塞拉尼斯 (CE) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and full year 2006 Celanese Corporation earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Mark Oberle, Vice President of Investor Relations and Public Affairs. Please proceed.

Thank you, Nicole. And welcome, everyone, to the Celanese Corporation's fourth quarter 2006 financial results conference call. My name is Mark Oberle, Vice President of Investor Relations and Public Affairs. On the call today are David Weidman, Chief Executive Officer; and John Gallagher, Chief Financial Officer. The Celanese Corporation press release was distributed via Business Wire this morning and is posted on our Website celanese.com.

During this call, management may make forward-looking statements concerning for example, Celanese Corporation's future objectives and results, which will be made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic business, competitive markets, political and regulatory factors.

More detailed information about these factors is contained in this mornings earnings release and in Celanese Corporation's filings with the Securities and Exchange Commission. Celanese Corporation undertakes no obligation to update publicly or revise any forward-looking statements. Our fourth quarter earnings release references the performance measures net debt, adjusted earnings per share, operating EBITDA as non-U.S. GAAP measures.

For the most directly comparable financial measures presented in accordance with U.S. GAAP and our financial statements and for a reconciliation of our non-U.S. GAAP measures to U.S. GAAP figures please see the accompanying schedule to our earnings release, which will also be posted on our Website celanese.com. This morning, David Weidman will review the performance of the Company and the long term strategies and then John Gallagher will provide an overview of each of the business results and the financials.

We'll have a question and answer period following the prepared remarks. Now, I'd like to turn the call over to David Weidman. Dave?

Mark, thank you, and everyone welcome to today's call. I'll spend a few minutes discussing the overall performance of our business, as well as our long term strategy. And then John will spend a few minutes providing additional information regarding the Company's fourth quarter performance, our increase in 2007 guidance, as well as our 2007 outlook for each of the businesses. Celanese concluded 2006 with an incredibly healthy fourth quarter. Revenue for the full year was $6.7 billion, up 10%. Operating EBITDA was $1.2 billion up 18%. Adjusted earnings per share for the full year of $3 up 34% and full year free cash flow was approximately $0.5 dollars. Net debt was reduced to $2.7 billion.

By all financial measures, we had a very strong successful year, but our progress is accompanied towards increasing value, should be looked at on several broader measures. And here is several I'd ask you to consider. First, Celanese continued to transform our business portfolio with acetate products, acquisition in the divestiture of our non-core Oxo products and derivatives businesses. These transactions will bring increased stability to our earnings profile by shifting our mix of businesses over 55% specialty and 40% differentiated intermediates. One important note on that, is that 2/3 of our operating EBITDA growth in 2006 came from our specialty businesses.

Second, our productivity and growth initiatives continue to fire on all cylinders. Third, we continue to transition out of private equity ownership, moving to a majority independent Board and establishing majority independent members on all Board committees. And last, another consideration is that we've eliminated most of the major legacy uncertainty, squeezing out remaining minority shareholders of Celanese AG and reaching agreement around Ticona and Frankfort Airport.

With 2006 ongoing strong performance, it would be easy to get stuck gazing in the rearview mirror talking about past accomplishments, but instead, I'd like to shine our headlights on the future, because as good as 2006 was, we believe the best is yet to come. In December, we announced a six point strategic plan that will expand the earning powers of Celanese by more than 25%. I'd like to draw your attention to slide five in the deck that we've prepared. These are the six points. We're accelerating growth in Asia and all of our businesses as we invest in our integrated Nanjing complex, expand our JV's and pursue other areas for growth in the fastest growing region of the world.

In addition to that, we'll achieve earnings growth through revitalization opportunities, particularly in acetate and our PVOH and emulsion businesses. Also, we'll grow through innovation, led by Ticona a and its affiliates that have been and will continue to grow by at least two times GDP. We'll also capture growth in fast growing markets like those in the acetyl chains. We'll utilize strong cash generation and balance sheet opportunities to drive additional earnings improvement. And lastly, operational excellence will continue to more than offset inflation, allowing our earnings growth to flow to the bottom line.

