雅保公司 (ALB) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2004 Albemarle Corporation earnings conference call. My name is Angela, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Laura Ruiz, Director of Investor Relations. Please proceed, ma'am.

Thank you, Angela. Good afternoon. This is Laura Ruiz, Corporate Director Investor Relations, and I want to thank you for joining us today for our discussion of Albemarle's fourth-quarter results, which were released this morning. Participating with me on the call this afternoon are Mark Rohr, President and CEO; John Steitz, Senior Vice President Business Operations; and Paul Rocheleau, Senior Vice President and Chief Financial Officer.

On January 6, 2005, Albemarle provided profit guidance for the fourth quarter, indicating results of approximately 16 to 19 million or 38 to 45 cents per share. We will be reporting on the fourth quarter as well as full-year 2004 preliminary unaudited results during this call. Also announced during the early weeks of 2005 was the concurrent pricing of a public offering of common stock and senior notes. As stated in the announcement, the Company used the net proceeds from these offerings to repay the $450 million bridge loan incurred in connection with the acquisition of the refinery business of Akzo Nobel. Paul Rocheleau will be taking you through the details of these transactions.

Please note that our earnings press release as well as tables on net sales impact of price, volume, foreign exchange, joint ventures and acquisitions are posted to our website at www.Albemarle.com under the Investor Information section. We will also be posting an updated non-GAAP reconciliation to GAAP numbers on this site as well. A transcript of this call will be posted from Thomson Financial within 24 hours following the call. I also want to remind you that some of the information to be presented in today's discussion may constitute forward-looking statements, and I would like to call your attention to our caution statement posted on the website, also under Investor Information. For a list of the factors that could cause actual results to differ materially, please refer to our earnings press release and other filings with the SEC.

I would now like to turn the call over to Mark Rohr, who will provide you with a summary of the highlights for the quarter and full year.

Thanks, Laura, and good afternoon everyone. I am pleased to report fourth-quarter net sales of 451 million, up 156 million or 53 percent from the fourth quarter of 2003. These results were within the range given in our preliminary fourth-quarter announcement, and benefited from three full months of performance from the refinery catalysts acquisition. For the full-year 2004, net sales were 1.5 billion compared with 1.1 billion in the corresponding period of 2003, an increase of 36 percent. Foreign exchange effects contributed roughly 10 percent to the net sales growth for 2004, and excluding the contribution of the refinery catalysts business, net sales growth for heritage Albemarle was in the 20 percent range for the year. On a net income basis, fourth-quarter earnings totaled 19.6 million or 46 cents per diluted share. Excluding special items, this is a 7 percent increase in reported fourth-quarter 2003 results of 18.4 million or 44 cents per share.

For the full-year 2004, net income excluding specials was 75.7 million or $1.78 per share, compared to 66.8 million or $1.59 per share in 2003. Paul will be giving you more detail on the financial results later in the call. As indicated in the third-quarter earnings call and our subsequent profit statement, we anticipated fourth quarter to be a difficult one, due to the magnitude of raw material and energy cost inflation expected. This indeed played out as over one-half of a 30 million year-over-year increase in energy and raw material costs excluding metals incurred in the fourth quarter. Our ability to exceed our preliminary earnings estimate in the face of these significant headwinds is a direct result of the dedication exhibited by our global team to drive results throughout the year, and particularly in those difficult last few months of 2004.

In the fourth quarter business fundamentals were strong across the majority of our Polymer Additives segment. The Fine Chemicals segment benefited from strong volume and favorable product mix in Fine Chemistry Services, along with continued improvement in volume and price of bromine and derivatives. Good FCC volumes in the refinery catalysts business helped to minimize the impact of rising cost in this segment. Gross profit excluding special items was up 32 million to 96 million for the quarter. Execution of our price increase initiatives and announced cost reduction programs continue to contribute to our efforts to rebuild margins.

