雅保公司 (ALB) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2010 Albemarle Corporation earnings conference call. (Operator Instructions). I would now like to turn the call over to Sandra Rodriguez, Director of Investor Relations. Please proceed, ma'am.

Thanks, Antoine. 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, which is subject to further review 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 would 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.

Joining me today are Mark Rorh, Chairman and Chief Executive Officer; Luke Kissam, President; John Steitz, Chief Operating Officer; and Richard Diemer, Chief Financial Officer. Before I turn the call over to Mark, I would like to remind everyone to register for Albemarle's upcoming investor conference in New York City on May 18. The registration link and event details can be found on the Investor Information page of our website. At this time, I'll turn the call over to Mark.

Thank you, Sandra, and good morning, everyone. We appreciate you joining us today, as we report first quarter 2010 earnings. I'll begin today's call with a few highlights before moving to our quarter results. Luke will follow with comments on the quarter, and an update of the progress on our productivity improvement efforts. John will then follow with a summary of segment performance and the opportunities ahead, and Rich will wrap up with the financial highlights.

As you know, even during a difficult economic downturn, we continue to fund research in support of our new product portfolio. Investments that give us unique market opportunities. In January, we reported the results of this effort with sales from new products exceeding 30% of our total revenue for calendar year 2009.

I am pleased to announce that this steady pace has continued in 2010, with 30% of the first quarter revenues from products that were not in our portfolio five years ago. At this pace, we are turning our portfolio every three to four years, something that many find hard to believe, but we've demonstrated this for the last five years. A few examples of some of the recent highlights in technology include our participation in the national advanced biofuels consortium, where we are joining with scientists from universities, governments, as well as others in the industry that advance processes to develop clean, sustainable transportation fuels from existing refinery infrastructures.

Albemarle is having great success developing and selling second generation biodiesel catalysts, and we hope this effort will put us in a position to advance technology in converting biomass into refinery-compatible fuels. In February, we participated in the Electric Utility Environmental Conference, where we showcased our new low cost, effective Mercury reduction technology. Interest in this technology continues to grow in the US, as well as in China, where we have been invited to share our technology with government industry representatives. Our new Earthwise fire safety technology is gaining acceptance in the market, as a need for environmentally sound and highly effective fire safety solutions is becoming more prevalent around the world. We're excited about this line of products, that is setting a new standard to meet societal needs for regard for fire safety.

The icing on the great start to 2010, we recently learned that Albemarle was named one of the Best Corporate Citizens for 2010 by Corporate Responsibility Magazine, a nice recognition of our employee efforts to positively impact the environment and operate in a responsible fashion.

Now, let's move to our quarter results. Q1 2010 was a pivotal quarter for Albemarle on many fronts. In terms of financial performance, we posted very strong results, with volume-driven revenue growth and outstanding profit margins. This quarter's performance set segment income and margin records in both polymer solutions and catalysts, a fantastic accomplishment, when compared with the doldrums we found ourselves in a year ago. Net income for the quarter totaled $63 million. Excluding the after-tax restructuring charge of $4.6 million, earnings are $68 million, or $0.74 per share. An improvement of 164% over the $0.28 per share we earned the first quarter of 2009.

As Rich will explain in a minute, we accomplished this with the 2010 earnings at a much higher tax rate than in the prior year and overcoming headwinds and additional salary and benefit costs. We delivered net sales for the first quarter of $580 million, up 19% from last year, and up 4% sequentially. Net income increased 167% and our EBITDA margin is at 20%, which is up 70% over last year, just fantastic. All in all, our first quarter results demonstrate the strength and importance of a balanced, technically differentiated and broad-based geographic portfolio, as well as further strengthening the business conditions across many of the markets we serve.

Catalyst posted record segment income for the quarter of $55 million, with outstanding segment income margins of 24%. You recall this business was hurt by metal deflation and deteriorating refinery conditions in 2009. And yet, the portfolio overcame these challenges and is now positioned to reap the benefits of its technology and service capability, demonstrated in the 54% year-over-year gain of segment income.

Our Fine Chemicals business reported a solid quarter with $12 million of segment income, up 35% over last year. Higher bromine utilization rates helped offset raw material cost headwinds and continued sluggishness of the completion fluids business. Looking forward, we expect our bromine assets to be run over 90% capacity for the remainder of the year, and we expect a gradual return of the completion fluids business in the back half of this year.

Our Polymer Solutions segment had a very strong performance, generating $42 million in segment income and setting a new record for that segment. Robust demand for our fire safety products, strong sales of stabilizers and curatives, combined with the benefits of our productivity initiatives, positioned Polymer Solutions to sustain strong margins through the year.

We are really proud of how this business has addressed the challenges of the recession and how it's positioned itself with technology and market channels to be very successful going forward.

The results reported this quarter in part reflect a stronger market demand than could be foreseen last year. But I can also say the results reflect our drive to continually improve the capability of each business, to deliver superior products in an efficient fashion that add unique value for our customers. It's this drive and our history of success that gives us confidence in our ability to deliver an outstanding full year. Now I'll pass it to Luke to share his comments on the quarter and talk about the company's productivity initiatives.

