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8-K/A - FORM 8-K/A - ALBEMARLE CORPd791195d8ka.htm
EX-99.2 - EXHIBIT 99.2 - ALBEMARLE CORPd791195dex992.htm
EX-23.1 - EXHIBIT 23.1 - ALBEMARLE CORPd791195dex231.htm
EX-99.3 - EXHIBIT 99.3 - ALBEMARLE CORPd791195dex993.htm

Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the merger. Under the terms of the merger agreement, each outstanding share of Rockwood common stock (other than any Rockwood excluded share) will be converted into the right to receive $50.65 in cash, without interest, and 0.4803 of a share of Albemarle common stock.

The following unaudited pro forma condensed combined financial statements give effect to the merger under the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (which we refer to in this joint proxy statement/prospectus as ASC) Topic 805, Business Combinations (which we refer to in this joint proxy statement/prospectus as ASC 805), with Albemarle treated as the acquirer. The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results of Albemarle and Rockwood. Although Albemarle has entered into the merger agreement, there is no guarantee that the merger will be completed. The unaudited pro forma condensed combined balance sheet is based on the individual historical consolidated balance sheets of Albemarle and Rockwood as of June 30, 2014, and has been prepared to reflect the merger as if it occurred on June 30, 2014. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 and the six-months ended June 30, 2014 combines the historical results of operations of Albemarle and Rockwood, giving effect to the merger as if it occurred on January 1, 2013.

The unaudited pro forma condensed combined statements of operations exclude the impact of the Rockwood pigments business and the impact of Albemarle’s antioxidant, ibuprofen and propofol businesses and assets, which are classified as discontinued operations in Rockwood’s and Albemarle’s historical financial statements, respectively. In addition, the unaudited pro forma condensed combined balance sheet assumes the consummation of the Pigments Sale; however, we have not reflected the potential sale of Albemarle’s discontinued operations and related assets in these unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined statements of operations do not reflect future events that may occur after the merger, including, but not limited to, the anticipated realization of ongoing savings from operating synergies; and certain one-time charges Albemarle expects to incur in connection with the transaction, including, but not limited to, costs in connection with integrating the operations of Albemarle and Rockwood.

These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would actually have been obtained had the merger been completed on the assumed date or for the periods presented, or which may be realized in the future. To produce the pro forma financial information, Albemarle adjusted Rockwood’s assets and liabilities to their estimated fair values. As of the date of this joint proxy statement/prospectus, Albemarle has not completed the detailed valuation work necessary to arrive at the required estimates of the fair value of the Rockwood assets to be acquired and the liabilities to be assumed and the related allocation of purchase price, nor has it identified all adjustments necessary to conform Rockwood’s accounting policies to Albemarle’s accounting policies. A final determination of the fair value of Rockwood’s assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Rockwood that exist as of the date of completion of the merger and, therefore, cannot be made prior to that date. Additionally, the value of the portion of the merger consideration to be paid in shares of Albemarle common stock will be determined based on the trading price of shares of Albemarle common stock at the time of the completion of the merger. Accordingly, the accompanying unaudited pro forma purchase price allocation is preliminary and is subject to further adjustments as additional information becomes available and as additional analyses are performed. The preliminary unaudited pro forma purchase price allocation has been made solely for the purpose of preparing the accompanying unaudited pro forma condensed combined financial statements. The preliminary purchase price allocation was based on reviews of publicly disclosed allocations for other acquisitions in the chemical industry, Albemarle’s historical experience, data that was available through the public domain and Albemarle’s due diligence review of Rockwood’s business. Until the merger is completed, both companies are limited in their ability to share information with each other. Upon the completion of the merger, valuation work will be performed and any increases or decreases in the fair value of relevant statement of financial position amounts will result in adjustments to the statement of financial position and/or statements of operations until the purchase price allocation is finalized. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation included in the accompanying unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements should be read in conjunction with:

 

    The accompanying notes to the unaudited pro forma condensed combined financial statements, beginning on page 115;

 

   

Albemarle’s audited consolidated financial statements and related notes thereto contained in its Current Report on Form 8-K which was filed on August 8, 2014, to recast certain portions of Albemarle’s Annual Report on Form

 

1


 

10-K for the year ended December 31, 2013 to reflect the antioxidant, ibuprofen and propofol businesses as discontinued operations and to reflect a change in reportable segments which became effective on January 1, 2014, Albemarle’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014; and

 

    Rockwood’s audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the year ended December 31, 2013 and Rockwood’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014.

 

2


Albemarle Corporation

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of June 30, 2014

(in thousands)

 

   

 

Historical

    Effect of
Accounting
Change &
Reclassification

(Note 2)
    Pro Forma
Adjustments
    Adjusted Pro
Forma
Rockwood
    Pro Forma
Adjustments
          Pro Forma
Condensed
Combined
 
    Albemarle
Corporation
    Rockwood       Sale of
Discontinued
Operations

(Note 3)
      Acquisition
Adjustments
(Note 4 and 5)
     

Assets

               

Cash and cash equivalents

  $ 515,119      $ 696,300      $ —        $ 1,005,700      $ 1,702,000      $ (2,163,287     (a)      $ 53,832   

Trade accounts receivable, net

    407,298        245,100        —          —          245,100        —            652,398   

Other accounts receivable

    39,413        —          12,400        —          12,400        —            51,813   

Inventories

    370,564        230,900        —          —          230,900        80,129        (b)        681,593   

Assets of discontinued operations

    137,984        1,574,200        —          (1,574,200     —          —            137,984   

Deferred income taxes

    2,811        49,000        —          —          49,000        —            51,811   

Other current assets

    52,694        54,200        (12,400       41,800        35,309        (h,i)        129,803   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

    1,525,883        2,849,700        —          (568,500     2,281,200        (2,047,849       1,759,234   

Property, plant and equipment, net

    1,239,586        884,390        —          —          884,390        689,130        (c)        2,813,106   