Now, we expect these strategies to improve the earnings power of Celanese by at least $300 to $350 million by 2010. And to support this earnings growth, we're in the process of organizing our businesses into three groupings; consumer and industrial specialties, advanced engineered materials, and acetyl intermediates. John is going to provide specifics on our 2007 outlook. However, I do want to comment briefly on the strong global demand environment that we're currently seeing for all of our products. Quite frankly, we don't see any significant change from 2006 conditions in the early part of 2007.

I'd like to summarize each of the major regions. In Europe, industrial demand remained strong in the first quarter. Auto builds and consumer durable goods continue to show strength and provide a solid environment for growth. In North America, while we continue to see sluggish housing, construction, and auto markets in the first quarter, other sectors remain good and the forecasted 2% to 3% GDP seems achievable.

In Asia, particularly China, demand remains robust. Although we've seen some forecasts for moderation in the economic growth of China, demand for our products remain strong. Pricing is firm and we project similar conditions through 2007 that we saw in 2006.

So, let me summarize and ask you to keep in mind four key points. First, in 2006, Celanese delivered strong performance and 2007 guidance has been increased. Second, we dramatically transformed our Company into an attractive hybrid portfolio of leading global businesses, which are very well positioned to achieve strong earnings growth and significant cash generation.

Third, and I believe that this is unique to Celanese, our geographic and end market balance and the integration within our portfolio mitigates the earnings impact coming from selected regional or sector weaknesses. And we saw this play out in our 2006 performance. And fourth, we've initiated a comprehensive six point strategy and supporting organizational alignment to aggressively increase the earnings power of our Company by $300 to $350 million by 2010. With that, I'd like to turn it over to John for comments on the business. John?

Okay, thank you, Dave. Let's start by turning to the financial highlights on page seven in the PowerPoint presentation that is posted on our Website, celanese.com. Net sales for the fourth quarter of 2006 were approximately $1.7 billion, an increase of 8% over last year's results as strong pricing, increased volumes in our specialty businesses and positive currency effects across the Company drove to increased sales in the fourth quarter.

Our operating profit was $185 million for the quarter, an 11% increase over last year as increased gross margins offset higher SG&A expenses in the period. Keep in mind that the 2005 fourth quarter results included approximately $51 million of non-recurring gains. So excluding these gains, operating profits would have increased almost 60% from the fourth quarter of last year. Adjusted EPS for the fourth quarter was $0.77 versus $0.60 last year. The 2006 figures are based on a 25% tax rate for the quarter, while the 2005 numbers are based on a 5% tax rate for the quarter. At a 25% tax rate, 2005 earnings would have been $0.13 lower.

Our full year 2006 adjusted EPS was $3 per share, based on a 26% tax rate for the full year versus 2005 results of $2.24 per share based on a 20% effective tax rate. Normalizing the tax rate would even further highlight the tremendous progress the Company has made over the last year.

Now, let's go through the businesses, starting on page eight of the presentation, which shows chemical products performance. Net sales increased 8% to nearly $1.2 billion in the quarter. And operating EBITDA was also strong, as it increased 16% to to $226 million. Earnings in chemical products were driven by continued robust global demand and high utilization rates across the industry. We were able to significantly improve pricing across most of our product lines to help offset increased raw material costs, particularly methanol. Chemical products also benefited from lower natural gas and energy costs in the period.

Now, let's turn to page nine for Ticona. Net sales increased 5% to to $224 million. And operating EBITDA increased 76% to to $58 million in the quarter. Volume growth of 4% was driven primarily by strong demand in Europe as Ticona continues to successfully execute its strategy to grow through innovation in its key customer segments. Positive currency affects of 4% helped offset lower sales due to the sale of the COC business at the end of last year. Operating margins expanded as the increased volume and lower natural gas costs more than offset higher costs for methanol.

Turning to page 10, we'll first highlight acetate products. Net sales increased 16% to $186 million. And operating EBITDA increased 28% to $37 million on the strength of the business' revitalization efforts. Improved pricing and increased volumes drove the top line growth, while the success of the restructuring efforts helped to expand operating EBITDA margins.

Performance products net sales decreased slightly to $38 million in the quarter. And operating EBITDA also decreased slightly to $13 million. The margin reductions were in line with the Company's expectations, as the business continued to successfully manage its strategy to compete against generic competition from Asia. Timing of customer launches had some impact on the quarter's results but more importantly, the full year results show continued stable earnings from the business.