Thanks Mark, and good morning everyone. At the beginning of 2009, we told you that we were taking steps to reduce costs and improve our processes and systems, so that we would be a stronger company on the other side of the economic downturn. Our results in the first quarter indicate to us that we are on the right track. In 2009, our costs were approximately $100 million lower than they were in 2008 and most of those savings are carrying over to 2010.

Today, many economic indicators are signaling a market recovery that is consistent with the demand that we are seeing across our businesses, particularly in consumer electronics. Demand for our flame retardants is as strong as ever, with the recent book to bill ratio reaching 1.10. Our business formula of developing and offering innovative solutions to the issues facing our customers, managing costs in a way that ensures we're the low cost solution provider, and carefully selecting and taking advantage of the right strategic opportunities has served us well in the first quarter and positions us well to meet the 2012 growth objectives that we have developed and look forward to sharing with you next month in New York.

As I mentioned earlier, we continue to be pleased with the progress of the productivity improvements that we initiated last year. The results are paying off in sustained cost reductions throughout the company without sacrificing our ability to respond to opportunities. We're in the process of implementing the various European restructurings we've discussed with you before, and in the first quarter we recorded a one-time after-tax charge of $4.6 million, related to the restructuring at our Bergheim, Germany facility. That restructuring will reduce the site's work force by approximately 100 people, or 20%, over the course of the next few years.

We also recently opened our Transactional Service Center in Budapest, Hungary. Throughout the remainder of 2010, we will be transitioning certain of our global transactional processes to that site. We're excited about the energy of our new employees in Budapest and look forward to enhanced efficiencies that our improved systems and processes will bring.

Even with our success to date, there is still work to be done exploring options on a couple of non-strategic and less profitable assets. As our plans firm up, I hope to be able to provide you more details within the next couple of quarters.

First quarter performance demonstrates we are a much leaner, more efficient, and more agile company today than we were at the end of 2008. If the economy continues to improve, we're poised to continue to benefit. If the economy weakens, the productivity improvement steps that we have already taken and that we will continue to implement, would allow us to maintain a level of profitability that keeps us in the top quartile of our peers. With that, I'll turn it over to John Steitz.

Thanks, Luke, and good morning, everyone. Collectively our segments delivered a solid quarter with strong volume growth driving revenues to $580 million. This is the highest revenue quarter since third quarter of '08. Furthermore, we delivered operating profit of $76 million compared to last year's operating profit of $29 million. Segment income margins improved 1,200 basis points year-over-year and 200 basis points sequentially. Our profitability this quarter reflects better productivity across our businesses, and a significantly improved operating environment.

With that backdrop, let's move on to the individual segment results. Fine Chemicals net sales for the quarter totaled $136 million. Segment income of $11.8 million increased 35% year-over-year. The business faced unexpected headwinds in the quarter, including a decline in our Agricultural Intermediates business. A key customer chose to dramatically reduce inventories in the quarter, so this is a timing issue and the business will shift to later in the year.

The second largest headwind was raw material inflation, that impacted segment profitability by roughly $4 million in the first quarter. On the flipside, our Bromine Chain and Fine Chemistry businesses continued to build momentum. The top 10 new products in the segment generated $20 million of revenue in the quarter. Our Biosides business continues to grow at healthy levels. Completion fluids are still at levels below normal. However, rig counts are starting to increase. Drilled wells needing completion that had been on hold are expected to pick up at oil prices running in the $80 a barrel range. This bodes well for our clear brines completion fluids business.

Our bromine assets are expected to continue running at high utilization rates to meet increased demand. This strong demand and tightening global bromine supply give us confidence in our pricing correction and we should start gaining coverage of raw material escalations over the coming quarters. All in all, Fine Chemicals is off to a good start, and we expect the business to build momentum and show sequential improvement throughout the course of this year, ending 2010 with a strong top and bottom line growth.

Polymers net sales for the first quarter totaled $217 million, up 76% from first quarter of '09 and up 6% sequentially. The business earned 29% more income than last quarter and set an all-time segment income record totaling $42 million. Volumes grew sequentially in each division of the business and we're seeing this momentum continue in the second quarter.

We are monitoring customer inventory levels and it appears there is not a build in the supply chain. We're seeing positive traction in our pricing initiatives and expect support from continued demand strength, especially in the consumer electronics market. Our China infrastructure-related business continues to do very well, resulting in record earnings for our stabilizers and curatives business this quarter.

We're very pleased with the progress in our polymers business, within one year the segment turned from a first-ever loss to record high profits and the momentum continues.

Our Catalysts business delivered strong results for the quarter. On revenues of $228 million, the segment earned record-setting segment income of $55 million. That's a 950 basis point improvement over the same period of last year and 400 basis point improvement sequentially. These results were driven by stable volumes and pricing across our well-balanced polyolefins and refinery catalyst portfolio, coupled with better metals pass-through results compared to prior year. Additionally, our joint ventures showed positive growth year-over-year and sequentially.

