Cabot Corp (CBT) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2012 Cabot earnings conference call.

My name is Erica and I will be your Coordinator for today.

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

We will be facilitating a question-and-answer session towards the end of the conference.

(Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Erica McLaughlin, please proceed.

Thank you, Erica.

Good afternoon, I would like to welcome you to the Cabot Corporation earnings teleconference.

Last night we released results for our fourth quarter and full fiscal year of 2012, copies of which are posted in the investor relations section of our website.

For those on our mailing list, you received a press release either by e-mail or fax.

If you are not on our mailing list and are interested in receiving this information in the future, please contact investor relations.

The slide deck that accompanies this call is also available in the investor relations portion of our website and will be available in conjunction with the 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 can be found in the press release we issued last night and are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly in our last annual report on Form 10-K.

These filings can be found in the investor relations portion of our website.

Also, as we typically do each year, I would like to remind you that over the next several months in connection with divesting of restricted stock awards issued under our long-term incentive equity program, Officers of the Company may sell shares to pay tax and other obligations related to these awards.

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

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, Erica, and good afternoon, ladies and gentlemen.

I'm sure that many of you are calling from the New York and New Jersey area and with the last few days, Hurricane Sandy coming through that area, I hope that you have been spared and if things are -- and hope that things are on the mend for you.

Let me get on with the business of Cabot.

In 2012, we continued our transformation to a higher margin level Speciality Chemicals Company.

First of all, we achieved another year of robust results with $3.34 of adjusted earnings per share, a 37% improvement over last year.

Our success was driven by multiple factors, specifically our value pricing, improved product mix, energy efficiency investments and the introduction of new product.

We also made great progress in completing new capacity expansions to support future growth.

We started up new capacity over the past year for a number of our businesses including 50,000 tons of rubber black capacity in Indonesia, South America and Europe, 10,000 tons of fumed silica capacity in China, and we also doubled the capacity for two lines at our Inkjet Colorants facility here in Massachusetts.

In addition, we exercised our portfolio management lever with a divestiture of the Tantalum business and the acquisition of Norit.

Combined, these transactions will improve the stability of the Company's earnings and open up new high-growth diversified end markets.

When I joined the Company in 2008, we announced our strategy to deliver earnings growth through leadership in Performance Materials.

Today, we have nearly tripled the earnings power we had in 2008 and we have improved our adjusted ROIC from 8% to 12%.

We've achieved this through our four prong strategy of capacity and emerging market expansions, margin improvement, new products and new business growth, and portfolio management.

We are transitioning our global footprint towards lower costs, more energy efficient capacity in the highest growing markets.

We've improved our commercial and operational capability to extend our leadership position globally.

And our portfolio of businesses continue to demonstrate its value potential.

You can see that 2012 EBIT in Reinforcement Materials is almost double what it was in 2008 and this despite the mixed economic environment.

Our Advanced Technologies segment contributed $49 million in 2012 as compared to a loss of $7 million in 2008.

We also maintain our strong results in Performance Materials in spite of a challenging environment and higher costs from our recent capacity additions.

All of this work resulted in a 72% improvements in total segment EBIT over fiscal 2008 level.

And this is not the end of our transformational journey.

We continue to improve, optimize and strengthen the financial and operating potential of our Company and we are very pleased by what we have accomplished so far.

Our 2012 accomplishments set a good foundation to meet our 2014 target of $4.90 to $5 adjusted earnings per share.

We have a solid plan in place and this plan is about margin improvement, capacity expansions to capture growth opportunities, new product introductions, and delivering value from the acquisition of Norit.

All of our segments will contribute to the growth.

Our focus on margin improvement includes understanding the value and use of our products, continually reducing our cost to serve and investing in process technology to improve our yields and reduce our energy consumption.

We have installed new process technology this year to meet both our sustainability goals and our financial return expectations.

We have completed the high-value capacity expansions in 2012 in Reinforcement and Performance Materials as well as in Inkjet Colorants.

We are progressing well with our new carbon black site in China and our fumed silica investment in Barry in Wales.

These projects will provide volume leverage as demand grows.

Our focus on innovation drives the new product and business development across all segments.

We are committed to meeting the changing needs of our customers.

During 2012, we launched a number of new products and have a pipeline of ideas and projects for the coming years.

Finally, we have multiple teams dedicated to the integration of Norit and we are active at identifying and delivering multiple synergies.

