Huntsman Corp (HUN) 2007 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to your first quarter 2007 Huntsman Corporation earnings conference call. My name is Jean and I will be your conference coordinator today. At this time, all lines are in a listen-only mode and towards the end of the conference call, we will be taking questions. (OPERATOR INSTRUCTIONS). At this time, I will turn the call over to your host, Mr. John Heskett. Sir, please proceed.

Thank you, Jean, and good morning to everyone. My name is John Heskett, I'm the Vice President of Corporate Development and Investor Relations for Huntsman. Welcome to our investor call for the first quarter of 2007.

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, May 9, 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 74945960. A recording of this call maybe also accessed through our web site.

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 considered to be predictions or expectations and are subject 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 capacity utilization rates, the supply/demand balance for our products and competing products, pricing pressures, technological development and changes in government regulations. Please refer to our most recent 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 first quarter of 2007, we recorded a net cost of $17.7 million related to such costs and expenses and in the first quarter of 2006, we recorded aggregate net losses of $10.6 million related to such costs and expenses. We focused 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 in our first quarter earnings release, which has been posted to our web site.

Today, Huntsman Corporation announced first-quarter earnings as follows. Huntsman reported adjusted EBITDA of $259.7 million as compared to adjusted EBITDA of $291.8 million in the first quarter of 2006. Of course our results do not include the loss margin related to our Port Arthur olefins facility, which is not operational. We estimate the EBITDA impact in the first quarter at approximately $21 million, all of which is subject to reimbursement by our insurers. So if you normalize first quarter results for the outage at Port Arthur, the total was $280.7 million.

Net income available to common stockholders for the first quarter of 2007 was $46.6 million, or $0.20 per diluted share. This compares to net income available to common stockholders for the first quarter of 2006 of $69 million, or $0.30 per share. Excluding the after-tax impact related to losses on the early retirement of debt, losses due to restructuring costs and other items, adjusted net income was $55.9 million, or $0.24 per diluted share. This compares to $76.2 million of adjusted net income, or $0.33 per diluted share for the comparable period in 2006.

Lower results on an adjusted EBITDA basis as compared to the previous year were primarily attributable to softer results in our Polyurethanes, Pigments and Polymers divisions. This was partially offset by stronger results in Performance Products and Materials and Effects. Unallocated and corporate expenses were also lower in the 2007 period as compared to the previous year.

First quarter results, however, were much stronger than those of the fourth quarter. Excluding the results of our discontinued operations, adjusted EBITDA for our ongoing operations increased by 32%, or $63.7 million, as compared to the fourth quarter of 2006 as earnings were higher in each of our three differentiated segments.

I would now like to briefly outline the performance of each of our six segments. Polyurethanes recorded adjusted EBITDA of $118.7 million for the first quarter of 2007 which was $38.8 million lower than in the first quarter of a year ago, but $11.1 million higher than in the fourth quarter of 2006.

Results in the first quarter were negatively impacted by a couple of things. First, MTBE margins in the quarter continued to be extremely soft. As a result, adjusted EBITDA from our PO co-product MTBE business fell by $20 million as compared to the first quarter of last year and by $2 million as compared to the fourth quarter of last year. Second, our MDI Polyurethanes joint venture facility in China was off-line for the entire quarter as the JV was in the process of replacing a damaged heat exchanger. We estimate that the financial impact of this outage, which includes unabsorbed fixed costs and additional freight and duty associated with products shipped from our MDI plants in Europe and North America, totaled approximately $12 million in the quarter.

Looking beyond these two items, our core MDI business continues to perform very well as MDI volumes were up 5% relative to both the fourth quarter and the first quarter of 2006 as strong volume growth in Asia and in Europe more than offset softness in certain construction-related end markets in North America.

Materials and Effects recorded adjusted EBITDA of $62.9 million for the first quarter of 2007. This was up from $37.2 million in the first quarter of a year ago and up from $39.3 million in the fourth quarter.

Advanced Materials contributed approximately $44 million of adjusted EBITDA, while textile effects contribution was $18.9 million. In Advanced Materials, we continue to see a fairly healthy pricing environment with average selling prices up about 10% over last year. Volume growth has also been solid, up about 3% relative to the fourth quarter.

Performance Products recorded adjusted EBITDA of $72.2 million in the first quarter of 2007 as compared adjusted EBITDA of $42 million in the fourth quarter and $51.9 million a year ago. Performance Products benefited from lower ethylene-based raw material cost and volume growth, particularly in our performance specialties and European intermediates product lines.