We have benefited from driving value for our customers. While the refining industry conditions are slowly improving, the refiners' needs for performance products that create added value in their processes are still profound. The discipline demonstrated by our team in developing catalyst systems for fuel and polyolefin applications provide great economical solutions for our customers and the opportunity for Albemarle to post strong year-over-year growth. With that, I'll turn it over to Rich for the financial highlights.

Thanks very much, John. I would like to cover our Bergheim, Germany special item charge, income taxes, the sale of a 10% share of our Stannica venture to our partner, and its related impact on the quarter and current and future reporting, corporate expense, CapEx, working capital, and our quarter end financial position.

As you heard from Luke, we reached agreement with the local works council to proceed with our Bergheim plant restructuring. We have accrued for severance and incremental costs associated with employees who will be leaving the local work force over time. That has resulted in a pretax charge of $7 million, or $0.05 a share after tax that we have presented as a special item in our financials.

Our effective tax rate for the quarter is 23.4% on a reported basis, and 24.4% on an ex specials basis, both of which represent our most current view of our full year effective tax rate at this time. Both of these rates are significantly higher than the 18% to 20% range I communicated on our Q4 '09 earnings call. Our revised view is based on both the higher level of income we expect this year and the mix of that income, specifically improved US profitability beyond our prior expectations.

Next up is Stannica. Stannica is a venture that we have with our partner Arkema that produces intermediates for tin-based PVC heat stabilizers. Last year revenues were approximately $40 million and the bottom line results were approximately break-even. During Q1, retroactive to January 1, we saw the 10% share to our partner and on a go-forward basis, we are accounting for Stannica as a 50/50 joint venture on the equity method.

While we have historically presented Stannica as a part of our polymers solutions segment, we have included the $1 million gain on the sale of our 10% interest and the go-forward equity earnings in Catalysts. This is where management responsibility for this business has been for the last several years. Due to lack of materiality we do not intend to restate prior financial statements.

Unallocated corporate expense in Q1 was $16.7 million, consistent with the $65 million to $70 million, or $16 million to $17 million per quarter guidance during our last call. Our EBITDA in the quarter, excluding special items, was $118 million, a record 2X last year's depressed levels and 17% ahead sequentially from 2009 fourth quarter levels.

The last time we made anything resembling that level of EBITDA, it was on $90 million higher revenue, so it is clear that we are realizing the benefits of earnings leverage on our lower cost base as volumes rebound.

CapEx for the quarter was $16 million, and though we are a bit slow out of the gate on this annual spending, we expect full year CapEx to add $100 million this year. Depreciation and amortization in Q1 was $25 million, and full year guidance remains in the range of $100 million to $105 million. Including $44 million of debt at JBC, our Jordanian venture, our March 31 consolidated debt was $806 million, down $7 million from last year end. $435 million of our debt is floating rate and $371 million is fixed rate, a 54/46 split. Our floating rate interest rate was 0.85% at March 31. And our weighted average interest rate for Q1 was 2.8%.

Net of $267 million of cash on hand and excluding $25 million of unguaranteed yet consolidated JBC debt, our net debt increased $35 million in the quarter to $513 million. Our debt to cap ratio is 39.5% and our net debt to cap is 30%.

While our final cash flow statement and full balance sheet will not be published until we file our 10-Q in a few weeks time, cash flow from operations was $18 million in the quarter. Inventory decreased by $14 million despite the pickup in the pace of business. Networking capital increased by $47 million from year end, solely due to a higher level of customer receivables. Past dues at quarter end were at low levels and have been essentially 100% collected by the time we were into the third week of this quarter.

We repurchased and retired 240,000 shares of Albemarle stock on the open market during the quarter at an average cost of just under $36 per share. We have approximately 4 million shares authorized for repurchase under our current program. Additionally, we contributed $20 million to our US defined benefit pension plan to both better our funding levels and help moderate the year-over-year pension expense headwinds a bit.

We are excited about our performance in the quarter and eager to take our company to the next level of profitability in 2010. We think our performance this year will provide a solid foundation to seek our ambitious goals for 2012 that we'll talk to you more about at our investor meeting in New York City on May 18. Thanks for your interest, and we hope to see you there. With that, I'll hand it back to Sandra.

Thanks, Rich. We would like to open the lines at this time for Q&A.

(Operator Instructions). Your first question comes from the line of Laurence Alexander with Jefferies. Please proceed.

Good morning.

Good morning, Laurence.

I guess first question, can you address the raw material pressures you might be seeing and how you would comp them against the price increases you're posting on the bromine chain?

