Huntsman Corp (HUN) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the second quarter 2009 Huntsman Corporation earnings conference call. My name is Lisa and I'll be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Mr. Kurt Ogden. Please proceed, sir.

Thanks, Lisa, and good morning, everyone. I am Kurt Ogden, Huntsman Vice President of Investor Relations. Welcome to Huntsman investor conference call for the second quarter 2009. Joining us on the call today are Peter Huntsman, President and CEO, and Kimo Esplin, Executive Vice President and CFO. A recorded play back of this call will be available until midnight, August 13, 2009. The recorded play back may be accessed from within the US by dialing 1-888-286-8010 and internationally by dialing 1-617-801-6888. The access code for both dial-in numbers is 50208849. A recording of this call may also be accessed through our website. This morning, before the market opened, we released our earnings for the second quarter 2009 via press release and posted it on our website, Huntsman.com. We also posted a set of slides on our website which we intend to use on the call this morning in the discussion of our results. Before we begin a discussion of our earnings, I would like to say a few words about forward-looking statements.

During this call we may make statements about our projections or expectations for the future. All such statements are forward-looking and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. In addition, we may also refer to non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP financial measures in our earnings release posted on our website at Huntsman.com.

I would like to outline the format for today's call. I will summarize a few highlights for the quarter and then turn the call over to Peter Huntsman who will review the performance of our business in the quarter. Finally, Kimo Esplin will address certain aspects of our business including our liquidity and working capital. At the conclusion of our prepared remarks, we look forward to taking questions from you. As we refer to earnings, we will be referring to adjusted EBITDA from continuing operations, which is EBITDA adjusted to exclude the impact of discontinued operations, restructuring, impairment and plant closing costs, income and expense associated with the terminated merger, the sale of accounts receivable, unallocated foreign exchange gains and losses and extraordinary gains and losses related to the purchase of the business. We focus on adjusted EBITDA from a management standpoint as we believe it is the best measure of the underlying performance of our 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 EBITDA, adjusted EBITDA and adjusted net income from continuing operations attributable to Huntsman Corporation can be found in the appendix in our slides and in our second quarter earnings release.

In our earnings release this morning we reported second quarter 2009 revenue of $1.866 billion, adjusted EBITDA from continuing operations of $96 million and adjusted EPS from continuing operations of $0.27 loss per diluted share. As compared to results from the prior quarter, our second quarter 2009 adjusted EBITDA increased from $50 million to $96 million. Sales volumes increased as average selling prices decreased with the fall of raw material costs as reflected in the favorable change in direct costs. As compared to results from the prior year, our second quarter 2009 adjusted EBITDA from continuing operations decreased from $210 million to $96 million. Similar to what we saw last quarter, the most significant reason for the year-over-year decrease in adjusted EBITDA was the decrease in volume primarily attributable to the worldwide economic slowdown. The favorable decrease in direct costs, which include raw material costs, more than offset the decrease in average selling prices. With that, I will turn the call over to Peter Huntsman, our CEO.

Kurt, thank you very much and thanks to all of you for joining us this morning. Now, let's turn to slide number four. Like most of our industry, our polyurethanes demand was down from where we were a year ago due to the drop in global economic activity. As mentioned during our last quarterly conference call, we believe that we have seen the worst of this recession. Demand has started to recover in certain markets and demand destruction appears at this time to have stopped falling from what we were experiencing during the end of the fourth quarter and throughout most all of the first quarter of 2009.

In polyurethanes during the second quarter we saw our sales volumes increase by 14% over the first quarter. While we are down 18% over the second quarter of the previous year, we are encouraged by many of the signs we are seeing around the world. We remain diligent in our efforts to manage fixed costs within this business without sacrificing service to our customers and longer term growth. We have reduced inventories and rationalized operating rates to align with customer demand. This has been achieved by idling certain of our production lines while also operating others at reduced rates.

We believe our three strategic global manufacturing sites located in North America, Europe and China are among the most cost efficient MDI production sites in the world which will enhance our ability to prosper as global economies improve and return to strong demand for MDI based polyurethane products.

Propylene oxide and its coproduct, MTBE, performed very well in the quarter. Propylene oxide along with MDI are the key products driving growth in providing polyurethane solutions to our customers. MTBE delivered solid margins primarily as a result of seasonal effects and pricing of gasoline as we move into the summer driving season. Demand remains very strong outside the US with the majority of our MTBE sold in to Mexico and South America with smaller amounts exported to Europe and Asia. We expect MTBE as the co-product of our propylene oxide production process to continue to be profitable for us in the foreseeable future.

