Matthew K. Juneau - Albemarle Corp. Scott A. Tozier - Albemarle Corp. Luke C. Kissam - Albemarle Corp. Silvio Ghyoot - Albemarle Corp. Joris Merckx - CHEMETALL GmbH.

Matt Andrejkovics - Morgan Stanley & Co. LLC Robert Andrew Koort - Goldman Sachs & Co. P.J. Juvekar - Citigroup Global Markets, Inc. (Broker) David I. Begleiter - Deutsche Bank Securities, Inc. Michael Joseph Harrison - Seaport Global Securities LLC Aleksey Yefremov - Nomura Securities International, Inc. Tyler Charles Frank - Robert W. Baird & Co., Inc.

(Private Wealth Management) Laurence Alexander - Jefferies LLC Michael J. Sison - KeyBanc Capital Markets, Inc. James M. Sheehan - SunTrust Robinson Humphrey, Inc. Mike Ritzenthaler - Piper Jaffray & Co Dmitry Silversteyn - Longbow Research LLC Christopher J. Kapsch - BB&T Capital Markets.

Good day, ladies and gentlemen, and welcome to the Q3 2015 Albemarle Corporation Earnings Conference Call. My name is Mark, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Matt Juneau, Senior Vice President of Corporate Strategies & Investor Relations. Please proceed, sir..

Thank you and welcome to Albemarle's third quarter 2015 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 www.albemarle.com.

Joining me on the call today are Luke Kissam, Chief Executive Officer; Scott Tozier, Chief Financial Officer; Silvio Ghyoot, President-Refining Solutions; and Joris Merckx, President-Chemetall Surface Treatment.

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 forward-looking statements contained in our press release. That same language applies to this call.

Please also note that our comments today regarding our financial results exclude all non-operating 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.

Finally, all year-over-year financial comparisons are based on pro forma 2014 results as shown in the April 8-K to facilitate a cleaner comparison. With that, I'll turn the call over to Scott to discuss our third quarter results..

Thanks, Matt, and good morning, everyone. In the third quarter, we again delivered on both key financial and operational commitments just as we have all year. Financially, our three core GBUs again performed very well, demonstrating the superior quality of our business portfolio.

Excluding unfavorable currency impacts, these GBUs delivered adjusted EBITDA growth of 8% versus third quarter of 2014. Adjusted EBITDA margins for the three core GBUs were 31%, up from 29% in the third quarter last year, and 30% in the second quarter of this year, reflecting improved pricing and the increasing impact from synergies.

Performance Chemicals adjusted EBITDA increased by over 6% compared to the third quarter of 2014, an 11% excluding the impact of foreign exchange with the Lithium and PCS businesses driving the increase. Chemetall Surface Treatment adjusted EBITDA increased by 5%, and by 16% excluding the impact of foreign exchange.

For Refining Solutions, adjusted EBITDA was down just under 12% compared to the third quarter of 2014. It increased by 13% sequentially. Heavy Oil Upgrading or FCC catalysts had another very strong quarter while Clean Fuels Technologies or HPC catalyst results were again impacted by the current operating and competitive environment in refining.

Including corporate and the three businesses targeted for divestiture, total company sales in the quarter totaled $905 million, down 9% from third quarter of 2014, with adjusted EBITDA of $235 million essentially flat. Adjusted EBITDA margins increased to 26% from 24% in third quarter of 2014.

And excluding unfavorable currency exchange impacts, sales declined by 3%, but adjusted EBITDA increased by 6%. There were several operational highlights in the quarter. Given the success of our integration efforts, we increased our 2016 synergy target by 20% from $100 million to $120 million.

We generated $187 million of adjusted free cash flow in the third quarter, bringing year-to-date free cash flow of four onetime items to $405 million. Finally, we completed the refinancing of the $1.25 billion and 4.625% 2020 senior notes assumed in the Rockwood acquisition and has since called those notes in mid-October.

At current LIBOR rates, interest savings from the refinancing will approach $40 million on an annualized basis. Before getting into the business details, I'll cover some of the detailed P&L and balance sheet items. Overall, for the third quarter, we reported all-in diluted earnings per share of $0.58 or $0.90 per share, excluding special items.

There are a number of onetime special items during the quarter, the largest of these related to the Rockwood acquisition. The inventory step-up resulted in a $0.12 loss per share. Onetime acquisition and integration costs resulted in a $0.24 loss per share. Various land sales resulted in a gain of $0.04 per share.

A full reconciliation of these items is in the press release. The projection of our 2015 effective tax rate, excluding special items, non-operating pension and OPEB items remains at about 27% in line with second quarter guidance.

We continue to expect capital expenditures of just over 6% of 2015 revenue, unchanged from our guidance at the end of the second quarter. Operating working capital ended the third quarter at 26% of sales, unchanged from the level at the end of June. We expect to end the year at about the same level with a potential for slight improvement.

Our core businesses actually made good progress in the quarter. Working capital improved from 26% to 25% of sales, working capital dollars improved by $36 million, and we reduced average days of working capital by two.

The issues in Fine Chemistry Services offset the core business gains as we built inventory in advance of expected fourth quarter sales.

Putting all of these pieces together, free cash flow, defined as cash flow from operations, adding back pension and post-retirement contributions and subtracting capital expenditures was at $405 million through September, excluding onetime synergy, acquisition and tax-related costs.

Based on the strong free cash flow in the third quarter and our forecast for the fourth, we are narrowing our full year free cash flow guidance before onetime costs to between $475 million and $525 million. Similarly, we are also narrowing guidance for the full year free cash flow including those onetime costs to $175 million to $225 million.

