Albemarle Corporation (ALB) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Albemarle Corporation Earnings Conference Call. My name is Darcel, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Lorin Crenshaw, Director of Investor Relations and Communications. Please proceed.

Thank you, Darcel, and welcome, everyone, to Albemarle's First Quarter 2013 Earnings Conference Call. Our earnings were released after the close of the market yesterday, and you'll find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investors section at albemarle.com. Joining me on the call today are Luke Kissam, Chief Executive Officer; and Scott Tozier, Chief Financial Officer. As a reminder, some of the statements made during this conference call about the future performance of the company may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call. Please note that our comments today regarding our financial results exclude all nonoperating or special items, and reconciliations related to any non-GAAP financial measures discussed may be found in our press release or earnings presentation, which are posted on our website. With that, I'll turn the call over to Luke.

Thanks, Lorin, and good morning, everyone. We appreciate the opportunity to share our first quarter results with you today. I'll begin by commenting on the company's results for the quarter. Scott will review selected highlights related to business segment performance and financial results, and I'll end by providing perspective on our outlook for the future. As usual, at the end of our prepared remarks, we'll open it up for your questions. As I indicated on our January call, we expected the year to get off to a slower start with the first quarter being sequentially weaker than the fourth quarter of 2012. With the exception of some currency headwinds that Scott will discuss in more detail in a minute, the results that we are reporting today are in line with our expectations. First quarter net income was $83 million or $0.93 per share on net sales of $642 million. As expected, both were down year-over-year and versus the prior quarter. EBITDA was $139 million, and profitability, as measured by EBITDA margins, was 22%. Each of our segments performed largely as expected as well. Scott will go into more details shortly about each segment. But at a high level, Catalysts results were impacted by cost headwinds related to starting up our new facilities, FCC customer turnarounds and HPC mix and, from a year-over-year basis, accounting related to rare earth surcharges. While there is certainly a short-term negative financial impact due to the startups, the long-term benefits of these projects are well worth the short-term pain. In Fine Chemistry, as expected, clear brine volumes continue to be strong this quarter, and custom services was weaker due to lower volume requirements and project delays at our customers. Favorable deepwater drilling dynamics in the Gulf of Mexico, as well as the Middle East and Asia, are forecasted to continue. And our production base in Magnolia and Jordan gives us a unique competitive advantage in servicing all of these geographic markets. In Polymer Solutions, we saw the expected uptick in profitability sequentially, driven largely by slightly higher brominated flame retardant volumes and operating rates. Albemarle has always sought to deliver shareholder value and demonstrate a strong commitment to returning capital to shareholders. During the quarter, our board announced a 20% increase in the quarterly dividend and approved the tripling of the shares we are authorized to repurchase. We also announced our intention to repurchase approximately 10% of our shares, funded through a combination of available cash, ongoing free cash flow and, possibly, debt. This reflects our confidence that the strength of our balance sheet and ongoing cash-generating capability provides sufficient capacity to fund organic growth, pursue appropriate acquisitions and accelerate the distribution of cash to our shareholders in a manner that is sustainable for the future. Now let me update you on our major capital projects. As we announced earlier, Jordan Bromine Company, our joint venture located on the Dead Sea, successfully commissioned the first phase of its expansion project, doubling the size production capacity of bromine. The second phase of the expansion will double the production capacity of HBr and clear completion fluids and is on schedule for commissioning in the second quarter. This expansion positions us well to gain more than our fair share of the growth in the end market served by these products, further strengthens our position as the world's low-cost bromine producer and balances our bromine production capabilities nicely from a geographic perspective. From a stewardship perspective, I'm also proud of the innovation displayed by our employees dedicated to this project. That team has been able to double our bromine capacity while only increasing our water consumption by 8% at full production rates. The goal is to double capacity while actually reducing our water requirements. And while we're not there quite yet, I have confidence in our ability to do so. This innovative and sustainable approach to our operations reduces our costs and our overall environmental footprint in Jordan, which suffers from a lack of readily available freshwater resources. Turning to Catalysts. I'm happy to report that we have produced our first batch of on-spec TEA at our unit in the Kingdom of Saudi Arabia, which is owned by our joint venture with SABIC. This is an important milestone for this site, which positions us as the market leader in the Middle East polyolefins market. As we have previously stated, this joint venture will be a headwind in 2013 since its baseload volume is