雅保公司 (ALB) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2011 Albemarle Corporation earnings conference call. My name is Fab, and I will be your operator for today. At this time, all participants are in listen-only mode.

Later we will conduct a question and answer session. (Operator Instructions). And as a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Lorin Crenshaw, Director of Investor Relations and Communications. Please proceed.

Thanks, Fab. Welcome, everyone, to Albemarle's third-quarter 2011 earnings conference call. Our earnings were released after the close yesterday. You will find our press release, earnings presentation, and non-GAAP reconciliations posted on our website under the investors section at www.Albemarle.com. Joining me on the call today are Luke Kissam, President and Chief Executive Officer; John Steitz, Chief Operating Officer; and Scott Tozier, Chief Financial Officer.

As a reminder, some of the matters discussed during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call. Also, to the extent that we discuss any non-GAAP financial measures, you will find reconciliations in our press release, which is posted on our website at www.Albemarle.com.

With that, I will turn the call over to Luke.

Thanks, Lorin. Good morning, everyone, and thank you for joining us today as we report record earnings for the third consecutive quarter. I will begin today's call by sharing some highlights from the quarter. John will then talk about specific drivers of our results, and Scott will cover the quarter's financial highlights. As always, at the end of our prepared remarks, we will open it up for your questions.

Our third quarter financial performance was a success by any standards. We achieved record earnings for the third straight quarter, and recorded the second highest revenue level in company history. Excellent pricing traction across each business segment and strong catalyst and Fine Chemistry volumes drove net sales of $723 million, up 24% year over year. These factors, combined with effective raw material utilization, favorable mix, and great execution drove segment income of $186 million, up 30% year over year, and operating margins of 26%, up 118 basis points year over year.

Earnings for the period were an all-time record of $116 million or $1.28 per share, up 25% year over year; great results, and ahead of our vision-2015 strategy to double the size of our business. In catalyst, strong volumes, higher pricing, favorable currency, and effective recovery of raw material inflation drove record net sales of $300 million, up 39% year over year. These factors, combined with favorable mix and a solid performance from our JVs, resulted in record segment income of $102 million, up 48% year over year, and segment margins of 34%, up 190 basis points year over year.

In Fine Chemistry, broad-based pricing initiatives and volume gains drove Fine Chemistry net sales of $180 million, up 30% year over year. Segment income was $30 million, up 82% year over year, and segment margins were 16.7%, up 480 basis points year over year. This business continues to demonstrate impressive operating leverage, as pricing, volume, and manufacturing efficiencies continue to more than offset higher costs.

Polymer solutions reported net sales of $244 million, up 5% year over year, and segment income of $55 million, down 7% year over year. We indicated during the second quarter earnings call, that we saw early signs of weaker demand within selected end markets in polymers. How much of that was destocking, and how much of that was truly reduced demand remains to be seen. In spite of this, polymers delivered the second-best third quarter in its history, and reported segment income over 8 times higher than that of fourth-quarter 2008, the first down quarter in the last economic slow down.

While catalyst results were truly outstanding this quarter, our year-to-date performance has been balanced and broad based. The year-to-date segment income of both Fine Chemistry and polymer solutions already exceeds their entire 2010 segment income levels. The growth opportunities before us have never been more compelling, and I am pleased with the way our management team is balancing today's execution with tomorrow's adjacency opportunities. The fundamental trends driving demand, combined with our focus on cost, innovative customer solutions, cash generation, and operational excellence position us well to deliver on our short- and long-term objectives.

Polymer solutions has been a source of questions among investors in recent months. I would like to share with you why we are confident that this business will continue to perform much better in any current or future downturn than it did in the 2008-2009 slowdown. First, we've lowered our overall cost structure via our Plan C implementation, and have been diligent in keeping costs from creeping back in. Secondly, we are constantly upgrading our portfolio. Approximately 25% to 30% of our annual revenue typically comes from new products that were not in our portfolio 5 years ago. We generally realize a margin pick-up with these new products, and that has certainly been the case in polymer solutions with the phase-out of Decabrome and transition to 8010, and the transition of our Martinal Mineral Flame Retardant product from LE to higher performing LEO grades.

Thirdly, our pricing strategy has been successful. Brominated Flame Retardant pricing is up around 50%, and Mineral Flame Retardant pricing is up about 30% since 2009. Finally, we don't believe volume declines are likely to be as severe as they were in 2008-2009. Polymer's inventory days are 50% lower this quarter than in the fourth quarter of 2008.

