Huntsman Corp (HUN) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2006 Huntsman Corporation earnings conference call. [OPERATOR INSTRUCTIONS] I will now like to turn the presentation over to your host for today's call, Mr. John Heskett. Please proceed, sir.

Thank you, operator. Good morning to everyone. My name is John Heskett. I am the Vice President of Corporate Development and Investor Relations for Huntsman. Welcome to Huntsman's investor call for the fourth quarter of 2006. Joining us on the call today are John Huntsman our Chairman and Founder; Peter Huntsman, our President and CEO; Kimo Esplin our Executive Vice President and CFO.

As a reminder a recorded playback of this call will be available until midnight February 22, 2007. 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 12798242 a recording of this call may also be accessed through our website.

Before we begin a 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 to be considered 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 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 events and other risk factors. Please refer to our most recent Form 10-K and 10-Q for a more complete discussion of the risk factors applicable to our business and our company.

Turning to earnings, I would like to point out that as I summarize earnings I will be referring to adjusted EBITDA which is EBITDA adjusted to exclude the impact of discontinued operations, restructuring impairment and plant closing costs, loss on the sale of accounts receivable, losses arising from the early extinguishment of debt and gains related to the sale and acquisition of assets. In the fourth quarter of 2006 we recorded a net expense of 42.6 million related to such costs and expenses and in the fourth quarter of 2005 we recorded aggregate net losses of 107.4 million related to 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 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 adjusted EBITDA to net income can be found on our fourth-quarter earnings release which has been posted to our website.

Today Huntsman Corporation announced fourth-quarter earnings as follows--Huntsman recorded adjusted EBITDA from continuing operations of 196.4 million as compared to adjusted EBITDA from continuing operations of 197.2 million in the fourth quarter of 2005. As you can see from our earnings release, we have classified our U.K. base chemicals and polymers business as a discontinued operation and have restated all relevant historical periods to conform to this presentation. As such, we have excluded the operating EBITDA associated with this U.K. business from our total adjusted EBITDA from continuing operations. The adjusted EBITDA for discontinued operations for the fourth quarter of 2006 was 83.3 million. Also our results do not include the loss margin related to our Port Arthur ethylene facility which is not operational. We estimate this loss margin and the related EBITDA impact at approximately 35 million in the fourth quarter. All of which should be subject to reimbursement by our insurers.

So the total of adjusted EBITDA from both continuing operations and discontinued operations was 279.7 million, and if you normalize this for the Port Arthur outage you come up with 314.7 million. Net income available to common stockholders for the fourth quarter of 2006 was 80.2 million or $0.34 per diluted share. This compares to a net loss available to common stockholders for the fourth quarter of 2005 of 65 million or a net loss of $0.29 per share. Excluding the after-tax impact related to losses on the early retirement of debt, the impact of discontinued operations and other items adjusted net income from continuing operations was 57.6 million or $0.25 per diluted share. This compares to 40 million of adjusted net income from continuing operations or $0.18 per diluted share for the comparable period in 2005. In addition, the after-tax operating income related to our discontinued operations in the quarter was 59.7 million or $0.25 per diluted share.

So the total of adjusted net income from continuing operations and discontinued operations was $0.50 per share as compared to $0.15 per share in the year ago period. Stronger results on an adjusted EBITDA basis as compared to the previous year were primarily attributable to improved margins in our European based chemicals operations and our materials and effects division results were up as well. Also, the absence of any impact from the U.S. Gulf Coast storms which heavily influenced reported results for the fourth quarter of 2005 factored into our earnings for the fourth quarter. This was partially offset by softer results in our polyurethanes, pigments, and polymers divisions. Unallocated and corporate expenses were also lower in the 2006 period as compared to the year ago.

As noted in today's earnings release, we are restating our third-quarter earnings to reflect an additional non-cash impairment charge of 99 million at our discontinued operations related to the sale of our European based chemicals and polymers. This had the effect of reducing our full year net income by 99 million or $0.42 per diluted share. This restatement had no impact on our adjusted EBITDA or adjusted net income as our practice has been to exclude those items in the calculation of those particular measures.

I would now like to briefly outline the performance of each of our six segments. Polyurethanes recorded adjusted EBITDA of 107.6 million for the fourth quarter of 2006 which was 42.4 million lower than the fourth quarter of a year ago and 28.2 million lower than the third quarter. Results in the fourth quarter were negatively impacted by a couple of things. First, we experienced a limited force major event at our Rossenburg Netherlands Indiana plant in late September which continued into October that was due to a third party chlorine supply disruption. Also our China joint venture plant went down for repairs in the second half of December. We estimate these two events along with softer demand in certain of our North American construction end markets reduced EBITDA by approximately $15 million in the quarter.

Second, MTBE margins in the quarter continued to be extremely soft partially offset by stronger PO margins. As a result, adjusted EBITDA from our PO co-product MTBE business fell as compared to the third quarter and the fourth quarter of a year ago. Looking beyond these two items, I will describe our core MDI business as stable during the quarter. MDI volumes were down relative to the third quarter due to the above mentioned supply disruptions and normal seasonal effects. MDI pricing was up about 1% relative to the third quarter. Materials and effects recorded adjusted EBITDA of 39.3 million for the fourth quarter of 2006. This was up from 19.7 million in the fourth quarter of a year ago. Advanced Materials contributed 33 million of the adjusted EBITDA while the textile effects business contributed contribution was 6.3 million. In Advanced Materials we continue to see a fairly healthy pricing environment with average selling prices up 3% sequentially and 6% over the fourth quarter of last year. Volume growth has also been solid up about 10% relative to the fourth quarter of last year.

Performance products recorded adjusted EBITDA of 42 million in the fourth quarter of 2006 as compared to adjusted EBITDA of 36.8 million in the third quarter and 3.9 million a year ago. On a sequential basis performance products benefited from lower ethylene based raw material costs. On a year-over-year basis please recall that the fourth quarter of 2005 results were significantly impacted by the hurricanes. Pigments recorded adjusted EBITDA of 22.8 million in the fourth quarter which was down compared to 32 million in the fourth quarter of 2005.