Investments

    224,050        —          544,800        —          544,800        —            768,850   

Investment in unconsolidated affiliates

    —          544,800        (544,800     —          —          —            —     

Other assets

    59,957        29,500        —          —          29,500        —            89,457   

Goodwill

    265,231        657,879        —          —          657,879        1,736,403        (d)        2,659,513   

Other intangibles, net

    43,419        120,131        —          —          120,131        1,609,869        (e)        1,773,419   

Deferred financing costs, net

    4,717        16,600        —          —          16,600        13,400        (f)        34,717   

Deferred income taxes

    91,689        154,600        2,291        —          156,891        (15,572     (k)        233,008   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

  $ 3,454,532      $ 5,257,600      $ 2,291      $ (568,500   $ 4,691,391      $ 1,985,381        $ 10,131,304   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Liabilities and Stockholders’ Equity

               

Accounts payable

  $ 185,024      $ 87,100      $ —        $ —        $ 87,100      $ —          $ 272,124   

Accrued expenses

    209,533        81,000        66,400        —          147,400        25,882        (h)        382,815   

Current portion of long-term debt

    377,521        10,300        —          —          10,300        —            387,821   

Dividends payable

    21,268        —          —          —          —          —            21,268   

Liabilities of discontinued operations

    11,178        490,500        —          (490,500     —          —            11,178   

Income taxes payable

    4,691        13,500        —          4,620        18,120        —            22,811   

Accrued compensation

    —          66,400        (66,400     —          —          —            —     

Deferred income taxes

    6,699        2,400        —          —          2,400        28,045        (k)        37,144   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    815,914        751,200        —          (485,880     265,320        53,927          1,135,161   

Long-term debt

    685,845        1,282,000        —          —          1,282,000        1,604,720        (f)        3,572,565   

Pension and postretirement benefits

    124,775        266,300        6,546        —          272,846        35,467        Note 2        433,088   

Other noncurrent liabilities

    96,472        95,900        —          —          95,900        41,843        (j)        234,215   

Deferred income taxes

    106,436        37,400        —          —          37,400        804,650        (k)        948,486   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    1,829,442        2,432,800        6,546        (485,880     1,953,466        2,540,607          6,323,515   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Restricted stock units

    —          19,500        —          —          19,500        (19,500     (j)        —     

Stockholders’ equity:

               

Common stock

    782        800        —          —          800        (458     (i)        1,124   

Additional paid-in capital

    3,213        1,279,000        —          —          1,279,000        952,107        (i)        2,234,320   

Accumulated other comprehensive income

    99,644        103,500        —          63,600        167,100        (167,100     (i)        99,644   

Retained earnings

    1,399,342        1,882,700        (4,255     8,580        1,887,025        (1,935,775     (i)        1,350,592   

Treasury stock

    —          (615,500     —          —          (615,500     615,500        (i)        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

    1,502,981        2,650,500        (4,255     72,180        2,718,425        (535,726       3,685,680   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Noncontrolling interest

    122,109        154,800        —          (154,800     —          —            122,109   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total equity

    1,625,090        2,805,300        (4,255     (82,620     2,718,425        (535,726       3,807,789   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and equity

  $ 3,454,532      $ 5,257,600      $ 2,291      $ (568,500   $ 4,691,391      $ 1,985,381        $ 10,131,304   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

 

3


Albemarle Corporation

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Year Ended December 31, 2013

(In thousands except per share data)

 

   

 

Historical

    Effect of
Accounting
Change &
Reclassification

(Note 2)
    Adjusted
Rockwood
    Pro Forma
Adjustments
          Pro Forma
Condensed
Combined
 
    Albemarle
Corporation
    Rockwood         Acquisition
Adjustments

(Note 4 and 5)
     

Net sales

  $ 2,394,270      $ 1,377,800      $ —        $ 1,377,800      $ —          $ 3,772,070   

Cost of goods sold

    1,543,799        759,800        (3,890     755,910        12,081        (c,e)        2,311,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Gross profit

    850,471        618,000        3,890        621,890        (12,081       1,460,280   

Selling, general and administrative expenses

    158,189        401,800        1,350        403,150        63,426        (c,e,j)        624,765   

Research and development expenses

    82,246        —          —          —          —            82,246   

Restructuring and other charges, net

    33,361        17,500        —          17,500        —            50,861   

Gain on previously held equity interest

    —          (16,000     —          (16,000     —            (16,000

Asset write-downs and other

    —          4,100        —          4,100        —            4,100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating income (loss)

    576,675        210,600        2,540        213,140        (75,507       714,308   

Interest and financing expenses

    (31,559     (82,300     —          (82,300     (44,514     (f)        (158,373

Other (expenses) income, net

    (6,674     (300     —          (300     —            (6,974

Loss on early extinguishment/modification of debt

    —          (15,500     —          (15,500     —            (15,500

Foreign exchange loss on financing activities

    —          (67,100     —          (67,100     —            (67,100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

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

    538,442        45,400        2,540        47,940        (120,021       466,361   

Income tax expense (benefit)

    134,445        (10,000     4,004        (5,996     (42,007     (k)        86,442   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income before equity in net income of unconsolidated investments

  $ 403,997      $ 55,400      $ (1,464   $ 53,936      $ (78,014     $ 379,919   

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

    31,729        —          8,900        8,900        —            40,629   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income from continuing operations

  $ 435,726      $ 55,400      $ 7,436      $ 62,836      $ (78,014     $ 420,548   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Earnings per share:

             

Basic

  $ 5.20      $ 0.73              $ 3.50   

Diluted

  $ 5.17      $ 0.72              $ 3.46   

Weighted average common shares:

             

Basic

    83,839        75,781            (39,383     (l)        120,237   

Diluted

    84,322        77,390            (40,315     (l)        121,397   

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

 

4


Albemarle Corporation

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Six Months Ended June 30, 2014

(In thousands except per share data)

 

   

 

