Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Albemarle Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the presentation over to your host for today to Lorin Crenshaw, Vice President, Treasurer and Investor Relations.

You may begin. .

Thank you, Frances, and welcome, everyone, to Albemarle's first quarter 2014 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 albermale.com. .

Joining me on the call today are Luke Kissam, Chief Executive Officer; Scott Tozier, Chief Financial Officer; Matt Juneau, President, Performance Chemicals; and Michael Wilson, President, Catalyst Solutions.

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 pension and OPEB or special items. 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.

As a reminder, we filed an 8-K in March showing the reorganization from 3 GBUs to 2, and from a functional to a GBU organization. All year-over-year and sequential comparisons throughout this call are based on those restatements. .

Before turning the call over to Luke, I would like to remind investors and analysts to continue registering online for our 2014 Investor Day in Houston, Texas. It will begin at 11:00 a.m. within Exhibit Hall on May 15 and with an investor briefing to commence at 1:30.

There will also be a tour of our refinery catalyst plant and R&D facilities on the morning of May 16. We look forward to seeing you there. .

With that, I'll turn the call over to Luke. .

Thanks, Lorin, and good morning, everyone. I'll start with some high-level comments on the quarter. Scott will then review the performance of our business segments and financial results, and I'll end by providing some perspective on our current outlook. At the end of our prepared remarks, Matt and Michael will join us to address your questions. .

We began 2014 by delivering first quarter net income of $77 million or $0.96 per share, which was in line with the expectations that we shared with you in January. Net sales were $657 million. EBITDA was $137 million. And profitability, as measured by EBITDA margin, was 21%. Scott will discuss our financial results in detail in a moment.

However, at a high level, our businesses performed essentially as expected. .

Refinery Catalyst was down sequentially after a very strong fourth quarter 2013, but still performed well with double-digit FCC catalyst volume and profit growth year-over-year, driven by strong demand in heavy oil upgrading and favorable mix in Clean Fuels Technologies.

Performance Chemicals profitability, while up 9% sequentially, was down year-over-year on lower volumes and pricing and higher energy costs. .

Previously, we discussed with you our strategy to focus on strengthening our core businesses of catalysts and bromine. During the first quarter, we took several actions consistent with that strategy that we expect to lead to stronger results in the future.

Yesterday, we announced that we've entered into an agreement to divest our antioxidants, ibuprofen and propofol businesses, including our Orangeburg, South Carolina and Jinshan, China manufacturing facilities to the SI Group, a leading global developer and manufacturer of chemical intermediates, specialty resins and solutions.

In terms of size, in 2013, these businesses generated aggregate revenue of around $250 million on low-single digit segment margins. .

As we assess the competitive landscape in these businesses, it became clear that consolidation and/or integration in certain other capital investments were needed in order to drive profitability improvements.

We believe this transaction represents the optimal choice of maximizing value to our shareholders and giving the business the best opportunity for growth and success in the future. While subject to typical regulatory approvals and closing conditions, we would expect the transaction to close mid-year.

And we would expect to take an after-tax charge of approximately $80 million to $100 million, the bulk of which will be noncash. We estimate that the transaction will be accretive to overall company segment margin rates by 100 to 150 basis points.

That translates to 150 to 200-basis point improvement for Catalyst Solutions, and a 100 to 150 basis points improvement for Performance Chemicals, all on a full-year basis. .

We also took steps this quarter that should, in time, lower our cost in our aluminum alkyls and bromine franchises. On the aluminum alkyls side, in recent quarters, it has become clear that the industry is in a position of excess capacity. For over a decade, a strategic partner in Europe has toll manufactured aluminum alkyls for us.

We supply a portion of the alkyls back to this partner, with the remainder being sold by us on the merchant market. During the first quarter, we provided notice required by the contract of our intention not to extend the toll agreement past its stated expiration date. This tolling facility represents about 10% to 15% of Albemarle's global capacity.

However, we have ample existing capacity at our lower-cost, world-scale facility in Texas to absorb this volume.

This move should reduce our overall cost and take our highest cost production offline, resulting in improved alkyls utilization rates and contributing to enhanced profitability within our Performance Catalyst Solutions division at the expiration of the contract currently scheduled for 2016. .

In connection with the providing of our intent not to renew, we triggered certain financial obligations per the contract on our part.

While it is too early to determine the exact amount of the obligations at this time, as we're still in discussions with our partner, we have taken a charge this quarter, which Scott will discuss in more detail, that we believe represents our best guess as to our ultimate obligations.

Upon reallocation of the volume to Pasadena, which will likely happen in the 2016 timeframe, we would expect segment margin incomes in Catalyst Solutions to increase by between 50 and 75 basis points. .

