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KratonTable of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xAnnual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2012or ¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from to Commission file number 001-12658 ALBEMARLE CORPORATION(Exact name of registrant as specified in its charter) VIRGINIA 54-1692118(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)451 Florida StreetBaton Rouge, Louisiana 70801(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: 225-388-8011Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCOMMON STOCK, $.01 Par Value NEW YORK STOCK EXCHANGE Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for at least the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨Non-accelerated filer ¨ Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xNumber of shares of common stock outstanding as of February 1, 2013: 88,836,443The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $5.3 billionbased on the reported last sale price of common stock on June 29, 2012, the last business day of the registrant’s most recently completed second quarter.Documents Incorporated by ReferencePortions of Albemarle Corporation’s definitive Proxy Statement for its 2013 Annual Meeting of Shareholders to be filed with the Securities and ExchangeCommission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, are incorporated by reference into Parts II and III of thisForm 10-K. Table of ContentsAlbemarle Corporation and Subsidiaries Index to Form 10-KYear Ended December 31, 2012 Page PART I Item 1. Business 3 Item 1A. Risk Factors 11 Item 1B. Unresolved Staff Comments 19 Item 2. Properties 20 Item 3. Legal Proceedings 22 Item 4. Mine Safety Disclosures 22 Executive Officers of the Registrant 23 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6. Selected Financial Data 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 49 Item 8. Financial Statements and Supplementary Data 51 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 102 Item 9A. Controls and Procedures 102 Item 9B. Other Information 102 PART III Item 10. Directors, Executive Officers and Corporate Governance 102 Item 11. Executive Compensation 103 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 103 Item 13. Certain Relationships and Related Transactions, and Director Independence 103 Item 14. Principal Accountant Fees and Services 103 PART IV Item 15. Exhibits and Financial Statement Schedules 103 Signatures 107 2 Table of ContentsAlbemarle Corporation and Subsidiaries PART I Item 1.Business.Albemarle Corporation was incorporated in Virginia in 1993. Our principal executive offices are located at 451 Florida Street, Baton Rouge, Louisiana70801. Unless the context otherwise indicates, the terms “Albemarle,” “we,” “us,” “our” or “the Company” mean Albemarle Corporation and our consolidatedsubsidiaries.We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals that meet customer needs across an exceptionallydiverse range of end markets including the petroleum refining, consumer electronics, plastics/packaging, construction, automotive, lubricants,pharmaceuticals, crop protection, food safety and custom chemistry services markets. We are committed to global sustainability and are advancingresponsible eco-practices and solutions in our three business segments. We believe that our commercial and geographic diversity, technical expertise, innovativecapability, flexible, low-cost global manufacturing base, experienced management team, and strategic focus on our core base technologies will enable us tomaintain leading market positions in those areas of the specialty chemicals industry in which we operate.We and our joint ventures currently operate 51 facilities, encompassing production, research and development facilities, and administrative and salesoffices in North and South America, Europe, the Middle East, Asia, Africa and Australia. We serve approximately 2,800 customers in approximately 100countries. For information regarding our unconsolidated joint ventures see Note 8, “Investments” to our consolidated financial statements included in Item 8beginning on page 51.Business SegmentsOur operations are managed and reported as three operating segments: Polymer Solutions, Catalysts and Fine Chemistry.For financial information regarding our operating segments, including revenues generated for each of the last three fiscal years from each of the productcategories included in our operating segments, and geographic areas, see Note 23, “Operating Segments and Geographic Area Information” to our consolidatedfinancial statements included in Item 8 beginning on page 51.Polymer SolutionsOur Polymer Solutions segment consists of two product market categories: flame retardants, and stabilizers and curatives.Flame Retardants. Our fire safety technology enables the use of plastics in high performance, high heat applications by enhancing the flame resistantproperties of these materials. Some of the end market products that benefit from our fire safety technology include plastic enclosures for consumer electronics,printed circuit boards, wire and cable, electrical connectors, textiles and foam insulation. We compete in two major fire safety chemistries: brominated andmineral. Our brominated flame retardants include products sold under the Saytex and Earthwise brands and our mineral-based flame retardants includeproducts such as Martinal and Magnifin. Our strategy is to have a broad range of chemistries applicable to each major flame retardant application.Stabilizers and Curatives. We produce plastic additives as well as other additives, such as curatives, antioxidants and stabilizers, which are oftenspecially developed and formulated for a customer’s specific manufacturing requirements. Our additives products include curatives for polyurethane,polyurea and epoxy system polymerization. This business also produces antioxidants and stabilizers to improve the performance integrity of thermoplasticresins. We are well-positioned for global growth, notably with our leading antioxidant supplier position in the rapidly growing Chinese market.Our Ethacure curatives are used in cast elastomers, coatings, reaction injection molding (RIM) and specialty adhesives that are incorporated intoproducts such as wheels, tires and rollers. Our line of Ethanox antioxidants is used by manufacturers of polyolefins to maintain physical properties duringthe manufacturing process, including the color of the final product. These antioxidants are found in applications such as slit film, wire and cable, foodpackaging and pipes.We also produce antioxidants used in fuels and lubricants. Our line of Ethanox fuel and lubricant antioxidants is used by refiners and fuel marketersto extend fuel storage life and protect fuel systems, and by oil marketers and lubricant manufacturers to extend the useful life of lubricating oils, fluids andgreases used in engines and various types of machinery.CustomersOur Polymer Solutions segment offers more than 80 products to a variety of end markets. We sell our products mostly to chemical manufacturers andprocessors, such as polymer resin suppliers, lubricant manufacturers, refiners and other specialty chemical companies. 3®TM®®®®® Table of ContentsAlbemarle Corporation and Subsidiaries Sales of Polymer Solutions in Asia are expected to grow long-term due to the underlying growth in consumer demand and the shift of the production ofconsumer electronics from the United States (U.S.) and Europe to Asia. In response to this development, we have established a sales and marketing network inChina, Japan, Korea and Singapore with products sourced from the U.S., Europe, China and the Middle East. We are now operating two production facilitiesin China to deliver polymer solutions products to this rapidly growing market.A number of customers of our Polymer Solutions segment manufacture products for cyclical industries, including the consumer electronics, buildingand construction, and automotive industries. As a result, demand from our customers in such industries is also cyclical.CompetitionOur Polymer Solutions segment serves the following geographic markets: the U.S., Asia, Europe and the Middle East, each of which is highlycompetitive. Product performance and quality, price competition and contract terms are the primary factors in determining which qualified supplier is awardeda contract. Research and development, product and process improvements, specialized customer services, the ability to attract and retain skilled personnel andmaintenance of a good safety record have also been important factors to compete effectively in the Polymer Solutions marketplace.Competition also arises from the substitution of different polymers and resin systems in end-products in an effort to reduce costs or change productqualities. For flame retardants, competition can be introduced from alternative chemistries, which is why our product portfolio includes bromine and mineralchemistries that are common in over 70% of end uses today. For other additives, competition is introduced by low-cost antioxidant suppliers. We offer ourbasic antioxidant products from lower cost manufacturing sites in China.We are a market leader in the brominated flame retardants business and our most significant competitors are Chemtura Corporation and IsraelChemicals Ltd., Industrial Products division, or Israel Chemicals. We are also a market leader in the mineral-based flame retardants business. In our mineral-based flame retardants business, our most significant competitors include J.M. Huber Corporation, Kyowa Chemical Industry Co., Ltd. and NabaltecGmbH. We are a significant player in the stabilizers business and our most significant competitors are BASF Corporation, Chemtura Corporation, which hasrecently announced the sale of its antioxidant and UV stabilizers business to SK Capital, and Songwon Industrial Co., Ltd.Raw Materials and Significant Supply ContractsThe major raw materials we use in our Polymer Solutions operations are bromine, bisphenol-A, phenol, benzene, caustic soda, alumina trihydrate,polystyrene and isobutylene, most of which are readily available from numerous independent suppliers and are purchased under contracts at prices we believeare competitive. The cost of raw materials is generally based on market prices although we may use contracts with price caps or other tools, as appropriate, tomitigate price volatility. Many of our customers operate under long-term supply contracts that provide for either the pass-through of raw material and energycost changes, or pricing based on short-term “tenders” in which changing market conditions are quickly reflected in the pricing of the finished product.The bromine we use in our Polymer Solutions segment comes from two locations: Arkansas and the Dead Sea. Our brine reserves in Arkansas aresupported by an active brine rights leasing program. We believe that we have in excess of 50 years of proven bromine reserves in Arkansas. In addition,through our 50% interest in Jordan Bromine Company Limited, or JBC, a consolidated joint venture with operations in Safi, Jordan, we produce brominefrom the Dead Sea, which has virtually inexhaustible reserves. In addition, we have a joint venture with Weifang Sinobrom Import and Export Company,Ltd., or Sinobrom, in China that allows us the option to source bromine directly from China’s Shandong Province brine fields.CatalystsOur Catalysts segment includes our refinery catalysts and performance catalyst solutions businesses.Refinery Catalysts. Our two main refinery catalysts businesses are hydroprocessing catalysts (HPC) and fluidized catalytic cracking (FCC) catalystsand additives. HPCs are widely applied throughout the refining industry. Their application enables the upgrading of oil fractions to clean fuels and otherusable oil products by removing sulfur, nitrogen and other impurities from the feedstock. In addition, they improve product properties by adding hydrogenand in some cases improve the performance of downstream catalysts and processes. Albemarle continuously seeks to add more value to refinery operations byoffering HPCs that meet our customers’ requirements for profitability and performance in the very demanding refining market. FCC catalysts assist in thehigh yield cracking of less desired refinery petroleum streams into derivative, higher-value products such as transportation fuels and petrochemical feedstockslike propylene. Our FCC additives are used to reduce emissions of sulfur dioxide and nitrogen oxide in FCC units and to increase liquefied petroleum gasolefins yield, such as propylene, and to boost octane in gasoline. Albemarle offers unique refinery catalysts to crack and treat the lightest to the heaviestfeedstocks while meeting refinery yield and product needs. We offer a wide range of HPC products and approximately 50 different FCC catalysts andadditives products to our customers. 4 Table of ContentsAlbemarle Corporation and Subsidiaries Performance Catalyst Solutions (PCS). We have three business units in our PCS division: polymer catalysts, chemical catalysts, and electronicmaterials. We manufacture organometallic co-catalysts (e.g., aluminum, magnesium and zinc alkyls) as well as metallocene components and co-catalysts (e.g.,methylaluminumoxane, organoborons, metallocene compounds, and finished polymerization catalysts comprising these products). We also offer finishedSingle-Site catalysts with or without our proprietary ActivCat technology and a line of proprietary Ziegler-Natta catalysts under the Advantage brand. Ourco-catalysts and finished catalysts are used in our customers’ production of polyolefin polymers. Such polymers are commodity (i.e., Ziegler-Nattapolymerization technology-based) and specialty (i.e., Single Site polymerization technology-based) plastics serving a wide variety of end markets includingpackaging, non-packaging, films and injection molding. Some of our organometallic products are also used in the manufacture of alpha-olefins (i.e., hexene,octene, decene). In electronic materials, we manufacture and sell high purity metal organic products into electronic applications such as the production of lightemitting diodes (LEDs) for displays and general lighting, as well as other products used in the production of solar cells. Our chemical catalysts include avariety of catalysts used in the broad chemical industry, for example, catalysts used in the production of ethylene dichloride and methylamines, among others.CustomersOur Catalysts segment customers include multinational corporations such as ExxonMobil Corporation, Chevron Corporation, TOTAL S.A., SaudiBasic Industries Corporation and INEOS Group Holdings S.A.; independent petroleum refining companies such as Valero Energy Corporation and SKHoldings; and national petroleum refining companies such as Reliance, Petróleo Brasileiro S.A. and Petróleos Mexicanos.We estimate that there are currently approximately 450 FCC units being operated globally, each of which requires a constant supply of FCC catalysts. Inaddition, we estimate that there are approximately 3,000 HPC units being operated globally, each of which typically requires replacement HPC catalysts onceevery one to three years. There are approximately 1,000 polyolefin and elastomer units worldwide which require a constant supply of co-catalysts and finishedcatalysts.CompetitionOur Catalysts segment serves the global market including the Americas, Asia, Europe and the Middle East, each of which is highly competitive.Product performance and quality, price competition and contract terms are the primary factors in determining which qualified supplier is awarded a contract.Research and development, product and process improvements, specialized customer services, the ability to attract and retain skilled personnel and themaintenance of a good safety record have also been important factors to compete effectively in the Catalysts marketplace. Through our research anddevelopment programs, we strive to differentiate our business by developing value-added products and products based on proprietary technologies.We are a market leader in the HPC, FCC and polyolefin organometallic catalysts markets. Our major competitors in the HPC catalysts market includeCriterion Catalysts and Technologies, Advanced Refining Technologies and Haldor Topsoe. Our major competitors in the FCC catalysts market include W.R.Grace & Co. and BASF Corporation. Our major competitors in the organometallics market include AkzoNobel and Chemtura Corporation, as well as W.R.Grace & Co. and BASF in the Ziegler-Natta catalysts area. Some of our major catalysts competitors have alliances with global major refiners to facilitate newproduct development and introduction.Raw MaterialsThe major raw materials we use in our Catalysts operations include aluminum, ethylene, alpha-olefins, sodium silicate, sodium aluminate, kaolin, rareearths, molybdenum, nickel and cobalt, most of which are readily available from numerous independent suppliers and are purchased or provided undercontracts at prices we believe are competitive. The cost of raw materials is generally based on market prices, although we may use contracts with price caps orother tools, as appropriate, to mitigate price volatility. These raw materials may nevertheless be subject to significant volatility despite our mitigating efforts.Our profitability may be affected if we are unable to recover significant raw material costs from our customers. 5®TM Table of ContentsAlbemarle Corporation and Subsidiaries Fine ChemistryOur Fine Chemistry (formerly Fine Chemicals) segment consists of two categories: performance chemicals and fine chemistry services andintermediates.Performance Chemicals. Performance chemicals include products such as elemental bromine, alkyl bromides, inorganic bromides, brominatedpowdered activated carbon and a number of bromine fine chemicals. Our products are used in chemical synthesis, oil and gas well drilling and completionfluids, mercury control, paper manufacturing, water purification, beef and poultry processing and various other industrial applications. Other performancechemicals that we produce include tertiary amines for surfactants, biocides, disinfectants and sanitizers; potassium-based products used in industrialapplications; alkenyl succinic anhydride used in paper-sizing formulations; and aluminum oxides used in a wide variety of refractory, ceramic and polishingapplications. We sell these products to customers throughout the world for use in personal care products, automotive insulation, foundry bricks and otherindustrial products.Fine Chemistry Services and Intermediates. In addition to supplying the specific fine chemistry products and performance chemicals for thepharmaceutical and agricultural uses described below, our fine chemistry services business offers custom manufacturing, research and chemical scale-upservices for companies. We believe that these services position us to support customers in developing their new products, such as new drugs, specialtymaterials and chemicals from renewables.Our most significant pharmaceutical bulk active is ibuprofen. Ibuprofen is widely used to provide temporary pain relief and fever reduction. Bulkibuprofen is formulated by pharmaceutical companies that sell in both the prescription and over-the-counter markets. This product competes against otherpainkillers, including aspirin and acetaminophen. We are one of the largest global producers of ibuprofen. We also produce a range of intermediates used in themanufacture of a variety of over-the-counter and prescription drugs.Our agrichemicals are sold to agrichemical manufacturers and distributors that produce and distribute finished agricultural herbicides, insecticides,fungicides and soil fumigants. Our products include orthoalkylated anilines used in the acetanilide family of pre-emergent herbicides used with corn,soybeans and other crops and methyl bromide, which is used as a soil fumigant. We also manufacture and supply a variety of custom chemical intermediatesfor the agricultural industry.In recent years, the market for methyl bromide has changed significantly, driven by the Montreal Protocol of 1990 and related regulations prompted byfindings regarding the chemical’s potential to deplete the ozone layer. Methyl bromide is injected into the soil by end users before planting to eliminate bacteria,nematodes, fungus and weeds. Methyl bromide is used on high-value crops, such as strawberries, tomatoes, melons and peppers.We will continue to sell methyl bromide in our current markets as regulations allow. In accordance with the Montreal Protocol and the U.S. Clean AirAct, completion of the phase-out of methyl bromide as a fumigant in the U.S., Western Europe and Japan took effect in 2005. Methyl bromide, however, cancontinue to be used for “critical uses” where there are no other alternatives. Growers submit applications on a yearly basis detailing the amount of methylbromide they will need for critical uses. Once approved by the U.S. Environmental Protection Agency (EPA), the U.S. submits the application for approval bythe parties to the Montreal Protocol. The critical use process is done annually and will continue until feasible alternatives are available. Certain other marketsfor methyl bromide, including quarantine and pre-shipment and chemical intermediate uses, are not restricted by the Montreal Protocol.CustomersOur Fine Chemistry segment manufactures more than 100 products, which are used in a variety of end markets. Sales of products and services aremostly to chemical manufacturers and processors (including pharmaceutical and agricultural companies), drilling and oil service companies, beef and poultryprocessors, water treatment and photographic companies, energy producers and other specialty chemical companies.Pricing for many of our fine chemistry products and services is based upon negotiation with customers. The critical factors that affect prices are thelevel of technology differentiation we provide, the maturity of the product and the level of assistance required to bring a new product through a customer’sdevelopmental process.CompetitionOur Fine Chemistry segment serves the following geographic markets: the Americas, Asia, Europe and the Middle East, each of which is highlycompetitive. Product performance and quality, price competition and contract terms are the primary factors in determining which qualified supplier is awardeda contract. Research and development, product and process improvements, specialized customer services, the ability to attract and retain skilled personnel andthe maintenance of a good safety record have also been important factors to compete effectively in the fine chemistry marketplace. 6 Table of ContentsAlbemarle Corporation and Subsidiaries We are a market leader in the bromine-based product groups and primarily compete with two other integrated global bromine producers, ChemturaCorporation and Israel Chemicals. We are a leading producer of pharmaceutical bulk actives (i.e., ibuprofen and propofol) and we primarily compete with afew major Western competitors, such as BASF Corporation, Lonza, Clariant Ltd. and Cilag AG; however, there is increasing competition from Asian sources.We differentiate ourselves from our competitors by developing new, high quality innovative products, offering cost reductions and enhancing the services thatwe offer.Raw MaterialsThe major raw materials we use in our Fine Chemistry operations include potassium chloride, chlorine, ammonia, aluminum chloride, alpha-olefins,methyl amines and propylene, most of which are readily available from numerous independent suppliers.The bromine that we use in our Fine Chemistry segment comes from two locations: Arkansas and the Dead Sea. Our brine reserves in Arkansas aresupported by an active brine rights leasing program. We believe that we have in excess of 50 years of proven bromine reserves in Arkansas. In addition,through our 50% interest in JBC, a consolidated joint venture with operations in Safi, Jordan, we produce bromine from the Dead Sea, which has virtuallyinexhaustible reserves. In addition, we have our Sinobrom joint venture in China that allows us the option to source bromine directly from China’s ShandongProvince brine fields.Sales, Marketing and DistributionWe have an international strategic account program that uses cross-functional teams to serve large global customers. This program emphasizes creativestrategies to improve and strengthen strategic customer relationships with emphasis on creating value for customers and promoting post-sale service.Complementing this program are regional Albemarle sales personnel around the world who serve numerous additional customers within North America,Europe, the Middle East, India, Asia Pacific, Russia, Africa and Latin America. We also use approximately 90 selected distributors, commissioned salesrepresentatives and specialists in specific market areas, some of which are subsidiaries of large chemical companies.Research and DevelopmentWe believe that in order to generate revenue growth, maintain our margins and remain competitive, we must continually invest in research anddevelopment, product and process improvements and specialized customer services. Through research and development, we continue to seek increasedmargins by introducing value-added products and proprietary processes and innovative green chemistry technologies. Our green chemistry efforts focus on thedevelopment of products that benefit society in a manner that minimizes waste and the use of raw materials and energy, avoids the use of toxic reagents andsolvents and is produced in safe, environmentally friendly manufacturing processes. Green chemistry is encouraged with our researchers through periodicfocus group discussions and special rewards and recognition for outstanding new green developments.Our research and development efforts support each of our business segments. The focus of research in Polymer Solutions is divided among new andimproved flame retardants, plastic and other additives and blends, and curing agents. Flame retardant research is focused primarily on developing new flameretardants which not only meet the higher performance requirements required by today’s polymer producers, formulators and original equipmentmanufacturers but which also have superior toxicological and environmental profiles, such as our newly commercialized Greenarmor flame retardantproduct, that are greatly enhanced in both end product performance and environmental responsibility. Plastic and other additives research is focused primarilyon developing improved capabilities to deliver commodity and value-added plastic and other additive blends to the polymer market. Curatives research isfocused primarily on improving and extending our line of curing agents and formulations.Catalysts research is focused on the needs of our refinery catalysts customers, our performance catalysts customers and developing metal organics forLED and other electronic applications. Refinery catalysts research is focused primarily on the development of more effective catalysts and related additives toproduce clean fuels and to maximize the production of the highest value refined products. In the performance catalysts area, we are focused primarily oncatalysts, co-catalysts and finished catalysts systems for polymer producers to meet the market’s demand for improved polyolefin polymers and elastomers aswell as metal organics for electronic customers.The primary focus of our Fine Chemistry research program is the development of efficient processes for the manufacture of chemical intermediates andactives for the pharmaceutical and agrichemical industries. Another area of research is the development of bromine-based products for use as biocides inindustrial water treatment and food safety applications and as additives used to reduce mercury emissions from coal-fired power plants.We have recognized research and development expenses of $78.9 million, $77.1 million, and $58.4 million in 2012, 2011 and 2010, respectively. 7TM Table of ContentsAlbemarle Corporation and Subsidiaries Intellectual PropertyOur intellectual property, including our patents, licenses and trade names, is an important component of our business. As of December 31, 2012, weowned approximately 1,700 active U.S. and foreign patents and approximately 1,400 pending U.S. and foreign patent applications. We also have acquiredrights under patents and inventions of others through licenses, and we license certain patents and inventions to third parties.RegulationOur business is subject to a broad array of employee health and safety laws and regulations, including those under the Occupational Safety and HealthAct. We also are subject to similar state laws and regulations as well as local laws and regulations for our non-U.S. operations. We devote significant resourcesand have developed and implemented comprehensive programs to promote the health and safety of our employees and we maintain an active health, safety andenvironmental program. We finished 2012 with an occupational injury and illness rate of 0.23 for Albemarle employees and nested contractors, down from0.29 in 2011.Our business and our customers also may be subject to significant requirements under the European Community Regulation for the Registration,Evaluation and Authorization of Chemicals (REACH). REACH imposes obligations on European Union manufacturers and importers of chemicals and otherproducts into the European Union to compile and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safetyassessments. Additionally, substances of high concern—such as Carcinogenic, Mutagenic and Reprotoxic (CMRs); Persistent, Bioaccumulative and Toxic(PBTs); very Persistent, very Bioaccumulative (vPvB); and endocrine disruptors—will be subject to an authorization process. Authorization may result inrestrictions in the use of products by application or even banning the product. In 2009, one of our products was designated by European regulators as aSubstance of Very High Concern under authorization, Hexabromocyclododecane (HBCD). Our sales of HBCD approximated 1.9%, 2.1% and 1.2% of ourtotal annual net sales in 2012, 2011 and 2010, respectively. In 2012, another of our products, decabromodiphenyl ether (decaBDE) similarly was nominatedas a Substance of Very High Concern. Our sales of decaBDE approximated 0.7%, 0.7% and 1.1% of our total annual net sales in 2012, 2011, and 2010,respectively. In accordance with our voluntary commitment announced in 2009, Albemarle ceased production of decaBDE effective at the end of 2012.The REACH regulations impose significant additional burdens on chemical producers, importers, downstream users of chemical substances andpreparations, and the entire supply chain. Our significant manufacturing presence and sales activities in the European Union will require us to incursignificant additional compliance costs and may result in increases in the costs of raw materials we purchase and the products we sell. Increases in the costs ofour products could result in a decrease in their overall demand; additionally, customers may seek products that are not regulated by REACH, which couldalso result in a decrease in the demand of certain of our products subject to the REACH regulations.Recently, there has been increased scrutiny of certain brominated flame retardants by regulatory authorities, legislative bodies and environmental interestgroups in various countries. We manufacture a broad range of brominated flame retardant products, which are used in a variety of applications. Concernabout the impact of some of our products on human health or the environment may lead to regulation or reaction in our markets, independent of regulation.Environmental RegulationWe are subject to numerous foreign, federal, state and local environmental laws and regulations, including those governing the discharge of pollutantsinto the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated properties. Ongoing compliancewith such laws and regulations is an important consideration for us. Key aspects of our operations are subject to these laws and regulations. In addition, weincur substantial capital and operating costs in our efforts to comply with them.Liabilities associated with the investigation and cleanup of hazardous substances, as well as personal injury, property damages or natural resourcedamages arising from the release of, or exposure to, such hazardous substances, may be imposed in many situations without regard to violations of laws orregulations or other fault, and may also be imposed jointly and severally (so that a responsible party may be held liable for more than its share of the lossesinvolved, or even the entire loss). Such liabilities also may be imposed on many different entities with a relationship to the hazardous substances at issue,including, for example, entities that formerly owned or operated the property affected by the hazardous substances and entities that arranged for the disposal ofthe hazardous substances at the affected property, as well as entities that currently own or operate such property. We are subject to such laws, including thefederal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, in the U.S., and similarforeign and state laws. We may have liability as a potentially responsible party (PRP) with respect to active off-site locations under CERCLA or stateequivalents. We have sought to resolve our liability as a PRP at these sites through indemnification by third parties and settlements, which would provide forpayment of our allocable share of remediation costs. Because the cleanup costs are estimates and are subject to revision as more information becomes availableabout the extent of 8 Table of ContentsAlbemarle Corporation and Subsidiaries remediation required, and in some cases we have asserted a defense to any liability, our estimates could change. Moreover, liability under CERCLA andequivalent state statutes may be joint and several, meaning that we could be required to pay in excess of our pro rata share of remediation costs. Ourunderstanding of the financial strength of other PRPs has been considered, where appropriate, in estimating our liabilities. Accruals for these matters areincluded in the environmental reserve discussed below. Our management is actively involved in evaluating environmental matters and, based on informationcurrently available to us, we have concluded that our outstanding environmental liabilities for unresolved waste sites currently known to us should not have amaterial effect on our operations.We use and generate hazardous substances and wastes in our operations and may become subject to claims for personal injury and/or property damagerelating to the release of such substances into the environment. In addition, some of our current properties are, or have been, used for industrial purposes,which could contain currently unknown contamination that could expose us to governmental requirements or claims relating to environmental remediation,personal injury and/or property damage. While we conduct our operations so as to minimize the risk of incurring such losses, the nature of our business andthe types of operations in which we engage create a potential for such losses to occur. These risks could expose us to substantial liability for personal injury,wrongful death, property damage, loss of production, pollution and other environmental damages. Depending on the frequency and severity of such incidents,it is possible that the Company’s operating costs, insurability and relationships with customers, employees and regulators could be impaired. In particular,our customers may elect not to purchase our product if they view our safety record as unacceptable. This could also cause us to lose customers andsubstantial revenues. However, we believe that the likelihood of an environmental-related catastrophic occurrence or a series of occurrences that couldmaterially affect the Company’s financial position or competitiveness is low.We record accruals for environmental and asset retirement obligation matters when it is probable that a liability has been incurred and the amount of theliability can be reasonably estimated. It is possible that new information or future developments could require us to reassess our potential exposure related toenvironmental matters. We may incur significant costs and liabilities in order to comply with existing environmental laws and regulations. It is also possiblethat other developments, such as increasingly strict environmental laws, regulations and orders of regulatory agencies, as well as claims for damages toproperty and the environment or injuries to employees and other persons resulting from our current or past operations, could result in substantial costs andliabilities in the future. As this information becomes available, or other relevant developments occur, we will adjust our accrual amounts accordingly. Whilethere are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we believe our reserves are adequate.We cannot assure you that, as a result of former, current or future operations, there will not be some future impact on us relating to new regulations oradditional environmental remediation or restoration liabilities. See “Safety and Environmental Matters” in Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations on page 48.Climate ChangeThe growing concerns about climate change and the related imposition by governments of more stringent regulations may provide us with new orexpanded business opportunities. The Company seeks to capitalize on the “green revolution” by providing solutions to companies pursuing alternative fuelproducts and technologies (such as renewable fuels, gas-to-liquids and others), emission control technologies (including mercury emissions) and other similarsolutions. As demand for, and legislation mandating or incentivizing the use of alternative fuel technologies that limit or eliminate greenhouse gas emissionsincrease, we continue to monitor the market and offer solutions where we have appropriate technology and believe we are well positioned to take advantage ofopportunities that may arise if new legislation is enacted. See page 15 for further discussion on climate change in Item 1A. Risk Factors. 9 Table of ContentsAlbemarle Corporation and Subsidiaries Recent Acquisitions and Joint VenturesOver the last three years, we have devoted resources to acquisitions and joint ventures, including the subsequent integration of acquired businesses.These acquisitions and joint ventures have expanded our base business, provided our customers with a wider array of products and presented new alternativesfor discovery through additional chemistries. Following is a summary of our acquisitions and joint ventures during recent years.On May 11, 2011, we announced that we had expanded our presence in the biofuels market with the acquisition of Catilin Inc., based in Ames, Iowa.On December 6, 2010, we announced that we had signed a memorandum of understanding to build a world-scale HPC production plant on the site ofour existing joint venture Fábrica Carioca de Catalisadores SA (FCC SA) in Santa Cruz, Brazil with Petrobras. The new facility will complement existingproduction of FCC catalysts. We are also further enhancing our partnership with Petrobras by engaging in a joint technical cooperation aimed at the furtherdevelopment of advanced HPC products, mirroring our very successful existing cooperation in the area of FCC catalysts.On September 13, 2010, we announced the purchase of certain property and equipment in Yeosu, South Korea in connection with our plans for buildinga metallocene polyolefin catalyst and trimethyl gallium (TMG) manufacturing site. The site will effectively mirror Albemarle’s world scale metallocenepolyolefin catalyst and TMG capabilities located in Baton Rouge, Louisiana. Production of metallocene polyolefin catalysts and co-catalysts is expected tobegin in the first half of 2013 and production of TMG is expected to begin in late 2013.On October 27, 2009, we entered into an agreement with Ibn Hayyan Plastic Products Company (TAYF), an affiliate of Saudi Basic IndustriesCorporation (SABIC), to form a joint venture called Saudi Organometallic Chemicals Company (SOCC). Under the terms of the joint venture agreement, thetwo parent companies will build a world-scale organometallics production facility strategically located in the Arabian gulf industrial city of Al-Jubail. Thisfacility is expected to be operational in early 2013.EmployeesAs of December 31, 2012, we had 4,304 employees of whom 2,156, or 50%, are employed in the U.S.; 1,150, or 27%, are employed in Europe; 613,or 14%, are employed in Asia and 385, or 9%, are employed in the Middle East. Approximately 17% of our U.S. employees are unionized. We havebargaining agreements at three of our U.S. locations: • Baton Rouge, Louisiana—United Steel Workers (USW); • Orangeburg, South Carolina—International Brotherhood of Teamsters-Industrial Trades Division (IBT); and • Pasadena, Texas—USW; Sheet Metal Workers International Association (SMWIA); United Association of Journeymen & Apprentices ofPlumbing and Pipefitting Industry (UAJAPPI); and International Brotherhood of Electrical Workers (IBEW).We believe that we have good working relationships with these unions, and we have operated without a labor work stoppage at each of these locations formore than 19 years. Bargaining agreements expire at our Orangeburg, South Carolina location in 2013, our Pasadena, Texas location in 2014 and our BatonRouge, Louisiana location in 2015.We have two works councils representing the majority of our European sites—Amsterdam, the Netherlands and Bergheim, Germany—coveringapproximately 900 employees. In addition, we have approximately 14 employees at our manufacturing facility in Avonmouth, United Kingdom that arerepresented by unions through a current collective bargaining agreement. We believe that we have a generally good relationship with these councils andbargaining representatives. During 2012, we recorded workforce reduction charges of approximately $21.6 million in connection with our exit of thephosphorus flame retardants business, whose products were sourced mainly at our Avonmouth, United Kingdom and Nanjing, China manufacturing sites.During 2010, approximately $6.6 million of workforce reduction charges were recorded related to a restructuring program at our Bergheim, Germany location.Available InformationOur internet website address is http://www.albemarle.com. We make available free of charge through our website our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of theSecurities Exchange Act of 1934, as amended (Exchange Act), as well as reports on Forms 3, 4 and 5 filed pursuant to Section 16 of the Exchange Act, assoon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). Theinformation on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC. Thesereports may also be obtained at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The SEC also maintains a website athttp://www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Albemarle. 10 Table of ContentsAlbemarle Corporation and Subsidiaries Our Corporate Governance Guidelines, Code of Business Conduct and the charters of the Audit, Health, Safety and Environmental, ExecutiveCompensation, and Nominating and Governance Committees are also available on our website and are available in print to any shareholder upon request bywriting to Investor Relations, 451 Florida Street, Baton Rouge, Louisiana 70801, or by calling (225) 388-8011. Item 1A.Risk Factors.You should consider carefully the following risks when reading the information, including the financial information, contained in this Annual Report onForm 10-K.Adverse conditions in the global economy and volatility and disruption of financial markets can negatively impact our customers and suppliersand therefore have a material adverse effect on our results of operations.A global economic downturn may reduce customer demand or inhibit our ability to produce our products, negatively impacting our operating results.Our business and operating results have been and will continue to be sensitive to global economic downturns (including credit market tightness which canimpact our liquidity as well as our customers and suppliers), declining consumer and business confidence, fluctuating commodity prices, volatile exchangerates and other challenges that can affect the global economy. Our customers may experience deterioration of their businesses, cash flow shortages anddifficulty obtaining financing. As a result, existing or potential customers can delay or cancel plans to purchase products and may not be able to fulfill theirobligations in a timely fashion. Further, suppliers may be experiencing similar conditions, which could impact their ability to fulfill their obligations to us. Ifthe current weakness in much of the global economy continues for an extended period or deepens significantly, our results of operations, financial conditionand cash flows could be materially adversely affected.In the U.S., absent further Congressional action, an automatic reduction in federal spending, or “sequestration” is to be triggered pursuant to the BudgetControl Act of 2011, which, combined with the expiration of certain tax cuts on December 31, 2012, has typically been known as the “Fiscal Cliff.” WhileCongress did agree to a package of tax and federal spending proposals in January 2013, these did not eliminate the “sequestration” threat, but moved it back toMarch 1, 2013. If Congress resolves the Fiscal Cliff through changes within the corporate tax structure, this could result in an increase of our effective taxrate, which could adversely impact our results of operations, financial condition and cash flows. Moreover, if the U.S. Federal Reserve Bank decided totighten monetary supply in response to congressional action or inaction regarding the Fiscal Cliff, we may incur increased borrowing costs as our interest ratescould increase on our variable rate credit facilities, when our various credit facilities mature or when we refinance maturing fixed rate debt obligations.Our inability to pass through increases in costs and expenses for raw materials and energy, on a timely basis or at all, could have a materialadverse effect on the margins of our products.Our raw material and energy costs can be volatile and may increase significantly. Increases are primarily driven by significantly tighter marketconditions and major increases in the pricing of basic building blocks for our products such as crude oil, chlorine and metals (including molybdenum andrare earths which are used in the refinery catalysts business). We generally attempt to pass through changes in the prices of raw materials and energy to ourcustomers, but we may be unable to or be delayed in doing so. Our inability to efficiently and effectively pass through price increases, or inventory impactsresulting from price volatility, could adversely affect our margins. In addition to raising prices, raw material suppliers may extend lead times or limit supplies.Constraints on the supply or delivery of critical raw materials could disrupt production and adversely affect the performance of our business.We face competition from other specialty chemical companies, which places downward pressure on the prices and margins of our products.We operate in a highly competitive marketplace, competing against a number of domestic and foreign specialty chemical producers. Competition isbased on several key criteria, including product performance and quality, product price, product availability and security of supply and responsiveness ofproduct development in cooperation with customers and customer service. Some of our competitors are larger than we are and may have greater financialresources. These competitors may also be able to maintain significantly greater operating and financial flexibility than we do. As a result, these competitorsmay be better able to withstand changes in conditions within our industry, changes in the prices of raw materials and energy and in general economicconditions. Additionally, competitors’ pricing decisions could compel us to decrease our prices, which could affect our margins and profitability adversely.Our ability to maintain or increase our profitability is, and will continue to be, dependent upon our ability to offset decreases in the prices and margins of ourproducts by improving production efficiency and volume, shifting to higher margin chemical products and improving existing products through innovationand research and development. If we are unable to do so or to otherwise maintain our competitive position, we could lose market share to our competitors. 11 Table of ContentsAlbemarle Corporation and Subsidiaries Albemarle’s brands, product image and trademarks represent the unique product identity of each of our products and are important symbols of theCompany’s reputation. Accordingly, the performance of our business could be adversely affected by any marketing and promotional materials used by ourcompetitors that make false or unsubstantiated claims, implies immoral or improper conduct or is otherwise disparaging to our Company or its products.Further, our own actions could hurt such brands, product image and trademarks if our products underperform or we otherwise draw negative publicity.Downturns in our customers’ cyclical industries could adversely affect our sales and profitability.Downturns in the businesses that use our specialty chemicals will adversely affect our sales. Many of our customers are in industries, including theelectronics, building and construction and automotive industries, that are cyclical in nature and sensitive to changes in general economic conditions.Historically, downturns in general economic conditions have resulted in diminished product demand, excess manufacturing capacity and lower average sellingprices, and we may experience similar problems in the future. A decline in economic conditions in our customers’ cyclical industries may have a materialadverse effect on our sales and profitability.Our results are subject to fluctuation because of irregularities in the demand for our HPC catalysts and certain of our agrichemicals.Our HPC catalysts are used by petroleum refiners in their processing units to reduce the quantity of sulfur and other impurities in petroleum products.The effectiveness of HPC catalysts diminishes with use, requiring the HPC catalysts to be replaced, on average, once every one to three years. The sales of ourHPC catalysts, therefore, are largely dependent on the useful life cycle of the HPC catalysts in the processing units and may vary materially by quarter. Inaddition, the timing and profitability of HPC catalysts sales can have a significant impact on revenue and profit in any one quarter. Sales of our agrichemicalsare also subject to fluctuation as demand varies depending on climate and other environmental conditions, which may prevent or reduce farming for extendedperiods. In addition, crop pricing and timing of when farms alternate from one crop to another crop in a particular year can also alter sales of agrichemicals.Changes in our customers’ products can reduce the demand for our specialty chemicals.Our customers use our specialty chemicals for a broad range of applications. Changes in our customers’ products or processes may enable ourcustomers to reduce consumption of the specialty chemicals that we produce or make our specialty chemicals unnecessary. Customers may also findalternative materials or processes that no longer require our products. For example, many of our flame retardants are incorporated into resin systems to enhancethe flame retardancy of a particular polymer. Should a customer decide to use a different polymer due to price, performance or other considerations, we maynot be able to supply a product that meets the customer’s new requirements. Consequently, it is important that we develop new products to replace the sales ofproducts that mature and decline in use. Our business, results of operations, cash flows and margins could be materially adversely affected if we are unable tomanage successfully the maturation of our existing products and the introduction of new products.Our research and development efforts may not succeed and our competitors may develop more effective or successful products.The specialty chemicals industry is subject to periodic technological change and ongoing product improvements. In order to maintain our margins andremain competitive, we must successfully develop, manufacture and market new or improved products. As a result, we must commit substantial resourceseach year to research and development. Ongoing investments in research and development for future products could result in higher costs without aproportional increase in revenues. Additionally, for any new product program, there is a risk of technical or market failure in which case we may not be able todevelop the new commercial products needed to maintain our competitive position or we may need to commit additional resources to new product developmentprograms. Moreover, new products may have lower margins than the products they replace.We also expect competition to increase as our competitors develop and introduce new and enhanced products. For example, our Fine Chemistry segmentis experiencing increased competition from large-scale producers of pharmachemicals, particularly from Asian producers. In our Catalysts segment, ourpetroleum refinery customers are processing crude oil feedstocks of declining quality, while at the same time operating under increasingly stringent regulationsrequiring the gasoline, diesel and other fuels they produce to contain fewer impurities, including sulfur. As a result, our petroleum refining customers aredemanding more effective and more cost-effective catalysts products. As new products enter the market, our products may become obsolete or competitors’products may be marketed more effectively than our products. If we fail to develop new products, maintain or improve our margins with our new products orkeep pace with technological developments, our business, financial condition, results of operations and cash flows will suffer. 