The following is a discussion and analysis of our financial condition and results of operations since December 31, 2008. A discussion of consolidated financial condition and sources of additional capital is included under a separate heading "Financial Condition and Liquidity" on page 26.

Forward-looking Statements

Some of the information presented in this Quarterly Report on Form 10-Q, 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 current expectations, which are in turn based on assumptions that we believe are reasonable based on our current knowledge of our business and operations. We have used words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will" and variations of such words and similar expressions 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 difficult to predict and many of which are beyond our control. There can be no assurance, therefore, that our actual results will not differ materially from the results and expectations expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, without limitation:

• deterioration in economic and business conditions;

• future financial and operating performance of our major customers and industries served by us;

• the timing of orders received from customers;

• the gain or loss of significant customers;

• 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 inability to pass through such increases;

• performance of acquired companies;

• changes in our markets in general;

• fluctuations in foreign currencies;

• changes in laws and increased 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;

• changes in accounting standards;

• the inability to achieve results from our global cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs;

• changes in interest rates, to the extent such rates (1) affect our ability to raise capital or increase our cost of funds, (2) have an impact on the overall performance of our pension fund investments and (3) increase our pension expense and funding obligations;

• volatility and substantial uncertainties in the debt and equity markets; and

• the other factors detailed from time to time in the reports we file with the SEC.

We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws. The following discussion should be read together with our consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

Overview

We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals. Our products and services enhance the value of our customers' end-products by improving performance, providing essential product attributes, lowering cost and simplifying processing. We sell a highly diversified mix of products to a wide range of customers, including petroleum refiners, utilities providers, and manufacturers of consumer electronics, building and construction materials, automotive parts, packaging, pharmachemicals and agrichemicals. We believe that our commercial and geographic diversity, technical expertise, flexible, low-cost global manufacturing base, and experienced management team enable us to maintain leading market positions in those areas of the specialty chemicals industry in which we operate.

Third Quarter 2009

During the third quarter of 2009:

• quarterly net sales of $515.3 million and earnings (net income attributable to Albemarle Corporation) of $52.1 million, or $0.57 per share

• sequential improvement from second quarter 2009 in net sales in all business segments

• sequential segment income improvements from second quarter 2009 in Polymer Additives and Fine Chemicals segments

• continued progress on cost reduction initiatives

Outlook

We are seeing signs of a slow and steady end-market recovery, with positive order trends in several market segments. We believe our initiatives to improve productivity and to reduce operating costs along with a slowly improving business climate should result in continued performance improvement in the second half of 2009. We believe we will have a stronger balance sheet at year-end versus the beginning of this year.

Polymer Additives: While demand continues to improve, we expect a return to historical levels could take an extended period of time. The consumer electronics market is starting to recover, driving demand for our brominated flame retardants. Although we expect continued softness in automotive and construction sectors to continue to impact volumes and profitability of our Polymer Additives segment, we are starting to see some signs of improvement in the automotive sector. As demand returns, we are increasing production rates to meet requirements. We believe improved cost absorption along with the steps we are taking to restructure our operations and reduce cost, should drive solid profitability in the fourth quarter. In the longer term, the increasing standard of living around the globe should drive higher demand for electrical and electronic equipment and new construction, and the potential for increasingly stringent fire-safety regulations and global climate initiatives should increase the need for insulation materials.

Demand has started to pick up in our antioxidants and curatives business in the second half and is expected to stay strong through the remainder of the year. We are continuing to increase our presence in China as we build a foundation for expanding our business in Asia. Expansion of our now wholly owned antioxidants facility in Shanghai is expected to come on-line in 2010.

New product development momentum continues in our Polymer Additives segment. We plan to begin commercializing sales of a new polymeric fire safety product portfolio that will set new standards in the fire safety industry into the next generation of high-performance, fire-safe and sustainable resin systems. We also plan to commercialize a new polyurea curative, which offers greater cure speed flexibility and therefore we believe will expand and increase performance and use.

Catalysts: We expect revenue growth in our Catalysts segment to be driven by global demand in the petroleum and polyolefins markets. While we continue to monitor developments in the global economy, we expect our Catalysts segment profit growth in 2009 to come primarily from new product introductions, value-added products and services that drive efficiencies for refiners, and continued growth in our polyolefin catalysts business.

While refineries continue to combat margin pressures, global demand for oil and consumer fuels and tightening fuel quality regulations will continue to drive demand for our refinery catalysts. As a result of Albemarle's investment in catalysts research and development, our new product offerings in refinery catalysts will provide technological and economic advantages to address the complex challenges in the refining market. We must also continue to successfully pass through metals costs and work toward optimal inventory levels.

