雅保公司 (ALB) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2013 Albemarle Corporation earnings conference call. My name is Lacy and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Lorin Crenshaw, Director of Investor Relations. Please proceed.

Thank you, Lacy, and welcome, everyone, to Albemarle's third-quarter 2013 earnings conference call. Our earnings were released after the close of the market yesterday, and you'll find our press release, earnings presentation, and non-GAAP reconciliations posted on our website under the Investors section at Albemarle.com.

Joining me on the call today are Luke Kissam, Chief Executive Officer; and Scott Tozier, Chief Financial Officer. As a reminder, some of the statements made during this conference call about the future performance of the Company may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call. Please note that our comments today regarding our financial results exclude all nonoperating or special items, and reconciliations related to any non-GAAP financial measures discussed may be found in our press release or earnings presentation, which are posted on our website.

With that, I'll turn the call over to Luke.

Thanks, Lorin, and good morning, everyone. Scott and I appreciate the opportunity to share Albemarle's third-quarter results with you today. As usual, at the end of our prepared remarks, we'll open it up for your questions.

Throughout the year, we've expressed a view that the second-half profitability would be stronger than the first-half of 2013. In line with our expectations, third-quarter earnings were sequentially higher, and the highest we've reported year-to-date. We ended the period with net income of $89 million or $1.09 per share, and net sales of $649 million. EBITDA was $153 million, and profitability, as measured by EBITDA margins, was 24%. Our operations continue to generate excellent cash flow with $318 million of cash from operations being generated through the end of the third quarter.

Scott will go into more detail shortly about each segment, but at a high level, Catalysts showed sequential improvement and is poised to finish the year strong. Fine Chemistry results were also up sequentially, with custom services strengthening sequentially, and clear brine volumes staying strong. In Polymers, while results were in line with expectations, they remain below the inherent earnings potential of this business, as we continue to see weak demand in European construction and global electronics, particularly television enclosures. Stabilizers and curatives was a bright spot, reflecting successful efforts to drive geographic expansion of that business.

During the third quarter, we announced a business restructuring that is designed to reduce management layers to speed decision-making, increase customer focus, and enhance innovation -- all designed to accelerate growth. The new structure will be effective January 1, 2014, and I'd like to take a moment to provide the context behind why we're making these changes.

Albemarle has, and continues today, to focus on creating sustainable, long-term value for its shareholders. The value of our Company, including dividends, has risen 425% over the past decade, compared with 216% for the S&P chemicals, and 100% for the S&P 500. The core competencies that have driven the success in our core businesses are chemical process innovation and strategic product management. By chemical process innovation, we mean the ability to bring complex products to market faster and a lower cost than our competitors.

This capability is most clearly embodied in our Fine Chemicals Services division, but is actually an essential part of the DNA of the entire Company, with many examples across our bromine and catalyst franchises. Strategic product management relates to the fact that, over time, we have been successful in understanding customer performance requirements, delivering products that meet those requirements, and pricing for the value the products provide the customer. Refocusing on these core competencies and applying them to our core businesses will fuel our future growth and enable us to increase value to all our stakeholders.

Since 2005, bromine and catalyst results have accounted for, on average, 70% to 80% of our annual gross profit. It is logical that our organizational structure, strategy and resources, be focused on protecting and growing these two core businesses. The new structure positions us to do that by aligning our assets under two global business units, with a stronger customer and market focus in the divisions within each GBU. The Performance Chemicals GBU will include fire safety solutions, specialty chemicals, and Fine Chemistry Services, consolidating the Company's bromine, mineral and custom manufacturing assets. The Catalyst Solutions GBU will include Refinery Catalyst Solutions, Performance Catalyst Solutions, and antioxidants, consolidating our assets focused on the refining and petrochemical industry, and combining antioxidants and polymer catalysts under one GBU, with a goal of increasing sales synergies of these products into the polyolefin marketplace.

As we look to the future, our growth strategy will be focused on developing and commercializing new applications for bromine, protecting and growing our flame retardants business, and protecting and expanding our catalyst business into new markets. This business reorganization is consistent with that strategy.

To grow our bromine franchise substantially over time, we must grow the pie by developing new applications. I don't mean incremental innovations like the next new brominated flame retardant or biocide -- although we are working on those as well; I mean breakthrough innovations that create new uses for bromine, and solve new challenges for existing or new customers. As we shared on the last quarterly earnings call, our bromine task force is at the core of this effort. Additional resources to be directed to this effort as part of our restructuring should accelerate the achievement of key milestones on the journey to commercialization of these new bromine applications.

Of course, the stepped-up focus on investments in R&D will take time to pay off. In the short run, we will continue to maximize the value of our existing bromine derivatives portfolio through line extensions into new end markets and continued incremental innovations. In the long run, we expect our focus on developing breakthrough innovations to drive meaningful new sources of growth.

