塞拉尼斯 (CE) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Celanese Corporation First Quarter 2009 Earnings Conference Call. My name is Mary and I will be your coordinator for today. (OPERATOR INSTRUCTIONS.) I would now like to turn the presentation over to your host for today's call, Mr. Mark Oberle. Please proceed, sir.

Thank you, Mary, and welcome everyone to the Celanese Corporation First Quarter 2009 Financial Results Conference Call. My name is Mark Oberle, Vice President of Investor Relations and Public Affairs for Celanese. On the call today are David Weidman, Chairman and Chief Executive Officer, and Steven Sterin, Senior Vice President and Chief Financial Officer.

Before we begin, I'd like to take a moment to remind you that Celanese will hold its 2009 Investor Day on May 11, 2009 in New York beginning at 1:00 p.m. Eastern time and you're invited to join our Senior Management Team for an in-depth discussion about the Company's strategy, operations, technology, and growth opportunities. Institutional investors and analysts can register at Celanese.com in the Investor section or contact any member of the IR team. This event will also be video webcast live in the Investor section of our website, so we hope you'll join us.

And now, let's move to the--to our first quarter results. The Celanese Corporation press release was distributed via Business Wire this morning and is posted on our website, Celanese.com. The PowerPoint slides referenced during this call are also posted on our website.

During this call, Management may make forward-looking statements concerning, for example, Celanese Corporation's future objectives and results, which will be made under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are based on Management's current expectations and are subject to uncertainty and changes in circumstances.

Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors. More detailed information about these factors is contained in the earnings release and in our Celanese Corporation's filings with the Securities and Exchange Commission. Celanese Corporation undertakes no obligation to update publicly or revise any forward-looking statements.

Celanese Corporation's first quarter 2009 earnings release references the performance measures, operating EBITDA, affiliate EBITDA, adjusted earnings per share, net debt, and adjusted free cash flow, in non-U.S. GAAP measures. For the most directly comparable financial measures presented in accordance with U.S. GAAP in our financial statements, and for a reconciliation of our non-U.S. GAAP measures to U.S. GAAP figures, please see the accompanying schedules to our earnings release, which will also be posted on our website, Celanese.com.

This morning, David Weidman will review the performance of the Company and Steven Sterin will provide an overview of the business results for each segment in the financials. We will have a question-and-answer period following the prepared remarks. Now, I would like to turn the call over to Dave Weidman. Dave?

Mark, thanks, and welcome, everyone, to the call today. As usual, I'll provide comments on our overall performance for the quarter, as well as our current outlook. Steven will then provide details on our segment results and highlight our strong cash position. In reflecting on the quarter's performance and our outlook, I believe there are three key things. First, current market indicators suggest that demand is not getting worse and while the outlook continues to be opaque, there is an emerging bright spot in the global economy in Asia.

Second, in the very challenging environment, the Celanese hybrid model and our advantaged integrated businesses delivered strong performance and results consistent with our expectations. And third, we continue to make and are realizing the benefits of sustainable fixed spending reductions that are necessary to grow our leading competitive positions.

Let's start with the first quarter financial performance. Net sales were approximately $1.1 billion, compared to last year's $1.8 billion. Operating EBITDA was $136 million, compared to 381 million last year. Adjusted EPS in the quarter was $0.08 per share versus $1.06 in the first quarter of 2008, however, excluding the FIFO inventory impact of approximately $0.15 per share, our first quarter would've been about $0.23 per share, better than the fourth quarter of 2008 on the same basis. So things are improving.

Additionally, our adjusted free cash flow for the quarter was $69 million, similar to last year's first quarter in an environment that was obviously more challenging. But in this environment, each of our segments performed consistent with our expectations - Consumer Specialties and Industrial Specialties both delivered strong results whether you look at them on a year-over-year or sequential basis. These businesses are closer to the consumer and experienced variable margin expansion in the quarter helping to offset some of the decline in our other businesses.

For Acetyl Intermediates in Asia, we saw sequential demand improvements caused by less inventory destocking relative to last year's fourth quarter. But we continue to see weak demand in Europe and in the Americas. And in AEM, destocking in the automotive and the electronics market sequentially accelerated and had a pronounced negative effect upon our business results.

