雅保公司 (ALB) 2004 Q1 法說會逐字稿

Good morning. My name is Kelly, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Albemarle Corporation's first quarter 2004 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Whitlow, you may begin your conference.

Good morning, and thank you Kelly. I'm Michael Whitlow, Vice President Investor Relations/External Affairs, and thanks for joining us. The presenters today are Mark C. Rohr, President and CEO, Paul F. Rocheleau Senior Vice President and Chief Financial Officer, and John M. Steitz Senior Vice President Business Operations. Our tables on the net sales impact of product volume and foreign exchange and joint ventures and acquisition are posted to the website along with the new materials on our supposed acquisitions of the Refining Catalysts Business of Akzo Nobel which we announced Monday this week. Also on the site at www.Albemarle.com you will find historical information in the form of our fourth quarter summary. We also provide non-GAAP reconciliation to GAAP numbers on the site, and of course our news release. In addition we have information in our frequently asked questions about the impact of various raw materials cost, and on the overview page we outline our chemistries and their raw material inputs and the process we practice. Also, please note the changes in our forward-looking statement caution regarding the proposed acquisition, and the other caution that pertains to our call today. The caution stated in our web site and our earnings news release indicate that there are many factors which can cause actual results to differ from the current expectations, and as always please call me with any questions regarding our business or what we've communicated today. Mark Rohr will be first up, he will be followed by John Steitz, and then by Paul Rocheleau. I'll now turn it over to Mark.

Thanks Michael, and thanks to all of you for joining us today. We look forward to sharing with you the performance details for the quarter, and then answering your question that follow after our remarks. I'm very pleased to report we are able to achieve another record-breaking quarter for net sales, up over 20% from reported net sales of the same time at 2003 of $55m, giving us about $322m for the quarter, and putting us on a path to achieve sales at well over $1.2b for 2004 absent any acquisitions or other unusual factors. As we go through our discussion today, my headlines will be dealing with volumes and pricing, in particular volumes are up strongly in Polymer Chemicals, leading to a record sales in that area, up over 32%, with profits up similar fashion quarter-to-quarter. We are starting to see some pockets of pricing improvement evident, particularly in bromine and mineral flame retardants which is good news. In Fine Chemicals, where we are achieving good volumes. Our performance this quarter was impacted by lower profit from special charges on exceptional items and the impact of material products. Let me first review the numbers we released this morning before going into more details. The first quarter brought us fully diluted earnings per share excluding special items of $0.39. This is about as we expected as we ended 2003, and exactly as we talked about last quarter based upon our concerns regarding the uneven improvement in the economy, and the impact of raw material inflation. In March, it became apparent that the growth and demand had kicked up in March. March revenues set a record for our company, and volumes in April holding a very good level. So, we are cautiously optimistic that general economic improvement will continue through the second quarter. First quarter 2004 results excluding the special charges for zeolites were exactly the same as 2003 results excluding the special charges there for the tax credit of $0.39 per share. I do want to mention however that in the $0.39 there were other exceptional costs that impacted earnings this quarter by about $0.04 per share. So, on a direct comparison non-GAAP basis this year's quarter is an improvement over the last years by about 10%. Both John and Paul will go through more details on this in a minute.

