雅保公司 (ALB) 2002 Q4 法說會逐字稿

Good morning. My name is Papricka and I will be your conference facilitator today. I would like it welcome everyone to the Albemarle Corporation, vice president investor relations conference call. All lines . been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, press * and then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key.

Thank you. Mr. Whitlow, you may begin.

Thank you very much. This is Michael Whitlow, Vice President of Investor Relations for Albemarle Corporation. Participating today on the call are Mark Rohr, President and Chief Executive Officer; John Nicols, Vice President of Fine Chemicals; ,John Dabkowski, Vice President of Polymer Chemicals; Paul Rocheleau, Senior Vice President and Chief Financial Officer; and John Steitz, Vice President of Business Operations. We will be joined by Vice President Charlie Walker in Richmond in a few minutes.

This is my first call on the new job. Just for the benefit of the audience, I will revert to an old journalism approach to give you background you may know. We record two segments, Polymers and Fine Chemicals. That is why you hear from the vice presidents on these calls. In our presentation on the website and on this call, we give you additional information on the product line-ups that make up the two segments. You hear us talking about flame retardants, catalysts in additives in the Polymer segment, and Fine Chemicals services, intermediates, performance chemicals and pharmaceutical actives in the Fine Chemicals segment, for ease of communication. I am available to discuss any of these with you what makes up the views (ph) of each of these two segments, after our call.

Let's shift to the agenda for today's call. Mark Rohr will have opening comments and then John Nicols and John Dabkowski, the segment leaders, will cover key areas of their business. Paul Rocheleau will address several financial areas before we open up for Q and A.

We will make forward-looking statements during this call. The cautions that we cited on our website and in our earnings release indicate there are many factors which could cause actual results to differ from our current expectations. Please heed the cautions and feel free to call me about questions regarding our business. Information on volume, price, currency and acquisition effects on the company and each segment is included in charts on the website, in a presentation that accompanies the presentation we are making this morning. You may visit Albemarle website, www.albemarle.com, under investor Information Teleconferences with financial analyst, Again, I will be happy to answer questions about these charts in the Q and A or you can contact us on the call.

Mark Rohr, President and Chief Executive Officer, will make opening comments.

MARK ROHR, President and CEO: Thanks, Michael. I want to thank you for joining us today on the conference call and for listening in now and later via web cast.

I am pleased to report to your our fourth quarter earning of 40 cents per share on diluted basis, up 33% from fourth quarter of last year. Higher volumes that favor [Analine] raw material pricing was offset by product pricing in some areas, energy and lower [inaudible] income resulting in lower margins at about 80 basis points.

For the year, business grew approximately 7% to 980 million, or just under the $1 billion mark. Operating profit was up a similar amount over 2001. We are pleased with the organization's ability to hold margins for the year in the face of weak economic demand. I will have more to say on our focus on margin opportunities in a few minutes. In Fine Chemicals, sales and profits were down quarter-to-quarter, as our concerns of weakness in agrochemicals and intermediates businesses (ph) materialized. Offsetting some of this weakness was a general improvement in pricing in the pharmaceutical area and increased volumes in the proxum (ph),- a real tribute to our team’s tenacity to grow this product area.

We remain pleased with platform we put together in Fine Chemistry Services. It allowed us to improve the technical service we provide customers, increase speed of response and lower research and development cost compared to the days prior to our last acquisition. This model generated significant amount of new opportunities for the pipeline and creating a great deal of enthusiasm with customers. In a few minutes, John Nicols will fill you in further on how we are working to transform these opportunities into material profitability.

In Polymer Chemicals, we had strong growth in revenue and operating profits, driven primarily by volume. John Dabkowski will comment on how our focus on service and execution brought this business a double-digit -year-to-year end quarter-to-quarter improvement. I am pleased to note the next generation products we developed in catalyst area are solidly in the black and our stannic (ph)venture has exceeded expectations. In spite of base business erosion, I am hopeful we will see catalyst business respond to an improving economy later this year.

