, net(b)	(23.6	)		(10.3	)		(6.3	)
Depletion	(2.4	)		(0.9	)		(1.3	)
Revaluation of unrecognized tax benefits/reserve requirements(c)	(0.6	)		(0.1	)		(1.7	)
Domestic Manufacturing tax deduction(d)	(2.2	)		(0.9	)		(3.8	)
Undistributed earnings of foreign subsidiaries(b)	(0.3	)		2.9			(4.9	)
Other items, net	1.6			0.8			—
Effective income tax rate	8.7	%		25.0	%		21.8	%

(a)

During 2013, the Avonmouth, United Kingdom legal entity was dissolved, therefore the corresponding valuation allowance and deferred tax assets were written off. During 2012, a valuation allowance was established for $15.9 million as a result of the planned shut-down of our Avonmouth, United Kingdom legal entity in connection with our exit of the phosphorus flame retardants business. See Note 20, “Restructuring and Other.”

(b)

In prior years, we designated the undistributed earnings of substantially all of our foreign subsidiaries as indefinitely invested. The benefit of the lower tax rates in the jurisdictions for which we made this designation are reflected in our effective income tax rate. During 2014, 2013 and 2012, we received distributions of $12.6 million, $12.3 million and $56.9 million, respectively, from various foreign subsidiaries and joint ventures, and realized an expense (benefit), net of foreign tax credits, of $2.8 million, $2.4 million and $(1.8) million, respectively, related to the repatriation of these high taxed earnings. We have asserted, for all periods being reported, indefinite investment of our share of the income of JBC, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. The applicable provisions of the Jordanian law, and applicable regulations thereunder, do not have a termination provision and the exemption is indefinite. As a Free Zones company, JBC is not subject to income taxes on the profits of products exported from Jordan, and currently, substantially all of the profits are from exports. This gave us a rate benefit of 12.4%, 4.5%, and 5.8% for 2014, 2013, and 2012, respectively. The rate has also benefited from rate differences in various countries including Belgium, and the Netherlands. In

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2012, undistributed foreign subsidiary earnings were primarily impacted by a $17.4 million change related to the closure of our Avonmouth, United Kingdom site in connection with our exit of the phosphorus flame retardants business.

(c)

During 2014, we released various tax reserves primarily related to the expiration of the applicable U.S. federal statute of limitations for 2009 through 2010 which provided a net benefit of approximately $2.5 million. During 2012, we released various tax reserves primarily related to the expiration of the applicable U.S. federal statute of limitations for 2008 which provided a net benefit of $5.2 million.

(d)	During 2012, we amended the calculation of the domestic manufacturing tax deduction for the year 2010 and filed the 2011 tax return. As a result, in 2012 we recognized tax benefits of $1.5 million and $3.0 million related to the 2010 and 2011 tax years, respectively.

The deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2014 and 2013 consist of the following (in thousands):

	December 31,
	2014				2013
Deferred tax assets:
Postretirement benefits other than pensions	$	221			$	300
Accrued employee benefits	20,834				31,089
Operating loss carryovers	82,017				88,614
Pensions	79,113				37,172
Tax credit carryovers	34,469				35,170
Undistributed earnings of foreign subsidiaries	540				—
Other	21,845				15,447
Gross deferred tax assets	239,039				207,792
Valuation allowance	(30,768		)		(33,757		)
Deferred tax assets	208,271				174,035
Deferred tax liabilities:
Depreciation	(184,548		)		(213,575		)
Foreign currency translation adjustments	(4,752		)		(3,104		)
Undistributed earnings of foreign subsidiaries	—				(71		)
Other	(18,420		)		(19,747		)
Deferred tax liabilities	(207,720		)		(236,497		)
Net deferred tax assets (liabilities)	$	551			$	(62,462	)
Classification in the consolidated balance sheets:
Current deferred tax assets	$	1,801			$	3,912
Current deferred tax liabilities	(6,806		)		(2,853		)
Noncurrent deferred tax assets	62,440				65,667
Noncurrent deferred tax liabilities	(56,884		)		(129,188		)
Net deferred tax assets (liabilities)	$	551			$	(62,462	)

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

	Year Ended December 31,
	2014				2013				2012
Balance at January 1	$	(33,757	)		$	(49,562	)		$	(36,419	)
Additions	(1,895		)		(4,359		)		(20,182		)
Deductions	4,884				20,164				7,039
Balance at December 31	$	(30,768	)		$	(33,757	)		$	(49,562	)

At December 31, 2014, we had approximately $35.8 million of domestic credits available to offset future payments of income taxes, expiring in varying amounts between 2016 and 2024. We have established valuation allowances for $2.9 million of those domestic credits since we believe that it is more likely than not that the related deferred tax assets will not be realized. We believe that sufficient taxable income will be generated during the carryover period in order to utilize the other remaining credit carryovers.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2014, we have, on a pre-tax basis, $27.7 million of domestic net operating losses, expiring between 2020 and 2027, and $258.7 million of foreign net operating loss carryovers of which a majority are indefinite lived. We have established pre-tax valuation allowances for $93.1 million of those foreign net operating loss carryovers since we believe that it is more likely than not that the related deferred tax assets will not be realized. For the same reason, we established pre-tax valuation allowances for $2.5 million related to foreign deferred tax assets not related to net operating losses. The realization of the deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. Although realization is not assured, we believe it is more likely than not that the remaining deferred tax assets will be realized. However, the amount considered realizable could be reduced if estimates of future taxable income change. We believe that it is more likely than not that the Company will generate sufficient taxable income in the future to fully utilize all other deferred tax assets.

As of December 31, 2014, we have not recorded U.S. income taxes on approximately $0.9 billion of cumulative undistributed earnings of our non-U.S. subsidiaries and joint ventures, as these earnings are intended to be either indefinitely invested or subject to a tax-free liquidation and do not give rise to significant incremental U.S. taxes. If in the foreseeable future we can no longer demonstrate that these earnings are indefinitely invested, a deferred tax liability will be recognized. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable.

Liabilities related to uncertain tax positions were $25.3 million and $29.8 million at December 31, 2014 and 2013, respectively, inclusive of interest and penalties of $0.3 million and $0.7 million at December 31, 2014 and 2013, respectively, and are reported in Other noncurrent liabilities as provided in Note 14. These liabilities at December 31, 2014 and 2013 were reduced by $22.1 million and $25.7 million, respectively, for offsetting benefits from the corresponding effects of potential transfer pricing adjustments, state income taxes and rate arbitrage related to foreign structure. These offsetting benefits are recorded in Other assets as provided in Note 10. The resulting net liabilities of $2.9 million and $3.4 million at December 31, 2014 and 2013, respectively, if recognized and released, would favorably affect earnings.

The liabilities related to uncertain tax positions, exclusive of interest, were $25.0 million and $29.1 million at December 31, 2014 and 2013, respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2014, 2013 and 2012 (in thousands):

	Year Ended December 31,
	2014				2013				2012
Balance at January 1	$	29,143			$	28,398			$	29,789
Additions for tax positions related to prior years	—				—				4,242
Reductions for tax positions related to prior years	(214		)		(348		)		—
Additions for tax positions related to current year	2,232				2,061				3,639
Lapses in statutes of limitations	(5,057		)		(473		)		(10,057		)
Foreign currency translation adjustment	(1,135		)		(495		)		785
Balance at December 31	$	24,969			$	29,143			$	28,398

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. We are no longer subject to U.S. federal income tax audits by tax authorities for years prior to 2011 since the IRS has completed a review of our income tax returns through 2007 and our statute of limitations has expired for 2008 through 2010. In 2014, the IRS commenced an audit of 2011 through 2012. We also are no longer subject to any U.S. state income tax audits prior to 2010.