Moving back to zeolite item, we have seen strong growth in volume over the last quarter. Ten of the top 20 products exceeding volume sold in the fourth quarter of 2003, and 40 of the top 20 showed volume increases sequentially from fourth quarter to first quarter. This is really good news for the Polymer Chemical area, special regard to mineral flame retardants, antioxidants and curatives. General indicators such as the book-to-bill ratio for pretty wide bonus continues about one. And other indicators regarding TV sales, PC sales are all favorable. So, on a short term, we expect to see this volume trend continue. And let me highlight polymer chemical segment revenues and operating profit grew at 30% on essentially flat margins quarter-to-quarter. We announced price increases for CP2000, our tetrabrom product were 10% globally, our HP900 about 10% globally, and coordinated phosphate just turned the corner globally, all effective in March and April. This activity to raise prices is followed as a general trend by the industry and while its too early to speak, very specifically, we are seeing improvements in the environment for and pricing. So we believe we should be able to get some pricing out as this year progress . For the first quarter, we achieved high pricing for key mineral flame retardants in all regions of the world except for North America, we are working on that today. As I told you last quarter, we stood up the CP2000 tetrabrom plant in Jordan for qualification runs, the acceptance was immediate and the market saw it benefiting from this new volume. The timing of our production and the general economic recovery coincide. So, this is a non-event in terms of pricing impact. We have a very high quality product and the access to the markets in Asia and Europe is really phenomenal out of the Middle East. Fire chemical volumes improved versus 2003 first quarter, driven a lot by the bromine that we saw smudge our methyl bromide pharmaceuticals and other intermediates. The complete elimination of the feel light volume has affected us but about $9m quarter-to-quarter on the sales line compared to the first quarter of 2003. But our fire chemicals team has really done a good job at tackling this headroom with volume improvements in other areas. By the end of February, we had swiftly reduced our fixed cost at but the loss to this business will be negatively impacting us throughout this year to the tune of about $1.50 per quarter. As we enter next year, we hope to have new users for this equipment. That can offset that loss. Our pharmaceuticals team had to meet comparative pricing Ibuprofen area this quarter and they've done a great job of achieving sales volumes to offset this negative factor. I like to also like to reference to our concern about inflation of raw materials that we made in January call, indicating we believe these costs will likely to continue to rise, well they did, with a little hard rate biphenyl A and phenol leading the way result in a first quarter negative impact of about $2m. As it looks today, we are viewing this year and have a perspective that raw material costs will be up about $10m year to year by the time we end this year. With energy adding another $2m or $3m to that. John will give you some perspective of what we see for the remainder of this year. Our success and cost improvements in pricing will obviously be important offset for an increase. Finally, our acquisition program continues to progress well, we have seen the positive sales results of each of the 2003 acquisitions showing in our performance this quarter. The antioxidants for fuels and lubricants continues to exceed our expectations. But bromine assets in France we acquired parafino are providing us with additional flexibility and enhance our world class bromide franchise and the of course our flame retardant business has dramatically expanded our footprint in its evolving flame retardant arena and it allows us now to start serving customers and customer needs for new generation of products. Our Jordan investment continues to work hard in the current configuration and we'll get the plant added to this complex next year, elemental capacity of the bromine capacity will go to around 50,000 net tons and provide other opportunities for us to consider to enhance our investment in this region of the world. Biochemistry services now has a developed portfolio about 83 products which is up 75% over two-year period. Our team quoted on over 150 projects in February-March setting a record level of proposals. In February, in the second half slower over in March. Our efforts to build this company with a border diversity of this product base is continuing and we are very pleased with the progress of this change over from our traditional focus on single large scale products. Before I turn over to John, I do want to mention that we are extremely excited about our anticipated acquisition of the Akzo Nobel refining catalyst business, we expect to close on that later this quarter and Paul will share with you a little bit more, a little more information on the financial plan we have in support of this acquisition. Now let me turn the conference over to John Steitz who heads our business operations.