I would like to salute our supply team for their efforts in delivering raw material and energy cost savings contributing to improved results on the year. Our purchasing efforts continue to provide opportunities for new sources of materials and make or buy options reducing our costs to the tune of $5 million last quarter. The increase in energy cost is a concern, impacting margins materially in the fourth quarter and also going forward. So, we expect similar impact in the first half of '03. Further purchasing benefits will become more difficult to realize as we face pressure from commodity suppliers in a number of areas. We are extremely focused on margin improvement. Broad cost reduction initiatives at all sites, including modernization of facilities and new product introductions and process introduction are underway. The sales and marketing teams are driving price increases where we believe them to be justified and supported by the market. As we end the year, we had lowered sales and administrative expenses to 11%, a strong improvement from past years. Collectively, these efforts help us improve service to customers and allow us to continue our focus on growth in the poor economic times. Our success ratio of introducing new products is further evidence of research and development teams' capability.

At year-end sales for new product introductions over the last five years totaled approximately $135 m or almost 14% of sales. We are well on the way to meet and maintain our 15% target. Our recent acquisition of the ethyl antioxidant is another example of steps we are taking to grow our business with bulk on (ph) acquisitions. This purchase will add approximately $20 m in revenue on annual basis and will be accretive to earnings in the first year. Most importantly, it will contribute favorably our product mix in its important business area at Polymer Chemicals. Looking forward, we expect global economic uncertainty will prevail for first half of the year, with performance largely replicating that of the last quarter. I would like to note our continued ability to build our corporate strategy on the foundation of a strong balance sheet and cash flow, which Paul Rocheleau will talk about in a minute. We are doing that in spite of a weak global economy.

For the year, our EBITDA was about $190 million or 19% of sales, and free cash flow of about $100 million. Maintaining strong balance sheet is critical for Albemarle to continue selective growth of our business where we see opportunities and when they become available. Given the current burdens felt by other companies, we have confidence opportunities will become available to us this year. Before I hand off to John Nicols, I would like to take a minute to pay tribute to two valuable members of the force who will retire at end of 2002.

Craig Andersson, retired vice chairman of Aristech retired at years end. He was past chairman of the Executive Compensation Committee and served on that committee and the audit committee and was instrumental in [inaudible] compensation system and provided valuable counsel on many critical issues before the board. We will miss Craig and wish him well in requirement.

Charlie Walker, when whom many of you have worked, has elected to retire at the end of January. His leadership on financial aspects of the business, divestitures, acquisitions and a spin-off that created Albemarle has been instrumental in creating the company we have today. I would note, we are not letting him leave completely. He will stay on as a consultant involved in the merger and opportunities process and as a member of the Master Trust Committee of the corporation, whose role it is to provide over-site of pension funding and associate investments. Charlie you have taught us a great deal and challenged our decision to be the best we could be and drive shareholder value and given us a strong sense of appreciation for the strong foundation built by Albemarle. We will miss you.

Over to John Nicols for comments on Fine Chemicals segment.

We finished 2002 in Fine Chemicals with fourth quarter operating profit of $14.4 million. For the full year, operating profits were essentially flat compared with 2001. Significant shortfall in the Ag market and increases in key raw material prices—most notably chlorine-- were offset in 2002, with strong gains in pharmaceutical and performance chemicals areas. We made important strategic progress in 2002 despite the flat profit results. We ended year with three straight quarters of sequential net sales growth and expanded new product portfolio, fully integrated ChemFirst and MartinCorseq (ph)acquisitions and successful start-up of Jordan Bromine (ph)derivative capacity.

Let me share some detail on the fourth quarter performance versus prior year and sequentially. On the whole, fourth quarter was weak. Results were mixed depending on the product area. As expected, agricultural products continued to under-performed versus last year, and accounted for the majority of the shortfall in Fine Chemicals in fourth quarter 2002, versus the fourth quarter of 2001. We saw sequential improvement in Ag due to seasonality and remain cautious regarding whether we’ve seen the bottom as we closed 2002. Fine Chemicals services area also showed weakness. The fourth quarter was off versus both prior periods indicative of tough conditions in custom chemicals manufacturing market. Our performance chemicals product showed positive results versus fourth quarter '01, but slipped from strong third quarter 2002 performance. Our pharmaceutical business was off somewhat, but a good quarter given the strong comparison period's performances.

Now, let's look at Fine Chemicals full year performance in 2002, compared to 2001. As previously noted, Fine Chemicals profits were essentially the same as 2002 and 2001. Areas not affiliated with acquisitions in 2001 generally performed well in 2002, enabling us to offset higher chlorine cost and weakness in the Ag market. Lower production cost played leading role in driving performance with lower GS&A and collective product sales gains adding to that. Pricing was mixed. On the whole, slightly unfavorable in Fine Chemicals in 2002. Notably strong full-year gains were delivered in Proxin, Zeolite and biosights product. We started up and began commercial sales from out Jordan Bromine joint venture in the fourth quarter, ahead of schedule and under-budget and marked major milestone in strategy of global leadership in our bromine-related business across the company.