Our first quarter results were also supported by both short-term spending containment actions, as well as the initial contributions from more sustainable long-term efforts to reduce Celanese cost structure. The permanent actions announced to date should improve our bottom line results in 2010 by at least $100 to $120 million. While we are pleased with our progress in this area, we are far from done. At our Investor Day on May 11, we will highlight additional plans and actions we'll take to realize even larger sustainable improvement in our cost base.

Now, at this point in the cycle, market indicators suggest and you've already heard from many within the industry who've said this, the demand has stabilized and doesn't appear to be getting worse. A particular bright spot for us is Asia and as you know, Celanese has an unparalleled position in Asia, particularly in China, and we're seeing solid demand improvements in this region for many of our products.

While the export market for Chinese goods remains challenged, internal growth driven by both consumer demand as well as infrastructure spending is increasing in China. For us, we see this increased growth reflected in improved demand for Acetyl Intermediates, Industrial Specialties, Specialty Emulsion, and some of our Advanced Engineered Materials products.

But looking forward, our view is that our Consumer Specialties, Industrial Specialties, and Acetyl Intermediates Businesses' first quarter performance was at or near their normalized trough profile, as shown on page five of the Company's PowerPoint presentation when one takes into account the inventory impact. And this should be--these businesses should be at least at these levels through the rest of 2009.

With the automotive and electronics industries still working through destocking, we don't expect Advanced Engineered Materials to rebound to normalized trough performance until at least the second half of the year, and then only if there is an abatement in destocking. Therefore, without any significant catalyst in the global economy, we expect our businesses to exit 2009 with each of our businesses performing at these normalized trough levels.

Now, before I turn the call over to Steven, I'd like to provide a little color on the agreement we announced yesterday. As you've seen, we announced that we entered into an agreement to sell our polyvinyl alcohol businesses to Sekisui for $173 million. This excludes the net value of accounts receivables and payables that we retained. We're very pleased with this transaction and the value that Sekisui saw in these assets.

We also entered into long-term supply agreements with them to continue to supply their vinyl acetate requirements. For us, this transaction will allow us to further strengthen our portfolio, which is comprised of businesses having leading competitive global positions.

With that, I'll now turn the call over to Steven.

Thanks, Dave. I'll begin with the overall Company results on page seven of the PowerPoint presentation. As Dave mentioned, net sales were approximately $1.1 billion in the first quarter versus 1.8 billion in the same period last year on lower volumes of 25% as well as lower overall pricing of 14%. Although pricing was lower overall for the Company, driven primarily by acetyls, we were able to obtain price increases in both our Consumer Specialties and Advanced Engineered Materials businesses. Operating profit was 27 million compared to 234 million a year ago.

Lower raw material and energy costs coupled with the benefits from our fixed spending reduction efforts were more than offset by the lower overall volumes due to weak economic conditions. These results included a net of 33 million of other charges and adjustments that were mostly related to our fixed spending reductions and the shutdown of our VAM unit in Cangrejera, Mexico. GAAP operating EBITDA was 136 million versus 381 million a year ago and does not include these other charges and adjustments.

Adjusted EPS for the quarter was $0.08 versus $1.06 in the same period last year. These results used an adjusted tax rate of 29% in the first quarter of 2009 with 155.6 million diluted shares. We estimate that company-wide we had approximately 32 million pre-tax of inventory accounting impact associated with the negative effects of FIFO accounting. We don't expect to see much more of these impacts for the remainder of 2009.

Let's now move to the first quarter performance and the current outlook for each of our businesses, starting with Consumer Specialties on page eight. Net sales were 266 million, down 16 million from last year's results. 8% higher pricing was offset by 11% lower volumes. The volume decline was primarily related to the timing of customer contract negotiations that didn't wrap up until mid quarter, as well as lower sales for acetate flake primarily for film and other non-acetato end uses. Operating EBITDA was a very strong $81 million, a 16 million increase from a year ago on sustainable margin improvements. Looking forward to the rest of 2009, with energy costs expected to be lower year-over-year, steady volumes, and continued favorable pricing, we expect this business to continue to deliver solid results.

