雅保公司 (ALB) 2004 Q2 法說會逐字稿

Good afternoon. I will be your conference facilitator today. At this time, I would like to welcome everyone to the Albermarle Corporation second quarter earnings release conference call. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answered 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. Michael Whitlow, you my begin your conference.

Currency and joint ventures and acquisitions are on our website and also on our site, you will find historical information in the form of our quarterly summaries. We will provide some non-GAAP reconciliation of gap numbers on the site, and, of course, our news release.

I also want to call your attention to our forward-looking statements [inaudible] on the web as well. As always, call me with any questions. Mark Rohr will be first up. He will be followed by John Steitz and then Paul Rocheleau.

Let me now turn it over to Mark.

Thanks, Michael, and thanks to all of you for joining us today.. We're really looking forward to sharing with you performance details for the quarter and answering your questions after our remarks. We're really trying to shorten up the prepared portion of this. So hopefully lots of you guys will have lots of questions for us as we go forward.

I'm pleased to announce net sales of 326.7 million for the second quarter, that's an increase of 54.9 million or 20% from the second quarter of last year. This is our 6th consecutive quarter of revenue growth, performance we're really proud of and it's reflective of our efforts to expand foundation technologies.

Sales for the first half the this year totalled roughly 650 million, clearly placing us on track to see annual sales revenue approaching a $1.3 billion mark this year, excluding any favorable impact of the [Akzo] acquisition. There's several key factors that contributed to this performance that I'd like to highlight.

Polymer Chemicals again reported record sales levels making this the fourth consecutive record breaking quarter. The majority of this growth was led by flame retardant businesses which has responded well to recovery in the electronic sector. Within the strong volume -- within this we've seen strong volume demand in bromine and mineral based flame retardents. We continue to see progress in our price improving initiatives and efforts, which are starting to offset some of the raw material inflation that's occurred.

Gross margins totalled 65.9 million for this quarter, which is up roughly 270 basis points from the first quarter. We're particularly proud of this performance given the inflation in raw materials energy and even things like logistics costs that had to be overcome.

Our bromine and [inaudible] business experienced strong demand and improved pricing, particularly in Asia pacific. As we take advantage of sourcing from Jordan production, that's really helped us to grow this business in that region. As a reminder that production now includes tetrabrome capability.

We are having success in growing revenues from [inaudible] Chemistry services and intermediates. For example, in June we had over 90 [inaudible] for business in this segment. 15 of our top 20 products exceeded volume sold in last year's second quarter, while 11 of the top 20 showed sequential improvement from the first quarter of this year.

We're also encouraged to see the strong contributions made by recent acquisitions. Over 40% of the sales growth experienced this quarter can be attributed to acquisitions made in the last 12 months.

Looking at the financials, we released earlier today, we reported earnings excluding special items of 21.1 million or about 50 cents per share, included a foreign exchange gain of 1.8 million after tax of 4 cents per share associated with the [Akzo] acquisition. On an operational basis, this is up 15% from the reported second quarter 2003 numbers of 17 million and 40 cents per share after excluding certain adjustments. Can you guys hear us okay, Operator?

Yes, sir, just one moment. Okay. I believe that might have been coming from the -- possibly the speaker phone.

Okay. Well, let's move ahead and right now it seems fine to us on this end.

The economic projections we made in the first quarter for the second quarter really played out as we had expected. And frankly we're seeing signs of this continuing, especially in our polymer [atkis] and catalysis business' going in the third quarter. This is supported by market trends that we see in several of our key segments, particularly electronics.

Compared to 2003, shipments of printed circuit boards in America are up 36% year to date with booked orders up over 50%. This is really significant as North America demand for electronic products really drives a good portion of our businesses in Asia.

Globally both price and lead [contrems] are positive for the connector industry and personal computer shipments rose to over 15% in the second quarter 2004 versus last year. Typically for the electronics industry the second half is stronger for personal computer sales, which leaves us remaining cautiously optimistic this recovery will hold through the third quarter.

We're also seeing good demand for a number of Fine Chemicals products that will help us offset some of the recent lost business in zeolites and other areas. And John Steitz will take you through that in just a minute.

Now, let me turn to our cost performance with regard to raw materials and energy. Continued raw material inflation this quarter versus last year led by ATH, BPA and [Phenol] resulted in first half negative impact of $5.5 million. We expect the third and fourth quarter inflation levels to be two times that. In other words, we're see as much inflation in the third quarter as we've seen through the first half of this year.

By year-end raw material costs is expected to add nearly 16 million with energy another 3 or 4. We're driving pricing improvement issues very hard as well as manufacturing costs initiatives to offset this dramatic inflation.

