雅保公司 (ALB) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter 2010 Albemarle Corporation earnings conference call. My name is Crystal Lynn and I will be your operator for today. At this time all participants are in a listen only mode. (Operator Instructions)I would now like to turn the conference over to your host for today, Miss Sandra Rodriguez, Vice President of Investor Relations and Communications. Please proceed.

Thank you, Crystal Lynn and welcome, everyone to Albemarle's fourth quarter earnings conference call. Our earnings were released after the close of the market yesterday. Our press release, earnings presentation and non-GAAP reconciliations are posted on our website under the investor information section at Albemarle.com. Joining me on the call today are Mark Rohr, Chairman and Chief Executive Officer, John Steitz, Chief Operating Officer, and Richard Fishman, our interim Chief Financial Officer.

Before we get started, I'd like to ask everyone to please save the date for Albemarle's 2011 Investor Day which will be held in New York City on Tuesday, May 3. Registration and event details will be mailed in the coming weeks. We look forward to seeing many of you there.

Let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it and as such does include risk and uncertainties. Please refer to our press release and SEC filings for more information on the specific risk factors that could cause actual results to differ materially from expectations. With that, I'll turn the call over to Mark.

Thank you, Sandra and good morning, everyone. We appreciate this opportunity to share our fourth quarter and full-year results with you this morning. I'd like to start with an update on some of our strategic initiatives before getting into specific details on performance for the quarter and the year. John Steitz will then cover some details on segment performance before Richard Fishman reviews the financial highlights. I'll then wrap up with a few closing remarks before we open it up for your questions.

A few weeks ago, we announced Scott Tozier will join Albemarle as our new Chief Financial Officer assuming responsibility for our global financial operations. Scott comes to us from Honeywell International where he most recently served as Vice President of Finance, Transformation and Operations. Scott's 20 years of diversified financial experience and his global leadership roles will serve our Company very well as we go forward. He will join us next week and we will be getting around to meet many of you in the upcoming months.

I'd also like to salute Richard Fishman who stepped up to the plate as interim CFO, while not skipping a beat in his tax and treasury leadership functionsfor the past six months. While at the helm, Richard led a successful bond offering for the Company while also coordinating a number of global initiatives that have played a material role in our success throughout this year. Thank you, Rich.

In December, we announced our agreement with Petrobras to build a world scale hydro processing plant in Santa Cruz, Brazil. This strategic venture, allows Albemarle and Petrobras to supply the significant demand growth for HPC's in Brazil and South America, driven by refining capacity expansions and the need to meet more stringent regulations for ultra low sulfur diesel.

Hydrotreating capacity in South America is expected to more than double to roughly 1 million barrels per day over the next five to seven years and Petrobras expects its own HPC demand to increase fivefold by 2016. We are very excited about this venture opportunity.

On the other side of the catalysts portfolio in polyolefins catalysts we also have important strategic investments underway. Recall back in October, we announced the completion of our R&D facility, our catalyst R&D facility, and construction of our manufacturing plant in South Korea. The twelve months prior, we announced a joint venture with SABIC to build a world scale organometallics production facility in Al-Jubail, Saudi Arabia. Both of these projects are progressing very well.

Existing assets in South Korea allowed us to rapidly develop research and small scale production facilities adding immediate value to the metallocene polyolefins business. Progress was a bit slower in Al-Jubail because we are starting with a greenfield site and initial design and engineering work takes time on investment of this scale. This catalyst facility will provide strategic needed supply of triethyl aluminum catalyst which is critical for the regions polyolefins industry. We expect both of these facilities to be operational in 2012.

Now let me touch on input costs for a moment. Full-year 2010 saw $78 million in raw material costs inflation, roughly half of that was in metals and rare earths used in our refinery catalyst products. Rare earths as you know have increased dramatically in value over the past year from under $10,000 a ton to over $60,000 per ton. We have been and will continue to be successful with securing rare earths that we most commonly use in our FCC catalyst and we do not believe it necessary to take a long position in rare earths.

We are working with our customers to mitigate cost increases while providing solutions that maximize their margins. The balance of the inflation was spread across our polymer solutions and fine chemistry products with most of the cost increases in petroleum derivatives like ethylene benzene, toluene, and other olefines, off-setting some of the raw material costs was a favorable year-over-year variance in energy of roughly $11 million. Our current view of 2011 shows roughly $70 million of year-over-year raw material inflation, we expect our price initiatives will offset these headwinds as they are currently projected.

Now moving to the quarter and full year results, net income for the fourth quarter was $85 million or $0.92 per share, up 35% over the fourth quarter of 2009, earnings of $0.64 per share. Net sales of $605 million surpassed the same period last year by roughly 8%. Despite some seasonal weakness in pockets of our business, our fourth quarter marked the highest revenue quarter of the year and the highest since the third quarter of 2008.