This transaction is a great fit with our portfolio and met our M&A criteria of a leading industry position, unique technology and strong financial performance.

The markets served by Norit are characterized by high growth as purification of air, water, food and pharmaceuticals are key global challenges in the future.

I'm pleased with our accomplishments to date and I'm confident in our ability to meet our next set of objectives in the future.

Let me now spend a few minutes discussing our fourth quarter of fiscal 2012 results.

We are in a challenging environment with multiple regions of the world experiencing slowing growth.

Volumes in Reinforcement Materials were 5% below the fourth quarter of fiscal 2011.

Although destocking seems to be abating, we are still operating in a weak demand environment, resulting in utilization levels of approximately 80% during the quarter.

In addition, we experienced some unfavorable margin impacts from high cost feedstock moving through our supply chain, unexpected sourcing costs from our raw material supply disruption and a more competitive environment in China.

On the positive side, we are leveraging our new fumed silicon and Specialty compounds capacity and serving the needs of our customers in China with this added capacity.

As volume continues to grow in the Performance Materials segment, we're offsetting the incremental fixed cost associated with this new capacity.

We are pleased with our fourth-quarter results in Advanced Technologies where we experienced continued strong performance in Specialty Fluids and higher volumes in our Inkjet Colorants business as we capture growth in commercial printing applications.

The integration of Norit into Cabot is proceeding well and we continue to look at generating synergies between the two companies.

The short-term performance is being impacted by changes in North America power generation from coal to natural gas due to the currently low natural gas price.

Our long-term growth projections for activated carbon in mercury removal applications are very solid but are being affected by current economics in the short run.

All of our other end markets such as water, food and beverage, pharmaceuticals, chemicals and catalyst are growing at or above expected rates in most world markets.

Our solid results this quarter despite the challenging environment are a testament to the progress we have made in the last few years.

I will now turn it over to Eddie to discuss the fourth quarter financial results in more detail.

Eddie?

Thank you, Patrick.

For the fourth fiscal quarter, total segment EBIT from continuing operations was $96 million which was $17 million higher than last year's fourth quarter.

The increase as compared to the prior year was driven by higher pricing and improved product mix that more than offset lower volumes.

Sequentially, total segment EBIT decreased $13 million resulting from lower unit margins in Reinforcement Materials, which I will discuss in more detail shortly.

We also experienced seasonally lower volumes in our Specialty carbons and compounds business.

Now I will discuss the details at the segment level beginning with Reinforcement Materials.

During the fourth quarter of 2012, EBIT for Reinforcement Materials increased by $3 million as compared to the fourth quarter of 2011.

The increase was driven principally by higher margins as higher prices and lower manufacturing costs were partially offset by 5% lower volumes.

Volumes declined in the fourth fiscal quarter of 2012 as compared to the same quarter of 2011 in all regions except China due to the weak global environment.

Sequentially, EBIT decreased $18 million driven by lower unit margins as a result of three issues that each contributed equally to the $18 million decline.

The first impact was from high-cost feedstocking inventory that moved through our supply chain at a slower rate than we anticipated in Europe and Southeast Asia.

As a result, we experienced a margin squeeze.

The second was due to an unplanned supply disruption at one of our feedstock suppliers in South America.

This required us to source products from other plants within our network and we incurred additional costs because of this event.

The third is related to the competitive environment in China where we are balancing our volume and price management decisions.

These unfavorable impacts were partially offset by 1% higher volumes.

The macroeconomic environment continues to be challenging and the near term remains uncertain.

Based on conversations with customers, we believe the near-term volumes will remain soft for the rest of the calendar year.

In light of the current environment, we will pay some of our previously announced capacity additions to align with demand.

We have successfully completed 50,000 tons of efficient expansions around the world to support our long-term growth.

We remain on track with 130,000 ton Greenfield plant in China which will start up in late 2013.

We will continue to prioritize future expansions that favor high-growth geographies and high-value products.

We are pleased with our yield and energy recovery investments to date and we will continue to invest in these attractive projects that will reduce our cost structure and improve the competitiveness of our facilities.

In Performance Materials, EBIT increased by $7 million as compared to the fourth quarter of 2011.

The increase was driven by higher volumes and lower manufacturing costs.

Volumes in fumed metal oxides increased 12% driven by growth in demand for electronics applications and higher sales from our new capacity in China while Specialty carbons and compounds volumes increased 3%.

Sequentially, Performance Materials EBIT decreased by $4 million principally due to seasonally lower volumes in Specialty carbons and compounds.

