NOTE 1—Basis of Presentation:

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Albemarle Corporation and our wholly-owned, majority-owned and controlled subsidiaries (collectively, “Albemarle,” “we,” “us,” “our” or “the Company”) contain all adjustments necessary for a fair statement, in all material respects, of our condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012, our consolidated statements of income and consolidated statements of comprehensive income for the three-month and six-month periods ended June 30, 2013 and 2012 and our condensed consolidated statements of cash flows and consolidated statements of changes in equity for the six-month periods ended June 30, 2013 and 2012. All adjustments are of a normal and recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission (SEC) on February 15, 2013. The December 31, 2012 consolidated balance sheet data herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). The results of operations for the three-month and six-month periods ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the accompanying consolidated financial statements and the notes thereto to conform to the current presentation.

Change in accounting principle regarding pension and other postretirement benefits

During 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 Accumulated other comprehensive income (loss) within shareholders’ equity, with amortization of these gains and losses that exceeded ten percent of the greater of plan assets or 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 consolidated statements of income in the fourth quarter and whenever a plan is determined to qualify for a remeasurement during a fiscal year. The remaining components of pension and OPEB plan expense, primarily service cost, interest cost and expected return on assets, will be recorded on a quarterly basis. The gain/loss subject to amortization and expected return on assets components of our pension expense has historically been calculated using a five-year smoothing of asset gains 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 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 is preferable as it eliminates the delay in recognizing gains and losses within operating results. This change will also improve transparency within our operating results by immediately recognizing the effects of economic and interest rate trends on plan investments and assumptions in the year these gains and losses are actually incurred. This change in accounting principle has been applied retrospectively, adjusting all prior periods presented. In the second quarter of 2013, we identified that our consolidated statements of income for the three-month and six-month periods ended June 30, 2012 included a correction of $10.3 million for pension and OPEB plan actuarial gains that related to 2011. This amount was deemed to be not material with respect to our financial statements for the year ended December 31, 2012 and any prior period financial statements.

The impact of this accounting policy change on Albemarle’s consolidated financial statements for the three-month and six-month periods ended June 30, 2012 is summarized below:

Consolidated Statements of Income


Three Months Ended June 30, 2012 (In Thousands, Except Per Share Amounts)	As Previously Reported			Effect of Accounting Change			As Adjusted

Net sales	$	684,894		$	—		$	684,894
Cost of goods sold		442,209			(6,603	)		435,606

Gross profit		242,685			6,603			249,288
Selling, general and administrative expenses		74,624			(12,889	)		61,735
Research and development expenses		20,911			—			20,911
Restructuring and other charges, net		94,703			—			94,703

Operating profit		52,447			19,492			71,939
Interest and financing expenses		(8,486	)		—			(8,486	)
Other expenses, net		(688	)		—			(688	)

Income before income taxes and equity in net income of unconsolidated investments		43,273			19,492			62,765
Income tax expense		14,747			7,135			21,882

Income before equity in net income of unconsolidated investments		28,526			12,357			40,883
Equity in net income of unconsolidated investments (net of tax)		12,712			—			12,712

Net income	$	41,238		$	12,357		$	53,595
Net income attributable to noncontrolling interests		(3,506	)		—			(3,506	)

Net income attributable to Albemarle Corporation	$	37,732		$	12,357		$	50,089

Basic earnings per share	$	0.42		$	0.14		$	0.56

Diluted earnings per share	$	0.42		$	0.14		$	0.56

Weighted-average common shares outstanding – basic		89,414			—			89,414

Weighted-average common shares outstanding – diluted		90,051			—			90,051

Cash dividends declared per share of common stock	$	0.20		$	—		$	0.20


Six Months Ended June 30, 2012 (In Thousands, Except Per Share Amounts)	As Previously Reported			Effect of Accounting Change			As Adjusted

Net sales	$	1,396,598		$	—		$	1,396,598
Cost of goods sold		906,026			(9,696	)		896,330