On the profit side gross margins for the quarter improved 570 basis points to 32.5%. Operating profits of $111 million surpassed fourth quarter 2009 operating profits of $63 million by 76%. What is typically a weak quarter our business nonetheless delivered solid top line growth in high quality earnings. The fourth quarter was the second best quarter in Albemarle's history and a good finish to a very strong year.

Full year 2010 earnings were a record $328 million or $3.56 per share compared to $171 million and $1.86 per share in 2009. Net sales for the year totaled $2.4 billion up 18% compared to $2 billion in 2009. Full-year EBITDA of $545 million was an all time high for the Company. 2010 results demonstrate the strength of technically differentiating portfolio as well as further strengthening of business conditions across many of the markets that we serve.

Our balance sheet also improved in 2010, we ended the year with $530 million of cash on hand, compared to roughly $308 million at the end of 2009. During the year we funded capital expenditures of $76 million, paid dividends to shareholders of $50 million and paid $80 million of voluntary contributions to our defined benefit plans. Additionally we repurchased approximately 400,000 shares of common stock for an aggregate cost of $14 million or an average of $37.22 per share. Finally, in December we issued 350 million bonds due in 2020, and Richard will talk about the financing and use of these proceeds shortly.

Moving onto our segments. Our polymer solutions business reported net sales for the quarter of $220 million up 8% from fourth quarter 2009. Segment income of $51 million surpassed fourth quarter 2009 by 57% and drove margins to 23% for the quarter. Steady increases in volumes and pricing through the year led polymers to post all time high annual profits of $198 million. That's more than triple the prior year segment profits. The business is off to a strong start in 2011 and I expect continued demand strength and our low cost base will drive year-over-year segment earnings growth in 2011.

Fine chemistry's fourth quarter performance caps a year of good progress. Revenues total $153 million compared to $146 million in the fourth quarter of 2009. Improved demand in bromine and derivatives, federal pricing trends and high production rates drove record setting segment income of $26 million, up 39% from the prior year fourth quarter. As you know, bromine supports many industries and a number of these industries are poised for strong growth this year, including our completion fluids business that started to rebound nicely in Q4 and is looking even stronger in 2011.

Pricing initiatives are being well received and we expect very good cost absorption as we continue to operate our bromine assets at high levels through 2011 and 2012. We also expect our custom services business to improve nicely in 2011 with continued success on projects like the specialty lubricants business for Exxon.

Our catalyst business also delivered strong results in the fourth quarter. Net sales totaled $232 million up 11% from the fourth quarter of 2009. Segment income of $58.5 million increased 40% from the same period last year, in spite of HPC product mix. On a full-year basis, catalyst revenues of $809 million improved 10% over prior year's revenues. Most notably catalyst is record breaking full year segment income of $248 million, that's a robust 67% improvement over 2009.

These results were achieved by excellent performance across all divisions of catalysts, driving full-year segment income margins to 28%, an improvement of 950 basis points compared to 2009 margins. We expect the opportunities that lie ahead and our strategic positioning in key growth markets like Brazil, Korea and Saudi Arabia will continue to strengthen this leg of our business. With that I'll hand it over to John to discuss our operational performance for the quarter.

Thanks, Mark and good morning, everyone. I will start with our polymers business this morning. Our Polymer Solutions business ended the year with outstanding results that were driven by improved volumes and pricing. As expected, we saw slight volume decline in fourth quarter due to normal seasonality. Despite these lower volumes, polymers achieved 8% year-on-year revenue growth and profit margins improved more than 700 basis points to 23% in the fourth quarter.

Our pricing initiatives are going well. Offsetting raw material inflation is certainly a necessity and we are also working to price our products appropriate for the value they deliver our customers, who continue to benefit from our innovative solutions. Demand for our flame retardants continues to be robust. IPC's book to bill ratio for printed circuit boards has trended down for the past few months to 0.96 in November.

These trends are consistent with the volume decline we saw in tetrabrome in the fourth quarter due to seasonal effects that typically spans mid-fourth quarter through the Chinese New Year. However, our current view of polymers first quarter is more positive than the PCB indicator would suggest. Primarily because of the strengthening demand we are seeing in the enclosures and commercial construction markets.

Our flame retardant volumes are running roughly 7% higher than they were at this point in the first quarter of 2010, most notably in flame retardants for enclosures. We see positive trends continuing in this business.

Overall Albemarle is well positioned to benefit from the demand growth of electronics. As an example in 2010 total traffic crossing the Internet was greater than all the previous years combined, more people, more usage, more electronics, means good business for us.

Our antioxidants and curatives business was down in the fourth quarter compared to prior year primarily due to a large campaign that we have shifted to the first half of 2011. However, on a full-year basis the division achieved record revenues and earnings in 2010. We will see this business come back in the first quarter and remain steady throughout 2011. All in all, great results from our Polymer Solutions team, raising the bar and working hard to maintain our leadership position in the markets we serve and to sustain margins at or above the levels we posted in 2010.