Our success in delivering high-value FCC catalysts to the market is helping improve refining yields. New product development in FCC is expected to support improved margins in our FCC business. However, we believe there remains room for further margin improvement, and that in order to be successful we must continue to deliver high-performing, superior quality products to meet the growing demands of refiners for greater value-added products. We continue to face raw material cost pressures related to imported rare earths, aluminum trihydrate and transportation costs.

The polyolefin industry's demands for catalysts are strong and growing. Our innovative technology advances and superior product stewardship we believe have positioned us to be the leading global polyolefin catalyst provider. We expect continued growth in this sector to be driven by the market's needs for reliable, value-added catalysts. We expect longer-term growth to be predominantly in the Middle East and Asia regions.

In October 2009, we reached an agreement to form a 50/50 joint venture with Ibn Hayyan Plastic Products Company (TAYF), an affiliate of Saudi Basic Industries Corporation (SABIC). Under the terms of the joint venture agreement, the two parent companies will build a world-scale tri-ethyl aluminum production facility strategically located in the Arabian Gulf Industrial City of Al-Jubail. The joint venture, Saudi Organometallic Chemicals Company (SOCC), is expected to start production by early 2012. This manufacturing joint venture will be established and uniquely positioned to ensure the effective delivery of tri-ethyl aluminum to the region's growing customer base.

Our marketing and research groups are tightly aligned so we can continue to bring innovative technologies to the market. We will continue to explore new opportunities for our catalysts in the alternative fuels business, which includes biodiesel, Canadian oil sands, gas to liquids (GTL), and coal to liquids (CTL) markets. These opportunities become increasingly viable with oil prices in the $60 - $70 per barrel range.

Fine Chemicals: We believe improving demand in our bromine chain and new product sales in fine chemistry services will generate growth in Fine Chemicals.

Bromine production increased in the third quarter and we expect to sustain those utilization rates to meet fourth quarter demand requirements in performance chemicals as well as in our brominated flame retardants business. Oil completion fluids continue to be impacted by weakness in drilling activity, primarily in the Gulf of Mexico. Rig counts are still at low levels, however the decline seems to be slowing, and we are seeing modest demand recovery in this business. We expect lower unabsorbed cost from increased production in Fine Chemicals to have a positive impact on Fine Chemicals profitability in the fourth quarter.

Our fine chemistry services pipeline continues to be robust with projects for leading chemical, agricultural and pharmaceutical companies. We continue to benefit from a rapid pace of innovation and the introduction of new products, coupled with the movement by pharmaceutical companies to outsource certain research, product development and manufacturing functions. Our successful participation in the development of break-through pharmaceuticals with some large pharmaceutical makers position this business for further opportunities and potentially strong growth.

Our long-term strategic areas of focus in our Fine Chemicals segment are to maximize our bromine franchise value in the performance chemicals sector and to continue the growth of our fine chemistry services business. We are focused on profitably growing our globally competitive bromine and derivatives production network to serve all major bromine consuming products and markets. As we supply bromine feed stocks to our Polymer Additives segment, our profitability is generally impacted as market conditions can change in that sector. We remain confident in continuing to generate growth in profitable niche products leveraged from this service business.

Corporate and Other: We are continuing our focus on lowering cost, reducing working capital and maximizing cash generation. In addition, we will continue to focus on tax efficiency. We believe our global effective tax rate will approximate 12% this year, but will vary based on the locales in which incremental income is actually earned. We increased our quarterly dividend by 4% in 2009 to $0.125 per share. Under our existing share repurchase program, we have the ability to periodically repurchase shares in 2009. In addition, we remain committed to evaluating the merits of any opportunities that may arise for acquisitions that complement our business footprint.

In late September 2009, we initiated the consultation process with our employees at our EU headquarters in Brussels, and with the respective works councils at our Martinswerk plant in Germany and our refinery catalyst center in the Netherlands. These consultations are required under local laws prior to any restructuring at those sites. We are unable at this stage in the consultation to predict the timing or amount of any charge related to any restructurings, but we estimate charges could be in the range of $10 to $15 million in future quarters.

Additional information regarding our products, markets and financial performance is provided at our web site, www.albemarle.com. Our web site is not a part of this document nor is it incorporated herein by reference.

Results of Operations

The following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.