Turning to slide five, let's review our advanced materials division. Within our core business of formulated systems and specialty components, we saw a 6% increase in demand during the second quarter compared to the first with June being the strongest month thus far. At the same time, average selling prices remain stable and the cost of raw materials decreased leading to an expansion of margins. Our do-it-yourself applications and repair adhesives, including our Araldite branded products which are more widely recognized in Europe and Asia, as well as our coatings, power and electronics markets saw encouraging incremental growth as well. Our Asian business in general has been less affected by the economic downturn and China formulation cells, which represents about 55% of our Asian business, has been particularly robust. Sales and volumes are 6% higher than the same period in 2008.

Our more commodity-based resin business mainly situated in Europe and North America saw decreases in volumes and margins during the quarter. In an effort to operate more effectively within the context of a lower demand environment, aggressive restructuring efforts within this business continue and our commercial sales force and supply chain functions have been simplified along with the realignment of our regional work force. In addition, we have successfully secured a number of agreements with local governments to offset a portion of labor costs as we temporarily lay off employees. The benefit of these efforts are reflected in our results as operating fixed costs decreased $9 million in the first half of 2009 compared to the prior year.

Turning to slide six, with regards to our textile effects division, we saw demand improve by 14% during the second quarter relative to the first. Sales volumes increased within our apparel and home textile products as well as specialty textiles. We believe the improved sales volumes are attributable to three broad factors. First, we are seeing an increase in demand in Asia, South America and, to a lesser degree, Europe. Second, we are benefiting from the effects of our recent reorganization of our global sales and marketing focus resulting in an increase in the number of new customers. Thirdly, as in many of our divisions, destocking has come to an end and we are seeing customers restock their inventories as demand gradually increases.

Our textile effects business has the highest contribution margin rate within the company. We continue to address fixed costs within this division and in December of 2008 we announced a plan that we'll achieve $60 million in annual savings. We are on target to reach this goal by the end of the year and expect $23 million in annual savings during the second half of 2009. On June 23, we acquired the Baroda Division of MCIL, otherwise known as Metro-Chem, for approximately $35 million including working capital. This acquisition was funded through local financing and local Huntsman Indian entities and, as a result, has little impact on our overall liquidity. Metro-Chem has been a significant supplier to our textile effects business in the past. This acquisition plays a key role in the restructuring plan of this business as we relocate our manufacturing closer to our customers in Asia and India and reduce further our European fixed costs. We expect equivalent Asian manufacturing capacity costs to be significantly lower than existing European-based costs.

Turning to slide seven, our performance products division saw a contraction in margins during the second quarter as the average selling prices caught up with their earlier decreases in raw material costs. This decrease in average selling prices was primarily driven by contractual reset in our sales agreements consistent with the outlook we provided during the first quarter conference call. Volumes remain relatively stable and increased slightly as compared to the first quarter.

Our performance specialty business, which represents around 50% of our divisional earnings, experienced a significant improvement in demand during the second quarter across most of its business units. The global demand for polyethyleneamines and certain other specialty products remains robust despite the global recession. We expect the construction of our ethyleneamines manufacturing facility in Jubail, Saudi Arabia, a joint venture with the Al-Zamil group to be complete later this year and operational in early 2010 with an annual capacity of 60 million pounds.

Sales volumes in our performance intermediates businesses were essentially flat compared to the first quarter. However, the lagged adjustment to selling prices reduced margins from first quarter level. In addition, planned maintenance in our US based ethylene and ethylene oxide units during the quarter negatively impacted earnings as we used purchased material to feed our derivatives units. Demand for maleic and [hydride] improved in the second quarter as the period of customer destocking ending and export sales increased. Overall, maleic sales increased by 28% higher than the first quarter, yet margins declined as a result of higher raw material prices. We've announced price increases to counter these changing raw material prices.

On slide eight, we'll talk just a minute here about our pigments business. Earnings for the second quarter in 2009 within our pigments division were positive and although it's nice to see them back in the black, we expect much more from this division in the future. Demand during the second quarter increased in all regions of the world compared to the first quarter. Notably, demand in Asia has returned to five-year historical averages. The rebound in demand has been much lower in our core Europe and North American markets, although we are encouraged by recent monthly customer order patterns. We have seen some very positive signs within the industry recently. The beginning of the year we believe industry inventory levels were as high as 90 plus days whereas at the end of the second quarter we believe they have fallen to approximately 50 days, which is more in line with historical averages for this time of year.

We've taken aggressive action to mitigate the impact of the economic slowdown and are well in to plans to restructure our costs. We are seeing benefits of this cost reduction effort as fixed costs decrease by $12 million in the second quarter compared to the second quarter of 2008, including the benefits of closing our Grimsby, UK facility which we shut down in late March. Annual operating cost savings from the Grimsby, UK closure will be approximately $28 million. We recently announced price increases in all major markets and expect to see these increases taking effect in the third quarter. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer. Kimo.

