Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Cabot Earnings Conference Call. My name is Erica, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Erica McLaughlin, Vice President, Investor Relations. Please proceed.

Thank you, Erica. Good afternoon. I would like to welcome you to the Cabot Corporation's Earnings Teleconference. Last night, we released results for our second quarter of fiscal year 2013, copies of which are posted in the Investor Relations section of our website. For those on our mailing list, you received the press release either by email or fax. If you are not on our mailing list and are interested in receiving this information in the future, please contact Investor Relations. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of the call. I remind you that our conversation today will include forward-looking statements, which are subject to risks and uncertainties, and Cabot's actual results may differ materially from those expressed in the forward-looking statements. A list of factors that could affect Cabot's actual results can be found in the press release we issued last night and are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly in our last annual report on Form 10-K. These filings can be found in the Investor Relations portion of our website. I will now turn the call over to Patrick Prevost, who will discuss the key highlights of the company's performance. Eddie Cordeiro will review the business segment and corporate financial details. Following this, Patrick will provide closing comments and open the floor to questions. Patrick?

Thank you, Erica, and good afternoon, ladies and gentlemen. The global macroeconomic environment remained a challenge this quarter. We, however, experienced sequentially high volumes in a number of businesses, indicating a slight improvement in some of our end markets. With a weak business environment, our Reinforcement Materials assets continued to run at utilization in the 75% to 80% range. We additionally experienced a plant disruption in Japan that unfavorably impacted the quarter by $8 million. On the positive side, we are pleased that the introduction of new products and our investment in Fumed Silica capacity in China and Wales are driving much stronger results for Performance Materials. We experienced a sequential increase in Specialty Fluids EBIT, and the pipeline of new project continues to improve. Also, our focus on value pricing contributes positively to our results. In addition, we continue to look at opportunities to improve our global efficiencies, and have announced the closure of our Malaysian joint venture, which is expected to save the venture approximately $7 million. We're also prudently managing our costs and capital spending in light of the current business environment. With the ongoing weakness we have been experiencing in Rubber Blacks volumes, I want to spend a few minutes addressing the key business drivers and industry trends. As we have discussed in the past, our strategy in the Reinforcement Materials segment is to pursue profitable growth by making sure we have competitive assets in the right locations, offering differentiated high-quality products that meet our customers' changing needs and continually improving our cost through investment in energy and yield technology. As you know, our Reinforcement Materials are key performance products for applications throughout the transportation industry. There are over 60 unique products of carbon black used in tire or industrial rubber applications, and there can be…

Thank you, Patrick, and good afternoon. For the second fiscal quarter, total segment EBIT from continuing operations was $89 million, which was $34 million lower than last year's second quarter. The decrease as compared to the prior year was driven by lower volumes across many of the segments. Sequentially, total segment EBIT decreased $1 million, which was primarily driven by a Reinforcement Materials plant disruption in Japan, which caused us $8 million in the quarter. Now I will discuss the details at the segment level beginning with Reinforcement Materials. During the second quarter of 2013, EBIT for Reinforcement Materials decreased by $31 million as compared to the second quarter of 2012. The decrease in profitability was driven principally by 9% lower volumes and lower pricing in China and Europe. These impacts were partially offset by higher pricing in North America that commenced in January. Sequentially, EBIT decreased $9 million driven by the Japanese plant disruption, which unfavorably impacted the quarter by $8 million and lower pricing in Europe. These effects were partially offset by higher pricing in North America and 1% higher volumes, excluding the volume impact from the plant disruption in Japan. Sequentially, volumes improved in Europe, South America and North America, as we saw positive momentum throughout the quarter. China volumes were unfavorably impacted by the Chinese New Year holiday in February. While we remain cautious, we believe that the volumes have stabilized, and we are seeing indications from our customers that should translate into demand improvement in the remainder of 2013. Our Japanese plant is fully operational, and the Chinese New Year holiday is behind us. So we are cautiously optimistic about the near term. In Performance Materials, EBIT increased by $2 million as compared to the second quarter of 2012. The increase was driven by 13%…

