Huntsman Corp (HUN) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter 2009 Huntsman Corporation earnings conference call. I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the presentation over to the host for today's call, Mr. Kurt Ogden. Please proceed, sir.

Thank you, Dan, and good morning everyone. I am Kurt Ogden, Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's investor conference call for the third quarter 2009. Joining us on the call today are John Huntsman, our Founder and Executive Chairman; Peter Huntsman, President and CEO; and Kimo Esplin, Executive Vice President and CFO.

A recorded playback of this call will be available until midnight, November 11th, 2009. The recorded playback 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 65149082. A recording of this call may also be accessed through our website. This morning, before the market opened, we released our earnings for the third 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 statements, 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 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. Following my comments, Peter Huntsman will review the recent performance of our business, after which Kimo Esplin will address certain aspects of our business including our taxes, 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, 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 and related litigation, acquisition related expenses, losses on the sale of accounts receivable to our securitization program, unallocated foreign exchange gains and losses, losses from early extinguishment of debt, extraordinary gains and losses on the acquisition of a business, and losses and gains on disposition of businesses and assets. We focus on adjusted EBITDA from a management standpoint as we believe it is the best measure of the underlying performance of operations and we have received feedback from many of you in the investment community that this is how you prefer to look at our business. A reconciliation of EBITDA, adjusted EBITDA, and adjusted net loss/income can be found in the appendix of our slides and in our third quarter earnings release.

Let's turn to slide three. In our earnings release this morning, we reported third quarter 2009 revenue of $2.108 billion, adjusted EBITDA of $200 million, and adjusted earnings per share of $0.24 loss per diluted share. Our adjusted EBITDA increased to $200 million in the third quarter 2009, compared to $194 million in the prior year and $96 million in the prior quarter. With that, I will turn the call over to Peter Huntsman, our CEO.

Kurt, thank you very much and thank you everybody for taking the time to join us this morning. Let's turn to slide number four. Our polyurethane business posted strong adjusted EBITDA results from the third quarter. Demand improved from the second quarter volumes as volumes increased 19%. Equally important, we saw increased contribution margin as average selling prices increased by 5%.

While global MDI demand was down 2% compared to the prior year third quarter, we believe overall global demand continues to recover as we saw higher sales volume in September this year than in the same month last year. Asia continued to lead the demand recovery, with both China and the rest of Asia posting strong gains. Demand is also improving in Europe and the Americas, albeit more slowly with the products such as rigid foam used in insulation applications as well as composite wood products and other segments where MDI replaces less efficient alternatives, all driving new growth. Our three strategically located global manufacturing sites in China, Europe, and North America are among the most cost efficient MDI manufacturing sites in the world. Combined with MDI finishing capability and our range of specialty polyols, allows us to provide attractive service offerings to our customers around the world.

Propylene oxide and its co-product MTBE performed very well this quarter. Propylene oxide is the key raw material for our polyols, and combined with MDI forms a polyurethane system. MTBE delivered another quarter of solid earnings as favorable supply demand fundamentals contributed to strong margins. Demand remains healthy outside the United States.

Looking forward, we intend to temporarily idle our Port Neches, Texas facility in early January of 2010 for a turnaround and inspection that will last until the end of the first quarter. I would remind you that it has been six years since this facility was last shut down for this duration of time. Any time -- any downtime is subject to construction and weather delays. Although market conditions and margins on MTBE will undoubtedly move on us, based on historical margins, we expect the EBITDA impact in the first quarter to be approximately $25 million to $30 million including unabsorbed fixed costs.

Turning to slide five. Within our Advanced Materials division, demand for our core businesses of the formulated systems and specialty components combined increased 12% over the second quarter of this year. We are encouraged by the sequential demand growth in our coatings, electronics, construction, and general industry sectors. We are also seeing improved results in our electronics sector, where our market share increased in large part due to a halogen-free product that has been very well received in the marketplace. We have made considerable restructuring efforts within the business as we have reorganized and capitalized on market changes. The benefits of these efforts are reflected in our results and contributed to the increase in quarter-over-quarter earnings.

