Chemtura (CHMT) Craig A. Rogerson on Q4 2015 Results - Earnings Call Transcript

| About: Chemtura Corporation (CHMT)

Chemtura Corp. (NYSE:CHMT)

Q4 2015 Earnings Call

February 23, 2016 9:00 am ET

Executives

Matthew Sokol - Director, Investor Relations & Corporate Development

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Stephen C. Forsyth - Chief Financial Officer & Executive Vice President

Analysts

Ivan M. Marcuse - KeyBanc Capital Markets, Inc.

Dmitry Silversteyn - Longbow Research LLC

Rosemarie Jeanne Morbelli - Gabelli & Company

Michael Joseph Harrison - Seaport Global Securities LLC

Ronald Weller - BB&T Capital Markets

Roger Neil Spitz - Bank of America Merrill Lynch

Operator

Good morning. My name is Kim, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Chemtura Corporation Fourth Quarter and Full Year 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

Matt Sokol, Director of Investor Relations and Corporate Development, you may begin your conference, sir.

Matthew Sokol - Director, Investor Relations & Corporate Development

Thank you, Kim, and good morning, everyone. Thank you for joining the call. I'm joined this morning by Craig Rogerson, Chemtura's Chairman, President and Chief Executive Officer; and Stephen Forsyth, Executive Vice President and Chief Financial Officer. Today, we will review summary highlights of our fourth quarter and full year 2015 operating results and discuss the outlook for 2016.

Last night, we issued our earnings press release providing our fourth quarter and full year 2015 results and filed our Annual Report on Form 10-K with the Securities and Exchange Commission. Let me remind you of a couple points before we begin. First, we will once again refer to our Core Segments on this call and in our printed materials as we have for each quarter of 2015.

Core Segments describes our Industrial Performance Products, Industrial Engineered Products, and Corporate segments alone and does not include results from our previously divested Chemtura AgroSolutions business or the continuing contractual relationship we have with the buyers of that business. And the good news is that this will be the last time we'll be using Core Segments since the results from our Chemtura AgroSolutions business drop out of the comparative prior year period starting with the first quarter of 2016.

Second, please be aware that some of the statements about the future performance of the company may constitute forward-looking statements within the meaning of the Federal Securities laws. Please note that cautionary language about our forward-looking statements presented in our 10-K applies to this call.

Finally, reconciliations related to any non-GAAP financial measures discussed on this call may be found in our press release which is posted in our website. This call is being broadcast and recorded and will be available for replay on our website. Your attendance on this conference call constitutes your consent to the recording and broadcast of this call.

So let me hand the call over to Craig. Craig?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Thanks, Matt. Good morning, everyone, and thank you for joining us. I'll start this morning by taking you through the fourth quarter and full year 2015 results including highlights of our accomplishments last year. I'll also talk about what 2016 has in store before handing the call over to Stephen, who'll talk in more detail about our consolidated financial results and the background of our recent pension transaction.

Let me begin by saying a few words about our overall 2015 results. After a disappointing 2014, we entered 2015 and intend on improving our performance. Rather than sitting back and letting external market conditions dictate our success, we wanted 2015 to be about taking control of our destiny and managing matters within our control.

The center piece of our 2015 plan was our $62 million cost reduction initiative. Taking cost out is never easy, but we knew that these initiatives were within our control and that we would dramatically improve our profitability in both 2015 and beyond, if we were successful. I'm pleased to say that with the hard work and dedication of the great many people in our organization, we were able to implement all of our cost reduction actions by midyear 2015, and we began to realize the benefits in our second half 2015 results.

Although lower production volumes caused by slower-than-expected demand partially muted the effect of our cost reduction efforts, we nevertheless realized significant year-over-year profitability improvement as a result of these initiatives.

Adjusted EBITDA in our Core Segments improved to $236 million in 2015, compared to $173 million in 2014. Excluding a one-time inventory write-down in the fourth quarter related to a discontinued product in our Industrial Engineered Products business, adjusted EBITDA in our Core Segment was $244 million, a 41% improvement year-over-year.

In my comments this morning, I will be excluding this one-time inventory adjustment when discussing Core Segment and IEP results, as we feel it is a more accurate reflection of our performance.

Core Segment adjusted EBITDA margins improved dramatically in 2015, up 550 basis points, compared to just under 10% in 2014, they were 15% in 2015. Along the way, we generated over $100 million of free cash flow and continue to repurchase shares of Chemtura common stock at attractive prices (04:47).

We achieved a number of other successes in 2015. We started up our new urethanes production assets at our Nantong, China facility, giving us a strong foothold in Asia for our cast elastomers products. We steadily improved operating rates for Emerald Innovation 3000, our new polymeric flame retardant for extruded and extended polystyrene applications. We resolved the raw material availability issue that was restricting our ability to sell our sought-after high-viscosity poly alpha olefin product.

Finally, and most importantly, we achieved all of these things while keeping our focus on safety. In 2015, we exceeded most all of our safety targets and finished the year at the top decile of safety performance among our peers, a measure that is vitally important to our success and of which I'm very proud.

Now, let me provide a little more detail about our fourth quarter and full year performance. For the fourth quarter 2015, Core Segment revenue was $367 million, down $51 million compared to fourth quarter 2014 and down $40 million sequentially. Fourth quarter adjusted EBITDA for our Core Segments was $63 million, up 54% or $22 million compared with the fourth quarter of last year, but down $7 million compared to the third quarter of 2015.

For the full year 2015, revenue for our Core Segments was down $179 million. As I mentioned earlier, 2015 Core Segment adjusted EBITDA improved $71 million compared to 2014.

In our Industrial Performance Products segment, fourth quarter revenue declined $36 million versus the fourth quarter last year. Unfavorable foreign currency exchange caused $4 million of the decline, $21 million were attributable to lower volumes and unfavorable mix, and $11 million were due to fall in prices. Most of the price decline was in our petroleum additives product line and was the result of passing through the lower raw material costs that resulted from lower oil prices. Sequential revenue in IPP declined $28 million, the vast majority of which was caused by lower volumes and unfavorable mix.

Year-over-year and sequential sales volume declined in IPP for the fourth quarter were caused principally by lower demand for our cast elastomer products and by products sold to our large oil company customers as they attempted to control spend at year-end. We see this as typical destocking and expect that sales of the products involved will rebound in Q1.

Despite lower volumes, IPP was able to improve adjusted EBITDA by 12% versus the fourth quarter of 2014. This improvement was driven by lower raw material costs, favorable foreign currency exchange, and improved manufacturing and SG&A cost compared to a year ago, which are the results of our cost reduction initiatives that I mentioned earlier.

Sequentially, IPP adjusted EBITDA was down $7 million due to the sequentially higher manufacturing costs, lower prices, especially for our petroleum additives products, lower demand for products sold to large oil companies and cast elastomer products. For the full year, IPP posted impressive results even though the sales environment was challenging in many of these key markets.

