Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 Albemarle Corporation Earnings Conference Call. My name is Lacey, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Lorin Crenshaw, Director of Investor Relations. Please proceed.

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

Thanks, Lorin, and good morning, everyone. Scott and I appreciate the opportunity to share Albemarle's third quarter results with you today. As usual, at the end of our prepared remarks, we'll open it up for your questions. Throughout the year, we've expressed the view that the second half profitability would be stronger than the first half of 2013. In line with our expectations, third quarter earnings were sequentially higher and the highest we've reported year-to-date. We ended the period with net income of $89 million, or $1.09 per share, and net sales of $649 million. EBITDA was $153 million and profitability, as measured by EBITDA margins, was 24%. Our operations continue to generate excellent cash flow with $318 million of cash from operations being generated through the end of the third quarter. Scott will go into more detail shortly about each segment. But at a high level, Catalysts showed sequential improvement and is poised to finish the year strong. Fine Chemistry results were also up sequentially with custom services strengthening sequentially and clear brine volumes staying strong. In Polymers, while results were in line with expectations, they remain below the inherent earnings potential of this business as we continue to see weak demand in European construction and global electronics, particularly television enclosures. Stabilizers and Curatives was a bright spot, reflecting successful efforts to drive geographic expansion of that business. During the third quarter, we announced a business restructuring that is designed to reduce management layers to speed decision-making, increase customer focus and enhance innovation, all designed to accelerate growth. The new structure will be effective January 1, 2014, and I'd like to take a moment to provide the context behind why we're making these changes. Albemarle has, and continues today, to focus on creating sustainable long-term value for its shareholders.…

Thanks, Luke. I'm going to start with a review of our business segments and then turn to the details on our P&L and cash flow. Overall, our net sales were $649 million, down 2% year-over-year, but up 2% from the second quarter. Segment income was $136 million, or 21% of sales, down 10% year-over-year and up 6% from the second quarter. Catalysts reported third quarter net sales of $226 million, down 10% year-over-year; and segment income of $57 million, down 7% year-over-year on segment margins of 25%. Sequentially, from the second quarter, segment income was up 13%. 5% or 1/2 of the year-over-year revenue decline was due to the impact of lower metal surcharges within Refinery Catalyst Solutions, but this had no impact on segment income. Operating profits at heavy oil upgrading, which is mostly fluid-cracking catalysts, were up 23% year-over-year, driven by higher volumes from new and existing units, a number of new trials, fewer FCC customer turnarounds and favorable production leverage. Within Clean Fuel Technologies, which is mostly hydroprocessing catalysts, volumes and profits were down year-over-year, driven by unfavorable mix, lower specialty sales and the timing of several orders slipping into the fourth quarter. Combined, Refinery Catalyst segment income was up 24% from the second quarter, driven by the heavy oil upgrading results. Performance Catalyst Solutions revenue declined 5% and segment income was down 26% year-over-year, driven by the impact of our new factory start-up costs. Overall, polyolefin catalysts and co-catalysts volume growth was offset by lower MAO and custom catalysts sales. PCS pricing was down due to competitive pressure, but seems to have stabilized. Our third quarter traction in electronic materials is lower than expected even though revenues associated with our PureGrowth products has nearly doubled year-over-year. We are also starting to see the effects of TEA…

Thanks, Scott. I want to take a minute to update you on the market conditions we're seeing for each business segment. We continue to forecast demand for clear brine fluids to remain strong, following an excellent third quarter. Gulf of Mexico average rig counts increased sequentially again from 51 in the second quarter to 59 in the third quarter while the average international offshore rig count of 321 is up 6% year-to-date versus the full year average for 2012. In Polymer Solutions, there have been no developments in terms of our order book or the external indicators we monitor that would lead us to a more optimistic view than we shared on our last call. The most positive trend across our order book remains the continued relative strength of our brominated polystyrene family of products for connectors, which corresponds with the pattern of the Bishop Report Connector Confidence Index. That index, which was at 75.6 in September, has stayed in positive territory all year and is up from its 2-year low of 35.1 of a year ago. In contrast to the positive connectors trend, the IPC book-to-bill ratio slipped to 1.01 in August, down from the 1.12 at the time of our last earnings call. Historically, ahead of the holiday season, we've usually seen a meaningful third quarter uptick for tetrabrom. However, this year's third quarter pickup was weaker than prior years. In terms of the global TV market, the most recent full year shipment forecast from GfK called for a 5% rise that is 100 basis points lower than the prior forecast with all of the growth coming from developing markets where flame retardant usage is usually low. The number of weeks of TV panel inventory declined sequentially during the quarter. However, at roughly 2.5 weeks, it remains well…