With respect to jurisdictions outside the U.S., we are no longer subject to income tax audits for years prior to 2006. During 2014, the German tax authorities continued the audit of two of our German subsidiaries for 2006 through 2009 that began in 2011. Additionally, we received notification from the Korean tax authorities of an audit to commence in 2015 for years 2011 through 2013 for one of our Korean subsidiaries. In January of 2015, we received notification from the Belgium tax authorities of an audit for 2012 through 2013 of one of our Belgium subsidiaries. During 2013, the Chinese tax authorities completed an audit of one of our Chinese subsidiaries for 2006 through 2010 that began in 2011. No significant tax was assessed as a result of the completed audits.

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

Since the timing of resolutions and/or closure of tax audits is uncertain, it is difficult to predict with certainty the range of reasonably possible significant increases or decreases in the liability related to uncertain tax positions that may occur within the

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

next twelve months. Our current view is that it is reasonably possible that we could record a decrease in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $0.7 million as a result of closure of tax statutes.

NOTE 20—Restructuring and Other:

Restructuring and other charges, net, reported in the consolidated statements of income for the years ended December 31, 2014, 2013 and 2012 consist of the following (in thousands):

	Year Ended December 31,
	2014				2013				2012
Charges in connection with aluminum alkyl supply capacity reduction(a)	$	23,521			$	—			$	—
Charges in connection with global business realignment(b)	—				33,361				—
Exit of phosphorus flame retardants business(c)	—				—				100,777
Defined benefit pension plan curtailment gain, net(d)	—				—				(4,507		)
Employer contribution to defined contribution plan(d)	—				—				10,081
Other, net(e)	2,426				—				5,334
Total Restructuring and other charges, net	$	25,947			$	33,361			$	111,685

(a)

In 2014, we initiated action to reduce high cost supply capacity of certain aluminum alkyl products, primarily through the termination of a third party manufacturing contract. Based on the contract termination, we estimated costs of approximately $14.0 million ($9.3 million after income taxes) in the first quarter and $6.5 million ($4.3 million after income taxes) in the fourth quarter for contract termination and volume commitments. Additionally, in the first quarter of 2014 we recorded an impairment charge of $3.0 million ($1.9 million after income taxes) for certain capital project costs also related to aluminum alkyls capacity which we do not expect to recover.

(b)

In connection with the announced realignment of our operating segments effective January 1, 2014, in the fourth quarter of 2013 we initiated a workforce reduction plan which resulted in a reduction of approximately 230 employees worldwide. In the fourth quarter of 2013 we recorded charges of $33.4 million ($21.9 million after income taxes) for termination benefits and other costs related to this workforce reduction plan. Payments under this workforce reduction plan are substantially complete.

(c)

In the second quarter of 2012, we recorded net charges amounting to $94.7 million ($73.6 million after income taxes), and in the fourth quarter we recorded net charges amounting to $6.1 million ($2.5 million after income taxes), in connection with our exit of the phosphorus flame retardants business, whose products were sourced mainly at our Avonmouth, United Kingdom and Nanjing, China manufacturing sites. The charges are comprised mainly of non-cash items consisting of net asset write-offs of approximately $57 million and write-offs of foreign currency translation adjustments of approximately $12 million, as well as accruals for future cash costs associated with related severance programs of approximately $22 million, estimated site remediation costs of approximately $9 million, other estimated exit costs of approximately $3 million, partly offset by a gain of approximately $2 million related to the sale of our Nanjing, China manufacturing site. Payments under this restructuring plan are substantially complete.

(d)

In the fourth quarter of 2012, we recorded a net curtailment gain of $4.5 million ($2.9 million after income taxes) and a one-time employer contribution to the Company’s defined contribution plan of $10.1 million ($6.4 million after income taxes), both in connection with various amendments to certain of our U.S. pension and defined contribution plans that were approved by our Board of Directors in the fourth quarter of 2012. See Note 18, “Pension Plans and Other Postretirement Benefits.”

(e)

The amount for 2014 mainly consists of $3.3 million ($2.1 million after income taxes) recorded in the second quarter for certain multi-product facility project costs that we do not expect to recover in future periods, net of other credits recorded in the fourth quarter. In the fourth quarter of 2012 we recorded charges amounting to $5.3 million ($4.3 million after income taxes) related to changes in product sourcing and other items.

We had the following activity in our recorded workforce reduction liabilities for the years ended December 31, 2014, 2013 and 2012 (in thousands):

	Year Ended December 31,
	2014				2013				2012
Balance, beginning of year	$	39,104			$	15,898			$	4,780
Workforce reduction charges(a)	1,948				33,361				21,640
Payments	(35,139		)		(8,915		)		(10,929		)
Amount reversed to income(b)	(1,200		)		(1,209		)		(45		)
Foreign currency translation	(674		)		(31		)		452
Balance, end of year	4,039				39,104				15,898
Less amounts reported in Accrued expenses	4,039				39,104				14,428
Amounts reported in Other noncurrent liabilities	$	—			$	—			$	1,470

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(a)	The year ended December 31, 2014 includes charges amounting to $1.9 million for retention of certain employees associated with our antioxidant, ibuprofen and propofol businesses which were sold effective September 1, 2014. These workforce reduction charges are recorded in (Loss) income from discontinued operations (net of tax), in our consolidated statements of income.

The year ended December 31, 2013 includes charges amounting to $33.4 million in connection with the announced realignment of our operating segments effective January 1, 2014 as described above.

The year ended December 31, 2012 includes charges amounting to $21.6 million relating to reduction in force liabilities associated with our exit of the phosphorus flame retardants business noted above.

(b)	Amounts reversed to income reflect adjustments based on actual timing and amount of final settlements.

Also, the year ended December 31, 2012 includes a gain of $8.1 million ($5.1 million after income taxes) resulting from proceeds received in connection with the settlement of certain commercial litigation (net of estimated reimbursement of related legal fees of approximately $0.9 million). The litigation involved claims and cross-claims relating to alleged breaches of a purchase and sale agreement. The settlement resolves all outstanding issues and claims between the parties and they agreed to dismiss all outstanding litigation and release all existing and potential claims against each other that were or could have been asserted in the litigation. The year ended December 31, 2012 also includes an $8 million ($5.1 million after income taxes) charitable contribution to the Albemarle Foundation, a non-profit organization that sponsors grants, health and social projects, educational initiatives, disaster relief, matching gift programs, scholarships and other charitable initiatives in locations where our employees live and operate. These items are included in our consolidated Selling, general and administrative expenses for the year ended December 31, 2012.

NOTE 21—Fair Value of Financial Instruments:

In assessing the fair value of financial instruments, we use methods and assumptions that are based on market conditions and other risk factors existing at the time of assessment. Fair value information for our financial instruments is as follows:

Long-Term Debt—the fair values of our senior notes and other fixed rate foreign borrowings are estimated using Level 1 inputs and account for the majority of the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying consolidated balance sheets approximates fair value as substantially all of such debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.