On Page 11 are the results of the equity and cost investments. On the left side is the income statement impact. Full year results improved 10% to $165 million versus versus $150 million in 2005, driven by continued growth and strong operating results in our Ticona equity affiliates. On the cash flow graph on the right, the fourth quarter results benefited from a larger than normal dividend from polyplastics of $47 million and totaled $188 million for all investments for the year.

On Page 12, you will see that we ended 2006 with net debt of $2.7 billion versus just over $3 billion at the end of 2005. Cash flow from operations totaled $751 million for the year. And capital expenditures were $254 million. We improved our net debt to EBITDA ratio to 2.2 at the end of 2006.

We expect the Company to continue to generate strong free cash flow, as the businesses execute their specific growth strategies that Dave talked about earlier. As we've said previously, our outlook for 2007 includes a slight increase in capital expenditures to approximately $280 million as we increase our investment in China. We also expect our cash taxes to increase in 2007 to between $180 to $200 million versus 2006 cash taxes of $100 million, as many of our net operating losses have been utilized.

On Page 13, let me take a minute to update our 2007 business outlook. We expect strong, global demand in chemical products to continue and industry utilization rates to remain high, as limited new capacity will be added to the market during 2007. Our Nanjing facility will begin commercial production but we do not expect significant financial contribution this year. Material substitutions and innovation in the automotive sector and new application development in the non-automotive sectors are expected to fuel continued growth in Ticona.

Acetate products primary focus will be on integrating Acetate Products Limited, now that the transaction is complete. But we do not expect any significant financial impact from the acquisition this year since the majority of the synergies will take a few quarters to realize. Earnings growth should continue with an expected dividends from the China ventures increasing by $10 million to approximately $30 million in 2007. Performance products volume growth should offset expected pricing declines and result in stable to perhaps slightly declining earnings for the business.

As Dave mentioned, we are are increasing our 2007 guidance that we originally gave in December by $0.10 per share to $2.70 and $3 to a range of $2.70 and $3. Additionally, we're increasing our operating EBITDA outlook by $25 million to a range of between $1.155 billion and $1.225 billion.

Now, let's go to slide 14. I'd like to give you some more detail on the impact from the Oxo products derivatives divestiture. I know it can be a little confusing since our 2007 guidance does not have the results of these businesses included but of course, our 2006 results do include this business.

In 2006, these businesses contributed approximately $0.30 per share to our earnings and approximately $85 million of operating EBITDA. With a majority of the earnings coming in the first and fourth quarters of the year. So the 2006 results on a comparable basis with the 2007 earnings guidance, which excludes the earnings of the pending divestiture, would have been approximately $2.70 per share with operating EBITDA of $1.160 billion.

Since we expect this transaction to close during the quarter and the net proceeds to be between $450 million and $475 million, our 2007 guidance assumes a paydown of our term loan with these net proceeds. This will reduce our net interest expense by approximately $0.10 per share. So if you look at our 2007 guidance and want to compare it to our 2006 adjusted EPS results, you would need to add approximately $0.20 per share to our 2007 guidance to be comparable.

Without the divestiture, 2007 guidance would have been between $2.90 and $3.20 per share, versus the adjusted EPS of $3 per share we reported. The forecasted tax rate for adjusted EPS in 2007 is 28% versus 26% rate we saw in 2006. We've included the rest of our guidance assumptions in the appendix.

So in conclusion, 2006 was a very strong year and we see the momentum continuing into 2007. Historically, our first half of the year is a bit stronger than the second half due to seasonality, with approximately 55% of the earnings coming in the first two quarters. We're confident in our outlook for continued earnings growth in 2007. With that, I'd like to turn it back to Mark to open up the Q&A session.

Thanks, John. As we get ready for our Q&A, we ask as people get in line to have one question and then one follow-up. And if there's time, we'll come back around and answer anymore questions that you may have. Nicole?

[OPERATOR INSTRUCTIONS] Your first question comes from the line of David Begleiter from Deutsche Bank. Please proceed.