Gross profit		490,572			9,696			500,268
Selling, general and administrative expenses		155,316			(19,577	)		135,739
Research and development expenses		39,960			—			39,960
Restructuring and other charges, net		94,703			—			94,703

Operating profit		200,593			29,273			229,866
Interest and financing expenses		(17,220	)		—			(17,220	)
Other expenses, net		(806	)		—			(806	)

Income before income taxes and equity in net income of unconsolidated investments		182,567			29,273			211,840
Income tax expense		50,213			10,697			60,910

Income before equity in net income of unconsolidated investments		132,354			18,576			150,930
Equity in net income of unconsolidated investments (net of tax)		21,298			—			21,298

Net income	$	153,652		$	18,576		$	172,228
Net income attributable to noncontrolling interests		(7,877	)		—			(7,877	)

Net income attributable to Albemarle Corporation	$	145,775		$	18,576		$	164,351

Basic earnings per share	$	1.63		$	0.21		$	1.84

Diluted earnings per share	$	1.62		$	0.21		$	1.83

Weighted-average common shares outstanding – basic		89,206			—			89,206

Weighted-average common shares outstanding – diluted		89,999			—			89,999

Cash dividends declared per share of common stock	$	0.40		$	—		$	0.40

Consolidated Statements of Comprehensive Income (Loss)


Three Months Ended June 30, 2012 (In Thousands)	As Previously Reported			Effect of Accounting Change			As Adjusted

Net income	$	41,238		$	12,357		$	53,595

Other comprehensive (loss) income, net of tax:
Foreign currency translation		(55,882	)		—			(55,882	)
Pension and postretirement benefits		12,203			(12,357	)		(154	)
Other		31			—			31

Total other comprehensive loss, net of tax		(43,648	)		(12,357	)		(56,005	)

Comprehensive loss		(2,410	)		—			(2,410	)
Comprehensive income attributable to non-controlling interests		(3,516	)		—			(3,516	)

Comprehensive loss attributable to Albemarle Corporation	$	(5,926	)	$	—		$	(5,926	)


Six Months Ended June 30, 2012 (In Thousands)	As Previously Reported			Effect of Accounting Change			As Adjusted

Net income	$	153,652		$	18,576		$	172,228

Other comprehensive (loss) income, net of tax:
Foreign currency translation		(26,870	)		—			(26,870	)
Pension and postretirement benefits		18,242			(18,576	)		(334	)
Other		66			—			66

Total other comprehensive loss, net of tax		(8,562	)		(18,576	)		(27,138	)

Comprehensive income		145,090			—			145,090
Comprehensive income attributable to non-controlling interests		(8,032	)		—			(8,032	)

Comprehensive income attributable to Albemarle Corporation	$	137,058		$	—		$	137,058

Consolidated Statements of Changes In Equity


Six Months Ended June 30, 2012 (In Thousands)	As Previously Reported			Effect of Accounting Change			As Adjusted

Accumulated other comprehensive (loss) income:
Balance at January 1, 2012	$	(222,922	)	$	283,251		$	60,329
Other comprehensive loss		(8,717	)		(18,576	)		(27,293	)

Balance at June 30, 2012	$	(231,639	)	$	264,675		$	33,036


Retained earnings:
Balance at January 1, 2012	$	1,798,117		$	(283,251	)	$	1,514,866
Net income		145,775			18,576			164,351
Cash dividends declared		(35,715	)		—			(35,715	)

Balance at June 30, 2012	$	1,908,177		$	(264,675	)	$	1,643,502

Consolidated Statements of Cash Flows


Six Months Ended June 30, 2012 (In Thousands)	As Previously Reported			Effect of Accounting Change			As Adjusted

Cash flows from operating activities:
Net income	$	153,652		$	18,576		$	172,228
Pension and postretirement expense (benefit)		19,070			(29,273	)		(10,203	)
Deferred income taxes		(5,826	)		10,697			4,871