雅保公司 (ALB) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2009 Albemarle Corp. earnings conference call. My name is Katie, and I will be your coordinator for today. At this time all participants will be in a listen-only mode. (Operator Instructions). I would like to now turn the call over to your host for today, Ms. Sandra Rodriguez, Director of Investor Relations.

Thanks, Katie. Good morning, everyone, and thank you for joining us today for a review of Albemarle's first-quarter results, which were released after the market closed yesterday. Our press release contains preliminary results for the quarter and this information is subject to further reviews by the Company and our auditors as part of our quarter-end review process. Please note that we have posted supplemental sales information, as well as reconciliations for net debt and EBITDA on our website under the Investor Information section at Albemarle.com.

I'd also like to caution that remarks today contain forward-looking statements. Factors that could cause results to differ from expectations are listed in our annual report on Form 10-K.

Participating with me on the call this morning are Mark Rohr, Chairman and CEO; John Steitz, Chief Operating Officer; and Rich Diemer, Chief Financial Officer. At this time I will turn the call over to Mark.

Thanks, Sandra, and good morning, everyone. As always, I appreciate you listening in this morning and participating on the call as we share our performance results and answer your questions.

As we previously reported, demand for our products in construction, automotive and electronics end markets declined significantly over the second half of last year, and has continued well into the first quarter. As we entered March, we began to see early indications of a new base being established in a number of our markets. As we go through the discussion this morning, we will share as much clarity regarding these trends as we can. However, I hope you'll appreciate the continued lack of clarity throughout many customer-related end markets. I feel it's best to start our review today by sharing the steps we are taking to manage business in the face of what will likely be a prolonged period of weak demand.

In the first quarter, we enacted very aggressive cost savings actions. These proactive measures included workforce reductions and furloughs in most of our sites globally, freezes on salaries, wages and also hiring and drastic reductions in discretionary spending. All in all these actions position us to save in excess of $40 million this year, which will start this quarter. In addition we have taken steps with each of our businesses, their assets and infrastructure to operate them efficiently at lower volume levels. Looking forward, we have begun a top to bottom strategic review of each business, element by element, to seek opportunities for growth in this new market environment. These reviews have targeted $120 million of opportunity through structural changes in business, support, manufacturing and technology. These promote year-over-year growth through 2012. I expect we will be able to share more color on these steps with you at our investor conference in New York on May 19.

With that background let's move on to our quarterly performance. Without a doubt this was an extremely challenging quarter. While battling through anemic demand and low manufacturing utilizations in Polymers and Fine Chemicals, as well as high-cost inventories in Catalysts, we delivered earnings of $25 million or $0.28 per share. Net sales for the first quarter were $487 million, down 27% compared to the $668 million in the first quarter of 2008 and down 6% sequentially.

To put the volume shortfall and high inventory cost basis into perspective, we experienced over $60 million of unabsorbed fixed costs in the first quarter as we ran our Polymer and Fine Chemicals plants at approximately 40% capacity. In addition, about $15 million of high inventory costs we could not pass through to our customers. Combine that with $75 million of headwinds we faced in the first quarter.

In our Polymer segment, demand declined further from the fourth quarter, largely due to the continued weak electronics and construction automotive markets. To put that in perspective January sales of tetra brome into circuit boards were roughly 10% of our 2007 monthly average. Altogether, sales for Polymer Additives were down almost 50% from last year, yielding an operating loss in the segment for the first time in our corporate history. As we start the second quarter, the destocking actions throughout the supply chain appear to be over and we are seeing an increase in additives volumes across the chain.

Repercussions of the drop in additives demand, coupled with a sharp decline in industrial bromide volumes, primarily clear completion fluids, pressured our Fine Chemicals performance this quarter. Revenue was down 25% from the fourth quarter and segment profit was down about 50%. It might not be obvious, but against the backdrop of lackluster performance across our bromine franchise, Fine Chemistry services delivered a solid quarter as demand [performing in those] products remains strong.

Our Catalysts segment results came in as expected this quarter with strong top-line performance. Sales were up 17% sequentially and profit was up 14% quarter to quarter. Also as we expected profitability was negatively impacted by high-cost metals inventory. We estimate catalyst profitability would have exceeded $50 million, absent the high cost inventory hit. Solid pricing in FCC and polyolefins catalysts, strong volumes in HPC, and contributions from our alternative fuels business bode well for this segment to deliver outstanding results for the year.

Looking forward, our views on the remainder of 2009 have not materially changed from our last update. Raw material deflation will occur this year to the tune of roughly $200 million. Energy should add an additional $20 million to $25 million of opportunity for us. We do not anticipate significant end-market recovery before 2010, but we will see the benefits of the steps we have taken throughout this year and next, combining our actions to improve productivity, cut operational and business costs, while slowly improving business trends gives us confidence in our ability to show sequential growth in the second quarter and throughout the year.

So with that, let me ask John to provide more details on each business segment.

Thanks, Mark. Good morning. I'll begin with the Polymer Additives segment. Net sales for the first quarter totaled $123 million, down 50% year over year and down 17% sequentially. We saw nearly the same percentage declines in total metric ton volumes with most of the decline occurring in the first two months of the quarter. The persistent pressures on volumes in January and February started easing in March, and we are seeing even better volumes in April, which we believe is a good indication that we have reached the bottom this quarter and can look for sequential improvements in the second quarter.