largely coming from what has historically been Albemarle volume. However, it's the right strategic move to have this joint venture in the Middle East in collaboration with the world's largest consumer of TEA, and we feel great about the progress we are making, long-term returns on capital and strategic benefits that this venture will yield. Meanwhile, our Yeosu site in South Korea is currently in the middle of a very successful start-up as well. Our lab and commercial development assets there have allowed us to rapidly develop qualification volumes and to work closely with our customers to develop unique catalytic solutions to meet their needs more rapidly than we ever could have done without this site. The fact that our test unit is booked for months in advance speaks well of the business potential of this site. The first half of 2013 will continue to see us principally engaged in qualification runs with little revenue from full-scale commercial operations until the latter part of the year due to the amount of time needed for qualifications, resulting in a drag on earnings. As commercialization occurs, however, the drag will diminish towards year end, and we're excited about this strategic asset becoming a critical tool to solidify our position as a global leader in metallocene catalyst. Finally, the Korean expansion we announced last August, in support of our PureGrowth family of high purity metal organics for use in the LED market, is on track for a fourth quarter start-up. New LED technologies continue to be introduced at progressively lower selling prices in both residential and commercial applications. These technologies are expected to drive double-digit annual growth of LEDs for the foreseeable future. The assets we are establishing and our backwards integration into key precursors will allow us to participate in this growth at a very competitive cost position. I'd like to give you our perspective on 2 developments that have been the subject of a number of questions we've received, the implications of the increase in tight oil in the U.S. and the EPA's recent proposal to reduce U.S. gasoline sulfur levels to 10 parts per million by 2017. The tight oil resulting from the U.S. shale boom is generally a lighter, sweeter crude, and we are working closely with our customers to understand their developing needs associated with this crude slate. The net impact of this dynamic has been neutral thus far, with somewhat higher demand for fluid cracking and hydrotreating catalyst. This may seem counterintuitive, given the relatively light nature of tight oil. However, the boost in volumes reflect the current reality that many customer's infrastructure is geared toward processing a particular blend of crudes, which limits the degrees of freedom within which to depart from the optimal crude diet for a particular unit. As a result, to optimize profitability and take advantage of the cheaper source of light sweet crude from shale fields, we're seeing refineries blend tight oil with higher amounts of heavier crude to minimize their crude costs, which, in some instances, actually requires the use of more FCC catalysts. There are some who believe that tight oil could result in the extension of the life cycle of hydrotreating catalysts, which would delay change-outs, but we have not seen that as of yet. How the pricing of the various crude slates evolve, combined with the design, output and economic of each refinery, may result in different dynamics over time in the U.S. We are monitoring this trend closely and working with our customers to focus a portion of our R&D spending on the development of more effective solutions for this lighter, sweeter crude. It is worth noting that, globally, our FCC catalysts continue to be the technology of choice for processing the heavier resid feed that many of the units in India, the Middle East and Southeast Asia use as feedstock. Over the next 5 to 10 years, a disproportionate percentage of the growth in demand for refinery catalysts is projected to occur in developing regions, such as the Middle East, Latin America and Asia, where sulfur levels and transportation fuels are higher than in the U.S. and Western Europe, but are projected to decline fairly dramatically. However, the EPA's recent proposal to reduce the amount of sulfur in U.S. gasoline to an average of 10 parts per million from the current standard of 30 makes it clear that even in developed markets like the U.S., there remain attractive growth opportunities as the secular drive toward cleaner air continues to play out. Again, our sweet spot globally is in developing technologies that allow for upgrading crude with heavy sulfur content. Therefore, we are well positioned to provide competitive solutions with a wide range of high-performing hydrotreating and FCC catalyst technologies to allow refiners to meet the regulatory challenge in the U.S. and around the world. I spoke earlier about our water conservation efforts in Jordan. It's that sort of focus on sustainability, which led Corporate Responsibility Magazine to name us one of the 100 Best Corporate Citizens for 2013. We've been named this prestigiously several times over the years, which is widely accepted as the world's most respected corporate responsibility ranking and one of the top 3 most important business rankings in the United States. This honor not only recognizes the company as a positive force and responsible citizen in the communities where we operate, but it is also proof of our 4,000-plus employees' commitment to providing industry-leading products while also remaining selflessly committed to improving the communities in which we live, work and raise our families. Great job by our employees in doing it the right way. And with that, I'll turn the call over to Scott.