Volumes in fumed metal oxides increased by 5% sequentially while volumes in Specialty carbons and compounds decreased 11%.

We are pleased to see another quarter of positive volume progression in our fumed metal oxides business as we continue to leverage our new capacity.

We expect our fumed silica expansion in Wales where we have a fence line partnership with Dow Corning to be completed by the end of calendar year 2012.

We are well positioned to capture volume growth with our new capacity investment.

In addition, our new product introductions are contributing to our solid performance and we remain confident in our new product pipeline.

Advanced Technologies EBIT increased by $2 million from the fourth quarter of fiscal 2011.

The EBIT increase resulted principally from higher volumes in our Inkjet Colorants business as we are utilizing our new capacity for the growth we're seeing in office and commercial printing applications.

We also experienced higher volumes in our Elastomer Composites business as we are progressing well with Michelin in the commercialization of CEC.

Sequentially, Advanced Technologies EBIT increased by $4 million principally due to higher volumes in our aerogel business as well as favorable Inkjet Colorants product mix from strong demand in office and commercial printing applications.

We experienced another experience another strong quarter for our Specialty Fluids business with some high-value product sales.

In managing our portfolio of new business opportunities we review progress against revenue targets and strategic milestones.

As such, primarily related to the aerogel and security materials businesses, we have taken action that will reduce the segment workforce by approximately 10% and we're in the process of consolidating facilities.

In addition, we are eliminating two underperforming corporate business development projects.

The combination of these efforts will deliver savings of approximately $10 million by fiscal year 2014.

We are pleased to see that our Inkjet Colorants demand for the commercial and office printing industry is continuing to grow.

In Elastomer Composites, we receive validation of CEC superior performance in mining applications and we made our first commercial sale to a mining customer in the fourth quarter.

We will also reach additional milestones in our CEC Michelin partnership in the coming year.

Despite the ongoing quarter-to-quarter variability in Specialty Fluids, we made significant progress winning business in geographic areas outside of the North Sea including jobs in India and Malaysia.

EBIT in Purification Solutions was $5 million which represents two months of results for August and September after the acquisition was completed on July 31.

To give you an update on purchase accounting, we are still refining the balance sheet but there are no material changes to what you have seen before.

Our inventory step up is in line with what we originally estimated and to be clear, this is running through certain items and should be complete by the end of the first quarter.

And we're now estimating that our total D&A for the business will be $50 million per year.

On an adjusted stand-alone basis, EBITDA for the fourth quarter of fiscal 2012 in Purification Solutions decreased by $4 million compared to the fourth quarter of fiscal 2011.

The decrease in EBITDA was driven by unfavorable product mix, higher maintenance costs and a 2% decrease in volumes from lower sales to the gas and air end markets partially offset by growth in other applications.

Sequentially, EBITDA declined $4 million as compared to the third quarter of fiscal 2012.

The 7% increase in volumes was more than offset by the unfavorable impact of declining inventory levels and higher maintenance costs.

For the full fiscal year ended September 30, on an adjusted stand-alone basis, we saw EBITDA declined $4 million in fiscal 2012 as compared to fiscal 2011.

EBITDA declined from 5% lower volumes and higher maintenance costs that were only partially offset by higher pricing and margins.

The decline in volumes was driven by lower sales to the gas and air end markets primarily from mercury removal in the US.

The low price of natural gas in the US caused coal utility utilization to decline reducing demand for activated carbon for mercury removal.

While the near-term outlook for mercury removal applications is challenging, we remain confident in the long-term growth potential of this segment as well as the other markets we serve.

I will now turn to the Corporate items.

We ended the quarter with a cash balance of $120 million, which was a decrease of $287 million from June.

The driver of the decrease was the use of cash for the acquisition of Norit and $108 million of capital expenditures.

This was partially offset by solid operating results and a decrease of $64 million in net working capital which includes an additional $121 million of Norit net working capital.

The Company ended the fourth quarter of fiscal 2012 with a debt balance of $1.4 billion, an increase of $720 million from June due to the financing of the Norit acquisition.

This increased our interest expense to $15 million for the fourth quarter of fiscal 2012 as compared to $10 million for the fourth quarter of fiscal 2011.

We recorded a net tax provision of zero for the fourth quarter which included a benefit for tax related certain items of $10 million.

Our operating tax rate on continuing operations for the fourth quarter and full fiscal year were 26% and 25% respectively.