Laurence, maybe John and I will both tackle that. Let me start at the top. For the full year, we're looking at numbers in the $50 million kind of range for both raw materials and energy, inflation year-over-year. Of that, roughly 35 to 40 is metals. So, you know, so we're looking at a $20 million, $25 million head wind in all others. Most of that's in the olefin chain and there's some balance in chlorine and caustic in there but most of it's through the C-4s, benzene, ethylene, et cetera, in that chain. So, John, do you want to maybe (multiple speakers)

Yes, Laurence, most of the squeeze really occurred in Fine Chemicals on the raw materials, because we got -- well, frankly, surprised by how aggressive the ethylene popped up in January and we were a little bit flat-footed in passing that through in some of our amines businesses in Fine Chemicals. So that's what created the $4 million head wind in the Fine Chemical business.

The balance is roughly another $10 million in our polymers business, but we're able to cover that through pricing. And that is just as Mark said, in that Petra chemical chain of benzene, phenol, BPA.

And then can you give us an update on the bromine pricing side, how -- what -- how long it will take to know whether the recently announced price increase is sticking and then what you would look for to do another price increase.

Well, we're going to work on this one first, Laurence. But I tell you, this is across our bromine chain the best pricing environment I have seen in my career. And we're working hard to get that passed through in the Fine Chemical business, and are having a lot of current success in our bromine derivatives line, with the exception of clear brine fluids, which the volume just hasn't generated significantly enough there to get any pricing correction. But, I would say very high level of success in the flame retardants and good success in fine chemicals, and that whole process really takes us between, you know, one and three to four months to get that moved through. So we'll judge that, you know, at the next call and continue to keep you updated on that effort.

Okay, thank you.

You're welcome.

Your next question comes from the line of Steve Schwartz with First Analysis. Please proceed.

Good morning, everyone.

Good morning, Steve.

John, if you could just talk a little bit about the catalyst volumes, what exactly was happening in, in both HPC and FCC, and have we seen a recovery of volumes in the polyolefin catalysts?

Yes, Steve. I'll be happy to talk about that. Our -- let me start first with polyolefin catalysts. Our volumes have been relatively flat in polyolefin catalysts year-over-year and sequentially. Pricing, by the way, in that area both year-over-year and sequentially has improved about 3%.

HPC volumes are flat sequentially and down year-over-year, because in the first quarter of '09 it was a really big volume quarter. You know, the real issue there was related to, you know, the metals issue and the dramatic decline in molybdenum pricing we saw at the end of 2008, that of course bled through to much of 2009.

In FCC, pricing was down a little bit sequentially, you know, a couple percent, and was flat year-over-year. So we really expected volumes to do what they had done there in the fluid cracking business. Pricing is up in that business year-over-year, about 6%, and has been flat sequentially, which I think is a good thing.

Okay. That sounds good. Just as far as the restructuring is concerned, Luke, you set a target for $160 million, and just if you could confirm that you expect to hit that run rate by the fourth quarter of this year.

Yes, we are still on track to hit that kind of run rate by year end in 2010.

Okay. So when we look at year end 2010 versus 2009, we might not see a total of $160 million. It might be somewhere between $80 million and $160 million.

Yes, I think that's right. The other thing you need to understand is we've got some additional headwinds like pensions that Rich has talked about before. We've got some salary increases coming through there and things like that. So what I'm confident in is that we are going to have, from the 200 -- 2008 level, excuse me, we'll have $160 million of cost that left our system. Now, we'll have some gives and we'll have some takes on the end, but those costs will be out on a full run rate basis by the end of 2010.

Okay great. Thanks for taking the questions.

Thanks, Steve.

Sure.

Your next question comes from the line of P.J. Juvekar with Citi. Please proceed.

Yes, hi, good morning.

Hi, P.J.

Quickly, can you talk about your bromine operating rates in Arkansas versus Jordan, and just wondering if you're still using Arkansas as your swing capacity?

Yes, P.J., this is John. Well, in the first quarter, through the course of the quarter, we ramped up. And I think the dramatic turnaround surprised us through the course of the quarter.

So in both Magnolia and Jordan, January, February, March sequentially, the operating rates continued to get higher and higher. And now we're going full out. Frankly, we're going full out at both sites in almost all the product lines. And what I think is refreshing in doing that is we're trying to keep in very close contact with our customers who appear to be running on fumes also. So lot of pressure on to supply customers what they need right now in this environment.

Okay, and when do you see the benefit of your Tetrabrom agreement with Chemtura and what do you think is the impact of that is this year?

Well, P.J., you know, I don't want to go into the specifics here, but I can tell you that it kicked in in the first quarter, and we did supply them some volumes and -- and it's continuing to progress in the second quarter as well. So that, that is in play right now.

And just last question quickly on catalyst volumes, I mean I would imagine that a year ago was very weak and your volumes are still declining from that level. When do you begin to see volume uptick?

Well, I think the second quarter we'll see a volume uptick. The big issue in catalyst volumes was the extraordinarily high volumes we had in HPC last year in the first quarter. And because of the metals issue that we've talked a lot about, we just didn't make the contribution margin that we were expecting last year. And now we've got contribution margins back on track to a more normal level.

Thank you.

Your next question comes from the line of Robert Koort with Goldman Sachs. Please proceed.

Thanks. Good morning.