David, can you just highlight the volume decline in chemical products in the quarter, what was behind that number?

Dave, on a year-over-year basis, there was some change in mix. We did highlight that we were having turnarounds at some of our operations, at Pardies in particular, we were taking that down for an extended outage in order to put new capacity in place or AL+ technology in place. And that has a 1% -- that has the affect of having volumes down about 1%. Overall though, the environment out there is incredibly strong, very healthy, good demand across the globe. Actually, we were a little surprised at the end of fourth quarter that demand was as strong as it was. We expected somewhat normal slowdown in the economy but earning demand in December, but that did not occur, particularly in our specialty businesses and we had a very strong fourth quarter.

And Dave, can you and John discuss the options for your cash given the features of the subdebt and what it would take to break those callable features or call them earlier?

Yes. Well, of course, all of that takes just money because the breakage costs are significant as you well know, if you look at where the bonds are trading. Let me just reiterate a couple points. As you remember for those of you who listened on Investor Day, we would still expect even after the Oxo divestiture to generate $400 million of free cash flow in 2007. And we also said if you take the net proceeds, which I described from Oxo is that roughly $450 million, we're going to spend $80 million for the squeeze out and then we just spend $110 million for the acetate products acquisition, which -- so net-net, that's going to add another $260 to $280 million of cash proceeds from the portfolio. So, given all of that, clearly we continue to look for bolt-on acquisitions. CapEx, as I mentioned, is going to target for $280 million, which is about $30 million higher than 2006 levels. But more importantly, we have to look at these options on delevering the balance sheet. And I don't have -- clearly, we have a deep evaluation, I have nothing that I can comment on at this point in time.

Thank you very much.

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

Yes, good morning, John. Just a follow-up on the last question. At what financial leverage metrics would you be comfortable initiating share repurchases?

Well, I think -- we've said we would like to march towards investment grade. So clearly, we have to look at the entire capital structure and we have a transition in our Board that's fully independent. So my target necessarily isn't to target the entire Company we live with. So I think that's too soon to comment and put a number out, Kevin.

Okay. On the volume numbers, some other companies across the chemical sector have pointed to potential acceleration of volume into 4Q from 1Q in Germany, as a function of the increase in the value-added tax in that country. Could you comment on whether or not you thought that impacted your businesses in the quarter?

The answer is no. We looked at it real closely. We've monitored it, tracked it, we've got big operations there as you know, and we have not seen any impacts. We thought we would but we've been pleasantly surprised that coming out of the fourth quarter and into the first quarter, the order books are strong. Ticona in particular has a very strong order book in the first quarter and our specialty businesses remain very strong.

Finally, what was your acetyls operating rate in 4Q and here early in the first quarter, please?

We had -- throughout the chain we were running at essentially sold out capacity, so put it in the mid 90% range someplace, Kevin. Across-the-board, demand was very very strong and we were running to meet capacity.

Okay, great. Thank you very much.

Thank you.

Your next question comes from the line of Edlain Rodriguez from Goldman Sachs. Please proceed.

Good morning, guys. A question on chemical products. The margin expansion we saw in there, did you see that across the chains like in both acidic acid and the downstream businesses also?

Yes, it was a little bit lumpy but just to give you an example, we did see it in acetyl acetic acid, we did see some margin expansion in VAM but we also saw it downstream. I think we highlighted, if you do the math on it, that the performance on the Oxo alcohol and derivatives businesses that we're divesting came in strong in the fourth quarter, stronger than we had expected, and that's a European based business, largely and demand in Europe remains very robust.

Okay, just on the guidance, what has changed since mid-December for you to raise the numbers by $0.10? Exactly what have you seen differently since then?

The main thing for us is the demand out there remains strong. We came in expecting that we would have -- we're a little bit cautious frankly, if you look at the European BAT, the German BAT issue. We expected a little more subdued end of December demand than we saw. And as we came out of the fourth quarter and began looking at the order books in the first quarter, demand remains strong.

Okay, thank you.

Your next question comes from the line of P.J. Juvekar from Citigroup. Please proceed.

How much of your acetyl business is in China now?