Thanks, Peter. Let's turn to slide number nine. Similar to the rest of our industry, our revenue decreased in all regions and across all segments of our company as volume decreased 18% and average selling prices decreased 22% compared to the previous year primarily as a result of the economic slowdown. The global impact of the slowdown is visible as you consider sales decreased 42% in Europe, 39% in US/Canada, 27% in Asia Pacific and 26% in the rest of the world countries.

On a more encouraging note, as we look at our second quarter sales compared to first quarter, volumes increased 11% as average selling prices fell 1%. Much of the increase in demand is attributable to seasonality; however, we are encouraged by the order pattern in our overall monthly year-over-year sales volumes. On a regional basis, Asia Pacific is leading the demand recovery along with our rest of world region while US and Canada has shown modest improvements. European demand remains sluggish. Although year-over-year price and volume were down in the second quarter, contribution margins actually improved as raw material costs decreased and the benefits of our restructuring efforts began to appear. Simply put, if our business had the same volumes as the previous year, our adjusted EBITDA would have been better than the previous year.

Let's go to slide ten. As we consider our quarterly year-over-year sales volume which reflects seasonal fluctuations, demand bottomed out in the fourth quarter last year at negative 21%. Since then, quarterly comparisons have incrementally become less worse as first quarter was negative 19% and second quarter was negative 18%. Although the absolute comparison isn't favorable, the trend is encouraging and we are guardedly optimistic that it will continue as we recover from the global economic recession.

Let's turn to slide 11. As we are aggressively managing our working capital investments and have made great strides with inventory reductions, during the quarter we achieved a favorable cash benefit in our primary working capital, including the change in receivables associated with our off balance sheet accounts receivable securitization program of $165 million. Total inventories have decreased in value 23% compared to the end of the year as finished goods have decreased 22% on a volume metric basis. Part of our efforts to reduce working capital include reducing finished goods inventory balances. As we lowered our production and sold more than we produced, there was less fixed cost absorption capitalized into inventory. As a result, during the second quarter our EBITDA was negatively affected by approximately $34 million of these charges. As a result of the settlement agreement with Credit Suisse and Deutsche Bank and the active management of our working capital, our total net debt, including our off balance sheet accounts receivable securitization program, has decreased by $923 million from year end.

Turning to slide 12. As of June 30, 2009, we had $2.3 billion of cash and $656 million of unused borrowing capacity summing to a total of $3 billion in liquidity on hand at the end of the second quarter. Although much of this cash came from our favorable settlement with the banks in June, our underlying business generated positive free cash flow from operations of approximately $160 million during the quarter. As we sit here today, given the uncertainties in the world economies, we are targeting approximately $800 million to $1 billion of liquidity to provide future operating flexibility for the company. We are considering a reduction in the size of our current credit revolving facility due 2010.

In June, we reached a favorable settlement agreement with Credit Suisse and Deutsche Bank for $1.7 billion in cash and financing. We expect to pay approximately $185 million of cash taxes associated with the settlement. Following the settlement, we redeemed all $296 million of our outstanding 11-5/8% senior secured notes due 2010 and all of our $198 million of outstanding 11.5% senior notes due 2012. This debt reduction, which will be reflected in our balance sheet as of September 30, 2009, eliminates all meaningful debt maturities until 2013. Interest savings from the pre payment of the $494 million of high coupon debt more than offsets the costs associated with the $1.1 billion low coupon financing received from the settlement. We expect to extend the maturity of our off balance sheet accounts receivable securitization program on a multi-year basis in the third quarter.

Let me remind you that we remain in discussions with insurers of our outstanding insurance claims relating to the fire at our previously owned Port Arthur Texas facility. As of the quarter end, our outstanding claims were $243 million. Binding arbitration is expected in November 2009. Any additional recoveries are expected to be used to repay secured debt. I'll turn the call back over to Peter for some concluding remarks.

Thank you, Kimo. During our last conference call I answered a question about our litigation with the banks and stated that it was our objective to improve our balance sheet. I'm very pleased to report that we have accomplished our objective with the settlement that we reached with Credit Suisse and Deutsche Bank. In the past 12 months, we've collected over $2.7 billion in cash and settlement payments. These time consuming and expensive battles are behind us and we're now focused on our future. We have no doubt that in light of the current global economic situation and the prospects of years of risky and resource-consuming appeals that we have made the right decision. We are one of the few companies that can report a stronger balance sheet today than we had 12 months ago. Our liquidity is as strong as it has ever been, our covenants flexible, and we have prepaid our debt at meaningful maturities for years to come and our dividend is secure. I am immensely proud of our team and Board for accomplishing what no other company has done during a time of so many failed deals.