Our strategy for growing our Catalyst business over time is by defending, protecting, and building upon our strong existing positions in Refinery Catalysts and organometallics, and pushing into adjacent areas that leverage our existing capabilities. A number of megatrends bode well for the long-term demand for refinery and polyolefin catalysts. In polyolefin catalysts, we intend to drive growth by leveraging our new facilities in Saudi Arabia and Korea, to capture growth in the Middle East and Asia, and free up US production capacity to capture more than our fair share of sales to the Gulf Coast ethylene and derivative production capacity projected to come online over the next five to six years.

We also plan to move downstream and finish catalyst, and establish a meaningful position in the electronic materials market with our PureGrowth line of high purity metal organic products. With regard to our PureGrowth family of products, during the quarter, we closed on a small but strategic acquisition of Cambridge Chemical Company. Based in the United Kingdom, Cambridge developed a proprietary technology for the production of certain high purity metal organic chemicals used in the laser market. Adding Cambridge's technology and products to Albemarle's current product offering now gives Albemarle the total product portfolio necessary to service the electronic materials market, including the LED, semiconductor, OLED, and laser segments.

We also expect to benefit from R&D collaborations as we integrate this asset. To maintain a competitive advantage in the Refinery Catalyst business, it is essential to have an intimate understanding of the refiners' needs, and introduce new products on a timely basis that help them maintain or increase their profitability. This is particularly true amid changes in the crude slates and overall refinery operating environments.

As North America's oil production has been re-energized with the advent of tight oil, our R&D and technical service teams have successfully utilized our high throughput experimentation processes to deliver highly-tailored solutions to customers seeking to integrate tight oil into their refineries and FCC units. Specifically, our Upgrader T and Amber T Catalyst Solutions for tight oil were launched earlier this year, and are establishing themselves as among the most effective solutions to deal with the unique contaminants prevalent in the tight oil being processed by our customers.

In addition, we continue to focus on technical improvements to our FCC catalysts to address the needs of refineries refining heavy resid crude slates across the globe. We are the preferred supplier of catalysts for heavy resid feeds, and our technical innovations should allow us to remain so.

Within our Clean Fuels Technologies division, for ultralow sulfur diesel application, where refiners are looking to lower their fill costs without losing activity levels, we have recently launched a new product -- KF758, with lower density and higher metals activity to meet that need. In addition, within cats feed hydrotreating application, which is the hydrotreating unit before the FCC unit, we are launching two new products in view of the introduction of the tighter gasoline specifications to be implemented in the US in 2017.

These products provide for improved denitrification and desulfurization, both of which allow refiners to meet these increasingly stringent regulatory requirements and maintain their profitability. While neither will result in a step change for volume or profitability, it does demonstrate our capability to meet the need for constant innovation in this business.

Finally, as you know, in order to capture our fair share of the market for non-halogenated flame retardants, Albemarle has developed a unique phosphorus-based product, Gemini, that delivers superior electrical properties and heat resistance in printed wiring boards used in mobile and cloud computing applications. In the third quarter, we had some limited commercial sales into high-end printed wiring board applications. In addition to printed wiring boards, we believe Gemini can be used in specialty films, fibers, and wiring cable applications, and we are optimistic about the long-term potential of this exciting new product.

These are the types of innovations that are necessary to meet the ever-changing needs of our customers. As we restructure our business and organization, we are looking to both increase the number of these types of innovations and shorten the time to market. We will do this by increasing customer focus, enhancing resources dedicated to innovation, and capitalizing on operational efficiencies. These actions should accelerate our growth and ultimately increase shareholder value.

Here's why we think this is achievable. As previously discussed, the restructuring aligns our assets, business, and resources with our strategy. Second, it provides clear accountability to the GBU to grow their businesses. Different from the functional matrix under which we currently operate, most functions will now report directly to the GBU leader from R&D, process development sales to manufactured and strategic sourcing.

Third, it provides for a leaner management structure, which should drive two primary results -- quicker decision-making and lower G&A spending. However, this is not a cost savings exercise, but rather one to allow us to redeploy resources into areas such as R&D, sales, and business development, which will accelerate growth.

Fourth, this change will serve as a catalyst to better our operations and supply chain. Operational excellence is at the essence of the strategy we launched back in 2009 that we call One Albemarle. Step one was the establishment of shared service centers in Budapest, Hungary, Dalian, China, and Baton Rouge, Louisiana, where we now conduct the vast majority of the Company's transactional activities such as payables, customer service, accounting, and collections. The next phase of One Albemarle will be driving supply chain efficiencies and standardizing business processes across the Company.

With our current net working capital as a percentage of revenue of approximately 24%, we need focus here, and have established an initial target of reducing working capital by at least $100 million by 2015. Finally, the combined resources freed up by management delayering, and our supply chain and business process efficiency initiatives, will allow us to boost our R&D spending as a percentage of sales to around 4%, providing financial support behind our goals of delivering breakthrough innovations that drive growth in both bromine and catalysts. We won't get to that level in 2014, or maybe even 2015, but that's where we're headed in the long-term.

We also must execute on all of this while maintaining our focus on safety and environmental performance. Now there is never a good time for change such as this, but waiting is not a viable alternative either. The restructuring will have us better aligned to implement our stated strategies, and will allow us to redeploy resources to regain an intimacy with our customers in markets, and drive future growth.