The Chemtura supply agreement provides us with higher bromine operating rates, and a much softer landing in the slow-down. The electronics, automotive, and construction markets, which amount to about 25% of our total company sales, seem unlikely to suffer declines as steep, since US electronic sales are only up 5% from the 2009 floor, and the global construction market has not yet experienced a significant rebound. Collectively, we estimate that the impact of these actions equates to approximately $25 million to $30 million per quarter in incremental polymer solutions profit on volumes similar to the 2008-2009 downturn. In essence, we've reset the earnings floor for polymers to $100 million to $120 million or so per year, a significant improvement versus 2009.

Turning to some of our strategic initiatives, we've talked before about our new greenfield sites underway in Saudi Arabia, Korea, and Brazil, and the doubling of our bromine and derivatives capacity in Jordan. I'm happy to report that they are all proceeding as planned. Each one is an important piece of vision-2015, and has an investment thesis based upon attractive, long-term growth trends, and our competitive advantages in these specific markets. We've not seen anything in the marketplace that would cause us to rethink the timing of these investments, and look forward to bringing each of them online over the next few years.

Scott will talk to you in a minute about the strength of our balance sheet and our cash flow. But it's important to note that it's that strength that allows us to continue full speed ahead with these major projects, fund the pursuit of adjacencies, pursue acquisitions that make sense, and return capital to our shareholders. In this quarter, we repurchased 3 million shares of stock at an average price of around $59 per share. Our Board has also authorized us to buy back up to another 5 million shares, if we deem that appropriate. Finally, we recently announced a 6% mid-year dividend increase, which brings our annual dividend to $0.70 per share. As is our custom, I expect the Board to consider an additional dividend increase in the Spring. We continue to have confidence in the long-term value of our Company, and will continue to use our cash flow to enhance that value.

In terms of the fourth-quarter outlook overall, we continue to believe, as we stated during the second-quarter analyst call, that our second-half results will look a lot like the first half. So we are comfortable with the fourth-quarter consensus, which stands at $1.06 a share today. Despite an anticipated sequential decline in catalysts in 4Q, we expect it still should be a very solid quarter. The Fine Chemistry order book trend suggests sequential improvement in profitability versus the third quarter, due to continued strength in clear blind volumes, seasonally strong Ag sales, better mix, and the restart of our MBPT production facility. That facility was offline during the third quarter for an expansion, but is back up and running, and currently sold out. While polymer solution sales and profitability are typically seasonally weaker in the fourth quarter, current order patterns suggest that volumes should remain relatively flat in fourth quarter.

It's too early to talk in detail about 2012. We will share more when we report fourth-quarter earnings in January. Nevertheless, the strength of our businesses, and the opportunities we see ahead of us give us confidence that, assuming a slowdown but not a prolonged recession, we have the capacity to continue on our march toward vision-2015 and grow the business in 2012.

With that, I will turn the call over to John.

Thanks, Luke, and good morning, everyone. I will start with Catalyst, which delivered outstanding performance by any historical measure, and set numerous records. Refinery catalyst revenue and segment income each rose over 40%, driven by record levels in FCC profit and a double-digit increase in FCC revenue to an all-time high. HPC results were also stellar, with sales up 55% year over year and volumes up 35%, marking the third straight quarter of double-digit year-on-year growth. In refining, key value drivers for us included higher customer operating rates, as plant issues at a few larger customers were a drag on results during the first half of 2011. And also, continued expansion in growth in China, Brazil, India, and the Middle East.

Polyolefin catalysts also reported record profits on strong sales growth and double-digit volume growth. We continue to benefit from growing global demand for plastics and rapidly developing economies. In particular, traction toward shifting the business toward higher value specialized catalyst systems, and, in addition, early success on our new line of high purity organometallics into the LED market.

On the topic of raw materials, a key priority obviously remains effectively managing the rare earths dynamic by securing adequate supplies and affectively passing through these costs. As you are aware, the rare earth price index started 2011 around $60,000 a metric ton, and rose to $140,000 per ton by the end of June. Starting in August, the index began declining, and ended the quarter around $80,000 a ton. We continue to help customers find ways to minimize the use of rare earths in our FCC catalyst. We have been successful in these efforts, and during the quarter, saw good traction towards enhancing our low rare earth competitive advantage, and demonstrating responsiveness towards our customers in managing this dynamic. Specifically, approximately 38% of our customer formulations have moved to lower rare earth catalysts, and another 20% are currently under customer evaluation. Overall, in the third quarter, outstanding supply chain execution, good volume growth, and an exceptionally good product mix drove catalyst margins higher. We anticipate finishing the year strong, and positioning our business for another year of growth in 2012.

