9.30.2013 10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM 10-Q
_________________________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-12658
_________________________ 
ALBEMARLE CORPORATION
(Exact name of registrant as specified in its charter)
_________________________
 
VIRGINIA
 
54-1692118
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
451 FLORIDA STREET
BATON ROUGE, LOUISIANA
 
70801
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code - (225) 388-8011
_________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Number of shares of common stock, $.01 par value, outstanding as of October 9, 2013: 81,399,291


Table of Contents

ALBEMARLE CORPORATION
INDEX – FORM 10-Q
 
 
 
 
 
 
Page
Number(s)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8-23
 
 
 
24-39
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBITS
 
 

2

Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited).
ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
 
2013
 
2012
Net sales
 
$
648,638

 
$
661,226

 
$
1,924,460

 
$
2,057,824

Cost of goods sold
 
436,989

 
443,476

 
1,316,582

 
1,339,806

Gross profit
 
211,649

 
217,750

 
607,878

 
718,018

Selling, general and administrative expenses
 
62,543

 
53,404

 
190,193

 
189,143

Research and development expenses
 
19,441

 
19,831

 
60,959

 
59,791

Restructuring and other charges, net (Note 13)
 

 

 

 
94,703

Operating profit
 
129,665

 
144,515

 
356,726

 
374,381

Interest and financing expenses
 
(9,496
)
 
(7,914
)
 
(22,335
)
 
(25,134
)
Other (expenses) income, net
 
(389
)
 
2,370

 
(6,295
)
 
1,564

Income before income taxes and equity in net income of
 
 
 
 
 
 
 
 
unconsolidated investments
 
119,780

 
138,971

 
328,096

 
350,811

Income tax expense
 
27,274

 
32,472

 
74,916

 
93,382

Income before equity in net income of unconsolidated
 
 
 
 
 
 
 
 
investments
 
92,506

 
106,499

 
253,180

 
257,429

Equity in net income of unconsolidated investments
 
 
 
 
 
 
 
 
(net of tax)
 
5,338

 
7,935

 
25,308

 
29,233

Net income
 
97,844

 
114,434

 
278,488

 
286,662

Net income attributable to noncontrolling interests
 
(7,332
)
 
(4,975
)
 
(21,250
)
 
(12,852
)
Net income attributable to Albemarle Corporation
 
$
90,512

 
$
109,459

 
$
257,238

 
$
273,810

Basic earnings per share
 
$
1.11

 
$
1.23

 
$
3.04

 
$
3.07

Diluted earnings per share
 
$
1.11

 
$
1.22

 
$
3.02

 
$
3.04

Weighted-average common shares outstanding – basic
 
81,385

 
89,327

 
84,711

 
89,246

Weighted-average common shares outstanding – diluted
 
81,852

 
89,879

 
85,192

 
89,959

Cash dividends declared per share of common stock
 
$
0.24

 
$
0.20

 
$
0.72

 
$
0.60

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
 
2013
 
2012
Net income
 
$
97,844

 
$
114,434

 
$
278,488

 
$
286,662

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation
 
40,613

 
29,165

 
11,945

 
2,295

Pension and postretirement benefits
 
(201
)
 
(168
)
 
(605
)
 
(502
)
Other
 
38

 
29

 
99

 
95

Total other comprehensive income, net of tax
 
40,450

 
29,026

 
11,439

 
1,888

Comprehensive income
 
138,294

 
143,460

 
289,927

 
288,550

Comprehensive income attributable to non-controlling
 
 
 
 
 
 
 
 
interests
 
(7,669
)
 
(4,975
)
 
(21,658
)
 
(13,007
)
Comprehensive income attributable to Albemarle
 
 
 
 
 
 
 
 
Corporation
 
$
130,625

 
$
138,485

 
$
268,269

 
$
275,543

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
 
 
 
September 30,
 
December 31,
 
 
2013
 
2012
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
401,427

 
$
477,696

Trade accounts receivable, less allowance for doubtful accounts (2013 – $1,537;
 
 
 
 
2012 – $1,641)
 
409,206

 
378,973

Other accounts receivable
 
37,507

 
43,844

Inventories
 
485,804

 
428,145

Other current assets
 
60,762

 
78,655

Total current assets
 
1,394,706

 
1,407,313

Property, plant and equipment, at cost
 
2,934,613

 
2,818,604

Less accumulated depreciation and amortization
 
1,585,637

 
1,522,033

Net property, plant and equipment
 
1,348,976

 
1,296,571

Investments
 
208,077

 
207,141

Other assets
 
149,076

 
154,836

Goodwill
 
279,668

 
276,966

Other intangibles, net of amortization
 
89,562

 
94,464

Total assets
 
$
3,470,065

 
$
3,437,291

 
 
 
 