Our volumes in the fourth quarter were much softer than anticipated, down about 14% relative to both last year and the third quarter primarily due to a soft housing market in the U.S. and a competitive pricing environment. Prices, however, strengthened by about 1% or $26 a metric ton as compared to the third quarter. Polymers recorded adjusted EBITDA of 15.3 million in the fourth quarter of 2006 which was down from 31.4 million as compared to the fourth quarter of last year and down from third quarter levels as well. Although volumes were relatively stable in the fourth quarter, pricing for polyethylene and to a lesser degree polypropylene were soft. Base chemicals recorded an adjusted EBITDA of 8.5 million in the fourth quarter of 2006 which was flat compared to last year and up relative to the third quarter.

As I previously mentioned, we reported the results of our U.K. petrochemicals business as a discontinued operation so our reported results only reflect our U.S. operations. As you know, the bulk of our U.S. business is related to our Port Arthur ethylene facility which was offline for the entire quarter and as a result of the outage which we experienced in the second quarter of 2006. As I mentioned earlier, we estimate the third quarter impact of this outage at approximately 35 million. With that I would like to turn things over to Kimo Esplin our CFO for his comments on our financial outlook.

Thanks, John. Let me start by briefly reviewing some of the details of the transaction we announced this morning relating to the sale of our U.S. petrochemicals business. Under the terms of the definitive agreement that we executed this morning, Flint Hills resources a wholly-owned subsidiary of Coke Industries will acquire all the manufacturing assets and inventory that comprises our U.S.-based chemicals and polymers business. The value of the fixed assets is 456 million. The inventory value will be determined at closing, but approximately 286 million as of December 31, 2006.

Huntsman will retain the accounts receivable, accounts payable, and certain accrued liabilities related to the business and will liquidate these in a 30 or 60-day period immediately following closing. The net liquidation value of these working capital items is approximately 19 million based on year end estimates. So when you add these all up, the total cash value to Huntsman based on December 31, 2006, estimates is approximately $761 million.

As we mentioned in the release this morning, Huntsman will retain a smaller but feed stock advantaged 400 million pound ethylene facility located at Port Neches. This facility along with long-term arrangements for supply of ethylene and propylene from Flint Hills to Huntsman will provide a competitive and consistent supply of raw materials for Huntsman's downstream ethylene and propylene derivative units. Also under the terms of the transaction, Huntsman will retain the amorphous polyalpha Oleson product line ATAO which Flint Hills will manufacture at cost at the Odessa site under a long-term arrangement. Going forward we will include this product line within our Advanced Materials business where we have a more complete line of adhesive product offerings.

All together we think this is a great transaction for Huntsman and the shareholders, and reflects excellent value for these assets. In fact, we've been pleased with the values that we received for each of the commodity transactions we have completed receiving approximately $1.8 billion of value or collectively about six times normalized EBITDA which we view as a very good multiple for commodity petrochemical deals. We also recognize that we are selling midway through the peak of the cycle and these transactions may be near term dilutive.

But we think they represent the true underlying intrinsic value for these assets as paid by three different strategic buyers. We would expect to close this transaction early in the third quarter following satisfaction of customary closing conditions and the restart of our Port Arthur ethylene facility. We would anticipate recording a non-cash impairment charge related to this transaction of approximately $175 million at the time of closure which will likely mean that this will be included in the second quarter results.

Also this morning we announced that our Board of Directors has approved payment of Huntsman's first quarterly common stock dividend. The dividend will be $0.10 per share and will be paid on March 30, to the holders of record as of March 15. Management believes that the timing and size of this dividend is appropriate given the strong balance sheet, the stability and growth in the earnings and cash flow we are expecting from our differentiated portfolio. We also think that the dividend is very consistent with the dividend policies of our peer group in the chemical industry. The dividend will yield just a bit under 2% given the current share price and on an annualized basis the total cost of the dividend will be approximately $93 million which represents a payout of just under 22% of our 2006 adjusted net income.

Now a quick overview of our financing activities which took place in the quarter. We continue to be opportunistic in our approach with regards to optimizing the composition and cost of our capital structure while at the same time continuing to reduce the level of our debt. In return, we took advantage -- excuse me, in November we took advantage of the continued strong conditions in the high yield bond market and refinanced all but 114 million euros of our senior subordinated notes due 2009 with new $200 million 7.78 subordinated notes due 2014 and 400 million euros of 6.78 subnotes due 2013. This has allowed us to reduce our annual interest expense by approximately $18 million dollars and push out the 2009 maturity to 2013/2014. Subject to market conditions we may elect to refinance the remaining 10.8 euro notes in the near future.

Also at the end of the year we used the net proceeds, net cash proceeds from the sale of U.K. business to repay 400 million outstanding under our term loan B and to seize the remaining $215 million of our senior notes due 2009. This brings our total net debt at December 31, to approximately 3.4 billion, a reduction of approximately 40% relative to the preIPO debt levels at year end 2004. We would expect to further reduce debt by almost $800 million near mid-year following the completion of the sale to Flint Hills along with the remaining $70 million due to us from TPC. We also expect to further reduce our debt throughout the year with additional amounts related to our insurance claims.

All of these continue to reflect our desire to continue to reduce our debt and drive down the overall cost of our financing. During 2006 interest expense was $351 million which was $75 million less than 2005 and $255 million less than 2004. Both of which were achieved despite increasing LIBOR rates. We estimate the first quarter interest expense will be approximately 70 to $75 million.

Let me now walk you through the impact of the Port Arthur ethylene facility fire outage on the fourth quarter results. In the fourth quarter we spent approximately $25 million related to the cleanup and repair and rebuild of the damaged facility. Our current estimate on the total rebuild cost is approximately $140 million net of our $10 million deductible. We expect all of this to be reimbursed by our insurers. We estimate that the lost margin related to the business interruption in the fourth quarter of approximately $54 million. Now, GAAP allows us to accrue for anticipated recoveries to the extent of our unabsorbed fixed costs which we estimate at between 6 and $7 million per month.

