Huntsman Corp (HUN) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter, 2006 Huntsman Corporation earnings conference call. My name is Cheryl, and I I will be your facilitator for today. At this time all participants are in a listen-only mode. We will conduct a question and answer session toward the end of this conference. [OPERATOR INSTRUCTIONS]. As a reminder this conference is being recorded. I would now like to turn the presentation over to John Heskett, Vice President of Corporate Development and Investor Relations. Please proceed, Sir.

Thank you, operator. Good morning, everyone. My name is John Heskett, I am the Vice President of Corporate Development and Investor Relations for Huntsman. Welcome to Hunstmans' Investor call for the third quarter. Joining us on the call are Jon Huntsman, our Chairman and founder and Peter Huntsman, our President and CEO, and Kimo Esplin, our Executive Vice President and CFO. As a reminder, a recorded play back of this call will be avail until midnight November 3rd. The recorded playback may be accessed from the U.S. by dialing 1-888-286-8010. And from outside the U.S. by dialing 1-617-801-6888. The access code for both dial in numbers is 58090373. A recording of this call may also be accessed through our website.

Before we begin our discussion of earnings today, 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 considered to be predictions or expectations and are subject to a number of risks and uncertainties. Our actual results could differ materially based on 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 the processes, access to capital markets, Industry production capacity and operating rates, the supply demand balance for the products and that of competing products, pricing pressures, technological development, changes in government regulations and geo political events, and other risk factors. Please refer to our most recently filed Form 10-Q and 10-K for a more complete discussion of the risk factors applicable to the businesses and our company.

Turning to earnings, I would like to point out that as a summarize earnings I will referring to adjusted EBITDA which is adjusted EBITDA to exclude the impact of discontinued operations, restructuring impairment and plank closing costs, loss on the sale of accounts receivable, net gains and losses arising from the early extinguishment of debt. Gains and sale and acquisition of assets. In the third quarter of 2006, we recorded aggregate net losses of 147.4 million related to costs and expenses and in the third quarter of 2005 we recorded net losses of 116.4 million related to such costs and expense. We focus on adjust EBITDA, from a management standpoint as we believe it is the best measure of the underlined performance of the operations and 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 net income can be found in the third quarter earnings release which has been posted to our website.

Today, Huntsman Corporation announced third quarter earnings as follows. Huntsman reported adjusted EBITDA from continuing operations of 260 million, as compared to adjusted EBITDA from continued operations of 318.8 million in the third quarter of 2005. As you can see from the earnings release we are now classifying our UK based chemicals and polymer business, which we have recently agreed to sell to [inaudible], as a discontinued operation and have restated all relevant information to conform to this presentation. As such we have excluded not only the impairment and other charges related to the pending sale, but also the operating EBITDA associated with this business from our total adjusted EBITDA from continuing operations. The adjusted EBITDA from discontinued operations for the third quarter of 2006 was 43.5 million. Also, our results do not include the lost margin related to the port Author [inaudible] unit which is not operational. We estimate the EBITDA impact at approximately $66 million in the third quarter, all of which we want anticipate is subject to reimbursement by our insurers in future periods. So, the combined total of adjusted EBITDA from continuing operations and from discontinued operations from the third quarter was 303.5 million. If you normalize this for the outage at port Arthur you come up with 369.5 million for the quarter.

Net loss available to common stockholders for third quarter of 2006 was 83.3 million or $0.36 per diluted share. This compares to a net loss available to common stockholders for the third quarter of 2005, of 29.9 million or $0.14 per diluted share. Excluding the after tax impact related to restructuring impairment and plank closing costs. Losses on the disposal of assets, losses related to the early retirement of debt and extraordinary gains related to the CIBA textile business, the impact of discontinued operations, adjusted net income from continuing operations was 87.3 million or $0.37, per diluted share. This compares to 89.7 million of adjusted net income from continuing operations or $0.38, per diluted share for the comparable period of 2005.

In addition, we estimate the after tax operating income related to our discontinued operations in the quarter was approximately 16.5 million or $0.07, per diluted share. So again, the total of adjusted income per share from both continuing operations and discontinued operations was $0.44 per share as compared to $0.34 per share in the year ago period. Excluding the impact of presenting the UK business as a discontinued operation, lower results of the adjusted EBITDA basis was compared to the previous year, was primary attributable to lower results in our polyurethane segment, where profitability was negatively impacted by significantly lower MTB margins. This was partially off set by materials and effects and performance products division and lower unallocated and corporate expenses. Results were also lower at the pigmented and polymers division. I would now like to briefly outline the performance of each of our six segments. Polyurethane recorded adjusted EBITDA of 135.8 million for the third quarter of 2006. Which was 36.2 million lower than in the second quarter and 59.4 million lower than a year ago. Results in the third quarter were negatively impacted by a couple of things. First, MTB margins in the quarter were extremely soft with feed factors of negative levels for much of August and September.

As a result the adjusted EBITDA from our PO co-product MTB business fell by $21 million compared to the second quarter and $56 million as compared to the third quarter last year. Second, we experienced a limited forced merger event at the [Inaudible] Netherlands plant in late September due to a third party chlorine supply disruption. We estimate this resulted in approximately 10 kilo tons in loss production and resulted in $8 million in loss EBITDA in the quarter. Looking beyond these two items our core MDI business performed very well.

Volumes were up 16% for MDI on the third quarter of last year and price increases announced in the late spring, early summer period pushed average selling prices for MDI up about 2% compared to the second quarter, which is the first period of sequential price increases for MDI, which we have seen since 2005. We think this is a good indicator for MDI profitability. And material facts recorded 46.9 million for the third quarter of 2006. And this was up from 33.6 million in the second quarter and also up from 41.3 million a year ago. This is the first quarter we have reported the operating results of the textile effects business we acquired from CIBA in June. And advanced materials contributed 40 million of the adjusted EBITDA and the contribution was 7 million. As we mentioned on the last investor call, we brought the textile affects inventory across from CIBA at stepped up values which resulted in compressed values in the quarter. We estimate that this negatively adjusted the quarter by $12 million.