Pigments recorded adjusted EBITDA of $23 million in the first quarter, which was down compared to $35.8 million in the first quarter of 2006 and flat with fourth quarter results. Volumes were up about 11% as compared to the fourth quarter ad 2% as compared to the first quarter of last year. Average selling prices, however, declined in local currency terms, down 1% from the fourth quarter and down 2% as compared to last year as we have seen a very soft pricing environment in the North American Coatings and Construction segment. Results were also negatively impacted by a 35-day production outage at our Greatham, UK plant. We estimate the impact of this outage at $4 million.

Polymers recorded adjusted EBITDA of $15.3 million in the first quarter of 2007, which was flat compared to the fourth quarter of 2006 but down from the levels of a year ago. Although volumes were relatively healthy in the first quarter, up about 6%, pricing for polyethylene and to a lesser degree polypropylene were extremely soft which resulted in margin compression.

Base Chemicals recorded adjusted EBITDA of $2.9 million in the first quarter of 2007, which was down compared to last year and the fourth quarter. As you know, the bulk of our U.S. business is related to our Port Arthur olefins facility, which was off-line for the entire quarter as a result of the ongoing outage. As I mentioned earlier, we estimate the first quarter lost EBITDA due to business interruption related to this outage at approximately $21 million, all of which we believe will be reimbursed by our insurance carriers.

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 trying to put the first quarter in perspective given some of the noise around the Port Arthur outage, insurance claim and the pending transaction to sell our U.S. Base Chemical and Polymer business to Koch Industries.

Following the restart of the Port Arthur facility, we would expect to receive approximately $760 million from Koch and another $70 million from TPC. In addition, at the end of the first quarter, we believe we were owed approximately $65 million by our insurers as the total of our estimated claim exceeds the payments we have received to date. So assuming the restart of the olefins facility and sale to Koch had occurred and our insurance claims were settled in full, net debt at March 31 would have been approximately $2.7 billion, or approximately $900 million lower.

Pro forma for the application of these proceeds, our interest expense would have been approximately $17 million lower in the quarter, while the businesses to be sold contributed approximately $5 million in pre-tax profit during the quarter. So if you calculate a pro forma adjusted earnings per share, taking into account the reduced interest expense and the elimination of the earnings of the Base and Polymers business, you would come up with about $0.04 per share in addition to the $0.24 we recorded in the quarter.

We continue to be opportunistic in our approach to optimizing the composition and cost of our capital structure, while at the same time continuing to reduce the level of our absolute indebtedness. In February, we took advantage of the continued strong conditions in the bond market and [it] issued additional $147 million of our 7.875 senior subordinated notes due 2004 at an effective yield of 7%. The net proceeds were used to retire all of our remaining 10.125 notes, which should save us about $5 million a year in interest expense.

Also in April, we completed an amendment for our senior credit facilities which included an extension of the term loan maturity through 2014, an increase in the restricted payments basket, the elimination of certain financial covenants and amended borrowing margins. This new facility should provide quite a bit of flexibility going forward as it relates to our capital structure. I think the attractive rates that we're able to issue sub-debt and flexible terms that we're able to secure bank debt are a function of substantial improvement we have made in our credit profile over the last couple of years. I think certainly, the markets have recognized this, and based upon upgrades we received from Moody's and S&P, the rating agencies have also responded favorably.

Let me now walk you briefly through the impact of the Port Arthur ethylene facility outage due to the fire on our first quarter results. In the first quarter, we spent approximately $56 million related to the repair and rebuild of the damaged facility, of which approximately $44 million was capital expenditure. During 2007, we estimate total spending for repair and rebuild of the facility to be approximately $165 million, of which approximately $100 million will be capital expenditures.

In the first quarter, our business interruption loss is estimated to be approximately $46 million. We incurred $25 million of the unabsorbed fixed costs during the quarter which were applied to insurance receivables, resulting in lost profits for the quarter of approximately $21 million. Our total insurance claim net of deductibles as of March 31, 2007 is estimated to be approximately $273 million. Of this total claim, as of March 31, we had agreements with insurers to collect $250 million, of which all but approximately $42 million was received as of March 31. We anticipate receiving additional partial payments of insurance claims during the remainder of this year.

Finally, before turning the call over to Peter, let me share a few thoughts on the second quarter directional earnings guidance. In Base Chemicals with the Port Arthur facility down, our operations will only consist of our cyclohexane unit, so the Base Chemicals adjusted EBITDA will continue to be modest, in the neighborhood of breaking even. In Polymers, we would expect earnings to improve from the levels experienced in the first quarter as recently announced polyethylene price increases are expected to be implemented.

In Pigments, we are guarded about our outlook for the spring paint season, given the softness in demand that we experienced in the first quarter in North America and would expect the second quarter to be similar to the first quarter with a slight improvement due primarily to seasonality.

In our Differentiated segment, profitability for polyurethanes is expected to improve as MDI volumes and margins will be stronger, and given current C factors, [PO] MTBE margins should be stronger. However, our MDI JV facility in China is not expected to restart until late in the second quarter which will continue to result in incremental costs similar to what we saw in the first quarter.