 
Liabilities And Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
192,897

 
$
172,866

Accrued expenses
 
160,025

 
177,546

Current portion of long-term debt
 
19,602

 
12,700

Dividends payable
 
19,185

 
17,471

Income taxes payable
 
19,128

 
4,426

Total current liabilities
 
410,837

 
385,009

Long-term debt
 
1,060,282

 
686,588

Postretirement benefits
 
59,730

 
60,815

Pension benefits
 
192,374

 
195,481

Other noncurrent liabilities
 
100,925

 
114,022

Deferred income taxes
 
68,768

 
63,368

Commitments and contingencies (Note 8)
 

 

Equity:
 
 
 
 
Albemarle Corporation shareholders’ equity:
 
 
 
 
Common stock, $.01 par value, issued and outstanding – 81,396 in 2013
 
 
 
 
and 88,899 in 2012
 
814

 
889

Additional paid-in capital
 
6,016

 
2,761

Accumulated other comprehensive income
 
96,295

 
85,264

Retained earnings
 
1,363,970

 
1,744,684

Total Albemarle Corporation shareholders’ equity
 
1,467,095

 
1,833,598

Noncontrolling interests
 
110,054

 
98,410

Total equity
 
1,577,149

 
1,932,008

Total liabilities and equity
 
$
3,470,065

 
$
3,437,291

See accompanying Notes to the Condensed Consolidated Financial Statements.

5

Table of Contents


ALBEMARLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
(In Thousands, Except Share
 
 
 
 
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Total
Albemarle
Shareholders’
Equity
 
Non-
controlling
Interests
 
Total
Equity
Common Stock
 
Data)
 
Shares
 
Amounts
 
 
 
 
 
 
Balance at January 1, 2013
 
88,899,209

 
$
889

 
$
2,761

 
$
85,264

 
$
1,744,684

 
$
1,833,598

 
$
98,410

 
$
1,932,008

Net income
 
 
 
 
 
 
 
 
 
257,238

 
257,238

 
21,250

 
278,488

Other comprehensive income
 
 
 
 
 
 
 
11,031

 
 
 
11,031

 
408

 
11,439

Cash dividends declared
 
 
 
 
 
 
 
 
 
(60,288
)
 
(60,288
)
 
(10,014
)
 
(70,302
)
Stock-based compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and other
 
 
 
 
 
6,324

 
 
 
 
 
6,324

 
 
 
6,324

Exercise of stock options
 
152,739

 
1

 
4,509

 
 
 
 
 
4,510

 
 
 
4,510

Shares repurchased
 
(7,814,045
)
 
(78
)
 
(4,556
)
 
 
 
(577,664
)
 
(582,298
)
 
 
 
(582,298
)
Tax benefit related to stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
plans
 
 
 
 
 
3,078

 
 
 
 
 
3,078

 
 
 
3,078

Issuance of common stock, net
 
254,334

 
3

 
(3
)
 
 
 
 
 

 
 
 

Shares withheld for withholding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
taxes associated with common
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
stock issuances
 
(96,080
)
 
(1
)
 
(6,097
)
 
 
 
 
 
(6,098
)
 
 
 
(6,098
)
Balance at September 30, 2013
 
81,396,157

 
$
814

 
$
6,016

 
$
96,295

 
$
1,363,970

 
$
1,467,095

 
$
110,054

 
$
1,577,149

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
 
 
 
273,810

 
273,810

 
12,852

 
286,662

Other comprehensive income
 
 
 
 
 
 
 
1,733

 
 
 
1,733

 
155

 
1,888

Cash dividends declared
 
 
 
 
 
 
 
 
 
(53,567
)
 
(53,567
)
 
(7,628
)
 
(61,195
)
Stock-based compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and other
 
 
 
 
 
10,294

 
 
 
 
 
10,294

 
 
 
10,294

Exercise of stock options
 
897,069

 
9

 
19,968

 
 
 
 
 
19,977

 
 
 
19,977

Shares repurchased
 
(680,000
)
 
(7
)
 
(40,463
)
 
 
 
 
 
(40,470
)
 
 
 
(40,470
)
Tax benefit related to stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
plans
 
 
 
 
 
14,424

 
 
 
 
 
14,424

 
 
 
14,424

Issuance of common stock, net
 
341,620

 
4

 
(4
)
 
 
 
 
 

 
 
 

Shares withheld for withholding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
taxes associated with common
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
stock issuances
 
(140,054
)
 
(1
)
 
(9,123
)
 
 
 
 
 
(9,124
)
 
 
 
(9,124
)
Balance at September 30, 2012
 
89,259,875

 
$
893

 
$
10,290

 
$
62,062

 
$
1,735,109

 
$
1,808,354

 
$
92,929

 
$
1,901,283

See accompanying Notes to the Condensed Consolidated Financial Statements.