As we look to fiscal 2013, we expect capital expenditures to be in the range of $250 million to $300 million inclusive of Norit, and we anticipate the operating tax rate to be between 25% and 26%.

I will now turn the call back over to Patrick.

Thank you, Eddie.

We are pleased with our fiscal 2012 results as we saw another year of growth in our segment earnings and EPS despite a difficult economic environment.

With the divestiture of Supermetals and the acquisition of Norit we've also strengthened our portfolio.

As we look ahead to 2013, the uncertain conditions in Europe, a slowing Chinese economy and the weak US recovery make us cautious about the near term.

We expect the current environment to continue through this calendar year.

However, due to the non-discretionary nature of many of our products, we anticipate demand to recover in 2013.

We remain focused on factors of performance that are within our control including new and innovative product introductions that will help us differentiate our offering, the implementation of yield and energy efficient technologies which will reduce our costs, the completion of our competitive new capacity in China and Wales, and the integration of Norit which provides a new platform of growth for the Company.

We are pleased with our fiscal year performance as we continue on our growth trajectory towards our adjusted EPS target of $4.90 to $5 in fiscal 2014.

We have strength in our overall competitive position through strategic capacity additions, value pricing, yield and energy efficiency and new products.

These actions combined with a return to a more stable macroeconomic environment give us confidence that we will achieve our adjusted EPS target.

Thank you very much for joining us today and I will now turn the call back over for our question-and-answer session.

(Operator Instructions) Ivan Marcuse with KeyBanc.

Here in the rubber blacks business when you look at all the capacity that you've been bringing on and you're continuing to bring on and the competitiveness that you mentioned in China and then you look at the general weakness in the tire industry, how do you improve margins in fiscal '13 or do you need some help from the macro environment?

Well first of all, I would say volumes are a key factor in this business.

We will not deny that 80% utilization rates are rates that will allow us to achieve superior financial performance.

We're going to need to see an improvement in the -- on the volume side during the course of next year.

Now we're somewhat optimistic about that happening because we believe that the destocking that has occurred over the last quarter and the abating of that destocking indicates that we perhaps have reached the bottom of the low demand period.

And we're still very confident looking at some long-term data that 4% annual growth for tires is still, in spite of the complexity of the economic question we're dealing with, a growth rate that is I would say robust.

Now in the meantime, of course, we're looking at multiple ways of managing the environment and a lot of our efforts as I mentioned earlier are focused on the energy and efficiency of our operations as well as trying to get our yields improved and getting feedstock purchased advantageously.

And so these are the things that we're measuring on and this is what we'll be spending our time on until we see a recovery of the economy.

With regard to capacity additions, we've been focusing our capacity additions on areas where we believe we could leverage existing sites and that in areas where we could add capacity in high-margin product production.

We've been very selective in terms of what we're looking at.

And then in China we just believe that's a market that is going to continue to grow at a very high pace or way above the global average and we need to continue to develop our position in that market.

And that's the reason for the new investment that we're working on in the Hebei Province.

Should you maintain your value add pricing strategy even in this current environment or do you see pricing being a little bit more competitive until things improve?

Right, so what we mentioned is that we've seen a more competitive environment in China and here I must say that there's a bit of the balance between price and volume that's going on and as we're going to be bringing up a Greenfield plant later in fiscal year 2013, we're in need of maintaining our position in a still maturing market, but that is growing at a very rapid pace.

Here I would say we have had to work on pricing to maintain our volume position.

The other markets we're continuing to drive pricing in a I would say a strong way.

We're specifically in North America engaging with our customers to renew a lot of contracts for calendar year 2013 and we're very confident that we will be achieving increases in prices.

Do you see volumes at least in the near term it was positive to you guys a sequential uptick from third quarter to fourth quarter, do you imagine that that will be the same trend going into your fourth quarter to first quarter or do you see a sequential down tick going in addition to more seasonality?

As we look at the first quarter and as I mentioned in the speech earlier, we're not hopeful to see an improvement in the quarter.

We're currently planning for a quarter that's somewhat similar to the fourth quarter.

Actually, our volume in October as far as we've seen in October very much matching the trend that we saw in the fourth quarter.

Sequentially if it stays flat because the volumes get -- the year-over-year comparisons get very easy, so on a year-over-year basis sequentially you should see -- it should be flat, correct?

I think that's a way to look at it, yes.

Great, thank you for taking my questions.