Full year revenue in IPP was down $101 million compared to 2014, due in large part to overall lower sales volume, unfavorable product mix, lower selling prices and unfavorable foreign currency exchange. Despite top-line pressure, IPP adjusted EBITDA improved nearly $30 million compared to 2014, a 21% increase. Adjusted EBITDA margins for the full year were 19% compared to 14% in 2014.

Lower raw material costs due to low oil prices were key factor in IPP's performance in 2015. As I mentioned a moment ago, selling prices were down considerably this year, but the benefit of lower input costs was greater than the negative effect of lower selling prices, making our price over raw's measure a net positive.

I should note that IPP's business leadership continue to drive commercial excellence across the organization, which was the key reason why we're able to maximize the benefit from lower input costs. IPP's performance also benefited from favorable foreign currency exchange and from our cost reduction initiatives, which significantly improved IPP's bottom line results.

Before I conclude my comments on IPP, let me address the raw materials shortage that affected our high-viscosity poly alpha olefin product line during 2015. As you know, we began the year trying to identify an alternative raw material source for our high-vis PAO product, but had trouble finding a quick fix.

We ended up partnering with a third party and using our own technology to access the new source of raw material. This innovative solution required a fairly lengthy testing process in order to validate the quality and utility of the new raw material. I'm pleased to say that we completed testing on the new raw material in the fourth quarter and properly put it to use in commercial production of our high-viscosity PAO product.

Going forward, this new source will allow IPP to better utilize this global asset base and expand sales of high-viscosity PAO in 2016 and beyond.

Turning to IEP, the business finished the fourth quarter with significantly higher adjusted EBITDA than the fourth quarter of 2014 and overall lower revenues. Sales fell 8% in the quarter versus prior year, but adjusted EBITDA increased by $26 million. Sequentially, revenue was down 7% and adjusted EBITDA was flat when excluding the one-time inventory adjustment that I mentioned earlier.

The decline in fourth quarter revenue in IEP compared to a year ago was caused by lower bromine sales volumes, unfavorable mix and negative foreign currency exchange offset by favorable pricing for bromine and bromine-derivative products. Volume declined most significantly in products previously sold from our Adrian, Michigan facility. We closed this facility early in 2015 following the divesture of our Consumer Products business at the end of 2013.

Post-divestiture contracts required us to manufacture products at Adrian for a period of time after closing, those contracts are now expired and the Adrian facility is no longer part of our business plan going forward. As these sales tended to carry low or no margin, the impact to IEP's profit margin was overall positive despite the loss of revenue.

We also saw a meaningful year-over-year decline in flame retardants use in furniture foams, although we expect that the fourth quarter of 2015 will be the last period in which such declines are noticeable. There were modest declines in a number of our other bromine-derivative products as well, but I should point out that sales of our Emerald Innovation 3000 flame retardant increased in the fourth quarter of 2015 compared to the same period last year. Also, sales of clear brine fluids remain robust in the fourth quarter and were up versus the fourth quarter of 2014.

Sequentially, IEP revenue fell in the fourth quarter mainly due to order timing, lower sales of fumigants products due to seasonality and the elimination of sales from our now closed Adrian, Michigan facility. We noted during our third quarter 2015 earnings call that volumes of certain of our flame retardants were down in Q3 and in particular those used in electronic applications. In the fourth quarter, sales for these products rebounded approaching normal levels for year-end demand.

IEP's bottom line performance in the fourth quarter was driven by lower raw material costs and greatly improved manufacturing and SG&A costs compared to the fourth quarter of last year, again the result of our cost reduction efforts. IEP also benefited from better bromine pricing in the fourth quarter compared to the previous year, which was somewhat offset by declining prices for organometallics specialty products in the quarter.

Similar to IPP, IEP significantly improved its performance in 2015. Full year adjusted EBITDA improved by $52 million or 83% despite revenue shrinking by 10%. IEP revenues in 2015 were affected by lower volumes, unfavorable foreign currency exchange, and lower prices for certain of our organometallic products offset in part by favorable pricing for our bromine-based products.

Lower volume is a result of several factors. First, the strike experienced by our Israeli's bromine supplier greatly affected our ability to access a key source of bromine for over half of the year. In addition, as I mentioned earlier, we discontinued the sale of several products that were sold as part of our previously divested businesses, and other product lines were phased out due to portfolio optimization. These product cuts affected IEP's top-line but helped improve overall margins.

Finally, we did experience overall weaker demand in several of our IEP end markets in 2015 compared to 2014, especially in flame retardants for furniture foam applications.

Improved year-over-year profitability in IEP was driven by steadily improving bromine prices throughout 2015, lower raw material costs and vastly improved manufacturing and SG&A costs compared to 2014. Not surprising since the majority of our cost savings initiatives are focused on the IEP segment. IEP also benefited from our OMS business driving a meaningful recovery and profitability through improved product mix, reduced manufacturing costs, sales volume gains and execution of commercial excellence initiatives.

Now, before I provide the outlook for 2016, let me make a few comments about our corporate costs in the fourth quarter and full year 2015. In the fourth quarter, we once again booked a higher accrual rate for our management incentive programs versus 2014 due to our improved performance.

Pension and other post-employment benefit or OPEB cost also increased compared to last year's fourth quarter, and environmental reserves were higher. These costs were offset by lower functional spending and lower non-cash compensation accruals. The net effect of these increases drove corporate spending up in the fourth quarter versus the same period last year. I also note that the fourth quarter 2014 results included a one-time gain from the sale of a minority interest which did not recur in Q4 2015.

Sequentially, fourth quarter 2015 corporate expenses were essentially flat with the third quarter of 2015. For the full year, corporate costs increased by roughly $7 million, but were in line with the projections we gave during our February 2015 Investor Day. The increased spending over 2014 was due to higher management incentive accruals, higher pension and OPEB costs, increased environmental reserve accruals, and the lack of a gain on the sale of a minority interest as noted above, all of which were partially offset by favorable functional spending and a gain on the sale of land.

Now, let's discuss our outlook for 2016. This year, we plan to build upon the improvements in our earnings and cash flow that we achieved in 2015. We remain committed to the targets for revenues and adjusted EBITDA growth that we outlined during our Investor Day in December of 2015. Although we will not implement cost reduction activities equal to our programs in 2015, we will continue to reduce costs to offset inflation, and we'll take opportunities to increase the efficiency and yield from our plants wherever possible. We will also continue to focus on our commercial excellence initiatives as we strive to build a world-class sales organization.