In addition, in February, Jordan Bromine Company and our partner in that joint venture, Arab Potash Company, signed a 15-year agreement to purchase natural gas from reserves extracted from the Tamar natural gas field off Israel's Mediterranean coast from a consortium and investors led by Houston-based Noble Energy.

Today, JBC is already the lowest-cost bromine facility in the world. But as is the case with most of Jordan, its electricity costs are tied to #6 fuel oil. For a minimal investment, we will retrofit our JV facilities over the next 18 to 24 months to make it a multi-fuel facility that is able to run on either natural gas or fuel oil.

The current estimates would have natural gas flowing to JBC by 2017. I caution you that the timeframe for the completion of the pipeline is out of our control and could be delayed.

Once the gas is flowing, however, the cost benefit will make JBC's cost position even stronger in the global bromine market for the term of that contract, and can also provide the opportunity for other capital-efficient cost reduction projects on site. This makes Albemarle an even stronger global leader in the bromine market. .

Last year, we successfully brought online expanded capacity for clear completion fluids, HBr and elemental bromine in Jordan. In the first quarter of this year, the expansion began paying dividends.

This quarter, we shipped near-record levels of clear completion fluids facilitated in large part by the new capacity at JBC, which allowed us to meet customer demand in that region in a timely manner and avoid losing orders due to capacity constraints. Without the new capacity in Jordan, we simply cannot admit the volume demands we saw in March. .

As growth in these areas of the world continues, we are confident in our ability to continue capturing more than our fair share due to the foundation of our business being stronger and more flexible than ever before. .

Scott will go into more detail later, but our cash generation exceeded our expectations for the quarter largely due to improvements in working capital.

As a result, we were able to increase our dividend for the 20th consecutive year and also execute an accelerated share repurchase program, under which we will repurchase $50 million of stock by the end of April. That program is proceeding on plan and is in line with our guidance in January. .

As we previously disclosed, absent an acquisition, we would expect to continue entering into quarterly accelerated share repurchase agreements in sizes sufficient to maintain our capital structure target of 1x net debt to EBITDA.

Currently, our expectation is that we would enter into another accelerated share repurchase agreement in May of around $100 million. That program would likely be completed by the July timeframe. And with that, I'll turn the call over to Scott. .

Thanks, Luke. First of all, before getting into the numbers, this quarter marks the first time reporting under our new organizational structure, which became effective January 1. Our businesses are now aligned under 2 global business units.

The Performance Chemicals segment is comprised of Fire Safety Solutions, Specialty Chemicals and Fine Chemistry Services, consolidating our bromine, mineral and custom manufacturing assets under one business unit. The Catalyst Solutions segment includes Refinery Catalyst Solutions, Performance Catalyst Solutions and Antioxidants. .

We released an 8-K in March detailing 4 years of restated financial results, including quarterly data for 2013 and 2012. In connection with this realignment, certain costs have been reassigned and certain divisions have moved around.

One change that's clear when you compare numbers under the new structure to the old structure is that a higher proportion of people costs, mostly SG&A and R&D, are now charged to Catalyst Solutions than were previously allocated to them, while lesser charge to Performance Chemicals.

This reflects the impact of changing from a functional structure where shared costs such as sales, some technical groups and the like, were allocated to each business on a ratio basis to a more fully accountable GBU structure, under which such costs are aligned and charged directly to each respective business based on the people in that GBU.

As a result, Catalyst segment income and margins are somewhat lower than under the old structure and Performance Chemicals segment income and margins are somewhat higher. Fundamentally, of course, nothing has changed regarding the growth expectations or prospects for either business. .

I'm going to review our 2 business segments and then turn to the details on our P&L and cash flow. Overall, our net sales rose 2% to $657 million year-over-year, driven by solid Catalyst Solutions performance.

Segment income was $128 million or 20% of sales, down 5% year-over-year, as modestly higher Catalyst Solutions profits were offset by weaker Performance Chemicals results, reflecting a combination of continued sluggish electronics demand and energy costs.

Catalysts reported first quarter sales of $296 million, up 6% year-over-year and segment income of $57 million, up 4% year-over-year on segment margins of 19%.

Refinery Catalyst Solutions performed well, delivering double-digit volume and profit growth, offset by lower pricing and the impact of higher fixed cost within Performance Catalyst Solutions and overcoming higher energy costs.

Specifically, heavy oil upgrading, which is primarily comprised of FCC catalysts, experienced double-digit volume, revenue and profit growth driven by strong demand and favorable pricing. Clean Fuels Technologies, which is mainly HPC catalysts, also reported double-digit earnings growth despite lower volumes on favorable mix.

Within Performance Catalyst Solutions, as anticipated, the impact of higher fixed costs and base-loading our new Saudi joint venture plant with volumes previously produced out of our wholly-owned facilities in the U.S. was a drag on profitability on a year-on-year basis, a dynamic we expect to continue through the balance of the year.