Our catalyst business closed out an outstanding year with record profitability, revenues for the quarter and for the full year increased by over 10%. Higher polyolefin and FCC volumes and favorable pricing drove catalysts' fourth quarter margins up 500 basis points and full-year margins up 900 basis points compared to the same periods last year. Our polymer catalyst business posted record annual profits on strong performance in the divisions [Zigrnata] portfolio where we expected good margin -- good earnings growth again in 2011. Longer term, our polyolefin catalyst business is positioned to experience positive growth as well positioned capacity comes on in South Korea and the Middle East.

We are excited about the prospects of our participation in the electronic chemicals market in Asia where our organometallic technology will be critical to the growing LED market. Our refinery catalyst business delivered solid results in the fourth quarter from both HPC and FCC. We are seeing broad positive trends playing out in the refining world. Overall fundamentals were better in 2010 compared to 2009 and predicted to improve more in 2011. Forecasts show refining crack spreads trending upward.

Another positive indicator in miles driven DOTs recent report showed November vehicle miles were up 2.6 billion year over year. Positive global trends and the degradation of crude quality bode well for Albemarle's catalyst business this year and for years to come.

Our Fine Chemistry business emerged in the fourth quarter with outstanding performance leading to a $7 million profit increase to $26.3 million, up 39% year on year, our best quarter ever, driving a 17% profit margin in the quarter. Compared to fourth quarter 2009, Fine Chemistry's margins are up over 400 basis points and up over 320 basis points for the full year. Both performance chemicals and our custom services businesses contributed to fine chem's impressive results.

We sustained high levels of bromine production throughout the year and our completion fluids business saw a nice comeback in the fourth quarter, a key driver in our overall good performance in the quarter.

As we turn the corner, early indications for the first quarter of 2011 look positive. We are running our clear brines assets at high levels and we expect this trend to continue. Our recent pricing initiatives are gaining traction and should be fully implemented as we enter the second quarter.

In other areas of our performance chemicals division, our Martinswerk specialty oxides business saw significant growth in 2010. More than triple 2009 earnings and we are in the process of expanding our capacity in Germany to meet future growth.

In our Mercury control business, we see several good long-term growth drivers including the passage of the US cement MACT rule and Section 45 tax incentive for SOx, NOx and Mercury emission reductions in coal. Both of these will create additional demand for Mercury control solutions in the 2012-2013 time frame. Additional long term demand will come from China where the Chinese government issued a directive for the top five power plants to start plant trials for Mercury control in 2011.

Our food safety and water treatment businesses are also doing well and we have good growth prospects lined up for those divisions as well as our custom services business which will be a key performer in 2011. Overall, we are very pleased with our fine chemistry performance this year and look forward to the segment's positive contributions in 2011.

In closing, we exit 2010 with good momentum across our businesses and with confidence in our ability to continue to deliver value in 2011 and now I'd like to turn it over to Richard.

Thank you, John. And good morning. I will cover highlights on taxes, corporate expense, CapEx, financings, our balance sheet and working capital.

Our effective tax rate for the year excluding specials dropped to 23.8%, which is down slightly from the full year of 24 -- full year rate of 24.3% we expected at the end of Q3. As a result, our rate for Q4 were 22.6%. This drop is attributable to a number of variables, most notably recent favorable US tax legislation, it will also help us in 2011, as well as 11 location of our income, particularly in the US and JBC, our Jordanian venture. We expect our 2011 effective tax rate to be around 25%.

Unallocated corporate expense in Q4 was $21 million, slightly above our quarterly average for this year. Total year corporate expense was $73 million. We generated strong EBITDA in the fourth quarter, about $140 million, bringing our total EBITDA for 2010 to a record $545 million excluding specials. We easily surpassed 2009 EBITDA by almost 70% and set a new Company full-year EBITDA record.

CapEx for the quarter was $25 million with full-year CapEx of around $76 million, somewhat below our forecast. Depreciation and amortization in Q4 was $24 million, bringing full-year D&A to $96 million.

Early in December we successfully concluded a $350 million, 10-year bond deal bearing a coupon of 4.5%. This is a significant accomplishment as we were able to lock in for 10 years historic low rates. We also were able to move quickly before markets closed for year-end holidays and most importantly before interest rates started to climb at year-end.

We used the proceeds of the bonds to pay down outstanding borrowings, principally under our revolving credit facility and to make $100 million in voluntary pension contributions, $50 million during December, 2010, and another $50 million this month. Coincident with the new bond issuance, Moody' s upgraded our debt ratings a notch to BAA1 stable.

Including $26 million in debt at JBC, our year-end consolidated debt was about $861 million, up $95 million from the last quarter and up $48 million year to date. Our debt was up temporarily in part due to certain corporate planning actions. $711 million of our debt is fixed, $150 million is floating, roughly an 83-17 split. Our weighted average floating rate during the fourth quarter was 1.26%, our overall weighted average interest rate during Q4 was 3.4%, higher than Q3 due to the $350 million bond issuance and reduced borrowings on the revolver.