Our working assumption is that the general economy will remain relatively stagnant in 2016 and that we will need to execute on growth levers within our portfolio in order to drive results. For IPP, this means capitalizing on our recent capacity expansion for high viscosity poly alpha olefin products now that additional supply of a key raw material is available. Capacity expansion for some of our key lubricant additives, together with an increasing performance of these additives in today's high-efficiency world, will allow us to grow volumes in this expanding market. In addition, IPP should benefit from increased and diversified demand for its hot cast elastomer products.

As I mentioned earlier, in 2015, we finished commissioning our urethanes production unit at our Nantong, China multi-purpose facility. Our urethanes products now join our synthetic grease and finished fluids product lines at Nantong. And although all three of these units will produce commercial quantities in 2016, the slowing Chinese economy will likely reduce the rate at which we billed sales from this facility from what we had originally projected. Sales from our Nantong facility should cover the plant's cash costs in 2016, but will not be a significant contributor of earnings growth. That is as we expected.

In IEP, we expect the bromine and bromine-derivative prices will remain steady following the recovery throughout 2015, and that IEP's 2016 results reflect the full year benefit of improved bromine pricing. We also expect that increasing demand and production capability for our Emerald Innovation 3000 flame retardant will drive IEP growth in 2016. We made important commercial and operational strides in our Emerald Innovation 3000 product line in 2015, and we expect to capitalize on that progress in 2016.

IEP's 2016 results should benefit from a normalized supply of bromine from our third-party source in Israel. In addition, the recent decision by the District of Columbia Circuit Court to progress implementation of match (18:06) regulations is expected to drive increased demand for our GeoBrom mercury control products in 2016, although the implementation timeline is still a bit unclear.

We also expect that business and operational improvements made in our organometallics product lines in 2015 will continue into 2016 as we benefit from the sales volume gains achieved last year, continue to leverage new business for our tin-based products, and focus on differentiated products within our polymerization catalyst portfolio.

Finally, we believe that our clear brine fluids business will finally see some reduced demand in 2016 compared to last year as deep well and ultra deep well drilling activity declines as a result of low oil prices. We believe, however, that these headwinds will be more than offset by the growth in other areas within IEP.

Before I hand the call over to Stephen, let me talk for a minute about our share buyback activity and our strategic portfolio initiatives. In the fourth quarter, we repurchased approximately 400,000 shares of our common stock at a cost of about $10 million. For the full year of 2015, we repurchased a total of 6.2 million shares at a cost of approximately $150 million. At year-end 2015, we had approximately $170 million remaining under our share purchase authorization, which includes the additional $150 million that our board authorized in August of 2015.

We maintained a 10b5 plan to execute our buyback plan. The plan is designed to take advantage of opportunities to repurchase our stock at attractive prices. A silver lining of the recent market correction is that we've been able to repurchase approximately 2 million shares of our common stock so far in 2016 what we consider very attractive pricing.

Finally, we continue to explore and evaluate our strategic options and what might be the next transformational move for Chemtura. Our goal is the same today as it has been since we started our portfolio transformation, to narrow the focus of our portfolio on truly specialty chemical businesses, to gain scale in a manner that would put us in a better position to compete, and to accelerate value creation for our shareholders. Our focus is on finding a transaction that fits our strategic criteria and that is actionable in the near term.

With that, I'll now turn the call over to Stephen Forsyth. Stephen?

Stephen C. Forsyth - Chief Financial Officer & Executive Vice President

Thank you, Craig, and welcome, everybody. This morning, I'm going to focus my comments on four areas: discussion of earnings per share, of taxes, of our cash flows, as well as the group pension annuity transaction we announced last night.

So in 2015, we delivered significant year-on-year improvement in our managed basis earnings per share measures compared to 2014. Now, that's not to ignore also the earnings per share on a GAAP basis when we delivered $1.98 per diluted share in 2015. However, comparisons to 2014, on a GAAP basis, are meaningful, as earnings per share in that year included the gain on the sale of Chemtura AgroSolutions, as well as the impact of the release of the U.S. valuation allowance, both of which dwarfed the operational earnings components.

Now, in 2015, on a managed basis, we delivered $1.47 per diluted share compared to $0.87 per diluted share in 2014. This increases even more dramatic when you recall that the 2014 managed basis diluted earnings per share included the earnings of Chemtura AgroSolutions for 10 months.

Now, the foundation for that performance was solid operating activities, but it was augmented by a number of other factors. First of all, lower interest expense with the benefits of the reduction in debt, 2000 (sic) 2015 (21:57) interest expense was $30 million, $15 million lower than that incurred in 2014 when it was $45 million. The impact of the strengthening of the U.S. dollar gave us some FX gains that are reported in our other income expense line. We have a lower tax rate, and I will discuss the drivers in more details in a couple of minutes.

And lastly, the lower share count. If you just look at the impact on our weighted average diluted shares outstanding, as a result of our share repurchase programs, the diluted shares outstanding for 2015 on that weighted average basis was 68.8 million, 25% lower than they were in 2014 for the full year when they stood at 91.5 million weighted diluted average shares outstanding.

As of December 31, 2015, total shares outstanding were down to $67.2 million and that's the starting base for the weighted average share computations in 2016, as you reset the average clock. Now, for the basic weighted shares outstanding, diluted equivalence will add somewhere between 800,000 shares and 1 million shares to the average weighted count when you do the diluted weighted average shares outstanding.

Now, stock repurchases going in 2016 will start to reduce that number of 67.2 million, although the averaging process slows the benefits of repurchases as the year progresses, as you're only picking up the proportional shares into the average.

Nevertheless, as Craig has noted, we've already purchased approximately 2 million shares year-to-date, which gives us a great start driving a further reduction in the weighted average shares outstanding.

So let me return to the subject of taxes. We spent a lot of time during 2015 talking about taxes, and once again, I find the necessity to help explain the movements in our tax rates in the fourth quarter and the full year. For a review of the fourth quarter results, you will see that we reported a GAAP tax benefit of $27 million in the fourth quarter, and that our managed basis tax rate in the fourth quarter was about 25% which is close to where we guided.

In the full year of 2015, our GAAP tax rate, with the impact to that benefit in the fourth quarter, was just 11% for the full year. And our managed basis tax rate for the full year was 13% reflecting those credits and deductions we talked about in the second quarter and third quarter.

Now, our underlying managed basis tax rate in 2015 has remained remarkably close to the 28% guidance that we provided at the start of the year. The lower rates reported in 2015 as a result of a number of discrete positive events which are unlikely to reoccur in 2016 and beyond.

During 2015, the profitability of our U.S. operations grew faster than we anticipated at the start of the year, and obviously, significantly greater than it was in 2014 when you exclude the gain on sale of Chemtura AgroSolutions. These improvements provided the evidence that we should release additional valuation allowance against certain general business credits and state NOLs in the fourth quarter of 2015 and those represent a component of the benefit that you see in the fourth quarter GAAP tax provision.