We were able to maintain great pricing discipline across the portfolio. However, the business could not overcome headwinds from declining volumes and higher unabsorbed costs in the quarter. For the first time, Polymer segment posted an operating loss for the quarter of $11.7 million. Margins were substantially diluted by unabsorbed fixed costs due to reduced production volumes in both flame retardants and stabilizers and curatives.

Production was idled to running at low rates at nearly all of our Polymer units in the US and overseas during the first quarter. The resulting unabsorbed costs negatively impacted Polymer's bottom line by nearly $28 million. We expect continued unabsorbed cost impacts in the second quarter, but not as high levels.

All that said, we feel confident in the steps we've taken and cost reductions and expected volume improvements will yield positive sequential performance in this segment.

Moving on to fine chemicals. Net sales for the first quarter were $121 million compared to $147 million in the first quarter of last year. Segment income for the quarter was $8.7 million. The business could not overcome the dramatic reduction of volume demand for bromine. This negatively impacted Fine Chemicals' profits by approximately $26 million for the quarter.

In addition, our industrial bromides volumes were down about 40% year over year, primarily due to the steep downturn in oil exploration and drilling. Rig count in North America declined by almost 30% in the quarter.

The economic situation certainly contributed to the rapid and deep reduction in the US Gulf of Mexico activity we are seeing.

The positive note related to our bromine franchise and our bromine-based Mercury control solutions. Last week, the EPA proposed a ruling that would require US cement plants to reduce stack emissions of mercury, dust and other pollutants. Important to the EPA, some cement plants' mercury emissions equal those high levels of coal-fired power plants. Our proprietary high mercury removal concrete-friendly sorbants produce fly ash for concrete use. This could be a very promising opportunity for this business.

The recession-resistant nature of our fine chemistry services portfolio helped drive year-over-year and sequential sales gains in this business. While not robust enough to offset the bromine headwinds in the quarter, our fine chemistry services businesses saw sequential profit improvements and is poised to deliver solid performance for the year.

The healthcare sector has been fairly resilient through this difficult period, and we have some exciting opportunities in the pharmaceutical and related antiviral areas.

We also have a number of new proprietary crop protection components that we are targeting to commercialize in the second half of the year as well.

With that, I'll move on to catalysts. Catalysts' net sales for the quarter were $243 million, down 12% compared to the first quarter of '08, due primarily to the unfavorable metals price impact, and lower year-over-year volumes in FCC. Net sales improved sequentially by 17% on significantly higher HPC volumes. Volumes in HPC more than doubled from the fourth quarter. Segment income for the quarter was just under $36 million with segment margin of about 15%. As expected, margins were diluted by high cost metals inventory this quarter, which should rebound nicely as we work through the remainder of that inventory.

HPC volumes directionally met our expectations this quarter, and we are building more confidence in achieving our targets for the year. Our team did an excellent job with mitigating higher cost inventory carry-over that could have been an even larger headwind had it not been for their tremendous efforts. We will have some carryover of high-cost metals in second quarter, but should see sequential improvement in dollars and margin profitability going forward.

Our FCC business delivered strong performance in the first quarter. As expected, FCC volumes were down sequentially and year over year, however, pricing traction helped offset volume declines and improved profitability in this business. We expect FCC volumes to increase as we head into the seasonal driving season.

Our polyolefin catalyst business experienced a correction in volumes this quarter from recessionary impacts, reflecting slower January and February months. We slowed production to stay ahead of the curve in this area, but anticipate improved sequential volumes going forward, and again strong performance for the year. Wrapping up catalysts, we remain confident in our full-year outlook of growth in revenue and profits to exceed 2008 levels. We expect strong HPC volumes for the year and FCC and polyolefin catalysts to continue showing good pricing momentum around the globe.

Today more than ever, our customers remain focused on trying to save costs and conserve capital. Our focus on higher value offerings and strong service capabilities provide us the ability to meet these needs. We have an ongoing focus of driving productivity in all parts of the business and the result of this work is to reduce our fixed cost base and improve our leverage. With that, I'll turn it over to Rich.

Thank you, John, and good morning to all. The items that I would like to cover on today's calls are income taxes, corporate expense, CapEx, working capital, and our quarter-end balance sheet and financial positions.

Beginning with taxes, our Q1 tax expense includes a benefit of $2.5 million related to prior-year tax adjustments. As we look at the rest of the year, we reduced our full-year effective tax rate to 14%. This is based on anticipated levels of taxable income and the countries in which we anticipate earning our profits during the remainder of 2009.

Based on our first-quarter performance and our current outlook for the year, it became apparent that our long-term incentive program was unlikely to achieve performance targets, and as a result, we reversed $7.8 million of accruals related to this program. As a result, unallocated corporate expense in the quarter was a credit of $600,000. Our revised view of 2009 corporate expense on a go-forward basis is approximately $10 million per quarter, or $30 million for the year. Our run rate over the past eight quarters has been approximately $12.5 million per quarter. So you can see some of the direct results of our cost focus and current year belt tightening.

Our EBITDA in the quarter was $58 million, about half of Q1 2008 EBITDA. We ended the quarter with cash and equivalents of $184 million. CapEx for the quarter was $33 million, and we have revised our CapEx plan for the year from $120 million to $90 million. This will allow us to conserve cash as we focus on the most critical projects.

Depreciation and amortization in Q1 was $26 million, and our best estimate is for $105 million to $110 million of D&A for the year.