So adjusting out this impact, the textile effects business recorded EBITDA of 19 million in the quarter. Performance product recorded EBITDA of 36.8 million in the third quarter, as compared to adjusted EBITDA of 70.8 million in the second quarter and 30.8 million a year ago. As expected, higher raw material costs in the third quarter as compared to the second resulted in lower margins in the ethylene derivatives. Volumes were softer compared to the strong results we saw in the second quarter. Pigments recorded adjusted EBITDA of 21.6 million in the third quarter, which was down. As compared to 30.9 in the quarter of last year. Our volumes improved by 4% to the second quarter as global demand has been recently strong this year. Prices softened by 2% or $35 a metric ton in local currency terms as compared to the second quarter. This together with production outages at the [inaudible] plants, lowered in results in the quarter. Polymers recorded adjusted EBITDA of 4 million in the third quarter of 2006, which was up from 32.5 million in the second quarter, but down from a year ago period.

Although pricing was stronger in the third period, volumes were down. Finally, base chemicals recorded an adjusted EBITDA loss of 1.9 million in the third quarter of 2006, down relative to the second quarter and the third quarter a year ago. As I previously mentioned, we now have flow through results of the U.K. petro Chemical business, which generated 4305 million in adjusted EBITDA in this quarter, as a discontinued operation. So operations only reflected our U.S. operations. As you know the bulk of the U.S. operations is related to the port [inaudible] which is off line for the quarter due to the outage we experienced in the second quarter. As I mentioned earlier, we mentioned the third quarter impact at $66 million. With that, I would like to turn things over to Kimo Esplin, our for his comments on the financial out look.

Thanks, John. Let me start by updating you with our continued progress in reducing debt. During the third quarter we redeemed all of our $100 million outstanding senior floating rate notes due 2011,priced at live or plus 7.25%. With borrowings under an expanded credit facility priced at live or plus 1.75%. In addition, we repurchased and redeemed 200 million of our 9.7.8% of senior notes due 2009,and repaid 15 million of our term loan - B loan, using available liquidity. We estimate that these refinancing activities will reduce our annual expenses by approximately $12 million. This brings our total net debt at September 30th to approximately 4.1 billion. A reduction of approximately 1/3 relative to the pre IPO levels at year end level of 2004.

We would expect a further reduced debt by approximately 675 million, at year-end following the completion of the sale to [inaudible]. saba We continue to be optimistical, optimizing the composition and cost of our capital structure, while at the same time continuing to reduce the level of our debt.

To this end, we are contemplating taking advantage of the conditioned strong conditions in bond market by refinancing a portion of our outstanding [inaudible]senior subordinate notes due in 2009. This will allow us to substantially reduce the interest expense and push out the 2009 maturity by several years. All of these our desire to continue to reduce debt and drive down the cost of our financing. As most of you are aware, during the quarter we announced that we entered into a definitive agreement to sale our European base chemicals and poly business to saba for a purchase price of $700 million in cash, and the assumption by [inaudible] of up to $126 million in an unpensioned liability. We think this is a great transaction for Huntsman and its shareholders and it reflects further progress towards our goal of repositioning our portfolio of business more toward differentiated chemistry and away from commodity, while at the same time continuing to reduce our debt. In terms of value the total consideration for the transaction, as I said was 826 million.

By closing, we will have spent approximately 200 million on the new low density polyethylene plant in the U.K. So if you back this off, the 826 million, you are left with a little over 600 million for the existing olefin and aromatic business. Or, evaluation of approximately six times average EBITDA over the last 10 years. On a LPM basis, at June 30, the multiple was much higher. It was more like 13 times. All in all, a very good transaction value for this business. We think at the higher ends of comparable sales transactions and some public trading multiples. We see [Sabik] rapidly emerging as only a handful of powerhouse in the olefin and polly olefin area. We think they will be a responsible long term owner of these assets and good employer for our associates going with the business.

We anticipate closing the transaction following the receipt of applicable law and regulatory approvals which we expect by year end and as I mentioned, we plan to spend to all of the cash proceeds to reduce the outstanding indebtedness by redeeming in full the $250 million outstanding principal amount of our9.78% notes, due 2009 with the balance used to pay a portion of our credit facilities. This should reduce interest expenses by approximately $55 million per year. [] will also assume responsibility of the low density polyurethane plant which will reduce Huntsman Cap Ex requirements by over $125 million next year. Let me now walk you through the port Arthur fire outage on our third quarter results. As a reminder, we do carry typical insurance coverage. For this incident we have a $10 million deductible on property damage and a 60 day waiting period for business interruption.

In the third quarter we spent approximately 6.5 million related to the clean up and repair of the damaged facility which causes us now to exceed our 10 million-dollar property damage deductible. We would expect to be reimbursed by our insurance carriers for all amounts, from now until start up. There was no net, P&L impact in the third quarter related to these repair expenses. As it relates to physical damage we will continue to incur and spend capital related to the repair to the reconstruction of the facility. Any expense for clean up and repair will not impact the P&L as we are permitted to accrue from the recovery for insurance. Any recoveries that we receive from our insurance carriers for CapEx, will be recorded as income in the period of receipt. We estimate the total cost to repair and replace the damaged equipment, including the turn around inspection work will be approximately $130 million. We expect to collect all, but our $10 million deductible.