In addition, there was also a change in law during the fourth quarter in one of our foreign jurisdictions that permitted us to reinstate certain foreign NOLs that had been written off several years ago, because under the laws as they had stood, we were unable to utilize them. These two matters, the change in valuation allowance and the reinstatement of the foreign NOLs were the largest components of the net GAAP tax benefit that you see in the fourth quarter and thereby the catalyst of the lower than usual GAAP tax rate for the full tax year of 2015.

Now, when we look at the managed basis measure, the first thing I should mention is we don't take credit for changes in valuation allowances in the way in which we compute our managed basis tax rate. Our managed basis tax rate is supposed to be a normalized operating level of taxation on our pre-tax earnings. The lower managed basis tax rate for 2015 was due to those U.S. tax credits and deductions that we discussed at length during our second and third quarter calls. As well as we did see because we were able to utilize some of them, a little bit of benefit from the foreign NOLs that we had reinstated in the fourth quarter 2015.

Now, those credits and deductions also impacted the tax rate in the fourth quarter, because you adjust your effective tax rate for the full year, and so, there's a blended effect. While we will continue to claim U.S. credits and deductions in 2016 and beyond, the benefits will likely be much more in subsequent years. As a result, we continue to recommend that the underlying managed basis tax rate guidance of 28% is the rate that investors should use in modeling 2016 and beyond.

Now, to put some of that guidance in perspective, if we had recorded a 28% managed basis tax rate in 2015, our diluted earnings per share for the year would have been $1.21 compared to the $1.49 that we reported. So there was a benefit of about $0.28 per share from that lower tax rate during the year. And so, as you think about modeling 2016 earnings, you need to consider that in terms of the year-on-year comparisons.

Now, thinking about that 28% managed basis tax rate, it's the outcome of what effectively is the higher tax rate on U.S. sourced income and the blended lower tax rate on the pre-tax income of foreign operations. If the proportion of foreign pre-tax income were to rise, then our managed basis tax rate would reduce below the 28% and equally, where our U.S. pre-tax income, a little proportion of our U.S. tax income to rise significantly, then our managed basis tax rate would rise from that 28%. But it's unlikely in 2016 that we will see the benefit of higher deductions and credits as we saw in 2015.

So the drivers of tax rates in 2016 and beyond is much more likely to be driven by the mix of our foreign and domestic earnings.

Lastly, I should note the cash tax payments, net of refunds this quarter, were $4 million compared to $12 million in the third quarter 2015. There is variability between the quarters as the amount of cash taxes paid as different jurisdictions have different periods in which you actually have to deposit at cash tax payments when due.

For 2015, for the full year, our cash tax payments, net of refunds, were $36 million or 31% of our managed basis pre-tax income. Now, that might appear odd to some of you. This cash tax rate was higher than our normalized managed basis tax rate, primarily due to the tax payments related to the divestiture of Chemtura AgroSolutions that were made during 2015 as well as the impact of certain tax payments associated with the repatriation of the foreign proceeds from that sale to the United States during the year of 2015.

Now, when you look at our cash tax rate with the benefit of our significant U.S. NOLs, our cash tax rates should normally track significantly less than that managed basis normalized tax rate to 28%.

Now, let me turn to cash flows. So as we've discussed on previous calls, in 2015, it was very important to demonstrate that our focused smaller (31:07) industrial specialty chemicals business portfolio could consistently generate free cash flow. We actually exceeded our expectations as Craig has described in 2015 and generated $110 million of free cash flow for the full year.

Now, let me just briefly reflect on how we define free cash flow. We define it using the measures as illustrated on the GAAP statement of cash flows as net cash provided by operations to which we add back cash contributions to pension and OPEB plans, and then deduct capital spending.

The components of those three elements in 2015 were that we generated $159 million of net cash from operations, there was $31 million in cash pension and OPEB contributions, and then a deduction for the $18 million of capital expenditures.

So why do we exclude pension and OPEB cash contributions from this measure? The reality is that today the majority of our contributions are discretionary. They form part of our decision-making process as to how to allocate capital between returning value to shareholders, capital investment, deleveraging, and this derisking component to our pension and OPEB liabilities. And we'll give you a vivid example of that when we talk about our recent pension transaction.

If you look at the cash flow performance in 2015, core working capital so, in other words, accounts receivable plus inventory less accounts payable were essentially unchanged in constant currency terms in 2015. From a capital expenditure perspective, with our larger recent capital investment projects now complete, capital spending declined in 2015 to an amount of $80 million which compares to $113 million we spent in 2014, and the peak of $159 million we spent in 2013.

Now, those numbers, if they look a little different, exclude the capital expenditures that related to divested businesses. So they're lower than the numbers we might have reported in those specific years when we owned those businesses.

Now, in 2016, we estimate that capital spending will pick up a little to about $100 million for the year and we will fund that increase out of improvements in our free cash flow in 2016. As a result, with the benefits of improved profitability, increasing our cash flows, that we will be able to deliver free cash flow at the same level as 2015 or higher despite some higher capital spending as well as a little bit of working capital build associated with the growth that we anticipate in the year.

As you'll all see, our balance sheet remains very strong. Total debt as of December 31, 2015 was unchanged from the end of September at $517 million. Our net debt was just a mere $194 million. With improved profitability, our total leverage ratio, the ratio of total debt to adjusted EBITDA, is rapidly moving back towards our target long-term ratio of 2 times adjusted EBITDA.

And finally, just in thinking about 2016, we have a stub of $40 million of a senior secured term loan that matures in August of this year. Unless an M&A transaction would require a new financing, we will repay that $40 million that remains outstanding out of cash on hand either at or before maturity this year.

So before I conclude, let me turn to the pension annuitization transaction that we announced last night. Through the purchase of a group annuity contract, we've transferred more than 60% of the pension benefit obligations of our qualified U.S. pension plan to the insurance markets at a cost that approximates to book liability. So this effectively eliminates our exposure to future asset performance and the demographic changes that may occur to the population while relieving us also of the administrative cost and the ever increasing PBGC premiums related to those transferred liabilities. As such, this really strengthens our balance sheet and reduces the potential for P&L volatility from performance different to one's actuarial assumptions that underpin these plans.

Now, as those of who have followed this for some time will know, this action builds upon a sequence of steps we've taken in recent years to progressively derisk our pension OPEB plan liabilities. And we continue to explore derisking actions when they make economic sense. Now, the annuity purchase that we've described was made with the assets of the Trust that holds the assets of that pension plan. So it's not a direct cash payment of Chemtura. It's a payment by the Trust to purchase that annuity for the benefit of over 5,000 retirees within that plan.

Now, to keep the funding level of the assets within that Trust that supports that plan, we are contributing somewhere between $30 million and $40 million this year, to preserve the percentage funding levels of the plan to the levels that they were prior to this transaction. And so here you have an example of where we're making a capital allocation decision to allocate cash to this particular application to strengthen our balance sheet and reduce our risk exposure of these liabilities.