Historical

    Effect of
Accounting
Change &
Reclassification
(Note 2)
    Adjusted
Rockwood
    Pro Forma
Adjustments
          Pro Forma
Condensed
Combined
 
    Albemarle
Corporation
    Rockwood         Acquisition
Adjustments
(Note 4 and 5)
     

Net sales

  $ 1,204,564      $ 716,800      $ —        $ 716,800      $ —          $ 1,921,364   

Cost of goods sold

    801,602        391,900        (841     391,059        4,323        (c,e)        1,196,984   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Gross profit

    402,962        324,900        841        325,741        (4,323       724,380   

Selling, general and administrative expenses

    145,115        219,500        (1,633     217,867        34,448        (c,e,j)        397,430   

Research and development expenses

    44,509        —          —          —          —            44,509   

Equity in earnings of unconsolidated affiliates

    —          (4,800     4,800        —          —            —     

Asset write-down and other

    —          1,700        —          1,700        —            1,700   

Restructuring and other charges, net

    25,175        5,600        —          5,600        —            30,775   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating income (loss)

    188,163        102,900        (2,326     100,574        (38,771       249,966   

Interest and financing expenses

    (17,506     (27,800     —          (27,800     (23,157     (f)        (68,463

Other (expenses) income, net

    164        —          —          —          —            164   

Foreign exchange gain on financing activities, net

    —          5,800        —          5,800        —            5,800   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

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

    170,821        80,900        (2,326     78,574        (61,928       187,467   

Income tax expense

    34,963        25,100        866        25,966        (21,675     (k)        39,254   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income before equity in net income of unconsolidated investments

  $ 135,858      $ 55,800      $ (3,192   $ 52,608      $ (40,253     $ 148,213   

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

    19,550        —          4,800        4,800        —            24,350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income from continuing operations

  $ 155,408      $ 55,800      $ 1,608      $ 57,408      $ (40,253     $ 172,563   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Earnings per share:

             

Basic

  $ 1.96      $ 0.76              $ 1.51   

Diluted

  $ 1.95      $ 0.75              $ 1.50   

Weighted average common shares:

             

Basic

    79,199        73,147            (38,014     (l)        114,332   

Diluted

    79,602        74,153            (38,410     (l)        115,345   

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

 

5


Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

1. Description of Transaction and Basis of Presentation

On July 15, 2014, Albemarle, Rockwood and Merger Sub entered into the merger agreement, under the terms of which each outstanding share of Rockwood common stock (other than Rockwood excluded shares) will be converted into the right to receive $50.65 in cash, without interest, and 0.4803 of a share of Albemarle common stock.

Also, at the effective time of the merger, each outstanding and unexercised Rockwood stock option, all of which were fully vested at the time of the execution of the merger agreement, will be converted into an option to acquire a number of shares of Albemarle common stock (rounded down to the nearest whole share) determined by multiplying the number of shares of Rockwood common stock underlying such Rockwood stock option by the sum of (a) the exchange ratio (0.4803) plus (b) the quotient obtained by dividing the cash portion of the merger consideration ($50.65) by the volume weighted average price of a share of Albemarle common stock over the five trading days prior to the merger, on substantially the same terms and conditions as were applicable to such option immediately prior to the effective time of the merger. The applicable exercise price will also be appropriately adjusted in a manner designed to maintain the intrinsic value of the Rockwood stock option. For purposes of the unaudited pro forma condensed combined financial statements, the number of shares of Albemarle common stock underlying the Albemarle stock option to be received upon the conversion is equal to the number of shares of Rockwood common stock underlying the Rockwood stock option, multiplied by 1.3 (which conversion ratio is based on the closing price of Albemarle’s common stock on the New York Stock Exchange of $64.05 on September 19, 2014 (the most recent practicable date prior to the filing of this joint proxy statement/prospectus)). This conversion is not expected to result in any merger-related compensation expense with respect to the vested options. The conversion ratio of 1.3 times the number of shares of Rockwood common stock is calculated using a five day average volume weighted average price for shares of Albemarle common stock as of September 18, 2014; the actual conversion ratio will be determined at the time of the completion of the merger as provided pursuant to the terms of the merger agreement.

In addition, at the effective time of the merger, all restricted stock units (which we refer to in this joint proxy statement/prospectus as RSUs) of Rockwood, which were issued to certain employees of Rockwood, will be converted into the right to receive a cash payment on the original payment date set out in the applicable award agreement or, if earlier, upon a qualifying termination of employment. Achievement of the performance conditions for purposes of calculating the cash payment will be determined based on total shareholder return compared to a peer group of Rockwood (in the case of performance-based restricted stock units) or the increase in the Rockwood share price (in the case of performance-based market stock units), in each case, from the beginning of the performance period through the effective date of the merger, compared to the “CIC Per Share Price.” The “CIC Per Share Price” will equal the sum of (x) the cash portion of the merger consideration ($50.65) plus (y) the product of the exchange ratio (0.4803) and the volume weighted average price of a share of Albemarle common stock over the five trading days prior to the merger. In addition, following the merger and until the vesting date, the amount payable to award recipients will accrue interest at LIBOR plus 2.0% per annum, computed daily on the basis of a year of 364 days. The calculated value of the cash payment for purposes of the unaudited pro forma condensed combined financial statements is $81.41 per Rockwood RSU, based on the closing price of Albemarle’s common stock on the New York Stock Exchange of $64.05 on September 19, 2014 (the most recent practicable date prior to the filing of this joint proxy statement/prospectus). Albemarle will assume a liability for the portion of the cash payments related to pre combination services and will recognize post combination expense over the remaining vesting period related to these cash payments. Additionally, the unaudited pro forma condensed combined balance sheet as of June 30, 2014 includes a liability related to payments of retention and/or increased severance amounts expected to be paid to certain of Rockwood’s executive officers and other employees for pre combination services according to employment contracts.