The year saw successful integration of two acquisitions of the prior year. The non-flame retardant part of the Martinswerk (ph) acquisition, we call the aluminum specialties, delivered solid profit performance in 2002 and became an important contribute to over-all Fine Chemical profits.

ChemFirst acquisition brought mixed results in 2002. Performance in the business reflected a tough competitive environment and tough manufacturing industry with too much capacity. We feel good about the acquisition, nonetheless. It enabled significant and positive fundamental change to the way Albemarle is driving its Fine Chemicals business.

Our historically limited offering to the global Life Sciences customer is more substantial, covering broad array of offerings and services, active ingredients and intermediates, custom manufacturing and contract research. Albemarle perception with customers has grown. New product pipeline has filled and our global flexible manufacturing assets are poised to benefit. So, despite less than targeted profits results from acquired assets of 2002, the capabilities have led us to pull similar global capabilities together into a new business area: Fine Chestry Services and intermediates that hold promise for profitable growth for Albemarle. As we look forward into 2003, we see mix of favorable and unfavorable trends that lead us to be cautiously optimistic in delivering profit growth for Fine Chemicals. Our plans target growth above GDP rates as a contribution to Albemarle’s goals in the coming year. Issues faced in 2002 will likely subside, but continue in the first half of 2003. Uncertain Ag demand, raw material price inflation, competitive custom manufacturing markets, to name the most significant ones.

Continued discipline driving cost reduction, selective price increases and volume gains will be required to offset these headwinds. This discipline is built on detailed execution plans already in motion with accountability drilled deep into the organization. On top of this, we plan to derive increased benefit new product efforts and success in increasing utilization of flexible manufacturing asset. All that accomplished, we believe we will see positive performance in Fine Chemicals in 2003.

Next, John Dabkowski will cover Polymer Chemicals.

Thanks. Let's begin the Polymer Chemicals by looking at fourth quarter. Period for same quarter a year ago, sales up 12% and operating profit up 64%. Flame retardant product volumes drove the majority of positive gain. Organomicalcs (ph) negative comparison reflecting impact of BP decision to close linear alcohol operation at the Pasadena site. Not only were quarterly sales affected but due to a number of plant tie-ins our aluminum alkyls plant remained down for half a quarter. It is back up and running and sales resumed to BP for remaining operations.

On sequential basis, fourth quarter results were lower than third quarter of 2002. Sales were down 12% and operating profits 27%. Both product areas in the segment were unfavorable. The catalyst and additives had the largest impact on the numbers due to fall-out of the BP plant closure, as well as lower additives in intermediate sales and inventory adjustments. Going forward we expect to offset the effect of the BP shutdown with success we have seen in our magnesium uphills program, stanacom, (ph) pricing and additional base sales.

As Mark indicated, we will be sharply focused on cost. Flame retardant showed seasonality. On a positive note, we are beginning to see price increase efforts start to take hold. This is a tough job in the economic environment. One will continue to push hard. As we enter first quarter, our focus will be on market share maintenance and profit margin improvement. For the total year of 2002, sales were up 14% and operating income 13%, compared to 2001. I think this is great result considering world market conditions. As with the quarter, flame retardant led the growth. Sales of large volume flame retardant, meaning tetra grow and dega grow (ph) were up 12% and proprietary flame retardant were up 10%. Martinswerk (ph) successfully completed its first full year in the Albemarle family. It has been accretive from day one and we strengthened our synergy with other flame retardant in global sales network. To support strong sales we are bringing on an incremental expansion in Blenheim (ph) this year.

On the organometallics (ph) side, we continue to build leadership position in single site catalysis (ph) where our strategic focus on activator and finished catalyst supply put profits in the black. This has been a multimillion dollar turnaround from two years ago. Spanica (ph), our newest joint venture to supply organotin(ph) intermediates, became operational April first of last year and has met our high expectations. Overall, polymer chemical sales grew to respectable $85 million or 16% of the group's total. And a new training company was established in Shanghai to further our China vision plans.