In our Materials and Effects division, results should improve, primarily in textile affects as demand continues to feel strong, particularly in Asia, and price increases have been implemented.

In Performance Products, results in the first quarter were very strong in part due to lower raw material prices. We're not expecting to see this continue in the second quarter and so we will be hard pressed to match the results in the first quarter. In addition, certain of our integrated ethylene, oxides and derivative units in Port Natches will be off-line for several weeks for repair and maintenance. We estimate the impact of this outage to be at $10 million.

When you out all this together, for the total Company we would expect adjusted EBITDA in the second quarter to improve on the levels recorded in the first quarter. However, the improvement will be modest and more a reflection of stronger seasonal trends that we typically see in a stronger second quarter. Peter?

Kimo, thank you very much. I would like to welcome everybody this morning to this conference call.

With total EBITDA at $260 million, the earnings profile for the first quarter improved considerably relative to the fourth quarter when you adjust for the results of our UK Base Chemicals business, which we have now sold off. In fact when you look at the adjusted EBITDA performance of our three differentiated divisions, those being Polyurethanes, our Materials and Effects and Performance Products, results improved by a total of $65 million, or 34% as compared to the fourth quarter. As you know from our investor meeting earlier this year, these divisions are the focus of our strategy going forward. They comprise 85% of our ongoing portfolio and almost 90% of our adjusted EBITDA.

On the raw material cost side, we would generally say that, with a few notable exceptions, prices were flat to slightly down as compared to the fourth quarter and a year ago. However, some of the key raw materials for our differentiated business, like benzene, methanol and [bistinola] were all up quite sharply. In fact, May's settlement for benzene priced at $4.25 a gallon, which is almost 50% higher than the levels for most of 2006. While I do not think these levels are sustainable, unfortunately this will provide a bit of a headwind as we enter the second quarter, especially in Polyurethanes.

During the first quarter, we saw stable pricing, stronger demand and some benefit from lower raw materials. I continue to believe that the global business conditions are healthy, and despite sluggishness in the U.S. housing and automotive sectors, demand is growing. As we compare first quarter to fourth quarter growth, we saw MDI volumes up 5% despite a weak North American construction market. Our Pigment volumes were up 11%, despite a soft U.S. coating environment. Advanced material volumes were up 3%. Textile affects volumes were up 4%, mostly in Asia, and our core Performance Products volumes were up 4% as well. I believe these growth volumes are an example of the strength of our portfolio and geographic diversity.

Now let me spend a few minutes talking about a couple of our key segments. I would characterize the performance of our MDI Polyurethane business in the quarter as very solid. MDI sales volumes were up 5% as compared to the first quarter of last year and of the first quarter of 2006. This was achieved despite the continuing production issues at our new Caojing, China facility and extremely soft U.S. housing and construction markets. Our volumes sold into composite wood products were down as compared to last year's first quarter, but we more than made up for it with very strong volumes into the insulation sector, which was up 18%. Our adhesives, coatings and elastomers business was up 10%, and even our automotive business was up 7%, primarily in Asia and Europe. So we're still seeing very strong demand for MDI, particularly in Asia where our first quarter volumes were up 12% as compared to the fourth quarter and 24% as compared to this time last year and in Europe, where volumes were up 8% versus the fourth quarter and the first quarter of last year.

In the U.S., where most of our composite wood products business is sold, MDI volumes were down 3% from the fourth quarter. On the positive side, we continue to see MDI make strong headway in composite wood applications. As the construction and housing markets recover, we will see even higher demand for MDI and OSB than we have in the past as we believe that the recent downturn in the wood products market will provide the incentive for manufacturers to shut down older high-cost production plywood in phenolic resin-based production facilities.

In the global MDI market, our expectation is that demand will continue to grow throughout 2007 and we're expecting growth rates of about 7% to 8% in MDI, which is in line with our estimates of industry growth as well.

On the pricing side, MDI was flat depending on the region and the currency impact. Further price increases have been announced on the back of higher raw material costs for the second quarter across all regions. Given the solid demand growth we are continuing to see, particularly in Asia, we think selling prices are poised to increase further and as the quarter progresses. We believe that overall industry supply conditions remained tight. We are running our production assets at Geismar, Louisiana and the [Rosenberg] in the Netherlands at very high rates. All of these factors give us a lot of confidence about the business outlook as we move through 2007 and into 2008.

Now let me briefly update your on the status of our joint venture in Caojing, China. As we indicated in our investor day presentation earlier this year, the facility was taken off-line in mid-December of last year to repair a damaged heat exchanger unit and the joint venture is currently in the process of procuring a new exchanger for installation. This new unit is in fabrication and the joint venture would expect to receive delivery on the site in the next several weeks which should allow for installation and restart of the unit by the end of the second quarter. Despite the plant being off-line, we've continued to supply the Asian market with imported products from our other two facilities.