Thanks Mark. Business environment today continues to operate under some highly challenging conditions. Raw materials petroleum based feed stocks are continuing to escalate. Fortunately, our customers are generally understanding the need for prices to increase. This necessity today is being helped by strong volumes, higher capacity utilization, and better supply and demand balance in our polymer's portfolio. In our fine chemicals business, we continue to work through the challenges of several issues. We're seeing a lot of success in building a new life sciences product portfolio as Mark mentioned. Let me first discuss into detail our fine chemicals business. The biggest issue this quarter is our decision to exit the Zeolite business. It's our fundamental belief that the economics around future supply to the detergent market are just not sustainable. The supply and demand scenario, there is also impacted by the gradual erosion of the market share of powder detergents versus that of liquid detergents and our Zeolite products were used in the deteriorating powder detergent portion of that marketplace. We believe that it's time to transition this asset into other value adding endeavors and we continue to study this intensely. We have recognized that we need to cut cost immediately and have done so reducing the impact of this decision going forward. The total impact of this exit is about $8m in the first quarter. The other fairly large issue facing the fine chemicals business is our acquisition of the Atofina bromine fine chemicals business. Integration, inventory write-off, and some other acquisition-related costs have resulted in a $2m reduction of operating profit. We believe this acquisition will bring us improved profit going forward as we optimize our bromine related operations. As you can see, these two issues comprise the majority of the financial challenge the business faced in the first quarter. Our bromine franchise continues to generate positive results. Pricing and volumes are increasing at double-digit rates as supply is tight and demand is increasing globally. Our pharmaceutical business is experiencing solid volume gains in both ibuprofen and Naproxen. Our ibuprofen cost is scaling down nicely, which along with the volume growth is helping offset the price decline of approximately 15%. In our Ag chemical business, methyl bromide is down sequentially due to normal seasonality, but higher compared to last year, thanks to higher sales in the chemical intermediates area. The business is also been helped by the expansion of the Montreal Protocol provisions through 2005. Our Ag intermediates volumes are higher this quarter, thanks to stronger volumes of MVA. but are down versus last year due to lower DECTP volumes were DECTP is a intermediate used in mower span and door span trademark products, which have been restricted from home use. Our fine chemistry services profit is up about $1m sequentially and are 40% versus last year as customer acceptance and new product commercialization continues to grow. In this area, we are developing a whole new portfolio of new customers including the likes of Boston Scientific, Pfizer, Shering Plough, BASF, and DuPont. It is an exciting area for us, which is helping us to develop entirely new business platform in fine chemistry.

Turning to polymer chemicals, our business continues to grow beyond our expectations. We are experiencing solid volume growth across the board in our flame retardants portfolio, and our catalyst and additives business is clearly being driven by profitable growth in new products. This highly successful formula is reflected by a 31% operating profit improvement compared to last year's first quarter. Though, raw material inflation continues to impact this business, we are beginning to see some success in our price increase initiatives. Our pricing share since versus last year is weak in our brominated flame retardants area, down about 5%. They remain overall flat in some key product lines on a sequential basis. It is our hope to implement pricing improvement in the coming quarters and this effort is being helped by a strong supply and demand tailwind. Our mineral-based flame retardants continue to do quite well as volume continues to grow with double-digit rates. We are encouraged by positive pricing trends in this market helping offset inflationary raw material picture on ATH. For aluminum trihydrate the key raw material in that business. Catalysts, anodised volumes are also up over 10%. New products in our catalysts, curatives, and antioxidant product lines along with overall strong volume growth in the polyethylene and PVC markets are resulting in an impressive growth. On one final note, operationally we did an outstanding job of lowering our working capital requirements as our cash-to-cash matrix was reduced by about 40% from last years -- last quarter's levels. This was driven by exceptional inventory management across the business portfolio. Now with that I'll turn it over to Paul Rocheleau.