Turning to slide six. Candidly, third quarter earnings for our Textile Effects division were disappointing. During the third quarter, earnings were negatively impacted by $4 million of charges associated with our SAP implementation. Average selling prices decreased compared to the second quarter due to unusual competitive pressure, which we expect will remain through the fourth quarter. In the quarter we saw DyStar, one of our major global competitors in textile dyes, file for bankruptcy in Germany. Longer term, this may lead to further consolidation in the textile dyes industry, reduce manufacturing capacity, and possibly help stabilize pricing. Short-term, typically moves such as this create market confusion and erratic behavior.

Total demand improved on a quarter over quarter basis, despite the effects of seasonal mills shutdown in Europe during the summer holiday months, indicating a positive trend for the economic recovery. We are seeing signs of recovery in Asia, where there is improved domestic demand that is replacing weakened export sales. We also note inventory build in automotive and specialty textile segments. Our Textile Effects business continues to have the highest contribution margin within our company. We are progressing well with the fixed cost reduction programs within our division, and are on target and expect to reach our goal which we announced last December of reducing fixed costs $60 million by the end of the year. We have successfully relocated the entire senior leadership of this division from Europe to Singapore, where they will be better able to focus on our growing customer base and future opportunities within the textile industry.

Turning to slide seven. Our Performance Products division earnings increased substantially compared to the second quarter. Our performance specialties business, which represents around 50% of our divisional earnings, saw an overall improvement of offtake during the third quarter with strong demand in amine products. Volume growth in amines was particularly strong in the coatings, polymers, and resins market and the water treatment, oilfield chemicals, fuels and lubes additives markets as well. We also expect the construction of our ethylene manufacturing facility in Jubail, Saudi Arabia, a 50/50 joint venture with the Al-Zamil group to be mechanically complete later this year, with plant operations commencing in 2010. The plant will have an annual capacity of 60 million pounds. Huntsman's 50% share of the venture net income should benefit our EBITDA by $8 million in the first year of operations.

Sales performance for our performance intermediate business increased 11% compared to the second quarter, driven by improved demand for household personal care and other surfactants as well as restocking that is taking place with some of our customers. Maleic anhydride sales volumes increased in the third quarter compared to the second, as we won additional volume in the marketplace. Successive price increases in September and October recovered third quarter increased raw material costs. Our Geismar plant began operations in the third quarter and we incurred an additional $6 million of commissioning costs associated with startup, which reduced our earnings in the quarter that we do not adjust for in our reported adjusted EBITDA.

On slide eight, within our Pigments division, earnings increased substantially from the second quarter. As we have publicly stated, our Pigments division has been one of the hardest hit divisions over the last two years. While I am encouraged by these early signs of improvement, we remain cautious given continued sluggishness in housing and automotive markets. At this time, we are seeing early signs of improvement within this industry. In the beginning of the year, we believed industry inventory levels were as high as 90 days. We believe inventories fell to approximately 50 days at the end of the second quarter and approximately 45 days at the end of the third quarter, both of which are more in line with seasonal historical averages.

In addition, we believe global demand has returned to historical averages. Asian demand appears to be above its historical averages, as demand in the critical North American market improves slowly. We are seeing improving demand in Europe as well. We have announced a number of price increases in all major markets. At this time, most of the improvements we are seeing in this division have come about by initiatives we've taken earlier this year. We will pursue these types of self help measures in the future, as necessary.

Before sharing some concluding thoughts, I would like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer.

Thanks, Peter. Let's turn to slide nine. In the third quarter 2009, our adjusted EBITDA increased to $200 million from $194 million in the prior year. The primary reasons for the year-over-year increase in adjusted EBITDA was a favorable decrease in direct costs, which is primarily raw material costs, more than offsetting the the corresponding decrease in average selling prices. Product pricing fell $49 million less than raw materials, increasing our contribution margins. In addition, the prior year period was impacted by $49 million of costs and lost profit margins from the 2008 US Gulf Coast storms. As compared to results from the prior quarter, our third quarter 2009 adjusted EBITDA increased from $96 million to $200 million. This increase was primarily attributable to an increase in demand experienced in our business as well as a favorable decrease in direct and fixed costs.