We estimate that the lost margin related to the business interruption in the third quarter of approximately $87 million, as we had already met our 60 day deductible by the end of the second quarter, we would expect to be reimbursed for all lost profits until restart. Generally accepted accounting principles allows us to accrue for anticipated recoveries to the extent of unabsorbed fixed costs, which we estimate at $7 million per month. During the third quarter. We accrued approximately $21 million of such fixed costs. Consequently, the net impact to EBITDA in the third quarter was approximately was 66 million or $0.27 per share. We anticipate that any recovers received in excess of this accrual fixed cost, will be recorded as income in the period of receipt. So at a basic level, the loss margin that we are seeing this year will become income next year.

It is typical that recovery tend to lag the period that the loss were actually incurred. Although we cannot be certain we have reached a tentative agreement with certain insured that may progress payments in the forth quarter representing a partial portion of the expected recovery. Although we may receive some progress payments, the majority of the income related to these recoveries isn't expected until 2007. Finally a few thoughts on the fourth quarter directional earnings guidance, In our commodity segments, the European business will continue to be reflected as a discontinued operation, but we expect margins to be very strong in the fourth quarter. In the U.S., with the Port Arthur down, our operations will only consider of our smaller[inaudible] unit.

So the reported base chemical adjusted EBITDA should be positive, but the level of profitability will be modest. In polymers given the recent softness in poly demand and pricing, we would expect earnings in our poliimers division to decline in the fourth quarter. In pigments, we believe we will show slight improvement over the third quarter as we continue to expect to much hard on announced pricing increases. But of course, fourth quarter tends to be seasonally slower, so the improvement will be modest. In our different segment profitability for polyurethane is expected to be slightly below that of the third quarter and primarily due to typical seasonal trends. In our materials and effects division results should improve primarily in textile affects is the written up inventory values that we inherited from CIBA will be largely in the system. In performance products, results should improve slightly as the first tier dirivitive business will benefit from the lower fee stock cost we are experiencing in the market place today. Finally, before turning the call over to Peter, I would like to mention, we have just completed the annual budgeting process within all the divisions. As we said today, we think 2007 will and stronger year.

Particularly in our differentiated business where profitability will be up across the board as volume growth is forecast to continue and pricing should remain firm. We also expect to benefit from the capital investments we have recently made, particularly in Asia which is already helping our growth initiatives. We would expect to report back to you on the fourth quarter call in more detail on the out look for 2,007. But It looks like a solid year. Certainly, better than 2006. Peter?

Kimo, thank you very much and thank you for everyone for joining us this morning. Excluding the reclassification of the earnings of our UK business and discontinued operation, the earnings profile for the third quarter looked similar to that of the third quarter of last year with adjusted EBITDA at a bit more than $300 million. We are pleased with this performance considering that it excludes the loss EBITDA related to the port Arthur facility, which was approximately $66 million for the quarter.

As John Heskett mentioned earlier, together these numbers added up to nearly $370 million of added, of adjusted EBITDA. Not a bad performance for third quarter considering the very typical slow down we experienced in Europe during the the month of August. As Kimo mentioned earlier, we do fully expect to receive this 66 million from insurance proceeds. This financial performance came despite the high cost of feedstocks. Although raw material costs fell sharply late in the quarter. On average, costs were flat or up for most of the key raw materials for the differentiated business. Raw materials such as benzene, methanol, ethanol, and piston la.

We are working through the higher cost inventories from earlier in the year. So I don't think that we've felt much, if any of the impact of the lower raw materials cost we have seen recently. However, as we look into the fourth quarter and into 2007, we believe that a lower raw material and energy environment will be very beneficial for our businesses in in the North American chemical industry in general. I believe that the recent fallen raw material energy and commodity petrol chemical prices should benefit the business in the coming months nd through 2007.

There continues to bit of speculation in the media about the slowing global economy and from my perspective, I haven't seen much of any signs of this. There are a couple of small isolated pockets out there like the U.S. auto and residential construction. But we continue to experience fairly solid demand across all of our businesses, keeping in mine that this represent as fairly broad cross section of the global economy in terms of geography and in consumer industrial demand. So if there is softness out there, we are not seeing it beyond the normal seasonal trends we see each year.

As Kimo mentioned, we just completed the 2007 budgeting process and we are optimistic about our outlook as we head into next year. In our differentiated business we believe that we will expect to continue to see demand growth on a global basis. Particularly in Asia and prices had be stable throughout the year. So absent a sharp run up of energy costs or big drop in global economic demand, both of which I believe, are fairly unlikely, 2007 will be a very good year with Huntsman with a noticeable improvement in earnings across the differentiated divisions.

Now, let me take a few minutes and talk about our key business segments. The MDI business of the polyurethane division performed well. We saw strong demand for our MDI products with volumes improving by 16% as compared to the third quarter of last year. Year-over-year demand has been strong in all regions but particularly in Asia, where volumes were up over 50% as compared to last year. We sell very strong growth in the Americas and Europe as well. These growth rates were well above average.

And year-to-date, our global MDI demand is up 7% versus last year which is very consistent with the long term demand growth at MDI has seen over the past 10 to 15 years. We have seen the demand across all application, the strongest driver of growth continues to be insulation where we are benefiting from the continued drive to become more energy efficient. Not just in the U.S. but in Asia and Europe, as well. Our insulation business in Asia was our fastest growing sector in the third quarter up 73% versus last year. We are also seeing MDI growth increase due to the ongoing substitution of TDI and the number of and applications, particularly in furniture, which has been a pleasant surprise for us this year. On the pricing side as expected we saw the pricing increase by about 3% relative to the second quarter.