Now, those liabilities, as we reported them on our financial statements as of December 31, 2015, were approximately $240 million, down from approximately $280 million as of December 31, 2014. If you now take that amount pro forma for the cash contribution, those liabilities will be approximately $205 million, and obviously subject to change by actuarial assumptions and asset performances as we move forward over time.

Now, if you look at those liabilities, what's left today is primarily the pay-as-you-go type liability. These are obligations where the company just is required to pay the benefits to the beneficiaries as they fall due. You are not required to fund any assets to support those liabilities. So they're just long-term payment obligations. And so, we're boiling our pension and OPEB exposures down to these long-term liabilities and succeeding in funding the more traditional defined benefit plans and over time, derisking those liabilities.

The last component in thinking about the pension and OPEB liabilities is that there will be a non-cash settlement charge that we'll record in the first quarter related to this annuity purchase or (38:47) release of some of the capitalized actuarial gains and losses, and that will be in the range of $150 million to $170 million. And you'll see that reported in our first quarter results, but obviously consistent with prior practice, will be excluded from managed basis earnings.

So that completes our prepared comments. I will now hand the call back to the operator, so that he may assemble the roster questions and commence the Q&A portion of the call.

Question-and-Answer Session

Operator

And your first question comes from the line of Ivan Marcuse with KeyBanc Capital. Your line is open.

Ivan M. Marcuse - KeyBanc Capital Markets, Inc.

Hi. Thanks for taking my questions and good year. Real quick on the pricing dynamics within bromine, and I guess, price mix. In bromine, if you had a nice benefit in 2015, if prices hold where they are today, what does that year-over-year benefit in terms of EBITDA look like in 2016? And then conversely, on the IPP side, you also had a nice benefit. Do you give some of that back in 2016?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

I would say generally – I'll tell you why I'm saying generally in a second – generally, it's probably $5 million to $10 million if you just take the full-year effect as it kind of ramped up during the first half of the year. So taking the second half of the year plus the benefit you didn't get in the first half, with the exception of Emerald 3000.

Emerald 3000, we mentioned, was relatively flat pricing for the year, because they're annual contracts. Pricing did move up in the first part of the year, so that's – that additional volume, any additional pricing on that is probably the most significant part of the year-over-year improvement in IEP and is well more than that $5 million to $10 million you just get from the kind of the underlying pricing on the annualized effect. So two pieces to that.

We expect that, in general, pricing will hold. There's pockets where we've seen some movement from its peak. In other areas, where it's still moving up, areas where it's stronger in the fourth quarter than it had been during the year, for instance, was on elemental bromine. Some reasons for that specific to China were the Tianjin explosion and the effect of that on some local producers. More importantly, we just had more bromine to sell in the fourth quarter because the impact of the strike at ICL was pretty much mitigated as we got through the third quarter into the fourth quarter.

We'd seen some very high prices in the electronics segment. I mentioned in earlier calls that some of the products that go into electronics in China, we saw the pricing move up very quickly. Some of that pricing moderated. Even in some pockets at those high levels, we saw some softening just marginally in the fourth quarter, nothing dramatic. We saw some of that clearly wasn't continuing to move up.

We expect to see some of that fluctuation in pricing in that specific product line. We've kind of built that into our assumptions for 2016. But overall, as we saw in the fourth quarter, we think pricing will remain kind of at those strengthened levels that we saw as the year ended and don't expect a lot of upside. Again, the 3000 being the exception, because the moves there made right at the end of the year that affected early 2016.

Ivan M. Marcuse - KeyBanc Capital Markets, Inc.

And then on the – thanks for that detail. And on the IPP side, as sort of the contracts reset, do you see the benefit that you had in 2015, do you give some of that back or is it more sort of a zero-sum game or you maintain it, et cetera, would be part of (42:39) pricing?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

I think generally, in dollar terms, we expect to be able to maintain the margin improvement that we saw in 2015 in 2016, in IPP. We saw some deterioration in price, but not to the same level we saw with the reduction in raw material cost. And so, we saw that margin expansion. We expect when oil prices move that we'll be able to retain that.

Clearly, some of our biggest customers are also those oil companies that resulted in the lower raw material cost, and we saw some probably more volume pressure than price pressure as we ended the year, and that affected some of the miss between the $250 million that we're targeting all year in EBITDA and the number that we came in absent this one-time adjustment of the $244 million. Some of that was clearly some inventory management volume declines in December at some of the big oil company customers.

And I talked about that at the Investor Day that that's one of the things we were looking at, and that in fact did happen. So I – that's the other side of that coin. The low oil prices clearly were beneficial to us in a lot of our raw material costs. On the other hand, that puts a strain on some of our bigger customers who are in those same oil companies. And so we're seeing both sides of that coin and we started to see that from a volume perspective and an inventory perspective at the end of Q4.

Ivan M. Marcuse - KeyBanc Capital Markets, Inc.

And then, as a quick follow-up, the (44:07) issue. As that goes – as that's now behind you, how much of a tailwind is that going into 2016 for you on a year-over-year basis in terms of EBITDA? And did you get any sort of benefit as a result of the shortage of that raw material towards pricing for that H-PAO, sort of artificially high and comes in, sort of how do you think about the moving pieces there?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

I'll answer last part of the question first. No, we didn't see any positive effect of our shortfall in, our ability to produce high-viscosity PAO due to the (44:42) shortfall. There were other alternatives, maybe not as good, maybe not as preferred, but they, clearly, didn't allow us to do much on pricing. There is a significant potential tailwind.

One of that – as we built in, we talked in Investor Day, the big improvement in volume which is a significant part of the growth, 2016 to 2015 is us being able to either produce or procure products that we were short of last year that we could have sold. Elemental bromine because the ICL strike is a great example. Emerald Innovation 3000, because we're still ramping up in the fourth quarter, especially late in the fourth quarter, we achieved monthly rates that are at the kind of operating rates we need to be able to deliver the expected improvement in 2016, so we feel good about that.

The third one was the ability to procure more the raw material (45:34) as you mentioned to be able to produce high-viscosity PAO at the levels that we could sell. The challenge is now, as I mentioned, they weren't just waiting for us to be able to sell all that. We're very positive about that, and we feel good about that. We don't think that there will be a negative effect on the downside on pricing.

There are some higher costs associated with this, at least in the early stages, as we ramp up in this new raw material source. We have ways to mitigate that, but it won't be immediate. So, a little bit higher cost structure that will affect the margin a little bit on that increment, but it's significant. It's low double-digits EBITDA kind of the number if we are able to fully utilize the assets versus what we were running in 2015. So it's a significant part of the growth year-over-year.