Including $52 million of debt at JVC, our Jordanian venture, at quarter end, we had consolidated debt of $918 million, down $14 million from year end. $534 million of our debt is floating rate, and $384 million is fixed rate, approximately a 60/40 ratio. Our floating debt interest rate was 1.1% at quarter end. The weighted average interest rate for Q1 was 2.76%. Net of $184 million cash on hand and excluding $29 million of unguaranteed yet consolidated JVC debt, our net debt was $705 million at quarter end.

Our debt to cap ratio is 47%. Our net debt to cap is 41%. And our total debt to EBITDA ratio is approximately 2.7 times. We have no significant scheduled debt maturities until 2013. We reduced net working capital by about $50 million in the quarter. And that's over $185 million reduction over the next six months. We have aggressive goals in 2009 to drive working capital out of our businesses and anticipate further traction on this front as the year progresses.

With that, let me turn it back to Sandra.

Thanks, Rich. Okay, Katie, we would like to open it up for questions.

(Operator Instructions). Jeff Zekauskas, JPMorgan.

Good morning. You talked about improvements in your Polymer Additives business. Can you give us a sense, just order of magnitude, how much utilization rates seem to be changing from the first to the second quarter and whether you might make it into the black in the second quarter.

This is John Steitz. I think sequential improvement -- we are not talking about double. We are talking about I think incrementally going -- volumes improving in the 10% to 20% range. This is after three weeks of April under our belt. But it appears to us that volumes, at least for the near-term here, have bottomed out, so we are hope so we are hopeful, and we're going to work very, very hard to get this business in the black, and that's one of our key focus points this quarter.

So the goal is to get it into the black.

You bet.

In your Catalysts business, your price mix was up 1.7%. Was that influenced by your molybdenum issues, or is that a real number?

No, I think it's mostly influenced by the higher amount of HPC sales in the quarter. And that was adjusted downward by the metals impact. And then the upward effect on pricing is offset negatively by the mix effect of the lower FCC volume, but offset in a positive way by real pricing gains in that business.

See because I guess what I would've expected is FCC price -- you said there were solid prices in FCC and polyolefin catalysts. I would think the mix for selling HPC would be exceptionally strong. So I guess I was wondering why the price mix number wasn't larger.

Yes, I think it's because of the year-over-year volume declines in FCC.

Okay. I guess what I can do is I can follow up on that. I very much appreciate it. Thank you.

Mike Judd, Greenwich Consulting.

Thanks for taking my question. I was interested in your comments about improvements in Polymer Additives. That's great. I guess I would ask in terms of these volumes, do you think that there's really just some sort of inventory restocking going on here, or do you see the demand that's beginning to pick up in April as sustainable from here on out, or do you think this is more of a temporary blip?

I think I would say yes to all your questions. Clearly, there is some inventory restocking going on. It's hard for us to gauge just what that means. But if you listen to companies like LG and Samsung, they'll talk about inherent demand picking up in consumer areas like TVs and things like that. There's been some [value] on PC demand picking up, I think on the basis of a lot of the new models, these smaller -- PCs out there, these notebooks that are coming out have driven some higher demands in some areas. So I think it's a combination of both things.

The real inherent question is, is it sustainable? In other words, is this really a foundation from which we're going to see sequential every quarter growth in volume. And it's really too early to tell that. I would hope that as we end this quarter and start to have a chance to look into the third quarter, we will be in a better position to answer that fundamental question.

Thank you.

Amy Chan, Goldman Sachs.

Actually it's Bob Koort. A question for you guys. Always helpful in providing the segment data on your website as well, and I guess it's been a couple years since you had real homerun results out of the Catalysts business. I'm just wondering if -- you produced big volume gains in '04 and '05, it decelerated ion '06 and now the last couple of years it's been somewhat disappointing. Has there been a secular change or structural change? Did we meet whatever regulatory requirements we had to meet in fuel streams and so the demand growth has abated? What would you characterize as the reason for a pretty dramatic deceleration, and what gives you hope that that's going to reverse?

Well I think if you look at that business, and I'll talk about each comment, but I'll let John hop in here too in just a second, Bob. If you look at last year, if we just start with last year, we had strong early year volume growth, year-over-year volume growth in those segments. And then as the impact of $140 plus barrel crude kind of rolled through the system. You're aware of what happened to refinery margins living in Houston. So we saw a lot of actions to dramatically cut back throughput at that time, and we saw particularly that impacting our HPC volumes pretty dramatically. It had some impact on FCC, particularly on HPC. So we had a pretty weak second half last year all in all in HPC. It ended up year over year down in volumes. As we look at it this year, year over year, and going back a couple years we expect this to be a very strong volume year in HPC.

The dilemma you've got is the first quarter, and a little bit as we go through this year, but primarily the first quarter has been clouded by this drop in moly price from $35 to sub-$10. And so that's got to work its way through the system. So you've been jaded there. Were it not for that, we would be operating at really a $200 million profitability kind of run rate, which is, again, showing the same kind of sequential growth year over year we expect out of that business.

So I think we will get back to these high margins, again, I'll ask John to comment in just a second. Let me say just one other comment I'll make on that. If you look at FCC, there are secular issues occurring in that business in the US. As gasoline demand goes down, we are seeing really high volumes or appetites for our good technology we have, upgrading heavier materials and pushing more diesel. So we will see how that all sorts out. Could the FCC market be a bit smaller in the US than it's been? Probably. But we have some good technology there, and we feel pretty good about that.