This represents the first period of sequential price increases for MDI since early 2005. And it as very good indicator of the strength and resiliency of MDI in the market place. Industry production capacity has increased this year both in Asia and Europe. However, given the strong growth we have seen this year which is showing no signs of letting up in the fourth quarter, we think selling prices should continue to increase further into the fourth quarter and into 2007 which will improve profitability. We believe that overall industry supply conditions remain high in the 90% range and we are running our production assets full out. All of these factors give us confidence about the margin outlook as we end 2006 and enter 2007.

I think those who are predicting a fall off in MDI profitability in 2007. Will be disappointed. Finally, we are pleased to announce that we recently completed the start up of our new MDI facilities in China. These facilities are now operational and producing a full range of crude, MDI and derivatives. This is a remarkable achievement for Huntsman and our polyurethane division. We first began planning for this expansion almost 15 years ago, and to bring a facility of this complexity, up in China, under budget and on schedule, is quiet an accomplishment. In fact, I think the last greenfield plant built in the industry was by one of our competitors in the U.S. And I believe it took a year or so to start up. So we're very satisfied to have accomplished this with a larger plant in China and in less than three months time.

After replenishing our supply chain in Asia we expect to have 20,000-tons of additional MDI products to sell in the global market in the fourth quarter and full 80,000-tons available next year. At expected average selling prices this should generate bit more than $200 billion in additional revenues for us in 2007. This will provide much needed local production in the rapidly growing Asian Pacific markets and equally important, [inaudible] It will free up production at our Netherlands plant to satisfy the growth objectives in those regions as well.

Before I move on to the next segment, I shall briefly address MTBE profitability as this was a primary cause for the decline in polyeuerathane, EBITDA in the third quarter as compared to the second quarter. MTBEC factors or margins dropped by $0.10 per gallon in the quarter. This together with lower production from our port plant and higher ethanol costs, reduced profitability by approximately $25 million in the quarter. As we have mentioned before, most of our production is marketed in Latin America where the demands for MTBE continues to grow, however, as the market has become an export market, pricing is set by brokers and traders, which has introduced more volatility into the profitability of the product.

We expect this will continue and we will continue to evaluate various options available to us including restructuring some of our marketing contracts and possibly converting some or all of our plants to a different process. I am very pleased with the performance of our materials and effects division and the quarter. This includes, for the first time, the textile effects business that we recently acquired from CIBA along with our advanced materials business. After a couple of soft quarters late last year, it is nice to see a rebound in the profitability and in advanced materials where we have been successful in pushing our prices up and have kept the manufacturing in SG&A costs in tight control. Inspire of higher raw material costs the EBITDA achieved in the third quarter was the highest of the year. We think it has turned a quarter if you will. In terms of profitability and the out look for continued margin expansion for 2007 is good. Out textile affects business is off to a good start. With $7 million of EBITDA in the third quarter. We told you in the last conference call , we took a one time third quarter charge of $12 million as we had to mark up the inventory values following our acquisition. On an adjusted basis, the textile effects division had an EBITDA of nearly $20 million for the third quarter.

We just recently completed a strategic review of this business and announced a comprehensive restructure program that will expand our presence significantly in Asia. While at the same time consolidating and stream lining our existing operations in the mature markets in the Americas and Europe. This will involve the elimination of over 650 positions globally, while at the same time, adding over 300 positions, mostly in Asia.

I firmly believe the Textile effects division will be an outstanding addition to our portfolio differentiated businesses. But the reality in the market place for the textile, chemicals and dyes industries, will continue to be the the ongoing migration of our customer base from North America to Europe to Asia. This restructuring program will grow the apparel and home textile business in Asia and will include the hoping of a new technical center in [inaudible] China, as well as, two new formulation centers in that country.

In the Americas and in Europe our focus will be to expand the position in technical textiles and high end apparel , while at the same time, improving on our cost position. As we previously indicated, we will spend more than $150 million in capital expenditures and other restructuring costs over the next three years with a target of improving the business from the current EBITDA to sales ratio of 8% to approximately 16% by 2009. Although this will take quite a bit of hard work and planning. We feel we have inherited an outstanding management team from CIBA that is excited to change the business. This together with the past experience in restructuring these types of businesses, give us quite a bit of confidence as we kick off this restructuring. Performance products consistent with the guidance on the last call, they were down to the record results that this division posted in the second quarter.

That is due to high raw material prices, mostly ethylene prices, and lower production. As certain of our unions, they were off line for scheduled maintenance. However, earnings growth for 2006 have been good and EBITDA for the specialty and means is up 40% year to date, compared to 2005. And pigments on the back of a fairly good paint season. Industry demand has been reasonably strong this year. We estimated a total industry demand up about 5% over the last year.

Stock levels appeared to be in reasonably good shape in 40 days and we think capacity utilizations rates are in the high 90s. All of these indicators historically resulted in fairly decent pricing leverage for producers and based on inventory levels in the high operating rate, there have been multiple pricing increases nominated by most major producers. However, if you look back over the last seven quarters, you see pigment prices at the global level have essentially been flat in local currency terms except for minor deviations up or down less than 2%.

With higher input cost this hampers our ability to manfully improve margins. We continue to experience very aggressive pricing in the markets by certain of our competitors who appear more concerned with regaining or retaining market share. This toother with incident we experienced in our plant in the corridor made for a disappointing quarter. Before turning the call over to questions, I would like to briefly update you on our progress as it relates to management's objectives as well as strategic actions we have announced and have been pursuing.

We're very pleased to announce the successful completion of the Coronado cost savings program. Over the past two years, we set an objective to reduce our controllable fixed cost by $200 million on a sustainable basis . I am pleased to announce that we have met this objective. Doesn't mean we are finished with cost reduction efforts. They are a way of life in our company as inflation creep on salaries and benefits alone total $40 million a year for our company. We will continue to drive costs lower, more to off-set the inflation.