Thanks John. As usual, I want to take you through more detail regarding our financial statements. I also want to update so many information relating to our proposed acquisition of Akzo Nobel's refinery Catalyst business. Looking at the quarter, our topline sales book continued a very positive trend up $55m, or a 21% increase over the first quarter of 2003. There were three drivers of this increase. First, is simply stronger shipments of products followed by favorable foreign exchange and the businesses acquired in 2003, which added about $21m to sales in the quarter. I want to refer to the chart on page one of our release. Excluding the special item, which I will talk about in a minute, our operating profit year-on-year was flat at $25.9m. The growth in sales did not translate into competitive quarter-to-quarter increase in operating profits due to unusual items captured in our cost of goods sold. First, we idled Pasadena zeolite unit in January, but could not pull out many of the costs until March. These straining costs were approximately $1m in the quarter. Second, we incurred approximately $1.5m in expenses associated with the purchase of Atofina's bromine fine chemicals business. These expenses included the right off of inventory values and other charges as we began to fully consolidate the operations with our existing businesses. Excluding these charges, operating profits would be over $28m for the first quarter of 2004 with a boost to earnings per share up $0.04 over the $0.39 reported before specials. SG&A and R&D costs are up $2m versus last year due to foreign exchange and compensation accruals. When you flow through all the adjustments, our underlying profit margin was down approximately 80 basis points versus last year's quarter reinforcing John's points on the continuing raw material and energy cost increases. Let me describe the $4.5m special charge in the first quarter. This is related entirely to the work force reduction at Pasadena and is comprised of the severance costs and a FAS 88 pension adjustments. In the prior year, we booked in $11m tax refund and the associated interest. We continued to forecast an effective tax rate of 29% and I want to again mention that there are programs underway to reduce this lower further or to capture additional rebates. Turning to our cash flow statements, in the first quarter, our net debt ended at $167m, a drop of $26m from the beginning of the year. This was driven by our continued strong operating cash flow and we pulled out the working capital to support strong sales. The major cash uploads included $13m in capital spending and $6m in dividends. I also want to mention that we have reduced our long-term pension liability by closing the defined benefit plans in new employees and we have replaced it with the defined contribution plans. Let me now come back to some of the information presented during the Monday call regarding our proposed acquisition of Akzo's refinery Catalysts business. We are now able to give you an update on our financing plans. On our Web site is a slide that provides more insight into the proposed plan. As previously indicated, we will refinance our existing revolver, which is anticipated to have approximately $118m outstanding at the time of the close and we will fund the transaction and the associated fees of approximately $780m. Upon closing of the transaction, we expect to have outstanding debts of approximately $960m slightly below what we signaled on Monday. The new facilities will be composed of a revolver, institutional Term A loan and bridge loan. The anticipated blended interest cause this package, is approximately 3%. But let me emphasize, that this is all floating rate debt. We anticipate taking out the bridge loan as soon as possible likely within three to six months with a combination of fixed longer-term notes and equity. We anticipate the equity issuance, is being targeted to provide an investment grade credit rating, and we will give you an update in a few weeks, once we obtain a rating and finalize our financing plans. Let me now turn it to Michael, for the questions and answers.

Thanks Paul. That's all from our end for the prepared presentation, Kelly we are ready for the questions and answers.

At this time I would like to remind everyone, in order to ask a question please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from David Beigleiter.

Good morning. John, just on the Bromine based FOR price increases, any more color on competitive support and how much you have been seeing out of your initial large accounts? Thank you.

Yes David. Actually David, I want to thank you, because I just won a bet that your call would be the first one, and then that I would be addressing Bromine's flame retardant question.

John just won $5, so because of disclosure, I can't say anything more here.

So, because of disclosure, I can't say anything more here. On tetrabrom, is the key profit driver here we believe. We are seeing some strong volumes as we indicated, we had seen prices due the course of 2003 erode, you know in the range of like 1-2 % per quarter, and so therefore this quarter sequentially is pretty much flat on tetrabrom for example. But we are seeing and we announced a 10% increase and we are seeing that take effect and we've had some -- we believe we are having some success there. Now to add to it we've had BPA go up tremendously I mean in the supplier base there is very tight, that's driven by Phenol and that pricing is going up. So, we hope to off-set these inflationary things going forward, but we are seeing some favorable price condition, and Decabrom is I mean kind of different scenario, the volumes have not near been up nearly as dramatically as tetrabrom, but pricing is pretty flat there, we are now seeing some fairy strong volume indications here early in the second quarter, so if that continues we are going to entertain and think through the hope of getting prices up there, but because we are faced with some of the same inflationary raw material issues in decabrom. The balance of our specialty portfolio we are having some reasonable success in bromine flame retardants, and this is being buoyed by the fact that we are also seeing some good support in the market place for raising Bromine prices in merchant bromine throughout the world. Okay. So, vast area, you didn't ask this but in the mineral flame retardants we are seeing some good success there helping us offset, some fairly significant increases year-on-year in ATH raw material. We are seeing some strong volumes, which make getting prices up a lot easier where we are seeing some success in that area as well, in the 7-8% range.