Operator

And your next question comes from the line of Dmitry Silversteyn with Longbow Research. Your line is open.

Dmitry Silversteyn - Longbow Research LLC

Good morning. Just one or two...

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Good morning, Dmitry.

Dmitry Silversteyn - Longbow Research LLC

...questions. Ivan did a good job taking the first several. Can you talk about this inventory correction from your oil customers in IPP? I think you mentioned it impacted you. Was that just sort of the petroleum additive guys or were customers actually expecting lower prices and therefore working that inventory or was there something specific to sort of oil production markets that caused the inventory correction in the fourth quarter?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

It was more of the former. And I don't think there was anything specific relative to the oil company or oil industry, it's the performance and the focus on cash of the big oil companies who were under pressure because of low oil prices and looking across the board. I don't know if there's any concerted effort to do anything, but we saw it, which is a little different than other years as the major oil companies. Typically, we had seen and we talked about this during the year in our additives part of the business an inventory correction at the end of the year and then a ramp-up in the first quarter.

Remember we saw the inventory correction at the end of 2014, we didn't see the ramp-up in early 2015. And so, we kind of speculated all year, maybe that would mean on the positive side, we wouldn't see as much of a reduction in Q4 on the additives side in petroleum additives. That in fact was true. We didn't see significant reduction in the buy of the additives.

What was different, and that's what I was talking about, was this is more in things like PAO. A real softening as we got towards the end of the quarter from the big oil companies as they look to just managed cash at the end of the year. So I don't think there's anything substantive, but it clearly affected the fourth quarter numbers and our goal to hit that $250 million.

Dmitry Silversteyn - Longbow Research LLC

Did you say, Craig, that that was the main reason for the roughly $6 million shortfall in your EBITDA in the quarter? Or if not, what was the main driver of the shortfall?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

It was primarily IPP and that was a significant piece. I'd say another significant piece was when we talked about this during the year, and we just saw it continue into the fourth quarter and even more as the quarter tailed off. It is in the urethanes area where we saw continued softening in the Adiprene Vibrathane, the cast elastomers business that goes into the biggest application is mining. And we saw that continued softening and then an inventory correction at the end of the year.

So between those two, between the urethane softening at the end of the quarter continuation of what we saw over the last three months or four months and this inventory correction at the oil company, that was the majority of that $6 million.

Dmitry Silversteyn - Longbow Research LLC

Got you. Got you. Okay. And then on Emerald 3000, it sounds like the price increase you announced towards the end of 2015 is making its way to the market and now being disrupted by the second supplier coming on stream and your expectations for that market in Europe are as bullish as they were two months, three months ago?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Yes. Yeah, that's a real strong part of the story. Emerald Innovation 3000, both from its adaptation or acceptance in the marketplace and from the ability to get some pricing to where we had expected it to be are critical and it got it in place as we go in. The last component of that is we'll be able to make the product at those rates and we hit an all-time high in December and if you look at our 30-day, 60-day, 90-day moving averages, all of those now are at a level that – or where we need to be to hit our numbers in 2016.

So maybe a little bit of upside there, but we can do what we did in December for the year. But clearly, we're on the right track down. That was critical, to be able to deliver what we talked about in Great Lakes Solutions.

Dmitry Silversteyn - Longbow Research LLC

Okay. And again then the final question on your EBITDA expectations for 2016, are you still sort of in that $300 million range?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Yes. We were very coy there. We said 20% over $250 million.

Dmitry Silversteyn - Longbow Research LLC

Okay. Sounds good.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Yeah. We're still in that same range. Again, we – the vast majority of the difference year-over-year is the ability to produce the products that I mentioned or procure the price that I mentioned at the rate that we now have in the plan which we're at those rates now. So doesn't mean it's easy. You got to be able to sell and you got to be able to deliver and you got to be able to execute on those plans. But much like going into 2015, the plan is to be able to do things that really are under our control. There's no assumption that we're going to see some economic rebound or anything into 2016.

Operator

And your next question comes from the line of Rosemarie Morbelli with Gabelli. Your line is open.

Rosemarie Jeanne Morbelli - Gabelli & Company

Morning. Congratulations, everyone.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Good morning. Thank you.

Rosemarie Jeanne Morbelli - Gabelli & Company

Craig, just finishing up on the 2016 EBITDA, so 20% over the $250 million is $300 million, we can all count, and it is about $293 million over the $244 million in 2015 actual results. What is the likelihood that you can actually hit your previous target or better yet that you can actually hit that $293 million target?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Well, everybody's pay is assuming they're going to hit the $290-some-million target, right? So we're assuming – that's our plan. I mean we've got a plan with very discrete items with contingencies to be able to hit that plan. Again, we'll play the year out. It doesn't mean that it's certainly a long way and I have got the business leaders I'm sure listening to the call, a long way from a slam dunk, right?

These plans are supposed to be plans that you have to execute on to deliver, but we have all the pieces in place to be able to do that. We have to execute on them and deliver it, but we're committed to those numbers as we were to the $250 million. It's a disappointment from our perspective as we missed the $250 million by the $6 million.

And this year, we're bound and determined to be able to deliver what we said we would. Now, there's – how we get there will always be different than the plan sits right now, that's what happened last year. But last year we got – we struggled because of volume and we didn't know we were going to have the strike. On the positive side, we didn't know we're going to have the volume or the price increasing opportunity we had in bromine that actually happened to be in place by the middle of the year. But overall, we've got plans and contingencies in place to deliver the number that we talked about in the Investor Day. So we're committed to do that.

Rosemarie Jeanne Morbelli - Gabelli & Company

And does that include a potential slowdown in either one of your markets or you are anticipating that everything kind of stays the way it is currently?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

It's probably more the latter, but we're considering the latter to be the slowdown, right? We – 2016, as the year progressed was significantly slower and that was the reason why the volumes came in short. It wasn't we lost share. It's just that the overall markets that we sold in were slow. We expect that to continue. We don't expect it to get significantly worse, but we expect that to continue to be relatively stagnant, as I said.

So I don't – if everything fell off a cliff, yeah, that could be problematic. We'd have to make adjustments to our manufacturing and our schedules and things like that and that's not an immediate effect. But on the other hand, we don't expect that we're going to get some recovery in 2016 and that's how we're going to get the 20% improvement in our EBITDA. So it's kind of – we assume it's going to stay slow like it was in 2015.

Rosemarie Jeanne Morbelli - Gabelli & Company

Okay. That is helpful. Thanks. And then looking at the lower mix in IEP, could you give us a bit of feel as to where it is coming from? Is it that bromine going to furniture foams has a higher margin? Is it that you are seeing an improvement in the demand for mercury removal and it has a lower margin? Could you help me understand where that mix is coming from?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Yeah. I mean most of the negative mix was in IPP in Industrial Performance Products and a couple of areas. In urethanes, we sold more of the coatings business. We also sell some intermediates that we need for – we produced for our own use, but to keep the plants full, when we don't use it all internally, we try to sell it externally. And margins for those intermediates are significantly lower, and so, affects the overall mix situation. And that was primarily what is in both petroleum additives, even more so in urethanes, that was the effect.