So John, maybe, would you add just a few comments on -- particularly on polyolefins as well?

Yes, Bob, I would just add we saw a decline in polyolefin catalyst due to a decline in production levels of our customers in the polyolefin field. So you can -- I'm sure you've seen that in some other areas.

The FCC result delivered record profit in the quarter. And that was despite -- we saw a low demand for our really high-value polypropylene -- propylene-based FCC catalysts. And so that impacted the mix a bit as well.

But back to -- the HPC was a real issue. And if you look at theoretical decrease in selling prices that moly created in the first quarter alone, then that comes to about $50 million if you look at the decline of molybdenum pricing late in the fourth quarter that has impacted this business. Now, what our teams were able to do is mitigate that significantly, and we are very proud of that. So going forward, we are looking at, I think, some good profitability levels that we are expecting, and the comps year over year in our HPC business will look very attractive as well going forward.

Got it. And Mark, just a quick follow-up. I don't know if it speaks poorly of the end market [share], but it seems like you keep having customers that are -- competitors, rather, enter bankruptcy. Just wondering if you see any different competitive dynamic either in catalysts or in additives as a result of that.

No, Bob. It's -- the parties are behaving responsibly out there, and they are doing their best to try to get back on their feet. So we don't see any particular difference in the competitive landscape because of those situations.

Okay. Thank you.

Steve Schulman, Lafayette Research.

You made a reference to antivirals. Have you got any orders for new Tamiflu stocks, and do you see that increasing here in the short term?

There's a lot of discussion going on right now, Steve. And you can imagine, with all the press and the preponderance of this swine flu potential pandemic, that there is a lot of discussion about refilling some of the stockpiles, particularly of Tamiflu. And we've had a key role in the manufacturing supply chain on Tamiflu. So there's a lot of discussion going on right now as we speak.

And then to follow up, you made some pretty positive comments about some of your alternative energy catalysts. I was under the impression that wasn't really going to kick in until potentially late this year and really next year from a profitability standpoint. Could you elaborate on some of those?

Yes. Most of it we have talked a bit about in the past with Neste, which is a big biomass, biofuels producer. Most of that kicks in in 2010. But as you can imagine, with a lot of the discussions around administrative support for alternative forms of energy, again, there's a lot of activity, a lot of joint technical development agreements we've entered into with a lot of major players in this area. So we are very hopeful that this business will be a large, sustainable one for the future for us in 2010 and beyond.

Dave Begleiter, Deutsche Bank.

John, could you give a little more color on bromine [F4] pricing? Is it fully holding? Has there been some erosion? And what's the prospect, do you think, over the next three to six months?

The fact is, David, with the production curtailments that I think the entire industry has seen, I don't think any suppliers in our space have taken advantage of any decrease in raw materials. And as a result of the curtailment of volumes of our customers, there really hasn't been any significant negotiations going on.

With that said, in tetrabrome, tetrabrome is built on BPA. BPA has gone down tremendously over the last six months, so we do toll manufacture some of our tetrabrome. And we do see some pricing decreases, reflecting the lower BPA prices. But outside of that, there has been really no major significant negotiations. And we see as volume picks up here, there seems to be more concern about just, believe it or not, ongoing supply, and supply on a consistent basis. So we are not seeing a lot of hard negotiations, if you will, occurring.

And Mark, just on the review you mentioned you're undertaking, could that result in any businesses being identified as being either noncore or disadvantaged?

Well, I think clearly some. Our business evolves, as you know, David, and we have a very high percentage of our sales are from new products, products that didn't exist five years before. We expect that may press 30% this year out of our portfolio. So there's always evolution of businesses sort of in and out.

As we look forward, however, though, I think there's some segments that -- not big segments, but some elements of the segments that we could move away from. And we are not really in a position to share that with you today. But as we look out the next couple of years, we certainly feel consumer habits and perspectives are changing. And we just need to morph ourselves to best take advantage of that.

Could that be like 5% of the overall sales base, or more or less, in that range?

Yes.

Thank you very much.

Dmitry Silversteyn, Longbow Research.

I just want to kind of follow up on a couple of things. When you talked about FCC pricing doing well, it's doing well versus your expectations, or is it doing well versus your ultimate target of getting the pricing up to about $4000 a ton, I think you have said?

Yes, and Dmitry, this is John. I think it's doing well. It's up year over year, over 10%. And we see new tenders, competitive tenders being opened up now, where the pricing is a lot closer to $4000. So we are encouraged by those kind of numbers.

Okay. And your competitors have been cooperating with you in terms of nobody is breaking ranks as far as pushing through prices?

Well, as I mentioned, these tenders are all being opened. And these tend to be government-owned entities, which is why these tenders are public information. And it's very encouraging on the competitive front.

Okay. So if we saw a better than 10% increase in FCC pricing, I know that HBC pricing really doesn't make sense. So the fact that you only got about 2% in pricing there, or less than 2% for this quarter, that's just moly price coming down offsetting that?

Yes, exactly.

Okay. And then the year-over-year decline in volumes in the catalyst business, you talked about sequential improvement in HBC volumes, but do they still look to be down year over year? Is that the way to interpret that?

For the year?

For the first quarter. You had volumes, I think, down like --

Yes, so HBC volumes year over year were about flat, maybe up just a hair, so sequentially more than double. And then FCC volumes were down both year over year and sequential. But we are seeing volumes improve in FCC now, and we will see HPC volumes going forward year over year improve versus prior year.