During the fourth quarter we accrued approximately $18 million of such fixed costs. Consequently, the net lost profit income in the fourth quarter was approximately $35 million or $0.15 per share. In the fourth quarter we received $150 million progress payment related to the Port Arthur outage from our insurance carriers. There was no P&L impact related to this payment as $56 million of this amount was related to a recovery of previously accrued fixed costs and expenses. The remaining 94 million has been recorded as a deferred gain in other current liabilities which will not be recognized in the P&L until the final settlement with our insurers which isn't expected until the second half of 2007. We are currently in discussions with our insurance carriers and would expect to receive another significant progress payment near the end of the first quarter.

In summary, through the fourth quarter our total business interruption claim is estimated at approximately $170 million while additional business interruption claims in 2007 will be dependent on market conditions. We have received $150 million to date and would expect to receive another progress payment in the first quarter and final settlement following the restart.

Finally, a few thoughts on first quarter directional earnings guidance. In Base Chemicals with the Port Arthur ethylene facility down our operations will only consist of our cyclohexane unit. So as the base -- so that the Base Chemicals adjusted EBITDA will be modest. In Polymers we would expect earnings in this division to improve from the levels experienced in the fourth quarter as pricing should firm and volumes will be seasonally stronger.

In Pigments as we indicated in our release this morning, we are guardedly optimistic about our outlook for the upcoming spring paint season given the softness in demand that we experienced in the fourth quarter and would expect the first quarter to be similar to the fourth quarter. In our differentiated segments, profitability for Polyurethanes is expected to improve as MDI volumes and margins will be stronger which is expected to offset the weaker results in MTBE. In our materials and effects division results should improve primarily in textile effects business where the one-off costs related to the acquisition and the separation from CIBA will largely be behind us. In performance products results should improve in the first quarter as pricing and volumes in our performance specialties and maleic anhydride businesses will be stronger.

When you pull this all together the earnings in each of our three differentiated segments are all expected to be higher in the first quarter as compared to the fourth quarter. Some to a greater extent than others, but as we sit today, earnings in each of the three differentiated segments should be higher. As I mentioned, Pigments is more likely to be similar to the fourth quarter. However, keep it in mind that on a total adjusted earnings basis the U.K. petrochemicals basis contributed significantly to our bottom line in the fourth quarter. As this business was sold at year end, we will not see that benefit in the first quarter.

As it related to our capital expenditures forecast for 2007, we would anticipate spending approximately 550 million on capital in 2007, an amount that is very similar to what we spent this year in 2006. This excludes the approximately $80 million of 2007 capital to rebuild Port Arthur ethylene plant that we will be reimbursed for by the insurance carriers. We are working on four significant plant expansion projects in 2007 that account for significant portion of our discretionary spending this year.

As it relates to guidance on taxes for 2007, we would estimate that our effective rate on an adjusted earnings basis would be approximately 25 to 30% while our cash tax rate will continue to hover in the neighborhood of 10 to 15% as we expect to continue to utilize available net operating losses to reduce our cash tax rate. Finally, as John mentioned the earnings we release today reflect a restatement to the third quarter results to include an additional 99 million in non-cash asset impairment charges related to the sale of our European base chemical business.

Upon further review, we have concluded that our third quarter 2006 results did not accurately estimate the effect that the repurchase of our European commodity chemicals of our European commodity chemicals receivables from our AR securitization program would have on the final book basis of our business sold to [Sabik]. The net effect of this adjustment was to increase our loss from discontinued operations by 99 million and a reduction of the like amount to our net income for the third quarter and full year ended December 31, 2006. There is no effect on taxes. We expect to file an amended and restated third quarter 2006 Form 10-Q as soon as possible and our currently evaluating the effect of this restatement on our Sarbanes-Oxley section 404 certification for 2006. Peter.

Thank you, Kimo, and thank you to everybody on this call for joining us this morning. With total EBITDA of $279 million the earnings profile for the fourth quarter improved relative to the hurricane impacted results of the fourth quarter last year. Results were a bit softer than that of the third quarter but only by about 7 or 8% which is fairly consistent with normal seasonal patterns we experienced in several of our business segments on a global basis. Also, although raw materials costs fell sharply late in the quarter on average costs were for the most part equivalent to what we experienced in both the third quarter and the fourth quarter of last year. In fact, some of the key raw materials of our differentiated businesses such as benzene, methanol, epichlor, hydren, bisbenol A, were all up sharply through the quarter. Although it is still early in the year, we're encouraged by the macro economic trends we're seeing.

The global economy is stale stable and demand across most end markets appear to be quite healthy. We're seeing a couple of small isolated pockets that have slowed like the U.S. auto or U.S. residential construction but we continue to experience fairly solid demand across our businesses and keep in mind that this represents a fairly broad cross-section of the global economy in terms of geographies and end consumer and industrial demand. During the fourth quarter I believe a number of our customers worked down inventories on the assumption that crude oil prices were falling and for year end accounting purposes.

Let me spend a few minutes talking about each of our key business groups. I would characterize the performance of our MDI business as stable. MDI sales volumes were only slightly up as compared to fourth quarter of last year as is earlier in the quarter we were supply limited with very low inventories due to the effect of a supplier force major at our Rosenburg, Netherlands MDI facility. We also saw the effects of slowdown in the U.S. housing as some composite wood customers took extended shutdowns at the end of the fourth quarter.

In spite of a housing construction slowdown of 11% in 2006, we continue to see growth in this sector of the economy for MDI. Oriented strand board, a replacement product for plywood demand grew by about 2% in 2006. Huntsman MDI sales to OSB grew by 5%. We estimate the effect of these supply limitations and the U.S. construction market negatively impacted our fourth quarter EBITDA by about 12 to $13 million. We were also a bit limited in the product available from our new joint venture in China as we are working with our partners during the quarter to refine the manufacturing process.

Full year 2006 MDI growth for Huntsman was around 5% but would have been over 8% if not for the effects of supply limitations which is very consistent with the long-term demand growth that MDI has experienced over the last 10 to 15 years. While it has been a very solid -- we've seen very solid demand across many sectors and application, the strongest driver of global growth continues to be insulation, particularly in Asia and Europe where we are benefiting from the continued drive to become more energy efficient. In fact, our insulation business in Asia was one of the fastest growing sectors this year with volumes up more than 20% on over last year. Our market outlook for 2007 is similar to what we experienced in 2006 as we expect industry demand for growth to increase by approximately 7%.