We ended the quarter with $530 million of cash and equivalents and net debt of $305 million. Excluding $26 million of non-guaranteed debt from our JBC joint venture. At year-end our net debt was at a record low despite our 2010 pension plan contributions. Our debt to cap ratio is 37.1%, our net debt to cap ratio is 17.7%, both excluding non-guaranteed debt from our JBC joint venture.

Cash flow from operations was $58 million in the quarter and $334 million for the full year. Net working capital increased by $76 million from year-end 2009 due mainly to the business upturn. Our past debt balances continue to be well controlled and we continue to stay focused on inventory management. Cash generation remains a top priority for the Company. This quarter sets a new earnings record for the fourth quarter performance at Albemarle. It represents a fifth consecutive quarter of year-over-year growth.

All of us at Albemarle are very proud of 2010 results and even more excited about our prospects for 2011. We are confident we can continue to deliver improved profitability for our shareholders as we continue to focus on our customers' new opportunities, cost control and cash generation. Now back to Mark.

Thanks, Richard. Last May, at our investor conference we laid out our two-year strategic plan in an earnings expectations. Where there was hope for a sustained economic recovery, there was still much uncertainty in the global markets. Nonetheless, we believe that our sound business strategic and strong focus on operational discipline would support our growth expectations regardless of the pace of the economic recovery.

Fast forward now eight months as we close 2010 and we remain more confident -- even more confident in our business' ability to generate long-term earnings growth and shareholder value. We are also confident in our ability to achieve consensus earnings for 2011, which places us a full year ahead of our vision 2012 objectives. Thank you for your interest in Albemarle and now let me pass it back to Sandra before we take questions.

Thanks, Mark. Before we open it up for your questions I'll ask that you guys please limit your questions to just a couple so that we can allow time for everyone in the queue. You're welcome to rejoin the queue with follow-up questions as time allows. Crystal Lynn will you please open the lines now?

Certainly. (Operator instructions). Today's first question comes from the line of PJ Juvekar with Citigroup. Please go ahead.

Yes, hi. Good morning.

Good morning, PJ.

Mark, bromine seems to be doing great with Jordan facilities sold out, you have and expansion plans in bromine. Can you walk us through those expansion plans and timing?

Yes, we have expansion underway in Arkansas which is going to add 10% to 15% to our volume in the year and we have a similar expansion effort underway in Jordan. Both of those will be completed as we enter this year, probably in April, May, June kind-of time frame, PJ. So net we are going up 10% to 15% in volume and we have without saying too much about it, we have efforts underway to take that up even further which we have the ability to do and I expect later this year we will be announcing something along those lines.

And do you think demand will grow by 10% to 15% to meet that or is that just planning ahead?

No, we are quite confident demand is going to grow to consume that volume and we think it could grow even higher than that as you look forward into '12 and '13.

And just sticking to bromine, clear brine demand has been strong but maybe because of sheer gas drilling. Can you talk about how much of that is used in oil versus natural gas drilling?

Well, I think a lot of it's used in the oil side of that and natural gas offshore is where it is. It's used less than shale, PJ, so it's -- our markets are driven a lot now by offshore -- by activity away from the US and we are seeing a lot of growth away from the US and that tends to be more on conventional wells as opposed to shale wells.

I'll just add PJ, there's a fracking application offshore that primarily uses sodium bromine clear brine fluid and the growth prospects for that longer term are quite bullish as well.

And lastly, can you just update us on what's happening to bromine prices in China? Thank you.

Yes PJ. I'd be happy to. While bromine prices in China, depending on what currency translation you use are in the range of $4000 a ton and I think there's a propensity for that to continue to elevate, but I would say that, we participate within China to a limited degree. But where we participate is really in the derivatives, and one of our bromine derivatives for enclosures are 8010, on an equipment bromine basis for those sales into China, you know is in the range of $7000 a ton. So you can get an idea of what the gives and takes are.

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

Good morning.

Good morning, David.

Mark and John, can you comment on FCC price increases, how the prefers price increase transpired and the prospects for price increases and FCCs in 2011?

Let me ask John to do that, David.

David, thank you. I know there's a lot of concern out there about rare earths and that's the biggest driver here in FCC pricing to recover the rare earth issues so let me just comment about that if I can.

First, we are able to buy the rare earth volume we need, and today, that's pushing $64,000 a ton, and these list prices are being paid. Customers are requesting low or zero rare earth containing catalyst but generally these solutions are really problematic as they result in refineries operating with a lot of inefficiency and on a less optimized basis. But ,to answer your direct question, we are achieving cost pass-through and pricing currently is in the $4000 a ton range and with that said, we continue to work with the refiners around the world to really try to provide technical solutions here to try to minimize the impact of this rare earth issue. But it's really developing into a tough problem because the crude slate is becoming more sour and much heavier and more volatile in the nature of the crude supply going into refineries, so the operation, efficient operation is becoming overwhelming concern there. But hopefully that will give you a little flavor for this issue.

