Cabot Corp (CBT) 2010 Q4 法說會逐字稿

Welcome to the fourth quarter 2010 Cabot earnings conference call.

My name is Derrick and I will be your operator for today.

At this time, all participants are in a listen-only mode.

(Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

I like to turn the call over to your host for today is Ms.

Susannah Robinson, Director of Investor Relations.

Please proceed.

Thank you Derrick.

Good afternoon everyone.

I'd like to welcome you to the Cabot Corporation earnings teleconference.

Here this afternoon are Patrick Prevost, Cabot's President and CEO, Eddie Cordeiro, Cabot's Chief Financial Officer, Dave Miller, General Manager of the Core Segment, Sean Keohane, General Manager of the Performance Segment, Friedrich von Gottberg, General Manager of the New Business Segment, Jim Kelly, Corporate Controller and Brian Berube, General Counsel.

Last night we released results for the fourth quarter and full fiscal year 2010, copies of which are posted in the Investor Relation section of our website.

For those on our mailing list should receive the press release either by e-mail or fax.

If you're not on our mailing list and are interested in receiving this information in the future, please feel free to contact me in Investor Relations.

The slide deck that accompanies this call is also available in the Investor Relations portion of the website and will be available in conjunction with a replay of the call.

I remind you that our conversation today will include forward-looking statements which are subject to risks and uncertainties, and Cabot's actual results may differ materially from those expressed in the forward-looking statements.

A list of factors that could affect Cabot's actual results may be found in the press release we issued late night as well as in our 2009 form 10-K and subsequent filings with the Securities and Exchange Commission, copies of which are available on our website.

I will now turn the call over to Patrick Prevost who will discuss the key highlights of the Company's performance for the quarter.

Eddie Cordeiro will review the business segment and corporate financial details.

Following this, Patrick will provide closing comments and open the floor to questions.

Patrick?

Thank you Susannah and good afternoon.

Yesterday, we were pleased to report another solid quarterly performance.

This is now our fourth consecutive quarter of consistently robust financial results.

We have seen volumes recover from the lows of late 2008 and early 2009 reflecting the non-discretionary nature of iron markets.

And unit margins was stable across all businesses.

All in all, a very satisfying quarter and a good start into the first month of fiscal 2011.

Moving onto our full year 2010 financial results.

Adjusted earnings per share reached a record level of $3.04.

We recorded an adjusted return on invested capital of 14%.

To put this into context, this is nearly 40% above our last record of fiscal 2007.

And this was accomplished with 5% to 10% lower volumes, I believe a remarkable achievement.

This is a confirmation that we're on track with achieving our long-term financial targets consistently.

The main driver of this performance throughout the year has been our strategic focus.

We had a strong slate of projects that drove margin improvement.

We continued our investments in emerging market expansions, we had a more disciplined focus on new business development and we displayed strong execution on our restructuring activities.

These were all key to achieving these results.

And throughout the year we've also grown our already strong cash position.

So let me give you some market perspective and an update on current trends.

During the fourth quarter, our end markets continued their steady recovery and for the full year, volumes in each of our businesses were roughly 20% ahead of 2009.

The tire and automotive sectors continue to strengthen globally, led by emerging economies.

There are differences by region in the recovery rates but we are seeing all regions doing better than last year.

Despite some announced slowing in the broader electronics market, the high-performance niches in which we participate remain robust and our volumes have been reflecting that.

The construction and infrastructure markets remained stable in the mature regions but continue to show good growth in the emerging markets.

We're not only participating actively in the emerging markets growth but we're also developing higher value materials to enable performance differentiations for our customers.

Overall, demand in our various end markets remains 5% to 10% below the peak 2008 levels presenting opportunities for the coming years.

Thus far in October, we have seen volumes that are at least equivalent to those we experienced in the fourth quarter with the emerging markets continuing to show the most potential.

The emerging market investments we've made over the past several years have strengthened our leadership positions across our core and performance segments.

These investments have allowed us to grow faster than average.

During the second half of 2010 we saw the benefit of doubling the rubber blacks capacity at our Tianjin plant in China.

And during the fourth quarter we began shipping volumes from our masterbatch plant in Dubai.