The merger is reflected in the unaudited pro forma condensed combined financial statements as being accounted for under the acquisition method in accordance with ASC 805, Business Combination, with Albemarle treated as the acquirer. Under the acquisition method, the total estimated purchase price is calculated as described in Note 4. In accordance with ASC 805, the assets acquired and the liabilities assumed have been measured at fair value based on various preliminary estimates. These estimates are based on key assumptions related to the merger, including reviews of publicly disclosed allocations for other acquisitions in the chemical industry, Albemarle’s historical experience, data that was available through the public domain and Albemarle’s due diligence review of Rockwood’s business. Due to the fact that the unaudited pro forma condensed combined financial information has been prepared based on preliminary estimates, the final amounts recorded for the merger may differ materially from the information presented herein. These estimates are subject to change pending further review of the fair value of assets acquired and liabilities assumed. In addition, the final determination of the recognition and measurement of the identified assets acquired and liabilities assumed will be based on the fair market value of actual net tangible and intangible assets and liabilities of Rockwood at the date of completion of the merger.

For purposes of measuring the estimated fair value, where applicable, of the assets acquired and the liabilities assumed as reflected in the unaudited pro forma condensed combined financial information, Albemarle has applied the guidance in ASC 820, Fair Value Measurements and Disclosures (which we refer to in this joint proxy statement/prospectus as ASC

 

6


820), which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and 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.” Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.

The unaudited pro forma condensed combined financial statements were prepared in accordance with GAAP and pursuant to U.S. Securities and Exchange Commission Regulation S-X Article 11, and present the pro forma financial position and results of operations of the consolidated companies based upon the historical information after giving effect to the merger and adjustments described in these footnotes. The unaudited pro forma condensed combined balance sheet is presented as if the merger had occurred on June 30, 2014; and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 and the six-month period ended June 30, 2014 is presented as if the merger had occurred on January 1, 2013.

The unaudited pro forma condensed combined financial information does not reflect ongoing cost savings that Albemarle expects to achieve as a result of the merger or the costs necessary to achieve these costs savings or synergies.

 

2. Accounting Policy Changes and Reclassifications

Albemarle performed certain procedures for the purpose of identifying any material differences in significant accounting policies between Albemarle and Rockwood, and any accounting adjustments that would be required in connection with adopting uniform policies. Procedures performed by Albemarle involved a review of Rockwood’s publicly disclosed summary of significant accounting policies, including those disclosed in Rockwood’s Annual Report on Form 10-K for the year ended December 31, 2013 and preliminary discussion with Rockwood management regarding Rockwood’s significant accounting policies to identify material adjustments. While Albemarle expects to engage in additional discussion with Rockwood’s management and continue to evaluate the impact of Rockwood’s accounting policies on its historical results after completion of the merger, Albemarle’s management does not believe there are any differences in the accounting policies of Rockwood and Albemarle that will result in material adjustments to Albemarle’s consolidated financial statements as a result of conforming Rockwood’s accounting policies to those of Albemarle, except the accounting for pension and other postretirement benefits and the presentation of certain financial statement line items as discussed below.

Rockwood’s historical consolidated financial statements presented or incorporated by reference herein have not been retrospectively adjusted for the change in accounting methodology for pension and other postretirement benefit (which we refer to in this joint proxy statement/prospectus as OPEB) plan actuarial gains and losses, which Albemarle adopted in 2012. Rockwood historically recognized actuarial gains and losses related to its pension and OPEB plans in its consolidated balance sheets as Accumulated other comprehensive income (loss) within shareholders’ equity, with amortization of these gains and losses that exceed 10 percent of the greater of plan assets or projected benefit obligations recognized each quarter in its consolidated statements of income over the average future service period of active employees. Under the new method of accounting, referred to as mark-to-market accounting, these gains and losses are recognized annually in the consolidated statements of operations in the fourth quarter and whenever a plan is determined to qualify for a remeasurement during a fiscal year. While Rockwood’s historical policy of recognizing pension and OPEB plan expense was considered acceptable under GAAP, Albemarle believes that its policy is preferable as it eliminates the delay in recognizing gains and losses within operating results. To present the pro forma information for each company on a comparable basis, the column “Effect of Accounting Change and Reclassification” has been added to reflect the impact of such change on the historical financial statements of Rockwood. The estimated additional mark to market adjustment for Rockwood’s pension and OPEB plans was a $6.5 million increase to Pension and postretirement benefits and decrease to retained earnings ($4.2 million net of $2.3 million deferred tax assets) to Rockwood’s unaudited adjusted pro forma balance sheet as of June 30, 2014, and an $11.4 million reduction in pension expense for the year ended December 31, 2013, of which $3.9 million and $7.5 million was recognized as a reduction to Cost of goods sold and Selling, general, and administrative expenses, respectively, and a reduction in pension expense of $2.5 million for the six-months ended as of June 30, 2014, of which $0.9 million and $1.6 million was recognized as a reduction of Cost of goods sold and Selling, general, and administrative expenses, respectively, on the unaudited pro forma condensed combined statements of operations. Additionally, the pro forma condensed combined balance sheet as of June 30, 2014 includes a pro forma adjustment of $35.5 million ($23.1 million net of taxes) increase in Pension and postretirement benefits to reflect the assumed pension and postretirement liability at fair value.

Additionally, the historical consolidated financial statements of Rockwood presented herein have been adjusted by condensing certain line items in order to conform to Albemarle’s financial statement presentation; these reclassifications are also reflected in the column “Effect of Accounting Change and Reclassifications.”

 

7


3. Discontinued Operations

In September 2013, Rockwood entered into a definitive agreement to the Rockwood pigments business to Huntsman Corporation (which we refer to in this joint proxy statement/prospectus as Huntsman) for approximately $1.325 billion (since reduced to $1.275 billion), including the assumption by Huntsman of $225 million in pension obligations and subject to other customary adjustments. This transaction closed on October 1, 2014. The Rockwood pigments business is reflected as discontinued operations in the historical financial statements of Rockwood.