On the pricing side as expected, we saw MDI price increases up about 1% relative to the third quarter. This represents the second consecutive quarter of sequential price increases for MDI since the late 2004 early 2005 time period. Given the strong global demand we are continuing to see, particularly in Asia, we think selling prices are poised to increase further in the first quarter. We believe that overall industry supply conditions will remain tight with operating rates in the high 90% capacity utilization. We are running our production assets full out, all of these factors give us a lot of confidence about margin outlook at the end of 2006 as we enter 2007.

Finally, we are very pleased to announce that we have recently entered a joint venture to expand our polyurethanes business in Eastern Europe. Under the terms of this transaction we purchased a significant minority interest Nord Masters Group located outside of Moscow, Russia. Nord Masters Group has been an important route to market for Huntsman material over the last eight years. We will also have an option to assume full responsibility to this venture in the future. Outside of Asia, Eastern Europe represents the fastest growing market for MDI globally with MDI demand growing at about 15% per annum. This is one of the key platforms of our MDI growth strategy and represents the latest step of our business in developing and leveraging our capacity in developing markets.

Before I move onto our next segment I would like to comment on MTBE profitability as this was a significant factor in the decline of polyurethane EBITDA in the fourth quarter. MTBE See factors are the margin of MTBE per gallon dropped to break even in the quarter which was down from third quarter and down from a year ago. A significant amount of new supply came on the market as a competitor brought a plant back on stream after attempting to convert this facility to iso octane. This together with higher methanol costs reduced profitability. We've mentioned before our process produces MTBE as a co-product of propylene oxide.

We are really in the business for the propylene oxide molecule which is a primary raw material used in making Polyurethanes. The propylene oxide side of the business performed well in the quarter as volumes, prices, and margins were all higher as compared to the third quarter and a year ago. This offset a good portion of the decline we saw in MTBE profitability. We previously warned the MTBE market is going through a great deal of change as the market for MTBE has become an export market. Pricing is now set by brokers and traders which have introduced even more volatility into the profitability of MTBE. We expect that this will continue but we 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.

We're very pleased with the performance of our materials and effects division in the fourth quarter. A big improvement from the results that were recorded in the fourth quarter of last year as adjusted EBITDA of $39 million as compared to $19 million the year ago. Of course this includes the results of our textile effects business that we recently acquired from CIBA along with our existing Advanced Materials business. Our textile effects division contribution was $6 million while Advanced Materials contributed $33 million.

In Advanced Materials we saw very strong revenue growth as compared to a year ago. Revenues were up just over 17% on a 10% volume improvement and a 6% improvement in selling prices. This drove strong margin improvement across most product lines. Fixed costs were a bit higher in the quarter as we invested an additional manufacturing capacity and business overhead platforms in order to support this growth. Our textile effects division continues to make good progress on the restructuring program that we kicked off this past October. Just to remind you with the highlights of this program we plan to spend approximately $150 million over the next couple of years to reduce our presence in North America and Europe and increase our footprint in Asia. Our goal is to capture $95 million in cost savings and drive EBITDA margins to the mid-teens.

I am please to do report that we're on track with this restructuring, most of which will takes place through 2007 and on into 2008. The fourth quarter was impacted by some nonrecurring charges related to the acquisition and the separation from CIBA, but underlying business trends were solid as volumes for chemicals and dyes were up 5% as compared to the third quarter in part due to price increase initiatives implemented in that period.

In Performance Products consistent with the guidance we provided in our last call earnings were up relative to the results that this division posted in the third quarter. This is due to lower raw material prices as we benefit from lower ethylene costs and improved production as certain of our facilities that were offline for scheduled maintenance in the third quarter were fully operational in the fourth quarter. Earnings growth for 2006 was very strong in this segment up 18% as compared to 2005. The primary driver for our specialty -- performance specialties were EBITDA was up over 25% in 2006 as compared to 2005. We're also off to a very good start in 2007 as January is looking like a very strong month for the segment as we are seeing solid demand and pricing and are continuing to reap the benefits of lower raw materials.

In pigments we experienced fairly soft market conditions for TIO2 in the U.S. in the fourth quarter as our volumes were down about 14% which is in excess of what we would typically expect from a seasonal basis. This is a bit of a disappointment for the industry through the third quarter of 2006 it looked like it was shaping up to be to be a pretty good year. Based on fourth quarter it now looks like full year 2006 industrial demand for TIO2 was up about 3% which is well ahead of 2005 industry demand which was down 5% but short of the 5% increase we were expecting earlier in the year.

Let me remind you that long-term global demand for pigments has been around 2 to 3%, so all things considered, 2006 was a slightly above average year from a demand standpoint. Demand was actually fairly health in most regions outside of North America where we experienced a pronounced shutdown in-housing and construction. In spite of the weakening demand outlook we were able to hold the line on prices which were actually up about 1% for us in the quarter. We continued to experience a very competitive marketplace and in certain instances we've elected to walk away from business rather than drop our price.

As you know, the spring paint season late in the first quarter to early in the second quarter is critical to the global TIO2 industry, and tends to set the tone for producer profitability for the balance of the year. I would characterizes this past year as fairly solid, a bit too early to make a call on 2007 at this point but we're less optimistic than we were a year ago given the industry fundamentals we're seeing today. Demand in North America remains soft but we're seeing signs of recovery. We expect the challenging conditions we experience in the second half of 2006 will continue into the first half of 2007.

Before turning the call over to questions I would like to share my thoughts on our announcement this morning on our U.S. commodity sales and our progress and various strategic initiatives. The latest portfolio restructuring announcement this morning reflects the last in a series of value-creating divestitures which have been consistent with our stated strategy of focusing on a differentiated portfolio while at the same time reducing our debt and positioning our company to capture further growth and expansion. These are solid assets that we have sold but we were not at the pont where we were -- but we were at the point where we were limited in our ability to add any more value as a strategic owner. Generally our experience has been that these commodity assets while from time to time throw off significant amounts of free cash flow at the peak of the cycle, they generally don't depreciate over time.