We have recently broken ground on a major expansion of our fumed silicas capacity in China and have begun debottlenecking one of our rubber blacks facilities in Indonesia.

We're also at the advanced planning stage for new special blacks and masterbatch capacity at our main facility in China.

These investments and others in an extremely rich pipeline will help us continue to grow our already strong emerging market position in the coming years, the key strategic advantage.

Our customers value our geographic breadth and look to us for reliable partner to accompany them as they grow internationally.

As you can see, our geographic footprint is well-balanced.

It gives us the opportunity to optimize our network to serve our customers' needs while fully utilizing our assets.

We see this as a clear competitive advantage.

Optimizing our geographic footprint means not only investing in new capacity but also closing less efficient capacity.

Although the decisions are difficult ones, they are often necessary to maintain our competitiveness especially in more mature markets.

Earlier this week, we announced our intention to close our masterbatch facility in Grigno, Italy.

The decision was made to align our manufacturing capabilities with the business strategy and market growth opportunities.

Grigno's technology, location and scalability made it a less efficient asset relative to others within our network.

In addition to emerging market expansion, our strategic execution in the areas of margin improvement and new business development has been critical to ensuring that recovery in our markets has translated into strong financial results.

We have strengthened our performance culture and are delivering upon our commitments.

We have continued to improve our world class safety and environmental record and we have driven the higher margins within our businesses.

We have captured the full value of our restructuring initiatives and our energy recovery and yield technology investments are now our strongly contributing to our performance.

We have rebased our fixed costs and improved the efficiency of our global operating assets.

As demand improves around the world, we have been able to leverage this into stronger financial performance.

We have also continued to drive a stronger customer culture within the Company.

We have leading franchises and our customers value our quality, reliability and service offerings.

We have optimized our products and customer mix and our pricing for the value we bring.

We've also developed multiple joint technology projects with our customers as a complexity of developing innovative new technologies require closer corporation than before.

Our new business development efforts continue to meet key milestones and are contributing solely to our financial performance.

The New Business segment improved EBIT performance by $8 million this year.

Our revenues grew more than 30% and this represents the third consecutive year of strong year-on-year revenue growth.

We are confident in our ability to develop these businesses as we achieve additional commercial and technical acceptances by our customers.

In the Performance segment, we're working closely with our customers to develop new value-added products in both performance products and fumed metal oxides.

We've had successes in applications such as toners, windmills, flat-panel displays, and adhesives.

These efforts add to the strength of the segment which already posts strong margins.

Our Specialty Fluids segment had an exceptional year and is focused on broadening the use of our fluids to other geographic areas.

Our catalysis elastomer composites technology contributed solidly to our business results during the year.

We are meeting key milestones in our work with Michelin.

And we're driving our pursuit of commercial acceptance of this unique technology beyond the tire industry.

In our Security Materials business you will remember that we completed a technology driven acquisition last quarter, Oxonica Materials.

This business has already begun contributing to Superior Micro Powders revenues and will complement our strength in the security sector.

All in all, the strong operating performance in each of our businesses is a result of deliberate work to strengthen operations, reduce our costs, and better serve our customers.

Our success highlights the potential of our portfolio of leading franchises and our strong balance sheet will allow us to grow the Company in the coming years.

I will now ask Eddie Cordeiro to review the business segment and financial details of the quarter.

Eddie?

Thank you Patrick.

Before I turn to the discussion of the individual segments, let me give you a bit of perspective on results of the whole.

Our fourth quarter was very solid when compared to the fourth quarter of 2009.

Total segment profit increased by $35 million due to robust unit margins and volume increases in most businesses resulting from stronger market demand.

Sequentially, segment profit decreased by $18 million as we came off an exceptionally strong third quarter.

Key factors in the decrease or slight volume declines in rubber, blacks and performance products, higher maintenance costs due to plant turnarounds and higher raw materials costs due to a tightening market for carbon black feedstock.

We also experienced a negative LIFO impact in the last month of the quarter.

I will now discuss the details at the business level beginning with the core segment.

In the core segment, rubber blacks' profit increased by $9 million when compared to the same quarter of 2009 driven by higher volumes in unit margins.