Thanks, Luke. I'm going to start with a review of our business segments, and then turn to the details on our P&L and cash flow. Before I get started, you should be aware that the division within Catalysts formerly known as Refinery Catalysts is now called Refinery Catalyst Solutions, and it will consist of a newly named Heavy Oil Upgrading division, which includes the FCC catalysts, and the Clean Fuels Technologies division comprised of HPC catalysts. In the quarter, Catalysts reported net sales of $236 million, down 20% year-over-year, and segment income of $57 million, down 32% year-over-year, on segment margins of 24%. Just under half of the decline in sales relates to the impact of metal surcharges, including rare earths, on the Heavy Oil Upgrading or FCC business. Excluding the impact of rare earths, Heavy Oil Upgrading sales and operating profits were down 8% and 3%, respectively, on marginally higher volumes. Heavy customer turnarounds were the main cause of a less favorable mix, which contributed to the decline in sales and profits. We continue to expect turnarounds amounting to the order of 6,000 metric tons of product offline through the next quarter to continue to impact results here. Clean Fuel Technologies or HPC revenue was down 19%, and operating profits were 26% lower on 12% lower volumes, principally driven by less favorable product mix, given the large number of first fills in 2012, and higher sales of specialty products that occurred in the first quarter of 2012. Finally, Performance Catalyst Solutions revenue was down 6% on lower volumes, and operating profits were down 38% year-over-year, most of which was attributable to the impact of start-up costs related to the new facilities coming online. Excluding the impact of these costs, which we still expect to amount to a full year drag of $20 million to $25 million, profits were slightly down year-over-year as customer operating rates remain relatively stable with the exception of pockets of weakness in Europe. Sequentially, Catalysts net sales were down 20%, and segment income was down 28%. 2/3 of this drop came from Clean Fuels, where volume variances from the fourth quarter, mixed effects from higher levels of specialty product sales and first fills in Q4 that were not repeated in Q1 drove profit levels down. In addition, overall volume was down 13% on order timing. Heavy Oil volumes were down 7%, nearly all of which was attributable to a higher number of customers with turnarounds in the quarter versus last quarter. And finally, PCS saw its profitability drop due to the start-up costs from Yeosu, Korea and a small amount of volume reduction caused by slower customer orders from Europe. Polymer Solutions reported first quarter net sales of $215 million, down 6% year-over-year, and segment income of $45 million, down 18%. Importantly, on a sequential basis, revenue was up 6% and segment income was up 25%. The largest contributor to the sequential improvement was at our brominated flame retardant plants where our higher utilization rates drove improved fixed cost absorption without resulting in a rise in inventory levels. Demand trends improved sequentially as brominated flame retardant sales, volumes and profits all rose in the range of 5% and 10%, sequentially. The connectors market experienced an improved tone that appears to be carrying over into the second quarter while HBCD, which is construction driven, and 8010, which is TV and PC enclosure driven, each remained relatively weak and also experienced varying degrees of pricing pressure. Tetrabrom and printed wiring board market dynamics were somewhat better than construction and enclosures, showing sequential improvement. And finally, mineral flame retardant financial results continue to reflect very weak European construction and automotive end markets. Our stabilizers and curatives portfolio had a good quarter with revenue and operating profit up significantly year-over-year, driven mostly by antioxidants, which continues to benefit from better volumes related to new customer wins, growing sales outside of China and an improved cost position in a key raw material. We also saw better operating rates at our factories in this business. Fine Chemistry reported first quarter net sales of $191 million, up 1% versus the prior year, and segment income of $31 million, down 24% year-over-year. The year-over-year profit decline was mainly driven by the absence of several high-margin Fine Chemistry Services contracts delivered in the year-ago period. We were very pleased with the continued strong industrial bromides results, which established new revenue and operating profit records. Specifically, global deepwater drilling climate remains very robust with healthy rig counts driving all-time second highest levels of clear completion fluids volumes and operating profits, with volumes doubling year-over-year but down slightly sequentially from the record fourth quarter pace. Now to highlight a few other P&L items for the year and the quarter. SG&A expenses were $65 million during the quarter, down 13% year-over-year, principally driven by lower commissions and performance incentive compensation. As a percentage of sales, it is in line with year-ago levels at 10%. R&D expenses were $20 million for the quarter, up 5% year-over-year and up 40 basis points as a percentage of revenue to 3.1%. First quarter free cash flow, defined as cash flow from operations adding back pension and postretirement contributions and subtracting capital expenditures, was $46 million, down $26 million year-over-year due mainly to lower earning levels. CapEx was $55 million, in line with the year-ago period, and, for the full year, is still expected to decline to somewhere between $150 million to $175 million. Overall, our balance sheet remains strong with net debt of $246 million, excluding non-guaranteed JV debt, up $31 million year-over-year, while net debt to EBITDA ended the period at 0.5x. Net debt is up primarily due to our share repurchases during the quarter, reflecting a good start with regard to our buyback program, under which we repurchased 1 million shares during the quarter. Net working capital of $567 million ended the quarter roughly in line with year end as a percentage of sales at 21%, slightly above our 20% target for the full year. Our effective tax rate for the quarter was 24.6%, down 140 basis points year-over-year, driven primarily by the geographic diversity of our income and profitability. At this time, we expect our full year rate to remain at that 24.6%. Finally, as we all know, the Japanese yen depreciated significantly in the quarter against the U.S. dollar, averaging JPY 89 to the $1 for the quarter, down 14% year-over-year from JPY 78 and down 12% versus the fourth quarter of last year. This impacted the P&L, from a translation standpoint, by about $3 million or $0.03 per share. From a transaction standpoint, we also had a net loss of $4 million during the quarter reported in other income and expense or approximately $0.03 per share, which was mostly related to the volatility in the euro and the yen. This totals to a $6 million to $7 million headwind in the quarter from foreign exchange. Assuming the current yen exchange rates persists for the balance of the year, we project a full year negative pretax impact of around $17 million to $22 million or $0.13 to $0.18 per share, relative to our expectations heading into the year. We estimate that a 1% change in the yen-dollar exchange rate would impact earnings by approximately $0.01 per share. With that, I will turn the call back over to Luke to elaborate further on our outlook.