In addition, the splitting facility at Caojing, which takes crude MDI and produces numerous grades of refined MDI, is operating just fine. At the present time, we are able to supply crude MDI from our other MDI facilities and derivatize those products into variance for sale into the Chinese and Asian marketplaces. This has allowed us to minimize the financial impact of the outage. However, we do have unabsorbed fixed costs at the plant and we have been incurring additional freight and logistics costs to bring in imported products. We estimate the impact of these expenses at $12 million in the first quarter and would expect to incur a similar amount of expenses in the second quarter. I can assure you that getting this plant back up and running is a top priority of the joint ventures and its partners, including Huntsman, BASF and Shanghai Chlor-Alkali. It is unfortunate that we do not have additional production from this plant to sell into Asia as the market has been very strong, but we're confident that by the end of the second quarter, the plant will be back up and operating.

Before we move onto the next segment, I would like to comment on MTBE profitability as this accounts for 75% of the quarterly decline, margin decline, in Polyurethanes' EBITDA year-over-year. As John indicated, lower MTBE margins reduced propylene oxide and co-product MTBE margins year-over-year by $28 million. The C factor, which is MTBE price less raw materials, averaged about $0.02 in the quarter versus $0.27 last year. As we've mentioned before, our process produces MTBE as a co-product of propylene oxide. We're really in this business for the propylene oxide molecule, which is a primary raw material used in making polyurethanes. We have previously warned, the MTBE market is going through a great deal of change as the markets for MTBE have become an export-oriented market. Ours is primarily sold into Latin America. Pricing is now set by brokers and traders which have introduced even more volatility into the profitability of this product. In fact, margins for MTBE in the first quarter ranged from a high of $0.30 per gallon positive to a low of negative $0.60 per gallon for MTBE. Current MTBE margins are around $0.58, which if they continue, should result in improved profitability in the second quarter. We expect continued volatility in this product.

In our Ti02 business, volumes were good, up about 11% as the business held up in the Americas a bit better than our competition as stronger demand in Latin America offset some weakness in the U.S. Pricing, however, has softened as coating and construction demand, particularly in North America, represents the largest end market for Ti02. Still working through the critical paint season, the next couple of months will be critical. We did suffer a 35-day outage at our Greatham, England plant. We believe this outage cost us about $4 million for the quarter. The plant is now up and running very well.

I was very pleased with the performance of our Materials and Effects division in the quarter, a big improvement from the results that we recorded in the fourth quarter of last year with adjusted EBITDA of $63 million as compared to $39 million. Textile Effects' contribution was $19 million, while Advanced Materials' portion was $44 million, so strong results on both sides of this business. In Advanced Materials, we saw strong volume growth as compared to last year. Volumes were up over 8% on a 10% volume improvement. This resulted in improved margin expansion across each of our three business units, those being the coating/construction adhesives, our design composites and engineering and our power and electronics. Consistent with the profile of this business, we would expect to see stable growing earnings through the balance of 2007.

Our Textile Effects business continues to make good progress on the restructuring program that we kicked off last fall. Just to remind you of the highlights of this program, we plan to spend approximately $150 million over the next couple of years as we will follow our customers from North America and Europe to Asia. Our goal is to capture $75 million in cost savings and drive EBITDA margin to the mid-teens. I'm pleased to report that we're on track with this restructuring, most of which will take place in the latter part of 2007 through 2008. As we continue to see double-digit growth in India and China, this restructuring will continue to allow us to capitalize on changing textile markets.

We're also leading several pricing initiatives around the world. We believe that a combination of better pricing and lowering our cost will result in expanded margins in the coming quarters.

Performance Products grew -- had an outstanding quarter with adjusted EBITDA of $72 million, which is $30 million or 76% higher than the levels we saw in the fourth quarter. Results were higher in each of our three business units -- Performance Specialties, Intermediate [anmilake] and hydride. Volumes were higher across all of our product lines as compared to the fourth quarter, up an average of 13%. We also benefited from lower raw material prices, including lower ethylene prices and improved production. As Kimo mentioned, this division will likely see a drop in its earnings in the second quarter as ethylene prices rise and we do have some construction or maintenance work ahead of us.

However, 2007 should be a record year for this division. The last quarter we saw this division earn close to this amount was two years ago. At that time, ethylene glycol contributed $17 million of EBITDA as compared to break-even in the first quarter of 2007. All of our differentiated groups have more than made up for these lower ethylene glycol margins, again, a good testament as to our ability to expand the differentiated site of this business.

