David Fiorenza - Vice President Teddy Gottwald - Chairman of the Board, President, Chief Executive Officer.

Ivan Marcuse - KeyBanc Capital Markets Dmitry Silversteyn - Longbow Research.

Greetings, and welcome to the Third Quarter 2014 Financial Results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Fiorenza. Thank you.

You may begin..

Thanks, Rob. Thanks for joining our Chairman, Teddy Gottwald and me today to discuss our third quarter performance. As reminder, some of the comments we will make today are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

We believe, we based our statements on reasonable expectations and assumptions within the bounds of what we know about our business and our operations. However, we offer no assurance that actual results will not differ materially from our expectations due to uncertainties and factors that are difficult to predict and beyond our control.

A full discussion of those risk factors can be found in our 2013 10-K. We filed our 10-Q earlier this morning. It contains significantly more details on the operations and performance of the company. Please take the time to review it. I will be referring to the data that was included in last night's release.

Net income for the quarter was $57 million or $4.53 a share. For the first nine months, net income was $181 million or $14.20 a share. The net income for all periods included some special items which are detailed in the release. Excluding those items, we made $4.52 a share this quarter compared to $4.32 per share in last year's third quarter.

The petroleum additives net sales for the quarter of $586 million increased $8 million or about 1% in the quarterly comparison. Shipments of all petroleum additives also increased about 3% in the quarterly comparison while operating profit decreased slightly. In many respects, this quarter's performance was much like the third quarter of last year.

Even though shipments and revenue were up, profits were essentially unchanged. Like most quarterly comparisons, it was impacted by mix and normal business variation. When looking at year-to-date, we see that the petroleum additives segment is once again showing excellent performance.

When comparing nine-month periods operating profit of $299.6 million is 1.5% ahead of last year, while shipments are 5.4% ahead. The operating profit margin for the quarter was $16.1 million and were 16.8% from the nine months.

For the four quarter that ended in September, the operating profit margin was 16.3% which is in line with our expectations of the performance of our business over the long-term. As you know, operating profit margins will fluctuate from quarter-to-quarter due to multiple factors. We do not operate our business differently from quarter-to-quarter.

We continue to focus on developing and delivering innovative technology-driven solutions to our customers. S&A and R&D were also relatively flat in all comparison. You may note that there was a bit of an uptick in our effective tax rate for the quarterly comparison.

As in the previous two quarters, we do not have the benefit of the R&D tax credit since congress has not yet acted in that area. There were also a couple of one-time items that were recognized this quarter. We continue to think that 31.5% is a good effective tax rate for now on a go-forward basis in the absence of the R&D credit legislation.

Cash was $141 million at the end of the quarter, which is the decrease of $97 million since December 31st. Excluding our repurchase activities, we are about $112 million cash positive for the nine months. Our business continues to generate significant amount of cash which affords us great flexibility to execute our business plan.

For the quarter, there was nothing exceptional to call out that is not detailed in the cash flow attachments in the press release.

Our capital expenditures of $39 million year-to-date have been lower than we originally communicated at the beginning of this year, but we expect that to change at a significant rate over the next five quarters as we have ramped up the activity on the construction of our Singapore facility.

We believe the capital expenditures will be in the $65 million range this year and to be in the $125 million range for both, 2015 and 2016. This additional spending is to support the increased volume needed by our customers and to meet our growth objectives.

During the quarter, we repurchased 14,000 shares of our stock for $45 million, which averages to about $391 per share. For the first nine months, we have repurchased about 567,000 shares for $212 million. At end of September, we had $293 million remaining on our stock repurchase authorization and we had 12.5 million shares outstanding.

Our debt to EBITDA was at one time that in the end of the quarter as we continue to operate with low leverage. Last week, the Board of Directors increased our quarterly dividend to a $1.14 per share from $1.10. This represents a 27% increase in the dividend payment. The last time we raised the dividend was a year ago.

There are several factors that go into the decision to make movement on the dividend. Our priority of cash remains the same. First, reinvest in the petroleum additives business. Second, look for additives in the petroleum additives space and third consider proper shareholder rewards, which include dividends and stock buybacks.

Cash flow is strong, and an even with increased reinvestments in petroleum additives and the recent stock repurchase authorization, we have reconfirmed our previous communication intention to increase the dividend payout to 20% to 30% of prior year net income. We want to pay a dividend that is competitive with other specialty chemical companies.

You may also have noticed that we filed our press release on Tuesday, announcing the amendment and extension of our $650 million revolving line of credit. The new terms of afford us a lower cost of borrowing, the flexibility to execute our plan and an extension until October 2019.

We are very pleased with this agreement and very happy to be doing business with such an elite group of banks. The loan agreement will be filed with an 8-K in the upcoming days. Our petroleum additives segment is on track to again deliver solid results this year. We have not changed our long-term view of the growth of the demand of this industry.

Over the long-term, we plan to exceed that growth pace. Over the past several years, we have made significant investments and will continue to do that in order to expand our capabilities around the world. These investments are in people, technology, technical centers and production capacity.

We intent to use these capabilities along with the new investments mentioned to improve our ability to deliver the goods and services that our customers have come to expect from us and to grow shareholder value.

To end on a personal note, you may have seen the announcement that I will be retiring in March and that Brian Paliotti will become the CFO on January 1st. I have always found the investor relations part of my job very rewarding. I have enjoyed the exchanges and relationships we have had over time. I will miss that part of the job.

Brian, with the help of Cameron Warner will continue in this function. You will be seeing more from Brian and hearing from him in the coming months. Rob, that's the end of my planned remarks.

Can we open the line for questions please?.