And, John, what's the limiting factor in raising FCC prices even more aggressively in 2011 to get real pricing in that product line?

Well, David, they certainly bring a lot of value. The refiners have been through an extraordinarily difficult two to three-year period here. I think the real limiting factor is the continuing improvement in the economics of running these refiners around the world and there are still, major issues politically that these companies are dealing with in the US and Europe, so, that's an issue that we have to be sensitive to in dealing with our customer base there.

But I would say in Asia too, we are seeing a big drive in propylene demand and I think that that helps our mix a lot about our catalysts are very strong in the optimization and manufacturing of propylene.

And lastly, Mark, your name has not been mentioned with the [Sucania] property. Why is that property not attractive to you?

Well, David, I really don't want to talk too much about, you know, specific M&A kind of activities or companies that we may be interested in. What I would say is that we have looked and continued to look for ways to move into adjacent areas of technology and marketing with our fundamental technology and [Sucania] as a business has some interesting technologies there that we don't practice in that we -- but we do dabble in, so Sucania like any other catalyst companies would be a really logical fit with Albemarle.

Thank you.

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

Hi, this is [Monif]. I want to know if you can classify bromine extraction costs into various buckets and where are you seeing price hikes in those extraction costs?

Yes, let me take a stab at that and, bromine is down in sea waters, found in Arkansas and found primarily in the dead sea. There was a little bit in a subterranean aquifer in China. What you view is the high cost is seawater cost and that's orders of magnitude several thousand dollars per ton probably, China is roughly the same area we guess, somewhere in that kind of gross ballpark. Then you move to high concentration reserves like Arkansas and that price is cut by more than 50% into those reserves and then you move into the Dead Sea where it's really chemical and Albemarle is located in that cost is cut again by 50% or so.

So the cost of the extraction, the inherent cost of the extraction is really driven once you get past the sunken investments driven primarily by materials that are used in the recovery process, the most notable one is chlorine and they use roughly a half a pound per pound, half a pound of chlorine per pound of bromine so we don't have a lot of movement in that extraction cost. And so that's just what I'll say with that. Am I answering your question?

Yes. Just one more question. We see that bromine based flame retardants are extremely cost effective when it comes to competing with phosphorous based flame retardants -- if the prices of bromine keep going up and correspondingly, the prices of brominated flame retardants move up, do you see a point where phosphorus based flame retardants actually start competing with bromine based flame retardants for the market share?

I think bromine products are very efficacious, they are also, contrary to conventional wisdom, they are extremely environmentally sound, very low emissions per pound of product produced, very, very high recycle ability when you compare it to phosphorus in particular so I think customers recognize the sustainability aspect of bromine and that creates an element of value above phosphorus to start with.

The other thing you go to is what the inherent cost of the solution is so it's really not about the polymer additive or reactive as much as it is about the polymer system. What we are in the business of really -- we are in the business of making enclosures or making circuit boards or making connectors and so you get into that cost, that sunk cost of that enclosure and so that's a function of really what the underlying plastic cost is and we serve primarily the ABS markets which is very, very cost-effective polymer. So as long Styrenics remain the cost-effective polymer and a good polymer in use, then you're going to see our kind of proprietary products do extremely well. And right now we don't see that changing.

Okay. Thank you very much.

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

Yes. Good morning. In Polymer Solutions, your volume declined 5.5% on a year-over-year basis. You mentioned that you had a large campaign of antioxidants and curatives that would have been deferred into 2011. Can you talk about how large of an impact that might have been and what underlying volumes look like for brominated and mineral based flame retardants?

Yes, I'll answer that in two parts, Kevin. First the curative campaign we alluded to in the fourth quarter that we shifted to the first half of 2011 was, you know, a $7 million to $8 million profit impact so that will give you some idea on that. The brominated and mineral flame retardants, if you look at going into the first quarter, I highlighted that 7% start of growth right out of the gate here in the first quarter and I think that if you look at the first quarter of 2010, we should exceed our volume growth compared to the first quarter of 2010 as we enter first quarter of 2011.

So we are getting off to a good start and generally if we get off to a good start, we have a good year. So hopefully that will give you some feel there. Our -- many of our brominated flame retardants today are sold out and so it's really critical that we execute properly here and bromine is sold out. Our mineral flame retardant business is sold out and that's all -- has an underpinning of higher raw material inflation in 2011 as well and so we are cognizant of that issue too. So our real growth effort here in 2011 is to maintain the margins that we have been able to earn in polymers in 2010 and sustain that in 2011 and beyond.

Great. And then switching gears, if I may, to fine chemicals. You mentioned the records segment income there. Can you maybe break it down a little bit into sustainability of this profit level looking into early 2011, how much is sustainable from the various price increase initiatives, for example, versus, you know, order, timing or fluctuations in the Fine Chemistry book that could unwind at least temporarily in 1Q.