Okay.

So they will be -- HPC volumes going forward will be down a bit.

Versus a year ago?

Versus the first quarter.

Versus the first quarter. Okay.

Yes. So let me be clear on HPC. Going forward, we see volumes declining a little bit sequentially, but year over year will show some pretty dramatic increases.

Okay, got it. And then the final question on the fine chemicals side of the business -- can you remind us how big the bromine portion of this versus the custom synthesis portion?

Yes, it's traditionally been about 50/50, Dmitry.

Okay. And that tradition still holds, even though the bromine demand has dropped down so significantly?

Yes. This quarter, it's probably more 55/45 or 60/40, something like that, but yes.

Okay. And then can you talk about -- you said that your custom synthesis business has been doing well and you identified some areas where it has. Can you give us some color on what's going on with the ibuprofen portion of the business as far as utilization rates and demand for that? Are you still seeing the uptick that you expected to see?

Yes, the business is doing I would just say okay. I think what surprised us a little bit in January and February was the destocking that a number of retailers did. And we saw that in decreased orders in the first quarter, but going forward looks like it's picking back up again. So I think that was just a temporary destocking by some of the big retailers on some of the big branded products.

Okay. So the 23% decline in volumes that you reported in fine chemicals, some of that was custom synthesis as well? It wasn't all bromine related?

Yes, but I think most of the strength in Fine Chemistry Services was in our ag business. Our ag business did well. And going forward, we are seeing a number of new opportunities where we are being the manufacturer of choice for some of the big multinational ag companies, or ag protection, as we call it now, I guess.

The rig count in the Gulf of Mexico is still down year over year. Has it improved sequentially at all, or is it still showing a downward trend sequentially?

No, it's still, Dmitry, still showing a downward trend. And yes, that business was down both year over year and sequentially for us. Our Clear Brines industrial bromides business suffered in the quarter, no doubt about it.

Okay. And then final question before I get back into the queue -- the $40 million or so in cost savings that you identified through the end of the year beginning in the second quarter, is that going to be on the corporate expense line or is it going to be spread out over the three businesses? Or is there one particular business that's going to dominate this cost-saving bonanza?

No, it's spread out. It's spread out.

And some of it is in cost of goods.

Yes, some of it is in cost of goods as well.

Okay. All right, thank you, gentlemen.

Kevin McCarthy, Banc of America Securities.

Mark, I think you mentioned on the midquarter update that you were running about eight of 30 bromine wells in Arkansas and that you were down in Jordan. Would you provide an update on where you stand there?

Still the same.

Okay.

Still the same. We are working -- you know, we are working really hard to continue to pull down our inventory on a volumetric basis. So, no, we are still pretty -- we pull back a lot still.

That's maybe a good segue as to where I was going next. I was wondering if you could comment on your inventory levels in general, and then how they've changed specifically in polymer additives versus year end.

Let me ask -- I think John's got the numbers. Let me ask John to comment.

Yes, Kevin, we feel very good about what we've done in terms of working capital. Inventory, of course, is the big driver there in the reductions. Inventory alone from the first quarter of last year is down in the order of magnitude of 15%. It's down from the end of the year about $100 million, so between 15% and 20%.

So we feel we had a very strong drive to preserve cash, and we are really focusing very much on that and to keep production and inventory levels as low as we possibly can. And going forward, I think you can count on that for the future. It's a very important driver for us for the year.

Great. And lastly, if I may, to follow up on the alternative fuels catalyst business, I know it's early days there, but how would you characterize the sales contribution from that business in the quarter? And has there been any change in the anticipated ramp-up as you get into 2010? I vaguely recall at some point you had thrown out numbers like $80 million or $100 million in sales. And obviously, a lot has changed in recent quarters. Maybe you could provide an update there.

Yes, you bet, Kevin. Its impact on the quarter was fairly minimal, though we did some business. And we did in order of magnitude in the quarter maybe $5 million revenue in the first quarter. And that is going to be, I think, a typical run rate until we have some big reactor fills in 2010.

The view, these orders in terms of volume continue to grow in scope and, in other words, they tend to get bigger. But it is being mitigated from a revenue perspective because some of the metals that go into them are declining. So keep that in mind. But the view is still next year, as we had projected in the last couple of quarters, so we're feeling more and more confident about the delivery of that on schedule.

Thank you very much.

PJ Juvekar, Citi.

I don't know if I missed this, but did you mention what your bromine well operating rates were, and how do they change during the quarter?

Well, PJ, what we said is that we're down -- we're running at, plus or minus a little bit, 30% of our capacity utilization right now. And each well that you run, though, you run flat out. So does that make sense to you? So you just block in wells, is what you do.

No, I understand. Understand. But how did that change? Did that improve during the quarter?

No, it's about the same. I mean, plus or minus a little bit, it's about the same.

One thing I would add, PJ, if I may, is that the bromine-based businesses from the fourth quarter, we saw them even decline further in January, and February was at a real low point, which really kind of surprised us how bad it got in February. But then we saw the rebound in March, and we are seeing an improvement sequentially from March levels in April. So that gives us some hope going forward.

I know there was inventory destocking in polymer additives. How much of that was at your plants versus at your customers?

Well, I think our customers pull down more volume than we pull down, because our product is a small percentage of their total, PJ. It's hard for us to gauge how much has happened, but I'll just say that if you look at the key that John and I can look at, and others, is that when you -- in January, you sell about as much tetrabromide as you can put in the back of a pickup truck, it seems like.