As we look out into the remainder of 2007, we are pleased with the strength of our balance sheet. Upon the completion of the sale of our U.S. Base Chemicals and Polymer assets, we should have debt of around $2.7 billion, much better than expected a bit over two years ago when we had nearly 2.5 times that amount of debt. We continue to move aggressively into international markets where we can capitalize on dynamic growth in various markets and become less dependent on a particular market segment or a regional economy. By year end, we will have well over 20% of our sales in the robust Asian economy. In 2007, the majority of our portfolio will grow faster than global GDP. In all of our products, we're a low-cost producer, possessing our own technology. In spite of some slowness in the U.S. economy, we remain bullish that 2007 results will exceed 2006. We are well positioned in the right markets with growing product lines and a strong cost position.

2007 will be a great year for our Company. We're forecasting our second quarter to improve over our first and our second half to improve over our first half. I believe that we're very well positioned to improve shareholder value.

I will now return the call back to John Heskett, our Vice President, Corporate Investment and Investor Relations.

Thank you Peter. Jean, I think we're now ready to turn the call over to any questions.

(OPERATOR INSTRUCTIONS). David Begleiter, Deutsche Bank.

Peter, just on Caojing, when will that plant reach commercial production?

We are expecting that plant to reach commercial production probably by the middle of June. It should be mechanically completed at the end of this month, and it will go through about a two-week start-up process during that time period, at the end of that time period.

When will that plant, that JV, earn money in Q3?

Yes, it will.

And when will it earn margins equal to Geismar and the Netherlands?

On a per-pound basis, a lot of that will depend on the strength of the Asian markets and the pricing. But again, it should have -- I'm not sure if you're looking for the actual margin per [pound], but once a plant is up and running, it should be running at designed rates certainly by the end of the second quarter. And at that time, the production costs of that facility will be every bit as competitive as our other facilities that we have. So it really will be depending on the strength of the Asian markets and the pricing dynamics of those markets, which we continue to believe will be very strong.

(MULTIPLE SPEAKERS) [Bayer's] new plant coming onstream in mid to late '08 -- how do think it will impact the markets?

As we look at the growth rates as we've seen in our market, 24% growth in the Asian markets year-on-year. Obviously I'm not going to sit here and say that I'm indifferent about that plant coming into the market. I'd rather not see it coming into the market. But, at the same time, we will be getting some of the tonnage that will be coming off of that facility and it will allow us to continue to grow our MDI supply into that vital and fast-growing market. And if you look at the growth rates in the India into the Southeast Asia markets, we are going to need those pounds when the Bayer facility starts up and I think that the market will readily absorb those pounds.

So we have 80,000 tons out of our plant per year, and then we'll get another 80,000 tons out of Bayer's plant.

Thank you very much.

Mike Judd, Greenwich Consultants.

The Port Arthur facility in terms of the repairs that you're doing, at this point, do you have the new equipment and it's just a matter of basically installing it and testing it, or what are some of the things that we -- should be happening in the near-term or that have recently occurred?

We have most all of the equipment that is there on-site, and we believe, one of the biggest problems we have had with the facility there has been the weather and we have been delayed a couple weeks because of the harsh rains that we've received here in the last couple of months. But the construction of the facility continues to go very well. And as we think through the startup, this is going to be a startup as though you were starting up an entirely new facility where you're going to have to go through segment by segment. This is not like starting up a facility that has been down for a turnaround maintenance job where you're usually able to start it up within a week's time. Typically, a newly built ethylene facility will take about a six-week startup time period, and that's after you've dried out the facility and so forth. So we will be starting that -- we will be starting up that startup process here probably in the month of June.

Where is that startup relative to your prior expectations? It sounds like it's maybe a few weeks behind.

It's because of weather delays and so forth, it's probably about a month behind what we had expected.

Okay, thanks for the help.

Sergey Vasnetsov, Lehman Brothers.

I want to ask you, as far as the tax rate, the previous discussion was about mid 20s, now you're guiding more towards 20%. Is it because of the expected lower earnings in the U.S.?

Some of it is a regional mix of profitability, Sergey, and some of it is just basically how the valuation allowances flow through the full year and we have to sort of recalculate that every quarter.

And with that, Kimo, what would be your cash tax rate this year?

That has not changed in terms of direction, sort of 10% to 15%.

Okay. Secondly on Ti02, you mentioned that you're looking for the markets to be a little bit more challenging this year. What's your view on sequential pricing for the marketplace in the second/third quarter?

I think that right now, we probably would have to say flat, and that is going to be dependent -- it's really a mixed bag. As we look at Europe and Asia, we're seeing relatively strong demand. We're seeing firm pricing in those markets and it's these dog-gone competitors here in North America, the sluggishness in North America. People are exporting more product into Europe and into Asia than they have in past years. And I think that as you start seeing housing markets, the construction market in North America develop, you will see Ti02 -- or improve, you'll see Ti02 improve as well. But we are certainly -- these are times when you certainly are glad to be a European producer and have a strong position in the European market. We do have half of a facility, a joint venture facility that we have in Louisiana, but for the most part for us, our biggest production facilities are in Europe and in Malaysia, and those are the markets where we believe we have the strongest position.