We've said that we have about 25% of the Company's revenue in Asia, and you could expect that we're probably north of half of that 25% that is Asia. The rest of it is Southeast Asia and India, and most of that is chemicals. Most of that is acetyl. Only a small amount is acetate fibers. So those are are the key markers.

Okay. And then following methanol prices, methanol prices have been coming down for six months.

Yes.

What was the benefit in 4Q? What do you expect in 1Q and then at what point do you think acetyl prices would begin to decline?

Well, P.J., we've got a very attractive position with with our raw materials, particularly with methanol. We have a great position with buying methanol out of Trinidad on the southern methanol agreement. We have a great joint venture in the Middle East. On the other side of it, we do buy it at market in our Ticona businesses and some of our Asian positions. So the volatility in methanol doesn't have a material effect upon the business. As we looked at it in the fourth quarter, we saw some rising prices, as you know, on methanol that come down over the last few weeks. We're in the happy position of being able to have volatility in our underlying raw materials and not have a substantial impact upon the earnings.

Right. But do you think that the buyers would demand lower acetyl prices if methanol has come down?

I think that what you would see are different dynamics in different regions of the world. In the North American market today, a lot of the pricing in the market is established based on formulas, raw material input formulas. And so up or down, you'd see some impact on pricing based on raw material volatility. In Europe, it tends to be more quarterly negotiations and that's affected largely by capacity utilization across the globe. And then I'd remind you that in Asia that our pricing there is set on a spot basis really but you have a very attractive structure because there's a lot of high cost capacity in the market. We have seen that capacity come out as -- take acetic acid, as example. Somewhere in the 500 to 525 to 530 range is when a lot of the high cost capacity begins to idle back and prices stabilize there at that level. Right now as you probably know, acetic acid pricing in China is in the 620 to 630 range. So capacity utilization is driving that now. But under normal circumstances, you'd see it settle at that level and it wouldn't have -- the underlying methanol price wouldn't have a material effect upon pricing in Asia.

So, the only impact would be North America?

Yes. North America and then you kind of look at your downstream businesses too. You'd see some positive effects from your downstream businesses. In North America, as an example, we consumed a fair amount of our acetic acid and vinyl acetate and they go into emulsions or PVOH businesses, our acetate fiber businesses. Ticona also consumes a fair amount of methanol and the prices there are not affected by raw material input. I wish I could give you a better answer but it is fairly complicated. We have diligently gone about trying to establish buffers or hedges in our system that mitigate the volatility of this key raw material. We think that's part of developing a business that is a hybrid model that's driven more by growth and some of the projects that we've got in place, volume growth in Ticona. And right now the volatility doesn't have a material effect.

Great. Thank you.

Your next question comes from the line of Gregg Goodnight from UBS. Please proceed.

You mentioned that your acetate products venture that you're acquiring, you're not going to see the synergies this year. But have you sized the revenue and EBITDA contribution that this is going to provide in '07?

We've also said publicly that the earnings performance in the business is today similar to what our acetate business was two or three years ago. So think about high single digit, low double digit type EBITDA as coming from the business.

Okay, great. That's very helpful.

Is that helpful?

Yes. The second question I had is it appears that some of the Asian strength in pricing in acetic is due to operating issues in China, specifically Yangtze River is cutting back because of lack of natural gas that's been diverted to consumer uses. Do you see continuing operating problems over there driving that market?

We tend to take a fairly pragmatic view of things. We think that the prices that they're at now over the intermediate term are probably unsustainable. We think a more natural rate would be somewhere in the $5.00 to $5.20 range because because of the circumstances are up there and we're enjoying it.

Okay, great. I'll get back in the queue. I have one more question for you after that.

Thanks, Greg.

Your next question comes from the line of Bill Young from Credit Suisse. Please proceed.

Good morning, Dave. Excellent quarter.

Thank you.

I kind of have a longer term strategic question. You talked about a pretty good increase in your CapEx to $280 for 2007, maybe bolt-on, debt reduction, that type of thing. Where can we expect CapEx to go beyond that, especially given that you'll be winding down your major new building consortium costs in China? What can we expect beyond that?

Bill, we've said for the last several years that we wanted to keep our CapEx depreciation lower. We've been spending historically at about 80% of depreciation and amortization which would put us somewhere in the $210 to $220 range. Now, we're pushing it up a little bit because of our investments in China, but we think historically, our future range would be similar to what we've done historically.