Globally, volumes grew by 4% due to market demand and the benefit of increased capacity in China.

Unit margins benefited from a favorable product mix as well as a minimal effect on the contract lag.

Sequentially profitability declined by $13 million.

Volumes decreased by 2% while raw material costs increased due to a recent tightening in the market for carbon black feedstock.

Higher maintenance spending resulting from plant turnarounds further contributed to the profitability decline.

In response to these market conditions, we have raised prices.

Profitability in the Supermetals business increased by $13 million compared to the same quarter of 2009.

The improvement was driven by higher volumes from increased market demand and lower raw materials costs.

Sequentially, profit decreased by $2 million as higher pricing and slightly higher volumes were more than offset by higher costs in the fourth quarter.

We continue to see a tight market for tantalum and especially for the unique high-end products we offer.

Last quarter, the business implemented significant price increases.

The Supermetals business generated $26 million to $77 million of cash on a constant currency basis in the fourth quarter and full year fiscal 2010 respectively from strong operating results and reduced working capital.

Fourth quarter 2010 probability in the Performance segment increased by $1 million when compared to the same quarter of 2009.

The increase was driven by higher volumes in the Performance Products business and improved unit margins in fumed metal oxides.

Volumes increased by 2% in Performance Products when compared to the fourth quarter of 2009 while fumed metal oxides volume decreased by 1%.

Sequentially, segment profit decreased by $6 million due principally to unfavorable LIFO effect.

Volumes in fumed metal oxides increased by 7% when compared to the third quarter of 2010 while Performance Products volumes declined 3%, comprised of solid growth in special blacks and a demarketing of certain non-strategic masterbatch products.

Profitability in the Speciality Fluid segment for the fourth quarter of 2010 increased by $10 million when compared to the same quarter last year The substantial improvement was driven by increased drilling activity in the North Sea and higher prices.

Sequentially, profit increased by $3 million with the improvement also driven by increased North Sea activity.

Sales in this business are typically project-oriented resulting in a lumpy revenues.

Notwithstanding the inherent difficulty in predicting the timing of these projects, we are pleased with the second consecutive quarter of very strong financial performance and especially the underlying leverage that exist in the business.

We remain focused on growing the [inaudible] business beyond its core geography in the North Sea.

Fourth quarter 2010 revenues in the New Business segment increased by 26% or $5 million when compared to the fourth quarter of 2009.

The revenue increased was driven by a growing product portfolio in our security taggants business and commercial success in the oil and gas markets of Aerogel business.

Sequentially, segment revenues were equivalent to the third quarter.

During the quarter, the New Business segment reported its third consecutive quarter of positive operating profit ending fiscal year 2010 with an $8 million profit improvement over 2009.

The Company ended fiscal 2010 with a cash balance of $388 million.

The strong cash balance resulted from robust operating results more than offsetting $100 million full year increase in working capital.

Throughout the downturn, the Company has been focused on generating cash by carefully managing working capital and capital expenditures.

We finished the year spending a $110 million of capital.

Next year as we focus on a number of growth initiatives, we anticipate spending approximately $250 million in CapEx.

This is substantially higher than what we have spent for the last two years.

As Patrick mentioned earlier, we have a strong pipeline of very attractive projects.

Our fourth quarter capital expenditures of $53 million puts us on a run rate in excess of $200 million already.

In the fourth quarter of 2010, the Company recorded a tax provision of $16 million for an overall tax rate of 31%.

The quarterly operating tax rate was approximately 28%, excluding one-time items.

For fiscal 2011, we anticipate an operating tax rate of between 25% and 27%.

Patrick?

Thank you Eddie.

We're very pleased with the recent financial performance as it shows the earnings potential of the Company.

Our leading market position, the actions we've taken to improve our margins, our emerging market strength and the accelerated contribution of our new businesses have all been critical to our performance.

Our volumes are still 5% to 10% below 2008 levels and we believe that a return to those levels could reasonably happen between now and 2012.

The improvements we continue to drive across the Company in our key strategic areas coupled with a strong balance sheet provides a platform for this growth.

