Huntsman Corp (HUN) 2004 Q4 法說會逐字稿

Good morning. My name is Amanda, and I will be the conference call moderator for this call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. [OPERATOR INSTRUCTIONS] Mr. [Heskit] you may begin your conference.

Thank you, Operator, and good morning. My name is John Heskit, and I am the Vice President of Corporate Development and Investor Relations for Huntsman Corporation and its principal operating subsidiaries of Huntsman International, Huntsman L.L.C. and Huntsman advanced materials.

Welcome to Huntsman’s fourth quarter 2004 investor call. Joining us today are Jon Huntsman, our Chairman who is listening in, Peter Huntsman, our President and CEO, Kimo Esplin our Executive Vice President and CFO, Shawn Douglas, our Vice President and Treasurer, and Russell [Healy], our Vice President Controller.

As a reminder, a recorded playback of this call will be available until midnight, March 17. The recorded playback may be accessed from the U.S. by dialing 1-800-642-1687 and from outside the U.S. by dialing 1-706-645-9291. The access code for both dial-in numbers is 4620659.

Before we begin our discussion of our earnings, I would like to say a few words about forward-looking statements. Statements made during this conference call that are not historical facts are forward-looking statements. Thus statements are predictions or expectations and are subject to risk and uncertainties. Our actual results could differ materially based a number of factors, including but not limited to, future global economic conditions, changes in the prices of our raw materials and the energy we consume in our production processes, access to capital markets, industry production capacity and operating rates, the supply and demand balance for our products, and that of competing products, pricing pressures, technological development, changes in government regulations, geopolitical events, and other risk factors. With respect to Huntsman Corporation, Huntsman L.L.C., Huntsman International and Huntsman Advanced Materials, please refer to our most recently filed forms 10-K and forms S-1 and S-4 for more complete discussion of the risk factors applicable to our business and Company.

Turning to earnings, I would like to point out that as I summarize earnings for our various Companies, I will be referring to adjusted EBITDA, which is EBITDA which has been adjusted to exclude the impact of restructuring, reorganization and plank closing costs, loss of the sale of account receivable, net gains and losses arising from the earlier extinguishments of debt, and non-reoccurring legal and contract settlements.

In the fourth quarter of 2004 we recorded a net total of $126.5 million of such costs and expenses. And in the fourth quarter of 2003 we recorded $21.2 million of such costs and expenses. We focus on adjusted EBITDA from a management standpoint, as we believe it is the best measure of the underlying performance of our Companies and their respective operations. We have received feedback from many of you in the investment community that this is how you prefer to look at our business.

A reconciliation of both EBITDA and adjusted EBITDA to net income can be found in our fourth quarter earnings release, which has been posted to our website. Now on to the earnings.

Today Huntsman Corporation and its subsidiaries announced fourth quarter earnings as follows. Huntsman recorded adjusted EBITDA of $401.5 million, as compared to adjusted EBITDA of $221.5 million in the fourth quarter of 2003. This represents an 81% increase in adjusted EBITDA over the results for the fourth quarter 2003. Fourth quarter adjusted EBITDA was also 23% higher relative to the third quarter of 2004 where the adjusted EBITDA was $326.9 million.

Stronger results at the parent company were driven by improvement at each of our primary operating subsidiaries, as adjusted EBITDA at Huntsman L.L.C., Huntsman International and Advanced Materials increased by 25%, 16% and 64% respectively in the fourth quarter as compared to the third quarter. And 39%, 64% and 288% in the fourth quarter as compared to the previous year.

I would now like to briefly outline the performance of each of our six divisions. Polyurethanes recorded adjusted EBITDA of 97.4 million for the fourth quarter of 2004. Adjusted EBITDA increased by 15.2 million as compared to the fourth quarter of 2003, but was 10.4 million less than the third quarter of 2004, due to seasonality and demand and weaker margins in our POMTVE business. In the quarter we continue to see very strong demand and pricing for MBI products in all geographic regions.

Advanced Materials recorded an adjusted EBITDA of 74.1 million for the fourth quarter 2004 as compared to 45.2 million in the third quarter 2004 and 19.1 million in the fourth quarter of 2003. In Advanced Materials we continue to realize the benefits from our ongoing business restructuring activities, and margin improvement has been aided by our concerted efforts to raise prices for our products. Results in Advanced Materials were also impacted by foreign exchange games, which increased by 30.9 million as compared to the fourth quarter of 2003, and 27 million as compared to the third quarter.

Performance products recorded adjusted EBITDA of 64.4 million in the fourth quarter 2004, as compared to adjusted EBITDA of 40 million in the fourth quarter of 2003 and an adjusted EBITDA of 51.9 million in the third quarter of 2004, as we have experience improved pricing and margins, particularly in our North American ethylene oxide derivatives business.

Pigments recorded adjusted EBITDA of 35.4 million in the fourth quarter 2004, an increase of 57% as compared to the fourth quarter of 2003, and an increase of 37% as compared to the third quarter 2004.

Although sales volumes in the fourth quarter were softer than in the third quarter due to seasonal factors and the impact of our restructuring activities, selling prices were higher.

Polymers recorded adjusted EBITDA of 38 million in the fourth quarter 2004, an increase of 10.7 million as compared to the fourth quarter 2003. Adjusted EBITDA increased by 9.1 million as compared to the third quarter of 2004, as both sales volumes and average selling prices were higher.

Finally, Base Chemicals recorded adjusted EBITDA of 79 million in the fourth quarter 2004, an increase of 55.6 million as compared to the fourth quarter of 2003, and an increase of 1.8 million as compared to the third quarter.

Results in our European Olefins and Aromatics businesses continue to be very strong, but we’re impacted by plan maintenance overhaul and inspection in our largest Aromatics unit, while margins in the U.S. operations improved.

With that I’d like to turn things over to Kimo Esplin, our CFO, for his comments on our financial highlights.

Thank you, John. As many of you aware, on February 16 we completed an IPO Common and Preferred Stock. Let me begin by briefly reviewing the terms of the offering.

Huntsman Corporation sold 55.7 million shares of Common Stock at a price to the public of $23 per share, and 5.75 million shares of 5% mandatory convertible Preferred Stock at a price to the public of $50 per share. HMT Investments Trust, which is a vehicle through which the Huntsman family and Matlin Patterson jointly hold directly ownership, sold an additional 13.6 million shares of Common Stock. That proceeds to the Company were approximately 1.5 billion dollars, substantially all of which is being used to repay the 15% HMT notes, the 13 3/8% Huntsman International holding discount notes, 159 million of the Huntsman L.L.C. Senior Secured notes, 102 million of the Huntsman L.L.C. Senior Unsecured notes and $42 million note due to an affiliate of the Company.