	December 31,
	2014								2013
	Recorded Amount				Fair Value				Recorded Amount				Fair Value
	(In thousands)
Long-term debt	$	2,934,131			$	2,994,935			$	1,078,864			$	1,109,878

Foreign Currency Forward Contracts—we enter into foreign currency forward contracts in connection with our risk management strategies in an attempt to minimize the financial impact of changes in foreign currency exchange rates. These derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. The fair values of our foreign currency forward contracts are estimated based on current settlement values. At December 31, 2014 and 2013, we had outstanding foreign currency forward contracts with notional values totaling $479.9 million and $321.4 million, respectively. Our foreign currency forward contracts outstanding at December 31, 2014 and 2013 have not been designated as hedging instruments under ASC 815, Derivatives and Hedging. At December 31, 2014 and 2013, $0.6 million and $0.2 million, respectively, was included in Other accounts receivable associated with the fair value of our foreign currency forward contracts.

Gains and losses on foreign currency forward contracts are recognized currently in Other (expenses) income, net; further, fluctuations in the value of these contracts are generally expected to be offset by changes in the value of the underlying exposures being hedged. For the years ended December 31, 2014, 2013 and 2012 we recognized (losses) gains of $(17.8) million, $(1.1) million and $5.1 million, respectively, in Other (expenses) income, net, in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. These amounts are generally expected to be offset by changes in the value of the underlying exposures being hedged which are also reported in Other (expenses) income, net. Also, for the years ended December 31, 2014, 2013 and 2012, we recorded $17.8 million, $1.1 million and $(5.1) million, respectively, related to the change in the fair value of our foreign currency forward contracts, and net cash settlements of $(18.3) million, $(1.8) million and $4.8 million, respectively, in Other, net in our consolidated statements of cash flows.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The counterparties to our foreign currency forward contracts are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties.

NOTE 22—Fair Value Measurement:

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

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

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the year ended December 31, 2014. The following tables set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2014 and 2013 (in thousands):

	December 31, 2014				Quoted Prices in Active Markets for Identical Items (Level 1)				Quoted Prices in Active Markets for Similar Items (Level 2)				Unobservable Inputs (Level 3)
Assets:
Investments under executive deferred compensation plan (a)	$	22,168			$	22,168			$	—			$	—
Private equity securities (b)	$	1,806			$	21			$	—			$	1,785
Foreign currency forward contracts (c)	$	631			$	—			$	631			$	—
Pension assets (d)	$	607,694			$	513,871			$	13,083			$	80,740
Postretirement assets (d)	$	4,439			$	—			$	4,439			$	—
Liabilities:
Obligations under executive deferred compensation plan (a)	$	22,168			$	22,168			$	—			$	—

	December 31, 2013				Quoted Prices in Active Markets for Identical Items (Level 1)				Quoted Prices in Active Markets for Similar Items (Level 2)				Unobservable Inputs (Level 3)
Assets:
Investments under executive deferred compensation plan (a)	$	23,030			$	23,030			$	—			$	—
Private equity securities (b)	$	771			$	21			$	—			$	750
Foreign currency forward contracts (c)	$	161			$	—			$	161			$	—
Pension assets (d)	$	616,545			$	482,002			$	10,944			$	123,599
Postretirement assets (d)	$	5,620			$	—			$	5,620			$	—
Liabilities:
Obligations under executive deferred compensation plan (a)	$	23,030			$	23,030			$	—			$	—

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(a)

We maintain an EDCP that was adopted in 2001 and subsequently amended. The purpose of the EDCP is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended to aid in attracting and retaining employees of exceptional ability by providing them with these benefits. We also maintain a Benefit Protection Trust (the “Trust”) that was created to provide a source of funds to assist in meeting the obligations of the EDCP, subject to the claims of our creditors in the event of our insolvency. Assets of the Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fund investments (which are accounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statements of income) and cash and cash equivalents. As such, these assets and obligations are classified within Level 1.

(b)

Primarily consists of private equity securities classified as available-for-sale and are reported in Investments in the consolidated balance sheets. The changes in fair value are reported in Other (expenses) income, net, in our consolidated statements of income. Holdings in private equity securities are typically valued using the net asset valuations provided by the underlying private investment companies and as such are classified within Level 3.

(c)

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

(d)	See Note 18 “Pension Plans and Other Postretirement Benefits” for further information about fair value measurements of our pension and postretirement plan assets, including the reconciliations of the plans’ Level 3 assets.

The following table presents the fair value reconciliation of private equity securities Level 3 assets measured at fair value on a recurring basis for the periods indicated:

	Year Ended December 31,
	2014				2013
Beginning balance	$	750			$	—
Total unrealized gains included in earnings relating to assets still held at the reporting date	35				—
Purchases	1,000				750
Ending balance	$	1,785			$	750

NOTE 23—Acquisitions:

Subsequent Event—Acquisition of Rockwood Holdings, Inc.

On July 15, 2014, we entered into the Merger Agreement to acquire all the outstanding shares of Rockwood (the “Merger”). On January 12, 2015 (the “Acquisition Closing Date”), we completed the acquisition of Rockwood for a purchase price of approximately $5.6 billion, comprised of approximately $3.6 billion in cash consideration and approximately $2.0 billion in equity consideration, with Rockwood becoming a wholly-owned subsidiary of Albemarle. The cash consideration was funded with proceeds from our 2014 Senior Notes, Term Loan, Cash Bridge Facility and February 2014 Credit Agreement, each of which is described further in Note 13.

Pursuant to the Merger Agreement, at the Acquisition Closing Date each issued and outstanding share of Rockwood common stock, par value $0.01 per share, (other than shares owned directly or indirectly by Albemarle, Rockwood or the Merger Sub, as defined in the Merger Agreement, and Appraisal Shares as defined in the Merger Agreement) was canceled and extinguished and converted into the right to receive (i) $50.65 in cash, without interest, and (ii) 0.4803 of a share of Albemarle common stock, par value $0.01 per share (the “Merger Consideration”). Pursuant to the Merger Agreement, equity awards relating to shares of Rockwood’s common stock were canceled and converted into the right to receive the cash value of the Merger Consideration. On the Acquisition Closing Date, we issued 34,110,008 shares of Albemarle common stock.

Included in our consolidated statement of income for the year ended December 31, 2014 are $23.6 million of acquisition and integration related costs in connection with the acquisition of Rockwood and $6.6 million of acquisition-related costs in connection with other significant projects. Acquisition-related costs incurred during the years ended December 31, 2013 and 2012 are included in SG&A expenses and were not significant.

Rockwood is a leading global developer, manufacturer and marketer of technologically advanced and high value added specialty chemicals. It is a leading integrated and low cost global producer of lithium and lithium compounds used in lithium ion batteries for electronic devices, alternative transportation vehicles and future energy storage technologies, meeting the significant growth in global demand for these products. Rockwood is also one of the largest global producers of surface

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

treatments and coatings for metal processing, servicing the automotive, aerospace and general industrial markets. The acquisition of Rockwood reflects our commitment to drive sustainable growth, creating one of the world’s premier specialty chemicals companies, with market-leading positions across four high-margin businesses: lithium, catalysts, bromine and surface treatment. On a combined basis, the Company is expected to drive growth through:

•	Continuing to penetrate lithium-based energy storage products, including e-mobility batteries and batteries for the automotive industry;

•	Capitalizing on attractive global trends in refinery catalysts, including the increasing demand for transportation fuels particularly in developing regions, as well as the demand for solutions to convert a range of feedstocks into high-value finished products;

•	Expanding within existing bromine markets driven by the proliferation of digital technology, offshore deep water drilling and mercury control emission reduction, along with growth driven by new bromine applications; and

•	Leveraging our position as a market-leading provider of surface treatment products and services to meet increasing customer demand for products with rigorous quality and performance standards and specifications.

