Chemtura Corp. (CHMT) Q4 2016 Earnings Call February 23, 2017 9:00 AM ET
Executives
Matthew Sokol - Chemtura Corp.
Craig A. Rogerson - Chemtura Corp.
Stephen C. Forsyth - Chemtura Corp.
Analysts
Rosemarie Jeanne Morbelli - Gabelli & Company
Dmitry Silversteyn - Longbow Research LLC
James Sheehan - SunTrust Robinson Humphrey, Inc.
Tyler Charles Frank - Robert W. Baird & Co., Inc. (Private Wealth Management)
Operator
Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chemtura Corporation's Fourth Quarter and Full Year 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, you may begin your conference.
Matthew Sokol - Chemtura Corp.
Thank you, Lisa, and good morning, everyone. Thanks for joining the call. With me today are Craig Rogerson, Chemtura's Chairman, President and Chief Executive Officer; and Stephen Forsyth, Executive Vice President and Chief Financial Officer. This morning, we will review summary highlights of our fourth quarter and full year 2016 operating results. We will also provide our outlook for the first quarter of 2017 and we will update you regarding our transaction with LANXESS.
Last night, we issued our earnings press release providing our fourth quarter 2016 results and filed our Annual Report on Form 10-K with the Securities and Exchange Commission. As a reminder, 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 the cautionary language about our forward-looking statements presented in our 10-K. That same language applies to this call.
Reconciliations related to any non-GAAP financial measures discussed on this call may be found in previous filings and press releases, which are posted on our website. I note that 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.
I will now turn the call over to Craig Rogerson. Craig?
Craig A. Rogerson - Chemtura Corp.
Thanks, Matt. Good morning, everyone, and thank you for joining us. I'd like to spend a few minutes talking about our accomplishments in 2016. I'll then move to our financial performance for the fourth quarter of last year.
2016 was a productive and game-changing year for Chemtura. Our most recognizable accomplishment was our announced transaction with LANXESS, which will allow us to deliver on our promise to create additional value for our shareholders through a transformative deal. I'll provide an update on the LANXESS transaction in a few minutes, but I'm pleased to say that our shareholders recently approved the transaction by an overwhelming margin, clearly an endorsement of the logic of the deal and the value that shareholders will receive once it closes.
As we did in 2015, we once again significantly increased our profitability in 2016. Excluding merger and integration costs, and the first quarter pension settlement charge resulting from our pension annuity transaction, 2016 operating profit increased by $59 million or 36% compared to 2015 full year operating profit.
For full year 2016, on a GAAP basis, we reported a net loss of $15 million compared to a gain of $136 million in 2015. The loss was due to a $162 million pre-tax pension settlement charge that we took in the first quarter of last year as a result of the pension annuity transaction I mentioned a moment ago.
In addition, year-on-year comparisons for net earnings and earnings per share are complicated by the merger and post-closing integration and planning costs associated with the LANXESS transaction and the fact that our 2015 GAAP tax rate was lower due to the recognition of certain tax credits and the release of our valuation allowance. Stephen will talk more about this topic in a moment.
On a non-GAAP basis, net income in 2016 was $111 million compared to $101 million in 2015. The growth in net income on a non-GAAP basis was lower than the growth in operating income, primarily because our non-GAAP tax rate was lower in 2015 due to, again, the recognition of certain tax credits and the release of our valuation allowance in that year. Adjusted EBITDA for the full year of 2016 increased by $45 million to $282 million compared to $237 million in the prior year, a 19% improvement that approximates our target of 20% growth discussed at our Investor Day in December of 2015.
In 2016, net cash from operations was $107 million (04:25). Excluding the $35 million cash contribution we made to our qualified U.S. pension plan in the first quarter of 2016 and cash-based merger and integration costs related to the LANXESS transaction of $9 million, 2016 net cash from operations was $181 million compared to $159 million in 2015.
Finally, I want to highlight our safety performance in 2016. None of what we achieved can be considered a success if people get hurt in the process. I'm pleased to say that for the second year in a row, we've exceeded our annual safety targets and will, once again, rank in the top decile or top 10% of safety performance among our chemical industry peers.