On to slide 10. Our year-over-year sales revenue was down 23% as our product pricing fell with our raw materials, which is consistent with the results we've seen reported from our industry peers. As we consider the quarter-over-quarter sales trend, we saw an increase of 13%, which was almost entirely volume-driven. As you can see, this sequential recovery in sales is in all regions and across all divisions except for Textile Effects where, as Peter mentioned, pricing declines outpaced volume increases.

Slide 11. Looking at our quarterly year-over-year sales volume, having removed the effects of our Australian styrenics business, which we have announced will be shut down at year end, and our APAO business sold July 31 of this year, volumes were up 3%. However, year-over-year volumes generated a negative $27 million volume variance for EBITDA, primarily due to mix, as key MDI volumes were lower than in third quarter 2008. We think this analysis is a good presentation of the overall underlying demand as it compensates for seasonal fluctuations. Demand clearly bottomed in the fourth quarter last year, at negative 21%, as a result of dramatic destocking from the global economic recession, and has seen a dramatic improvement in the third quarter which saw positive 2% growth. It is worth noting, however, that in the third quarter 2008, our volumes were impacted by US Gulf Coast storms. We estimate that adjusted third quarter volume contraction was negative 5% when adjusted for those storms.

Turning to slide 12. Our adjusted effective tax rate has bounced all over the place recently. Let me try to explain what is happening. As mentioned in our press release this morning, although we had adjusted positive pretax earnings during the quarter of $27 million, it was more than offset by an unusually high adjusted effective tax rate of more than 300%, creating an adjusted net loss of $55 million. If we used our normalized tax rate of approximately 35%, our adjusted earnings per share would have been $0.30 per share higher or $0.06 per share. The primary reason for the unusually high tax rate is that we are required to book tax valuation allowances in countries such as Switzerland and the UK where we have generated pretax losses over the past few years, which in short has the effect of removing any NOL or other tax attributes from our balance sheet.

As a result of these tax valuation allowances, when we incur ongoing pretax losses in these countries, we cannot recognize a corresponding tax benefit. When combined with non-valuation allowance countries such as China and the US where we have pretax profits, it has the effect of inflating our effective tax rate. Correspondingly, when these valuation allowance countries turn around and begin once again to become profitable, which for the most part are Textile Effects and Pigments concentrated countries, the effective tax rate will swing the other way and be lower than our normalized rate of approximately 35%.

From a cash tax perspective, we expect in 2009 to pay approximately $21 million, primarily related to foreign taxable income and approximately $129 million primarily related to US taxable income. As of the end of the third quarter, we have paid a total of $145 million in cash taxes, of which approximately $127 million was associated with the settlement of our litigation in Texas with Credit Suisse and Deutsche Bank.

Let's turn to slide 13. We've had a lot of success this year controlling our working capital investments. 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 program of $92 million. During the year, we have generated $416 million in cash, as a result of our increased attention to working capital. Certainly, some of the benefit has come from a corresponding decrease in the value of raw materials and finished product as inventories decreased in value 26%. However, much of the benefit was driven by aggressive management, as shown by the decrease in our total inventory pounds of 25% on a volumetric basis.

It is worth noting, by selling more than we produced in the quarter, there was less fixed cost absorption capitalized into inventory. As a result, during the quarter adjusted EBITDA was negatively impacted by approximately $31 million. The global economic recession has forced us to operate our business with leaner fixed costs and tighter supply chain. At the end of 2008, we put a plan in place to reduce costs by $150 million. As of the end of the third quarter, we have achieved these savings on an annualized run rate. We expect to continue our aggressive controls through the end of the year and exceed our original target.