At the end of the third quarter, Albemarle's net debt-to-EBITDA ratio, as measured by our bank covenants, was 3.6 times. Our year-end projection is about 3.9 times prior to any impact from the divestitures with the increase from the end of the third quarter, driven by the timing of joint venture dividend payments.

Finally, as you can tell from my earlier comments, exchange rates continue to significantly impact our comparisons to 2014. Based on year-to-date results and an updated ranges of $1.08 to $1.12 per euro and ¥118 to ¥123 to the U.S.

dollar, we expect negative year-over-year adjusted EBITDA impact of $55 million to $60 million with approximately $45 million of that impact already felt in our first three quarters of the year.

Our expected full year impact remains within our previous guidance of $50 million to $60 million with the currency declines against the dollar in emerging markets pushing guidance to the higher end of the range. Now let me turn to business unit performance in the quarter.

Before I address our three core GBUs, note that of our three businesses planned for divestiture, Minerals and Metal Sulfides performed in line with expectations in the third quarter and we expect that to continue for the full year.

Fine Chemistry Services continues to underperform versus expectations as well as against 2014, with third quarter adjusted EBITDA down by over $20 million versus third quarter 2014. And our forecasted full year adjusted EBITDA is now down by just over $40 million versus 2014 in that business.

Refining Solutions reported third quarter net sales of $185 million and adjusted EBITDA of $55 million with margins of 29%. Excluding unfavorable currency impacts, sales and adjusted EBITDA were down 11% and 6%, respectively, versus third quarter 2014. However, sequentially from the second quarter this year, adjusted EBITDA increased by 13%.

While Clean Fuels Technologies volumes stabilized and were roughly flat with the third quarter 2014, profitability continues to be impacted by refinery cost-cutting initiatives in the current low oil price environment, weaker product mix and increased competition from euro-based competitors in markets where sales are made in U.S. dollars.

Heavy Oil Upgrading, or FCC catalyst, had an outstanding quarter, with sales and adjusted EBITDA both increasing by double-digit percentages compared to third quarter 2014. In fact, excluding quarters where rare earth surcharges had positive profitability impacts, the third quarter set a profitability record for HOU.

Our forecast for the refining solutions GBU is unchanged from the end of the second quarter, with full year EBITDA expected to be down roughly 20% versus 2014, with all of the decline in Clean Fuels Technologies.

While we saw some volume stabilization in Clean Fuels Technologies, revenue and adjusted EBITDA comparisons continued to be negative compared to 2014. Heavy Oil Upgrading continues to perform at a very high level, exceeding our initial 2015 expectations.

Third quarter net sales in Performance Chemicals were $400 million, with adjusted EBITDA of $136 million, resulting in margins of 34%. Compared to last year, net sales were down 4% and adjusted EBITDA was up 6%. Excluding currency, net sales were flat and adjusted EBITDA was up 11%.

Results in Bromine and Lithium were in line with our guidance at the beginning of the third quarter, while Performance Catalyst results were stronger than initially forecasted. Lithium sales were up almost 10% with adjusted EBITDA up almost 14% compared to last year. Adjusted EBITDA margins were 41%.

The primary performance drivers were the same as in the second quarter, volume growth in battery grade products, increased pricing in battery grade and other lithium derivatives and the impact of the Talison joint venture. Overall volume growth in the third quarter was 14% year-on-year with pricing improving by 3%.

Volume growth in battery grade products significantly exceeded the average and battery grade pricing improved by over 6%.

Our full-year outlook for Lithium remains unchanged from the beginning of the year, but I want to remind you that fourth quarter adjusted EBITDA is expected to be negatively impacted by JV production timing as we have previously noted.

Adjusted EBITDA for our bromine-based business was $59 million in the third quarter, down 6% compared to third quarter 2014 on an as-reported basis, but flat with third quarter 2014 excluding unfavorable currency exchange impacts.

Note that last year's third quarter results included a large sale of methyl bromide that occurred this year in the second quarter. Excluding the impact of that methyl bromide sale and currency, adjusted EBITDA actually increased by almost 10% compared to third quarter 2014.

While adjusted EBITDA performance was in line with expectations and margins almost reached 31%, net sales were down 14% versus last year on an as-reported basis, and 12% excluding currency.

Over half of that decline is due to the timing of methyl bromide sales already noted but, as expected, we saw declines in sales of clear brine fluids compared to both third quarter 2014 and second quarter 2015 and also saw some negative volume impact in industrial bromides and flame retardants as a result of our price increases.

Overall pricing in the Bromine portfolio improved by over 6% relative to the third quarter of 2014. And we remain committed to the price increases and to capturing fair value for our bromine-based product lines.

Based on volumes in the third quarter, publicly available electronics market data, the current fourth quarter order book and customer forecast in flame retardants, we expect to see some weakening of the Bromine business in the fourth quarter.

It is too soon to predict if flame retardant weakness in the fourth quarter reflects year-end inventory management across the supply chain or a reduction in end market demand. In addition, production timing could also negatively impact adjusted EBITDA compared to the fourth quarter of 2014.

Given these factors, our full-year expectations for Bromine are somewhat reduced from third quarter guidance. We now see full year performance as flat to slightly down compared to 2014 instead of slightly up. Finally, Performance Catalyst Solutions, which also includes Curatives for reporting purposes, continues to perform very well.