Volumes were higher year-over-year, but pricing remained weak within both polyolefin catalysts and electronic materials. .

Performance Chemicals reported first quarter net sales of $361 million, in line with year-ago levels, and segment income of $71 million, down 11% year-over-year on segment margins of 20%.

A combination of lower Fire Safety Solutions profitability and higher energy costs offset strong Fine Chemistry Services growth and modestly higher Specialty Chemicals results.

Specifically, profits declined year-over-year within Fire Safety Solutions, which consist of our brominated and mineral flame retardants, reflecting weaker enclosures, printed wiring board and construction demand.

These dynamics offset strong growth in several nonelectronics-related applications for 8010, one of our core brominated flame retardant product lines, including wiring cable, as well as plastic films into the construction, household appliances and automotive electronics end markets.

The breadth of 8010's application has become increasingly evident in recent quarters. .

Finally, mineral flame retardants also had a solid quarter profit-wise, benefiting from a better term to the European economy.

The soft year-over-year electronics results we experienced matched the tone of several market indicators that tend to correlate with current period results including the IPC book-to-bill ratio, which has improved in recent months, but remained below 1.0 at 0.99 in February, with shipments still well below the 2010 levels.

In addition, IDC and Gartner reported first quarter declines in PC shipments of between 2% and 4%. .

Within Specialty Chemicals, which consist of all bromine derivatives that are not flame retardants, plus our curatives and specialty aluminas, volumes and profits rose modestly year-over-year.

The primary drivers were a combination of exceptional clear completion fluid volumes, where strength was evident in the Middle East and the North Sea, and outstanding curatives growth, which benefited from milder winter weather in Europe and the commencement of a number of infrastructure projects globally, including Europe, North America and China. .

Fine Chemistry Services, which consists of our custom synthesis business, reported excellent volume and profit growth year-over-year, driven by a combination of more normal order patterns within the ag intermediates relative to the year-ago period and good momentum in electronic materials, with select consumer electronics experiencing broadening acceptance in the marketplace.

.

Overall, from the first quarter, we reported all-in diluted earnings per share of $0.71 or $0.96 per share excluding special items, the largest special item related to a pretax charge of $70 million, which amounted to a $0.14 loss per share after taxes, associated with consolidating a high-cost aluminum alkyls capacity.

We expect to start seeing benefits of this consolidation in 2016. .

The second special item of $0.11 per share in nonoperating pension and OPEB items reflects the net of a mark-to-market pension actuarial loss of $15 million pretax, or $0.12 per share after-tax, and a curtailment gain of approximately 800 -- $8.8 million or $0.01 per share after-tax.

Ordinarily, we would not be required to record pension gains or losses more than once a year during the fourth quarter. However, the workforce reduction plan we commenced during the first quarter reduced our global workforce by approximately 230 employees.

This triggered the curtailment gain for one of our U.S.-defined benefit plans, which required us to remeasure our assets and obligations for these plans. Negative asset performance and a decline in the discount rate for our domestic pension plans year-to-date resulted in the mark-to-market actuarial loss for the first quarter of 2014. .

SG&A expenses were $67.6 million during the quarter, up 4% year-over-year, driven by higher incentive compensation costs and commissions.

Our quarterly SG&A expenses are expected to remain in the mid-$70 million range, with the increase from 2013 driven largely by recurring for on-target incentive-based compensation in 2014 versus an extremely low payout in 2013.

R&D expense entered the quarter at $23 million, up 13%, consistent with our realignment goals to redeploy resources to growth areas. .

Free cash flow, defined as cash flow from operations, adding back pension contributions and subtracting capital expenditures, was strong at $128 million for the first quarter, up 178% year-over-year, driven by working capital reductions and lower CapEx.

As we stated last quarter, we have stepped up our focus on working capital and established a goal to permanently reduce working capital by at least $100 million by 2015. Our initiatives are underway and showing early progress as we seek to achieve a meaningful portion of that $100 million goal in 2014.

Specifically, net working capital improved by $40 million versus year-end levels and sequentially fell 165 basis points as a percentage of sales to 22% mainly driven by lower receivables and inventory. .

CapEx was $24 million, down over 50% year-over-year, a trend we expect to continue throughout 2014 that reflects the fact that our major capacity expansions are now complete.

Our current view is that CapEx will likely decline to between $100 million and $125 million this year, about 20% lower than the range we expressed back in January, reflecting changes in the timing of certain projects and investments. .

From a total shareholder return perspective, we returned approximately $70 million to shareholders this quarter, of which $20 million reflected dividends and $50 million related to executing the accelerated share repurchase program that will be completed at the end of April. .