In terms of 2004 results, I would like to mention several accomplishments that we are particularly proud of. We achieved our best level of safety performance in the Company's history in terms of the OSHA recordables, achieving an injury incident rate of 0.44, which places us at the very top tier of the industry. We achieved our best level of environmental performance, reducing the incidences by 10 percent from 2003 levels, which is over a 50 percent reduction since 2001. Our Tyrone plant -- Tyrone, Pennsylvania plant -- was one of the three sites in the United States to be awarded SOCMA's Excellence Award for Responsible Care. In the area of innovation, we now have 90 pharmaceutical related products in our Fine Chemistry pipeline and another 43 products for other markets such as ag chemicals, imaging chemicals and cosmetics. With the acquisition of Akzo's refinery catalysts business, sales from new products is approaching 20 percent of our total portfolio, a level of roughly 3 times what we experienced in 2000.

Our customers obviously play an integral part in our success. In 2004, our top 30 customers grew in sales revenue by 130 million; that's nearly 30 percent. We were acknowledged by some of the leaders in this industry and we received 59 supplier awards in 2004. Looking ahead, we are mindful that leading indicators in the electronics market are weakening, and many of our Asian customers are pointing to an unexpected slowdown in the first half of 2005. However, we have not yet seen a significant impact to customer demand as we enter the first quarter of this year. 17 out of 20 of our top products in the fourth quarter of 2004 increased in net sales year-over-year, with none of these increasing from the third quarter of 2004, representing a slight sequential improvement in volume. We expect to see continued growth in the business, due in part to the success in increasing prices during the course of the fourth quarter. We will remain focused on this effort as we expect continued pressure from raw material costs in 2005, particularly in BPA, ethylene, olefins, chlorine and caustic, as well as in metal areas.

With the successful completion of the equity and debt offerings, we substantially reduced our debt to cap rate by repaying the 450 million bridge loan. Future free cash flow will be used to reduce debt, targeting 35 to 45 percent debt to cap rate over the next 12 months. With that, I'd like to turn the call over to John Steitz who heads our business operations.

Thanks, Mark. The strong results we reported today were the result of excellent execution of a number of important programs involving cost reduction, price improvement, and contribution from our new product and technology platforms. I would like to highlight these efforts which have occurred in all three of our business segments.

Polymer Additives saw the eighth straight quarter of records sales as a result of continued strong demand in our key markets. Year-over-year, Polymer Additives segment net sales for the quarter were up 24.7 percent. Operating profit improved 27.4 percent to $18.4 million, due to strong volume and pricing gains across brominated flame retardants, mineral flame retardants, and antioxidants. Operating margins in this segment have improved 21 basis points versus 2003, and roughly 100 basis points sequentially as a result of excellent execution in our pricing and cost reduction programs.

The fourth quarter presented the highest in operating profit for brominated flame retardants in three years, as price increases began to take hold. Price increases in our other plastic additives businesses were slower to materialize and overall were not able to offset the $5.5 million sequential increase in raw materials, primarily in phenol and tin. For the year, Polymer Additives posted record sales of $726 million, up 33 percent over 2003. 13 percent of sales were for new products. Despite having to overcome raw material increases of over $26 million in 2004, operating profit was up 31 percent to just over $80 million versus 2003. This performance represents the fourth consecutive year of record sales and earnings growth with compounded annual growth rates between 15 and 20 percent.

Looking ahead to the first quarter of 2005, pricing will continue to be a disciplined focus. We expect volumes to continue to hold up, albeit at slower rates than in the past, in spite of some mixed market signals. As of January, overall first-quarter 2005 volume is forecasted up about 8 percent versus 2004, and up slightly sequentially. Our critical areas of focus will be driving operating margin improvement, executing stepout business growth in China, increased global advocacy, and continued success in our new product development portfolio. Unless market demand materially declines, we expect to continue our 4-year growth trend with year-over-year increases in 2005.

Switching to our Catalysts segment, net sales were just under $130 million, up $110 million for the fourth-quarter 2004 versus 2003. Catalysts' operating profit was $13 million, up 9 million year-over-year, driven by strong sales volumes, increased prices and the acquisition of the refinery catalysts business from Akzo Nobel. Looking ahead to the first quarter of 2005, we will continue to accelerate our price increase efforts to offset the impact of raw material costs. We announced a price increase on January 21st for FCC catalysts, and are experiencing customer acceptance of this effort.