Thanks, Scott. As I look back at the first quarter, our operating results, absent the currency and hedging impacts Scott outlined, were right in line with our expectations, and we achieved key production milestones at each of our major capital projects. The long-run trends impacting our businesses continue to play out as expected. We continue to believe that 2013 will be a year during which we continue building a stronger foundation for sustainable long-term growth. Looking forward in 2013, we still expect increased profitability in the second half of the year for the reasons we outlined in January, but the increase may not be as robust as we originally expected. I want to take a minute to update you on the prospects of each of our segments, starting with Fine Chemistry. Nothing much has changed. Demand in overall backdrop for industrial bromides is expected to remain strong, which bodes well for our Performance Chemicals division. Drilling in the Gulf of Mexico increased during the first quarter from 47 to 50 average rigs in use, and the average international offshore rig count year-to-date is up 4% to 315 versus the full year average for 2012. The start-up of our clear completion fluid expansion at Jordan Bromine Company, which is coming online in the second quarter, will allow us to meet this increasing demand. Custom services continues to expenses -- excuse me, custom services continues to experience lower forecast from some of its larger customers, and we'll need to replace a number of expired and expiring contracts. Our product pipeline gives us confidence that we'll be able to do so, but there will be a short-term dip in profitability through the first half of 2013. Overall, I'd expect to see slight sequential improvement in the second quarter in this GBU. Within Catalysts, our outlook for Refinery Catalyst Solutions has not changed materially for the year. We're still monitoring the timing of our customers' turnarounds and startups, and there's always a danger that some volume slides into 2014. In Performance Catalyst Solutions, trends around LED adoption had been healthy year-to-date. Specifically, we're seeing increased customer qualifications, purchase commitments and operating rates among many prospective customers ahead of a number of either government-mandated gradual phaseouts or outright bans of incandescent bulbs projected to occur over the next 12 to 18 months in a number of countries in North America, Western Europe and Asia. These trends give us confidence in our PureGrowth expansion at our Yeosu site. However, we are seeing some downward pressure on pricing amid the current industry inventory overhang. We're also seeing some new market entrants in other areas that are causing limited marketed disruptions for some other parts of our portfolio. I would expect our second quarter results in this GBU to be in line with what we saw in the first. In Polymers, we did see a recent uptick in the connectors' confidence indicator to the mid-60s and a corresponding improvement in our brominated polystyrene business. From a printed wiring board perspective, the most recent rigid IPC book-to-bill ratio is at 1.07. Although the book-to-bill ratio is now above one for the first time since August of last year, it has risen despite absolute wire board shipments remaining on a downward trend and leveling out at only 80% of 2010 levels, meaning the book to bill is off a lower overall base level. Our tetrabrom order book was up sequentially and would appear to be similar in the second quarter. With respect to the health of the global TV and PC markets, the most recent forecast from GfK calls for a reduction in global TV panel inventory levels at retail and set makers in the second quarter, but for them to remain at historically high levels last seen in 2008 and mid-2010. The anticipated decline is mainly based on developing market sales, where fire safety standards are not as prevalent, while sales in developed markets are projected to remain flat. From a PC perspective, Gartner recently reported a steep first quarter decline in global PC shipments, down 11%, and revived their 2013 growth outlook to negative 8%, reflecting what appears to be a major extension in the duration of the PC replacement cycle at both commercial and retail levels. Both of these data points are consistent with the downward pressure we've seen in our brominated flame retardants that service these markets. Finally, year-to-date, we've not seen any improvement in the European's construction or wire and cable market. All of these data suggest that segment income in the second quarter is likely to be down sequentially, certainly weaker than we anticipated at the beginning of the year when we expected the second quarter to be stronger than the first in Polymers. For the full year, whereas in January, our view was that Polymers income would likely be flat to slightly higher in 2013, given what we're seeing today, our current thinking is that Polymers will likely be down year-over-year, absent a major positive inflection in the electronics demand at some point over the next 3 to 6 months. So overall, we expect second quarter to look very similar to the first quarter with Polymers being weaker, Fine Chemistry being a little stronger and Catalysts being essentially flat. From an annual guidance standpoint, in January, we forecasted year-over-year earnings growth in the 0% to 6% range. The weaker yen and our current assumptions regarding the average U.S. dollar-to-yen exchange rate for 2013 created a headwind of approximately $17 million to $20 million. That change alone modifies our annual earnings growth expectation to a range of negative 4% to up 3%. Given that headwind and a weakened second quarter than we originally forecasted, mainly in Polymers, today it appears we'd likely be at the low end of that range, excluding any impact of our buyback program. In closing, we entered 2013 convinced of our strategy and confident of our ability to execute against our strategic objectives. We knew we had to deal with a few headwinds in the near term as some of our major investments came online and we experienced a few unique short-term challenges. Yet even in this down quarter, we delivered 22% EBITDA margins and excellent cash flow and remain confident in the long-term fundamentals driving our businesses, our strengthening competitive position resulting from our recent investments and in the underlying earnings power of our business going forward. With that, I'll turn the call back over to Lorin for questions and answers.