And with that, I'll turn the call over to Scott.

Thanks, Luke. I'm going to start with a review of our business segments, and then turn to the details on our P&L and cash flow. Overall, our net sales were $649 million, down 2% year-over-year, but up 2% from the second quarter. Segment income was $136 million or 21% of sales, down 10% year-over-year and up 6% from the second quarter.

Catalysts reported third-quarter net sales of $226 million, down 10% year-over-year, and segment income of $57 million, down 7% year-over-year on segment margins of 25%. Sequentially, from the second quarter, segment income was up 13%. 5% or half of the year-over-year revenue decline was due to the impact of lower metal surcharges within Refinery Catalyst Solutions, but this had no impact on segment income.

Operating profits at heavy oil upgrading, which is mostly fluid cracking catalysts, were up 23% year-over-year, driven by higher volumes from new and existing units, a number of new trials, fewer FCC customer turnarounds, and favorable production leverage. Within Clean Fuel Technologies, which is mostly hydroprocessing catalysts, volumes and profits were down year-over-year, driven by unfavorable mix, lower specialty sales, and the timing of several orders slipping into the fourth quarter. Combined, Refinery Catalyst segment income was up 24% from the second quarter, driven by the heavy oil upgrading results.

Performance Catalyst Solutions revenue declined 5%, and segment income was down 26% year-over-year, driven by the impact of our new factory start-up costs. Overall, polyolefin catalysts and co-catalyst volume growth was offset by lower MAO and custom catalyst sales. TCS pricing was down due to competitive pressure, but seems to have stabilized. Our third-quarter traction in electronic materials is lower than expected, even though revenue associated with our PureGrowth products has nearly doubled year-over-year.

We are also starting to see the effects of TEA production shifting to our joint venture with SABIC, which reduces Albemarle's revenue and increases joint venture income. We expect to -- we continue to expect the unfavorable impact of factory startup costs, including Korea, to amount to a full-year drag on the order of $20 million to $25 million. Fine Chemistry reported third-quarter net sales of $198 million, up 3% year-over-year, and segment income of $37 million, down 15% year-over-year on segment margins of 19%. Revenue was up on higher custom services, specialty bromides, and ag volumes, while profitability fell, principally due to the mix of custom and pharmaceutical contracts; higher clear completion sales out of Jordan, which led to a higher minority income to our partner; and favorable -- unfavorable manufacturing variances.

Within Performance Chemicals, clear brine fluids remained strong, with volumes up double-digits and specialty bromides led by food safety also reporting strong results. This was offset primarily by lower amines pricing and lower elemental bromine volumes, reflecting a more sluggish tone to the global radial tire end market.

Throughout the year, we have forecasted a stronger second-half for Fine Chemistry Services. Third-quarter results were in line with those expectations, driven by stronger ag volumes and select new product launches driving electronic materials-related growth, particularly offset by weak ibuprofen profitability and overall contract mix. Sequentially overall, Fine Chemistry Services segment income was up 21% from second-quarter levels.

Polymer Solutions reported third-quarter net sales of $224 million, up 3% year-over-year. Excluding the impact of exiting our phosphorous flame retardants business in 2012, sales were up 7%. Segment income of $41 million was down 8% year-over-year on segment margins of 18%. Brominated flame retardant revenue was up 3% and segment income was down 12% year-over-year. Higher year-over-year volumes and enclosures, connectors, and printed wiring boards, were offset by connectors' mix and enclosures' price. From a brominated flame retardants demand standpoint, we continue to see sluggish trends within the electronics and insulation end markets.

HBCD volume and pricing benefits from a prior year supply disruption amounted to an approximately $6 million negative impact on current quarter earnings, as pricing has come full circle, declining significantly back to levels prior to our announced price increases a year ago. European residential construction remains weak, impacting our volumes in the quarter.

Mineral flame retardant revenue rose year-over-year by about 10%, mostly driven by China wire and cable, North America auto and specialty cable applications, and a more stable European end market. Segment income was up only slightly due to the mix of product and pricing, as the cost of sales to China are higher for our Burkheim, Germany plant. We continue to prepare to build a new fine precipitated ATH plant with our partner, Senze Meilu Company, aimed at wiring cable applications within the energy sector, which is benefiting from a rising energy consumption in China and throughout the Asia-Pacific region.

Finally, stabilizers and curators revenue and segment income rose 13% and 58%, respectively, year-over-year, driven by solid demand in polymer, fuel, and lube antioxidants, which continued to benefit from new customer wins, growing sales outside of China, and an improved cost position in a key raw material.

Now to highlight a few other P&L items for the quarter. SG&A expenses were $63 million during the quarter, flat sequentially, but up 17% year-over-year, and higher as a percentage of sales at 10%. Excluding nonoperating items, SG&A is up 14%, mainly due to an increase in personnel and some third-party costs. R&D expenses were $19 million for the quarter, down 2% year-over-year, and flat as a percentage of revenue at 3.0%. Third-quarter free cash flow, defined as cash flow from operations, adding back pension and post-retirement contributions, and subtracting capital expenditures, was $112 million, up $76 million year-over-year, driven by lower working capital usage and CapEx levels.