Adjusted EBITDA was up 27% compared to third quarter 2014, driven by volumes and product mix and polyolefin catalysts. Our full-year view is further improved by the third quarter results. We now expect adjusted EBITDA to improve by close to 20% versus 2014.

Note that we do expect a meaningful sequential adjusted EBITDA decline in the fourth quarter due to the timing of sales and negative impacts related to our joint ventures in this segment. Chemetall Surface Treatment net sales were $212 million, with adjusted EBITDA of $54 million, resulting in adjusted EBITDA margins of 25%.

Excluding unfavorable currency impacts, sales and adjusted EBITDA were up 14% and 16%, respectively, compared to third quarter 2014. Performance both in key end markets and regionally was in line with expectations. Automotive, aerospace and aluminum finishing were all strong.

Regionally, North America and Asia Pacific, where we are benefiting from 100% ownership of the former Shanghai JV, lead the way. Western Europe also performed well. In emerging markets, we continued to see solid results in China, but sales in Eastern Europe and South America were down primarily due to weakness in Russia, the Ukraine and Brazil.

Our full-year outlook remains unchanged with adjusted EBITDA expected to grow by a few percent compared to 2014. Excluding unfavorable currency exchange impacts, adjusted EBITDA is expected to increase by the mid-teens on a percentage basis. Now, I'll turn the call over to Luke..

Thanks, Scott, and good morning, everybody. Before I comment on the businesses and our strategic objectives, I'd like to provide some context on the recent announcement of Raphael Crawford as President of Bromine Specialties and John Mitchell as President of Lithium & Advanced Materials effective January 1, 2016.

After an external search and extensive consideration, we came to the conclusion that it was in the best interest of the company to promote Raphael and John. Both have been instrumental in delivering the results we've achieved in Performance Chemicals year-to-date, an adjusted EBITDA increase of 15% through the end of the third quarter.

In making this move, we also decided to report what has been Performance Chemicals in two segments starting with the first quarter of 2016, Bromine Specialties and Lithium & Advanced Materials, which includes Lithium and the PCS businesses.

As we are already publicly reporting these results for these segments, there is no impact on your ability to model our performance. Other than our not reporting consolidated results for Performance Chemicals, there will be little, if any, change on how we operate.

Raphael and John will report to me, their reports remain the same and our focus on delivering superior growth, margins, synergies and free cash flow will not change. I'd like to make some general comments about year-to-date performance.

Despite a challenging macro environment including low oil prices, significant foreign exchange headwinds and weak growth in China and other emerging markets, our core businesses have performed exceedingly well.

All of our businesses, with the exception of Clean Fuels Technologies and Fine Chemistry Services continue to meet or exceed our expectations from January. We have also made progress against our strategic objectives. First, our integration team has now executed projects that will deliver $60 million in savings in 2015.

That represents 20% more achieved synergies than we originally forecasted for the year. On a full-year basis, actions already taken will deliver savings of roughly $85 million in 2016.

In September, we increased our synergy target for calendar year 2016 from $100 million to $120 million and remain confident in our ability to execute against identified projects to deliver this level of synergies.

Secondly, we are making good progress in our two most strategic capital projects, startup of our 20,000 metric ton battery grade lithium carbonate plant in La Negra, Chile is continuing as planned.

We also announced our plans to build a world-scale battery-grade lithium hydroxide into our lithium carbonate plant to convert our share of spodumene production from our Talison JV to these derivatives.

This conversion plant will enable us to meet the growing demand for battery-grade lithium derivatives with capacity brought online in increments consistent with that growth in demand. These facilities are key to meeting our strategic objective to capture about 50% of overall lithium growth.

Once they are fully operational, we will be the only global player with capacity necessary to support expected growth in both battery-grade lithium carbonate and lithium hydroxide, and we will be positioned to succeed no matter which product is required.

Third, as Scott highlighted, we continue to demonstrate the cash generation power of Albemarle with adjusted free cash flow before onetime items reaching $405 million through the end of the third quarter. That's 90% of the low end of our full-year forecast.

Finally, we announced this morning a definitive agreement to sell the Metal Sulfides business to Treibacher Industrie AG with closing expected in the next two months. We are pleased with the sales price and we'll apply all our proceeds to debt reduction.

In addition, we continue to make excellent progress on the divestiture of the Minerals business and are currently in exclusive negotiations with a strategic buyer. Clearly, we have delivered on our commitments year-to-date and we expect that to continue. Looking ahead to the fourth quarter, we see no change in our outlook for Lithium and PCS.

However, as expected, Lithium is forecasted to be roughly flat compared to the fourth quarter of 2014 due to joint venture production and shipment timing and PCS down due to negative impacts related to our joint ventures and shipment timing.

Bromine is forecasted to close the year somewhat weaker than expected in July as we are seeing some negative volume impact from weaker to market demand and the effect of our price increases. As Scott indicated, it is too early to predict if the fourth quarter softness is a result of inventory management or true weak end market demand.

Nevertheless, we expect Performance Chemicals adjusted EBITDA for the full year to be up by double digits on a percentage basis versus 2014, excluding unfavorable currency exchange impacts. Our Refining Solutions full-year forecast remains unchanged with EBITDA expected to decline by about 20% compared to 2014.

We expect continued strong performance in Heavy Oil Upgrading and continued pressure on Clean Fuels Technologies in the fourth quarter.

Finally, Chemetall Surface Treatment continues to deliver very steady results, and we still expect full-year adjusted EBITDA to be up by low single digits on a percentage basis versus 2014 and by mid-teens excluding negative impacts from foreign exchange.