Pricing, as mentioned before, is beginning to turn in the right direction on several key products we're very excited about that, but we've really to work it out for us to stay ahead of raw materials over the next six months.

We're on the path to complete the acquisition, the [inaudible] acquisition soon, and begin integration of a new refinery catalyst business with a closing anticipated for the end of this month.

Now, let me take a minute to review he basic components of this acquisition, the purchase price is approximately 615 million Euros. With secured financing commitment of roughly 1.1 billion U.S. dollars, which is being led by three institutions and Paul will cover that in more detail in just a minute.

We'll be adding a number of foundation technologies to our portfolio, including catalyst for [inaudible] testing, including [cack] cracking, with strong industry growth, 3 to 5% per year. This business affords us many opportunities to grow.

In the addition of this is really going to broaden our portfolio in especially in chemicals and ways that may not be obvious to you, but when we look to integrate the technologies between places like Martinsburg and the [Akzo] experience with ATH and nano-technology, it's very exciting.

When completed, this acquisition will add a third catalyst segment to the Polymer and Fine Chemicals [Almar] currently reports, the new segment will comprise about 30% of the company sales. Polymer [atkis] will account for approximately 40% while Fine Chemicals which provide the remaining 30% following the acquisition.

Through the first half of 2004, the catalyst business performed as expected and we're excited about the future opportunities this business will create for Albemarle and [Akzo] personnel.

Looking forward, while I continue to see good demand, we can expect to have some real pressure on margins, I think in next quarter and, you know, frankly the last quarter of this year as well. The increases in BPA, in particular, and [Phenol] are just starting to roll in, so our efforts to get prices up are really going to be tested. We also expect some seasonality with the [ag] business that John will touch on in a minute.

So, from my perspective, the third quarter and annual consensus estimates still appear appropriate in spite of a case that could be made for broad business optimism today. Regarding [Akzo], I do not anticipate the acquisition adding materially to earnings over the next 3 to 5 months, given a tremendous amount of integration activity required, but we do expect a [inaudible] performance after that.

Now, with that, I would like it turn the call over to John Steitz, who heads our business operation.

Thanks, Mark, and I'd like to start first with Fine Chemicals. Second quarter sales in our Fine Chemicals segment held with last year's levels and were down slightly from the first quarter of this year. This is a significant accomplishment given the loss of sales from our detergent builder business, coupled with higher raw material and energy costs as Mark described.

Sequentially Fine Chemicals operating profit is up nearly 22% excluding first quarter write off's resulting from our decision to exit the builders business. Bromine product performance improved across the board driven by increasingly tight supply, high utilizations, price improvements, and recent acquisition of the [Adopena]business, which contributes approximately 5 million in revenue per quarter.

AG markets were stronger in second quarter than expected. Our Fine Chemistry intermediate business demonstrated step up improvement with new products and better asset utilization.

Year over year profits are down 3.5 million due to our builders, our European based potassium salts and chlorine business and Ibuprofen pricing.

Looking forward to the third quarter, overall profitability within the Fine Chemicals sector will be affected by what I call a normal seasonal downturn in our AG chemical business. We are encouraged by the underlying trends emerging in the Fine Chemistry services, new product development pipeline, which, along with continued strong demand and price improvement in bromine and derivatives should help to offset these unfavorable factors.

Switching to polymer chemicals, we're happy to report second quarter sales in the Polymer Chemicals sector increased year over year by 37%, which represents a record sales quarter in Polymer Chemicals. It also represents the fourth consecutive quarter of record sales at a growth rate of at close to 8% per quarter. Second quarter profit up 33% from last year, was the highest in three years since the economic downturn hit in the fourth quarter of 2000.

Sequentially, we have seen an improvement on the chemical operating profit margin over the past four quarters, but I again want to caution that we are facing additional raw material price increases.

Flame retardants continue to be the primary growth driver in this operating division with sales up 46% year over year, and operating profit up 47%. Sequentially, profit has improved in this business over the past four quarters in the face of significant raw material and energy increases due to a combination of stronger demand and the ability to achieve pricing improvement.

Markets continue to show strength as highlighted by Mark earlier, and we expect that price increases that have begun to take hold to improve further in the third quarter in most areas. Catalysts and additives show steady performance, up 20% in sales, with profits flat, reflecting higher [Phenol] based raw material costs.

Looking forward, we expect to see the same strong performance carryover into the third quarter as markets continue to show strength. We are also very excited with the prospects of integrating our [inaudible] catalyst business into a third operating segment, with the [Akzo Nobel] refinery catalyst acquisition. The integration process has been laid out and we have a global team in place ready to execute.