And, Peter, I know textile affects is a big priority for you, particularly for 2008. Can you give us some incremental updates on how you go about its restructuring and integration into the Advanced Materials?

We set a restructuring agenda, we've shared that with our investors during investor day, and we've tried to bring people at up date on these calls. I believe that we are right exactly where we said we would be, we're right where we want to be at this time. We've announced publicly all of the facilities that will be closed, that will be affected by Project Columbus, as we call it, and the restructuring of this business. We're in the process of moving capacity to Asia. Unfortunately, because of the long lead items that you need in shutting down particularly European assets and so forth and requalifying your moving customer base, the improvements we will see from the cost cutting won't be hitting the bottom line until later this month -- excuse me, later this year. I wish it was later, it's not -- until later this year, which again, is what we have always told the market. I have been relatively surprised though. As we have looked at the performance of that business, we have been very aggressive in the past quarter and will be throughout the second quarter of initiating price increases on a global basis. This is something that the previous owner I don't believe was very aggressive in doing. We have taken a lot more aggressive stance in this area and I'm quite optimistic not only about the restructuring plan, but also the opportunity we have to improve pricing in that business over the next couple of quarters.

And Kimo, could you please update us on your plans for use of cash once you get the proceeds post the startup of the plant and sale of the basic polymers and chemicals?

It's all going to pay down debt, so it will be bonds and bank. And like I said, it's about $900 million worth of cash and really not paying any taxes. So that's all free cash flow.

Thank you.

Lawrence Alexander, Jefferies.

This is actually [Martha Shelton] on behalf of Lawrence. Huntsman has [followed] geographic diversity with less than 40% of sales in the United States. If you were to look at just the more cyclical end markets such as chemicals, coatings, construction, automobiles, is it roughly the same ratio or is it at least 50% in the U.S.?

The more commodity end of our business, such as ethylene glycol and some of the intermediates in Performance Products, are more U.S. intensive. That would be ethanolamines, surfactants and so forth, are more North American-based. So I guess the quick answer is -- I think our European and Asian profiles are probably a little bit more differentiated than the North American profile.

Okay. And then, noticing that pricing was extremely strong in Advanced Materials. I don't suppose you could give any granularity on which product lines or end markets saw the strongest pricing power?

We really saw that across the board. We're seeing a lot of the aerospace starting to pick up and pricing starting to pick up in aerospace. We have seen -- a lot of the adhesives markets have been quite strong for us and I really think that it's across the board. You remember a year ago at this time or six months ago at this time, we were looking at flat growth because we were getting out of the more commoditized end of this business and focusing our efforts on more the differentiated end of the business. And people kept asking us -- why aren't we seeing any growth in this business, and that's because we were repositioning our portfolio. Now I think that we're starting to see the fruits of that repositioning, if you will. We have gotten out of the more the cyclical commodity end of the epoxy business and focused much more of our efforts on the formulations, the blending, the downstream where you really are able to more differentiate yourself. So there really isn't one particular end use market that really has (inaudible) us. We really have seen it across all of our epoxy and formulation end use customers here.

Alright. And then also just to clarify the tax rates situation, the 20% tax rate, is that sustainable going forward, or are taxes likely to revert back to the 25% to 30% range in 2008 and 2009?

Right, longer-term our effective rate will be a more normalized sort of 30%-35%. For 2007, we're targeting about 20%.

Okay, and then last question. Volumes were pretty solid in Performance specialties. How much of the increase in volume was in the specialty products, rather than intermediate?

They were both up fairly strong, but consistently specialties has been up. I think prior quarters, it has been flat to a little bit down, and surfactants this quarter was a strong one. I think prices in all of our businesses have been up.

Thank you very much.

Gregg Goodnight, UBS.

You mentioned your startup for your Port Arthur facility, ethylene facility, is going to begin about June and you said it was taking about six weeks to accomplish that. When would you see product out? And the reason for my question is, I assume you have some sort of contingent performance criteria for your C4 North American asset sales.

We would expect mechanical completion to be right at the end of June probably, and then there is an extensive process. It will probably take most of the third quarter to start the plant up. We would expect that it will be operational and meet performance tests that are part of the Koch sale agreement at the end of the third quarter or early fourth quarter.

Great. Second question if I could. I thought that your Rosenberg facility had a scheduled outage, your Rosenberg MDI facility had a scheduled outage beginning this month. Has that been delayed or is that proceeding?