FCC catalyst volumes are expected to experience some temporary softening in early 2005 due to some expected seasonal turnarounds. We are seeing stronger demand for HPC catalysts in the first quarter of '05 despite the higher prices resulting from the previously mentioned raw material inflation. We also announced in January the opening of a specialty zeolite facility in our Bayport, Texas complex which produces a full range of hydro-treating and FCC additives. The new facility will allow us to utilize an innovative new process to address the increasing demand for additives that enhance light olefins production and the growing use of gasoline post-treatment for sulfur reduction. Sales from innovative products such as these contribute to Albemarle's ability to turn over our portfolio of sales from new products roughly every five years.

Fine Chemicals segment net sales were up just over 7 percent in the fourth quarter versus 2003. This improvement was driven by an improved product mix in the Fine Chemistry services product area, in addition to improved demand and pricing in bromine and its derivatives. December was a record sales month for ibuprofen with volume year-over-year growing 20 percent. Overall fourth-quarter 2004 operating profit was down 12 percent to $12.8 million versus 2003 due to higher raw material costs and product mix effects in the ag actives business. For the year 2004 net sales were up 24.2 million to $504.1 million while operating profit of 43.6 million was down 13 percent versus 2003 due to raw material escalation and the exit of the detergent zeolite business. This segment resulted in significant – this result is significant in that despite a decrease of 5.4 million for the year we were facing headwinds of nearly $30 million as 2004 progressed.

The impact of exiting the detergent zeolite business is now fully behind us and through exceptional team effort we were able to drive higher profitability in Fine Chemistry Services, bromine and higher value derivatives, pharmaceuticals, amines and aluminum-based performance chemicals throughout the year. New product sales were up 14 percent in 2004, and we increased the percent of new product quotes landed from 10 percent in 2003 to 14 percent in 2004 in our Fine Chemistry services business. Our team has done an excellent job in better utilization of our asset base. We expect the turnaround for Fine Chemicals in 2005 to be impacted positively by continued profitability improvement of our Jordan Bromine Company joint venture.

Critical areas of focus for Fine Chemicals in 2005 will be the continued fueling of new product growth in life sciences and maximizing our long-term bromine franchise value. So with that, I would now like to turn the call over to Paul Rocheleau for a more detailed overview of the financials.

Let me first emphasize that the press release issued today contains preliminary unaudited results for the fourth quarter and the year. These figures are subject to further review by the Company and our external auditors. The audited figures will be released as part of our annual report on Form 10-K. As I am sure you are aware audit opinions must be rendered on both the numbers and our internal controls as part of the Sarbanes-Oxley 404 process.

In the fourth quarter of 2004 our sales increased 53 percent, primarily due to the inclusion of the refinery catalysts business and the continued growth of our Polymers Additives business. The refinery catalysts business added $101.7 million of revenue in the quarter and operating profit increased 28 percent. Our new Catalysts segment reported total revenues of 130 million, and operating profit of 13 million. Overall in the fourth quarter we experienced a 220 basis point decrease in our operating profit margin compared to the fourth quarter of 2003 and a 110 point decrease versus the third quarter of 2004. Despite significant pricing improvements we failed to offset the rapid inflation of raw materials at each of the three segments during the quarter as mentioned by John and Mark.

Our unallocated corporate expenses were up 4.4 million compared to the fourth quarter of 2003 as we recorded increased non-cash charges for long-term compensation. During 2004 we issued restricted pro forma shares in lieu of options as part of our long-term compensation program. As a result of the Company's performance we recorded non-cash charges of $4 million in the quarter as dictated by vesting schedules and performance targets.

I just want to mention that we are in the process of evaluating the methodology to record the FAS 123R expenses and the timing of the implementation of those charges. This is the first full quarter with a higher debt level associated with the acquisition. And we incurred $8 million in net interest expense as compared to $1 million last year. Even with the higher incremental interest expense the catalyst acquisition has been earnings accretive for the five months under our ownership. Our effective tax rate for the quarter was approximately 18 percent, significantly below the 29 percent rate from a year earlier.

As we closed out 2004, there were approximately $2.6 million of favorable tax adjustments associated with the fourth quarter and the year end closing. Absent the benefit of these adjustments, the annual effective tax rate for 2004 was about 29 percent. We believe this is a reasonable assumption for full year 2005. However, quarterly rates will fluctuate in this projected annual effective rate due to the timing of recognition of certain tax benefits.