At one point during this past summer, our safety performance was lagging behind our expectations. Fortunately, our safety culture took hold and we increased our focus on safety in a number of ways and finished the last four months of the year without a recordable injury anywhere in the world. This is truly a remarkable feat and a testament to what can be accomplished when a global organization puts safety first.
Now, let me move to our operating performance for the fourth quarter of 2016. In the fourth quarter of 2016, our net earnings on a GAAP basis were $22 million versus $66 million in the fourth quarter of 2015. Net earnings were significantly higher in the fourth quarter of 2015, primarily due to the release of our tax valuation allowance in that quarter, and the recognition of certain tax credits. I should also mention that we occurred $2 million of expenses in connection with the LANXESS transaction in the first quarter of last year, which also affected our GAAP results.
Operating income was $5 million higher in the fourth quarter of 2016 compared to the fourth quarter of 2015. And adjusted EBITDA climbed to $59 million, up $4 million compared to the same period last year.
Sequentially, net income and operating income in the fourth quarter of 2016 were down $3 million and $10 million respectively. Adjusted EBITDA also decreased $19 million. As we've discussed several times, it's not unusual for a customer's year-end order patterns to cause our fourth quarter results to lag behind the other quarters of the year.
Net cash flow from operations was $50 million in the fourth quarter compared to $42 million a year ago and $43 million sequentially. Cash costs associated with merger integration activities, as I said, were $2 million in the fourth quarter.
Now, I'll go into a little more detail on each of our operating segments. First, IPP. In our IPP segment, sales revenue declined 5% and operating income declined 13% compared to the fourth quarter of 2015. Year-over-year declines in revenue and operating income were caused by overall softer demand for our petroleum-additive products, lower sales prices, and unfavorable product mix. In many instances, the lower sales prices were the result of passing along lower raw material costs to certain of our customers, especially with respect to our petroleum-additive products.
Lower sales and operating income related to our petroleum-additive products were partially offset by higher year-over-year sales of our urethanes products as we were able to leverage new applications for our cast elastomer products, particularly in the Asia-Pacific region.
Sequentially, IPP revenue declined 7% while operating income was down 37% compared to the third quarter of 2016. Operating income in the fourth quarter was negatively impacted by lower sales volumes compared to the third quarter of 2016, which is not unusual as many of our IPP customers manage inventory at the end of the year.
Sequential results were also impacted by higher raw material costs, unfavorable product mix, inventory adjustments, and negative manufacturing cost variances. I'll also note that in the third quarter of 2016, we benefited from higher sales of our inhibitor products due to the temporary shutdown of our competitor's facility in Asia. In the fourth quarter, our sales normalized when the competitor's plant came back online.
Before moving on to IEP, let me comment on an issue that we mentioned in our 10-K relative to IPP. During the fourth quarter of 2016, our Amsterdam in the Netherlands facility experienced a process incident that temporarily shut down our high viscosity PAO plant. Fortunately, there were no injuries. As a result of this incident, we incurred certain costs in the fourth quarter, namely an insurance deductible payment, and unabsorbed fixed costs.
We've since been reimbursed by our insurer for certain of our costs, and we anticipate the remaining cost of repair will be covered by insurance. Customer impact has been minimal, as we've been able to service customers from our high viscosity PAO plant in Elmira, Canada, and from inventory on hand.
Now let's move to Industrial Engineered Products. Fourth quarter net sales and operating income were higher in IEP compared to a year ago. Sales climbed 3% while operating income rose 35%. We experienced significant year-over-year sales volume growth in our Organometallics specialty products line, which was offset by weaker sales of certain brominated flame retardants and clear brine fluid products.
As we've discussed at length in the past, clear brine fluid sales have been impacted by the reduction in oil and gas exploration. Where clear brine sales are down significantly year-on-year, they have improved in the second half of 2016 compared to the first half of the year. Favorable sales prices and lower raw material costs in certain of our bromine-based product lines helped drive IEP's operating income improvements and offset higher manufacturing and distribution costs in the quarter.