Operator, we're ready to open the lines for Q&A. [Operator Instructions] Please proceed.

[Operator Instructions] Your first question comes from the line of Robert Koort with Goldman Sachs.

Solutions business, you mentioned varying degrees of price weakness and maybe gave a demand outlook that wasn't all that robust. So I'm trying to get a sense within those product lines, how much weakness was there and what's the prospect for that continuing?

Yes. Bob, we could only hear the second half of your question for some reason. Could you repeat it please? I'm sorry.

Yes. Just in the comments on your slide deck, you talked about varying degrees of price weakness across Polymer Solutions. So I was wondering if you could be a little more granular on that and, again, the prospect for that continuing into the second quarter, given the somewhat somber demand trends you talked about.

Yes. If you look at that from a pricing standpoint, where we really saw some weaknesses, tetrabrom held in there pretty good. If you looked at our brominated polystyrenes, it -- pricing held up fine. It was really more a mix issue. Where we saw the pricing was -- pricing pressure was really in our enclosure markets, where we use the brominated flame retardants there, as well as in construction with the HBCD, and then we saw minerals have some pressure in Europe because of a weaker construction market.

And on the Fine Chemistry side, I think you mentioned there that there were some pricing on hydrobromide and elemental bromine in China and India. I guess the metric -- your price was down 4%. I didn't -- I guess I didn't realize that those markets were that big for you. So could you help us figure out what's caused the weakness across that division?

Yes. I think as a general rule -- I mean, if you look at Performance Chemicals -- and it really had a good quarter, so it wasn't in the big completion fluids market. What we saw is whenever you see electronic demand starting to get weaker in the bromine in China, when they bring it out of China at a lower cost and export it, it usually goes to Southeast Asia and India and it usually comes out in the form of HBr and a little bit of elemental bromine. So when we see weakness on electronics, we generally see that. It hasn't accelerated any from what we saw at the end of last year. It's still roughly about the same from a basis sequentially. So -- and it's actually starting to strengthen a little bit toward the end of the quarter. So I think it's a phenomenon related to the bromine coming out of China that's not being used for the electronics market there, and that's why they take it, generally, into India and Southeast Asia. So it's been consistent to what we've seen over 2 quarters, and we've seen it strengthen a little bit here at the end of the first quarter.

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: You talked about new entrants in the Refinery Catalyst markets or on your Catalyst markets, generally. Can you expand on those comments?

Yes. It wasn't in Refinery Catalyst. If I said that I apologize. It was really more in the Polymer -- in the polyolefin catalysts and the Polymer Catalyst Solutions there. We've seen some new entrants, Sasol and companies like that, from a TEA perspective and other companies trying to follow the same strategy that we followed, how do you take what they have and move further downstream. It hadn't caused a huge disruption, but it's one we're certainly watching to make sure that from our cost perspective and from our capacity as being the market leader, we're sure we understand what's going on there to ensure that is not a lot of disruption there and we -- and that we manage it appropriately. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. And then lastly, you bought back 1 million shares in the quarter. And I was puzzled as to why you bought back any, in the sense that it's pretty clear that your first half business dynamics are relatively weak. And so I was wondering, why wouldn't you wait until you report your weak earnings quarters and then repurchase shares? Why would you buy them in advance of reporting weak earnings?

Jeff, that's a great [indiscernible] quite frankly that there's people -- a number of people who say, "Luke, why go back [ph]? If you've got confidence in your stock, why didn't you buy back earlier?" The approach that we've taken, rightly or wrongly, is the approach that we're going to dollar cost averaging. And so we believe we cannot time the market. You've got our performance, but you've also got performance of the stock market in general, what's going to happen in North Korea, what's going to happen in Europe. So there's a whole lot of facets out there that we can't control. We're in the business of making specialty chemicals not in time in market. So we've made a decision that we're going to do dollar cost averaging whenever we buy the stock back, and that's why we did it this way.

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Could we talk a bit about, within Fine Chemistry, the discussion around custom services? And it sounds like there are some customers transitioning out, and that led to part of the sequential decline in margins. But then you talked about confidence that you're going to be able to replace those as we move through the year. Can you just help us understand the dynamics of sort of who's going in the door and who's coming out the door?

Yes. I don't want to get into specifics of the exact customers, obviously, for confidentiality reasons, but I can tell you there's 2 dynamics really going on there. One is the volume from existing customers. Many customers, in some instances, maybe bought more last year than they needed for what the demand that they actually saw versus what they expected. So we're seeing some existing customers not taking the type of volume they took last year but expect -- and have told us they expect to see that ramp up over the second half of the year. And additionally, we've got some contracts that are ending, Amyris being one of them, that is -- that we won't have. So we've got to replace those. And when you have a -- the larger contracts like that, sometimes there's a gap. And what we're in right now is a gap between those expiring contracts and when the new ones are coming online. And we're also seeing something from a timing of when some of our other customers need shipments, whether it's the first quarter or the third quarter. So it's a combination of things. I'd love to be able to focus and tell you exactly what it is. What I'd tell you is this, our pipeline is as robust as it's ever been, and I'm confident that over the long term, custom services will get back to delivering the type of revenue and profit that we've enjoyed over the last 12 to 18 months.

Okay. And then separately, looking in your prepared comments, you've sort of addressed the tight oil or the light slates issue. And one of the comments you made was that, so far, you haven't seen any sort -- you haven't seen enough evidence to conclude that the tight oil is going to equal a shorter life cycle or longer life cycle for the catalyst. What -- when do you think you're going to be able to definitively say that that's not the case?