Based on third quarter results and our expectations for the fourth quarter, we now project full-year 2015 adjusted EBITDA of $940 million to $960 million.

This includes $52 million from the non-cash foreign exchange gain which we recorded in the first quarter related to cash on hand after the closing of the Rockwood acquisition and roughly $50 million of EBITDA from the three businesses targeted for divestiture.

On an adjusted earnings per share basis, we are narrowing our annual guidance to $3.65 to $3.80 per share. Note that the driver for the reduction in the top end guidance from the second quarter is the poor third quarter performance of our Fine Chemistry Services business and their reduced fourth quarter forecast.

In closing, while we will not give 2016 guidance until our next earnings call, based on our financial and operational performance to date in 2015, I am more confident than ever in Albemarle's future. We have a strong business platforms with the right leaders in place to make them even stronger.

We are taking steps through our integration and synergy programs and through other strategic initiatives to further improve our performance. Our strong cash generation and disciplined cash management have us on track to deleverage in line with our commitment.

All of these factors position us to perform no matter the operating environment and to deliver superior shareholder returns over time..

Operator, we are ready to open the lines for Q&A. But before you do so, I would remind everyone to please limit your questions to two per person at one time so that everyone has the chance to ask questions. Then feel free to get back in the queue for follow-ons, if time allows. Please proceed..

Your first question comes from Vincent Andrews of Morgan Stanley. Please proceed..

Yes. Good morning. Actually, this is Matt Andrejkovics calling in for Vincent. Thanks for taking the call..

Hey, Matt..

Hey. Can you just give a sense of how much of your original – you had an original estimate of headwinds for Bromine, including clear brine fluids earlier in the year. And so, it seems like some of that is creeping in into the back half of this year.

But can you give a sense of how much of that original estimate might be lingering as you head into 2016?.

Yeah. So, I mean, as we were expecting going into the second half, we were expecting that clear brines would be significantly down based on the CapEx forecasts that were out there, the completions that we're seeing. We're actually seeing somewhat better performance in the second half than we expected.

And I think, as you go forward, it's holding up better, primarily on the back of the Gulf of Mexico as well as some of the deepwater fracking jobs that are in the Gulf of Mexico. Rest of world is still quite weak. There's some early signs of improvements in the rest of the world, but, at this point, too early to call in terms of how that all play out.

We still expect based on the CapEx spending, the announcements from the service providers as well as the exploration guys that there will be continued declines in this business..

Okay. Great. Thanks. And then can you indicate how much the acquisition of the Shanghai JV has contributed to Surface Treatments this year? Thanks..

Yeah. So if you look at Surface Treatment's results for the third quarter, they are up roughly 16%, excluding currency that Shanghai JV contributed roughly 5% to 6% of that growth..

Thanks very much..

Your next question comes from Bob Koort from Goldman Sachs. Please proceed..

Thanks. Good morning.

I wanted to ask about the Clean Fuels business and at what point does the continued waiting for that recovery turn into a new reality that maybe it will never occur?.

Yeah. Let me – I think on that one, Bob, it's going to recover. They've got to change them out. And they've got to run the units, so that they can't change that. I think if you listened to some of other calls, if – the heavier is it, they have to change out sooner, the distillates and VGO where were stronger, they can delay longer.

So, our hurt has been a little more painful than others. But I think, as we've said, I would expect 2016 to be a better year than 2015 for CFT. I don't see it getting any worse..

And then you mentioned some pricing power in Lithium. And, I guess, I was under the impression that a lot of those contracts get reset annually. And your competitor, one of your main competitors out there is talking up price quite a bit.

So, can you talk about your new plant in La Negra, how you think about that feathering into your revenue base? And then, secondly, what is the stage-gater, what's the make-or-break timing for a decision, what you're going to do with that spodumene conversion plant?.

Well, from a La Negra plant, we're in the process of start-up. And as we've said, you ought not been modeling much in the way of revenue, any material way till the beginning of 2017.

We've got long periods of time both for qualification and to get – it takes a long time to get from brine coming out of the ground to the evaporation process for us to be able to load the plant.

So, from a La Negra standpoint for next year, I wouldn't – you ought not model a whole lot of revenue upside from lithium in that, more in the 2017 timeframe. There is no timetable to pull the trigger on the spodumene plant per se.

If you want it online in 2019 or 2020, which is the path that we're working on, we'll have decision points along the way, but we've got 12 months or so before we have to make that type of decision. So, it's a 2016 type of decision and we're doing work now to ensure that we're able to make a decision both on timing, location, size, everything else.

So, that will be a 2016 type of decision..

Luke, sorry, just to clarify, so in La Negra, there is brine in the holding ponds and you're at just some stage of that 18-month process or just filling into the ponds or....

Yeah. No, no, there's constantly brine in the ponds, but the ponds are in the salar, but, yes, they're in Chile. So, we have it in there as well. But you've got a – that was for existing capacity that we have down there.

So, this additional capacity, we need more brine, and we're in the process of ensuring that that's in the pond and we've got enough to allocate where it needs to be..

Okay. Thank you..

You bet..

Your next question come from P.J. Juvekar from Citi. Please proceed..

Yeah, hi. Good morning..

Hi, P.J..

You know, Luke, you guys raised bromine prices by 30% or announced a price increase. But now today, you're reducing guidance in bromine.

So I guess my question is, do you think the strategy of raising prices that aggressively could backfire?.