Good morning, Bob.

Good morning, Bob.

You guys referenced an ag intermediate, and I recognize you don't want to tell us who your customer is. Could you tell us what the chemistry of that intermediate is, so we can sort of gauge whether there is a secular issue there, or just timing issue. And then secondly, can you size where the mercury removal business is?

Yes, you bet. This is John. And -- well, the customer that cut back on inventories, you know, is a customer we've had for many, many, many years. And we don't believe there's any secular issue here at all. Matter of fact, the projection is is that those volumes will resume in the back half of this year and it's typically a fourth quarter through first quarter phenomenon. And I think they are just watching inventory levels and watching their working capital as they deal with some issues on their end as well.

So, we're not concerned about that as well, but it's an organic product that we make in Texas. So, the absorption related to that was pretty significant and was even a higher headwind for us than the raw materials issue, as I cited in our prepared remarks.

The mercury control business ramped up nicely for us in the first quarter and we're encouraged by that business continuing to grow, which it is sequentially. And we're also encouraged by the higher electricity and power output that we're trying -- that we're experiencing, because that was a bit of a headwind on that business last year. So overall, that business really did pretty well for our Fine Chemicals piece. Bob?

Your next question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed.

Good morning, gentlemen. We are -- I understand the catalyst business volume dynamics in the first quarter, I just want to make sure that the order book and what you're seeing in terms of deliverables on the HPC side still gives you confidence that you're going to see double-digit volume growth in that business for the remaining three quarters.

And second question on the catalyst side on the FCC side, I don't remember the last time you had a price decline in that business, sequential or otherwise. But can you give us an idea of what's going on in the market as far as capacity utilizations and profitability to your customers and how that's likely to affect your ability to start raising pricing against -- again later in the year?

Yes, Dmitry, first, you know, our customer base is going through a really tough margin environment, right? You know that. But pricing in FCC still was up year-over-year 6%. It was flat sequentially. The --

That's year-over-year.

Yes, it was up year-over-year. The best metric we kind of follow is miles driven and those -- that metric is still started out the gate pretty weak here in the United States. Our volume internationally is stronger, but the total mix effect there geographically is probably going to result in flat to slightly increasing volumes year-over-year in our FCC business.

We -- the opportunity to raise prices again, it's not really on our -- in our thinking right now and we're just going to keep an eye on refinery margins and continue to drive value on a micro basis, with each one of our individual customers around the globe.

HPC, we are seeing in the second quarter flat to slightly improving compared to the first quarter. We're still hopeful to grow the business in volume-wise in 2010, and longer term we see, again, the growth volume -- growth in those volumes continuing at overall, probably a double-digit rate. To achieve double-digit rate this year, I think continues -- will be a real stretch for us. We see growth, so it will be somewhere between 5% and 10% volume growth year-over-year this year, but to get anything beyond that, I think is going to be difficult considering the environment we're in, in the refining industry. And Mark is going to add --

Dmitry, let me just add some color as well to what John said. One of the things we report, is we report fresh catalyst sales. That's all we're reporting here. So we don't report volumes that we sell in regenerated catalysts or volumes we sell in reconstituted catalysts, and that's become a greater part of our portfolio, and it is there because we're doing our dead level best to make sure we're helping refineries get through this tough situation.

So it's, it's -- it's a bit -- I don't want to say misleading, but there's a watch out to put too much weight on that absolute fresh volume report; we found ways to incrementally move volume and reconstitute and regenerate and continue to drop margins. We also do more on AFT and we don't report that as volume issues. So I know why you're looking at that. You just need to be careful you pay too much attention to that because it's not a strong driver for our profitability, the way it's reported.

I understand that, Mark, but we've been talking about a replacement cycle for several years, and I think the expectation is out there that at some point you're going to see those 20%, 25%, 30% volume growth that you saw in the March-June quarter of 2006 when you were going through the initial cycle, or some shadow thereof.

I think that's true, Dmitry. All I'm saying is I don't care whether that happens or not because we're going to make money either way.

Okay.

They keep growing profitability as well. So, that's going to be part of a cycle at some point, and when that happens, we'll sell more of them, we'll sell less of the regenerated and net-net, we're going to be doing about the same. So it's not -- you just don't put so much weight on that that it's got to be that you got to have higher HPC volumes or you're not going to make any money. I think we're showing that's not the case, and it's just difficult for us to share all that data with you guys on where all these volumes are coming from.

Okay, all right. And those volumes are the regenerated catalyst that's part of your equity income line then, or is that rolled into the catalyst, you just don't report it as a separate line item?

It's not -- a minor part of it is in the equity line. And a lot of it is royalty income that's in the base business.

Okay. So it impacts your reported, or it -- it's part of your reported earnings, but it's not necessarily part of your breakdown of price/volume mix for the business.

That's right.

That's right.

Okay, got you. The second question actually was a follow-up on the first on the FCC side, you talked about not being able to raise pricing obviously this year because of your customers' margin condition and health, but you do have this new product out there in FCC that improves gasoline yields. Have you begun to see that product gain a little bit of traction and is there a market share improvement and a possible mix shift that can compensate us for a lack of price increase in FCC this year?