Operator, at this time, we're ready to open the lines for Q&A. [Operator Instructions]

[Operator Instructions] And our first question will come from the line of Robert Koort with Goldman Sachs.

This is actually Angel Castillo... [Technical Difficulty]

Angel, are you still there? Operator, I think we've lost Angel.

Our next question will come from the line of David Begleiter with Deutsche Bank.

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

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

Understood. And just on the bromine side, you've announced bromine price increases on elementals, as well as derivatives. Talk about the timing of those price increases? What gives you the confidence it'll go through, and what's the initial feedback from customers?

Yes. It's different in different pockets. If you look across the bromine channel, we've seen some success in some specialty bromides. If you look at bromine and HBr, not as successful. If you look at tetrabrom, it's pretty -- it's stabilized but not seeing a whole lot of movement. A lot of tetrabrom is for bid so it really depends upon how the Chinese and the other competitors react. So we felt it's important to put the price increase out there. We're still out there pushing for it, but we've not seen the success that in some areas that we've seen in the past, although we are seeing some stabilization in most areas, David.

And our next question, once again, will come from the line of Robert Koort with Goldman Sachs.

Luke, can you talk about continued focus on developing new applications for bromine? And I just was wondering about the additional resources that you discussed as part of the restructuring, if you could give us more color on these efforts and just on some of the adjacencies you are pursuing?

Yes, I don't want to go into a whole lot of detail specifically about what they are because it's a competitive landscape. And if you look at the other bromine producers, I'm sure they're looking for additional uses of bromine as well. So I don't want to get into too much on the call. But we will take resources and reallocate them to these uses. The thing I would caution you is it's always exciting to put a time line on when these things are going to commercialize. And the fact of the matter is you're not -- you ought to not expect anything in 2014 and nothing in 2015 except additional R&D costs going into this area and us hitting internal milestones. For instance, there was 1 project that we had that we were excited about. We couldn't hit the milestones. We couldn't make it work technically so we've killed the project. That's -- you never want to kill a project, but that's good because while working we found out we couldn't do it. Now, we've moved onto the next. So what I would tell you is this is just like any R&D pipeline that you see where you have metrics and milestones and accountabilities and we're going to stick to that process to try to grab those new uses.

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

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

And our next question will come from the line of P.J. Juvekar with Citi.

One of your competitors in Catalysts had lost share and was planning to get it back. Did you see any relative changes in share or any changes in pricing as a result of competitive dynamics?

None out of the ordinary in the quarter is what I would say. You always have an FCC unit here, an FCC unit there doing a trial, ensuring the refineries. They're not stupid. They use that to keep everybody in line, as well as to see if there's other performance requirements, P.J. So I didn't see anything out of the ordinary. There's one thing, I'd like -- I've gotten a lot of questions about this both on the call and then some follow-up calls when we're out with analysts. And I'd like to talk just for a little bit about our view on valuation in FCC Catalysts. In 2004, before -- when we went to buy the Akzo Nobel refinery catalyst businesses, there was an article written by McKinsey that said FCC was a commodity and should be priced as such. And at that point in time, in 2004, when we bought the business, there was about -- we were selling, or Akzo was, about 125,000 metric tons roughly of FCC catalysts at about $1,000 a met ton and it was breaking even. Subsequent to that, after we paid the multiple we paid for that business, we looked at the value that, that product was delivering, we looked at the performance, we looked at our technological advantage and we started pricing for the value that the product brought. Now when we led that price increase, our volume went down to 85,000 metric tons. So we were down 25% to 30% on the volume. Today, however, the base price is well north of $3,000 and we're still not back to the volume we were in 2004, but it is a better business because we're delivering value to the refiners on the technological performance that we deliver. That's what this business is all about. Customers are going to have trials. And if the crude slate's working your way like it happens to be working our way on FCC catalysts right now and you're delivering value to those refineries and making them more profitable, they're going to switch. They're not going to switch on price unless the performance is equal. So I really -- this is not something as easy where a competitor or Albemarle or anybody else can go out there and try to buy share. It's a performance sale. It has been since we started this thing in 2006 to 2007.