We continue to make good progress in our debt reduction efforts. Since 2004, we have reduced our net debt by approximately $2 billion. This obviously has had an impact on our bottom line, as interest expense has been reduced by approximately 40% as compared to the pre IPO level. Nine months ago we announced from the board of directors to spin off or sell the commodity business ,including the base chemicals and polymer segments.

Following the sale of [inaudible] polymere we expect our differentiated business will comprise well over 70% of our total revenues and almost 85% of our adjusted EBITDA. I expect the new company to generate growth well in excess of GDP growth with average EBITDA approaching 15%. Our balance sheet will be even stronger and our capital spending requirements will drop significantly. We will be a strong vibrant $9 billion differentiated chemical company with tens of thousands of different products and formulations. This past week we returned from an event in China attended by over 600 of our Asian customers. The largest customer gathering in our customer's history. In 2007 we expect that 20% of our revenues from our differentiated division, will be from this region.

Going forward, we will be less dependant on volatile crude oil, base raw materials and more leverage to the products where we can capitalize on our technology global marketing and low cost of manufacturing. We expect this to result in a more stable and growing earnings profile as it relates to our efforts to separate our remaining commodity, petro chemical businesses, specifically those in the U.S. We have been making good progress in exploring our full range of options.

We have described in the past, this include a spin off of the assets as a stand alone business or an out right sale to a third party. We received a number of very serious inquiries related to these assets from potential, strategic and financial buyers and are actively in discussions to sell these assets. At this time, we are completely committed to this path and based on the indications we have received, we think this will maximize value to our shareholders. We can always reexamine the spin off, but It appears unlikely at this point.

I can assure you we are dedicating quite a bit of our resources and management attention to this process and we would expect to be in a position to communicate additional details related to the disposition of these assets in the coming months. Keep in mind, however, that one of the major assets is our port Arthur facility which went off line due to a fire in April. We are working quickly to repair the facility, but It is not expected to restart until mid 2007.

This is likely to delay the final competition of any transaction until that time. Let me assure you that the completion of these sales is a strategic priority for this management team and our board of directors. Before we open the call for questions, our Chairman would like to share his thoughts on our ongoing efforts to maximize shareholders value. Mr. Huntsman. Thank you, Peter. The company is currently experiencing a major restructuring program as you can each see. Including the sale of both our European and United States petrol chemical businesses. Excellent progress was achieved in the third quarter of 2006 to advance these goals and to prevent Huntsman Corporation to become the world's leading differentiated chemical company.

With the sale of our business in Texas petrol company in June and recently announced SABIC, we are well down the path towards completely separating the cyclical commodity assets from our outstanding portfolio portfolio of differentiated businesses. An announcement regarding the sale of the U.S.

commodity business will be made prior to the end of the year as our CEO has stated. This new strategic will permit the company to repay substantial amounts of debt. More over, it should be noted that the company has reduced its debt by $2 billion in two years and with the proceeds from the upcoming invest tours. We want to pay off more debt and the profile should be consistent with that of an investment grade company. Additionally, the board of directors is discussing initiating the payment of a quarterly cash dividends. commencing in 2007.

The company will also expect to receive $400 million in proceeds during the next several quarters to off set insurance claims for both hurricane Rita damage and the port Arthur fire loss that occurred last year. Huntsman corporations is poised at becoming the leading differentiated chemical business in 2007. Our existing products have much less dependent on volatile energy prices and are for the most part specialty in nature, with research and development providing unique and exclusive features. And down to the third quarter of 2006 to achieve our lofty profit goals to 2007 and beyond, our executive team and board of directors has done an outstanding job managing the company. Thank you for your support and encouragement during the transition period. I know you share with me the very positive future that lies ahead for the corporate. Let me return you to John Heskett, our Vice President of Corporate Development and Investor Relations.

Thank you, Jon. Operator, that concludes the company's prepared remarks and we are now happy to take any questions that investors may have.

Of course, thank you. [OPERATOR INSTRUCTIONS]. Our first questions comes from the line of Sergey Vasnetsov from Lehman Brothers. the line of Sergey Vasnetsov from Lehman Brothers.

Good morning, maybe you can cover the out look. It seems to be going up given the prices have recovered and more to sell. But just to calibrate between the level of '06 and '05 performance. Would you expect '07 to be in the middle or somewhere better?

Somewhere bet middle and better than the performance in '06 and given the growth and insulation and so forth. Yes, we see it as better than '06. I would just note. We don't see any new capacity coming on stream until I believe the end of '08. Assuming it starts on time and has a successful start up.

On MTBE, you will be relating the motions and converting it to some other fuel and when do you plan to make the decision and should we consider the cost of transition to be comparable?

We are looking at multiple ideas at this point Sergey. And as you look at MTBE and for us, the market appears getting tighter and tighter. And look since August. There is 90 gallons day day of capacity and today there are 35,000-barrels a day of capacity. And I think MTBE remains a better alternative than some of the other projects--projects we have looked at producing and it is very volatile and MTBE had a factor of negative seven-cents a gallon and margin is $0.07and today it is over $0.20. So we continue to see areas of real opportunity here. But I think Sergey, as you look at the various options, you are looking at a cost of 75 to 150 millioned and at this point I still MTBE will remain a positive contributor and a path that we should stay focused on.

Lastly, four other segments that we have. Which to exclude polymer based chemicals. The two parts and pigments, which of these four segments would you expect to improve most significantly from '06, '07?

As we look at the performance product, we are coming out with new capacity this year and in Singapore we continue to very strong growth in amine and it is a look at the budget and all of them are approaching across the board and we are seeing the slightest increase In TIO2 but they maybe sand bagging a little bit there. As you look at the day's inventory and so forth, I think there is real opportunity to see MTBE expand bet are than we are forecasting now. And as we look at our textile affects and look at advanced material and performance products. we see good growth and raw materials coming down for the products next year and we see margin growth.