Yes. It so much depends on -- it's an individual, really, refinery unit. So it's -- we're going to have to wait and see over the next cycle and know which ones are really using tight oil, how much they're taking that tight oil and blending it, what impact that has on their output. It's almost impossible to say. So I think you got to -- we're just going to have to let it play out and stay in front of it. I wish I had a better answer to give you, Vincent, but I just don't.

Your next question comes from the line of Ben Kallo with Robert W. Baird. Benjamin J. Kallo - Robert W. Baird & Co. Incorporated, Research Division: Could you talk about the timing and the size of your price increase on the FCC side? I know one of your competitors announced a price increase also. And what gives you confidence with some of the slip that you've seen that you can pass that through to customers. And then on Polymer Solutions, just maybe to revisit a question I'm sure you guys get a lot about, we get a lot, about any kind of secular downtrend you see in flame retardants and bromine-based flame retardants, if that's what we're seeing right here?

Yes. So on FCC, what I would say is we've announced it. I don't expect there to be any real impact in 2013 from the nature of the contracts that we have. We have a lot of long-term contracts there, so the bulk of our business is under contract, and we'll certainly work to pass through the prices as appropriately. But I wouldn't see a whole much of impact in 2013 from an FCC standpoint. But we -- as a general rule, we sell on performance. So the performance -- if the performance of our Catalysts is giving that value that the refineries are seeing, we'll be able to pass it through. If not, it won't. So it's got to be a technological advantage for us to be able to do that, and we work hard everyday to make that happen. If you look at the secular trends in brominated flame retardants, what I think is fairly clear here is -- and I try to address it a little bit, is I think when you're looking at PCs, we're seeing a secular trend. And it's not just for brominated flame retardants, but it's a secular trend that the replacement cycle for PCs is spread now, those for personal use as well as commercial use. I think we're also seeing a secular trend away from PCs, at least in the developed world, over to the -- what did you call them, the -- not laptops, but tablets, I'm sorry, so tablets, smartphones and things like that. That's a very small percentage of our overall bromine sales. And I also would say that at the same time, we've actually seen a little uptick in tetrabrom for printed wiring board. So it's not like the motherboards are going away. I think we're just into a cycle. I mean, if you go back and look over the last -- we've really been in a trough for demand for electronics, really, over about 18 months. And so that's more what we're seeing is that macro demand, I think, across the rest of the portfolio and -- other than PCs.

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

Luke, can churn out some price increases this week, 20% across your bromine franchise. Talk about the potential you see for brominated flame retardant and other bromine price increases going forward.

Yes. Well, I think we'll always look at it. I mean, I think that -- and I want to say, it's easy to issue a press release. When it comes down to it the same thing with us. When we issue a press release, you've got to go out there and you got to drive with the customers and provide the value and have the demand in order to make it through. So while it's great to issue a press release and everybody loves it, you've got to see it in the marketplace or it doesn't do you any good. And that's what we've really worked hard to do. So we're going to be looking consistently across our portfolio at opportunities. We've seen increased costs. I mean, you've got the benzene costs. We've got great prices on shale. But we've got energy costs up here, and we've got energy costs and labor cost increases to Jordan. So we've got to get back to those investment fundamentals in bromine. So I'm glad to see that other competitors are in the same boat that we are and looking to see what they can do to maximize their profitability. And we've got to take a look and do the same, and we certainly -- we'll certainly look. But our businesses, we need to go out there with innovation and capture our fair share of the market, and that's what we try to do everyday.

And, Luke, just on the Chinese exports. Is that evidence of some stabilization and increase in Chinese capacity for bromine, or just lack of Chinese demand internally for the country?

I think it's not -- we have not seen any increase in demand. In fact, it's still at lower levels, and we're still seeing that continue to decline. But I think it's more about the demand and where -- what they do with the existing bromine that they have.

Your next question comes from the line of Mike Ritzenthaler with Piper Jaffray.

Within the Clear Brines in the Fine Chemistry, just so that we're clear, the second tower in SABIC for JBC is expected to start supplying customers in 2Q after the second phase qualification. I just want to make sure that's correct. And how does that new supply factor into the qualitative guidance that you provided in your prepared remarks of sort of flattish?

Yes. I think we'll be commissioned in the second quarter where we're actually supplying customers. It can go one way or the other. I think if you go back and look over the last quarters of our operations in Clear Brine fluids, we've sold everything we could make and then we've reduced our inventory levels to really historic lows. So it gives us a lot more flexibility. But obviously, it'll give us ability to service our customers better, because we have optionality both in the Middle East and Southeast Asia, as well has on the Gulf with what we have in Magnolia, Arkansas. So it gives us a lot of flexibility, and it should give us an advantage. But I don't necessarily you can add whatever capacity we're adding on there and immediately throw that in to the equation for what we're going to sell in the quarter. It just doesn't work like that.

Yes, that make sense. And on the tight oil comments, I think -- I appreciated that commentary. And one of the things we've been hearing from refiners is that the condensates bring a unique mix of contaminants with them that the refineries aren't really used to. Is that a similar -- is that something similar that you've heard from your customers as well and presenting some challenges for your R&D group to come up with new catalysts there, formulations?