As a result of the acquisition of Rockwood which was completed on January 12, 2015, beginning in the first quarter 2015 the Company’s consolidated results of operations will include the results of the acquired Rockwood businesses. The Company has not completed the detailed valuation work necessary to arrive at the required estimates of the fair value of the Rockwood assets acquired and liabilities assumed and the related allocation of purchase price. Our preliminary allocation of purchase price to the assets acquired and liabilities assumed, as well as pro forma financial information for the combined companies, will be included in our future filings.

Litigation Related to the Merger

On July 22, 2014, a putative class action complaint was filed in the Chancery Division of the Superior Court of New Jersey, Mercer County (“Superior Court of New Jersey”) relating to the Merger. On July 24, 2014, an additional putative class action complaint was filed in the Superior Court of New Jersey relating to the Merger. Both suits named the same plaintiff but were filed by different law firms. On August 1, 2014 and August 12, 2014, three additional putative class action complaints were filed in the Court of Chancery of the State of Delaware (“Delaware Chancery Court”) relating to the Merger. The lawsuits filed in New Jersey, Thwaites v. Rockwood Holdings Inc., et al. (“Thwaites I”), Thwaites v. Rockwood Holdings, Inc., et al. (“Thwaites II”), and the lawsuits filed in Delaware, Rudman Partners, L.P. v. Rockwood Holdings, Inc., et al., Riley v. Rockwood Holdings, Inc., et al., and North Miami Beach Police Officers & Firefighters’ Retirement Plan v. Rockwood Holdings, Inc., et al., each named Rockwood, its former directors, and Albemarle as defendants. Thwaites II and the cases filed in Delaware also named Albemarle Holdings Corporation, a wholly-owned subsidiary of Albemarle, as a defendant. The lawsuits, which contain substantially similar allegations, included allegations that Rockwood’s former board of directors breached their fiduciary duties in connection with the Merger by failing to ensure that Rockwood shareholders would receive the maximum value for their shares, failing to conduct an appropriate sale process and putting their own interests ahead of those of Rockwood shareholders. Rockwood and Albemarle are alleged to have aided and abetted the alleged fiduciary breaches. The lawsuits sought a variety of equitable relief, including enjoining the former Rockwood board of directors from proceeding with the proposed Merger unless they acted in accordance with their fiduciary duties to maximize shareholder value and rescission of the Merger to the extent implemented, in addition to damages arising from the defendants’ alleged breaches and attorneys’ fees and costs. On August 12, 2014, the plaintiff in Thwaites I filed a Notice of Voluntary Dismissal Without Prejudice as to all defendants. On August 27, 2014, the Delaware Court of Chancery ordered the three Delaware cases consolidated and appointed co-lead counsel. The court also ordered that no response to the complaints would be due until after plaintiffs filed an amended consolidated complaint. On September 19, 2014, the plaintiff in Thwaites II filed an amended complaint which included allegations that the registration statement failed to disclose material information.

Plaintiffs in Thwaites II and in the Delaware consolidated action subsequently coordinated their litigation efforts, and the Delaware consolidated action was stayed pending the outcome of the Thwaites II litigation. In Thwaites II, the parties (including the Delaware plaintiffs) entered into a Memorandum of Understanding on November 6, 2014, provisionally settling all claims in the pending actions and declaring the parties’ intent to submit a settlement agreement for the court’s approval within 90 days. On December 2, 2014, the parties submitted a joint stipulation to extend the defendants’ time to respond to the amended complaint in Thwaites II until February 4, 2015. The parties executed a final Stipulation of Settlement and Release (“Stipulation”) on February 4, 2015, which will be submitted to the Superior Court of New Jersey for approval. In addition to extinguishing the current claims, the Stipulation contemplates broad releases of any and all actual and potential claims, whether known or unknown, by any member of the putative shareholder class against the defendants relating to or arising out of the Merger, the Merger Agreement, or the registration statement. Upon final approval of the settlement by the Superior Court of New Jersey, plaintiffs in the Delaware actions will move to dismiss the pending consolidated action with prejudice, thereby terminating the litigation.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On February 19, 2015, Verition Multi-Strategy Master Fund Ltd and Verition Partners Master Fund Ltd, who collectively owned approximately 882,000 shares of Rockwood common stock immediately prior to the Merger, commenced an action in the Delaware Chancery Court seeking appraisal of their shares of Rockwood stock pursuant to Delaware General Corporation Law § 262. These shareholders exercised their right not to receive the Merger Consideration for each share of Rockwood common stock owned by such shareholders. Following the Merger, these shareholders ceased to have any rights with respect to their Rockwood shares, except for their rights to seek an appraisal of the cash value of their Rockwood shares under Delaware law. While Albemarle intends to vigorously defend against this action, the outcome of the appraisal process cannot be predicted with any certainty at this time.

Other

On October 1, 2013, we acquired Cambridge Chemical Company, Ltd., for consideration of approximately $3.6 million. Cash payments related to this acquisition were $2.3 million in 2013.

NOTE 24—Operating Segments and Geographic Area Information:

Effective January 1, 2014, the Company’s assets and businesses were realigned under two operating segments to better align the Company’s resources to support its ongoing business strategy. The Performance Chemicals segment includes the Fire Safety Solutions, Specialty Chemicals and Fine Chemistry Services product categories, consolidating our bromine, mineral and custom manufacturing assets under one business unit. The Catalyst Solutions segment includes the Refinery Catalyst Solutions and Performance Catalyst Solutions product categories. Each segment has a dedicated team of sales, research and development, process engineering, manufacturing and sourcing, and business strategy personnel and has full accountability for improving execution through greater asset and market focus, agility and responsiveness. The new structure also facilitates the continued standardization of business processes across the organization, is consistent with the manner in which information is presently used internally by the Company’s chief operating decision maker to evaluate performance and make resource allocation decisions, and each segment president is responsible for execution of the segment’s business strategy.

Segment income represents segment operating profit 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 and allocations for certain corporate costs.

Summarized financial information concerning our reportable segments is shown in the following tables. Results for all periods presented reflect the change in operating segments noted above, and segment results for all periods presented exclude discontinued operations as further described in Notes 1 and 2. Corporate & other includes corporate-related items not allocated to the reportable segments. Pension and OPEB service cost (which represents the benefits earned by active employees during the period) and amortization of prior service cost or benefit are allocated to each segment and Corporate & other, whereas the remaining components of pension and OPEB benefits cost or credit are included in Corporate & other.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Year Ended December 31,
	2014				2013				2012
					(In thousands)
Net sales:
Performance Chemicals	$	1,351,596			$	1,392,664			$	1,451,247
Catalyst Solutions	1,093,952				1,001,606				1,067,907
Total net sales	$	2,445,548			$	2,394,270			$	2,519,154
Segment operating profit:
Performance Chemicals	$	306,616			$	334,275			$	410,359
Catalyst Solutions	224,407				194,322				230,648
Total segment operating profit	531,023				528,597				641,007
Equity in net income of unconsolidated investments:
Performance Chemicals	10,068				8,875				6,416
Catalyst Solutions	25,674				22,854				31,651
Total equity in net income of unconsolidated investments	35,742				31,729				38,067
Net income attributable to noncontrolling interests:
Performance Chemicals	(27,590		)		(26,663		)		(18,571		)
Corporate & other	—				—				(20		)
Total net income attributable to noncontrolling interests	(27,590		)		(26,663		)		(18,591		)
Segment income:
Performance Chemicals	289,094				316,487				398,204
Catalyst Solutions	250,081				217,176				262,299
Total segment income	539,175				533,663				660,503
Corporate & other(a)	(203,620		)		81,439				(129,559		)
Restructuring and other charges, net(b)	(25,947		)		(33,361		)		(111,685		)
Acquisition and integration related costs(c)	(30,158		)		—				—
Interest and financing expenses	(41,358		)		(31,559		)		(32,800		)
Other (expenses) income, net	(16,761		)		(6,674		)		1,229
Income tax expense	(18,484		)		(134,445		)		(80,433		)
(Loss) income from discontinued operations (net of tax)	(69,531		)		4,108				4,281
Net income attributable to Albemarle Corporation	$	133,316			$	413,171			$	311,536

(a)	For the years ended December 31, 2014, 2013 and 2012, Corporate & other includes $(127.2) million, $143.1 million and $(68.0) million, respectively, of pension and OPEB plan (costs) credits (including mark-to-market actuarial gains and losses).