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 and I'll also review some of the information related to the acquisition of the catalyst business.

Let me start with the P&L statement. As Mark mentioned, our top line sales growth continues at a very positive trend with a 20% improvement year on year. This increase is attributable to three factors, first, the effects of our acquisition program, which added 24 million versus the 2nd quarter of 2003. Secondly, currency effects of 10 million and, finally, our base business growth was very favorable year on year with higher revenues of approximately $21 million.

Revenues in the Polymer Chemicals continued to reach record levels, driven by strong demand in the impact of the acquisitions.

As you move down to P&L, our 2nd quarter gross profit was up 10% over last year, driven by the top line growth. Our margins were kept in check due to product mix and higher cost for energy and raw materials. As a general perspective, our 2003 versus 2002, energy and raw material costs were up $24 million. As Mark mentioned, we're projecting an annualized increase of approximately $20 million in 2004 as compared to 2003.

Our operating profit levels for the quarter are up 7% compared to last year.

Selling, general and administrative cost as a percent of sales are down quarter to quarter from 12.4% to 11.5%. We continue to look for opportunities to reduce the absolute spending level and leverage of support platforms as we grow revenue.

There are two special items to describe in more detail, first the $600,000 special charges relates to shut down cost associated with the [Z-lek] unit. We incurred higher costs than originally expected. Remember, we booked at 4.5 million pre-tax charge in the first quarter. The closure and cleanout work is now largely behind us.

The other income line, we also posted a gain of $2.9 million, associated with the hedging we put in place as we prepared for the acquisition of the [Akzo] catalyst business.

We have covered the Euro denominated purchase price and we will have another gain or loss in the third quarter depending upon the exchange rates at the time of the closing.

Excluding these one-time items, we reported earnings of 46 cents per share, up 15% as compared to the similarly adjusted number last year. I just want to remind everyone that we recorded a one-time after tax benefit of $6.6 million or 16 cents per share for the release of tax reserves following the completion of IRS audits. We continued to forecast an effective tax rate of roughly 30% looking forward.

Let me now move to our cash flow statement. During the quarter, our net debt position improved by $25 million. This was driven primarily by our strong EBITDA of $52 million, and working capital was relatively flat over the quarter on higher sales levels. Year to date, our EBITDA is $94 million. Our quarterly capital spending of $12 million, which includes investment and joint ventures, is consistent with our projected annual spending.

I want to point out that due to the strong organic growth in some of our businesses, there is a range of attractive projects that could result in increased capital spending over the next couple of years.

Upon closing the catalyst transactions, we expect to have outstanding debt below $950 million. The new facilities will be composed of a new revolver, an institutional loan and a bridge loan. The anticipated interest costs of this package is approximately 3%. We will take out the bridge within one year with a combination of fixed long-term debt and equity.

As we discussed in the last call, we received an investment grade rating from both S&P and Moody's, a BBB- from S&P and a BAA3 from Moody's. The financing plans associated with the acquisition are basically unchanged from previous discussions and we'll give you further details when appropriate.

Let me also remind you that starting next quarter we'll report in three segments, Fine Chemicals, polymer additives, and catalysts. The new catalyst segment will be a combination of the business acquired from [Akzo] combined with our existing poly [inaudible]catalyst business. This new segment will have consolidated revenues of approximately $530 million annually.

Let me now turn the call over to Michael for the Q and A.

Thank you, Paul. Operator, we are ready for the questions from our audience. And we'll take those as they come. Thank you.

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'll pause for just a moment to compile the Q and A roster. Your first question comes from Allen Cohen with First Analysis.

Good morning, gentlemen. It looks like you got things cookin. Trying understand what appears to be a very strong performance in the flame retardant area. Could you tell me what your sequential price increase was in that Q1 to Q2?

Yes, Alan, John Steitz, the sequential pricing improvement in overall flame retardants was about in the 4 to 5% range.

Okay. Then based on a conference call of an unnamed company earlier today, you know, you're keeping sort of equal or ahead in price in the marketplace and you've really picked up market share. What component of that is, if you will, Jordan combination of good position for serving Asia and Europe and more capacity versus just broad, strong performance to the extent you could sort that out for me?

Alan, first we do not believe we've picked up marketshare in bromine flame retardants. We think the overall market is so strong that the -- in many cases the supply -- the demand is outstripping the supply and that is in itself the biggest factor helping get prices up because it's a matter of necessity now.

I mean, with the raw material inflation that's rampant as it is, actually, as Mark described first half is a lot less than what we see the second half as being. So the necessity to continued to drive pricing improvement is really important, but I think it's strength in overall end markets that we're seeing and responding to that, raw material inflation with pricing is important and we've got to have it.