No problem, thanks, Ivan.

John Roberts with Buckingham Research.

The demand for -- from coal-fired power plants for activated carbon must have been down much more than the 2% for overall Norit, could you comment about how much it was down double-digit percentages or what?

And what's the margin differential that accounts for the unfavorable mix?

As you correctly noted, we're seeing the competition between coal and natural gas generated power and we've seen during the course of this year natural gas winning that.

That is clearly a factor that is affecting the activated carbon sales and we're currently looking specifically in the gas and air market at a 9% decline year on year and about the same on a quarter-on-quarter comparison.

We do however see on a sequential basis an increase of about 16%, which is more of a reflection of seasonality.

But that gives you perhaps a picture of the environment that we're dealing with.

But let me just come back to the mercury removal topic.

We still believe that this business is one that will continue to grow in the long run.

We're holding to our projections today as we did before the acquisition.

We see a significant upside there and we believe that the adoption of the regulations in 2015 are intact.

A lot of what's happening between now and then is working with the various coal fleet owners.

And to be -- to remind you, we mentioned that in the last quarter, we -- our assumption with regard to this business is that somewhat -- somewhere between 15% to 20% of the coal fleet that's existing currently and there's about 978 coal-based utilities, will retire over the coming years, couple of years, three years.

And we've assumed that of that remaining coal fleet, only about 50% would be needing activated carbon.

And the result of this would be that we would still say about a tripling of the activated carbon needs within the next five-year period, so in 2017.

Something that we've also not talked about or that we have not talked about at the last call was that we're also in the injection equipment business and that's a business that is a small business, or has been a small business up till now.

And this is to design and put in place activated carbon injection equipment into the coal-fired utilities and we've put a certain number of these -- of this equipment in place but we're seeing over the next two, three years approximately 450 to 500 of these equipments needing to be implemented and each of them is about approximately a $1 million piece of equipment, and we are currently gearing up to dealing with that increase in demand.

Of course, we're not the only ones that are capable of doing this, but we've got a team that's working very closely and very diligently as we see the coal utilities gearing up for the 2015 deadline.

You're not relying on natural gas prices coming back up to stimulate demand?

We currently believe that the natural gas prices would need to be in the $4 to $5 range to provide a bit of an arbitrage situation with coal.

We're not there, yet.

But I would say that the indications are that the gas prices are slowly increasing.

If you remember we were close to $2 in April of this year.

And if you look at the natural gas rig count, it's come down by more than half in the last two years.

I would say in general, the natural gas producers are not able to make money at the current gas prices and I think there's a strong indication that we should see the prices coming up and again they already -- they were -- I looked this morning, they were at $3.73 on the NYMEX.

Thank you very much.

Thank you, John.

Kevin Hocevar with Northcoast research.

In terms of the rubber blacks segment there was a couple of those sequential issues that hit the quarter in terms of the supply disruption, the impacts in China and the higher feedstock costs.

I'm just wondering of those, are any expected to flow through going forward?

I'm assuming that the high cost inventory was just a one quarter thing, but is the disruption of supplies fixed and then do you expect the Chinese issues to flow forward into 2013?

Yes, as we look at these three elements that led to the $80 million EBIT decline, one is clearly a one-time effect which was the supply disruption in South America.

That will not reoccur in the fourth quarter -- in the first quarter, sorry.

The high feedstock costs is continuing to flow through so there will be still some impact in the first quarter.

And then of course the competitive environment in China, we believe will continue in the first quarter.

I think that should give you a bit of a sense of how we're thinking about the impact of those in the current quarter.

Okay and then I believe previously the guidance for 2013 for Norit was $0.30 to $0.35 of accretion.

Have you seen anything that would change that number?

And also what's the growth rate that you assume in that number for the mercury emission activated carbons, is that above our below that 30% long term expect growth rate?

Yes the 30% long-term rate is still valid, but it's going to be one that of course is going to have a bit of a cliff feel to it.

We believe that in the long run, that's correct.

In the meantime until we reach 2014, we think that the demand levels are going to be flat -- flattish let's say at this stage.

With regard to the $0.30 to $0.35 accretion that we've indicated in the call last quarter, we're still holding to that.

There's a lot of puts and takes where we've only owned the business for a few months and -- but at this stage we're still comfortable with these numbers.

Okay and then finally in terms of volumes, I know we've talked about sequentially don't expect much pick up at all going into the final quarter of the calendar year, but could there be any benefit from I know that the Chinese import tariff rolled off at the end of September and I know tire shipments were really weak at the end of September and tire dealers inventories were really low.