Slide 14. As of September 30, 2009, we had $1.6 billion of cash and $0.8 billion unused borrowing capacity, summing to a total of $2.4 billion of liquidity on hand at the end of the third quarter. This compares to $3 billion at the end of the second quarter. In the quarter, we paid $509 million for the redemption of notes and call premiums and made $127 million tax payment on the bank settlement. Net of these items, liquidity actually increased $91 million. Although much of our current cash came from our favorable settlement with the banks in June, our underlying business, including the significant working capital benefit, has generated positive free cash flow in the third quarter. Excluding the benefit of the favorable settlement monies and related expenses, liquidity during the year has remained relatively flat.

On October 16th, 2009, we refinanced our existing short-term 364 day accounts receivable securitization program that was scheduled to mature November 2009 with two new multi-year securitization programs, a US program and a European program. These new programs enable continued low cost borrowing for an extended period of time. We have no meaningful debt maturities until 2013 other than these new accounts receivable securitization programs.

As it relates to our outstanding insurance claims for the year, at our previously owned Port Arthur, Texas facility, we have claimed an additional $242 million plus interest as due and unpaid. We began binding arbitration proceedings to settle these claims on Monday of this week. As a reminder, any additional net proceeds are expected to be used to repay secured debt. We currently intend to substantially reduce and extend the committed amount of our $650 million revolving credit facility that matures August 2010. On November 2nd, we announced that the waiting period under the Hart-Scott-Rodino Antitrust Act had expired on the review of our purchase of certain Tronox assets. We are pleased with the favorable outcome of the SEC's review and look forward to a quick closing on successful conclusion of the auction process and other jurisdictional reviews. I'll now turn the time back over to Peter for some concluding remarks.

Thank you, Kimo. In summary, during the third quarter we saw improved demand in our businesses and remain encouraged by our year-over-year order patterns. As we see every year at this time, customer demand slows and companies take inventory down to manage year-end stock values. This year will be no different as demand slows during the fourth quarter. We continue to see the positive results of decisions made over the past three years to expand our Asian operations and focus on more differentiated chemistry while divesting of our commodity plastics and chemicals divisions. This geographic expansion has allowed us to take advantage of markets less affected by the ongoing global recession.

I'm not sure that the market has fully appreciated what we've been building in Asia. In 2006, 15% of our sales were in the Asia-Pacific region. This year, that number is about 22% of our sales. We're also seeing growing sales in South and Central America.

As Kimo mentioned earlier, we have generated over $400 million in cash by better working capital management this year. We stated at the beginning of the year that we would eliminate $150 million in fixed costs in 2009. We've already met that objective and believe that with the recent announcement to close the last of our polymers business in Australia, we should exceed this target. I am pleased to see our demand picking up globally, particularly in Asia, where we see the strongest growth taking place. I think it will be some time before the US and Europe are seeing the same sort of demand we experienced 18 months ago.

As encouraged as I am by our adjusted EBITDA, I think we still have some real upside to get back to what I would consider to be a normalized EBITDA. I believe we're making the right decisions today to build long-term value. Our balance sheet is strong and we have growing markets around the world. In spite of the market variabilities, Huntsman is well positioned today to continue to create shareholder value going forward. With that, I'll turn the call back over to Kurt.

Thank you, Peter. Dan, that concludes our prepared remarks. Would you explain the procedure for questions and answers, and then open the line for questions, please?

(Operator Instructions). Your first question comes from the line of PJ Juvekar from Citigroup. Please proceed.

Yes. Hi, good morning. Peter, when I look at your results and compare them to your competitors like Dow, your volumes held up much better, but pricing was weaker. Can you talk about the specifics of your portfolio that leads to better volumes?

I think that -- PJ, thank you very much for the question. I think that as we look at our volumes, I'm not sure what I can say about Dow's pricing of their products and so forth. They do have different products and different markets they compete in. I believe that where we compete head to head with Dow around the world on a product by product basis, I do believe -- I can't comment on Dow's pricing policy. I would say that I believe that we are very aggressive with our pricing. That is, aggressively holding up our pricing. I consider us to be a leader in the market as far as being able to sell value and sell quality and not just price.