6

Table of Contents

ALBEMARLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
 
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
Cash and cash equivalents at beginning of year
 
$
477,696

 
$
469,416

Cash flows from operating activities:
 
 
 
 
Net income
 
278,488

 
286,662

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
 
Depreciation and amortization
 
79,477

 
74,428

Non-cash charges associated with restructuring and other, net
 

 
70,587

Stock-based compensation
 
7,036

 
10,808

Excess tax benefits realized from stock-based compensation arrangements
 
(3,078
)
 
(14,424
)
Equity in net income of unconsolidated investments (net of tax)
 
(25,308
)
 
(29,233
)
Dividends received from unconsolidated investments and nonmarketable securities
 
18,889

 
23,244

Pension and postretirement expense (benefit)
 
4,730

 
(10,117
)
Pension and postretirement contributions
 
(9,892
)
 
(19,705
)
Unrealized gain on investments in marketable securities
 
(1,924
)
 
(1,412
)
Deferred income taxes
 
7,115

 
14,442

Working capital changes
 
(39,353
)
 
(106,492
)
Other, net
 
1,341

 
7,694

Net cash provided by operating activities
 
317,521

 
306,482

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(135,028
)
 
(218,708
)
Cash payments related to acquisitions and other
 
(250
)
 
(2,488
)
Sales of (investments in) marketable securities, net
 
1,214

 
(1,137
)
Long-term advances to joint venture
 

 
(22,500
)
Net cash used in investing activities
 
(134,064
)
 
(244,833
)
Cash flows from financing activities:
 
 
 
 
Repayments of long-term debt
 
(93,913
)
 
(11,701
)
Proceeds from borrowings of long-term debt
 
117,000

 

Other borrowings (repayments), net
 
357,379

 
(37,542
)
Dividends paid to shareholders
 
(58,574
)
 
(51,287
)
Dividends paid to noncontrolling interests
 
(10,014
)
 
(7,628
)
Repurchases of common stock
 
(582,298
)
 
(40,470
)
Proceeds from exercise of stock options
 
4,510

 
19,977

Excess tax benefits realized from stock-based compensation arrangements
 
3,078

 
14,424

Withholding taxes paid on stock-based compensation award distributions
 
(6,098
)
 
(9,124
)
Debt financing costs
 
(108
)
 

Net cash used in financing activities
 
(269,038
)
 
(123,351
)
Net effect of foreign exchange on cash and cash equivalents
 
9,312

 
(5,072
)
Decrease in cash and cash equivalents
 
(76,269
)
 
(66,774
)
Cash and cash equivalents at end of period
 
$
401,427

 
$
402,642

See accompanying Notes to the Condensed Consolidated Financial Statements.

7

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)


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 September 30, 2013 and December 31, 2012, our consolidated statements of income and consolidated statements of comprehensive income for the three-month and nine-month periods ended September 30, 2013 and 2012 and our condensed consolidated statements of cash flows and consolidated statements of changes in equity for the nine-month periods ended September 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 nine-month periods ended September 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 statement of income for the nine-month period ended September 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.

 

8

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

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

Consolidated Statements of Income
Three Months Ended September 30, 2012 (In Thousands, Except Per Share Amounts)
 
As Previously
Reported
 
Effect of
Accounting
Change
 
As Adjusted
Net sales
 
$
661,226

 
$

 
$
661,226

Cost of goods sold
 
446,469

 
(2,993
)
 
443,476

Gross profit
 
214,757

 
2,993

 
217,750

Selling, general and administrative expenses
 
59,982

 
(6,578
)
 
53,404

Research and development expenses
 
19,831

 

 
19,831

Restructuring and other charges, net
 
6,508

 
(6,508
)
 

Operating profit
 
128,436

 
16,079

 
144,515

Interest and financing expenses
 
(7,914
)
 

 
(7,914
)
Other income, net
 
2,370

 

 
2,370

Income before income taxes and equity in net income of
unconsolidated investments
 
122,892

 
16,079

 
138,971

Income tax expense
 
26,591

 
5,881

 
32,472

Income before equity in net income of unconsolidated investments
 
96,301

 
10,198

 
106,499

Equity in net income of unconsolidated investments (net of tax)
 
7,935

 

 
7,935

Net income
 
104,236

 
10,198

 
114,434

Net income attributable to noncontrolling interests
 
(4,975
)
 

 
(4,975
)
Net income attributable to Albemarle Corporation
 
$
99,261

 
$
10,198

 
$
109,459

Basic earnings per share
 
$
1.11

 
$
0.12

 
$
1.23

Diluted earnings per share
 
$
1.10

 
$
0.12

 
$
1.22

Weighted-average common shares outstanding – basic
 
89,327

 

 
89,327

Weighted-average common shares outstanding – diluted
 
89,879

 

 
89,879

Cash dividends declared per share of common stock
 
$
0.20

 
$

 
$
0.20

 

9

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

Nine Months Ended September 30, 2012 (In Thousands, Except Per Share Amounts)
 
As Previously
Reported
 
Effect of
Accounting
Change
 
As Adjusted
Net sales
 
$
2,057,824

 
$

 
$
2,057,824

Cost of goods sold
 
1,352,495

 
(12,689
)
 
1,339,806

Gross profit
 
705,329

 
12,689

 
718,018

Selling, general and administrative expenses
 
215,298

 
(26,155
)
 
189,143

Research and development expenses
 
59,791

 

 
59,791

Restructuring and other charges, net
 
101,211

 
(6,508
)
 
94,703

Operating profit
 
329,029

 
45,352

 
374,381

Interest and financing expenses
 
(25,134
)
 