Within Fine Chemistry, Performance Chemicals profit rose an impressive 64%, on 31% sales growth. As you know, this division benefits from tremendous end-market diversity and a wide array of growth drivers. Clear brine growth remains exceptional, with volumes up over 50%. Middle East demand in particular offset continued weak Gulf of Mexico trends. Other profit drivers included strong amines performance and sales into the food safety, industrial water treatment, and mercury control end markets. Our food safety business set a new profit record during the quarter, and in light of the recent food recalls, Albemarle has been instrumental in working with key processors across the globe to implement food safety solutions that would provide for affective control of food-borne pathogens.

While we are closely watching developments related to the upcoming EPA decision on mercury, it is notable that mercury control delivered strong revenue and profit growth, benefiting from the advancement of regulations both domestically and internationally, where governments have already adopted more stringent standards. Fine Chemistry services also reported excellent sales and profit increases, up 23% and 40% year over year, respectively, driven by exceptional results across our specialty pharmaceutical lines in particular. A very healthy pipeline of prospective opportunities and contracts for 2012, including SIGA, [Amerist] and other proprietary specialty add compounds give us confidence in the outlook for this business.

Polymer Solutions volumes were down on the order of 15% year over year, primarily due to mineral flame retardant volumes in Europe. However, segment income of $55 million was more than double the profit levels of quarters during 2008 and 2009, when we reported similar volumes. It's important to note that polymer segment income was achieved despite a 49% year-over-year stabilizers end cure to this profit decline due to the absence this year versus last year, of [adeedic] production campaign supporting high speed rail orders in China. This performance provides the first in what we expect will be a series of operating data points confirming that we've successfully reset the earnings floor for this business through transitioning to higher value-added products, shedding under-performing assets, pricing initiatives, and after having restructured our R&D efforts. October and November order book trends lead us to expect that the decline in polymer volumes have stopped, while the array of costs, new product introductions, and pricing initiatives we have led over the past 2 years should continue to support strong margins for our business in the future.

With that, I will turn it over to Scott.

Thank you, John, and good morning, everyone. This quarter marks a new level of profitability for our Company, as we set an EBITDA record of $189 million, up 25% year over year on near-record sales of $723 million, up 24%. Our EBITDA margin was up 30 basis points year over year to 26%. On a year-to-date basis, we've generated $538 million in EBITDA, up 33% from 2010. And our EBITDA margin is 25%, up 190 basis points versus the same period a year ago.

Our balance sheet remains very strong. If you go back to the third quarter of 2008, net debt, excluding non-guaranteed debt from our JVC joint venture, stood at $728 million. And our leverage, as measured by net debt to EBITDA, was 1.7 times. By contrast, today our net debt is $384 million, even after the share buy-back this quarter. Leverage has fallen to 0.6 times EBITDA. In addition, today our businesses are generating higher cash flow than at any other time in our history.

Turning to some P&L details, R&D expense is up 43% year over year, as we continue investing in organic growth opportunities, including the strategic adjacency initiatives we outlined as part of vision-2015. Through the first 9 months of 2011, R&D costs as a percent of revenue are up 20 basis points to 2.7%, versus 2.5% for the comparable period in 2010. SG&A expense rose 25% versus Q3 2010, principally driven by increased personnel cost, sales commissions, and foreign currency impact from the stronger euro. Year to date, as a percent of sales, this line item is actually down 30 basis points at 10.8% versus 11.1% during the same period a year ago. Our effective tax rate for the quarter was 25.1%, up 100 basis points versus the third-quarter 2010 rate of 24.1%, driven primarily by increased profitability and higher tax rate (inaudible). At this time, I expect our full-year rate to be 23.7%.

Now on to cash flow. Year-to-date free cash flow, defined as cash flow from operations, add back pension and post-retirement contributions, and subtract capital expenditures, was $216 million for the period, and is down 15% year over year. Our cash from operations, excluding pension contribution, was actually up 13%, to $343 million year to date, so the free cash flow decline is mainly due to higher capital expenditures of $127 million, double the amount spent during the same period a year ago.

The CapEx increase reflects investment in the Korean and Jordanian projects we've discussed, and domestic investments in our bromine and polyolefin catalyst businesses. We expect full-year CapEx to come in between $180 million and $200 million. This is up from previous guidance, and reflects excellent traction on our adjacency growth projects and our drive for further manufacturing efficiency. Notably, year to date we have essentially distributed all of our free cash flow to investors in the form of $178 million in stock repurchases and $43 million in dividends, and we're still able to fund our ongoing projects.