We're able to be a little bit flexible on some of those turnarounds. You know those (inaudible) based MDI plants have turnarounds every year, but with Caojing down, we were able to be a little bit more flexible around that turnaround.

Are you going to have it later this year?

That should be probably during the third quarter, but typically we're able to build up inventory and so forth where we're not going to see -- this is not like shutting down an olefins facility. You usually take the plant down segment by segment and so forth.

The $12 million you mentioned, the impact of your Caojing outage, I assume that does not have any loss business metric to it, that's purely transportation which implies that you don't believe that you're losing sales or margins on those sales?

At this point, we do not believe that we're losing sales. We've not had to cut back any customers or declare force majeure. But I would say that if we are -- if we don't get this plant up and running by the end of the second quarter, again, something we fully expect to, we may have to revisit some of those issues. Right now, our Rosenberg and Geismar facilities have run at all-time record rates and they are running both over 100% capacity. Again, we have the splitting capability. Think of an MDI facility as you make a crude MDI, and then the back end of the plant or the front end of the plant, whichever way you're standing, takes that crude MDI and it refines it and it makes multiple products and grades. The splitter, which takes the crude MDI and makes those multiple products and grades, that end of the facility continues to operate very well. So we're able to take crude MDI, basic MDI from our Louisiana and the Netherlands facility and ship it to China. So it's not that we aren't producing any MDI for finished products in China, we are, it's where the crude MDI is coming from. But, again, with the growing rates and so forth, we certainly aren't in a position to sustain this sort of supply arrangement in China for after another couple of months here with the growth rates that we're seeing. Again, we're very confident we'll have that plant up and running in time.

Gregg, if we had produced in Caojing and sold into China at current market prices and we sold all 20,000 tons, we would've had an additional $23 million or $24 million of EBITDA. (MULTIPLE SPEAKERS) Cover the $12 million of unabsorbed fixed cost and then another $12 million of (MULTIPLE SPEAKERS).

That's a good data point. How would you typify the MDI market globally right now? Is it -- it doesn't sound like it sold out. What global operating rates do you think people are averaging?

I think we're probably looking at a global operating rate in the mid-90s, and again these are very fickle and temperamental facilities. If you look at the actual production to the actual design rate you would actually [rank today] it's around 97% capacity utilization, Gregg, and you have a market that continues to grow at about 7% or 8%, and that's with a very sluggish U.S. housing and construction and automotive market. As you know from previous conference calls we've never been particularly strong or well focused in the U.S. automotive end of our business in urethane, polymers or any of our products just because we don't think there's a lot of reward for technological improvement in those markets as you see in Europe and in Asia. But I do think that as you look at the U.S. housing markets, if they start turning around in '08, I think that this urethane market has room actually in '08 to be stronger than it was in '07. I think in '07, going to see good, solid 7%-8% growth. You'll see nearly double GDP sort of growth rates here.

That mid-90s I assume is effective operating rate. What is the differential to nominal operating rate?

I'm sorry I don't have that number in front of me.

5%, 10%, something?

Probably around 5% to 7%, I would imagine.

[Bob Menta], J.P. Morgan Asset management.

Kimo, hopefully a quick question. I know you're addressed a little bit of the pro forma with everything going on, but trying to take it I guess to the next step and assuming after the business is sold here in the U.S., the commodity business, if I look at the segment chart that you guys have in the press release and I don't think it has a page number but total from continuing operations adjusted EBITDA 260 versus 300. I was trying to make some adjustments. Basically if I eliminate Polymers and Base Chemicals, because that's obviously what's being sold, that's pretty straightforward. Now the Polyurethanes, the 119 number, I would add back 12 for that for the outage and then I would add 4 to the 23 on Pigments. That's kind of my first step I guess. Does that seem correct to you?

Sure, if you're working through a pro forma without the outage.

I guess the real question comes -- in trying to look back page 9 where you have the reconciliation under the EBITDA column, for each Q1 of each year, the -- the loss on the -- in the Corporate segment I guess in my mind I would add back the receivable securitization in both periods, the loss there, loss on extinguishment of debt. The real question comes on the restructuring impairment and plant closing. The 12.2, is that 12.2 a coincidence, or is that the 12 million that's in the Polyurethanes segment?

No, it's different. That's just restructuring in Materials and Effects where we're at, as Peter mentioned, we continue to restructure the European, and then there was some impairment charges in Australia. So that's just a coincidence of numbers.

So those numbers, that 12.2 and the 7.7, if I was doing it the way I've laid out, in addition to adding the 12 and the 4 back to Polyurethanes and Pigments, I would be -- those numbers are broken out because you view them as onetime type items then? Is that correct?

Yes. And it's what we've done in the past. The AR securitization, if you're getting to earnings per share, I would call that interest and I wouldn't add it back. But if you're trying to get to an EBITDA number, I think you would add it back.