Our year-to-date free cash flow is up 80%, driven by mainly by the lower capital spending. CapEx was $32 million in the third quarter, and at $135 million for the year-to-date period, is down $83 million year-over-year. For the full year, we still expect to spend approximately $175 million.

Net debt, excluding the nonguaranteed debt of Jordan Bromine Company, dropped to $673 million, driving a corresponding decline in net debt to adjusted EBITDA to 1.1 times, which is just above our targeted leverage ratio of 1.0 times. Adjusted EBITDA excludes restructuring charges and nonoperating-related pension adjustments. Networking capital of $624 million ended the quarter 8% higher than the end of 2012, at 24% as a percentage of sales. It is above our 20% target for the full year. The principal driver of the increase has been higher inventory levels, which we expect to decline, as we approach the end of the year, particularly driven by shipments in Refinery Catalysts.

Excluding nonoperating items, we expect our effective tax rate for the full year to be 22.6%. This is no change from our expected full-year rate at the end of the second quarter. As a result, our effective rate for this quarter, Q3, excluding nonoperating items, was 22.6%. And our rate continues to be influenced by the favorable mix of income and lower tax jurisdictions.

As we look forward to Q4, we expect to take a special charge in the fourth quarter in connection with the organization restructuring we are implementing. We're still in the design phase, so it is too early to give a detailed estimate, but we'd expect the charge to be less than $20 million. In addition, we expect that our fourth-quarter 2013 mark-to-market adjustment, related to our pension and post-retirement plans, will likely be material. Based on asset returns and interest rate levels as of September 30, the mark-to-market adjustment would result in an actuarial gain of approximately $100 million.

Finally, the accelerated share repurchase program that we entered in Q2 continues until the end of December, as we originally stated. We expect the diluted share count to be approximately 80.5 million shares starting in January 2014.

And with that, I'll turn the call back over to Luke.

Thanks, Scott. I want to take a minute to update you on the market conditions we're seeing for each business segment. We continue to forecast demand for clear brine fluids to remain strong, following an excellent third quarter. Gulf of Mexico average rig counts increased sequentially again from 51 in the second quarter to 59 in the third quarter, while the average international offshore rig count of 321 is up 6% year-to-date versus the full-year average for 2012.

In Polymer Solutions, there have been no developments in terms of our order book or the external indicators we monitor that would lead us to a more optimistic view than we shared on our last call. The most positive trend across our order book remains the continued relative strength of our brominated polystyrene family of products for connectors, which corresponds with the pattern of the Bishop's Report Connectors Confidence Index. That Index, which was at 75.6 in September, has stayed in positive territory all year, and is up from its two-year low of 35.1 of a year ago.

In contrast to the positive connectors trend, the IPC book-to-bill ratio slipped to 1.01 in August, down from the 1.12 at the time of our last earnings call. Historically, ahead of the holiday season, we've usually seen a meaningful third-quarter uptick for tetrabrome. However, this year's third quarter pickup was weaker than prior years.

In terms of the global TV market, the most recent full-year shipment forecast from GFK called for a 5% rise that is 100 basis points lower than the prior forecast, with all of the growth coming from developing markets where flame retardant usage is usually low. The number of weeks of TV panel inventory declined sequentially during the quarter. However, at roughly 2.5 weeks, it remains well above historical averages in terms of inventory. Gartner and IDC both reported declines of 8% to 9% in global PC shipments in the third quarter of 2013, compared to the third quarter of 2012. While this was less severe than recent quarters, PC replacement cycles continue to lengthen, and smartphones and tablets continue to partially displace PCs and notebooks.

Finally, with respect to Europe, we're observing mixed signals. On the one hand, trends have not improved with regard to residential construction, which suggests continued subdued demand for HBCD, a brominated flame retardant used in insulation. On the other hand, we have seen signs of stabilization in the wire and cable market, particularly for automobiles, which should stabilize mineral flame retardant demand.

Within Catalysts, we expect FCC volume and pricing to remain strong for the foreseeable future. We are also expecting the fourth quarter to be our best HPC volume quarter for the year, but there are a number of orders scheduled for December, and there is always a risk that some could slip into 2014. All in all, we expect fourth-quarter results to be higher than third-quarter, and continue to expect full-year EPS to be in the range we outlined in July. The critical factor comes down to the timing of HPC shipments currently scheduled for December.

In closing, there is some uncertainty regarding the path and pace of global economic growth for the foreseeable future. It seems clear that developing economies in particular are not likely to grow as fast as they have on average in prior years, with downward revisions to GDP continuing to occur for Brazil, China, India, and many others that we expected to be a key source of demand for our products. No matter the conditions, our job is to manage through any number of headwinds, and our past record indicates that we can do so.

We remain confident in the long-term fundamental trends driving our businesses, and convinced that our business restructuring will accelerate the implementation of our strategy and the creation of shareholder value. The businesses continue to exhibit substantial earnings and cash generation power, and we look forward to sharing with you our views on 2014 in our January call.