As the closing of the transaction between Rockwood and Huntsman was probable and factually supportable when these unaudited pro forma condensed combined financial statements were prepared, for purposes of these unaudited pro forma condensed combined financial statements, we have given recognition to the anticipated sale of the Rockwood pigments business for estimated cash proceeds of $1.01 billion, which reflects expected working capital and other adjustments. As a result the unaudited pro forma condensed combined balance sheet has been adjusted to (i) increase cash by $1,005,700,000, (ii) to eliminate assets held for sale of $1,574,200,000 and (iii) reflect in Retained earnings, since the unaudited pro forma condensed combined statements of operations only reflects continuing operations, the expected gain of $8.6 million net of taxes (or approximately $13.2 million before taxes) on the anticipated sale; in addition a pro forma adjustment to Income taxes payable in the amount of $4.6 million was recorded, which was calculated based on a federal statutory tax rate of 35%. This transaction is reflected in the column “Sale of Discontinued Operations.”

 

4. Preliminary Consideration Transferred and Preliminary Fair Value of Net Assets Acquired

The merger has been accounted for using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill. In addition, ASC 805 establishes that the common stock issued to effect the merger be measured at the date the merger is completed at the then-current market price.

Based on (1) the closing price of Albemarle’s common stock on the NYSE of $64.05 per share on September 19, 2014 (the most recent practicable date prior to the filing of this joint proxy statement/prospectus) (2) the number of shares of Rockwood common stock outstanding as of September 19, 2014 (the most recent practicable date prior to the filing of this joint proxy statement/prospectus), and (3) the number of options to purchase Rockwood common stock that are outstanding at June 30, 2014, the total consideration would have been approximately $5.8 billion. Changes in the share price of Albemarle common stock, or changes in the number of outstanding shares of Rockwood common stock or stock options outstanding could result in material differences in the consideration and, thus, the purchase price and related purchase price allocation. At the effective time of the merger, each outstanding share of Rockwood common stock (other than Rockwood excluded shares) will be cancelled and converted into the right to receive (1) $50.65 in cash, without interest, and (2) 0.4803 of a share of Albemarle common stock.

The following is a preliminary estimate of the consideration to be paid by Albemarle in the merger (in millions):

 

Cash transferred ($50.65 x 71,240 shares of Rockwood common stock outstanding)

   $ 3,608.3   

Value of Albemarle shares issued to shareholders of Rockwood (71,240 shares of Rockwood common stock converted to 34,217 shares of Albemarle common stock at a 0.4803 conversion rate)

     2,191.6   

Value of previously vested Rockwood stock options converted into Albemarle stock options (at specified exchange ratio)

     39.9   
  

 

 

 

Total value of consideration transferred

   $ 5,839.8   
  

 

 

 

The estimated value of the consideration does not purport to represent the actual value of the total consideration that will be received by Rockwood’s shareholders when the merger is completed. In accordance with GAAP, the fair value of the equity securities issued as part of the consideration will be measured at the closing date of the merger at the then-current market price. This requirement will likely result in a per share value component different from the $64.05 per share on September 19, 2014 assumed in the calculation, and that difference may be material. For example, an increase or decrease of 10% in the price of Albemarle’s common stock on the closing date of the merger from the price of Albemarle stock assumed in these unaudited pro forma condensed combined financial statements would change the value of the consideration by approximately $219.2 million, which would be reflected as an equivalent increase or decrease to goodwill.

 

8


The following is a summary of the preliminary estimated fair values of the net assets acquired (in millions):

 

Total estimated consideration transferred

   $ 5,839.8   

Cash

     1,702.0   

Accounts receivable

     257.5   

Inventories

     311.0   

Other Current Assets

     50.9   

Deferred tax assets

     190.3   

Property, plant and equipment

     1,573.5   

Investments

     544.8   

Other assets

     29.5   

Other intangible assets

     1,730.0   
  

 

 

 

Total Assets

   $ 6,389.5   
  

 

 

 

Accounts payable, accrued expenses and other liabilities

   $ 278.5   

Deferred tax liabilities

     872.5   

Long term debt

     1,347.0   

Pension and postretirement benefits

     308.3   

Other noncurrent liabilities

     137.7   

Noncontrolling interests

     —     
  

 

 

 

Net assets to be acquired

   $ 3,445.5   
  

 

 

 

Goodwill

   $ 2,394.3   
  

 

 

 

Albemarle has made preliminary allocation estimates based on limited access to information and will not have sufficient information to make final allocations until after the completion of the merger. The final determination of the purchase price allocation is anticipated to be completed as soon as practicable after the completion of the merger. Albemarle anticipates that the valuations of the acquired assets and liabilities will include, but not be limited to, inventory, property, plant and equipment, customer relationships, brand names, patents and other intellectual property, trade names and trademarks, and other potential intangible assets. The valuations will consist of physical appraisals, discounted cash flow analyses, or other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed.

The final merger consideration, and amounts allocated to assets acquired and liabilities assumed in the merger, could differ materially from the preliminary amounts presented in these unaudited pro forma condensed combined financial statements. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the merger from those preliminary valuations presented in these unaudited pro forma condensed combined financial statements would result in a dollar-for-dollar corresponding increase in the amount of goodwill that will result from the merger. In addition, if the value of the acquired assets is higher than the preliminary indication, it may result in higher amortization and depreciation expense than is presented in these unaudited pro forma condensed combined financial statements.

 

5. Pro Forma Adjustments

Adjustments included in the column labeled “Pro Forma Adjustments” in the unaudited pro forma condensed combined financial statements are as follows:

 

a) Represents the preliminary net adjustment to cash in connection with the merger (in millions):

 

Cash portion of merger consideration

   $ (3,608.3

Proceeds from additional borrowings, net of refinancing of Albemarle 2015 Senior Notes

     1,550.0   

Payment of transaction costs

     (105.0
  

 

 

 

Pro forma adjustment to cash

   $ (2,163.3
  

 

 

 

Components of the adjustment include an increase in cash resulting from new debt expected to be incurred in connection with the merger (net of the use of proceeds to refinance $325.0 million of Albemarle 2015 Senior Notes), a decrease in cash resulting from payment of the cash component of the merger consideration, and estimated transaction related costs of $105 million, consisting of financing fees of $30 million and advisory costs of $75 million. Management of cash balances required to meet the cash component of the merger consideration could result in significant cash tax impacts, which are not estimable and have not been incorporated into the pro forma financial statements.