Following the completion of this transaction at year's end, we expect our differentiated and organic businesses will comprise almost 100% of our total revenue and adjusted EBITDA. I expect this new company to generate revenue growth at a rate well in excess of global GDP and average EBITDA margins approaching 15%. We will be a strong vibrant $9 billion differentiated chemical company with tens of thousands of different products and formulations. In 2007 we expect that 20% of our revenues for our company from our differentiated divisions will be coming from the Asian region.

Going forward we will be less dependent on volatile crude oil-based raw materials and more leveraged to the products where we can capitalize on our technology, global marketing, and a low cost of manufacturing. We expect this to result in a more stable and growing earnings profile. We have made great progress in our debt reduction efforts. Following the completion of the Flint Hills transaction we will have reduced our net debt since the time of our IPO, about two years ago by over $3.3 billion, and this obviously has had an impact on our bottom line as interest expenses has been reduced by approximately 60% as compared to the preIPO levels. We look forward to completing this transaction and focusing on value creation efforts on growing and expanding our new portfolio.

As Kimo mentioned earlier despite some areas of economic softness around the world we're well positioned to continue to expand both our volume and our margins. In 2007 we're forecasting all three of our differentiated division to see better earnings than 2006. Our balance sheet has never been stronger, and I am very confident about our ability to capitalize on the changing market conditions that may well have diminished our future economic performance had we not changed our portfolio. In short, we're happy with our 2006 performance. We're looking forward to an even better 2007. Before we open the call to questions, our Chairman would like to share his thoughts on our ongoing effort to maximize shareholder value. Dad? Thank you, Peter. With our announcement this morning the Company is in the final stages of a major restructuring program which will position Huntsman as a world's leading differentiated chemical company. With the sale of our butadiene business to Texas Petrochemical company last June, the divestiture of our U.K. assets to Sobik in December and this morning's announcement with Coke Industries for the purchase of our U.S. commodity petrochemical assets we will have generated over 1.8 billion in value for the Company and its shareholders in just a few short months. More importantly, we have followed through on our commitment to exit our commodity chemical businesses, a commitment we outlined to you almost exactly one year ago.

The new Huntsman Company will emerge with over 50% less debt than two years ago. This together with a more stable portfolio of truly global businesses and much less dependence on crude oil and natural gas prices will result in stable growing earnings and a very positive cash flow profile. May I just add that our management team is the most professional and dedicated leaders and visionaries I have ever had the experience to know in my 50 years in this industry. Given all of this, the Board of Directors has determined that the payment of Huntsman's first quarterly common stock dividend of $0.10 per share is timely and will return additional value to our shareholders and expand our base of investors. Thank you again for your support and encouragement over this year during this period of restructuring and transition. I know you share with me the feeling of a very positive future that lies ahead for our company. I will now return you back to John Heskett our Vice President for Corporate Development and Investor Relations. Thank you very much.

Thank you, John. Before we open the line up to question and answers, like to briefly remind everybody that we are hosting an Investor Day in New York City this coming Wednesday, that's February the 21, at 8 a.m. If you haven't RSVPd for that and would like to attend please contact one of us in Salt Lake. With that, operator, I think we would like to open the line for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Bill Young with Credit Suisse. Please proceed.

Good morning, gentlemen. I got a couple quick ones here for you. Could you bring us up to date, Peter, on the operations in your new MDI venture in China? You said you were trying to refine the process a little bit. Where do we stand there, and how much sales have we lost in the last six months since you started up since you were not running -- you weren't running at an optimal rate?

Bill, good morning. It is nice to hear from you. The Chinese facility is up and running. We were down for a few weeks going through what I would consider to be some typical problems that we typically have with a start-up of a facility like this. We have not lost any sales in China in the fourth quarter. Both our Rosenburg, Netherlands facility and our [Guisemoor], Louisiana facility operated at all time record rates particularly in the month of December and going into January. We have not lost any sales. We did not go on force major. We did not lose any of our Chinese business because of the shutdown of our Chinese facility for a couple of weeks there. We are very low on inventory today. We do need the plant to be up and operating. Bottom line we have not lost any volume on that.

Okay. On the TIO2 business is this operation considered core to Huntsman going forward?

I think it is considered core to Huntsman. As I said earlier I don't want us to ever be in a position where we have to categorize assets that we're buying or selling or keeping as being one category or another. I think that this is a business that has better market conditions ahead of it. I think that we have an opportunity to continue to lower our costs to serve the market, and I believe that we as an owner of this asset have an opportunity to continue to improve this asset regardless of market conditions.

Okay. Great.

I should say relative to our peers. I think if you look at our EBITDA per ton relative to our peers over the last two or three years, we were significantly behind our peers when we look at the performance as we bought it from ICI. Today we're kind of right on top of them, and I think over the next year or so we have an opportunity it move ahead of them.

That's good. Last but not least for Kimo, Kimo given the improvement in your net debt level last couple of years, and your upcoming cash coming in from the sale of your base chemicals business in North America, how long do you think it is going to take for Huntsman to gain an investment grade rating from the key agencies?

Well, that's always interesting to think about. Certainly we believe we are approaching investment grade credit statistics. The agencies tend to lag the time when you hit those sorts of statistics, but we would hope to see notches upward in the short-term here. We haven't had any definitive conversations with the agencies about that but we would hope that would be the case.

You think somewhere by mid-2008 you think that's a reasonable possibility?

I think that would be something we would hope for, sure.

Okay. Great. Thank you.

Thank you, Bill.

Your next question comes from the line of Laurence Alexander with Jefferies. Please proceed.

Good morning.

Hello, Laurence.

I guess first question is on Advanced Materials. Can you give us a bit more granularity on the subsegments in Advanced Materials, like which ones are particularly important to driving margin expansion excluding textile and effects?

I am sorry I could barely hear you. Could you just repeat it one more time?

If we look at Advanced Materials excluding -- putting on one side the improvement that you expect in textile effects, which parts of Advanced Materials do you think are the most important levers to drive margin expansion in that segment?