What that -- and products are still being produced around the world. People are just pushing out inventory, is what they're doing. And so there was a tremendous amount of destocking that occurred in the electronics area in particular that has, I think, for the most part run through the system. What's not clear to us -- and that's going to benefit us in the second quarter. What's not clear to us is how much consumer demand has really picked up and how much of that is destocking. And John's got teams of people around the world trying to sort that out as we speak. But we are seeing volume come back. It is not at 2007 levels, but it is coming back and will be certainly greater than first-quarter levels.

No, I understand that you cannot control your customers' inventories, but your inventory days have gone up. Given that, are you disappointed with your inventory management?

I think that's both a yes and a no. I would like to have a business that was just in time in each product, but the reason we don't have that is we don't have dedicated units to each product out there that we produce. So, PJ, I think the way I would characterize that is that as we go forward, we're trying to modify our units as we speak, and our technique, so that we can be more just-in-time production. We've made some headway of that in some areas. Others, there's a systems issue relative to having a bunch of individual assets out there, which we don't want to do. So I think we can improve our inventory process. To say I'm disappointed would maybe be a bit too much.

Yes, I would just add on that, PJ, is that I was pleased with the absolute dollar amount of the inventory decline. As I mentioned, it was $100 million from the end of December to the end of March. But the real problem was revenue. The best way to alleviate inventory is to sell it, but with the revenues down so dramatically, it makes almost any statistic look stressed.

Laurence Alexander, Jefferies.

I guess first question, on the sequential improvement in March and April that you were seeing in the flame retardant order trends, how much is that above your normal sequential improvement, your normal seasonality?

I can't answer it, Laurence. It's so hard to do because we are down -- fundamentally, we're down everywhere, so it's just hard -- it's hard to have an exact figure for that.

Yes. Most of the seasonality we see in flame retardants really occurs in the third quarter as you are building up for the holiday season. So I think going forward, the volume gains are much higher than -- I would think than what we would normally see seasonally, especially in the second quarter.

Okay. And secondly, on polyolefin catalysts, what happened with pricing there?

Well, you have two parts of that business, really our custom polyolefin catalysts and then organometallics. And the organometallic pricing gains continue to be quite good. So it's more impacted, I would say, in the quarter by the mix effect of some of our customers shutting down some units temporarily. And going forward, we are going to continue, I think, to have good pricing gains both from mix and from pure pricing.

And then on the fine chemicals business, can you recap the benefit that you had from the first surge of Tamiflu orders back in 2006? Because if I recall properly, it was under a nickel for the entire order batch.

It was spread over two fiscal years, if I remember correctly, Laurence. I think it was in that -- the first tranche was an order of magnitude of a nickel. I think it was almost double that in the following tranche, but that was a big supply of product. I mean, that was for the initial stockpile.

Going forward, I think the limitation on restockpiling is more in some other intermediates that would be supplied to us. But for what intermediates are available, it's conceivable we could get another $0.03 to $0.05 uptick in the future. We're not sure when that's going to occur, okay? There's a lot of discussion going on right now.

Steve Schwartz, First Analysis.

John, if you could just help reconcile the volumes in polymer additives versus the volumes you reported in fine chems, particularly with respect to the fourth quarter and then into the first quarter, I'm wondering what seems to be special about either one of those? Because the decline fourth quarter, first quarter in poly adds versus the change in fine chems doesn't seem to line up.

I haven't really looked at it from that perspective, Steve. But I would say that we had in the fourth quarter, we did not have a full three months of production declines. So going into the fourth quarter, we had -- we still had a view in September that the year looked pretty good. And in October, polymer sales went roughly from $85 million a month in the first three quarter to $65 million in October to something in the $40 million range in November and December. And by the time we saw that, that's when we reacted and started shutting those plants down. So in the first quarter, we have a full three quarters of those production declines. And that's the absorption impact that both polymer and fine had to absorb.

So would it be almost like a pendulum swing, then? There was a lag in responding in fine chems in the fourth quarter, and then maybe you overresponded, so to speak, in fine chems in the first, so that this is about as bad as it could get?

Thanks, Steve. We hope so. You should -- the momentum carried our volumes lower in January and February, which John commented on earlier. So you should -- as he said, in October we really felt -- even in October we felt we were going to be okay for the year. We had seen some falloff, but not as dramatically as John noted has occurred really as we got into November. And that really started probably the second week in November; it just went to nothing, it seemed like.

And so our volumes, if you had a little plot of volume, you'd see it going deeper in the January/February timeframe. And since then, it's sort of started slowly recovering. Maybe that's the way I would say it. We are chasing that a bit with production volume, because you are a little bit behind that lag curve. And we're trying to work out inventory. So our plant operation rates have been lower than the actual sales rates in most of these products.

And the only thing I would add in fine chemicals is Clear Brines business wasn't too bad in the fourth quarter of last year, and it's really gone down dramatically in the first quarter. And then our commercial bromine business is down as well. So we are finding more customers willing to postpone a campaign and preserve their working capital as well, so the fine chemicals business had a bit of that to deal with.

Okay. That's very helpful. And then, Rich, just can you go back over interest expense? I know you threw out your rates and so forth. But to see sequentially a 37% decline in interest expense, what do you expect for the rest of the year?