I would say that as you look at the statistics that I gave you at the end of my prepared remarks, talking about nearly 25% of our business being in the Asia-Pacific area, I would consider that area to be between Singapore, China and India -- being nearly 25% of our overall sales. I believe that this is higher than most of our competitors, European and US competitors. And we've taken some bold steps to expand our business in these areas. And I believe that as you look at our tonnage, I hope that the market doesn't get too bogged down looking at revenues in the chemical industry, when you see raw materials drop as much as they dropped. I don't think that just tracking revenues is as important as tracking the tonnage that we're selling as an industry. And as I look at the tonnage, I think that we continue to do very well, particularly in Asia. We continue to see a recovery. But I can't comment on a product by product price by price between us and Dow. I would say that this is a much stronger portfolio and company. I'm a bit biased.

That's helpful. And my second question is Tronox went bankrupt in this recession, so I mean, what's so attractive about Tronox's portfolio? Or is it just that you can buy these assets on the cheap and you get some synergies? What's so attractive on Tronox acquisition?

I think I said publicly that we believe that this would be a very good fit between these businesses and I would just mention that we're in the middle of a public auction at this point. We are operating under a secrecy agreement with Tronox. And I look forward, if we are the winning bid, to having a conference call that would be dedicated to the merits that we see in the combination of these assets. But at this time, PJ, I don't think that legally or ethically that I could comment on aspects of the Tronox business or the bidding process, where we are right now.

Let me just add that you're familiar with Tronox and you'll know that the underlying business wasn't the primary reason for the filing, the bankruptcy filing, that there was significant environmental issues in the company that related to sort of non-TIO2 businesses. They were legacy Kerr-McGee liabilities. So there are other reasons that clearly will be cleaned up in the bankruptcy and these assets, which continue to be very competitive, will be a value to whoever buys them.

Thank you.

Thank you.

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

Good morning. I guess first question, what are you seeing in your end markets in terms of winter shutdowns compared to last year? Are they more extended or shorter?

I'm sorry, Laurence, you said -- I just missed the first few words of your question.

What are you seeing in your end markets in terms of holiday shutdowns going into the December seasonally low period? Is it worse or better than last year?

I would say that it's certainly -- again, there's going to be certain segments that are up and down. I would say that across the board that it appears as we go into the fourth quarter that demand is stronger than last year. I would remind you that at about the middle to the end of November last year, we saw a dropoff of up to 30% to 40% in about a three-week period in the latter part of November, as prices were falling and raw materials and people literally stopped buying and massive destocking was taking place. So we're all a bit gunshy, having been hit so suddenly this past year. But this year I think that our customers by and large will be managing their stocks very carefully going into the end of the year. I don't think people want to be tying up a lot of cash at the end of the year.

Having said that, as we look at the supply chain, I think that inventories are very low across the board. Just as I look anecdotally around the world and my communication with customers, it appears that inventories are very low right now and I don't think that the supply chains for the industry in general are in a position today to really stop buying. Short of a major shutdown on the consumer end, if prices were to suddenly drop on the you raw material side there's not inventory sitting around that people can just stop buying raw materials and coast with what they've got in inventory. I think it's pretty tight right now. I don't expect a substantial drop-off, more than you would seasonably see going into the typical fourth quarter.

You've seen some of your end markets improve sequentially quite a bit. Have you seen any early signs that pricing competition is going to become more aggressive as volumes recover or do you think people are holding the line on price fairly well?

I think, again, it will vary product by product, division by division. But I think that across the board, I have been -- there's been plenty of price battles and so forth going on in the market. But by and large, margins have remained fairly constant. People have been fairly disciplined and not giving away product, and I think that had there been price wars that would have started for people going after the volume that's out there, personally I think that for the most part it would have started by now. Just in the cycle. We've been about a year now in this awful downturn. We've seen a nice recovery, and again, we've seen prices come down, but we really haven't seen margins collapse as you typically do when operating rates drop.