Thank you, Eddie. When we first set our EPS target for 2014, we communicated that earnings growth would come from capacity expansions, margin improvement in new products and new businesses. Implicit in this plan were mid-cycle economic conditions and growth in emerging markets. We're now halfway through our 3-year plan, and due to the ongoing weakness in Europe and reduced growth rates in emerging markets, we believe it will take an additional year to meet this objective. We are now focused on achieving $5 of adjusted EPS in fiscal 2015. We have been successful at our value pricing initiatives over the past few years, as well as our yield and energy efficiency cost reductions. We've also made great progress in growth from new products and new businesses, and our integration of Norit is going well. However, we are behind in our volume growth expectations due to the global environment. We need to see approximately 10% to 15% higher volumes as compared to 2012, and we believe this will require an extra year to achieve. As we learned in 2009, the demand recovery can happen very quickly in our businesses as many of the end markets we serve are nondiscretionary. As the environment improves, we're well-positioned with competitive capacity in the right geographies. We currently continue to implement our strategic plan and remain focused on our value pricing strategy, investments in operational excellence and technology, completing our capacity expansion in China and the introduction of new products, which will provide the planned earnings growth. Thank you very much for joining us today, and I will now turn the call back over for our Q&A session.

[Operator Instructions] And our first question comes from the line of Kevin Hocevar with Northcoast Research.

You mentioned you're seeing a moderate recovery in demand in the Reinforcement Materials segment. So I was wondering if you can elaborate on that a little bit. What are you seeing kind of into the quarter and your third quarter and what's kind of your expectations sequentially and for the year?

So Kevin, as you can imagine, we're monitoring volumes on a monthly and even weekly basis to see how the environment develops, and there's a lot riding on the rubber blacks volume for us. And as I mentioned earlier, we're running our plants at between 75% and 80% utilization rate, which is quite low compared to our historical levels. So the monitoring of the volumes have given us some hope in terms of recovery where we've seen improvement in March, but also in April and that hopefully bodes well for the coming month. But, of course, we remain cautious. We've had some false starts in the past, but clearly, 2 month in a row of improvements is a good sign for us.

And wondering too if you could comment on, so the Purification Solutions, the Norit business had a fairly weak quarter. It seems like timing of royalty payment had something to do with that. But does this change your outlook for the year at all in kind of with what you've been seeing kind of a pickup in demand? I think your expectations were for about $0.15 of accretion for the year. So are you behind that a little bit? Do you need to see a pickup to hit that for the year or is that still kind of the expectation based on what you're seeing?

No, the expectation stands. We have looked back, and of course, we have the benefit some of the historical data from the previous owners. And as we did that, we're seeing that the next 2 quarters tend to be stronger just by the seasonality nature of some of the businesses and especially water here, and we continue to see some pretty good growth in some of the other markets around the world. So we're holding to what we're expecting for the business this year.

And with -- natural gas is up at about $4.40, and I believe in the past, you've discussed the switching cost kind of for the coal plants between – that are able to switch between coal and nat gas is around $4. So are you starting to see at all the mercury side of the business, I know volumes are down 7%, but might that kind of bottom out and maybe even turn the other way here soon? Or kind of what are you seeing in the mercury business?

Yes. So there's quite a few moving parts as we get to learn about the business. So just to give you a sense on the volume side in the air and gas mercury removal market, we're approximately 15% down, and some of that has been driven, of course, by the natural gas price favoring electricity generation from that source. But as we've seen natural gas prices increase, there's actually more electricity produced from coal. And however, the -- there's not been the equivalent increase in activated carbon consumption due to some efficiency improvement that we're seeing and that we had to a certain extent built into our models. So efficiency improvements are coming from 2 sources right now. One is the fact that in certain states in the U.S., which have passed the regulation, we're seeing people moving from a percent use of activated carbon to a percent removal of mercury, and they're just getting better at using the product. And the second one is just our customers becoming more effective in the use of their equipment, and that is driving down the consumption of activated carbon to a slightly lower level. So I think what's important is that the long-term assumptions are still valid. We had built in efficiency improvements, and we're seeing those happen. We're pleased to see that natural gas prices are going up. So that will provide some support, and we're clearly seeing strong confirmation that the MATS regulation will be implemented in April of 2015, and we're still, as we mentioned in the speech, seeing that resulting in about a fourfold increase in activated carbon consumption in the years past at -- in 2015 and beyond.

Your next question comes from the line of David Begleiter with Deutsche Bank.

Patrick, just on that last comment about the fourfold increase in activated carbon, what would you expect pricing to do in that environment, in '15 and beyond, as demand increases fourfold?

Well, we clearly believe that pricing should improve dramatically as a result of that. Currently, we are in an overcapacity environment in North America, which has had some effect on pricing. But as you look forward, there is not enough capacity in the system to meet the demands of 2015 and beyond, and that will put a significant amount of pressure on pricing.

Fair enough. And just, Patrick, nearer term in Asia in Reinforcement Materials, could you provide a little more color on the pricing pressure in that region?