(b)	See Note 20, “Restructuring and Other.”

(c)	See Note 23, “Acquisitions.”

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	As of December 31,
	2014				2013				2012
					(In thousands)
Identifiable assets:
Performance Chemicals	$	1,042,177			$	1,129,838			$	1,110,006
Catalyst Solutions	1,375,202				1,695,120				1,572,883
Corporate & other(a)	2,805,724				759,839				754,402
Total identifiable assets	$	5,223,103			$	3,584,797			$	3,437,291
Goodwill:
Performance Chemicals	$	42,282			$	43,603			$	43,519
Catalyst Solutions	200,980				240,600				233,447
Total goodwill	$	243,262			$	284,203			$	276,966

(a)

As of December 31, 2014, Corporate & other included net proceeds received from the issuance of the 2014 Senior Notes, which, together with borrowings from our Commercial Paper Notes, Term Loan and Cash Bridge Facility, were used to finance the cash portion of the Merger Consideration, pay related fees and expenses and repay our senior notes which matured on February 1, 2015. See Note 13, “Long-Term Debt” and Note 23 “Acquisitions” for additional details about these transactions.

	Year Ended December 31,
	2014				2013				2012
					(In thousands)
Depreciation and amortization:
Performance Chemicals	$	48,233			$	43,472			$	37,831
Catalyst Solutions	49,622				49,656				47,155
Discontinued Operations	3,165				12,054				12,120
Corporate & other	2,552				2,188				1,914
Total depreciation and amortization	$	103,572			$	107,370			$	99,020
Capital expenditures:
Performance Chemicals	$	48,831			$	94,506			$	156,648
Catalyst Solutions	61,721				60,326				122,746
Corporate & other	24				514				1,479
Total capital expenditures	$	110,576			$	155,346			$	280,873

	Year Ended December 31,
	2014				2013				2012
					(In thousands)
Net Sales:
United States	$	884,373			$	933,182			$	959,571
Foreign(a)	1,561,175				1,461,088				1,559,583
Total	$	2,445,548			$	2,394,270			$	2,519,154

(a)	No sales in a foreign country exceed 10% of total net sales. Also, net sales are attributed to countries based upon shipments to final destination.

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

	As of December 31,
	2014				2013				2012
					(In thousands)
Long-Lived Assets:
United States	$	698,863			$	748,719			$	735,269
Netherlands	167,965				193,775				192,540
Jordan	227,805				227,818				209,133
Brazil	59,474				78,078				85,353
Germany	75,813				86,175				72,797
China	5,310				41,858				39,542
France	37,347				34,523				32,305
Korea	80,362				86,827				81,962
United Kingdom	3,665				3,665				—
Other foreign countries	48,819				47,139				33,598
Total	$	1,405,423			$	1,548,577			$	1,482,499

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

	Year Ended December 31,
	2014				2013				2012
					(In thousands)
Performance Chemicals:
Fire Safety Solutions	$	607,477			$	620,972			$	665,293
Specialty Chemicals	520,297				520,998				519,606
Fine Chemistry Services	223,822				250,694				266,348
Total Performance Chemicals	$	1,351,596			$	1,392,664			$	1,451,247
Catalyst Solutions:
Refinery Catalyst Solutions	$	844,221			$	768,837			$	794,933
Performance Catalyst Solutions	249,731				232,769				272,974
Total Catalyst Solutions	$	1,093,952			$	1,001,606			$	1,067,907

NOTE 25—Consolidating Guarantor Financial Information:

The 2014 Senior Notes issued by Albemarle Corporation (the “Issuer”) are fully and unconditionally guaranteed, jointly and severally, on an unsecured and unsubordinated basis by Albemarle Holdings Corporation and Albemarle Holdings II Corporation (the “Guarantor Subsidiaries”). The Guarantor Subsidiaries are 100% owned subsidiaries of the Issuer. The guarantees are general senior unsecured obligations of the Guarantor Subsidiaries and rank equally in right of payment with all existing and future senior unsecured indebtedness and other obligations of the Guarantor Subsidiaries that are not, by their terms, otherwise expressly subordinated. The note guarantees will be released when the 4.625% Senior Notes assumed by Albemarle upon the acquisition of Rockwood are repaid or otherwise discharged.

The Company applies the equity method of accounting to its subsidiaries. For cash management purposes, the Company transfers cash between Issuer, Guarantor Subsidiaries and all other non-guarantor subsidiaries (the “Non-Guarantor Subsidiaries”) through intercompany financing arrangements, contributions or declaration of dividends between the respective parent and its subsidiaries. The transfer of cash under these activities facilitates the ability of the recipient to make specified third-party payments for principal and interest on the Company’s outstanding debt, common stock dividends and common stock repurchases. The consolidating statements of cash flows for the years ended December 31, 2014, 2013 and 2012 present such intercompany financing activities, contributions and dividends consistent with how such activity would be presented in a stand-alone statement of cash flows. There are no significant restrictions on the ability of the Issuer or the Guarantor Subsidiaries to obtain funds from subsidiaries by dividend or loan.

The following consolidating financial information presents the financial condition, results of operations and cash flows of the Issuer, Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries, together with consolidating adjustments necessary to present Albemarle’s results on a consolidated basis, and should be read in conjunction with the notes to the consolidated

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

financial statements. Each entity in the consolidating financial information follows the same accounting policies as described in the notes to the consolidated financial statements.