John, thanks for the very complete answer and one more question on price increase for the Ibuprofen franchise, what's your confidence that the price decline we are now seeing will be at and will not continue in to next year with another type of let-down?

Well, it's a tough market, we have seen a big down-tick with this 15% drop compared to fourth quarter to first quarter its that sequential. We are a leader in this market David, and we are going to continue to drive volumes in our plant. So, the issue there has always been, where the Indians and Chinese price their product, which we see lower in some of the international markets. So, it's going to be pretty big mix affect between the various markets, but I think you can anticipate that there will be further price declines in this business, so we are strongly focusing on continuing to really drive that a step-down level, our cost structure in Ibuprofen.

Thank you John.

Thank you David.

Your next question comes from Robert Koort.

Thank you. You talked a little bit about tec, I guess it is helping the flame retardants, can you talk about what's going on in the oilfield chemicals business then also the paper chemicals business?

Yes, I sure can Bob. First I watched with a lot of anxiousness the longhorns in the and I'm sorry they didn't quite make it but I was . First on ASA, we've had a unique situation there where we have had one product, one customer. And we gotten now an opportunity to drive that to a broader customer base and that's what we are trying to do, that's a pretty difficult business situation, our existing customer has dramatically reduced inventories and we are also faced with a lot of inflation because it's an ethylene olefin based chemistry there. So that's a tough business; year-on-year our volumes now are down about 20%, our profit is down sequentially about 50%, so we are really trying to turn that around by selling that product line to a broader customer base around the globe and we do have that opportunity. On oilfield chemicals, that's driven by primarily the Gulf of Mexico for us today and that has been pretty weak year-on-year. On a non-profit basis the impact is less than a penny a share for the quarter, but we hope to see some offsets in some specialties in Europe out of the, in the North Sea Gulf and the North Sea region. But generally we've seen pretty weak volumes there in the oilfield sector.

And maybe you could comment also, it seems Mark when you talked about the acquisition the other day, I sensed some implication that you saw maturation or decline of some of your businesses that, may be buying into a growth opportunity is going to help offset, are there other possible divestiture candidates in the portfolio and if so if you can name those that would be great and obviously if you can't it's understandable, if you could give some sense of the scale of operations that may be in the decks or divest mode?

Your question Bob, let me talk broadly about that if I can, we are really pleased with the polymer additives portfolio across the board, it is not to say there are products and there was some weakness, but our team has done just a phenomenal job developing new products using existing assets to our asset utilization team. So we think we remain on just a great path there and continue to grow that and push it on up. On the fine chemical side, we have been in a process really of rebuilding that portfolio for last two or three years and you guys have seen on a broad basis the negative impact of that, maturing of some products and obsolescence of some products on our margin, so it's hard for you all to see exactly we are doing and I appreciate that. When I look at that portfolio in general, there's probably a $100m or so of sales of miscellaneous products out of that that are still in our portfolio that frankly will be okay if they were not in there and so we are going through a process now really trying to drive higher and higher margins on those and if we can, we'll be cycling out of those that could include the divestment of some businesses within the next one to years, but I prefer not to say what those are. When I look at the actual business what's exciting about that is that they will end up frankly with three divisions: additives being the largest and then catalyst and fine chemicals about balanced and it really gives a chance on each one of those to make sure we are working really hard within that division to drive the margin and so that's going to put a lot of opportunity in front of the guys on the catalyst side, on the polymer additive side it's come put a pretty big challenge on the fine chemical side to really make sure that our strategy and fine chemistry services will yield the kind of benefits we want.

Okay, thank you.

Your next question comes from Ray Kramer.

Hi, looking at first margin, if I back out sort of the one-time cost you alluded to, I get to something on the order 19.6%. Is that sort of we should expect to see going forward for the next couple of quarters or how is that going to trend?

Ray, this is John Steitz. Yes, I think with the raw material inflation that we are beginning to see and energy going up, I mean with that pressure, we hope to offset it with some new products and some good volume growth, but generally, yes, I think that's in the order of magnitude you should think about.