The question is 2003. How does it look? As you know, the world remains uncertain. Most people hope for economic rebound in 2003, but no one knows for sure. For example, the electronic printing wiring board book foot to bill ratio (ph)remains below 1. The number of shipments used in the calculation increased 2.7% in November, which is the latest month the data is available for, compared to October. And new bookings increased 8.4%. November and October Polymer Chemical performance was solid, but December was weaker. While sales were off 10 to 15% during that month, we also had to deal with several one-time events I discussed earlier. January is off to a good start, the question remains on sustainability. My opinion is we expect to see more of the same. That is more uncertainty will translate into demand uncertainty. Short-term, however, I expect Polymer Chemicals first quarter to show improvement over fourth quarter.

Concerning new initiatives, in Asia, our sales were up 17% in 2002, compared with 2001. We continue to see this region as important growth vehicle for our chemicals businesses, both Polymer and Fine Chemicals. I spent two months living in Asia last year to further our growth initiative for that region. I will leave in February for another extended stay and have committed to spend a greater percentage of my time there throughout the year.

Finally, as you already know, Albemarle acquired ethyl (inaudible) antioxidant (ph) business this week. This is high quality 20 million revenue business. This acquisition builds on our core strength in [inaudible] chemistry and is natural fit with our customer base. We already were manufacturing these products for Ethyl, and this acquisition will allow us to go further down stream to drive growth in this product area. It is an example of the momentum our [inaudible] acquisition program has seen over the last several years. We are excited to have begun the integration to our portfolio.

Now, over to Paul Rocheleau, for further comments on corporate financial picture.

PAUL ROCHELEAU; Thanks John. Let me get back to the numbers. The company continued to generate good cash flow and maintain strong balance sheet.

Let me take you through a simple review of the magnitude of our cash flow and how the after-tax cash is utilized. During 2002, we paid dividends of $23 million, made $90 million stock purchase in February, incurred capital spending of $43 million, and made year-end contribution of $17 million to the pension fund. This is a total of $173 million of after-tax and interest funds. This ties in easily to our debt at the beginning and end of the year. You will note net debt at the end of the year was $143 million, which is similar to 140 million at the start of the year.

Our strong balance sheet and cash flow all create questions about how we intend to use this capability. To give you an idea of our priorities, first, we intend to invest in the business through capital expenditures and high quality acquisitions. Secondly, in support of strong dividend policy and third, review the repurchase of our shares. We currently have authorization to repurchase 4.5 million shares. Throughout the year we continued with minor workforce reduction to control costs. These actions result in a charge of about $1 million or 2 cents per share in 2002, which compares to 3 cent charge in 2001. These programs typically have rapid payback and we will continue to search for similar opportunities.

Let me give you guidance on a few points. In 2003, we expect capital expenditures to be similar to 2002 levels. The effective tax rate will remain around 30%. There is one tailwind and one headwind I want to highlight. We forecast continued unwinding of pension income for 2003, which can be partially offset by changes in other benefit programs. On the upside, the weakening of the US dollar gave minor benefit in fourth quarter of 2002, and should this weakness continue, this benefit could grow in 2003. Approximately one-third of the US production is exported and earnings in Europe translate at better rates.

Finally, I want to report Albemarle has focused great attention on regulation and recommendations by Sawboneses-Oxley (ph) and the Securities and Exchange Commission.

As one example, we installed internal disclosure and controls committee, including the people in the conference call, chief accounting officer and others. We intend to stay at the forefront of corporate governance and control initiatives. Feel free to call Michael Whitlow if you wish to learn more about this effort.

Thanks for joining us today. Back to Michael.

Thank you. I am trying to find out if Charlie Walker is on the line now. Charlie, are you with us?

I am with you.

Would you like a few minutes to say a few words?

No, I wouldn't want to mess up what Mark has already said.

Okay. Thanks, Charlie. We will turn over to you for the Q and

At this time, I would like to remind everyone in order to ask a question, press * and then the number 1 on your telephone keypad. We will pause for a moment to compile the Q and A roster. Your next question comes from David Begleiter of Deutsche.

Thank you. Question on flame retardant price increases. You guys put out a release in December talking about winding or concluding the May announced price increase in high volume. How much of the price increase did you get, is it still continuing and could you update the pricing environment of bromine-based flame retardants? Thank you.

Thanks. I think the answer to your question, let's go back a bit. I think everybody realizes prices began to drop last year and continued into this year. We had a strong effort trying to turn that around. In the fourth quarter, I would say, on the major products we are talking about here, and I think you are referring to our tetra bromine announcement, specifically. We got half way there in the month of December and hopefully will through in first quarter and second quarter with the rest of what we had tried to obtain earlier in the year.