Okay, great. So it's more incremental and nothing really major in the foreseeable future?

That's right.

Okay, super. Thank you.

Thanks, Bill.

Your next question comes from the line of Frank Mitsch from BB&T Capital Markets. Please proceed.

Very strong end to the year obviously. And if I look at how you actually finished the back half of the year, the third quarter and the fourth quarter, you're in about into $1.55 or so. And according to the guidance, you're talking about 55% in the first half of the year. 45% in the second half second half of the year. However, if I just take flat year-over-year for the second half of the year versus the second half of the year, I would come up with a number 45% of about $3.50 in earnings, take out $0.20 for the divestiture. So you're talking about a number -- if your run rate -- if you merely match the back half of '07 really matches the back half of '06, then you come up with that typical seasonal split, you're talking about numbers 10% higher than what your guidance is. Are there some specific factors why you thought the back half of '06 was especially strong or do you just want to be a tad conservative here at the beginning of the year?

Frankly, there's a couple of factors that I'll underscore that we do view the guidance as a committment to deliver. And if you call that conservative or cautious, we view that as an obligation and we view that as a committment. And that's how we view our guidance. As we look at the second half of the year, though, there had been some -- it was a very strong second half of the year. I can't point to anything specifically that I would say is significantly unusual going forward from what the second half of the year has been. We would expect the business to continue to operate well in '06, it would be a precursor to '07.

Okay, that is helpful. And as you talk about you're firmly on track or you feel good about the $300 to $350 million in EBITDA growth between now and 2010, would you expect that most of that would come in '09 or 2010 or will we start to see the solid evidence of it or '07 or '08 type time frame? How would you anticipate that that plays out?

Yes, great question, Frank. In my mind, there's -- the six key elements are obviously balance sheet and ongoing productivity, those are two of them. And they kind of get played out every year as you do debt pay down or whatever we do to increase the earnings of the Company through the cash. And our productivity programs tend to be a lot of things ongoing and a lot of different places all the time rather than big bang restructuring. So the other four key elements, Asia, revitalization, growth in Ticona and then growth in our existing businesses have somewhat of an ongoing impact all of the time.

Obviously, our acetyl plant in Nanjing is something that we'll be starting up this year and we don't expect much as a start up here. We don't expect much financial contribution this year but in 2008 you should see contribution coming from that. Ticona a is an ongoing success story so you're going to see Ticona's growth, volume growth at 6% or so on a volume basis. You may see that pressured somewhat by high methanol because that is a key raw material for that business. But if methanol continues to trend down, there will be an earnings boost in Ticona a because of that plus the volume. So yes, I'd say then the revitalization programs that we have and the acquisition integration, we would expect to see growth in our acetate business this year in 2008. So yes, I'd expect to see that we see some ongoing improvement beginning somewhat in 2007. But 2008 on into 2009 to 2010 would be increased earnings.

Well, David, it sounded like I should look at it as a relatively steady build up to get there with the exception of the bump in Nanjing and let's call it 2008 that we start to see that start to hit the bottom line. That's kind of the way -- there was nothing other than that that you would suggest to be kind of a big bang type of hit?

I think that's right, yes.

Terrific. Thank you.

Your next question comes from the line of William Matthews from Canyon Capital. Please proceed.

Hi, guys. I just wanted to talk more about the cash balance. I think you have something close to almost $5 a share in cash. And I know you mentioned the priority to get to investment grade. But can we get a little more detail in terms of did -- you didn't mention finishing share buyback program, a one-time special dividend, which would be the other options. Do you see more opportunities for kind of accretive acquisitions?

I think there's a couple things. As you know, if you look back to our presentation from again from December, we obviously had some restrictions within our current covenants, not to say we couldn't get waivers or work through them, but we clearly have some restrictions within our existing debt agreements that prohibit stock buybacks and certain restriction, payment baskets on the amount of dividends and so forth. So we have to evaluate our ability to work through our existing capital structure. Clearly, we have a number of opportunities from an acquisition growth standpoint. You can see over the last two years, the Company has done three significant acquisitions, really right down the fairway in terms of our core businesses, in terms of Acetex, [Venemul] and Emulsions and now most recently, the Acetate. So, we continue to look for growth opportunities around our core businesses and our core strategy and of course, it would be premature to comment on anything at this point in time.