Not so much in IEP, certainly not in organometallics, you wouldn't see it. We sold more tin products and those are typically lower than some of the products that go into single-site catalyst. But I don't think that was much different than the plan that's the way, kind of the, operation works because of the base-load requirement.

And, in Great Lakes Solutions, there really wasn't much of a negative mix. Clearly, you're right. The flame retardants in the furniture foam are higher margin products. But that wasn't much of a differential year-over-year 2015 versus 2014, it was more 2014 versus 2013. So more of an IPP issue, and it was just, again, utilize – I tried to utilize assets primarily on these intermediate areas.

Operator

And your next question comes from the line of Ben Kallo with Baird. Your line is open.

Unknown Speaker

Hey, guys. This is (56:04) on the line for Ben.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Hi, Dave.

Unknown Speaker

Thanks for taking the question. Morning. I was wondering if you could talk a little more about the outlook for – your outlook for deepwater drilling spending and the effect on clear brine fluids? If you could add some color on the timeline that decline and the cadence to that?

<: Well, as I said, we had a good year 2014 and I guided to a problem every quarter that never happened. And again, some of that was just – again, we're very focused in Gulf of Mexico and dug deep or ultra-deepwater and as the overall mix of drilling and completion moved that way, we benefited from that.

I would say, now, as we're early in the first quarter, we've seen some softening which, again, maybe I'm right in the fourth quarter when I'm guiding to the first quarter here. Some of that, we're not sure yet at timing of jobs. Again, it's early in the year and people are gearing up or it's really the first signs of some softening. We expected we put our plan together for 2016 that for the year we would see softening, so we've built that in. And again, if you look at January and the softness, again, we're not sure if it's timing or if it's start of something, but it looked a little bit softer, clearly, sequentially versus the fourth quarter, which was a strong quarter.

As you recall, we've talked about it, it's a relatively smaller component even of our Great Lakes business versus some of our competition. So it's not as meaningful as it moves one way or the other. But on the margin, it doesn't matter and we had a good year in 2015 in clear brine fluid sales. So I'm going to do what I do every quarter recently, and again, guide to potentially, we'll see some softening in the first quarter. This time though is, we're already in February, we did see some of that in January, again, we're not sure if it's just the timing issue, because we do have orders, but they can push them or if it's really the start of some softening in Q1.

Unknown Speaker

Okay. Great. Thank you.

Operator

And your next question comes from the line of Mike Harrison with Seaport Global Securities. Your line is open.

Michael Joseph Harrison - Seaport Global Securities LLC

Hi. Good morning.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Good morning, Mike.

Stephen C. Forsyth - Chief Financial Officer & Executive Vice President

Good morning, Mike.

Michael Joseph Harrison - Seaport Global Securities LLC

Just want to make sure that I understood correctly that in the bromine business, you're expecting that on sort of the base business, you could get $5 million to $10 million in higher EBITDA related to higher year-on-year pricing and then a further $5 million to $10 million related to the contribution of Emerald 3000 pricing?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Stephen, do you want to comment? That's what I said, yes. But Stephen's maybe going to correct me.

Stephen C. Forsyth - Chief Financial Officer & Executive Vice President

Well, the first part is correct. The annualizing effect of the improvements that happened progressively over 2015 do drive an improvement in that order of magnitude.

On Emerald 3000, we will have the benefit of improved pricing. I don't think it's quite of the magnitude you suggested, but that the more significant point is more volume. So the overall contribution from Emerald Innovation 3000 in terms of the year-on-year improvement is certainly going to be in the sort of magnitude you're talking about, but it's more volume driven. And you get the whole leverage effect of better utilizing the asset and all the improvements that we made in the operating efficiencies and rates that Craig was describing really start to make that asset sweat and deliver some good performance for us.

Michael Joseph Harrison - Seaport Global Securities LLC

All right. Understood. And then just a little more detail on the ramp-up of the urethane's capacity in China, I was hoping that maybe you could discuss what you're seeing in China post Lunar New Year that kind of gives you a little bit of concern that the contribution of that Nantong plant is going to be lower than you previously thought?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Well, we – yeah, it's going to be low, and if it was lower than we previously thought, it couldn't get that low, I don't think. The assumption was that we started the plant up – we started qualification of the plant up in trials in Q4, so we are in Q1 now and just now in Q1, in the position where we can start to supply commercially. As we get towards the middle of the year and we build inventory and we are qualified, we have a small plant in Nanjing, China where we make these urethane products, at least some of them, we'll shut that down and we'll transfer that production over to the newer Nantong facility. So that will be part of it.

The assumption that we have in 2016 for Nantong as a whole is between having some positive contribution in the grease plant, which was the first phase that started up a year ago or so, and kind of neutral for the finished fluids plant, which again, the utilization rates on all of these are relatively low, but they're different for each one, which just started up last year and is in qualification. And a negative contribution of urethanes plant that is just right now going to run its first commercial trials, that across the board in 2016 it's basically breakeven. And we can manage our variable cost to be able to drive that. We have groups that can move, that are cross-trained that can move from one production site to the other.

The upside is if we can do better than that. And clearly in 2017, we're looking for a positive contribution from the Nantong facility to be able to drive the next increment of – a part of the next increment of growth from 2016 to 2017.

Michael Joseph Harrison - Seaport Global Securities LLC

Okay. And then as you get toward the end of the repurchase authorization here, the balance sheet's in pretty good shape. Curious what the board's appetite is for committing to a regular dividend?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

We talk about it regularly. 2015 was a key year because we were charged with being able to prove to ourselves, to the board, to the Street, to you guys that we could actually deliver free cash flow. That hasn't been something we've been doing regularly, especially with the high capital expenditures for the plant in Nantong and the plant in Ankerweg and some of the other expansions that we've done.

We did that in 2015. We'll repeat that in 2016. So I would expect that those discussions become more serious as we get through 2016, continue to demonstrate that we can deliver consistent free cash flow, and look at it. We've had these discussions, we have these discussions with shareholders when we go to the conferences or whatever and have the one-on-ones, then on road shows and the discussions (01:02:51).

There is some interest in that, but again different group of funds we could invest, a strong indication from us that we are on a different track, now we can consistently deliver free cash flow. And so, I think it's important, but we also want to make sure that it's something we can do consistently and grow over time. So we want to make sure. And again, I think in 2016, as we demonstrate quarter-over-quarter that we're doing that, it will become a more serious discussion.

Operator

And your next question comes from the line of Chris Kapsch with BB&T Capital Markets. Your line is open.