Next, let's turn to Industrial Specialties on page nine. Net sales were 242 million, compared to last year's results of 365 million. Volumes were down 26% as we saw modestly weaker demand year-over-year in most end markets. The areas that impacted us the most were automotive and construction, which primarily impact our polyvinyl alcohol business.

We're executing our business strategies in Asia and are seeing the benefits of continued growth and this helped to offset the lower demand we saw in the other regions. Sequentially and year-over-year, we saw margin expansion as the business realized the benefit of lower raw material and energy costs while maintaining their price levels. Operating EBITDA was 26 million versus 36 million in the prior year period, and included about 6 million of inventory impact in the quarter.

For 2009, we expect volumes in North America and Europe to remain challenged with continued success in Asia helping to offset the volume weakness in these other regions. We also expect to see sustained margins as raw material and energy pricing levels off. Keep in mind, this is a segment where the PVOH business is reported. So this is where you'll see the impact of the divestiture when that deal closes.

Let's now turn to Advanced Engineered Materials on page 10. Net sales in the quarter were 165 million, compared with 294 million in the first quarter of 2008. Pricing improved by 4% in the quarter, but could not offset significant volume decline and negative currency impacts. Volumes were down 43% year-over-year and also down sequentially due to lower automotive production in the U.S. and Europe, as well as inventory destocking in consumer electronic applications.

Operating EBITDA was breakeven in the quarter versus 60 million in the prior year period. Although the business benefited from lower raw material and energy costs, the results were muted by significant volume declines. Earnings at our strategic affiliates, pressured by the same economic factors as our Ticona business, were 17 million lower than last year. There was approximately 5 million of inventory accounting impact included in this quarter's results.

As Dave mentioned, we don't expect performance to return to normalized trough levels until at least the second half of 2009 and only when there is an easing in inventory destocking due to automotive supply chain.

On page 11, net sales for Acetyl Intermediates were 572 million, compared with 1.1 billion in the prior year period. Lower volumes and continued weak demand, specifically in North America and Europe, and lower pricing across all regions drove the decline. Lower industry utilization and sharply reduced pricing for raw material feed stocks pushed the pricing of acetyl products lower in the quarter. We saw some industry destocking continue early in the year, but did see it moderate throughout the quarter. This was particularly true in Asia where we saw sequential demand improvement throughout the first quarter.

Margins contracted from last year, but stabilized in the range we would expect under normalized trough conditions. Operating EBITDA was 48 million compared with 246 million last year. There is approximately 21 million of inventory accounting impact included in this quarter's results.

As the year progresses, we expect Acetyl Intermediates to continue to perform and at normalized trough level with demands in line with the weaker global economy. Our advantaged technology and low cost position in the industry should help sustain margins throughout the year.

Our equity and cost affiliate performance shown on page 12 was impacted by similar pressures that our businesses faced during the quarter. Year-over-year dividends from our Ibn Sina cost affiliate and earnings from our Advanced Engineered Materials equity affiliates were lower than last year's levels and will continue to be challenged as a result of the current economic environment. However, our China acetate ventures will deliver higher dividends year-over-year, which will be received in the second quarter.

On slide 13, you can see that Celanese continued to generate positive adjusted free cash flow in the quarter. Early in February, we received a 412 million advanced payment from Fraport that will be used to relocate our Ticona business in Kelsterbach, Germany. We also spent 58 million on the construction during the quarter. If you exclude these Fraport proceeds, the timing of the associated VAT payment, as well as the spending on the relocation, we generated roughly the same level of cash flow as last year in spite of the current challenging economic environment. Lower cash taxes, reduced capital expenditures, and positive working capital helped to drive the strong results.

Our capital structure is highlighted on slide 14. We ended the first quarter of 2009 with approximately 1.2 billion in cash. We also have an available credit line facility of 143 million and a currently undrawn and available revolver of 650 million. The inventory accounting we experienced during the last two quarters has impacted, however, the calculation of adjusted EBITDA under the terms of the revolver agreement. Because of this, we anticipate our availability under the revolver to be significantly reduced during the last half of 2009.