Yes. I can't say for certain if that's an exact comment that we've got with respect to tight oil. I wish I could tell you that, but I couldn't say that. You'd have to talk with one of our technical sales reps. What I would say is that we are working with the technical sales rep, our business team, our sales team and our R&D focus to ensure that we're providing the solutions that they're going to need to handle this light sweet crude in any way they choose to configure their refinery going forward.

Your next question comes from the line of Kevin -- I'm sorry, James Sheehan with SunTrust.

On the price increase in Refinery Catalysts, could you just comment on do you expect to -- higher prices to have any impact on demand as they're rolled in?

Yes. I don't think it'll have a whole lot of impact on demand. And as I said before, I don't expect there to be really any impact in 2013, based upon -- or minimal impact, based upon the contracts that we have in place. So I don't think it'll have the kind increase. And if you look at the value that FCC catalysts bring and the cost of FCC to the refinery and you look at those economics, you look at -- it didn't have any impact on demand when we're passing through that rare earth surcharge. So I can't imagine the increase that we've announced is going to have any impact on demand.

And on your operating rates in bromine and derivatives and also on elemental bromine, could you just update us on what the operating rates were in the quarter and what your outlook continues to be for the rest of the year?

Yes. Are you talking about bromine, or are you talking about our brominated derivatives plants or FRs or what?

The brominated derivatives plants, exactly.

Right. If you look at bromine, bromine was up slightly in the first quarter. And from last year, it was in the low-80s. But whenever you look to the next quarter, you're adding -- you look to the second quarter, you add an additional capacity for bromine, right. So it'll be a similar kind of volume. We would expect a little bit less volume, but the rates will drop down to about -- in the low-70s and probably would hang there for the remainder of the year from a bromine standpoint. But you have to remember, we double the capacity at Jordan Bromine Company, and that comes into play in that lower percentage, okay. Then if you look at our brominated flame retardant plants, well, last year, we were operating them at the end of the year in the fourth quarter in the low-40%. In the first quarter, we were in the 60% range, and it'll fluctuate between the low- to mid-60s for the remainder of the year. Probably a little bit higher in the third, a little bit down in the second, a little higher in the third and down in the fourth is how I would -- how you ought to look at it.

And your next question comes from the line of Kevin McCarthy with Bank of America Merrill Lynch.

Luke, how would you characterize your appetite for acquisitions at this juncture? I guess I'm thinking specifically of Catalysts, where it looks like there's at least one property on the block based on public commentary. Trying to get a feel for how you're weighing what you're seeing in the private market relative to pace of execution on repurchases, for example?

Yes. Well, first of all, I think that there's -- if you look at what's happening to us in the -- with the repurchases, from a balance sheet standpoint, that won't be any impediment to do any of the types of deals that have been -- been out there being pushed around today. So I've got -- really, my appetite hasn't change. As long as it meets the hurdles that we've put in place and gives us a technical advantage to be able to push our businesses in the areas we are not and that we specifically like Catalysts and we specifically are looking there on how to grow Catalysts in the areas that we're not, we'd certainly be very interested.

Okay, clear enough. And then a second question, if I may, on FCC. Are you still anticipating shipments of FCC to Abu Dhabi for the new business that you won within 2013, or what's the latest update on timing there? And is that included in your outlook for this year?

Right. Right now, the outlook for the year is still included in the fourth quarter, and we get reports kind of on a regular basis about that. I said -- if you listened to my remarks, I said we're watching those orders to see if they slip into 2014. If they do, it slips into 2014. It'll cause an issue for the fourth quarter for us. But ultimately, whether that goes in the fourth quarter of this year or the first quarter of 2014, it's not going to materially impact the long-range fundamental strength of the business. So we feel really good about it. But right now, Kevin, to answer your direct question, we've got it in the fourth quarter.

Your next question comes from the line of Dmitry Silversteyn with Longbow Research.

Just a couple of questions, if I could follow up. You talked about increasing your share repurchase authorization and having about a 10% buyback envisioned. How quickly do you expect to execute that? You talked about dollar cost averaging, but what would be the pace of executions at a 1-year or 2-year program?

Yes. I mean, what we've previously announced in February was we'd look to do it within a kind of a 12- to 13-month period, and that time period hasn't changed.

Okay. So this is -- this will be something in the course of a year or so. Can you talk a little bit more granularly about the impact of the start-up costs in the first quarter from the plants that you're starting up, and what would those costs? I mean, you talked about sort of the overall being $20 million to $25 million just in the Polymer side of the business. You're also starting up some other plants. Can you talk about the start-up costs in 2013, and what we should not look for in 2014 then?

Yes, let me say one thing is -- I'm going to turn it over to Scott here in a second to give you that. But you said it was in Polymers. It's really in Catalysts.

Yes. Polymer Solutions, Catalysts, yes, that's what I meant, I'm sorry.

Was Performance Catalyst Solutions that we had there. And I think that Scott could give you the details of the breakdown. We said it's around $20 million to $25 million for the full year, and Scott will -- can give a little more granularity.