For the full year we reported net income for the four specials of $75.7 million, up 13 percent from 2003. On a GAAP basis full year 2004 net income was 54.8 million, a decrease of 24 percent from 2003. The specials are detailed in the last page of our press release, but remember in the third quarter there were 22 million of after-tax expenses associated with the refinery catalysts acquisition.

In the press release we have also provided selected cash flow information as the results are still subject to final review. You will note that capital spending for the quarter was approximately $20 million and for the year 57 million. In addition we made further investments in joint ventures of 10.6 million. We expect capital spending in 2005 of approximately $80 million.

Let me again mention that our balance sheet accounts are still subject to revision due to the final allocation of the purchase price of the refinery catalyst business. Furthermore, we remain in negotiations with Akzo Nobel regarding the final settlement of working capital related to the acquisition.

As we closed out 2004 we had total debt of $944 million, including our $450 million bridge loan. As mentioned earlier, we've repaid the 450 million bridge loan with the combined notes and equity offer. We issued $325 million of ten-year notes with a coupon of 5.1 percent, and issued 4.5 million new shares at a price of $34 a share. Approximately 57 percent of the offering shares were purchased by new investors in the Company. The notes offering was upsized from the announced offering by 25 million to take advantage of strong demand and to better-than-expected coupons.

The combined net proceeds from the offerings were $471 million. After retiring the bridge loan the remaining proceeds were used to repay other short-term debt. After closing of the refinancing, our mix of fixed rate debt to floating-rate debt is approximately 40 percent fixed, to 60 percent floating. On a prospective basis our fully diluted shares outstanding will increase to approximately 47.5 million shares. At year’s end our debt to capital rate was approximately 57 percent, and as with the equity offer this has been reduced to approximately 50 percent. We will continue to drive our business to generate cash and to further strengthen the balance sheet.

Let me now turn this over to Laura for the Q&A.

Angela, we are ready to accept questions at this point.

(OPERATOR INSTRUCTIONS) Jeff Zekauskas of J.P. Morgan.

What is your capacity utilization rate currently in brominated flame retardants in rough terms?

Jeff, we are running really very close to capacity in almost all our product lines, so I would say pretty much at capacity across the board. Brominated flame retardants and aluminum trihydrate the ATH mineral flame retardants, you have got -- we are probably running in the 85 to 90 percent range, so very high but we had a little room to grow there.

So is it fair to say that the operating profit growth in flame retardants -- in brominated flame retardants for next year will largely be a function of price raw materials differential?

Absolutely. There are some mix effects too, as we continue to try to sell some of our higher value solutions for our customers, primarily in engineered thermoplastics. But primarily it is offsetting what we see as continued dramatic raw material increases of pricing leverage in the marketplace. That is correct.

Lastly for Paul Rocheleau, sort of what is a good quarterly interest expense for you right now with all of the reshuffling of your debt?

I think you're looking at it Jeff, clearly with this change with the fixed notes we will have a higher coupon than the floating-rate in the fourth quarter, but we have the equity issuance. So for the full year '05 a number of around 30 million is pretty good. Of course it depends on what the Federal Reserve does in raising rates further.

30 for your interest expense?

Correct.

Okay. Thank you.

Ray Kramer of First Analysis.

Do you have price and volume breakdown on flame retardants by themselves?

Sure. What would you like to hear?

Whatever you've got but if you have year-over-year price volume and then anything sequentially that would be great.

In brominated flame retardants volumes are pretty well flat sequentially, but up about 11 percent versus last year. Pricing across the brominated flame retardant area was up in the mid-teens year on year, and up in the 9 to 10 percent range sequentially. And we are continuing to drive prices as we had a number of commitments that expired at the end of the year. So we've got some new pricing kicking across the brominated flame retardants January 1, so in other words, first quarter of '05.

What is the magnitude of those price increases?

I think we are looking at high, mid-teens overall. We feel pretty good about that. But you've got to keep in mind we are looking also at first quarter of another $20 million in raw material inflation in our legacy businesses.

Is that coming mostly from chlorine or is that sort of everything?

It's across the board. It is all the chlorine, ATH, the aluminum based, caustic is at an all-time high, olefins, metals, phenol, isobutylene, we got surprised by toluene the other day, so, yes, it's across the board.