12 Table of ContentsAlbemarle Corporation and Subsidiaries Our inability to protect our intellectual property rights could have a material adverse effect on our business, financial condition and results ofoperations.Protection of our proprietary processes, methods and compounds and other technology is important to our business. We generally rely on patent, tradesecret, trademark and copyright laws of the U.S. and certain other countries in which our products are produced or sold, as well as licenses andnondisclosure and confidentiality agreements, to protect our intellectual property rights. The patent, trade secret, trademark and copyright laws of somecountries may not protect our intellectual property rights to the same extent as the laws of the U.S. Failure to protect our intellectual property rights may resultin the loss of valuable proprietary technologies. Additionally, some of our technologies are not covered by any patent or patent application and, even if a patentapplication has been filed, it may not result in an issued patent. If patents are issued to us, those patents may not provide meaningful protection againstcompetitors or against competitive technologies. We cannot assure you that our intellectual property rights will not be challenged, invalidated, circumvented orrendered unenforceable.We could face patent infringement claims from our competitors or others alleging that our processes or products infringe on their proprietarytechnologies. If we are found to be infringing on the proprietary technology of others, we may be liable for damages and we may be required to change ourprocesses, redesign our products partially or completely, pay to use the technology of others, stop using certain technologies or stop producing the infringingproduct entirely. Even if we ultimately prevail in an infringement suit, the existence of the suit could prompt customers to switch to products that are not thesubject of infringement suits. We may not prevail in intellectual property litigation and such litigation may result in significant legal costs or otherwise impedeour ability to produce and distribute key products.We also rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintainour competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, wecannot assure you that our confidentiality agreements will not be breached, that they will provide meaningful protection for our trade secrets and proprietarymanufacturing expertise or that adequate remedies will be available in the event of an unauthorized use or disclosure of our trade secrets or manufacturingexpertise.Our business and operations could suffer in the event of cyber-security breaches.Attempts by others to gain unauthorized access to our information technology systems are becoming more sophisticated. These attempts, which might berelated to industrial or other espionage, include covertly introducing malware to our computers and networks and impersonating authorized users, amongothers. We seek to detect and investigate all security incidents and to prevent their recurrence, but in some cases we might be unaware of an incident or itsmagnitude and effects. The theft, unauthorized use or publication of our intellectual property and/or confidential business information could harm ourcompetitive position, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business.To the extent that any cyber-security breach results in inappropriate disclosure of our customers’ or licensees’ confidential information, we may incur liabilityas a result.Our substantial international operations subject us to risks of doing business in foreign countries, which could adversely affect our business,financial condition and results of operations.We conduct a substantial portion of our business outside of the U.S. We and our joint ventures currently have 34 facilities located outside the U.S.,including facilities and offices located in Austria, Australia, Belgium, Brazil, France, Germany, Hungary, India, Italy, Japan, Jordan, Korea, theNetherlands, the People’s Republic of China, Russia, Saudi Arabia, Singapore, United Arab Emirates and the United Kingdom. We expect sales frominternational markets to continue to represent a significant portion of our net sales and the net sales of our joint ventures. Accordingly, our business is subjectto risks related to the differing legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent ininternational operations include the following: • fluctuations in foreign currency exchange rates may affect product demand and may adversely affect the profitability in U.S. Dollars of productsand services we provide in international markets where payment for our products and services is made in the local currency; • transportation and other shipping costs may increase; • intellectual property rights may be more difficult to enforce; • changes in foreign laws and tax rates or U.S. laws and tax rates with respect to foreign income may unexpectedly increase the rate at which ourincome is taxed, impose new and additional taxes or cause the loss of previously recorded tax benefits; • foreign countries may adopt other restrictions on foreign trade or investment, including currency exchange controls; 13 Table of ContentsAlbemarle Corporation and Subsidiaries • trade sanctions could result in losing access to customers and suppliers in those countries; • unexpected adverse changes in foreign laws or regulatory requirements may occur; • agreements may be difficult to enforce and receivables difficult to collect; • compliance with a variety of foreign laws and regulations may be burdensome; • compliance with anti-bribery and anti-corruption laws may be costly; • unexpected adverse changes in export duties, quotas and tariffs and difficulties in obtaining export licenses; • general economic conditions in the countries in which we operate could have an adverse effect on our earnings from operations in those countries; • foreign operations may experience staffing difficulties and labor disputes; • foreign governments may nationalize private enterprises; and • our business and profitability in a particular country could be affected by political or economic repercussions on a domestic, country specific orglobal level from terrorist activities and the response to such activities.In addition, certain of our joint ventures operate, and we have ongoing capital projects in, high-risk regions of the world such as the Middle East andSouth America. Unanticipated events, such as geopolitical changes, could result in a write-down of our investment in the affected joint venture, a delay orcancellation of those capital projects and negatively impact our future growth and profitability. Our success as a global business will depend, in part, uponour ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies andstrategies that are effective in each location where we and our joint ventures do business.We are exposed to fluctuations in foreign exchange rates, which may adversely affect our operating results and net income.We conduct our business and incur costs in the local currency of most of the countries in which we operate. The financial condition and results ofoperations of each foreign operating subsidiary and joint venture are reported in the relevant local currency and then translated to U.S. Dollars at the applicablecurrency exchange rate for inclusion in our consolidated financial statements. Changes in exchange rates between these foreign currencies and the U.S. Dollarwill affect the recorded levels of our assets, liabilities, net sales, cost of goods sold and operating margins and could result in exchange losses. The primarycurrencies to which we have exposure are the European Union Euro, Japanese Yen, British Pound Sterling, Korean Won, Chinese Renminbi and theU.S. Dollar (in certain of our foreign locations). Exchange rates between these currencies and the U.S. Dollar in recent years have fluctuated significantly andmay do so in the future. Significant changes in these foreign currencies relative to the U.S. Dollar could also have an adverse effect on our ability to meetinterest and principal payments on any foreign currency-denominated debt outstanding. In addition to currency translation risks, we incur currencytransaction risks whenever one of our operating subsidiaries or joint ventures enters into either a purchase or a sales transaction using a different currencyfrom its functional currency. Our operating results and net income may be affected by any volatility in currency exchange rates and our ability to manageeffectively our currency transaction and translation risks.We incur substantial costs in order to comply with extensive environmental, health and safety laws and regulations.In the jurisdictions in which we operate, we are subject to numerous federal, state and local environmental, health and safety laws and regulations,including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes and thecleanup of contaminated properties. Ongoing compliance with such laws and regulations is an important consideration for us and we incur substantial capitaland operating costs in our compliance efforts. Environmental laws have become increasingly strict in recent years. We expect this trend to continue andanticipate that compliance will continue to require increased capital expenditures and operating costs.Violations of environmental, health and safety laws and regulations may subject us to fines, penalties and other liabilities and may require us tochange certain business practices or curtail production.If we violate environmental, health and safety laws or regulations, in addition to being required to correct such violations, we can be held liable inadministrative, civil or criminal proceedings for substantial fines and other sanctions could be imposed that could disrupt or limit our operations. Liabilitiesassociated with the investigation and cleanup of hazardous substances, as well as personal 14 Table of ContentsAlbemarle Corporation and Subsidiaries injury, property damages or natural resource damages arising from the release of, or exposure to, such hazardous substances, may be imposed in manysituations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally (so that a responsible party may beheld liable for more than its share of the losses involved, or even the entire loss). Such liabilities may also be imposed on many different entities with arelationship to the hazardous substances at issue, including, for example, entities that formerly owned or operated the property affected by the hazardoussubstances and entities that arranged for the disposal of the hazardous substances at the affected property, as well as entities that currently own or operate suchproperty. Such liabilities can be difficult to identify and the extent of any such liabilities can be difficult to predict. We use, and in the past have used,hazardous substances at many of our facilities, and we have in the past, and may in the future, be subject to claims relating to exposure to hazardousmaterials and the associated liabilities may be material. We also have generated, and continue to generate, hazardous wastes at a number of our facilities. Someof our facilities also have lengthy histories of manufacturing or other activities that have resulted in site contamination. We have also given contractualindemnities for environmental conditions relating to facilities we no longer own or operate. The nature of our business, including historical operations at ourcurrent and former facilities, exposes us to risks of liability under these laws and regulations due to the production, storage, use, transportation and sale ofmaterials that can cause contamination or personal injury if released into the environment. Additional information may arise in the future concerning the natureor extent of our liability with respect to identified sites, and additional sites may be identified for which we are alleged to be liable, that could cause us tomaterially increase our environmental accrual or the upper range of the costs we believe we could reasonably incur for such matters.Contractual indemnities may be ineffective in protecting us from environmental liabilities.At several of our properties where hazardous substances are known to exist (including some sites where hazardous substances are being investigated orremediated), we believe we are entitled to contractual indemnification from one or more former owners or operators; however, in the event we make a claim, theindemnifier may disagree with us or not have the financial capacity to fulfill its indemnity obligation. If our contractual indemnity is not upheld or effective,our accrual and/or our costs for the investigation and cleanup of hazardous substances could increase materially.We may be exposed to certain regulatory and financial risks related to climate change.Growing concerns about climate change may result in the imposition of additional regulations or restrictions to which we may become subject. Climatechanges include changes in rainfall and in storm patterns and intensities, water shortages, significantly changing sea levels and increasing atmospheric andwater temperatures, among others. For example, there has been increasing concern regarding the declining water level of the Dead Sea, from which our jointventure, JBC, produces bromine. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response toclimate change. For example, some of our operations are within jurisdictions that have, or are developing, regulatory regimes governing greenhouse gasemissions. Potentially, some form of U.S. federal regulation will be forthcoming with respect to greenhouse gas emissions (including carbon dioxide (CO))and/or “cap and trade” legislation. In addition, we have operations in the European Union, Brazil, China, Japan, Jordan, Saudi Arabia, Singapore and theUnited Arab Emirates, which have implemented measures to achieve objectives under the Kyoto Protocol, an international agreement linked to the UnitedNations Framework Convention on Climate Change which set binding targets for reducing greenhouse gas emissions. The first commitment period under theKyoto Protocol expired in 2012. A successor global policy framework is under negotiation (the Doha climate change talks) but is not yet accepted by allcountries. The outcome of new legislation in the U.S. and other jurisdictions in which we operate may result in new or additional regulation, additional chargesto fund energy efficiency activities or restrictions on certain activities. While certain climate change initiatives may result in new business opportunities for usin the area of alternative fuel technologies and emissions control, compliance with these initiatives may also result in additional costs to us, including, amongother things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any adoptedfuture climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Evenwithout such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us or our industry couldharm us. We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our businessand negatively impact our growth. Furthermore, the potential impacts of climate change and related regulation on our customers are highly uncertain and mayadversely affect us.Regulation, or the threat of regulation, of some of our products could have an adverse effect on our sales and profitability.We manufacture or market a number of products that are or have been the subject of attention by regulatory authorities and environmental interestgroups. For example, for many years we have marketed methyl bromide, a chemical that is particularly effective as a soil fumigant. In recent years, the marketfor methyl bromide has changed significantly, driven by the Montreal Protocol of 1990 and related regulations prompted by findings regarding the chemical’spotential to deplete the ozone layer. Completion of the phase-out of methyl bromide as a fumigant took effect January 1, 2005 with critical uses allowed on anannual basis until feasible alternatives are available. 152 Table of ContentsAlbemarle Corporation and Subsidiaries Recently, there has been increased scrutiny of certain brominated flame retardants by regulatory authorities, legislative bodies and environmental interestgroups in various countries. We manufacture a broad range of brominated flame retardant products, which are used in a variety of applications. Concernabout the impact of some of our products on human health or the environment may lead to regulation, or reaction in our markets independent of regulation,that could reduce or eliminate markets for such products.In 2009, one of our products, HBCD, was designated by European regulators as a Substance of Very High Concern. In February 2011, the EuropeanUnion included HBCD on a list of substances published under Annex XIV of the REACH regulation. Our expectation is that the sale of HBCD could bebanned in Europe under the REACH process in 2015. Also, the Persistent Organic Pollutants Review Committee, a scientific body to the StockholmConvention on Persistent Organic Pollutants (POPs), recommended in October 2012 that HBCD be banned under the Convention, with certain uses exemptedto allow time for the development of alternative products. Our sales of HBCD approximated 1.9%, 2.1%, and 1.2% of our total annual net sales in 2012, 2012and 2010, respectively.In 2012, another one of our products, decaBDE, similarly was nominated in Europe as a Substance of Very High Concern. Our sales of decaBDEapproximated 0.7%, 0.7% and 1.1% of our total annual net sales in 2012, 2011, and 2010, respectively. In accordance with our voluntary commitmentannounced in 2009, Albemarle ceased production of decaBDE effective at the end of 2012.Agencies in the European Union continue to evaluate the risks to human health and the environment associated with certain brominated flame retardantssuch as tetrabromobisphenol A and decabromodiphenylethane, both of which we manufacture. Additional government regulations, including limitations orbans on the use of brominated flame retardants, would likely result in a decline in our net sales of brominated flame retardants and have an adverse effect onour sales and profitability. In addition, the threat of additional regulation or concern about the impact of brominated flame retardants on human health or theenvironment could lead to a negative reaction in our markets that could reduce or eliminate our markets for these products, which could have an adverse effecton our sales and profitability.We could be subject to damages based on claims brought against us by our customers or lose customers as a result of the failure of our productsto meet certain quality specifications.Our products provide important performance attributes to our customers’ products. If a product fails to perform in a manner consistent with qualityspecifications or has a shorter useful life than guaranteed, a customer could seek replacement of the product or damages for costs incurred as a result of theproduct failing to perform as guaranteed. These risks apply to our refinery catalysts in particular because, in certain instances, we sell our refinery catalystsunder agreements that contain limited performance and life cycle guarantees. A successful claim or series of claims against us could have a material adverseeffect on our financial condition and results of operations and could result in a loss of one or more customers.Our business is subject to hazards common to chemical businesses, any of which could interrupt our production and adversely affect our resultsof operations.Our business is subject to hazards common to chemical manufacturing, storage, handling and transportation, including explosions, fires, inclementweather, natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, remediation, chemical spills, discharges or releases oftoxic or hazardous substances or gases and other risks. These hazards can cause personal injury and loss of life, severe damage to, or destruction of, propertyand equipment and environmental contamination. In addition, the occurrence of material operating problems at our facilities due to any of these hazards maydiminish our ability to meet our output goals. Accordingly, these hazards and their consequences could have a material adverse effect on our operations as awhole, including our results of operations and cash flows, both during and after the period of operational difficulties.Natural disasters and weather-related matters could impact our results of operations.In 2005 and again in the third quarter of 2008, major hurricanes caused significant disruption to the operations on the U.S. Gulf Coast for many of ourcustomers and our suppliers of certain raw materials, which had an adverse impact on volume and cost for some of our products. If similar weather-relatedmatters or other natural disasters occur in the future, they could negatively affect the results of operations at our sites in the affected regions as well as haveadverse impacts on the global economy.The insurance that we maintain may not fully cover all potential exposures.We maintain property, business interruption and casualty insurance but such insurance may not cover all risks associated with the hazards of ourbusiness and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage,of our insurance policies, including liabilities for environmental remediation. In addition, from time to time, various types of insurance for companies in thespecialty chemical industry have not been available on commercially acceptable terms or, in some cases, have not been available at all. We are potentially atadditional risk if one or more of 16 Table of ContentsAlbemarle Corporation and Subsidiaries our insurance carriers fail. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the ratings and survival ofsome insurers. Future downgrades in the ratings of enough insurers could adversely impact both the availability of appropriate insurance coverage and its cost.In the future, we may not be able to obtain coverage at current levels, if at all, and our premiums may increase significantly on coverage that we maintain.We may incur significant charges in the event we close or divest all or part of a manufacturing plant or facility.We continually assess our manufacturing operations in order to manufacture and distribute our products in the most efficient manner. Based on ourassessments, we may make capital improvements to modernize certain units, move manufacturing or distribution capabilities from one plant or facility toanother plant or facility, discontinue manufacturing or distributing certain products or close or divest all or part of a manufacturing plant or facility. We alsohave shared services agreements at several of our plants and if such agreements are terminated or revised, we would assess and potentially adjust ourmanufacturing operations. The closure or divestiture of all or part of a manufacturing plant or facility could result in future charges that could be significant.If we are unable to retain key personnel or attract new skilled personnel, it could have an adverse effect on our business.The unanticipated departure of any key member of our management team could have an adverse effect on our business. In addition, because of thespecialized and technical nature of our business, our future performance is dependent on the continued service of, and on our ability to attract and retain,qualified management, scientific, technical, marketing and support personnel. Competition for such personnel is intense, and we may be unable to continue toattract or retain such personnel.Some of our employees are unionized, represented by workers’ councils or are employed subject to local laws that are less favorable to employersthan the laws of the U.S.As of December 31, 2012, we had 4,304 employees. Approximately 17% of our 2,156 U.S. employees are unionized. Our collective bargainingagreements expire in 2013, 2014 and 2015. In addition, a large number of our employees are employed in countries in which employment laws provide greaterbargaining or other rights to employees than the laws of the U.S. Such employment rights require us to work collaboratively with the legal representatives ofthe employees to effect any changes to labor arrangements. For example, most of our employees in Europe are represented by workers’ councils that mustapprove any changes in conditions of employment, including salaries and benefits and staff changes, and may impede efforts to restructure our workforce.Although we believe that we have a good working relationship with our employees, a strike, work stoppage, slowdown or significant dispute with ouremployees could result in a significant disruption of our operations or higher ongoing labor costs.Our joint ventures may not operate according to their business plans if our partners fail to fulfill their obligations, which may adversely affect ourresults of operations and may force us to dedicate additional resources to these joint ventures.We currently participate in a number of joint ventures and may enter into additional joint ventures in the future. The nature of a joint venture requires usto share control with unaffiliated third parties. If our joint venture partners do not fulfill their obligations, the affected joint venture may not be able to operateaccording to its business plan. In that case, our results of operations may be adversely affected and we may be required to increase the level of our commitmentto the joint venture. Also, differences in views among joint venture participants may result in delayed decisions or failures to agree on major issues. If thesedifferences cause the joint ventures to deviate from their business plans, our results of operations could be adversely affected.We may not be able to consummate future acquisitions or integrate future acquisitions into our business, which could result in unanticipatedexpenses and losses.As part of our business growth strategy, we have acquired businesses and entered into joint ventures in the past and intend to pursue acquisitions andjoint venture opportunities in the future. Our ability to implement this component of our growth strategy will be limited by our ability to identify appropriateacquisition or joint venture candidates and our financial resources, including available cash and borrowing capacity. The expense incurred in consummatingacquisitions or entering into joint ventures, the time it takes to integrate an acquisition or our failure to integrate businesses successfully, could result inunanticipated expenses and losses. Furthermore, we may not be able to realize any of the anticipated benefits from acquisitions or joint ventures.The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significantfinancial resources that would otherwise be available for the ongoing development or expansion of existing operations. Some of the risks associated with theintegration of acquisitions include: • potential disruption of our ongoing business and distraction of management; • unforeseen claims and liabilities, including unexpected environmental exposures; 17 Table of ContentsAlbemarle Corporation and Subsidiaries • unforeseen adjustments, charges and write-offs; • problems enforcing the indemnification obligations of sellers of businesses or joint venture partners for claims and liabilities; • unexpected losses of customers of, or suppliers to, the acquired business; • difficulty in conforming the acquired businesses’ standards, processes, procedures and controls with our operations; • variability in financial information arising from the implementation of purchase price accounting; • inability to coordinate new product and process development; • loss of senior managers and other critical personnel and problems with new labor unions; and • challenges arising from the increased scope, geographic diversity and complexity of our operations.Although our pension plans currently meet minimum funding requirements, events could occur that would require us to make significantcontributions to the plans and reduce the cash available for our business.We have several defined benefit pension plans around the world, including in the U.S., the Netherlands, Germany, Belgium, and Japan, covering mostof our employees. The U.S. plans represent approximately 94% of the total liabilities of the plans worldwide. We are required to make cash contributions toour pension plans to the extent necessary to comply with minimum funding requirements imposed by the various countries’ benefit and tax laws. The amountof any such required contributions will be determined annually based on an actuarial valuation of the plans as performed by the plans’ actuaries.During 2011 and 2010, we made voluntary contributions of $50.0 million and $70.0 million to our U.S. qualified defined benefit pension plans,respectively. We anticipate that the funded status of each of our U.S. qualified defined benefit pension plans will be 100% in 2013 and, therefore, the plansshould not be subject to benefit limitations in conjunction with the Pension Protection Act of 2006. Additional voluntary pension contributions in and after2013 may vary depending on factors such as asset returns, interest rates, and legislative changes. The amounts we may elect or be required to contribute to ourpension plans in the future may increase significantly. These contributions could be substantial and would reduce the cash available for our business.The occurrence or threat of extraordinary events, including domestic and international terrorist attacks, may disrupt our operations and decreasedemand for our products.Chemical-related assets may be at greater risk of future terrorist attacks than other possible targets in the U.S. and throughout the world. As a result, weare subject to existing federal rules and regulations (and may be subject to additional legislation or regulations in the future) that impose site securityrequirements on chemical manufacturing facilities, which increase our overhead expenses.We are also subject to federal regulations that have heightened security requirements for the transportation of hazardous chemicals in the U.S. We believewe have met these requirements but additional federal and local regulations that limit the distribution of hazardous materials are being considered. We ship andreceive materials that are classified as hazardous. Bans on movement of hazardous materials through cities, like Washington, D.C., could affect the efficiencyof our logistical operations. Broader restrictions on hazardous material movements could lead to additional investment to produce hazardous raw materials andchange where and what products we manufacture.The occurrence of extraordinary events, including future terrorist attacks and the outbreak or escalation of hostilities, cannot be predicted, and theiroccurrence can be expected to continue to negatively affect the economy in general and specifically the markets for our products. The resulting damage from adirect attack on our assets, or assets used by us, could include loss of life and property damage. In addition, available insurance coverage may not besufficient to cover all of the damage incurred or, if available, may be prohibitively expensive.We will need a significant amount of cash to service our indebtedness and our ability to generate cash depends on many factors beyond ourcontrol.Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt depends on a range of economic, competitive andbusiness factors, many of which are outside our control. Based on a weighted average interest rate of 4.7% and outstanding borrowings at December 31, 2012of $699.3 million, our annual interest expense would be approximately $32.9 million. A hypothetical 10% increase in the average interest rate applicable to thevariable portion of such borrowings would change our annualized interest expense by less than $0.1 million. Our business may not generate sufficient cashflow from operations to service our debt obligations. If we are unable to service our debt obligations, we may need to refinance all or a portion of our 18 Table of ContentsAlbemarle Corporation and Subsidiaries indebtedness on or before maturity, reduce or delay capital expenditures, sell assets or raise additional equity. We may not be able to refinance any of ourindebtedness, sell assets or raise additional equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impairour liquidity. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms,could have a material adverse effect on our business and financial condition.Restrictive covenants in our debt instruments may adversely affect our business.Our September 2011 credit agreement and the indentures governing our senior notes contain select restrictive covenants. These covenants provideconstraints on our financial flexibility. The failure to comply with the covenants in our September 2011 credit agreement, the indentures governing the seniornotes and the agreements governing other indebtedness, including indebtedness incurred in the future, could result in an event of default, which, if not curedor waived, could have a material adverse effect on our business, financial condition and results of operations. See “Financial Condition and Liquidity—Long-Term Debt” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 45.A downgrade of the ratings on our debt or an increase in interest rates will cause our debt service obligations to increase.Borrowings under our September 2011 credit agreement bear interest at floating rates. The rates are subject to adjustment based on the ratings of oursenior unsecured long-term debt by Standard & Poor’s Ratings Services, or S&P and Moody’s Investors Services, or Moody’s. S&P has rated our seniorunsecured long-term debt as BBB+ and Moody’s has rated our senior unsecured long-term debt as Baa1. S&P and/or Moody’s may, in the future, downgradeour ratings. The downgrading of our ratings or an increase in benchmark interest rates would result in an increase of our interest expense on borrowings underour September 2011 credit agreement.Changes in credit ratings issued by nationally recognized statistical rating organizations could adversely affect our cost of financing and themarket price of our securities.Credit rating agencies rate our debt securities on factors that include our operating results, actions that we take, their view of the general outlook for ourindustry and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading or downgrading thecurrent rating or placing us on a watch list for possible future downgrading. Downgrading the credit rating of our debt securities or placing us on a watch listfor possible future downgrading would likely increase our cost of future financing, could limit our access to the capital markets and have an adverse effect onthe market price of our securities.Because a significant portion of our operations is conducted through our subsidiaries and joint ventures, our ability to service our debt is largelydependent on our receipt of distributions or other payments from our subsidiaries and joint ventures.A significant portion of our operations is conducted through our subsidiaries and joint ventures. As a result, our ability to service our debt is partiallydependent on the earnings of our subsidiaries and joint ventures and the payment of those earnings to us in the form of dividends, loans or advances andthrough repayment of loans or advances from us. Payments to us by our subsidiaries and joint ventures will be contingent upon our subsidiaries’ or jointventures’ earnings and other business considerations and may be subject to statutory or contractual restrictions. In addition, there may be significant tax andother legal restrictions on the ability of non-U.S. subsidiaries or joint ventures to remit money to us.The instruments governing our indebtedness do not limit our acquisitions and may allow us to incur additional indebtedness, includingindebtedness in relation to acquisitions.We have historically expanded our business primarily through acquisitions. A part of our business strategy is to continue to grow through acquisitionsthat complement and expand our distribution network. The terms of our indebtedness do not limit the number or scale of acquisitions that we may complete.Because the consummation of acquisitions and integration of acquired businesses involves significant risk, this means that investors in our securities will besubject to the risks inherent in our acquisition strategy. Item 1B.Unresolved Staff Comments.NONE 19 Table of ContentsAlbemarle Corporation and Subsidiaries Item 2.Properties.We operate on a global basis. We believe that our production facilities, research and development facilities, and administrative and sales offices aregenerally well maintained, effectively used and are adequate to operate our business. During 2012, the Company’s manufacturing plants operated atapproximately 65% capacity in the aggregate.Set forth below is information at December 31, 2012 regarding our significant facilities operated by our joint ventures and us: Location Principal Use Owned/LeasedAmes, Iowa Research and development of heterogeneous biodieselcatalysis LeasedAmsterdam, the Netherlands Production of refinery catalysts, research and productdevelopment activities OwnedAvonmouth, United Kingdom Production of flame retardants Owned; on leased landBaton Rouge, Louisiana Research and product development activities, andproduction of flame retardants, catalysts and additives Owned; on leased landBaton Rouge, Louisiana Principal executive offices LeasedBeijing, China Regional sales and administrative offices LeasedBergheim, Germany Production of flame retardants and specialty products basedon aluminum trihydrate and aluminum oxide, and researchand product development activities OwnedBitterfeld, Germany Refinery catalyst regeneration, rejuvenation, and sulfiding Owned by Eurecat S.A., a joint venture owned 50% byeach of IFP Investissements and usBudapest, Hungary Regional shared services office LeasedDalian, China Regional shared services office LeasedDubai, United Arab Emirates Regional sales and administrative offices LeasedHouston, Texas Regional sales and administrative offices LeasedJin Shan District, Shanghai, China Production of antioxidants and polymer intermediates Owned; on leased landJubail, Saudi Arabia Manufacturing and marketing of organometallics Owned; Albemarle Netherlands BV and Saudi SpecialtyChemicals Company (a SABIC affiliate) each owns 50%interestLouvain-la-Neuve, Belgium Regional offices and research and customer technical serviceactivities OwnedLa Voulte, France Refinery catalysts regeneration and treatment, research anddevelopment activities Owned by Eurecat S.A., a joint venture owned 50% byeach of IFP Investissements and usMagnolia, Arkansas Production of flame retardants, bromine, inorganicbromides, agricultural intermediates and tertiary amines OwnedMcAlester, Oklahoma Refinery catalyst regeneration, rejuvenation, pre-reclaimburn off, as well as specialty zeolites and additivesmarketing activities Owned by Eurecat S.A., a joint venture owned 50% byeach of IFP Investissements and usMobile, Alabama Production of tin stabilizers Owned by PMC Group, Inc. which operates the plant forStannica LLC, a joint venture in which we and PMCGroup Inc. each own a 50% interestMoscow, Russia Regional sales and administrative offices Leased 20 Table of ContentsAlbemarle Corporation and Subsidiaries Location Principal Use Owned/LeasedNevada, Iowa Research and development of heterogeneous biodieselcatalysis LeasedNiihama, Japan Production of refinery catalysts Leased by Nippon Ketjen Company Limited, a jointventure owned 50% by each of Sumitomo Metal MiningCompany Limited and usNinghai County, ZhejiangProvince, China Production of antioxidants and polymer intermediates Owned; on leased landOrangeburg, South Carolina Production of flame retardants, aluminum alkyls and finechemistry products, including pharmaceutical actives, fueladditives, orthoalkylated phenols, polymer modifiers andphenolic antioxidants OwnedPasadena, Texas Production of aluminum alkyls, alkenyl succinicanhydride, orthoalkylated anilines, and other specialtychemicals OwnedPasadena, Texas Production of refinery catalysts, research and developmentactivities OwnedPasadena, Texas Refinery catalysts regeneration services Owned by Eurecat U.S. Incorporated, a joint venture inwhich we own a 57.5% interest and a consortium ofentities in various proportions owns the remaining interestSafi, Jordan Production of bromine and derivatives and flame retardants Owned and leased by JBC, a joint venture owned 50% byeach of Arab Potash Company Limited and usSt. Jakobs/Breitenau, Austria Production of specialty magnesium hydroxide products Leased by Magnifin Magnesiaprodukte GmbH & Co.KG, a joint venture owned 50% by each of RadexHeraklith Industriebeteiligung AG and usSanta Cruz, Brazil Production of catalysts, research and product developmentactivities Owned by Fábrica Carioca de Catalisadores S.A, a jointventure owned 50% by each of Petrobras Química S.A.—PETROQUISA and usSeoul, South Korea Regional sales and administrative offices LeasedShandong, China Regional sales and administrative offices Owned by Shandong Sinobrom, a joint venture in whichwe own a 75% interest, and Weifang Rui Yin InvestmentManagement and Consultancy Co. Ltd., owns a 25%interestShanghai, China Regional sales and administrative offices LeasedSingapore Regional sales and administrative offices LeasedSouth Haven, Michigan Production of custom fine chemistry products includingpharmaceutical actives OwnedTaipei, Taiwan Regional sales and administrative office LeasedTakaishi City, Osaka, Japan Production of aluminum alkyls Owned by Nippon Aluminum Alkys, a joint ventureowned 50% by each of Mitsui Chemicals, Inc. and usTokyo, Japan Regional sales and administrative offices LeasedTokyo, Japan Administrative offices Leased by Nippon Ketjen Co., Ltd., a joint venture 50%owned by each of Sumitomo Metal Mining Co. Ltd. andus 21 Table of ContentsAlbemarle Corporation and Subsidiaries Location Principal Use Owned/LeasedTokyo, Japan Regional sales and administrative offices Leased by Nippon Aluminum Alkyls, a joint ventureowned 50% by each of Mitsui Chemicals, Inc. and usTwinsburg, Ohio Production of bromine-activated carbon LeasedTyrone, Pennsylvania Production of custom fine chemistry products, agriculturalintermediates, performance polymer products and researchand development activities OwnedYeosu, South Korea Research and product development activities/small scaleproduction of catalysts and catalyst components Owned Item 3.Legal Proceedings.On July 3, 2006, we received a Notice of Violation (the 2006 NOV) from the U.S. Environmental Protection Agency Region 4, or EPA, regarding theimplementation of the Pharmaceutical Maximum Achievable Control Technology standards at our plant in Orangeburg, South Carolina. The alleged violationsinvolve (i) the applicability of the specific regulations to certain intermediates manufactured at the plant, (ii) failure to comply with certain reportingrequirements, (iii) improper evaluation and testing to properly implement the regulations and (iv) the sufficiency of the leak detection and repair program at theplant. 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 Stateof South Carolina as a plaintiff. We intend to vigorously defend this action. Any settlement or finding adverse to us could result in the payment by us of fines,penalties, capital expenditures, or some combination thereof. At this time, it is not possible to predict with any certainty the outcome of this litigation or thefinancial impact which may result therefrom. However, we do not expect any financial impact to have a material adverse effect on the Company’s results ofoperations, financial condition or cash flows.In addition, we are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicialproceedings 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 mayestablish financial reserves as estimated by our general counsel for such proceedings. We also maintain insurance to mitigate certain of such risks. Item 4.Mine Safety Disclosures.Not applicable. 22 Table of ContentsAlbemarle Corporation and Subsidiaries Executive Officers of the Registrant.The names, ages and biographies of our executive officers and certain other officers as of February 12, 2013 are set forth below. The term of office ofeach officer is until the meeting of the Board of Directors following the next annual shareholders’ meeting (May 7, 2013). Name Age PositionLuther C. Kissam, IV 48 Chief Executive Officer and DirectorKaren G. Narwold 53 Senior Vice President, General Counsel and Corporate SecretaryScott A. Tozier 47 Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Chief Risk OfficerSusan Kelliher 46 Senior Vice President, Human ResourcesDavid W. Clary 53 Vice President, Chief Sustainability OfficerNicole C. Daniel 44 Vice President, Deputy General Counsel, Chief Compliance Officer and Assistant Corporate SecretaryRichard G. Fishman 60 Vice President, Treasurer and Chief Tax CounselRonald R. Gardner 61 Vice PresidentMatthew K. Juneau 52 Vice President, Polymer SolutionsDonald J. LaBauve, Jr. 46 Vice President, Corporate ControllerScott Martin 55 Vice President, Fine ChemistryAmy Hebert Motto 40 Vice President, CatalystsAnthony S. Parnell 53 Vice President, Global Supply ChainRonald C. Zumstein 51 Vice President, ManufacturingLuther C. Kissam, IV was elected to our Board of Directors on November 2, 2011 and as our Chief Executive Officer effective September 1, 2011.Previously, Mr. Kissam served as President from March 15, 2010 until March 1, 2012, Executive Vice President, Manufacturing and Law and Secretaryfrom May 2009 until March 15, 2010, and as Senior Vice President, Manufacturing and Law and Corporate Secretary from January 8, 2008 until May2009. Mr. Kissam joined us in September 2003 and served as Vice President, General Counsel and Corporate Secretary from that time until December 16,2005, when he was promoted to Senior Vice President, General Counsel and Corporate Secretary. Before joining us, Mr. Kissam served as Vice President,General Counsel and Secretary of Merisant Company (manufacturer and marketer of sweetener and consumer food products), having previously served asAssociate General Counsel of Monsanto Company (provider of agricultural products and solutions).Karen G. Narwold joined us in September of 2010, as Senior Vice President and General Counsel of Albemarle. Ms. Narwold also serves as ourCorporate Secretary. Ms. Narwold has over 20 years of legal, management and business experience with global industrial and chemical companies. After fiveyears in private practice, she served as Vice President, General Counsel, Human Resources and Secretary of GrafTech International Ltd., a global graphite andcarbon manufacturer and former subsidiary of Union Carbide. She then served as Vice President and Strategic Counsel of Barzel Industries, a NorthAmerican steel processor and distributor. Ms. Narwold resigned from Barzel in November 2009, after Barzel reached an agreement to sell substantially all ofits assets in a planned transaction that was consummated in a sale pursuant to Section 363 of the U.S. Bankruptcy Code. Prior to joining Albemarle,Ms. Narwold served as Special Counsel with Kelley Drye & Warren LLP and with Symmetry Advisors where she worked in the areas of strategic, financialand capital structure planning and restructuring for public and private companies.Scott A. Tozier was elected as our Senior Vice President and Chief Financial Officer effective January 31, 2011. Mr. Tozier also serves as our ChiefAccounting Officer and our Chief Risk Officer. Mr. Tozier has over 20 years of diversified international financial management experience. Following fouryears of assurance services with the international firm Ernst & Young, LLP, Mr. Tozier joined Honeywell International, Inc., where his 16 year careerspanned senior financial positions in the U.S., Australia and Europe. His roles of increasing responsibilities included management of financial planning,analysis and reporting, global credit and treasury services and Chief Financial Officer of Honeywell’s Transportation Systems, Turbo Technologies andBuilding Solutions divisions. Most recently, Mr. Tozier served as Vice President of Finance, Operations and Transformation of Honeywell International, Inc.Susan Kelliher joined us in March of 2012, as Senior Vice President, Human Resources. Ms. Kelliher has over twenty years of human resourcesexperience, having most recently served at Hewlett Packard as Vice President, Human Resources—Global Sales and Enterprise Marketing from April 2010 toFebruary 2012, and as Vice President, Human Resources—Imaging and Printing Group from 23 Table of ContentsAlbemarle Corporation and Subsidiaries September 2007 to April 2010. Prior to joining Hewlett Packard, she was the Vice President of Human Resources for Cymer, Inc., the world’s leading supplierof deep ultraviolet illumination sources. Prior to that, Ms. Kelliher served in various executive and managerial human resources positions at The Home Depot,Inc., Raytheon Company, YUM! Brands’ Pizza Hut division, beginning her career at Mobil Oil.David W. Clary was elected Vice President and Chief Sustainability Officer effective July 1, 2008. Dr. Clary previously served as Division VicePresident of our Fine Chemistry Services and Intermediates business from January 1, 2006 until July 2008. Since joining the Company and EthylCorporation in 1985, Dr. Clary served as Director of Fine Chemistry Research and Development, and in other positions in research and development,manufacturing, and business management.Nicole C. Daniel serves as Vice President, Deputy General Counsel, Chief Compliance Officer and Assistant Corporate Secretary. Ms. Daniel has alsoheld the positions of Corporate Secretary and Director, Investor Relations at Albemarle. Ms. Daniel joined Albemarle in November 2002 as Associate Counsel.In March 2010, Ms. Daniel assumed the role of Chief Compliance Officer, where she oversees the Company’s global corporate compliance initiatives.Richard G. Fishman was elected Vice President, Treasurer and Chief Tax Counsel effective February 18, 2009. He also served as the Company’sInterim Chief Financial Officer from August 30, 2010 until January 30, 2011. Mr. Fishman previously served as our Vice President, Tax and Chief TaxCounsel. Before joining us in May of 2006, he served nearly 18 years with Honeywell International Inc. in various tax positions, most recently as Director ofInternational Taxation & Associate General Tax Counsel.Ronald R. Gardner currently serves as a Vice President at Albemarle. Mr. Gardner previously served as Vice President, Fine Chemistry from January2007 to February 2012, and prior to that as Divisional Vice President, Performance Chemicals since 2002, and Business Director, Bromine and Derivatives(including Jordan Bromine start up and integration) since 2001. Previously, he worked in research and development, manufacturing, internationaldistribution, project management and international business management (including a five year assignment in Europe) since joining the Company and EthylCorporation in May 1973.Matthew K. Juneau was elected Vice President, Polymer Solutions effective March 1, 2012. Previously, Mr. Juneau served as Vice President, GlobalSales and Services since May 2009, and prior to that as Division Vice President of our performance chemicals business in the Fine Chemistry division sinceJanuary 2007. Prior to that, Mr. Juneau held various positions of increasing responsibility in research and development and business management with usincluding Managing Director of our European operations from January 2003 until December 2007. Mr. Juneau joined us as a chemical engineer in June 1982.Donald J. LaBauve Jr. was elected Vice President, Corporate Controller effective February 12, 2013, after having previously served as Vice President,Finance - Business Operations since April 2009. Mr. LaBauve served as Chief Financial Officer, Fine Chemistry from April 2007 until April 2009, and priorto that time held the role of Controller, Polymer Solutions from January 2006 through March 2007. Since joining the Company as Ethyl Corporation in April1990, Mr. LaBauve has held various staff and leadership positions of increasing responsibility within the finance function, including an assignment to ourEuropean headquarters in Belgium in April 2000 where he held the regional finance leadership role from July 2002 through June 2005.Scott Martin was elected Vice President, Fine Chemistry effective March 1, 2012. Previously, he served as Division Vice President of HPC Catalystsfrom August 2009 to February 2012, and as Division Vice President of FCC Catalysts from January 2008 until July 2009. Mr. Martin came to Albemarle in2001 as part of the ChemFirst acquisition.Amy Hebert Motto was elected Vice President, Catalysts effective June 11, 2012. Previously, Ms. Motto served as Division Vice President of PCSfrom July 2008 to June 2012 where she led the redefinition of the organometallics business into the current PCS division, and as Global Business Director,Chemical Catalysts from January 2008 until June 2008. Ms. Motto joined the company in 1995.Anthony S. Parnell was elected Vice President, Global Supply Chain effective March 1, 2012. Previously, he served as Vice President, PolymerSolutions since May 2009, and prior to that as Vice President, Global Sales, Service and Operations Planning since January 2007. Prior to that, Mr. Parnellserved as Vice President, Americas Sales Operations since 2002, and was Managing Director of our European operations from 1996 until 2002. He previouslyserved in various commercial leadership positions at the Company and Ethyl Corporation since 1982.Ronald C. Zumstein was elected Vice President of Manufacturing on March 15, 2010 after having previously served as Vice President,Manufacturing Operations effective March 31, 2008. Dr. Zumstein previously served as our Vice President of Health, Safety and Environment and VicePresident of Manufacturing for our Polymer Solutions division. Dr. Zumstein previously held various positions of increasing responsibility since joining theCompany and Ethyl Corporation in 1987, including serving as Plant Manager at several of our U.S. manufacturing locations. 