Overall, our balance sheet remains a source of strength and flexibility with strong liquidity at $524 million in cash reserves, net debt of $537 million, excluding non-guaranteed JV debt, and net debt to EBITDA at 0.9x, roughly in line with our targeted capital structure of 1x. .

Over -- our effective tax rate, excluding special items in nonoperating pension and OPEB items for the quarter, was 23.7%, down 90 basis points year-over-year, driven by geographic mix and benefits from a favorable mix of income and lower tax jurisdictions. At this time, with the same inclusions, we expect our full-year rate to remain at that 23.7%. .

From a raw material standpoint, as we indicated in January, we are currently forecasting an increase in energy costs of approximately $10 million to $12 million for the full year, primarily driven by the impact of higher natural gas prices. The first quarter profit headwind from higher natural gas prices was approximately $4 million. .

And with that, I'll turn the call back over to Luke to discuss our outlook. .

Thanks, Scott. Looking forward, in Catalysts, we expect -- we continue to expect double-digit segment income growth for the year. However, in January, we expect that the earnings pattern for this business to be more evenly split between the first and second halves of the year.

Due to changes in the timing of certain refinery catalyst orders, we now expect growth that is more second half-weighted than the first, with the second quarter Catalysts segment income being similar to the first, and both the third and fourth quarters showing year-over-year growth.

There's always a risk that refiners will change delivery dates on catalyst orders due to startup schedules or a myriad of other issues or opportunities they may be facing, but this is our best estimate based on the information we have today. We continue to believe that Refinery Catalyst Solutions will be the largest contributor to earnings growth.

Specifically, heavy oil upgrading should benefit from continued strong demand globally for FCC catalysts designed to handle heavy resid-based feedstocks, maximize propylene production and address the metal contaminants found in North America shale oil.

We have more than enough capacity to meet our growth objectives and the debottleneck occurring at our Bayport facility, which those of you attending the Investor Day will have an opportunity to tour, is on track for completion in the second half of the year.

Once online, the debottleneck, which will increase our FCC capacity in Bayport by approximately 15%. Similarly, we continue to expect improved earnings in Clean Fuel Technologies in 2014 driven by similar volumes in 2013, but with a better product mix.

The outlook for Performance Chemicals continues to call for modest year-over-year segment income growth.

This growth is primarily driven by clear completion fluids and curatives performance within Specialty Chemicals, stabilized brominated flame retardant pricing and mineral flame retardant volume growth within Fire Safety Solutions and a solid electronics materials and pharma pipeline in Fine Chemistry Services. .

Our current view of the market in order book trends lead us to assume that while bromine pricing trends seem to have stabilized, we don't expect meaningful year-over-year growth in brominated flame retardants. .

As we roll up all those various factors by business, from a total company segment income standpoint, we continue to expect growth in the range of 2% to 7%, but again, with a greater second-half weighting than we would have expected in January.

That assumes Catalysts orders, specifically the Clean Fuels Technologies division, shift as per our customer's current expectations. Second quarter segment income should be roughly flat sequentially with the first quarter, with the third and fourth quarters showing around an 8% to 10%-type year-over-year growth.

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 at this time. [Operator Instructions] Please proceed, operator. Thank you. .

[Operator Instructions] Our first question will come from the line of Mr. Robert Koort from Goldman Sachs. .

This is actually Angel Castillo on for Bob. Congratulations on the announced transaction. I just wanted to actually ask you guys about that.

So could you quantify what you have remaining in your portfolio from API and maybe just help size that contribution still there? And then kind of along those lines, with that remaining in the portfolio, what other parts are candidates for further asset sales?.

Yes, I'll try to take that. If you look at the business, the only thing we divested from our custom services business was ibuprofen and propofol. That was it. So 2 really product lines. We still have the full resources and capabilities and product lines that we offer at our South Haven facility, as well as Tyrone, Pennsylvania.

So we'll give more color when we're able to. We've got some confidentiality obligations, obviously, so you'll see some things in our Q which will outline that more clearly, but we remain committed to the custom services businesses, and in fact believe that this move will strengthen our overall custom services.

With respect to candidates for divestiture, I'm obviously not going to speculate as to what may or may not happen in the future. .

Got it. And then just going on to BFRs, you talked a about a little bit of improvement there with -- or you're seeing a stabilization in bromine pricing, and also you've seen some improvements on trailing 12 months for BFRs.

Could you talk about what you're seeing in that market, specifically in enclosures, just more volume in the end market there?.

Yes, Matt, you want take that?.

Sure. So if you look at BFR overall, volumes continue to trend in line with our expectations in the first quarter. The enclosure segment was not particularly strong in the first quarter, as expected, but it was about where we thought it would be.