 
(25,134
)
Other income, net
 
1,564

 

 
1,564

Income before income taxes and equity in net income of
unconsolidated investments
 
305,459

 
45,352

 
350,811

Income tax expense
 
76,804

 
16,578

 
93,382

Income before equity in net income of unconsolidated investments
 
228,655

 
28,774

 
257,429

Equity in net income of unconsolidated investments (net of tax)
 
29,233

 

 
29,233

Net income
 
257,888

 
28,774

 
286,662

Net income attributable to noncontrolling interests
 
(12,852
)
 

 
(12,852
)
Net income attributable to Albemarle Corporation
 
$
245,036

 
$
28,774

 
$
273,810

Basic earnings per share
 
$
2.75

 
$
0.32

 
$
3.07

Diluted earnings per share
 
$
2.72

 
$
0.32

 
$
3.04

Weighted-average common shares outstanding – basic
 
89,246

 

 
89,246

Weighted-average common shares outstanding – diluted
 
89,959

 

 
89,959

Cash dividends declared per share of common stock
 
$
0.60

 
$

 
$
0.60



Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 2012 (In Thousands)
 
As Previously
Reported
 
Effect of
Accounting
Change
 
As Adjusted
Net income
 
$
104,236

 
$
10,198

 
$
114,434

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Foreign currency translation
 
29,165

 

 
29,165

Pension and postretirement benefits
 
10,030

 
(10,198
)
 
(168
)
Other
 
29

 

 
29

Total other comprehensive income, net of tax
 
39,224

 
(10,198
)
 
29,026

Comprehensive income
 
143,460

 

 
143,460

Comprehensive income attributable to non-controlling interests
 
(4,975
)
 

 
(4,975
)
Comprehensive income attributable to Albemarle Corporation
 
$
138,485

 
$

 
$
138,485

 

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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

Nine Months Ended September 30, 2012 (In Thousands)
 
As Previously
Reported
 
Effect of
Accounting
Change
 
As Adjusted
Net income
 
$
257,888

 
$
28,774

 
$
286,662

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Foreign currency translation
 
2,295

 

 
2,295

Pension and postretirement benefits
 
28,272

 
(28,774
)
 
(502
)
Other
 
95

 

 
95

Total other comprehensive income, net of tax
 
30,662

 
(28,774
)
 
1,888

Comprehensive income
 
288,550

 

 
288,550

Comprehensive income attributable to non-controlling interests
 
(13,007
)
 

 
(13,007
)
Comprehensive income attributable to Albemarle Corporation
 
$
275,543

 
$

 
$
275,543



Consolidated Statements of Changes In Equity
Nine Months Ended September 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 income
 
30,507

 
(28,774
)
 
1,733

Balance at September 30, 2012
 
$
(192,415
)
 
$
254,477

 
$
62,062

Retained earnings:
 
 
 
 
 
 
Balance at January 1, 2012
 
$
1,798,117

 
$
(283,251
)
 
$
1,514,866

Net income
 
245,036

 
28,774

 
273,810

Cash dividends declared
 
(53,567
)
 

 
(53,567
)
Balance at September 30, 2012
 
$
1,989,586

 
$
(254,477
)
 
$
1,735,109



Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2012 (In Thousands)
 
As Previously
Reported
 
Effect of
Accounting
Change
 
As Adjusted
Cash flows from operating activities:
 
 
 
 
 
 
Net income
 
$
257,888

 
$
28,774

 
$
286,662

Non-cash charges associated with restructuring and other, net
 
77,095

 
(6,508
)
 
70,587

Pension and postretirement expense (benefit)
 
28,727

 
(38,844
)
 
(10,117
)
Deferred income taxes
 
(2,136
)
 
16,578

 
14,442




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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

NOTE 2—Foreign Exchange:
Our consolidated statements of income include foreign exchange transaction (losses) gains of $(2.0) million and $(9.1) million for the three-month and nine-month periods ended September 30, 2013, respectively, and $0.9 million and $(2.5) million for the three-month and nine-month periods ended September 30, 2012, respectively.
NOTE 3—Income Taxes:
The effective income tax rate for the three-month and nine-month periods ended September 30, 2013 was 22.8% , compared to 23.4% and 26.6% for the three-month and nine-month periods ended September 30, 2012, respectively. The Company’s effective income tax rate fluctuates based on, among other 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 2013 and 2012 periods is mainly due to the impact of earnings from outside the U.S. Our effective income tax rate for the nine-month period ended September 30, 2012 was also impacted by $94.7 million in pre-tax charges ($73.6 million after income taxes) associated with our exit of the phosphorus flame retardants business (see Note 13).
NOTE 4—Earnings Per Share:
Basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2013 and 2012 are calculated as follows:
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(In thousands, except per share amounts)
Basic earnings per share
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to Albemarle Corporation
 
$
90,512

 
$
109,459

 
$
257,238

 
$
273,810

Denominator:
 