So we've seen this 4% sequential improvement year on year at this time. You ought to have it in your mind that there was some -- a fair amount of nibbiling go on because the demand was slow the back half of last year. We don't see that so, going forward, as again, is a matter of necessity, we've got to get prices up to cover these key raw materials like BPA, chlorine and Phenol.

Is -- just a -- try and take it one step further and I'll get back in line. Could one argue that you have the most readily available capacity so the market is growing, you, in fact, may be getting a better share because you can deliver quicker?

Yeah, I think we're poised to capture incremental volume growth if that continues, but it's much more important for us to see in the supply and demand scenario that pricing continues to go up. I mean, it's -- from the highs of 99-2000, it's still down significantly. So we've got a long way to go to get it up to reinvestment economics, that's for certain.

Thank you very much.

Thank you, Alan.

Thanks, Alan.

Your next question comes from Bob Koort with Goldman Sachs.

Good afternoon.

Hi, Bob.

Mark, you're usually pretty good at dampening our enthusiasm in earnings estimates in the 2nd half, so, I was wondering if you could help me read the tea leaves of your somber comments abouts margin pressure and some guesstimates of what we should look for, expect of terms of earnings results.

Well, I think just painting that broad picture again for you Bob, the -- you know, on the plus side, we're really pleased with our ability to kind of stay ahead of the curve with bromine, and Jordan's helped us a lot. [inaudible] of the market we've been in. So, we've really gotten some good push through on elemental.

The additive arenas downstream from that, that those prices have been coming up, as John Steitz mentioned, but there's a lag built into that. There's still contract positions around the world. I don't have that in front of me or I'd tell you what the average is. But you've got -- you've got quite a few months of taking it on the chin before you can get prices up.

So, as we look into the third quarter in particular, we're seeing some pretty dramatic inflation coming as frankly as our supply contracts has started to unwind a little bit. [inaudible] have some coverage. So, we're going get hit pretty hard with BPA in particular this next quarter and so I'm a little anxious about our ability to incrementally get that price up. I'm going to have to eat a little bit that for a while.

So, that's caused me to dampen a little bit of enthusiasm what we're seeing in volume growth so strong, to say that I think we're going to be challenged to pass through everything next quarter. I'm quite confident as we -- you know, hit towards the end of the year we're going to have some good opportunities to get way ahead of that curve ar at least, you know, cover what we need to.

So the -- sort of the guidance looking forward, assessment, I would give, when I look at consensus estimate, which, have us in effect doing slightly better than we have done the first half of this year, I think, Bob, within the accuracy of things, that's the right kind of number to have.

I'm doing that saying that [Akzo], until we get that on board, until we really sort through some integration we're saying that's not going to contribute anything. If it does, it will be immaterial for the first several months. I think kind of where you are is a pretty good place.

If I could follow up, despite all that money I spent in getting a chemical engineering degree, what is [BSA] and Phenol go into specifically, which products?

Bob, John Steitz. I spent the same amount of money as did.

BPA goes into Tetrabrome primarily and fosferous base flame retardent, what we call BPADP. So it's, and the Phenol, of course, is a key raw material in for our intermediate for the antioxidant market, and so that's a big driver for us there. And the Phenol had really just escalated fairly dramatically over the last 30, 60 days.

So we are really pushing the business team and additives to get those prices up second half to cover that.

Then last questions and I'll hang up. Can you just give us some update in your progress in trying to develop some water treatment chemical business, also oil field chemicals, and, then lastly, has there been any further degradation of Ibuprofen trends?

Sir, let me cover those in that order. Our water treatment business is a small niche business, but it performed nicely in the second quarter and helped offset some of the typical seasonal decline we see in the AG intermediates businesses.

The bromine based bio sides business, it's doing well, all be it pretty small. We've got a lot of new products we're working on in there, a lot -- a number of new applications in industrial water treatment.

That's the focus but it's done pretty well year on year, we saw in sequential improvements of about half a million dollars. So nice business but that improved nicely for us.

The oil field business did much better in the second quarter. Again, that helped offset some other difficulties, you know, with in normal seasonal decline we have. So I know it's fairly lumpy but the oil field seems like it's picking up today in clear brimes and our, what we call our green emulsifier line they make over in Europe near the North Sea.. That business did pretty well.

Sequential improvement, about a million bucks. It was nice to see that because it has been struggling for a couple of quarters.