With that, I'll turn the call back over to Lorin for questions and answers.

Operator, at this time, we're ready to open the lines for Q&A, but before you do, I'd like to remind everyone to please limit your questions to two per person at one time, so everyone has a chance. Then feel free to get back in the queue for follow-ons, if time allows.

Please proceed, operator.

(Operator Instructions). Robert Koort, Goldman Sachs.

This is actually Angel (technical difficulty) --

Angel, are you still there? Operator, I think we've lost Angel. Could we go to the next question?

David Begleiter, Deutsche Bank.

Hey, Luke, for Catalysts in Q4, can you just walk through a bridge of earnings from Q3 to Q4, the main drivers of the improvements, and quantify those items?

Yes, I don't know that I'll get a whole lot of quantification, but essentially, the story is, FCC is going to remain strong. HPC is going to have a fairly significant uptick in volume, similar to what they had in fourth-quarter, and we'll have -- PCS will be a little weaker.

Understood. And just on the bromine side, you've announced some bromine price increases on elemental as well as derivative. Talk about the timing of those price increases, what gives you the confidence they'll go through? And what's the initial feedback from customers?

Yes. It's different in different pockets. If you look across the bromine channel, we've seen some success in some specialty bromides. If you look at bromine in HBR, not as successful. If you look at tetrabrome, it's pretty -- it's stabilized, but not seeing a whole lot of movement. A lot of that tetrabrome is for bid, so it really depends upon how the Chinese and the other competitors react.

So, we felt it's important to put the price increase out there. We're still out there pushing for it, but we've not seen the success that -- in some areas, that we've seen in the past, although we are seeing some stabilization in most areas, David.

Thank you.

Robert Koort, Goldman Sachs.

Hi. Can you hear me now?

Yes.

Sorry about that, guys. Not sure what happened. Luke, you talked about continued focus on developing new applications for bromine. And I just was wondering about the additional resources that you discussed as part of the restructuring. If you could give us more color on these efforts and just on some of the adjacencies you're pursuing?

Yes. I don't want to go into a whole lot of detail specifically about what they are, because it's a competitive landscape. And if you look at other bromine producers, I'm sure they're looking for additional uses of bromine as well. So I don't want to get into too much on the call. But we will take resources and reallocate them to these uses.

The thing I would caution you is it's always excited to put a timeline on when these things are going to commercialize. And the fact of the matter is, you ought not expect anything in 2014 and nothing in 2015, except additional R&D costs going into this area and us hitting internal milestones. For instance, there was one project that we had that we were excited about -- we couldn't hit the milestones. We couldn't make it work technically, so we've killed the project.

That's -- you never want to kill a project, but that's good, because we're working. We found out we couldn't do it, now we've moved on to the next. So, what I would tell you is this is just like any R&D pipeline that you'd see, where you have metrics and milestones and accountabilities. And we're going to stick to that process to try to drive those new uses.

Thanks. And then just a follow-up regarding the bromine pricing announcements that you've had recently and that your competitors have announced. I was wondering if you could give us an update on that, if you are seeing good reception to that or just in general perception?

Yes, well, as I just explained to David Begleiter's question there, pretty same -- similar question, we're seeing some success in pockets, some stabilization, and somewhere it's not going through as well as it has in the past. But we believe it's the right approach to take, committed to it. And we're going to work to ensure that we're getting the value for the performance enhancement that these products bring.

Okay. Thank you.

P.J. Juvekar, Citi.

Good morning, Luke. (multiple speakers) You know, one of your competitors in catalysts had lost share and was planning to get it back. Did you see any relative changes in share or any changes in pricing as a result of competitive dynamics?

None out of the ordinary in the quarter, is what I would say. You always have an FCC unit here, an FCC unit there, doing a trial, ensuring the refineries -- you know, they're not stupid. They use that to keep everybody in line as well as to see if there's other performance requirements, P.J. So, I didn't see anything out of the ordinary.

You know, if there's one thing, I'd like -- I've gotten a lot of questions about this, both on the call and in some follow-up calls and when we're out with analysts. And I'd like to talk just for a little bit about our view on valuation in FCC catalysts.

In 2004, before we -- when we went to buy the Akzo Nobel Refinery Catalyst business, there was an article written by McKinsey that said FCC was a commodity and should be priced as such. And at that point in time in 2004, when we bought the business, there was about -- we were selling -- or Akzo was, about 125,000 metric tons, roughly, of FCC catalysts at about $1000 a met ton. And it was breaking even. Subsequent to that, after we paid the multiple we paid for that business, we looked at the value that that product was delivering. We looked at the performance. We looked at our technological advantage, and we started pricing for the value that the product brought.

Now when we led that price increase, our volume went down to 85,000 metric tons. So we were down 25% to 30% on a volume. Today, however, the base price is well north of $3000. And we're still not back to the volume we were in 2004, but it is a better business because we're delivering value to the refiners on the technological performance that we deliver. That's what this business is all about.