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
 
81,385

 
89,327

 
84,711

 
89,246

Basic earnings per share
 
$
1.11

 
$
1.23

 
$
3.04

 
$
3.07

Diluted earnings per share
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to Albemarle Corporation
 
$
90,512

 
$
109,459

 
$
257,238

 
$
273,810

Denominator:
 
 
 
 
 
 
 
 
Weighted-average common shares for basic earnings per share
 
81,385

 
89,327

 
84,711

 
89,246

Incremental shares under stock compensation plans
 
467

 
552

 
481

 
713

Total shares
 
81,852

 
89,879

 
85,192

 
89,959

Diluted earnings per share
 
$
1.11

 
$
1.22

 
$
3.02

 
$
3.04

On February 12, 2013, the Company increased the regular quarterly dividend by 20% to $0.24 per share. On July 10, 2013, the Company declared a cash dividend of $0.24 per share, which was paid on October 1, 2013 to shareholders of record at the close of business as of September 13, 2013. On October 7, 2013, the Company declared a cash dividend of $0.24 per share, which is payable on January 2, 2014 to shareholders of record at the close of business as of December 13, 2013.
On February 12, 2013, Albemarle’s Board of Directors authorized an increase in the number of shares the Company is permitted to repurchase under our share repurchase program, pursuant to which the Company is now permitted to repurchase up to a maximum of 15 million shares, including those shares previously authorized but not yet repurchased.
Under the existing Board authorized share repurchase program, on May 9, 2013, the Company entered into an agreement (the ASR Agreement) with J.P. Morgan Securities LLC (JPMorgan) relating to a fixed-dollar, uncollared accelerated share repurchase program (the ASR Program). Pursuant to the terms of the ASR Agreement, JPMorgan immediately borrowed shares of Albemarle common stock that were sold to the Company, thereby decreasing the Company’s issued and outstanding shares (with no change to its authorized shares). On May 10, 2013, the Company paid $450 million to JPMorgan and received an initial delivery of 5,680,921 shares with a fair market value of approximately $360 million. This purchase was funded through a combination of available cash on hand and debt.

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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

The Company has determined that the ASR Agreement meets the criteria to be accounted for as a forward contract indexed to its stock and is therefore being treated as an equity instrument. Although the ASR Agreement can be settled, at the Company’s option, in cash or in shares of common stock, the Company intends to settle in shares of common stock.

The initial delivery of 5,680,921 shares reduced the Company’s weighted average shares outstanding for purposes of calculating basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2013. The total number of shares to ultimately be purchased by the Company under the ASR Program will be based on the Rule 10b-18 volume-weighted average price of the Company’s common stock during the term of the ASR Agreement, less a forward price adjustment amount of approximately $1.01.
The Company evaluated the ASR Agreement for its potential dilution of earnings per share and has determined that, based on the Rule 10b-18 volume-weighted average price calculated as of September 30, 2013, additional shares expected to be received upon final settlement (approximately 1.5 million shares) would have an anti-dilutive impact on earnings per share and therefore were not included in the Company’s diluted earnings per share calculation for the three-month and nine-month periods ended September 30, 2013. The final settlement amount may increase or decrease depending upon the Rule 10b-18 volume-weighted average price of the Company’s common stock during the remaining term of the ASR Agreement. The ASR Program will be completed no later than the end of 2013 and is expected to result in a decrease to the Company’s issued and outstanding shares upon completion.
During the nine-month period ended September 30, 2013, the Company repurchased 7,814,045 shares of its common stock pursuant to the terms of its share repurchase program and the ASR Program. As of September 30, 2013, there were 7,185,955 remaining shares available for repurchase under the Company’s authorized share repurchase program.
NOTE 5—Inventories:
The following table provides a breakdown of inventories at September 30, 2013 and December 31, 2012:
 
 
 
September 30,
 
December 31,
 
 
2013
 
2012
 
 
(In thousands)
Finished goods
 
$
382,298

 
$
325,762

Raw materials
 
57,086

 
57,245

Stores, supplies and other
 
46,420

 
45,138

Total inventories
 
$
485,804

 
$
428,145

NOTE 6—Investments:
The carrying value of our unconsolidated investment in Stannica LLC, a variable interest entity for which we are not the primary beneficiary, was $5.5 million and $6.6 million at September 30, 2013 and December 31, 2012, respectively. Our maximum exposure to loss in connection with our continuing involvement with Stannica LLC is limited to our investment carrying value.
Additionally, during the nine-month period ended September 30, 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.