I'd supplement that by saying that there's been two characteristics to the acquisitions that we've made. First, they've been middle of the fairway. We've tried to get businesses that were bolt-on, part of what we are as a Company today and not extend ourselves too much outside of areas like that. And the second characteristic is fiscal discipline. We bought at great prices. We think there's times to buy and times to sell. We'd probably say it might be on the margin better to sell today than to buy. That doesn't mean that we won't buy if we find a great deal like we did with APL. We'll jump on it and pursue it because we think it creates shareholder value.

What's the time delay between when you identify an acquisition and when it gets announced to shareholders? Or for the three that you mentioned, when were they identified and when were they kind of memorialized?

When were they done? There's really two elements. There's a lot of desirable deals out there but there's not a lot of doable deals. We see a number of businesses that we would like to buy and think they would be great adds to our portfolio but often they aren't for sale. They aren't done. But once something becomes doable and if it's desirable, we can move pretty quickly on it. Three months, six months normal deal. So those are two elements that we look at very closely. A lot of desirable stuff and there's a lot of doable stuff out there but finding where those two intersect is key.

Got it. Great. Thank you.

Your next question comes from the line of Geoff Dancey from Cutler Capital Management. Please proceed.

Good morning. You guys have had a lot of questions about use of cash, but I don't think you've specifically addressed potential dividend policy going out in the future, maybe on a short term and a long term basis?

Yes, that's all in the mix. We recognize we've got to look at the complete debt structure, we've got to look at our dividend policy, we understand where our yield is versus our peers. And we've got to look at share repurchases and as I said earlier, it's just too premature to comment at this point in time.

Do you have any idea when that would be -- when it wouldn't be premature, when you sort of visit that issue?

I'll know more the end of this week. We have a Board meeting the end of this week but there's no specific timeline that I have. Hopefully, over the next six months that will become clearer.

Okay, great. Thanks a lot.

Your next question comes from the line of Bob Goldberg from Scopus Asset Management. Please proceed.

I wanted to follow-up on Frank's question. If you look at the chemical products segment, I think that's what was unusual about '06 is that the second half earnings were actually a little bit better than the first half, which bucks the seasonal trend. And I just wanted to get your thoughts on -- with the business ex-Oxo business, but if you look second half '06 to first half '07, I think normally, we would see a increase in earnings sequentially because of seasonality. Do you think we're going to get -- I know it's still in early February but your best guess as to will that normal seasonality play out? Or was there unusual -- I know David you said there wasn't anything unusual in the second half. but just trying to get a sense as to whether we're more likely to see improvement from second half '06 to first half '07 in the chemical products segment.

Yes, Bob. We had, when we go back and do the analytics, the volume for our businesses last year followed the roughly 50% to 55% first half, 45% to 50% second half. Our volumes played out as they have in the past. We would expect the same trend to continue in 2007. We had a little better margins in the second half of the year. We see underlying strengthen the business in the first half of the year this year. So, you kind of factor all of those things in and the business environment is good.

My guess would be that you're entering '07 with margins a little bit healthier than the average over the course of the second half of '06. Is that a fair assessment?

Let me think. Yes, in aggregate, I think that's right. Puts and takes across-the-board, but yes, December margins were pretty good and January is rolling forward pretty strong.

Okay, and I apologize if I missed this, but John, the Oxo sale is supposed to close when, by the end of the first quarter?

Yes.

Late maybe in March you're thinking?

Yes. We figure by the end of the first quarter.

Okay, so we really won't see -- the dilution that you're anticipating won't really be in effect until the second quarter?

Well we took as I mentioned in December, it gets a little tricky because the accountants move -- once that deal closes, I think it moves to discontinued operations, so what we're trying to do is show the guidance assuming that the transaction is out for the whole year in terms of the earnings. And then the interest income -- the interest benefit of the cash proceeds apply against the term debt we get for nine months.

I see, okay. And that business, has it earned fairly ratably over the course of the year?