Fair enough. On the volume side, what was sequential volume like in your high volume flame retardants?

I think we choose to report that to you is on a sales basis. I included that in my remarks. On the high volume chemicals, we were up year-over-year, 12%.

Fair enough. Mark, can you discuss the M&A pipeline heading into 2003?

Yeah, let me repeat the questions. Your question was can we discuss or indicate something about the M&A pipeline. We are seeing a lot of activity out there, David. Primarily from companies that have interest in raising some money to pay down debt, dealing with the financial burdens they have in this weak economy. So, we are fairly optimistic that as the year progresses, there will be more opportunities to become available to us.

In particular, we make money in this company by building on our foundation technologies and like the idea of acquiring new technology platforms, be they in polymer additives, catalysts (ph), flame retardant areas. We are looking at all those. In Fine Chemicals, we are proud of our effort to move towards more of active-based company. So both in pharmaceutical and Ag area, we are actively looking for opportunities there.

Thanks a lot.

Your next question comes from Fred Seemer with Seemer Company.

Good morning. You said two things that really I thought were surprising, somewhat. I believe you mentioned that you had very favorable raw material costs and that is not the experience of most other chemical companies. You also, the only one you mentioned was chlorine, which is up. Could you just expand on where you are seeing low raw material costs? Then I have another question on R&D.

Fred, your question was can we expand on where we are seeing favorable variances in raw materials? Not specifically, no. What I will say is that we actually 18 months ago two years ago, we locked in a lot of volume at prices that had caps and what we are saying is the caps have come into play and given us favorable benefit. John mentioned chlorine as an example of that. There are a number of other examples there.

I think the message I want to leave with you is that we have not been severely hurt by raw material inflation yet. It is coming, however. We are seeing all the commodity producers take strong, strong action to drop pricing. Of course, as their costs, particularly energy, will go up, as well. So, I really don't feel comfortable divulging which products are in, but I would say across the board we have been aggressive in the results.

Thank you. On the research, Albemarle always had a lot of chemistry and you mentioned new products and a goal of 50% [inaudible] if I heard correctly, of new products as percentage of sales. Yet, if I look at the R&D, it is down almost 25% year-over-year and 1.4% of sales. Most other chemical companies, or many of them, are shooting for 20 to 25% of sales of new products. Are you challenging yourself enough in that area?

Your question gets to R&D as percent of sale and are we shrinking R&D and challenging ourselves enough? The answer is yes. Our R&D spending is up. Our FASB 2 (ph) reporting of R&D is down. We are being self-critical in defining what it is and is not. FASB 2, we are taking a look at that. R&D spending went up 10% year on year for our corporation and currently around $30 million range in total. But, we don't report all of that.

Okay. Thank you.

Your next question comes from Bob Koort with Goldman Sachs.

BOB KOORT-- [Analine] --tailwind on translation basis. Can you talk about what happened over the last couple of years in terms of any volume erosion you suffered because your competitiveness deteriorated when the dollar strengthened and what that means cycling back toward a weaker dollar?

Bob, you were breaking up at the start. Would you start over again?

Sure. The question was, given that the currency is obviously going to help you on a translation basis, I am interested in what could happen from a competitive standpoint and how much volumes may have suffered competing against foreign-based competitors, particularly in the additives markets, over the last few years and what that might imply for a potential recovery outside of the translation impact if the dollar weakens?

This is John Dabkowski. Your question is on the impact of weakening dollar on volumes today and what happened in the past. From Polymer Chemicals point of view, we have not seen volume erosion due to the stronger dollar seen over the last time period. We maintain market share and where it comes into play is obviously on translation on some of our profits on a dollar basis. As we go forward, again, as I said in my comments, we’ll be trying to focus on increasing margins and maintaining market share. So, I would anticipate that the dollar continues to weaken further, that would be a benefit.

All right. If I might follow-up, one of your competitors in a few product lines, Air Products had bullish comments on their conference call yesterday about seasonal rebound in January and customer restocking. Can you give us hope for silver lining out there you have seen similar?

I am not sure where I am with their products. Your question is did we see silver lining on rebound in the economy and in our business? As I said, in January, we saw nice rebound in the Polymer Chemicals side of the business from what happened in December, where our sales were off 10 to 15% from October and November.

