Albemarle Corporation (ALB)

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Albemarle Corporation (ALB)

Q4 2008 Earnings Call

January 27, 2009 10:00 am ET

Executives

Sandra Rodriguez - Director of IR

Mark Rohr - Chairman and CEO

John Steitz - EVP and COO

Rich Diemer - SVP and CFO

Analysts

Jeff Zekauskas - JPMorgan

Laurence Alexander - Jefferies

Steve Schwartz - First Analysis

Mike Sison - KeyBanc

Chris Shaw - UBS

P.J. Juvekar - Citi

Bob Koort - Goldman Sachs

Dmitry Silversteyn - Longbow Research

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2008 Albemarle Corporation Earnings Conference Call. (Operator Instructions).

I would now like to turn the presentation over to your host for today’s conference, Ms. Sandra Rodriguez, Director of the Investor Relations. Please proceed ma'am.

Sandra Rodriguez

Thanks Francine. Good morning everyone and thank you joining us today for a review of Albemarle’s fourth quarter and full year results, which were released after the market closed yesterday. Our press release contains preliminary results for the quarter and this information is subject to further review by the company and our auditors as part of our year-end audit process. Please note that we have posted supplemental sales information, as well as reconciliations for net debt and EBITDA on our website under the investor information section at albemarle.com.

I would also like to caution that the remarks today contain forward-looking statements. Factors that could cause results to differ from expectations are listed in our Annual Report on Form 10-K. Participating with me on the call this morning, are Mark Rohr, Chairman and CEO; John Steitz, Executive Vice President and Chief Operating Officer; and Rich Diemer, Senior Vice President and CFO.

At this time I will turn the call over to Mark.

Mark Rohr

Thanks Sandra and good morning everyone. I would like to start this call by wishing you all the best for 2009. We appreciate the opportunity to share our results and we look forward to answering your questions at the conclusion of our remarks. So let me start by commenting on the strategic events that occurred in the fourth quarter, some of which were reflected in the special items noted in our press release.

During the quarter we completed the sale of our Port-de-Bouc France facility to ICIG, the International Chemical Investors Group. The one-time after tax charge of $33.4 million was recorded for net asset value write-offs and other exit related costs. We expect the cash tax benefit over time is more than enough to offset the cash required to close this deal. The asset was a high cost facility that weighed negatively on margins in both Fine Chemicals and Polymer Additives. We are pleased to have completed this divestiture and look forward to the economic benefits in the future.

As global consumer related businesses ground to a halt last year, we took steps to advance some of our restructuring plans. We originally presented to you at the corner of our Vision 2010. Responding to the challenges we saw rapidly unfolding in the fourth quarter, we began to streamline our infrastructure and seek improvements in operating efficiency to match or reduce volumes we were experiencing. The cost of this restructuring has been reflected in the one-time pre-tax charge of $22.5 million outlined in the earnings release.

Going forward these measures should reap annual benefits in the range of these one-time costs. In addition to these organizational steps, we have implemented other measures that will help us meet our annual cost reduction target of approximately $30 million in 2009. You will also note in the earnings release the recognition of a one-time net tax benefit of $23.1 million that occurred as we settled prior period IRS reviews, allowing us to reverse previously established reserves. Rich will address this in more detail with his comments.

Looking back, 2008 was a year of unprecedented economic events that led to the demise of many banks, corporations and individual investor portfolios around the world. We began 2008 with expectations in the solid top line and bottom line growth, and strong belief in our ability to translate this demand into earnings through 2010.

Our results were consistent with these views through the first half as we posted double-digit sales and net income gains over the same periods of 2007. As we ended the second quarter sounds of economic stress began to surface. In the third quarter we and many others saw operations negatively impacted by hurricanes Gustav and Ike. These events which directly impacted our moral also prompted the industry to begin to address what was perceived as a modest economic pullback. In September we started seeing additional signs of volume weakness in some sectors as the financial uncertainties elevated.

Refineries stayed down for long periods to cope with negative cash margins and had impacted some of our HPC volumes. In many commodity plants on the gulf cost delayed their restarts after hurricanes. Despite these disruptions, we ended the third quarter with relatively solid results. In fact, Fine Chemical and Polymers delivered record net sales in the third quarter. It is with that backdrop we began the fourth quarter.

We anticipated fourth quarter weakness where for the most part, we limited the volume declines in Polymers. That was the case through October, when almost overnight the consumer markets on the globe seemed to collapse. Yesterday, in reporting our fourth quarter results, you will see we recorded net sales of $518 million, down 14% year-over-year and 22% sequentially, primarily on volume declines in our Polymer segment. Included in the net charge of $25 million or $0.27 per share for one-time special items that I previously mentioned

Net income for the quarter was $13.1 million or $0.14 per share. Excluding the special items in tax, earnings from operations we earned $0.42 per share for the quarter. Our full year net sales for 2008 of $2.47 billion were up 6% compared to 2007. Net income for the year excluding specials was $221 million, down $12 million or 5% from $233 million in 2007. They may not seem evident, but these results are quite an achievement taking into account the magnitude of the sharp year end decline in consumer end markets, as well as the global inventory liquidation that follow.

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