24 Table of ContentsAlbemarle Corporation and Subsidiaries PART II Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Our common stock trades on the New York Stock Exchange, or the NYSE, under the symbol “ALB.” The following table sets forth on a per sharebasis the high and low sales prices for our common stock for the periods indicated as reported on the NYSE composite transactions reporting system and thedividends declared per share on our common stock. Common Stock Price Range DividendsDeclared PerShare ofCommon Stock High Low 2011 First Quarter $60.70 $52.64 $0.165 Second Quarter $71.79 $56.28 $0.165 Third Quarter $71.21 $39.76 $0.165 Fourth Quarter $56.92 $38.02 $0.175 2012 First Quarter $68.51 $52.27 $0.20 Second Quarter $67.14 $55.86 $0.20 Third Quarter $62.34 $50.88 $0.20 Fourth Quarter $62.51 $51.77 $0.20 There were 88,899,209 shares of common stock held by 3,233 shareholders of record as of December 31, 2012. On February 12, 2013, we declared adividend of $0.24 per share of common stock, payable April 1, 2013.The following table summarizes our repurchases of equity securities for the three-month period ended December 31, 2012: Period TotalNumber ofSharesRepurchased AveragePrice PaidPer Share Total Number ofSharesRepurchased asPart of PubliclyAnnouncedPlans orPrograms* MaximumNumber ofShares that MayYet BeRepurchasedUnder the Plansor Programs* October 1, 2012 to October 31, 2012 229,000 $55.67 229,000 4,091,000 November 1, 2012 to November 30, 2012 183,767 56.36 183,767 3,907,233 December 1, 2012 to December 31, 2012 — — — 3,907,233 Total 412,767 $55.98 412,767 3,907,233 *Our stock repurchase plan, which was authorized by our Board of Directors, became effective on October 25, 2000 and included ten million shares. Sincethen, the Company has regularly repurchased shares under the stock repurchase plan, resulting in the Board of Directors periodically authorizingadditional shares for repurchase under the plan. On February 12, 2013, our Board of Directors authorized another increase in the number of shares,pursuant to which the Company is now permitted to repurchase up to a maximum of fifteen million shares under the plan, including those sharespreviously authorized, but not yet repurchased. The stock repurchase plan will expire when we have repurchased all shares authorized for repurchasethereunder, unless the stock repurchase plan is earlier terminated by action of our Board of Directors or further shares are authorized for repurchase.The information required by Item 201(d) of Regulation S-K is contained in our definitive Proxy Statement for our 2013 Annual Meeting of Shareholdersto be filed with the SEC pursuant to Regulation 14A under the Exchange Act, or the Proxy Statement, and is incorporated herein by reference. 25 Table of ContentsAlbemarle Corporation and Subsidiaries Stock Performance GraphThe graph below shows the cumulative total shareholder return assuming the investment of $100 in our common stock on December 31, 2007 and thereinvestment of all dividends thereafter. The information contained in the graph below is furnished and therefore not to be considered “filed” with the SEC,and is not incorporated by reference into any document that incorporates this Annual Report on Form 10-K by reference. Item 6.Selected Financial Data.The information for the five years ended December 31, 2012, is contained in the “Five-Year Summary” included in Part IV, Item 15, Exhibit 99.1 andincorporated herein by reference. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.Forward-looking StatementsSome of the information presented in this Annual Report on Form 10-K, including the documents incorporated by reference, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on our currentexpectations, which are in turn based on assumptions that we believe are reasonable based on our current knowledge of our business and operations. We haveused words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and variations of such words and similarexpressions to identify such forward-looking statements.These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficultto predict and many of which are beyond our control. Therefore, there can be no assurance that our actual results will not differ materially from the results andexpectations expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, without limitation: • changes in economic and business conditions; • changes in financial and operating performance of our major customers, industries and markets served by us; • the timing of orders received from customers; • the gain or loss of significant customers; 26 Table of ContentsAlbemarle Corporation and Subsidiaries • competition from other manufacturers; • changes in the demand for our products; • limitations or prohibitions on the manufacture and sale of our products; • availability of raw materials; • changes in the cost of raw materials and energy, and our ability to pass through such increases; • acquisitions and divestitures, and changes in performance of acquired companies; • changes in our markets in general; • fluctuations in foreign currencies; • changes in laws and government regulation of our operations or our products; • the occurrence of claims or litigation; • the occurrence of natural disasters; • the inability to maintain current levels of product or premises liability insurance or the denial of such coverage; • political unrest affecting the global economy, including adverse effects from terrorism or hostilities; • political instability affecting our manufacturing operations or joint ventures; • changes in accounting standards; • the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement andrationalization programs; • changes in jurisdictional mix of our earnings and changes in tax laws and rates; • changes in monetary policies, inflation or interest rates that may impact our ability to raise capital or increase our cost of funds, impact theperformance of our pension fund investments and increase our pension expense and funding obligations; • volatility and substantial uncertainties in the debt and equity markets; • technology or intellectual property infringement; and • the other factors detailed from time to time in the reports we file with the SEC.For further discussion regarding the Company’s business risks, see also Item 1A. Risk Factors.We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securitiesand other applicable laws. The following discussion should be read together with our consolidated financial statements and related notes included in thisAnnual Report on Form 10-K.The following is a discussion and analysis of results of operations for the years ended December 31, 2012, 2011 and 2010. A discussion ofconsolidated financial condition and sources of additional capital is included under a separate heading “Financial Condition and Liquidity” on page 44.Overview and OutlookWe are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals that meet customer needs across an exceptionallydiverse range of end markets including the petroleum refining, consumer electronics, plastics/packaging, construction, automotive, lubricants,pharmaceuticals, crop protection, food safety and custom chemistry services markets. We are committed to global sustainability and are advancingresponsible eco-practices and solutions in our three business segments. We believe that our commercial and geographic diversity, technical expertise, innovativecapability, flexible, low cost global manufacturing base, experienced management team and strategic focus on our core base technologies will enable us tomaintain leading market positions in those areas of the specialty chemicals industry in which we operate. 27 Table of ContentsAlbemarle Corporation and Subsidiaries Secular trends favorably impacting demand within the end markets that we serve combined with our diverse product portfolio, broad geographicpresence and customer-focused solutions will continue to be key drivers to our future earnings growth. We continue to build upon our existing green solutionsportfolio and our ongoing mission to provide innovative, yet commercially viable, clean energy products and services to the marketplace. We believe ourdisciplined cost reduction efforts, ongoing productivity improvements and strong balance sheet will position us well to take advantage of strengtheningeconomic conditions as they occur while softening the negative impact of the current challenging economic environment.2012 Highlights • On January 18, 2012, we announced the formation of our Electronic Materials business unit. This new business unit, which is a subgroup ofAlbemarle’s PCS division, provides electronic-grade metal organics to the rapidly expanding LED, compound semiconductor, and solar panelmarkets. • On January 25, 2012, we announced the successful completion of finished polyolefin catalysts production expansion activities at our ProcessDevelopment Center in Baton Rouge, Louisiana in response to the growing demand for finished single site catalysts used in the polyolefinindustry, including Albemarle’s ActivCat® technology. • On April 12, 2012, we announced the expansion of our Earthwise platform of sustainable products by introducing a new polymeric flameretardant for use in extruded and expanded polystyrene applications. The polymeric fire safety solution will be marketed under the trade nameGreenCrest and will be manufactured at the Company’s Orangeburg, South Carolina plant. This new technology, licensed from a subsidiary ofthe Dow Chemical Company, is expected to be commercialized in 2014. • On May 17, 2012, we announced our plan to exit the phosphorus flame retardants business (part of our Polymer Solutions business segment),resulting in the cessation of operations at our Avonmouth, United Kingdom and Nanjing, China manufacturing sites. For the full year 2012, werecorded a charge of $100.8 million ($76.1 million after income taxes) in connection with the exit of this business. In December 2012, wecompleted the sale of our Nanjing, China manufacturing site. • On June 26, 2012, we announced the expansion of the active pharmaceutical manufacturing facility at our South Haven, MI plant. • In August 2012, we announced the expansion of our finished catalysts and components facility in Yeosu, Korea. This expansion will be dedicatedto producing Albemarle’s PureGrowth products, including high purity trimethyl gallium, triethyl gallium and trimethyl aluminum. Additionally,we announced the grand opening of our new research and operations center at our Yeosu facility. • On October 1, 2012, various amendments to certain of our U.S. pension and defined contribution plans were approved by our Board ofDirectors. These amendments provide for formula changes to the related defined contribution plans as well as special benefits for certain definedbenefit plan participants which culminate in a freeze of pension benefits under the related qualified and nonqualified defined benefit plan after atwo year transition period. • On November 15, 2012, we announced a change in method of accounting for actuarial gains and losses relating to our global pension and otherpostretirement benefit (OPEB) plans to a more preferable method in accordance with generally accepted accounting principles (GAAP) in the U.S.This new accounting method, referred to as mark-to-market accounting, was adopted in the fourth quarter 2012 and was retrospectively applied toour financial results for all periods presented in this Annual Report on Form 10-K for the year ended December 31, 2012. • On November 16, 2012, we announced the grand opening of a new laboratory facility and expanded applications capabilities at our ProcessDevelopment Center in Baton Rouge, Louisiana. The new facility consists of a 5,400 square foot state-of-the-art laboratory complex designed tosupport research and development (R&D) efforts for Albemarle’s rapidly growing polyolefin catalyst portfolio. • In December 2012, we announced plans to expand our Fine Chemistry services production capabilities at our Tyrone, Pennsylvaniamanufacturing site. Also, we announced the expansion of our Orangeburg, South Carolina manufacturing site to occur from 2012 through 2016which will add facilities to manufacture two new products in the Company’s Fine Chemistry Services business, provide for production of theCompany’s GreenCrest™ product offering (our latest addition to the Earthwise™ portfolio of eco-friendly fire safety solutions in the PolymerSolutions business), and include the expansion of our organometallic production unit to support our growing Polymer Catalysts business. 28TMTM Table of ContentsAlbemarle Corporation and Subsidiaries • We achieved annual earnings of $311.5 million for the year 2012 as compared to $392.1 million for 2011. Our operating results contributed$488.8 million to cash flows from operations in 2012. • In the first quarter of 2012, we increased our quarterly dividend for the 18th consecutive year, to $0.20 per share. • We repurchased approximately 1.1 million shares of our common stock during 2012 under our existing share repurchase program.OutlookUncertainty regarding the condition of the global economy prevailed over much of 2012 and we expect these uncertainties to continue into 2013. Wecontinue to monitor the economic indicators that generally forecast demand in the end markets that we serve. Some of these key indicators deteriorated in thethird quarter of 2012, particularly in the electronics and European construction sectors, and signaled the continued slowing over the second half of 2012which adversely impacted our top line performance as well as our profitability as we ran our production assets at rates lower than recent levels. Despite thesecurrent trends, our business fundamentals are sound and we are strategically well-positioned as we remain focused on increasing sales volumes, managingcosts and delivering value to our customers. We believe that when the end markets we serve begin to stabilize and resume growth, our businesses will be readyto respond quickly to the improved market conditions and new business opportunities.Polymer Solutions: Year-over-year volume softness unfavorably impacted our net sales and profitability for 2012 versus the corresponding period of2011, which we believe was attributable to end market response to continuing global economic challenges. We are closely monitoring customer order patternsand other key indicators in our business during this period, some of which show trends that indicate the current pace of business could continue into 2013.These trends, should they continue, will likely have adverse impacts on our net sales and profitability into 2013, including impacts from operating ourproduction assets below optimum levels.Despite these current trends and concerns, we believe that the combination of solid, long-term business fundamentals with our competitive position,product innovations and effective management of raw material inventory inflation will enable our business to manage through these periods of end marketchallenges and to capitalize on opportunities that will come with a sustained economic recovery. Further, we believe our position has been strengthened by ourrecent exit from the phosphorus flame retardants business, which should yield improvements in our future profitability.On a long-term basis, we continue to believe that improving global standards of living and the potential for increasingly stringent fire safety regulationsin developing markets are likely to drive continued demand for fire safety products. Further, we continue to focus on globalization in this segment, with ourantioxidants facilities in China positioning us well for growth in the Asia region. Although we have elected to delay the expansion of our flame retardantproduction capacity at our JBC joint venture in Safi, Jordan based on current bromine balances and end market demand, we remain well-positioned to meetfuture demand as global economic growth and global bromine supply/demand dynamics warrant the resumption of this expansion.Catalysts: Lower metals surcharges and unfavorable foreign currency effects have resulted in overall lower year-over-year net sales for our Catalystssegment during 2012; however, the long-running global trends driving fundamental demand for refinery and polymer catalysts remain strong. We have seensignificant declines in metals surcharges, especially rare earths, relative to levels in 2011. As a result of these declines, our FCC business faced significantheadwinds toward achieving net sales performance comparable with 2011, as well as unfavorable profitability impacts which we believe will continue throughthe first half of 2013. However, our volumes in refinery catalysts (mainly HPC) and in our PCS division finished 2012 with solid performance to partiallyoffset these headwinds and will position us for continued growth in 2013.On a longer term basis, we believe increased global demand for petroleum products and implementation of more stringent fuel quality requirements willdrive growth in our refinery catalysts business. In addition, we expect growth in our PCS division to come from growing global demand for plastics driven byrising standards of living and infrastructure spending, particularly in Asia and the Middle East, as well as from the LED market, driven by energy efficiencydemands.New market penetration and introduction of innovative cost-effective products for the refining and polyolefins industries continue to provide benefits.We believe our focus on advanced product development in Catalysts positions us well for commercial success, and we have introduced new value-addedrefining solutions and technologies that enable refiners to increase yields, a critical advantage for refiners, as well as offering advanced Ziegler-Natta catalyststo our polyolefin customers. Our marketing and research groups are tightly aligned, enabling us to continue to bring innovative technologies to the market. 29 Table of ContentsAlbemarle Corporation and Subsidiaries We expect to leverage our existing positions in the Middle East and Asia to capitalize on growth opportunities and further develop our leading position inthose emerging markets. Our joint venture in Saudi Arabia with SABIC, expected to be operational in early 2013, positions us to lead in the fast-growingMiddle East polyolefins catalysts market. Construction at our Yeosu, South Korea site is progressing well, where lab and pilot plant assets have allowed us torapidly develop research and small-scale production facilities, adding immediate value to the metallocene polyolefin markets. The commercial facility isexpected to be operational in the first half of 2013 to meet regional growth in metallocene polyolefins markets.Fine Chemistry: In our Fine Chemistry segment, we saw positive year-over-year net sales and income growth overall during 2012 as a result of volumegrowth primarily in custom services and in performance chemicals. This segment continues to benefit from the rapid pace of innovation and the introductionof new products, coupled with the movement by companies to outsource certain research, product development and manufacturing functions. We believe wecan sustain healthy margins with continued focus on the two strategic areas in our Fine Chemistry segment—maximizing our bromine franchise value in theperformance chemicals sector and continued growth of our fine chemistry services business.In our performance chemicals sector, our completion fluids business showed signs of strengthening drilling activity during the second half of 2012(especially in the U.S. Gulf of Mexico and in the Middle East). Additionally, we remain encouraged by long-term regulatory drivers in the U.S., and by therecent agreement among parties to the UNEP Minamata Convention to move forward with globally binding standards for control of mercury emissions. We arepositioned to provide this market and other high-growth bromine and derivatives markets with sensible and sustainable solutions.On a longer term basis, we are focused on profitably growing our globally competitive bromine and derivatives production network to serve all majorbromine consuming products and markets. We believe the global supply/demand gap will continue to tighten as demand for existing and new uses of bromineexpand. We have commenced an expansion of our bromine and derivatives production capacity (excluding flame retardants) at our JBC joint venture in Safi,Jordan, with commercial completion and start-up of the first two phases of this expansion expected in the first half of 2013.Our fine chemistry services businesses have delivered strong net sales and profitability during 2012, and opportunities are expanding in the renewables,life sciences and electronic materials markets. Our pharmaceutical and crop protection businesses continue to deliver solid results. We expect productdevelopment opportunities to continue, such as partnering with ExxonMobil Corporation to make a specialty lubricant and with pharmaceutical developerslike SIGA Technologies in their manufacture of the ST-246 smallpox drug.Our technical expertise, manufacturing capabilities and speed to market allow us to develop a preferred outsourcing position serving leading chemical,renewable and life science innovators in diverse industries. We believe we will continue to generate growth in profitable niche products leveraged from thisservice business.Corporate and Other: We continue to focus on cash generation, working capital management and process efficiencies. Our global effective tax rate was22.0% for 2012, and we expect our global effective tax rate for 2013 to be approximately 25.5%; however, our rate will vary based on the locales in whichincome is actually earned and remains subject to potential volatility from changing legislation in the U.S. and other tax jurisdictions.As outlined in our summary of accounting policies, we reflect actuarial adjustments to our pension obligation in Corporate and other as a component ofnon-operating pension plan costs under mark-to-market accounting. Results for the year ended December 31, 2012 include an actuarial loss of approximately$76 million, as compared to a loss of approximately $92 million for the year ended December 31, 2011.In the first quarter of 2012, we increased our quarterly dividend payout to $0.20 per share. We repurchased approximately 1.1 million shares of ourcommon stock during 2012 for approximately $64 million under our existing share repurchase program, and we may periodically repurchase shares in thefuture on an opportunistic basis. In the first quarter of 2013, we increased our quarterly dividend payout to $0.24 per share.We remain committed to evaluating the merits of any opportunities that may arise for acquisitions or other business development activities that willcomplement our business footprint. Additional information regarding our products, markets and financial performance is provided at our website,www.albemarle.com. Our web site is not a part of this document nor is it incorporated herein by reference. 30 Table of ContentsAlbemarle Corporation and Subsidiaries Results of OperationsThe following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included inthe accompanying condensed consolidated statements of income. Our year 2012 results reflect our election to change our method of accounting for actuarialgains and losses relating to our global pension and OPEB plans. Also, our results for 2011 and 2010 have been revised, as applicable, for the retrospectiveapplication of this change in accounting principle. Selected Financial Data Year Ended December 31, Percentage Change 2012 2011 2010 2012 vs.2011 2011 vs.2010 (In thousands, except percentages and per share amounts) NET SALES $2,745,420 $2,869,005 $2,362,764 (4)% 21% Cost of goods sold 1,835,425 1,914,058 1,620,854 (4)% 18% GROSS PROFIT 909,995 954,947 741,910 (5)% 29% GROSS PROFIT MARGIN 33.1% 33.3% 31.4% Selling, general and administrative expenses 313,227 360,070 274,615 (13)% 31% Research and development expenses 78,919 77,083 58,394 2% 32% Restructuring and other charges, net 111,685 — 6,958 * * OPERATING PROFIT 406,164 517,794 401,943 (22)% 29% OPERATING PROFIT MARGIN 14.8% 18.0% 17.0% Interest and financing expenses (32,800) (37,574) (25,533) (13)% 47% Other income, net 1,229 357 2,788 * (87)% INCOME BEFORE INCOME TAXES AND EQUITY IN NETINCOME OF UNCONSOLIDATED INVESTMENTS 374,593 480,577 379,198 (22)% 27% Income tax expense 82,533 104,134 87,756 (21)% 19% Effective tax rate 22.0% 21.7% 23.1% INCOME BEFORE EQUITY IN NET INCOME OFUNCONSOLIDATED INVESTMENTS 292,060 376,443 291,442 (22)% 29% Equity in net income of unconsolidated investments (net of tax) 38,067 43,754 37,975 (13)% 15% NET INCOME $330,127 $420,197 $329,417 (21)% 28% Net income attributable to noncontrolling interests (18,591) (28,083) (13,639) (34)% 106% NET INCOME ATTRIBUTABLE TO ALBEMARLECORPORATION $311,536 $392,114 $315,778 (21)% 24% PERCENTAGE OF NET SALES 11.3% 13.7% 13.4% Basic earnings per share $3.49 $4.33 $3.46 (19)% 25% Diluted earnings per share $3.47 $4.28 $3.43 (19)% 25% *Percentage calculation is not meaningful. 31 Table of ContentsAlbemarle Corporation and Subsidiaries Comparison of 2012 to 2011Net SalesFor the year ended December 31, 2012, we recorded net sales of $2.75 billion, a 4% decrease compared to net sales of $2.87 billion for thecorresponding period of 2011. This decrease was due primarily to unfavorable pricing impacts of 3% (mainly lower metals surcharges in refinery catalysts)and unfavorable foreign currency impacts of 1% (mainly the weaker Euro). Volume impacts on our net sales were flat year-over-year, with softness in ourbrominated flame retardants business and the unfavorable impacts from our phosphorus flame retardant business exit announced in the second quarter of2012 being fully offset by strong year-over-year volume impacts in our Catalysts and Fine Chemistry segments.Gross ProfitFor the year ended December 31, 2012, our gross profit decreased $45.0 million, or 5%, from the corresponding 2011 period due mainly to overallunfavorable pricing impacts from volatility in both metals surcharges and related cost impacts in refinery catalysts (particularly rare earths), unfavorableforeign currency impacts and unfavorable manufacturing spending, partly offset by favorable overall volume impacts. Additionally, our gross profit for 2012was impacted by approximately $26.3 million of pension and OPEB costs (including mark-to-market actuarial losses) allocated to cost of goods sold, ascompared to $31.7 million in 2011. Overall, these factors contributed to our gross profit margin for the current year of 33.1% , essentially flat with thecorresponding period in 2011.Selling, General and Administrative ExpensesFor the year ended December 31, 2012, our selling, general and administrative (SG&A) expenses decreased $46.8 million, or 13%, compared to the yearended December 31, 2011. This decrease was primarily due to lower personnel-related costs (particularly incentive compensation) and other spending as wellas favorable impacts from foreign currency. Our SG&A for 2012 was impacted by approximately $51.1 million of pension and OPEB costs (includingmark-to-market actuarial losses), as compared to $65.5 million in 2011. Additionally, SG&A for the current year included (a) a gain of $8.1 millionresulting from proceeds received in connection with the settlement of litigation (net of legal fees), and (b) an $8 million charitable contribution to the AlbemarleFoundation, 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.As a percentage of net sales, SG&A expenses were 11.4% for the year ended December 31, 2012, compared to 12.6% for the corresponding period in2011.Research and Development ExpensesFor the year ended December 31, 2012, our R&D expenses increased $1.8 million, or 2%, from the year ended December 31, 2011, due mainly tohigher spending, partly offset by favorable impacts from foreign currency. As a percentage of net sales, R&D expenses were 2.9% for the 2012 period,compared to 2.7% in 2011.Restructuring and Other Charges, NetRestructuring and other charges, net were $111.7 million for the year ended December 31, 2012 and include the following items: (a)Net charges amounting to $100.8 million ($76.1 million after income taxes) in connection with our exit of the phosphorus flame retardantsbusiness. 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 withrelated severance programs of approximately $22 million, estimated site remediation costs of approximately $9 million, other estimatedexit costs of approximately $3 million, partly offset by a gain of approximately $2 million related to the sale of our Nanjing, Chinamanufacturing site. We began to realize favorable profit impacts from this program in the fourth quarter of 2012 and expect to fund themajority of the obligations associated with this special charge (estimated to range from $5 million to $15 million in cash outflows aftertaxes) with cash generated from our ongoing operations. (b)A net curtailment gain of $4.5 million ($2.9 million after income taxes) and a one-time employer contribution to the Company’s definedcontribution 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. These amendmentsprovided for formula changes to the related defined contribution plans as well as special benefits for certain defined benefit planparticipants which culminate in a freeze of pension benefits under the related qualified and nonqualified defined benefit plan after a twoyear transition period. (c)Charges amounting to $5.3 million ($4.3 million after income taxes) related to changes in product sourcing and other items. 32 Table of ContentsAlbemarle Corporation and Subsidiaries Interest and Financing ExpensesInterest and financing expenses for the year ended December 31, 2012 decreased $4.8 million to $32.8 million from the corresponding 2011 period, duemainly to increases in interest capitalized on higher average construction work in progress balances and lower variable-rate borrowings year-over-year.Other Income, NetOther income, net, for the year ended December 31, 2012 was $1.2 million versus $0.4 million for the corresponding 2011 period. This change was dueprimarily to favorable interest income and other miscellaneous items partly offset by unfavorable currency over the corresponding period in 2011.Income Tax ExpenseThe effective income tax rate for 2012 was 22.0% compared to 21.7% for 2011. Our effective income tax rate differs from the U.S. federal statutoryincome tax rates in the comparative periods mainly due to the impact of earnings from outside the U.S. Also, our effective income tax rate for the 2012 periodwas impacted by discrete net tax benefit items of $1.0 million related principally to tax planning and the release of various tax reserves for uncertain domestictax positions due to the expiration of the domestic statute of limitations related to the 2008 tax year, as well as $100.8 million of pre-tax charges ($76.1 millionafter taxes) associated with our exit of the phosphorus flame retardants business.Equity in Net Income of Unconsolidated InvestmentsEquity in net income of unconsolidated investments was $38.1 million for the year ended December 31, 2012 compared to $43.8 million in the sameperiod last year. This decrease was due primarily to lower equity income amounts reported from our Catalysts segment joint ventures FCC SA and NipponKetjen Company Limited, as well as our Polymer Solutions joint venture Magnifin.Net Income Attributable to Noncontrolling InterestsFor the year ended December 31, 2012, net income attributable to noncontrolling interests was $18.6 million compared to $28.1 million in the sameperiod last year. This decrease of $9.5 million was due primarily to lower year-over-year profitability from our consolidated joint venture JBC based mainlyon lower demand in our brominated flame retardants business.Net Income Attributable to Albemarle CorporationNet income attributable to Albemarle Corporation decreased to $311.5 million for the year ended December 31, 2012, from $392.1 million for thecorresponding period of 2011, primarily due to restructuring and other charges in 2012, lower pricing including impacts from both volatility in metalssurcharges and related cost impacts in refinery catalysts (particularly rare earths), unfavorable foreign currency impacts, lower equity in net income ofunconsolidated investments and higher R&D costs. These impacts were partly offset by favorable overall volume impacts (including favorable impacts fromour exit of the phosphorus business), lower SG&A expenses, lower interest and financing expenses, higher other income, net, lower income tax expense andlower net income attributable to noncontrolling interests.Segment Information Overview. We have identified three reportable segments according to the nature and economic characteristics of our products aswell as the manner in which the information is used internally by the Company’s key decision maker, our Chief Executive Officer, in accordance with currentaccounting guidance. Our Polymer Solutions segment is comprised of the flame retardants and stabilizers and curatives product areas. Our Catalysts segmentis comprised of the refinery catalysts and PCS product areas. Our Fine Chemistry segment is comprised of the performance chemicals and fine chemistryservices and intermediates product areas. Segment income represents operating profit (adjusted for significant non-recurring items) and equity in net income ofunconsolidated investments and is reduced by net income attributable to noncontrolling interests.In connection with our change in method of accounting for actuarial gains and losses relating to our global pension and OPEB plans in 2012, servicecosts (which represent the benefits earned by active employees during the period) and amortization of prior service costs/benefits continue to be allocated toeach segment. The remaining components of pension and OPEB plan expense are included in Corporate and other. Management believes this allocation willbetter reflect the operating results of each of its reporting segments. Prior year segment results have been retrospectively adjusted to reflect the change inaccounting principle and change in allocation of pension and OPEB costs. 33 Table of ContentsAlbemarle Corporation and Subsidiaries On January 1, 2010, we sold a 10% interest in our previously consolidated investment in Stannica LLC, resulting in a change in accounting for thissubsidiary to the equity method. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs. Year Ended December 31, PercentageChange 2012 % ofnet sales 2011 % ofnet sales 2012 vs. 2011 (In thousands, except percentages) Net sales: Polymer Solutions $892,232 32.5% $1,001,922 34.9% (11)% Catalysts 1,067,948 38.9% 1,116,863 38.9% (4)% Fine Chemistry 785,240 28.6% 750,220 26.2% 5% Total net sales $2,745,420 100.0% $2,869,005 100.0% (4)% Segment operating profit: Polymer Solutions $198,426 22.2% $243,396 24.3% (18)% Catalysts 260,544 24.4% 290,065 26.0% (10)% Fine Chemistry 182,690 23.3% 162,726 21.7% 12% Total segment operating profit 641,660 696,187 (8)% Equity in net income of unconsolidated investments: Polymer Solutions 6,416 7,696 (17)% Catalysts 31,651 36,259 (13)% Fine Chemistry — — — % Corporate & other — (201) (100)% Total equity in net income of unconsolidated investments 38,067 43,754 (13)% Net (income) loss attributable to noncontrolling interests: Polymer Solutions (2,221) (9,803) (77)% Catalysts — — — % Fine Chemistry (16,350) (18,306) (11)% Corporate & other (20) 26 * Total net income attributable to noncontrolling interests (18,591) (28,083) (34)% Segment income: Polymer Solutions 202,621 22.7% 241,289 24.1% (16)% Catalysts 292,195 27.4% 326,324 29.2% (10)% Fine Chemistry 166,340 21.2% 144,420 19.3% 15% Total segment income 661,156 712,033 (7)% Corporate & other (123,831) (178,568) (31)% Restructuring and other charges, net (111,685) — * Interest and financing expenses (32,800) (37,574) (13)% Other income, net 1,229 357 * Income tax expense (82,533) (104,134) (21)% Net income attributable to Albemarle Corporation $311,536 $392,114 (21)% *Percentage calculation is not meaningful.Our segment information includes measures we refer to as “segment operating profit” and “segment income” which are financial measures that are notrequired by, or presented in accordance with, GAAP. The Company has reported segment operating profit and segment income because management believesthat these financial measures provide transparency to investors and enable period-to-period comparability of financial performance. Segment operating profitand segment income should not be considered as an alternative to operating profit or net income attributable to Albemarle Corporation, respectively, asdetermined in accordance with GAAP. 34 Table of ContentsAlbemarle Corporation and Subsidiaries See below for a reconciliation of segment operating profit and segment income, the non-GAAP financial measures, to operating profit and net incomeattributable to Albemarle Corporation, respectively, the most directly comparable financial measures calculated and reported in accordance with GAAP. Year EndedDecember 31, 2012 2011 (In thousands) Total segment operating profit $641,660 $696,187 Add (less): Corporate & other (123,811) (178,393) Restructuring and other charges, net (111,685) — GAAP Operating profit $406,164 $517,794 Total segment income $661,156 $712,033 Add (less): Corporate & other (123,831) (178,568) Restructuring and other charges, net (111,685) — Interest and financing expenses (32,800) (37,574) Other income, net 1,229 357 Income tax expense (82,533) (104,134) GAAP Net income attributable to Albemarle Corporation $311,536 $392,114 Excludes corporate equity income and noncontrolling interest adjustments of $(20) and $(175) for the years ended December 31, 2012 and 2011,respectively.Polymer SolutionsPolymer Solutions segment net sales for the year ended December 31, 2012 were $892.2 million, down $109.7 million, or 11%, in comparison to thesame period in 2011. The decrease was driven mainly by lower sales volumes in flame retardants of 7%, unfavorable currency impacts of 2% from a weakerEuro as compared to the U.S. dollar, and lower average pricing in our mineral flame retardants. These impacts were partly offset by favorable volumes in ourstabilizers and curatives business and favorable average pricing in brominated flame retardants. Additionally, the second quarter exit from our phosphorusflame retardants business reduced revenue for the period by $24.0 million, or 2%, as compared to the prior year. Segment income for Polymer Solutions wasdown 16%, or $38.7 million, to $202.6 million for the year ended 2012 compared to 2011, due mainly to volume declines in flame retardants , lower pricingimpacts in mineral flame retardants, unfavorable foreign currency impacts, and higher manufacturing costs, as well as lower equity in net income from ourunconsolidated investment in Magnifin of $1.3 million compared to the corresponding period in 2011. These unfavorable results were offset in part by $7.6million in lower net income attributable to noncontrolling interests in our JBC joint venture, favorable pricing in brominated flame retardants, and lowervariable input costs. Additionally, the second quarter exit from our phosphorus flame retardants business increased segment income by $10.5 million, or 4%,as compared to the prior year.CatalystsCatalysts segment net sales for the year ended December 31, 2012 were $1.07 billion, a decrease of $48.9 million, or 4%, compared to the year endedDecember 31, 2011. This decrease was due mainly to unfavorable pricing on lower metals surcharges in refinery catalysts, partly offset by improved pricingin PCS. This net unfavorable price impact of 6% and unfavorable foreign exchange impacts of 2% were partly offset by higher volume impacts of 4% despiteunfavorable mix shift impacts from HPC and alternative fuels to FCC refinery catalysts compared to the prior year. Catalysts segment income decreased 10%,or $34.1 million, to $292.2 million for the year ended December 31, 2012 in comparison to the corresponding period of 2011. This decrease was dueprimarily to net unfavorable pricing impacts from volatility in metals surcharges and related cost impacts in refinery catalysts, higher manufacturing andSG&A spending and unfavorable foreign currency impacts, partly offset by overall favorable volume impacts and improved pricing in PCS. Also, Catalystssegment income for 2012 was unfavorably impacted by year-over-year declines in equity in net income from unconsolidated investments of $4.6 million,resulting mainly from unfavorable year-over-year performance in its refinery catalysts joint ventures FCC SA and Nippon Ketjen. 35(a)(a) Table of ContentsAlbemarle Corporation and Subsidiaries Fine ChemistryFine Chemistry segment net sales for the year ended December 31, 2012 were $785.2 million, an increase of $35.0 million, or 5%, versus the prioryear. This increase was primarily attributable to favorable volume impacts of 6%, partly offset by unfavorable foreign currency impacts of 1%. Segmentincome for the year ended December 31, 2012 was $166.3 million, up 15% from the corresponding period in 2011. These improved results were due mainlyto improved volumes in the segment, particularly in our services and intermediates businesses, offset in part by increases in manufacturing spending, highervariable input costs and unfavorable impacts from foreign currency. Also, Fine Chemistry segment income results were unfavorably impacted by higherSG&A/R&D spending (including favorable currency impacts), partly offset by lower net income attributable to noncontrolling interests of $2.0 millionassociated with lower profit results from our JBC joint venture.Corporate and otherFor the year ended December 31, 2012, our Corporate and other expense was $123.8 million compared to $178.6 million for the corresponding period in2011. This decrease was primarily due to lower employee-related costs, including performance-based incentive compensation (reflected mainly in SG&Aexpenses). Additionally, Corporate and other expenses for 2012 include $68.0 million of pension and OPEB plan costs (including mark-to market actuariallosses) compared to $89.2 million of corresponding charges in 2011.Comparison of 2011 to 2010Net SalesFor the year ended December 31, 2011, we recorded net sales of $2.87 billion, a 21% increase compared to net sales of $2.36 billion for the year endedDecember 31, 2010. This increase was due mainly to favorable pricing in all segments, as well as benefitting from favorable volume impacts for the Companyas a whole resulting mainly from improved market conditions on a year-over-year basis. Pricing was favorable 16% while volume had a favorable impact onour net sales of 3%. Additionally, foreign currency impacts on net sales were favorable 2% in 2011 over 2010 (due mainly to the stronger Euro).Gross ProfitFor the year ended December 31, 2011, our gross profit increased $213.0 million, or 29%, from the corresponding 2010 period due mainly to favorablepricing across our segments as well as overall favorable net impacts from foreign currency, partly offset mainly by higher variable input costs (primarily rawmaterials) and manufacturing spending. Further, our gross profit for the year ended December 31, 2011 included $31.7 million of pension and OPEB costs(including mark-to-market actuarial losses) allocated to cost of goods sold, as compared to $11.2 million in 2010. Overall, these factors contributed to ourimproved gross profit margin for the year ended December 31, 2011 of 33.3%, up from 31.4% for the corresponding period in 2010.Selling, General and Administrative ExpensesFor the year ended December 31, 2011, our SG&A expenses increased $85.5 million, or 31%, from the year ended December 31, 2010. This increasewas primarily due to higher personnel-related costs, including performance based compensation and pension costs, higher sales commissions and unfavorableforeign currency impacts (due mainly to the stronger Euro). Additionally, SG&A for 2011 included $65.5 million of pension and OPEB costs (includingmark-to-market actuarial losses), as compared to $22.7 million during 2010. As a percentage of net sales, SG&A expenses were 12.6% for the year endedDecember 31, 2011, compared to 11.6% for the corresponding period in 2010.Research and Development ExpensesFor the year ended December 31, 2011, our R&D expenses increased $18.7 million, or 32%, from the year ended December 31, 2010, mainly due tohigher department spending associated with our ongoing investment in organic growth opportunities as well as unfavorable foreign currency impacts (duemainly to the stronger Euro). As a percentage of net sales, R&D expenses were 2.7% for the year ended December 31, 2011, compared to 2.5% for thecorresponding period in 2010.Restructuring and Other ChargesThe year ended December 31, 2010 included charges amounting to $7.0 million ($4.6 million after income taxes) for restructuring costs related toreductions in force at our Bergheim, Germany site. The program associated with these charges have and are expected to continue to yield favorable impacts inour reported operating costs in future reporting periods. We have and will continue to fund the majority of the obligations associated with these type programswith cash flow generated from operating activities. 36 Table of ContentsAlbemarle Corporation and Subsidiaries Interest and Financing ExpensesInterest and financing expenses for the year ended December 31, 2011 were $37.6 million as compared to $25.5 million for the corresponding 2010period. This increase was due mainly to higher average interest rates on our outstanding borrowings.Other Income, NetOther income, net for the year ended December 31, 2011 was $0.4 million versus $2.8 million for the corresponding 2010 period. This change was dueprimarily to comparatively unfavorable results on our foreign exchange gains and losses year-over-year, partly offset by higher interest income versus thecorresponding period in 2010 based on higher average cash balances year-over-year.Income Tax ExpenseThe effective income tax rate for 2011 was 21.7% compared to 23.1% for 2010. The Company’s effective income tax rate fluctuates based on, amongother factors, our level and location of income. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the yearsended December 31, 2011 and 2010 was mainly due to the impact of earnings from outside the U.S.Equity in Net Income of Unconsolidated InvestmentsEquity in net income of unconsolidated investments was $43.8 million for the year ended December 31, 2011 compared to $38.0 million in 2010. Thisincrease was due primarily to improved results in our Catalysts segment joint ventures FCC SA and Nippon Ketjen.Net Income Attributable to Noncontrolling InterestsFor the year ended December 31, 2011, net income attributable to noncontrolling interests was $28.1 million compared to $13.6 million in 2010. Thisincrease was due primarily to improved volumes and profitability from our consolidated joint venture Jordan Bromine Company Limited, or JBC, based onhigher demand for the products in our bromine and derivatives portfolio.Net Income Attributable to Albemarle CorporationNet income attributable to Albemarle Corporation was $392.1 million for the year ended December 31, 2011, up from $315.8 million for the year endedDecember 31, 2010, primarily due to overall favorable sales pricing impacts, favorable net impacts from foreign currency, lower restructuring and othercharges and favorable equity in net income of unconsolidated investments. These favorable impacts were partly offset primarily by higher variable inputcosts, higher manufacturing spending, higher SG&A and R&D costs, higher interest and financing expenses, higher income taxes and higher net incomeattributable to noncontrolling interests. 