Given our results, we're looking forward to demonstrating enhanced growth and consistency in or earnings and I'm highly confident in our ability to meet our long-term earnings per share and return on invested capital goals.

We're optimistic about the future as we continue our journey to be recognized as a top-tier global speciality chemical Company.

Thank you very much for joining us today and I will now turn the call back for our Q&A session.

(Operator Instructions) Our first question comes from the line of that Doug Chudy from KeyBanc.

Please proceed.

Hi, good afternoon.

I guess first off you did announce the closing of the masterbatch facility and Italy earlier this week.

Can you give us an update on where you stand in terms of optimizing your manufacturing footprint?

Has the heavy lifting been completed now, is there still room to go, just give us some insight there?

Thank you Doug.

I will ask Sean Keohane who runs the Performance segment to take this question.

Sean?

Hi Doug, how are you?

As it relates to our footprint in masterbatch I think you're aware that we are first and foremost following our customers globally and we see a significant move by our customers in the plastics industry in general to the Middle East.

Hence, our investment there in Dubai which I think will serve us well and as we look at the rest of our network in Grigno, specifically the lack of scalability and the specific technology there lead us to a decision to close that one and optimize around more efficient assets and ones that are positioned where our customers are growing.

So I would say on balance, the big moves are largely behind us but of course, we're always looking at our network to make sure we optimize it.

Okay thanks.

Secondly, you noted the Supermetals business did benefit from some lower raw material cost during the quarter.

We do keep hearing about tantalum prices are rising.

I assume you've got some lower costs inventory still on the books that you're working through.

Can you give us an update on where you stand in terms of inventory and how you expect these costs should trend over the next couple quarters?

Let take your questions Doug.

I would say first we are very comfortable in terms of where we are today to have the ability to serve our customers so we're well-positioned in terms of our inventory situation and that was our first level of concern.

Secondly in terms of the cost and the impact on our bottom line, you're correct.

Our costs have gone down and they have positively affected our bottom line.

However, I think one of the important understandings here is that we had in the past relationships that actually led to perhaps higher costs than we should have had and what we're seeing now is perhaps a much better at [equation] in terms of the cost of our raw materials to what the market is.

So we're adjusted.

We're seeing improved performance but I believe it's actually more in line with the market.

Okay thanks very much.

Your next question comes from the line of John Roberts from Buckingham Research.

Please proceed.

Good afternoon.

Good afternoon John.

Two questions.

First, The sequential volume decline in rubber blacks and performance products seemed somewhat normal but is the sequential volume gains that you had in fumed silica and tantalum a normal seasonal effect?

I was a little surprised given both have exposure to the electronic supply chain and a lot of companies, and that -- those materials not necessarily tantalum and fumed metal oxides but other electronic materials had a bit of a correction in the quarter.

So I didn't know if that was something unusual or either a new application or product that drove the sequential gain.

I would say we're continuing to drive new technology and new products in both of these businesses and receive we're seeing the benefit of doing that.

At this time we see the electronics market being very supportive but I would say there's nothing unusual in terms of the improved performance that we're seeing.

It's continued drive in the sector.

On the Supermetals side, specifically I would say that we're in our niche, meaning the tantalum for capacitor applications.

Tantalum is one of the leading products to achieve miniaturization and in that sector of the electronics, especially the consumer electronics sector, we're seeing the growth in the smartphone, in the tablets, in the notebooks as is really supporting the growth for the tantalum applications in those capacitors.

On the fumed metal oxide side we're seeing strong growth in the silicones area and nothing unusual here but certainly driven by emerging market demand for adhesives, sealants in the construction and infrastructure sector.

And additionally to that we're seeing that sector actually growing in substitution for a less performance-oriented sealants and adhesives so we're getting the benefit of strong silicone market.

Secondly, the drilling fluids in the new businesses are starting together a few quarters now strong performance.

What do they need to achieve to get back in the core if you will?

I mean, the initial strategy here was to focus on the core.

They got separated out and limited resources and had to demonstrate their performance.

Now do they have a couple years back to back or what are the criteria for them to being -- getting big resources again?

I'm sorry John, I wasn't sure which businesses you're talking about?