As those of you who have followed the offering are aware, we upsized the primary portion of the offering by 4.55 million shares of Common Stock. And the underwriters exercise their over allotment option on the Preferred Stock. These two actions resulted in an additional 136 million in proceeds to the Company, all of which will be used to further reduce debt.

As a result of call premiums, and the write-off of capitalized financing costs and unamortized discount on the HMT notes related to these bond redemptions, we would expect to incur approximately 235 million in non-reoccurring expenses related to the early extinguishments of this debt in the first quarter of 2005.

Net proceeds to sell and shareholders were approximately 298 million, which was split approximately 50/50 between the Huntsman family and Matlin Patterson. Shares sold by the Trust on behalf of the Huntsman family were for the benefit of Jon Huntsman and certain of his children. Peter Huntsman, our CEO, did not sell any of his shares.

As a result of the IPO and the related reorganization transaction, we have approximately 221.2 million outstanding Common shares. We also have 5.75 million outstanding shares of convertible Preferred Stock. Its share of this Preferred is mandatorially convertible into an additional 1.77 to 2.17 shares of Common Stock based upon the average trading price of the Common Stock immediately prior to the third anniversary of the ITO. This will result in an additional 10.2 million to 12.5 million outstanding shares of Common Stock upon conversion.

In connection with the issuance of the Preferred Stock, we have declared, and pre-funded, the aggregate dividend to be paid over the life of the Preferred, which is approximately $43 million. As a result, a one-time dividend payment in this amount will be reflected in our first quarter 2005 income statement and will correspondingly reduce earnings per share in that quarter.

I would now like to discuss a couple of significant financing activities, which took place in the fourth quarter. On December 21 we amended the terms of the Huntsman International $1.3 billion term loan, which among other things, reduced the live [OR] borrowing margin by 75 basis points, the live OR plus 250.

On December 31, 2004 we utilized excess cash to make a $59 million repayment to this term loan facility.

On December 17, 2004 Huntsman International completed an offering of 175 million of 7 3/8% Senior Subordinated notes due 2015, and 135 million euros of 7 ½% Senior Subordinated notes due 2015. Huntsman International used all the net proceeds to redeem a portion of our outstanding 10 1/8 Senior Subordinated notes due 2009 at 105% par.

In connection with these financing activities, and the refinancing of Huntsman L.L.C.’s credit facilities, which closed in October, in the fourth quarter we incurred approximately 23.7 million in non-reccurring expenses related to the early extinguishments of debt. As a result of these refinancing activities, and other refinancing transactions, which took place earlier in 2004, and the application of the ITO proceeds, we expect that our quarterly interest expense will be reduced to a bit over $100 million given current live OR rates and our existing debt levels. As the bulk of the ITO proceeds were not applied until late February, and March, we would not expect to achieve this run rate until the second quarter of 2005.

Moving to liquidity—our total cash and unused borrowing capacity, including existing discretionary overdraft lines, at various operating companies was approximately 1.02 billion as of December 31, 2004, which was up from the 923 million as of September 30, 2004. We think about a billion dollars in liquidity is an appropriate level for a company our size. We would expect to maintain our available liquidity at this level over the foreseeable future, and excess free cash flow available to the business will be used to further reduce our debt.

Now I’d like to take a minute to discuss our restructuring charges by segment. In our Polyurethane segment, we recorded additional charges in the fourth quarter 2004 of 4.1 million, 1.6 million of which will be payable in cash, and 2.5 million is non-cash.

At Advanced Materials we recorded 9 million of restructuring charges in the quarter, all of which are payable in cash. This charge relates to our plans to reorganize our commercial and technical functions globally, and our plans to close our Taiwan Electrolaminates production facility. This will result in a workforce reduction of about 120 people.

In Performance Products during the quarter, we recorded a restructuring charge of 56.3 million, of which 32.1 million is payable in cash, and 24.2 million is related to the write-off of certain of our [inaudible] assets. This charge represents the final portion of our plan to reduce the workforce across all locations in our European surfactants business by approximately 320 employees over the next 15 months.

The pigment segment recorded additional restructuring expenses of 11.6 million in the fourth quarter of 2004, substantially all of which are payable in cash and are related to workforce reductions in several of our locations in Europe and the provision for certain non-cancelable leases.

During the fourth quarter 2004, the Polymer segment recorded an additional 6 million restructuring charge related to further restructuring of our plant organizations, primarily at our Odessa, Texas and our Australian facility. Substantially all of this charge will be payable in cash.

In Base Chemicals during the fourth quarter 2004, we recorded 7.6 million in restructuring charges, all of which is payable in cash. These are primarily related to announced changes in work shift schedules, consolidation of engineering functions, and the streamlining of functional support services at our Wilton and North Tees, UK plant.

We think that we’ve booked the majority of our restructuring and plant charges in 2003 and 2004. In 2005 we expect that the magnitude of the restructuring charges will decline substantially, and we would expect first quarter charges of approximately 15 to 20 million.

Capital expenditures for the fourth quarter of 2004 were approximately 82 million, which resulted in full-year 2004 CapEx of 226.6 million. We expect to spend approximately 400 million in 2005. This is expected to include approximately 80 million of the construction of our UK low-density polyethylene plant. In addition to the 400 million of capital I just mentioned, our consolidated Chinese polyurethane JV would expect to have CapEx of 57 million, of which we will fund 8 million, with our JV partners and local borrowing making up the difference. In addition, we would expect to invest approximately 14 million in the unconsolidated portion of our Chinese NDI joint venture.

With regard to working capital, at the end of the year total working capital was approximately 1.35 billion, which was approximately 100 million higher than at the end of the third quarter. Given higher average selling prices, raw material costs and foreign exchange rates, we saw higher accounts receivable and inventory values partially offset by higher payables.

Finally, since the IPO, we have received a number of calls from investors and analyst who are looking for guidance. Huntsman’s official policy is that we will not give specific earnings guidance. However, from time to time on our investor conference calls, we will give directional guidance. That being said, as we sit today in early March, we would expect adjusted EBITDA for the first quarter 2005 to be higher than the levels achieved in the fourth quarter 2004 as a result of our Polyurethane and Basic Chemicals businesses as they continue to improve.

With that I’d like to turn the time over to Peter, our President and CEO for a few remarks regarding our operations in the fourth quarter.

Kimo, thank you very much. We’re obviously very pleased with the fourth quarter operating results, which represented our sixth and consecutive quarter of improved revenues and adjusted EBITDA. These results were achieved in a quarter that is traditionally been our softest from a seasonal perspective. As we described to many of you during our IPO road show, we continue to see very solid results in our differentiated segments as volumes continue to grow and prices increase and been successfully implemented across most all of our companies.

In Base Chemicals and Polymers we believe that our performance in the fourth quarter is further evidence that we have moved up off the cyclical trough in many of these commodities, as operating rates have increases and pricing has firmed.