The year-over-year comparison was also aided by the non-reoccurrence of an unfavorable inventory adjustment taken in the fourth quarter of 2015 related to a discontinued product. Sequentially, IEP sales declined 5%, mostly due to lower volumes at clear brine fluid sales and elemental bromine sales outside of Asia, lower sales prices for certain bromine-based flame retardants, and seasonally lower sales of fumigant products.
These declines were partially offset by higher sales prices for elemental bromine and flame retardants used in electronic applications, and also higher sales volume for our high purity metal organic chemical vapor deposition products sold out of our DayStar facility in South Korea for applications such as LED lighting. Fourth quarter operating income for IEP was 18% lower compared to the third quarter of 2016. The decline is due to the lower volume noted above, along with unfavorable manufacturing and absorption costs across all product lines and higher raw material costs in our tin-based catalyst products.
Now let's look forward. As we look forward to our first quarter performance, overall, we anticipate modestly higher net sales driven by higher volumes compared to the same quarter last year. Despite higher revenues, we expect that first quarter operating income may come in below first quarter 2016 levels due to the effect of higher raw material prices in the early part of the year, especially in our petroleum additive product lines. I should also point out that our first quarter of 2016 was exceptionally strong, due in part to low oil prices and the benefit of a non-recurring licensing fee, creating a high bar for our year-over-year comparison.
In our IEP segment, we expect improvements in our Organometallics specialty products line in the first quarter compared to prior year and that the price of bromine remained steady or even slightly improved through the first several months of 2017. Clear brine fluid sales will continue to be soft as they have been for most of 2016 as offshore drilling activities remain depressed.
Although there are some signs that the drilling industry may start to recover in 2017, we do not expect any meaningful improvement in clear brine sales until later in 2017 at the earliest. Sequentially, we expect sales and operating income to improve over the year-end lows experienced in the fourth quarter of 2016 as customers once again resume their normal order patterns.
Before I hand the call over to Stephen, let me address the status of our transaction with LANXESS. I'm pleased to report that post-deal integration planning is well underway and that we have achieved several key milestones in closing the transaction with LANXESS. As I mentioned earlier, Chemtura held a special meeting of shareholders on February 1 for the purpose of voting on the merger. Shareholders representing 82% of our outstanding shares voted at the special meeting, approving the transaction by 99.88%.
In terms of merger control approvals, on December 20, we received U.S. antitrust clearance from federal regulators under the Hart-Scott-Rodino Act and on January 27, we received clearance from the Brazilian antitrust authorities. We've completed antitrust submissions in several other jurisdictions and are currently awaiting their approvals. Overall, we remain on track to close the transaction by mid-2017.
With that, I'll now turn the call over to Stephen Forsyth. Stephen?
Stephen C. Forsyth - Chemtura Corp.
Thank you, Craig, and welcome, everyone. I'm going to keep my comments brief this morning and just discuss taxes and cash flows, providing comparisons between 2015 and 2016 to aid your analysis of our performance.
Now when looking at taxes for the fourth quarter and full year of 2016 on both a GAAP and non-GAAP basis, I'm sure the primary questions investors have are why the respective tax rates are higher than in the fourth quarter and full year of 2015, and perhaps even more importantly, why was tax expense for the calendar year of 2016 higher than pre-tax income? So let's get into some of those explanations.
Investors may recall that in 2015 we were able to claim various tax credits as a result of the tax attributes created by the divestiture of the Chemtura AgroSolutions business in 2014. These attributes reduced our GAAP and non-GAAP tax rates in several quarters in 2015.
In addition, in the fourth quarter of 2015, we released a valuation allowance as we were able to demonstrate that we'd be able to utilize certain deferred tax assets, including state NOLs, before they expired. This further reduced our 2015 GAAP tax rate. Now we don't take credit for the release of valuation allowances that arose from our reorganization when we compute our non-GAAP tax rate.
So, the result was that on a GAAP basis, we recorded a tax benefit of $27 million in the fourth quarter of 2015, and our full-year 2015 GAAP tax rate was only 11%. On a non-GAAP basis, our fourth quarter and full-year 2015 rates were a benefit in the fourth quarter of 25% and an expense for the year as a whole of 13%.