 

b)

Reflects the preliminary estimated fair value adjustment to inventory acquired in the merger. As raw materials inventory was assumed to be at market value, the adjustment is related to work-in-process and finished goods inventory. The preliminary fair value of finished goods inventory to be acquired in the merger was determined based on an analysis of

 

9


  estimated future selling prices, costs of disposal, and gross profit on disposal costs. The preliminary fair value of work-in-process inventory also considered costs to complete inventory and estimated profit on these costs. The audited historical condensed statements of operations and unaudited pro forma condensed combined statements of operations do not reflect the impacts on cost of sales of an increase of $80.1 million of the estimated purchase accounting adjustment; this amount is directly related to the merger and is not expected to have a continuing impact on Albemarle’s operations.

 

c) Represents the adjustment to property, plant and equipment to reflect the preliminary fair market value and the depreciation expense related to the change in fair value of property, plant and equipment recorded in relation to the merger. The amounts assigned to property, plant and equipment, the estimated useful lives, and the estimated depreciation expense related to the property, plant and equipment acquired are as follows (in millions):

 

     Preliminary fair
value
     Estimated
weighted
average life
(years)
     Depreciation
expense for the
year ended
December 31, 2013
     Depreciation
expense for the
six months ended
June 30, 2014
 

Land

   $ 116.0         —         $ —         $ —     

Buildings and improvements

     232.2         12         19.7         9.8   

Machinery and equipment

     289.0         10         28.9         14.5   

Furniture and fixtures

     47.6         5         9.5         4.8   

Mining rights

     640.0         —           23.0         14.1   

Construction in progress

     248.7         —           —           —     
  

 

 

       

 

 

    

 

 

 

Total

   $ 1,573.5          $ 81.1       $ 43.2   

Less: Rockwood historical PP&E and depreciation expense

     884.4          $ 67.1       $ 37.7   
  

 

 

       

 

 

    

 

 

 

Pro forma adjustments

   $ 689.1          $ 14.0       $ 5.5   
  

 

 

       

 

 

    

 

 

 

Depreciation expense has been estimated based upon the nature of activities associated with the property, plant and equipment acquired, and depletion expense related to the mining rights has been estimated based on expected units of production. Therefore, for purposes of these unaudited pro forma condensed combined financial statements, Albemarle has reflected $10.4 million and $3.6 million of estimated additional depreciation and depletion expense in Cost of goods sold and Selling, general and administrative expenses, respectively, for the year ended December 31, 2013; and $3.3 million and $2.2 million, respectively, for the six months ended June 30, 2014. With other assumptions held constant, a 10% increase in the fair value adjustment for property, plant and equipment would increase annual pro forma depreciation and depletion expense by approximately $8.1 million.

 

d) Reflects the preliminary estimated adjustment to goodwill as a result of the merger. Goodwill represents the excess of the consideration transferred over the preliminary fair value of the assets acquired and liabilities assumed as described in Note 4. The goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment exists. In the event management determines that the value of goodwill has become impaired, Albemarle will incur an accounting charge for the amount of the impairment during the period in which the determination is made. The goodwill is attributable to the expected synergies of the combined business operations, new growth opportunities, and the acquired assembled and trained workforce of Rockwood. The goodwill is not expected to be deductible for tax purposes.

The preliminary pro forma adjustment to goodwill is calculated as follows (in millions):

 

Preliminary purchase price

   $ 5,839.8   

Less: Fair value of net assets to be acquired

     3,445.5   
  

 

 

 

Total estimated goodwill

     2,394.3   

Less: Rockwood historical goodwill

     657.9   
  

 

 

 

Pro forma adjustment

   $ 1,736.4   
  

 

 

 

 

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e) Reflects the pro forma impact of the recognized identifiable intangible assets that are being acquired and the related amortization expense related to the change in fair value of identifiable intangible assets acquired. The preliminary amounts assigned to the identifiable intangible assets, the estimated useful lives, and the estimated amortization expense related to these identifiable intangible assets are as follows (in millions):

 

     Preliminary fair
value
     Estimated
weighted
average life
(years)
     Amortization
expense for the
year ended
December 31, 2013
     Amortization
expense for the
six months ended
June 30, 2014
 

Patents and other intellectual property

   $ 60.0         15       $ 4.0       $ 2.0   

Trade names and trademarks

     440.0         35         12.6         6.3   

Customer relationships

     990.0         19         52.1         26.0   

Brand names

     240.0         20         12.0         6.0   
  

 

 

       

 

 

    

 

 

 

Total

   $ 1,730.0          $ 80.7       $ 40.3   

Less: Rockwood historical intangible assets and amortization expense

     120.1            26.3         13.3   
  

 

 

       

 

 

    

 

 

 

Pro forma adjustments

   $ 1,609.9          $ 54.4       $ 27.0   
  

 

 

       

 

 

    

 

 

 

Albemarle has reflected the estimated additional amortization expense of $1.7 million and $52.7 million in Cost of goods sold and Selling, general and administrative expenses, respectively for the year ended December 31, 2013; and $1.0 million and $26.0 million in Cost of goods sold and Selling, general and administrative expenses, respectively, for the six months ended June 30, 2014. With other assumptions held constant, a 10% increase in the fair value adjustment for amortizable intangible assets would increase annual pro forma amortization by approximately $8.1 million.