As we look at the global economy, we're focused on growth and taking advantage of our international markets. We are seeing our Asian business improve nicely and we are seeing early signs of recovery in some sectors in Europe and North America. Our monthly order patterns continue to improve. While many of our competitors are struggling with direction or which businesses to keep, we are well focused on expanding our market share around the world. We are also seeing signs of our previously announced cost reduction program. As we announced earlier, we intend to eliminate $150 million from our cost structure by the end of this year. Early signs of our cost reduction program and increased volumes are showing in our results as our EBITDA nearly doubled from $50 million in the first quarter to $96 million in the second quarter.

We've also been focused on managing cash and working capital more intensely over the past six months. As was mentioned earlier, our report -- was mentioned earlier, our reported EBITDA could have been $130 million for the second quarter, but we chose to manage working capital and reduce production at the cost of EBITDA in some of our divisions. The result of this focus is apparent in that in spite of these challenging market conditions, our business generated free cash flow from our operations of approximately $160 million during the second quarter. In short, our balance sheet is strong, our business is improving and we're technologically and geographically well positioned to take advantage as the global economy continues its recovery. With that, I'll turn the call back over to Kurt.

Thank you, Peter. Lisa, that concludes our prepared remarks. Would you explain the procedure for Q&A and then open the line for questions?

(Operator Instructions) Please stand by for your first question. Your first question comes from the line of P.J. Juvekar with Citi. Please proceed.

Yes, good morning Peter and Kimo.

Hello, P.J.

In performance product, that business has held up well so far and suddenly declined in Q2 and I think, Peter, you mentioned that some of that stuff is contractually tied to raw materials. Can you tell us how much of those volumes are contractually tied to raw and just give us some idea about what happened to that business?

It varies from division -- from the businesses that are within that business. Roughly about half of the sales that we have within that division are tied in some form or another to raw material pricing. And, again, in specialty, some of the specialty applications, so forth, you might have a much lower number than that and some of the more commodity areas that are more dependent on raw material values and so forth you're going to have a higher number than that. So it's not categorically across the board that way. So I think that, again, we saw volumes pretty flat. I would remind you that a big chunk of this business is going into consumer end use applications, soaps, detergents and so forth where we didn't see as much of a fall off in the first quarter as we did in some of our other businesses and, likewise, we probably won't see as robust of a bounce in the second quarter where we are seeing some of our other businesses come back stronger. So I -- to answer your question directly, it's about 50%, but that business should continue to do well throughout the year here.

And just a quick question on polyurethanes and MDI which probably was 90% of your total EBITDA. What are the trends in the three regions, US, Europe and Asia and what are the operating rates in each region? Thank you.

The operating rates in the second quarter, we were about 66%, the industry was operating at about 60%, 65%. Fair to say that in Asia we were operating in the high 90%. We're essentially sold out in Asia. We're seeing strong demand coming from the automotive from the infrastructure demand in infrastructure and in the insulation. In North America throughout the quarter we saw a pick up that was due in part to our focus on spray on foam applications. So these are applications we're seeing in North America where you're able to spray on a liquid urethane that goes into a foam and this is particularly around reinsulating older buildings. Europe we're seeing a bit of an increase that's taking place in the insulation markets as well. So I think that as you look across the board and you figure that in Asia we're operating in the high 90%, in the US and Europe it would have been around 50% to 60% as we're trying to reduce inventories at the same time. So certainly we saw the capacity utilization rates improve throughout the quarter as well from the beginning of the quarter to the end of the quarter.

Just to follow up on Peter, regionally for polyurethanes, I think it's interesting when you look at year-over-year regional MDI volumes, Asia was up about 5%, Europe was down 20%, Americas was down 30%. Give you a sense, but when you look at it sequentially, Asia up 5%, Europe up 10%, Americas up 17%. So sequentially we're seeing some good strength, particularly in Asia. That's no surprise to anyone. Give you a sense for seasonality first quarter to second quarter, we typically don't see that kind of seasonality first quarter to second quarter. And Asia, for example, last year first quarter to second quarter, we were only up volumetrically 15% and here we're up in Asia. Really, really strong Asia results.

Safe to say, P.J., that we're also seeing these results continue into July with -- this is more than just destocking or restocking, excuse me, that is taking place. So, yes, I think that we are -- we certainly have turned a corner here and I look forward to stronger markets coming back in Europe and the US, certainly Asia is very strong right now.

Thank you very much.

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

Just looking at your chart 11, I guess the implication there is that your inventory to sales ratio is down to around 15% versus around 20% at the end of March. Is that about right?

I don't have that calculation in front of me, but that's probably -- that could be right.

It sounds about right.

Okay. And then in terms of how you expect to manage your inventories through the remainder of the year, could you just comment on any plans there, please?