Thank you.

Next question comes from the line of P J Juvekar.

Hello, P J.

Can you comment on performance products and volumes and I know that some of your more commodities means were having problems. Can you sort of comment an about the more on that?

I think we were, as you think of the performance products again, one of the issues that we have here as you have seen raw material prices fall, bear in mine, that these product for the most part are boeing first line ethylene derivative such as ethylene oxide and as you see it start to fall, you will see the benefit of that going into this first line derivatives. Surface ant and more of the commodity Amine products and some chemicals have seen near the ends of the third quarter we will be seeing fourth quarter coming to the particular product groupings. We have the facility that was done and under ran purposely the ethylene union because they were low and we had maintenance work done on our amine facility and third quarter was a combination of being done for plant maintenance and during the latter part of the third quarter we took into account on raw material products that we have into account on raw material products that we since have since seen start to fall.

Relative to the second quarter ethylene prices averaged six-cents hire than the second quarter. Notwithstanding that energy fell off in the latter part of the quarter, I think we from a raw material standpoint took a hit of about 15 to $20 million relative to the second quarter in this division.

Now, our challenge our our opportunity in the fourth quarter will be if we can maintain our pricing as we see ethylene and spot ethylene fall. We think there is a opportunity for improvement here.

Then on--one of your competitors is exploring strategic options for the business. [inaudible]. Was there any interest in expanding that business?

I think we have 10% sales of TI02 after we have gone through this divestiture that we are going through right now and a possible acquisition that would bring us up to 20%. And I think that would be a bit hefty. There are some obvious synergies that would exist there but at this point, I probably would be better off not commenting on something that may or may not take place there.

One quick question for Kimo. Kimo, when do you think you will go to a re EBITDA from an adjusted EBITDA. I agree port Arthur is a one time event, it seems to be the cutting event. Why not go to regular EBITDA and call out what ever you think is one time?

I guess we can do that. We heard from shareholders that is it is helpful and we have had impairment charges this quarter with the sale of the business and we needed to adjust for that and the whole discontinued operations thing is sort of messy. And we need it to help people understand that and I suppose we could move to regular EBITDA and call it the one time items and it is about the same.

Okay. Thank you.

Hopefully we are giving enough clarity that people can figure out what the numbers are.

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

Good morning. On the 16%, very strong, obviously what percent of that would you attribute to your activities in China. I don't know if there was priming of the pump in that plant start up and could you talk about what a more normalized or what your volume expectations for 2007 on the MDI side would be?

We think, Frank, thank you very much for the question. We think in to thousand 7 our volumes will be sold out. I think if you take the '06 volume and we believe that we will be able to effectively put into the market place the additional 75 to 80,000 metric ton of new capacity. As you look at the 16% growth. We did see 55% growth in the Asia Pacific market growth and we saw 8% growth Europe and Middle East and 13% in the U.S. Now you average it out volume metrically. I think you saw the majority of the shear tonnage growth taking place and kind of a toss up between Asia and the U.S.

Okay. And then, just to restate.

You know, I would bring out and also note. There was no priming of the pump if you will. Good question. I am not trying to say that, and there was no priming of the pump and that we really have been at a near sold out position for a few months and had we not had the facility start as effectively and efficiently as it did we would have been in a force duration.

It is helpful to explain the business. Just so I can get it straight in my mind. There seems to be a constant nans there will be an announcement with the U.S. assets and agreement prior to year's end and in terms of closing, that would be predicated on when the port Arthur plant starts up is that correct?

That is a fewer assumption. I think we, since it was not our plant that was insured but rather the company that was insured. I would mack that any buyers if the discussions we have had thus far would indicate that people will expect us to have this facility up and running before it actually changes hands and that is a fair assumptions and the progress we are making with multiple parties at this time and with have us believe that by the end of the year we would be able to have some sort of announcement.

Do you have any rough out line of what the guidelines or accretion of the transaction might be?

I think at this point it is too early to say.

Lastly, Kimo on a housekeeping.

With a sort of tax rate might be appropriate for the fourth quarter and 2007? Well, you know, if you look at the third quarter, we had approximately $20 million and in benefits in the UK from a favorable tax ruling and in a release of value allowance and the effective tax rate was 7% and if you adjust for the discontinued operations where in the UK is a tax rate of 34% and the tax rate in the third quarter was 12% and that was a good number for the fourth quarter and moving into '07, you should expect the tax rate and the effective tax rate will approach our normalized rate which is just short of 30%. Our cash rate will be between 10 and 15% and for '07, you should think of it being short of 30% and largely reflecting the fact that we will receive the insurance proceeds that are taxable and we're selling businesses that will create taxable income and chew up some of the allowances that have been artificially lowering the tax rate.

Thank you.

Next question comes from the line of Mike Judd from Greenwich consultants. You may proceed.

Also a couple of housekeeping, on interset expense what do you expect for the rates for forth quaters, please?

We haven't given guidance around interest expense. I think we showed 85 million this quarter. It will be between 85 and 90 million, likely.

Then on the discontinued businesses where you expect things to be better in the fourth quarter, is that because of lower NAFTA prices or what are some of the dynamics in the European market?

Fourth quarter petrol chemicals?

Yes.

Typically, you lock in prices and they are locked in certainly by now if the fourth quarter and locked in about a month ago and we have seen NAFTA prices fall and lock in the prices. We have a high degree of finished pricing we will attain in the fourth quarter and we feel fairly comfortable with falling NAFTA prices and see a nice improve men there.