Well, it depends on where rates go. We have a high percentage of our debt is variable rate, and it's at a very beneficial variable rate now. Our revolver, our credit revolver is at LIBOR plus 30-some-odd points, which right now is less than 1%.

So I guess we always have options to move that out and go out. We're actually renewing it monthly now because of the rate being so attractive and because of the steep tickup if I want to go out for two, three or six months, something like that, which I have the option to do but haven't availed myself of that now. So it's really -- I think at the end of the day, it's because of the very beneficial rates that we have on the variable-rate debt that we have.

So we should expect that for the next few quarters it will remain a volatile number if, like, LIBOR remains volatile?

That's correct.

Okay. And I guess that's also saying, then, that your cash interest expense is the same as the posted expense?

That's correct. Yes.

Okay. Great. Thank you.

Edward Yang, Oppenheimer.

My question is on HPC catalysts. What percentage of the industry volume do you think is recycled at this point, either through some providers like EUROCAD or Porocel, and how much volumes is that pulling away from you? And what kind of royalties do you get from that?

Well, Ed, I don't want to get into the specifics of the royalty, so I hope you can understand that, because a lot of that is just customer specific. But I will say, I think especially now, with the retrenchment in molybdenum pricing, we are seeing a less willingness to take the risk on recoverable -- using recoverable catalysts. And I am still of the belief that it is low single digits. But when we do make those sales, we do make a respectable licensing fee on that. And actually, our EUROCAD business is holding up quite well.

And HPC is typically a lumpy business and I think this year is supposed to be a recharge year. Will 2010 volumes be up on HPC? Is 2010 also a recharge year, or is that a pause year?

Ed, the current view is that 2010 will be another recharge year. And we will try to keep you tuned in on that over the coming quarters, but right now it is looking very strong.

Okay. Thank you.

Todd Vencil, Davenport.

Most of my questions have been answered, but I did have one thing. On the catalyst side, I think on the midquarter call, you guys had suggested that you were looking for a double-digit growth in segment income this year. And this time, I think all I heard you say was growth. Are you still looking for that double-digit number?

Yes.

You bet.

All right. Thanks a lot.

Dana Walker, Kalmar Investments.

You folks need to be careful about what you don't say. Could you talk about your internal inventory reduction programs vis-a-vis what end markets are doing? And for how long through the year do you expect to maintain a meaningful spread between how quickly you run your plants versus what customer takeaway looks like?

Well, let me do the real high-level stuff and ask John maybe to drill in a few of the businesses that come to his mind. What we, in a big picture way, just stepping back a bit, what we've said internally is that we want to pull about $200 million out of our inventory this year. And that's a combination of the steps that John and Luke and others are taking to pull down the volume, and we've got inventory management programs that we are putting in place that are amended from our prior ones to help us do that. And some pricing is going to roll through as that lower raw material comes through.

And depending on the heat of the day, you get different answers from the guys and gals as to how much that is for each one of those. So you should have a view that we're looking to go down about $100 million, or about $200 million. And as John noted, we are down maybe in theory -- it's not been realized yet, but we are down maybe $100 million so far.

So we have taken a good bite of what I hope we'll have to do as we go through the year. But clearly, in the second quarter, we are still looking at a drop-down on volumes in the businesses. By the time we get to the third quarter, my expectation would be the polymer stuff has probably kind of run its course, and you will still see some action through the year, particularly in catalysts and maybe a little bit in fine. All the way probably through the year they will continue to wind down through the year.

So maybe with that background, John, do you have some clarity on different product lines or something like that?

Yes. Dana, I think in polymer additives, it's a great opportunity to get our inventories really to lean. And what I said in my prepared comments was to get our fixed costs down as low as possible and to position us to leverage going forward. And we are really hopeful. We're in the business of making chemicals and selling those chemicals.

And as we gear up that production, because inevitably, we are going to need to do that, that a lot of that money falls down to the bottom line. And that's where we're hopeful of really getting our fixed cost structure right during this very difficult period.

With that said, we are really making some I think significant gains in managing our HPC inventories better. There is a huge mix effect there, but we are learning how to deal with that in a much more effective manner. And I think that's a big opportunity for us as well.

I believe you said at the front end of the call that you were expecting $200 million in raws deflation and roughly $20 million to $25 million in energy cost deflation. Is that correct?

Yes. That's, as we look at it today looking forward, that's kind of our gut feel on that.

Can you talk about the P&L timing of that? And I presume that the P&L timing and effect will in part offset the unabsorbed costs related to running your plants less fast?

Yes. To some extent, that's right. If you look at that $200-and-so million, $225 million, probably $175 million of it's kind of been -- has kind of stuff that is passed through. And I am giving you an order-of-magnitude number on that. So you've got a net-net in there of maybe $50 million to $60 million of opportunity, is what I would call it, there, some of which will be realized and some of it will not. So I think we're going to start seeing a little bit of that this quarter, but it's going to build as we go.

I have two last questions, and they can be quick. Can you update us on your sense for sorbent? You mentioned that the cement plant regs would certainly be a potential boost, but more broadly address that? And would you spend a moment talking about your updated view, given the global financial maelstrom that we've been through, as to how you foresee catalyst unit demand growth evolve over the next several years?

First, on sorbent, we are getting more and more traction around a lot of support to pull mercury out of the air. And two areas that we can directly have an impact on that through our technology base in sorbent, which is bromine on activated carbon, is in coal-fired power plants, where we are working with a lot of customers. We've got a lot of traction. There's a lot of legislative support, and there's a lot of support of various support groups around the country working to get really solid legislation where our technology can really solve some critical needs there.