The -- as noted in the call, where we're really seeing improvement, I'd say, are in the areas that go beyond enclosures. So some of the areas that we sell 8010 into that go into broader applications are -- continue to show volume growth. Wire and cable market showed good volume movement in the first quarter.

But enclosure is specifically about in line with expectations. .

Your next question will come from the line of Mr. Kevin McCarthy from Bank of America. .

This is Alex Yefremov for Kevin. Just wanted to follow up on a previous question on the weakness in enclosures.

Can you maybe talk about the reasons why you see that? Is it sort of the number of units of consumer electronics that is being sold? Or is it just smaller volume of plastic being used on those units? Or maybe it's a competitive BFR solutions that are being used? What are the main reasons there?.

Sure, I'll take that one. If you really are talking enclosures again specifically, the biggest use, single use for enclosures for flame retardants is in the television space.

And what we're seeing in the television space right now is just relatively flat sales, particularly in the developed world, where most of the televisions are flame retardant, and that those flat sales are translating to relatively flat to soft demand in the enclosure space.

I don't think the competitive dynamics have changed significantly, frankly, over the last year or 2 in terms of whether it's inner resin substitution, FR competition, it really reflects the sluggish demand in the TV market. .

And again, a follow-up on the same business.

Can you talk about price trends in brominated flame retardants?.

Sure, I'll do that. We talked in the first quarter call that we were seeing more signs of stabilization, and that's really where we are right now. We'll continue to be watching and observing what's going on in the market for demand and seeing where things are going.

But right now, we feel we can, overall, maintain pricing about where it is for the year. .

And just a follow-up, when you talk about stabilization, do you mean basically flat prices on a sequential basis or is it something else?.

Our model overall calls for flat pricing sequentially. .

Your next question will come from the line of Ben Kallo with Robert Baird. .

I wanted to stay on the bromine business.

Can you just talk about the competitive landscape and any new volume coming online, and how that's impacting pricing in the context of you guys are also bringing on your new volume?.

Yes, I'll take that to start off with, and then I'll turn it over to Matt, and he can talk a little bit more about it. But if you really look at the volume that we brought online, there's a lot been written about because of that, that's pressuring price down. And if we were running those assets flat out, I could build some credence in that.

But the fact of the matter is when you look at the way we're operating our facilities in the first quarter, we were down at 60%, which is not bringing that JBC volume online. So I don't think that it is a supply situation that's causing the price. As Matt has alluded to time after time, it's really the volume.

I'm not aware of any other new volume for bromine coming online at all. .

There's no new additional volume that's been brought online over the last year other than the small amounts that we've run in JBC when it makes sense, as noted in the call. .

Great, because there were some rumors out there of new volume coming online. One follow-up question.

As you look at bringing on all of your new capacity, do you still think that this is a ramp up when we see this kind of running to closer to full utilization rates by kind of mid-end of next year? Is that how we should think about it?.

Are you talking about bromine?.

No, not just bromine, but everything is -- all new capital projects as you go through them. .

Yes, I think that if you look at bromine, I think it's probably a little bit longer window map. I think that was really designed for the clear completion fluids that were coming online, as well as the mercury removal.

So I think that there was some good news that Matt can talk about, a little bit about from the EPA court ruling that we got yesterday that came out. But I think that's a little bit longer term. I think that's over a 3 to 4-year kind of timeframe. You'll see that level in the end is my expectations on bromine.

If you look at in the Performance Chemicals, in the PCS business in Catalysts, I think that we've got to see the LED market take off. We're 1 of 4 people in the LED market there. So for that capacity to fill up, it's going to be -- we're going to need that LED market with lighting and back lighting to really take off, is get that filled.

So it's a matter of when that is going to happen. And then I think you saw take some actions with the facility in Europe, where we're going to try to take some of that capacity to SOCC, as we'll take some of that capacity to our Texas site. So we're going to take the steps. I think it's a little too early to say it's going to happen next year.

But I think over the course of the next 2 to 3 years, you're going to see those facilities filling up. .

Your next audio question will come from the line of Dmitry Silversteyn with Longbow Research. .

Just wanted to get a clarification on a couple of things.

First of all, when you talk about the back-end loading nature of the catalyst market expectations or catalyst business expectations for this year, was that mainly related about -- around HPC capital projects? Or are there some delays in FCC catalyst sales versus your previous expectations?.

Yes, I think versus previous expectations, the second quarter will be weaker from an FCC standpoint than we expected. But we have a contract. It's a matter of there's some refiners doing some commercial trials with some other products that will have the volume down. And we expect to get that back in the third and fourth part of the contracts. .

Okay. So it's an FCC side. Not the side -- not the HPC side? Okay. .

It's both. It's both, Dmitry. I'm sorry. .

Okay. It is both, but FCC is involved as well. Okay, that's the point. .