In Pigments, although our volumes were lower than in the third quarter, partially due to seasonality and partially due to our restructuring activities, average selling prices were higher and our costs were lower. Both of which resulted in margin improvements in the fourth quarter.

As an industry we continue to suffer through some of the most volatile and highest raw material prices we’ve ever experienced. During the fourth quarter, crude oil prices averaged $48.29 per barrel, peaked at over $55 per barrel. Natural gas averaged $6.25 for MNBTU, but spiked to over $8.75 for MNBTU, and benzene, a raw material for our petrochemicals, polymers, LAB and polyurethanes, averaged $3.58 per gallon. These prices represent increase of 40 to 50% or more compared to our levels in the fourth quarter of 2003. Looking at results sequentially, our EBITDA was up 23% relative to our third quarter, which shows just how strong operating conditions have been when you consider that most of our raw materials and energy cost increase quarter-on-quarter by 5%. This at year-end, we continue to see energy volatility with prices having risen in the past few weeks. On average we will see most of our major raw materials lower in the first quarter of 2005 than we experienced in the fourth quarter of 2004.

Our results across the board have also improved, as we have been successful and progressing towards our cost reduction target measured in the constant currency basis. This project was being referred as Project Coronado, has a goal of reducing our fixed costs as measured against 2002 costs on a fixed currency basis by $200 million. These savings are in addition to the ongoing annual cost inflation that we have experienced since 2002, which we estimate to be in excess of $100 million. The $200 million target represents roughly a 10% reduction in our fixed costs of approximately $2 billion in 2002. Currently we believe we have eliminated approximately one-half of the cost needed to reach our objective. With the various restructuring activities, which Kimo has mentioned, we are confident that our target will be achieved by the end of 2005.

In our Polyurethane segment, our adjusted EBITDA for the fourth quarter was $97.4 million, which represents an 18% increase relative to the fourth quarter of 2003. NDI volumes quarter-over-quarter were up a bit over 1%. Our NDI volume growth in the fourth quarter was impacted by the loss of 17 days of production at our plant in Rozenburg in the Netherlands, due to a planned material outage. We also, as planned, are building inventories in anticipation of our 2005 plant maintenance and inspection shutdown activity. The good news is that these issues are behind us in the first quarter of 2005. We’re also exploring all of our options for increasing our capacity of NDI and would hope to announce our plans soon.

However, the bigger driver in this segment was NDI average selling price, which were up approximately 32% versus the fourth quarter of last year. The continued strength in the overall global economy, as well as the ongoing situation of substitution of traditional materials by NDI is driving higher growth rates. We estimate that global demand for NDI grew by approximately 11% last year, well above the long-range trend line of 7 to 8% per annum. This growth reflected further extension of markets for NDI, particularly in insulation end uses where energy costs are driving the need for better insulation.

China continues to be one of the major growth drivers with 2004 consumption estimated to be almost 30% ahead of 2003 levels. I just returned yesterday from a trip to China and India, and I feel that we are well positioned to take advantage of this growth in China with our new plant in Shanghi that is currently under construction. This strong growth has resulted in significantly higher global operating rates. In the fourth quarter of 2004, we estimated that the industry was essentially sold out with operating rates of well above 100%. In fact, our 2004 production represents 106% of our name [plate] capacity.

As we look into the first quarter of 2005, demand continues to be very strong, and pricing has strengthened even further. This being said, record high costs in key raw material, such as benzene, propylene and natural gas, negatively impacted fourth quarter results and will continue to be a factor in the first quarter of 2005. We estimate that the fourth quarter of 2004 higher benzene prices resulted in approximately $67 million in headwind relative to a year ago.

We continue to be very disappointed with our PDI business, although only at 90 million pounds, it is a small part of our [arsacianades] portfolio and much smaller in scale as compared in position to our other producers. Margins continue to be depressed as the market is oversupplied, growth rates are low, and raw material costs remain high.

Overall, it’s been a very good quarter for polyurethanes, and we continue our efforts to expand the market in increase volume, while improving overall value with increased prices and focusing available capacity on higher value applications.

In our Advanced Materials segment, our adjusted EBITDA for the three-month ending December 31, 2004 was $47.1 million—that’s $74.1 million—which compares to $19.1 million for the same period last year, and is up 64% relative to the third quarter of 2004. We are pleased with this improvement as we have seen gross margins, which are up nearly 400 basis points from 19% in the fourth quarter 2003 to 23% in the fourth quarter of 2004. This margin improvement is a reflection of our improved product mix as we reduce sales volumes of our basic epoxy resins and electrolaminating resins and increase volumes in certain of our more value-added product lines such as adhesives, electrical insulating materials and structural composites.

The restructuring program we have embarked on over 18 months ago with this business has continued to drive improvements in our profitability. Since June 30, 2003 we have reduced our headcounts in Advanced Materials by over 380 positions. In the fourth quarter we completed the closure of our Thomas Town, Australia facility and then consolidated these operations into other existing Huntsman facilities.

We are also very pleased with our progress in Advanced Materials, but not yet satisfied with the results. We recently announced additional restructuring activities, which will result in the consolidation and realignment of our sales in technical functions and the closing of our [Kalejing], Taiwan laminating resins facility. Again, we believe that these moves will allow us to further reduce our costs, while at the same, focusing more efforts on products where we have a technological advantage and higher margins and growth.

In our Performance Product segment, our adjusted EBITDA increased by $24.4 million or about 61% relative to the fourth quarter 2003. Results also increased significantly over the third quarter. As we indicated on our previous call, one of the features of our Performance Products business is that a key ethylene market strengthened, the cost of raw materials were certain that these products in this market segment goes up. And due to the performance nature of these products, raising prices in these downstream products is a lot more difficult and takes more time.

With this in mind, 2004 was a challenging year in our European surfactants business and our LAB operations. That said, we’ve been able to increase prices across nearly all of our product lines in the fourth quarter as compared to the third quarter of this year. In addition, volume growth continues to be impressive in our growth areas. In our amines and maleic anhydride product lines, which are two of the real jewels of this portfolio, and where we feel we are a global leader, we saw volumes up 19 and 16% respectively in the fourth quarter versus a year ago.

As Kimo mentioned earlier, we are taking costs out of this business with a reduction of 320 positions in Europe and consolidations that will bring about the closure of our Gwelf, Canada, Queenie, Missouri, Austin, Texas and a significant downsizing of our Whitehaven, UK facilities.

Our Pigments business adjusted EBITDA increased by $12.9 million, or 57%, from the fourth quarter 2003, and improved over 37% as compared to the third quarter. Although volumes declined by 10% in the fourth quarter as compared to the same period a year ago, average selling prices were up 9% as compared to last year at 7% as compared to the third quarter.