Both the drilling fluids and I thought the new businesses, they were separated out -- part of the original strategy when you came in was a focus on the core back to the center of the village, if you will.

You remember that one.

How do these businesses either get moved back into the center of the village, if you will or the definition of the village get extended?

I think -- let me just reposition this.

We actually drove the structure and the bucketing of the businesses, if you may allow me to use that expression, based on the business model so if I look at actually the speciality fluids business it is actually more of a service business.

We rent the material, we accompany the material to the well, we work very closely with our customers and once the job is done, we actually take the material back and our people leave with the material.

So something that's quite unique and actually did not fit with any of the other businesses which was one of the business reasons we've actually left it as a separate segment so there was nothing in terms of separating it out that told us or was designed to leave it out of the core.

With regard to the new businesses and we felt that there again, we're more in the start-up mode and needed a different type of nurturing and focus which was one of the reasons we took them together and said they need the attention.

But it's a different one than the performance and the core segments.

And here again were doing is we're looking at them as a farming location where we're growing the businesses to the point where we believe that they're strong enough and material enough that they can actually run on their own and perhaps form a segment or join another segment in the Company.

But right now most of the businesses that are within the new business are not at the level yet where they would actually be able to be a segment on their own or where it would be warranted to attach them to one of our other segments.

Thank you.

Your next question comes from the line of Laurence Alexander from Jefferies.

Please proceed.

Good afternoon.

This is Rob Walker on for Laurence.

Just a question on rubber blacks.

Given the improvement you've made in the raw material lag this quarter what caused the Q-over-Q headwinds for raws?

I think you said $13 million including some maintenance costs and do you expect to recoup any of that in Q1?

Rob, let me ask Dave Miller, Head of the Core segment, to answer this question.

Rob, hello.

The quarter-on-quarter results and I think were touched on a bit earlier.

The major factor was maintenance which was above normal levels in the quarter due to timing of the plant shut-down work.

While it was not a big factor, there was a bit of a volume decline in a couple of isolated markets and geographies where we do business.

The raw material costs did grow but looking forward we see maintenance costs returning to normal levels and volumes strengthening which we see very now in October sales.

And I should also add that we have been and continue to increase prices and an overall response to the feedstock and business environment.

Okay great.

And just on performance blacks if could you talk about the pricing there, given your efforts to improve your ability to price for value?

Sean, would you like to take that question?

Sure, Rob.

No change in strategy here as you know, we serve a diverse set of applications.

They're performance-driven applications and we continue to work closely with our customers to develop new products and get the value of those new products reflected in our pricing.

And so I would say steady as she goes in terms of executing on the strategy and I think it's going quite well.

Okay thanks.

And just very quickly if I could just get an update on your energy centers.

How far along are you in investing in the energy efficiency programs and what should we be expecting for a year-over-year benefit to earnings in 2011?

Right.

So, rob, on the energy center,we are continuing to drive this very favorable area of investment because of the various locations in which we operate provide some unique benefits for us to do so.

We have actually started up three new energy centers since the beginning of the calendar year of 2010.

Some of these -- actually, most of these have started to add to the bottom line in the Company in fiscal 2010 but we'll only get the full benefit of all three of them in 2011.

Just as a reminder, we are currently at about 40% or so of our total site locations, covered with energy centers in our current plan is to get approximately 70% to 75% over the coming years.

We will be staging the various investment that we still have ahead of us.

We have about four or five of those in the pipeline but we will need to stage them to actually take in account the unique nature of each location.

If you can imagine the opportunity to sell the energy, the need to get contracts in place, and the value of these are unique in each country in which we operate so we'll be looking at implementing these centers over the coming years taking and certainly the ones that have the most value first.

Just one additional item here is that we're looking at these energy centers returning an IRR of about 15% to 20%.

That is our hurdle rate for these investments.

Great.

Thank you very much.

Your next question comes from the line of Christopher Butler from Sidoti & Company.

Hi, good afternoon.

Did you -- I'm sorry if I missed it.

Did you specify what the impact of the maintenance in the core segment was?

Well, we actually talked about the fact that we have these at one-time in fact in the fourth quarter and the affect of the performance of the business.

Yes, we talked about those.