The estimated fair value of amortizable intangible assets is expected to be amortized on a straight-line basis over the estimated useful lives. The amortizable lives reflect the periods over which the assets are expected to provide material economic benefit. The estimated life of the patents is based on the period over which they are expected to provide legal patent protection. The estimated lives of the trade names and brand names reflect the substantial periods over which they are expected to maintain influence in the market. The life of the customer relationships was determined after consideration of Rockwood’s historical customer buying and attrition patterns. Albemarle’s preliminary evaluations have indicated that there is relatively low turnover in Rockwood’s customers and management has no reason to believe that these general patterns will change in the future.

 

f) To fund transaction-related items, the cash portion of the merger consideration and other one-time costs, and to refinance its existing $325.0 million of 2015 5.1% Senior Notes, Albemarle is expected to incur $1.875 billion of additional debt, with maturities ranging from five to thirty years and an expected weighted average interest rate of 3.738% on the principle amount of the debt.

As of June 30, 2014, Rockwood’s estimated fair value of its unsecured Senior Notes due in 2020, which are expected to remain outstanding following the merger, was $1,304.0 million, based on quoted market values in active markets from financial service providers. The preliminary adjustment to long-term debt in connection with the merger is as follows (in millions):

 

Proceeds from borrowings, net of refinancing of 2015 Senior Notes

   $ 1,550.0   

Fair value of Rockwood’s debt assumed (including lease obligations)

     1,347.0   

Less: Rockwood’s historical long-term debt, including $10.3 of current portion

     (1,292.3
  

 

 

 

Pro forma adjustment to Long term debt

   $ 1,604.7   
  

 

 

 

Albemarle is expected to incur $30 million in debt issuance costs in conjunction with the new borrowings; these debt issuance costs will be capitalized as Deferred financing costs, net on the pro forma balance sheet and amortized over the life of the underlying debt instrument. In addition, deferred financing costs of $16.6 million related to Rockwood’s debt were written off in connection with the merger. As such, the net pro forma adjustment to Deferred financing costs on the unaudited pro forma balance sheet is $13.4 million.

 

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The preliminary adjustment reflects the estimated interest expense to be incurred by Albemarle as a result of the new borrowings (in millions):

 

     Interest expense
for the year ended
December 31, 2013
    Interest expense
for the six
months ended
June 30, 2014
 

Reversal of amortization of Rockwood deferred financing fees written off in pro forma adjustment

   $ (4.4   $ (1.3

Amortization of estimated capitalized debt issuance costs related to new borrowings

     2.2        1.1   

Amortization of fair value adjustment related to assumed debt

     (6.8     (3.4

Reversal of interest expense on 2015 Senior Notes

     (16.6     (8.3

Estimated interest expense on borrowings (1)

     70.1        35.0   
  

 

 

   

 

 

 

Pro forma adjustment

   $ 44.5      $ 23.1   

 

(1) A change of  18% (12.5 basis points) in the interest rate would result in a $2.3 million change in annual interest expense.

 

g) Transaction-related costs recognized as Selling, general, and administrative expenses by Albemarle and Rockwood related to the merger during the year ended December 31, 2013 of $0.4 million and $0.8 million, respectively, and of $0.2 million and $0.5 million for the six months ended June 30, 2014, respectively, have not been eliminated from the unaudited pro forma statement of operations as such amounts are not significant; however, these items are directly attributable to the merger and will not have an ongoing impact.

 

h) Represents the unaudited pro forma adjustment to accrued expenses of $25.9 million related to payments of retention and/or increased severance amounts expected to be paid to certain of Rockwood’s executive officers and other employees for pre combination services according to employment contracts ($16.8 million net of related income taxes receivable of $9.1 million which is recorded in Other current assets in the unaudited pro forma condensed combined balance sheet as of June 30, 2014.

 

i) Represents the elimination of Rockwood’s historical equity balances, certain of which have been adjusted for retrospective application of the accounting methodology change for pensions and OPEB plan actuarial gains and losses described in Note 2. In addition, reflects the issuance of approximately 34.2 million shares of Albemarle common stock at closing (based upon the number of shares of Rockwood common stock at September 19, 2014 and shares underlying equity compensation awards outstanding at June 30, 2014).

The unaudited pro forma adjustment to Common stock is calculated as follows (in millions):

 

Common stock from merger (34,217 shares issued at par ($0.01)

   $ 0.3   

Less: Rockwood’s historical common stock

     (0.8
  

 

 

 

Pro forma adjustment

   $ (0.5
  

 

 

 

The unaudited pro forma adjustment to Additional paid-in-capital is calculated as follows (in millions):

 

Additional paid-in-capital from merger (34,217 shares issued at $64.05 less par)

   $ 2,191.2   

Value of previously vested Rockwood stock options converted into Albemarle stock options

     39.9   

Less: Rockwood’s historical additional paid-in-capital

     (1,279.0
  

 

 

 

Pro forma adjustment

   $ 952.1   
  

 

 

 

The unaudited pro forma adjustment to Retained earnings is calculated as follows (in millions):

 

Tax benefit of one-time advisory costs

   $ 26.2   

Advisory costs

     (75.0
  

 

 

 

Total other adjustments

     (48.8
  

 

 

 

Less: Rockwood historical retained earnings, including sale of discontinued operations and accounting change

     (1,887.0
  

 

 

 

Pro Forma adjustment

   $ (1,935.8
  

 

 

 

Retained earnings was reduced for estimated transaction costs, including estimated remaining transaction fees of $75.0 million related to one-time costs ($48.8 million, net of $26.2 million of related income taxes receivable reflected in Other current assets). These estimated transaction costs have been excluded from the unaudited pro forma condensed

 

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combined statements of operations as they reflect charges directly attributable to the merger that will not have an ongoing impact on Albemarle. No significant transaction costs have been accrued by either Albemarle or Rockwood in their historical financial statements for the year ended December 31, 2013 and for the six months ended June 30, 2014.