So that's going to be, again, dependent business by business, depending on inventory levels and so forth. I think that you'll start seeing a slowing down or reducing of inventories by the end of the third quarter. Some of these businesses have objectives between now and the end of the year to reduce inventory. So kind of tough to say exactly where we'll be, where demand will be between now and the end of the year, but we certainly believe that there's continued room for -- to be able to manage our working capital and to continue to get cash out. Again, assuming that there's no severe drop off in demand or change in raw material prices.

We manage our inventories based on our forward look as opposed to a financial calculation, which is a backward look. So we obviously think a lot about where demand is and where we're going and also we manage it on a volumetric bases, so it's pounds. If you see raw materials move up, you're going to see obviously working capital move up a little bit. We still think we have room to go. With the stronger demand, we're going to build a little bit of working capital.

Thanks.

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

Good morning.

Good morning.

Good morning.

I guess a couple of questions. First, in terms of the normal seasonality, what do you normally see in North America? Like you mentioned North America volumes are up about 4% sequentially. What would you normally have seen?

In terms of volumes, we would typically see first quarter to second quarter in the 7%, 8% range in terms of seasonality. Second quarter is always our strongest sales quarter. Third quarter is the second best quarter. Obviously -- and I'm speaking globally here. I think your question was specifically around North America. I don't know what North America only first quarter to second quarter is. Typically you'll see 7% to 8% stronger volumes in the second quarter globally. Obviously, first and fourth quarter are a little slower particularly in Europe where the holiday seasons are slower.

Europe does well with the holiday seasons in the third quarter as well in the August time frame. So they -- which we typically don't see in North America. So they do much better than we do in that regard.

And then could you discuss sort of raw materials, what you saw this quarter, was it a benefit or a head wind? And then particularly what you're thinking for the next few quarters, particularly with the propylene and [benzene].

I think as we look at raw materials, on average, if you look from the first quarter to the second quarter and you look at something like crude oil, again, we don't buy crude oil, but there was a 40% increase in crude oil. There is an 18% decrease in natural gas and so we're buying raw materials that are somewhat attached to both of those products and somewhere in between. So it's really a hodgepodge. But I think as we look across the board from first quarter to second quarter and we look at some of our larger raw materials of epichlorhydrin, ethane, isobutane, methanol, propane, benzene, most all of these products are up in the second quarter and I think that in the third quarter if we look at what we've seen thus far in July and into early August, they look like they've kind of plateaued a little bit, but I wish I were seeing, you know, some downward pressure on raw materials. As I look around the globe right now and I see an improvement in Asia and I see an improvement in demand, I see an improvement in optimism with our customers, I see the improvement in our balance sheet, the only storm clouds that I really see from my perspective right now as I look out over the next couple of quarters is the uncertainties around raw materials. Frankly, in my opinion, they still don't make any rhyme or reason as to why they would have doubled from their lows here in the last six months, but that is something we've been very aggressive with price increases and we'll continue to watch that very closely.

Let me just point you back to slide three. In terms of year-over-year comparisons on slide three, direct costs decreased $318 million and prices decreased $243 million, so contribution margins expanded on a quarter over quarter basis, direct costs, which is again for our business translates into utility costs and raw material costs, prices versus direct costs were about the same. So contribution margins were very similar to the previous quarter.

And then lastly, which areas in particular do you think you can make significant market share gains and how does this tie into your M&A strategy going forward?

Well, I think that right now as I look at what we're seeing with a number of our customers that are starting to -- looking at increasing demand and so forth, there's a number of questions our customers have around who's going to be in the supply position here for the next few years, who can we rely on on longer term contracts, on specking in material and so forth. As I look across the entire -- kind of the entire range of customers and I'm speaking more globally here and across all of our businesses, unlike any time that I've seen in the last 20 years or so, a lot of our customers are really questioning where is the chemical industry going and who is going to be here in the next year or so and there's never been a time when you've seen particularly some of the larger chemical companies question what divisions are going to keep, what are they going to sell off, what is going to be the disposition of those assets and so forth. So I think not only do we have an opportunity to keep what we've got, but I think with the strength of our balance sheet and our direction going forward, I think that we've got an opportunity to not recklessly where we're doing it by buying in volume and lowering -- lowering prices, but buying in -- earning added volume because we've got a great story to tell and I think that across the board I would hope that our businesses would be able to grow better than the underlying GDP growth in those particular areas. So, again, I think that we're looking to be very aggressive in that area as a company.

And does that sort of tie through to being more aggressive on M&A?

I think that we'll look at M&A on a case by case basis as an opportunity may arise, but we're really focused, really the core business at hand today.