I will do those calculations. But I guess then at year-end '06 for the full-year, I believe you had previously given the way I'm trying to a 960 number. Is that correct?

Yes, that's right, for the continuing businesses.

So 960, and then I can do this math. Okay, that's all had, thanks.

Michael, [Blueberry] Asset Management.

Hi, it's Mike (inaudible). One quick question. I know you mentioned on the last conference call that you were looking at some possible way of utilizing the MTBE chain and maybe making additional monies out of that. I just wondered if there was any update on the --.

Nothing new. I think we've said in the past that it's a significant capital expenditure to convert the MTBE plant to other products and we were reviewing that. In fact, we own the rights to technology to do. But while it has been volatile, we still believe that it will be profitable and we continue to review it.

Can I just ask that going forward maybe it would be useful if you could split our the PO MTBE EBITDA from the underlined MDI EBITDA so that at least, I mean or just report them in the commentary so that at least we could see the impact on a quarterly basis, because obviously the MDI business continues to grow strongly but I think --.

It's some noise there, and I understand that. We have in our presentations that are on the Web site always there's a chart that breaks out the MTBE contribution and so fourth-quarter '06 was a negative $5 million of EBITDA contribution and in the first quarter it was also a negative $5 million contribution in MTBE alone. That's not PO MTBE, that's just the MTBE portion.

Okay, thank you very much.

PJ Juvekar, Citi.

Hi, this is (inaudible) [Kumar] standing in for PJ, I have two quick questions. I have two quick questions. With reference to your textile effects attribution, was this accretive in the quarter?

Absolutely, because there's no depreciation in the business to speak of, so any EBITDA is really pretax profit for us.

So, what, $20 million roughly in EBITDA, tax effected, that has got to be somewhere on the order of $0.10 a share.

And my second question is -- what kind of strength do you see in Ti02 for the rest of the year?

I think a lot of that really depends on what we're going to be seeing in the construction markets, particularly in North America. I think that, again, the demand that we're seeing in Europe and Asia if we were seeing those similar sort of demand patterns in North America, I think that we'd have real opportunity for improvement in pricing and margins here. And it really is going to be basis what is -- basis around the North America demand in construction in the coatings industry for North America.

Frank Mitsch, BB&T Capital Markets.

Good morning, this is James [Chang] for Frank Mitsch. I just (inaudible) on the (inaudible) on the MDI volume side. You talk about 5% year-over-year increase in the volume. Do you think this is more than the industry demand growth, or do you think it's less?

I think we're a large enough part of this industry that I think it reflects where the entire industry is going, particularly relative to Asia. And so I would suggest that it looks an awful lot like what the industry's doing. I don't have any sort of industry data in front of me, so I'm guessing here. But my guess is that most of the large players have a significant insulation business and insulation right now is driving a lot of this growth.

And some of this increase is obviously due to your spreads are still running, so year-over-year, your actual capacity has also increased, right?

Certainly on the variance side of things, not on an absolute MDI basis, crude MDI. We have debottlenecked the [bid] along the way, but certainly it doesn't reflect more MDI molecules in the market because Caojing has been down.

Can you also comment on your capacity expansion? I believe you still have like probably two-thirds of your capacity expansion in Luxembourg, which, one, you're going to complete, and also a long-term project on MDI, I think it was BASF, right? What's the status on that project.

You're talking about the Rosenberg MDI expansion?

Yes.

Yes, and that is an expansion again that will be coming on incrementally over the next two years. So as the market and as we need those pounds, they will be coming on. But we're not going to be bringing on capacities that the market does not need or that we're just dumping into the market because we have it here. A lot of those pounds too are upgrading the specialty end of our business so that we're taking commoditized grades and moving it up the scale, if you will.

So it's kind of pushed back a little bit, because previously, if I understand correctly, it was a 2006-2007 event, and you're now talking probably next two years.

No, I would say that most of that will be coming on in 2007. It will be completed and built in 2007 and then going into the market in 2008. And bear in mind that MDI is a diverse enough product. This isn't a product like polyethylene where you can take -- 80% of your production will go into 80% of the applications. There's a very, very wide range. And so as people bring on tonnage and bring on new capacities, it's going to do depend on the end-use application, the variance, the blends and so forth. All MDI is not the same.

Sure. And also on the longer-term project, on the 2010 target project for MDI, was it BASF -- is there any new progress there?

No, we continue to evaluate the markets and look at the stability of the markets and what will be needed.

Thank you.

I'm showing no questions at this time. I will turn the call back over to management for closing remarks.

Alright, operator, thank you and thank you everyone for participating in today's call.

Ladies and gentlemen, thank you for joining us on the call. You may now disconnect your phone lines.