37 Table of ContentsAlbemarle Corporation and Subsidiaries Year Ended December 31, PercentageChange 2011 % ofnet sales 2010 % ofnet sales 2011 vs. 2010 (In thousands, except percentages) Net sales: Polymer Solutions $1,001,922 34.9% $903,745 38.2% 11% Catalysts 1,116,863 38.9% 890,007 37.7% 25% Fine Chemistry 750,220 26.2% 569,012 24.1% 32% Total net sales $2,869,005 100.0% $2,362,764 100.0% 21% Segment operating profit: Polymer Solutions $243,396 24.3% $197,981 21.9% 23% Catalysts 290,065 26.0% 220,795 24.8% 31% Fine Chemistry 162,726 21.7% 83,579 14.7% 95% Subtotal 696,187 502,355 39% Equity in net income of unconsolidated investments: Polymer Solutions 7,696 8,734 (12)% Catalysts 36,259 29,648 22% Fine Chemistry — — — % Corporate & other (201) (407) (51)% Total equity in net income of unconsolidated investments 43,754 37,975 15% Net income attributable to noncontrolling interests: Polymer Solutions (9,803) (6,154) 59% Catalysts — — — % Fine Chemistry (18,306) (7,357) 149% Corporate & other 26 (128) (120)% Total net income attributable to noncontrolling interests (28,083) (13,639) 106% Segment income: Polymer Solutions 241,289 24.1% 200,561 22.2% 20% Catalysts 326,324 29.2% 250,443 28.1% 30% Fine Chemistry 144,420 19.3% 76,222 13.4% 89% Total segment income 712,033 527,226 35% Corporate & other (178,568) (93,989) 90% Restructuring and other charges — (6,958) * Interest and financing expenses (37,574) (25,533) 47% Other income, net 357 2,788 (87)% Income tax expense (104,134) (87,756) 19% Net income attributable to Albemarle Corporation $392,114 $315,778 24% *Percentage calculation is not meaningful.Our segment information includes measures we refer to as “segment operating profit” and “segment income” which are financial measures that are notrequired by, or presented in accordance with GAAP. The Company has reported segment operating profit and segment income because management believesthat these financial measures provide transparency to investors and enable period-to-period comparability of financial performance. Segment operating profitand segment income should not be considered as an alternative to operating profit or net income attributable to Albemarle Corporation, respectively, asdetermined in accordance with GAAP.See below for a reconciliation of segment operating profit and segment income, the non-GAAP financial measures, to operating profit and net incomeattributable to Albemarle Corporation, respectively, the most directly comparable financial measures calculated and reported in accordance with GAAP. 38 Table of ContentsAlbemarle Corporation and Subsidiaries Year EndedDecember 31, 2011 2010 (In thousands) Total segment operating profit $696,187 $502,355 Add (less): Corporate & other (178,393) (93,454) Restructuring and other charges — (6,958) GAAP Operating profit $517,794 $401,943 Total segment income $712,033 $527,226 Add (less): Corporate & other (178,568) (93,989) Restructuring and other charges — (6,958) Interest and financing expenses (37,574) (25,533) Other income, net 357 2,788 Income tax expense (104,134) (87,756) GAAP Net income attributable to Albemarle Corporation $392,114 $315,778 Excludes corporate equity income and noncontrolling interest adjustments of $(175) and $(535) for the years ended December 31, 2011 and 2010,respectively.Polymer SolutionsPolymer Solutions segment net sales for the year ended December 31, 2011 were $1.0 billion, up 11%, compared to the year ended December 31, 2010,due mainly to the impact of favorable pricing of 16% resulting mainly from the execution of recent price increases during the year in our fire safety portfoliolargely in response to rising raw material costs. Lower volume impacts of 8% for the segment were offset by favorable foreign currency impacts of 3%. Ourstabilizers and curatives business also showed favorable pricing and foreign currency impacts in 2011 over 2010, although partly offset by lower volumes.Segment income for Polymer Solutions was $241.3 million for the year ended December 31, 2011, up 20% versus the same period in 2010, due mainly to theoverall pricing improvements noted above and favorable impacts from foreign currency, partly offset by higher variable input costs (mainly raw materials),lower volumes and higher manufacturing and SG&A/R&D spending. Further, Polymer Solutions segment results for 2011 were unfavorably impacted $3.6million in higher charges from net income attributable to noncontrolling interests in our JBC joint venture, while equity in net income from our unconsolidatedinvestment Magnifin was $7.7 million for the year ended December 31, 2011, down $1.0 million from the year ended December 31, 2010 due to lower year-over-year sales volumes for that joint venture.CatalystsCatalysts segment net sales for the year ended December 31, 2011 were $1.1 billion, an increase of 25%, versus the year ended December 31, 2010.This increase was due mainly to favorable pricing impacts of 18%, favorable volume impacts contributing 6% and favorable effects from foreign currency of1%. The favorable volume impacts were mainly in HPC and PCS, partly offset by lower volumes in alternative fuels and FCC refinery catalysts. Also,pricing was up for the year 2011 versus prior year in refinery catalysts (mainly FCC as well as in HPC) due mainly to the pass-through of higher raw materialcosts along with other announced price increases. Catalysts segment income increased 30% to $326.3 million for the year ended December 31, 2011 incomparison to the year ended December 31, 2010. This increase was primarily in our refinery catalysts business due mainly to the pricing gains noted aboveas well as favorable impacts from foreign currency, partly offset by higher variable input costs (mainly raw materials) and higher manufacturing andSG&A/R&D spending. Catalysts segment income for the year ended December 31, 2011 also benefitted from year-over-year improvement in equity in netincome from unconsolidated investments of $6.6 million, resulting mainly from improved performance in our refinery catalysts joint venture FCC SA due tofavorable sales performance year-over-year as well as favorable results from Nippon Ketjen. 39(a)(a) Table of ContentsAlbemarle Corporation and Subsidiaries Fine ChemistryFine Chemistry segment net sales for the year ended December 31, 2011 were $750.2 million, an increase of 32% versus the year ended December 31,2010. This increase was primarily attributable to higher volumes (particularly in our custom services, agricultural intermediates and performance chemicalsbusinesses) contributing an 18% increase resulting mainly from improved customer demand versus the corresponding period of 2010. These favorable volumeimpacts on the segment’s net sales were net of $9.6 million in unfavorable impact from the July 30, 2010 divestiture of our Teesport, UK site. Pricing wasalso favorable 12% year-over-year for the segment (mainly in performance chemicals) while foreign currency impacts were also favorable 2%. Segment incomefor the year ended December 31, 2011 was $144.4 million, nearly double the corresponding period in 2010. These improved results were due mainly to highersales pricing and volumes in the segment mentioned above as well as favorable foreign currency impacts, offset in part by higher variable input costs (mainlyraw materials) and higher manufacturing and SG&A/R&D spending. Also, Fine Chemistry segment income results were unfavorably impacted by highercharges from net income attributable to noncontrolling interests of $10.9 million (mainly from improved bromine portfolio performance in our JBC jointventure).Corporate and otherFor the year ended December 31, 2011, our Corporate and other expense was $178.6 million versus $94.0 million for the year ended December 31,2010. This increase was primarily due to higher employee-related costs, including performance based compensation (reflected mainly in SG&A expenses) aswell as unfavorable impacts from foreign currency. Additionally, Corporate and other expenses for 2011 include $89.2 million of pension and OPEB plancosts (including mark-to-market actuarial losses) compared to $27.9 million of corresponding charges in 2010.Summary of Critical Accounting Policies and EstimatesEstimates, Assumptions and ReclassificationsThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reportedamounts of revenues, expenses, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Listed below arethe estimates and assumptions that we consider to be critical in the preparation of our financial statements.Certain amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to the current presentation.Recovery of Long-Lived Assets. We evaluate the recovery of our long-lived assets on a reporting unit basis by periodically analyzing our operatingresults and considering significant events or changes in the business environment.Income Taxes. We assume the deductibility of certain costs in our income tax filings and estimate the future recovery of deferred tax assets.Environmental Remediation Liabilities. We estimate and accrue the costs required to remediate a specific site depending on site-specific facts andcircumstances. Cost estimates to remediate each specific site are developed by assessing (i) the scope of our contribution to the environmental matter, (ii) thescope of the anticipated remediation and monitoring plan and (iii) the extent of other parties’ share of responsibility.Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.Revenue RecognitionWe recognize sales when the revenue is realized or realizable, and has been earned, in accordance with authoritative accounting guidance. We recognizenet 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 soldfree on board (FOB) shipping point or on an equivalent basis, and other transactions are based upon specific contractual arrangements. Our standard terms ofdelivery are generally included in our contracts of sale, order confirmation documents and invoices. We recognize revenue from services when performance ofthe services has been completed. We have a limited amount of consignment sales that are billed to the customer upon monthly notification of amounts used bythe customers under these contracts. Where the Company incurs pre-production design and development costs under long-term supply contracts, these costsare expensed where they relate to the products sold unless contractual guarantees for reimbursement exist. Conversely, these costs are capitalized if they pertainto equipment that we will own and use in producing the products to be supplied and expect to utilize for future revenue generating activities. 40 Table of ContentsAlbemarle Corporation and Subsidiaries Goodwill and Other Intangible AssetsWe account for goodwill and other intangibles acquired in a business combination in conformity with current accounting guidance which requiresgoodwill and indefinite-lived intangible assets to not be amortized.We test goodwill for impairment by comparing the estimated fair value of our reporting units to the related carrying value. We measure the fair valuebased 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 inestimating 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 andequity from a market perspective. The factors in this calculation are largely external to the Company and, therefore, are beyond our control. We test ourrecorded goodwill balances for impairment in the fourth quarter of each year or upon the occurrence of events or changes in circumstances that would morelikely than not reduce the fair value of our reporting units below their carrying amounts. The Company performed its annual goodwill impairment test as ofOctober 31, 2012 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 livesgenerally for periods ranging from three to fifty years. We continually evaluate the reasonableness of the useful lives of these assets and test for impairment inaccordance with current accounting guidance. See Note 10, “Goodwill and Other Intangibles” to our consolidated financial statements included in Item 8beginning on page 51.Pension Plans and Other Postretirement BenefitsDuring 2012, we elected to change our method of accounting for actuarial gains and losses relating to our global pension and OPEB plans. Previously,we recognized actuarial gains and losses from our pension and OPEB plans in our 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 obligationsrecognized each quarter in our consolidated statements of income over the average future service period of active employees. Under the new method ofaccounting, referred to as mark-to-market accounting, these gains and losses will be recognized annually in our consolidated statements of income in the fourthquarter 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, will be recorded on a quarterly basis. The gain/loss subject to amortization and expectedreturn on assets components of our pension expense has historically been calculated using a five-year smoothing of asset gains and losses referred to as themarket-related value. Under mark-to-market accounting, the market-related value of assets will equal the actual market value as of the date of measurement.While our historical policy of recognizing pension and OPEB plan expense is considered acceptable under U.S. GAAP, we believe that the new policy ispreferable as it eliminates the delay in recognizing gains and losses within operating results. This change will also improve transparency within our operatingresults by immediately recognizing the effects of economic and interest rate trends on plan investments and assumptions in the year these gains and losses areactually incurred. This change in accounting principle has been applied retrospectively, adjusting all prior periods presented.Under authoritative accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. Asrequired, we recognize a balance sheet asset or liability for each of the pension or 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 bemade 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 ofinvestments held by the plans as well as the expected long-term allocation of plan assets for these investments. These projected returns reduce thenet benefit costs recorded currently. • Rate of Compensation Increase—For salary-related plans, we project employees’ annual pay increases, which are used to project employees’pension benefits at retirement. • Rate of Increase in the Per Capita Cost of Covered Health Care Benefits—We project the expected increases in the cost of covered health carebenefits.During 2012, we made changes to the assumptions related to the discount rate, expected return on assets, mortality and salary scales. We consideravailable information that we deem relevant when selecting each of these assumptions. 41 Table of ContentsAlbemarle Corporation and Subsidiaries In selecting the discount rates for the U.S. plans, we establish a range of reasonable rates based on methods developed by subject matter experts thatreflect current market conditions. For 2012, we relied on methods developed by Citigroup and Milliman to establish a range of acceptable discount rates basedon authoritative accounting guidance. These methods calculate discount rates based on high-quality bond data and the projected plan cash flows. We believeour selected discount rates accurately reflect market conditions as of the December 31, 2012 measurement date.In selecting the discount rates for the foreign plans, we relied on AonHewitt methods, including the AonHewitt Top-Quartile and a yield curve derivedfrom fixed-income security yields. The yield curve is generally based on a universe containing Aa-graded corporate bonds in the Euro zone without specialfeatures or options, which could affect the duration. In some countries, the yield curve is based on local government bond rates with a premium added toreflect 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 ratewas developed as the level equivalent rate that would produce the same present value as that using spot rates aligned with the projected benefit payments.At December 31, 2012, the weighted-average discount rate was reduced for the pension plans from 5.04% to 4.04% and for the OPEB plans from 5.10%to 4.00% to reflect market conditions as of the December 31, 2012 measurement date.In estimating the expected return on plan assets, we consider past performance and future expectations for the types of investments held by the plan aswell as the expected long-term allocations of plan assets to these investments. For the years 2012 and 2011, the weighted-average expected rate of return ondomestic pension plan assets was 8.25%. The assumed rate of return on U.S. pension plan assets has been changed to 7.25% effective January 1, 2013.Also, there was no change in the weighted-average expected 7.0% return on OPEB plan assets. Our U.S. defined benefit plan for non-represented employeeswas closed to new participants effective March 31, 2004 and benefit accruals will be frozen effective December 31, 2014. We adopted a defined contributionpension plan for U.S. employees hired after March 31, 2004 and has been expanded to include all non-represented employees effective January 1, 2013.In projecting the rate of compensation increase, we consider past experience in light of movements in inflation rates. At December 31, 2012, the assumedweighted-average rate of compensation increase changed to 3.37% from 3.96% for the pension plans. The assumed weighted-average rate of compensationincrease changed to 3.50% from 4.0% for the other postretirement plans at December 31, 2012.In selecting the rate of increase in the per capita cost of covered health care benefits, we consider past performance and forecasts of future health care costtrends in relation to the employer-paid premium cap. At December 31, 2012, the assumed rate of increase in the pre-65 and post-65 per capita cost of coveredhealth care benefits for U.S. retirees was zero as the employer-paid premium caps (pre-65 and post-65) are met starting January 1, 2013.A 1% increase or decrease in the U.S. health care cost trend rate would not have a material effect on the benefit obligation and service and interest benefitcost components.A variance in the assumptions discussed above would have an impact on the projected benefit obligations, the accrued OPEB liabilities, and the annualnet periodic pension and OPEB cost. The following table reflects the sensitivities associated with a hypothetical change in certain assumptions, primarily inthe U.S. (in thousands): (Favorable) Unfavorable 1% Increase 1% Decrease Increase (Decrease)in Benefit Obligation Increase (Decrease)in Benefit Cost Increase (Decrease)in Benefit Obligation Increase (Decrease)in Benefit Cost Actuarial Assumptions Discount Rate: Pension $(87,262) $(85,389) $107,091 $102,987 Other postretirement benefits $(7,000) $(6,800) $8,500 $8,200 Expected return on plan assets: Pension * $(7,993) * $7,993 Other postretirement benefits * $(50) * $50 Rate of increase (decrease) in per capita cost of coveredhealth care benefits $— $— $— $— *Not applicable. 42 Table of ContentsAlbemarle Corporation and Subsidiaries Of the $569.9 million total pension and postretirement assets at December 31, 2012, $70.8 million, or approximately 12%, are measured usingsignificant unobservable inputs (Level 3). Gains or losses attributable to these assets are recognized in the consolidated balance sheets as either an increase ordecrease in plan assets. See Note 17, “Pension Plans and Other Postretirement Benefits” to our consolidated financial statements included in Item 8 beginningon page 51.Income TaxesWe use the liability method for determining our income taxes, under which current and deferred tax liabilities and assets are recorded in accordance withenacted 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 rateexpected 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 likelythan not.Deferred income taxes are provided for the estimated income tax effect of temporary differences between the financial statement carrying amounts and thetax basis of existing assets and liabilities. Deferred tax assets are also provided for operating losses, capital losses and certain tax credit carryovers. A valuationallowance, 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. Therealization of such deferred tax assets is dependent upon the generation of sufficient future taxable income of the appropriate character. Although realization isnot 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 taxingauthority based solely on the technical merits of the associated tax position. Once the recognition threshold is met, we recognize a tax benefit measured as thelargest 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 areincluded in income tax expense.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 taxauthorities for years prior to 2009 since the U.S. Internal Revenue Service (IRS) has completed a review of our income tax returns through 2007 and the statuteof limitations expired for 2008. We also are no longer subject to any U.S. state income tax audits prior to 2004.With respect to jurisdictions outside the U.S., we are no longer subject to income tax audits for years prior to 2005. During 2012, the German taxauthorities continued an audit of two of our German companies for 2006 through 2009, and the Chinese tax authorities continued an audit of one of ourChinese subsidiaries for 2006 through 2010. During 2011, we completed tax audits for one of our Belgian companies for 2008 and 2009, our Japanesecompany for 2006 through 2010, and two of our Chinese companies through 2010. During 2010, we completed a tax audit for one of our Belgian companiesfor the 2007 tax year. 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 underlyingmatters are settled or otherwise resolved.Since the timing of resolutions and/or closure of tax audits are uncertain, it is difficult to predict with certainty the range of reasonably possiblesignificant increases or decreases in the liability related to uncertain tax positions that may occur within the next twelve months. Our current view is that it isreasonably possible that we could record a decrease in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $0.9million as a result of closure of tax statutes.We have designated the undistributed earnings of substantially all of our foreign operations as permanently reinvested and as a result we do not providefor deferred income taxes on the unremitted earnings of these subsidiaries. Our foreign earnings are computed under U.S. federal tax earnings and profits, orE&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 taxeshave not been provided, as they are essentially permanent in duration. The determination of the amount of such unrecognized deferred tax liability is notpracticable. We provide for deferred income taxes on our undistributed earnings of foreign operations that are not deemed to be permanently reinvested.Stock-based Compensation ExpenseThe fair value of restricted stock awards and performance unit awards is determined based on the number of shares or units granted and the quotedprice of our common stock at grant date, and the fair value of stock options is determined using the Black-Scholes valuation model. The fair value of theseawards is determined after giving effect to estimated forfeitures. Such value is recognized as expense over the service period, which is generally the vestingperiod of the equity grant. To the extent restricted stock awards, performance unit awards and stock options are forfeited prior to vesting in excess of theestimated forfeiture rate, the corresponding previously recognized expense is reversed as an offset to operating expenses. 43 Table of ContentsAlbemarle Corporation and Subsidiaries Internal Control Over Financial ReportingSection 404 of the Sarbanes Oxley Act of 2002, or SOX 404, requires that we make an assertion as to the effectiveness of our internal control overfinancial reporting in our Annual Report on Form 10-K filings. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, provides itsassessment of our effectiveness of internal control over financial reporting. In order to make our assertion, we are required to identify material financial andoperational processes, document internal controls supporting the financial reporting process and evaluate the design and effectiveness of these controls. See“Management’s Report on Internal Control Over Financial Reporting” in Item 8.We have a dedicated SOX 404 team to facilitate ongoing internal control testing, provide direction to the business groups and corporate staff in theircontrol processes and assist in the overall assessment of internal control over financial reporting. Status and updates are provided to executive management andour Audit Committee of our Board of Directors on an ongoing basis. We also retain accounting firms other than our independent registered public accountingfirm to assist us in our compliance with SOX 404.Our SOX 404 effort involves many of our employees around the world, including participation by our business and functional groups. We view ourongoing evaluation of our internal control over financial reporting as more than a regulatory exercise—it provides us an opportunity to continually assess ourfinancial control environment and make us a more effective company.Financial Condition and LiquidityOverviewThe principal uses of cash in our business generally have been capital investments, funding working capital and repayment of debt. We also makecontributions to our U.S. defined benefit pension plans as appropriate and pay dividends, as well as repurchase shares on an opportunistic basis.Historically, cash to fund the needs of our business has been principally provided by cash from operations, debt financing and equity issuances.We are continually focused on improving working capital efficiency particularly in the areas of accounts receivable and inventory. We anticipate thatcash on hand, cash provided by operating activities and long-term borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations,fund capital expenditures and other investing activities, make pension contributions and make dividend payments for the foreseeable future.Cash FlowOur cash and cash equivalents were $477.7 million at December 31, 2012 as compared to our ending balance at December 31, 2011 of $469.4 million.Our cash flows from operations provided $488.8 million, $487.4 million and $331.3 million for the years ended December 31, 2012, 2011 and 2010,respectively.Our cash flows from operations in 2012 were essentially flat versus 2011, with favorable impacts from lower pension contributions being offset mainlyby unfavorable impacts from lower profitability. The increase in cash flows from operations in 2011 versus 2010 was primarily due to an increase in theoperating profitability of our businesses, favorable impacts from changes in working capital (mainly accounts receivable in connection with our ongoingworking capital management initiatives) and lower pension contributions, offset in part by lower deferred income taxes.Net charges amounting to $100.8 million ($76.1 million after income taxes) in connection with our exit of the phosphorus flame retardants businesswere recorded in 2012. The charges are comprised mainly of non-cash items consisting of net asset write-offs of approximately $57 million and write-offs offoreign currency translation adjustments of approximately $12 million, as well as accruals for cash costs associated with related severance programs ofapproximately $22 million, estimated site remediation costs of approximately $9 million and other estimated exit costs of approximately $3 million, partlyoffset by a gain of approximately $2 million related to the sale of our Nanjing, China manufacturing site. We began to realize favorable profit impacts fromthis program in the fourth quarter of 2012, and we expect to fund the majority of the obligations associated with this special charge (expected to range from $5million to $15 million in cash outflows after taxes) with cash generated from our ongoing operations.In the fourth quarter of 2012, net charges of $5.6 million, comprised of one-time employer contribution to the Company’s defined contribution plan inthe amount of $10.1 million (with $4.5 million in offsetting net gains from plan curtailments and related costs) were recorded in connection with variousamendments to certain of our U.S. pension and defined contribution plans.Combined with cash on hand, our cash from operations for 2012 funded major investing and financing activities, including capital expenditures forplant, machinery and equipment of $280.9 million, $22.5 million in loans to our 50% owned joint venture SOCC, repayments of long-term debt of $63.8million, repurchases of shares of our common stock of $63.6 million, dividends to shareholders of $69.1 million and $9.1 million in withholding taxes paidon stock-based compensation amounts distributed during the period. In 2011, our operating cash flows funded capital expenditures for plant machinery andequipment of $190.6 million, repurchases of 44 Table of ContentsAlbemarle Corporation and Subsidiaries common stock of $178.1 million, dividends to shareholders of $57.8 million and $109.6 million in long-term debt repayments during the year. In September2011, we amended and restated our previous $675.0 million credit facility. See “Long-Term Debt” below. Our cash flows from operations in 2010 were usedmainly for funding capital expenditures for plant machinery and equipment of $75.5 million, dividends to shareholders of $49.6 million, repurchases ofcommon stock of $14.9 million and normal debt repayments during the year. Additionally, our cash balances in 2010 were unfavorably impacted $12.6million as a result of the January 1, 2010 deconsolidation of our Stannica LLC joint venture. Further, we raised approximately $473 million in borrowings in2010, including $346.9 million in net proceeds from our 4.5% senior notes offering in December 2010.Net current assets increased to approximately $1.0 billion at December 31, 2012 from $954.4 million at December 31, 2011. The increase in net currentassets was due primarily to increases in accounts receivable, other assets, cash and cash equivalents, decreases in accounts payable and income taxespayable, partly offset by a decrease in inventories and increases in accrued expenses and dividends payable.Capital expenditures were $280.9 million, $190.6 million and $75.5 million for the years ended December 31, 2012, 2011 and 2010, respectively, andwere incurred mainly for plant machinery and equipment. We expect our capital expenditures to approximate $150 million in 2013 for capacity increases, costreduction and continuity of operations projects.We made contributions to our defined benefit pension and OPEB plans of $21.6 million, $59.8 million and $80.1 million during the years endedDecember 31, 2012, 2011 and 2010, respectively. Included in contributions for the year ended December 31, 2012 is a contribution of $14.1 million to oursupplemental executive retirement plan (SERP) in connection with the retirement of our former CEO and executive chairman.During the year ended December 31, 2012, we and our joint venture partner each advanced $22.5 million to our 50%-owned joint venture, SOCC,pursuant to a long-term loan arrangement. The proceeds under this arrangement are for the construction of SOCC’s aluminum alkyls manufacturing facility.Our loan bears quarterly interest at the LIBOR plus 1.275% per annum (1.58% as of December 31, 2012), with interest receivable on a semi-annual basis onJanuary 1 and July 1. Principal repayments on amounts outstanding under this arrangement are required as mutually agreed upon by the joint venturepartners, but with any outstanding balances receivable in full no later than December 31, 2021. Also during the year ended December 31, 2012, we and ourjoint venture partner each advanced approximately 1.9 million Euros (approximately $2.5 million at December 31, 2012) to our 50%-owned joint venture,Eurecat S.A., pursuant to a long-term loan arrangement.While we continue to closely monitor our cash generation, working capital management and capital spending in light of weakness in the global economy,we are optimistic that as we enter into 2013 we will have the financial flexibility and capability to opportunistically fund future growth initiatives. Additionally,we anticipate that future capital spending should be financed primarily with cash flow provided from operations with additional cash needed, if any, providedby borrowings, including borrowings under our September 2011 credit agreement. The amount and timing of any additional borrowings will depend on ourspecific cash requirements.On February 12, 2013, we increased our quarterly dividend payout to $0.24 per share, a 20% increase from the quarterly rate of $0.20 per share paid in2012. Additionally, on February 12, 2013, our Board of Directors authorized an increase in the number of shares the Company is permitted to repurchaseunder its existing share repurchase program to 15 million from 3.9 million shares that remained outstanding under the program as of December 31, 2012. Wecurrently expect to repurchase approximately 10% of our outstanding shares over the next 10 to 15 months. Share repurchases will be funded through acombination of available cash on hand, cash from operations and possibly debt.At December 31, 2012 and December 31, 2011, our cash and cash equivalents were comprised of approximately $319.3 million and $420.4 million,respectively, held by our foreign subsidiaries. The majority of these foreign cash balances are associated with earnings that we have asserted are permanentlyreinvested and which we plan to use to support our continued growth plans outside the U.S. through funding of capital expenditures, acquisitions, research,operating expenses or other similar cash needs of our foreign operations. From time to time, we repatriate cash from our foreign subsidiaries to the U.S. fornormal operating needs through intercompany dividends, but only from subsidiaries whose earnings we have not asserted to be permanently reinvested orwhose earnings qualify as “previously taxed income” as defined by the Internal Revenue Code. For the years ended December 31, 2012, 2011 and 2010, werepatriated approximately $70.6 million, $98.5 million and $14.5 million in cash, respectively, as part of these foreign cash repatriation activities.Long-Term DebtWe currently have outstanding $325.0 million of 5.10% senior notes due in 2015 and $350.0 million of 4.50% senior notes due in 2020, or the seniornotes. The senior notes are senior unsecured obligations and rank equally with all of our other senior unsecured indebtedness from time to time outstanding.The senior notes are effectively subordinated to any of our existing or future secured 45 Table of ContentsAlbemarle Corporation and Subsidiaries indebtedness and to the existing and future indebtedness of our subsidiaries. We may redeem the senior notes before their maturity, in whole at any time or inpart from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of the senior notes to be redeemed, or (ii) the sum of thepresent values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to theredemption date on a semi-annual basis using the Treasury Rate (as defined in the indentures governing the senior notes) plus 15 basis points for the seniornotes maturing in 2015 and 25 basis points for the senior notes maturing in 2020, plus, in each case, accrued interest thereon to the date of redemption.However, the 2020 senior notes are redeemable in whole or in part, at our option, at any time on or after three months prior to the maturity date, at a redemptionprice equal to 100% of the principal amount of the senior notes to be redeemed plus accrued and unpaid interest on the senior notes to be redeemed to the date ofredemption. Holders of the 2020 senior notes may require us to purchase such notes at 101% upon a Change of Control Triggering Event, as defined in therelated indenture.The principal amounts of the senior notes become immediately due and payable upon the occurrence of certain bankruptcy or insolvency eventsinvolving us or certain of our subsidiaries and may be declared immediately due and payable by the trustee or the holders of not less than 25% of the seniornotes upon the occurrence of an event of default. Events of default include, among other things: failure to pay principal or interest at required times; failure toperform or remedy a breach of covenants within prescribed periods; an event of default on any of our other indebtedness or certain indebtedness of oursubsidiaries of $40.0 million or more that is caused by a failure to make a payment when due or that results in the acceleration of that indebtedness before itsmaturity; and certain bankruptcy or insolvency events involving us or certain of our subsidiaries. We believe that as of December 31, 2012, we were, andcurrently are, in compliance with all of the covenants of the indentures governing the senior notes.In September 2011, we amended and restated our previous $675.0 million credit facility. The amended and restated five-year, revolving, unsecuredcredit facility matures on September 22, 2016 and (i) increased the borrowing capacity to $750.0 million from $675.0 million; (ii) provides for an additional$250.0 million in credit, if needed, subject to the terms of the agreement; (iii) provides for the ability to extend the maturity date under certain conditions;(iv) eliminated the covenant that required a minimum level of consolidated tangible domestic assets; and (v) increased the interest rate spread and commitmentfees applicable to the Company’s borrowings under the credit facility. Fees and expenses of $2.7 million were incurred and paid in connection with this newagreement. Borrowings bear interest at variable rates based on the LIBOR for deposits in the relevant currency plus an applicable margin which ranges from0.900% to 1.400%, depending on the Company’s credit rating applicable from time to time. The applicable margin on the facility was 0.975% as ofDecember 31, 2012. We had no borrowings outstanding under the September 2011 credit agreement as of December 31, 2012.Borrowings under the September 2011 credit agreement are conditioned upon compliance with the following covenants: (i) consolidated funded debt, asdefined in the agreement, must be less than or equal to 3.50 times consolidated EBITDA, as defined in the agreement, (which reflects adjustments for certainnon-recurring or unusual items such as restructuring charges, facility divestiture charges and other significant non-recurring items), or herein “consolidatedadjusted EBITDA,” as of the end of any fiscal quarter; (ii) with the exception of liens specified in our new credit facility, liens may not attach to assets whenthe aggregate amount of all indebtedness secured by such liens plus unsecured subsidiary indebtedness, other than indebtedness incurred by our subsidiariesunder the September 2011 credit agreement, would exceed 20% of consolidated net worth, as defined in the agreement; and (iii) with the exception ofindebtedness specified in the September 2011 credit 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. We believe that as of December 31, 2012, we were, andcurrently are, in compliance with all of our debt covenants.We previously maintained a $675.0 million five-year unsecured revolving senior credit facility, which we referred to as the March 2007 creditagreement. The total spread and fees ranged from 0.32% to 0.675% over the LIBOR applicable to the currency of the borrowing and were based on our creditrating as determined by the major rating agencies.The non-current portion of our long-term debt amounted to $686.6 million at December 31, 2012, compared to $749.3 million at December 31, 2011.In addition, at December 31, 2012, we had the ability to borrow $750.0 million under our September 2011 credit agreement and $236.6 million under otherexisting lines of credit, subject to various financial covenants under our September 2011 credit agreement. We have the ability to refinance our borrowingsunder our other existing credit lines with borrowings under the September 2011 credit agreement, as applicable. Therefore, the amounts outstanding underthose credit lines, if any, are classified as long-term debt.Off-Balance Sheet ArrangementsIn the normal course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, including bank guaranteesand letters of credit, which totaled approximately $48.7 million at December 31, 2012. None of these off-balance sheet arrangements has, or is likely to have, amaterial effect on our current or future financial condition, results of operations, liquidity or capital resources. 46 Table of ContentsAlbemarle Corporation and Subsidiaries Other ObligationsThe following table summarizes our projected contractual obligations for plant construction, purchases of equipment, various take or pay andthroughput agreements and obligations under our existing credit agreements based on projected borrowings (in thousands): 2013 2014 2015 2016 2017 Thereafter Long-term debt obligations $12,700 $6,005 $327,065 $42 $46 $356,000 Expected interest payments on long-term debt obligations* 33,076 32,671 18,566 15,754 15,750 47,250 Operating lease obligations (rental) 7,080 5,040 3,916 2,753 2,176 8,141 Take or pay / throughput agreements** 25,959 12,477 6,999 5,620 836 3,030 Letters of credit and guarantees 40,717 321 2,774 4 508 4,414 Capital projects 63,872 559 — — — — Exit of phosphorus flame retardants business 16,870 7,217 — — — — Total $200,274 $64,290 $359,320 $24,173 $19,316 $418,835 *These amounts are based on interest rates of 5.1% for the 2015 senior notes and 4.5% for the 2020 senior notes. A weighted average interest rate of2.85% was used for our remaining long-term debt obligations.**These amounts primarily relate to contracts entered into with certain third party vendors in the normal course of business to secure raw materials for ourproduction processes. In order to secure materials, sometimes for long durations, these contracts mandate a minimum amount of product to bepurchased at predetermined rates over a set timeframe.Amounts in the table above exclude required employer pension contributions. We believe that the expected 2013 contributions to our domestic and foreignqualified and nonqualified pension plans, including our SERP, should approximate $4 million. We may choose to make additional pension contributions inexcess of this amount. We have made contributions of $4.2 million to our domestic and foreign pension plans (both qualified and nonqualified) and $14.1million to our SERP in connection with the retirement of our former CEO and executive chairman during the year ended December 31, 2012.The liability related to uncertain tax positions, including interest and penalties, recorded in Other noncurrent liabilities totaled $29.2 million and $30.7million at December 31, 2012 and 2011, respectively. Related assets for corresponding offsetting benefits recorded in Other assets totaled $25.8 million and$21.8 million at December 31, 2012 and 2011, respectively. We cannot estimate the amounts of any cash payments during the next twelve months associatedwith these liabilities and are unable to estimate the timing of any such cash payments in the future at this time.Liquidity OutlookWe anticipate that cash on hand, cash provided by operating activities and long-term borrowings will be sufficient to pay our operating expenses, satisfydebt service obligations, fund any capital expenditures and share repurchases, make pension contributions and make dividend payments for the foreseeablefuture. In addition, as we have historically done, we will continue to evaluate the merits of any opportunities that may arise for acquisitions of businesses orassets, which may require additional liquidity.While we maintain business relationships with a diverse group of financial institutions, an adverse change in their credit standing could lead them to nothonor their contractual credit commitments, decline funding under existing but uncommitted lines of credit, not renew their extensions of credit or not providenew financing. While the corporate bond market remains strong, availability of bank debt is more limited than in prior years due to a variety of factors,including tighter bank regulations and more stringent bank capital requirements in the wake of the financial crisis, and continued unease regarding falloutfrom the European sovereign debt concerns, particularly relating to Greece and Spain. If bank debt remains relatively less prevalent, we may incur increasedborrowing costs and reduced credit capacity as our various credit facilities mature. It is also possible that our ability to access the capital markets in futureperiods may be limited by market or counterparty factors at a time when we would need or desire to do so, which could have an impact on our ability tofinance our businesses or react to changing economic and business conditions. In addition, our cash flows from operations may be negatively affected byadverse consequences to our customers and the markets in which we compete as a result of moderating global economic conditions and reduced capitalavailability. If the U.S. Federal Reserve or similar national reserve banks in other countries decide to tighten the monetary supply in response, for example, toimproving economic conditions, we may incur increased borrowing costs as our interest rates increase on our variable rate credit facilities, as our variouscredit facilities mature or as we refinance any maturing fixed rate debt obligations.At December 31, 2012, we had the ability to borrow in excess of $986 million under our September 2011 credit agreement and other existing lines ofcredit, subject to various financial covenants under our September 2011 credit agreement. With generally strong cash-generative businesses and no significantdebt maturities before 2015, we believe we have and will maintain a solid liquidity position. 47 Table of ContentsAlbemarle Corporation and Subsidiaries We had cash and cash equivalents totaling $477.7 million as of December 31, 2012, which represent an important source of our liquidity. Our cash isinvested in short-term investments including time deposits and readily marketable securities with relatively short maturities.Safety and Environmental MattersWe are subject to federal, state, local and foreign requirements regulating the handling, manufacture and use of materials (some of which may beclassified as hazardous or toxic by one or more regulatory agencies), the discharge of materials into the environment and the protection of the environment. Toour knowledge, we are currently complying and expect to continue to comply in all material respects with applicable environmental laws, regulations, statutesand ordinances. Compliance with existing federal, state, local and foreign environmental protection laws is not expected to have a material effect on capitalexpenditures, earnings or our competitive position, but the costs associated with increased legal or regulatory requirements could have an adverse effect on ourresults.Among other environmental requirements, we are subject to the federal Superfund law, and similar state laws, under which we may be designated as aPRP, and may be liable for a share of the costs associated with cleaning up various hazardous waste sites. Management believes that in cases in which we mayhave liability as a PRP, our liability for our share of cleanup is de minimis. Further, almost all such sites represent environmental issues that are quite matureand have been investigated, studied and in many cases settled. In de minimis situations, our policy generally is to negotiate a consent decree and to pay anyapportioned settlement, enabling us to be effectively relieved of any further liability as a PRP, except for remote contingencies. In other than de minimis PRPmatters, our records indicate that unresolved PRP exposures should be immaterial. We accrue and expense our proportionate share of PRP costs. Becausemanagement has been actively involved in evaluating environmental matters, we are able to conclude that the outstanding environmental liabilities forunresolved PRP sites should not have a material adverse effect upon our results of operations or financial condition.Our environmental and safety operating costs charged to expense were $39.0 million, $35.4 million and $34.8 million in 2012, 2011 and 2010,respectively, excluding depreciation of previous capital expenditures, and are expected to be in the same range in the next few years. Costs for remediation havebeen accrued and payments related to sites are charged against accrued liabilities, which at December 31, 2012 totaled approximately $20.3 million, anincrease of $7.9 million from $12.4 million at December 31, 2011. During the second quarter of 2012, the Company recorded $8.7 million in estimated siteremediation liabilities at our Avonmouth, United Kingdom site as part of the charges associated with our exit of the phosphorus flame retardant business.We believe that any sum we may be required to pay in connection with environmental remediation and asset retirement obligation matters in excess of theamounts recorded should occur over a period of time and should not have a material adverse effect upon our results of operations, financial condition or cashflows on a consolidated annual basis, although any such sum could have a material adverse impact on our results of operations, financial condition or cashflows in a particular quarterly reporting period. See also Item 3. “Legal Proceedings” on page 22.Capital expenditures for pollution-abatement and safety projects, including such costs that are included in other projects, were approximately $25.4million, $16.1 million and $7.8 million in 2012, 2011 and 2010, respectively. In the future, capital expenditures for these types of projects may increase dueto more stringent environmental regulatory requirements and our efforts in reaching sustainability goals. Management’s estimates of the effects of compliancewith governmental pollution-abatement and safety regulations are subject to (i) the possibility of changes in the applicable statutes and regulations or in judicialor administrative construction of such statutes and regulations and (ii) uncertainty as to whether anticipated solutions to pollution problems will be successful,or whether additional expenditures may prove necessary.Recently Issued Accounting PronouncementsIn May 2011, the Financial Accounting Standards Board (FASB) issued additional authoritative guidance relating to fair value measurement anddisclosure requirements. For fair value measurements categorized in Level 3 of the fair value hierarchy, the new guidance requires: (1) disclosure ofquantitative information about unobservable inputs; (2) a description of the valuation processes used by the entity; and (3) a qualitative discussion about thesensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. Entities mustreport the level in the fair value hierarchy of assets and liabilities that are not recorded at fair value in the statement of financial position but for which fairvalue is disclosed. The new requirements clarify that the concepts of highest and best use and valuation premise only apply to measuring the fair value ofnonfinancial assets. The new requirements also specify that in the absence of a Level 1 input, a reporting entity should incorporate a premium or a discount ina fair value measurement if a market participant would take into account such an input in pricing an asset or liability. Additionally, the new guidanceintroduces an option to measure certain financial assets and financial liabilities with offsetting positions on a net basis if certain criteria are met. Theseamendments became effective for us on January 1, 2012 and did not have a material impact on our consolidated financial statements. 48 Table of ContentsAlbemarle Corporation and Subsidiaries In June 2011, the FASB issued new accounting guidance which eliminated the option to present other comprehensive income and its components in thestatement of changes in equity. However, under the guidance, comprehensive income and its components must still be presented under one of two newalternatives. Under the first alternative, the components of other comprehensive income and the components of net income may be presented in one continuousstatement referred to as the statement of comprehensive income. Under the second alternative, a statement of other comprehensive income would immediatelyfollow the statement of net income and must be shown with equal prominence as the other primary financial statements. Under either alternative, an entity isrequired to present each component of net income along with total net income, each component of other comprehensive income along with a total for othercomprehensive income, and a total amount for comprehensive income. The Company adopted these new financial statement presentation requirements effectiveJanuary 1, 2012 with retrospective application to all prior periods presented.In September 2011, the FASB issued new accounting guidance intended to simplify how entities test goodwill for impairment. The new guidance givesentities the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carryingamount. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than itscarrying amount, the quantitative impairment test under existing accounting guidance is required to be performed. Otherwise, no further testing is required.These new provisions became effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Theadoption of this new guidance did not have a material effect on our consolidated financial statements.In December 2011, the FASB issued new accounting guidance that will require entities to disclose information about financial instruments (includingderivatives) and transactions eligible for offset in the statement of financial position or subject to an agreement similar to a master netting arrangement. InJanuary 2013, the FASB issued additional guidance that limits the scope of these new requirements to certain derivatives, repurchase agreements and reverserepurchase agreements and securities borrowing and lending transactions. These new provisions are effective for annual reporting periods beginning on or afterJanuary 1, 2013, and interim periods within those annual periods, and should be applied retrospectively for all comparative periods presented. We do notexpect this new guidance to have a material effect on our consolidated financial statements.In February 2013, the FASB issued new accounting guidance that requires companies to present either in a single note or on the face of the financialstatements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income, and the income statement lineitems affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference tothe related footnote for additional information. These new provisions are effective for annual and interim reporting periods beginning after December 15, 2012.We do not expect this new guidance to have a material effect on our consolidated financial statements. Item 7A.Quantitative and Qualitative Disclosures About Market Risk.The primary currencies to which we have foreign currency exchange rate exposure are the European Union Euro, Japanese Yen, British Pound Sterling,Korean Won, Chinese Renminbi and the U.S. Dollar (in certain of our foreign locations). In response to greater fluctuations in foreign currency exchange ratesin recent periods, we have increased the degree of exposure risk management activities to minimize the potential impact on earnings.We manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies and through the use, from timeto time, of foreign currency forward contracts. The principal objective of such contracts is to minimize the risks and/or costs associated with global operatingactivities. The counterparties to these contractual agreements are major financial institutions with which we generally have other financial relationships. We areexposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties. We do notutilize financial instruments for trading or other speculative purposes.The primary method we use to reduce foreign currency exposure is to identify natural hedges, in which the operating activities denominated in respectivecurrencies across various subsidiaries balance in respect to timing and the underlying exposures. In the event a natural hedge is not available, we may employa forward contract to reduce exposure, generally expiring within one year. While these contracts are subject to fluctuations in value, such fluctuations aregenerally offset by the value of the underlying exposures being hedged. Gains and losses on foreign currency forward contracts are recognized currently inincome but do not have a significant impact on results of operations.Our financial instruments, which are subject to foreign currency exchange risk, consist of foreign currency forward contracts with an aggregate notionalvalue of $274.0 million and with a fair value representing a net liability position of $0.5 million at December 31, 2012. Fluctuations in the value of thesecontracts are generally offset by the value of the underlying exposures being hedged. We 49 Table of ContentsAlbemarle Corporation and Subsidiaries conducted a sensitivity analysis on the fair value of our foreign currency hedge portfolio assuming an instantaneous 10% change in select foreign currencyexchange rates from their levels as of December 31, 2012, with all other variables held constant. A 10% appreciation of the U.S. Dollar against foreigncurrencies that we hedge would result in a decrease of approximately $17.0 million in the fair value of our foreign currency forward contracts. A 10%depreciation of the U.S. Dollar against these foreign currencies would result in an increase of approximately $11.2 million in the fair value of our foreigncurrency forward contracts. The sensitivity of the fair value of our foreign currency hedge portfolio represents changes in fair values estimated based onmarket conditions as of December 31, 2012, without reflecting the effects of underlying anticipated transactions. When those anticipated transactions arerealized, actual effects of changing foreign currency exchange rates could have a material impact on our earnings and cash flows in future periods.We are exposed to changes in interest rates that could impact our results of operations and financial condition. We manage global interest rate and foreignexchange exposure as part of our regular operational and financing strategies. We had variable interest rate borrowings of $7.0 million and $64.3 millionoutstanding at December 31, 2012 and 2011, respectively. These borrowings represented 1% and 8% of total outstanding debt and bore average interest rates of1.74% and 5.15% at December 31, 2012 and 2011, respectively. A hypothetical 10% increase (approximately 17 basis points) in the average interest rateapplicable to these borrowings would change our annualized interest expense by less than $0.1 million as of December 31, 2012. We may enter into interest rateswaps, collars or similar instruments with the objective of reducing interest rate volatility relating to our borrowing costs.Our raw materials are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors.Historically, we have not used futures, options or swap contracts to manage the volatility related to the above exposures. However, the refinery catalystsbusiness has used financing arrangements to provide long-term protection against changes in metals prices. We seek to limit our exposure by entering into long-term contracts when available, and we seek price increase limitations through contracts. These contracts do not have a significant impact on our results ofoperations.In addition, certain of our operations use natural gas as a source of energy which can expose our business to market risk when the price of natural gaschanges suddenly. In an attempt to mitigate the impact and volatility of price swings in the natural gas market, from time to time we enter into natural gashedge contracts with one or more major financial institutions for a portion of our 12-month rolling forecast for North American natural gas requirements. Suchderivatives are held to secure natural gas at fixed prices and are not entered into for trading purposes. At December 31, 2012 and 2011, we had no natural gashedge contracts outstanding. 50 Table of ContentsAlbemarle Corporation and Subsidiaries Item 8.Financial Statements and Supplementary Data.MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGOur 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 financialreporting 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 permitpreparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of theCompany are being made only in accordance with management’s and our directors’ authorizations; and (iii) provide reasonable assurance regarding preventionor 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, weconducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, managementused the criteria for effective internal control over financial reporting described in the “Internal Control-Integrated Framework” set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as of December 31, 2012, ourinternal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles in the United States. The concept of reasonableassurance is based on the recognition that there are inherent limitations in all systems of internal control. Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the riskthat 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, 2012 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm, as stated in their report which is included herein. /S/ LUTHER C. KISSAM IV /S/ SCOTT A. TOZIERLuther C. Kissam IV Scott A. TozierChief Executive Officer and Director(principal executive officer)February 15, 2013 Senior Vice President, Chief Financial Officer, Chief Accounting Officer andChief Risk Officer (principal financial and accounting officer)February 15, 2013 51 Table of ContentsAlbemarle Corporation and Subsidiaries Report of Independent Registered Public Accounting FirmTo 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 materialrespects, the financial position of Albemarle Corporation and its subsidiaries at December 31, 2012 and December 31, 2011, and the results of their operationsand their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in theUnited States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Reporton Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal controlover financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits ofthe financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.As discussed in Note 1 to the consolidated financial statements, in 2012 the Company has changed its accounting principle for pension and otherpostretirement benefits.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely 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 evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLPNew Orleans, LouisianaFebruary 15, 2013 52 Table of ContentsAlbemarle Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In Thousands) December 31 2012 2011 Assets Current assets: Cash and cash equivalents $477,696 $469,416 Trade accounts receivable, less allowance for doubtful accounts (2012—$1,641; 2011—$2,709) 378,973 355,372 Other accounts receivable 43,844 36,199 Inventories: Finished goods 325,762 311,869 Raw materials 57,245 74,809 Stores, supplies and other 45,138 44,817 428,145 431,495 Other current assets 78,655 63,138 Total current assets 1,407,313 1,355,620 Property, plant and equipment, at cost 2,818,604 2,619,428 Less accumulated depreciation and amortization 1,522,033 1,489,948 Net property, plant and equipment 1,296,571 1,129,480 Investments 207,141 198,427 Other assets 154,836 116,871 Goodwill 276,966 273,145 Other intangibles, net of amortization 94,464 130,281 Total assets $3,437,291 $3,203,824 Liabilities and Equity Current liabilities: Accounts payable $172,866 $184,472 Accrued expenses 177,546 175,257 Current portion of long-term debt 12,700 14,416 Dividends payable 17,471 15,237 Income taxes payable 4,426 11,796 Total current liabilities 385,009 401,178 Long-term debt 686,588 749,257 Postretirement benefits 60,815 57,588 Pension benefits 195,481 127,964 Other noncurrent liabilities 114,022 111,107 Deferred income taxes 63,368 77,903 Commitments and contingencies (Note 15) Equity: Albemarle Corporation shareholders’ equity: Common stock, $.01 par value (authorized 150,000 shares), issued and outstanding—88,899 in 2012 and 88,841in 2011 889 888 Additional paid-in capital 2,761 15,194 Accumulated other comprehensive income 85,264 60,329 Retained earnings 1,744,684 1,514,866 Total Albemarle Corporation shareholders’ equity 1,833,598 1,591,277 Noncontrolling interests 98,410 87,550 Total equity 1,932,008 1,678,827 Total liabilities and equity $3,437,291 $3,203,824 See accompanying notes to the consolidated financial statements. 53 Table of ContentsAlbemarle Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Amounts) Year Ended December 31 2012 2011 2010 Net sales $2,745,420 $2,869,005 $2,362,764 Cost of goods sold 1,835,425 1,914,058 1,620,854 Gross profit 909,995 954,947 741,910 Selling, general and administrative expenses (Note 19) 313,227 360,070 274,615 Research and development expenses 78,919 77,083 58,394 Restructuring and other charges, net (Note 19) 111,685 — 6,958 Operating profit 406,164 517,794 401,943 Interest and financing expenses (32,800) (37,574) (25,533) Other income, net 1,229 357 2,788 Income before income taxes and equity in net income of unconsolidated investments 374,593 480,577 379,198 Income tax expense 82,533 104,134 87,756 Income before equity in net income of unconsolidated investments 292,060 376,443 291,442 Equity in net income of unconsolidated investments (net of tax) 38,067 43,754 37,975 Net income $330,127 $420,197 $329,417 Net income attributable to noncontrolling interests (18,591) (28,083) (13,639) Net income attributable to Albemarle Corporation $311,536 $392,114 $315,778 Basic earnings per share $3.49 $4.33 $3.46 Diluted earnings per share $3.47 $4.28 $3.43 Weighted-average common shares outstanding—basic 89,189 90,522 91,393 Weighted-average common shares outstanding—diluted 89,884 91,522 92,184 Cash dividends declared per share of common stock $0.80 $0.67 $0.56 See accompanying notes to the consolidated financial statements. 54 Table of ContentsAlbemarle Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Year Ended December 31 2012 2011 2010 Net income $330,127 $420,197 $329,417 Other comprehensive income (loss), net of tax: Foreign currency translation 28,769 (13,565) (62,629) Pension and postretirement benefits (4,071) (1,362) (1,870) Other 134 162 105 Total other comprehensive income (loss), net of tax 24,832 (14,765) (64,394) Comprehensive income 354,959 405,432 265,023 Comprehensive income attributable to non-controlling interests (18,488) (27,878) (13,639) Comprehensive income attributable to Albemarle Corporation $336,471 $377,554 $251,384 See accompanying notes to the consolidated financial statements. 55 Table of ContentsAlbemarle Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands, Except Share Data) Common Stock AdditionalPaid-in Capital AccumulatedOtherComprehensiveIncome RetainedEarnings TotalAlbemarleShareholders’Equity Non-controllingInterests TotalEquity Shares Amounts Balance at January 1, 2010 91,509,099 $915 $8,658 $139,283 $1,056,840 $1,205,696 $47,622 $1,253,318 Net income for 2010 315,778 315,778 13,639 329,417 Other comprehensive loss (64,394) (64,394) (64,394) Deconsolidation of Stannica LLC (8,121) (8,121) Cumulative dividend adjustment on JBCnoncontrolling interest 8,017 8,017 Cash dividends declared for 2010 (51,184) (51,184) (1,485) (52,669) Stock-based compensation and other 13,995 13,995 13,995 Exercise of stock options 494,559 5 7,130 7,135 7,135 Shares repurchased (400,356) (4) (14,941) (14,945) (14,945) Tax benefit related to stock plans 7,981 7,981 7,981 Issuance of common stock, net 81,864 1 (1) — — Shares withheld for withholding taxesassociated with common stock issuances (91,182) (1) (3,987) (3,988) (3,988) Balance at December 31, 2010 91,593,984 $916 $18,835 $74,889 $1,321,434 $1,416,074 $59,672 $1,475,746 Balance at January 1, 2011 91,593,984 $916 $18,835 $74,889 $1,321,434 $1,416,074 $59,672 $1,475,746 Net income for 2011 392,114 392,114 28,083 420,197 Other comprehensive loss (14,560) (14,560) (205) (14,765) Cash dividends declared for 2011 (60,450) (60,450) (60,450) Stock-based compensation and other 26,556 26,556 26,556 Exercise of stock options 169,350 2 2,228 2,230 2,230 Shares repurchased (3,000,000) (30) (39,870) (138,232) (178,132) (178,132) Tax benefit related to stock plans 10,574 10,574 10,574 Issuance of common stock, net 131,713 1 (1) — — Shares withheld for withholding taxesassociated with common stock issuances (53,807) (1) (3,128) (3,129) (3,129) Balance at December 31, 2011 88,841,240 $888 $15,194 $60,329 $1,514,866 $1,591,277 $87,550 $1,678,827 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 taxesassociated 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 See accompanying notes to the consolidated financial statements. 56 Table of ContentsAlbemarle Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Ended December 31 2012 2011 2010 Cash and cash equivalents at beginning of year $469,416 $529,650 $308,791 Cash flows from operating activities: Net income 330,127 420,197 329,417 Adjustments to reconcile net income to cash flows from operating activities: Depreciation and amortization 99,020 96,753 95,578 Non-cash charges associated with restructuring and other, net 61,809 — — Stock-based compensation 15,211 27,069 15,694 Excess tax benefits realized from stock-based compensation arrangements (14,809) (10,574) (7,981) Equity in net income of unconsolidated investments (net of tax) (38,067) (43,754) (37,975) Dividends received from unconsolidated investments and nonmarketable securities 26,908 23,685 16,414 Pension and postretirement expense 77,442 97,207 33,898 Pension and postretirement contributions (21,610) (59,773) (80,105) Unrealized gain on investments in marketable securities (1,872) (688) (1,532) Deferred income taxes (14,587) (11,198) 42,136 Change in current assets and liabilities: Increase in accounts receivable (25,992) (16,435) (57,414) Decrease (increase) in inventories 7,364 (41,749) (58,582) (Increase) decrease in other current assets excluding deferred income taxes (19,590) 4,499 (14,511) (Decrease) increase in accounts payable (16,798) (11,971) 13,463 Increase in accrued expenses and income taxes payable 7,306 28,229 39,092 Other, net 16,904 (14,138) 3,717 Net cash provided by operating activities 488,766 487,359 331,309 Cash flows from investing activities: Capital expenditures (280,873) (190,574) (75,478) Cash payments related to acquisitions and other (3,360) (13,164) (11,978) Cash impact from deconsolidation of Stannica LLC, net — — (12,649) Cash proceeds from divestitures 9,646 — 8,600 (Investments in) sales of marketable securities, net (1,615) 1,670 652 Long-term advances to joint ventures (24,959) — — Investments in equity and other corporate investments — (10,868) (1,338) Net cash used in investing activities (301,161) (212,936) (92,191) Cash flows from financing activities: Proceeds from issuance of senior notes — — 346,853 Proceeds from other borrowings — 9,415 125,797 Repayments of long-term debt (63,811) (109,591) (424,123) Dividends paid to shareholders (69,113) (57,759) (49,643) Repurchases of common stock (63,575) (178,132) (14,945) Proceeds from exercise of stock options 21,148 2,230 7,135 Excess tax benefits realized from stock-based compensation arrangements 14,809 10,574 7,981 Withholding taxes paid on stock-based compensation award distributions (9,124) (3,129) (3,988) Dividends paid to noncontrolling interests (7,628) — — Debt financing costs — (2,727) (3,005) Net cash used in financing activities (177,294) (329,119) (7,938) Net effect of foreign exchange on cash and cash equivalents (2,031) (5,538) (10,321) Increase (decrease) in cash and cash equivalents 8,280 (60,234) 220,859 Cash and cash equivalents at end of year $477,696 $469,416 $529,650 See accompanying notes to the consolidated financial statements. 57 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1—Summary of Significant Accounting Policies:Basis of ConsolidationThe consolidated financial statements include the accounts and operations of Albemarle Corporation and our wholly owned, majority owned andcontrolled subsidiaries. Unless the context otherwise indicates, the terms “Albemarle,” “we,” “us,” “our” or “the Company” mean Albemarle Corporation andour consolidated subsidiaries. We apply the equity method of accounting for investments in which we have an ownership interest from 20% to 50% or wherewe exercise significant influence over the related investee’s operations. All significant intercompany accounts and transactions are eliminated in consolidation.Estimates, Assumptions and ReclassificationsThe preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States (U.S.) requiresmanagement to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingentassets 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.Change in accounting principle regarding pension and other postretirement benefitsDuring 2012, we elected to change our method of accounting for actuarial gains and losses relating to our global pension and other postretirement benefit(OPEB) plans. Previously, we recognized actuarial gains and losses from our pension and OPEB plans in our consolidated balance sheets as Accumulatedother comprehensive income (loss) within shareholders’ equity, with amortization of these gains and losses that exceed 10 percent of the greater of plan assetsor projected benefit obligations recognized each quarter in our 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 will be recognized annually in our consolidatedstatements of income in the fourth quarter and whenever a plan is determined to qualify for a remeasurement during a fiscal year. The remaining componentsof pension and OPEB plan expense, primarily service cost, interest cost and expected return on assets, will be recorded on a quarterly basis. The gain/losssubject to amortization and expected return on assets components of our pension expense has historically been calculated using a five-year smoothing of assetgains and losses referred to as the market-related value. Under mark-to-market accounting, the market-related value of assets will equal the actual market valueas of the date of measurement. While our historical policy of recognizing pension and OPEB plan expense is considered acceptable under U.S. GAAP, webelieve that the new policy is preferable as it eliminates the delay in recognizing gains and losses within operating results. This change will also improvetransparency within our operating results by immediately recognizing the effects of economic and interest rate trends on plan investments and assumptions inthe year these gains and losses are actually incurred. This change in accounting principle has been applied retrospectively, adjusting all prior periodspresented.The impact of this accounting policy change on Albemarle’s consolidated financial statements is summarized below:Consolidated Balance Sheets December 31, 2012 (In Thousands) Previous Method Effect ofAccountingChange As Adjusted Accumulated other comprehensive (loss) income $(218,200) $303,464 $85,264 Retained earnings 2,048,148 (303,464) 1,744,684 December 31, 2011 (In Thousands) As PreviouslyReported Effect ofAccountingChange As Adjusted Accumulated other comprehensive (loss) income $(222,922) $283,251 $60,329 Retained earnings 1,798,117 (283,251) 1,514,866 58 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Income Year Ended December 31, 2012 (In Thousands, Except Per Share Amounts) Previous Method Effect ofAccountingChange As Adjusted Net sales $2,745,420 $— $2,745,420 Cost of goods sold 1,822,261 13,164 1,835,425 Gross profit 923,159 (13,164) 909,995 Selling, general and administrative expenses 288,367 24,860 313,227 Research and development expenses 78,919 — 78,919 Restructuring and other charges, net 118,193 (6,508) 111,685 Operating profit 437,680 (31,516) 406,164 Interest and financing expenses (32,800) — (32,800) Other income, net 1,229 — 1,229 Income before income taxes and equity in net income of unconsolidated investments 406,109 (31,516) 374,593 Income tax expense 93,836 (11,303) 82,533 Income before equity in net income of unconsolidated investments 312,273 (20,213) 292,060 Equity in net income of unconsolidated investments (net of tax) 38,067 — 38,067 Net income $350,340 $(20,213) $330,127 Net income attributable to noncontrolling interests (18,591) — (18,591) Net income attributable to Albemarle Corporation $331,749 $(20,213) $311,536 Basic earnings per share $3.72 $(0.23) $3.49 Diluted earnings per share $3.69 $(0.22) $3.47 Weighted-average common shares outstanding—basic 89,189 — 89,189 Weighted-average common shares outstanding—diluted 89,884 — 89,884 Cash dividends declared per share of common stock $0.80 $— $0.80 59 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2011 (In Thousands, Except Per Share Amounts) As PreviouslyReported Effect ofAccountingChange As Adjusted Net sales $2,869,005 $— $2,869,005 Cost of goods sold 1,891,946 22,112 1,914,058 Gross profit 977,059 (22,112) 954,947 Selling, general and administrative expenses 312,136 47,934 360,070 Research and development expenses 77,083 — 77,083 Operating profit 587,840 (70,046) 517,794 Interest and financing expenses (37,574) — (37,574) Other income, net 357 — 357 Income before income taxes and equity in net income of unconsolidated investments 550,623 (70,046) 480,577 Income tax expense 130,014 (25,880) 104,134 Income before equity in net income of unconsolidated investments 420,609 (44,166) 376,443 Equity in net income of unconsolidated investments (net of tax) 43,754 — 43,754 Net income $464,363 $(44,166) $420,197 Net income attributable to noncontrolling interests (28,083) — (28,083) Net income attributable to Albemarle Corporation $436,280 $(44,166) $392,114 Basic earnings per share $4.82 $(0.49) $4.33 Diluted earnings per share $4.77 $(0.49) $4.28 Weighted-average common shares outstanding—basic 90,522 — 90,522 Weighted-average common shares outstanding—diluted 91,522 — 91,522 Cash dividends declared per share of common stock $0.67 $— $0.67 60 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2010 (In Thousands, Except Per Share Amounts) As PreviouslyReported Effect ofAccountingChange As Adjusted Net sales $2,362,764 $— $2,362,764 Cost of goods sold 1,616,842 4,012 1,620,854 Gross profit 745,922 (4,012) 741,910 Selling, general and administrative expenses 265,722 8,893 274,615 Research and development expenses 58,394 — 58,394 Restructuring and other charges, net 6,958 — 6,958 Operating profit 414,848 (12,905) 401,943 Interest and financing expenses (25,533) — (25,533) Other income, net 2,788 — 2,788 Income before income taxes and equity in net income of unconsolidated investments 392,103 (12,905) 379,198 Income tax expense 92,719 (4,963) 87,756 Income before equity in net income of unconsolidated investments 299,384 (7,942) 291,442 Equity in net income of unconsolidated investments (net of tax) 37,975 — 37,975 Net income $337,359 $(7,942) $329,417 Net income attributable to noncontrolling interests (13,639) — (13,639) Net income attributable to Albemarle Corporation $323,720 $(7,942) $315,778 Basic earnings per share $3.54 $(0.08) $3.46 Diluted earnings per share $3.51 $(0.08) $3.43 Weighted-average common shares outstanding—basic 91,393 — 91,393 Weighted-average common shares outstanding—diluted 92,184 — 92,184 Cash dividends declared per share of common stock $0.56 $— $0.56 61 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Comprehensive Income Year Ended December 31, 2012 (In Thousands) Previous Method Effect ofAccountingChange As Adjusted Net income $350,340 $(20,213) $330,127 Other comprehensive income (loss), net of tax: Foreign currency translation 28,769 — 28,769 Pension and postretirement benefits (24,284) 20,213 (4,071) Other 134 — 134 Total other comprehensive income, net of tax 4,619 20,213 24,832 Comprehensive income 354,959 — 354,959 Comprehensive income attributable to non-controlling interests (18,488) — (18,488) Comprehensive income attributable to Albemarle Corporation $336,471 $— $336,471 Year Ended December 31, 2011 (In Thousands) Previous Method Effect ofAccountingChange As Adjusted Net income $464,363 $(44,166) $420,197 Other comprehensive income (loss), net of tax: Foreign currency translation (13,565) — (13,565) Pension and postretirement benefits (45,528) 44,166 (1,362) Other 162 — 162 Total other comprehensive loss, net of tax (58,931) 44,166 (14,765) Comprehensive income 405,432 — 405,432 Comprehensive income attributable to non-controlling interests (27,878) — (27,878) Comprehensive income attributable to Albemarle Corporation $377,554 $— $377,554 Year Ended December 31, 2010 (In Thousands) Previous Method Effect ofAccountingChange As Adjusted Net income $337,359 $(7,942) $329,417 Other comprehensive income (loss), net of tax: Foreign currency translation (62,629) — (62,629) Pension and postretirement benefits (9,812) 7,942 (1,870) Other 105 — 105 Total other comprehensive loss, net of tax (72,336) 7,942 (64,394) Comprehensive income 265,023 — 265,023 Comprehensive income attributable to non-controlling interests (13,639) — (13,639) Comprehensive income attributable to Albemarle Corporation $251,384 $— $251,384 62 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Changes In Equity Year Ended December 31, 2012 (In Thousands) Previous Method Effect ofAccountingChange As Adjusted Accumulated other comprehensive (loss) income: Balance at January 1, 2012 $(222,922) $283,251 $60,329 Other comprehensive income 4,722 20,213 24,935 Balance at December 31, 2012 $(218,200) $303,464 $85,264 Retained earnings: Balance at January 1, 2012 $1,798,117 $(283,251) $1,514,866 Net income for 2012 331,749 (20,213) 311,536 Cash dividends declared for 2012 (71,347) — (71,347) Shares repurchased (10,371) — (10,371) Balance at December 31, 2012 $2,048,148 $(303,464) $1,744,684 Year Ended December 31, 2011 (In Thousands) As PreviouslyReported Effect ofAccountingChange As Adjusted Accumulated other comprehensive (loss) income: Balance at January 1, 2011 $(164,196) $239,085 $74,889 Other comprehensive loss (58,726) 44,166 (14,560) Balance at December 31, 2011 $(222,922) $283,251 $60,329 Retained earnings: Balance at January 1, 2011 $1,560,519 $(239,085) $1,321,434 Net income for 2011 436,280 (44,166) 392,114 Cash dividends declared for 2011 (60,450) — (60,450) Shares repurchased (138,232) — (138,232) Balance at December 31, 2011 $1,798,117 $(283,251) $1,514,866 Year Ended December 31, 2010 (In Thousands) As PreviouslyReported Effect ofAccountingChange As Adjusted Accumulated other comprehensive (loss) income: Balance at January 1, 2010 $(91,860) $231,143 $139,283 Other comprehensive loss (72,336) 7,942 (64,394) Balance at December 31, 2010 $(164,196) $239,085 $74,889 Retained earnings: Balance at January 1, 2010 $1,287,983 $(231,143) $1,056,840 Net income for 2010 323,720 (7,942) 315,778 Cash dividends declared for 2010 (51,184) — (51,184) Balance at December 31, 2010 $1,560,519 $(239,085) $1,321,434 63 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Cash Flows Year Ended December 31, 2012 (In Thousands) Previous Method Effect ofAccountingChange As Adjusted Cash flows from operating activities: Net income $350,340 $(20,213) $330,127 Non-cash charges associated with restructuring and other, net 68,317 (6,508) 61,809 Pension and postretirement expense 39,418 38,024 77,442 Deferred income taxes (3,284) (11,303) (14,587) Year Ended December 31, 2011 (In Thousands) As PreviouslyReported Effect ofAccountingChange As Adjusted Cash flows from operating activities: Net income $464,363 $(44,166) $420,197 Pension and postretirement expense 27,161 70,046 97,207 Deferred income taxes 14,682 (25,880) (11,198) Year Ended December 31, 2010 (In Thousands) As PreviouslyReported Effect ofAccountingChange As Adjusted Cash flows from operating activities: Net income $337,359 $(7,942) $329,417 Pension and postretirement expense 20,993 12,905 33,898 Deferred income taxes 47,099 (4,963) 42,136 Revenue RecognitionWe recognize sales when the revenue is realized or realizable, and has been earned, in accordance with authoritative accounting guidance. We recognizenet 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 soldfree on board (FOB) shipping point or on an equivalent basis, and other transactions are based upon specific contractual arrangements. Our standard terms ofdelivery are generally included in our contracts of sale, order confirmation documents and invoices. We recognize revenue from services when performance ofthe services has been completed. We have a limited amount of consignment sales that are billed to the customer upon monthly notification of amounts used bythe customers under these contracts. Where the Company incurs pre-production design and development costs under long-term supply contracts, these costsare expensed where they relate to the products sold unless contractual guarantees for reimbursement exist. Conversely, these costs are capitalized if they pertainto 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 GuaranteesWe provide customers certain performance guarantees and life cycle guarantees. These guarantees entitle the customer to claim compensation if theproduct does not conform to performance standards originally agreed upon. Performance guarantees relate to minimum technical specifications that productsproduced with the delivered product must meet, such as yield and product quality. Life cycle guarantees relate to minimum periods for which performance ofthe delivered product is guaranteed. When either performance guarantees or life cycle guarantees are contractually agreed upon, an assessment of theappropriate revenue recognition treatment is evaluated. When testing or modeling of historical results predict that the performance or life cycle criteria will besatisfied, revenue is recognized in accordance with shipping terms at the time of delivery. When testing or modeling of historical results predict that theperformance or life cycle criteria may not be satisfied, we bill the customer upon shipment and defer the related revenue and cost associated with theseproducts. These deferrals are released to earnings when the contractual period expires. 64 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Shipping and Handling CostsAmounts billed to customers in a sales transaction related to shipping and handling have been classified as net sales and the cost incurred by us forshipping and handling has been classified as cost of goods sold in the accompanying consolidated statements of income. In addition, taxes billed to customersin a sales transaction are presented in the consolidated statements of income on a net basis.Cash and Cash EquivalentsCash and cash equivalents include cash and highly liquid investments with insignificant interest rate risks and original maturities of three months orless.InventoriesInventories 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-averagebasis for a small portion of our inventories at foreign plants and our stores, supplies and other inventory. A portion of our domestic produced finished goodsand raw materials are determined on the last-in, first-out basis.Property, Plant and EquipmentProperty, plant and equipment include costs of assets constructed, purchased or leased under a capital lease, related delivery and installation costs andinterest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, butexpenditures for normal repairs and maintenance are expensed as incurred. Costs associated with yearly planned major maintenance are deferred and amortizedover 12 months. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or lossesthereon are included in income. Depreciation is computed by the straight-line method based on the estimated useful lives of the assets. We have a policy whereour internal engineering group provides asset life guidelines for book purposes. These guidelines are reviewed against the economic life of the business for eachproject 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 business segments 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 amountmay 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 ayearly basis for all fields, this approximates a units-of-production method based upon estimated reserves and production volumes.InvestmentsInvestments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but notcontrol, 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% and50%, although other factors, such as representation on the investee’s board of directors and the impact of commercial arrangements, are considered indetermining whether the equity method of accounting is appropriate. Under the equity method of accounting, we record our investments in equity-methodinvestees in the consolidated balance sheets as Investments and our share of investees’ earnings or losses together with other-than temporary impairments invalue 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 statementsof income. Investments in joint ventures and nonmarketable securities of immaterial entities are estimated based upon the overall performance of the entitywhere financial results are not available on a timely basis.Environmental Compliance and RemediationEnvironmental compliance costs include the cost of purchasing and/or constructing assets to prevent, limit and/or control pollution or to monitor theenvironmental status at various locations. These costs are capitalized and depreciated based on estimated useful lives. Environmental compliance costs alsoinclude maintenance and operating costs with respect to pollution prevention and control facilities and other administrative costs. Such operating costs areexpensed as incurred. Environmental remediation costs of facilities used in current operations are generally immaterial and are expensed as incurred. 65 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On an undiscounted basis, we accrue for environmental remediation costs and post-remediation costs that relate to existing conditions caused by pastoperations at facilities or off-plant disposal sites in the accounting period in which responsibility is established and when the related costs are estimable. Indeveloping these cost estimates, we evaluate currently available facts regarding each site, with consideration given to existing technology, presently enacted lawsand regulations, prior experience in remediation of contaminated sites, the financial capability of other potentially responsible parties and other factors, subjectto uncertainties inherent in the estimation process. Additionally, these estimates are reviewed periodically, with adjustments to the accruals recorded asnecessary.Research and Development ExpensesOur 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, South Carolina, Texas and Louisiana and our global facilities in the Netherlands, Germany, Belgium, China and Korea form the capabilitybase for our contract research and custom manufacturing businesses. These business areas provide research and scale-up services primarily to innovative lifescience companies.Goodwill and Other Intangible AssetsWe account for goodwill and other intangibles acquired in a business combination in conformity with current accounting guidance that requires thatgoodwill 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 measure the fair valuebased 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 inestimating 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 andequity from a market perspective. The factors in this calculation are largely external to our company, and therefore, are beyond our control. We test ourrecorded goodwill balances for impairment in the fourth quarter of each year or upon the occurrence of events or changes in circumstances that would morelikely than not reduce the fair value of our reporting units below their carrying amounts. The Company performed its annual goodwill impairment test as ofOctober 31, 2012 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 three to fifty years. We continually evaluate the reasonableness of the useful lives of these assets and test for impairment inaccordance with current accounting guidance. See Note 10, “Goodwill and Other Intangibles.”Pension Plans and Other Postretirement BenefitsUnder authoritative accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. Asrequired, we recognize a balance sheet asset or liability for each of the pension or postretirement benefit plans equal to the plan’s funded status as of themeasurement 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 bemade 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 ofinvestments held by the plans, as well as the expected long-term allocation of plan assets for these investments. These projected returns reduce thenet benefit costs recorded currently. • Rate of Compensation Increase—For salary-related plans, we project employees’ annual pay increases, which are used to project employees’pension benefits at retirement. • Rate of Increase in the Per Capita Cost of Covered Health Care Benefits—We project the expected increases in the cost of covered health carebenefits.During 2012, we made changes to the assumptions related to the discount rate, expected return on assets, mortality and salary scales. We consideravailable information that we deem relevant when selecting each of these assumptions.In selecting the discount rates for the U.S. plans, we establish a range of reasonable rates based on methods developed by subject matter experts thatreflect current market conditions. For 2012, we relied on methods developed by Citigroup and 66 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Milliman to establish a range of acceptable discount rates based on authoritative accounting guidance. These methods calculate discount rates based on high-quality bond data and the projected plan cash flows. We believe our selected discount rates accurately reflect market conditions as of the December 31, 2012measurement date.In selecting the discount rates for the foreign plans, we relied on AonHewitt methods, including the AonHewitt Top-Quartile and a yield curve derivedfrom fixed-income security yields. The yield curve is generally based on a universe containing Aa-graded corporate bonds in the Euro zone without specialfeatures or options, which could affect the duration. In some countries, the yield curve is based on local government bond rates with a premium added toreflect 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 ratewas 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 aswell 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 selecting the rate of increase in theper capita cost of covered health care benefits, we consider past performance and forecasts of future health care cost trends in relation to the employer-paidpremium cap.Employee Savings PlansCertain of our employees participate in our defined contribution 401(k) employee savings plan, which is generally available to all U.S. full-time salariedand non-union hourly employees and to employees who are covered by a collective bargaining agreement that provides for such participation. With respect toour foreign subsidiaries, we also have a defined contribution pension plan for employees in the United Kingdom and a plan in the Netherlands similar to acollective defined contribution plan.Deferred Compensation PlanWe maintain an Executive Deferred Compensation Plan (EDCP) that was adopted in 2001 and subsequently amended. The purpose of the EDCP is toprovide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended toaid 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 ourinsolvency. Assets of the Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fundinvestments (which are accounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statement of income) andcash and cash equivalents.Stock-based Compensation ExpenseThe fair value of restricted stock awards and performance unit awards is determined based on the number of shares or units granted and the quotedprice of our common stock at grant date, and the fair value of stock options is determined using the Black-Scholes valuation model. The fair value of theseawards is determined after giving effect to estimated forfeitures. Such value is recognized as expense over the service period, which is generally the vestingperiod of the equity grant. To the extent restricted stock awards, performance unit awards and stock options are forfeited prior to vesting in excess of theestimated forfeiture rate, the corresponding previously recognized expense is reversed as an offset to operating expenses. 67 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Income TaxesWe use the liability method for determining our income taxes, under which current and deferred tax liabilities and assets are recorded in accordance withenacted 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 rateexpected 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 likelythan not.Deferred income taxes are provided for the estimated income tax effect of temporary differences between the financial statement carrying amounts and thetax basis of existing assets and liabilities. Deferred tax assets are also provided for operating losses, capital losses and certain tax credit carryovers. A valuationallowance, 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. Therealization of such deferred tax assets is dependent upon the generation of sufficient future taxable income of the appropriate character. Although realization isnot 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 taxingauthority based solely on the technical merits of the associated tax position. Once the recognition threshold is met, we recognize a tax benefit measured as thelargest 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 undercurrent 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 permanently reinvested and as a result we do not providefor deferred income taxes on the unremitted earnings of these subsidiaries. Our foreign earnings are computed under U.S. federal tax earnings and profits, orE&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 taxeshave not been provided as they are essentially permanent in duration. The determination of the amount of such unrecognized deferred tax liability is notpracticable. We provide for deferred income taxes on our undistributed earnings of foreign operations that are not deemed to be permanently reinvested.Accumulated Other Comprehensive IncomeAccumulated other comprehensive income is comprised principally of foreign currency translation adjustments and net prior service benefit for ourdefined benefit plans and related deferred income taxes in accordance with current accounting guidance.Foreign Currency TranslationThe assets and liabilities of all foreign subsidiaries were prepared in their respective functional currencies and translated into U.S. Dollars based on thecurrent 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.Our consolidated statements of income include foreign exchange transaction (losses) gains of $(4.9) million, $(3.6) million and $1.0 million for theyears ended December 31, 2012, 2011 and 2010, respectively.Derivative Financial InstrumentsWe manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies and through the use of foreigncurrency forward contracts from time to time, which generally expire within one year. The principal objective of such contracts is to minimize the financialrisks and costs associated with global operating activities. While these contracts are subject to fluctuations in value, such fluctuations are generally offset bythe value of the underlying foreign currency exposures being hedged. Gains and losses on foreign currency forward contracts are recognized currently inincome, but generally do not have a significant impact on results of operations.The counterparties to these contractual agreements are major financial institutions with which we generally have other financial relationships. We areexposed to credit loss in the event of nonperformance by these counterparties. However, we do not anticipate nonperformance by the counterparties. We do notutilize financial instruments for trading or other speculative purposes.At December 31, 2012 and 2011, we had outstanding foreign currency forward contracts with notional values totaling $274.0 million and $148.7million, respectively.In 2004, we entered into treasury lock agreements, or T-locks, with a notional value of $275.0 million, to fix the yield on the U.S. Treasury securityused to set the yield for approximately 85% of our January 2005 public offering of senior notes. The T-locks fixed the yield on the U.S. Treasury security atapproximately 4.25%. The value of the T-locks resulted from the difference between (i) the 68 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS yield-to-maturity of the 10-year U.S. Treasury security that had the maturity date most comparable to the maturity date of the senior notes issued and (ii) thefixed rate of approximately 4.25%. The cumulative loss effect of the T-lock agreements was $2.2 million and is being amortized over the life of the senior notesas an adjustment to the interest expense of the senior notes. At December 31, 2012 and 2011, there were unrealized losses of approximately $0.5 million ($0.3million after income taxes) and $0.7 million ($0.4 million after income taxes), respectively, in accumulated other comprehensive income.In addition, certain of our operations use natural gas as a source of energy which can expose our business to market risk when the price of natural gaschanges suddenly. In an attempt to mitigate the impact and volatility of price swings in the natural gas market, from time to time we enter into natural gashedge contracts with one or more major financial institutions for a portion of our 12-month rolling forecast for North American natural gas requirements. Suchderivatives are held to secure natural gas at fixed prices and are not entered into for trading purposes. At December 31, 2012 and 2011, we had no natural gashedge contracts outstanding.Recently Issued Accounting PronouncementsIn May 2011, the Financial Accounting Standards Board (FASB) issued additional authoritative guidance relating to fair value measurement anddisclosure requirements. For fair value measurements categorized in Level 3 of the fair value hierarchy, the new guidance requires: (1) disclosure ofquantitative information about unobservable inputs; (2) a description of the valuation processes used by the entity; and (3) a qualitative discussion about thesensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. Entities mustreport the level in the fair value hierarchy of assets and liabilities that are not recorded at fair value in the statement of financial position but for which fairvalue is disclosed. The new requirements clarify that the concepts of highest and best use and valuation premise only apply to measuring the fair value ofnonfinancial assets. The new requirements also specify that in the absence of a Level 1 input, a reporting entity should incorporate a premium or a discount ina fair value measurement if a market participant would take into account such an input in pricing an asset or liability. Additionally, the new guidanceintroduces an option to measure certain financial assets and financial liabilities with offsetting positions on a net basis if certain criteria are met. Theseamendments became effective for us on January 1, 2012 and did not have a material impact on our consolidated financial statements.In June 2011, the FASB issued new accounting guidance which eliminated the option to present other comprehensive income and its components in thestatement of changes in equity. However, under the guidance, comprehensive income and its components must still be presented under one of two newalternatives. Under the first alternative, the components of other comprehensive income and the components of net income may be presented in one continuousstatement referred to as the statement of comprehensive income. Under the second alternative, a statement of other comprehensive income would immediatelyfollow the statement of net income and must be shown with equal prominence as the other primary financial statements. Under either alternative, an entity isrequired to present each component of net income along with total net income, each component of other comprehensive 69 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS income along with a total for other comprehensive income, and a total amount for comprehensive income. The Company adopted these new financial statementpresentation requirements effective January 1, 2012 with retrospective application to all prior periods presented.In September 2011, the FASB issued new accounting guidance intended to simplify how entities test goodwill for impairment. The new guidance givesentities the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carryingamount. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than itscarrying amount, the quantitative impairment test under existing accounting guidance is required to be performed. Otherwise, no further testing is required.These new provisions became effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Theadoption of this new guidance did not have a material effect on our consolidated financial statements.In December 2011, the FASB issued new accounting guidance that will require entities to disclose information about financial instruments (includingderivatives) and transactions eligible for offset in the statement of financial position or subject to an agreement similar to a master netting arrangement. InJanuary 2013, the FASB issued additional guidance that limits the scope of these new requirements to certain derivatives, repurchase agreements and reverserepurchase agreements and securities borrowing and lending transactions. These new provisions are effective for annual reporting periods beginning on or afterJanuary 1, 2013, and interim periods within those annual periods, and should be applied retrospectively for all comparative periods presented. We do notexpect this new guidance to have a material effect on our consolidated financial statements.In February 2013, the FASB issued new accounting guidance that requires companies to present either in a single note or on the face of the financialstatements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income, and the income statement lineitems affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference tothe related footnote for additional information. These new provisions are effective for annual and interim reporting periods beginning after December 15, 2012.We do not expect this new guidance to have a material effect on our consolidated financial statements.NOTE 2—Supplemental Cash Flow Information:Supplemental information related to the consolidated statements of cash flows is as follows (in thousands): Year Ended December 31, 2012 2011 2010 Cash paid during the year for: Income taxes (net of refunds of $1,849, $4,339 and $2,611 in 2012, 2011and 2010, respectively) $112,442 $123,341 $34,808 Interest (net of capitalization) $31,144 $33,127 $21,905 Supplemental non-cash disclosures related to exit of phosphorus flame retardantsbusiness: 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 netcurtailment 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) — — In the fourth quarter of 2012, we revised our presentation of Restructuring and other charges in our consolidated statements of cash flows. The correctedpresentation is reflected in Non-cash charges associated with restructuring and other, net, to report the non-cash portion of such charges separately from theportion which affects working capital. We believe this presentation better reflects the impacts of restructuring events in our financial statements. The change inpresentation had no impact on Net cash provided by operating activities, Net cash used in investing activities or Net cash used in financing activities for yearsended December 31, 2012, 2011 or 2010 or any interim periods within those years. Non-cash charges associated with restructuring and other, net for both thesix months ended June 30, 2012 and the nine months ended September 30, 2012 were approximately $71 million. 70 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 3—Earnings Per Share:Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts): Year Ended December 31, 2012 2011 2010 Basic earnings per share Numerator: Net income attributable to Albemarle Corporation $311,536 $392,114 $315,778 Denominator: Weighted-average common shares for basic earnings per share 89,189 90,522 91,393 Basic earnings per share $3.49 $4.33 $3.46 Diluted earnings per share Numerator: Net income attributable to Albemarle Corporation $311,536 $392,114 $315,778 Denominator: Weighted-average common shares for basic earnings per share 89,189 90,522 91,393 Incremental shares under stock compensation plans 695 1,000 791 Total shares 89,884 91,522 92,184 Diluted earnings per share $3.47 $4.28 $3.43 The Company’s policy on how to determine windfalls and shortfalls for purposes of calculating assumed stock award proceeds under the treasurystock 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 orshortfall that would be recognized in the financial statements upon exercise of the award). At December 31, 2012, there were 222,700 common stockequivalents not included in the computation of diluted earnings per share.We have the authority to issue 15,000,000 shares of preferred stock in one or more classes or series. As of December 31, 2012, no shares of preferredstock 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 stockrepurchase plan up to a maximum of five million shares. During the years ended December 31, 2012, 2011 and 2010, we repurchased 1,092,767, 3,000,000and 400,356 shares of our common stock, respectively, pursuant to the terms of our share repurchase program. As of December 31, 2012, there were3,907,233 shares available for repurchase under our authorized share repurchase plan. On February 12, 2013, our Board of Directors authorized anotherincrease in the number of shares, pursuant to which the Company is now permitted to repurchase up to a maximum of fifteen million shares under the plan,including those shares previously authorized, but not yet repurchased.NOTE 4—Other Accounts Receivable:Other accounts receivable consist of the following at December 31, 2012 and 2011 (in thousands): December 31, 2012 2011 Value added tax/consumption tax $22,398 $16,236 Other 21,446 19,963 Total $43,844 $36,199 71 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 5—Inventories:Approximately 30% and 26% of our inventories are valued using the last-in, first-out (LIFO) method at December 31, 2012 and 2011, respectively. Theportion of our domestic inventories stated on the LIFO basis amounted to $126.6 million and $111.7 million at December 31, 2012 and 2011, respectively,which are below replacement cost by approximately $51.4 million and $56.8 million, respectively.NOTE 6—Other Current Assets:Other current assets consist of the following at December 31, 2012 and 2011 (in thousands): December 31, 2012 2011 Deferred income taxes—current $4,197 $9,383 Income tax receivables 26,208 8,303 Prepaid expenses 48,250 45,452 Total $78,655 $63,138 (a)See Note 18, “Income Taxes.”NOTE 7—Property, Plant and Equipment:Property, plant and equipment, at cost, consist of the following at December 31, 2012 and 2011 (in thousands): UsefulLives(Years) December 31, 2012 2011 Land — $61,123 $59,137 Land improvements 5 – 30 51,218 50,302 Buildings and improvements 10 – 45 198,260 194,731 Machinery and equipment 3 – 19 1,603,533 1,552,557 Machinery and equipment (major plant components) 20 – 45 586,433 533,666 Property, plant and equipment under capital lease 19 – 50 — 24,652 Long-term mineral rights and production equipment costs 7 – 60 83,089 62,245 Construction in progress — 234,948 142,138 Total $2,818,604 $2,619,428 (a)Consists primarily of (1) short-lived production equipment components, office and building equipment and other equipment with estimated livesranging 3 – 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) productionprocess equipment (infrastructure and other) with estimated lives ranging 30 – 45 years.The cost of property, plant and equipment is depreciated generally by the straight-line method. Depreciation expense amounted to $88.3 million, $83.6million and $82.5 million during the years ended December 31, 2012, 2011 and 2010, respectively. Interest capitalized on significant capital projects in 2012,2011 and 2010 was $5.8 million, $2.4 million and $1.1 million, respectively.In 2012 we announced our plan to exit the phosphorus flame retardants business, whose products were sourced mainly at our Avonmouth, UnitedKingdom 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, whichresulted in the recognition of a gain of approximately $2 million. See Note 2 “Supplemental Cash Flow Information” and Note 19 “Special Items” foradditional details about our exit of the phosphorus flame retardants business.In 2012, we repaid in full our capital lease obligation associated with certain plant equipment and the related carrying values of $4.3 million and $20.3million were transferred to buildings and improvements and machinery and equipment, respectively.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. In thethird quarter of 2010, we sold our Teesport, UK manufacturing site for net proceeds of approximately $8.6 million. 72(a)(a)(b) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In the third quarter of 2010, we purchased certain property and equipment in Yeosu, South Korea in connection with our plans for building ametallocene polyolefin catalyst and trimethyl gallium manufacturing site. Cash payments related to this acquisition were $6.5 million and $8.0 million in2011 and 2010, respectively.NOTE 8—Investments:Investments include our share of unconsolidated joint ventures, nonmarketable securities and marketable equity securities. The following table detailsour investment balances at December 31, 2012 and 2011 (in thousands). December 31, 2012 2011 Joint ventures $185,928 $180,437 Nonmarketable securities 923 1,187 Marketable equity securities 20,290 16,803 Total $207,141 $198,427 Effective January 1, 2010, we entered into a new operating agreement relating to our heretofore consolidated joint venture Stannica LLC and divested tenpercent of our interest in the venture to our partner for proceeds of approximately $2.1 million (of which $1.6 million in cash was received in the first quarterof 2010 and the remainder was collected in the third quarter of 2010), reducing our ownership to fifty percent. We determined that the joint venture was avariable interest entity but that we were not the primary beneficiary of the venture arrangement; accordingly, we deconsolidated our investment in this venture.We recorded a gain of approximately $1.1 million on the transaction (included in consolidated gross profit), an $8.1 million reduction in noncontrollinginterests and $20.4 million reduction in other consolidated net assets comprised of $14.7 million in cash plus other net working capital. Our retained equityinvestment in the joint venture was recorded at its fair value of $11.3 million (giving rise to the gain amount noted above) and is reported in Investments in ourconsolidated balance sheet. To estimate the fair value of our investment, we used an income approach based on a discounted cash flow model whichincorporated estimates and assumptions supported mainly by unobservable inputs, including pricing and volume data, anticipated growth rates, profitabilitylevels, inflation factors, tax and discount rates. Our maximum exposure to loss in connection with our continuing involvement with Stannica LLC is limited toour investment carrying value. Starting in the first quarter of 2010, the earnings associated with our investment in Stannica LLC were reported in Equity innet income of unconsolidated investments in our consolidated statement of income in our Catalysts segment. Prior to this transaction, Stannica LLC wasincluded in our Polymer Solutions segment. The carrying value of our investment in Stannica LLC was $6.6 million and $7.3 million at December 31, 2012and 2011, respectively.At December 31, 2012 and 2011, the carrying amount of our investments in unconsolidated joint ventures exceeded the amount of underlying equity innet assets by approximately $12.1 million and $9.7 million, respectively. These amounts represent the differences between the value of certain assets of thejoint ventures and our related valuation on a U.S. GAAP basis. As of December 31, 2012 and 2011, $1.8 million and $2.3 million, respectively, remained tobe amortized over the remaining useful lives of the assets with the balance of the difference representing primarily our share of the joint ventures’ goodwill. 73 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Our ownership positions in significant unconsolidated investments are shown below: December 31, 2012 2011 2010 * Nippon Aluminum Alkyls—a joint venture with Mitsui Chemicals, Inc. that producesaluminum alkyls 50% 50% 50% * Magnifin Magnesiaprodukte GmbH & Co. KG—a joint venture with Radex HeraklithIndustriebeteiligung AG that produces specialty magnesium hydroxide products 50% 50% 50% * Nippon Ketjen Company Limited—a joint venture with Sumitomo Metal Mining CompanyLimited that produces refinery catalysts 50% 50% 50% * Eurecat S.A.—a joint venture with IFP Investissements for refinery catalysts regenerationservices 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 productdevelopment 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 $170.6 million and $165.4 million as of December 31, 2012 and2011, respectively, and the amount included in Equity in net income of unconsolidated investments (net of tax) in the consolidated statements of income totaled$37.0 million, $43.3 million and $37.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. All of the unconsolidated joint venturesin which we have investments are private companies and accordingly do not have a quoted market price available. The following summary lists our assets,liabilities and results of operations for our significant unconsolidated joint ventures presented herein (in thousands): December 31, 2012 2011 Summary of Balance Sheet Information: Current assets $343,129 $307,358 Noncurrent assets 212,587 174,431 Total assets $555,716 $481,789 Current liabilities $129,105 $112,589 Noncurrent liabilities 76,422 42,850 Total liabilities $205,527 $155,439 Year Ended December 31, 2012 2011 2010 Summary of Statements of Income Information: Net sales $601,233 $672,859 $557,372 Gross profit $165,650 $189,691 $161,273 Income before income taxes $105,329 $132,399 $100,853 Net income $71,561 $88,414 $69,974 We have evaluated each of the unconsolidated investments pursuant to current accounting guidance and none qualify for consolidation. Dividendsreceived from our significant unconsolidated investments were $25.6 million, $22.8 million and $15.8 million in 2012, 2011 and 2010, respectively.Assets of the Benefit Protection Trust, in conjunction with our EDCP, are accounted for as trading securities in accordance with authoritative accountingguidance. The assets of the Trust consist primarily of mutual fund investments and are marked-to-market on a monthly basis through the consolidatedstatements of income. As of December 31, 2012 and 2011, these marketable securities amounted to $20.3 million and $16.8 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, SaudiOrganometallic Chemicals Company (SOCC), pursuant to a long-term loan arrangement. Our loan bears quarterly interest at the London Inter-Bank OfferedRate (LIBOR) plus 1.275% per annum (1.58% as of December 31, 2012), with interest 74 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS receivable on a semi-annual basis on January 1 and July 1. Principal repayments on amounts outstanding under this arrangement are required as mutuallyagreed upon by the joint venture partners, but with any outstanding balances receivable in full no later than December 31, 2021. This loan receivableoutstanding at December 31, 2012 has been recorded in Other assets in our consolidated balance sheet. The recorded value of this receivable approximates fairvalue as it bears interest based on prevailing variable market rates. Also during the year ended December 31, 2012, we and our joint venture partner eachadvanced 1.9 million Euros (approximately $2.5 million at December 31, 2012) to our 50%-owned joint venture, Eurecat S.A., pursuant to a long-term loanarrangement.During the years ended December 31, 2011 and 2010, we made capital contributions of approximately $10.9 million and $1.3 million, respectively, toSOCC, which is expected to be operational in early 2013.During the second quarter of 2010, we finalized an agreement with our joint venture partner to adjust the allocation of profits and dividends inconnection with our consolidated investment in Jordan Bromine Company Limited (JBC). As a result of this agreement, we recorded $8.0 million incumulative dividend adjustments to noncontrolling interests as reported in the consolidated statement of changes in equity for the year ended December 31,2010.NOTE 9—Other Assets:Other assets consist of the following at December 31, 2012 and 2011 (in thousands): December 31, 2012 2011 Deferred income taxes—noncurrent $64,512 $50,957 Assets related to unrecognized tax benefits 25,788 21,794 Long-term advances to joint ventures 25,017 — Other 39,519 44,120 Total $154,836 $116,871 (a)See Note 18, “Income Taxes.”(b)See Note 8, “Investments.”NOTE 10—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, 2012 and 2011 (in thousands): PolymerSolutions Catalysts FineChemistry Total Balance at December 31, 2010 $36,210 $211,423 $24,605 $272,238 Acquisitions — 3,672 — 3,672 Foreign currency translation adjustments 953 (3,885) 167 (2,765) Balance at December 31, 2011 37,163 211,210 24,772 273,145 Foreign currency translation adjustments 452 3,361 8 3,821 Balance at December 31, 2012 $37,615 $214,571 $24,780 $276,966 (a)Relates to our acquisition of Catilin, Inc. as discussed in Note 22 “Acquisitions.” 75(a)(a)(b)(a) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Other intangibles consist of the following at December 31, 2012 and 2011 (in thousands): CustomerLists andRelationships TradeNames PatentsandTechnology Land UseRights ManufacturingContracts andSupply/ServiceAgreements Other Total Gross Asset Value Balance at December 31, 2010 $100,509 $44,800 $44,592 $7,318 $12,087 $20,318 $229,624 Acquisitions — — 1,400 — — — 1,400 Foreign currency translation adjustments andother (431) 599 (19) 780 1,695 3,843 6,467 Balance at December 31, 2011 100,078 45,399 45,973 8,098 13,782 24,161 237,491 Acquisitions — — 1,500 — — — 1,500 Exit of phosphorus flame retardants business (16,189) (19,441) — (1,915) (5,470) (1,122) (44,137) Foreign currency translation adjustments andother 1,278 985 403 20 211 373 3,270 Balance at December 31, 2012 $85,167 $26,943 $47,876 $6,203 $8,523 $23,412 $198,124 Accumulated Amortization Balance at December 31, 2010 $(27,050) $(10,497) $(30,539) $(484) $(10,467) $(15,823) $(94,860) Amortization (4,780) (1,658) (4,982) (176) (551) (1,002) (13,149) Foreign currency translation adjustments andother 1,549 (65) 309 (458) (95) (441) 799 Balance at December 31, 2011 (30,281) (12,220) (35,212) (1,118) (11,113) (17,266) (107,210) Amortization (4,499) (1,307) (3,176) (183) (658) (900) (10,723) Exit of phosphorus flame retardants business 4,134 5,791 — 236 5,470 1,122 16,753 Foreign currency translation adjustments andother (838) (750) (390) (14) (211) (277) (2,480) Balance at December 31, 2012 $(31,484) $(8,486) $(38,778) $(1,079) $(6,512) $(17,321) $(103,660) Net Book Value at December 31, 2011 $69,797 $33,179 $10,761 $6,980 $2,669 $6,895 $130,281 Net Book Value at December 31, 2012 $53,683 $18,457 $9,098 $5,124 $2,011 $6,091 $94,464 (a)The increase of $1.4 million in Patents and Technology relates to our acquisition of Catilin, Inc. in 2011 as discussed in Note 22 “Acquisitions.”(b)The increase of $1.5 million in Patents and Technology relates to our acquisition of certain patents in 2012 related to catalysts useful in the productionof fuel products from renewable feedstocks.(c)In 2012 we reduced intangible assets by $44.1 million and related accumulated amortization by $16.8 million in connection with our exit of thephosphorus flame retardants business. See Note 19 “Special Items.”(d)Trade names include a gross carrying amount of $10.3 million for an indefinite-lived intangible asset.Useful lives range from 15 – 25 years for customer lists and relationships; 11 – 35 years for trade names; 8 – 20 years for patents and technology; 37– 40 years for land use rights; 6 – 12 years for manufacturing contracts and supply/service agreements; and 6 – 35 years for other.Amortization of other intangibles amounted to $10.7 million, $13.1 million and $13.1 million for the years ended December 31, 2012, 2011 and 2010,respectively. Total estimated amortization expense of other intangibles for the next five fiscal years is as follows (in thousands): EstimatedAmortizationExpense 2013 $7,732 2014 $7,726 2015 $7,086 2016 $6,148 2017 $5,830 76(d)(a)(b)(c)(c) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 11—Accrued Expenses:Accrued expenses consist of the following at December 31, 2012 and 2011 (in thousands): December 31, 2012 2011 Employee benefits, payroll and related taxes $39,442 $67,452 Taxes other than income taxes and payroll taxes 25,025 19,862 Deferred revenue 13,955 18,819 Accrued sales commissions 7,893 9,525 Accrued interest payable 7,816 8,075 Accrued utilities 9,108 7,493 Reduction in force accruals 14,428 2,843 Other 59,879 41,188 Total $177,546 $175,257 (a)See Note 19, “Special Items.”NOTE 12—Long-Term Debt:Long-term debt consists of the following at December 31, 2012 and 2011 (in thousands): December 31, 2012 2011 5.10% Senior notes, net of unamortized discount of $70 at December 31, 2012 and$103 at December 31, 2011 $324,930 $324,897 4.50% Senior notes, net of unamortized discount of $2,500 at December 31, 2012 and $2,814at December 31, 2011 347,500 347,186 Fixed rate foreign borrowings 19,458 24,778 Capital lease obligation — 2,006 Variable-rate foreign bank loans 7,006 64,326 Miscellaneous 394 480 Total long-term debt 699,288 763,673 Less amounts due within one year 12,700 14,416 Long-term debt, less current portion $686,588 $749,257 Aggregate annual maturities of long-term debt as of December 31, 2012 are as follows (in millions): 2013—$12.7; 2014—$6.0; 2015—$327.1; 2016—$0; 2017—$0.1; thereafter—$356.0.In September 2011, we amended and restated our previous $675.0 million credit facility. The amended and restated five-year, revolving, unsecuredcredit facility (hereinafter referred to as the September 2011 credit agreement) matures on September 22, 2016 and (i) increased the borrowing capacity to$750.0 million from $675.0 million; (ii) provides for an additional $250.0 million in credit, if needed, subject to the terms of the agreement; (iii) provides forthe ability to extend the maturity date under certain conditions; (iv) eliminated the covenant that required a minimum level of consolidated tangible domesticassets; and (v) increased the interest rate spread and commitment fees applicable to the Company’s borrowings under the credit facility. Fees and expenses of$2.7 million were incurred and paid in connection with this new agreement. Borrowings bear interest at variable rates based on the London Inter-Bank OfferedRate (LIBOR) for deposits in the relevant currency plus an applicable margin which ranges from 0.900% to 1.400%, depending on the Company’s credit ratingapplicable from time to time. The applicable margin on the facility was 0.975% as of December 31, 2012. As of December 31, 2012 and 2011, we had noborrowings outstanding under the September 2011 credit agreement.Borrowings under the September 2011 credit agreement are conditioned upon compliance with the following covenants: (i) consolidated funded debt, asdefined in the agreement, must be less than or equal to 3.50 times consolidated EBITDA, as defined in the agreement, (which reflects adjustments for certainnon-recurring or unusual items such as restructuring charges, facility divestiture charges and other significant non-recurring items), or herein “consolidatedadjusted EBITDA,” as of the end of any fiscal quarter; (ii) with the exception of liens specified in our new credit facility, liens may not attach to assets whenthe aggregate amount of all indebtedness secured by such liens plus unsecured subsidiary indebtedness, other than indebtedness incurred by our subsidiariesunder the September 2011 credit agreement, would exceed 20% of consolidated net worth, as defined in the agreement; and (iii) with the exception ofindebtedness specified in the September 2011 credit 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. We believe that as of December 31, 2012, we were, andcurrently are, in compliance with all of our debt covenants. 77(a) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS We previously maintained a $675.0 million five-year unsecured revolving senior credit facility, which we referred to as the March 2007 creditagreement. The total spread and fees ranged from 0.32% to 0.675% over the LIBOR applicable to the currency of the borrowing and were based on our creditrating as determined by the major rating agencies.Our $325.0 million aggregate principal amount of senior notes, issued on January 20, 2005, bear interest at a rate of 5.10%, payable semi-annually onFebruary 1 and August 1 of each year. The effective interest rate on these senior notes is approximately 5.19%. These senior notes mature on February 1,2015.On December 10, 2010, we concluded the sale of $350.0 million aggregate principal amount of senior notes through a public offering at a price of99.101% of par netting us $346.9 million in proceeds. We used $100.0 million of the net proceeds from the sale of these senior notes to fund pensionobligations ($50.0 million of which was contributed in December 2010 and $50.0 million in January 2011), with the remainder used to repay otherindebtedness. These senior notes bear an interest rate of 4.50%, which is payable semi-annually on June 15 and December 15 of each year, beginningJune 15, 2011. The effective interest rate on these senior notes is approximately 4.70%. These senior notes mature on December 15, 2020.We have additional agreements with financial institutions that provide for borrowings under uncommitted credit lines up to a maximum of $30.0 million.There were no outstanding borrowings under these agreements at either December 31, 2012 or December 31, 2011. The average interest rate on borrowingsunder these agreements during 2012 and 2011 was 1.49% and 1.43%, respectively.On December 31, 2010, one of our foreign subsidiaries had an agreement with a foreign bank that provided an immediate, uncommitted credit line of upto 70 million Euros. At December 31, 2010, there were outstanding borrowings of 70 million Euros (approximately $92.2 million at December 31, 2010, basedon applicable exchange rates) under this agreement. The average rate on borrowings under this agreement was 1.3% at December 31, 2010. This borrowing wasrepaid in January 2011, and the related credit line was cancelled.We have an agreement with a foreign bank that provides immediate U.S Dollar or Euro-denominated borrowings under uncommitted credit lines up to amaximum of $48.0 million or the Euro equivalent. At December 31, 2012 and 2011, 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 amaximum of 3.5 billion Japanese Yen (approximately $40.6 million at December 31, 2012, based on applicable exchange rates). At December 31, 2012 and2011 there were no outstanding borrowings under these agreements. The weighted average interest rate on borrowings under these agreements during 2011 and2010 was 1.07% and 1.19%, respectively.Certain of our remaining foreign subsidiaries have additional agreements with foreign institutions that provide immediate uncommitted credit lines, on ashort term basis, up to an aggregate maximum of approximately $93.9 million, of which $79.5 million supports foreign subsidiaries based in China. Wehave guaranteed these agreements. At December 31, 2012, there were no outstanding borrowings under these agreements, and at December 31, 2011, there wereborrowings of $50.3 million under these agreements. The weighted average interest rate on borrowings under these agreements was 6.1% at December 31,2011.At December 31, 2012 and 2011, we had the ability to refinance our borrowings under our other existing credit lines with borrowings under theSeptember 2011 credit agreement. Therefore, the amounts outstanding under those credit lines, if any, are classified as long-term debt at December 31, 2012and 2011. At December 31, 2012, we had the ability to borrow $750.0 million under our September 2011 credit agreement, plus an additional $250.0 millionif needed, subject to the terms of the September 2011 credit agreement.Our consolidated joint venture JBC has foreign currency denominated debt, which amounted to $26.4 million and $40.8 million at December 31, 2012and 2011, respectively, and principally includes (i) foreign plant-related construction borrowings maturing in April 2015 amounting to $13.5 million and$18.8 million at December 31, 2012 and 2011, respectively, which bore interest at rates ranging from 1.74% to 5.5% at December 31, 2012, and (ii) acapitalized lease obligation amounting to $2.0 million at December 31, 2011, which matured in 2012, related to certain plant equipment, bearing interest at5.5%. At December 31, 2012 and 2011, the JBC debt also included a $6.0 million unsecured non-interest bearing loan from its other shareholder. AtDecember 31, 2012, JBC had additional borrowing capacity of approximately $24.1 million. 78 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 13—Other Noncurrent Liabilities:Other noncurrent liabilities consist of the following at December 31, 2012 and 2011 (in thousands): December 31, 2012 2011 Liabilities related to uncertain tax positions $29,179 $30,677 Executive deferred compensation plan obligation 20,265 16,786 Deferred revenue—long-term 3,362 11,412 Environmental liabilities 17,213 10,926 Asset retirement obligations 16,517 14,865 Other 27,486 26,441 Total $114,022 $111,107 (a)See Note 18, “Income Taxes.”(b)See Note 15, “Commitments and Contingencies.”NOTE 14—Stock-based Compensation Expense:Incentive PlansWe have various share-based compensation plans that authorize the granting of (i) stock options to purchase shares of our common stock, (ii) restrictedcommon stock awards, (iii) performance unit awards and (iv) stock appreciation rights (SARs) to employees and non-employee directors. The plans providefor 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 and performance unit awards. The share-based awards granted by us generally contain vesting provisions ranging from one tofive 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 employeesgenerally vest over three years and have a term of ten years. Restricted common stock awards vest in periods ranging from one to five years from the date ofgrant. Performance unit awards are earned at a level ranging from zero to 200% contingent upon the achievement of specific performance criteria over periodsranging from one to two years. Distribution of the earned units occurs generally 50% upon completion of a two-year measurement period with the remaining50% of the earned units distributed one year thereafter.We granted 263,200, 401,500 and 389,000 stock options during 2012, 2011 and 2010, respectively. There were no significant modifications made toany 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 sharesavailable 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. Under theAlbemarle Corporation 2008 Stock Compensation Plan for Non-Employee Directors (the “Non-Employee Directors Plan”), a maximum aggregate number of100,000 shares of our common stock was authorized for issuance to the Company’s non-employee directors. The fair market value of shares to be issued toeach participant during a calendar year shall not exceed $100,000. At December 31, 2012, there were 4,207,621 shares available for grant under the IncentivePlan and 39,725 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, 2012, 2011 and 2010 amounted to $15.2million, $27.1 million and $15.7 million, respectively, and is included in cost of goods sold and selling, general and administrative (SG&A) expenses on theconsolidated statements of income. Total related recognized tax benefits for the years ended December 31, 2012, 2011 and 2010 amounted to $5.6 million,$10.0 million and $5.8 million, respectively. 79(a)(b)(b) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES 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, 2012: Shares Weighted-AverageExercisePrice Weighted-AverageRemainingContractualTerm (Years) AggregateIntrinsic Value(in thousands) Outstanding at December 31, 2011 2,171,172 $30.82 7.1 $46,846 Granted 263,200 66.12 Exercised (949,170) 22.28 Forfeited (141,941) 49.62 Outstanding at December 31, 2012 1,343,261 $41.78 7.2 $28,232 Exercisable at December 31, 2012 773,427 $30.39 6.4 $24,539 The fair value of each option granted during the years ended December 31, 2012, 2011 and 2010 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: Year Ended December 31, 2012 2011 2010 Dividend yield 1.59% 1.53% 1.66% Volatility 34.04% 33.04% 33.13% Average expected life (years) 6 6 6 Risk-free interest rate 2.05% 3.67% 3.92% Fair value of options granted $20.00 $18.42 $13.76 Dividend yield is the average of historical yields and those estimated over the average expected life. The stock volatility is based on historical volatilitiesof our common stock. The average expected life represents the weighted average period of time that options granted are expected to be outstanding givingconsideration to vesting schedules and our historical exercise patterns. The risk-free interest rate is based on the U.S. Treasury strip rate with stripped couponinterest 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, 2012, 2011 and 2010 was $37.4 million, $7.9 million and $15.1 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, 2012 is approximately $5.1 million and isexpected to be recognized over a remaining weighted-average period of 1.3 years. Cash proceeds from stock options exercised and tax benefits related to stockoptions exercised were $21.1 million and $13.6 million for the year ended December 31, 2012, respectively. The Company issues new shares of commonstock upon exercise of stock options and vesting of restricted common stock awards.The following table summarizes activity in performance unit awards: Year Ended December 31, 2012 2011 2010 Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Nonvested, beginning of period 370,150 $49.23 184,196 $41.88 7,500 $38.41 Granted 367,600 53.57 190,700 56.14 198,700 41.94 Vested (276,250) 44.44 (2,946) 38.41 (2,947) 38.41 Forfeited (97,400) 54.10 (1,800) 48.26 (19,057) 41.64 Nonvested, end of period 364,100 55.94 370,150 49.23 184,196 41.88 Total compensation cost not yet recognized for nonvested performance unit awards outstanding as of December 31, 2012 is approximately $4.0 millionand is expected to be recognized over a remaining weighted-average period of approximately one year. Each performance unit represents one share of commonstock. The fair value of the performance based restricted stock was estimated on the date of grant. 80 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes activity in non-performance based restricted stock awards: Year Ended December 31, 2012 2011 2010 Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Nonvested, beginning of period 228,265 $41.35 333,416 $34.38 535,625 $35.10 Granted 47,473 60.58 63,600 58.43 92,750 40.98 Vested (116,586) 34.08 (159,751) 35.94 (250,126) 37.48 Forfeited (16,347) 37.80 (9,000) 48.64 (44,833) 39.43 Nonvested, end of period 142,805 51.01 228,265 41.35 333,416 34.38 Total compensation cost not yet recognized for nonvested non-performance based restricted shares as of December 31, 2012 is approximately $3.9million and is expected to be recognized over a remaining weighted-average period of 1.9 years. The fair value of the non-performance based restricted stockwas estimated on the date of grant adjusted for a dividend factor, if necessary.Deferred Directors’ CompensationUnder the 1996 Directors’ Deferred Compensation Plan (as amended and restated in 2005), a maximum aggregate number of 200,000 shares of ourcommon stock is authorized for issuance to the Company’s non-employee directors.NOTE 15—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:EnvironmentalWe had the following activity in our recorded environmental liabilities for the years ended December 31, 2012, 2011 and 2010 (in thousands): Year Ended December 31, 2012 2011 2010 Balance, beginning of year $12,359 $13,806 $15,567 Expenditures (1,451) (1,081) (1,128) Changes in estimates recorded to earnings and other 227 (270) 419 Exit of phosphorus flame retardants business 8,700 — — Foreign currency translation 487 (96) (1,052) Balance, end of year 20,322 12,359 13,806 Less amounts reported in Accrued expenses 3,109 1,433 1,661 Amounts reported in Other noncurrent liabilities $17,213 $10,926 $12,145 The amounts recorded represent our future remediation and other anticipated environmental liabilities. These liabilities typically arise during the normalcourse 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 inputfrom outside consultants. As evaluations proceed at each relevant site, changes in risk assessment practices, remediation techniques and regulatoryrequirements can occur, therefore such liability estimates may be adjusted accordingly. The timing and duration of remediation activities at these sites will bedetermined when evaluations are completed. Although it is difficult to quantify the potential financial impact of these remediation liabilities, managementestimates (based on the latest available information) that there is a reasonable possibility that future environmental remediation costs associated with our pastoperations, in excess of amounts already recorded, could be up to approximately $16 million before income taxes.Approximately $8.0 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 thegovernmental permit for this site and is scheduled for completion in 2017, with post-closure monitoring to occur for 30 years thereafter. The remainder of ourrecorded liability is associated with sites that are being evaluated under governmental authority but for which final remediation plans have not yet beenapproved. In connection with the remediation activities at our Bergheim, Germany site as required by the German environmental authorities, we have pledgedcertain of our land and housing facilities at this site which has an estimated fair value of $5.9 million. 81 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS During the second quarter of 2012, the Company recorded $8.7 million in estimated site remediation liabilities at our Avonmouth, United Kingdom siteas part of the charges associated with our exit of the phosphorus flame retardant business. Included in these estimated charges are anticipated costs of siteinvestigation, remediation and cleanup activities. We are in the process of reviewing our investigation and remediation plans with local government authorities.Based on current information about site conditions, we anticipate this investigation and remediation program to be completed during 2014.We believe that any sum we may be required to pay in connection with environmental remediation matters in excess of the amounts recorded shouldoccur 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 consolidatedannual basis although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particularquarterly reporting period.Rental ExpenseOur rental expenses include a number of operating lease agreements, primarily for office space, transportation equipment and storage facilities. Thefollowing schedule details the future non-cancelable minimum lease payments for the next five years and thereafter (in thousands): MinimumOperating LeasePayments 2013 $7,080 2014 $5,040 2015 $3,916 2016 $2,753 2017 $2,176 Thereafter $8,141 Rental expense was approximately $33.1 million, $30.9 million, and $29.0 million for 2012, 2011 and 2010, respectively. Rental expense is shown netof rental income which was minimal during 2012, 2011 and 2010.LitigationOn July 3, 2006, we received a Notice of Violation (the 2006 NOV) from the U.S. Environmental Protection Agency Region 4, or EPA, regarding theimplementation of the Pharmaceutical Maximum Achievable Control Technology standards at our plant in Orangeburg, South Carolina. The alleged violationsinvolve (i) the applicability of the specific regulations to certain intermediates manufactured at the plant, (ii) failure to comply with certain reportingrequirements, (iii) improper evaluation and testing to properly implement the regulations and (iv) the sufficiency of the leak detection and repair program at theplant. 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 Stateof South Carolina as a plaintiff. We intend to vigorously defend this action. Any settlement or finding adverse to us could result in the payment by us of fines,penalties, capital expenditures, or some combination thereof. At this time, it is not possible to predict with any certainty the outcome of this litigation or thefinancial impact which may result therefrom. However, we do not expect any financial impact to have a material adverse effect on the Company’s results ofoperations, financial condition or cash flows.In addition, we are involved from time to time in legal proceedings of types regarded as common in our business, including administrative or judicialproceedings 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 mayestablish financial reserves as estimated by our general counsel for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs forlegal services are generally expensed as incurred. 82 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OtherThe Company has standby letters of credit and guarantees with various financial institutions. The following table summarizes our letters of credit andguarantee agreements (in thousands): 2013 2014 2015 2016 2017 Thereafter Letters of credit and guarantees $40,717 $321 $2,774 $4 $508 $4,414 The outstanding letters of credit are primarily related to performance bonds, environmental guarantees and insurance claim payment guarantees withexpiration dates ranging from 2013 to 2022. The majority of the Company’s guarantees relate to custom and port authorities and have terms of one year. Theguarantees arose during the ordinary course of business.We do not have recorded reserves for the letters of credit and guarantees as of December 31, 2012. We are unable to estimate the maximum amount of thepotential future liability under guarantees and letters of credit. However, we accrue for any potential loss for which we believe a future payment is probable anda 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 $16.5 million and $14.9 million at December 31, 2012and 2011, respectively. During 2012, we increased our asset retirement obligations by approximately $1.4 million due to revisions of estimates, with theremainder of the increase from December 31, 2011 primarily related to accretion expense recorded during 2012. We have not recognized conditional assetretirement obligations for which a fair value cannot be reasonably estimated in our consolidated financial statements. It is the opinion of our management thatthe possibility is remote that such conditional asset retirement obligations, when estimable, will have a material adverse impact on our consolidated financialstatements 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 expectthe 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.NOTE 16—Accumulated Other Comprehensive Income:The components and activity in Accumulated other comprehensive income (net of deferred income taxes) consisted of the following during the yearsended December 31, 2012, 2011 and 2010 (in thousands): ForeignCurrencyTranslationAdjustments Net TransitionAsset NetPrior ServiceBenefit UnrealizedGain (Loss) onMarketableSecurities Other Total Balance at December 31, 2009 $132,234 $6 $8,286 $(4) $(1,239) $139,283 Current period change (56,620) (9) (2,987) 1 163 (59,452) Tax benefit (expense) (6,009) 3 1,123 — (59) (4,942) Balance at December 31, 2010 69,605 — 6,422 (3) (1,135) 74,889 Current period change (17,269) — (2,156) 1 257 (19,167) Tax benefit (expense) 3,909 — 794 (1) (95) 4,607 Balance at December 31, 2011 56,245 — 5,060 (3) (973) 60,329 Current period change 26,846 — (6,533) (5) 217 20,525 Tax benefit (expense) 2,026 — 2,462 2 (80) 4,410 Balance at December 31, 2012 $85,117 $— $989 $(6) $(836) $85,264 (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 translationadjustments from Accumulated other comprehensive income in connection with our exit of the phosphorus flame retardants business (see Note 19) inaccordance with current accounting guidance.(b)Current period change for the year ended December 31, 2012 includes $6.5 million related to a supplemental executive retirement plan settlement inconnection 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. 83(a)(b) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 17—Pension Plans and Other Postretirement Benefits:As discussed in Note 1, during 2012, we elected to change our method of accounting for actuarial gains and losses relating to our global pension andOPEB plans. Previously, we recognized actuarial gains and losses from our pension and OPEB plans in our consolidated balance sheets as Accumulated othercomprehensive income (loss) within shareholders’ equity, with amortization of these gains and losses that exceed 10 percent of the greater of plan assets orprojected benefit obligations recognized each quarter in our consolidated statements of income over the average future service period of active employees. Underthe new method of accounting, referred to as mark-to-market accounting, these gains and losses will be recognized annually in our consolidated statements ofincome in the fourth quarter and whenever a plan is determined to qualify for a remeasurement during a fiscal year. The remaining components of pension andOPEB plan expense, primarily service cost, interest cost and expected return on assets, will be recorded on a quarterly basis. The gain/loss subject toamortization and expected return on assets components of our pension expense has historically been calculated using a five-year smoothing of asset gains andlosses referred to as the market-related value. Under mark-to-market accounting, the market-related value of assets will equal the actual market value as of thedate of measurement. While our historical policy of recognizing pension and OPEB plan expense is considered acceptable under U.S. GAAP, we believe thatthe new policy is preferable as it eliminates the delay in recognizing gains and losses within operating results. This change will also improve transparencywithin our operating results by immediately recognizing the effects of economic and interest rate trends on plan investments and assumptions in the year thesegains and losses are actually incurred. This change in accounting principle has been applied retrospectively, adjusting all prior periods presented.We have certain noncontributory defined benefit pension plans covering certain U.S., German, Japanese and the Netherlands employees. We also have acontributory 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 periodspresented includes amounts related to salaried and hourly plans.During 2009, the U.S. defined benefit pension plans were amended to be in compliance with the Pension Protection Act of 2006 (PPA), which wassigned into law on August 16, 2006. This law amended the Employee Retirement Income Security Act of 1974 (ERISA) and included new rules regardingmethods and assumptions, including measuring the benefit obligation and plan assets, use of interest rate assumptions, mortality tables, valuation date, creditbalances for carryover and pre-funded balances, etc.Our U.S. defined benefit plan for non-represented employees was closed to new participants effective March 31, 2004. On October 1, 2012, our Boardof 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, finalaverage earnings shall be determined as of December 31, 2012. For participants who retire on or after December 31, 2013 and before December 31, 2014, finalaverage earnings shall be determined as of December 31, 2013. And for participants who retire on or after December 31, 2014, final average earnings shall bedetermined as of December 31, 2014. In addition to freezing the accrued benefits as of December 31, 2014, our Board of Directors also authorized applicationof a higher benefit formula for calculating accrued benefits in 2013 and 2014 only, as well as including an offset factor that would be applied to accruedbenefits 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-representedemployees hired after March 31, 2004. The benefit was an annual contribution to the defined contribution plan based on 5% of eligible employeecompensation, which was further amended on January 1, 2007 to increase the annual contributions to 6% or 7% for eligible employees, depending onspecified levels of years of service. On October 1, 2012 our Board of Directors approved additional plan amendments, such that effective January 1, 2013, thedefined contribution pension plan benefit is expanded to include non-represented employees hired prior to March 31, 2004, and the annual contribution to thedefined contribution plan for all participants is based on 5% of eligible employee compensation. Furthermore, our Board of Directors approved a one-timecontribution 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 $10.1million, was made into the defined contribution pension plan and into the EDCP for the amount of the one-time contribution that exceeded U.S. InternalRevenue Service (IRS) limits. The employer portion of contributions to our U.S. defined contribution plan amounted to $14.8 million (including the one-timecontribution made in the fourth quarter of 2012), $4.5 million and $3.9 million in 2012, 2011 and 2010, respectively.We have a defined benefit plan covering employees in the Netherlands. This plan is a transitional arrangement in which benefits are based primarily onemployee compensation and/or years of service. This plan is for certain individuals born on or before 1949 whom had a prior agreement, which we elected tohonor, in connection with the refinery catalysts business acquisition in 2004.Pension coverage for the employees of our other foreign subsidiaries is provided through separate plans. The plans are funded in conformity with thefunding requirements of applicable governmental regulations. The pension cost, actuarial present value of benefit obligations and plan assets for all plans arecombined in the other pension disclosure information presented. 84 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES 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 significantassumptions for our pension benefit plans (in thousands): Year Ended December 31, 2012 Year Ended December 31, 2011 Total PensionBenefits Domestic PensionBenefits Total PensionBenefits Domestic PensionBenefits Change in benefit obligations: Benefit obligation at January 1 $674,665 $634,184 $613,880 $572,963 Service cost 12,741 11,274 12,830 11,169 Interest cost 31,636 29,843 32,933 30,945 Plan amendments 1,123 1,123 508 508 Actuarial loss 90,336 83,428 49,729 48,977 Benefits paid (49,234) (45,694) (35,249) (30,378) Employee contributions 294 — 299 — Foreign exchange loss (gain) 834 — (265) — Benefit obligation at December 31 $762,395 $714,158 $674,665 $634,184 Change in plan assets: Fair value of plan assets at January 1 $531,105 $522,408 $507,064 $498,967 Actual return on plan assets 62,577 62,167 3,107 2,662 Employer contributions 18,299 15,298 56,105 51,157 Benefits paid (49,234) (45,694) (35,249) (30,378) Employee contributions 294 — 299 — Foreign exchange gain (loss) 262 — (221) — Fair value of plan assets at December 31 $563,303 $554,179 $531,105 $522,408 Funded status at December 31 $(199,092) $(159,979) $(143,560) $(111,776) December 31, 2012 December 31, 2011 Total PensionBenefits Domestic PensionBenefits Total PensionBenefits Domestic PensionBenefits Amounts recognized in consolidated balance sheets: Current liabilities (accrued expenses) $(3,611) $(2,015) $(15,596) $(13,927) Noncurrent liabilities (pension benefits) (195,481) (157,964) (127,964) (97,849) Net pension liability $(199,092) $(159,979) $(143,560) $(111,776) Amounts recognized in accumulated other comprehensiveincome: Prior service benefit $(759) $(1,181) $(7,193) $(7,616) Net amount recognized $(759) $(1,181) $(7,193) $(7,616) Weighted-average assumption percentages: Discount rate 4.04% 4.10% 5.04% 5.07% Rate of compensation increase 3.37% 3.50% 3.96% 4.11% The accumulated benefit obligation for all defined benefit pension plans was $738.7 million and $657.0 million at December 31, 2012 and 2011,respectively.Postretirement medical benefits and life insurance is provided for certain groups of U.S. retired employees. Medical and life insurance benefit costs havebeen funded principally on a pay-as-you-go basis. Although the availability of medical coverage after retirement varies for different groups of employees, themajority of employees who retire before becoming eligible for Medicare can continue group coverage by paying a portion of the cost of a monthly premiumdesigned to cover the claims incurred by retired employees subject to a cap on payments allowed. The availability of group coverage for Medicare-eligibleretirees also varies by employee group with coverage designed either to supplement or coordinate with Medicare. Retirees generally pay a portion of the cost ofthe coverage. Plan assets for retiree life insurance are held under an insurance contract and are reserved for retiree life insurance benefits. In 2005, thepostretirement medical benefit available to U.S. employees was changed to provide that employees who are under age 50 as of December 31, 2005 would nolonger 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 afterJanuary 1, 2006 will have their retiree medical premium subsidy capped. Effective January 1, 2008, our medical insurance for certain groups of U.S. retiredemployees is now insured through a medical carrier.In connection with the acquisition of the refinery catalysts business in 2004, we assumed the obligation for postretirement medical benefits for employeesin the Netherlands who will retire after August 2009. The benefit costs are funded principally on a pay-as-you-go basis. However, effective January 1, 2007,the Netherlands postretirement plan was terminated. 