So the Asian environment, and especially the China environment has been a clear shift over the last, I would say, 2 quarters, 3 quarters. We've seen actually, as an example, the truck and tire, the truck tire, the bus tire market in China, so domestic sales of truck tires and bus tires has been flat in 2012 versus 2011, which is really a change in the Chinese environment. And that has led, of course, to more pressure in terms of the competitive environment with the -- with our Chinese competitors, but we're still looking at that market picking up. We're looking at GDP growth in the -- I think announced somewhere around 7.5% for 2013 and some amount of pickup there. We're aggressively participating in the market in China. So we have not given up any volume there, and that's clearly designed to maintain our position, number one; and number two, also ensure that our new capacity, which will come up in late 2013 will be there to support our clients especially as we look at some of the product that we'll be making in that new capacity being of the high-end nature, which demand is growing quite, quite nicely in China.

And just lastly, Patrick, can you quantify the improvement you've seen in April and March -- sorry, in March and April in Reinforcement Materials, is it 2%, is it 5%?

It's a low single-digit percent.

Your next question comes from the line of Andrew Dunn with KeyBanc.

So first of all, could you give us an idea of where industry capacity utilization is for Rubber Black kind of globally? Is it in line with where you are? Are you a little bit above? Can you just give a little color on that?

Well, we have tended to be at a slightly higher rate than the industry over the years. I think today, it is perhaps more at the industry level because we've had for some time now a focus on margin versus volume. And in soft environments like the one we're in today, we have decided to prioritize margin over volume. So I would say that the 75% to 80% range that we've indicated is most likely relevant for the entire industry.

Okay. And then just moving on to the royalty fee you've mentioned in Purification Solutions. The delay of that, does that mean you're going to receive a recurring fee, so should you see double the fee in the third quarter? Or will it just be that it was pushed back one quarter?

Yes, it's just a quarter pushback.

Okay. And then, lastly, as you've mentioned, as we've seen these continuing announcements of tire plants and capacity expansions, can you give us some idea of what kind of lead time you'd get if you were to get part of those expansions in terms of selling through your Rubber Black? What kind of lead time would you get from them in terms of supply?

Well, I'm not sure exactly how to think about this question. But I would say that between the time new tire capacity gets announced and it actually goes into production, I would say somewhere around 3 years passes, 2.5 to 3 years passes, and that gives us certainly enough visibility in terms of being able to work with our customers to prepare for the supply of these new plants.

But it's not typical, let's say, to get either a quarter or a couple months advanced notice once you know you're going to supply to them when you actually start delivering material? Is there a typical time frame?

No. I would say that the conversations tend to start about 1 year or 1.5 years ahead of that, and because the announcement was made 2 to 3 years before, we have ample time to engage.

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: What was cash flow from operations in the quarter?

Eddie, can you help me with that?

Yes, Jeff. So we don't have the cash flow until the Q comes out, but I can give you some of the main components. So we had working capital that was up by about $25 million, and that was really the key additional driver. In addition to that, we had CapEx of $64 million to get to free cash flow. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. Second, in the inkjet area, of your end demand, how much is commercial and how much is consumer?

I don't think that we -- let me just check on this. It's about 20% or so, yes, about 20% of the total -- for the total sales. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: I'm sorry 20% is?

Is commercial. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Is commercial?

Yes. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: So is printer demand following PC demand down? Is that what's happening in the area? Or do you -- or is that not the case? What's happening to consumer printer demand?

Right. So there's the consumer office and commercial, and what we're seeing is we're seeing very nice growth on the commercial front where the technology of inkjet is starting to enter the industrial printing arena. And what we're seeing on the other end of the spectrum, which is the consumer side of things, we're seeing actually that less printing is occurring, and that is actually resulting in a decline in -- of sales of inkjet pigment. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay, that's helpful. And then just, I guess, 2 aspects of the carbon black business. So oil prices are falling, and I think that the raw materials you buy are falling. So does that mean that your unallocated corporate costs over the next quarter or 2 will be lower because of LIFO benefits, all things being equal? And in light of the falling raw material prices, in general, are prices, are your overall prices falling at a faster rate or at a slower rate so that your margins are either widening out because of the dynamic or contracting? Can you help us with that?

Yes, yes. I would say, all in all, we're pretty much seeing our margin tracking, meaning that we will not see the lag that we saw in the prior years, if you remember, the pre-2008 times. So that has been eliminated by the way we run the business, how we manage inventories both of raw materials and of finished products and how we contract and work with our customers. I think back to the LIFO question, I think we'll continue to see LIFO effects in the business, and in a declining market, we should see some of that affecting the business. But Eddie, do you have more specifics for Jeff?