Customers are going to have trials. And if the crude slate is working your way, like it happens to be working our way on FCC catalysts right now, and you're delivering value to those refineries and making them more profitable, they're going to switch. They're not going to switch on price unless the performance is equal. So I really -- this is not something that's easy where a competitor or Albemarle or anybody else can go out there and try to buy share. It's a performance sale. It has been since we started this thing in 2006 or 2007.

Great. Thank you for that explanation. And you know, there are two businesses that you mentioned. There is the Gemini business and then there's organometallics going into lighting applications. Can you size the revenues of those two businesses and how big they could become? Thank you.

I mean, Gemini -- and I'll put it out in five years or so -- I mean, Gemini is kind of in the range of maybe, under certain applications, probably $100 million type revenue business, profitable business, but in nice applications. And the LED market on what that is, that could be larger. It simply depends upon where our share ends up being in that market over the long-term and the adoption of LEDs and OLEDs.

Mike Ritzenthaler, Piper Jaffray.

From your commentary, it seems as though Catalyst is largely shouldering the burden of hitting the midpoint of guidance that you'd outlined in the last call, of down 10% to 15%. So, with year-to-date EPS down something like 20% and a little under 2.5 months to go in the year, would you characterize the risk of order slippage into 2014 as materially less than it was three months ago, given the order book in December, Luke, from your comments? Or is the answer near about the same as to when customers will instruct shipment?

It's about the same.

Okay. Fair enough. And then on to bromine, I'm curious about the potential implications of either the air potash announcing in September that they're curbing production substantially or the rather dismal production economics for potash production that could sustain longer-term. Does that materially impact Albemarle's ability to source bromine salts or the impact of raw material costs at JBC?

No. It doesn't impact on us at all. I mean, the volume that we're taking out of theirs is so small, it doesn't impact us at all.

Fair enough. Thanks, guys.

Laurence Alexander, Jefferies & Company.

Two quick questions. Your corporate expense line is right now running well below where it was a couple of years ago. How do you think it will normalize over the next couple of years? And secondly, with the working capital targets you outlined and your balance sheet target, should we be expecting a steadier pace of buybacks going forward? Or is it going to be a case of looking for M&A and then doing a sporadic buyback periodically to fix the balance sheet?

The first one on the corporate expense, I'm going to let Scott address that one, and then I'll address the buybacks.

Yes, so, Laurence, in the quarter, corporate -- as you stated, corporate expenses were lower than expected, driven mostly by reduction in our overall personnel expenses incentive pay. We've had a similar effect as in 2012. We're still going through the reorganization process, so it's hard to put a specific number on how that corporate expense line would normalize out. But I would expect that the fourth quarter and going -- it will be around a $16 million, $17 million level and be -- you know, right now, there's nothing that would point to normalization back to the $19 million to $20 million that we normally would plan for in 2014.

And with regard to the buyback, I think, you know, as you -- if you can tell from the way we've approached it this year with accelerated buyback and that program, I don't think that we're in the business of being opportunistic in buying back stocks. I think you'll see a steady buyback next year. And at the call in January, once we get through the AOP and see where we think we can get up from a cash position, we'll outline the type of range of the buybacks that you can expect during the course of 2014.

Thank you.

I would just add, Luke, we continue to like the net debt to EBITDA target of 1.0 times. And you can expect us to try to hold to that level.

Thank you.

Kevin McCarthy, Bank of America Merrill Lynch.

Luke, in your prepared remarks, I think you highlighted that bromine and catalysts were, on average, 70% to 80% of your profits over the years. In connection with your reorganization, do you foresee any divestitures of product lines that are unrelated to either bromine or catalysis?

That's a good question. What I would say is, right now, I don't foresee any divestitures, but there are some businesses that we need to work to improve some profitability. And we've got plans to do that. And some of them are on a shorter leash than others.

Okay. And then second, on Catalysts, I guess a couple of questions related to the Middle East. I thought I heard you say that the Saudi joint venture is a drag of $20 million to $25 million -- a pretty good-sized number there. Can you talk about when that will cease to be a drag, maybe what the pattern looks like over the next several quarters? And then you may have mentioned it, apologies if I missed it, but what's the latest update on the Takrir order timing in FCC?

Well, on the order timing, I think it's still mid-year 2014, now is the latest information, public information, that I've heard. And the SOC is not a full $20 million to $25 million, but I'll turn it over to Scott to get more details on that, Kevin, okay?

Yes, Kevin, the combination of the Korea new plant as well as SOC is going to affect us by $20 million to $25 million this year from a cost overhang perspective. We'd start to see -- related to SOC, you'll start to see more shift of profitability into our joint venture line out of our core operating profit, starting in the fourth quarter. And that will continue going into next year. And then, obviously, Korea, we're expecting to start to pick up as we go into next year, as we start to fill those plants.

Okay, thank you very much.

Mike Sison, KeyBanc.

In terms of the reorganization, my understanding is it's not a cost savings sort of goal here, but you're going to certainly generate some. And can you quantify that and how much you're -- how big of a number is that that you're going to redeploy into R&D and SG&A over time, to sort of keep the businesses on the growth path?