Yes, sir. .

Very good.

Can you give us a little bit more detail on sort of the performance of the businesses within the Performance Chemicals, especially on the Specialty Chemicals side? And sort of, I'm still a little bit confused, and forgive me if I'm not as fluent with your new divisional structure, but are the curatives now part of the Fire Solutions or Specialty Chemicals? Or where are they now...

.

Yes, I will give that to Matt, and he can take that. But I think, generally, if you look at -- you have Fire Solutions, you've got all non-brominated flame retardant plus non-mineral -- non-flame retardant minerals and bromine, as well as curatives in Specialty Chemicals. And then in custom services, you've got all the custom services work.

He can talk to each of those. What I would say is Specialty Chemicals had a very good quarter. And if you look at custom services, remember what's muted in custom services is the good work that, that group has done to replace those contracts that expired at the end of 2013. So with that, I'll turn it over to Matt. He can give a little more clarity. .

Dmitry, you've got it right. So Specialty Chemicals contains all of the bromine derivatives that are not flame retardant. So that's our products for oilfield, water treatment, elemental bromine, HBr, frag and pharma, et cetera. It also contains curatives, and then the alumina products, minerals products that are not flame retardants.

And so in first quarter, Specialty Chemicals performed basically as we expected in January. As always, there's a few little ups and downs in there, but the overall business performed as expected. And we highlighted 2 areas that really were truly outstanding, great oilfield volumes within record levels by about 200 tons, frankly.

So very close to an all-time record quarter in volume, driven by the Middle East, the North Sea. And then the curatives business had a very good quarter. It was very strong globally. And we got some benefit, I think, from mild winter in Europe. We didn't have that in the U.S., but the U.S. itself was strong as well. That's specialty.

FCS or Fine Chemistry Services, really unchanged from a business point of view. It's the same products that were in there before. The one thing that will change now is with the announced sale of the ibuprofen, the propofol business. And as well, it performed as expected to a little better, I'd say, driven by electronic materials.

And last year, we had some ups and downs in ag that were related to timing. We did not have that in the first quarter this year. .

Your next question will come from the line of Mr. Steve Schwartz from First Analysis. .

I think it was on the fourth quarter earnings call, you noted that the former Fine Chem segment was facing some expiring contract.

And I'm wondering what portion, if any, of that comment related to the ibuprofen and propofol businesses that you've sold?.

Yes, it didn't. It was none of it. .

Okay. So that's still something we should factor... .

Yes, there were no expiring contracts in ibuprofen and propofol that we're figuring when we're talking about that. Those were ones that were tied to our Tyrone facility and I think in our South Haven facility see's that all. .

We refer to the custom services part of that business where you have kind of one supplier, one customer-type relationship. .

Got you, okay.

And with respect to your opportunity for lower energy cost in Jordan, how or to what extent can that benefit some of your other competitors' who work on the Dead Sea? Or is it isolated just to Jordan's side?.

Well, what's happening is there's -- they're building a pipeline from -- and there's been a -- it's been very public about agreements between Jordan and Israel for the shipment of natural gas. I don't see that it's going to -- my competitors on the Dead Sea already have the natural gas. They are already using it.

So I don't see it as an additional advantage to them. Whereas our electricity, while somewhat subsidized by the government, as all of Jordan is, is based on #6 fuel oil. So it's going to be cost-efficient. It's going to be a lower cost for us based on what the contract is today and what we're paying.

And in addition, Steve, what it does is it opens us up for some other capital projects that could further reduce our costs there that will make sense based upon natural gas that financially don't make sense today. So it's not going to happen tomorrow, it's not going to happen next year.

But over the long term, getting natural gas to that facility will make it a much stronger facility than it even is today. .

Okay, that sounds really good.

If I could ask just one question on the reporting segment change? The Catalyst Solutions business less the Antioxidants business you sold, is it now just the old Catalysts segment?.

Once the sale goes through, that is correct. .

And your next question will come from the line of Mr. Mike Ritzenthaler from Piper Jaffray. .

This is actually Mike Klein filling in for Mike Ritzenthaler this morning.

One quick question on the divestiture, what are stranded cost expected to be once the sale is complete?.

Stranded cost is expected to be minimal, a couple million dollars. And we'll have a plan to manage that. .

Okay.

And have the tetrabrom price increases from last year been sticking? And would you stand by your comments from January that pricing has stabilized? Or have flame retardant prices been showing signs of life?.

Matt?.

Sure. I think as I've already said, I'd stand by the January comment, rough stabilization overall. There's ups and downs in there always, but if you look at overall brominated flame retardants pricing, we've stabilized sequentially. And as we talked in January, the tetrabrom price increase has not totally stuck at this point. .