But not a dollar amount there or margin?

No, we did not provide a dollar amount.

And in the conversation it was mentioned that there was some volume declines in certain segments.

Was that associated with the maintenance or was that something that was [distinctive]?

Partially, of course it is associated with the maintenance because we had turnarounds which actually affected our ability to run the plant but we also saw some small seasonal effects in various geographies that led to this slight decline in volume.

Maybe another point here is that we're not seeing that decline as anything indicating a change in the market environment.

In the first three weeks of October are actually showing that we're back on track and the volumes are robust.

And you had mentioned that you were raising prices could you help me out is that something that's automatically gets accepted by customers or is this a negotiation?

How is this going to work?

It would be great if we had automatic increases.

I'd like to find a business like that.

We have to respond the feedstock environment and this is a global situation that we're seeing feedstock prices rise partially due to the weakening dollar but also to tightness in the supply/demand environment.

And we've had to respond to that challenge and we're in the process of doing that and have started that in the fourth quarter.

And shifting over to the Performance segment, it was mentioned that there was negative LIFO business,I think you specified in the last month was simply trying to keep inventory levels low for the end of the year, or is this something that's going to continue into the first part of fiscal 2011?

Dave?

Sorry, this was performance, so Sean?

Yes, hi Chris.

So primarily the impact of LIFO is the immediate recognition in a rising raw material environment and because we have -- this is a US phenomena for us, as I think you know and we have a significant proportion of our specialty carbon black assets in the US.

We tend to see a bit more pronounced impact on Performance segment in a volatile raw material environment.

Shall we see a continuation then into 2011?

Well, I think it's a function of what oil does.

So oil will -- as oil moves up and down then we will see corresponding LIFO move but it really depends on the volatility of oil.

I appreciate your time.

Thank you Chris.

(Operator Instructions) Your next question comes from the line of Sean O'Malley from Wedge Capital.

Please proceed.

Hi, thanks for taking my question.

First off, congratulations on achieving your financial goals, a few years ahead of schedule.

I think when we started looking at your Company as an investment, the $3 earnings by 2012 and 13% ROIC by 2014 we felt were pretty ambitious targets.

And we were pleased to see you meeting them so soon and surprised.

Obviously, these have been useful goals for you to help move the organization focus the organization and drive decision-making and so forth.

Now with them achieved, are you considering what the next set of goals should be and what the appropriate time frame for them should be?

Yes, thank you.

I appreciate the recognition of the performance.

We certainly are also very pleased with where we are today.

There's been a lot of hard work in the last two years to get to where we are.

I think -- we believe that we're on the right track.

We have the right strategy in place and it is working.

We, however, believe that we still need to confirm the performance that we have demonstrated in the last few quarters or in the last year and that consistency is a key part of the commitment we made to our shareholders.

So at this stage, I would say I'm not ready to claim victory yet.

We still have some work to do in terms of demonstrating that we can do what we've done in 2010 on a consistent basis but certainly as soon as we feel comfortable that we can achieve that and that we're on a new plateau we're to come back to our shareholders to give them a sense for what's next and how we will want to drive the Company over the coming years.

Okay thank you.

(Operator Instructions) Your next question comes from the line of Saul Ludwig from Northcoast Research.

Please proceed.

Good afternoon guys.

On the rubber blacks portion of the business, two questions.

Your feedstocks could be residual fuel or they could be rubber black feedstocks.

Residual fuel has been staying fairly stable, rubber feedstocks have gone up.

If you look at your global requirements for that type of raw material, is the split 50/50 between the rubber black feedstock and residual fuel or what would be the difference mix such that as we monitor raw material costs, we're monitoring the right things quite?

As you know we do use different types of feedstock and I would add coal tar to that and there's antracine oil and different denominations in the sense that the feedstock may differ depending on what's available in the market, what the refineries are capable of producing and what type of products we need for the various end products we make.

So the breath of the feedstock slate is one that we recognize but two, we do not actually provide, let's say that level of granularity because it is actually competitive information that we can't disclose.

I do want to say that we're -- we have seen recent tightening in that market which has put some pressure on us in the fourth quarter which we're correcting through price increases.