The impact of the shares repurchased during the quarter was $0.02 per share for Q3, and will be $0.04 in the fourth quarter. Our weighted average shares outstanding for calculating diluted earnings per share were 90,958,000 for Q3. Unless we decide to repurchase additional shares during the fourth quarter, you should use 89,684,000 shares for fourth quarter and 2012 EPS calculations. Net working capital is up $110 million, net of FX from December 2010, or 23%, mainly due to higher business activity, in line with our cumulative year-to-date sales growth of 23%. Our working capital as a percent of revenue is a healthy 21%, as compared to 26% 3 years ago in Q3 2008. Our past due accounts receivable balances remain well controlled, and have actually fallen from 10% at year-end 2010, to 5% as of September this year.

Additionally, as sales have grown, we have remained vigilant in managing inventory. Specifically, inventory has grown 20% net of FX from the end of 2010, driven mostly by increases in raw material pricing, primarily rare earths. Unit inventory levels are up only 4% from year end, and total based sales in inventory are flat, a testament to our increased operating discipline. Further, relative to the 2008 recession, our days sales in inventory have dropped nearly 30%.

Finally, toward the end of the quarter, we entered into an amended and restated credit facility. We now have a $750 million, 5-year credit facility in place of our previous $675 million facility. We also have the ability to borrow an additional $250 million under the terms of the agreement. A few quarters ago, it was not possible for even strong investment-grade companies like ours to obtain 5-year facilities. Therefore, we are pleased to lock in a 5-year deal, secure funding at attractive spreads, and achieve an improved covenant package with only one financial covenant, a leverage test of 3.5 times EBITDA. We believe this credit facility, and our exceptionally strong balance sheet, provide the financial wherewithal to fund most organic or strategic opportunities we would likely contemplate as part of our vision-2015 business plan.

With that, I will hand it back over to Lauren for Q&A.

Operator, we would lake to open it up for questions at this time.

(Operator Instructions)

Our first question will come from the line of Kevin McCarthy with Bank of America.

Hello, this is Alex Ufrema for Kevin. Question about catalysts. If you look at your profit year-to-date, is it fair to say that the run rate should be somewhere in the middle between 3Q profitability in the first half?

Yes, Alex, this is John Steitz.

That's a good barometer, I would say. And that's kind of what we are looking at. A very strong finish by any measure.

Digging a little bit into catalysts -- the 26% price gain there -- could you give us an idea of how various products faired in terms of pricing, FCC, HPC, et cetera?

Yes. The biggest, the majority of that pricing improvement was the FCC catalyst, which is increased based on what rare earths is doing. That's why I tried to pay particular attention in our formal comments around rare earth issues related to the impact on revenue. But our polyolefin catalyst business did quite well on price, too. Year-over-year was up double-digit, and mid-single-digits sequentially; and our HPC business tracks, molybdenum did pretty well, so molybdenum has been on the sequential decline the last few months. And that pricing is tied to that.

So, what is your outlook for FCC pricing for 4Q and early 2012?

There is a lag involved in that, Alex. So there is a lag going up, as we saw in the first half; and there is a lag going down, as we will see in the fourth quarter and part of the first quarter. Not so much; I would say it's muted in the fourth quarter. We'd have, if index pricing stays where it is now in rare earths, we will see a bigger impact towards the second, third and fourth quarters of next year.

Thank you.

Your next question will come from the line of P.J. Juvekar with Citi.

In polymer solutions, there are a lot of moving parts. Can you quantify the size of curative stabilizer business that declined substantially, and also the mineral flame retardants business? What I'm trying to get at is, what the core brominated flame retardant business did in the quarter?

Yes, P.J., let me start with the brominated flame retardant business. Up nicely year-over-year, but on a declining volume; so price more than adequately covered the decline in volume. Year-over-year, it was down low- to mid-single digits on a volume basis. Pricing year-over-year was up 20%. It was up 4% sequentially, so our momentum on our pricing continues despite the sluggish volumes.

Stabilizers and curatives, volumes were down. We wanted to highlight the issue of the one curative. We call it DETA; we make that in Pasadena. Last year, in the third quarter, we had a strong production campaign for it. Revenues were doing quite well. This is all related as a curative for the rail lines around high speed rail in China. We are still very hopeful that, that will pick up against next year, but those were the big impacts.

The biggest volume impact and I don't think people are really aware of this, but I would like to highlight it, was in mineral flame retardants. At the height of some of the economic crisis, politically, a lot of European customers were in the middle of shutdowns and turnarounds in their plants in Europe, and we tended to see that extended in August. So that was probably the biggest volume impact that we saw in the polymer solutions business. I think between those 3, it will give you a little better picture of it.