Yeah, it could always backfire. I mean, I think we've been clear that we've lost volume. We've lost volume in the bromine world. And we've got to price for value. So, you can't ever second-guess those decisions. We've got models that indicate and we can show you how today we believe we're better off financially from raising the price.

If you look at our expectations for bromine at the beginning of the year, it's overperformed. A piece of that outperformance is the increase in pricing that we've been able to achieve, and a piece of that has been clear completion fluids have been stronger than we anticipated. So, I don't look back on it and think it was a bad decision.

I think you've got to be able to adapt to the marketplace and you got to get value for your products or there's no sense coming to work..

Yeah, just on that, is that – you're losing volume, is that sort of low-end volume that you are losing or is that because competitors aren't going along with the pricing?.

It's – all I would have would be anecdotal on that. I mean when you're losing volume, if you're losing volume, you're losing it to somebody. So, you got to listen to the other conversations that are having on the analyst calls and see whether they are up or whether they are down or what they are.

And then I think, end of the year, you always see a little weakness in bromine. So, we see that every year, people start taking down the inventory levels and that – and people are generally worried about what's going on in the world and what's going on in China, are we getting ready to roll into a problem.

So, they don't want to be stuck with a lot of inventory on year end. So, I'm not too worried about the bromine right now today. I think we're in good shape. Glad we took the steps that we did, and we'll play out to see whether or not this is a inventory adjustment that's going to pick up next year or whether it's true demand.

And either way, we're going to be prepared to maximize the profitability of the business..

Thank you. And just for my second question on free cash flow. You talked about roughly about midpoint of $500 million of free cash flow next year. Maybe you can talk about what are puts and takes on that. And if you want to get leverage down, would you consider selling Surface Treatment at some point? Thank you..

So, on the free cash flow comment, the $500 million midpoint is really for this year, P.J. We're actually expecting an increase next year. And a lot of that's on the back of reduced one-time costs, also the reduced interest costs that we have and underlying business performance including synergies.

And so, all of those components coming together will allow us to grow our free cash flow next year in a variety of different business conditions. So we feel good about that lever continuing to show through next year. And, Luke, do you want to talk about the....

Yeah. If you look at it, we don't need to sell any of these business to hit our deleveraging target. So, it's not a question of do we need to sell something to hit our deleveraging targets? I'm confident that we will deleverage without the need to do that..

Thank you..

Operator?.

Your next question comes from David Begleiter from Deutsche Bank. Please proceed..

Thank you. Good morning..

Hey, David..

Hey, Luke, staying on bromine.

Why do you think competitors aren't supporting your price increase?.

Hey, David, I didn't say all competitors weren't supporting our price increase. What I said is, we're losing volume on price. So, I think that everybody has got a different situation, some people – Chinese are moving it at cash cost. And their cash cost hasn't gone up as the amount of our price increase.

So, we knew there's a risk that we were going to lose it. We've essentially lost, Matt, I'd say just about the bulk of our volume that goes into China particularly in flame retardants, we've lost that as result of the price increase..

Particularly in bromine..

Yeah, that's what I mean..

Methyl bromides..

Yeah. So, it's – different people have different models. And we knew that going in, and we take that into account when we raise the price..

Very clear. Thank you for that. And just on FCC, Luke, very strong performance.

Can you discuss the supply-demand and pricing dynamic in the industry currently going forward?.

I'm sorry. I didn't quite hear – FCC pricing going forward. Yeah, I'm sorry....

Yeah.

FCC supply-demand dynamic and pricing going forward in FCCs?.

Yeah. I'm going to let Silvio Ghyoot, our Head of our Refining Solutions, take that one..

Okay. Thanks, Luke. Well, thanks for the question. You know that the supply-demand ratio that we are running at pretty high rates. Structurally, we see a strong market, new units coming on, as well as strong demand for gasoline, for fuels in general.

So the combination of that strong supply-demand and the strong demand for end products create a positive atmosphere for pricing..

What is pricing up in FCCs year-over-year?.

Scott, you have that..

Yeah. So pricing is up low-single digits on a year-over-year basis, consistent with what we've had in the past..

Thank you very much..

Your next question comes from Mike Harrison from Seaport Global Securities. Please proceed..

Hi. Good morning..

Hey..

Hi, Mike..

Luke, can you give us some detail on where the additional synergies are coming from?.

Yeah. I'll let Scott go ahead and give a little bit of that. I think a lot of it's coming from we're getting a bigger restructuring than we anticipating to start off with, and at a very high level, from the efficiencies in the system when you bring these companies together, and you just look at the buying power that you have.

We're getting a significant amount of leverages by pulling in all our purchasing together, and doing an RFP for all of that volume, from a services standpoint, from everything else.

So the team has really done an excellent job, and that supply chain has done a fantastic job in finding ways to make sure we get that – the products and the assets and the services that we need, and that we're doing them as efficiently as possible.

Scott?.

Yeah. I would just add that the whole organization has coalesced around this challenge around supply chain and leveraging that scale that Luke talked about, and that's really where a lot of the additional savings are coming from. And as Luke said that, we do have additional savings in the reorganization as well.

As we go into next year, you're going to see a bigger impact from supply chain than what we have, as well as the impact to some these reorganization starting to take – starting to hit our P&L as opposed to what we had in this year..

All right. And then on the lithium business, I was wondering if you could give us a little bit of a weather report. There was some rain in the Atacama earlier this year and I think El Niño weather patterns could potentially bring some more rain.

Did you see any impact on your operations and are you taking any precautions to ensure that you don't have any supply disruptions if there is some rain?.