Ronald Weller - BB&T Capital Markets

Hi, guys. This is Ronald Weller calling in for Chris Kapsch.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Good morning.

Stephen C. Forsyth - Chief Financial Officer & Executive Vice President

Good morning.

Ronald Weller - BB&T Capital Markets

Just a follow-up on the bromine pricing front. In mid-December, you had mentioned that higher elemental bromine prices in Asia were beginning to migrate downstream into the derivatives and that even local Chinese bromine derivatives producers had begun pushing along these higher bromine prices. Can you just update us on how this dynamic is progressing?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

In bromine itself, I think pricing was very strong in the fourth quarter. Again, it's supported by the seasonality. In the winter, they're not really producing as much. The Tianjin explosion issue and the kind of pressure that's put on the local bromine producers has all manifested itself in that bromine pricing was strong in Q4. So it moves up and down a little bit, but certainly the trend is positive. And we didn't assume for the full year in our planning for 2016 it's as high as it was at the end of the Q4, but clearly that price is a strong price.

I mentioned we did see some softening in products going into electronics, so the derivative bromine flame retardants, but from a very high level. So the pricing is still solid, and some of that, I think, is selective, because of the high price, selective approaching by some Chinese producers to be able to tap into the business at those high levels caused some downward fluctuation. But still, again generally, very strong pricing as we ended the year, and we expect that to continue into certainly into Q1. We've seen that into Q1 and through the year.

Ronald Weller - BB&T Capital Markets

All right. I appreciate the color there. And just a follow-up in IEP. Given the comments that clear brine fluids demand is likely to finally see some weakness. Can you just discuss the mix in margin implications for the bromine business moving forward?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

It's – what do we say, Matt, clear brine fluid is about 10%?

Matthew Sokol - Director, Investor Relations & Corporate Development

10% of the IEP segment.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Of the IEP segment. And again – so relative to some of our competition, it's a relatively small piece. From a profitability perspective, it's probably a little below margin...

Matthew Sokol - Director, Investor Relations & Corporate Development

Yes.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

...a little below – below the average margin in the portfolio. So it shouldn't have a dramatic effect. Again, we'll use the bromine someplace else, right, so we can make derivatives, we can sell the (01:05:52) bromine and so we just move it from one place to another.

But again, on the margin in 2014, it was clearly a positive, because we were able to see a strong year. If it's kind of an average year in 2015, it won't be significant relative to the effects of full year bromine pricing that we mentioned earlier or the Emerald Innovation 3000, or the fact we get bromine because of downside to an ICL strike presumably in 2016. So again, on the margin, but it's relatively insignificant.

Operator

And your next question comes from the line of Roger Spitz with Bank of America. Your line is open.

Roger Neil Spitz - Bank of America Merrill Lynch

Morning.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Good morning.

Roger Neil Spitz - Bank of America Merrill Lynch

Good morning. With organometallics sales down, can you discuss the driver on that? Is it mainly volume? I think you were saying organo tin volumes were actually up in Q4 as well as...

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Yeah. We...

Roger Neil Spitz - Bank of America Merrill Lynch

Go ahead.

Craig A. Rogerson - Chairman, President & Chief Executive Officer

No, I'm sorry. Yeah. Yeah. You're right. We saw some downturn in Q4. Some of it was just from our ability to make and ship, right? We have a schedule we have to maintain and you make products at certain times. We run them in campaigns. Generally, I don't think there's any difference to our overall volume story in organometallics. It was a big part of the story why we saw some improvement year-over-year. Utilization rates are up. Pricing continue to be a challenge especially in things like TEA.

And so, we were looking more selectively at where we were selling that volume, but it's generally a positive story. The overall performance in Q4 where volume was up from Q3 was positive and continues this positive trend that we're seeing.

And again, on the margin, in IEP, the improvement in organometallics is a significant piece of the improvement in IEP year-over-year. So while the absolute profitability of the business is still lower than we'd like it to even when we achieved what we want to do in 2016, the difference between 2016 and 2015, the difference in EBITDA is a significant piece of the growth, of bottom line growth in Great Lakes or in IEP over the year.

Great Lakes contributes a big piece. Organometallics is significant year-over-year. And volume again will be a part of that story. I think we're looking at a 25% increase in volume year-over-year between 2016 and 2015, a continuation of what we did in 2015.

Roger Neil Spitz - Bank of America Merrill Lynch

Okay. Great. My second question is you talked about looking at some, hopefully, near term acquisition opportunities. Can you talk about – I know on the Investor Day slides, you were talking about sort of in the maybe $50 million, $100 million EBITDA range, keeping leverage at maybe 2.5 times, 3.5 times. So is that still what you're thinking about if you were to pursue something?

Craig A. Rogerson - Chairman, President & Chief Executive Officer

Well, there's – you've kind of two buckets. The bolt-on acquisitions in that range you're talking about, the businesses continue to look and as I said then if one of those is going to be concluded on, we're going to close on something like that, it's more likely to be in IPP. And yeah, we continue to look at that and that would be the right range. But broader than that, the transformational thing, I talked about the buy, sell, merge that continuum depending on who the other side is could be a buy, could be a merge, could be a sell, kind of agnostic to that. We continue to look at those. And those are the bigger opportunities, I think, that are out there to put us in a better position to win.

But it has to be something that makes sense. It's going to be something that's a close adjacency. We got something that leverages what strength that we have whether it's in a market or a chemical technology or whatever. We continue to look at those as well. And I guess the one change and I mentioned this in the Investor Day as well, the one change maybe is the order of the screens that we look at them, right?

Actionability will be one of the first screens versus some of the screens that we used before is looking at something that was more aspirational. So we'll look at things that we think we can get done that are more in our control, kind of the vernacular we've used for delivering the bottom line results and then determine whether or not we think that that makes sense and delivers enough economic value and accelerated value creation for our shareholders to bring to the board and then if appropriate to the shareholders.

So we're looking at it a little bit differently, but clearly, the guidelines of what something would have to be that makes sense for us haven't changed. It's maybe the order of how we look at them to be a little more efficient in going through that process. So we're looking in both buckets and kind of everyday, we continue to look at opportunities and evaluate opportunities in the bolt-on side which is more in the businesses and then overall, the smaller team continues to look at opportunities for Chemtura that would put us in a better position and create more value for our shareholders.

Operator

Thank you. I would now like to turn the call back over to Matt Sokol for closing remarks.

Matthew Sokol - Director, Investor Relations & Corporate Development

Okay. Thank you, Kim. Well, thank you, everyone, for joining the call today. We appreciate you hanging with us a little bit past 10:00 here and we look forward also to speaking with you during our first quarter 2016 earnings call in April.

With that, have a good day and thanks for joining.

Operator

Ladies and gentlemen, this concludes today's conference call and you may now disconnect.

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