Okay, great. And if I could just ask one more. We've heard that rates for deep and ultra-deep rigs are declining, signaling that demand is waning.

Now are there industry dynamics that give you conviction that clear brine supply will remain tight for the rest of 2014?.

I think the way I'd answer that is that you have to look at the business beyond just deepwater drilling. Deepwater drilling, for us, is still holding up okay. The Gulf of Mexico was okay in the first quarter. But as we highlighted, I mean, our benefit was really the Middle East and the North Sea. Those were very strong regions.

This business has become a lot more global in the last 5 to 10 years, and specifically in the last 5, I'd say. And so I look at it as more of drilling overall is what's driving our growth as opposed to just deepwater, and deepwater in the Gulf specifically, I probably ought to add. .

Your next question will come from the line of Mr. Robert Walker from Jefferies. .

With respect to balance sheet leverage, you've given a floor target.

Do you see a path to move net debt to EBITDA to 1.5x or higher for buybacks?.

Yes, I mean, at this time, I don't see that. We always have the flexibility to do that going forward, but I would like to maintain some dry powder for acquisitions and some other organic growth opportunities. So right at this time, I think that's a good level for us to be.

But we always have that flexibility in the future if we were determined to do that. .

And I guess given the high valuations private equity is placing on free cash flow streams, is Albemarle the best owner of the bromine business? Or do you think it would make sense to find a way to swap into a more technology-driven business?.

I think right now, if you look at Albemarle, I think Albemarle certainly is the best owner of the bromine business. I think it is core to what we do. There's great growth opportunities out there for that business over the long term, our technology that we have in that business.

And if you look at the cross-selling opportunities we have in Catalysts and some of our elemental bromine customers and things like that. So I think that Albemarle is the best owner in the world for bromine assets. .

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

This is actually Jermaine Brown filling in for David Begleiter.

Can you provide more color on the near-to-medium term trends that you're seeing in Catalysts, particularly pricing within FCC and then volumes within HPC?.

Sure.

Michael, you want to take that?.

Sure. This is Michael Wilson. First of all, on pricing in FCC, I mean, as we indicated in the fourth quarter call, we expected pricing to be moderately favorable in 2014 relative to 2013. We saw that play out in the first quarter.

So again, we announced a price increase in the second quarter of 2013, and we continue to work diligently to put that through. With regard to our Clean Fuels business and HPC volumes, I think on the whole for the year, we see those relatively flat, although with an improved mix, which we certainly saw play out in the first quarter.

And we would expect that trend to continue. .

Understood. And what areas -- regarding the sale of the antioxidants, ibuprofen and propofol businesses, you made a comment in the, to answer the question before mine, that you'd like to retain some dry powder to make some strategic investments.

Within your portfolio, what areas would you consider making these strategic investments in?.

I mean, as we've said before, we're looking for something that would either drive new uses of bromine or make us a stronger bromine to strengthen and grow our bromine franchise or strengthen and grow our Catalysts franchise. So if you look, it will be tied in the area that we're looking in one of those areas. .

Understood.

And then within BFR inventory levels at the customer levels, what are you seeing there?.

I'll take that one. I don't see that we have any significant inventory overhang from what we can tell from our customer levels. I would talk before, as you go down the value chain, there's always some risk that we lose track. But the messages we're getting is that there's not an inventory issue out there.

And we, as well, are operating our assets very carefully and managing inventories very closely. We don't have an inventory overhang in our sites at all. .

Your next question will come from the line of Chris Kapsch with Topeka Capital Markets. .

A follow-up on the pricing discussion on FCCs, in particular. Just wondering, the variance that you saw in the first quarter, is that more a function of just the absence of benefit from.

the rare earth pass-through, that which we're cycling now here in the first quarter? Or is there net-net positive pricing with your mix of customers?.

We don't see any rare earth comparison issues at all right now. So it's really all business performance that's driving that. .

Okay. And then so the volume performance of greater than 10% growth year-over-year. Last year, you did win some business based on technology, as you put it. And I guess it takes, once you win a trial, it takes a while to -- for refiners to shift over the FCC unit.

I'm just wondering if this volume performance is a function of that more so than the overall market? Or maybe you could disaggregate the growth that you're seeing from, say, the overall market versus share gains that are now sort of starting to flow through your top line?.

Yes, I'll take a piece of this, and I'll turn it over to Michael. I think it's hard to determine whether or not you've got share gains. So let me give you an example here. Where you've got a customer, an FCC unit that goes out of business or shuts down in the U.S.

on the East Coast and a new one comes online in the Middle East or a new one comes online in Asia that's bigger and larger, and you win that unit, I don't see that as really a share gain in the traditional sense.