No, let me -- I think it's worthy of pointing out to the group, I mentioned it in my remarks but might not have picked up. The business earned roughly $0.30 a share in 2006. Most of those -- we had a really good first quarter and a really good fourth quarter. So you think about kind of $0.10 to $0.15 per share earnings in Q1 of '06 and $0.10 to $0.15 cents in Q4 of '06 and pretty much breakeven in between. So that's how you kind of have to model. When you're pulling out that $0.30 and the $85 million of EBITDA, it's pretty much equally split between the first and the fourth quarter that you have to pull out.

And your next question comes from the line of Roger [Spitz] from Merrill Lynch. Please proceed.

How committed are you guys to your hybrid portfolio strategy? For instance, would you consider pursuing strategic options with say Ticona with certain other engineering residence businesses?

Roger, if we were convinced that it created shareholder value, I'd stand on my head and whistle Dixie. I don't think there's many things that we wouldn't do if we were convinced that it created shareholder value. Right now, we're convinced that the hybrid model is a super model. We've structured it in a way that has not only strong earnings performance today but the ability to expand earnings going forward. We find an awful lot of synergies in the integrated nature of the business. We're able to buy our key raw material methanol that benefits all of the businesses in there in a very strong way, a very leveraged way. But if something ever changed, that we were convinced that it didn't work and there was substantial value creation on another pathway, we would pursue it.

Great. Thanks very much, guys.

Your next question is a follow-up question from the line of Kevin McCarthy from Bank of America. Please proceed.

Yes, good morning, thanks. As the off-take agreement with Methenex kicked in in January, what sort of financial impact do you envision on first quarter earnings from that deal?

Yes, there's not a lot that we've disclosed on it beyond the fact that it is a potentially a two quarter deal with the first quarter commit. They've committed to that. And we don't know if they are going to commit to the second quarter or not. Now, beyond that, we're constrained on really what we can say.

Okay. And then on the subject of FX, if we were to net out hedges, was there any material impact on EPS in the fourth quarter?

I can give you the full year -- interest for the full year, the average. And for us, as I mentioned previously, we're long in Euros, so it's really tracking what happens to the Euro versus the dollar. And in this year, the Euro actually strengthened as we all know, interestingly enough in '05 it went the other way, it actually weakened. So the average exchange rate for the full year is pretty close, so the FX impact on a translation basis is minimal for that material. It's below $10 million. So that's for the full year. Fourth quarter, I don't have all of the specifics.

Okay, thank you, guys.

Your next question is a follow-up question from the line of Gregg Goodnight from UBS. Please proceed.

Well, actually, Kevin asked my question. But Dave, I want to tell you, you need to explain to Frank what the middle of the fairway means.

I just heard the expression around here, Gregg. When I find out what it means myself I'll let him know.

Excellent. Thank you, gentlemen.

Thanks.

Nicole, do we have any further questions?

Yes, your next question comes from the line of Jonathan Goldberg from [Highline] Capital Management. Please proceed.

Hi, guys, good morning. Most of my questions were answered, I just had one follow-up on Ticona. It looks like historically that business had a pretty significant drop off in margin between Q3 and Q4 and that didn't happen this year.

Yes.

I'm just wondering if there's something that changed in the business and if you see that kind of remaining more stable like this going forward?

December was unusual, you're absolutely right. Normally, we see a drop off in December. We anticipated that and we were somewhat surprised that demand remained as strong as it did. You had very strong demand in Europe and it continues out through the first quarter here. I would tell you that honestly, we would hope that demand would remain strong all the time but we would expect a more seasonal pattern to return going forward.

Okay. And then maybe if I could just one follow-up on acetate. Is it fair just to confirm that you're effectively assuming $0.20 of dilution from the Oxo -- it's not acetate I'm sorry but are you effectively assuming 20 cents of dilution from the Oxo sale in your '07 guidance?

That's correct.

And there are no further questions at this time. I would like to turn the call back over to Mr. Mike Oberle -- Mark Oberle, thank you.

Or Mike, that's fine. Everyone, thanks. If you have any further questions, feel free to give anyone on the IR team a call and if not, we'll talk to you next quarter. Thanks.

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