Yes, you're referring to our Go-Ultra, a line of products which I think optimizes both gasoline and diesel production, mostly diesel. And that's doing quite well. And we are picking up I would say just a minor amount of share there. But it's really a value play for us, Dmitry.

The price increases that you've rolled out, there was a series of price increase announcements that you made beyond the bromine product line, have gone into I believe some mineral flame retardants, maybe even phosphorus flame retardants, as well as some non-flame retardant business, obviously you've succeeded in moving the needle in the bromine. We can see that in your results both in revenue and operating profit line. Can you give us an idea of where you stand in pricing and how competitive the markets in the more fragmented industries of mineral and phosphorus flame retardants are?

Yes. Dmitry, in the mineral flame retardant area, we're seeing very good traction there. It's aided by one of the French producers -- fringe producers announced they are getting out of the business at the midpoint of 2010. So that's helping the pricing traction.

But in minerals, our prices are up roughly 10% year-over-year and that momentum is continuing now. A lot of pressure on supply there and so the demand is very favorable in our mineral flame retardant business. Demand is up in phosphorus, but we have not seen the pricing traction to date in that business. So we're continuing to evaluate ways to improve the profitability in our phosphorus business and that's still a work in progress.

Final question on your use of cash in acquisition. It's been a while since you've done a meaningful acquisition. This was one of the characteristics of the companies coming out of the recession, out of the last recession we had in 2000-2003 period. Can we look for you to start deploying your cash in -- more aggressively in picking up some businesses, whether tuck-in acquisitions or maybe even some strategic acquisitions going forward? And if they are strategic, where would you be looking to make acquisitions either regionally or by business group?

Dmitry, this is Mark. We're actively looking, have been actively looking and we've actually passed on several acquisitions last year that we just couldn't get the economics to meet our thresholds, which is basically these businesses have to be able to pull -- have to be rolled in and be able to grow earnings and not dilute the effectiveness of our portfolio. So that's been a bit tough.

We're seeing some good properties come available out there. I think that you should expect that we're going to continue to stay focused on that area, and I hope we'll be bringing in some revenue actually into this calendar year and next year from new opportunities that we've found. Most of our growth is occurring away from the US and Europe. And so more of our acquisition opportunities we're looking more offshore in those areas and, you know where those areas are. Some of you have talked about them.

I would also mention, though, that we're seeing a great opportunity for organic growth. We announced the Saudi joint venture that is underway, the engineering's underway, and we hope to be arranging financing before too long for that. There are other investments that we're seeing in all of our businesses, offshore. And frankly, those look very attractive for us. So I think going forward, you're going to see more acquisition opportunities come into the fold, but you're also going to see a higher level of organic investment on the part of Albemarle to grow internationally.

Thank you very much.

Thanks, Dmitry.

Your next question comes from the line of Kevin McCarthy with Bank of America. Please proceed.

Good morning. How are you?

Good morning.

In alternative fuels catalysis, how would you characterize the contribution from biodiesel catalysts in the quarter in terms of sales and earnings? And what is the outlook there for the balance of the year?

Well, that, Kevin, is obviously a lumpy answer. And in the quarter, it was, you know, we're talking about $0.03, but going forward sequentially, we've got other quarters that will favorably offset that in the second quarter and beyond. There is a chance that the next larger order could go in December, or it could go in January 2011. It's just a little bit too early to tell. So hopefully that kind of boxed it for you.

That's helpful. And then switching over to hydro processing catalysts, I may have missed it, but presumably with moly costs escalating quite a bit in the quarter, you had some FIFO accounting-related benefit. Is that correct? And if so, would you care to size that for us?

Yes, Kevin. This is John. You know, the FIFO impact, I appreciate you bringing that up because it was really de minimis in the quarter. I mean it was in the range of $1 million in the first quarter. It will be a little more favorable in the second quarter as that gets layered in. But not much more. We've done I think a really good job across the business and manufacturing teams of reducing inventory, and that has reduced the overall impact, both positively and negatively to that issue.

That's great to hear. And then finally, I guess for Rich, on the tax rate, is it geographic mix that's, you know, behind the doubling of the tax rate versus last year, or are there other structural factors at work there?

It's two things, Kevin. It's more income than we thought we would have and more of that income as a proportion in higher tax countries.

Okay. Thank you very much, guys.

Thanks, Kevin.

Your next question comes from the line of David Begleiter with Deutsche Bank. Please proceed.

Thank you. Good morning.

Good morning, David.

Mark, first, looking at Q2, should you make more in Q2 than you made in Q1 on an EPS basis?

Boy, that's a great question, David. I wish I knew the answer to that. I think what I would say is that business remains pretty good across all segments and, you know, John said that we would hope to see some pricing start to roll through that would contribute and Luke is continuing to work productivity, so I think we -- I would hope that we're in the range of where we ended up this year -- this quarter as this unfolds. And so that's the best I could do right now.