We feel of all the issues we are faced with going into 2011, we feel holding onto this level of profitability in Fine Chemistry is secure. So we feel really good that we've got the business back through the course of 2010 and to a level where we think we deserve where it should be so I think that's kind of our new benchmark as we go forward here in 2011.

Okay. So triple-digit segment income there for 2011 would not be unreasonable in your view?

Triple -- well, we can go through the details, but we are talking another year-on-year equivalent to the segment earnings growth we had in 2010. So I think up 30%, 40% would be a great year for Fine Chemistry.

Okay. Great. And finally, with regard to pension, you mentioned some contributions both in 4Q and a $50 million contribution in January. Do you expect any additional contributions as the year progresses or is that it?

No, Kevin, I think we are really in good shape now. We have pushed it up to about 100% funding and no one knows what the return will be on that, but if you have reasonable returns, I think we are going to be out of the pension funding business for quite a while.

Thank you very much.

Our next question comes from the line of Jeff Zekaukas with JPMorgan. Please proceed.

Hi. Good morning.

Good morning, Jeff.

Good morning, Jeff.

Your polymer additives average prices were up14%-ish for the quarter but you had been moving prices up strongly in bromine so did the fourth quarter capture all of your price increase or is there a sequential price benefit that you would get in Q1 as you get the full implementation of your increases and if there is, what is that?

The -- I have to break it down by pieces, Jeff, so --

Sure.

If you look at mineral flame retardants, we have got roughly in that average for the mineral business and I think sequentially we will see that continue to improve but not by the same levels you saw in the fourth quarter. So that will be -- we have achieved a fair amount of that, that number and going forward the sequential impact of that will be less. We also have higher transportation costs kicking in and higher raw material costs with our aluminum based raw material there going up. So that's kind of mineral -- the brominated flame retardant piece, there's a big mix impact on , versus the other range of specialty products so we will continue to see in sequential improvement. I think it will be also less than what we saw -- the sequential improvement in the fourth quarter and that will be also muted by a higher level tetrabrome sales in the first quarter of 2011.

So overall I think to model it's something in the 5% to 10% range sequentially would be reasonable. And then we also have phenol going up, BPA continues to go up, we are concerned about benzene. Most of the benzene is used in brominated flame retardant manufacturing so there is also some raw material issues there that we are

Okay. Secondly, you said that the business is starting off, on a nice footing for next year in polymer additives. Is that because of growth in high impact polystyrene or more in ABS resins? Can you give an idea of which underlying polymers are moving faster and which are moving slower?

Jeff, this is Mark. We are actually seeing a pretty good uptick in most of our Polymer Solutions that are out there. The connector market is doing very well, which is of course for us is primarily nylon based. The high impact styrene business is doing well, we are seeing a lot of activity in new changing standards and in housings in those areas, expanded polystyrene is doing pretty well, which is construction kind-of material, circuit board business is getting better, which of course has tetrabrome. We are seeing -- the tide is rising broadly in these areas. If there's one area that's still lagging a little bit, it's probably construction, but even that's starting to [uptick] a bit. So we are seeing -- television builds are up, I mean everything's up, so I think it's a pretty broad, across the board movement. And for us, of course Styrenics is a favorable play and Styrenics are very strong.

And then lastly, what was your average utilization rate in HPC catalyst in 2010 in North America?

Well, let me just say it's very high. A lot of it's just mix related. Some of the products that John makes are, not very dense and so if you look at it from that point of view you can run into some of these products and you actually reduce the through-put of the unit, so we are running at pretty high rates. I don't know, John if you want --

Yes, Jeff. We build momentum through the course of the year. We had a better fourth quarter that we had anticipated at one point and we've got a pretty awfully good start in the first quarter of '11, so we had to start manufacturing that in the fourth quarter for 2011, so I would say the first half was lower and the back half was a lot higher. It used to be pretty high today

Maybe 90%, Jeff, something like that. And when you're in that kind of level for our business, believe it or not, that's pretty -- that's getting pretty tight because you -- again, you can only make some products on some lines and changeovers and part of that, so it can get pretty dicey at that rate.

Okay. Thanks very much

Thanks, Jeff.

Our next question comes from the line of Laurence Alexander with Jeffries. Please proceed.

Good morning.

Good morning, Laurence.

Good morning, Laurence.

Just two quick questions. Can you give an update on your views as to the degree of pent-up demand that we might see coming through for HPC catalysts over the next couple of years? And separately on the Mercury control issue and for 2012, 2013 that you alluded to, what could that represent compared to current bromine demand? I mean, is it material?

Let me start this and I'll ask John to come in with some specifics, but if you look at HPC as -- refinery margins are starting to move up and as the demand is increasing, I gave you some statistics of what we are seeing down in Brazil and South America, not to mention areas like India and elsewhere, we see some pretty good growth rates here, Laurence, and I think we are starting to debate setting aside the expansion in Brazil, debate our capacity limitations and capability, so I don't know if I want to call that pent-up demand.