Largely in terms of the port Arthur facility, is will any changes in the timing for restart?

No, we are still looking at the very end of the second quarter. Beginning of the third quarter sort of a start up.

Thanks.

Next question will come from the line of Don Carson from Merrill Lynch. You may proceed. You may proceed.

Hi, Peter a question on your commodity like businesses. They were asking if you are going to double up, my question would be is that really a business that fits with the differentiated strategy going forward. It is a good industry structure but it is a commodity like business and along those lines on performance product, I know you have a fair bit of it going into EG, how big is the EG contribution of the business and how quickly converting the EO to added value business?

Well, I would agree with you. We are certainly not trying to pass the TICO two as a differentiated product and one of the characteristics we are trying to get in the business is less volatility in our earnings and with the TR02, I like the fact that you know, that you have a very stable cash flow there and as my father has said on previous calls. Our objective is to create share holder value and so, we will continue to look at the T I 02 business and and no way am I saying it is for sale or anything. But we certainly are not ignorant to what I think are some of the once every 10 year of changes that may or may not be taking place in the TE02 industry. And looking at the he EG business. It was break even in the third quarter and it is not, you have to take. And look at it on the integrated base and taken together in the chain. EG It as product that longer term, you know, right now it is in force and fairly tight and longer term, as we stated our strategy is going to be over the course of the next year or two to move as much of the ethylene oxide into other derivatives other than EG and build up our means and facts and ole mines and reduce the dependency on glycol as an opportunistic product.

Thank you.

Next question comes from the line of David Begleiter. You may proceed.

Good morning.

David.

Peter, on capacity utilization, you mentioned mid to high 90s rate. Is that the facility. That is correct you will be sold out as an industry in '07. How much higher can pricing go given the good market structure and sold out conditions?

Well, I think that as far as operating rates, yes, with, [inaudible] we will still be operating in the high 90% capacity utilization and this will tell you how tight we were in the third quarter. We were hit with a chlorine outage in our rose Netherlands facility. Our stocks are low and stocks in the industry are low. Trying to buy product for resale. It is very difficult and very expensive. I think if you look at how high prices can go-- 2005, I think can give you some sort of an idea as to how high prices can go and I think as you look at the spread right now between MDI and T D I, I believe there is about a $0.15 advantage right now and then MDI versus T D I. And you know, at the same time we don't want to price ourselves out of the growth markets. We do want to be competitive to where we can continue to be the preferred product. As you look at the slowdown that has occurred in the North American plywood markets. We continue to see growth in the markets because of the pricing advantage that MDI has over the competitors and over the properties it has over traditional applications in plywood and so forth. So we are going out and look at pricing. I think 95 is a good indication and if you will. As to where pricing would go at 100% plus. And you know, I think at the same time we want to make sure we are continuing to see solid growth in the business.

David, just to put a bit more detail, we are still almost $200 in metric ton below the peak prices we saw last year and that's with higher benzene costs, they are somewhere on the order of 100 to $150, higher than they were in the 2005 period.

That is very helpful. Peter, on textile affects. Looking to double EBITDA, what is the progression of that EBITDA improvement, and there there be much more in the investment you are ach making?

There will be slight improvements and most will come in '08 and the beginning of '09.

And from any impact from eastern European or Asian producers keeping the pricing softer?

There is some impact coming from that and you have 80% of the production coming from you know, the five largest producers and that arena and I think there are still ill discipline and sloppiness between those players.

Thank you very much.

Next question comes from the line of Don [McDougle].

Good afternoon, everyone.

Hello, Don.

I am a little confused on the pricing MDI Pricing commentary. You said you had a 3% increase but your average selling price was down 3%. Can you reconcile that for me?

Yes. 3% increase for our urethane business sequentially, third quarter versus second quarter the piece was up 2% sequentially and then if you look year-over-year MDI prices are about 3% below where they were last year.

Okay. Good, and the other one that I was having trouble figuring out was on the EPS, on the adjusted EPS of $037. What is the implicit tax rate in getting to that number?

Well, think I you know, if you go back through the detail that Kimo provided a bit ago. You know, our adjusted rate was somewhere on the order of 6 - 7%.

In terms of the $0.37, which is just the continuing operations. Okay. So, if I apply a 6 to 7% interest rate to 260 million of EBITDA, I should get $0.37?

I am sure -- did you say interest rate or tax rate?

Tax rate.

Right.

Okay. Thank you.

Next question comes from the line of William Young from credit Credit Suisse.

Good morning-- good afternoon, gentlemen. A couple of things. Where do you stand on your operation, what is going on over there?

Well, Bill, nice to hear from you. Odessa remains very strong viable operation. As we look at polymers and polyethylene in general, and bear in mind we are not Dow chemical when it comes to polyethylene. We saw a sharp fall off into the third quarter going into the fourth quarter and we are starting to see a nice pick up and people are expecting to see a larger price fall off than was actually seen from inventories and it was quite low on the converter side and they are starting to buy briskly again and it is a smaller player in polyethylene but we continue to achieve better than average pricing in polyethylene and it seems to be a very strong and viable plant.

You are running your ethylene there?

Yes, we are.

I want to make sure. It doesn't sound like that before. Secondly. What you said about MDI volume and we have noted recently for example, Georgia gulf said there is a down toward in demand for PVC and how do you know we are not gearing up for a correction in say products like MDI, given the inventories of autos out there and the showdown in the construction since there is typically often a lag?

Well, Bill, it is John Heskett. Certainly we get questions about polyurethane and our business that goes into composite wood products. If you look at our volumes sequentially in composite wood products. They were probably flat but we still see prices move up in the sector so there is quite a bit of strength there and the other place. You know, that we are selling into construction elements is insulation and again, pricing and volumes third quarter relative to second quarter were strong. So, again we haven't seen much of anything in our business in MDI in North America.