In 2016, our tax provision returned to more normalized levels with one significant exception that I'll talk about related to our GAAP tax rate.
In the fourth quarter of 2016, our GAAP tax rate was 38% and our non-GAAP rate was 28%. Now, the 28% is the rate that we normally guide folks to look at as our non-GAAP long-term tax rate. For the full-year of 2016, our non-GAAP tax rate was also 28%, and this is consistent with the guidance that we've provided, as I noted earlier.
However, our GAAP tax expense for the full year was $29 million, which exceeded our pre-tax income of $14 million. Now this was due to the pre-tax pension settlement charge of $162 million that we recorded in the first quarter of 2016. That settlement charge was a result of the transfer of pension liabilities that arose from our pension annuity transaction. The settlement charge was primarily a release of accumulated other comprehensive loss recorded in the equity section of our balance sheet. With that release, we released the related tax attributes in accumulated other comprehensive loss. Those attributes provided a benefit of $33 million related to the pension settlement charge.
Now, that effective tax rate, or tax benefit, is lower than our normalized tax rate. So, if you were to exclude that effect of the lower benefit on this non-cash release being the pension settlement charge, pre-tax income was $176 million and tax expense was $62 million. So, on a normalized basis, our GAAP tax rate for the full year of 2016 was 35%, and it's only through that pension benefit being – the pension settlement charge and the related tax benefit that our taxes exceeded the pre-tax income for the year.
Now, the various tax matters I've just discussed explain why when you look at our EPS measures on a GAAP and non-GAAP basis between 2015 and 2016 they do not reflect the strong growth that we've seen in operating profitability. As a last word on taxes, cash taxes for the year of 2016 were $29 million compared to $36 million for the full year of 2015, reflecting, among other matters, the continuing tax benefit we obtained from our substantial net operating loss carryforwards.
Now, moving to cash flows, Craig has already discussed fourth quarter cash flow performance. So let me focus my comments on 2016 full year cash flow performance. Net cash provided by operating activities for 2016 was $137 million compared to $159 million in the calendar year of 2015. However, you should be aware there are two items that impact this comparison, which Craig noted, namely the $35 million cash payment we made to our U.S. qualified pension plan to return its percentage funding to approximately the same levels as existed prior to the purchase of the pension annuity contract.
The second is the cash component of merger and integration expenses, which for the full year is approximately $9 million, which we incurred in the third and fourth quarters. If we add those items back, net cash provided by operating activities in 2016 was $181 million, a $22 million or 14% improvement year-over-year.
Capital expenditures in 2016 were $88 million compared to $80 million in 2015. So when we turn to our free cash flow measure, which as you'll recall, we define as net cash provided by operating activities less capital expenditures, the details of which can be computed from our GAAP condensed consolidated statement of cash flows, was on the same adjusted basis $93 million compared to $79 million in 2015. In short, 2016 was a year in which we continued to strengthen our cash generation performance.
For the record, cash contribution to our pension and post-retirement plans, which included that $35 million cash payment I've already discussed, was $60 million in total in 2016 compared to $31 million in 2015. However, if you look post the first quarter, you'll see the trend over recent quarters that the requirements for cash contributions are trending down.
Turning to our balance sheet, our cash balance declined by $103 million during 2016 and was $220 million as of December 31. The reduction in cash in conjunction with the net cash flow from operating activities, net of investing activities, funded $116 million in share repurchases and $36 million in net debt repayments during the year. The net result is that our balance sheet remains extremely strong. Our total leverage ratio, the ratio of total debt to the last 12 months' adjusted EBITDA is now approximately 1.7 times, well below our long-term leverage target of 2 times adjusted EBITDA. Net debt, being total debt less cash equivalents, was approximately 0.9 times last 12 months' adjusted EBITDA as of December 31.
Well, operator, that completes my prepared comments. I will now hand the call back to you so that you may assemble the roster of questions and commence the Q&A portion of our call.
Question-and-Answer Session
Operator
Thank you. Our first question comes from the line of Rosemarie Morbelli from Gabelli & Company. Your line is open.
Rosemarie Jeanne Morbelli - Gabelli & Company
Thank you, and good morning, everyone.