Generally in these downturns we have seen great discipline from all players not to build inventories and as we've talked about, the relationship between price and raw materials has been maintained year over year from a contribution standpoint. So we haven't seen prices deteriorate significantly relative to raw materials.

Okay. Thank you.

Your next question comes from the line of Frank Mitsch with BB&T Capital. Please proceed.

Good morning, fellows.

Hey, Frank.

Just a couple of clarifications. In talking about the performance products area and the half the business that is tied to the raw materials and the price increases that you have been looking to push through, is it fair to say that as we stand here in -- through July and into August as those contracts have reset for the third quarter that we are, in fact, looking at higher margins than we were in the second quarter?

Good question, Frank. It's really hard to tell because typically those contract prices, they lag about a quarter and so you will see an opportunity like we saw in the first quarter, we saw raw material prices falling very rapidly and the sales prices were -- certainly at the beginning of the first quarter we didn't see the sudden fall off in raw material prices that we were -- that we saw by the end of the first quarter and the prices subsequently fell in the second quarter. Now as prices have kind of bottomed out and in some cases are going back up, those contractual prices will start resetting as we get in near the end of the third quarter and throughout the third quarter here. So really too early to tell, Frank, but I think that we certainly are taking a very aggressive stand on price increases and holding the line there.

Okay. Great. And if I could also follow up on the industry consolidation question. Obviously with your improved balance sheet and the fact that you've pushed out your nearest maturities several years, it would stand to reason that you guys could be a meaningful consolidator in the industry. So how would you look at the areas that might have the most interest in terms of Huntsman playing the role of a consolidator and where would Ti02 rank on that list?

Well, I think that it's -- I can't get into speculation as to what we would be doing, but we certainly would be interested in playing a role in consolidation where it makes sense to our shareholders and where it allows us to maintain a strong position of liquidity and where we have a natural fit with strong synergies.

Would you then -- I mean you got polyurethanes, you've got advanced materials, textiles, I mean realistically are any of those more attractive or less attractive than others?

No. It all would depend on where the value is in a potential purchase price and what would a fit be and where geographically it would be and so on and so forth. So I really -- we really don't have a pecking order that would say division A is going to get priority over division D or whatever. It really is an area around opportunity for -- to create shareholder value and long-term stability.

Great. Thank you, Peter.

Your next question comes from the line of Laurence Jollon with Barclays Capital. Please proceed.

Good morning. Just regarding your earlier comments on target levels of liquidity in the $800 million to $1 billion range, I just wanted to confirm that first and then, secondly, if I think about your liquidity tax payment and redemption of the two bond issues, a $1.7 billion cash [audio difficulty]-- I'm breaking up, sorry.

I'm sorry, I only got part of that. Let me just confirm, again, $800 million to $1 billion of targeted liquidity today as we look to the future. I didn't hear the rest of the question. I'm sorry.

I apologize. Can you hear me better now?

A little bit, yes. Please, if you wouldn't mind repeating it.

I apologize. So your target levels of liquidity of $800 million to $1 billion. If I think about your liquidity levels post tax settlement, or tax payment I should say, and post redemption of the two bond issues, I think about pro forma cash of call it $1.7 billion and if you right size your revolver maybe half the size it currently is, I think about liquidity call it $1.9 billion, so given your target liquidity levels, you have about $800 million to $1 billion of cash that you can put to work. So I wanted to make sure, one, that I'm thinking about that correctly and then, two, is that targeted toward acquisitions, shareholder dividends or continued debt repayment?

Well, we are going to weigh all of our opportunities and we would include further debt repayments and growth opportunities, as Peter has indicated we would consider, but while maintaining that sort of $800 million to $1 billion dollars of liquidity. As you ran through the numbers, I didn't follow exactly how you were getting to the $1.9 billion. Again, if you start at $3 billion and recognize we've taken out about $500 million, excuse me, of notes, rounded off roughly $200 million of taxes and some fees in there and you have the revolver, right, and so the revolver is questioned how much we will need and as we've indicated, it will be much smaller than it is today going forward.

Okay. And --

We don't see anything wrong with having more liquidity than $1 billion.

I guess my concern from a credit perspective would just be as the business ramps back up, and who knows when that will be, we all know that Huntsman has significant working capital requirements during growth phases. In 2007 and 2008 I think you burned $300 million to $400 million of cash from working capital. So I guess the question is do you feel like that's enough.

Absolutely. That's how we sort of have taken a look at what our working capital needs are and I think your $300 million to $400 million is high in 2008, I think it's about half that. Certainly inventories did, but they were offset with payables and our accounts receivable securitization funding that grows as AR grows.

Okay. That's great. Thanks for the color. And then just a housekeeping question, if you don't mind. Would you mind giving us the operating cash flow number for the second quarter first and then, secondly, the $63 million of restructuring costs in the quarter, are those largely cash in nature?