P.J., this Luke.

I think we talked to you on the call in the second quarter. We have about 800,000 net tons of volume that we sell on an annual basis. And 2 products, FCC catalyst and mineral flame retardants, typically make up about 25% of that total volume. When we have a movement like we've had in mineral flame retardants, it can really impact the volume as we look at it from a quarter-to-quarter or, sequentially, our year-over-year. You have to be mindful of that.

What is happening to the profitability of the Chinese bromine player]? What are bromine prices in China and is there a potential for more shutdowns?

I think that one of things we've done in the past, P.J., is, I think there is a certain level at which, if bromine pricing is over a certain level, it really doesn't matter to us. It's not really a competitive advantage or disadvantage for us. We don't really look at what the bromine price is coming out of China. I think it's dipped a little bit from the highs that we talked about. But it's still relatively high, from a standpoint that it still causes an issue from them from a cost standpoint in competing with us on a derivative basis, which is the key.

Because, as you know, only about 10% of our bromine is sold as elemental bromine. The values that we get in derivatizing that bromine is where we really extract value from the polymer solutions business. I wouldn't look too much at any specific number, whether it's up or down within a range, like we are seeing here. It's going to move around a little bit depending on what going over there. I think that you are going to continue to see shutdowns of bromine capacities in China as those resources continue to be depleted going forward.

Your next question will come from the line of David Begleiter with Deutsche Bank.

What's your expectation for the decline in bromine flame retardant volumes in Q4 versus Q3?

David, we are seeing it now as flat with Q3. So that has since drove our comment that we have seen this volume erosion stop. I would like to give you a little color around that, though.

In the third quarter, we saw reasonable volumes in July, softer volumes in August, stronger volumes in September. October volumes have maintained at that September level, and November looks a little bit better. Which has kind of led us to a pretty strong conclusion that there really is an inventory correction that's occurred here among our customer base. There was a similar volume correction in the fourth quarter of last year in brominated flame retardants, and I believe that's kept any inventory build from occurring through the course of this year. That's why we remain pretty confident our volumes have stopped; and going forward in the fourth quarter will be flat to, maybe up slightly, if we get a little bit of an assist.

John, given the strength you are seeing in bromine as far as -- how much pricing do you think you can get in 2012 versus 2011 in bromine and flame retardants?

We remain positive about the pricing environment, David. We saw, in brominated flame retardants, a 4% sequential improvement. And, I think, more importantly, we really focused on some of our specialties in the back half of the years, in the back half of 2011. And actually, in that range of products, we saw really terrific momentum year-over-year, and about a 15% to 16% increase sequentially. So if we get a volume assist next year, with volumes improving, I think we will get our mojo back on pricing.

David, this is Luke.

I think if you go back, and we look at 2009, when volumes started coming back, the key for us is, we didn't have to give away a lot of price for volume. It wasn't a pricing game that people were going back to get the volume. It was demand coming back. Might have been a little bit around the edge, but nobody was out there giving away price to try to gain volume. We would anticipate that our pricing would hold for the value that we are able to deliver to the customers in that area going forward.

What was the actual volume decline in mineral FROs in Q3, quarter-over-quarter and year-over-year?

You saw, we published about 15% in the majority, and almost 67% of that was in mineral. That's the way to look at it.

That equates to how much? In just minerals?

It was higher than the average, right? So it was 15% to 20% decline.

Your next question will come from the line of Steve Schwartz with First Analysis.

John, can you talk a little bit about refining FCC? Refiner profitability has been doing a little bit better, but I think crude process is down. What was your FCC volume, year-over-year; and how do you see the current economic environment for refiners playing out with the HPC replacement?

Yes. You mean rare earth replacement, Steve?

That's going to be my follow-on question.

Well, first, volumes year-over-year were up mid-single digit for us. It was double digit sequentially. Overall, you know, there continues to be a lot of pressure on the US and European refining base. But we see growth in the Middle East and India more than offsetting that. You said refining margins have improved, and that's true but its very disparate. The East and West Coasts are really being hit with a lot of imports; the Midwest and Southeast and West continues to be in pretty good shape. It's very disparate, is the way I would say.

But overall, globally, we continue to see growth opportunities in FCC and especially in some of the high propylene-yielding catalyst desired in the Asian region, a lot of growth potential. Hopefully, that frames up FCC for you. HPC has been, I think, aided by these higher refining margins you talked about. Impressive. You know, we talked about it in our formal comments. We are seeing strong volumes in the fourth quarter, and this could build the foundation for almost, I would say, a record-setting first quarter 2012. We are trying to, as we said, finish a strong 2011, and position the business for some nice growth for 2012 in both FCC and HPC.