I think the real question here is that sustainable or will something happen in the world that will hold it back? I think at this point in time, as I look and it is hard for my crystal ball to tell me what will happen. I do anticipate, based on what I am hearing, Polymer Chemicals point of view, financial results will improve first quarter versus fourth quarter, to the December impacts that we experienced.

Just to add, for Fine Chemicals, January so far is on track with our expectations and we see ourselves delivering quite similar performance in the first quarter as we saw in the fourth quarter. Good start for January.

John, could you be more explicit on what the problem is in Ag chemicals, are you on the wrong products and they are losing out to competitors or something more cyclical with the grain prices in the farm economy?

I will be happy, to. Question is what is happening with our business related to Ag market. The Ag -- the events of the middle of the year, the Midwest US drought, issues in Argentina, that led to early build-up of inventories with our customers that really wound down through the fourth quarter and potentially into the first quarter that we've been experiencing over the last several quarters. Also there’s, some negative impact on the EPA face-down of a couple products we sell. One of the intermediates to those projects being Diaz none (ph) for home use. So those are a couple of events impacted us.

Thank you.

Your next question comes from Allan Cohen with First Analysis.

Yeah, one, Charlie, congratulations. You're sardonic Southern wit will be missed on future conference calls.

If I ever get a chance to join in the game, I will do so.

Okay. I think it is for John, but maybe not the right person. On the --where you put caps on raw material contracts, 18 to 24 months ago, is it reasonable to speculate that those are running off and if so, are you going to see step function jump up sometime in the first half of 2003?

Allan, this is Mark. Let me try to take the question. Do we expect step change in raw materials prices in early 2003? The answer is no. These things don't end in one day. They will be phased out over a period of time and re-established obviously with new levels of pricing (ph). We don't expect to see a phase change in pricing over a one quarter kind of period. I would note, Allan, just from a point of view of optimism, we worked this very hard and globally and continue to find new opportunities. Unlike many companies, we have the capability to manufacture many of the products we buy. We are getting aggressive in make-versus-buy decisions. I am hopeful we will find more opportunities to offset commodity product raw material inflation going on.

Thank you. Then, Paul, could you enlighten us what is in other income?

Allan, the question is what is in other income? Looking for the year 2002, there are some minority interests from investments that we have made--$2.8 million. Minority interest are $2.1 million of that 2.8.

Thank you.

Your next question comes from Mark Gulley of Banc of America Securities.

Good morning, everybody. Couple of questions. I want to expand on the earlier question on what is happening in the Ag economy. You already mentioned specific events,-Midwest drought- but what about secular issues, herbicides losing out to seeds that incorporate traits that will avoid the use of herbicides and pesticides. Can you comment on products where you are exposed where that could be a problem going forward?

Sure. This is John Nicols. Most of our products, the major area where seeds have encroached on major Ag chemicals has been in the soy bean area. Our intermediate products really are only marginally into that market area. Most of our products are into corn. The encroachment of biotechnology and bioseed into the herbicide for corn, which is more significant market for us, has been much slower. We don't see -- we see this as a long-term negative demand trend, but not sharp and significant, nor has it been.

--observation is if Monsanto is to be believed, things will roll out over the next couple of years that will take time and would affect herbicide use in corn. Any reaction to that?

This is John Steitz. Our product is intermediate to companies like the one you mentioned. Our product is used as pre-emergent, we don't believe it will be impacted by G&A activity.

That helps. On the financial side, I want to make sure I heard Mark's comments earlier correctly. You were suggesting in the first half of '03, that EPS would be similar to what we saw in the fourth quarter? I want to make sure I understand correctly.

That is correct. We haven't given a lot of guidance and will not start on quarterly basis. I would say that we are all concerned about the global economy and the state of political unrest in the Middle East. And we are constantly reminded when we go to customers that that is on their mind, as well. That has got to run its course. The situation in Venezuela has to run its course- energy has got to stabilize- before the economy can take off again. John and John mentioned positive things occurring in January. That gives us hope for quicker recovery than the one I mentioned. Real expectations are fairly consistent early part of the year what we saw at end of last year.

Okay. Question for Paul on the balance sheet. We put the numbers on financial models and I want to make sure I understand something you said. Looks to me that your free cash flow for the year after dividends is going to be something like $95 million, roughly. Yet, you said that all those cash inducing (ph) items were adding up to 173 and your net debt is going to stay the same. I must be missing something. Can you help me out?