Laurence, as we mentioned, year-over-year our contribution margins increased price versus direct cost by about $50 million. Sequentially, it was pretty flat. Prices moved about the same as our raw materials.

Just lastly, you've done quite a bit of work on productivity over the last few years. What do you see as a good annual target, not just for 2010 but just as a good annual run rate?

As far as capacity utilization or cost?

No, in terms of productivity or cost take-out, just incremental productivity initiatives.

Look, I think that as a basic rule of thumb, you have to take out -- you have in a company this size roughly $20 million to $30 million a year of inflation that comes about through salary increases. You cannot year after year increase your margins by that rate of inflation. So you have to see between a combination of productivity gains, Six Sigma, a number of manufacturing initiatives that we have, I believe that every year you have to offset those costs by better efficiencies throughout the system. So I would say that that should be able to continue. I do not believe that the company is bad enough that you're going to see $150 million of costs taken out of the business, should we see another economic collapse -- which I don't foresee happening, but should we see something like that happen at some time in the next year or so, then we would be prepared to shut down further capacities and take further steps. But with the market growing the way that it is, with Asia growing, with new applications coming online and so forth, I think that we will be very well focused to maintain the costs that we've taken out of our business and to offset inflation going forward.

Thank you.

Your next question comes from the line of Roger Spitz from Banc of America/Merrill Lynch. Please proceed.

Thank you. Why is epoxy based resin [profitability] down versus Q2? I guess I had understood you had significantly reduced your merchant based resin sales to something closer to 5%, 25% [around the business].

I'm sorry. You said -- it was down versus Q2. I've got EBITDA increasing sequentially.

On the base resin side?

Oh, base resins, I don't know that we commented on base resins. Base resins hasn't been very profitable over the last 12 months and, frankly, it's pretty well flat with the second quarter.

Flat with second. Okay. Got it. And secondly, what did Q3 2009 MDI volumes and margins do compared to Q2 2009?

If we look at MDI EBITDA from Q2 to Q3, sequentially, margins or EBITDA more than doubled in that business, and as you look at MTBE they increased less than about 20%. So the vast majority of the improvement that we saw in the business, in our polyurethanes business took place because of stronger polyurethane performance and stronger MDI pricing and volume.

As it relates to MDI volumes sequentially, MDI was up 13% relative to the second quarter. Really, in all the regions. Of course, when you look at it on a year-over-year basis, Asia was up the strongest and significantly. When you look at it sequentially, Europe looked very strong in the third quarter versus second quarter.

Great. Thank you guys.

Your next question comes from the line of Laurence Jollon from Barclays Capital, please proceed.

I wanted to follow up on the $180 million call it IRS tax payment related to the June settlement. I know in the second quarter -- well, I shouldn't say I know. I think in the second quarter your book taxes reflected that settlement and then you had an increase in income taxes payable. I guess my first question, is that correct? And then secondly, what happened in the third quarter? Did you in fact actually pay out a portion of that?

Yes, I think you have it just right, that it hit the books in the second quarter when we received the payment. We made the payment in the third quarter. The payment was roughly $127 million. And we think that's all we will pay, relative to that settlement -- the $127 million.

Okay. So in the third quarter when you reference that you had roughly a $90 million source of cash from primary working capital, we should expect, once we receive the Q, that there -- also in working capital, there would be $127 million outflow as income taxes payable declined by that amount?

That's correct. When we talk about primary working capital, we're talking about receivables inventory and trade payables. So when we measure primary working capital, we would exclude that tax payable.

Of course. I just wanted to confirm that there was another outflow. Okay. Thanks a lot.

You bet.

Your next question comes from the line of Jeff Zekauskas from JPMorgan. Please proceed.

Hi, good morning.

Hello, Jeff.

Can you detail the elements of the $62 million in restructuring costs?

Yes. We give a lot of sort of detail in the Q, which will be filed here in a few minutes. So it will probably save us a little bit of time. Just take a look at the Edgar file and you'll see quite a bit of detail in the note.