And Ray, one thing I think is important is the -- in the Polymer chemical side, for the quarter, we were able to pass through cost increases and preserve that profit margin quarter-to-quarter within that segment.

What percentage of the cost increases were you able to pass through?

Well, we're still working on that. Like last year, I mean you can get to I think order of magnitude of $24m. This year, raw materials alone, we feel, would be another 10. So, of that, my guess is we've been able to pass through only 20% to 30% of that over the past history. Going forward, we're seeing some more success. So, hopefully we can offset the $10m in raw material inflation we are seeing this year. And then energy is another roughly another $3m this year. So, we cannot forewarn that last quarter, and it appears to us we would be getting very aggressive out there in terms of the petroleum-based raw materials in particular.

So then, I guess looking at any possible guidance then obviously you're seeing stronger volumes but for the most part should we expect a strength there likely to be offset or continue to be offset by the gross margin and raw material hits?

Yes, Ray. That's I think an accurate depiction of it right now.

Ray, the situation we are in now, when you have this dramatic inflation, John and his team are doing a yeoman's job working with customers to get these prices up, but you always lag a little bit and so you saw some of that lag in the last couple of quarters, we think that rate of lag is going to diminish and hopefully as we get up, we get more pricing power, we will be able to pass these things through in a big way and then take real credit as prices ease a little bit. So, the big picture for us is essentially flat from a margin point of view.

Okay, and then just a little clarification on the ZLH. You said I think there is about a penny and a half, that sort of ongoing idle costs to gross margin, is that correct?

Well, Ray, it's a combination of what margin we did make on the business last year and the ongoing stranded cost, if you will, that we cannot eliminate going forward.

And that will pretty much be there until you find some other use for the stuff or ---

That's right. That's right and we are working really hard on that, and we've put a number of months and I think we've some real good ideas for that asset.

Okay. And then just more of a broader strategy thing, any updates on Asia or China in particular, any strategy updates or milestones there?

Yes, our Chinese based business is actually doing quite well. We're seeing prices in -- and demand go up fairly dramatically in Bromine for example. We're seeing our flame retardant volumes and prices going forward we believe going up. So, we feel pretty good about that. We still would like to get a bigger platform within China to capitalize on the enormous growth going on there, but we haven't come up with a right formula or the right venture or acquisition just yet. So, we continue to look, and our team over there is working hard on that.

All right. Thanks a lot guys.

Thanks Ray.

Thanks Ray.

Your next question comes from Mark Gulley.

I've got two questions guys. First a housekeeping, Can you give us the volume price currency acquisition breakdown of the sales gain? Then Paul, you might have given us the acquisition piece at about $21m, can you give us the other pieces as well?

Mark, I think it is all on the website as well.

Oh! that's right.

You can refer to the chart, I think it's really broken out very cleanly.

Okay.

FX is $50m, yes.

Okay. More importantly, I was doing some math here as I was listening to this raw material question. Let me see if I got about this right. I think you said there is a gross unrecovered gross and energy cost of about $37m, that's the gross number, maybe recovered $6m thus far, leaving you all $31m still out there. If I tax effect that, divide by shares outstanding, I am coming up with something like $0.50 a share in unrecovered....

No, no Mark we're not communicating well. It

It's what I mentioned, the first 24m of that scenario was last year in comparison to 2002.

That can be covered you are saying?

That's over a two year period.

Sure.

And we--

Some of it, yes.

We are covered hopefully 20% or 30% of that fractionally.

I think the important thing in the analysis we gave you -- you can talk back to the kind of work you do. So year-to-year, right now we think we are going to be up $10m and another $2m or $3m in energy. That's up, that gets on year-to-year. And the first quarter was about $2m. So anticipating, particularly in the petrochemical area and in the energy area we are seeing some higher costs. We think that in the next three quarters, it will get you to balance that $12m to $13m kind of level. So you can do the math on that, that's $0.27 per share probably, and we have got to go through and work out the price increases and cost reductions to offset that.

Okay, to get this straight to understand the math, are you saying that the $24m were over to a 1 or 2-year period, '03-'02 whatever. Are you saying that has been recovered?