Well, I want to redeploy $20 million to $30 million.

Okay. So that's a savings that you can redeploy?

That's right.

Okay. And then you talked about, in the past, debottlenecking and SCC, and can you give us an update how that's going?

Yes, it's going fine. We've approved a project in our Bayport facility that will give us about, over there, roughly -- I forget what we said publicly before -- it's roughly in the range of around 10% or so. And so that's moving along nicely. And we've got plans for other small debottlenecks at both Amsterdam and Bayport, to ensure that we're able to meet -- timely meet -- the demands of our customers and continue to grow this business.

Great. Thank you.

James Sheehan, SunTrust Robinson Humphrey.

Luke, you mentioned the acquisition of Cambridge before. Could you just give us a sense for the size of that business? What are the sales and EBITDA numbers? And where can they get to in the next couple of years?

Yes. I think that the Cambridge acquisition is a very, very small number from a revenue standpoint. It is -- or from an EBITDA standpoint; it won't move the needle at all. What it is is, it was an acquisition of technology. In our PureGrowth family of organometallics, there's four basic fundamental products you need to have in your portfolio to be able to service that electronics materials market. We had three. We're able -- we're having difficulty developing the fourth one to the purity scale that it needed to be.

Cambridge had a technology that allowed us to do that, as well as improve some of the product performance that we have in our existing portfolio. So this is really a technological -- a technology acquisition. And it also -- it will give us -- in addition to having those four products, to give us the full portfolio, what I'm the most excited about is, any time you have R&D and technical resources coming together, and have -- sharing new ideas, you usually always get one plus one equals three.

So I'm excited finally to get these R&D guys together, so that they can collaborate. Because I believe we're going to see some more real breakthroughs in our electronic materials. But you ought not -- it won't move -- it's not going to move the needle meaningful from, in and of itself, but more in the long-term how we grow that electronic materials business.

Thanks. And on organometallics, I was just wondering, have you reassessed the growth potential of that business in light of some of the competitive intensity that you're seeing and initial growing pains?

Yes. I think we're in the middle of our AOP process for 2014 right now. And the rollup, I think, is scheduled for later this month. So, that is going to be one of the key assessments I think we do, just like we do in every other business.

What's the potential? What's the risk? What's the upside? What's the downside? And do we have the skill set that we need to do? So it is -- it continues to be a profitable business. As I said on the last call, we invested capital probably 18 to 24 months too early, and we've got to deal with those costs. And we've got to have a plan to fill those assets up. And that's what we're working on right now.

Thank you very much.

Vincent Andrews, Morgan Stanley.

This is Ian on the line for Vincent. (multiple speakers) So, in Polymer Solutions, your volume was up 10% year-over-year against kind of an easy comp on a two-year stack, but pricing is still fading. So could you kind of help us think about where volumes need to go from here in order to achieve pricing power, either within the context of Albemarle's own operating rates or the operating rates of your competitors?

Yes, I think when you look at it, the big issues have really been television enclosures and European construction. Those are the two big movers on price. We're still getting some pricing pressure in our 8010 family of products in TV enclosures. And HBCD, you're working on a really tough comparison year-over-year, because we had some price increases related to a plant shutdown for a key raw material that we didn't have this year. So you're looking at a tough comp.

So I think it's a matter of what happens with the end markets, particularly the enclosures and the television sets, as well as we need some help on construction. And those are the two, really, ones that are moving it, to be honest with you.

Okay. So just so I understand, it's not an issue that there is more capacity at this point in time relative to 2012 and 2011; it's really just we're moving lower because of lower volumes that are being shipped?

Yes, it's lower demand, as opposed to lower -- to more capacity. What's happening is because -- I think what's happening, you're seeing is, in electronics in China, you're seeing lower demand overall for electronics. So the bromine producers are looking for somewhere to put that bromine. They're putting it in 8010. They're putting it in HBCD. And they're selling out against it and they're moving it at lower prices. And in some instances, our competitors are trying to adapt to that and we are as well.

So, it really, really more is a demand than a supply change. There's been no change in -- that I'm aware of -- in -- particularly for us, I can just say for us, and then what I'm publicly aware of -- a change in the capacity for 8010 for enclosures, HBCD or any of our brominated polystyrene family of products.

Got it. And then shifting to Catalysts. Your revenue was down 10% year-over-year, but net operating profit was essentially flat. So margins expanded nicely. Can you talk about what costs are -- have been taken out, and kind of the outlook for that going forward?

Yes, I'll turn it over to Scott.

Yes, I would say that the biggest driver for that dynamic are twofold. One, we've got those startup costs that are drying on us. However, FCC performance, our Fluid Cracking performance, has been very good. And we've been getting some good cost performance out of that business, given the factory performance. And then also the pricing there has been favorable for us as well. So overall, that's what's pushing that profitability to be roughly flat.

Thank you.

Jeff Zekauskas, JPMorgan.