I can read the Q when it comes out.

The bottom line is, it's almost all Australia. You remember, we indicated when we announced the closure that there would be a chunk of it that would go to severance and then we had not identified what the environmental remediation costs would be. The $55 million of Australian restructuring charges includes $30 million of environmental remediation estimates.

Okay. And what was cash flow from operations in the quarter?

This 10-Q is way too long, so give me one second. So net cash flows from operations in Huntsman Corporation, nine months is $907 million.

Okay. And then lastly, can you just talk about the positive pricing dynamic on a sequential basis in urethanes generally and in MDI? In other words, what was the economic reason for it, given that we're operating at such low utilization rates, and was there a difference in the price changes by region? Were some up? Were some down?

The answer is yes to the latter and we are seeing an Asian region that is virtually sold out of its capacity. And so you would expect and we have seen sequentially prices increase higher in Asia. I will say that prices fell maybe further in Asia in the downturn as Peter described, sort of November, December, January softness. But generally, prices rose globally 5% sequentially. The strongest region was Asia.

Let's remember as well, on products like MDI, this isn't a product like polyethylene or ethylene glycol where you can just put in a bag, put in a container, ship it around the world and it all sells at the same price. You have literally hundreds of different price points, different grades, different formulations, different systems and so forth that take place in MDI. A lot of our product if you ship it overseas -- it has to be shipped pressurized and cryogenic and it has a shelf life to it, meaning that if we're short in Asia and we can't supply all of our needs out of our [Kaojing] facility you can't necessarily export product from Europe and Americas to satisfy all of the end use applications. So there is regional pricing and there is a great deal of pricing that takes place product by product and end use application by application.

That's helpful. What was pricing like in the US on a sequential basis?

It was up. Let's see, 2% to 3%.

Okay. Thank you very much.

Your next question comes from the line of Michael Boam from BlueBay.

In terms of the insurance settlement, I wonder if you could give a little bit more color on how that's progressing, where you see this shaking out, and whether or not you expect to receive the proceeds before year-end.

I would hope that we would have a settlement by year-end, certainly a ruling by year-end. If we're actually going to be collecting the funds by year-end, I would be very hopeful that that would be the case as well. Though I think that anything beyond that I would just be speculating. We obviously feel very strong about our case, that we're going to collect the $242 million that we have, and I'm sure if somebody from the other side of the table were here, they would tell you that they feel just as strong on their side. So I certainly do not think that we're in a position today to speculate how much we are going to be given or exactly when that the payment of any binding settlement will be made.

Okay. Thank you.

Your next question comes from the line of Tony, please proceed.

Good morning, gentlemen. You made reference to $150 million of run rate cost cuts having been achieved by this point in time. Obviously not all of those have run for all of calendar year 2009. Could you give us an idea of a delta or the hangover if you will in 2010 of that run rate, the incremental amount that will be gained in 2010 by a full year of that run rate?

My guess is that in -- I don't have the exact number, Tony, but roughly -- my guess is that we in 2009, we saw on an -- when you look at the full calendar 2009, you'll probably see 75% of that $150 million. So you'll get another 25% in 2010 as we hit our stride. I think you're going to see as we mentioned more cost savings because we recently announced the Australian closure and that will benefit us as well. So there will be more opportunities on top of that $150 million.

Thank you. I was just really looking at that $150 million program in isolation. Thank you.

Thank you.

Your next question comes from the line of Sabina Chatterjee from BB&T capital. Please proceed.

Good morning. Your Textile Effects business, I realize it's been an area of focus with respect to restructuring and the EBITDA loss that we saw in Q3 was a little greater than what we had expected. So I'm wondering when we can anticipate some positive results from this segment, which I imagine would be a function of pricing?