Our Ibuprofen, we're encouraged by work going on in the cost reduction front. But again, highly competitive. We have not sequentially seen any additional erosion in pricing. But the big challenge there is going forward. A lot of Indian and Chinese competition. So the focus on cost reduction is really critical there, but overall Ibuprofen had a quarter that exceeded, moderately exceeded, our expectation.

Thank you very much.

Thanks, Bob.

Thanks, Bob.

Your next question comes from David Begleiter from Deutsche Bank.

Thanks. On one, flame retardants, any early read on the July 1st price increases? And what's the sustainability of the 46% increase that you saw in Q2 in FR sales?

David, John Steitz again, on flame retardant pricing, again on an earlier question I mentioned the 4% sequential improvement in bromine flame retardants. Going forward into the third quarter, we see a little more than that. In the 5 to 6% range across the whole product line.

We're seeing higher pricing in Tetrabrome and more slight increases in [decabrome] going forward. The key there, again, is kind of related to your second question, how are these end markets going to continue to perform and, we hope strong.

Our order book for the third quarter, you know, continues to be strong and we're hopeful, but I know there's some electronics components manufacturers who are concerned. So, in going forward, we see it continue to be pretty strong volume, see no indication of a slow up. But that's a big number.

So we've got a lot of work to cover, the big increases in raw materials going forward and we need more than what we have locked and loaded right now in terms of pricing to do that.

John, just on the capacity, where do you stand in both ElDerado or Magnolia Arkansas and Jordan on FR capacity?

In Magnolia, Arkansas, we're running pretty tight. Pretty tight, David, so we're pushing, you know, a 90% utilization rates in Arkansas. Bromine is very tight, as well. So that kind of puts us to Jordan. We've tried to be judicious on bringing on that capacity and we've got some room there, but we did not utilize Jordan much in the second quarter.

And Mark, last question for you, I again apologize for putting you in ElDorado, on Fine Chemicals looking at [inaudible] results this week, another company that's had difficulty making a go of it in Fine Chemicals, can you [inaudible] your confidence in the success of Albemarle's model in Fine Chemicals going forward?

Yeah, thanks, David. It's -- as we've said before, it's a very, very tough business, and what I think we have is a formula, service formula, where we're really taking our technical strengths and providing those strengths to customer -- to customers who need molecules built and doing that in a way to build a foundation business.

I mentioned the 90 inquiries, which is really phenomenal when you think about it, it occurred in June and now we've got a critical mass of knowledge around this business to make good informed decisions of what we work on and don't work on.

What you've seen when you look at our big picture on Fine Chemicals, you've seen a lot of erosion, and there's some big numbers have hit us and some of these businesses that we've lost and it's been difficult for people on the outside world to have seen the benefit of Fine Chemistry services. You've got to trust me a bit. It's there.

Our Fine Chemistry would have been a lot worse and as we go forward, we're starting to see some signs to indicate that we're getting close to being bottomed out in that Fine Chemistry area, the erosion there and are getting optimistic that by next year you will start seeing some pretty good growth there.

Thank you very much.

Thanks, David.

Thanks, David.

Your next question comes from Jeff Zekauskas with J.P. Morgan. Hi, good afternoon.

Hi, Jeff.

A few questions. First, just house keeping question. Did you guys publish, you know, a schema of your business segments where is you can see the sales and operating income and corporate costs, just have missed it? Isn't that what you usually do?

Yeah, we have that, Jeff, and we'll send to to you after the call. If you missed it but it's a -- we'll send it to you as a .PDF file if you need it.

Was it send sent to me and I just missed it?

Yeah, I think you just missed it. We'll be happy to get you another copy. I'll send it after the meeting.

Okay. Fine. Second, I just want to be sure that I understood the commentary correctly. Brominated flame retardant sale were up 46 or 47% and you also said that you didn't gain share, is that what you said?

Yeah, yeah, Jeff. That's our belief that we did not gain share.

Why do you think that? You think that the other producers also grew at that rate?

I can't comment about the other producers, but we've seen, you know, strong circuit board volumes as justified by the book to build ratio, very strong shipments, television our high impact, [polystriene] very strong volumes, consumer spending related.

We've got some other niche products that I think are unique to our product line where we've seen that business pick up in color copiers and toner cartridges, toner components and things like that.

So I can't speak to the other producers, but we've got I believe the broadest line in the industry and as those markets have improved year on year, we've seen that kind of growth and I -- yeah, I just do not believe it's market share related.

Jeff, we've seen -- I give you just a concert on it, we've seen in some areas like in Asia, polymer additives year to year and volume going up 80% as an example.

So we're seeing some real strong pick up and that's coming off of, you know, slow periods in the prior year and strong demand this year. So we really believe that that -- that's what the business is doing.