TIO2 industries fundamentals continue to improve. We estimate the global pigment demand will grow by 7% in 2004. Inventory levels for the industry ended the year at less that 50 days as comparison to closer to 60 days for December 2003. All major producers announced price increases October 1 in all major regions. This has been followed by another round of price increase in January—in February this year.

We estimate the global operating rates were approximately 96% in the fourth quarter of 2004 as compared to approximately 93% in the fourth quarter 2003. As you look at volumes, keep in mind that the fourth quarter of 2003 was exceptionally strong for the industry and makes for a difficult comparison. Also, as I mentioned earlier, we have taken aggressive steps to reduce our supply chain and to restructure the supply chain. In July we idled 15 thousand metric tons of capacity at our South Africa plant, and at the end of November we idled 40 thousand metric tons of capacity at our Grisby, UK facility.

Although it is a bit early to get a really good sense, we’re optimistic heading into the crucial paint season. Demand remains solid, particularly in North America. Stock levels are down, and operating rates are higher than they were a year ago.

In our Polymers business our adjusted EBITDA for the fourth quarter was $38 million. This represents a 39% increase relative to fourth quarter 2003. On a sequential basis, adjusted EBITDA was up 31%. Volumes have improved, and margins are higher.

Polypropylene continues to be the profit driver for this segment for us. It made up over 50% of the EBITDA of our Polymers segment in 2004. Profit margins for polypropylene are well ahead of polyethylene at this point, and the outlook remains favorable.

In our Base Chemicals segment we continue to see very strong results in Europe where market conditions continue to be favorable. Our European ethylene facility is running at full capacity. Fourth-quarter results in Europe were impacted by 50-day plant maintenance overhaul and inspection at our largest Aromatics facility. We estimate that EBITDA impact of this on the fourth quarter was between $7 to $9 million.

In North America results also improved dramatically from the third quarter, as volumes were higher and prices and margins both firmed. That being said, conditions are still tighter in Europe. To give you a sense, according to CMAI, adductive ethylene operating rates in Western Europe, in the fourth quarter, were 99% capacity utilization, while in the U.S. they were 95%. This, again, according to CMAI, translates into ethylene cash margins in the fourth quarter of 20.9 cents per pound in Western Europe and 13.2 cents per pound in the U.S. As we have said in the past, we’re expecting this strong volume and margin improvement to continue in Europe, and we are hopeful that the U.S. will continue to close the gap.

In summary, we are pleased with the results of the fourth quarter. Our results are much stronger than in the comparable period last year and show continued sequential improvements from the results achieved in the first three quarters of this year. For now energy prices are high and continue to remain volatile and could impair our ability to further expand margins in some products. However, we are aggressively pushing to price increases across all of our product lines and continue to focus on things that we can control. Again, in spite of the volatile raw material prices, we will see most of our products improve their profitability in the first quarter of ’05.

Our priority remains to operate all of our facilities in a safe manner. Our current operating safety rate is a third of the industry average. We shall also give high priority to our continued improvements in our environmental stewardship and performance. Regardless of energy price volatility, we continue to reduce energy consumption and consolidate our purchasing power across our Company.

Today we’re better focused than ever before on reducing our operating costs by eliminating sites and positions that can be handled out of common locations or more efficient sites. With fewer sites and less overhead costs, we’re able to verify more resources and attention on creating better product development and customer service. We are successfully lowering our costs, at the same time improving our portfolio products and services in the market. I believe that we are better positioned today to create value, control costs and deal with energy volatilities than ever before. I remain optimistic that business fundamentals are strong and we’re well positioned to take advantage of improving market conditions.

With that, I’d like to turn the discussion back over to John Heskit, our Vice President Corporate Investment Relations.

Thanks, Peter. That concludes the Company’s prepared remarks. We would be more than happy to entertain questions at this time.

[OPERATOR INSTRUCTIONS] The first question comes from Michael [Judd] with Greenwich Consultants.

Congratulations on a good quarter. A couple of accounting related things. First, for the first quarter and also for this year, can you comment on what you think the tax rate would be for sort of on an adjusted EBITDA basis? So that we can figure out what the earnings per share would be? And, also, what is the diluted number of shares for the first quarter? And then I have a follow-up question on, actually, some of the business segments.

Okay, let me take taxes, which is hard. And isn’t that the most straightforward thing in the whole world. I think when you see the Huntsman Corporation 10-K and read the footnote for 2004, you’re going to be able to see it more clearly. But suffice it to say, that we are required to take certain valuation allowances that have an effect of reducing effective tax rate for the period of time in which we are required to take the valuation allowances, or, in fact, we are using them. What a valuation allowance is, at least in my simple terms, is it’s a—you’re taking NOLs, or tax assets, off of the balance sheet. So in 2004, while you might have expected to see a greater benefit for purposes of taxes, given the loss before income taxes that we had, we were required to take some of those benefits off the balance sheet in the form of these valuation allowances.

Going forward, as we move into a more positive pre-tax basis, you’re going to see our effective tax rate also well below the 35% statutory rate as we start to consume those off balance sheet NOLs for valuation allowances. So the effective rate that you see in the first quarter of 2004 is, in fact, lower than that 35%. Of course, there are all sorts of other things going on in taxes that would just take forever to go through. But for the most part, that’s the biggest impact in your taxes.

Do you have a number for us?

For which? I’m sorry Mike.

The tax rate. Basically, what should we use—in other words, what we need to do is a lot of us are going to ignore the special charges, okay? But we get to a point where we have to calculate what the tax rate should be. What should we use, please?

Well, it’s difficult, because those valuation allowances are in different countries, and it depends on where we will have taxable income or not. But I think you can use somewhere between 15 and 20% for 2005.

Okay. Just to clarify that, what we then need to do is on the cash flow statement it still gives you some sort of credit for the NOLs, right?

Right. So I would use somewhere around 8, 9% as the effective cash rate—cash rate—for the Company. And that will largely be the cash factors retained in foreign jurisdictions.

Okay. And then the number of diluted shares, please?

I think I gave it to you.

You add all this stuff together, and what do you come up with?

221.2 million Common shares. Then we’ve got the Preferred outstanding, which, depending on the trading prices, somewhere between 10.2 million and 12.5 million—on a fully converted basis.

Okay. And then moving into the segments. Obviously we’re here in March, so you’ve had a pretty good chance to—and we would have expected that seasonally things would have picked up in March. So can you just give us kind of a snapshot on what you’re seeing? Is February sort of in line with what you’re expecting? And now we’re sort of in early March, things are hopefully seasonally picking up. Generally, in line with what you’re expecting.

I think the guidance we gave you, again, let’s just reiterate it, that the first quarter we believe will be better than the fourth quarter, largely driven by improvements relative to the fourth quarter in Base Chemicals and in Polyurethanes. You would expect that that would be consistent improvement through the quarter.