With our current cash position and expectations for continued positive adjusted free cash flow for the balance of the year, we are comfortable with our current liquidity and we will continue to evaluate all possible alternatives to further strengthen our capital structure. Our debt obligations include a 2.8 billion term loan entered into in April of 2007, which has no maintenance covenants, is very low cost at LIBOR plus 175 basis points, and doesn't mature until 2014. Other debt obligations total approximately 700 million with our net debt totaling $2.3 billion.

For the PVOH transaction, we don't expect any significant tax leakage, but if you assume around 175 million in net proceeds, our pro forma net debt would be approximately 2.1 billion with a pro forma cash position of between $1.3 and $1.4 billion.

So stepping back from I think the obvious conclusion that Celanese has transformed itself since the last decade's economic trough, we've made substantial changes to the portfolio. Our expansion into Asia, operational excellence, and productivity, has put us in a position where at this trough we're roughly double the earnings that we were during the last downturn in 2000, 2001. Having said that, we're not done yet. At our Investor Day on May 11 we'll outline further strategies and actions that will continue to build and increase the value of this Company and the earnings power of our portfolio. We believe we have a great story to tell and we look forward to sharing it with you in the next couple weeks.

So with that, I'll turn the call back over to Mark for Q&A.

Thanks, Dave. I'd ask Mary to give some final instructions. We would ask that everyone keep their questions to one question plus a follow-up. If you have additional questions, please get back in queue. We'll be more than happy to take those questions.

(OPERATOR INSTRUCTIONS.) And the first question comes from the line of John McNulty, Credit Suisse.

Yes, good morning.

Hi, John.

Just a couple of questions. With regard to the cash balance, or it's becoming more of a cash horde at this point on your balance sheet, and given kind of the opportunities that we've seen out in the market where a lot of assets have come down a lot in value, I guess what are your priorities for the cash? I understand that your revolver is shrinking in the second half, so how much in your mind do you have in terms of cash flexibility beyond that to take advantage of potential opportunities out there?

Good morning. Yes, we do have a strong cash position. As we--we do feel good about the progress we made in the first quarter relative to what we saw in the fourth quarter. However, clearly, if you look year-over-year, we still see a tremendous amount of decline in overall sales and earnings for the business and there's still a lack of a transparency to what's happening into the global economy and the credit markets. We feel overall it's good to have a prudent and conservative position on cash, maintaining cash on the balance sheet. However, we continue to look at high return projects, take costs out of our business, as Dave mentioned, sustainable fixed cost improvements. And we continue to explore those opportunities that might be in the market. But in general, we're taking an overall conservative position with our cash on our balance sheet.

John, another way I'd look at it is in three buckets--that cash in three buckets. One bucket is cash that we have that will go against the Kelsterbach relocation, the construction of the facility. And Steve can give you the numbers on that. We also have another bucket of cash that's needed just to continue to operate the business. Then, there's a bucket of cash there associated with our joint ventures. There's a cash pooling arrangement and that cash is set aside for them. And then, there's the cushion, if you will. That would be cash above and beyond what in our current view of the world may take us to say is the bare minimum we need. But to Steve's point, there is some uncertainty.

So those are [the way we do] the buckets.

Yes. So to put numbers behind what Dave said, out of the 1.2 billion of cash, we've got about 500 or 550 million that's an advanced payment from the Frankfurt Airport Authority towards our relocation. Then, about 300 million in the other two buckets Dave described, which puts you with excess cash position about 300 to 350 above what's required to run the business. We've actually grown that position over the last quarter about 75 million.

And your thoughts for that cash going forward? Is now not the right time to necessarily use it, or I guess how should we think about that?

We continue to look at ways of using the cash that will strengthen the shareholder, create value for the company. We certainly look at continuing to invest in our businesses. We'll look at returning cash through dividends, returning cash through share buyback, or looking at acquisitions. We do have a very active M&A pipeline right now. There are a number of transactions out there that are possible today that haven't been possible in the past that we continue to explore and look at. Again, when we look at M&A transactions, we look at the middle of the fairway type businesses, very--not big strategic step outs, and M&A multiples paid that give us a very quick payback after we factor in synergies.