Your assumption is correct for the definition of free cash flow. I want to tie into the net debt position and show you how much cash was generated from the operating activities. You know, free cash flow would be after cap, after dividends and so forth. Your number of approximately 95 million is correct.

Good. Free cash flow for 2003, are you thinking in terms of something above 100?

Broadly the same as 2002.

Thanks.

Your next question comes from Richard Leader with Burnham Securities.

Good morning, everyone. Congratulations on getting that Dead Sea Joint venture rolling. Can you go into detail about your current level of production, outlook for the next year, what your target is in terms of the eventual capacity of the operation, please?

Sure. This is John Nicols. We started up the bromine part of the Jordan Bromine company joint venture in late November. And of the capacity of the elemental bromine itself is 50,000 tons. Through the end of the fourth quarter and early January, we have been bringing on the capacity for hydrobromic (ph) acid and calcium bromide for oilfield application. Those start-ups have gone well. As I mentioned in my prepared speech, we have already begun commercial sales of the elemental bromine in the plant in the fourth quarter. Is that enough detail?

Yeah. At what level capacity are you at and how long would that ramp up take to get to capacity?

I believe we have demonstrated the theoretical capacity already in the first couple of months of activity--

Oh, okay. Thanks.

Your next question comes from Jeff Zekauskas with J.P. Morgan.

I would also like to just send my regard to Charlie Walker and thank him for the many great things he has done for Albemarle over time. My question is, can you update us in your progress on building an active pharmaceutical intermediate business outside of Naproxen and ibuprofen?

This is John Steitz. Where do we stand on building an active pharmaceutical intermediate business? It has been a tough year in pharmaceuticals. The FDA has approved fewest number of new drugs last year out of the last 20 years. So, that -- it's been a tough environment with a fair amount of excess capacity. But, with that said, we've made great progress with a number of multi-nationals.

We were recently approved at a domestic site to be a manufacturer of active pharmaceutical ingredient for major pharmaceutical company. We are continuing to work on a number of new products--tend to be small volume right now--in the anesthetic area, okay. We are making solid progress in a consummation (ph) combination chemical that would be used for drug eluding stets. We are having a lot of progress. It is nowhere where we want the business to be today.

We have expanded our operations commercially globally and added some real horsepower in Europe, where there are a number of multi-national drug companies. We are also supplying a number of intermediates, one is for a fairly high-growth anti-epileptic drug. And another is for a new family of antibiotics. We are the premiere supplier for this company in intermediate for a new family of antibiotics. That is being approved globally. We are making progress. Not where we want to be, but a lot of work going into the effort.

I appreciate the update. Last question, unrelated area. In the increase in prepaid pension assets, year-over-year, you went from 9 million to 29 million. Can you analyze the change?

The question is can you analyze the change prepaid pension assets? As you know, we have reported the last several years, pension income due to the health of our pension fund assets. Using the GAAP accounting rules, this has resulted in pension income for the last several years.

As I commented, this pension income is winding down due to two factors. One is the performance of our funds have dropped and also we are discounting the future obligations at lower rates. So, those two factors combined give you a bit of a scissor effect on what is happening within the pension income. That will unwind over a period of years.

How much pension income did you book in 2002?

2002 was approximately $10 million.

: Pretax?

That is correct.

: Thank you very much.

Your next question comes from Frank Denal with Adage Capital

--How much do you plan to book on in 2003 - pension income?

We have been giving guidance that the pension income will drop roughly in half from that the level we just talked about in 2002. Roughly $5 million will be the drop. I want to emphasize with changes in other benefits and programs we have been making this would be partially offset with other medical benefits and other programs that we have.

Okay. On the aluminum outfield [ph] business, let me make sure I understand correctly. When BP closed down a line, does that mean they had excess inventories and didn't have to order for a while. They got everything back in line and now you are shipping in normal amounts for what they have running now? Is that what happened?

Explain what happened to BP in the fourth quarter. When we go back to the sale of our [inaudible] growth business to BP, there were 3 major businesses sold, BAO and Linear business to Linear alcohol business (ph) The alcohol business has been a tough road, I believe, for BP, and has been for a number of suppliers . BP this year made the decision to shut down Linear Alcohol facility, which is consumer of aluminum alkyls (ph), but because it was once Albemarle’s business, there were a number of tie-ins to our plant for service providing operations. So, in the quarter, what happened was they shut down their alcohol operations and in doing so, due to the number of plant tie-ins and things they wanted in their plant, we essentially had very not many sale to them during -- no sales in the last two months of the quarter. In addition, we had to shut down the operation of our aluminum alkyls facility until they completed their work. Consequence, our ALZA did not operate for half a quarter. We had built inventory to take care of our customers and everything and did not miss sales due to the events. The combination of those impacted the results.