Great. There are 2 businesses that you mentioned, it is the Gemini business and then there's organometallics going into lighting applications. Can you size the revenues of those 2 businesses and how big they could become?

I mean, Gemini, in -- and I'll put it out in 5 years or so. I mean, Gemini is kind of in the range of maybe, under certain applications, probably $100 million-type revenue business, profitable business, but in nice applications. And the LED market on what that is, that could be larger. It simply depends upon where our share ends up being in that market over the long term and the adoption of LEDs and OLEDs.

And our next question will come from the line of Mike Ritzenthaler with Piper Jaffray.

From your commentary, it seems as though Catalysts is largely shouldering the burden of hitting the midpoint of guidance that you'd outlined in the last call of down 10% to 15%. So with year-to-date EPS down something like 20% and a little under 2.5 months to go in the year, would you characterize the risk of order slippage into '14 as materially less than it was 3 months ago given the order book in December, Luke, from your comments? Or is the uncertainty about the same as to when customers will instruct shipment?

It's about the same.

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

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

And our next question will come from the line of Laurence Alexander with Jefferies & Company.

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

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

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

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

We continue to like the net-debt-to-EBITDA target of 1.0x and you can expect us to try to hold to that level.

And our next question will come from the line of Kevin McCarthy with Bank of America Merrill Lynch.

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

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

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

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

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

And our next question will come from the line of Mike Sison with KeyBanc.

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

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

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

That's right.

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

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

And our next question will come from the line of James Sheehan with SunTrust Robinson Humphrey.

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

Yes, I think that the Cambridge acquisition, it's a very, very small number from a revenue standpoint. It is -- or from an EBITDA standpoint. It won't move the needle at all. What it is, is it was an acquisition of technology. In our PureGrowth family of organometallics, there's 4 basic fundamental products you need to have in your portfolio to be able to service that electronic materials market. We had 3. We weren't able -- we're having difficulty developing the fourth one to the purity scale that it needed to be. Cambridge had a technology that allowed us to do that, as well as improve some of the product performance that we have in our existing portfolio. So this is really a technological -- a technology acquisition. And it also -- it'll give us -- in addition to having those 4 products to give us a full portfolio, what I'm the most excited about is any time you have R&D and technical resources coming together and have sharing new ideas, you usually always get 1 plus 1 equals 3. So I'm excited, finally, to get these R&D guys together so that they can collaborate because I believe we're going to see some more real breakthroughs in our electronic materials. But you ought not -- it won't move -- it's not going to move the needle meaningful from -- in and of itself, but more in the long term how we grow that electronic materials business.

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

Yes. I think we're in we're a middle of our AOP process for 2014 right now. And the roll-up, I think, is scheduled for later this month. So that is going to be one of the key assessments, I think, we do just like we do in every other business: what's the potential, what's the risk, what's the upside, what's the downside and do we have the skill set to do what we need to do? So it is -- continues to be a profitable business. As I said on the last call, we invested capital probably 18 to 24 months too early and we've got to deal with those costs and we've got to have a plan to fill those assets up and that's what we're working on right now.

And our next question will come from the line of Vincent Andrews with Morgan Stanley.

This is Ian in the line for Vincent. So in Polymer Solutions, volume was up 10% year-over-year against kind of easy comp on a 2-year stock, but pricing is still fading. So could you kind of help us think about where volumes need to go from here in order to achieve pricing power either within the context of Albemarle's own operating rates or the operating rates of your competitors?

Yes, I think when you look at -- the big issues have really been television enclosures and European construction. Those are the 2 big movers on price. We're still getting some pricing pressure in our 8010 family of products and TV enclosures. And HBCD, you're working on a really tough comparison year-over-year because we had some price increases related to a plant shutdown for a key raw material that we didn't have this year. So you're looking at a tough comp. So I think it's a matter of what happens with the end markets, particularly the enclosures and the television sets, as well as we need some help on construction. And those are the 2 really ones that are moving it, to be honest with you.