Great, thanks. And then, just as a quick follow-up on the consumer business. With regard to the contract timing, is that something that you get back in the second quarter where the revenues lost in the first quarter you'd see in the second? And also, was there anything in particular that sent the margins to these type of levels? I know things certainly would've been better with raw materials coming off, but the margin certainly came in better than we expected even with that in consideration. So how should we think about the margins going forward here?

You'll see a rebound in the volumes on a sequential basis, John. And what drove the business margins was raw materials and price, both. It's a reasonable pricing environment given the past utilization within the industry.

Great. Thanks very much.

Thanks, John.

Your next question comes from the line of P.J. Juvekar with Citi.

Yes, good morning.

Hi, P.J.

I've got a couple of questions on acetyls. Can you talk about your operating rate versus the industry? And then, secondly, on the same--in the same vein, what are your margins in acetyls in the U.S. versus China? Can you just sort of give us a rough idea?

Yes. The--we view the industry operating rates today to be about 80%. Our operating rates are higher than that. We're--turned up our plants and running our plants essentially full against the utilization and any turnarounds or other things that we have. So we're running higher than the industry. That's because of our low cost position and the fact that we've got a very attractive economic advantage versus competitive processes.

Sure.

Relative to margins, we have an advantaged raw materials position in North America with our southern methanol contract. That advantage has declined somewhat over the last several quarters as global methanol prices have come down. The European profitability is challenged. Some folks--I mean, when we look at Europe, it's a troubling environment. They are collectively not taking steps needed to stimulate the environment, to drive the necessary restructuring to turn the economy around. From our perspective, we continue to be doubtful that those markets will grow. In fact, there is some argument that they'll continue to decline over an extended period of time, so that's a challenged environment. And with the advantage that we have in our cost position, our position in Asia--our Asia position is strong, is growing. And as you know, P.J., we have the ability to make an incremental expansion very quickly, if the economics justify it against market demands.

Has this Chinese advantage gone down now that natural gas prices have come down globally?

No, not really. I mean, there's some compression, but not substantially. The margins are off more due to just outright capacity utilization within the industry. At an 80% operating rate, we will achieve these normalized EBITDA margins of plus/minus 15%. When we look at competitors out there, in Asia, there's a significant amount of capacity that's not being operated under normal circumstances where we would continue to run, make good margins, and keep our plants full.

And one just clarification question for Steve. You mentioned that you will have limited access to revolver in second half of '09 and deferred on assumptions. How long do you think that limited access will last? Do you see that lasting into 2010? Thank you.

Thanks, P.J. Most likely not lasting beyond the back half of this year. The way we review the revolver in light of the fact that we've got nice positive free cash flow generation as well as a substantial cash cushion to start with, it's really an insurance policy. And we want to keep our options open and if there's a possibility to get an amendment on that revolver at nice economics, that's something we would consider. But absent that, we feel like we've got adequate liquidity in cash flow.

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

Thank you. Good morning.

Hey, David.

David, we're approaching the time of two new plants coming on-stream. Sipchem's looking to be Q3, BP also back half of the year. How do you think the market will reach to those capacities and would you expect perhaps BP to take any of their U.K. capacity as they ramp up their new Nanjing site?

Dave, our view is the same as it has been. This capacity should come into the market over the next 12 to 18 months. The startup of those facilities, the ramp up of those facilities, will probably factor in over a several month, if not several quarter, period of time. Having said that, capacity utilization will still be in the 70 to 80% range at those levels with our advantage on the cost curve. Celanese will maintain our normalized trough EBITDA levels in the 15% range plus/minus. And we think for Celanese it will not be a substantial factor. For others in the industry though, there obviously will be some capacity that steps off onto the sideline as this new capacity comes into the market.

And, Dave, could you just discuss within China recent price trends and your expectations for pricing in Q2 for acetic acid?

Sure. Yes. There are--look, these acetic acids plants and the CO plants that are raw materials--that require raw materials, they're not easy to run. They have higher than normal chemical industry outage rates. So right now, there is a significant amount of acetic acid capacity that should be running due to base economics that's not running because they've had unscheduled outages - four or five units in Asia. One unit has announced that it will be down for an extended period of time.