Stephen C. Forsyth - Chemtura Corp.
Good morning.
Craig A. Rogerson - Chemtura Corp.
Good morning.
Rosemarie Jeanne Morbelli - Gabelli & Company
Could you talk about – I understand that the main approval from regulatory bodies is from China. Could you talk a little bit about whether you would expect maybe a potential issue regarding bromine from Chemtura versus bromine from LANXESS or whether it is just a slow process?
Craig A. Rogerson - Chemtura Corp.
Let me try that first, and then Stephen or Matt can chime in. We do not expect there to be any issues relative to any specific overlaps with LANXESS in China or anywhere else for that matter. China does typically take longer. So, as I've said before, we view that as a long pole in the tent, (22:40) for when the close will occur. We think we're in the period now of waiting for the – and the clock is running. So we've answered the questions that they've had, we jointly with outside counsel, we being us and LANXESS, and are just waiting out (22:55). But I think as we sit here right now, we would still view that as a long pole in the tent, and again, the clock running, but no specific issues that we've heard from or that we've had to deal with on any specific topic with China or anybody else.
Rosemarie Jeanne Morbelli - Gabelli & Company
Okay, thanks. And then, you made a comment in the press release about certain products having increased their use of flame retardant for electronic applications. Could you give us a better feel for what those are and what you see within the electronic market in terms of a potential recovery, whether it has started or whether it is too early still?
Craig A. Rogerson - Chemtura Corp.
Well, specifically for brominated flame retardants, we have seen some strengths in tetrabrome for electronics applications both in volume. Again, we're not seeing – I'm not going to try to position that as growth, but it is certainly not in the lull that we had seen in the past and is relatively strong. Pricing is relatively good, which is probably more important at this point. But from an electronics perspective in brominated flame retardants that kind of (24:04) situation, we have seen growth in specific new applications in the urethanes area, particularly in Asia-Pacific, not necessarily electronics-based but in new applications that are allowing us to grow volume, even though we still see depressed activity in mining and oil and gas. So that is real growth. I think that, again, we're just seeing – it's stronger than we've seen in the past period for tetrabrome in electronics for bromine.
Operator
Our next question comes from the line of Dmitry Silversteyn from Longbow Research. Your line is open.
Dmitry Silversteyn - Longbow Research LLC
Good morning.
Craig A. Rogerson - Chemtura Corp.
Good morning.
Stephen C. Forsyth - Chemtura Corp.
Good morning, Dmitry.
Dmitry Silversteyn - Longbow Research LLC
A couple of questions. For the drilling fluids, you mentioned that your second half of the year was stronger than your first half and you sort of feel expectations for maybe back end of 2017 to see some recovery there. Can you talk about then second half versus first half strength, was it just seasonal? Were there any business wins or losses? Or do you think that the first half was the bottom and the second half just showing a little bit of an improvement that you'll build out in 2017?
Craig A. Rogerson - Chemtura Corp.
I think that the second half of 2016 was better due to order timing when some specific jobs came in. And yeah, we won a little bit of business in some specific areas. We didn't position and aren't positioning that as any kind of a sign of a recovery in the basic market that we're serving. I made the comment that we don't expect anything before the end of 2017 just because that's far out, right.
Dmitry Silversteyn - Longbow Research LLC
Yeah.
Craig A. Rogerson - Chemtura Corp.
We really don't expect clear brine fluid sales when we put our plan together to be better than they were in the aggregate in 2016.
Dmitry Silversteyn - Longbow Research LLC
Okay. But you don't expect it to be weaker than 2016 either?
Craig A. Rogerson - Chemtura Corp.
No, we don't expect it to be weaker either. Correct.
Dmitry Silversteyn - Longbow Research LLC
Okay. And then the second question on Organometallics. I thought I heard you say that that pricing, at least for some Organometallics, was up this quarter. I may have missed it before, but to me that was the first time you've talked positively about pricing in Organometallics for years. So, is there an inflection point happening here? Are the supplies finally tightened up with demand growth that in LEDs where you can actually get some profitability back in that business?
Craig A. Rogerson - Chemtura Corp.