No. A lot of that was not recovered last year. Okay, and we are trying to work on recovering the additional inflation on raw materials that we are facing this year.

The asset - the equation - the PC equation - it is not in front of you Mark. For instance, last year the number that comes to mind where it is, we are down about $12m in fixed costs year to year. So, there was a big chunk of that raw material inflation which offset the efforts of drive down lower and lower manufacturing cost. That sort of thing. So, there is a piece of the equation that should not factor into that.

Okay. Still, you would hope that you would be able to retain a lot of those productivity benefits for you to and your shareholders.

But I was really focused on in terms of just pass through of raw materials to your customers. That's what I was trying to get to and it sounds like it's still a relatively large number, maybe would go with the math off-line, but hopefully again you could keep at least half the productivity for you and your shareholders.

No that's right. It's our intention to do that and so we work hard to -- we work hard to try do that as an example that we froze wages this year, and have instituted the variable pay program. So, we have done a lot of things, change our benefit plan. We have done a lot of things to try to reduce the rate of inflation so we can maintain productivity gains. Let us put our heads together and see if we can respond to your question in an accurate way and next time we do that we will share that.

Companies like Roman Horse, Du Pont others kind of keep track of this , how far behind are they, how they are coming along and when do they get to parity in terms of loss. I will wrap up with one more question. I would have thought that maybe you might have benefited a little bit more from the strength in economy in terms of intermediates that you sell. That is kind of from a 35,000 foot level. Then you have to get to customers and products, and maybe you are serving some products that aren't necessarily doing well. So can you help explain to what extent you are benefiting from the overall strength?

I have just said, we are seeing some benefit by the overall strength. In our intermediates primarily for corns, soy beans, that kind of thing. That's awfully strong. We do have the one unique issue related to our business on this TECTTT. Okay that year-on-year will be about a $3m operating profit hit for us. So we are working on offsetting that with other new active ingredients to some other new companies and that's working out quite well, helping us actually more than offset that. So we are seeing some benefit in terms of new products there and old existing product lines are doing okay.

Okay, that's very helpful. Thank you.

Welcome. Next one.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from Chris Shaw.

Hi Chris.

I didn't get full detail on the Akzo deal. I was just curious to make this math work. Did you disclose -- I know you have the EBIDTA? How much is that depreciation and amortization of that number?

We have not disclosed what the purchase price allocation will be and what the amortization may be. We will provide more guidelines on that over the next couple of weeks as we fully get the financing in place and have a better feel for that purchase price allocation. Certainly the EBIDTA that we indicated on Monday was approximately $84m.

Was the EBIDTA adjusted for 2003? That in US dollars

Sure there is going to be, the depreciation coming from the active business with approximately $30m, it is fair to say that it will be certainly higher than that given the fact that there would be some amortized tangibles and thinks like that.

But go further say to EBITDA that EBIT is the vast majority of it, your first statement?

Sorry. Could you repeat that?

EBIT is the vast majority of EBITDA? I'm not trying to pin you to a number--

That's is correct.

Okay. And when you do that 3% interest rate calculations its because as you term it out with the combinations you said of longer terms notices and that. What's your gut feel, will it jump a couple of points?

I think that's probably a fair cap to look at. If LIBOR stays somewhere within a percent of where it is today. I know yesterday it was about 1.15.

All right.

I don't know what Greenspan is saying this morning. But I think we are all concerned of a rising interest rate environment and we will want to try and fix part of this. So our long-term blended rate is going to be somewhere in the 4% to 5% neighborhood.

4 to 5 okay. Great.

Unless you get to a very high inflationary environment. Let me just caution you .

No, quite where we are today because when you make your statements about accretion or in effect after the first-full year, how much synergy whatever that right word would be? Whether it is sort of the 10m in synergy products calculation on annual basis?

We have said that we are targeting 5 to 10, I just wanted put in Paul's caution right now, there's just a lot of waters going underneath the bridge and we intend to be very open about our views on this as we first wrap up financing, second go through all the asset allocation methodology, and third really take over the acquisition. I think at that point of time it will be - we'll just have lot better ability to communicate properly with you guys about what we see looking out 12 or 18 months.