85 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES 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 significantassumptions for our postretirement benefit plans (in thousands): Year Ended December 31, 2012 2011 Total OtherPostretirementBenefits Total OtherPostretirementBenefits Change in benefit obligations: Benefit obligation at January 1 $68,935 $66,436 Service cost 274 263 Interest cost 3,172 3,393 Actuarial loss 3,032 3,555 Benefits paid (4,626) (4,712) Benefit obligation at December 31 $70,787 $68,935 Change in plan assets: Fair value of plan assets at January 1 $7,681 $7,985 Actual return on plan assets 358 740 Employer contributions 3,198 3,668 Benefits paid (4,626) (4,712) Fair value of plan assets at December 31 $6,611 $7,681 Funded status at December 31 $(64,176) $(61,254) December 31, 2012 2011 Total OtherPostretirementBenefits Total OtherPostretirementBenefits Amounts recognized in consolidated balance sheets: Current liabilities (accrued expenses) $(3,361) $(3,666) Noncurrent liabilities (postretirement benefits) (60,815) (57,588) Net postretirement liability $(64,176) $(61,254) Amounts recognized in accumulated other comprehensive loss: Prior service benefit (525) (620) Net amount recognized $(525) $(620) Weighted-average assumption percentages: Discount rate 4.00% 5.10% Rate of compensation increase 3.50% 4.00% The components of pension benefits expense are as follows (in thousands): Year EndedDecember 31, 2012 Year EndedDecember 31, 2011 Year EndedDecember 31, 2010 TotalPensionBenefits DomesticPensionBenefits TotalPensionBenefits DomesticPensionBenefits TotalPensionBenefits DomesticPensionBenefits Service cost $12,741 $11,274 $12,830 $11,169 $11,271 $9,577 Interest cost 31,636 29,843 32,933 30,945 31,844 29,934 Expected return on assets (44,752) (44,342) (42,186) (41,776) (40,213) (39,903) Actuarial loss 72,550 65,603 88,809 88,091 29,512 29,556 Amortization of net transition asset — — — — (9) (9) Amortization of prior service benefit (757) (812) (953) (1,009) (986) (1,038) Benefits expense $71,418 $61,566 $91,433 $87,420 $31,419 $28,117 Weighted-average assumption percentages: Discount rate 5.04% 5.07% 5.40% 5.45% 5.77% 5.86% Expected return on plan assets 8.19% 8.25% 8.19% 8.25% 8.19% 8.25% Rate of compensation increase 3.96% 4.11% 3.93% 4.11% 3.90% 4.11% 86 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The estimated amounts to be amortized from accumulated other comprehensive income into net periodic pension costs during 2013 are as follows (inthousands): TotalPensionBenefits DomesticPensionBenefits Amortization of prior service benefit $(686) $(741) The components of postretirement benefits expense are as follows (in thousands): Year Ended December 31, 2012 2011 2010 Total OtherPostretirementBenefits Total OtherPostretirementBenefits Total OtherPostretirementBenefits Service cost $274 $263 $382 Interest cost 3,172 3,393 3,564 Expected return on assets (488) (509) (526) Actuarial loss 3,161 3,324 763 Amortization of prior service benefit (95) (697) (1,704) Benefits expense $6,024 $5,774 $2,479 Weighted-average assumption percentages: Discount rate 5.10% 5.30% 5.70% Expected return on plan assets 7.00% 7.00% 7.00% Rate of compensation increase 4.00% 4.00% 4.00% The estimated amounts to be amortized from accumulated other comprehensive income into net periodic postretirement costs during 2013 are as follows(in thousands): Total OtherPostretirementBenefits 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 ofinvestments held by the plan, as well as the expected long-term allocations of plan assets to these investments. For the years 2012 and 2011, the weighted-average expected rate of return on domestic pension plan assets was 8.25%. The assumed rate of return on our domestic pension plan assets was changed to7.25% effective January 1, 2013. The weighted-average expected rate of return on plan assets for our OPEB plan was 7.00% during 2012 and 2011. There hasbeen no change to the assumed rate of return on OPEB plan assets effective January 1, 2013. The weighted-average expected rate of return on pension planassets for foreign plans was 4.50% during 2012 and 2011.In projecting the rate of compensation increase, we consider past experience in light of movements in inflation rates. At December 31, 2012, the assumedweighted-average rate of compensation increase changed to 3.37% from 3.96% for the pension plans. The assumed weighted-average rate of compensationincrease changed to 3.50% from 4.00% for the OPEB plans at December 31, 2012. 87 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 marketparticipants 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 liabilitiesLevel 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 liabilityLevel 3 Unobservable inputs for the asset or liabilityWe endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on thelowest level of input that is significant to the fair value measurement. Investments for which market quotations are readily available are valued at the closingprice 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 andasked 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 assetvalue 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 tradinglots and is most often reflective of bid price. Government securities are valued at the mean between bid and ask prices. Holdings in private investmentcompanies are typically valued using the net asset valuations provided by the underlying private investment companies.The following table sets forth our financial assets that were accounted for at fair value on a recurring basis as of December 31, 2012 (in thousands): December 31,2012 Quoted Prices inActive Marketsfor IdenticalItems(Level 1) Quoted Prices inActive Marketsfor SimilarItems(Level 2) UnobservableInputs(Level 3) Pension Assets: Domestic Equity $218,145 $153,465 $64,680 $— International Equity 107,647 18,977 88,670 — Fixed Income 142,967 51,306 91,661 — Absolute Return 80,714 9,885 — 70,829 Cash 13,830 13,830 — — Total Pension Assets $563,303 $247,463 $245,011 $70,829 Postretirement Assets: Fixed Income $6,611 $— $6,611 $— (a)Consists primarily of U.S. equity securities covering a diverse group of companies and U.S. stock funds that primarily track or are actively managedand measured against indices including the S&P 500 and the Russell 2000.(b)Consists primarily of international equity funds which include stocks and debt obligations of non-U.S. entities that primarily track or are activelymanaged and measured against various MSCI indices.(c)Consists primarily of fixed income mutual funds, corporate bonds, U.S. Treasury notes, other government securities and insurance policies.(d)Consists primarily of holdings in private investment companies. See additional information about the Absolute Return investments below. 88(a)(b)(c)(d)(c) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, 2012 (in thousands): Absolute Return: Year EndedDecember 31,2012 Beginning Balance $73,025 Total losses relating to assets sold during the period (31) Total unrealized gains relating to assets still held at the reporting date 2,311 Sales (4,476) Ending Balance $70,829 (a)These gains (losses) are recognized in the consolidated balance sheets and are included as changes in plan assets in the tables above.The following table sets forth our financial assets that were accounted for at fair value on a recurring basis as of December 31, 2011 (in thousands): December 31,2011 Quoted Prices inActive Marketsfor IdenticalItems(Level 1) Quoted Prices inActive Marketsfor SimilarItems(Level 2) UnobservableInputs(Level 3) Pension Assets: Domestic Equity $229,842 $173,710 $56,132 $— International Equity 90,056 — 90,056 — Fixed Income 129,608 46,308 83,300 — Absolute Return 78,432 5,407 — 73,025 Cash 3,167 3,167 — — Total Pension Assets $531,105 $228,592 $229,488 $73,025 Postretirement Assets: Fixed Income $7,681 $— $7,681 $— (a)Consists primarily of U.S. equity securities covering a diverse group of companies and U.S. stock funds that primarily track or are actively managedand measured against indices including the S&P 500 and the Russell 2000.(b)Consists primarily of international equity funds which include stocks and debt obligations of non-U.S. entities that primarily track or are activelymanaged and measured against various MSCI indices.(c)Consists primarily of fixed income mutual funds, corporate bonds, U.S. Treasury notes, other government securities and insurance policies.(d)Consists primarily of 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, 2011 (in thousands): Absolute Return: Year EndedDecember 31,2011 Beginning Balance $69,399 Total gains relating to assets sold during the period 4,471 Total unrealized losses relating to assets still held at the reporting date (6,367) Purchases 25,000 Sales (19,478) Ending Balance $73,025 (a)These gains (losses) are recognized in the consolidated balance sheets and are included as changes in plan assets in the tables above. 89(a)(a)(a)(b)(c)(d)(c)(a)(a) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The investment objective of the U.S. pension plan assets is maximum return with a strong emphasis on preservation of capital. Assets shouldparticipate in rising markets, with defensive action in declining markets expected to an even greater degree. Target asset allocations include 65% in long equityholdings and the remaining 35% in asset classes that provide diversification from traditional long equity holdings. Depending on market conditions, the broadasset 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 otherfixed income vehicles, high yield equities and distressed debt. At December 31, 2012 and 2011, equity securities held by our pension and OPEB plans did notinclude Albemarle common stock.Our Absolute Return investments consist primarily of our investments in hedge fund of funds. These are holdings in private investment companies withfair values that are based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investmentmanagers or fund managers associated with these investments provide valuations of the investments on a monthly basis utilizing the net asset valuationapproach for determining fair values. These valuations are reviewed by the Company for reasonableness based on applicable sector, benchmark and companyperformance to validate the appropriateness of the net asset values as a fair value measurement. Where available, audited financial statements are obtained andreviewed for the investments as support for the manager’s investment valuation. In general, the investment objective of these funds is high risk-adjustedreturns with an emphasis on preservation of capital. The investment strategies of each of the funds vary; however, the objective of our Absolute Returninvestments 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 $21.6 million, $59.8 million and $80.1 million during the years endedDecember 31, 2012, 2011 and 2010, respectively. Included in contributions for the year ended December 31, 2012 is a contribution of $14.1 million to oursupplemental executive retirement plan (SERP) in connection with the retirement of our former CEO and executive chairman. We expect contributions to ourdomestic nonqualified and foreign qualified and nonqualified pension plans in 2013, to approximate $4 million. Also, we expect to pay approximately $5million in premiums to our U.S. postretirement benefit plan in 2013. However, we may choose to make additional voluntary pension contributions in excess ofthese amounts.The current forecast of benefit payments, which reflect expected future service, amounts to (in millions): TotalPension Benefits DomesticPension Benefits TotalPostretirementBenefits 2013 $37.1 $35.4 $4.7 2014 $39.8 $37.1 $4.9 2015 $40.4 $38.6 $5.0 2016 $41.7 $40.2 $5.1 2017 $43.9 $41.7 $5.0 2018-2022 $248.4 $237.1 $22.2 We have a SERP, which provides unfunded supplemental retirement benefits to certain management or highly compensated employees. The SERPprovides for incremental pension benefits to offset the limitations imposed on qualified plan benefits by federal income tax regulations. Expenses relating to theSERP of $10.3 million, $4.7 million and $3.8 million were recorded for the years ended December 31, 2012, 2011 and 2010, respectively. The projectedbenefit obligation for the SERP recognized in the consolidated balance sheets at December 31, 2012 and 2011 was $30.9 million and $31.9 million,respectively. The benefit expenses and obligations of this SERP are included in the tables above. Benefits of $2.0 million are expected to be paid to SERPretirees in 2013. On October 1, 2012, our Board of Directors approved amendments to the SERP, such that effective December 31, 2014, no additionalbenefits 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 bedetermined as of December 31, 2012. For participants who retire on or after December 31, 2013 and before December 31, 2014, final average earnings shall bedetermined as of December 31, 2013. And for participants who retire on or after December 31, 2014, final average earnings shall be determined as of December31, 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 thehigher 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 and2014.In selecting the rate of increase in the per capita cost of covered health care benefits, we consider past performance and forecasts of future health care costtrends in relation to the employer-paid premium cap. At December 31, 2012, the assumed rate of increase in the pre-65 and post-65 per capita cost of coveredhealth care benefits for U.S. retirees was zero as the employer-paid premium caps (pre-65 and post-65) are met starting January 1, 2013.A 1% increase or decrease in the U.S. health care cost trend rate would not have a material effect on the benefit obligation and service and interest benefitcost components. 90 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Employee Savings PlansCertain of our employees participate in our defined contribution 401(k) employee savings plan, which is generally available to all U.S. full-time salariedand 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 $9.5 million, $9.1million and $8.4 million in 2012, 2011 and 2010, respectively. We amended our 401(k) plan in 2004 to allow pension contributions to be made by us toparticipants 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.We have a defined contribution pension plan for employees in the United Kingdom. The annual contribution to the United Kingdom definedcontribution plan is based on a percentage of eligible employee compensation and amounted to $0.3 million, $0.3 million and $0.4 million for 2012, 2011 and2010, respectively.In 2006, we formalized a new plan in the Netherlands similar to a collective defined contribution plan. The collective defined contribution plan issupported by annuity contracts through an insurance company. The insurance company unconditionally undertakes the legal obligation to provide specificbenefits to specific individuals in return for a fixed amount of premiums. Our obligation under this plan is limited to a variable calculated employer match foreach participant plus an additional fixed amount of contributions to assist in covering estimated cost of living and salary increases (indexing) andadministrative costs for the overall plan. We paid approximately $9.5 million, $9.9 million and $8.8 million in 2012, 2011 and 2010, respectively, inannual premiums and related costs pertaining to this plan.Other Postemployment BenefitsCertain postemployment benefits to former or inactive employees who are not retirees are funded on a pay-as-you-go basis. These benefits include salarycontinuance, severance and disability health care and life insurance, which are accounted for in accordance with authoritative guidance. The accruedpostemployment benefit liability was $0.6 million at December 31, 2012 and 2011.NOTE 18—Income Taxes:Income before income taxes and equity in net income of unconsolidated investments and current and deferred income tax expense (benefit) are composedof the following (in thousands): Year Ended December 31, 2012 2011 2010 Income before income taxes and equity in net income of unconsolidatedinvestments: Domestic $316,856 $209,714 $221,086 Foreign 57,737 270,863 158,112 Total $374,593 $480,577 $379,198 Current income tax expense: Federal $71,930 $82,379 $14,620 State 6,478 4,774 5,224 Foreign 18,712 28,179 25,776 Total $97,120 $115,332 $45,620 Deferred income tax expense (benefit): Federal $(2,632) $(23,060) $52,246 State 477 (417) (994) Foreign (12,432) 12,279 (9,116) Total $(14,587) $(11,198) $42,136 Total income tax expense $82,533 $104,134 $87,756 (a)Current income tax expense—Federal for the year ended December 31, 2010 is net of a tax benefit from an NOL carryforward of $9.6 million.The significant differences between the U.S. federal statutory rate and the effective income tax rate are as follows: % of Income Before Income Taxes 2012 2011 2010 Federal statutory rate 35.0% 35.0% 35.0% State taxes, net of federal tax benefit 1.4 0.6 1.2 Change in valuation allowance 3.4 (0.3) (0.4) Impact of foreign earnings, net (6.1) (10.9) (10.0) Depletion (1.3) (0.9) (1.0) Revaluation of unrecognized tax benefits/reserve requirements (1.7) (0.1) 0.1 Manufacturer tax deduction (3.8) (1.2) (1.6) Undistributed earnings of foreign subsidiaries (4.9) (0.4) 0.2 (a)(a)(b)(c)(d)(b) Other items, net — (0.1) (0.4) Effective income tax rate 22.0% 21.7% 23.1% (a)During 2012, a valuation allowance was established for $15.9 million as a result of the planned shut-down of our Avonmouth, United Kingdom site inconnection with our exit of the phosphorus flame retardants business. See Note 19, “Special Items.”(b)In prior years, we designated the undistributed earnings of substantially all of our foreign subsidiaries as permanently reinvested. The benefit of thelower tax rates in the jurisdictions for which we made this designation have been reflected in our effective income tax rate. During 2012, 2011 and 2010,we received distributions of $56.9 million, $33.8 million and $68.7 million, respectively, from various foreign subsidiaries and joint ventures andrealized a (benefit) expense, net of foreign tax credits, of $(1.8) million, $5.4 million and $2.7 million, respectively, related to the repatriation of thesehigh taxed earnings. We have asserted for all periods being reported, permanent reinvestment of our share of the income of JBC, a Free Zones companyunder the laws of the Hashemite Kingdom of Jordan. The applicable provisions of the Jordanian law, and applicable regulations thereunder, do not havea termination provision and the exemption is permanent. As a Free Zones company, JBC is not subject to income taxes on the profits of productsexported from Jordan, and currently, substantially all of the profits are from exports. Undistributed foreign subsidiary earnings were primarily impactedby a $17.4 million change related to the planned shut-down of our Avonmouth, United Kingdom site in connection with our exit of the phosphorusflame retardants business. 91 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (c)During 2012, we released various tax reserves primarily related to the expiration of the applicable U.S. federal statute of limitations for 2008 whichprovided a net benefit of $5.2 million.(d)During 2012, we amended the calculation of the manufacturer tax deduction for the year 2010 and filed the 2011 tax return. As a result, in 2012 werecognized 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, 2012 and 2011 consist of the following (inthousands): December 31, 2012 2011 Deferred tax assets: Postretirement benefits other than pensions $14,900 $15,705 Accrued employee benefits 26,603 37,861 Operating loss carryovers 74,934 72,570 Pensions 74,521 45,213 Tax credit carryovers 37,684 49,999 Undistributed earnings of foreign subsidiaries 15,583 — Other 23,280 16,097 Gross deferred tax assets 267,505 237,445 Valuation allowance (49,562) (36,419) Deferred tax assets 217,943 201,026 Deferred tax liabilities: Depreciation (193,021) (193,814) Foreign currency translation adjustments (4,933) (6,979) Undistributed earnings of foreign subsidiaries — (2,604) Other (20,348) (17,197) Deferred tax liabilities (218,302) (220,594) Net deferred tax liabilities $(359) $(19,568) Classification in the consolidated balance sheets: Current deferred tax assets $4,197 $9,383 Current deferred tax liabilities (5,700) (2,005) Noncurrent deferred tax assets 64,512 50,957 Noncurrent deferred tax liabilities (63,368) (77,903) Net deferred tax liabilities $(359) $(19,568) Changes in the balance of our deferred tax asset valuation allowance are as follows (in thousands): Year Ended December 31, 2012 2011 2010 Balance at January 1 $(36,419) $(39,802) $(41,355) Additions (20,182) (6,155) (3,205) Deductions 7,039 9,538 4,758 Balance at December 31 $(49,562) $(36,419) $(39,802) At December 31, 2012, we had approximately $38.9 million of domestic credits available to offset future payments of income taxes, expiring in varyingamounts between 2016 and 2022. We have established valuation allowances for $2.6 million of those domestic credits since we believe that it is more likelythan 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 toutilize the other remaining credit carryovers.At December 31, 2012, we have, on a pre-tax basis, $11.9 million of domestic net operating losses and $212.8 million of foreign net operating losscarryovers. We have established pre-tax valuation allowances for $9.3 million of domestic net operating losses, and 92 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS $97.8 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 berealized. For the same reason, we established pre-tax valuation allowances for $54.7 million related to foreign deferred tax assets not related to net operatinglosses. The realization of the deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. Althoughrealization is not assured, we believe it is more likely than not that the remaining deferred tax assets will be realized. However, the amount considered realizablecould be reduced if estimates of future taxable income change. We believe that it is more likely than not that our company will generate sufficient taxableincome in the future to fully utilize all other deferred tax assets.Liabilities related to uncertain tax positions were $29.2 million and $30.7 million at December 31, 2012 and 2011, respectively, inclusive of interest andpenalties of $0.8 million and $0.9 million at December 31, 2012 and 2011, respectively, and are reported in Other noncurrent liabilities as provided in Note13. These liabilities at December 31, 2012 and 2011 were reduced by $25.8 million and $21.8 million, respectively, for offsetting benefits from thecorresponding effects of potential transfer pricing adjustments, state income taxes and rate arbitrage related to foreign structure. These offsetting benefits arerecorded in Other assets as provided in Note 9. The resulting net liabilities of $2.6 million and $8.0 million at December 31, 2012 and 2011, respectively, ifrecognized and released, would favorably affect earnings.The liabilities related to uncertain tax positions, exclusive of interest, were $28.4 million and $29.8 million at December 31, 2012 and 2011,respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2012, 2011 and 2010 (in thousands): Year Ended December 31, 2012 2011 2010 Balance at January 1 $29,789 $20,949 $23,416 Additions for tax positions related to prior years 4,242 — 150 Reductions for tax positions related to prior years — (1,639) — Additions for tax positions related to current year 3,639 10,802 463 Lapses in statutes of limitations (10,057) (323) (3,080) Foreign currency translation adjustment 785 — — Balance at December 31 $28,398 $29,789 $20,949 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 taxauthorities for years prior to 2009 since the IRS has completed a review of our income tax returns through 2007 and our statute of limitations expired for 2008.We also are no longer subject to any U.S. state income tax audits prior to 2004.With respect to jurisdictions outside the U.S., we are no longer subject to income tax audits for years prior to 2005. During 2012, the German taxauthorities have continued an audit of two of our German companies for 2006 through 2009, and the Chinese tax authorities have continued an audit of one ofour Chinese subsidiaries for 2006 through 2010. During 2011, we completed tax audits for one of our Belgian companies for 2008 and 2009, our Japanesecompany for 2006 through 2010, and two of our Chinese companies through 2010. During 2010, we completed a tax audit for one of our Belgian companiesfor the 2007 tax year. 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 underlyingmatters 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 possiblesignificant increases or decreases in the liability related to uncertain tax positions that may occur within the next twelve months. Our current view is that it isreasonably possible that we could record a decrease in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $0.9million as a result of closure of tax statutes. 93 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 19—Special Items:Restructuring and other charges, net reported in the consolidated statements of income for the years ended December 31, 2012, 2011 and 2010 consist ofthe following (in thousands): Year Ended December 31, 2012 2011 2010 Exit of phosphorus flame retardants business $100,777 $— $— Defined benefit pension plan curtailment gain, net (4,507) — — Employer contribution to defined contribution plan 10,081 — — Other 5,334 — 6,958 Total Restructuring and other charges, net $111,685 $— $6,958 (a)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 werecorded net charges amounting to $6.1 million ($2.5 million after income taxes), in connection with our exit of the phosphorus flame retardantsbusiness, whose products were sourced mainly at our Avonmouth, United Kingdom and Nanjing, China manufacturing sites. The charges arecomprised mainly of non-cash items consisting of net asset write-offs of approximately $57 million and write-offs of foreign currency translationadjustments of approximately $12 million, as well as accruals for future cash costs associated with related severance programs of approximately $22million, estimated site remediation costs of approximately $9 million, other estimated exit costs of approximately $3 million, partly offset by a gain ofapproximately $2 million related to the sale of our Nanjing, China manufacturing site. Payments under this restructuring plan are expected to occurthrough 2014.(b)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 tothe Company’s defined contribution plan of $10.1 million ($6.4 million after income taxes), both in connection with various amendments to certain ofour U.S. pension and defined contribution plans that were approved by our Board of Directors in the fourth quarter of 2012. See Note 17, “PensionPlans and Other Postretirement Benefits.”(c)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 andother items. The year ended December 31, 2010 included charges amounting to $7.0 million ($4.6 million after income taxes) that related principally toreductions in force at our Bergheim, Germany site.We had the following activity in our recorded workforce reduction liabilities for the years ended December 31, 2012, 2011 and 2010 (in thousands): Year Ended December 31, 2012 2011 2010 Balance, beginning of year $4,780 $7,074 $4,880 Workforce reduction charges 21,640 1,859 6,605 Payments (10,929) (4,292) (3,568) Amount reversed to income (45) 19 (370) Foreign currency translation 452 120 (473) Balance, end of year 15,898 4,780 7,074 Less amounts reported in Accrued expenses 14,428 2,843 3,845 Amounts reported in Other noncurrent liabilities $1,470 $1,937 $3,229 (a)The year ended December 31, 2012 includes charges amounting to $21.6 million relating to reduction in force liabilities associated with our exit of thephosphorus flame retardants business noted above.The year ended December 31, 2011 includes charges of $1.9 million related to restructuring programs at various manufacturing locations which arereflected in Cost of goods sold. Payments under these programs have been completed.The year ended December 31, 2010 includes a charge of $6.6 million related to reductions in force at our Bergheim, Germany site. Payments under thisrestructuring plan are expected to occur through 2014.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 connectionwith the settlement of certain commercial litigation (net of estimated reimbursement of related legal fees of 94(a)(b)(b)(c)(a) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS approximately $0.9 million). The litigation involved claims and cross-claims relating to alleged breaches of a purchase and sale agreement. The settlementresolves all outstanding issues and claims between the parties and they agreed to dismiss all outstanding litigation and release all existing and potential claimsagainst 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 afterincome taxes) charitable contribution to the Albemarle Foundation, a non-profit organization that sponsors grants, health and social projects, educationalinitiatives, disaster relief, matching gift programs, scholarships and other charitable initiatives in locations where our employees live and operate. These itemsare included in our consolidated Selling, general and administrative expenses for the year ended December 31, 2012.NOTE 20—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 factorsexisting at the time of assessment. Fair value information for our financial instruments is as follows:Long-Term Debt—The carrying value of long-term debt reported in the accompanying consolidated balance sheets at December 31, 2012 and 2011, withthe exception of the 4.50% and 5.10% senior notes and the foreign currency denominated debt at JBC, approximates fair value as substantially all of the long-term debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings. The fair values of the4.50% and 5.10% senior notes are estimated using Level 1 inputs and account for the majority of the difference between the recorded amount and fair value ofour long-term debt. See Note 12, “Long-Term Debt.” December 31, 2012 2011 RecordedAmount Fair Value RecordedAmount Fair Value (In thousands) Long-term debt $699,288 $764,784 $763,673 $819,854 Foreign Currency Forward Contracts—We enter into foreign currency forward contracts in connection with our risk management strategies in an attemptto minimize the financial impact of changes in foreign currency exchange rates. These derivative financial instruments are used to manage risk and are notused for trading or other speculative purposes. The fair values of our foreign currency forward contracts are estimated based on current settlement values. AtDecember 31, 2012 and December 31, 2011, we had outstanding foreign currency forward contracts with notional values totaling $274.0 million and $148.7million, respectively. At December 31, 2012, $0.3 million was included in Other accounts receivable and $0.8 million was included in Accrued expensesassociated with the fair value of our foreign currency forward contracts. At December 31, 2011, $0.9 million was included in Accrued expenses associatedwith the fair value of our foreign currency forward contracts.Gains and losses on foreign currency forward contracts are recognized currently in Other income, net; further, fluctuations in the value of thesecontracts are generally offset by the changes in the value of the underlying exposures being hedged. For the years ended December 31, 2012, 2011 and 2010 werecognized gains (losses) of $5.1 million, $1.0 million and $(6.5) million, respectively, in Other income, net in our consolidated statements of income relatedto the change in the fair value of our foreign currency forward contracts. These amounts are substantially offset by changes in the value of the underlyingexposures being hedged which are also reported in Other income, net. Also, for the years ended December 31, 2012, 2011 and 2010, we recorded $(5.1)million, $(1.0) million and $6.5 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and cash settlements of$4.8 million, $(3.0) million and $(1.3) million, respectively, in Other, net in our consolidated statements of cash flows.NOTE 21—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 marketparticipants 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 liabilitiesLevel 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 liabilityLevel 3 Unobservable inputs for the asset or liability 95 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on thelowest level of input that is significant to the fair value measurement. The following tables set forth our financial assets and liabilities that were accounted forat fair value on a recurring basis as of December 31, 2012 and 2011 (in thousands): December 31,2012 Quoted Prices inActive Marketsfor IdenticalItems(Level 1) Quoted Prices inActive Marketsfor SimilarItems(Level 2) Unobservableinputs(Level 3) Assets: Investments under executive deferred compensation plan $20,265 $20,265 $— $— Equity securities $25 $25 $— $— Foreign currency forward contracts $262 $— $262 $— Pension assets $563,303 $247,463 $245,011 $70,829 Postretirement assets $6,611 $— $6,611 $— Liabilities: Obligations under executive deferred compensation plan $20,265 $20,265 $— $— Foreign currency forward contracts $771 $— $771 $— December 31,2011 Quoted Prices inActive Marketsfor IdenticalItems(Level 1) Quoted Prices inActive Marketsfor SimilarItems(Level 2) Unobservableinputs(Level 3) Assets: Investments under executive deferred compensation plan $16,786 $16,786 $— $— Equity securities $17 $17 $— $— Pension assets $531,105 $228,592 $229,488 $73,025 Postretirement assets $7,681 $— $7,681 $— Liabilities: Obligations under executive deferred compensation plan $16,786 $16,786 $— $— Foreign currency forward contracts $869 $— $869 $— (a)We maintain an EDCP that was adopted in 2001 and subsequently amended. The purpose of the EDCP is to provide current tax planning opportunitiesas well as supplemental funds upon the retirement or death of certain of our employees. The EDCP is intended to aid in attracting and retainingemployees of exceptional ability by providing them with these benefits. We also maintain a Benefit Protection Trust (the Trust) that was created toprovide 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 ofthe Trust are consolidated in accordance with authoritative guidance. The assets of the Trust consist primarily of mutual fund investments (which areaccounted for as trading securities and are marked-to-market on a monthly basis through the consolidated statements of income) and cash and cashequivalents. As such, these assets and obligations are classified within Level 1.(b)Our investments in equity securities are classified as available-for-sale and are reported in Investments in the consolidated balance sheets. The changesin fair value are reported in Other in our consolidated statements of comprehensive income. These securities are classified within Level 1.(c)As a result of our global operating and financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates,which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from interest and foreigncurrency exchange rate fluctuations through the use of derivative financial instruments. The foreign currency forward contracts are valued using brokerquotations 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 17 “Pension Plans and Other Postretirement Benefits” for further discussion on fair value measurements of our pension and postretirementassets.NOTE 22—Acquisitions:On May 11, 2011, we announced that we had expanded our presence in the biofuels market with the acquisition of Catilin Inc. Cash payments relatedto this acquisition were $4.5 million in 2011. 96(a)(b)(c)(d)(d)(a)(c)(a)(b)(d)(d)(a)(c) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In the third quarter of 2010, we purchased certain property and equipment in Yeosu, South Korea in connection with our plans for building ametallocene polyolefin catalyst and TMG manufacturing site. Cash payments related to this acquisition were $6.5 million and $8.0 million in 2011 and2010, respectively.NOTE 23—Operating Segments and Geographic Area Information:We have identified three reportable segments as required by current accounting guidance. Our Polymer Solutions segment is comprised of the flameretardants and stabilizers and curatives product areas. Our Catalysts segment is comprised of the refinery catalysts and performance catalyst solutionsproduct areas. Our Fine Chemistry segment is comprised of the performance chemicals and fine chemistry services and intermediates product areas. Segmentincome represents Operating profit (adjusted for significant non-recurring items) and Equity in net income of unconsolidated investments and is reduced byNet income attributable to noncontrolling interests. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporatecosts.Summarized financial information concerning our reportable segments is shown in the following tables. The Corporate & other segment includescorporate-related items not allocated to the reportable segments. In connection with our change in method of accounting for actuarial gains and losses related toour global pension and OPEB plans in 2012, service costs (which represent the benefits earned by active employees during the period) and amortization ofprior service costs/benefits will continue to be allocated to each segment. The remaining components of pension and OPEB plan expense are included inCorporate and other. Management believes this allocation will better reflect the operating results of each of its reporting segments. Prior year segment resultshave been retrospectively adjusted to reflect the change in accounting principle and change in allocation of pension and OPEB costs. 97 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2012 2011 2010 (In thousands) Net sales: Polymer Solutions $892,232 $1,001,922 $903,745 Catalysts 1,067,948 1,116,863 890,007 Fine Chemistry 785,240 750,220 569,012 Total net sales $2,745,420 $2,869,005 $2,362,764 Segment operating profit: Polymer Solutions $198,426 $243,396 $197,981 Catalysts 260,544 290,065 220,795 Fine Chemistry 182,690 162,726 83,579 Total segment operating profit 641,660 696,187 502,355 Equity in net income of unconsolidated investments: Polymer Solutions 6,416 7,696 8,734 Catalysts 31,651 36,259 29,648 Fine Chemistry — — — Corporate & other — (201) (407) Total equity in net income of unconsolidated investments 38,067 43,754 37,975 Net (income) loss attributable to noncontrolling interests: Polymer Solutions (2,221) (9,803) (6,154) Catalysts — — — Fine Chemistry (16,350) (18,306) (7,357) Corporate & other (20) 26 (128) Total net income attributable to noncontrolling interests (18,591) (28,083) (13,639) Segment income: Polymer Solutions 202,621 241,289 200,561 Catalysts 292,195 326,324 250,443 Fine Chemistry 166,340 144,420 76,222 Total segment income 661,156 712,033 527,226 Corporate & other (123,831) (178,568) (93,989) Restructuring and other charges (111,685) — (6,958) Interest and financing expenses (32,800) (37,574) (25,533) Other income, net 1,229 357 2,788 Income tax expense (82,533) (104,134) (87,756) Net income attributable to Albemarle Corporation $311,536 $392,114 $315,778 (a)For the years ended December 31, 2012, 2011 and 2010, Corporate and other expenses include $68.0 million, $89.2 million and $27.9 million,respectively, of pension and OPEB plan costs (including mark-to-market actuarial losses).(b)See Note 19, “Special Items.” 98(a)(b) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2012 2011 2010 (In thousands) Identifiable assets: Polymer Solutions $628,489 $692,924 $700,800 Catalysts 1,440,745 1,308,528 1,204,586 Fine Chemistry 613,655 512,676 424,527 Corporate & other 754,402 689,696 738,168 Total identifiable assets $3,437,291 $3,203,824 $3,068,081 Goodwill: Polymer Solutions $37,615 $37,163 $36,210 Catalysts 214,571 211,210 211,423 Fine Chemistry 24,780 24,772 24,605 Total goodwill $276,966 $273,145 $272,238 Year Ended December 31, 2012 2011 2010 (In thousands) Depreciation and amortization: Polymer Solutions $28,992 $30,436 $30,854 Catalysts 43,876 43,978 42,396 Fine Chemistry 24,238 21,004 21,570 Corporate & other 1,914 1,335 758 Total depreciation and amortization $ 99,020 $ 96,753 $ 95,578 Capital expenditures: Polymer Solutions $43,195 $51,186 $18,413 Catalysts 117,111 63,478 38,967 Fine Chemistry 119,088 60,679 17,193 Corporate & other 1,479 15,231 905 Total capital expenditures $280,873 $190,574 $75,478 Year Ended December 31, 2012 2011 2010 (In thousands) Net Sales: United States $1,053,068 $1,106,580 $863,297 Foreign 1,692,352 1,762,425 1,499,467 Total $2,745,420 $2,869,005 $2,362,764 (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. 99(a) Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2012 2011 2010 (In thousands) Long-Lived Assets: United States $735,269 $652,022 $582,763 Netherlands 192,540 185,799 186,960 Jordan 209,133 141,725 107,148 Brazil 85,353 83,452 75,816 Germany 72,797 70,051 67,579 China 39,542 64,449 63,672 France 32,305 28,652 25,075 Korea 81,962 25,008 12,074 United Kingdom — 12,436 13,530 Other foreign countries 33,598 46,323 33,206 Total $1,482,499 $1,309,917 $1,167,823 Net sales to external customers in each of the segments consists of the following: Year Ended December 31, 2012 2011 2010 (In thousands) Polymer Solutions: Flame Retardants $665,293 $780,541 $688,801 Stabilizers and Curatives 226,939 221,381 214,944 Total Polymer Solutions $892,232 $1,001,922 $903,745 Catalysts: Performance Catalyst Solutions $273,015 $265,381 $221,416 Refinery Catalysts 794,933 851,482 668,591 Total Catalysts $1,067,948 $1,116,863 $890,007 Fine Chemistry: Performance Chemicals $463,179 $460,026 $361,044 Fine Chemistry Services and Intermediates Business 322,061 290,194 207,968 Total Fine Chemistry $785,240 $750,220 $569,012 100 Table of ContentsAlbemarle Corporation and SubsidiariesNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 24—Quarterly Financial Summary (Unaudited): FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except per share amounts) 2012 Net sales $711,704 $684,894 $661,226 $687,596 Gross profit $250,980 $249,288 $217,750 $191,977 Restructuring and other charges, net $— $94,703 $— $16,982 Net income attributable to Albemarle Corporation $114,262 $50,089 $109,459 $37,726 Basic earnings per share $1.28 $0.56 $1.23 $0.42 Shares used to compute basic earnings per share 88,997 89,414 89,327 89,018 Diluted earnings per share $1.27 $0.56 $1.22 $0.42 Shares used to compute diluted earnings per share 89,947 90,051 89,879 89,660 (a)As a result of our change in method of accounting relating to our global pension and OPEB plans in the fourth quarter of 2012, first quarter 2012results were retrospectively adjusted resulting in increases to Gross profit of $3.1 million, Net income attributable to Albemarle Corporation of $6.2million, Basic earnings per share of $0.07 and Diluted earnings per share of $0.07.(b)As a result of our change in method of accounting relating to our global pension and OPEB plans in the fourth quarter of 2012, second quarter 2012results were retrospectively adjusted resulting in increases to Gross profit of $6.6 million, Net income attributable to Albemarle Corporation of $12.4million, Basic earnings per share of $0.14 and Diluted earnings per share of $0.14.(c)As a result of our change in method of accounting relating to our global pension and OPEB plans in the fourth quarter of 2012, third quarter 2012results were retrospectively adjusted resulting in increases to Gross profit of $3.0 million, Net income attributable to Albemarle Corporation of $10.2million, Basic earnings per share of $0.12 and Diluted earnings per share of $0.12, and a decrease to Restructuring and other charges, net of $6.5million.(d)See Note 19, “Special Items.” FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except per share amounts) 2011 Net sales $696,530 $742,108 $722,977 $707,390 Gross profit $235,358 $252,377 $260,402 $206,810 Net income attributable to Albemarle Corporation $111,061 $114,843 $120,662 $45,548 Basic earnings per share $1.21 $1.25 $1.34 $0.51 Shares used to compute basic earnings per share 91,633 91,713 89,935 88,805 Diluted earnings per share $1.20 $1.24 $1.33 $0.51 Shares used to compute diluted earnings per share 92,517 92,795 90,958 89,819 (a)As a result of our change in method of accounting relating to our global pension and OPEB plans in the fourth quarter of 2012, first quarter 2011results were retrospectively adjusted resulting in increases to Gross profit of $2.3 million, Net income attributable to Albemarle Corporation of $4.5million, Basic earnings per share of $0.05 and Diluted earnings per share of $0.05.(b)As a result of our change in method of accounting relating to our global pension and OPEB plans in the fourth quarter of 2012, second quarter 2011results were retrospectively adjusted resulting in increases to Gross profit of $0.4 million, Net income attributable to Albemarle Corporation of $0.7million, Basic earnings per share of $0.01 and Diluted earnings per share of $0.01.(c)As a result of our change in method of accounting relating to our global pension and OPEB plans in the fourth quarter of 2012, third quarter 2011results were retrospectively adjusted resulting in increases to Gross profit of $2.4 million, Net income attributable to Albemarle Corporation of $4.6million, Basic earnings per share of $0.05 and Diluted earnings per share of $0.05.(d)As a result of our change in method of accounting relating to our global pension and OPEB plans in the fourth quarter of 2012, fourth quarter 2011results were retrospectively adjusted resulting in decreases to Gross profit of $27.3 million, Net income attributable to Albemarle Corporation of $53.9million, Basic earnings per share of $0.61 and Diluted earnings per share of $0.60. 101(a)(b)(c) (d)(a)(b)(c)(d) Table of ContentsAlbemarle Corporation and Subsidiaries Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.NONE Item 9A.Controls and Procedures.Evaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our management, including our principal executive officer and principal financial officer, weconducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this report. Based on thisevaluation, our principal executive officer and our principal financial officer concluded that, as of end of the period covered by this report, our disclosurecontrols and procedures are effective to ensure that information we are required to disclose in reports filed or submitted under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated andcommunicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regardingrequired disclosure.Design and Evaluation of Internal Control over Financial ReportingOur 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 management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making thisassessment, management used the criteria for effective internal control over financial reporting described in the “Internal Control-Integrated Framework” setforth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management concluded that, as ofDecember 31, 2012, our internal control over financial reporting was effective based on those criteria.The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm, as stated in their report, which is included herein. Management’s report and the independent registered publicaccounting firm’s attestation report are included in Item 8 under the captions entitled “Management’s Report on Internal Control over Financial Reporting” and“Report of Independent Registered Public Accounting Firm” and are incorporated herein by reference.Changes in Internal Control over Financial ReportingNo change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarterended December 31, 2012 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B.Other Information.NONEPART III Item 10.Directors, Executive Officers and Corporate Governance.The information required by this Item 10 is contained in the Proxy Statement and is incorporated herein by reference. In addition, the information in“Executive Officers of the Registrant” appearing after Item 4 Part I of this Annual Report, is incorporated herein.Code of Business ConductWe have adopted a code of business conduct and ethics for directors, officers and employees, known as the Albemarle Code of Business Conduct. TheAlbemarle Code of Business Conduct is available on our website at http://www.albemarle.com. Shareholders may also request a free copy of the AlbemarleCode of Business Conduct from: Albemarle Corporation, Attention: Investor Relations, 451 Florida Street, Baton Rouge, Louisiana 70801. We will discloseany amendments to, or waivers from, a provision of our Code of Business Conduct that applies to the principal executive officer, principal financial officer,principal accounting officer or controller, or persons performing similar functions that relates to any element of the Code of Business Conduct as defined inItem 406 of Regulation S-K by posting such information on our website. 102 Table of ContentsAlbemarle Corporation and Subsidiaries New York Stock Exchange CertificationsBecause our common stock is listed on the New York Stock Exchange (NYSE), our Chief Executive Officer is required to make, and he has made, anannual certification to the NYSE stating that he was not aware of any violation by us of the corporate governance listing standards of the NYSE. Our ChiefExecutive Officer made his annual certification to that effect to the NYSE as of May 16, 2012. In addition, we have filed, as exhibits to this Annual Report onForm 10-K, the certifications of our principal executive officer and principal financial officer required under Sections 906 and 302 of the Sarbanes Oxley Actof 2002 to be filed with the Securities and Exchange Commission regarding the quality of our public disclosure.Additional information is contained in the Proxy Statement and is incorporated herein by reference. Item 11.Executive Compensation.The information required by this Item 11 is contained in the Proxy Statement and is incorporated herein by reference. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this Item 12 is contained in the Proxy Statement and is incorporated herein by reference. Item 13.Certain Relationships and Related Transactions, and Director Independence.The information required by this Item 13 is contained in the Proxy Statement and is incorporated herein by reference. Item 14.Principal Accountant Fees and Services.The information required by this Item 14 is contained in the Proxy Statement and is incorporated herein by reference.PART IV Item 15.Exhibits and Financial Statement Schedules.