Third Quarter 2009 Compared with Third Quarter 2008

Selected Financial Data (Unaudited)



                                                Three Months Ended                             Percentage
                                                  September 30,                                  Change
                                          2009                       2008                    2009 vs. 2008
                                              (In millions, except percentages and per share amounts)
NET SALES                            $         515.3             $      660.5                               (22 )%
Cost of goods sold                             381.2                    506.3                               (25 )%

GROSS PROFIT                                   134.1                    154.2                               (13 )%
GROSS PROFIT MARGIN                             26.0 %                   23.3 %
Selling, general and
administrative expenses                         56.2                     59.9                                (6 )%
Research and development
expenses                                        15.0                     17.4                               (14 )%

OPERATING PROFIT                                62.9                     76.9                               (18 )%
OPERATING PROFIT MARGIN                         12.2 %                   11.6 %
Interest and financing
expenses                                        (6.2 )                   (9.8 )                             (37 )%
Other income (expenses), net                     0.3                     (2.7 )                               *

INCOME BEFORE INCOME TAXES AND
EQUITY IN NET INCOME OF
UNCONSOLIDATED INVESTMENTS                      57.0                     64.4                               (11 )%
Income tax expense                              (5.5 )                   (9.9 )                             (44 )%
Effective tax rate                               9.7 %                   15.3 %

INCOME BEFORE EQUITY IN NET
INCOME OF UNCONSOLIDATED
INVESTMENTS                                     51.5                     54.5                                (6 )%
Equity in net income of
unconsolidated investments
(net of tax)                                     5.8                      6.3                                (8 )%

NET INCOME                                      57.3                     60.8                                (6 )%
Net income attributable to
noncontrolling interests                        (5.2 )                   (4.6 )                              13 %

NET INCOME ATTRIBUTABLE TO
ALBEMARLE CORPORATION                $          52.1             $       56.2                                (7 )%

PERCENTAGE OF NET SALES                         10.1 %                    8.5 %

Basic earnings per share             $          0.57             $       0.61                                (7 )%

Diluted earnings per share           $          0.57             $       0.61                                (7 )%

* Calculation is not meaningful.

Net Sales

For the three-month period ended September 30, 2009, we recorded net sales of $515.3 million, a 22% decrease compared to net sales of $660.5 million for the three-month period ended September 30, 2008. This decrease was due primarily to a decline in volumes in all segments. Volumes had a negative impact on sales of 12%, price and product mix caused a 9% decrease and foreign currency changes had an unfavorable impact of 1% compared to the same period last year.

Polymer Additives net sales decreased $65.0 million, or 25%, for the three-month period ended September 30, 2009 compared to the same period in 2008, with volumes contributing 17% of the decrease, price and product mix impacts of 6% and foreign currency impacts of 2%. Catalysts net sales decreased $42.7 million, or 18%, compared to the same period last year due mainly to price and mix impacts of 14%, a decrease in volumes contributing 3%, and foreign currency impacts of 1%. Fine Chemicals net sales decreased $37.5 million, or 22%, compared to the same period last year primarily due to volumes contributing 16% of the decrease, price and product mix impacts of 5% and foreign currency impacts of 1%. For a detailed discussion of revenues and segment income before taxes for each segment see "Segment Information Overview" below.

Gross Profit

For the three-month period ended September 30, 2009, our gross profit decreased $20.1 million, or 13%, to $134.1 million from the corresponding 2008 period due mainly to volume declines and unfavorable production rate impacts on cost in our bromine franchise. During the three-month period ended September 30, 2009, we continued to operate our manufacturing facilities at reduced production rates to control inventory levels, contributing to unfavorable profit effects from lower fixed cost absorption. Our gross profit margin improved for the three-month period ended September 30, 2009 to 26.0% from 23.3% for the corresponding period in 2008.

Selling, General and Administrative Expenses

For the three-month period ended September 30, 2009, our selling, general and administrative, or SG&A, expenses decreased $3.7 million, or 6%, from the three-month period ended September 30, 2008. This decrease was primarily due to a reduction in discretionary spending and personnel costs as a result of our recent cost saving actions. As a percentage of net sales, SG&A expenses were 10.9% for the three-month period ended September 30, 2009 compared to 9.1% for the corresponding period in 2008.

Research and Development Expenses

For the three-month period ended September 30, 2009, our research and development, or R&D, expenses decreased $2.4 million, or 14%, from the three-month period ended September 30, 2008. This decrease was primarily due to a reduction in personnel costs. As a percentage of net sales, R&D expenses were 2.9% for the three-month period ended September 30, 2009 compared to 2.6% for the corresponding period in 2008.

Interest and Financing Expenses

Interest and financing expenses for the three-month period ended September 30, 2009 decreased $3.6 million to $6.2 million from the corresponding 2008 period due to both lower average interest rates and average debt levels.