Yes, Jeff. So there's a $2 million benefit on general unallocated this quarter. Very little of that had to do with LIFO, so less than $1 million. It really depends on the rate at which raw material cost is changing, and quite frankly, on the specific purchases that happened at the end of the quarter, which is when the LIFO calculation gets finalized. You'll see in 2012, there was an $8 million charge to that bucket, and about half of that was a LIFO charge because raw material was going in the other direction. So to give you a sense of how those things change over a quarter, it can be very difficult to forecast.

Our next question comes from the line of Christopher Butler. Christopher W. Butler - Sidoti & Company, LLC: Jumping off the last round of questions, you had indicated that you're raising prices for carbon black for the car tires here in the United States. Looking at the volumes this quarter and the track record going back a few, could you speak to your confidence that there's enough demand or will be enough demand to hold up price increases?

In increasing prices in the North American market. And I would say that the general supply-demand environment, although I think some of this needs to be seen in the context of a lot of differences between products and the types of materials our customers are taking. But in general, I would say that the situation in North America is favorable towards pricing, and we're continuing to see demand not at a great level, but at an acceptable level. Christopher W. Butler - Sidoti & Company, LLC: And looking at the closure in Malaysia, could you speak to that in terms of the new capacity coming on in China? Was the original plan to have enough volume or anticipate enough volume in Asia to be able to support both of these plants and things are just occurring at a slower rate than you had previously expected?

I would say that the decision to close Malaysia is to be seen in isolation. We have been working in Malaysia for many years, and it's been several years now that the operation in Malaysia has not been performing at the level that we expect. We have worked very closely with local management and also try to work with our customers in terms of getting the margins that would support that operation. But both the margin and the financial performance level as well as the utilization, which has been actually significantly below average of our system, have led us to the decision that we needed to close that capacity, to conserve our resources and focus on the plants that have a stronger future for us. Again, back to the strategy, which says that we will be investing in scale and efficient capacity in the right markets, and Malaysia has -- is actually not one of these markets, unfortunately. So we're not abandoning, of course, our Malaysian customers. We're clearly looking at serving them from our other sites in Asia and leveraging these sites further. Christopher W. Butler - Sidoti & Company, LLC: And as we think of these 2 plants, the savings from Malaysia, does that effectively offset any additional overhead from China or is there a differential there?

No. The savings from Malaysia need to be looked at in isolation actually. The $7 million that we've announced for the joint venture is representative of some fixed cost elimination and also includes a small amount of business loss. So this is a net number. Christopher W. Butler - Sidoti & Company, LLC: And do we start to see some of the benefits as soon as your fiscal fourth quarter or do we have to wait till fiscal 2014?

Can you help with me with that, Eddie? What's the current plan?

I think we should expect it in 2014.

Your next question comes from the line of Jay Harris with Goldsmith & Harris. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: I wonder if you could put your margin structure in carbon black in a little different context than you've been talking about. Historically, what kind of operating rates have you averaged versus the, I guess you mentioned 80% currently. What does a 5% or 6% increase in operating rates, everything else being equal, do to EBIT? And I gather that the shutdown of the Malaysian carbon black facility, the volume there will be small compared to the capacity you're bringing on stream in China.

That is correct. So Jay, the capacity of our Malaysian operation is about 80,000 tons. We were running at below -- significantly below our average utilization rate, and the capacity that we're bringing up in China is 130,000 tons. So that can give you an idea of the differential, which is going to be a factor 2 to 3 between the 2 assets and in terms of volume available to market. With regard to the utilization rates, I think the way to think about this is that in -- we're currently between 75% and 80%, so not at 80%. And in the past, I would say in good periods of business, we would be running the operations at above 90%, between 90% and 95%. So you can see that there's a significant gap in the current environment, and that gap is very valuable if we can fill it. And we think that with the recovery of the tire demand to more trend level growth rates, we should be able to achieve that. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: But what does a 5 percentage point improvement in operating rate mean for EBIT?

Well, I think -- I'm not going to give you the number, Jay, but I think I indicated that in the good times, 90-plus percent is what we were experiencing, and we're currently at 75% to 80%. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: I was just looking for insight into your unallocated -- corporate overheads...

Yes, yes. Well, just, I mean, to give you an idea, very rough numbers, 5% would be somewhere in excess of $30 million a year. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: That's quite a bit of leverage then, quite a bit of leverage.