Do you know about how much that experience cost in the quarter?

Yeah, the fourth quarter, total impact around the whole event, the impact was about $2-2.5 million. Going forward, as I look at it, I think the continuing impact from the reduction in sales will be in the more of magnitude of around a $1 million a quarter. As I look at how I expect that to impact business, I have been talking in several columns about the successes we had in [inaudible] and in Spanica and are continuing success in building some price increases into our business. Then, in addition, the normal growth you would see in our alkyl business, all that should offset the $1 million quarter impact.

In addition, our new catalyst program, as I mentioned, has been performing very well with our refocus on activators and supplying catalysts over the last two years or so. We continue to forecast growth this year. We are experiencing 15 to 20% growth in our sales in 2002, and expect that to continue into 2003. So, when I add that together, my expectation is to be able to offset closure of that plant and hopefully come in with organometallics business better than 2002.

One last question. The Zeolites mentioned as having up volume year over year, is that business back from the dead finally?

This is John Nicols. The question is related to our performance in 2002 for Zeolites. It is obvious from your question, you recall how rough 2001 was for the product. In 2002, we performed better. So, it was year-on-year improvement. Driven substantially by cost and increased volume to some extent. So, it was just not -- not a star business for us, but it performed better in 2002, compared with very poor 2001

: Thanks.

Your next question comes from follow-up question from David Begleiter with Deutsche.

: --raw material caps, when do the last ones roll off. For John Dabkowski, with Jordan, how quickly can you bring on flame retardant capacity once volumes pick up?

This is Mark. I will take first question regarding caps on raw materials. There is no, I don't have a date in mind, David. You know, we have hundreds and hundreds of supply contracts, all of our raw materials are managed through several suppliers. You shouldn't have a perspective there is a clip or term ending for all these things. They will unwind, much as our supply -- I mean customer contracts unwind over some period of time.

This is John Dabkowski. The question was, how fast can we bring up the flame retardant facility in Jordan if the market warrants it. The answer is that Petrabone [ph] is the first plant we are considering. Most of the equipment for that has been put on order, so probably something in the order of magnitude around 12 months.

Another facility-up from Allan Cohen with First Analysis.

In talking about the first half, it was just unclear to me in terms of your earnings expectation whether you were looking at the first and second quarter being similar to the fourth or the first and second quarter in total being similar to the third and fourth quarter?

We would say first and second are similar to fourth.

Then, given some of the sharp drop-offs in December that you did see and some solid results apparently you are seeing in January, what are the pieces that lead you to that conservative outlook? In other words, is it indeed raw materials going up, are you seeing lagging in orders from some of your customers? What's -- can you be a little more specific as to what is leading to the outlook?

Couple of things. We expect Ag to stay weak through the early part of the year. You are probably aware of the Methyl bromide face down which took place earlier in the year. We mentioned lower pension income this year versus last year., higher insurance cost and higher energy costs are all negative impacts that are occurring. I think we talk body our plans to overcome those. We will be dealing with that in the first half of the year consistent with what still remains a weak global economy.

Thank you for that clarification.

Your next question comes from Mark Gulley with Banc of America Securities.

I want to follow-up a bit on the secular outlook for Ag intermediates business. I take your point, I think, you should be less effected by pre-emergent herbicides, but do you have much exposure on post-emergent herbicides where you might get hit if growers moved to corn seed that include traits?

This is John Nicols. We have little exposure to that particular market segment in Ag.

Okay. In conclusion, as long as pre-emergent hang in there, you are not that concerned about the secular issue?

That is right. Methyl bromide is in a different class, itself, and that’s a key part of our Ag business as well.

OK, I was more focused on Ag chemicals. Thanks.

No further questions. Mr. Whitlow, are there closing remarks?

No. Thank you very much. I will be happy to take calls after this conference call. We look forward to talking to some of you later. Thank you.

Thank you for participating in today's conference. You may now disconnect. (Normal Termination.) The call ended at 11:58. --- 0