When you think about that business we have subsegments that include coatings, construction, and adhesive. That is the biggest volumetricly. In terms of profitability. The design and composites business probably has been the strongest of the subsections followed by coatings, constructions, and adhesives and then finally power and electronics.

Laurence, just to give you a sense year-over-year fourth quarter of 2006 versus fourth quarter of 2005, we saw our coatings and adhesives margins were up about 24%. Our design composites and engineering, Kimo said is up 16%, and then finally our last group power and electronics was up about 11%, so really across the board growth year-over-year.

And that includes really as you look at it on breaking it down even further into end use applications, there really is I am just looking from adhesives to coating system to aerospace, automotive, sports and leisure, power, they're all up, and so I think that it has been pretty tough to break out one particular application or one particular segment on the global economy particularly seeing strong demand as you start seeing Airbus and Boeing tooling up for the Airbus 380 production, the 787 production of Boeing. You start seeing wind mills, wind power, and so forth. Demand has been very strong in that area, so we've really just seen it across the board and on a global basis.

That's very helpful, and I guess similar question on performance products. Are there particular levers you think will be most important for '07 and '08?

That's another area -- I hate to sound nebulous in these answers, but we're really seeing very strong growth across a very wide range of products here. Polyetheramines, we're building new capacity in Singapore. We're completely sold out. If anything we're limited on our growth rate in some of these Amine products until we have these expansions coming on. We have expansions that re being built right now in Saudi Arabia, Singapore and some debottlenecking taking place in our U.S. operations, but again it really isn't one particular product or one particular application that's really driving our amines business, our maleic business. All that remains fairly long.

Thank you.

Thanks, Laurence.

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

Good morning.

Good morning, Dave.

Peter, just on the ethylene supply situation, is it fair to say you will be buying about a billion -- will you use about a billion pounds of ethylene in your Performance Products business in that port--?

No. Of our Performance Products, again, we take that from -- that's a derivative of ethylene oxide and propylene oxide. The net consumption that we have of ethylene oxide going into our Performance Products is probably around 400 to 500 million pounds per year. We do have about the same amount, a little bit more of ethylene glycol capacity which will run on an opportunistic basis, so if you look at our ethylene footprint today, we have three plants, Port Arthur, and Odessa. Those are the two that we're selling to the Coke subsidiary. We have a smaller plant, it's a very efficient plant in Port Neches which produces 450, 500 million pounds per year. That we will remain as part of our company. That's on the same side as our amines and is surfactorants consuming facilities, and that is well integrated, same sight, and we'll consume that ethylene internally as as we need more ethylene for opportunistic reasons with ethylene glycol or expanding demand in surfactorants, we'll be able to pay that on the open market.

Just on the MDI unit in China, will that unit be the Rosenburg and Guisemoor type profitability in 2007?

We believe that on a per pound basis when the facility is up and running which we believe this week it should be fully operational back up to its design rates, looking at the raw materials supplies and so forth, yes, on a per ton basis that should be as profitable as our other facilities.

I am sorry to jump in, David. With the exception that in fact it is off balance sheet at least the MDI crude MDI portion of it and its project financed, so really we get the MDI on balance sheet at cost which again is equivalent to what we're producing elsewhere, but it is fully loaded with interest and project financed costs. It is a little lower when you take that into account.

Understood. Last question on the investment grade issue do you need or want to be investment grade and Peter with the balance repaired, are there M&A opportunities out there you have been of course rumored to be looking at the additional TIO2 assets?

David, we've stated that we want to be investment grade, and that is something that we've been trying to achieve.

The M&A front is the pipeline active, Peter?

I am not sure that the M&A pipeline has ever been empty in this company, and I am not sure that it ever will be going forward. We continue to see a lot of opportunities out there, and as we see bolt-on acquisition that is can fit into our company or areas where we can create shareholder value, we'll aggressively pursue these.

Thank you and congratulations.

Thank you.

Your next question comes from the line of [Michael Blum] with [Blue Bay]. Please proceed.

It is Mike Blum of Blue Bay Asset Management. Just in terms of the balance sheet post the closing of the U.S. asset sale, do you expect to be able to get a new bank deal on a non-secured basis such that your bonds would not necessarily be notched going forward which would obviously accelerate a move towards investment grade? And then my second question is with regards -- well, really a follow-up to the last question you are you are rumored to be looking at the Millennium [Linedale] assets. I know that on the last conference call you said that buying additional TRO2 assets really didn't suit the growth profile of the Company in the longer term given the low growth in the industry. Can you just reconfirm that view, and I guess if you were to make this acquisition, would you in some way move this off balance sheet and then further down the line look to sell it maybe?

I will take the bank question first. Listen, we will forever be looking at our capital structure and looking to find the lowest cost debt structure that we can, so as the bank market strengthens and as our balance sheet strengthens, we will certainly access that market. That's probably all we can say about where the capital structure is going.

Do you believe that you could secure an unsecured bank facility? Obviously you're very lowly levered as things stand as you say?

Right, right. Frankly, I would prefer not to comment on that right now simply because I don't know the market well enough now and we're still some ways off before we get the proceeds of the U.S. business.

Okay.

So far as the TIO2 assets as Millennium, we won't comment on particular assets. I think I did also mention in the last call that obviously a combination of their business and ours would -- we believe would achieve very strong synergies, and this might increase the optionality that we may have with our own business as you look forward of combining businesses, but so far as our plans today is pursuing that asset, I would rather not comment on anything.

Okay. If I can just follow-up then, obviously I think that it is fair to say that you've believed over time that the stock is effectively cheap and you rejected the take over over the last year from Apollo. How do you marry the fact that you want or you'd mentioned that you may be acquisitive with wishing to achieve an investment grade rating if it is that you're not prepared to necessarily issue equity?

Well, when we talk about bolt-on acquisitions we're talking about acquisitions that would not significantly change the credit profile of the Company, and so we think that is completely consistent.

Okay. Thank you.

Thank you.

Your next question comes from the line of Mike Judd with Greenwich Consultants. Please proceed.

Good morning and congratulations again on the deal.

Thank you.