Is that just a seasonal improvement? Or we would expect a seasonal improvement, but I’m trying to get a handle on here, do you some growth here in addition to just a seasonal improvement?

Typically, we see first and fourth quarters fairly similar. There’s not a huge seasonal pickup, certainly, in paint for TIO2 or in construction—in Polyurethane. First and fourth are pretty close. Second and third are typically seasonally strong quarters for this business.

I think, though, that we have been a bit surprised that we’re seeing a stronger growth in polyurethane. Some of our differentiated business—downstream businesses—I’ve read quite a bit in the Industry Press about a lot of products seeing sluggish demand with the Chinese New Year. We really haven’t seen that, personally, in any of our products. It’s clear that we have seen it in some of the more commodity products. We’ve seen volumes pick up quite quickly and quite substantially. So from a volume metric and from a global demand point of view, I remain optimistic about where we’re going.

Okay. Just lastly, how much debt—I see the sort of pro forma debt numbers for the end of the year, but, obviously, you guys have probably paid down some additional debt so far here in the first quarter. How much additional debt have you paid down the first quarter?

I think that year-end number’s a good number to use.

Okay, I’ll get back on the line. Thanks.

Your next question comes from Don Carson with Merrill Lynch.

Kimo, I just want clarification on the tax. What is the NOL amount going forward? And then, also, just looking at Q4 and trying to project going into the future, I noticed your operating expenses were down quite a bit. Was there something unusual in there?

Okay, for taxes we have about a $3 billion NOL, half of that in the U.S. and half of it in foreign areas. So you would expect that we’re not going to be paying U.S. income taxes anytime soon. At least over the next two or three years. And your second question, I think, was around—

Around operating expenses. It was down quite a bit sequentially from 167 to 160. I was just wondering if it was something unusual in there, or are we starting to see the effects of Project Coronado, or what’s going on there?

I think in terms of operating expenses, you are seeing the benefits of the $200 million cost reduction effort we call Coronado. Also, in the corporate end, unallocated, there are some effects gains that were higher than we experienced a year ago in the fourth quarter.

And how much would that have been of that sequential reduction?

Let’s see. During the fourth quarter 2004, we had 55.7 million of unallocated effects gains included within the corporate [inaudible], and that compares with fourth quarter 2003 when we had 41.5 million of unallocated effects gains within the corporate [inaudible].

Okay. So what would you think is a good quarterly run rate for that operating expense?

Well, that’s tough with given how foreign currencies move and how we are pretty rapidly getting to that $200 million Coronado number. Obviously, I was in a normalized stable currency environment, not typically seeing the foreign gains we had—foreign currency gains—likewise, I think we’re going to see our cost come down well over another $100 million for 2005—for Coronado.

Okay, thanks. Then one final question—how big was the MTBE contribution to Polyurethane last year. I know you also have some MTBE that you total in Base Chemicals. If you could just add up those two numbers.

While Keemo’s getting those numbers, you remember that MTBE is a byproduct of our propylene oxide, and it’s a little bit difficult to break that out exactly, where you want to take the tertiary butyl alcohol credit on that.

When we look at propylene oxide, adjusted EBITDA in propylene oxide for the fourth quarter, 2004, was about $9 million. And in fourth quarter, 2003, it was $21 million. So it was a substantial drop. It’s difficult to break out the MTBE component of that unless you look at sort of [C-factors]. And that certainly is just the raw material cost differential to the price. And we did see the C-factor drop quite a bit. I think our C-factor in fourth quarter, 2003 was 2, and in the fourth quarter of 2004 was a negative 1. But it wasn’t huge. I believe we saw some significant pressure from propylene prices, typically lag on the propylene oxide formula.

I would think that on our fourth quarter, 2004, Don, that 9.4 million EBITDA that less than a million of that would have been MTBE.

Okay. Thank you.

The next question comes from Frank Mitsch with Fulcrum Global Partners.

You mentioned that you expect the first quarter adjusted EBITDA to be over $400 million. What ballpark would you put the non-adjusted EBITDA in for the first quarter?

Well, I think we threw a number of numbers at you, including all these costs associated with the call premiums, and whatnot. So there’s $235 million, say non-recurring expenses related to the early extinguishments of the debt from the ITO proceeds. We also said that there’s going to be between $15 and $20 million restructuring costs as we sort of finish off our Coronado Project. So those would be the major items—

And the third piece there is the loss on sale of AR for our securitization program, and we would expect that would be roughly $3 to $4 million a quarter.

How much longer will that continue?

Which?

The loss of sale on the AR.

We would expect our lowest cost financing [EP] type pricing. We would expect that we would always have that.

Okay. And I though you said that your quarterly interest in the second quarter run rate—something like $100 million—was that correct?

That’s right. But, of course, you won’t see that in the first quarter.

Okay. That’s fine. And then just a question on your Performance Products business. Up nicely year-over-year. I think like 68%. What percent of that increase would you attribute to ethylene oxide, ethylene glycol?

Let me dig through that. Just a minute. Ethylene oxide, as you know, is consumed in all of our Performance Products businesses, including surfactants, amines and glycol, and we transfer that at a price that’s not necessarily market. So it’s a little harder number to get at. But, Frank, give us a second, and we’ll get that number for you.

That will fine. And then with respect to the outlook, you mentioned that you do expect strong results out of Polyurethane and Base Chemicals. Was the omission of TIO2 just because those other businesses were significantly better? Or based on the commentary, I’d expect that you guys are going to see a terrific TIO2 business in the first quarter.

We are continuing to see improvement in TIO2. And what you said earlier is correct. The biggest improvement will be in Polyurethane and Base Chemicals.

All right. Terrific. And just while we’re waiting for that other number, what is the latest time, again, that you had just come back from Shanghi? What’s the latest timing on the startup?

It will be approximately third quarter of next year.

Okay.

Frank, before you get off, in terms of ethylene oxide and glycol, for the year it was about maybe half of the improvement in the Performance Product segment.

Okay, terrific. Thank you.

[inaudible-technical difficulties] ethylene oxide and ethylene glycol. Not all ethylene glycol on that. Which, again, as we assume we take the ethylene oxide and move it into surfactants, glycol, the number varies. So I think what you’re getting at is how much of that was solely dependant on EG. And it’s a tough one to, because EG’s not the most profitable and best avenue. We’ll take that molecule and put it into another product.

Your next question comes from Christopher Miller with J.P. Morgan.

Congratulations on a very strong quarter. Couple of questions for you. A little bit about ethylene and kind of what you’re seeing in the downstream products on pricing and the pushback in pricing these last few months.

Well, in ethylene prices themselves, we see in North America we see flat ethylene pricing for the past two months—excuse me, for the last three months now—and the amines and our ethylene costs in the first quarter were lower than they were in the fourth quarter of ’03—excuse me, of ’04. So even though we haven’t seen any increases in the ethylene prices, we will see increases quarter-over-quarter in ethylene margin.