John, you did lead in to my follow-on question. With the rates in effect that see you got rare earth pricing coming down, and at the same time you are transitioning your customers into catalysts with a lower concentration of rare earth -- how do you see this dynamic playing out? Do people go back to the legacy products with the higher concentrations, or do they stay with the lower concentrations; and what does that do to your profitability?

We are not concerned about it impacting profitability over time. We considered a pass-through. It does affect our working capital, as Scott iterated. But over time, I think we'll just pass through those costs. There is a lag going up, as I described earlier, and there is lag going down; and we will see that at both ends. It will affect revenues to a degree and margins to a degree. But at the end of the day, the actual profit dollars generated, they will be driven based on the value that these catalysts produced for the individual refiner.

Keep that in mind. I think we've dealt extraordinarily well with the rare earth issue. I think that 60,000 a ton, which is where it's running today, that will ease the pressure for a conversion; but at the end of the day, you have to have performance in these catalysts. That's what really counts, by far and away.

Next question will come from the line of Jeffrey Zekauskas with JP Morgan.

Can you remind us how much your raw material cost inflation was, either through the 9 months; or what you expect it to be through the year, exclusive of the raw material pass-through in catalysts having to do with rare earths?

Well, Jeff, let me give you the broad number, and then we can talk about pass-through. The total headline number for this year is about $140 million. That breaks down, year-over-year, about $25 million in the first quarter, $40 million in the second quarter; third quarter is about $50 million. Then the fourth quarter will ease to about $25 million. So that should add up to about $140 million year-over-year.

The majority of that is rare earth. As you can see, at the end of 2010, we were probably lagging and getting the rare earth coverage, and now we're achieving the rare earth coverage. And then the balance, the bigger issues are benzene and phenol, that chain -- that's easing a bit, as you know. The other inorganics and things like that are not a big part of the equation, but hopefully that would put it into context for you.

In general, raw materials are looking pretty good for you for next year, I would think, or certainly better than whatever your forecasting was previously? Is that the way you see it? How do you see raw materials for next year?

Very volatile. Hard to predict. We really try to stay on top of this every week here in the company. I'm hoping the rare earth issue will subside and stabilize. Molybdenum seems to be stabilizing, but we have to be prepared for volatility in these metals markets. Phenol benzene, very closely tied to oil. Obviously, oil has a degree of volatility. We are comfortable in dealing with that in all our product lines. We are going to deal with it. We don't have a view yet on 2012 on raws and energy, but we will keep you tuned in on that.

The only thing I'd say is, If you go back and look over the last few years, of what we thought raw material inflations was going to be and what it actually turned out to be, we were usually underestimating the impact of raw material inflations. What we have to do on a daily basis is manage those inflations and still deliver the kind of earnings that we expect and our shareholders expect. More to come on that as we finish our AOP process for 2012 and roll that out to you guys in January.

Just a couple of more short questions. In the catalyst segment in the quarter, as raw materials came down, was there a meaningful sequential benefit to profitability?

No. No. There is a bit of an inventory effect. And most of the big issue there is rare earth, right? So I think, coming down, we weren't really purchasing a lot of rare earth in the third quarter. I can't say it had a big impact.

Lastly, you bought 3 million shares at $59. Your stock is a little bit cheaper than that now. If it was a pretty good deal at $59, how is it in $40s? And if you have to guess as to when you would complete your 5 million share repurchase, when do you think you might complete it by?

I think, Jeff, we obviously think $59 was a good price. We spent $180 million, roughly, on returning some value to shareholders via the share buy-back. We have a great wealth of opportunities in front of us. We will continue to be opportunistic in buying back shares, but you shouldn't expect that, when we do our first quarter call or fourth quarter call, that I'm going to tell you we've bought back another 5 million shares. We are not expecting to do that. This is consistent with what we've done in the past, where we have had the Board authorize a number of shares and we've selectively gone in and made opportunistic buys.

Your next question will come from the line of Robert Koort with Goldman Sachs.

Can you guys talk a little bit about the clear brine fluids? I recognize there has been a tremendous growth. Is that an issue of a low base number, makes it look so exaggerated, and what does the forward path look like there? And, secondly, within the Fine Chemicals segment, I know you guys are reluctant to disclose specific profitability, but might you be able to rank order the individual sub-units, in terms of profitability or importance to the profit stream?

Bob, I'll give that a crack, this is John.