Okay and then shifting gears a little on the catalyst front with molybdenum pricing, I had always thought that that was largely a pass-through so that you really wouldn't see much of a margin impact from that. Can you comment on sort of how the contracts had been structured and if you are changing those in any way sort of in reaction to the molybdenum price increases?

Yes, I sure can. I think you’re spot on. We've done a good job of passing through those moly increases. And they have been generally accepted in the industry across the board. The issue becomes at that higher price level the refineries tend to hold off on turnaround. So we have seen some softening of the moly or HPC catalysts sequentially. So third to fourth quarter we saw some softening of those volumes but we are seeing volumes pick up again in HPC this first quarter. On the FCC side we announced an increase that has been generally accepted in the marketplace. But we had anticipated that volumes would soften up in FCC in the first quarter because there are a couple of major refiners that are having turnarounds in the first quarter prior to the big gasoline season in the late spring - summer time. Fundamentally, the long-term volumes are very, very sound. And the long-term fundamentals of this business are really incredibly stable.

Just looking sort of taking a step back broadly I know Mark I think a couple quarters ago you had pushed a big China growth strategy, when you look out '05 '06, where do you see the big portions of your growth coming either geographically or by product line?

Regarding China I think we are going to end up 2004 with China sales of $100 million or so, which is double what we had the year before and double what we had the year before that so we have really seen dramatic growth in that region. We've got a new joint venture we are working on over there to expand some capacity. I think I mentioned to you we started up a catalyst plant there we are pretty excited about. So that continues to be an area of major focus for us. I would have to say if I look at growth in the Polymer Additives area, it is clearly going to be in Asia and it's going to come out of Greater China and Korea and primarily with Japan seeing some growth, but not as much. In the catalyst area the growth is going to be in the U.S. as we see more refineries going to the lower sulfur gasoline and diesel specifications. So you should expect growth there and I think that also holds true to some extent for Europe.

In Fine Chemistry Services that business is still primarily a U.S.-based business, although we are getting some good inquiries in Europe. So I think a pretty broad geographic spread for us, Ray. The new venture -- I will say the new venture we have in Brazil, the catalyst venture is doing quite well. We are expanding that plant down there. If you look at 2006 and 2007 and beyond we expect some pretty dramatic growth down in Latin America, too.

Okay, great. And then finally, just for Paul, can you tell me what is in the equity and unconsolidated investments line? I get the feeling it is a couple of different things that are sort of working against each other there. Can you sort of break out the pieces in that line item?

Yes, I think the picture you should have there Ray, is that this unconsolidated investment line is going to become more significant for the Company as we go into 2005 for a couple reasons. First of all, we have the joint ventures for the catalyst business. Recall that we have about a $160 million of revenue, that is not consolidated with catalyst, and the earnings flowing through that are fairly significant. So we are going to be picking that up in '05. And also as John mentioned, our Jordan Bromine Co. joint venture is flipping into profitability after 18 months of startup activity, and driven by the higher bromine volumes and pricing. So the MI line is going to become fairly significant as we go into '05.

So is it am I hearing correctly that in the fourth quarter you didn't really even see the full benefit from the Akzo stuff in that line item?

We did. The Akzo, a little over $1 million.

Okay and do you have any sense since it is going up so much, any sense of what that could be next year?

I think we very well may get a double-digit profitability, plus or minus a couple of million around there.

Okay, great. Thanks a lot everybody.

Bob Koort of Goldman Sachs.

This is Amy Zoff of Goldman Sachs and I am going to ask a question on behalf of Bob Koort. Actually I just wonder what is your perspective about the raw material pressure? In the first half of 2005, are you expecting a big relief on that headwinds or the raw materials are going to be at the same level?

What we are seeing, Amy, if you look at -- you've got to look back first at 2004. And we had half of the inflation in 2004 incurred in the last quarter. First quarter of 2005 versus first quarter of 2004 shows a good bit of inflation, $19 million or so, $20 million is the number we are throwing around. However when we look at it on a full year basis we are expecting that to taper off a bit in the latter half of the year. So the expectation you should have is we're looking at $40 to $50 million of inflation for the year in raw materials, and we expect that to hit predominantly in the first half of the year.

David Begleiter of Deutsche Bank.

In your preparary remarks you made a comment about maximizing a long-term value of the Bromine franchise, can you just expand that comment?