At this time, we will be conducting a question and answer session. (Operator Instructions). Our first question comes from Ivan Marcuse with KeyBanc Capital Markets. Please proceed with your question..

Hi, guys. Thanks for taking my questions. Good quarter again. Real quick, when you look at your - I know I've covered for three years, but if you look at the oil falling and I know base oils comes down and that will lead to my next question, raw materials.

Is there any destocking on your customers' level like if they're saying oil is going to be falling, so prices are going to be lower in the preceding quarters for one reason or another.

Do you see any destocking or would you anticipate that to impact during the fourth quarter or is that not the appropriate way of thinking about it?.

Ivan, this is Teddy. There have been some periods in the past, where we have seen some destocking or increased stocking in anticipation of price movements. We don’t anticipate that for the fourth quarter. While our crude has dropped a fair amount and pretty quickly, we haven't seen a significant impact in our basket of raw materials.

I don't anticipate major changes that would drive stocking or destocking like we have seen in some other periods..

Got you, so the way to think about it is now your raw materials are - the baskets flat or you anticipating they will be flat for at least the near future.

Pricing is probably relatively flat as well and you don't anticipate a destocking?.

Yes. I would sum that up by saying that that's a good summer..

Got you. The headlines discussed how Europe has been the weakening and South America. I saw that sort of impacted your fuel additives a bit.

Have you seen any sort of changes in lubricants or order patterns in those regions or anticipate that there will be?.

Now, this is David. When we look at a year, because we can't look at quarters our business is actually quite strong in all regions exception might be Latin America, which is more flattish, but no, we don't see that..

Yes. Your dividend payout ratio of going to 20% to 30%, I missed it.

Is that on your trail like the prior year's earnings or how are you going to look at that 20% to 30% payout?.

Yes. I may not have said it, Ivan. It is on a prior year net income..

Got you. If you made $10, you would anticipate paying out $2 to $3 of a dividend.

Is that how to think about it?.

Yes. We actually just take the absolute dollars and take a percentage of that and then back into, because the share count moves as you buy back stock..

Great. Over time, I know that's right where you are targeting right now, but there is not a lot of acquisitions. You throw off a ton of cash. Would you anticipate that sort of payout ratio over time to rise or do you think for now 20% to 30% is where you are going to stay until for at least next several years.

It has been on the rise over the last four to five years. Without committing to a rise, I would directionally see it going up a little further..

Great. All right. Thanks a lot for taking my questions. I appreciate it..

Sure..

Our next question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed with your question..

Good morning, gentlemen. A couple of questions if I may, first of all, in the 1.4% growth year-over-year you saw in your petroleum additives business.

Can you talk about sort of price volume and whether or not foreign exchange had a major impact?.

Yes.

You are asking about 3Q to 3Q, correct?.

3Q to 3Q. Correct. Year-over-year..

Right, so it is $8 million movement. Favorable $9 million due the shipment, favorable $2 million on FX and unfavorable $3 on prices..

Got it. That is helpful.

Secondly, I know you don't like talking about what's happening quarter-by-quarter, but if you sort of look back on the four quarters prior to the third quarter, looking back on a year's worth of growth third quarter of 2013 through second quarter of 2014, clearly, it was significantly above sort of what the growth rate so you can be expected in a market that's growing a couple of percentage points.

It seems whatever that business was whether it's a one-time business or a customer gain, it seems to have anniversaried and the decline in the year-over-year growth rate also led to a quite significant decline in margins sort of sequential.

Are we to assume that there was a sort of a one-time contract for a year at a particularly high margin or is the sort of the slower growth rate after four good quarters of growth just be anniversarying of our new business wins and margins are just sort of function of quarter-to-quarter volatility and we shouldn't read too much into it?.

I think you should not read too much into it. When I look at a whole year versus a whole, I still see that 5% to 6% growth. Mix is always a feature of this business and we are not seeing anything in this quarter that has given us any different signals..

Okay.

What you are saying is there was nothing special in the third, fourth, first, and second quarter of 2013, 2014 versus the prior year or over the prior period or the periods going forward? The fourth quarter was just up from the aberration within the range?.

Yes. I mean, we are sitting here looking at each other and neither one of us can think of the thing, so I would agree with that..

Okay. Thank you..

You are welcome..

(Operator Instructions). Our next question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed with your question..

Yes, guys. Sorry, I was going to let somebody else speak, but I do have follow-up question if I may. Talking about the cash generation and the sort of the M&A outlook that you have. It has been a while since you have done a deal of any size and the previous deals you have done were fairly small.

Are you still basically sticking to your - willing to let cash accumulate or be passed on to shareholders in the way of share repurchases and dividends or is there some sort of more urgency on the M&A front and perhaps looking slightly beyond your core strength to maybe some of the near adjacent markets to try to find a deal flow that can actually put your cash to better use?.

Dmitry we are still sticking to our core in the acquisition hunt. We are still looking in the petroleum additives field and as you know it's a fairly limited field. There has niche players and we continue to investigate opportunities there. We don't feel we need acquisitions in order to meet our growth objectives.

I have stated before that I believe if we can achieve 10% growth on an annual basis over an extended period of time defined as earnings per share growth plus dividend yield, then I will feel like we are providing our shareholders with a good return. We see a lot of opportunity within our core business.

We were investing more heavily in additional capacity and research to serve that market and that is our first priority. Acquisitions are second, but as you know we generate a lot of cash beyond the stepped up capital spending and we will continue to look at stock buybacks and our dividend to return value to shareholders..

Okay. Fair enough. Thank you, Teddy..

Thank you..

(Operator Instructions). It appears there are no further questions at this time. I would like to turn the floor back over to Mr. David Fiorenza for closing comments..

Well, thanks everyone for joining. See you next time. Good bye..