Well, don't mean to push things too hard, but I mean, Asia is an area where you're not cost advantaged and so -- I mean, to generate, you know, those kinds of rates of growth, I know it just seems that would have you to gain share. I mean, unless, you know, the volumes -- I mean, let's look at it a different way. How much of the volume growth do you think is prebuying in front of price increases?

Let me start with the first comment you made. This is Mark. The products that we sell into Asia are not produced in Asia by anyone, largely.

Right.

And so we have got, we think, as good a cost position if not better than anybody else in the world on this product. We're not cost disadvantaged on any of our molecules as we go into Asia. On the contrary, I think some of our business, like out of Jordan and stuff, we're probably cost advantaged.

So ATH out of Europe, we're cost advantaged versus the options that are there. So largely speaking, that's -- you know, the issue of growth and to a cost disadvantage market is just wrong.

Now, on a net backed perspective, if you look at pricing, the Asians have the been the most competitive in pricing of the raw materials. They've had their shortest lived contract. They tend to be on a short window on their contract as opposed to the North America and Europeans. So, they've beat us down, they beat down the industry in pricing but, in the same token, that's where it's going to come back the fastest for us in the industry.

So I -- you know, we're pretty confident that's what the market has done. There's not really any [inaudible] wiring board et cetera, year to year. You will see those kinds of numbers.

How much is prebuying? , you know, our customers we're talking to don't seem to be building inventory but by on my [inaudible] as we were in the late stages of 2000, those guys were saying the same thing and the world kind of came to an an end in December when they realized they built a bunch of inventory.

Right now, we're staying very close to our customers. We're talking a lot. They dodn't seem to be trying to prebuy or build inventory.

I would add that, John Steitz here, that in China, you bring up an important issue because bromine is very critical component, brominated flame retardants. Bromine availability within China is really limited. So as a result of that, there are have been a number of fringe producers in China who have backed out. So, in terms of market share there could be , you know, some just slightly I would say moderate gains versus previously fringed producers in China.

Well, I -- I mean, I -- you know, I mean, I won't try to debate the issues with you. Do you expect to keep up this level of volume growth or do you expect to it it to step down materially but still be strong, is that the right way to think about it?

Jeff, when you look at it quarter to quarter, I gave you those top 20 kind of number, we really had strong growth 1st quarter to -- 4th quarter to 1st quarter.

Yeah.

When you look, 1st quarter to 2nd quarter, the volume growth wasn't nearly quite so strong.

Right.

I don't expect that volume growth to keep at that pace that we -- that we've saw year to year, not at all. It will be -- it will be much more moderate. The real question is whether the demand is going to stay at this high level or not.

Okay. I guess -- just a last question on flame retardants. How much of your business is contracted where, you know, you're going to have to eat a little bit of -- have you to eat some of the cost for a period of time before you can raise prices, just the order of magnitude?

Flame retardants, I'd say 20, 25%, Jeff. The balance of the flame retardants tend to roll kind of in a bidding process every 3 to 4 months or so, something along those lines. Where bids will be issued, tenders, that kind of thing.

Okay. Thank you very much.

You're welcome . Thanks, Jeff.

Your next question comes from Jeffrey Cianci with UBS.

John, earlier you said something about drug pricing trends and I got distracted but maybe I didn't fully hear it. Do you expect that the worst is behind you? Did you say it was going to get a little worse before it gets better? Ibuprofen, China, India, where are you in that continuum?

Yeah, Jeff, the year on year, the pricing in Ibuprofen is down. The order of 10 to 15% year on year. Going forward, now, we haven't seen --

Do you have a sequential on that too, John?

The sequential is flat.

Okay.

Okay. Now, going forward we really have to prepare our self ourselves for the worst and if it's better than that, then it's better. But I believe it -- we could have some additional price erosion going forward. There's some additional capacity coming on in China and that could be a catalyst for some degree of additional price erosion going forward, but --

Like 15%?

Yeah, we hope -- you know, we hope it's not that bad but I don't know, we just don't know at this point.

Okay. Thank you. And then I just wanted to follow up on Mark's comment. I don't want to put him on the spot about earnings outlook, but then again maybe I do. We've got two quarters to go and if you use your math, Mark, you get to 40 cents a quarter. I haven't seen any big seasonal patterns between 3rd and 4th -- so, you know, to go from 50 cents to 40 cents, a lot of seemingly negative stuff has to happen and I can't add up to that even with the raw material comments. Is there anything else we're missing that is a weaker second half?