(a)(1) The following consolidated financial and informational statements of the registrant are included in Part II Item 8 on pages 51 to 101:Management’s Report on Internal Control Over Financial ReportingReport of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2012 and 2011Consolidated Statements of Income, Comprehensive Income, Changes in Equity and Cash Flows for the years ended December 31, 2012, 2011 and 2010Notes to the Consolidated Financial Statements(a)(2) No Financial Statement Schedules are provided in accordance with Item 15(a)(2) as the information is either not applicable, not required or has beenfurnished in the Consolidated Financial Statements or Notes thereto. (a)(3) Exhibits The following documents are filed as exhibits to this Form 10-K pursuant to Item 601 of Regulation S-K: 3.1 — Amended and Restated Articles of Incorporation (including Amendment thereto) [filed as Exhibit 4.1 to the Company’s Registration Statement onForm S-3 (Registration No. 333-119723) and incorporated herein by reference]. 3.2 — Amended and Restated Bylaws of the registrant effective as of July 12, 2012 [filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K(No. 1-12658) filed on July 12, 2012, and incorporated herein by reference]. 4.1 — Indenture, dated as of January 20, 2005, between the Company and The Bank of New York, as trustee [filed as Exhibit 4.1 to the Company’sCurrent Report on Form 8-K (No. 1-12658) filed on January 20, 2005, and incorporated herein by reference]. 103 Table of ContentsAlbemarle Corporation and Subsidiaries 4.2 — First Supplemental Indenture, dated as of January 20, 2005, between the Company and The Bank of New York, as trustee [filed as Exhibit 4.2to the Company’s Current Report on Form 8-K (No. 1-12658) filed on January 20, 2005, and incorporated herein by reference]. 4.3 — Form of Global Security for the 5.10% Senior Notes due 2015 (included as Exhibit A to Exhibit 4.2 hereto). 4.4 — Second Supplemental Indenture, dated as of December 10, 2010, between the Company and The Bank of New York Mellon Trust Company,N.A., as trustee [filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K (No. 1-12658) filed on December 10, 2010, andincorporated herein by reference]. 4.5 — Form of Global Security for the 4.50% Senior Notes due 2020 [filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K (No. 1-12658) filed on December 10, 2010, and incorporated herein by reference]. 10.1 — Amended and Restated Credit Agreement, dated as of September 22, 2011, among Albemarle Corporation and Albemarle Global FinanceCompany SCA, as borrowers, and certain of the Company’s subsidiaries that from time to time become parties thereto, the several banks andother financial institutions as may from time to time become parties thereto, and Bank of America, N.A., as Administrative Agent, Swing LineLender and L/C Issuer [filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 1-12658) filed on September 22, 2011, andincorporated herein by reference]. 10.2 — Albemarle Corporation 1994 Omnibus Stock Incentive Plan, adopted on February 8, 1994 [filed as Exhibit 10.1 to the Company’s RegistrationStatement on Form S-1 (No. 33-77452), and incorporated herein by reference]. 10.3 — Amendment to the Albemarle Corporation 1994 Omnibus Stock Incentive Plan, adopted December 30, 2002 [filed as Exhibit 10.2.1 to theCompany’s Form 10-K for the year ended December 31, 2002 (No. 1-12658), and incorporated herein by reference]. 10.4 — Albemarle Corporation 1998 Incentive Plan, adopted April 22, 1998, and amended effective January 1, 2003 [filed as Exhibit 10.8 to theCompany’s Annual Report on Form 10-K for the year ended December 31, 2002 (No. 1-12658), and incorporated herein by reference]. 10.5 — Amendment to the Albemarle Corporation 1998 Omnibus Stock Incentive Plan, adopted as of October 1, 2003 [filed as Exhibit 10.7.1 to theCompany’s Annual Report on Form 10-K for the year ended December 31, 2003 (No. 1-12658), and incorporated herein by reference]. 10.6 — Compensation Arrangement with Luther C. Kissam, IV, dated August 29, 2003 [filed as Exhibit 10.10 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2005 (No. 1-12658), and incorporated herein by reference]. 10.7 — Albemarle Corporation 2003 Incentive Plan, adopted January 31, 2003 and approved by the shareholders on March 26, 2003 [filed as Annex Ato the Company’s Definitive Proxy Statement on 14A (No. 1-12658) filed on February 26, 2003 and incorporated herein by reference]. 10.8 — First Amendment to the Albemarle Corporation 2003 Incentive Plan, dated as of December 13, 2006 [filed as Exhibit 10.3 to the Company’sCurrent Report on Form 8-K (No. 1-12658) filed on December 18, 2006, and incorporated herein by reference]. 10.9 — Albemarle Corporation Directors’ Deferred Compensation Plan, approved by shareholders on April 24, 1996 [filed as Exhibit 10.11 to theCompany’s Annual Report on Form 10-K for the year ended December 31, 2003 (No. 1-12658), and incorporated herein by reference]. 10.10 — First Amendment to the Albemarle Corporation Directors’ Deferred Compensation Plan, dated as of December 13, 2006 [filed as Exhibit 10.7 tothe Company’s Current Report on Form 8-K (No. 1-12658) filed on December 18, 2006, and incorporated herein by reference]. 10.11 — First Amendment to the Albemarle Corporation Directors’ Deferred Compensation Plan, dated as of May 13, 2009 [filed as Exhibit 10.36 to theCompany’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (No. 1-12658), and incorporated herein by reference]. 10.12 — Form of Stock Option Agreement [filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 1-12658), filed February 24, 2012,and incorporated herein by reference]. 10.13 — Form of Amendment to Outstanding Stock Option Agreements [filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K (No. 1-12658) filed on December 18, 2006, and incorporated herein by reference]. 104 Table of ContentsAlbemarle Corporation and Subsidiaries 10.14 — Form of Restricted Stock Agreement [filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K (No. 1-12658), filed February 24,2012, and incorporated herein by reference]. 10.15 — Form of Performance Stock Unit Agreement [filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (No. 1-12658), filedFebruary 24, 2012, and incorporated herein by reference]. 10.16 — Notice of Performance Unit Award [filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K/A (No. 1-12658) filed on February 13,2008, and incorporated herein by reference]. 10.17 — Notice of Restricted Stock Unit Award [filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 1-12658) filed on April 3,2009, and incorporated herein by reference]. 10.18 — Notice of Option Grant [filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (No. 1-12658) filed on April 3, 2009, andincorporated herein by reference]. 10.19 — Form of Amendment to Outstanding Performance Unit Agreements [filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K (No. 1-12658) filed on December 18, 2006, and incorporated herein by reference]. 10.20 — Amended and Restated Albemarle Corporation Supplemental Executive Retirement Plan, effective as of January 1, 2005 [filed as Exhibit 10.1 tothe Company’s Current Report on Form 8-K (No. 1-12658) filed on December 14, 2005, and incorporated herein by reference]. 10.21 — Second Amendment to the Albemarle Corporation Supplemental Executive Retirement Plan, dated as of December 13, 2006 [filed as Exhibit 10.2to the Company’s Current Report on Form 8-K (No. 1-12658) filed on December 18, 2006, and incorporated herein by reference]. 10.22 — Amended and Restated Albemarle Corporation Executive Deferred Compensation Plan, effective as of January 1, 2005 [filed as Exhibit 10.2 tothe Company’s Current Report on Form 8-K (No. 1-12658) filed on December 14, 2005, and incorporated herein by reference]. 10.23 — First Amendment to the Albemarle Corporation Executive Deferred Compensation Plan, dated as of December 13, 2006 [filed as Exhibit 10.8 tothe Company’s Current Report on Form 8-K (No. 1-12658) filed on December 18, 2006, and incorporated herein by reference]. 10.24 — 2006 Stock Compensation Plan for Non-Employee Directors of Albemarle Corporation [filed as Exhibit 10.1 to the Company’s Current Reporton Form 8-K (No. 1-12658) filed on April 20, 2006, and incorporated herein by reference]. 10.25 — Share Purchase Agreement, among Albemarle Corporation, Albemarle Overseas Development Corporation and International Chemical Investors,SA, dated August 31, 2006 [filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period endedSeptember 30, 2006 (No. 1-12658), and incorporated herein by reference]. 10.26 — Form of Severance Compensation Agreement [filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 1-12658) filed onDecember 12, 2011, and incorporated herein by reference]. 10.27 — Albemarle Corporation Severance Pay Plan, as revised effective as of December 13, 2006 [filed as Exhibit 10.6 to the Company’s CurrentReport on Form 8-K (No. 1-12658) filed on December 18, 2006, and incorporated herein by reference]. 10.28 — Amended and Restated Albemarle Corporation Benefits Protection Trust, effective as of December 13, 2006 [filed as Exhibit 10.9 to theCompany’s Current Report on Form 8-K (No. 1-12658) filed on December 18, 2006, and incorporated herein by reference]. 10.29 — Albemarle Corporation 2008 Incentive Plan [filed as Annex A to the Company’s definitive Proxy Statement (No. 1-12658) filed on March 12,2008, and incorporated herein by reference]. 10.30 — First Amendment to the Albemarle Corporation 2008 Incentive Plan [filed as Appendix A to the Company’s definitive Proxy Statement (No. 1-12658) filed on March 31, 2009, and incorporated herein by reference]. 10.31 — 2008 Stock Compensation Plan for Non-Employee Directors of Albemarle Corporation [filed as Annex B to the Company’s definitive ProxyStatement (No. 1-12658) filed on March 12, 2008, and incorporated herein by reference]. 10.32 — Albemarle Corporation Employee Relocation Policy [filed as Exhibit 10.33 to the Company’s Quarterly Report on Form 10-Q for the quarterended June 30, 2008 (No. 1-12658) filed on August 7, 2008, and incorporated herein by reference]. 105 Table of ContentsAlbemarle Corporation and Subsidiaries 10.33 — Albemarle Corporation 2008 Incentive Plan, as amended and restated as of April 20, 2010 [filed as Exhibit 10.1 to the Company’s RegistrationStatement on Form S-8 (No. 333-166828) filed on May 14, 2010, and incorporated herein by reference]. 10.34 — Second Amendment to the Albemarle Corporation 2008 Incentive Plan [filed as Appendix A to the Definitive Proxy Statement on Schedule 14Afiled with the Commission on March 9, 2010 and incorporated herein by reference]. 10.35 — First Amendment to the Albemarle Corporation 2008 Stock Compensation Plan for Non-Employee Directors [filed as Appendix B to theDefinitive Proxy Statement on Schedule 14A filed with the Commission on March 9, 2010 and incorporated herein by reference]. *10.36 — Second Amendment to the Albemarle Corporation Executive Deferred Compensation Plan, dated as of December 28, 2007. *10.37 — Third Amendment to the Albemarle Corporation Executive Deferred Compensation Plan, dated as of April 16, 2010. *10.38 — Fourth Amendment to the Albemarle Corporation Executive Deferred Compensation Plan, dated as of October 20, 2010. *10.39 — Fifth Amendment to the Albemarle Corporation Executive Deferred Compensation Plan, dated as of December 27, 2012. *10.40 — Second Amendment to the Albemarle Corporation Director’s Deferred Compensation Plan, dated as of December 12, 2012. *12.1 — Statement of Computation of Ratio of Earnings to Fixed Charges. *18.1 — PricewaterhouseCoopers LLP Preferability Letter Related to Change in Accounting Principle. *21.1 — Subsidiaries of the Company. *23.1 — Consent of PricewaterhouseCoopers LLP. *31.1 — Certification of Chief Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act, as amended. *31.2 — Certification of Chief Financial Officer pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act, as amended. *32.1 — Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2 — Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *99.1 — Five-Year Summary.*101 — Interactive Data Files (Annual Report on Form 10-K, for the fiscal year ended December 31, 2012, furnished in XBRL (eXtensible BusinessReporting Language)) Attached as Exhibit 101 to this report are the following documents formatted in XBRL: (i) the Consolidated Statements of Income for the fiscalyears ended December 31, 2012, 2011 and 2010, (ii) the Consolidated Statements of Comprehensive Income for the fiscal years ended December31, 2012, 2011 and 2010, (iii) the Consolidated Balance Sheets at December 31, 2012 and 2011, (iv) the Consolidated Statements of Changesin Equity for the fiscal years ended December 31, 2012, 2011 and 2010, (v) the Consolidated Statements of Cash Flows for the fiscal yearsended December 31, 2012, 2011 and 2010 and (vi) the Notes to Consolidated Financial Statements. *Included with this filing. 106 Table of ContentsAlbemarle Corporation and Subsidiaries SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized. ALBEMARLE CORPORATION(Registrant)By: /S/ LUTHER C. KISSAM IV (Luther C. Kissam IV) Chief Executive Officer and DirectorDated: February 15, 2013Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities indicated as of February 15, 2013. Signature Title/S/ LUTHER C. KISSAM IV Chief Executive Officer and Director (principal executive officer)(Luther C. Kissam IV) /S/ SCOTT A. TOZIER Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Chief RiskOfficer (principal financial and accounting officer)(Scott A. Tozier) /S/ WILLIAM H. HERNANDEZ Director(William H. Hernandez) /S/ R. WILLIAM IDE III Director(R. William Ide III) /S/ JOSEPH M. MAHADY Director(Joseph M. Mahady) /S/ JIM W. NOKES Chairman of the Board(Jim W. Nokes) /S/ JAMES J. O’BRIEN Director(James J. O’Brien) /S/ BARRY W. PERRY Director(Barry W. Perry) /S/ JOHN SHERMAN, JR. Director(John Sherman, Jr.) /S/ HARRIETT TEE TAGGART Director(Harriett Tee Taggart) /S/ ANNE M. WHITTEMORE Director(Anne M. Whittemore) 107 Exhibit 10.36SECOND AMENDMENTTO THEALBEMARLE CORPORATIONEXECUTIVE DEFERRED COMPENSATION PLANIn accordance with Section 11.1 of the Albemarle Corporation Executive Deferred Compensation Plan, as Amended and Restated Effective January 1,2005 (the “Plan”), the Plan is hereby amended as follows: 1.Section 6.11 of the Plan is hereby amended to insert “(a)” at the beginning thereof. 2.Section 6.11 of the Plan is further amended to add a new paragraph (b) at the end thereof to read as follows:“(b) Notwithstanding paragraph (a) hereof, a Participant may make a new election as to the time and/or form of payment of benefits,provided that (i) such Participant has not commenced payment of his or her benefit, (ii) such new election is made no later thanDecember 31, 2007, and (iii) such new election does not affect payments that the Participant would otherwise receive in 2007 or causepayments to be made in 2007. This paragraph is intended to comply with, and shall be administered in accordance with, the specialtransition rule provided for in Q&A-19(c) of IRS Notice 2005-1, Notice 2006-79, and other applicable provisions of the rules andregulations issued under Code Section 409A.” 3.The provisions of this Second Amendment are effective as of January 1, 2007.IN WITNESS WHEREOF, the Corporation by its duly authorized officer has caused these presents to be signed as of this 28thday of December, 2007. ALBEMARLE CORPORATIONBy: /s/ Jack P. Harsh Exhibit 10.37THIRD AMENDMENTTO THEALBEMARLE CORPORATIONEXECUTIVE DEFERRED COMPENSATION PLANIn accordance with Section 11.1 of the Albemarle Corporation Executive Deferred Compensation Plan, as Amended and Restated Effective January 1,2005 (the “Plan”), the Plan is hereby amended as follows: 1.A new Section 3.9 is hereby added to the Plan to read in its entirety as follows: “Section 3.9Benefits for Certain Employees in Jordan (a)EligibilityThe following employees are eligible to receive the credit provided under Section 3.9(b): (1)Ahmad Khalifeh (2)Mohammad Sabri (b)CreditA Participant who meets the eligibility requirements of Section 3.9(a), above, will receive a credit under the Plan equal to a percentage ofthe Participant’s base salary plus bonus as follows: five percent (5%) for each of the first nine (9) years of service, six percent (6%) foreach year of service from ten (10) to nineteen (19), and seven percent (7%) for each year of service thereafter. Years of service for purposesof this Section 3.9(b) shall be measured from the Participant’s date of hire to date of termination. This credit shall occur on a per payperiod basis. (c)VestingAny credit a Participant described in Section 3.9(a) receives pursuant to Section 3.9(b) shall be immediately 100% vested. (d)Allocation to AccountsAmounts credited pursuant to this Section 3.9 shall be credited to the Participant’s Retirement/Termination Account A.” 2.The provisions of this Third Amendment are effective as of March 1, 2010.IN WITNESS WHEREOF, the Corporation by its duly authorized officer has caused these presents to be signed as of this 16th day ofApril, 2010. ALBEMARLE CORPORATIONBy: /s/ Darian Rich Exhibit 10.38FOURTH AMENDMENTTO THEALBEMARLE CORPORATIONEXECUTIVE DEFERRED COMPENSATION PLANIn accordance with Section 11.1 of the Albemarle Corporation Executive Deferred Compensation Plan, as Amended and Restated Effective January 1,2005 (the “Plan”), the Plan is hereby amended as follows:1. Section 3.9(b) (added to the Plan as part of the Third Amendment thereto) is hereby amended to insert “(i)” at the beginning of the text thereof, and toinsert a new subparagraph (ii) to read as follows:“(ii) In addition to the credit provided for under subparagraph (i) of this paragraph (b), the Company may determine from time to time to makeadditional credits under the Plan on behalf of one or both of the Participants covered under this section 3.9. The decision as to whether to make anadditional credit and which of the Participants shall receive the additional credit, shall be determined solely at the discretion of the Company. TheCompany’s decision to make a credit in one year, or to make a credit on behalf of a specific Participant, shall create no obligation to make a creditin subsequent years or on behalf of the other Participant covered under this section 3.9.”2. The provisions of this Fourth Amendment are effective as of October 20, 2010.IN WITNESS WHEREOF, the Corporation by its duly authorized officer has caused these presents to be signed as of this 20th day of October, 2010. ALBEMARLE CORPORATIONBy: /s/ Darian Rich Exhibit 10.39FIFTH AMENDMENTTO THEALBEMARLE CORPORATIONEXECUTIVE DEFERRED COMPENSATION PLANIn accordance with Section 11.1 of the Albemarle Corporation Executive Deferred Compensation Plan, as Amended and Restated Effective January 1,2005 (the “Plan”), the Plan document is hereby amended to clarify and amend the respective Plan provisions as follows: 1.Section 2.16 of the Plan is replaced with the following:““Retirement” or “Retirement Eligible” means a Participant’s Termination of Employment with an Employer or death, on or after the Participant’sattainment of age fifty-five (55) and completion of ten (10) years of service with the Company or any Employer.” 2.Section 2.19 of the Plan is replaced in its entirety with the following: “2.19Scheduled Withdrawal“Scheduled Withdrawal” means a distribution to be made on a Scheduled Withdrawal Date, which may be either prior to or after a Participant’sTermination of Employment, pursuant to Section 6.6.” 3.Section 2.20 of the Plan is replaced in its entirety with the following: “2.20Scheduled Withdrawal Account“Scheduled Withdrawal Account” means an Account which may be established pursuant to Section 4.4 to provide for the distribution of benefitson a Scheduled Withdrawal Date.” 4.A new Section 2.20A is added to the Plan to read as follows: “2.20AScheduled Withdrawal Date“Scheduled Withdrawal Date” means the date designated by a Participant for payment of a Scheduled Withdrawal Account, pursuant toSection 6.6 hereof.” 5.A new Section 2.22A is added to the Plan to read as follows: “2.22ATermination of Employment“Termination of Employment” means a Participant’s termination of employment with the Company and all Employers which terminationconstitutes a severance from service as defined under Section 409A of the Internal Revenue Code of 1986, as amended.” 6.In Section 3.1 of the Plan, the following subsection (c) is added:“(c) Special Rules. (i) For employees who are designated to participate in the Plan in their year of hire, such employees will be eligible forEmployer allocations as of the Plan Year including their date of hire without regard to whether such employees have made a deferral for the year. 111 (ii) Employees not otherwise eligible to participate in the Plan shall be eligible if they otherwise qualify as “highly compensated ormanagement employees” and the Company designates them to receive a discretionary allocation under the Plan.” 7.Section 3.3 of the Plan is replaced with the following: “3.3Commencement and Duration of Deferral Election(a) Commencement. A Deferral Election shall commence as of the first day of the Plan Year next following the date a Participation Agreementfor such Deferral Election is filed with the Administrative Committee; provided, however, that a newly hired eligible Participant may make suchelection at any time within the first 30 days of employment, at the discretion of the Administrative Committee, with such election to apply to basesalary and Bonuses earned in payroll periods after that election. Notwithstanding the foregoing, the deferral of base salary shall not take effectuntil the Participant has contributed the maximum Pre-Tax Contribution to the Albemarle Corporation Savings Plan (the “Savings Plan”) for suchyear. The Participation Agreement shall specify the portion of the Elected Deferred Compensation to be credited to each Retirement/TerminationAccount and to each Scheduled Withdrawal Account.(b) Duration of Election. A Participant’s current Deferral Election shall terminate at the end of the Plan Year to which it applies and aParticipant wishing to make a Deferral Election for a succeeding Plan Year must make a new Deferral Election by filing a new ParticipationAgreement with the Administrative Committee prior to the start of the applicable Plan Year. A Deferral Election shall terminate upon the earlier tooccur of the following:(i) The end of the Plan Year for which the Deferral Election is made; or(ii) When a Participant terminates employment for any reason or receives a Hardship Withdrawal.” 8.The first sentence of Section 3.4 of the Plan is deleted. 9.Section 3.5(a) of the Plan is replaced with the following:“A Participant’s Retirement/Termination Account A shall be credited each Plan Year with an amount allocated in phantom shares equal to theexcess of (i) the Matching Contribution (as defined in the Savings Plan) which would have been available under the terms of the Savings Plan butfor the application of (A) the limitations imposed by Code Sections 401(a)(17) or 415, and/or (B) base salary and Bonus deferrals into this Plan,over (ii) the Matching Contribution made under the Savings Plan for such Plan Year.” 10.Section 3.5(b) of the Plan is replaced with the following:“(b) Effective December 31, 2004, a Grandfathered Benefit was established for each individual who was a Participant at that time whereby suchParticipant’s Account was initially credited with the number of phantom shares of Albemarle Corporation Common Stock previously credited tothe bookkeeping account maintained under Section 3.01(b)(ii) under the Albemarle SERP as in force on December 31, 2004, liability for whichbenefit was assumed by this Plan as of such date. The Benefit shall be payable upon the later of the Participant’s receipt of a lump sum paymentunder the Savings Plan and the month following the Participant’s last month of employment. This paragraph (a) was intended to satisfy thespecial grandfather provision under Code section 409A for benefits accrued and vested as of December 31, 2004, as described in IRS Notice2005-1, Q&A 16. Notwithstanding the foregoing, effective January 1, 2011, the provisions for payment of unpaid Grandfathered Benefits arerevised to provide instead for payment at the times and in the forms specified in Appendix B hereto. Pursuant to the foregoing change,Grandfathered Benefits remaining unpaid as of January 1, 2011, shall no longer qualify for grandfathered status as described in Section 409Aand such Benefits shall be subject to the Section 409A rules and restrictions on and after that date.” 112 11.Section 3.7 of the Plan is replaced with the following: “3.7Discretionary Contributions(a) Effective January 1, 2012, the Savings Plan has been amended to provide for a special one-time Discretionary Contribution (as described inthat Plan) to be made in December, 2012, on behalf of the eligible Members under that Plan. To the extent any portion of the DiscretionaryContribution cannot be made to the Savings Plan due to IRS limits and restrictions on contributions to that Plan, such excess shall be credited tothe Member’s Retirement/Termination Account A under this Plan and subject to the additional provisions of Section 3.10.” 12.Section 3.10 shall be added to the Plan as follows: “3.10Credits of Certain BenefitsAmounts credited under Sections 3.5, 3.6, and 3.7 hereof, shall be subject to the additional provisions of this Section 3.10.(a) Such amounts shall be credited to Participants’ Accounts as soon as practicable after the end of the applicable Plan Year and earnings andlosses thereon pursuant to Article V, shall accrue only after such amounts have been credited to Participants’ Accounts.(b) A Participant who has a Termination of Employment during a Plan Year for any reason other than a Termination by the Employer for Cause,shall be entitled to Employer credits for the portion of the Plan Year prior to his Termination. “Cause” for purposes of this Section 3.10(b) shallhave the same meanings as defined in the Albemarle Corporation 2008 Incentive Plan.” 13.The following is added to the last sentence of Section 4.4 of the Plan:“and the Scheduled Withdrawal Date with respect to any deferrals made to a Scheduled Withdrawal Account may not be earlier than two yearsafter the end of the Plan Year in which the deferral occurs.” 14.In Section 5.1 of the Plan, the last sentence is deleted and replaced with the following:“To the extent a Participant fails to make an election pursuant to this Section 5.1, the Participant shall be deemed to have elected that all Accountsbe invested in the Merrill Lynch Retirement Reserves Money Fund investment option.” 15.Section 6.1(a) of the Plan is replaced with the following:“(a) Time. If a Participant terminates employment due to Retirement, the Employer shall pay to the Participant a benefit equal to the balance in theParticipant’s Retirement/Termination Accounts within 30 days after such Retirement, provided, however, effective for new Accounts establishedon and after January 1, 2012, Accounts shall be paid on or about the January 15 or July 15 next following the Participant’s Retirement instead,subject, however, to the special rules for installment payments under Section (b)(ii) hereof.” 16.The following is inserted after “next following the Participant’s Retirement date” in Section 6.1(b)(ii) of the Plan:“, provided, however, that for new Accounts established on and after January 1, 2012 installment payments shall commence on or about theJanuary 15 next following the Participant’s Retirement date instead.” 113ththth 17.Section 6.1(c) of the Plan is replaced with the following:“Timing for Specified Employees. With respect to a Participant who is a “specified employee” subject to the restrictions on payments to specifiedemployees under Section 409A, benefits from his Retirement/Termination Account(s) shall be paid or commence on the first pay date of the monthfollowing the month in which occurs the six month anniversary date of Termination of Employment due to Retirement (referred to hereunder as the“Six Month Delay Period”).” 18.Section 6.2 of the Plan is replaced with the following:“(a) Time. If a Participant terminates employment for any reason other than Retirement or death, and prior to his Disability, the Employer shallpay to the Participant a benefit equal to the balance in the Participant’s Retirement/Termination Accounts within 30 days following theTermination, provided, however, effective for new Accounts established on and after January 1, 2012, Accounts shall be paid on or about theJanuary 15 or July 15 next following the Participant’s Termination instead.(b) Form. Upon a Participant’s Termination of Employment, a Participant’s Retirement/Termination Accounts due under Section 6.2(a) shall bepaid in a single lump sum (notwithstanding a Participant’s election of installment payments, if any).(c) Timing for Specified Employees. With respect to a Participant who is a “specified employee” subject to the restrictions on payments tospecified employees under Section 409A, benefits from his Retirement/Termination Account(s) shall be paid on the first pay date of the monthfollowing the month in which occurs the six month anniversary date of the Termination of Employment.” 19.The following is added at the end of Section 6.3(a) of the Plan:“, provided, however, that installments shall be made, as elected by the Participant, only if the Participant was Retirement-Eligible at the time ofdeath, and with respect to Accounts established on and after January 1, 2012, payments to the Participant’s Beneficiary shall be made in the formof a single lump sum on or about the January 15 or July 15 next following the date of death.” 20.The following is added at the end of Section 6.3(b) of the Plan:“Notwithstanding the preceding sentence, with respect to Accounts established on and after January 1, 2012, upon a Participant’s death followingcommencement of payment of his Accounts, payment of the remaining balance of the Account shall be made to the Participant’s Beneficiary in theform of a single lump sum on or about the January 15 or July 15 next following the date of death.” 21.Section 6.4 of the Plan is replaced with the following:“Disability Benefit(a) Time. If a Participant becomes Disabled, the Employer shall pay to the Participant a benefit equal to the balance in the Participant’sRetirement/Termination Accounts.(b) Form. For amounts credited to an Account as of December 31, 2011, a Participant may elect at the time of deferral the form in which benefitswill be paid pursuant to Section 6.1(b) of the Plan in the event of a Disability. If no election has been made regarding the form of payment uponDisability, and effective for all amounts credited on and after January 1, 2012, no special provisions apply to the form of payments made upon aParticipant’s Disability, and the form of payment of such Accounts shall be determined under the other provisions of this Article VI except thatwith respect to any amounts held in Retirement/Termination Account B, such amounts shall be paid in the elected form of installments withoutregard to whether the Participant qualifies as Retirement-Eligible.” 114thththththth 22.Section 6.5 of the Plan is replaced with the following: “6.5Special Rules for Small AccountsNotwithstanding any of the foregoing, if, on the date payments are to commence under Sections 6.1, 6.2, 6.3 or 6.4 of the Plan, theParticipant’s Account balance is less than fifty thousand dollars ($50,000), such Account shall be paid in a single lump-sum payment to theParticipant or Beneficiary, as applicable within thirty (30) days. For all Accounts established on and after January 1, 2012, a payment date mustbe either a January 15 or July 15.” 23.Section 6.6 of the Plan is replaced with the following: “6.6Scheduled Withdrawal Accounts(a) Time. Subject to paragraphs (c) and (d) hereof, the balance of a Scheduled Withdrawal Account shall be paid on the date or dates elected bythe Participant at the time the applicable Account was established, provided, however, that effective for Accounts established on and afterJanuary 1, 2012, a payment date must be either a January 15 or July 15 and to the extent a Participant designates a Scheduled WithdrawalDate other than a January 15 or July 15, payment shall be made on or about the January 15 or July 15 next following the date designated bythe Participant. In no event shall the payment commencement date be prior to two years after the end of the Plan Year in which the applicableDeferral Election is made. A Deferral Election shall not be made with respect to a Scheduled Withdrawal Account for the Plan Year in which apayment will be made from such Account to the Participant.(b) Form. Subject to paragraphs (c) and (d) hereof, Participants may elect, prior to establishment of the Account, to receive distributions from aScheduled Withdrawal Account in the form of a single lump sum or in annual installments over a period not to exceed four (4) years, provided,however, that where a Participant has elected that his Scheduled Withdrawal Account be paid in the form of installments, but at the time paymentis to commence, the Participant has terminated employment and is not Retirement-Eligible, payment of the Scheduled Withdrawal Account shallbe made in a lump sum instead. Distribution in the form of annual installments shall be paid on or about the January 15 or July 15 designatedby the Participant and valued in the method described in Section 6.1(b)(ii) (for Retirement/Termination Accounts paid in installments).(c) Small Accounts. Notwithstanding the provisions of paragraphs (a) and (b) above, effective for Accounts established on and after January 1,2012, if at the time of the earlier of a Participant’s Scheduled Withdrawal Date or death (which earlier event is referred to herein as the “PaymentDate”), the value of the Participant’s Account is less than fifty thousand dollars ($50,000), payment of the Account shall be made in a lump sumwithin 30 days following the Payment Date, and with respect to Accounts established on and after July 1, 2012, such lump sum payment shall bemade on or about the January 15 or July 15 on or after the Payment Date.(d) Death. Notwithstanding the provisions of subparagraphs (a) and (b) of this Section 6.6, effective for Accounts established on and afterJanuary 1, 2012, upon a Participant’s death prior to his Scheduled Withdrawal Date, payment of the Participant’s Account(s) shall be made in alump sum on the January 15 or July 15 corresponding to or next following the date of the Participant’s death.(e) Disability. Notwithstanding the provisions of subparagraphs (a) and (b) of this Section 6.6, upon a Participant’s Disability prior to hisScheduled Withdrawal Date, payment of the Participant’s Account shall be made or commence upon the Scheduled Withdrawal Date, in the formelected by the Participant.(f) Termination of Employment Prior to Scheduled Withdrawal. If a Participant with a balance in a Scheduled Withdrawal Account(s) terminateshis employment with an Employer prior to the applicable Scheduled Withdrawal Date, such Scheduled Withdrawal Account(s) shall be paid tothe Participant pursuant to subparagraphs (a) and (b) above.” 115thththththththththththththth 24.Section 6.8 of the Plan is replaced with the following: “6.8Valuation and SettlementWith respect to a lump-sum payment, the Settlement Date for an Account shall be no more than thirty (30) days after the Valuation Date nextfollowing such event for which the Participant or Beneficiary becomes entitled to payments, provided, however, that with respect to Accountsestablished on and after January 1, 2012, the Settlement Date shall be on or about the January 15th or July 15th on or after the applicable event.With respect to benefits that will be paid in installments pursuant to Section 6.1(b)(ii), the initial Settlement Date shall be (i) for other thanScheduled Withdrawal Accounts, the January 1st (January 15th for Accounts established on and after January 1, 2012) next following theParticipant’s Retirement date, death (other than for Accounts established on and after January 1, 2012 which Accounts are paid in a lump sumupon death) or Disability, as applicable and each January 1st (or January 15th) thereafter, and (ii) for Scheduled Withdrawal Accounts, theScheduled Withdrawal Date (January 15th or July 15th designated or deemed designated for Accounts established on and after January 1, 2012),and the anniversary of the Scheduled Withdrawal Date (or January 15th or July 15th) thereafter, in both cases, until all installment payments aremade.To the extent not otherwise provided for in this Plan or in a Participant’s Election Form(s), benefits hereunder shall be paid in a lump sum.The Settlement Date for a Hardship Distribution shall be no more than sixty (60) days after the last day of the month in which theAdministrative Committee delivers a finding that the Participant or Beneficiary has suffered a Financial Hardship.” 25.A new Section 6.12 is added to the Plan to read as follows: “6.12De Minimis AccountsNotwithstanding any other provision of the Plan, effective January 1, 2012, the special “de minimis” Account payment rules under Section 409Ashall apply. As such, an Account qualifying as de minimis under Section 409A, shall be paid upon the January 15 or July 15after the latest ofthe following events: (i) a Participant’s termination of employment (including Retirement, death or Disability), (ii) written exercise of discretion bythe Committee to pay under this Section 6.12, and (iii) the determination that all de minimis payment requirements have been satisfied.” 26.Section 11.2(b)(2) is modified to add the following at the end thereof:“provided such Change in Control constitutes a permissible payment event under Section 409A” 116thth 27.Effective January 1, 2011, the following is added to the Plan as Appendix B:“APPENDIX BTerms of Payment of Formerly Grandfathered Benefitson and after January 1, 2012, pursuant to Plan Section 3.5(b) of the Plan Participant New Time andForm of PaymentDirk Betlem Five Annual Installments beginning January, 2012David Iddins Lump Sum October 4, 2011Paul Rocheleau Lump Sum November, 2011George Manson Five Annual Installments beginning January, 2018Lloyd Crasto Lump Sum January, 2012Mark Rohr Lump Sum upon Retirement/TerminationJohn Steitz Lump Sum upon Retirement/TerminationLuther Kissam IV Lump Sum upon Retirement/TerminationJohn Nicols Four Annual Installments beginning January, 2017David Clary Lump Sum upon Retirement/TerminationMary Kay Devillier Lump Sum upon Retirement/TerminationScott Martin Lump Sum upon Retirement/TerminationRonald Zumstein Lump Sum upon Retirement/Termination” 28.The provisions of paragraphs 17 and 26 shall be effective as of January 1, 2005. 29.The provisions of paragraphs 1, 5, 7, 8, 9, 10, 12, 13, 14, 15, 21 and 27 are effective January 1, 2011. 30.The provisions of paragraphs 2, 3, 4, 6, 11, 16, 18, 19, 20, 22, 23, 24 and 25 are effective January 1, 2012.IN WITNESS WHEREOF, the Corporation by its duly authorized officer has caused these presents to be signed this 27th day of December, 2012. ALBEMARLE CORPORATIONBy: /s/ Susan Kelliher 117 Exhibit 10.40SECOND AMENDMENT TO THEALBEMARLE CORPORATIONDIRECTORS’ DEFERRED COMPENSATION PLAN(As Amended and Restated Effective January 1, 2005)In accordance with Section 13 of the Albemarle Corporation Directors’ Deferred Compensation Plan (As Amended and Restated Effective January 1,2005) (the “Plan”), the Plan is hereby amended as follows:1. The last sentence of Section 4(c) of the Plan is amended to insert the following at the beginning thereof:“Except as provided under Section 7(c) hereof,”2. In Section 6(b) of the Plan, the first sentence is hereby deleted and replaced with the following:“Effective January 1, 2013, interest will be credited to Deferred Cash Accounts based on the yield on the Barclays Capital U.S. Corporate Bond Index,as published in the Wall Street Journal or the Wall Street Journal On-Line, on the day preceding the day that interest is credited.”3. A new Section 7(c) is added to the Plan to read as follows:“Effective on and after January 1, 2013, Participants may exercise a one-time election to transfer some or all of the amounts deferred in their DeferredStock Accounts to Deferred Cash Accounts which shall thereafter accrue value at the rate specified under Section 6(b), provided, that, the one-timeelection right under this Section 7(c) shall be available only if (i) at the time of such election, the Participant has completed 5 or more years of service onthe Board, (ii) the Participant shall satisfy the Company’s stock holding requirements following such transfer, and (iii) the Participant’s election ismade during an open window period as defined in the Company’s Insider Trading Policy.”4. Section 13 of the Plan is amended to delete therefrom, the last sentence of the first paragraph thereof. 5. The provisions of this Second Amendment shall be effective as of January 1, 2013.IN WITNESS WHEREOF, the Corporation by its duly authorized officer and with its seal affixed, has caused these presents to be signed as of this 12day of December, 2012, pursuant to the approval of the Board of Directors at its meeting on December 12, 2012. ALBEMARLE CORPORATIONBy: /s/ Karen G. Narwoldth Exhibit 12.1ALBEMARLE CORPORATIONCOMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(In Thousands, Except for Ratios) Year Ended December 31, 2012 2011 2010 2009 2008 Earnings: Pre-tax income (loss) before adjustment for net income attributable to noncontrollinginterests or equity in net income or losses of unconsolidated investments $374,593 $480,577 $379,198 $130,372 $(4,068) Fixed Charges: Interest expense (before capitalized interest) 38,777 39,992 26,624 25,820 39,171 Portion (1/3) of rents representing interest factor 11,028 10,298 9,669 9,124 10,232 Total fixed charges 49,805 50,290 36,293 34,944 49,403 Amortization of capitalized interest 1,527 1,242 1,214 1,272 1,335 Distributed income of unconsolidated investments 26,908 23,685 16,414 18,045 13,135 Interest capitalized (5,977) (2,418) (1,091) (1,236) (996) Net income attributable to noncontrolling interests (net of tax) (18,591) (28,083) (13,639) (11,255) (18,806) Pre-tax income before adjustment for net income attributable to noncontrollinginterests or equity in net income or losses of unconsolidated investments plusfixed charges, amortization of capitalized interest, less interest capitalized and netincome attributable to noncontrolling interests that have not incurred fixedcharges $428,265 $525,293 $418,389 $172,142 $40,003 Ratio of earnings to fixed charges 8.6x 10.4x 11.5x 4.9x 0.8x (a)In 2012, the Company elected to change its method of recognizing actuarial gains and losses for its defined benefit pension and postretirement benefitplans. Certain prior year data has been adjusted retrospectively to reflect this accounting change.(a)(a)(a)(a) Exhibit 18.1February 15, 2013Board of Directors ofAlbemarle Corporation451 Florida StreetBaton Rouge, Louisiana 70801Dear Directors:We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K.We have audited the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 andissued our report thereon dated February 15, 2013. Note 1 to the financial statements describes a change in accounting principle for pension and otherpostretirement benefits. It should be understood that the preferability of one acceptable method of accounting over another for pension and other postretirementbenefits has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management’sdetermination that this change in accounting principle is preferable. Based on our reading of management’s stated reasons and justification for this change inaccounting principle in the Form 10-K, and our discussions with management as to their judgment about the relevant business planning factors relating to thechange, we concur with management that such change represents, in the Company’s circumstances, the adoption of a preferable accounting principle inconformity with Accounting Standards Codification 250, Accounting Changes and Error Corrections.Very truly yours,/s/ PricewaterhouseCoopers LLP Exhibit 21.1SUBSIDIARIES OF ALBEMARLE CORPORATION NAME PLACE OF FORMATIONACI Cyprus L.L.C. DelawareAlbemarle Australia Pty Ltd. AustraliaAlbemarle Brazil Holdings LTDA. BrazilAlbemarle Catalysts Company B.V. NetherlandsAlbemarle Catilin Corporation DelawareAlbemarle Chemical Canada Ltd. CanadaAlbemarle Chemicals (Shanghai) Company Limited ChinaAlbemarle Chemicals Korea, Ltd. KoreaAlbemarle Chemicals Ltd. CyprusAlbemarle Chemicals Private Limited IndiaAlbemarle Chemicals S.A.S. FranceAlbemarle Chemicals South Africa (PTY) Ltd South AfricaAlbemarle Chemicals U.K. Limited United KingdomAlbemarle Corporation VirginiaAlbemarle de Venezuela C.A. VenezuelaAlbemarle Deutschland GmbH GermanyAlbemarle Europe Sprl BelgiumAlbemarle Foundation VirginiaAlbemarle Global Finance Company SCA BelgiumAlbemarle Global Holdings Ltd SeychellesAlbemarle Grundstucksholding GmbH & Co. KG GermanyAlbemarle Holdings Company Limited Turks & Caicos IslandsAlbemarle Holdings Limited ChinaAlbemarle Hungary Private Limited Liability Company HungaryAlbemarle Italy S.R.L. ItalyAlbemarle Japan Corporation JapanAlbemarle Japan Holdings B.V. NetherlandsAlbemarle Korea Corporation KoreaAlbemarle Management (Shanghai) Co., Ltd. ChinaAlbemarle Middle East FZE United Arab EmiratesAlbemarle Netherlands B.V. NetherlandsAlbemarle Netherlands Holdings CV NetherlandsAlbemarle Overseas Employment Corporation VirginiaAlbemarle Quimica LTDA BrazilAlbemarle Singapore PTE LTD SingaporeAlbemarle Spain S.L.U. SpainAlbemarle Taiwan Ltd. TaiwanAlbemarle Virginia Corporation VirginiaBreitenau Holding GmbH AustriaFerrand Holdings Ltd. CyprusGrundstucksgemeinschaft Bergheim GbR GermanyJordan Bromine Company Limited JordanMartinswerk GmbH GermanyNingbo Jinhai Albemarle Chemical and Industry Co., Ltd. ChinaShandong Sinobrom Albemarle Bromine Chemicals Company Limited ChinaShanghai Jinhai Albemarle Fine Chemicals Company Limited China Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 33-75622, 33-78537, 333-83237, 333-108805, 333-135145, 333-150694, and 333-166828) and Forms S-3 (No. 333-119723 and 333-171014) of Albemarle Corporation of our report dated February 15, 2013relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPNew Orleans, LouisianaFebruary 15, 2013 Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERI, Luther C. Kissam IV, certify that: 1.I have reviewed this Annual Report on Form 10-K of Albemarle Corporation for the period ending December 31, 2012; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.Date: February 15, 2013 /S/ LUTHER C. KISSAM IVLuther C. Kissam IVChief Executive Officer and Director Exhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERI, Scott A. Tozier, certify that: 1.I have reviewed this Annual Report on Form 10-K of Albemarle Corporation for the period ending December 31, 2012; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.Date: February 15, 2013 /S/ SCOTT A. TOZIERScott A. TozierSenior Vice President, Chief Financial Officer, ChiefAccounting Officer and Chief Risk Officer Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Albemarle Corporation (the “Company”) for the period ending December 31, 2012 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Luther C. Kissam IV, Chief Executive Officer and Director of the Company,certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ LUTHER C. KISSAM IVLuther C. Kissam IVChief Executive Officer and DirectorFebruary 15, 2013 Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Albemarle Corporation (the “Company”) for the period ending December 31, 2012 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Scott A. Tozier, Chief Financial Officer of the Company, certify, pursuant to 18U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ SCOTT A. TOZIERScott A. TozierSenior Vice President, Chief Financial Officer, ChiefAccounting Officer and Chief Risk OfficerFebruary 15, 2013 Exhibit 99.1FIVE-YEAR SUMMARY (In Thousands, Except for Per Share Amounts and Footnote Data) Year Ended December 31 2012 2011 2010 2009 2008 Results of Operations Net sales $2,745,420 $2,869,005 $2,362,764 $2,005,394 $2,467,115 Costs and expenses 2,339,256 2,351,211 1,960,821 1,849,015 2,433,609 Operating profit 406,164 517,794 401,943 156,379 33,506 Interest and financing expenses (32,800) (37,574) (25,533) (24,584) (38,175) Other income (expenses), net 1,229 357 2,788 (1,423) 601 Income (loss) before income taxes and equity in net income ofunconsolidated investments 374,593 480,577 379,198 130,372 (4,068) Income tax expense (benefit) 82,533 104,134 87,756 (17,331) (72,415) Income before equity in net income of unconsolidated investments 292,060 376,443 291,442 147,703 68,347 Equity in net income of unconsolidated investments (net of tax) 38,067 43,754 37,975 22,322 23,126 Net income $330,127 $420,197 $329,417 $170,025 $91,473 Net income attributable to noncontrolling interests (18,591) (28,083) (13,639) (11,255) (18,806) Net income attributable to Albemarle Corporation $311,536 $392,114 $315,778 $158,770 $72,667 Financial Position and Other Data Total assets $3,437,291 $3,203,824 $3,068,081 $2,771,557 $2,872,717 Operations: Working capital $1,022,304 $954,442 $984,021 $678,823 $740,556 Current ratio 3.66 to 1 3.38 to 1 3.70 to 1 2.92 to 1 2.69 to 1 Depreciation and amortization $99,020 $96,753 $95,578 $100,513 $111,685 Capital expenditures $280,873 $190,574 $75,478 $100,786 $99,736 Investments in joint ventures $— $10,868 $1,333 $— $103 Acquisitions, net of cash acquired $3,360 $13,164 $11,978 $4,017 $63,960 Research and development expenses $78,919 $77,083 $58,394 $60,918 $67,292 Gross profit as a % of net sales 33.1 33.3 31.4 23.7 23.2 Total long-term debt $699,288 $763,673 $860,910 $812,713 $932,264 Total equity $1,932,008 $1,678,827 $1,475,746 $1,253,318 $1,116,483 Total long-term debt as a % of total capitalization 26.6 31.3 36.8 39.3 45.5 Net debt as a % of total capitalization 9.6 13.9 17.1 27.6 36.8 Common Stock Basic earnings per share $3.49 $4.33 $3.46 $1.73 $0.79 Shares used to compute basic earnings per share 89,189 90,522 91,393 91,512 91,657 Diluted earnings per share $3.47 $4.28 $3.43 $1.72 $0.78 Shares used to compute diluted earnings per share 89,884 91,522 92,184 92,046 92,741 Cash dividends declared per share $0.80 $0.67 $0.56 $0.50 $0.48 Total equity per share $21.73 $18.90 $16.11 $13.70 $12.27 Return on average total equity 17.3% 24.9% 23.1% 13.4% 5.9% Footnotes: (a)In 2012, the Company elected to change its method of recognizing actuarial gains and losses for its defined benefit pension and postretirement benefitplans. Certain prior year data has been adjusted retrospectively to reflect this accounting change. 126(a)(a)(a)(a)(b)(e)(e)(c)(e)(d)(d)(d)(d)(b)(e)(e) (b)Equity reflects the repurchase of common shares amounting to: 2012—1,092,767; 2011—3,000,000; 2010—400,356; 2009—174,900 and 2008—4,662,700.(c)We define net debt as total debt plus the portion of outstanding joint venture indebtedness guaranteed by us (or less the portion of outstanding jointventure indebtedness consolidated but not guaranteed by us), less cash and cash equivalents.(d)On January 1, 2009, we adopted new accounting guidance associated with share-based payment transactions considered to be participating securities.This guidance states that unvested share-based payment awards that contain nonforfeitable rights to dividends, such as certain of our restricted stockawards, are participating securities and therefore shall be included in the earnings per share calculation pursuant to the two-class method. In addition,the guidance requires all prior-period earnings per share data to be adjusted retrospectively, and as a result, all prior-period earnings per share datapresented herein have been adjusted to conform to these provisions.(e)Effective January 1, 2009, we adopted new accounting guidance requiring noncontrolling interests to be separately presented as a component of equity.Prior years have been adjusted to conform to the new guidance. 127
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