Yes, the bromine, David, has gotten very tight around the world in terms of supply and demand. So in addition to brominated flame retardants, we sell elemental bromine, we sell clear brine fluids, we sell inorganic bromides into a wide range of industries. We sell some bromated solvents, we sell some bromated organic compounds. So what we look at internally in terms of our execution and price increase is that entire bromine chain. And we look at trying to elevate the entire level of profitability of that bromine chain based on the contribution from bromine that it has. So we are not just trying to one-off tetrabrome, one-off decabrome, we are trying to elevate the whole level of that franchise in terms of pricing, and the key issue there is execution on a global basis. That is really what I was referring to in those comments. So I hope that answered your question. We've been trying to raise our returns because they have been so weak in some areas in our bromine portfolio; we are just trying to raise the profitability level through increased pricing, taking advantage of the tight supply and demand situation today.

That's very helpful. And John, you also mentioned I think in polymer additive the non-bromine businesses had a little problem passing through pricing. Maybe if you could comment on that as well.

It is primarily phenol related, because in the first couple of weeks of October, I think we were shocked by the order of magnitude of the phenol stream. It has eased up a little bit here in January, but based on what we are seeing in the benzene chain we are thinking that that could go back up. So there tends to be a bit of a lag in getting that price, those prices through into the market. It appears to us right now that all our phenol-based businesses are back on track in the first quarter in terms of profitability because of that escalation.

And just lastly for you, Mark, looking at Fine Chemicals it actually is progressing quite nicely. What do you think is a longer-term potential of this business, and what are your expectations over the next two years?

Well, David when we look at this business we have been trying to explain to everyone how the positive side of the it, the growth we've seen in Fine Chemistry Services was being somewhat masked by the maturing of selected products and they were being phased out of our portfolio. We think that has largely run its course and so our expectation is to be able to build on our profits fairly nicely this year in establishing a new platform to grow on in some of the areas that John has talked about in the past. Areas like cytotoxins and some other niche APIs and intermediates and actives. So our expectation here is that what you should expect is sales volume to remain fairly constant in this business and for us to continue to drive margin for some period of time as we displace these older lower value products with newer higher value products.

When do we get to do you think double-digit operating margins in this segment?

We have still got some work -- a ways to go to get there obviously David. I would hope as we get into 2006 and towards the end of 2006 you will be seeing that.

Thank you very much.

(OPERATOR INSTRUCTIONS) Mike Sison from Key McDonald.

I wanted to get a better feel for catalysts. The data you gave us the historical showed a 30 percent increase in volume. That is just the polyolefin catalyst volume growth in the quarter, right?

You are referring to the sheet on the website?

Right.

That would just be the historic polyolefin catalyst.

And could you give us better feel of what the volume growth was for FCCs and hydro-processing catalyst organically year-over-year?

Yes, if you just look at the businesses if we had it the entire time, I think is what your question is Mike. Year on year actually FCC volumes in the quarter were up significantly but a better barometer might be year on year, so FCC was up 8, 9 percent year-on-year.

That is '04 versus '03?

That's correct.

Okay.

And HPC was up about 5.5 percent year on year, 5 to 6 percent year on year volume.

Okay. Did you gain share? Is that right about in line with --?

No, our feeling is that we have not gained share, that really with the heavier crudes and more sour crudes coming in you know the price of oil today and the desire of many refiners to go to cheaper crudes as they can possibly get their hands on, that is really driving some nicer volumes over an extended period of time. I would caution you, though, first quarter we will have a decline in FCC volumes because there are a number of our large customers going through some shutdowns.

Okay. Then Mark, when you talked about the 40 to 50 million in raw material increases in '05 and you take a look at the pricing that you got in the fourth quarter and what you're probably going to get in total for the year, are you going to be able to catch up in and sort of cover the gap, if you will, at some point in '05?

We think we're starting to spread margins positively now with our pricing, and this is all predicated on volumes staying kind of where they are.

Right.

But short of a slowdown we think we will see, we will be able to start spreading margin this year.

So when you look at catalyst margins in the fourth quarter at sort of 10 percent and down from sort of 13 percent in the third quarter, the bulk of that was raw materials. There wasn't a mix issue sequentially, was there?