The $63 million of restructuring charges will be cash. They are cash at the time we take the charges and we always have a fairly robust footnote in our queue that will walk you through it. Let me grab you the other number just a second in my queue which will be filed today. Net cash provided from operating activities for the six months 2009 was $1.9 billion.

Thanks very much.

Yes.

Your next question comes from the line of Michael Boam with BlueBay Asset Management. Please proceed.

Hi. It's Mike Boam of BlueBay Asset Management.

Hello, Mike.

Hi. I just have a follow-up. A lot of my questions have been asked, but I wanted to follow up on what Laurence just said. I just wanted to -- in terms of the facilities that were signed as part of the litigation settlement, are there any restrictions on the cash that's been injected by Huntsman Corporation into Huntsman International in any way been refunded, shall we say, because I know the loans have short-term maturity or maturity on demand such that they would prohibit the payment of a special dividend.

Well, within Huntsman International where the debt facilities sit, including the facilities we received in the settlement, they have the typical restrictions and the credit agreement, the unsecured notes have typical indenture restrictions as it relates to dividends and other types of payments. The $632 million of cash went to Huntsman Corporation and there are no indentures or credit agreement limitations as it relates to that cash. At the end of the quarter, we had roughly $1 billion of cash at Huntsman Corporation.

Okay. But what I -- I guess what I -- I mean I appreciate that all the cash flows aren't counted in the restricted payments basket and that cash can effectively just flow back out whenever you deem it appropriate. I guess what I was asking is was there anything in any of the Credit Suisse or Deutsche Bank facilities that provided an extra restriction against those cash flows or are those two facilities effectively essentially exactly the same as everything else and there's no limitation on that cash flowing back?

I think you'll find the unsecured notes very similar to the subordinated indentures that we have and the term C facility looks just like the credit agreement in term B.

Okay. Then I guess I'd like to go back, I don't know, three years. I think at that point in time Huntsman, I think it's fair to say I've been fairly disappointed with the way the stock traded post the initial public offering and one thing that you came out publicly at that time and said was that you now viewed it more appropriate for Huntsman to become an investment grade rated company largely because I think you felt that the leverage on the company was effectively suppressing the equity value. I just wonder if that still stands today because obviously with the moneys that you've received through these various settlements, you have a very opportune moment to substantially reduce leverage permanently and, as you say, maintain very adequate liquidity.

Well, I don't recall the feelings or the expression that our ratings was suppressing our equity values a couple of years ago. I mean, listen, we are believers in deleveraging. We think we have more debt than we would like right now. We're -- we feel comfortable with our liquidity and our flexibility, but obviously with this downturn we have -- we are exploring a deeper cycle than we ever have envisioned and I think that's probably the case with all of our competitors throughout the world. So we are committed to deleveraging. That's not to say we won't take advantage of opportunities that will create significant value along the way here, but you remember of the $1.7 billion that we've received, $1.1 billion of it is debt, low cost coupon flexible debt, and so that will give us the liquidity we need and we're paying down other high coupon debt, but it wasn't just pure cash for deleveraging. For the most part, it provided us greater flexibility at good economics, additional liquidity.

I think that your comment also from three years ago was around the context of our strategy and our decision then to sell off some of our commodity assets which I think looking back on it three years ago the value we obtained and the timing of the sell off of our olefins, polyolefins, butadiene businesses, aromatics businesses was right on. I think we certainly had an objective then of reducing our debt and looking at improving the quality of our cash flows as well. So I think that we've accomplished those objectives largely in the last three years and today we find ourselves in certainly different operating environments, but environments nonetheless where we see a lot of future potential here.

Okay. If I can have one final question, I'd like to touch on the Ti02 subject. I guess historically, again, it's not something that you said, but it's maybe something that analysts have said at Huntsman. In terms of the portfolio, you've looked to position yourselves in high growth margin -- high growth markets of which Ti02, aside from maybe Asia, isn't necessarily one. I think it's fair to say that people know that this industry needs to be consolidated given the poor pricing environment and profitability in the industry as a whole. Now, obviously Tronox is potentially up for sale at the moment. If it is that you could acquire that at a substantially discounted price, would it be that you would be interested irrespective of the gross prospects for the industry?

Well, I think that we wouldn't want to comment any more than we already have on that. If we see an opportunity that will benefit our shareholders, we'll certainly look at it very closely. I think that as we've said in the past, the Ti02 industry is a good industry, it's got great prospects, we believe, and we'll look at it on a case-by-case basis.

Okay. Thank you very much.

Thank you. Operator, I think we've got just a few more minutes here till the top of the hour, so we'll take one or two more questions.