A couple of questions. I am just wondering given that now that the European assets are no longer part of the base chemicals business and you basically were trying to alert us to all that, to be cognizant of that as we look at the first quarter, do you have any comments or references for us in terms of how we should -- how things are going in Base Chemicals in the first quarter? And secondly, perhaps in the second half of the year how should corporate and other expense look once the sale of the U.S. assets -- in other words, should there be a decrease there or will you be able -- what were you going to do with the stranded costs? And then lastly, a follow-up in terms of I think it is great that you're paying a dividend, but why did you decide to pay a dividend versus being a little bit more aggressive in buying back your shares, if you could just walk us through the thought process.

Yes. I will take a couple of those maybe in reverse order in terms of the dividend we think roughly 25% of net income is what our peer group pays, and as you mentioned that's roughly what we did in 2006 before some of the impairment charges, and so we feel like that is -- roughly 2% yield is about where we ought to be. As it relates to share repurchases, that's a difficult thing to do given the overhang with Matlin Patterson Group, and our concern about free float in the stock. Let's see, the other question you asked was? Excuse me, Base Chemicals. Because the plant is down, it is really consisted of the U.S. plant that's being rebuilt. We mentioned that that will be flat until it restarts, and that obviously is before the business interruption benefit, and we will really book that gain at the end of the second quarter, early in the third quarter as we settle with our insurers.

Dad, I believe, as Chairman, that the decision on the dividends is really that of the Board, is there anything you wanted to comment on that or did Kimo cover that? I think he covered it fine. I think it is a wonderful thing for us to be a company that pays dividends that there are a number of investors who have asked us about this question since we've been public, and we bring into our portfolio now a longer group, a longer list of potential investors, and wooer excited about the fact we can do this and we'll be delighted when we can get more float out in the market as Kimo said, so that we have a stronger market for people to trade.

Just lastly on the corporate and other, I realize that there is still going to be some stranded costs there, but should we expect to see that begin to decline?

We allocate much of our shared services in corporate costs. The unallocated portion of a hundred ad some odd million dollars, $140 some odd million for 2006 is of course unallocated and would not be going with the divestitures, so we would expect the 2007 corporate unallocated would be something similar to that, 140 to 150.

Thanks for the help.

Yes.

Your next question comes from the line. PJ Juvekar with Citigroup. Please proceed.

A couple of questions. First on TIO2. You mentioned you're being guardedly optimistic. Do you have any intelligence on the supply chain or what's going on? Is it destocking by the paint companies or is it destocking by the big boxes?

We're actually we're -- I think because of the sluggishness in North America we're seeing inventory grad gradually rising on a global basis large largely because of the slowdown we're seeing in North America. I think that if we see a paint season this year we're guardedly optimistic if we see the U.S. at all turn around this year and it should be a pretty good year. There has not been a lot of new capacity coming on in TIO2, and we're guardedly optimistic just in the standpoint that if we see a year like last year, statistically margins should be improving and inventory should be down substantially.

PJ, we see operating rates in the fourth quarter and first quarter in the high 90% rate. That's much better than it was last year at this time.

Great. I'm sorry, I should have explained the inventory of TIO2 and the inventory of paint. I was talking about paint inventory.

I see. I see. I don't have anything in front of me right now, PJ, as far as the paint industry.

You're saying that inventory of TIO2 is going up?

Typically does this time of year. This is the time of year when you're stocking, and it is at a gradual basis. As we look at overall production, the operating rates for TI02 is better this year at this time than it was last year at this time.

We think inventories are pretty similar to what they were last year and the year before that at year end.

The next couple months obviously as we finish out the first quarter getting into the second quarter and you go through that March/April/May time period, that would be a test of demand.

PJ, I will point out notwithstanding over the last four years sort of up's and downs and inventory corrections at the painters and at the compounders our profitability in TIO2 has been amazingly consistent. That's how we see this business, it really doesn't cycle a whole lot. In fact, we've seen the cycles become more muted over the last four or five years. It is a real cash cow for us and pretty consistent.

Okay. The second question was on MDI. Both Dow and BASF announced new expansions. Does that change your supply/demand outlook?

No. I think -- I am not sure the -- exactly what expansions you're making reference to, but I think those were both debottleneck expansions, and I think that if we continue to see global growth of around 7 to 8% which frankly we've been seeing that or a little bit higher on a global basis, we think that TIO2 -- that MDI is going to remain a very profitable product, and a pretty tight product for years to come.

Okay. So if you take improving MDI and declining MTBE, so for the overall segment in polyurethanes what's your outlook for '07, is it going to be up or down.

I think in '07 it will certainly be up. I think that in the first quarter I personally believe that MDI will be up. My concern is around MTBE. MTBE we saw a quite a drastic drop of about $0.40 per gallon margin drop in about a one-week period. The market has recovered substantially since that time, but that sort of volatility, again, I don't like to use the word historical because it seems to be all too often in this industry but that sort of volatility -- and that's why we're trying to give more and more light on these calls in the past we really haven't broken out MTBE per se, but we're trying to break that out more and more, and it is somewhat of a quandary. We've looked at breaking out MTBE all together and putting it in a separate business group but as it is a byproduct of propylene oxide, it is tough to divide the economics of that molecule. I think that MDI, what I would want to get across on this call, and our communications, and we will be getting cross in our investment meetings is MDI remains a strong product, it remains a growing product, and we think in '07 will be better than '06, and we don't want to see that MTBE cloud that issue.

Thank you.

Your next question comes from the line of David Troyer with Credit Suisse. Please proceed.

Hi. On the CapEx, 550 for '07 excluding the Port Arthur rebuild, I guess I had estimated that the maintenance CapEx on the continuing business as differentiated in TIO2 is somewhere between 100 and $200 million maintenance. Can you comment to that first question, second question is elaborate a little bit on the balance of the discretionary spending, when it might begin to produce EBITDA and maybe what magnitude?

Sure. The maintenance CapEx is right in the range you were talking about. I put it right smack in the middle for the most part, the differentiated plans don't require large chunks of maintenance capital, very different from a large petrochemical unit. Particularly in our Textile Effects and Advanced Materials and Performance Products businesses. So we are spending a lot of capital. We would expect over time to spend roughly depreciation in these differentiated and TIO2 businesses, David, which is a little over 400 million, so we are spending a lot. The big chunks are going to a new plant in Guisemoor, Louisiana for our maleic anhydride business. That will be online at the end of 2008. We have a new Singapore plant that will be mid-2007 online, and we've got a -- an expansion of our [Inaudible] TIO2 facility that will be on line in 2008 as well.