I think you are exactly right. Clear brines volumes in the third quarter were up nicely year-over-year, aided by the fact that volumes were so mediocre last year in the third quarter. They were stronger in the second quarter, 2011. So, sequentially, we saw a decline in volumes, but our profitability was about flat because we had a lot of pricing momentum in that business. It was up dramatically year-over-year because of that pricing traction. If you go forward, we are looking forward to a big fourth quarter, aided mostly by international-based completions in the Middle East and Asia. That is looking, could be a record for us in the fourth quarter.

And we are also looking, it appears to us to be a very strong buildup for 2012, aided by continued completions internationally, and then fracking opportunities in the Gulf of Mexico. One opportunity appears to be gaining a lot of momentum and could hit towards the middle of next year. Overall, it's a real good story. If I look at the overall profitability ranking, that's hard to do because on any given day in Fine Chemistry, you have a really well-managed portfolio of businesses. What I would highlight for you is our Ag and Ag-related intermediates business; tends to be a 4Q through 1 quarter volume phenomena. We weren't really aided at all in the third quarter by our Ag and Ag-intermediates business; and that appears to be gaining some traction as we speak.

Then you have the bromine chain, the specialties of clear brines, hydrobromic acid, some bromine intermediates, into our food safety chain. That, I would have to rank as Number 1. Those specialty brominated intermediates that go into a very broad array of end markets. That's probably Number 1. Second, would be our Fine Chemistry services business, where we are gaining a lot of traction, especially for next year, with a couple of really nice opportunities for which we have contracts and orders in place.

If I might follow up in flame retardants, should I view your contract with Chemtura as maybe sort of an insurance policy? When trends are weaker, it's an advantage to have it, but when the market is quite tight, you give up a little bit of upside? Or how would you suggest we look at that supply arrangement?

It's hard for me to say we give up some of upside, because you'd have to assume we would be selling that, and they went to the end customers. So the way I look at it is, they made a make-a-buy decision; we still make better than book on the stuff we are selling, but it's not as profitable as our other businesses. But it certainly does give us, run our assets harder in slower times than we would if we didn't have that contract, Bob.

Next question will come from the line of Laurence Alexander with Jefferies.

First, I want to clarify one of your earlier comments. Did you indicate that just catalysts would have a strong Q1 or was it the entire catalyst segment? Just HPC or the entire segment?

We think, generally, in the first quarter, Lawrence -- this is John -- when we have stronger HPC business, we have weaker FCC volumes. A little bit too early to tell what our FCC volume picture looks like at this point, but we do know that the HPC order book is really strong. Could be a record level in the first quarter.

How much was the earnings impact year-over-year of the absence of [debtta]?

I think that was in the range of $6 million to $7 million for us.

If -- I guess, circling back to catalysts, if your customers were to migrate entirely to the lower rare earth product lines, how much of a tail wind would that be to margins? Or is it more of a volume benefit?

No, I think there is a margin or profit benefit to us because of the performance levels that these higher technology products bring. We really haven't framed that up and I'm not sure I would want to go into that level of detail. But we do price these products on a value basis, given the crudes coming in, the heaviness, the metal contamination issues, and the product slate that a given refinery wants to use. We haven't -- I don't think we'd disclose publicly the margin impact of that.

On the bromine derivatives, do you have any areas in the derivatives channels where you have cut prices?

Not on my watch. (laughter) We are keeping an eye on that. Driving value is really important to us as a company, Lawrence; so, to my knowledge, no, there hasn't been any price cut.

Your next question will come from the line of Mike Sison with KeyBanc.

Appreciate you giving us a little bit more color on what's different now for Polymer Solutions than in the past. Could you remind us, through the end of 2011, how much bromine pricing that you've achieved through the pipeline?

It's up about 50% -- overall, from a brominated flame retardant standpoint, we are up about 50%.

It's a good way to look at it, Mike. Generally, Mike, the way I look at overall Polymer Solutions -- since the end of 2009, we have more than doubled the gross margin per kilo in that Business as a whole.

Then, can you remind me, in '09 versus '08, bromine prices were basically flat in a difficult environment. Could you give us a feel for why you think pricing was able to be flat in a tough environment?

In our case, we work really hard to generate the margins we do. To chase market share, if you will, through pricing, is something that is very short-term in nature. In the chemical industry, it just doesn't work over the long haul. We really try to build in a sustainable long-term thought process strategically in how we price our products. That's why we feel so strongly about it.

In terms of the catalyst, refining catalyst HPC, particularly as we head into 2012 -- you had a very strong third, looks like fourth is coming in pretty well -- any visibility on the backlogs heading into '12?