I wish, no. The increase that we're talking about is due to a pass-through of tin prices in the tin-based Organometallics. Where we are seeing some benefits in margin though is better utilization rates at our plants. We are seeing significant growth in volume. Finally starting to see it in some areas of photovoltaic, we're getting some wins in LED at some of the big players out of DayStar, and our strategy around utilizing the assets in Bergkamen by focusing on areas where we think we have some competitive advantage geographically, either out of our Mapleton plant in the U.S. or out of Bergkamen in Northern Europe is proving to be solid. And as we utilize those assets, our production costs per unit are lower, and so we're seeing margin improvement.
The part that would be helpful that we're still waiting for is improvement in pricing, which just would, again, kind of double-down on the margin improvement that we're looking for. But we'll still see considerable improvement in 2017 versus 2016 because the full-year effect of having those assets is more fully utilized. We saw that in the second half of 2016 versus the first half. That's the main reason why there has been a significant jump quarter-over-quarter, the second half versus the first half of 2016 and, again, we expect that to carry into 2017.
Operator
Our next question comes from the line of Jim Sheehan from SunTrust. Your line is open.
James Sheehan - SunTrust Robinson Humphrey, Inc.
Good morning. You mentioned in your release some price competition in brominated flame retardants. Wondering if you could give us some more color on that. Do you see that as a temporary phenomenon or something more sustained?
Craig A. Rogerson - Chemtura Corp.
It's specifically around our Emerald Innovation 3000 product, and it's relative to – now there's competitive action in the marketplace. So, ICL is running and selling competitively. I will say though, it's all relative pricing. If you look at where the pricing ended up in the fourth quarter on Emerald Innovation 3000 specifically, it's better than it was in the first quarter. We just saw a kind of a hump in the middle of the year, and it's – we're talking about small percentages. And just from a relative perspective, there is more competition and that caused some price movement downward, some price pressures in the fourth quarter versus where we were in the third. But again, if you look at it year-over-year, even at the price at the end of the year, it's well above where it was in 2015 and very close or at where we had planned as we put the project together.
So, it's very good pricing. The pricing in elemental bromine and pricing as a metric (29:03) for tetrabrome is very strong, probably as strong as it's been. Emerald Innovation 3000 is the one area I was indicating by that comment in the press release where we've seen some dip. I don't expect that to be a problem as we go into 2017. It's just the impact of having competition. And for the first part of the year, we're really the only player.
James Sheehan - SunTrust Robinson Humphrey, Inc.
Terrific. How do you see tetrabrome demand developing over 2017?
Craig A. Rogerson - Chemtura Corp.
We don't expect it to be different than 2016. Again, this is one of those areas where we've seen a lot of offsets. And we've talked in the past about electronics and automotive and appliances and Internet of Things versus the concern about miniaturization that people talk about. But it's a very gradual GDP-minus type of growth in the marketplace. So we expect that volume to be relatively the same 2017 versus 2016. What's important – more important is that pricing stability is maintained, and we're seeing very positive signs of that. As I mentioned, fourth quarter was even slightly stronger than it was earlier in the year.
Operator
Our next question comes from the line of Tyler Frank with Robert Baird. Your line is open.
Tyler Charles Frank - Robert W. Baird & Co., Inc. (Private Wealth Management)
Hi, guys. Thanks for taking the question.
Craig A. Rogerson - Chemtura Corp.
Sure.
Tyler Charles Frank - Robert W. Baird & Co., Inc. (Private Wealth Management)
On the acquisition, is there any materials that you guys might have that in your semiconductor or LED businesses that could be construed as a national security issue for the merger to go through? We've just seen some other signals blocked, so I wanted to make sure that there's no sort of (30:40) materials that you guys work with that may have an impact on this merger?
Craig A. Rogerson - Chemtura Corp.
No. No, we have nothing in that category in those areas that should be a problem.
Tyler Charles Frank - Robert W. Baird & Co., Inc. (Private Wealth Management)
Okay. Thank you. And then, just on elemental bromine, the price increase there, is that due to an increase in overall market demand? And can you talk a little bit about how you're seeing the other players in the bromine space act in terms of production and utilization rates?