Other Income (Expenses), Net

Other income (expenses), net for the three-month period ended September 30, 2009 increased $3.0 million from the corresponding 2008 period due primarily to a decrease in foreign currency exchange losses.

Income Tax Expense

For the three-month period ended September 30, 2009, our effective income tax rate was 9.7% as compared to 15.3% for the three-month period ended September 30, 2008. The effective income tax rate for the three-month period ended September 30, 2009 was impacted by jurisdictional mix and levels of income projected for 2009. Based on our current level and location of income, we anticipate that our effective tax rate for 2009, excluding non-recurring items, will approximate 12%.

The significant differences between the U.S. federal statutory income tax rate on pretax income and the effective income tax rate for the three-month periods ended September 30, 2009 and 2008 are as follows:

                                                       % of Income Before Income Taxes
                                                              Three Months Ended
                                                                September 30,
                                                        2009                      2008
Federal statutory rate                                      35.0 %                    35.0 %
State taxes, net of federal tax benefit                      0.3                       0.4
Impact of foreign operations, net                          (24.7 )                   (18.4 )
Increase in valuation allowance                              0.5                       1.8
Depletion                                                   (0.9 )                    (1.7 )
Effect of net income attributable to
noncontrolling interests                                    (0.9 )                    (0.7 )
Revaluation of unrecognized tax
benefits/reserve requirements                                0.4                       1.5
Other items, net                                              -                       (2.6 )

Effective income tax rate                                    9.7 %                    15.3 %

Equity in Net Income of Unconsolidated Investments

Equity in net income of unconsolidated investments was $5.8 million for the three-month period ended September 30, 2009 compared to $6.3 million in the same period last year. This decrease was due primarily to lower equity earnings from our Catalysts segment joint venture, Nippon Ketjen Company Limited, as a result of unfavorable material input costs.

Net Income Attributable to Noncontrolling Interests

For the three-month period ended September 30, 2009, net income attributable to noncontrolling interests was $5.2 million compared to $4.6 million in the same period last year. This increase was associated with Jordan Bromine Company Limited.

Net Income Attributable to Albemarle Corporation

Net income attributable to Albemarle Corporation decreased to $52.1 million in the three-month period ended September 30, 2009, from $56.2 million in the three-month period ended September 30, 2008, primarily due to volume declines across our businesses partially offset by reduced fixed manufacturing and SG&A cost spending as a result of our recent cost saving actions and less interest expense due to lower average interest rates and debt levels.

Segment Information Overview. We have identified three reportable segments. Our Polymer Additives segment is comprised of the flame retardants and stabilizers and curatives product areas. Our Catalysts segment is comprised of the refinery catalysts and polyolefin catalysts product areas. Our Fine Chemicals segment is comprised of the performance chemicals and fine chemistry services and intermediates product areas. 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, foreign exchange transaction gains and losses and allocations for certain corporate costs.

                                                                                                  Percentage
                                                  Three Months Ended September 30,                  Change
                                                        % of                        % of
                                          2009        net sales       2008        net sales      2009 vs 2008
                                                          (In millions, except percentages)

Net sales:

Polymer Additives                        $ 196.7           38.2 %    $ 261.7           39.6 %             (25 )%
Catalysts                                  188.9           36.6 %      231.6           35.1 %             (18 )%
Fine Chemicals                             129.7           25.2 %      167.2           25.3 %             (22 )%

Total net sales                          $ 515.3          100.0 %    $ 660.5          100.0 %             (22 )%


Segment operating profit:

Polymer Additives                        $  27.2           13.8 %    $  28.7           11.0 %              (5 )%
Catalysts                                   28.9           15.3 %       31.0           13.4 %              (7 )%
Fine Chemicals                              16.4           12.6 %       26.8           16.0 %             (39 )%

Subtotal                                 $  72.5                     $  86.5                              (16 )%


Equity in net income of unconsolidated
investments:

Polymer Additives                        $   1.3                     $   0.8                               63 %
Catalysts                                    4.5                         5.5                              (18 )%
Fine Chemicals                                -                           -                                -  %
Corporate & other                             -                           -                                -  %

Total equity in net income of
unconsolidated investments               $   5.8                     $   6.3                               (8 )%


Net (income) loss attributable to
noncontrolling interests:

Polymer Additives                        $  (2.5 )                   $  (2.1 )                             19 %
Catalysts                                     -                           -                                -  %
Fine Chemicals                              (2.2 )                      (2.1 )                              5 %
Corporate & other                           (0.5 )                      (0.4 )                             25 %

Total net income attributable to
noncontrolling interests                 $  (5.2 )                   $  (4.6 )                             13 %


Segment income:
. . .