Condensed Consolidating Balance Sheet

December 31, 2014

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Assets
Current assets:
Cash and cash equivalents	$	1,930,802			$	—			$	558,966			$	—			$	2,489,768
Trade accounts receivable, less allowance for doubtful accounts	91,849				—				293,363				—				385,212
Other accounts receivable	19,033				—				30,390				—				49,423
Intergroup receivable	74,102				—				18,097				(92,199		)		—
Inventories	201,006				—				171,543				(14,188		)		358,361
Other current assets	45,901				—				25,111				(4,926		)		66,086
Total current assets	2,362,693				—				1,097,470				(111,313		)		3,348,850
Property, plant and equipment, at cost	1,726,690				—				893,980				—				2,620,670
Less accumulated depreciation and amortization	1,047,372				—				341,430				—				1,388,802
Net property, plant and equipment	679,318				—				552,550				—				1,231,868
Investments	73,500				—				120,542				—				194,042
Investment in subsidiaries	1,551,071				—				—				(1,551,071		)		—
Other assets	35,837				—				125,119				—				160,956
Goodwill	49,212				—				194,050				—				243,262
Other intangibles, net of amortization	20,834				—				23,291				—				44,125
Total assets	$	4,772,465			$	—			$	2,113,022			$	(1,662,384	)		$	5,223,103
Liabilities and Equity
Current liabilities:
Accounts payable	$	122,479			$	—			$	109,226			$	—			$	231,705
Intergroup payable	18,097				—				74,102				(92,199		)		—
Accrued expenses	84,619				—				81,555				—				166,174
Current portion of long-term debt	692,280				—				18,816				—				711,096
Dividends payable	21,458				—				—				—				21,458
Income taxes payable	1,396				—				7,944				113				9,453
Total current liabilities	940,329				—				291,643				(92,086		)		1,139,886
Long-term debt	2,214,755				—				8,280				—				2,223,035
Postretirement benefits	56,424				—				—				—				56,424
Pension benefits	128,238				—				42,296				—				170,534
Other noncurrent liabilities	51,936				—				35,769				—				87,705
Deferred income taxes	21,318				—				35,566				—				56,884
Commitments and contingencies
Equity:
Albemarle Corporation shareholders’ equity:
Common stock	780				—				6,808				(6,808		)		780
Additional paid-in capital	10,447				—				553,172				(553,172		)		10,447
Accumulated other comprehensive loss	(62,413		)		—				(51,073		)		51,073				(62,413		)
Retained earnings	1,410,651				—				1,061,391				(1,061,391		)		1,410,651
Total Albemarle Corporation shareholders’ equity	1,359,465				—				1,570,298				(1,570,298		)		1,359,465
Noncontrolling interests	—				—				129,170				—				129,170
Total equity	1,359,465				—				1,699,468				(1,570,298		)		1,488,635
Total liabilities and equity	$	4,772,465			$	—			$	2,113,022			$	(1,662,384	)		$	5,223,103

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet

December 31, 2013

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Assets
Current assets:
Cash and cash equivalents	$	88,476			$	—			$	388,763			$	—			$	477,239
Trade accounts receivable, less allowance for doubtful accounts	149,834				—				297,030				—				446,864
Other accounts receivable	11,812				—				33,282				—				45,094
Intergroup receivable	88,090				—				28,433				(116,523		)		—
Inventories	219,390				—				234,975				(18,316		)		436,049
Other current assets	52,457				—				28,979				(3,767		)		77,669
Total current assets	610,059				—				1,011,462				(138,606		)		1,482,915
Property, plant and equipment, at cost	1,999,398				—				972,686				—				2,972,084
Less accumulated depreciation and amortization	1,268,205				—				346,810				—				1,615,015
Net property, plant and equipment	731,193				—				625,876				—				1,357,069
Investments	69,616				—				142,562				—				212,178
Investment in subsidiaries	1,611,662				—				—				(1,611,662		)		—
Other assets	18,621				—				141,608				—				160,229
Goodwill	49,212				—				234,991				—				284,203
Other intangibles, net of amortization	35,003				—				53,200				—				88,203
Total assets	$	3,125,366			$	—			$	2,209,699			$	(1,750,268	)		$	3,584,797
Liabilities and Equity
Current liabilities:
Accounts payable	$	107,781			$	—			$	100,400			$	—			$	208,181
Intergroup payable	28,433				—				88,090				(116,523		)		—
Accrued expenses	92,273				—				84,143								176,416
Current portion of long-term debt	99				—				24,455				—				24,554
Dividends payable	19,197				—				—				—				19,197
Income taxes payable	2,364				—				5,651				—				8,015
Total current liabilities	250,147				—				302,739				(116,523		)		436,363
Long-term debt	1,035,977				—				18,333				—				1,054,310
Postretirement benefits	53,903				—				—				—				53,903
Pension benefits	20,931				—				36,716				—				57,647
Other noncurrent liabilities	61,095				—				49,515				—				110,610
Deferred income taxes	75,952				—				53,236				—				129,188
Commitments and contingencies
Equity:
Albemarle Corporation shareholders’ equity:
Common stock	801				—				6,807				(6,807		)		801
Additional paid-in capital	9,957				—				549,265				(549,265		)		9,957
Accumulated other comprehensive income	116,245				—				111,038				(111,038		)		116,245
Retained earnings	1,500,358				—				966,635				(966,635		)		1,500,358
Total Albemarle Corporation shareholders’ equity	1,627,361				—				1,633,745				(1,633,745		)		1,627,361
Noncontrolling interests	—				—				115,415				—				115,415
Total equity	1,627,361				—				1,749,160				(1,633,745		)		1,742,776
Total liabilities and equity	$	3,125,366			$	—			$	2,209,699			$	(1,750,268	)		$	3,584,797

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Income

Year Ended December 31, 2014

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Net sales	$	1,565,965			$	—			$	1,565,241			$	(685,658	)		$	2,445,548
Cost of goods sold	1,095,072				—				1,269,415				(689,787		)		1,674,700
Gross profit	470,893				—				295,826				4,129				770,848
Selling, general and administrative expenses	252,098				—				103,037				—				355,135
Research and development expenses	55,856				—				32,454				—				88,310
Restructuring and other charges, net	9,871				—				16,076				—				25,947
Acquisition and integration related costs	30,158				—				—				—				30,158
Intercompany service fee	26,123				—				(26,123		)		—				—
Operating profit	96,787				—				170,382				4,129				271,298
Interest and financing expenses	(41,361		)		—				3				—				(41,358		)
Other expenses, net	(10,534		)		—				(6,227		)		—				(16,761		)
Income from continuing operations before income taxes and equity in net income of unconsolidated investments	44,892				—				164,158				4,129				213,179
Income tax expense	5,464				—				11,513				1,507				18,484
Income from continuing operations before equity in net income of unconsolidated investments	39,428				—				152,645				2,622				194,695
Equity in net income of unconsolidated investments (net of tax)	6,956				—				28,786				—				35,742
Net income from continuing operations	46,384				—				181,431				2,622				230,437
Loss from discontinued operations (net of tax)	(19,373		)		—				(50,158		)		—				(69,531		)
Equity in undistributed earnings of subsidiaries	106,305				—				—				(106,305		)		—
Net income	133,316				—				131,273				(103,683		)		160,906
Net income attributable to noncontrolling interests	—				—				(27,590		)		—				(27,590		)
Net income attributable to Albemarle Corporation	$	133,316			$	—			$	103,683			$	(103,683	)		$	133,316

Condensed Consolidating Statement of Comprehensive Loss

Year Ended December 31, 2014

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Net income	$	133,316			$	—			$	131,273			$	(103,683	)		$	160,906
Total other comprehensive loss, net of tax	(178,658		)		—				(163,199		)		163,119				(178,738		)
Comprehensive loss	(45,342		)		—				(31,926		)		59,436				(17,832		)
Comprehensive income attributable to noncontrolling interests	—				—				(27,510		)		—				(27,510		)
Comprehensive loss attributable to Albemarle Corporation	$	(45,342	)		$	—			$	(59,436	)		$	59,436			$	(45,342	)