Well, I'm just -- I'm being cautious, Jeff when I look at -- we're going to have -- actually we've got -- we start this had year we thought raw material inflation was going to be 10 million, plus $10 million raw material and energy. We end the quarter being plus 13 or 14. Today we're saying it's plus 20. We've already got numbers in that plus 20, we're seeing in things like Phenol, where they've announced a [benzine], they've announced recently some major seasonal movements in [benzine].

So I'm a little bit forecasting in saying that the commodity guys are going to get it while they can get it, and they're going to push prices through and they have the ability to do that faster than we do. The difference is we really made about 46 cents from operation this quarter and not the 50. I mean, the 50 was from a one-time on hedging so -- and if you looked in then, I think consensus is mid 160s to high 160s, we're seeing that kind of range.

Okay. Then, other than raw material -- it's a speed of pass through. You're saying there's a lag on your part?

Yeah, that's the biggest issue, Jeff, the AG seasonality John talked about is not insignificant if you wanted more data on that he can give you that in just a second, but that can be a fairly -- a fairly large number and beyond that, that's really our concern.

Okay.

Yeah, Jeff, John Steitz, the -- our AG intermediate business is primarily a 4th quarter through 1st quarter of the following year phenomenon. And it virtually comes to a screeching halt in the 3rd quarter just by the nature of our customers production campaigns.

There's some of it in the 2nd quarter, right?

Yeah, it comes to a screeching halt in the 3rd quarter.

That's great. Thanks guys.

You bet Jeff. Thank you.

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

Hi, guys, I know you closed the acquisition here to what, maybe 4, 5, 6 weeks, but can you give us a feel for the kind of momentum they're seeing while the present ownership own this is business, kind of momentum we look forward to, you know, going forward after you do on the business?

Well, a couple of comments on that one is we anticipate to close in just a couple of weeks, the end of this month if all goes there well, Mark. The business, you know, where I find myself in a situation.

We're in a bit of a quiet period as we prepare the audited financials and get those out to you, but what I will say is when we initially talked about the business and gave views what this business would do, It's performing as we expected, in fact, if anything it's a little bit more positive momentum we're seeing out of the business than we originally anticipated.

[inaudible] if they are, for the most part able to pass through their middle price increases although they're lagging there a little lit bit just like we are, some of ours. But we anticipated that.

They're seeing strong demand growth in HPC catalyst and they're seeing good demand in [FCC]catalyst. The cost of where we anticipated it to be, the organization is extremely excited about creating this new market segment, both the [Akzo] folks and the Albemarle folks, so I think it's all systems go pretty much at the same level we were before.

I would imagine high gasoline prices are helping the FCC business, and yet if gasoline prices were to roll over, second half of the year, either just seasonally or perhaps if oil prices finally come down and perhaps gasoline demand -- gasoline prices that is, ease, does that bother you at all or do have you have enough going within that business and others that you're happy about what you see?

No, the -- the crude oil price tends to -- crude oil price and the total fuel market markets is what really really tends to drive. You're as concerned about jet and diesel and the other products that are upgraded from a barrel of oil.

No, we're seeing strong demand, as you know, in gasoline this year, year over year, but strong demand in fuels, and there's no forecast that that's going to moderate very much even know gasoline may slow a little bit and switch more to the jet [Akaro] so we don't see the fundamentals changing largely of this business from what we assumed they would be. We're pretty comfortable that it's going to be a strong business.

Then, finally, an observation and request. I'm sure Michael will very be diligent in getting us the restated numbers as you shift sales from your older segment s into this new one so that we have models that we can look at.

We know we a lot of work to do there and again, we're little bit mindful as we wrap this thing up an get into the quiet period here before we finalize our finance issue equity, we can't say a lot about it but, we are going to come out with audited financials as soon as we can, we'll get that stuff out to you guys. As we're doing that, we'll be working to create in a public forum what those models should look like.

Great. Thank you.

Thank you, Mark.

Your next question comes from Saul Ludwig with McDonald.

Good afternoon, guys. Hi guys. You know, on this flame retardant 20, 46%, how much of that was organic volume growth and how much was acquired?

Saul, John Steitz, it's about year on year about half and half, I believe.

And then you gave us the price sequential, you know, 4 to 5% versus the 1st quarter. What was it year on year?

Year on year, overall was flat which in the hole flame retardant area, but you have to keep in mind that last year at this time there was some price decreases occurring, some very minor price decreases occurring in the second half.

Okay. So now went we get to the third quarter and your prices are up 5 to 6% sequentially, what will that be year over year?

I'm -- I don't have the answer to that question, Saul, we'll have to get back to you on that.

Price trending lower as we moved into the 2nd, 3rd and 4th quarter last year so --

Yeah, they were.