Yeah. There's not a whole lot of precautions I can take against rain, but what I would say is, we – the main issue that you have on – when that happens is you get – it dilutes the brine somewhat, but you don't get enough rain down there at those ponds that it really dilutes it.

So, sometimes we have operational issues getting really – transporting the brine from the cellar to the Atacama to La Negra to be – because of the road, it's desert and a lot of dirt roads over there, but that's – we usually have enough brine at La Negra to do that, and we plan for it.

This just happens to be I think one of the wettest years on record down there, but we have not seen any material impact from those rains other than some operational issues that we were able to fix in the plant..

Thanks very much..

Okay, Matt..

Your next question comes from the line of Aleksey Yefremov from Nomura. Please proceed..

Good morning. Thank you. Following up on a free cash flow question.

For 2016, if we look at this year's adjusted guidance of $450 million to $550 million, can you reach the same level next year on an unadjusted basis, given that restructuring cash costs and tax payments will be lower?.

Yeah. I don't know that we can quite there from an unadjusted basis. We will still have some costs related to synergies in our numbers next year, somewhere in that $75 million to $100 million range. We still have some of the one-time tax payments related to the restructuring we did the Rockwood acquisition of around $30 million to $40 million.

Those are going to be drag on our next year's actual reported free cash flow. But that underlying – without those one-time, we'll see a meaningful growth. And obviously, on a reported basis, we'll see significant growth in those numbers..

Thank you.

And as a follow-up, on HPC pricing, is it getting worse as you go through the year or is that sort of staying at about the same level in terms of competitive intensity from euro-based producers?.

Silvio?.

Thank you, Luke. Let me put it straight. On a product comparison basis, it's not getting worse. However, what we do see is that refiners do select some lower cost or lower priced solutions and that has an effect on the reduced margins..

Thank you very much..

Your next question comes from Tyler Frank from Robert Baird. Please proceed..

Hey, guys. Thanks for taking the question..

Hey, Tyler..

Just on FCC, one of your competitors commented they, they were essentially running at 90% utilization rates in Q3 and except that to ramp up to about 95%, which should be at full capacity in the second half of next year.

Can you talk about your utilization rates and where you see that going in 2016? And then on order flow, what's the type of mix that you expect in terms of higher margin versus lower margin catalyst?.

Silvio?.

Thanks. On your first question, I think that the projections on the capacity utilization are correct that we are running at comparable rates. The order flow, hard to predict. We are strong in the polypropylene market and the propylene markets. You know that we ship primarily much in Middle East and Asian markets. Gasoline demands or orders from the U.S.

are high also, so it's somewhat hard to predict on what's the exact outlook of next year's order pattern will be..

Great. Thank you..

Your next question comes from Laurence Alexander from Jefferies. Please proceed..

Good morning. I guess first on the Clean Fuels performance.

Can you give a sense for or can you tease out if demand recovered to normalized levels, how much of a headwind the share losses would be? And secondly, can you give a sense at current FX levels, how much of a headwind you're looking at for next year?.

On the demand, if the demand recovered, how much would the share losses be, what kind of – we had – we've lost a little bit of share, maybe a couple of percentage points, but it hadn't been that significant from the overall standpoint. And we'll pick up some too.

The way that the CFT works on HPC is their bid – you have a higher likelihood for, if you have that first fill to get the second fill, but once you get to that third and fourth fill, it's really a bid process because they know how much that unit works and what the operating dynamics are, so they are more out to make a swap out there.

So, it's more bid. I think next year we'll pick up some business. We always lose some business, we always pick some up, and we keep track of it. This year, we did lose a couple of share points, but I wouldn't expect it. It wouldn't be a significant detraction. On the free cash flow numbers, Scott, I don't know if we have that, can you....

Yeah, on the foreign exchange, I haven't really fully modeled that out yet, because obviously you've got some moving parts even as we speak today. But as you look at the 2015 numbers, a lot of the foreign exchange impact in total occurred in the fourth quarter of last year as well as early first quarter of this year.

So, I'm not expecting a huge impact going into next year, although there will be some. We'll have to see as the Fed and the ECB starts to make their decisions here in the fourth quarter how those numbers start to change though..

Thank you..

Operator?.

Your next question comes from Mike Sison of KeyBanc..

Hey, guys. Good morning. Nice quarter..

Hey, Mike..

Thanks a lot..

Luke, I know – in terms of 2016, you did talk about headwinds from – I don't know about a headwind, but you're not going to see the FX gain next year, nor the divestitures, so you are somewhere in a $100 million hole..

Can you – I know you don't want to give specific guidance, so maybe talk about some of the areas where you have EBITDA growth next year within your control to offset some of those?.

Well, I mean, we've said we're going to get synergies. So if we get $60 million this year and we'll add a $120 million next year, that ought to be $60 million right there. So I – the way I think of it is the additional synergies kind of offsets the divestitures, or it should, and that's what we're expecting.

And then, I think if you look at our overall businesses, we've talked about the Surface Treatment, we ought to have growth there. I would expect lithium to continue to grow with the demand and pricing. I would expect Surface Treatment to continue along its path that it's shown over the last five years from a continual growth.

And then it comes – PCS has nice more like GDP growth and it comes down to bromine, and what I just don't know about bromine is, what's going to happen on completion fluids.

Eventually, if these – if we keep seeing these projects – at some point in time, if we keep seeing these projects delayed or canceled, there will be a reduction in Clean Fuels – and I mean, in clear brines. I just don't – I don't know enough today to see where that's going to be.