Second question, EBITDA and ATIO, which understood you said you were retaining.

Fairly small. A couple of million bucks. Our hope is that as we formulate it downstream a little bit more in the future that we can really improve that margin. It is a pretty small business.

Last question on the segment adjusted EBITDA, in the fourth quarter I think you stripped out Port Neches of about $3 million. Is that true for the -- did you also strip it out for all of 2006?

We've done it in all the previous periods.

Okay. Great. Thank you.

Thank you.

Your next question comes from the line of Gregg Goodnight with UBS. Please proceed.

Good morning, gentlemen.

Hey, Gregg.

Extending Mike's question, looking forward as you see the 100% of the base chemicals and polymers out of your business, what do you see corporate expenses doing say for instance in '08 versus an '06 run rate of 140?

Well, any time you sell big chunks of your businesses, Gregg, you really have to buckle down and focus on that core corporate piece and decide, for example, in IT or accounting or HR, whatever the overhead functions are, if there is anything you don't need. We will be continuing go focus on that corporate unallocated piece and try to get it down, but with inflation and other things I would think that we would probably still be right in that $140 million range.

You don't see a significant reduction 10, 20, 30% or anything like that?

Nothing that we can give you a sense for today.

Okay. Second question. The projects that you mentioned in performance products that are close to starting up or starting up, I guess the Singapore project with the polyetheramines and then DGA project also in Port Neches, would you give us an update on where they are with respect to start up and what incremental EBITDA contribution range you might expect in '07 for those projects?

For the most part the Singapore plant will only really benefit from in the last quarter of the year. You're not going to see a whole lot, and we haven't given any sort of guidance relative to the incremental EBITDA that that may generate, but it is going to be fairly small relative to the overall performance products business in the 5 to $10 million range of EBITDA. It is not a huge plant. The bigger impact will be the maleic anhydride expansion that is over $100 million plant and also the large TIO2 expansion in REITHAM that approaches 100 million, I think it's roughly $75, and we're expecting returns on those investments in the 30% range, so you can sort of extrapolate from that.

Excellent. Last question if I could. You mentioned that MDI demand is expected to go up 7% or that's your expectation. If you add together all the incremental expansions in '07, do you come up with numbers in the 10% or so range, and if that's so, would you expect operating rates to ease down a bit in global MDI in '07?

I think your capacity expansions are fairly accurate. I would just cautions that as you look over '06 when you started with the Hungarian MDI expansion, the Anti, with our project in China, with going back to '05 with Dow's expansion at Shreveport, if you were to take all of these and just say that the start-up is in the third quarter and they're operating at 100% capacity, I think statistically you would have seen the MDI market operating at about 91, 92% capacity utilization sometime in early part of last year, and in reality none of those facilities started up within months of their time. It is a very gradual start-up, and because of that the MDI operating rates were throughout the entire year operating in the mid-to high 90% capacity on a global basis in spite of over an 18-month period having more capacity come on the market than we've ever had in that sort of period before. So looking forward I think that as you look at the capacities, when they come on, if you have a 10% capacity coming on this year, how much of that will actually be operating this year and it probably is anywhere from 5 -- 4 to 5 to 6% of that because it will be starting up throughout the year and so forth, and you couple that with a 7, 8% growth most likely I think operating rates will stay in the mid-to upper 90's as you have some of last year's capacities coming into the market and shift new capacities coming into the market. Unlike at Olefin plant it literally will go through a two or three week shakedown and then a start-up and you're operating at 98% capacity indefinitely if you will. MDI capacity just doesn't come into the market that quickly. Some of these plants have taken over twelve months from the time of their "start up" to when they're operating at designed rates with on spec products, been over 12 to 18 months.

Thank you for that perspective and congratulations on your deal.

Thank you very much, Gregg.

Operator, I think we've gone well over an hour here. How about one last question.

Your last question comes from the line of Dave Silver with JPMorgan. Please proceed.

Thanks. I had a question I guess about the polyurethanes business and if I look at the adjusted EBITDA on a full-year basis the results in that segment were down by about 160 million year-over-year, and I was hoping you might be able year-over-year, and I was hoping you might be able to break that down, maybe by groupings however you look at it, MDI, MTBE, PO, I know there are some moving parts there, but any guidance you could provide would be helpful. Thanks.

We're not ignoring the caller. We're just trying to pull up something that has MDI specific, so we -- when you think about sort of the year-over-year applying approximately $65 million of that decline was because of MTBE. That's the biggest sort of variance that I could point to, Dave. The MDI business and the core polyurethanes business was down a bit but not much.

Could you quantify any further maybe the additional start-up costs in '06 versus '05 related to China? I think you mentioned about 13 or 15 in the fourth quarter.

Yes, yes. That's probably a good number for the full year.

Just a couple of points about the deal that was announced today. The inventory value that you assigned of 286 million, I was wondering if you could maybe just provide a little detail there about is that your cost or is that book value or market value? How was that $286 million figure arrived at?

Well, David, that's our GAAP value which generally is the lower cost of market.

Okay. And then when I compare some of the terms in this transaction to I guess the sale of the European assets to the Sabik, I recall in the Sabik release there was some detail regarding the assumption I guess retirement or other employee liabilities by Sabik. Should I kind of conclude that the structure of this deal will be a little bit different in that regard?

Yes, Dave, I think that's a safe assumption. This deal is for the most part structured as an asset sale, and it is fixed assets, and it is inventory, and the other working capital items including liabilities around pensions will remain with Huntsman.

Okay. And then last question I am all done, but Kimo, did you give a depreciation and amortization number for '07?

I didn't, but should be right around $400 million.

I think if you take that fourth quarter number, Dave, and annualize that, that will give you a good idea of the run rate.

All right. That's it. Thanks very much.

Thank you.

All right. Thank you, everyone, and we'll look forward to seeing everybody in New York next week.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.