 

j) In connection with the merger, pursuant to the change of control provisions of the RSU agreements, all RSUs will be converted into the right to receive, on the original vesting date or, if earlier, upon a qualifying termination of employment, a fixed cash payment (rather than a cash payment based on the value of shares of Rockwood common stock at the time of payment). Achievement of the performance conditions for purposes of calculating the cash payment will be determined based on total shareholder return compared to a peer group of Rockwood (in the case of performance-based restricted stock units) or the increase in the Rockwood share price (in the case of performance-based market stock units), in each case, from the beginning of the performance period through the effective date of the merger, compared to the “CIC Per Share Price.” The “CIC Per Share Price” will equal the sum of (x) the cash portion of the merger consideration ($50.65) plus (y) the product of the exchange ratio (0.4803) and the volume weighted average price of a share of Albemarle common stock over the five trading days prior to the merger. In addition, following the merger and until the vesting date, the amount payable to award recipients will accrue interest at LIBOR plus 2.0% per annum, compounded daily on the basis of a year of 364 days. The calculated value of the cash payment for purposes of the unaudited pro forma condensed combined financial statements is $81.41 per Rockwood RSU based on the closing price of Albemarle’s common stock on the NYSE of $64.05 on September 19, 2014 (the most recent practicable date prior to the filing of this joint proxy statement/prospectus). Albemarle will assume a liability in the amount of $41.8 million for the portion of the cash payments related to pre combination services and will recognize post combination expense over the remaining vesting period related to these cash payments. The unaudited pro forma condensed combined balance sheet as of June 30, 2014, includes a pro forma adjustment to Other noncurrent liabilities in the amount of $41.8 million related to this assumed liability. In addition, the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2013 and the six months ended June 30, 2014, includes a pro forma adjustment in the amount of $7.2 and $6.3, respectively, related to post combination expense estimated to be recognized by Albemarle related to these cash payments based upon post combination vesting conditions.

In addition, a pro forma adjustment to eliminate Rockwood’s Restricted stock units of $19.5 million was reflected as a result of the conversion of the RSUs into the right to receive a cash payment as discussed above.

 

k) Represents the estimated deferred income tax liability (asset) to be recorded by Albemarle as part of the accounting for the merger, based on the U.S. federal statutory tax rate of 35% multiplied by the fair value adjustments made to certain assets acquired and liabilities assumed, primarily as indicated below. The preliminary pro forma adjustment to record deferred taxes as part of the accounting for the merger was computed as follows (in millions):

 

     Adjustment to
Asset Acquired
(Liability
Assumed)
    Current
Deferred Tax
Liability (Asset)
     Noncurrent
Deferred Tax
Liability (Asset)
 

Estimated fair value adjustment of identifiable intangible assets acquired

   $ 1,609.9      $ —         $ 563.5   

Estimated fair value adjustment of inventory acquired

     80.1        28.0         —     

Estimated fair value adjustment of property, plant and equipment acquired

     689.1        —           241.2   
    

 

 

    

 

 

 

Deferred tax liabilities related to estimated fair value adjustments

     $ 28.0       $ 804.7   
    

 

 

    

 

 

 

Estimated fair value adjustment of German DTA on net operating losses

   $ —        $ —         $ 54.9   

Estimated fair value adjustment of restricted stock units compensation payable

     (22.3     —           (7.8

Estimated fair value adjustment of pension and OPEB liabilities, net

     (35.5     —           (12.4

Estimated fair value adjustment of existing Rockwood debt

     (54.7     —           (19.1
    

 

 

    

 

 

 

Deferred tax assets related to estimated fair value adjustments

     $ —         $ 15.6   
    

 

 

    

 

 

 

The unaudited pro forma adjustment to noncurrent deferred income tax assets reflects the elimination of $54.9 million of Rockwood’s deferred tax assets related to net operating losses and foreign tax credit carry forwards that management anticipates that Albemarle will not be able to realize after the completion of the merger.

For purposes of the unaudited pro forma condensed combined statement of operations, the U.S. federal statutory tax rate of 35% has been used for all periods presented. This rate does not reflect Albemarle’s effective tax rate, which includes other tax items, such as state and foreign taxes, as well as other tax charges or benefits, and does not take into account any historical or possible future tax events that may impact the combined company. Fair value and other adjustments effective at the closing of the merger could be different based on factors including but not limited to tax rates, valuation differences, further information on taxes by jurisdiction, or other factors.

 

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l) The unaudited pro forma adjustment to shares outstanding used in the calculation of basic and diluted earnings per share is calculated as follows (in thousands of shares):

 

     Year Ended December 31, 2013     Six Months Ended June 30, 2014  
         Basic             Diluted             Basic             Diluted      

Albemarle shares to be issued to shareholders of Rockwood

     36,398        36,398        35,133        35,133   

Elimination of all outstanding shares of Rockwood common stock

     (75,781     (75,781     (73,147     (73,147

Stock options to be converted into Albemarle stock options

     —          664        —          598   

Elimination of Rockwood’s stock options and other incentives

     —          (1,609     —          (1,006
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma adjustment to share information

     (39,383     (40,328     (38,014     (38,422
  

 

 

   

 

 

   

 

 

   

 

 

 

As all outstanding shares of Rockwood common stock will be eliminated in the merger, the unaudited pro forma weighted average number of basic shares outstanding is calculated by adding Albemarle’s historical weighted average number of basic shares outstanding for the period and the number of shares of Albemarle common stock expected to be issued to Rockwood shareholders in the merger. The unaudited pro forma weighted average number of diluted shares outstanding is calculated by adding Albemarle’s historical weighted average number of diluted shares outstanding for the period and the number of shares of Albemarle common stock and stock options expected to be issued in the merger. As each outstanding award of Rockwood common stock issued under any of the Rockwood Restricted Unit Plans, whether or not then vested or exercisable, will be cancelled and terminated at the effective time of the merger in exchange for the right to receive cash, such restricted units were excluded from this calculation. See Note 1 for more information about treatment of share-based compensation under the provisions of the merger agreement.

 

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