I think it's just realization that these catalysts add a lot of value and the harder you're running these refineries, then the more demand that we have. So I would expect we are going to see 6%, 7% growth in that business, kind of over the next several years, sometimes higher than that, sometimes less than that quarter to quarter.

When you look at Mercury and bromine, you can get some scary numbers out there. John mentioned the movement in China, we are actually seeing a lot more enthusiasm in China. Let me say that again - a lot more enthusiasm in China to address Mercury emissions for power plants than we see in the US and when you roll that number through, you can get a scary big bromine demand.

I mean, you can forecast out there in a few years levels that would require 100,000 more tons of bromine, so I'm not sure really what that future holds but I would say that demand is strong, and it is increasing and you combine that with the shortfall in China of bromine production capability, it is just going to keep the market snug as we go out. John, you want to add color?

Yes, Laurence, I would add -- one of the more exciting areas I think which could be order magnitude of thousands of tons in 2012, 2013 is the section 45 issue I mentioned earlier and we developed a propriety highly concentrated calcium bromine solution that pull-base utilities can use, not just for Mercury control but also for reduction of SOx and NOx emissions and this is being supported by tax incentives by the federal government to help that. So the playout of that effort in the US utilities market is very exciting.

Thank you.

Thanks, Laurence.

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

Good morning, everyone.

Good morning, Steve.

If we could just touch on the fine chemicals situation in the fourth quarter. Again, I want to make sure I'm not missing anything. You had a very strong sequential margin improvement there and, John, you mentioned it was bromine production rates. Is that tied exclusively to brominated flame retardants and the completion fluids? Is it more completion fluids, and is there anything I'm missing outside of those two drivers?

Yes. If you look at the sequential improvement, the biggest area was in what we call industrial bromides which the biggest part is in calcium bromine for clear brines. So you have clear brines driving about half of the total improvement.

We had really kind of reached a low point over last two years in terms of clear brines and that appears to be picking up and we believe right now sustainable. The bromine production rates sequentially had been pretty equivalent. There wasn't a change there.

I would say it was more sales volumes in clear brines, our specialties are doing quite well in the food and some of the Mercury control areas and then you have the other compliment to our Fine Chemistry business is our Fine Chemistry services business, and that continues to do quite well and they contributed sequentially as well. So it was really a -- a real full court press there and the balance portfolio of our Fine Chemistry business continues to pay big dividends for this corporation and I think we will do so in the future.

Okay. That's helpful. And then in catalyst business, not to take away from a great quarter, but sequentially the operating margin declined and I think we were expecting -- you had a tough comp in HPC Volume so I'm just wondering what was going on in that business? What happened to your FCC volume year-over-year, because you mentioned it was up, and if you could just give us some color there.

Steve, this is Mark. Let me start this and ask John to hop in here in a second. What's hard for us to explain without sharing way too much data is the mix effect in this arena, and all you have to do, if you look back historically at our -- at our sales and profit numbers, our margins, you will see pretty good movements quarter to quarter and that's largely mix effect and mix effect can be measured in many, many millions of dollars in one order.

So we had -- we had some big mix effect issues that rolled through that doesn't mean anything other than it's just a way -- the way the orders came in for that period of time. That was a big impact of that. But, John, you want to comment more about FCC and other issues?

Yes, I think you've got FCC correct, Steve. I would add that going forward, we are seeing a lot more planned turnarounds in the refining industry in the first quarter of '11 so we are going to continue to see I think in the first quarter and first half some positive effects of the HPC mix effects in HPC.

But the balance of that is we will see those crackers go down in the first quarter, so I don't believe that we will see the continuing volume trend in FCC in the first quarter of 2011. But Mark is exactly right, it was a mix effect in the fourth quarter and there will be quarters where we pop up to that third quarter number, no question about it.

But there will be more quarters in the range of where we've been and if you look at the margins in 2011 I think it would be a really terrific achievement for this business to achieve margins in the 25% to 26% range earnings including ventures. So --

Okay.

That's what we are shooting for in 2011, which I think is the essence of your question there.

Yes, it is. And then if I could sneak just one last one in. You got a competitor in bromine that just recently came out of bankruptcy and I'm just wondering how, if any way you expect the dynamics of the market will change as a result of that.

I don't expect the dynamics are going to change. I mean, those guys, like all of us work hard to do what's right and take care of the customers and make money for their shareholders so I don't really think anything is going to change there.

Thanks, Mark.

(Operator Instructions)Our next question comes from the line of Mike Sison with KeyBanc. Please proceed.

Hi, happy new year.

Hi Mike.

Hi, Mike. Same to you.

Nice end to 2010. In terms of -- I think you gave us China element of bromine prices. Global prices -- are they in that same range, around 4000 now?

Yes, Mike, I just emphasize, yes our commercial bromine continues to be less than 5% of our total bromine output, so keep that in mind. What we really try to focus on is the overall pricing of the franchise, including the derivatives and I mentioned our -- the equivalent bromine pricing of our S8010 product for the enclosures market and the 7000-ton range, so we are going to try to work, continue to deliver that kind of value and work hard on that. So -- but, yes, to answer your question, we are in that ballpark.