So bromine's probably flat to down next year and the rest of them I see growth. So I think, we'll roll out more – a lot more detail on that, Mike, in our next call, what our 2016 forecast will be with regard to EBITDA, free cash flow and items like that. But I think we see a path to be in good shape there..

Okay. Great. And then, you know PCS continues to have a pretty good momentum there.

Can you – is there any big share gains for the new products that are coming out that continues to give that business momentum?.

I wouldn't say there's a whole lot of share gains there. I mean, this is a pretty – as we've talked about, it's a pretty – particularly for aluminum alkyls, that's a pretty tough market. We still need some pricing momentum there that we don't have. It's very, very competitive. Pricing has not been good from an aluminum alkyl standpoint.

But we've done some shuttering of facilities, as you know, and the team has really worked hard to get cost right-sized of what that market is, because it – it adds a tremendous amount of volume. We've seen some growth in some of the lithium specialties that are in there. So, and curatives has done quite well.

The competitor had a shutdown in 2015 that we've benefited greatly from that they're back up and running, their business is still doing fine. So, I think that, overall, it's just good, sound fundamental of operations, Mike..

Great. Thank you..

Yeah..

Your next question comes from Jim Sheehan from SunTrust. Please proceed..

Good morning. Could you talk about how much of your portfolio has taken bromine price increases so far? Do you expect more ramp up in the next couple of quarters and your pricing be higher in 2016 as a result? And I'm thinking about your polymeric flame retardants there.

If you could talk about what pricing level you're going to have on the polymeric product? Thank you..

Yeah. If you look across our bromine portfolio, remember, we did not include a price increase on clear completion fluids given the dynamics. So, the bulk of our portfolio we pushed through price increase, and I think pricing is up year-over-year about 6%. So, we had a 30% increase. Price is up about 6%.

So, you can kind of see that model and we're losing volume. I don't see a whole lot of pricing opportunity going forward. We still got work to do to get this one included. So, I wouldn't model in a significant price increase for next year.

I think we'll get the full-year benefit of what we've got year-to-date so far and wouldn't see much more opportunity in that, Jim..

Great.

And then lithium, could you talk about what your normalized margins are – where you see normalized margins in that business, and also what was the contribution from Talison in the quarter?.

Yes.

Scott, you want to talk about Talison?.

Yeah. Talison, on the quarter, we were probably in – on a year-over-year basis, probably kind of mid-single digits millions of dollars, maybe high-single-digit millions of dollars overall. Normalized margins for lithium. We continue to expect that to be in the high 30%s, as the product portfolio continues to shift toward battery grade.

And as you know, we're doing some of that tolling work out of spodumene from Talison as well. That will affect the margin rates. Although, we continue to expect very healthy dollar growth rates in that business..

Thank you..

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

Yeah. Good morning, guys..

Hey, Mike..

If I could just go back real quickly on one of the previous questions on lithium pricing, the way that I guess I understood that previously is that's pretty much negotiated earlier in the year versus sold on a merchant basis.

Is that a fair way to kind of think about how lithium pricing might kind of phase in through 2016?.

Yeah. The bulk of the pricing is negotiated in the fourth quarter for the following year. And we are looking at trying – because the market is going to get really tight, we're actually exploring ways to enter into longer term agreements with customers who want to make sure they have the security of supply..

That makes sense. And is it mostly contract-based, I mean in terms of the volumes. I'm not looking for anything specific, but just in terms of direction..

Yeah. The bulk of the lithium, particularly battery grade products, is contract-based..

Okay. And then just maybe just to get a sense for some of the needle movers in the full-year 2015 outlook. Just because we look to model kind of Q4, so $3.65 to $3.80.

How much of that is kind of CFT shipments that are previously scheduled versus, I don't know, clear brines, some of the cautiousness around that?.

Yeah. I mean if you look at the change on the top end, it's all custom services..

Right..

I mean all other businesses are performing about or either about like we said they were going to perform in July. The only delta for the second half of the year is custom services, that business that we're trying to sell.

So, it's always, you can have a Clean Fuels or a HOU shipment that moves out one way or the other in or out and it can have an impact in Clean Fuels and clear brines. Obviously, the volumes on that, people, that can be really quick. But at the end of the day, all that's really built into our guidance.

The thing that moved our guidance was the Fine Chemistry Services..

Yeah. Okay. Thank you..

Your next question comes from Dmitry Silversteyn from Longbow Research. Please proceed..

Good morning, guys..

Hey..

Hi, Dmitry..

Thanks for taking my call. I just wanted to follow up on a couple of things that were said earlier. First of all, on the FCC part of your Catalyst business, I think you said you're getting double-digit volume growth there, not a normal level of growth for the industry or your business in this area.

So, have you picked up share somewhere or accounts or got a new product that you're entering into a new sector of the FCC market that you weren't in before? Can you talk about sort of where this strength is coming from?.

Yeah. Dmitry, we said profit was up. We didn't necessarily say volume was up double digits..

Okay. I thought I read your slides that said that volume was up..

And maybe volume's up, I'm just not sure it's up double digits but it's up. So, it's a relative same question. I think what's happened is if you look, we've had this year-to-date six new FCC units have come online, gasoline demand in the summer was very strong and saw some really good addition rates.

All those big new units coming online is meaning a volume increase and that increased demand means some of the other ones aren't coming offline. So we're seeing – I think across the industry, are seeing volume increases from the catalyst suppliers and seeing good opportunities to continue to do that.