If we're not at or better, David, I was told to take the summer off.

Fair enough.

John may be motivated though, David, so be careful with that.

And John, looking at bromine as far as -- what were the margins in Q2? And given this price environment and given how good it is, is there a limit as to how high margins can go in bromine FRs?

Well, David, the best example of that I can give you is inventories are so lean on our side and at our customers' end that there's a lot of air freighting of product going on right now and so I think that is the best testimonial to the value that these products bring that I can give to you.

The -- we're -- the margins are of course higher than the overall margins in our polymers business, but with that said, our mineral business had a respectable quarter in the first quarter, so we're off to a good start there. So the only thing that really remains is some really diligent work around improving profitability in our phosphorus business. So hopefully that will frame it up for you.

Should margins go down at all in bromine FRs given the market structure that we have now?

The only watchout is that whole benzene, phenol, and to a certain degree olefin chain as it impacts our polymers business. And that -- we're always concerned about the raw material inflation aspects of that. It was about $10 million in the first quarter. It's going to be higher than that in the second quarter. So we've got that never-ending issue we have to deal with, too.

Thank you.

Thanks, David.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

Hi, good day, this is Olga Guteneva for Jeff Zekauskas.

Hi, Olga.

I have a couple of questions on cash flow statement. So you had $20 million in pension funding in the quarter. Was it on top of the pension expense, or just an additional funding?

Olga, this is Rich. You're talking about two different things, right? So pension expense, you have as a normal expense. But that's noncash.

Right.

Okay. Pension contribution is cash. So it's $20 million of cash that we took from our cash balance and put it into our pension plan and the impact on that, on the P&L is that going forward, I will take my assumed rate of return on that investment, of 8%, and basically have a pro rata realization of that for the remaining nine months of the year. So when I guided last time for pension and OPEBs being up $15 million on the P&L, it will be slightly less than that now on this one item because I've put in another $20 million.

Oh, that's helpful. And are you planning to fund more over the course of the year?

Well, I guess what I would say is we have no immediate plans, but we will see as the year progresses how the market does. Last year our pension plan well outearned the assumed rate of return, which is a good thing. That means it's less losses that you take into expense into the future.

So far we've had a good start through yesterday. You know, we're outearning again our assumed rate of return on our assets, but, you know, I guess the good news is that we have plenty of cash and we'll do the right thing because that's an obligation that will -- the company will stand up for. And it's something that comes into play in terms of the uses of cash, because it's one of the few places you can put cash and know you get a guaranteed return regardless of what happens in the market.

All right, thank you. And in terms of working capital, do you have any sort of expectation for the year? Because for this quarter I got to the number, something like $45 million to $50 million [use] of working capital. What do you expect for the year?

Well, what we're going to do is continue to be focused on our inventories and keeping them as slim as we can. The other elements of working capital, whether it's payables or receivables, tend to move with the pace of the business, and my comments, I talked about the fact that we have very, very high quality receivables. So, you know, anything that was past due at the end of the quarter, we pretty much collected in the first three weeks of this quarter. So that's a good thing.

And, you know, payables, if you have an increased pace of business, payables tend to go with that and are somewhat of a partial offset for the receivables side of things. So, you know, it's hard to have negative -- have a constriction in working capital, net working capital, when the business is up 20% year-over-year.

Right.

So we're trying to be realistic about that. But, you know, we're going to keep inventories as tight as we can.

Okay, and just one thing to make sure that I understood correctly, for Stannica reporting, so before you had it reflected in sales and then in minority interest and now it's going to be just in equity income under the polymer section.

That's absolutely -- no, no, it's going to be in the Catalysts section. In the past, it's been about $10 million of revenue per quarter. Pretty much break-even, and we kept it in polymers, which is where we've historically had it. Using the fact that we're now switching from a consolidated entity where we had a minority interest to now a JV 50/50, where we will have equity income and I'm moving it to where the business has been managed and will be managed going forward, which is in Catalysts.

And I apologize. I missed it again, I think. So before it wasn't in Catalysts?

No, it's been always in the polymer solutions business historically in our reporting.

Okay, and now you're moving it to Catalysts. Okay, thanks very much for your help.

You're welcome.

Your next question comes from the line of Mike Sison with KeyBanc. Please proceed.

Hi, Mike.

In terms of -- given that operating rates for the bromine chain will stay -- it sounds like it'll stay around 90% for polymer solutions. Do we sort of take the first quarter multiplied by four and that's a pretty decent estimate for the year given the outlook?

Well, Mike, I tell you, our crystal ball just doesn't go that far out and there's always concern at the end of the year that we'll have a correction from our customer base, which typically happens.

Right, so the big risk is just fourth quarter, but the next couple quarters things look pretty good on a (multiple speakers) demand basis.

Right now it looks strong. That's right, Mike.