Yes. Well, absolutely. I mean, otherwise, we wouldn't be putting a $5 target out there. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: Let me ask you a sort of a non-financial meaningful question. Why do you use reinforced materials instead of Rubber Blacks, and why do you use Purification Solutions instead of activated carbon? Is there a strategy here to add other materials to these umbrella terms? Or I don't understand not calling a spade a spade.

Well, I think what you realize -- what you need to realize, Jay, is that a lot of our customers are actually looking at some behavior, some performance, some elements of effectiveness for the products we supply, and these customers are often looking at different things. And if you think about a customer in the -- that's buying carbon black that's more -- that's going into electronics is very different than the tire customer in terms of what they're looking for. So the decision in terms of how we name the segment was driven by the needs of the customer base that we would be serving. So in the case of the rubber industry, it's about reinforcement. In the case of a lot of the specialty markets, it's about performance, although, of course, you're also looking for performance in the rubber sector, and a lot of what's going on with activated carbon is about purification. But having those as umbrella terms is also, of course, forcing us to look at other sectors as we leverage our capabilities and technology. Jay Richard Harris - Goldsmith & Harris Asset Management, LLC: Do you trademark your electronic grade carbon black, your printing grade carbon black and the various different attributes that you can build into Rubber Blacks? I mean, do you have separate trademarks for each of these?

Absolutely.

Your next question comes from the line of Kevin Hocevar with Northcoast Research.

Could you comment on -- so the Japanese volumes were disrupted because of the plant disruption, and they were down 18% for the quarter. And excluding that disruption, I estimate maybe they were fairly flat. Is that reasonable? And is there pent-up demand for that volume that might be filled in the third quarter or would you consider this lost volume?

I would say that we're taking a conservative approach here and we would assume that this is lost volume. Most of our effort right now is to get back to the level of historical supply with our customers, and I think that several weeks' gap in supply will have been picked up by our competitors.

Okay. And then just one quick follow-up is so I noticed on the minority interest line kind of reversed, and typically, you've had a couple million in profit to your JV partners. This time, there was some losses there. So I know that the minority -- the JVs are primarily Rubber Black plants in Asia, Southeast Asia and China. So is this reflective of a big slowdown in that area and profits deteriorated? Or is this more the Malaysian plant being closed down and the charges associated with that?

It's exactly the latter, which is because the Malaysian plant's a joint venture, it's -- that's why it got reversed.

Your next question comes from the line of Laurence Alexander with Jefferies. Laurence Alexander - Jefferies & Company, Inc., Research Division: Just a couple of quick ones. Are you seeing sequentially pricing go flat in China or is it continuing to deteriorate? And if current conditions stay weak or if the weakness continues, would you be looking at further capacity shutdowns or is the onus really on competitors to do that?

So Laurence, I'm sorry, I didn't get the first question. I'll start with the second one, and maybe I'll ask you to repeat your first question. I would say on the second question, I would say that we are all in all complete with our restructuring work. I mean, the Malaysia operation we had on our list of weak performing operations and the timing of that decision is one that ended up falling into this year. But all in all, I would say that we're quite pleased with the asset base we now have, and we've done a lot of work to make it -- to make that asset base more competitive. I think we're in a good place now. And then concerning the first question, there was something around China? Laurence Alexander - Jefferies & Company, Inc., Research Division: Just in terms of the pricing dynamics that you're seeing in China, are you seeing the price erosion flatten out sequentially or should we be thinking about further quarter-over-quarter declines in the third quarter?

Right. No, what we're seeing currently is a flat environment on pricing in China between the -- our first and second quarter of the fiscal year. Laurence Alexander - Jefferies & Company, Inc., Research Division: And then lastly, just on Norit, so as you look at the utility contract announcements or wins that you will have over the next few quarters, how many utilities do you need to sign up or how many projects to feel that there might be upside to the Norit target of high single digit 10% sales growth?

We -- I would say that we're -- I'm not sure I can answer that question. I don't have the number of utilities that we serve. We have a good idea of the total utilities that may be in need of activated carbon. We're working with them closely. We're seeing also an increase in the requests for equipment, injection equipment. So that's a very positive sign in terms of a lot of the utilities gearing up for 2015.

We have no further questions at this time. I will now turn the call over to Patrick Prevost for any closing remarks.

Well, thank you very much for joining the call this afternoon, and looking forward to speaking to you within the coming month and certainly at the next quarterly call. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect, and have a great day.