Now, I think long term, Dmitry, this is 3% to 4% -- it's based on what transportation fuels are, it's 3% to 4% growth.

We've outgrown over the years, over the last few years because of our technology and the strength of our technology in these emerging markets and these new units that are being brought online where they're looking to handle that heavy resid feed and maximize their propylene yield..

Okay. Luke, that's helpful. So, I must've misheard about the 10% growth on volumes. In the Surface Treatment business, it's holding up okay.

You've gotten sort of good growth there and it's performing in line with your expectations and it sounds like you still expect the business to do well, but if you sort of look at the end markets in some of the important geographies, things are slowing down. Metal and mining is not doing particularly well.

The automotive industry reaching a peak in North America and Europe and is down to no growth at least in the third quarter in China and maybe some ramp-up in the fourth quarter.

As you sort of look at the end markets in the industries that this business serves, how do you maintain this growth level when the industry overall is subsiding?.

Yeah, I'm going to let Joris – he's on the phone – let him handle that..

Okay..

Yes. Thank you, Luke. Well, the observations are correct, but you have to realize that we are serving a very well-balanced portfolio of segments. We are not depending only on the automotive industry.

We have a very steady business in aerospace, where we see order patterns in, for instance, at our customers, they have back orders for the next four years or five years. We are on a strategy of diversification, like you mentioned China, where we have low market shares in other segments, except for automotive. So we can grow in other segments.

Apart from that, you mentioned North America, where we are a very small player in the automotive industry. So, we have potential to grow, meaning capturing market share from other competitors, and we do that year-on-year, and we have – we are weathering other crisis, just like the crisis in 2008, 2009.

We have seen areas where like South America, where we gain tremendous market share, when the economy would pick up. Again there, we would be in good shape. So we are confident to maintain this growth pattern as we have been doing over the past 8 years, 9 years, 10 years..

Okay. Thank you.

And then one final question on synergies and again, now that I've been corrected on the FCC, I want to make sure I didn't mishear what was said earlier, but you're getting $60 million in savings in 2015 and did you say you're going to get $85 million in 2016?.

Yeah. So, it'll be a total – let me – from 2014 actuals, we will have $60 million of savings in 2015. Those actions that we've taken in 2015 to get that $160 million, when you put them on a full year run rate basis, they add up to $85 million on a full year run rate basis, Dmitry..

Okay, okay. I got it..

And then, what we're saying is we still have our target of $120 million savings by the end of 2016.

So, you take that $85 million, put another, what's got – $35 million on top of it, that would get you to the $120 million, okay?.

Okay. That's what I misunderstood from Scott's part because when he said $85 million in 2016, I thought it was the absolute level of savings, not the run rate. I got it. Thank you..

Yeah..

Your next question comes from Chris Kapsch of BB&T Capital Markets. Please proceed..

Yeah. Hi. Good morning, guys. I wanted to follow up on a comment that you made a few minutes ago.

I believe you said the bringing in of the high end of your guidance range was due entirely to the poor performance of the FCS business and so I guess, put another way, if you were to look just at the core business guidance for those business would've been either unchanged, maybe even slightly higher.

So, I guess the question is, remind us why maybe you haven't classified these all other businesses, the ones being divested, as disc ops and it seems like, in this case, with the guidance reduction, those effectively discontinued ops are distorting the optics of the guidance here?.

Yeah. The guidance, I mean, the accounting rules related to disc ops changed at the beginning of this year, and at this point in time, these businesses did not qualify for that kind of reporting. So, obviously, we had looked at that, but it's one that – they just don't qualify. So we can't put them in there.

But as a result of that, obviously, we're trying to split out the impacts so that you guys have a clear view as to what's going on, at least as clear as we can make it for you..

Right.

And excluding FCS with the rest of the businesses, would've the guidance been unchanged or actually slightly higher?.

Yeah, I would say that we saw a little bit of a decline in bromine like we talked about. We saw some impact from foreign exchange fully offset by positive synergy activity..

And in a day, it would've been the exact same or slightly up..

Same, yeah?.

Exact same or slightly up..

Right. That's what I thought. Thanks. And then just a follow-up on the CFT business. I know you guys track very closely systematically all refinery activity and anticipate change-out activity.

So based on your comments prior about maybe losing a little bit of shares, I was just curious what -- in terms of the negative variance year-over-year, what's a bigger contributor, is it this sort of trade-down effect to cheaper catalysts or is it more just delayed change-out activity? And then to the extent that refiners are trading down to lower-quality, lower-priced catalysts, does that effectively -- are those catalysts going to lead to a higher cadence of change-out going forward since the activity level or the robustness of those catalysts might not be as good as some of the higher-quality catalysts? Thanks..

Yeah. I think the answer there would be that it depends on how they're operating. So if they don't have to run hard, if they have benign operating conditions that weaker catalyst could last the same amount of time, it's just we – or you don't know exactly what's going to happen.

A lot of can move in with moly and things like that and moving on moly price and it can make people buy different types of catalysts. So, overall again, I believe that next year will be a better year for CFT than what we had this year. It won't be back to the 2014 levels, but we'll definitely see improvements in CFT as we go forward..

Right. But the negative variance this year, was it a....

It's hard to really pull that out and say is it that, because if we lost a unit, was it that we lost it because somebody was offering a cheaper catalyst or not. I would say that it was about – it would be more mix than it was delaying the change-outs..

Okay. Thanks..

It would be more downgraded than mix, but I don't have a specific number that we can give you..

Thank you..

Yeah..

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