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

Yes, it's lower demand as opposed to lower -- to more capacity. What's happening is because -- I think what's happening, you're seeing, is in electronics in China, you're seeing lower demand overall for electronics so the bromine producers are looking for somewhere to put that bromine. They're putting it in 8010, they're putting it in HBCD and they're selling out against it and they're moving it at lower prices. In some instances, our competitors are trying to adapt to that and we are as well. So it really, really more is a demand than a supply change. There's been no change in -- that I'm aware of. And particularly for us, I can just say for us and then what I'm publicly were of, a change in capacity for 8010 for enclosures, HBCD or any of our brominated polystyrene family of products.

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

Yes, I'll turn it over to Scott.

Yes, I would say that the biggest driver for that dynamic are twofold: one, we've got the start-up costs that are drying on us. However, FCC performance, or fluid cracking performance, has been very good and we've been getting some good cost performance out of that business given the factory's performance. And then also the pricing there has been favorable for us as well. So overall, that's what's pushing that profitability to be roughly flat.

And our next question will come from the line of Jeff Zekauskas with JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: During the call, you said that the drag from your new products -- your new capacity expansions was roughly $25 million. Is there a lower drag next year or the same drag? Or if you look at the new projects, what should be the difference in operating profit performance be next year? And secondly, next year, do your capital expenditures go up or down relative to this year and by how much?

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

Yes, and Jeff, the costs that we're talking about both with Korea, as well as SOCC are the cost of operating those plants. So those costs will be there. Our challenge is to fill those plants. Now we're in the process of transferring products from our plant from the U.S -- TEA from our plants in the U.S. over to SOCC right now, as I mentioned on the call. So we'll start to see that shift happening into that plant even now in the fourth quarter. There's a little bit in the third quarter. Korea is all about trying to fill that plant as we've talked about and drive the revenue up in those areas. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Right. So what's the difference? Is it bigger or smaller?

The costs are going to be exactly the same. The difference is going to be we're going to have commercial sales in 2014. They're going to offset those costs whereas today we don't have that. We only have qualification trials. So we don't have any revenue to offset the costs. Costs will be exactly the same. Next year, we should have the revenue and certainly would hope that the revenue would overcome the costs next year. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. And then for my second question, when you look at your bromine prices sequentially in the third quarter, did they go up or down versus the second and by how much? And in Catalysts, your revenues went down $7 million sequentially and your operating profits were up $10 million. How did you do that?

Okay. I think, Scott, you take the catalyst one because I think you just answered that a second ago, but go ahead one more time.

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

And then I'd say on pricing -- Scott, you can talk a little bit, but the big pricing pressure has come in, in the brominated flame retardants and polymers. It's really -- there's pricing pressure on the 2 major areas we've seen: 8010 in television enclosures continues to be under pricing pressure and it's lower year-over-year. And HBCD, the brominated flame retardant that goes into residential construction mainly in Europe, has been under continued pricing pressure and we had a volume issue there as well. I don't see that really changing in the fourth quarter. We haven't seen that -- I don't know whether or not that pricing pressure will continue. But that tetrabrom seems to have bottomed out a little bit of positive movement there. Brominated polystyrene seems to have been hanging in there fine. So it really comes down to what goes into enclosures and what goes into construction. If you're overall also looking at polymers and you're looking at mineral flame retardants, the mineral flame retardants, as we -- the pricing seems to have stabilized. I'd caution you, though, as we sell more into China to baseload our plant for when our JV comes online in 2015, there is -- that is a less profitable sale because of the cost of transportation that we have from Europe, so the pricing seems to have stabilized in mineral flame retardants. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: So you're saying that pricing is down sequentially? Did you say that? Or did you just discuss year-over-year in bromine?

In bromine, when we talked -- yes, it's down sequentially. It's down sequentially.

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

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

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

Yes, that's right, Luke.

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

Double digits.

Double digits year-over-year.

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

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

Okay. So it comes down to LEDs.

Thanks a lot. Thanks, everybody, for the time.

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