So I'm just wondering if any of that'll flow down to you guys and maybe there could be a -- is there, I guess the question is, is there upside here in the first quarter if there is some restocking of inventories at these tire dealers?

Well, at this stage, were not seeing any of that.

Clearly considering how low the volume is across the world, you'd hope to see some of that happening, but we're not counting on it at this stage.

As we speak to our customers, we're not getting a very positive and optimistic feel at least through the end of the calendar year.

And then on the question with regard to the elimination of the Chinese duties, we saw no effect on the imposition of those.

We're just not expecting anything on the removal.

Okay, great, thank you very much.

Thank you.

Jeff Zekauskas with JPMorgan.

I was wondering if you could speak a little bit more at length about the competitive conditions in China?

In that in general I think Cabot has feedstock advantages and maybe a more complex or a more differentiated product line than some of the other competitors.

So I was wondering, why has the I guess it's price competition, why has that emerged now rather than at some other time?

And is it -- can you describe the dynamics around that and whether it's confined to certain product lines or its across the board or what the reasons are for it?

I think the -- yes, the environment is complex, but I think if you lift up out of the various puts and takes and the moving parts, the main driver here is that the economy has slowed and the Chinese businessmen are very astute and they tend to be very quick at managing cash and inventories.

And that has led to some volume declines in the Chinese market and increased the competitive environment, clearly.

Now you're certainly right in terms of our position in China.

I believe that we have the most sophisticated assets, technology, we have scale and we have the products that people want in addition to the fact that we've been delivering what I would call an above-average service.

Of course we're not underestimating our competitors, but I clearly think that we are and continue to be a leader in China.

Now as we participate in that market, we're seeing the market mature and develop, but all in all, the market is still that of an emerging economy in terms of the type of tires that are needed.

We're seeing an increase in the more sophisticated products and the needs for our more sophisticated products to achieve these high performance products, but there's still a fairly large portion of the market that is what I would call more traditional or standard tires.

And as the economy slowed down, the competition increased and we have a new facility coming on stream in August of next year and we're clearly very driven and focused to make sure that we continue to participate and support our customers in the Chinese market and provide the base and platform to get the new capacity loaded as soon as it's up.

Okay, thank you, that's helpful.

In Performance Materials, I think in your transcript you talked about 12% volume growth in fumed metal oxide and 3% growth in special blacks, but the sales were flat year over year, why is that?

Why not a greater level of sales growth?

Yes, I think as you may remember, a lot of the end markets for the Performance segment are in the construction, infrastructure, electronics industry and we've seen a fairly sluggish environment in these markets.

And a good portion of our business also is in Europe in the Performance segment, so we've been affected by that.

On the -- specifically on the FMO side, so our fumed metal oxide, we've seen good growth lately because we have started up our new high-performance facility in Jiangxi, China and the quality -- the performance and the cost base of that new facility is giving us a lot of potential and is giving us the geographic mix that we've not had in the past.

We're getting some very good traction in the China and Asia market.

And then lastly I was hoping that Ed might talk a little bit about general unallocated income or expense.

I think it was a positive $1 million versus last year at negative $4 million, what were the components of that change?

I think the difference in that, Jeff, is going to be a LIFO impact.

Was there a positive raw material impact on that line?

My recollection from this year is that it's flat and so there was no impact and that there was a slight negative impact last year of $3 million.

Okay, thank you very much.

Thank you, Jeff.

Laurence Alexander with Jefferies.

Good afternoon.

Just to clarify the comment about the Norit sales growth being flattish, was that just for the mercury removal applications year over year or was that for the entire segment?

And given the weakness in that part of the end market mix, do you think the margins in that segment will stay depressed until that part of the business picks up?

I'm sorry Laurence, I missed the first half of your question, would you please repeat it?

Certainly, I think there was a comment that the volume trends for the Purification segment could be flattish, just wanted to clarify is that for the entire business or is that just for the coal-fired power plant section?

No this is -- as I mentioned this is only for the mercury removal section, the remainder of the business we believe will continue to grow at the rates we had indicated, Laurence.

And then just to follow up on that, do you expect to be [able to] return margins to their prior level without an acceleration in the coal-fired application or do you need that to get your margins back up?

I would say it is difficult to assess at this stage.