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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

NOTE 7—Long-Term Debt:
Long-term debt at September 30, 2013 and December 31, 2012 consisted of the following:
 
 
 
September 30,
 
December 31,
 
 
2013
 
2012
 
 
(In thousands)
5.10% Senior notes, net of unamortized discount of $45 at September 30, 2013
and $70 at December 31, 2012
 
$
324,955

 
$
324,930

4.50% Senior notes, net of unamortized discount of $2,264 at September 30,
2013 and $2,500 at December 31, 2012
 
347,736

 
347,500

Commercial paper notes
 
363,000

 

Fixed-rate foreign borrowings
 
10,728

 
19,458

Variable-rate foreign bank loans
 
33,168

 
7,006

Miscellaneous
 
297

 
394

Total long-term debt
 
1,079,884

 
699,288

Less amounts due within one year
 
19,602

 
12,700

Long-term debt, less current portion
 
$
1,060,282

 
$
686,588

On May 29, 2013, we entered into agreements to initiate a commercial paper program on a private placement basis under which we may issue unsecured commercial paper notes (the “Notes”) from time-to-time up to a maximum aggregate principal amount outstanding at any time of $750 million. The proceeds from the issuance of the Notes are expected to be used for general corporate purposes, including the repayment of other debt of the Company. Our September 2011 credit agreement is available to repay the Notes, if necessary. Aggregate borrowings outstanding under the September 2011 credit agreement and the commercial paper program will not exceed the $750 million current maximum amount available under the September 2011 credit agreement. The Notes will be sold at a discount from par, or alternatively, will be sold at par and bear interest at rates that will vary based upon market conditions at the time of the issuance of the Notes. The maturities of the Notes will vary but may not exceed 397 days from the date of issue. The definitive documents relating to the Program contain customary representations, warranties, default and indemnification provisions.
At September 30, 2013, we had $363.0 million of Notes outstanding bearing a weighted-average interest rate of approximately 0.32% and a weighted-average maturity of 41 days. While the outstanding Notes generally have short-term maturities, we classify the Notes as long-term based on our ability and intent to refinance the Notes on a long-term basis through the issuance of additional Notes or borrowings under the September 2011 credit agreement.
NOTE 8—Commitments and Contingencies:
We had the following activity in our recorded environmental liabilities for the nine months ended September 30, 2013, as follows (in thousands):
Beginning balance at December 31, 2012
$
20,322

Expenditures
(2,248
)
Changes in estimates recorded to earnings and other
(902
)
Foreign currency translation
(147
)
Ending balance at September 30, 2013
17,025

Less amounts reported in Accrued expenses
7,984

Amounts reported in Other noncurrent liabilities
$
9,041

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

14

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

that future environmental remediation costs associated with our past operations, in excess of amounts already recorded, could be up to approximately $17 million before income taxes.
Approximately $7.3 million of our recorded liability is related to the closure and post-closure activities at a former landfill associated with our Bergheim, Germany site, which was recorded at the time of our acquisition of this site in 2001. This closure project has been approved under the authority of the governmental permit for this site and is scheduled for completion in 2017, with post-closure monitoring to occur for 30 years thereafter. The remainder of our recorded liability is associated with sites that are being evaluated under governmental authority but for which final remediation plans have not yet been approved. In connection with the remediation activities at our Bergheim, Germany site as required by the German environmental authorities, we have pledged certain of our land and housing facilities at this site which has an estimated fair value of $6.0 million.
During the second quarter of 2012, the Company recorded $8.7 million in estimated site remediation liabilities at our Avonmouth, United Kingdom site as part of the charges associated with our exit of the phosphorus flame retardant business. Included in these estimated charges are anticipated costs of site investigation, remediation and cleanup activities. 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 will be substantially 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 should occur over a period of time and should not have a material adverse effect upon our results of operations, financial condition or cash flows on a consolidated annual basis although any such sum could have a material adverse impact on our results of operations, financial condition or cash flows in a particular quarterly reporting period.
On July 3, 2006, we received a Notice of Violation (the 2006 NOV) from the U.S. Environmental Protection Agency Region 4 (EPA) regarding the implementation of the Pharmaceutical Maximum Achievable Control Technology standards at our plant in Orangeburg, South Carolina. The alleged violations involve (i) the applicability of the specific regulations to certain intermediates manufactured at the plant, (ii) failure to comply with certain reporting requirements, (iii) improper evaluation and testing to properly implement the regulations and (iv) the sufficiency of the leak detection and repair program at the plant. In the second quarter of 2011, the Company was served with a complaint by the EPA in the U.S. District Court for the District of South Carolina, based on the alleged violations set out in the 2006 NOV seeking civil penalties and injunctive relief. The complaint was subsequently amended to add the State of South Carolina as a plaintiff. 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 the financial impact which may result therefrom. However, we do not expect any financial impact to have a material adverse effect on the Company’s results of operations, 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 judicial proceedings seeking remediation under environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA or Superfund, products liability, breach of contract liability and premises liability litigation. Where appropriate, we may establish financial reserves as estimated by our general counsel for such proceedings. We also maintain insurance to mitigate certain of such risks. Costs for legal services are generally expensed as incurred.
We have contracts with certain of our customers, which serve as guarantees on product delivery and performance according to customer specifications that can cover both shipments on an individual basis as well as blanket coverage of multiple shipments under customer supply contracts that are executed through certain financial institutions. The financial coverage provided by these guarantees is typically based on a percentage of net sales value.