The downswing to it is that I think it’s been pretty well reported in the industry. There’s been somewhat of a sluggishness that occurred around the Chinese New Year for export. I would say that on our products—and I’m thinking of polyethylene, polypropylene, ethylene glycol—our major products—we are exporting with the exception of ethylene glycol, which is about 15% overseas. Our polyethylene and polypropylene exports would be in the low single digit numbers. So we did not see a significant drop off or margin erosion in those downstream derivative business as well. And as I said earlier, I think that there’s a lot of talk about the Chinese New Year and the slowdown—I really didn‘t see it affecting the industry as much as I read about it affecting the industry.

Okay, great. And then on benzene—kind of a lookout over the course of ’05, and you guys, I believe, are a net buyer of benzene—supposed to be some capacity coming on—kind of where you see that going for ’05.

There seems to be quite a lot of capacity coming on, in the Asian markets especially. Coming on about the middle of the year, going into the end of ’05, and I think benzene prices will continue to be fairly strong throughout the year. But be reminded that over half of our customers in polyurethane now have price escalators, and that number continues to go up. That when benzene prices go up, we automatically absorb those increases. I do think that most all of our derivative products that consume benzene, we’ve also worked with some escalators in some of our LAB customers, where we will see a better ability to pass through benzene prices for that customer segment as well. So I think across the board, the benzene will continue to be volatile, but I think, again, as I said in my comments, we’ll be able to deal with that volatility better than we ever have in the past, because our sales contracts are structured better today to deal with that volatility. In the past, those prices grew instantaneously.

Okay, great. And then just a couple kind of housekeeping issues. The balance on the AR facility at the end of the year? And is it possible—do you have quickly total debt by entity pro forma?

The balance on the securitization at the end of the year, as we outlined in the press release, is $208 million.

Apologize. Must have missed it.

Your second question?

Just you give us the pro forma total debt number, just real quickly, can you just break that down between Huntsman International and the different entities?

That will take a minute. We will grab it, and we will give it to you in just a second.

Okay. I appreciate it.

The next question comes from Bill Young with CSFB.

Good morning. One thing I’m still not clear about. You said the lunar New Year slow down, Peter, wasn’t quite as bad as what some people were saying. Maybe you could update us on your polyethylene price trend. I realize you split out Base Chemicals from Polymers. Maybe just review your transfer price policy? That’ll be good for starters. Why is polypropylene doing so much better?

In our polyethylene business, we report we transfer—our ethylene and our polyethylene business, we transfer that at cost. So we show in our polyethylene results the full-proof value of the ethylene molecule of that. I think that in polypropylene we have a better capacity of utilization rate. We have very little incapacity coming on on a global basis. Propylene remains very tight, and I think that’s going to be a limiting factor with future capacity of polypropylene, so I would continue to be quite bullish on our polypropylene results going forward.

On polyethylene prices, the trend in those prices continues to be moving upward.

Yes, Bill, and as you’re talking about the first quarter, obviously that there was the five trends it didn’t go through in February. It sounds like that’s on the table for March. It’s probably a little too early, from our perspective at least, to give you better guidance there. Obviously, we’re a small polyethylene producer. We’re not out there setting the price. That’s some of our competitors. But I think people feel often, especially given where [inaudible].

Okay. Have you seen a pretty good pickup in polyethylene in, say, in March so far, and how would you kind of categorize that versus where you have been earlier in the quarter, etc.?

Certainly in March we’re seeing a—February was fairly soft, and March we’re seeing market returning and expanding again. And, again, I think things are certainly looking stronger in March than February, as far as pricing and demand.

Okay, great. And last question—you mentioned that your Shanghi polyurethane will be up in the ’06—the latter part of ’06—you said China’s demand was growing pretty rapidly. Do you think by then they will be satiated? Or I’ve heard stories that the new plant’s going to be sold out right away? Maybe you could give us an idea of what you’re expecting once that plant comes on stream.

That plant is 500 million pounds of capacity that’s coming on stream. And we are already sold out in that facility. And we’re working as much, and aggressively, today on a market plan on pounds that are presently going to Asia, that will be displaced. And it will not be as many pounds—I mean, every month we keep rationing that downward, because of the demand that we see continue to be picking up in China. The most exciting prospect I see in the Chinese market, most of our urethane that is being consumed in China, the biggest growth that we’re seeing in China, are Chinese consumers, and this is in polyethylene that’s going into an application that is readily being exported, and five years from now, instead of being exported from China, is going to be exported from India or someplace. Our applications there are, for the most part, going into real consumer items of home building insulations, automobiles that are being manufactured in China, just in the last couple of months here has replaced Germany as the third largest country producing cars around the world and is expecting to be passing by the United States here five years out. So tremendous growth prospects, and exceeding our expectations, certainly from a year ago, and causing us to revive our marketing numbers today, so we continue to work with that.

And you can expand that facility how quickly?

Well, our first objective will be to get the facility up and running, but it is a similar design. As you know, we are joint venturing that facility with BASF and with Beyer. The NBI technology is Huntsman technology, and so as we look at that technology, which is the same technology we have in Rozenburg and [Geismouth], Louisiana, we’ve been quite successful being able to [de-bottleneck] and approve that technology. So I see once we’re up and running the latter part of next year, we will have opportunity to further de-bottleneck that facility.

Thank you. Thanks very much.

Before the next call, let me quick answer the question about debt in the operating subsidiaries. I think you have the press release shows, as adjusted, for the IPO as of 12/31/04, when you look at it on a pro forma basis by operating entity, Huntsman International is 3 billion 55 million on a gross basis, and net of cash it would be 2 billion 952. Huntsman L.L.C. gross basis is a billion 677, net of cash it’s a billion 656. Advanced materials gross is 350 million, net of cash it’s 256 million. And when you look at the Huntsman Corporation level, as per the press release, gross is 5 billion 082, and net of cash if 4 billion 855.

We can take the next call.

The next question comes from Jeffrey Zekauskas with J.P. Morgan.

Hi. Two questions. The first is what’s the currency benefit in all of its forms—gains, translation—in the fourth quarter of ’04? And for the year. And secondly, can you talk about the difference between ethylene margins in March of ’05 versus February ’05? That is because, obviously, raw materials are really heading up sharply. So what’s the magnitude of the squeeze here?