Yes, sir. Your next question is from the line of Roger Spitz with Banc of America. Please proceed.

Hi, Roger.

Hi. Good morning, guys. In performance products, your Q2 2009 margins expanded as raw materials fell faster than selling prices. With raw materials I presume now rising, have you been seeing recently your margins compressing as raw materials rise perhaps faster than your selling prices?

It's a little too early to get into where we're heading in the third quarter, but I would just say that we're in that business, we are taking a very aggressive stand on pricing and I think that we're making good headway here.

Okay. Great. Thank you.

Your next question will come from the line of Bill Young with Credit Suisse. Please proceed.

Hi, Peter, Kimo.

Hi, Bill.

Could you for both the advanced materials and polyurethanes give us what your mix is today, say where you define it commodity end versus value added or specialties and what your goal is say by the end of 2010?

I think that as we look at our advanced materials, I'm going to look to Kimo here to get some percentages. As we look at advanced materials, we look at our components business and our formulated business and we bought that business it was largely -- it had a very large base resins business and we found that we were just competing very aggressively against Dow and Hexion and we really were not an industry low cost producer and remember after we bought that business, our sales dropped as we got out of and commodity that business and focused more on the components and formulated side of that business. I think as we look at our earnings in that business, that's probably about 80%, 85% of our earnings in that business and I would hope that over the course of the next year or so that we will continue in our advanced materials to see 80% to 90% of our -- both of our growth and of our profitability coming from the formulation and components end. That would be your end use applications in the electronics, electrical infrastructure, the aerospace industry, do-it-yourself adhesives and so forth. On the polyurethane side of the business, on MDI I kind of struggle with the question because a lot of the bulk applications that we have in MDI, when I say bulk I mean products you're able to sell out by rail car and so forth, are going to the OSB and insulation applications which were very strong and I think in our formulations and service net area is second to none in this industry and I think that will continue as we look over the next few years around energy conservation, construction coming back in the next few years, I think those will continue to be growth drivers for our business. I don't see too much of a change in our polyurethane strategy around MDI.

When you look at advanced materials and you look at sort of what percentage of our sales are flowing into that, the BLR, basic liquid epoxy resin business, it's about 15% of our business.

Our margins are a lot lower than that.

Absolutely. The base business right now is a break even business for us from a profitability standpoint, but the base resins are important. We consume those base resins in the formulated product downstream. It's just that roughly 15% of our sales are coming to third parties -- are going to third parties from base resin direct sales. As it relates to polyurethanes, obviously we like the whole MDI business and the systems businesses and we feel like those are very differentiated even when we're selling MDI directly in -- not in a system. Obviously the propylene oxide MTBE business is important because propylene oxide goes into polyols and ultimately our systems. The MTBE piece clearly is a commodity and when you look at PO MTBE sales, they are roughly $150 million to $200 million a quarter. I think in the second quarter they were roughly $172 million. That's clearly the more commoditized part of the polyurethane business.

Polyurethane particularly around MDI, Bill, I think that we have a -- we really, I think, did an effective job about two years ago, three years ago when we had a new divisional president went in and we really set our focus on two or three major applications and a couple of sub set applications expanding in Asia and so forth and I think that we -- I don't see a lot of change now. I think it was the right strategy then and I think it's the right strategy today and I think it will continue to see our polyurethanes business grow faster than our peers.

What I struggle with is on the rail car shipments of MDI for, say, insulation or OSB, it was bulk MDI, why can't the other guys emulate that and you get a little more price competition?

Well, I think that you probably can emulate the -- being a bulk product, but I think that we pride ourselves certainly on the consistency of our product, the competitiveness of our service and so forth. A lot of these products go to mills where you're building OSB, you -- materials, your mills are specked and they're built around our materials. We're the material there for start up. And so it's not just a matter of shifting from Huntsman product to BSF product, buyer product every month whoever has got the cheapest product. As you look at the insulation grades and so forth that we're producing, those are -- a lot of them are formulated base products where we're selling the MDI in bulk but we're also selling the formulated components that go with that and the end use applications and so forth. I think that we are unique and we are the best in the industry in servicing those applications. Now, there are other MDI applications I would probably tip my hand to BSF or to buyer and say that they probably put more effort behind those than we do. So --

Okay.

That's -- I think that we're unusually strong in those areas and will continue to put resources of development and customer service behind that.

Okay. Great. Thanks, Peter.

Thanks, Bill. Operator, I think that we'd like to conclude the Q& A at this time and thank all of you for joining us and, again, I would invite anybody who has any questions to give Kurt Ogden a call who's in charge of our Investor Relations. If they're really difficult questions and you want to call on a Sunday afternoon, call Kimo Esplin at home and he'd love to take your questions. Thank you all very much.

All right. Thanks.

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