15

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

NOTE 9—Operating Segments:
Segment income represents operating profit (adjusted for significant non-recurring items) and equity in net income of unconsolidated investments and is reduced by net income attributable to noncontrolling interests. Segment data includes intersegment transfers of raw materials at cost and allocations for certain corporate costs.
Summarized financial information concerning our reportable segments is shown in the following table. Corporate & other includes corporate-related items not allocated to the reportable segments.
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(In thousands)
Net sales:
 
 
 
 
 
 
 
 
Polymer Solutions
 
$
224,320

 
$
216,992

 
$
663,410

 
$
692,139

Catalysts
 
226,042

 
251,201

 
695,433

 
773,867

Fine Chemistry
 
198,276

 
193,033

 
565,617

 
591,818

Total net sales
 
$
648,638

 
$
661,226

 
$
1,924,460

 
$
2,057,824

Segment operating profit:
 
 
 
 
 
 
 
 
Polymer Solutions
 
$
40,678

 
$
44,694

 
$
128,169

 
$
162,648

Catalysts
 
53,878

 
55,093

 
146,536

 
189,104

Fine Chemistry
 
43,894

 
48,336

 
120,349

 
142,403

Total segment operating profit
 
138,450

 
148,123

 
395,054

 
494,155

Equity in net income of unconsolidated investments:
 
 
 
 
 
 
 
 
Polymer Solutions
 
1,735

 
1,199

 
6,371

 
4,957

Catalysts
 
3,603

 
6,736

 
18,937

 
24,276

Fine Chemistry
 

 

 

 

Corporate & other
 

 

 

 

Total equity in net income of unconsolidated
 
 
 
 
 
 
 
 
investments
 
5,338

 
7,935

 
25,308

 
29,233

Net income attributable to noncontrolling interests:
 
 
 
 
 
 
 
 
Polymer Solutions
 
(916
)
 
(602
)
 
(4,118
)
 
(1,255
)
Catalysts
 

 

 

 

Fine Chemistry
 
(6,416
)
 
(4,373
)
 
(17,132
)
 
(11,577
)
Corporate & other
 

 

 

 
(20
)
Total net income attributable to noncontrolling
 
 
 
 
 
 
 
 
interests
 
(7,332
)
 
(4,975
)
 
(21,250
)
 
(12,852
)
Segment income:
 
 
 
 
 
 
 
 
Polymer Solutions
 
41,497

 
45,291

 
130,422

 
166,350

Catalysts
 
57,481

 
61,829

 
165,473

 
213,380

Fine Chemistry
 
37,478

 
43,963

 
103,217

 
130,826

Total segment income
 
136,456

 
151,083

 
399,112

 
510,556

Corporate & other
 
(8,785
)
 
(3,608
)
 
(38,328
)
 
(25,091
)
Restructuring and other charges, net(1)
 

 

 

 
(94,703
)
Interest and financing expenses
 
(9,496
)
 
(7,914
)
 
(22,335
)
 
(25,134
)
Other (expenses) income, net
 
(389
)
 
2,370

 
(6,295
)
 
1,564

Income tax expense
 
(27,274
)
 
(32,472
)
 
(74,916
)
 
(93,382
)
Net income attributable to Albemarle Corporation
 
$
90,512

 
$
109,459

 
$
257,238

 
$
273,810

 
(1)
See Note 13, “Restructuring and Other.”


16

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

Effective January 1, 2014, the Company's assets and businesses will be realigned under two operating segments. The Performance Chemicals segment will include Fire Safety Solutions, Specialty Chemicals and Fine Chemistry Services, and the Catalyst Solutions segment will include Refinery Catalyst Solutions, Performance Catalyst Solutions and Antioxidants.

NOTE 10—Pension Plans and Other Postretirement Benefits:
The following information is provided for domestic and foreign pension and postretirement defined benefit plans:
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(In thousands)
Net Periodic Pension Benefit Cost (Credit):
 
 
 
 
 
 
 
 
Service cost
 
$
3,488

 
$
3,174

 
$
10,462

 
$
9,391

Interest cost
 
7,470

 
8,076

 
22,403

 
24,269

Expected return on assets
 
(9,848
)
 
(11,634
)
 
(29,541
)
 
(34,913
)
Actuarial gain(a)
 

 

 

 
(5,840
)
Amortization of prior service benefit
 
(173
)
 
(245
)
 
(517
)
 
(731
)
Total net periodic pension benefit cost (credit)
 
$
937

 
$
(629
)
 
$
2,807

 
$
(7,824
)
 
 
 
 
 
 
 
 
 
Net Periodic Postretirement Benefit Cost (Credit):
 
 
 
 
 
 
 
 
Service cost
 
$
78

 
$
69

 
$
232

 
$
206

Interest cost
 
691

 
793

 
2,073

 
2,379

Expected return on assets
 
(104
)
 
(122
)
 
(310
)
 
(366
)
Actuarial gain(a)
 

 

 

 
(4,439
)
Amortization of prior service benefit
 
(24
)
 
(25
)
 
(72
)
 
(73
)
Total net periodic postretirement benefit cost (credit)
 
$
641

 
$
715

 
$
1,923

 
$
(2,293
)
Total net periodic pension and postretirement benefit
 
 
 