Craig A. Rogerson - Chemtura Corp.
It's more – from our perspective and the market intelligence we gathered, it's more due to supply issues with the Chinese suppliers because of some of the issues around regulatory pressures that are being put on by the government because of issues around chemical facilities there. So, still some tightening in supply from the bromine producers in China. We are – I won't say uniquely, but we are well positioned to be able to with the fleet of these special containers that we have to ship bromine into Asia-Pacific, China specifically.
So, a significant part of our growth plans in bromine for 2017 is to increase the size of that fleet to be able to move more elemental bromine into China. So, the demand is solid. As I mentioned, the early demand for tetrabrome has been good. Demand for some of the other more basic brominated derivatives are good in China right now. That's been positive. But the real issue, I think, that's helped pricing be as high as it is, is a factor of some supply constraints in China that we don't know, but we don't think will change markedly going forward. Things have just tightened up from a regulatory perspective in China, and I think that's appropriate.
Operator
Our next question comes from the line of Rosemarie Morbelli with the Gabelli & Company. Your line is now open.
Rosemarie Jeanne Morbelli - Gabelli & Company
Thank you. I wanted to follow-up on the tetrabrome. Is that used particularly in television and PC, in other words, in outside of the Internet of Things and all of our small gadgets?
Craig A. Rogerson - Chemtura Corp.
No, I think it's used generally in connectors for the wiring board and cables and things like that. And as we've talked in the past, Rosemarie, it's hard for us to tell exactly where it's going once we sell it to the users, which is kind of in between the end product. But, no, I don't think necessarily it's relative to electronics that are more home electronics. I think, it's – again, our view is, it's broadly the increased use of technology and everything else.
Rosemarie Jeanne Morbelli - Gabelli & Company
Okay. And then, if I may, you also mentioned regarding Emerald 3000 not only the lower pricing, but you mentioned slower demand. Is that because most of the transition has occurred and now you are going to grow at about the market rate, which, if you don't mind correcting me if I'm wrong, is around 5%?
Craig A. Rogerson - Chemtura Corp.
Well, I think that we still see demand is strong. I think Europe is relatively fully converted, but there's opportunities as we've spoken in the past in Asia and in North America as we go forward, which will also drive continued growth. The issue around pricing – again, I don't want that to be overplayed; the pricing is still very strong. It's just not quite as strong as it was in the second and third quarter, but stronger than it was in 2015 and stronger than it was in the first quarter. So we're where we need to be on pricing. But there's competition now, and that's what we expected. And we said we needed that to be the case for more substantive conversion from HBCD into these other markets other than Europe. So that's all a positive thing. So we expect Emerald Innovation 3000 to continue to be a strong piece of the overall profitability picture in Great Lakes Solutions as we go through 2017 and beyond.
Rosemarie Jeanne Morbelli - Gabelli & Company
And on the demand side?
Craig A. Rogerson - Chemtura Corp.
The demand side, Matt, maybe you have a better feel for the growth in that marketplace. It's the conversion that drove it well above GDP in the region. But on a global basis...
Matthew Sokol - Chemtura Corp.
Yeah. I think, your number is probably accurate. And again, it depends on the conversion in jurisdictions that have yet to fully, I guess, be forced off of HBCD by regulation. So, we think the underlying growth of the insulation foam market into which the Emerald Innovation 3000 is placed is very strong. If you talk to those producers, they'll tell you that it's a GDP-plus growth market. And if that remains the case, then Emerald Innovation 3000 should ride along in growing at a consistent clip and with additional jurisdictions, then you have the opportunity for even better growth.
Rosemarie Jeanne Morbelli - Gabelli & Company
Okay. Thank you.
Operator
And there are no further questions at this time. I'll turn the call back over to Matt Sokol for closing comments.
Matthew Sokol - Chemtura Corp.
Thank you, Lisa. I'd like to thank everybody for joining the call this morning. If the LANXESS transaction has not closed, we will speak to you again in early May for our first quarter 2017 earnings conference call. Thanks, everybody.
Operator
This concludes today's conference call. You may now disconnect.
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