Yes. And in first quarter, the biggest impact came from the Yeosu, Korea start-up, and the total for the quarter is roughly kind of the $7 million to $8 million impact on earnings. We would expect something that's similar, maybe slightly higher in the second quarter and then obviously the remainder as SOCC starts to come online as we go into the rest of the year.

Okay. So now is that just for the Polymer Catalyst, or is that for all 5 facilities you're starting up?

That's for Catalysts, the total.

Is the level of plus of about $20 million to $25 million, is that what we can think about as an order of magnitude for the other start-up costs?

No, no. We're saying -- I think we're getting confused on the question here, okay. Take JBC start-up out of that, because that number is not included in there. The site at Yeosu City that -- for PureGrowth, we -- that's all capital cost, because we haven't had any start-ups there. The real start-up costs that we're talking about for that $20 million to $25 million relate to Yeosu City piece that has been commissioned now, our single site catalyst unit and our activators over there, that piece of it. It relates to the Saudi joint venture, the costs that we have there, as well as some of the debottlenecks in Catalysts that -- in polyolefin catalysts that we've done in the U.S. So it's those 3 buckets that we're talking the $20 million to $25 million -- $20 million to $25 million in 2013, Dmitry.

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

What was the impact of the -- in the quarter from change in ownership at JBC? I guess you have now a lower share of the joint venture.

Yes. Scott?

Yes. So P.J., remember, on the fourth quarter call, we mentioned that the share for JBC changed from 70-30 last year to 60-40 this year. And in the quarter, that caused approximately a $1.5 million headwind for us, right on track to what we said was going to be a full year impact, around $6 million. And you'll see about $1 million -- $1.2 million of that sitting in Fine Chemistry and a small amount in Polymers.

Okay. And then in hydroprocessing catalyst, you talked about negative mix impact. Was that related to tighter oil -- in this tighter oil, which is sort of a lighter oil? Is it fair to say that, long term, it may be a positive for FCC but probably a negative for hydroprocessing business?

Yes. Well, first of all, the mix had nothing to do with tight oil. The mix related to, really, some specialty products and some first fills that we had in the first quarter that didn't repeat in the second quarter. So it had absolutely nothing to do with tight oil. In fact, I don't even think there were U.S. sales that was a real mix impact. So it had nothing to do with tight oil. I think, P.J., it's too early to call. I mean, intuitively if somebody's bringing a light sweet oil, you would think it would have -- it would spread out the turnarounds for HPC catalysts, but you'll also going to have on top of that sulfur regulations getting tighter and tighter. So how that's going to balance out over the long term remains to be seen. I think it's likely, globally, that the sulfur regs are going to drop more growth in HPC catalyst than the tight oil in the U.S. is going to reduce it. So I think, net-net, you still got good growth in HPC.

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

In terms of Catalysts, I think when you talked about guidance for 2Q, it sort of pins the first half on that $115 million range, I guess. And then in order to hit sort of the second half, you'd have to be in that $80 million to $90 million range per quarter, which you've done here and there but it doesn't seem like an easy task. Can you help us visualize how you sort of get to this high-50s to the 80s? And how much of it, let's say, is within your control as costs go away and so on, so forth?

Yes, that's a great question. We're still confident we can be flat for the full year, and it's really driven by, I think, a few things. One is resumption of demand from FCC customers who have been offline in the first quarter. You remember, we've had about 6,000 going to be offline in the first and second quarter. So if that demand in FCC picks up, we'll have, over the second half, those costs that we're talking about from the start-up costs on qualification runs. It should have run their course, and we ought to be operating and getting revenue on those new sites. So that drag from those start-up costs ought to go away in the second half of the year. Secondly, from an HPC standpoint, we ought to have an improved mix and good volumes over the second half of the year over what we've seen in the first quarter and expect for the second quarter. And finally, it comes down to the adoption of LEDs and our growth associated with electronic materials growth in those areas. So those are the 4. We feel good about our prospects to do that. It is a tough hill to climb. We've done it before. And we've got a plan in place to implement and do it. Now the things that could change that are if we have orders slide from 2013 to 2014, but you always have that risk. And if we don't have the LED pickup in the second half that we're expecting, then we'll have an issue we'll have to deal with. But as of today, as the best forecasts that we can look at, that's it. So hope that answers your question, Mike.

That's great. And then in terms of the range for EPS guidance this year for '13 versus '12, excluding the stock buyback, it's -- the risk, it sounds like, from the low end to the high end is -- given if you execute well in Catalysts and Fine Chemicals, seems to sit in Polymer Solutions, depending on demand. Is that probably a good way to look at it? And then...

I think that's a good way to look at it, Mike. I think we've got execution in Catalysts. We've got a plan there. Now the one piece is -- I can't see our drilling fluids tanking. But if drilling -- if we got a problem, if we got a BP issue again like we saw in the Gulf, that could -- that could cause some problems. But I feel like those are executing. It comes down to macroeconomics and what's happening in the marketplace with regard to pricing in Polymers.

I would now like to turn the call over to Lorin for closing remarks.

Thanks, operator, and thanks, everyone, who participated on the call. We appreciate your support and encourage you to call with any further questions. Have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.