Let me take the effects question, which is another complicated one. Let me remind you that over 50% of our businesses our outside the U.S. And the change in foreign currency rates impacts us in a whole bunch of ways. So there’s foreign currency changes change—an economic impact on our business, given that we have certain pricing mechanisms that are based in U.S. dollars and other currencies irrespective of the functional currency. And, of course, it effects our competitive relative to producers in other regions. That is almost impossible to sort of calculate. Then there’s the translation impacts, and that is just simply the translating of foreign functional currency balance sheets and income statements to U.S. dollars, and that’s recorded in other comprehensive income. And then there is this transaction gain and loss that we’ve been talking about. We have indicated in the press release that there was a significant foreign currency trend action gain in our Advanced Materials business. And then we have unallocated portion that sits in the corporate line item, and we mentioned that for the fourth quarter, that was 55.7 million relative to a year ago of 41.5 million. When you look at it for the full year ’04, that unallocated effects gain within the corporate and other, is 69.6 million, and that’s compared to 2003 pro forma of 102.2 million gain in that unallocated effects corporate and other.

What about the translation?

The translation that goes direct to comprehensive income? I don’t have that with me right now, Jeff. But, of course, that is not an impact of [inaudible].

Okay. And on the sequential margins between February and March?

I’m sorry, Jeff, let me just finish on the effects just to make you aware of this issue and our focus on it. So foreign currency transaction gains are largely created by intercompany loans that we have outstanding. And we have been looking at them and are in the process of reviewing those balances in the first quarter of 2005, and we will very likely increase the amount in the permanent loan part of that intercompany loan. And we would expect that would result in less foreign currency volatility going forward.

Okay.

In the area of ethylene. I’ll kind of take two segments, and one is we have about the same amount of ethylene that we’re selling and producing both in Europe and North America. Europe we settle on quarterly prices for ethylene, so no change in price between February and March, and our raw material costs probably are up about 2 cents—a penny to 2 cents a pound—February to March. This will maybe sound a bit strange to some, but at the end of the quarter, with raw material prices going up as they have, it actually go quite well for us, but the second quarter price settlement discussions for ethylene, which we’re engaged in at the present time. So I continue to be bullish on our ethylene market and margins in the first and second quarter. If you look at the U.S., we did have a sluggish—I say “we” referring to the industry—a sluggish demand month in February, we have seen demand for ethylene picking up nicely in March, but for March we have not yet had price settlement that we’ve seen our cost to produce a pound ethylene go up about 3 cents per pound from February to March. So, again, I’m not saying representing here that our March ethylene sales price will be going up 3 cents—I’d like to see it go up 3 cents or higher than that—but, again, coming off of a sluggish month in February, we are seeing demand increasing in March, and I cannot speculate at this time, because I know that we’re in negotiations with a number of consumers of ethylene. We have not settled a U.S. March price. But we have seen our cost go up in ethylene.

So when you buy your feed stocks, your NAPSA stocks from March, are you locked in or do you—I mean, is it an average daily price in March? How do you buy NAPSA—or how’s the NAPSA buying going for March?

It’s a combination, but for the most part it’s a daily purchase price we’re able to buy the best prices as we need it. And when we get into markets where we feel that the price for NAPSA is increasing as it has over the last couple of weeks, we have a tendency to buy heavier and try to drip through a month or so of higher prices in NAPSA. I think as people are looking at crude prices today, there’s a lot of talk about pushing that price down. OPEC ministers very—ministers from the various OPEC nations. A lot of people feel that there’s just no reason for crude prices to be where they are today and should be moving downward. But I think as we look at the price settlements, we’re certainly being as aggressive as we possibly can in moving up prices in ethylene—Base Chemicals.

Okay, thank you very much.

The next question comes from Kevin McCarthy with Banc of America Securities.

I wonder if you can comment on your long-term strategic outlook for titanium dioxide? Have you taken some steps to rationalize capacity in Europe and Africa, and it seems as though we have very healthy operating rates now in the mid 90s. Meanwhile, one of your competitors, I believe has indicated publicly, that they’re exploring strategic options for TIO2 business. Is this a business where you’re immuneable to grow the acquisition, or is more likely we should kind of play a cyclical ramp up with organic growth and volume in price?

Well, our number one priority, Kevin, is, of course, to de-lever. And remain very focused on that, and I think with our TIO2 business we think that this has been a mediocre business in the past year or so. I think that this year our expectations are that margins will continue to see substantial improvement throughout the year. But even if we get to the best results that we’ve seen in the last almost decade in that industry, you’re still under grass roots, reinvestment economics to justify going out and building a clean filled site. So to be looking at expansions into that industry. It’s probably just too early to tell. But our number one priority continues to be let’s focus on debt reduction. Let’s continue to drive cost out of the business. Let’s improve our margins and our product pricing. Let’s focus on the downstream value created products, and we have a technological advantage.

Do you believe additional consolidation is required in TIO2 in this juncture in the cycle?

I would greatly welcome the reduction of players in TIO2, and I think it would have a positive effect on the market.

Okay. Thank you for your comments.

Your next question comes from Bob [Amendo] with J.P. Morgan Asset Management.

Thank you. Good afternoon. That was one of my questions—TIO2—with respect to the debt reduction. The other two were pretty quick. One, do you have a cash reorg cost estimate for ’05?

We don’t have an ’05 restructuring charge that we’re providing to the market.

Well, just actual cash as opposed to non-cash charges you might be running through the income statement.

Sure. Give me a second, Bob, and we’ll come up with that.

And the other question, also, from a debt holder perspective. The warrants—questioning if you had the exact—at least in round lot numbers—of how many shares the warrants as a whole are going to get? And also, the timing—my recollection was there was—you will give notice to warrant holders about an exchange. Has that happened? I don’t recall seeing that yet.

Yes, that’s, Bob, 16.9 million shares will be issued in exchange for the warrants. That notice went out simultaneous with the pricing of the ITO. And we would expect that exchange to take place on March 14.

Okay. And would the 180 lock-up clock start on March 14? Or did it start when you gave the notice?

The 180 lock-up starts with the pricing of the [inaudible].

Okay.

Bob?

Yes.

A crude, as of 12/31/04, we have $153 million of sort of a crude liability relative to restructuring charges. We would expect $134 million to be paid out in cash in ’05. And another $19 million thereafter.

Okay. And then lastly, timing of the 10-K. Will that be right at the end of March or before that?

No, I think you’ll see that next week.

Okay. That’s all I had. Thanks.

The next question comes from Chip [Ruby] with [Kraemer].

My question’s been answered. It was on the TIO2 as well.

Your next question comes from David Choyer with [inaudible].

Hi, Kimo. I just want clarification. The 55.7 on foreign exchange that is in the corporate expense—the corporate items for the fourth quarter. Is that in addition to the transaction gain for Advanced Materials?

Yes. We had noted where transaction gains are allocated to the businesses that are significant, and we’ve noted that in Advanced Materials in the press release. And then we had said it on this call that we had another roughly $15 million over and above last year’s fourth quarter of effects gain. 55.7.

And then in the press release you say the fourth quarter in Advanced Materials is 30.9 higher than the fourth quarter of a year ago? Looking through my notes from a year ago I had that number as 8.9. Sounds right? So I add those two together?

Yes.

All right. That’s all I had. Thank you.

Operator, we’ve gone over an hour here, so how about another couple of questions.

Your next question comes from Andrew Shirley with Ivory Capital.

Hi. On the 80 million CapEx for the UK plant in 2005. Can you comment on how much CapEx is remaining to complete that? And what sort of mid-cycle EBITDA contribution you expect?

The low-density plant is about a $300 million construction when you net out roughly $30 million government grant that we will receive. So call it 330 gross, 300 net. As we said, 80 million in ’05, and most of it will come in ’06 in terms of capital. When you look at ethylene, sort of opportunity costs, meaning if we don’t build this plant and we have to export ethylene cryogenically to the continent, we believe that a conservative number for EBITDA in this business mid-cycle would be $100 million of EBITDA.

100 million on 300 million investment?

Yes. That’s why we have—while this is not consistent with our stated objectives to budget our capital and focus on our differentiated businesses—polyurethanes, epoxies and Performance Products—this is such an incredible sort of opportunity given the position we are in exporting ethylene, which sort of economically means we lose roughly 30% of our margin when we export that. We’re going to capture that as we start to consume it in our polyethylene plant next door. And that’s why it is such a great return for us. That 100 million is really under a sluggish market condition, and I like that number on the bottom, because a nice chunk of that number, we’re almost guaranteed that number, with the alternative of exporting cryogenically the ethylene. So we will end up with a top first core tile ethylene plant, which we have now, one of the lowest cost plants in Europe, and we will have the lowest cost polyethylene—low-density polyethylene plant in Europe right next door.

Okay, great. And can you comment at all, in total, what level of foreign exchange gains you might expect in the first quarter of 2005, and/or full-year 2005? Or give some directional commentary relative to Q4 and full-year 2004?

If I knew that, I’d make a ton of money and not be working at Huntsman. That is a view on the sterling, the euro and the swissy, largely those three currencies, and I have no idea where those are going. The guidance we gave in the first quarter, that it would be up relative to the fourth quarter adjusted EBITDA, was after having taken into account the fact that we have booked some significant effect losses already in the actual results for the first quarter. So we are still confident—feel good about the guidance that we’ve given you, not withstanding the euro falling relative to the dollar.

Okay, great. That’s helpful. Thanks a lot.

Operator, why don’t we take one more question?

Your last question comes from Manual [Acencio] with the [First] Billing Company.

Could you tell us the impact on EBITDA assuming no change in product prices or volumes in ’05 if the average selling price of oil is at $60, $65 and $70 a barrel?

Manual, I cannot, because I just don’t foresee that scenario happening. Not that I don’t see oil as possibly going to that height? But I haven’t run a doomsday scenario, because it’s unrealistic. I think that as tight as the markets are, as tight—every one of the products—whether it’s titanium dioxide, Base Chemicals, Polymers business-they’re operating at a 90% capacity utilization. I think we have tremendous pricing leverage, and if prices were to go up that high on crude oil, which on a historical basis—on an inflation adjusted basis historically—we’ve been there before. I think that we would be able to pass through prices, and I think that we would be able to continue to move forward. I just can’t speculate on something I just see as nearing an impossible scenario.

The only thing I’d add is that even in the worst of markets, in our commodity businesses, you pass through raw material volatility pretty quickly. So it’s sort of a difficult question. Also, a lot of our feedstock can come from crude or natural gas. And so there’s a lot of noise around trying to tie crude or natural gas directly to our feed stock.

If you look at the U.S. today, with high natural gas prices, where we are today, natural gas, as high as it is today, is trading a ratio to crude oil at around $35 to $40 per barrel. So our gas today in North Amercia, relative to its competitive basis to crude oil, is fairly—well, is very competitive. So I think that as you look at the flexibility, over two-thirds of our ethylene is produced by either ethane or NAPSA. We do have that flexibility to switch, and I think we’re well positioned to put crude prices if raw materials do go up, we’re well positioned to be able to take advantage of various raw materials late, and with global buyers of most all of our basic raw materials going to our facilities.

Could you give us some guidance as to what the impact on EBITDA would be assuming your pricing stays constant as the price of oil remains as it is today, $54 a barrel?

If the price oil remains $54 and our prices—our finished prices remain where they are?

Correct.

I think that would cause some pretty specific guidances to our first quarter, and I think we’d be uncomfortable with that. Also, again, we are seeing a number of our prices moving upward right now. Like our ethylene prices—a number of our products—are in the process right now of negotiating even higher prices. So it would be a tough thing to answer right now.

Are you concerned, or not concerned, that you’ll be able to deliver the EBITDA that you projected so far? If oil prices stay where they are today for the remainder of the year?

We feel good about the guidance we’ve given you, given where raw materials and our finished good prices are today.

If they stay—if oil prices stay where they are today, do you feel comfortable about your ’05 guidance?

We haven’t provided any ’05 guidance. We’ve given you the first quarter ’05 guidance, and we feel very good about that. We feel strongly, Manual, that we will be able to [inaudible] the raw material prices to the extent that we see them today, that we’ll be able to pass those increases onto our customers.

Okay. There were some discussions in the road show concerning full ’05. Let’s not argue whether there were or weren’t. Whatever those were. Canceling them out whether they existed or not, ’05 then you don’t feel would be adversely affected if—relative to whatever guidance you may have had.

Manual, I was on that road show, and we did not give guidance for ’05. Let me make that very, very clear. To anyone on the road show.

Wait, wait. There were charts showing cash flow going out five years, and the plan is to reduce—to deliver the Company where cash flow is coming on EBITDA in excess of interest costs, because capital expenditures are going to remain low.

Manual, I don’t know what road show slides you were looking at, but the ones this Company was using had no projections in it. What we did state very clearly was that it was our objective to pay off debt by $2 billion in the two to three years, and we provided you a view on what 1995 EBITDA would have been in our commodity business as well as into 2004, which shows a pro forma of about a billion 9. That was the view we had looking backwards as to a pro forma for 1995. There were no projections in the road show, nor did we speak of them.

Any projections that we had were given from the CMAI or from a consulting group that dealt specifically with capacity utilization or a product-by-product specifically. But we didn’t give any projections moving forward.

Let’s cancel the discussion on projections. What I’m looking here is trying to get some simple language that could help me understand the sensitivity of the EBITDA to the current conditions in the oil market.

Manual, again, where oil is today, where we see oil today, we feel that we—more than comfortable—that we have the ability to pass through prices, and that we will continue to do well as a Company, and we don’t see this as being an adverse issue to the Company. Operator, I think—

Thank you very much. I greatly appreciate your response.

You bet. Operator, I think that concludes our remarks and our time. Thank you very much.

This concludes today’s conference fourth quarter earnings release conference call. You may now disconnect.