Okay, great. And last if I could sneak in and I'll get off. Just looking at this quarter to clean it up for the specials, I know you all have shied away from, forecasting the balance of the year. But qualitatively from your comments on price versus cost and looking at seasonality, isn't it fair to think that this quarter could in fact be the low quarter for the year. I don't know how much I'll get you to say about the rest of the outlook but qualitatively would suggest that, quantitatively we get better from here?

Yes. You wanted to get us to say much about it. We will, I think when we look out at the year from an operational point of view, the kind of numbers that are out there although right kind of numbers, and we are putting in a lot of head wins that are still there. I mean -- I can tell you that some of the raw materials we're buying today, we can't getting to make product, okay. So it's not only a question of inflation and some of these is actual availability and that rules . So I got a fair amount of caution in that but what I would say is generally the numbers that are out there are probably okay. We do have acquisition cost that are going to come through and we have in total of what's up here but what we will hit is a special one time in the second quarter, so just be mindful of that and will share more with that as this thing unfolds.

Okay. I appreciate your answer. Thank you.

Yes. Thanks.

Your next question comes from Mark Gulley.

Yes. I had a couple of follow-ups like, Jeff I'm trying to do some accretion stuff here as well. But one question I had for you is how are you going hedge the purchase price at a certain rate so we can convert euros to dollars, denominated in six right now. What is that in dollars? What shall we assume there?

We are doing that as we speak and most of our math is done it about a 120 rate.

Okay, so the 625 times 1.2 gives us a US dollar purchase price of 750?

That's right.

Okay. And time 4% to 5% take that against the EBIT, I'm coming up with some accretion this year, there are some things that we are missing perhaps that might make it more of a push this year.. ?

Yes, Mark. This business is, you know in the near term as we speak today is dealing with some of the same issues that John talked about hours, commodity prices in particular have gone to the roof. They are dramatically raising catalyst price to recover that, but there is a lag time with that. So we are little bit mindful of the fact that that could put some pressure on the earnings of first quarter, so that we have this.

Okay. That's helpful. Thank you.

Your next question comes from Jeff Zekauskas.

Hi, this is Devika Kumar for Jeff Zeukauskas.

How are you?

I'm doing well. I had a few questions. I think I may have missed this. What is the operating profit for polymers and fine chemicals?

One second. Devika, I know that's a great honor, that announcement where we report the segment totals, the Polymer Chemicals income for the quarter was $21.3m.

Okay.

Compared to $16.3m in the previous year. Our fine chemicals as reported was $5.2m. That includes the special charge versus $14.8m.

Okay. And in terms of R&D and SG&A, what do you?

14.3, excuse me.

14.3, okay. How do you see SG&A expense sort of tracking for the year and then R&D as well? I noticed that R&D was somewhat lower this quarter.

There was a little bit of an adjustment in R&D to make it for the quarter when we purchased the business last year. there was actually a bit of an R&D deduction if I can say that due to purchase price accounting. But, R&D is really relatively flat. For the SG&A and R&D, if you look at the last couple of quarters and just average that, I think you are going to see a very flat trend.

Okay. Thank you.

You are welcome.

At this time there are no further questions. Mr. Whitlow are there any closing remarks?

Mark wants to make a few closing remarks. We will be done. Thank you.

Yes, thanks Kim. Just one comment on fine chemicals. When the question came up earlier about I think Bob Koort, you raised about divestitures and stuff. The core of that business is particularly the fine chemistry services area moving into the API's pharma and the active ingredients for Ag is really a tremendously exciting area. We are getting so much enthusiasm for the technology and the approach we have in that. They were really excited about that. So, I don't want to give the view that, that arena is not the one we remain very interested in. The concept I was trying to put out there is that there are pieces of those material products that fall out of that portfolio than are indirect to that part of that strategy that at some point of time John could be looking at to divest. And with that let me thank everybody for logging on today and we will talk to you soon.

This concludes today's conference call. You may now disconnect.