We're seeing those -- that pressure come for two reasons.

I would say one reason is demand, meaning that carbon black demand has increased and that is a good thing.

The other thing is that we're seeing some pressure from the supply-side which is linked to the type of product -- downstream product slate that some of the refineries are not producing and that are moving away some of the products -- away from the carbon black type feedstock.

So we're monitoring the situation we believe that this may go on for a while but we believe that we have this in hand and that we're going to need and will be adjusting to reflect that in -- through our commercial means.

One of the things you've talked about, patrick, is getting paid for your technology and as different tire technologies emerge, it requires different typees of carbon blacks.

In your contract business which I think maybe 50% of your carbon black business, it seems like your pricing was -- raw materials were [exed] and you would get a certain premium over raw material costs on a one-month basis.

As your contracts rollover, do you think you're going to be able to negotiate or be able to achieve the delta over raw material cost someone greater than what it has been in the past as a way of moving the margins higher because the margin in rubber black was only 7% in the fourth quarter which looks like a disappointing number so I'm just -- those two questions are linked.

I would say so that I was also disappointed with our margin in the fourth quarter and some of it was due to the fact that we had some unusual costs one-time costs due to turnarounds and maintenance and these of course being one-time where it should not recur or certainly not recur at that level.

And with regard to the market, we're going to need to work with our customers to find the right solutions, we're clearly there to support their needs.

We're also looking at how we can get the most value of course for the services we provide to them.

So the combination of that will actually determine what the price of the margins are in the future.

But certainly we have our goals we have with regard to what we think are acceptable levels of performance for the business and I would say that as a fourth quarter was not a reflection of what we're looking at in the future.

And my final question, I think it would be worthwhile to review.

Last year in the first quarter, you some very unusual things that Eddie might be able to remind us.

You operated your plants much more than what one demand was.

You had some reversions that were collected on some receivables that was in unusual nature.

Does that make for a more challenged first quarter for those reasons even though you talk about volume recovering, pricing recovering, maintenance going back to more normal.

I'm trying to recall the unusual things that happened in the first quarter so that we're kind of thinking about the early part of next year appropriately.

Okay, so let me -- I'm not sure what you're alluding to so I'm going to ask Eddie to take that question.

I think Saul, my recollection was there were three things.

One was some rebate accruals that we took back because the volumes didn't come through, the second was we had achieved some milestones in one of our key business development areas and we were able to recognize revenue as a result and third was a generous FX benefit that helped us.

So as I sort of think about your question, we're talking about -- I think what you're asking us to do is compare what we're expected for the coming first quarter and what we saw in the last first quarter and we can't go quite that far.

I think the better way to think about the business and the way I typically look at it is sequentially.

What's going on in the current quarter or the prior quarter and how do I think about things moving forward because when you think about things like things about FX from a year ago versus FX from a sequential, they're two very different pictures.

One last question.

Did you get any CEC revenue in the fourth quarter?

I remember you did talk about getting us some in the third quarter.

I'm going to ask Dave to answer that question.

Saul, did you say second quarter versus last --

I think in your third quarter you received -- I think that was the first time you talked about receiving any CEC revenue.

Is that correct?

And, B, did you receive any in the fourth quarter?

Yes, we did.

You received it in the fourth quarter and did you receive it in quarters other than the third quarter?

Yes.

Okay.

Very good.

Is that something that's going to continue as you continue to make technological progress or should we look at that as more of a one-time event for 2010?

Were going to continue moving this business forward and we'll continue to see revenue but we won't be breaking out these specific earnings from the business.

Thank you very much.

At this time, ladies and gentlemen, there are no further questions in queue.

I would like to turn the call back to Mr.

Patrick Prevost for any closing remarks.

Thank you very much for joining us this afternoon and I believe that the combination of our strong strategic execution and recovering iron markets resulted in these last four quarters that were strong in terms of performance and also, of course, our record full-year earnings.

I believe we're well on track to meeting our long-term goals consistently and are highly confident that the platform we put in place over the past two years positions us well for growth.

So with that, thanks a lot for joining us today and looking forward to speaking to you again next quarter.

Ladies and gentlemen, that conclude today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.