No, Mike, there was actually a mix issue because there was a -- this business is rather lumpy as we described it and in the third quarter there was a very large high profit mix order that shipped out in September that did skew it a bit. But so you did have a bit of a mix effect there.

So when you go from the fourth quarter to the first quarter with that FCC client temporarily being down your margins will probably be flat?

I would say so, margins flat.

Okay. Shifting gears real quick, Fine Chemicals, I think John you mentioned strong volume growth in a couple of areas. Now the volume growth that you showed, it was sort of zero, but was that mostly because of the zeolite?

Zeolite was year on year now, zeolite was a pretty big volume number. So that is obviously gone, and we believe we filled that with some higher profit margin products.

So when you told us ibuprofen volumes were up fairly nicely, can you give us just a better feel for Fine Chemistry and bromine as well?

The thing I'd have to say is we had nice volumes and profit generation from our oilfield business. We had very strong volumes and profit in our ag intermediates business. But that was offset by a sequential decline in methyl bromide from the third quarter to fourth quarter. So and we are looking for a similar decline in the first quarter of '05 in methyl bromide. So and that tends to be fairly seasonal. The majority of those sales occur in the second and third quarters.

Okay. And --.

Otherwise bromine, elemental bromine has been strong. And our bromine derivative business is doing well, and we are really, as I mentioned earlier, pushing a price improvement there very strongly.

Last question, you guys really haven't given us much guidance for '05 in terms of earnings in total. Could you maybe give us a feel? Are you pretty optimistic about earnings growth in '05 versus '04, or just maybe give us the leverage which would give you better earnings growth to less earnings growth?

You know when I look at the fundamentals of the business, if the volume stays the way it is -- it ran in the fourth quarter, let's say, for the year we think that the consensus numbers that are out there are in the right kind of range for the year. But we're going to start off slower and end stronger to meet that kind of number.

Right. Thanks, guys.

A follow-up question from Jeff Zekauskas of J.P. Morgan.

What is your expected depreciation and amortization number for 2005?

The purchase price allocation is still being finalized, so I am going to say you have to take a preliminary estimate, but it would be in a range of 110 and $120 million. If you look at our depreciation and amortization in the fourth quarter that was about $28 million.

Right. Now I realize that '06 is a long way off, but do those numbers change substantially in '06 in your opinion?

I have got to say basically they are about the same, if you go back to our historic pattern our D&A was roughly the 80 million. Even though we were -- our capital spending was well below that, the bolt-on acquisitions added to that level. So I think it's fair to say that the 110 to 120 is a good estimate in the next couple of years.

Forgive me for not knowing this. You said that the year in '05 might start out slow. In any of your public statements did you talk about how slow it might be in the beginning?

I don't think so, Jeff. This is Mark.

Is it so slow as to be down in the first quarter?

No, I didn't say that. I just said --.

Not that slow.

You have the Chinese New Year and --.

Right. Also, when you look at Great Lakes' results and it looks like there is some sort of customer inventory build ahead of the price increases.

No, I don't think it is ahead of the price increases. If you recall in November if you looked at the book-to-bill ratios, November was the first time since April of 2003 – I am talking about November of 2004 -- that the book-to-bill fell below 1. So we had had about 18 months of growth and so that is the first data point we have seen there. Likewise some of the electronic connectors businesses have fallen off in October and November. So I am giving you all this with a little bit of a grain of salt, but for the most part we've seen volumes hold up. But we're a little uneasy at these leading indicators may point to a slowdown that occurs in the first part of the year. And that is all I'm indicating.

So do you expect the profits in your bromine business to be down in the first quarter?

Jeff, I am telling you as much as I know about it. I think fundamentally when if you’re asking a question relative to perspective for the year, and if I will pick any number for a year, I would just say it's going to be a bit weaker in the first half than the second half. We still have got a lot of inflation going on, it is still quite high. And I think there is risk of volume falloff higher in the first part of the year than the second.

All right. Thank you very much.

(OPERATOR INSTRUCTIONS) You have no further questions at this time.

If there are any further questions you may contact me directly. Otherwise I appreciate everyone joining the call today. Thank you.

Thank you for your participation in today's conference; this concludes your presentation. You may now disconnect. Everyone, have a wonderful day.