So on the basis of that, the higher cost facilities are having to run. Prices have gone up in order to support that level, and so pricing now is in the $500 a ton range. In the early part of the first quarter it was more in the 350 to 400 range. Our expectation is that as those facilitates come back online again that there will be a moderation in pricing from current levels. Pricing will return to the more normal levels in the 400 a ton range. We candidly, Dave, can't predict exactly when that's going to happen due to factors in those other locations, those facilities. But it should come back down again going forward from here.

The next question comes from the line of Kevin McCarthy, Bank of America Securities.

Yes, good morning. How are you.

Hi, Kevin.

Good morning.

Just to follow-up a little bit on acetic acid in Asia. I think some of your competitors have had outages in places like Malaysia and China. We've read in trade journals that that's attributable to carbon monoxide, but I was wondering if you could drill down a little bit. Are these mechanical or operating problems or are they linked to natural gas, which would suggest a potential for an ongoing or at least sporadic issues over time?

Right. Dave, some of them are related to natural gas. Some of them are related to CO operability, and then we have at least one case that's related to acetic acid plant runability, the plant itself. I think it's--I mean, my experience over the last 10 years is that this is a pattern that you're going to see. Natural gas in that region of the world has proven to be not reliable. It's there sometimes and periodically it just is diverted from industrial applications to residential applications, which one can understand. CO facilities are very difficult to run. They have a tendency of unexpectedly tripping and going offline. And then, acetic acid facilities as well have special operating environments that are--again, occasionally you will get unexpected outages from that. So I think that going forward one should expect to see what we've seen historically, which is about on any given time between 10 and 15% of the global capacity offline either for planned or unplanned outages. Today, we're a little bit higher than that.

And then, to clarify the 80% industry operating rate that you mentioned, presumably that will be on a nameplate basis whereas the effective rate was higher following the outages precipitating the price action late in the quarter.

Yes. I mean, we would look at it and say, again, what we judge to be nameplate, the industry is operating at about 80%. But then, as you are looking at which facilities are operating, you have some facilities that are lower cost that are not operating and that means that the higher cost assets needs to run in order to meet the market.

And then, finally, if I may, on Consumer Specialties, as you consult with your JV partners in China, how would you characterize the need for opportunity to expand capacity in that region?

Yes, there's--we've--there's need to put some new capacity into that region in the 2011 to 2013 timeframe. And there's ongoing discussions and dialogue with the partner around that.

Thank you. Your next question comes from the line of Bob Koort, Goldman Sachs.

Thanks. Good morning.

Good morning, Bob.

A couple quick ones. First, on the Pardies plant, is that plant losing money at the EBITDA line today, David?

Yes.

And did it lose money in '08?

Second half of '08, yes.

And the PVOH business you're selling, what impact will that have as it's removed from the portfolio in terms of profitability?

Yes, let me walk you there, Bob. We have revenue in the business is 250 to 300, so you can expect the EBITDA in the business to be very similar to Industrial Specialties, so think in terms of 6 to 8%. That would be the loss. On the other side of it, we transferred VAM into the business and took acetic acid and methyl acetate off of the business at internal margins, let's put that--put it that way. And we have a little more favorability with the agreements we've signed with Sekisui than what we've seen. So you'll see a decrease in the Industrial Specialties space and you'll see some increase in Acetyl Intermediates as the deal winds out. And then, EPS level, basically it's not neutral at the end of the day.

Okay. And Steve, you mentioned that you might have reduced revolver availability. What ramifications does that have beyond tapping that revolver? Are there interest rate issues for you? Does it have any impact on other credit that you'd want to access or that you currently heave?

No, there's no direct impact on that. It would just be lack of--temporary lack of assets to it.

Thank you. Your next question comes from Sergey Vasnetsov, Barclay Capital.

Good morning. David, what are your thoughts on percentage of your vertical integration in acetic acids and VAM? Would you like to be higher, lower, or about right?

Sergey, you mean from acetic acid going into vinyl acetate?

Both. From acetic to downstream and from VAM to downstream.