Your confidence for gaining a share and not just filling the pipeline for a correction later?

Yes, absolutely. MDI has better. Not only better property characteristics about it and more MDI is being used per square foot of board that is made. But it has pricing advantage over the competing materials as well.

How about in autos?

We are not a very large supplier into the U.S. auto industry and the --European auto we continue to come up with new applications and continue to see growth in the area.

Thanks so much.

Next question comes from the line of Gregg Goodknight from UBS, please proceed.

Good morning, all. Interested in your out look for TI02 and I was surprised producers didn't get the price increase announced for North America in the third quarter and talking to some of the consultants in terms of strategic out look. It appears that global operating rates are perhaps in the low 90s and reasonable supply demand balance going forward. If that out look, if you agree with that out look. Can you run through the rational of the expansion. Do you have a better out look than what I have just described?

I think our out look is pretty consistent with what the past has been and we're looking at probably 3% growing on an annualized growing and some higher and and and some lower than that. Third quarter performance. All the characteristics, you are right, it was there. And I was disappointed that we weren't able to get price to say stick. We have given up volume in select areas of T I 02 and then bottom slicing of our leased profitable accounts and let those that want to see the margins fall in TIO2 and take the accounts. And you know, I think we are trying to be you know, very aggressive in marketing and selling TIO2 relative to where it should be. Relative to supply and toe manned. As we look forward though. Our expansion that we have increased will be some of the lowest cost production that we have and as a matter of fact. It will be the lowest cost production we have in the system if the market is not able to absorb the pounds and we will look at perhaps cutting back the higher cost production and we think the market will be able to absorb that. Given the size of with a we are today and at 500,000 metric tons and given the fact that we running pretty tight. We think the market will be able to absorb it.

In terms of your expectations for globe balance capacity additions. I see the estimates around the 3% range including the Chinese expansions. What is your estimate for global growth capacity?

That is about right. I think some of these expansions. Especially grass roots expansions, I just can't still believe that people are looking to invest money in titanium dioxide, particularly in China. I can't imagine a board of directors is going to approve that at the end of the day. But I don't sit on the board. But, yes, I think 2 or 3% and you have capacity that is out there.

Okay. In terms of industry consolidation in T I 02. Do you see any opportunity for consolidation. It is so concentrated like you mentioned. Five producers have 80%. Do you they the regulators would allow this industry to be consolidated?

Well, you know, I have no idea what regulators do. I say that 80% number, that is a few years old and the number is probably closer to 70% and I think when you loo being at the amount, the fundamental ability of this product being able to move around the world and to look at the number of new competitors and new plants and new capacities and expansions so forth that are coming on in the world. I would hardly think this industry is controlled by one, two, or three, four players.

Would you see your company as being a consolidator in the industry?

We will look at what ever we can to increase value to our share holders and it is too early to say.

Thank you very much.

Your next question [Unidentified Participant].

Hi and good afternoon. Can you comment on the epoxy business?

I just want to say that we have taken allot longer here and we want to make sure that we have color her. We will take one more call Operator. In our third quarter we are seeing stronger pricing and good demand across the board. in both the formulated epoxy and up stream and basic more end of the business. so as I have said in my comments our third quarter results were the best that we have had for a year now. And I feel quite bullish in the business going forward.

Just lastly, for clarification, is the MTB hit in the forth quarter likely to be meaningful or is it 20 million or something like that?

Well the hit in the third quarter was meaningful. As we look into the forth quarter it is such a product it is just too early to tell. If we stay at today's margins of $0.20 per gallon then I think it will be better in the forth quarter, but it is just too early to tell.

If you had to crystallize the reason what would that be?

I think in terms of growth that was actually pretty good-- growth or margin?

Yes, in EBITDA?

I rethink our performance continues to improve. This business when we bought it was lower per ton on a EBITDA basis and as you look at our EBITDA on a per ton basis we're equal too or better than most of our peers and larger producers that are out there. I do think with the number of recent transaction that have taken place in the TIO2 business -- in the last 12-18 months and when you have a shake up in management teams and so forth that typically have less discipline in the pricing and your sales teams have less discipline and there is not a cohesive that usually translates to pricing sloppy.

Okay. Thank you very much.

Our final question comes from the line of Mark Laurence Alexander of Jerreries & Company. Please proceed.

Good afternoon.

Hello.

As you look towards 2007 and 2008 what are the opportunities for ongoing productivity to promote product and materials?

I think in a number of these products we continue to see much stronger than GPD growth are epoxy curing agent and our amiens businesses as we start seeing the 787 boeing and hopefully sometime in our lifetime the 380 air bus. Going on full stream we will see greater demand coming from the aero space sector i think as people become more [inaudible] we are looking at alternative means of and products from glycerine and bio diesel bi product . When we look at our product pipeline of new products that are coming on in [inaudible] and in a year and a half or tow years and we are very bullish in both of these arena and in our performance products. Tow or three years ago our performance product was largely dependant on ethylene and i would hope that in the next year or two if we are completley out of the ethelyne then [Inaudible] that would be a fine position to be in. We are the largest producer in the world and with the capacity we have coming on and the technology we have coming on and new grates, I think we will continue to see strong growth in these areas.

And you expect to take out enough for salary and benefits?

That's going to continue and it is going to continue to be a challenge for us but we are working very agressive in that area. We have implemented and are effectively using[inaudible] across the board for the company. I think that we are focused on our indirect as well as our direct operating costs and I'm not sure we have a choice.

Thank you.

Thank you. Operator, Thank you very much and that you all who have joined us in this call. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's presentation. This concludes the conference. You may now disconnect. Have a most pleasant day.