Yes, the first quarter of 2012 in HPC looks sold out at this time, Mike, and I think I said earlier, we hope to have a record first quarter in 2012. And I'd add that our regenerated, our joint ventures, and our royalty income is also doing really well. So it's a combination of a lot of factors that have so positively contributed to the result in the third quarter; and I remember last year in the third quarter, just to give you a little color around this, we hit 32% margins on a segment basis. There is a lot of people who couldn't believe that we could keep that kind of thing going. When I look at the third quarter, I just believe it's kind of a new watermark for our business as a whole, and makes me firmly believe that our 2015 margin targets are realistic and achievable.

Your next question will come from the line of Edward Yang with Oppenheimer.

John, you sounded pretty confident that Polymer Solutions has bottomed and it's hit its low; but at the same time, I don't think anyone anticipated the type of declines that you saw in the third quarter. With regards to your comments on the October and November book trends and order trends, how firm are those orders? Are they cancelable? And what's your visibility in Polymer Solutions?

Of course, these orders are cancelable. What we are seeing, I would say, is a little bit more volatility. We are seeing more short lead time orders, more emergency orders. Today, for example, we saw the best orders day in brominated flame retardants that I can recall in months. We track orders now as they are entered. We see, we have a very high line of visibility around that, and we've seen that, that has picked up.

We see a good correlation over a 10-year period to the book-to-billed ratio and our brominated flame retardant volumes. We believe that there was a pretty solid correction in volumes last year, in the fourth quarter. And exemplified by the fact that we saw a reasonably strong first half. And it's my belief that we saw, compared to what our customers are saying, and what the book-to-billed data is saying, and what we are seeing in a lot of the lagging indicators, how strong they had been over the last few quarters, that we will maintain volumes at last year's level and at the previous sequential level. It's my belief, with the early Chinese New Year in 2012, that we are going to get off to a good start.

The decline in the third quarter looks like it was overdone to your point, so you probably saw some severe de-stocking. Is it possible you are seeing some re-stocking to compensate for that, and what do you see at the other side of this in terms of end demand?

I think people are painfully aware of managing working capital towards the end of this year. I don't believe it's been a correction on the re-stocking side. The other point I'd make, Ed, is that the biggest part of the volume decline that we experienced in the third quarter, related to our mineral flame retardant volumes, and that was primarily in Europe. And I think there is a lot of confidence issues, obviously, affecting Europe and affected our customer base there. That volume appears to be coming back, also, from that third quarter level. So, overall, we are feeling good about the fourth quarter. We are feeling good about the overall profitability of the company. We feel even better about 2012 and our ability to grow that business across all 3 business lines.

This is Luke and I have just one second. I really think one of the keys to this is that we are a stronger company than we were in 2008 and 2009, and we tried to focus on that and give you a view on how we believe we've reset the bottom, from an earnings standpoint, of Polymer Solutions. Remember, we lost money in the first quarter of 2009, made it back in the second quarter of 2009. Then it's been pretty much a steady uphill climb on Polymer Solutions from that date. The steps that we've taken to strengthen that business should give us, at that low level of profitability, an additional -- low level of volume, excuse me -- an additional $100 million to $120 million in profitability in our Polymer Solutions sector. We feel good about that, whether it's going into a downturn; and also, as we've been able to crank that volume back up that we showed in 2009, and really get the traction on the pricing and the cost initiatives that we've gone through, we feel like it can be a good combination when the volume starts really coming back.

Thanks for the comments on that, Luke. Final question for me on pricing. You mentioned that you've raised prices in the fourth quarter, but given the volume trends, flattish, third quarter pricing was actually great. It was up 15%. In the last recession, pricing lagged volumes by about a couple of quarters in terms of volume declines first, then you saw pricing start to drop off. So how confident are you that customers will accept those price increases?

Well, I will tell you, in 2009, I was traveling around Asia, meeting with customers, and it wasn't a matter of -- nobody was asking me for price. They were asking me for volume. They had over-corrected, and they needed the volume; and 1 customer in Japan, particularly, told me he didn't care what the price was. He just needed assurances of volume. The history of 2009 gives me confidence that, while there may be a little bit around the edges on some price, the value that we provide with these innovative solutions, that we are not going to have to give back price, Ed. We are fairly confident of that going forward from here.

There are no further questions in the queue. I would now like to turn the call back over to Mr. Lorin Crenshaw for closing comments.

I would just like to thank everyone for participating in the call today. If there are any further questions, contact me at the number on the press release, and have a great day.

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