Year over year at least directionally.

So the year on year would be higher, yeah.

Okay. And then an unrelated question. Your capital spending this year, which I think you said is going to be in the neighborhood of, what, $55 million, it's up, you know, a good amount from last year. What are your two or three most significant projects and are there going to be any special costs, start up costs that we should think about in conjunction with those?

Yeah, let me give that a shot. We have -- we've really developed a lot of opportunities to grow our business in a number of ways so we have a host of 5 to $10 million projects that we're looking at, which will be incremental expansions of existing business or in some cases totally new business.

In none of these cases are we looking at a grass roots facility or even a brown field facility for that amount, so we don't see any huge issues other risks relative to that. All of the projects we're looking at doing, frankly, are going to improve our company in a material way going forward organically.

Great. Thank you very much.

Saul, this is Paul, just ---

Excuse me. The other line was ringing. There

Saul, for the 1st 6 months capital spending including investment in joint venture was just under 20 million. The same level as last year.

Okay. I was talking about expectation for the year.

That will be a bit higher than 40 for the year when it's all said and done.

Right. Okay. Thanks.

You're welcome.

Have you a follow-up question from Bob Koort with Goldman Sachs.

Thanks. John, I was wondering, you gave us some sequential pricing trends in bromaine flame retardants, I think that's what it was. Do have you the year-over-year numbers as well?

Yes. Year over year right now, a lot that depends on mix too, Bob. Year on year right now, we're looking at pretty much flat pricing year on year, so the real key is in is the second half exceeding where we forecasted today. If we're in a negotiation right now for a 3rd quarter or 4th quarter piece of business, we wouldn't load that in our forcasting systems until it's confirmed and recognized by the customer. So we're working hard on that.

And if I look at the catalyst and additives part of your business there, should I expect you to be -- volume developments to be in line with what I see in the [polyolifin] markets or should it be higher and lower, and then you gave some, I think Mark Rohr, you gave some encouraging PCB shipment number in the U.S., is there a source for that number on a global basis?

You know, Bob, let me take a crack at the catalyst and additives business. The utilization of catalyst when these plants are running, you know, at very high rates is much better than when they're running at low rates. So the volume, I don't believe the volume growth rates will be as high as you see in -- in the [polyolifin] market in total.

But again, the key there for us, because we have some very niche products that use an aluminium, tin and Phenol, is as Mark described that lag period, in the second half, we've got to recover some pretty significant increases in those materials. So that's real key. We -- volume growth, I think, year on year will be up but the real key here to improve profitability is getting the pricing up based on Phenol, aluminium, tin, those key raw materials.

Bob, on the data, Mark Whitlow will put that out for you guys. This IPC data was actually on North America, those numbers I was quoting in the Bishop report, I think were my primary sources. We will make that available to all of you guys.

Okay. Thanks.

Thank you, Bob.

Have I a follow-up question from Jeff Zekauskas with J.P. Morgan. Morgan.

Just a follow up. You said that you weren't really producing that much brominated flame retardants from Jordan. Is that true, and why is that?

Jeff, let me -- you recall we built a 37,500 metric ton plant in Jordan, tetrabrome plant in Jordan, and we have a 50,000 metric ton bromaine facility, and what we have been very open about all along is to bring that on sequentially, and so we have added roughly -- we're operating a plant at about half capacity and we have done enough of the tatrabrome plant to get about one-third of that have capacity out. That plant really just started up just a few moments ago, in the sequence of things.

So, when John said it wasn't material, we were moving product but it's at a relatively low pace. We're being careful bringing that on. We're not going to try to load it up and just flood the market with that.

With that product we're bringing it on as it needed and at a kind of price that we would expect it to get. We have plenty of outlets for our bromine out of that area. And they're good outlets, we're moving a lot of bromine to places like China. That's something we couldn't do before and we're establishing a whole new business because of that. So we are -- we have -- what we want there, which is a facility where we can be opportunistic about which molecule the bromine -- bromine we move out there to maximize a return.

Okay. Just -- I was just wondering, do have you any ability to invest in [Podash] assets there and -- or is that something that you would do or it's something you wouldn't even consider?

No, we don't -- we're not -- other than being a partner with [Air Podash], we're not at all affiliated with the venture.

Okay. Thank you very much.

Thank you, Jeff.

At this time there are no further questions. Gentlemen, are there any closing remarks?

Thank you very much. This is Michael Whitlow guys. You can call to follow up on any of your questions with me. You can also call Laura, who is listed on the news release as well, my colleague, and we'll be happy to handle your questions. Thank you very much.