Okay. Yes, our vertical integration is an advantage that we have and we want to be vertically integrated in businesses where we have an advantaged position. So where we are today is--and the third thing is we want to be where our customers are. And so, on that basis we like the level of integration that we have today, acid to VAM. We like--we don't necessarily believe that we're in the growing regions of the world as much as we should be, or phrased differently, the regions that we're in today in Europe and North America are declining in market and so we've continued to invest and we'll continue to invest in the growing region, which is the Asian region of the world, going forward. From VAM forward, the degree of integration we have in the emulsions business we like today. If we could expand it, I think we'd be very interested in expanding our participation in the emulsion business.

Okay. And so, when you talked to (inaudible) on your normalized trough performance, I think in the past I recall you talked about margins. This time you talked about volumes. In your terminology, what is normalized trough performance when it comes to either operating rate or volume, how you think about it?

Well, Sergey, when we think about it, we think about volumes that drive margins. So the levels that we would look at there would--corporate-wide would give an EBITDA somewhere in the range of $800 million to $1 billion. That's the range that we'd see under normalized trough conditions. And we'd expect certain volume levels to be coming from that, particularly in our Advanced Engineered Materials business. It's a very high variable margin business and as a cost [plant], a small change in volume has a large change in EBITDA.

Okay. Thank you.

Thank you, Sergey.

Your next question comes from the line of Frank Mitsch from BB&T Capital Markets.

Hey, good morning, gentlemen. Dave, you guys singled out AT plastics force majeure having a negative impact on the quarter. Roughly how much was that?

Yes, on a sales basis about 20 to 30 million. On an EBITDA I'm thinking less than 10 million.

All right, so not a major hit on the EPS side?

No.

No.

All right. So if I look at the--or also another question on cost reduction. You said you wanted to get to 120 million by the end of the year. How much have the cost reductions helped in the first quarter and how should we think about that ramping through?

Yes. Steve will add a little more detail to it, but we took two actions. One was to go after temporary cost reductions, belt tightening. The second was to go after short--long-term sustainable cost reductions. The objective was to deliver cost reductions overall immediately but translate some of the short-term to long-term sustainable as time goes on.

Yes. So when you look at our first quarter run rate on our spending levels, we're already running in that 100 to 120 million that we talked about. But more than half of that right now is the shorter term belt tightening that Dave mentioned and we're making excellent progress on the more long-term sustainable. So we'll see the belt tightening ramp down through the year and our more long-term sustainable projects implemented between now and the end of the year. But the curve run rate that we see in the first quarter should continue.

All right. So we shouldn't factor incrementally more cost reductions for the second quarter versus the first quarter?

No, right.

All right, great. And then, I guess in terms of your commentary with demand stabilizing here at this point we should probably look at operationally the first quarter you reported $0.08. You got a $0.15 negative FIFO, which doesn't go forward, so kind of a baseline of $0.23 and then seasonality, dividends, et cetera, would be on top of that. Is that a fair way to look at it?

That's how we think about it. Yes.

Thank you. Thank you, guys.

Thanks, Frank.

Your next question comes from the line of Bob Goldberg, Scopus Asset Management.

Good morning, guys.

Good morning.

I apologize if I missed this, but did you give an operating rate for your Acetyl Intermediates business for the first quarter?

The industry operating rate against nameplate capacity is somewhere in the 80% range in the first quarter and it's running at about that rate in the second quarter. Our rates were higher than that. We were basically running full.

Did you run--I heard you--yes, I heard the comments on the industry rates. I was wondering what you might have averaged for the first quarter. I'm assuming you started the year at a much lower rate and ramped up as you progressed through the quarter.

Yes, January was a little bit lower, but then it ramped up pretty quickly, the second half of January through February and March.

Okay. So the seasonal improvement that you'd normally get from 1Q to 2Q, would that be maybe a 5% bump or like a 10% bump or--?

--Bob, in this environment, it's muted. I--it would be tough to see in this environment would be our view.

And just one more question, if I could. On pricing in Asia, you would expect that looks right now maybe something $100 quarter on quarter increase if prices were to hold here?

Well, that's a big if. They went up pretty quickly, Bob. We saw them jump $100 a ton over a very short--or just a few days as capacity came out of the market. But we've seen those prices stabilize in some downward trend over the last day or so. So I frankly don't think that there's going to be much there in the quarter unless some of these outages are more prolonged than the producers are saying they are.