That's been mitigated a bit by a lot of the -- well, energy consumption is down this year, so these plants aren't running as hard as they were a year ago, for example. But overall, the business looks really good. I think we will have a solid year this year and an even better year next year in terms of profit and sales growth.

The cement aspect, we haven't looked -- we've been following that, but the announcement by the EPA last week was encouraging because, here again, our technology fits into that area very well.

Catalyst, I think a lot of the legislative aspects around pulling sulfur out of fuel is also gaining traction, not only in the US, but also in Europe and Asia as well. So we feel that the fundamentals have never been more solid in that business and help propel our HPC for years to come.

One very quick follow-up. If you saw 60 Minutes two days ago, where the CEO of Duke Power -- and this wasn't necessarily new information -- was talking about his now embracing carbon dioxide recapture and stuffing it into the ground, to what degree do the CapEx related to that in any way interfere with the CapEx necessary to address the mercury issue, and possible timing of benefit from both?

There's really no link on that. I suppose that there could be some theoretical volume impact on past utilization. But broadly speaking, you've got to take the mercury out before you go through the CO2 absorption process, before you recover the CO2, before you eject it, or the mercury will go just up the stack. So maybe there's a little bit, in theory, volumetric impact, but I don't think it's huge.

Okay. Thank you.

Mike Sison, KeyBanc.

Real quick on catalyst, given your outlook for double-digit growth and the sort of minus -- weak volume growth in the first quarter, what are you assuming for '09 to get double-digit -- I'm assuming you commented on earnings growth -- and the volume number to get there?

Well, we are looking at year-over-year on HPC. We are talking still 35% to 45% year-over-year volume growth.

Okay, so when that kicks in in the third, fourth, the second quarter, volume percent number that you give in the sales there should pick up particularly pretty strong.

Yes, you bet.

And where not all, but a good chunk of the high material costs will have worked its way through the system, so you get the credit from that as well.

The precious metal pass-through was recorded in the volume number for the quarter, meaning the moly negatives was in the volume, not price?

It's within price.

It's in price.

Okay, so that does -- okay. So then for polymer additives, is there a sales number you need to reach on a quarterly basis to break even, given your new cost savings is probably much less than it used to be? Was there sort of a rule of thumb?

Yes, I think it's more than what we sold in the first quarter.

Okay. Great. Thank you.

But not as much as 2007 average quarterly volumes.

It's probably in the 10% higher volume range than where we were first quarter.

Okay, great. Thanks, guys.

Jeff Zekauskas, JPMorgan.

I just have a quick question on the tax rate. Is the reason that the tax rate is so low this year, does that have to do with the geographic distribution of the catalyst volumes, essentially?

Not really, Jeff. I think the biggest thing about the geographics is profit coming out of Jordan Bromine, where we don't pay tax. So there's two things -- there's two major things that impact our tax rate different from the normal US tax rate most people think about, and that's our European trading company. So I guess to a certain extent, there may be some element of that in terms of catalyst sourced out of Amsterdam, and then the other thing is JBC. And that's the bigger swinger there.

But you are not making any money on polymer additives.

What we are making -- we're looking at a full-year view when you look at your effective tax rate for the full year. So it's not just a single-quarter, isolated look. You look at the full year and where you expect to make your money.

So are there tax credits you're booking?

No, it's taking our full-year view of income, where we are earning it, and what the rate is on the taxable income where we're earning it.

So essentially, whatever amount you thought that you were going to earn, you have lowered the amount that you were going to earn in Arkansas? Is that the idea? And you've -- and the percentage that you are earning in Jordan is much larger now, and that's the largest factor (multiple speakers)

Vis-a-vis the plan as we entered the year, yes.

Okay. So in order for your tax rate to go up next year, you would have to restart Magnolia or you'd have to really have a much different level of volumes there.

It's all to do with the mix, Jeff. We anticipate we're going to restart Magnolia before the end of this year, obviously. So there will be an element of profit that is made there, or the contribution for our full-year profitability, the mix has shifted from where we were entering the year to where we are now and our view of the rest of this year.

Did you make any money in Jordan in the first quarter?

Yes, we did.

Okay. All right. Thank you very much.

Jeff, let me just -- on that, if you're still on. I think the comment I would make is that if you look at -- set aside tax for a minute, Jordan is a low-cost manufacturing site for bromine in the world. And so on a routine day, to the extent we can, there is some preference to produce an incremental volume there. It also has, broadly speaking, a better logistics situation because a majority of these products go to Asia.

And so the combination of those, there's a leaning towards producing it at that lower-cost site. Then you add on top of that the tax and benefit. And so, as Rich said, the distribution is weighted that way. We're still running Magnolia at roughly eight or nine wells out of roughly 30 wells, so a little bit under 30%. And we anticipate that picking up as we go through the year. But today, the volume -- sales volumes just don't warrant running it any harder than that.

Let me try it a different way. Is there a negative tax rate in Jordan?

No, there is a zero tax rate in Jordan.

Zero tax rate in Jordan. Okay, great. Thank you very much.

At this time, I am showing you have no further questions. I would like to now hand the call back over to Ms. Sandra Rodriguez for closing remarks.

Thank you, Katie. I would like to thank everyone for participating on the call today. If there are any further questions, please contact me at the number indicated on our press release. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference call. You may now disconnect. Have a wonderful day.