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Income

Year Ended December 31, 2013

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Net sales	$	1,563,483			$	—			$	1,437,664			$	(606,877	)		$	2,394,270
Cost of goods sold	1,025,989				—				1,131,158				(613,348		)		1,543,799
Gross profit	537,494				—				306,506				6,471				850,471
Selling, general and administrative expenses	60,818				—				97,371				—				158,189
Research and development expenses	51,794				—				30,452				—				82,246
Restructuring and other charges, net	23,880				—				9,481				—				33,361
Intercompany service fee	18,038				—				(18,038		)		—				—
Operating profit	382,964				—				187,240				6,471				576,675
Interest and financing expenses	(33,537		)		—				1,978				—				(31,559		)
Intergroup interest and financing expenses	(87		)		—				87				—				—
Other (expenses) income, net	(9,281		)		—				2,607				—				(6,674		)
Income from continuing operations before income taxes and equity in net income of unconsolidated investments	340,059				—				191,912				6,471				538,442
Income tax expense	128,645				—				3,436				2,364				134,445
Income from continuing operations before equity in net income of unconsolidated investments	211,414				—				188,476				4,107				403,997
Equity in net income of unconsolidated investments (net of tax)	6,940				—				24,789				—				31,729
Net income from continuing operations	218,354				—				213,265				4,107				435,726
Income (loss) from discontinued operations (net of tax)	6,906				—				(2,798		)		—				4,108
Equity in undistributed earnings of subsidiaries	187,911				—				—				(187,911		)		—
Net income	413,171				—				210,467				(183,804		)		439,834
Net income attributable to noncontrolling interests	—				—				(26,663		)		—				(26,663		)
Net income attributable to Albemarle Corporation	$	413,171			$	—			$	183,804			$	(183,804	)		$	413,171

Condensed Consolidating Statement of Comprehensive Income (Loss)

Year Ended December 31, 2013

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Net income	$	413,171			$	—			$	210,467			$	(183,804	)		$	439,834
Total other comprehensive income (loss), net of tax	30,981				—				(264,363		)		264,719				31,337
Comprehensive income (loss)	444,152				—				(53,896		)		80,915				471,171
Comprehensive income attributable to noncontrolling interests	—				—				(27,019		)		—				(27,019		)
Comprehensive income (loss) attributable to Albemarle Corporation	$	444,152			$	—			$	(80,915	)		$	80,915			$	444,152

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement of Income

Year Ended December 31, 2012

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Net sales	$	1,726,884			$	—			$	1,560,043			$	(767,773	)		$	2,519,154
Cost of goods sold	1,093,330				—				1,297,875				(770,894		)		1,620,311
Gross profit	633,554				—				262,168				3,121				898,843
Selling, general and administrative expenses	204,029				—				104,427				—				308,456
Research and development expenses	47,763				—				31,156				—				78,919
Restructuring and other charges, net	12,711				—				98,974				—				111,685
Intercompany service fee	26,132				—				(26,132		)		—				—
Operating profit	342,919				—				53,743				3,121				399,783
Interest and financing expenses	(33,193		)		—				393				—				(32,800		)
Other (expenses) income, net	(2,731		)		—				3,960				—				1,229
Income from continuing operations before income taxes and equity in net income of unconsolidated investments	306,995				—				58,096				3,121				368,212
Income tax expense (benefit)	80,444				—				(1,150		)		1,139				80,433
Income from continuing operations before equity in net income of unconsolidated investments	226,551				—				59,246				1,982				287,779
Equity in net income of unconsolidated investments (net of tax)	8,863				—				29,204				—				38,067
Net income from continuing operations	235,414				—				88,450				1,982				325,846
Income (loss) from discontinued operations (net of tax)	8,987				—				(4,706		)		—				4,281
Equity in undistributed earnings of subsidiaries	67,135				—				—				(67,135		)		—
Net income	311,536				—				83,744				(65,153		)		330,127
Net income attributable to noncontrolling interests	—				—				(18,591		)		—				(18,591		)
Net income attributable to Albemarle Corporation	$	311,536			$	—			$	65,153			$	(65,153	)		$	311,536

Condensed Consolidating Statement of Comprehensive Income

Year Ended December 31, 2012

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Net income	$	311,536			$	—			$	83,744			$	(65,153	)		$	330,127
Total other comprehensive income, net of tax	24,935				—				44,721				(44,824		)		24,832
Comprehensive income	336,471				—				128,465				(109,977		)		354,959
Comprehensive income attributable to noncontrolling interests	—				—				(18,488		)		—				(18,488		)
Comprehensive income attributable to Albemarle Corporation	$	336,471			$	—			$	109,977			$	(109,977	)		$	336,471

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement Of Cash Flows

Year Ended December 31, 2014

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Cash and cash equivalents at beginning of year	$	88,476			$	—			$	388,763			$	—			$	477,239
Cash flows from operating activities:
Net cash provided by operating activities	227,426				—				273,176				(7,993		)		492,609
Cash flows from investing activities:
Capital expenditures	(81,624		)		—				(28,952		)		—				(110,576		)
Cash proceeds from divestitures, net	97,523				—				7,195				—				104,718
Payment for settlement of interest rate swap	(33,425		)		—				—				—				(33,425		)
Sales of (investments in) marketable securities, net	668				—				(19		)		—				649
Long-term advances to joint ventures	—				—				(7,499		)		—				(7,499		)
Net cash used in investing activities	(16,858		)		—				(29,275		)		—				(46,133		)
Cash flows from financing activities:
Proceeds from issuance of senior notes	1,888,197				—				—				—				1,888,197
Repayments of long-term debt	(108		)		—				(5,909		)		—				(6,017		)
Other borrowings (repayments), net	4,178				—				(10,003		)		—				(5,825		)
Dividends paid to shareholders	(84,102		)		—				—				—				(84,102		)
Dividends paid to noncontrolling interests	—				—				(15,535		)		—				(15,535		)
Intercompany dividends paid	—				—				(7,993		)		7,993				—
Repurchases of common stock	(150,000		)		—				—				—				(150,000		)
Proceeds from exercise of stock options	2,713				—				—				—				2,713
Excess tax benefits realized from stock-based compensation arrangements	826				—				—				—				826
Withholding taxes paid on stock-based compensation award distributions	(3,284		)		—				—				—				(3,284		)
Debt financing costs	(17,644		)		—				—				—				(17,644		)
Net cash provided by (used in) financing activities	1,640,776				—				(39,440		)		7,993				1,609,329
Net effect of foreign exchange on cash and cash equivalents	(9,018		)		—				(34,258		)		—				(43,276		)
Increase in cash and cash equivalents	1,842,326				—				170,203				—				2,012,529
Cash and cash equivalents at end of year	$	1,930,802			$	—			$	558,966			$	—			$	2,489,768

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement Of Cash Flows

Year Ended December 31, 2013

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Cash and cash equivalents at beginning of year	$	145,999			$	—			$	331,697			$	—			$	477,696
Cash flows from operating activities:
Net cash provided by operating activities	270,179				—				177,806				(15,126		)		432,859
Cash flows from investing activities:
Capital expenditures	(79,441		)		—				(75,905		)		—				(155,346		)
Cash payments related to acquisitions and other	(250		)		—				(2,315		)		—				(2,565		)
Sales of (investments in) marketable securities, net	186				—				(17		)		—				169
Proceeds from intercompany investing related activity	47,393				—				43,850				(91,243		)		—
Intercompany investing related payments	—				—				(43,850		)		43,850				—
Net cash used in investing activities	(32,112		)		—				(78,237		)		(47,393		)		(157,742		)
Cash flows from financing activities:
Repayments of long-term debt	(117,097		)		—				(18,636		)		—				(135,733		)
Proceeds from borrowings of long-term debt	117,000				—				—				—				117,000
Other borrowings, net	363,000				—				35,544				—				398,544
Dividends paid to shareholders	(78,107		)		—				—				—				(78,107		)
Dividends paid to noncontrolling interests	—				—				(10,014		)		—				(10,014		)
Intercompany dividends paid	—				—				(15,126		)		15,126				—
Repurchases of common stock	(582,298		)		—				—				—				(582,298		)
Proceeds from exercise of stock options	5,553				—				—				—				5,553
Excess tax benefits realized from stock-based compensation arrangements	3,266				—				—				—				3,266
Withholding taxes paid on stock-based compensation award distributions	(6,149		)		—				—				—				(6,149		)
Debt financing costs	(108		)		—				—				—				(108		)
Proceeds from intercompany financing related activity	43,850				—				—				(43,850		)		—
Intercompany financing related payments	(43,850		)		—				(47,393		)		91,243				—
Net cash used in financing activities	(294,940		)		—				(55,625		)		62,519				(288,046		)
Net effect of foreign exchange on cash and cash equivalents	(650		)		—				13,122				—				12,472
(Decrease) increase in cash and cash equivalents	(57,523		)		—				57,066				—				(457		)
Cash and cash equivalents at end of year	$	88,476			$	—			$	388,763			$	—			$	477,239