We're not close, or I'm not close enough to the business yet to be able to give you a very educated answer, but we're of course dealing with a market that's not growing, we could see increased competition.

And then I guess lastly, as you look at your geographic footprint particularly in Europe and given the weaker economic outlook, do you need another round of restructuring either in performance blacks, rubber blacks, or in Norit to adjust for that?

No, we have done our restructuring in 2009 and we went -- and we had some additional closures actually over the last few years that actually dealt with the continued economic weakness in Europe.

At this stage, we believe that we have the assets we need.

We've actually invested in a few of the assets in Europe to strengthen their unique position in terms of product and mix, and we believe we're well positioned for when the market returns.

Thank you.

Thank you.

Christopher Butler with Sidoti & Company.

Sticking with Norit here a little bit, now that you have it under your belt for a couple of months, could you talk to the synergies that you see and expect and have those changed as it pertains to your -- the accretion expectation, is that bridging the gap a little bit between the soft demand and your maintenance of expected accretion?

We -- there's a lot of puts and takes as you get closer to the business after an acquisition and you validate your assumptions.

But overall we're -- and despite the fact that the mercury removal market is affected by the low natural gas prices, we're very pleased with what we're seeing.

We're seeing a very strong Norit team with a very similar culture to ours, which is actually helping and we're very pleased with the speed at which integration is occurring and the positive attitude of the Norit team towards Cabot.

We've been doing a lot of work with regard to looking at synergies in the markets, but also from a technology point of view, so we on day one had -- have started technology exchanges to see how we can accelerate the learning on both sides.

We of course have a more -- a larger scale on the technology front which is going to benefit Norit and we're already starting to see exchanges in capabilities in that respect.

We've, as you may remember, we also have a lot of hope to leveraging Norit into emerging markets in a way that they have not been able to do in the past and we're much more comfortable doing business in Asia-Pacific and South America.

And we've made some changes organization wise to basically provide some support to Norit in these markets with appointments of Cabot folks.

There's a lot going on and we're very pleased with the way the two companies have come together.

And if we're looking at the increase in inventory, is that directly attributed to Norit?

The increase in inventory --

You mean on our balance sheet you mean?

Yes, please.

Yes, that's correct.

That's correct, yes.

And finally, can you quantify the impact on rubber blacks for the high cost feedstocks and the supply disruption and did that impact the volume as well in South America?

The impact was all in all $18 million and the three events that we've indicated are roughly $6 million each.

The supply disruption in South America, the high cost feedstock inventory and the supply chain, so the margin squeeze there is about $6 million and another $6 million coming from competitive environment in China.

And did that slow your volume in South America?

No, basically what happened in South America was that we had to look at alternative sources to make sure that we kept our customers whole and having to do that created an $8 million impact on our bottom line.

But we have managed the situation and have kept our customers operating.

I appreciate your time.

Thank you.

Ivan Marcuse with KeyBanc.

Thanks for the time.

Real quick, I think a couple of quarters ago you mentioned on the receivable notes that you have for the tantalum, that the interest income coming from there would be -- that would fall into one quarter, is that in the first quarter and how much will that be?

Eddie, can you talk to that?

Yes, so it should be in the January time frame, so that would be the March quarter.

Got you and what would the expectation be for that interest income?

We're expecting it'll be approximately $15 million.

Okay, great.

And then the second question is on the Specialty Fluids business, how much was that up year over year in EBIT?

We -- the Specialty Fluids business is now embedded in the Advanced Technologies.

Now we will continue to provide color on the business of course and you can see the revenue.

What I would say is that we've had again a good quarter in the fourth quarter roughly in line with the previous two quarters.

And, but again I think what's very important to note here is that the business has not changed in terms of its volatility and because of the project nature of our customers, we're looking at potentially a couple of weaker quarters ahead of us.

But very difficult to plan, this business continues to be that.

So next couple of quarters should be sequentially a lot weaker?

Next couple of quarters are going to be weaker than the last few.

Great, thanks.

We have no further questions.

I will now turn the call back over to Patrick Prevost for any closing remarks.

All right, thank you very much for attending the call today.

As I said earlier, we're -- on an annual basis we're pleased with our performance and we're confident in the strength of the Company.

We're looking at a first quarter that because of economic environment will be weaker, but we're confident in terms of recovery in 2013.

So thanks again and looking forward to speaking with you next quarter.

Thank you for your participation in today's conference.

This concludes the presentation.

Everyone may now disconnect and have a great day.