Mike, let me -- John recently -- you heard in John's comments, his view -- his perspective that we haven't seen any indications that we're building inventory of our customers and that's a fact. We recently did some work where we look back at book to bill on a customer by customer basis and looked at our orders. Their book to bill and then what we felt on our side of the equation and when you look at that data, it does appear to us that the correction that occurred during the recession was perhaps a bit strong and it does also look like the recovery is a bit stronger than the ramp-up you see in their book to bill. So we're a little anxious that at some point there will be some pullback as folks take care not to get out in front of this general rebound. But as far as we can tell, our horizon, which is 90 to 120 days kind of thing, it still looks pretty strong.

Right. And John, when do you see the impact from bromine price increases if they are achieved? Is that more of a third and fourth quarter event?

I think we'll begin to see in Fine Chemicals, Mike, a bit in the second quarter. So I'm hopeful that we'll get that raw material headwind that we faced in the first quarter covered in the second quarter. And generally we'll have better sequential bromine utilization in the second quarter than we did in the first quarter because we ramped up through the course of the first quarter. So we get a little help there in our Fine Chemical business. And if we can get a little help in clear brines we will have the profitability of our Fine Chemicals business back to where it should be.

Right, okay. Last question, Mark, for us who are a little bit impatient. When you think about the earnings potentially you talked about in the past out to 2012 [04] dollars do you feel incrementally better about that number as you (multiple speakers)

Mike, what's really happened over the last 12 months is pretty profound because we, we've shared I think with the world what we're doing to really drive our technology, to move to lower our structural costs, improve our efficiency. John's talked a lot about channels to market and things we're doing to drive our business in a different way. Of course we're always promoting the value of our products in the marketplace, like nobody else does.

So the net of that is that we're seeing very, very high levels of profitability off of our base businesses in the face of sales that are good. But to be honest, we're still down versus the historical highs that we've had.

So we are gaining in our confidence in our ability to work through this process. And so I think you're going to hear from us in May a pretty strong endorsement of where we see this business being in 2012, and at the same time we do that, we'll be putting out the cautions where we think they need to be put out there. But we've got a good foundation business that is responding well to the global demands that are out there and right now, I would have to say I'm more optimistic than I've been ever.

So, when you take a look at 212, would that be more considered a mid-cycle number or peak number?

Oh, it's mid-cycle. It's not the peak.

So the peak's got more legs beyond that.

Well, sure it does. And we've got to keep finding ways to add value. But then you get out into the further ranges of opportunities and we can share some of those, but I'm reluctant in this dialogue in 2012, to go out and talk about the realm of all that's theoretically possible, because you get down to a much lower probability of our ability to deliver on that, so -- but we'll try to lean you forward with our technology and what it's doing and directionally we'll give you some ideas of those things that will come, you know, beyond 2012.

Great. Thank you.

Thanks, Mike.

Your next question comes from the line of Edward Yang with Oppenheimer. Please proceed.

Hi, thank you. Good morning.

Hey, Ed.

Just wanted to follow up on the earlier question on the Chemtura agreement and you haven't provided a lot of detail around that. But did mention that you saw some benefit on the volume side in the first quarter and you should see some additional throughout the rest of the year. Basically with the agreement, what does Chemtura get out of the agreement, what does Albemarle get? I guess a simpler way to ask it is, if Chemtura is still a -- as fierce a competitor in the elemental bromine market, are they still a competitor in that market following that deal you announced in January?

Yes, this is Luke Kissam. I think they are still a competitor. They have certain fields that they have in Arkansas that they continue to make -- use to produce bromine.

I think if you look at that agreement, what does it bring to us and what does it bring to them? It brings to us volume to run through our sites and capacity utilization, and what does it bring to them? I guess they looked at it and made a decision that the price at which we were willing to sell to to them was better than the price that they could produce it themselves. So each party -- you know, no agreement is perfect. If they are a little unhappy, we're a little unhappy, it's probably a good compromise. So we're very confident in our ability to utilize that asset utilization, utilize assets we have to continue to service our customers' needs as that business grows, and also to supply them with the volumes that they need in the areas that we've agreed upon. (Multiple speakers)

And, Luke, when you look at the predecessor company for Chemtura, Great Lakes, it always seemed to me like they were fairly competitive on the cost basis. Was that not the case? I mean are you a lower cost producer than Chemtura or Great Lakes was in that bromine market?

I think that you have to -- there's no question in my mind. I don't know what their costs are, first of all, Ed. There's no question in my mind that in Jordan we are the world's low-cost producer of bromine, no question. If you look at what we are in Arkansas, we believe we are low cost in the US, and certainly this agreement they have entered into leads me to believe that -- that validates our belief.

Okay, thank you.

Ed, the only thing I would add is, you know, if you look at our total polymers portfolio, all products, all businesses, and I mean they are in a range of 5% of our total volumes, so this is not, you know, a significant driver for us.

Thank you.

And this concludes the question and answer session of today's conference call. I will now turn the call over to management for any closing remarks.

Thanks, everyone, for participating on the call today. If there are any further questions, you may contact me at the number indicated on the press release. Have a great day.

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.