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statement Of Cash Flows

Year Ended December 31, 2012

(In Thousands)	Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Total
Cash and cash equivalents at beginning of year	$	47,018			$	—			$	422,398			$	—			$	469,416
Cash flows from operating activities:
Net cash provided by operating activities	342,173				—				189,511				(42,918		)		488,766
Cash flows from investing activities:
Capital expenditures	(136,299		)		—				(144,574		)		—				(280,873		)
Cash payments related to acquisitions and other	(3,072		)		—				(288		)		—				(3,360		)
Cash proceeds from divestitures, net	—				—				9,646				—				9,646
Investments in marketable securities, net	(1,607		)		—				(8		)		—				(1,615		)
Long-term advances to joint ventures	(2,459		)		—				(22,500		)		—				(24,959		)
Proceeds from intercompany investing related activity	39,851				—				—				(39,851		)		—
Intercompany investing related payments	(33,809		)		—				—				33,809				—
Net cash used in investing activities	(137,395		)		—				(157,724		)		(6,042		)		(301,161		)
Cash flows from financing activities:
Repayments of long-term debt	(86		)		—				(14,304		)		—				(14,390		)
Other borrowings (repayments), net	144				—				(49,565		)		—				(49,421		)
Dividends paid to shareholders	(69,113		)		—				—				—				(69,113		)
Dividends paid to noncontrolling interests	—				—				(7,628		)		—				(7,628		)
Intercompany dividends paid	—				—				(42,918		)		42,918				—
Repurchases of common stock	(63,575		)		—				—				—				(63,575		)
Proceeds from exercise of stock options	21,148				—				—				—				21,148
Excess tax benefits realized from stock-based compensation arrangements	14,809				—				—				—				14,809
Withholding taxes paid on stock-based compensation award distributions	(9,124		)		—				—				—				(9,124		)
Proceeds from intercompany financing related activity	—				—				33,809				(33,809		)		—
Intercompany financing related payments	—				—				(39,851		)		39,851				—
Net cash used in financing activities	(105,797		)		—				(120,457		)		48,960				(177,294		)
Net effect of foreign exchange on cash and cash equivalents	—				—				(2,031		)		—				(2,031		)
Increase (decrease) in cash and cash equivalents	98,981				—				(90,701		)		—				8,280
Cash and cash equivalents at end of year	$	145,999			$	—			$	331,697			$	—			$	477,696

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 26—Quarterly Financial Summary (Unaudited):

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(In thousands, except per share amounts)
2014
Net sales	$	599,843			$	604,721			$	642,418			$	598,566
Gross profit	$	195,599			$	207,363			$	205,446			$	162,440
Restructuring and other charges, net(a)	$	17,000			$	3,332			$	293			$	5,322
Acquisition and integration related costs(b)	$	—			$	4,843			$	10,261			$	15,054
Net income (loss) from continuing operations	$	66,004			$	89,404			$	88,019			$	(12,990	)
Loss from discontinued operations (net of tax)(c)	(1,769		)		(60,025		)		(6,679		)		(1,058		)
Net income attributable to noncontrolling interests	(7,652		)		(6,932		)		(8,546		)		(4,460		)
Net income (loss) attributable to Albemarle Corporation	$	56,583			$	22,447			$	72,794			$	(18,508	)
Basic earnings (loss) per share:
Continuing operations	$	0.73			$	1.05			$	1.02			$	(0.22	)
Discontinued operations	(0.02		)		(0.76		)		(0.09		)		(0.02		)
	$	0.71			$	0.29			$	0.93			$	(0.24	)
Shares used to compute basic earnings per share	79,735				78,662				78,244				78,144
Diluted earnings (loss) per share:
Continuing operations	$	0.73			$	1.04			$	1.01			$	(0.22	)
Discontinued operations	(0.02		)		(0.76		)		(0.08		)		(0.02		)
	$	0.71			$	0.28			$	0.93			$	(0.24	)
Shares used to compute diluted earnings per share	80,112				79,091				78,659				78,545

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
	(In thousands, except per share amounts)
2013
Net sales	$	586,597			$	576,842			$	591,196			$	639,635
Gross profit	$	195,911			$	191,670			$	209,611			$	253,279
Restructuring and other charges, net(a)	$	—			$	—			$	—			$	33,361
Net income from continuing operations	$	87,681			$	88,500			$	97,313			$	162,232
Income (loss) from discontinued operations (net of tax)	1,835				2,628				531				(886		)
Net income attributable to noncontrolling interests	(5,529		)		(8,389		)		(7,332		)		(5,413		)
Net income attributable to Albemarle Corporation	$	83,987			$	82,739			$	90,512			$	155,933
Basic earnings (loss) per share:
Continuing operations	$	0.93			$	0.95			$	1.10			$	1.93
Discontinued operations	0.02				0.03				0.01				(0.01		)
	$	0.95			$	0.98			$	1.11			$	1.92
Shares used to compute basic earnings per share	88,719				84,028				81,385				81,226
Diluted earnings (loss) per share:
Continuing operations	$	0.92			$	0.95			$	1.10			$	1.92
Discontinued operations	0.02				0.03				0.01				(0.01		)
	$	0.94			$	0.98			$	1.11			$	1.91
Shares used to compute diluted earnings per share	89,236				84,489				81,852				81,713

(a)	See Note 20, “Restructuring and Other.”

Albemarle Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(b)	See Note 23, “Acquisitions.”

(c)	Included in Loss from discontinued operations (net of tax) for the year ended December 31, 2014 is $(65.7) million related to the loss on the sale of our antioxidant, ibuprofen and propofol businesses and assets, the majority of which was recorded in the second quarter. See Note 2, “Discontinued Operations.”

As discussed in Note 1, “Summary of Significant Accounting Policies,” actuarial gains and losses related to our defined benefit pension and OPEB plan obligations are recognized annually in our consolidated statements of income in the fourth quarter and whenever a plan is determined to qualify for a remeasurement during a fiscal year. During the year ended December 31, 2014, actuarial losses were recognized as follows: first quarter—$15.4 million ($9.8 million after income taxes) as a result of the remeasurement of the assets and obligations of (i) our U.S. defined benefit plan which covers non-represented employees, and (ii) our SERP, in connection with the realignment of of our operating segments effective January 1, 2014 and related workforce reduction plan; third quarter—$2.8 million ($1.8 million after income taxes) as a result of the remeasurement of the assets and obligations of one of our U.S. defined benefit plans for represented employees which was part of the businesses and assets we divested on September 1, 2014; fourth quarter—$112.6 million ($71.8 million after income taxes) as a result of the annual remeasurement process. During the year ended December 31, 2013, actuarial gains were recognized as follows: fourth quarter—$139.0 million ($88.3 million after income taxes) as a result of the annual remeasurement process.

Albemarle Corporation and Subsidiaries