Okay. And then when you think about that fourth quarter pricing in polymer additives up 15%, like $30 million, is that $30 million sort of the run rate of pricing flowing into 2011 per quarter, something within that range?

The -- well it's hard to dispute the math. We are also, we've got to watch the input costs, you know, gas has been going up. I mentioned phenol, BPA, benzene, so those are off-sets to the overall issue in polymers. The flip is broadly speaking in 2011, I think if we can achieve net margins for this business in that 22% to 23% range, that would be really terrific. So that's our goal.

Okay. And last question, Mark, the nice job here of getting to your 2012 goal a year early and some of us are anxious to hear what you have to say in May, but the -- when you think about the mid cycle earnings power, any thoughts of how much stronger it could be going forward?

Mike, we have a lot of pretty interesting activities underway that touch a lot of our businesses and it provides a strong foundation when you look beyond 2011 for this trend to continue. What I will say is that when you look at 2011, we are teed up to have a very good year and end up a year early from our -- with our vision 2012 but we've got to execute really well.

Everything has got to run beyond 100% capacity in a lot of areas and there's a lot of complexity associated with making this -- creating this level of income consistently. So what I'll say is that I think you'll be pleased at what you see here in a few months and we will talk a lot about adjacency's and tangential areas we'll push out technology and what we expect of that and we'll outline -- can it growth into base business, growth in adjacency areas and then in (inaudible) our aspirations for M&A as well.

Thanks.

Thanks, Mike.

Thanks Mike.

And today's final question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed.

Holy cow, good morning, everybody and congratulations on finishing the year strong.

Thank you, Dmitry.

Thank you Dmitry.

Couple of questions. First of all, on this curatives or antioxidants business that slipped from the fourth quarter to the first half it sounds like, can you give us -- you said it was a change in how you do business in this area. Can you provide us a little bit more information on what the change was, why it was needed and what the impact hopefully positive impact is going to be going forward?

Yes, Dmitry it's just a relatively unique product we manufacture for the construction and high-speed rail markets and we campaign that product at a multipurpose based asset and one of our assets in Texas. So it had been -- there was a pretty strong bullish campaign in the third quarter. We have in some other products that we can make in that asset in our Fine Chemistry business so we chose to make that product in the fourth quarter to support that customer and we are going to go back into making this curative product in the first half.

We've got to run that asset hard because we've got to get back into it to make some other materials based products for fine chemicals customer so it's all very good news but it's just really campaigning the asset to meet our customers' needs at the end of the day. It's as simple as that. It's no dramatic change in how we do business.

Okay. That's helpful. My second question, I guess you talked about somewhat when you said that polymer additives, you're hoping to maintain the margins in 2011 that you reached in 2010. Your margins for two out of the three businesses with the exception of fine chemicals is -- are I'm talking about EBIT margins -- are significantly above the ranges you gave us in your last couple of investor days and, may be even above a stretch goals that you gave us at the time. I'm not interested in so much what change in the business. I think I understand what's changing the business to drive these higher margins but can you give us an update of where these margins can get to and on the fine chemical side what it will take to get them into the mid-teens?

Yes, Dmitry. This is Mark, not to put you off, why don't you wait, if you'll wait a month or two we will lay that out in a lot of detail. What we have underway is -- and you know the business pretty well so you know we are doing business. We've got a lot of behind the scenes work doing to make sure we can keep these costs that we pulled out with our plan C effort, efficiencies that the team is working around the world and to deliver these products and to be honest we haven't worked through in our own mind exactly what that means, longer term, from a margin point of view, but it's all good news so we'd like to hold that a little bit, if we could and share it with everyone in a few months.

Not a problem, Mark, didn't mean to steal your thunder. Last question, can you give us some idea on the CapEx and tax rate expectations for 2011?

I'll start with CapEx and ask Richard then to hop in on tax rate. If you look at CapEx, we have been running at $100 million kind of range. A lot of our projects that we started this year were slow as we are doing more work internationally so we came in lower than that at $76 million, I expect $120 million or so, maybe $125 million next year is the kind of number we are going to see, as we go forward. I think we are moving into a period of a higher overall capital spending than what's classically done and a bit higher than our rate of depreciation which is about $100 million, maybe a little bit less.

Got it.

Tax rate, Richard?

On the tax rate, we are expecting around 25%, which is up somewhat from this year where we finished around 24%. And that's just due to higher income and higher tax countries.

Got you. Got you. Okay. Thank you very much. That's all the questions I have.

Thanks Dmitry.

Thanks Dmitry.

That concludes today's question-and-answer session. I would now like to hand the call back to Sandra Rodriguez for closing remarks.

Thank you. And thank you everyone for participating on the call today. If you have any further questions, you may contact me at the number indicated on the press release. Have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation.