Huntsman Corp (HUN) 2005 Q1 法說會逐字稿

Good morning. My name is Jamie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Huntsman First Quarter Earnings Release Conference Call. (Operator instructions) Thank you. Mr. Heskett, you may begin your conference.

Thank you, operator, and good morning. My name is John Heskett, and I am the Vice President of Corporate Development and Investor Relations for Huntsman Corporation and its principal operating subsidiaries, Huntsman International, Huntsman LLC and Huntsman Advanced Materials.

Welcome to Huntsman’s investor conference call for the first quarter of 2005. Joining us today are Peter Huntsman, our President and CEO; Kimo Esplin, our Executive Vice President and CFO; and Shawn Douglas, our Vice President and Treasurer.

As a reminder, a recorded playback of this call will be available until midnight, May 11th 2005. 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 5769647.

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. Such statements are predictions or expectations and are subject to a number of risks 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/demand balance for our products and that of competing products, pricing pressures, technological developments, changes in government regulations, geopolitical risks, and other risk factors.

With respect to Huntsman Corporation, Huntsman LLC, Huntsman International and Huntsman Advanced Materials, please refer to our most recently filed forms 10-Q and forms S-1 and S-4 for a more complete discussion of the risk factors applicable to our businesses and Companies.

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 adjusted to exclude the impact of restructuring and plant closing costs, loss on the sale of accounts receivable, net gains and losses arising from the early extinguishment of debt, and non-reoccurring legal and contract settlements.

In the first quarter of 2005, we recorded a net total of $246.6m of such costs and expenses in the first quarter. In the first quarter of 2004, we recorded $15.9m 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 our respective operations, and we’ve received feedback from many of you in the investment community as you take a further look at our business. A reconciliation of both EBITDA and adjusted EBITDA to net income can be found in our first quarter earnings release which has been posted to our website.

Today, Huntsman Corporation and subsidiaries announced first quarter earnings as follows: Huntsman recorded adjusted EBITDA of $487.8m, as compared to adjusted EBITDA of $223.7m in the first quarter of 2004. This represents a 118 percent increase in adjusted EBITDA over the first quarter of 2004. First quarter adjusted EBITDA was also 21 percent higher relative to fourth quarter of 2004 results when adjusted EBITDA was $401.5m.

Net loss available to common stockholders for the first quarter of 2005 was $99.5m, or $0.45 per share. This compares to a net loss to common stockholders for the first quarter of 2004 of $106.7m, or $0.48 per share. Now let me remind you that at our last conference call and in our 10-K, we indicated that the first quarter would include approximately $235m in non-recurring, full retirement of debt charges associated with the application of our IPO process. Also we indicated on the call that we were going to run the entire $43m convertible preferred dividend through the financial statements.

So excluding the impact of the $233m in charges related to the early retirement of debt, $10.4m of restructuring and plant closing costs, and the one-time, $43.1m convertible preferred stock dividend which was declared in the quarter, net income was $184.9m or $0.80 per share on a diluted basis. This compares to $75.7m of adjusted net loss, or $0.30 per share for the comparable period in 2004.

Stronger sequential results at the parent company were driven by significant improvement at our Huntsman International and Huntsman LLC operating subsidiaries in the first quarter as compared to the fourth quarter of 2004. Adjusted EBITDA in Advanced Materials declined due to foreign exchange losses in the current quarter, as opposed to foreign exchange gains in the fourth quarter of last year.

Now I would like to briefly outline the performance of each of our six segments. Polyurethanes recorded adjusted EBITDA of $187.6m for the first quarter of 2005. Adjusted EBITDA increased by $90.2m as compared to the fourth quarter of last year and $110.1m higher than the first quarter of 2004. We continue to see very strong demand in pricing for MDI globally, in addition our PO business benefited from higher pricing from propylene oxide and stronger co-product and TBE margins.

Advanced Materials recorded adjusted EBITDA of $33m for the first quarter of 2005. This was down from $74.1m in the fourth quarter of 2004 and $35.3m in the first quarter of 2004. In Advanced Materials, we continue to realize the benefits from our ongoing business restructuring activities, and marked improvement has been noted by our concerted efforts to raise prices for our product.

On a sequential basis, results at Advanced Materials were also impacted by foreign exchange losses which were $12.9m in the first quarter as compared to foreign exchange gains of $38.9m in the fourth quarter of last year and $2.7m in gains in the first quarter of 2004.

Performance Products recorded adjusted EBITDA of $67.9m in the first quarter of 2005 as compared to adjusted EBITDA of $35.4m in the first quarter of 2004 and $64.4m in the fourth quarter of last year. We’ve experienced improved pricing in all of our major product lines as compared to a year ago, and sequentially stronger margins in almost all of our products with the exception of glycols, which declined from fourth quarter levels.

Pigments recorded adjusted EBITDA of $42.2m in the first quarter of 2005 as compared to $11.6m in the first quarter of 2004, an increase of 19 percent and an increase of 19 percent as compared to the fourth quarter last year. Wholesale volumes in the first quarter were lower than in the fourth quarter and a year ago, in part due to our recent restructuring activities; selling prices and margins were higher.

Polymers recorded adjusted EBITDA of $46.8m in the first quarter of 2005, an increase of $24.9m as compared to the first quarter of last year and an increase of $8.8m as compared to the fourth quarter. While sale volumes were lower, average selling prices and margins were higher.

Base Chemicals recorded adjusted EBITDA of $164.3m in the first quarter of 2005, an increase of $85.3m as compared to the fourth quarter and an increase of $111m as compared to the comparable period a year ago. Results in our European aromatics businesses continue to be very strong and the U.S. operations also improved.

Finally, before turning the call over to Kimo I would like to briefly review our outstanding common shares that were used for the basis of calculating our EPS and adjusted EPS in the first quarter of 2005 and 2004. Following the IPO and the conversion of the HMP warrants which took place during the quarter, total issued and outstanding shares were approximately 221.2m. This includes approximately $750,000 restricted shares that have been issued to management pursuant to long-term incentive compensation.

On a diluted basis, our mandatory convertible preferred stock is convertible to approximately 10.8m additional common shares. This results in 232m diluted shares outstanding. With that, I would like turn things over to Kimo Esplin, our CFO for his comments on our financial highlights.

Thanks, John. We are pleased with the results for our first quarter as a public company, with adjusted EBITDA up 21 percent over the fourth quarter and nearly double the levels achieved in the first quarter of last year, we are clearly seeing a dramatic rebound in the profitability of our business in the last 12 months. While we continue to see strong cyclical improvement in the profitability of our commodity businesses, we are really encouraged by the EBITDA generated by our differentiated businesses which include polyurethanes, Advanced Materials and Performance Products segments.

Excluding the impact of foreign exchange at Advanced Materials, adjusted EBITDA at our differentiated segments grew by approximately $100m to over $300m during the quarter, and comprised more than 50 percent of our total. As we have described to you in the past, this collection of businesses formed the core of our portfolio and will be the focus of our strategy going forward. It is where we will see growth and where we will look to invest most of our discretionary capital.

Now for a few comments on the financials. As everyone is aware, during the quarter we completed an initial public offering of common and preferred stock. The offering did impact the first quarter financials in a couple of areas. First, the net proceeds to the Company from the IPO were approximately $1.5b, substantially all of this was used to repay debt, including the 15 percent HMP notes, the 13 3/8 Huntsman International Holdings discount notes and a portion of the 11 5/8 Huntsman LLC senior secured notes, and 11.5 percent Huntsman LLC senior unsecured notes.

As a result of call premiums, the write-off of capitalized financing costs and the unamortized discount related to these bond redemptions, we incurred approximately $233m in one-time non-recurring expenses related to the early extinguishment of this debt during the first quarter of 2005. This had the impact of reducing net income by $233m, or $1 a share.

In the first quarter of 2004, we incurred $1.9m of similar charges. As the bulk of the IPO proceeds were not applied until late February and March, interest expense in the first quarter was higher than what you are likely to see going forward, and beginning in the second quarter of 2005. Going forward, we expect that our quarterly interest expense will be reduced to just over $105m, given current LIBOR rates and our existing debt levels. So on an adjusted basis, assuming that all of the IPO proceeds were applied on January 1st, net income would have been approximately $25m higher or $0.10 to $0.11 a share in the first quarter.

At the IPO, we also issued 5.75m shares of convertible preferred stock. This stock carries a 5 percent annual cash coupon. In connection with the issuance of the preferred stock, we declared and prefunded the aggregate dividend to be paid over the three-year life of the preferred, which is approximately $43.1m. As a result, at the time of the IPO we declared a one-time dividend payment in this amount which is reflected in our first quarter income financials. This had the effect of reducing our net income available to our common shareholders by approximately $0.19 per share.

One final financing matter to note. On March 25th we made a $75m voluntary prepayment to Huntsman International’s bank term loan. As we have mentioned in the past, our primary financial objective over the next several years is to further deleverage our balance sheet. You can expect that we will, from time to time, use free cash flow to repay our bank debt and retire bonds. To this end, we would expect to call approximately 50 percent [inaudible] of our Advanced Materials senior secured floating rate notes when these become callable on July 15th of this year.

Moving to liquidity, our total cash and unused borrowing capacity, including existing discretionary overdraft lines at various operating companies was approximately $1b at March 31 2005 which was roughly in line with levels at the year end.

Now I would like to take a minute to discuss our restructuring charges. Compared with last year, and in fourth quarter the magnitude of restructuring charges declined as most of our activities are behind us. Total charges in the quarter were $10.4m, substantially all of which will be payable in cash. These charges are primarily related to previously announced restructuring activities. Also during the quarter, we made cash restructuring payments of $30.8m and the restructuring accrual now stands at $128.8m. We believe that additional cash charges related to previously announced restructuring activities will be approximately $10m in the second quarter.

Capital expenditures for the first quarter of 2005 were approximately $59.8m as compared to $55.8m for the comparable period of 2004. We are comfortable with our previous guidance and still expect to spend approximately $400m in 2005. This is expected to include approximately $80m for the construction of our U.K. low density polyethylene plant.

In addition to the $400m, our consolidated Chinese polyurethane joint venture would expect to have capital expenditures of $51m, of which we will fund $8m with our JV partners and local borrowing making up the difference. In addition, we would expect to invest approximately $14m in the unconsolidated portion of our Chinese NDR joint venture.

With regard to working capital, at quarter end total working capital was approximately $1.5b which was approximately $135m higher than the end of the year. The primary reason for the increase was lower accrued liabilities related to interest expense, property taxes and restructuring reserves. The increase that the lower accrued liabilities relating to interest expense and property taxes are typical for our first quarter.

Let me remind everyone of the 2005 tax guidance we gave on our last call. We have over $3b in our [inaudible] and other valuation allowances, half of which are in the U.S. These valuation allowances have the effect of lowering our effective tax rate to the range of 15-20 percent for 2005. Adjusting out the impact of the $233m charge on the early retirement of debt for the first quarter, our effective tax rate was just a bit over 15 percent.

Finally, a few thoughts on the second quarter directional guidance. We would expect adjusted EBITDA for the second quarter of 2005 to be slightly down relative to levels achieved in the first quarter of 2005. We expect to see strong performance in our polyurethane businesses, which will be aided by seasonality.

We did have our two MDI units in [Rosenberg], Netherlands down for a planned maintenance overhaul in the second quarter, which due to unforeseen problems with the supplier of the site, will likely result in one week’s worth of additional lost production on this line.

In Performance Products, due to sluggish Asian demand, glycol margins are falling, but lower ethylene and propylene prices should allow us to recover some of this lost margin in other ethylene oxide derivative businesses. Base Chemicals and polymers had a great first quarter, which will be hard to match given the current softness in a couple of product lines. Pigments will be seasonally stronger, but to what degree will be dependent on the final outcome of the critical paint season, largely in Europe. With that, I would like to turn things over to Peter Huntsman, our President and CEO for a few remarks regarding the operations in the first quarter.

Thank you, Kimo. I have just been very pleased with our first quarter results, which represent our seventh consecutive quarter of improved revenues and adjusted EBITDA. We continue to see very strong results in our differentiated segments as demand continues to strengthen and price increases have been successfully implemented which have resulted in margin expansion.

Base Chemicals and polymers, our performance in the first quarter reflect the price increases that were implemented late last year, and were achieved despite continued high and volatile raw material costs, and a softening of demand in certain products.

In Pigments, although our volumes were lower than in the fourth quarter and a year ago, partially due to our restructuring activities, average selling prices were higher and our costs were lower. A combination of higher prices for our product and lower costs allowed us to improve our first quarter margins.

As an industry, we continue to suffer through some of the most volatile and highest raw material prices we have ever experienced. During the first quarter, crude oil averaged $49.70 a barrel, but peaked at over $58.87 per barrel. Natural gas averaged $5.82 per MMBTU and spiked at over $7.80 per MMBTU and benzene, the raw material for our petrochemicals, polymers, LAB and polyurethane averaged $3.17 a gallon, but spiked to over $4 per gallon. These price increases represent increases up to 50 percent or more compared with levels in the first quarter of 2004.

Looking at results sequentially, our adjusted EBITDA was up over 21 percent relative to the fourth quarter, which shows just how strong operating conditions have been when you consider that most of our raw material increased quarter on quarter. Since the end of the quarter we have seen raw materials for the business, crude dropping to less than $50 a barrel, natural gas to about $6.50 per MMBTU and benzene falling to about $3 per gallon.

Our results across the board have also improved as we have successfully followed through on our commitment to reduce our costs as measured on a constant currency basis. This cost reduction effort, which we refer to as Project Coronado has a goal of lowering our fixed costs as measured against 2002 costs on a fixed currency basis by $200m. 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 $100m. The $200m target represents roughly a 10 percent reduction in our fixed cost of approximately $2b in 2002.

Through the first quarter, we have reduced over 1,700 positions and have achieved over two-thirds of the costs needed to reach our objective. As we sit today, we are highly confident that we will meet or exceed or $200m target by the end of this year.

Moving on to operations, I would like to take a few minutes and go through each of the six operating business groups that make up our Company. These include our Base Chemicals, Polymers, TI02, Performance Products, Advanced Materials, Polyurethanes.

Our Base Chemical segment includes our ethylene, propylene, butadiene, benzene paraxylene, cyclohexane, and other aromatics, MTBE and other base chemical byproducts where we continue to see very strong results in Europe, where market conditions continue stronger than North America. Our European ethylene facility and aromatics unit were running at near full capacity following our planned maintenance overhaul and inspection in the fourth quarter.

In North America, results also improved dramatically from the fourth quarter’s margins, were higher. As has been the case for the past year, conditions are still positive in Europe. To give you a sense, according to CMAI, effective ethylene operating rates in Western Europe in the first quarter were about 99 percent while in the U.S. they were in the neighborhood of about 95 percent of capacity utilization. This again, according to CMAI, translated into ethylene cash margins in the first quarter of 25.5 cents per pound in Western Europe, and 18.2 cents per pound in the U.S. This is certainly reflected in our profitability of the total Base Chemicals adjusted EBITDA of $164.3m. In the first quarter, roughly two-thirds is related to our U.K. operations and the balance was in the U.S.

Our Polymers business, which includes our polypropylene, APAL, polyethylene and expandable polystyrene had an adjusted EBITDA for the first quarter of $46.8m which is more than double the fourth quarter of 2004. On a sequential basis, adjusted EBITDA was up by 23 percent. As a result of increases pushed through in the fourth quarter, prices and margins are up nicely, certainly as compared to first quarter of last year but also relative to the fourth quarter. Volumes were a bit soft, but keep in mind that this was relative to a very strong fourth quarter.

We also experienced some minor operating problems at our Mayfield, Michigan polypropylene facility and our Augusta, Texas units. These appear to be behind us now. Polyethylene is a product which has certainly been at the center of quite a bit of discussion in the investment community lately. Let me give you a reminder about the scope of our business. We have capacity to produce approximately 440m pounds of high pressure, low density polyethylene and 270m pounds of linear, low density polyethylene both being produced at our Augusta, Texas facility. This represents less than one-third of our total Polymers production capacity.

In the first quarter, EBITDA from polyethylene comprised less than 50 percent of the Polymers segment adjusted EBITDA and less than 5 percent of total Huntsman adjusted EBITDA. It is just not a significant part of our business, certainly when compared to the likes of Dow Chemical with 10b pounds of capacity, Lyondell with something like 6b pounds, and Nova with about 3b pounds of polyethylene capacity.

Our Pigments business includes our Ti02 and related products. This division had adjusted EBITDA that increased by $30.6m or more than 3X the results achieved in the 2004 period, and improved by 19 percent as compared to the fourth quarter. Although volumes declined by 9 percent in the first quarter as compared to the same period a year ago, average selling prices were up 12 percent as compared to last year and almost 5 percent as compared to the fourth quarter.

As you know, 2004 was very much a transition year for Ti02 profitability. We estimate that global consumption grew by approximately 7 percent which was well above long-term trend rates. This resulted in higher capacity utilization rates and lower stock levels as all major producers successfully implement a series of price increases in the second half of 2004. This has obviously resulted in solid margin expansion in the first quarter as compared to a year ago and the fourth quarter.

All major producers announced additional price increases in the January/February period of $100-150 per metric ton in all regions and have now followed up with similar increases in April. As of today, our ability to further increase selling price will largely be a function of demand. We are in the midst of the beginning stages of a critical paint season, and we have recently seen some softness, particularly in Europe. In European coatings customer base and in the Asian Pacific region. The Americas continues to remain strong. Keep in mind, however, that over 50 percent of our business is in Europe, so this points to be a profit driver for us. Of course, second quarter also tends to be a seasonally stronger quarter for us which we should benefit from.

Our Performance Products segment, which includes our Sulfosuccinates, LLDPE, our [inaudible] businesses, Maleic anhydride and [inaudible] activities add an adjusted EBITDA increase of $32.5m or about 92 percent relative to the first quarter of 2004. Results also increased over the fourth quarter results, with the exception of ethylene glycol, which had an extremely strong fourth quarter. We were able to increase prices across all of our major product groupings in the fourth quarter as compared to the [fourth quarter], particularly in some of our core product lines such as Maleic anhydride and our [inaudible] product lines.

Demand for these products continue to grow and unfortunately, as they are limited to available manufacturing capacity, we have recently announced a couple of expansion projects, including 100m pound increase to our Maleic capacity and a 70m pound increase to our ethanolamine plant. Both of these projects represents attractive returns and will allow us to grow over the next several years as customer demand for these products are growing in excess of GDP.

We are seriously evaluating several other similar type projects in this segment as we remain committed to growing our core product lines here. Our surfactants and LLDPE businesses continue to face a challenging business environment, particularly in Europe. We continue to exit low margin businesses and have had recent success in pushing through price increases in both of these product lines. As we have indicated in previous calls, one of the features of our Performance Product business is that as ethylene markets strengthen the cost of raw materials for certain of these products in these segments increase, due to a number of variables related to these more specialty markets. Price increases do not happen as often or as quickly as in our Base Chemicals business.

However, due to falling ethylene prices, we should see some margin expansion in these products as the prices do not fall as quickly at Base Chemicals. As Kimo mentioned earlier, we are taking costs out of these businesses with a reduction of close to 400 positions in Europe and North America that will bring about the closure of our Guelph, Canada and Austin, Texas sites and the significant downsizing of our U.K. facility.

Our vast materials segment, which includes our poxyresins and composites and coating applications have an adjusted EBITDA for the first quarter of $33m which was down slightly as compared to the 2004 period and down from $74.1m in the fourth quarter. However, you need to keep in mind that there was some volatility due to currency rates. Foreign exchange gains were $38.9m in the fourth quarter and $2.7m in the first quarter of last year. In the first quarter of this year, foreign exchange losses were $12.9m. If you normalize the EBITDA to exclude this foreign exchange impact, EBITDA was up 30 percent for the fourth quarter and 41 percent compared to a year ago.

We continue to see very solid improvements in gross margins which were up nearly 2 percent from 23 percent in the fourth quarter of 2004 to 25 percent in the first quarter of 2005. This margin improvement is a reflection of not only higher average selling prices but also of improved product mix as we continue to reduce sales volumes of certain of our epoxy and electro laminating products in favor of increased volumes in certain of our more value-added product lines in areas such as aerial space, wind power applications and electrical transmission. This portfolio has and will continue to be a big value driver for us.

The restructuring program we embarked on almost two years ago with this business has continued to drive improvements in our profitability. Since June 30, 2003 we have reduced our head count by 468 positions. At year end, we concluded the closure of our Australia facility and have consolidate these operations into other existing Huntsman operations.

During the first quarter we closed our Taiwan laminating resins facility, resulting in a reduction of 65 positions, and have made significant progress in our other major initiatives which involve the consolidation and realignment of our sales and technical functions.

Our Polyurethane segment, which includes our MDI, propylene oxide, poly, TBU, TBI and propylene oxide byproduct, MTBD, anolene and nitro benzene had an adjusted EBITDA for the first quarter of $187.6m which represents a 142 percent increase relative to the first quarter of 2004 and a 93 percent increase over the fourth quarter. MDI volumes sequentially were up 8 percent as we achieved record operating rates in our two facilities which operated at 100 percent of designed capacity. We continue to see very strong demand for MDI in all regions of the world, particularly in insulation, composite wood products and the adhesives end market where substitution of traditional materials and an increasingly energy conscious economy is driving consumption. We also continue to see very strong demand in China. In fact, first quarter EBITDA in that region was more than 3X the level achieved last year.

During the first quarter, we operated our MDI facilities at fully designed rates. It is our belief that our peers did as well, which has obviously resulted in a significant shift in pricing power to the producers. MDI average selling prices were up approximately 45 percent vs. the first quarter of last year and over 14 percent relative to the fourth quarter. This has allowed us to more than offset increases in raw materials, including benzene. We estimated that the global demand for MDI grew by approximately 11 percent last year, well above the long-term trend line of 7-8 percent per annum. For the remainder of 2005, demand shows no signs of slowing from this pace, with the industry essentially sold out.

One of the challenges here this year would be producing more product to meet this growing demand. To this end we’ve announced the expansions of both our Geyser, Louisiana, and Netherlands facilities. These expansions will add 130m pounds of capacity to Geyser, 220m pounds in the Netherlands over the next two years. These products will come onto the market as demand dictates. Together with our [Kashing] China plant due online in late 2006, we believe we are well-positioned to grow what we believe to be our most attractive business.

As Kimo mentioned, our second quarter results would be impacted by planned maintenance overhaul activities at our Rosenberg, Netherlands MDI facility. We have two units at this site. The smaller of these two units was down for three weeks and came back up this past weekend. The larger unit is scheduled to come up mid-next week, and this will be dependent on one of our key raw materials suppliers finishing maintenance work at their facility at the same site. All together, we probably lost about a week’s more production than planned by some 10-13m pounds. Also, we are taking down two of our three units in Geyser, Louisiana for a couple of weeks. This should have very little impact on our P&L.

That being said, we have historically experienced seasonal improvements in MDI volumes heading into the second quarter and we still expect that to be the case. It just might not be as strong as we would have hoped due to production constraints. Certainly we don’t plan to take these units down during such strong market conditions, but for H&S reasons. These units have been scheduled for some time.

Also, it just gives us the opportunity to implement the next phase of our expansions at these sites which will contribute to our planned, conditional 100m pounds of MDI production in 2005.

We continue to be very disappointed with our TDI business, operating at industry utilization rates, our TDI capacity represents less than 5 percent of our portfolio, and much smaller in scale of a position compared to other producers. Margins continue to be depressed as the market is over supplied. Growth rates are lower than MDI and raw material costs are higher. EBITDA was negative for the first quarter and we continue to evaluate all of our options for this business.

I also want to briefly touch on our propylene oxide business, which is the other major product line in our polyurethane segment. Clearly not as significant as MDI, but still a major contributor to the profitability of this section. In fact, of the $188m of adjusted EBITDA, only $25m is related to PO, propylene glycol and co-products MTBE. A very good quarter, as results from the first quarter were much stronger than both fourth quarter and a year ago. Propylene oxide prices have improved and MTBE feed factors are also higher.

In summary, we are pleased with the results from the first quarter. Our results were much stronger than in the comparable period last year and show continued sequential improvements from the results achieved in the fourth quarter of last year. We will continue to be concerned of the impact of high oil and energy costs and the effect this may have on the overall economy, potentially our ability to further expand margins.

We are seeing signs of oil and gas prices that may be coming off their highs from the first quarter, so this may be an opportunity to increase margin. We continue to push through price increases in product lines where market conditions dictate, and continue to focus on the things we can control. Our priority remains to operate all of our facilities in a safe manner, and current operating safety rates are a third of the industry average. We shall also give high priority to our continued improvements in our environment of shipping performance, regardless of energy price volatility, we need to reduce and will continue to reduce energy consumption and consolidate our purchasing power across the Company.

Today we are 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 are able to put more resources and attention on creating better product development and customer service. We are successfully lowering our costs while at the same time improving our portfolio of products and services to the market.

Finally, as I am sure many of you are aware, four new independent directors joined our boards during the quarter. They are Al Shoemaker, former chairman of the board of First Boston; Wayne Reau, the founding partner of the law firm Reau, Morgan and Quinn. Nolan Archibald, president and CEO of Black and Decker Corporation; and Bill Lichtenberger, the former chairman and CEO of Praxair, Inc. and former chief operating officer of Union Carbide.

Each of these individuals is a proven, experienced leader in his respective area. We just concluded our first board meeting and I can assure you that each of these individuals is intensely focused on value creation for our shareholders. With the addition of these four individuals, independent directors now comprise a majority of our board and each of our audit, compensation and nominating and corporate governance committees are comprised solely of independent directors.

With that, I would like to turn the discussion back to John Heskett, our Vice President of Corporate Development and Investor Relations.

Thank you, Peter. Operator, I think we are now ready to open the call up for questions.

(Operator instructions) Michael Judd; Greenwich Consultants.

Congratulations on a great quarter.

Thanks, Michael.

In the polyurethanes area, with the volumes only up 1 percent, it sounds to me like that was more of an issue of basically running out of MDI capacity than anything else, right?

Absolutely.

Okay, and then I have a couple of other questions. Hang on a second here. Okay, operating expenses, if you look at the numbers that you guys put out for the fourth quarter it looks like there was a big increase. It looks like operating expenses were $116m in the fourth quarter and $231m in the first quarter. Are those not apples-to-apples comparisons?

Michael, I think what you need to do to get a better picture of the sequential trends in those numbers is to exclude the unallocated foreign exchange gains and losses in the respective periods. I think if you do that you will see things are pretty consistent.

And do you have a sense of what - since we don’t have your balance sheet, what the inventory change was sequentially?

Michael, working capital, at least in terms of receivables inventory and payables was fairly flat. Accrued liabilities decreased significantly, which is sort of what typically happens in the first quarter due to property taxes, interest payments, a big chunk of bond interest is due in the first quarter, and of course the accrual comes down. Then we had our restructuring accruals were reduced by, we said $30m of cash payments in the quarter.

Okay, and lastly, I think during the last quarter’s conference call you talked about the second quarter being seasonally stronger than the first quarter in general, overall for your businesses. Can you just flush that out a little bit more please?

Sure. We have the polyurethanes business that has a fixed construction component, pieces of wood binders and so forth. Also the Ti02 business that is coatings intensive, and the Northern Hemisphere paint season, as Peter had talked about. Also there is the factor in terms of the driving season of MTBE. So second and third quarters typically are our stronger quarters.

Typically means products, you know personal care products, soaps and detergents, but I am not sure if people wash any more in the second quarter than they do in the fourth quarter, so that may depend on what state you live in.

If you look at some of the other products, they are all pretty consistent and non-seasonal, and polymer products, typically you see a little bit better demand in the second quarter, though with China purchasing less than they were in the first quarter I think, on a global basis from global suppliers, I think that you might see not a pick-up in the second quarter of demand.

Perfect. Keep up the good work.

Thanks, Michael.

Your next question comes from Patrick [Schneider] of [Oxigan].

Hello?

Hi, Patrick.

I was interested in your [VAN] business in terms of consolidation in that sector, are you seeing any movements in terms of customers because of some of those activities? That is one question. Then the second question is, would you anticipate issuing bonds at a lower coupon and taking out some of your higher coupon bonds, or do you think you will pay down debt sort of - mainly from free cash flows, if you could expand a bit further on that question.

Let me talk about what we are seeing in terms of market demand. To answer your question quite simply, we are not seeing a real shake up with customers, and so forth. When we took over this business a year-and-a-half ago, I think most of our customers, our biggest concern wasn’t necessarily what was happening in the rest of the market, it was just trying to keep our own customers, given the financial state of [VAN] because when we purchased the business there was a lot of skittishness among our customers.

I think we have been very active and quite successful with making sure that we keep those customers and that we also, at the same time, were able to increase our customers. So I don’t see really any impact of the moves that are taking place in some of our competitors with consolidation.

To your question on our plans for accessing the bond market, we believe we are going to be generating a bunch of free cash flow to pay down debt. Of course, we believe that there is a long-term, permanent chunk of our capital structure that we will, from time to time, go out and issue bonds to refinance at attractive prices, but that is the only comment we will make. We are hoping to use free cash flow to pay off bank debt and to call bonds as they become available.

Thanks.

Don Carson, Merrill Lynch.

Yes, thank you. Two questions. One, can you quantify the construction impact or the outage impact on polyurethanes in the second quarter? And then secondly, Kimo, on the FX volatility, I thought you were taking action to convert some of your short-term inter-company loans to longer term, which would run the FX effect through the balance sheet. Has that been done and do you plan on doing more of that?

Yes, Don, let me take the FX first. Let me just quantify sort of what the FX impact is. We mentioned that Advanced Materials experienced a $12.9m currency loss in the quarter and the unallocated portion was a loss of $14.6m. That compares with last year’s first quarter where Advanced Materials had a $2.7m gain on the unallocated portion of that FX was a $13.5m gain. So again, in summary, if you add them together, foreign currency loss in the first quarter was $27.5m. The gain in the comparable period in ’04 was $16.2m.

Now we de-designated, I think is the right GAAP term, I am not sure if that is in the dictionary, but we’ve de-designated about $275m worth of euro-denominated debt as a net investment hedge, and we did that in March, Don. So right at the very end of the quarter. The result of that de-designation, just for the month of March, had an impact of having $7.4m less of FX losses in the current quarter. So obviously if we had had it in place for the full quarter, it would have been significantly higher than that.

Also in April, we de-designated an additional 97m euros of debt for the same purpose. So we believe that by de-designating this euro-denominated debt and some other activities, we have more evenly hedged our foreign exchange transaction exposure and have really reduced the volatility of our FX transaction gains. Now it wasn’t really shown much in the quarter but we think going forward we think you are going to see a lot less volatility there.

So in total, how much of your debt, to use your term, do you need designated?

Well it was the 275 and the 97 so -

Right. So how much is left on the inter-company basis?

Well it is a little bit more complex than that. Suffice it to say that we believe that we have reduced the - we have more evenly matched, let’s say, our inter-company debt relative to our third-party euro denominated debt by virtue of these de-designations by about 60 percent.

Okay. If currencies were to stay where they are today, a big if obviously, but what would you expect the FX impact to be this full quarter, post these de-designations?

I don’t have a number for you, I haven’t sort of even looked at the euro today. But it wouldn’t be a lot, I don’t believe. But Don, we will continue, as you would like us to, to help you see what it was in the quarter on these calls. So we will be upfront on what that gain and loss is.

Okay, and then polyurethane, the impact of those outages?

Well, right now, we probably are going to have to be de-designating 10-13m pounds of production from producing something to not producing. So we will be out 10-13m pounds of product greater than what we had planned and that probably should have an impact on the bottom line, same quarter, between $5-6m.

Thank you.

Don, I would also add, typically in this business second quarter compared to first quarter we would tend to see some seasonal improvements in volumes. You know, we still think that is the case this year, it is probably just less than we would have hoped.

All right. And then when do the expansions start to kick in?

That will be coming in during the third quarter. Again, these will be coming up gradually, an MDI facility is not something that, you know, like an olefins facility, we flick the switch and within a few days you are up to capacity. So it will be coming on gradually, and obviously we will be bringing these pounds into the market as the demand exists in the market.

Don, part of this turnaround work right now and the guidance mark, the end of the second quarter will be to allow for those expansions. We think we will probably have 100m pounds of additional production capacity for the year.

Thank you.

Thanks, Don.

Thank you. Your next question is from Christopher Miller of J.P. Morgan.

Good morning. I just want to follow up on a couple questions on the balance sheet in particular, starting from a broad perspective, following up on the earlier question. What are your thoughts for simplifying the capital structure over time, and what are your biggest constraints in doing that right now.

Simplification is a good thing, and certainly in our board meeting yesterday as we walked our independent directors through our legal and capital structure, they challenged us to simplify this thing, and we are. We are thinking an awful lot about how to, in the future, merge operating subsidiaries.

Now, we’ve mentioned in the past that some of the indentures aren’t real easy in doing that, particularly the secured bonds at Advanced Materials and Huntsman LLC and we are still working towards finding a way to merge operating companies at some point in time.

When you say some point in time, I mean, is there some general rule of thumb of how you are thinking about this right now?

When Sean can figure it out. That is the bottom line, really. I mean, we don’t have anything to announce today. It is certainly something we want to do.

Okay. And then a question that has come up, the Ti02 business obviously there are some Ti02 assets out on the market currently. Is that a business you have any interest at all in expanding in that you would look to any acquisitions there, or are you pretty content with your current asset makeup and the expansions you have going on right now?

We are not in the process of pursuing that particular acquisition, so that is all we can really comment on it.

Okay. And looking forward next year, you used $400m of capex this year, but how should we think about capex as we go to ’06, and if you have even a thought on ’07?

Yes, we think ’06 will be a little higher than ’05 as we complete the bulk of the capital for the polyethylene plant will be sitting in ’06.

Just a sense of magnitude? When you say a little bit higher, is it $50m, $100m?

It is probably going to be close to $500m.

Okay, great. Thanks so much, I appreciate it. Great quarter.

Thank you.

Thank you. Your next question comes from David Choyer, J.P. Morgan.

Hi, can you hear me?

Yes.

This is Jeffrey Zekauskas.

Hi, Jeff.

Just a few questions. The first is, can you talk about spot and contract pricing and MDI? And sort of the differences between them. And, was there anything unusual about the first quarter in terms of MDI profitability vis-à-vis industry dynamics?

Yes, I didn’t catch all of your second question. There is no spot market on MDI. Our MDI prices will range, you know, $1-2 a pound from a low to a high, depending on grades and so forth. They just literally scored the different grades since Wednesday. It really isn’t a difference between spot or contract price. Everything we sell is on a contract. What is the second part of your question?

So, just to clarify, so there was nothing unusual in terms of industry dynamics, in terms of MDI in the first quarter?

No.

Well other than the industry is sold out and there is a whole lot of leverage for pricing at the producer.

There certainly wasn’t a one-time event that took place in first quarter that we would see in second quarter, for instance.

And we would have expected, all of the MDI producers would enjoy the benefit of strong market conditions, as they do today.

And just very quickly, can you give us an idea of your quarterly corporate expense? It is just a little bit hard for us to forecast. And then finally, can you comment on the reason for the pre-funding of the preferred dividends?

Jeff, let me take your first question around the pre-funding of the dividends. Certainly that was part of the structure that we agreed at the time of the IPO with the underwriters for that particular issuance. So it wasn’t necessarily something that we had an option around. And I think, at least our sense was at the time we did that, that allowed us to kind of push the coupon down as low as we could and probably resulted in the significant demand that we saw for that particular instrument under the IPO.

As it relates to corporate line item, it runs between $100-115m a year. When you strip out FX gains and losses. So I think the key is, Jeff, is to strip out that FX gain and loss and you are going to see a fairly consistent corporate line item, I think.

So the corporate line item should be, order of magnitude, $35m a quarter, or $40m a quarter?

Something like that.

Okay, thank you very much.

Yes.

Thank you. Bill Young, CSFB.

Good morning. Excellent quarter. A question on when will the balance sheet be available, and do you have the current figure for shareholder’s equity?

Yes. The Q will be filed next Tuesday, is what we are planning on, and the shareholders equity, as of March 31 is $1.656b.

Great. Now, you were kind of hinting at, from inventory adjustment in the first quarter and certainly your lines, based on higher prices in the latter part of 2004. How does MDI stand with respect to that and what do you expect going on there? Do you think there could be an inventory adjustment in this area as well say in the next three to six months?

Actually, Bill, we are drawing down on inventories on MDI and I just - you know, again, aside from a production standpoint and from an inventory standpoint there.

How about the customers, though?

They don’t have much. They are all - when Peter gets called and senior management gets calls from our customers begging for product, you know there is just not a lot of inventory out there.

Well sometimes it sneaks up on you when you least expect it.

Well that is true, but I think in the case of MDI, a lot of this product doesn’t store very well, it doesn’t have a very long shelf life, if you will, and you know, I think customer inventories are something that we are tracking fairly closely and we feel that it is tied to the tight supply chain.

Okay, on inventories again, in the - well if ethylene derivatives, let’s take it from the point of view of merchant sales of ethylene, it looks like some derivatives are seeing built up inventories, whether it is glycol or some of the polymers or styrene or whatever. Where do you think we are on that correction, you know, because a lot of companies have some pretty tough volumes in the first quarter?

Well I think a lot of those products are sitting on a - what seems to be two months of inventory, and I tell you, styrene which is a product that we don’t produce - well we produce a little bit in Australia, ethylene glycol, polyethylene, it seems like about a two month pile of inventory, I think on most of these products and I think that the Chinese market is going to be a pretty big variable here going into the next couple of months.

In terms of direct exposure to Asia, Peter I think clearly spelled out we don’t have polyethylene exposure, we do have glycol exposure there and that is one of the things we mentioned; margins are falling in that business, until the Chinese pick up purchases again.

And just to remind the group, I am not sure we mentioned this in the call, we have about 500m pounds of glycol capacity that we are operating at this time, and that we have been operating for the last couple of quarters. Now we have greater capacity than that, but we have been picking ethylene oxide and putting it into other derivatives. And of that 500m pounds of glycol, about 15 percent of that is going to Asia. So you know, we’ve tried to stack as many customers as we can on the U.S. side of the ledger, if you will, for ethylene glycol.

But again, it is a global market, and obviously if you see Asia get to the floor it is going to have a rippling effect eventually to the U.S. customers.

And the Chinese, why do you think it is so sluggish over there? Is it just inventory swing, or is there more to it?

I have heard four or five theories and it seems like the longer this goes, the more complicated the theories get. I think though that it seems to be largely centered in the textile industry, so you are seeing the effects taking place on the ethylene glycol and on those related products. We are not seeing this sort of demand fall over in our epoxy products, where we have a facility in China. We are not seeing it in MVI. We are not seeing it in our [means] products. I am reading about it in polyethylene, we don’t sell anything in that market in polyethylene, but it seems like it is mostly centered around the textile industry.

Okay, great. Thanks very much.

Thank you, Bill.

Greg Goodknight; UBS.

Good morning, all.

Hi, Greg.

A couple of questions, this Rosenberg outage, you commented that the outage is going to be on the larger unit one week more than what it would have been. I want to get back to a base point. Would you quantify in terms of weeks of outage how long the small unit has been down and how long the larger unit is expected to be down?

The time on both units was between three to four weeks. So what we are saying is on the second unit, it is going to be down an additional week. At this point, we know at this time, again we are dependent upon one of our major raw materials suppliers to that site wrapping up their operations here in the next few days.

Okay, that’s what I thought the situation was. So the $5-6m is the incremental impact of the one week.

That’s right. And Greg, as we go into these turnarounds we typically use inventories and co producer arrangements to try to cover the planned outage. It is just the unplanned piece where you can get caught short.

I hear you. I hear you. Second question, I know the industry in general, and I believe you also have some raw material pass-through formulas for setting MDI price. Does - is there quarter to quarter variation that we could see, say for how benzene prices dropping, would we see some sort of offset in where you benchmark the benzene price?

I am not going to get into the complicated details that we have on a customer by customer basis as far as how they have set benzene and natural gas prices with their ultimate price, but obviously those contracts are designed to be able to lock in margins, so if you are seeing benzene prices fall, I think this is perhaps what you are getting to - if you see benzene prices fall, I don’t expect to see that would be affecting margins on those customers that have locked in that particular segment.

Obviously, for the majority of our accounts around the world, falling benzene prices would be a very positive sign for MDI.

Okay, so the formula is not an indicator of average price for the six months, it is more real time than that?

Yes, that’s right.

Did I hear you correctly in saying the corporate and other adjusted EBITDA, negative $54m, the run rate is closer to $30-35m?

I think what we said was when you strip out FX gains and losses on an annual basis, we will have sort of corporate and other charges of around $120m.

Right, okay. That is all I had. Thank you very much, gentlemen.

Thank you.

Clay Border; Seedwell.

Good morning.

Good morning.

Just a couple of quick questions, you mentioned on the EBITDA for the second and third quarters, typically stronger for seasonality. Did you also mentioned you would see EBITDA down next quarter vs. this first quarter of ’05?

We said that it could possibly be slightly down from the first quarter, and we know that Base Chemicals and Polymers is going to be a little softer and that Glycol and our Performance Products segment is going to be softer.

Okay. How much are you targeting for debt pay down this year?

We haven’t made that public, because obviously that is a function of profitability expectations that we haven’t given in terms of guidance.

Okay, and your ongoing interest expense, I think you mentioned it would be lower, about $100m. What would be the blended rate, and then your debt outstanding?

Sure. We said about $105m of interest per quarter, and our blended weighted average rate is about 8 percent. I am just reaching for the press release that shows our debt outstanding. Excuse me. Total debt, net of cash, is $4,640,000.

Great, thank you. And then on that capex number, I think you were breaking out what you thought would be growth and maintenance capex a little bit, on some of those facilities?

We didn’t do that in our prepared remarks, and I don’t have that right at my fingertips.

Okay. Is that something I could call you on and get later?

Yes. Let me think about it. I think generally what we said on an annual basis, maintenance capex is about $200m in our businesses, and we said $400m of capital pre-Chinese joint venture capital.

Just to repeat what we have said in other calls, obviously the top priority for our free cash flow will continue to be debt repayment.

Right. Okay. And then for Coronado, you would expect to start seeing the benefits of that in the fourth quarter?

I think we hope to, on an annualized basis, see the complete effect of Coronado, but bear in mind we are probably about 75 percent of the way there, up through first quarter. So we are seeing the majority in the numbers. Another way to say it is, if you annualized the first quarter, you would see roughly 75 percent of target on that cost reduction.

Okay, great. Okay, thank you.

Byron Lim of [inaudible].

Besides the debt pay down, is there any other anticipated uses for the free cash flow? It looks like it is going to be a fairly significant number coming up this year and next.

That is the number one financial objective of the Company is to use free cash flow to pay down debt. As we said, we have two plants that we are building, increasing our capital expenditures in ’05 and ’06 sort of higher than we normally would, but other than building those plants and debottlenecking some of these plants that we have announced that are in the $400m capital that we described, we want to pay down debt.

Okay great. Thank you.

Bob Amendo; J.P. Morgan.

Good morning.

Hello, Bob.

Hi. A couple of quick ones. Can you just do cash and just total debt by the three entities, basically?

Yes. Bob, give us a second. We will grab those 10-Q drafts that we have and get those numbers for you.

And then a couple of other things. This mainly relates to the page - I guess it is page 7 where you break down results by entities and primarily under LLC the extinguishment of debt charge. Is that in the non-operating expense or is that just a coincidence that that is about the same number as in up in cost of goods sold?

Bob, that is in that non-operating expense. That is the bulk of that number there.

Okay, and again related to LLC, you showed last year about $24m of adjusted EBITDA, but if I look back at last year’s Q1, that number was $64m and it seems like that difference is about what the difference is in other and eliminations. Is there any reason why? I am really calculating an LTM number, I am not sure this $24m, why that went from $64m last year to now it is $24m. Do you know what I am saying?

William Matthews; Canyon Capital.

Kimo, Peter, great quarter. If you look at the net debt reduction over the quarter, kind of $1.4b and if you took $1.5b proceeds less the $233 one-time charge you talked about, that is $1.267b. So the net difference is $151m. Is that what was free cash flow from operations used to pay down debt?

Hold one moment, please.

(Technical difficulties at 75 minute mark)

Hello?

Yes sir, this is the operator. Are you ready to resume the conference?

Yes we are.

Okay, your next question comes from William Matthews; Canyon Capital.

Before we take the next question, I think we were in the middle of a previous question and I want to apologize to our listeners. As part of our Coronado cost savings, I guess we’ve gone to a really cheap phone system here. We’ve lost all of the phone lines in our entire office and everything else. I am actually on a cell phone here, so let me give you over to Kimo Esplin who had an answer to the cash and the debt levels of our individual subsidiaries.

I think Bob asked the question about debt at the operating subsidiaries for the end of March. Huntsman LLC had debt of $1.605 and captured $28.3m. Huntsman International had debt of $2.939b and cash of $121.1m. Advanced Materials had debt of $349.2m and cash of $94.4m.

Operator, I think we will take another question if there is anyone still left on the line.

Yes sir. You do have a follow up question from Bob Amendo.

Thanks, Kimo. I was following up with one other question when we lost each other. The -

Bob, you are going to have to bear with us. We have one cell phone and we will pass it around, so we are going to answer the question -- I’ll take it, and if it is not then -

I think it would be for you.

Okay.

It relates to Huntsman LLC, on page 7 of this release where you talk about adjusted EBITDA really for last year, the $23.9m number. When I go back to the same press release for last year at this time, the Q104 for Huntsman LLC is $63.7m. I was just trying to figure out, what is the right number? I assume it is $23.9m but if I use $63.7m that gets me to last year’s full year number that you use of $289m for LLC. So I am just a little confused on the change, and you know, how -

Absolutely, and when you do consolidate it is a little tricky, because you remember, Huntsman LLC has, at least in ’04, had a 60 percent interest in Huntsman International. Look at the bottom of the ’04 table, Huntsman LLC includes a $39.8m of equity loss attributable to Huntsman International. I think when you strip out the minority or the equity interest Huntsman LLC had in International you will get to the right number.

Okay, and then just lastly, and it relates to the equity income of unconsolidated affiliates for Huntsman LLC for this year’s first quarter, the $34.9m did you actually get any cash? If I wanted to look at true cash EBITDA would I be excluding that?

Those unconsolidated equity in unconsolidated affiliates, it is both. We got cash and some of that is income.

Okay, so that would be in the Q, in the cash flow statement next week and all of that? The cash would be -

Yes, you will see that. We have manufacturing joint ventures that it is just pure cash flow, and then we have a couple of joint ventures, I am thinking of one particularly in Germany that has debt on it that we don’t get cash on, but we are paying off debt pretty quickly.

So you view the $185.2m for LLC for this year’s first quarter adjusted EBITDA as maybe not literally a cash number but as a pretty good proxy? As you report that line, if we just look to that line is that a good proxy of generally cash EBITDA number kind of on a general basis?

Absolutely. Huntsman LLC, we really don’t have many off-balance sheet unconsolidated businesses. I would feel particularly about Huntsman LLC that that is a good, solid number for cash.

All right, thanks a lot. That is all I had.

Thanks, Bob.

Your next question comes from William Matthews of Canyon Capital.

Hi Kimo, can you hear me?

Yes, Bill.

Great, this one is for you as well. Net debt looks like it went down over the quarter, $1.4b and if you take $1.5b IPO proceeds less the $233m call premiums and so forth, that kind of gives you $150m. Is that $150m debt from free cash flow to reduce operations? Because it seems like kind of a large number if you take cash EBITDA of $240m less interest expense of $140m - I am trying to -

I think what might be helpful, in our last release and I don’t have it in front of me, we provided a pro forma as of 12/31 giving effect to the IPO and it showed as of just the December 31 2004 net debt at $4,855,000. I think that is a good comparison to the release we are showing you now in terms of stripping out the IPO and seeing what sort of cash we used to pay down debt.

So $4,855,000 minus $4,630,000 is like $225m. So again, that seems like a pretty big number vs. cash EBITDA of $240m vs. interest expense of $140m, not even including capex. I am just wondering, where did the cash from delevering come from? Was it bringing out working capital, or?

I wasn’t following your numbers, but the EBITDA of $488m -

That is excluding a $233m which was an actual cash charge, right?

Well kind of. Remember, we use the IPO proceeds to take out the HMP debt and part of that HMP debt was booked at a discount so where we showed our sources and uses, we were funding all of the face amount of that HMP debt, including the discounted portion that was not on the balance sheet.

Okay, I got it. Okay, thank you.

Aaron [Wynman]; [Appaloosa] Management.

Hello. Quickly, I wanted to go back to the operating expense. I still wasn’t understanding what the total increase was to the $230.7m in Q1?

Right, and what we were saying was foreign exchange is the large variance there, where we booked relative to the fourth quarter, we had losses in the first quarter from the foreign exchange perspective and gains in the fourth quarter. If you strip those foreign exchange gains out, you will get to your appropriate number.

Were there any other additional factors affecting that?

Well of course there are costs associated with the IPO and so forth. Most of those were capitalized, but there are expenses in there as well. I don’t think there was anything other than that that is unusual on the corporate line item.

Can you give us an expectation of what we should expect on a run rate?

Yes, and I mentioned it just a minute ago. I think that corporate number is going to be right around $120m on an annual basis.

Okay.

Excuse me, that is before foreign exchange and we have mentioned that we have reduced the volatility in foreign exchange but it will still be a factor, I just don’t know which way it is going to go from here.

The $120m number, that is the operating expense?

That is the corporate expense.

The corporate expense, you mean within the adjusted EBITDA number?

Yes.

Do you have any run rate operating --

I’m sorry, on my cell phone you cut out. Could you say it one more time?

For the $230.7m for Q1, do you have a run rate for that?

We don’t. What was provided is generally what we think our corporate expense will be and we mentioned that there is an FX variable in there, but we haven’t given any sort of guidance around that operating expense line.

Okay. Another question regarding the Advanced Materials, I was wondering what the raw materials cost was for that group?

Which group was that?

The Advanced Materials?

We see raw materials as being pretty stable in that group. Bear in mind that no more than about 25 percent of our raw material expenditures are from any single source of raw material, so we are really dealing with scores of different raw material, incoming raw material costs and so forth. I think if anything, with the falling prices that we are seeing in crude and in natural gas on a global basis, it would probably be safe to assume the second quarter pretty flat.

Thank you very much.

Operator, next question.

PJ Juvekar; Smith Barney.

Good morning. A question for you, Peter. As your volumes decline 6 percent, I know [inaudible] is not a big business for you, but again that decline was larger than your competitor - same thing in Ti02, your volumes declined 9 percent which is again, larger than your competitor. I am just wondering if you are seeing softer volumes?

As we look at our Ti02 volumes, PJ, bear in mind that we took out about 12,000 metric tons of quarterly capacity. When you start comparing fourth quarter to first quarter and when you look at it from a year ago. So are we losing customers in Ti02? No, we are not. You know, in the area of polyethylene, the 6 percent loss in polyethylene, that again, I am not aware that we have lost a single customer there or that we are facing any unusual competitive situation there.

Okay, fair enough.

PJ, I should mention that we had some operating problems at Odessa which would include the polyethylene units.

Okay, okay. And then quickly on MDI, you had good results, you were expanding your plans but so are Dow, Byron, BSF. So when you look at all of these expansions and supply/demand globally, how do you see that playing out?

Well I see the product being tight at least for the next year or so. A lot of these products, again, is - I can’t speak for the competition as to how quickly this capacity comes into the market, but none of these facilities, or none of these expansions that you make reference to are dealing with new grassroots facilities. A lot of them are incremental expansions or debottleneck projects.

You know, I think if you were to say that the industry is going to continue to expand at 7-8 percent capacity, you know, I think for the remainder of this year going into next year it should remain very tight. As we start looking at the Chinese demand, assuming again that Chinese demand continues to grow at traditional rates, our facility in China upon completion and start up is full out in China. But let’s be realistic, a lot of that product that is going to China now, that means that it will come back to the States and it will come back to Europe and other markets. I feel confident in our ability to market those pounds in a responsible way.

I don’t see capacity utilization rates getting down below the high 90’s unless there is an overall economic slowdown.

I was just looking at some of our own internal numbers here. We think that will all of the announced capacity from Huntsman and its competitors, world capacity will grow right around 9 percent in ’05 which we think will be around the growth rate. And then again in ’06, pretty similar. So if you think you are above 100 percent utilization rates today, we believe ’05 and ’06 will continue that.

Okay. And one quick question for you, Kimo. You know, you had quite a few one-time charges with IPO and all of that in the first quarter, but at what point do you stop using adjusted EBITDA and then go to a regular EBITDA number?

Well, what we want to provide is transparency to you. So we are going to provide you a GAAP EBITDA and if we think there are unusual charges in the quarter, we will want to point them out to you. But we are not going to try to hide the ball in any way. Every quarter that there is something unusual we are going to point it out to you and we will probably adjust for it, along with the GAAP function.

No, I am not saying you are hiding something, I am just wondering in the whole process of simplification that you talked about -

Our goal was to get restructuring charges behind us prior to going public. And so we think pretty well we did that. As you saw, we had a little bit of restructuring in the first quarter and we will have a little bit in the second quarter. There may be some other issues that we will address like other companies that will be large items that we will talk to you about.

But for the most part, Coronado, defined as a $200m cost reduction relative to 2002 charges are behind us. As we do, we will have less reason to talk about adjustments in the quarter.

Okay, great. Thank you.

William Matthews; Canyon Capital.

Hi, I know Peter talked about benzene a little bit. If I could just rehash thoughts on benzene a little bit. It has come off pretty hard lately, and how big of an impact is that for your business and what is the time effect?

Well the time effect is usually if benzene were to fall, benzene is typically priced on a monthly basis both in Europe and in the U.S. It used to be on a quarterly basis in Europe and now it is on a monthly basis. That just changed here a few months ago. Typically when you look at the time that you have an inventory barge time, getting product into your plants and so forth. If benzene were to drop $0.50 this month we would really see the effect of that hitting our bottom line, possibly in four to six weeks.

And what is the competition between U.S. and European benzene sales for you guys?

Let’s see, in Europe we are pretty well balanced with benzene, we are out in Europe buying benzene on the open market. Probably to the tune of around 40m gallons, if that. In the U.S., we probably would be purchasing probably around 150m gallons of benzene in the spot. So we are obviously buyers of benzene so when we saw last month’s benzene prices fall $0.75-0.80 per gallon, for us that is a big deal.

Obviously we won’t see all the benefits of that come this month, that will be spread out as we run through the inventory.

Operator, we are running out of battery capacity on our cell phone, so we will take one more question.

Actually, sir, at this time there are no further questions.

Well that’s good. Well thank you everybody. I think that concludes our remarks and if we can help any of you, you can give us a call.

Please feel free to follow up, and we do apologize for the cut off here with the phone lines. If we can be of any service to you, please feel free to call us. Thank you.

This concludes today’s conference. You may now disconnect.