During the call, you said that the drag from your new products, your new capacity expansions, was roughly $25 million. Is there a lower drag next year or the same drag? Or if you look at the new projects, what should the difference in operating profit performance be next year? And secondly, next year, do your capital expenditures go up or down relative to this year, and by how much?

Yes. I'll take -- let me take the second question first. We're finalizing the AOP now, Jeff, but I think you should assume a good number for our capital for next year is going to be in the range of $125 million, plus or minus 10%, in that kind of range, which would be closer to our level of depreciation. We've got the assets built, so absent something that I don't know about today, that's the range that you can expect for 2014. We'll give you a better number in January, but that's kind of the range right now.

For the drag, I'll turn it over to Scott to talk about that for a second.

Yes, and Jeff, the cost that we're talking about, both with Korea as well as SOC, are the cost of operating those plants. So this costs will be there. Our challenge is to fill those plants. Now we're in the process of transferring product from our plants in the US -- TEA from our plants in the US over to SOC right now, as I mentioned on the call. So we'll start to see that shift happening into that plant even now in the fourth quarter; there's a little bit in the third quarter. Korea is all about trying to fill that plant, as we've talked about, and drive the revenue up in those areas.

Right. So what's the difference? Is it bigger or smaller?

Oh, it -- what -- the costs are going to be exactly the same. The difference is going to be, we're going to have revenues -- commercial sales in 2014 that are going to offset those costs; whereas today, we don't have that. We only have qualification trials. So we don't have any revenue to offset the costs. Costs will be exactly the same. Next year, we should have the revenue, and certainly would hope that the revenue would overcome the costs next year.

Okay. And then for my second question, when you look at your bromine prices sequentially in the third quarter, did they go up or down versus the second? And by how much? And in Catalysts, your revenues went down $7 million sequentially and your operating profits were up $10 million. How did you do that?

Okay. On -- I think, Scott, you take the Catalyst one, because I think you just answered that a second ago. But go ahead one more time.

So real quick on the Catalyst revenue, as you say, overall, our revenue is down but our segment income was about the same, really driven by the performance of Fluid Cracking Catalysts on both the volume that we're producing, is giving us some favorable factory performance. We've got some raw material performance there as well, and that's offsetting these -- more than offsetting with the startup costs that we just talked about. And so that favorability coming out of Refinery Catalysts is really helping us.

Okay.

And then I'd say on pricing, Scott, you can talk a little bit -- but the big pricing pressure has come in, in the brominated flame retardants in polymers. It's really -- there's pricing pressure on the two major areas we've seen. 8010 and television enclosures continues to be under pricing pressure and it's lower year-over-year. In HBCD, the brominated flame retardant that goes into residential construction mainly in Europe, has been under continued pricing pressure. And we had a volume issue there as well.

You don't see that really changing in the fourth quarter. We haven't seen that -- don't know whether or not that pricing pressure will continue. But that tetrabrome seems to have bottomed out a little bit. A positive movement there. Brominated polystyrene seems to be hanging in there fine. So it really comes down to what goes into enclosures and what goes into construction.

If you're, overall, also looking at polymers and you're looking at mineral flame retardants, the mineral flame retardants, as we -- the pricing seems to have stabilized. I caution you, though, as we sell more into China to baseload our plant when our JV comes online in 2015, there is -- that is a less profitable sale because of the cost of transportation that we have and from Europe. So, the pricing seems to stabilize in mineral flame retardants.

So you're saying that pricing is down sequentially? Did you say that? Or did you just discuss year-over-year -- (multiple speakers) in bromine?

In brominated flame retardants? Yes, it's down sequentially. It's down sequentially.

Okay, good. Thank you so much.

Ladies and gentlemen, due to time constraints, our final question will come from the line of Steve Schwartz with First Analysis. Please proceed.

In FCC, most of your comments, I believe, have referenced those volumes sequentially. But can you give us an idea on the year-over-year where it stood in the third quarter? And then what you think in the fourth quarter? Because I think in the second half of the year here now, you've got some very difficult comps in FCC.

Yes. If you look in the third quarter, FCC was up by mid-single digits -- from a volume standpoint. That's what you're asking, right, Steve?

Yes, that's right, Luke.

And was also up sequentially over, like, double-digits. Then if you look to the fourth quarter, we'll probably be roughly flat sequentially, I would say, kind of in that range. Too hard to tell which would be a favorable -- we'd be up -- gosh, (multiple speakers) double-digits year-over-year.

Sure. Yes. No, because you were up double-digits last year as a comp. So, you're right. Flat in the fourth quarter would still be pretty good. And then just as my second question, in your slides, you mentioned for Catalysts, slower than expected electronic materials market penetration. Can you -- you addressed kind of the planning for that business, but can you talk a little bit about what's behind that comment?

Well, yes. I mean, if you look -- our electronic materials business that we sell into the electronic materials was double what it was in the second quarter, I think, sequentially; I think, sequentially, we doubled it. But we expected it to do much better. We expected a quicker uptake on the LEDs and we just hadn't seen that to date, Steve.

Okay, so it comes down to LEDs. Okay, thank you, Luke.

Hey, thanks a lot. Thanks, everybody, for their time.

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