Okay, thank you.

Thanks, Bob.

Thanks, Bob.

Your next question comes from the line of Mike Judd, Greenwich Consultants.

Yes. In your outlook for Consumer Specialties you were talking about your dividend expectations for the second quarter for the acetate China affiliates. That increase, is that on a year-over-year basis? Is that the case?

Yes. We had about 45 million last quarter in the second quarter of 2008. You can expect that to be up just north of 10% this year.

Okay, great. And then, China is kind of confusing for those of us who weren't there. But I guess the electricity usage is down like 4 or 5% across the country. But at the same time, we're getting--the government's releasing really good GDP numbers. Since you guys are actively involved in the country, do you have any thought about how things are actually going there?

Oh, yes, yes. The details--Mike, the details we've looked at say a little different story. There's been a sequential increase in electricity through the last four months, as high as 10% sequentially. Auto production - last month China made more cars than any country in the world. Auto production year-over-year was up about 2%, 3%. Shipments - river traffic is up. So, no, there is no doubt that China is improving. In our view, the export market hasn't opened back up for China yet. Most of the increase has been through stimulus of the consumer. I mean, fridges for the farmers, if you will. And also, infrastructure spending.

And do you think that's sustainable?

Well, I mean, they're committed on a two-year program to continue to stimulate the economy. And I wouldn't--China's done a lot over the last 10 years. I wouldn't doubt it.

That's very helpful. Thank you.

Thanks, Mike.

Thanks, Mike.

Your next question comes from the line of Bill Young from ChemSpeak.

Good morning, gentlemen.

Hello, Bill.

Hi, how are you doing?

Good.

Now, you mentioned earlier today that the next 12 to 18 months you expect a couple of those new acetic acid plants to come on in China. If you'd gone back a year, would the timing have been the same or have they been stretched out a bit? And related to that how about all those other projects? Given what's been happening in the economy, realizing that China is a little bit better off, have some of the other projects been stretched out? How do you look at that?

Yes, Bill. There's two projects - one in China, one in the Middle East. Both of the projects have been delayed from what we thought they would be a year ago, and delayed even more significantly against what they were saying their startup timing would be. And Bill, we do look--your point is taken. We do look at capacity announcements versus builds and we believe that a lot of the facilities that have been announced either will not get built because of depressed margin levels, depressed capital return economics, or they'll be substantially delayed.

Especially delayed, you said?

Yes, delayed.

Great. And last, could you bring us up to date on your pension situation and what kind of cash contributions might be in store?

Yes. Currently, our funded level is in the 75 to 80% depending on which measure you use. We're not required in 2009 or 2010 to make any significant increases on our contribution. So think in the range of 40 to 60 globally for all of our defined contribution and benefit plans.

Okay, great. Thanks.

Thanks, Bill.

Thanks, Bill.

Your next question comes from the line of [Paul Christopherson] from [Gilbert Securities].

Hey, Paul.

Good morning. On the Nanjing project, if you include the Engineered Materials products, the downstream investments, and look at the whole Nanjing investment, there was a time not too long ago when 80% of the investment had been spent with 20% left to go. Is that still where we are or have the downstream investments been stretch out a little bit, and when would capital spending drop as a result of Nanjing really being done?

Correct. Paul, our--I'm going to answer your last question first. Our capital spending is down year over year. Last year we spent around 280 million and this year we've indicated we'll spend less than 200 million. The Nanjing spending is done and that reduction in CapEx is due principally because Nanjing is completed.

So the Vectra and the Celstran and whatever the other things were, those plants are now built?

The Celstran facility was built. The Vectra facility was put on hold on the basis of demand. And that's where we are.

And Nanjing--the ultra high molecular weight polyethylene. Where is that?

That's built and running.

Okay. Thank you very much.

Thank you. With that, we will be wrapping up the conference call. We appreciate all of your participation and if you have any further follow-ups, please don't hesitate to give myself or anyone on the Investor Relations team a call. We'll turn you guys loose for the next earnings call that I'm sure you have scheduled.

Thank you for your participation in today's conference call. This concludes the presentation and you may now disconnect. Have a wonderful day.