I mean, you've got volumes moving to other areas of the world that are looking for different types of technology because they're handling different types of crude. So I think a lot of the volume shifts going on. And I think market share has been relatively stable through the years if you go back and look at FCC volume.

We've got some movement going on from new refiners coming online, handling new crude slice that have really benefited our technology portfolio. And we continue to do well there.

And I think this year, we're still confident in the growth that we're seeing in spite of some of our customers using some commercial trials for some other suppliers in the second quarter.

Michael, you have anything to add on that?.

I mean, I would just say there's 3 components to the growth overall. You talked to the sort of customer wins piece that in some cases is coming from new refiners. A piece of it clearly is market growth. And then I would say the third aspect is just how turnarounds vary from year to year.

We noticed before that in 2013, there was a higher number of customer turnarounds, particularly in the first half of the year than certainly that we've seen in the first quarter of this year.

So I think that's a benefit year-over-year that's helping contribute to double-digit volume growth, which clearly seems out of line with what you would expect from a market growth-only standpoint. .

Can I just follow up on the -- so you're calling out that some... in the second quarter, your guidance is for the growth not to look as strong, and it's a function of commercial trials. So you're suggesting that some customers are a commercial trial.

You have to run an FCC unit on a new catalyst for a period of time to determine if the refinery economics still works.

So you're suggesting that that's disrupting you or your core business and affecting the comps in the second quarter, but you feel like, for the full year, your growth is going to be comparable to what you've seen in the first quarter. Is that... .

Yes, what I would say is if you look, but that always happens. So I'm not... I don't want to use that as a problem. That happens every quarter. Somebody's got a commercial trial. It just happens how much volume's moved around in those. So we've got a difficult comp in the second quarter.

I think you will see sequential volume in FCC down somewhat, rebounding in the third and the fourth because we've got new units coming online that we've won that business.

And overall, I think, for the full year, you'll see the second half strong, the first in FCC catalysts, assuming all the -- everything goes as our customers anticipate them to go today. .

Your next question will come from the line of Mr. James Sheehan from SunTrust. .

Luke, I recall you speaking in the past about some areas of your business like Antioxidants being on a short leash. You were looking to address those, focus on raising profitability before you might consider other strategic options.

I was just wondering where is your focus now on similar efforts like this to improve operational performance?.

I think it's across-the-board. If you look, I mean, one of the main focuses that we have, and we've taken some steps this quarter, is if you look 2.5 years ago at the profitability of our PCS business, and you look at it today, there's been a degradation. There's too much capacity in the marketplace, prices and the electronic materials.

1.5 years ago, 2 years ago versus what it is today, prices have fallen almost 75%, 80%. So there's a lot of people. When you make solid margins on business and other people see it and try to get into that business. And that's what we've had. And as a market leader, we've had to protect our turf from some actions of some competitors.

So we've got a plan over the long term. It's not going to happen overnight, but we've got to focus on PCS. It's core to our business, and we'll continue to try to find ways to drive that, as we will on all our businesses.

I think, every day, we wake up trying to figure out how we are going to help our customers make more money and how we are going to get a piece of that so we can also make more money. So I don't look at it as we're going to fix business A then turn to business B then turn to business C.

It's every day, every business is looking up to seeing how they can be more profitable by helping their customers be more profitable. .

Very good.

And in the new segment, Performance Chemicals, I was just wondering if you could update us on what is the breakdown of bromine derivatives usage by end markets such as electronics or clear completion and what-have-you?.

Yes, go ahead, Matt. .

I'll take that. Generally, if you look at electronics, it continues to be an important part of the business. It's roughly between 15% and 20% of our sales. When you talk electronics, there's a lot of pieces there, some that are performing better than others. Where I think people have been focused is on that weakness in PC and televisions.

Those are, frankly, becoming less important as other parts of electronics grow. The next biggest space from a volume point of view is the oilfield or clear brine set space, the completion fluids. And that's on a very strong growth curve, which it's been on for -- going on about almost 2 years now. .

And where do you see the mix of your bromine derivatives going over the next 2 to 3 years?.

So if you go back and look 5 years ago, it probably would've been in excess, so 60% related to FR. Today, it's down less than that. FR is still important. It's still the biggest use. But what we're seeing is some of these other businesses and the Specialty Chemicals space are growing faster, and they are helping to balance the portfolio.

This is one of the topics we'll tackle at Investor Day if you have someone there at our event in Houston in May. And clearly, there's -- it's becoming a declining portion of the business right now because of the -- not that it's not really growing that much, it's that the other businesses are growing faster. .

And at this time, I would like to turn the call over to Mr. Lorin Crenshaw for your closing remarks. .

I just thank everyone for your time and your attention, and invite you to call me with any further questions. Have a good afternoon. .

And ladies and gentlemen, this concludes your presentation. You may now disconnect. Enjoy your day..