 
 
 
 
 
cost (credit)
 
$
1,578

 
$
86

 
$
4,730

 
$
(10,117
)
 
(a)
In the second quarter of 2013, we identified that our consolidated statement of income for the nine-month period ended September 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.
During the three-month and nine-month periods ended September 30, 2013, we made contributions of $4.8 million and $6.8 million, respectively, to our qualified and nonqualified pension plans. During the three-month and nine-month periods ended September 30, 2012, we made contributions of $0.3 million and $3.0 million, respectively, to our qualified and nonqualified pension plans, and we also made a contribution of $14.1 million to our SERP in connection with the retirement of our former CEO and executive chairman.
We paid $0.9 million and $3.1 million in premiums to the U.S. postretirement benefit plan during the three-month and nine-month periods ended September 30, 2013, respectively. Also, we paid $0.7 million and $2.6 million in premiums to the U.S. postretirement benefit plan during the three-month and nine-month periods ended September 30, 2012, respectively.



17

Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

NOTE 11—Fair Value of Financial Instruments:
In assessing the fair value of financial instruments, we use methods and assumptions that are based on market conditions and other risk factors existing at the time of assessment. Fair value information for our financial instruments is as follows:
Long-Term Debt—The fair values of our senior notes and other fixed rate foreign borrowings are estimated using Level 1 inputs and account for the majority of the difference between the recorded amount and fair value of our long-term debt. The carrying value of our remaining long-term debt reported in the accompanying condensed consolidated balance sheets approximates fair value as substantially all of such debt bears interest based on prevailing variable market rates currently available in the countries in which we have borrowings.
 
 
 
September 30, 2013
 
December 31, 2012
 
 
Recorded
Amount
 
Fair Value
 
Recorded
Amount
 
Fair Value
 
 
(In thousands)
Long-term debt
 
$
1,079,884

 
$
1,111,458

 
$
699,288

 
$
764,784

Foreign Currency Forward Contracts—we enter into foreign currency forward contracts in connection with our risk management strategies in an attempt to minimize the financial impact of changes in foreign currency exchange rates. These derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes. The fair values of our foreign currency forward contracts are estimated based on current settlement values. At September 30, 2013 and December 31, 2012, we had outstanding foreign currency forward contracts with notional values totaling $255.9 million and $274.0 million, respectively. At September 30, 2013, $0.1 million was included in Other accounts receivable and $0.1 million was included in Accrued expenses associated with the fair value of our foreign currency forward contracts. At December 31, 2012, $0.3 million was included in Other accounts receivable and $0.8 million was included in Accrued expenses associated with the fair value of our foreign currency forward contracts.
Gains and losses on foreign currency forward contracts are recognized currently in Other (expenses) income, net; further, fluctuations in the value of these contracts are intended to offset the changes in the value of the underlying exposures being hedged. For the three-month and nine-month periods ended September 30, 2013, we recognized gains (losses) of $0.4 million and $(1.8) million, respectively, in Other (expenses) income, net in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. For the three-month and nine-month periods ended September 30, 2012, we recognized gains (losses) of $3.0 million and $(1.1) million, respectively, in Other (expenses) income, net in our consolidated statements of income related to the change in the fair value of our foreign currency forward contracts. These amounts are intended to offset changes in the value of the underlying exposures being hedged which are also reported in Other (expenses) income, net. Also, for the nine-month periods ended September 30, 2013 and 2012, we recorded $1.8 million and $1.1 million, respectively, related to the change in the fair value of our foreign currency forward contracts, and cash settlements of $(2.2) million and $(1.6) million, respectively, in Other, net in our condensed consolidated statements of cash flows.
NOTE 12—Fair Value Measurement:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities
 
 
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
 
 
Level 3
Unobservable inputs for the asset or liability
 
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the nine-month period ended September 30, 2013. The following tables

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Table of Contents
ALBEMARLE CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)

set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 (in thousands):
 
 
 
September 30, 2013
 
Quoted Prices in
Active Markets
for Identical
Items
(Level 1)
 
Quoted Prices in
Active Markets
for Similar Items
(Level 2)
 
 
 
 
Assets:
 
 
 
 
 
 
Investments under executive deferred compensation plan(a)
 
$
20,976

 
$
20,976

 
$

Equity securities(b)
 
$
23

 
$
23

 
$

Foreign currency forward contracts(c)
 
$
56

 
$

 
$
56

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Obligations under executive deferred compensation plan(a)
 
$
20,976

 
$
20,976

 
$

Foreign currency forward contracts(c)
 
$
130

 
$

 
$
130

 
 
 
December 31, 2012
 
Quoted Prices in
Active Markets
for Identical
Items
(Level 1)
 
Quoted Prices in
Active Markets
for Similar Items
(Level 2)
 
 
 
 
Assets:
 
 
 
 
 
 
Investments under executive deferred compensation plan(a)
 
$
20,265

 
$
20,265

 
$

Equity securities(b)
 
$
25

 
$
25

 
$

Foreign currency forward contracts(c)
 
$
262

 
$

 
$
262