Well, it's going to be a function of pricing. It's also going to be a function as to when we're completed with an SAP transition and when we're completed with our cost cutting. I think that when you look at the amount of noise from SAP and a lot of the restructuring that took place in the third quarter in spite of the fourth quarter sluggishness that we see, I would expect our Textile Effects to look better in the fourth quarter than it did in the third quarter. I think that by spring of 2010 that we ought to see a positive EBITDA contribution coming from this business. Again, that's just my personal observation here, but I think we've invested a lot. We've had a very supportive Board of Directors with our Textile Effects division and we have -- I think that we're going to show results in 2010 because of that and I think those results will be coming sooner rather than later.

Okay. That segues perfectly into my next question, because are there any other product areas or business lines where you anticipate maybe a strong enough recovery in Q4 that would offset seasonality and we would see probably even more growth?

I think that you're going to be, with these economic conditions and operating rates where they are, I think that you're going to be fairly limited on getting pricing momentum going and I think that demand in the fourth quarter -- it will be seasonal. I think it will be better than it was last year but just the nature -- I mean, we're going to do the same thing. We'll have our inventories. You'll maximize working capital, you'll [burn] down your inventories. Our customers will do the same thing that we'll be doing as a company. I think at this point it's probably just too early to speculate on anything more than that taking place in the fourth quarter.

Okay. Thank you.

Thank you.

Your next question comes from the line of Rajul Aggarwal from Marathon Asset Management. Please proceed.

Hi. Thanks for taking my question. In the press release, you mentioned the different dynamics of volumes between the different products in the polyurethane segment between MTBE, PO, and MDI. Could you give us some more granularity and some numbers as to which went up and which went down, by how much?

While Kimo is getting that, I would just note that as we look at propylene oxide and you look at the margins, a lot of these are byproducts of other products. So as you look at the value and the cost of something like MTBE that comes off of your propylene oxide and you look at your propylene oxide as you're maximizing the sales, the polyols going into MDI, you want to -- in order to maximize your MTBE volume, you want to sell more PO, and you want to sell more systems and MDI that take the PO. So it's a difficult question to segregate out each one of those. But Kimo, what do we have as far as color in that area?

Sure. Just to give you, again, a sense for year-over-year volumes, we mentioned that MDI was down 2%. MTBE was up significantly, and it was up nearly 30%. There's lots of different businesses in polyurethanes, polyols, and so forth. But generally, everything was up 5% to 10%. MDI again I said was down just a bit. But Peter I think importantly said in his remarks that for September, it was really the first month we've seen in 12 months where we had year-over-year increase in MDI volumes globally. Gives you a sense for the trends we've been seeing over the last nine months.

Let's remember too when we talk about volumes on something like MTBE, MTBE ships out its volumes -- well, it ships them out on ships and because of the large volumes and the loading time, you may have a ship that will leave a day or two before the end of the month or will spill over and leave the first day of the following month. And you can see volume fluctuations of 5% to 10% month on month when the plant's running at the same rate. It's a question of what sort of volumes you're able to move out of the plant, physically able to bill your customer and so forth. On MTBE, you do have some noise there on your timing of shipments because of the large volume of those shipments. So I wouldn't get too lost on the month or even quarterly changes on that.

So, I mean, could you give us some metrics by which we can predict the profitability impact just from MTBE on this quarter? Just trying to predict where it will be for next quarter, given that it's a seasonally weaker quarter for MTBE?

Well, MTBE is a global commodity that you can track [C] factors, which is a rough margin, relative margin for MTBE. So it's not something that I think like MDI which is difficult to gauge profitability. So who knows where C factors will go in the fourth quarter, frankly. That is a function of the supply and demand.

And C factors of course is a factor of gasoline blends, gasoline values, and octane values. And so it has to deal with crude oil in the gasoline pool, two variables that are completely unrelated to the chemical industry. And so you can actually see MTBE pricing quite stable and volumes quite stable, but margins can go all over the place because of the gasoline and crude oil variability. So it's a tough one to try to speculate. And that margin, unlike most of our chemical products, that margin literally moves day in and day out. It moves a lot day in and day out.

For example, year-over-year MTBE pricing fell by one-third. It's down over 30%. But profitability was fairly stable or positive.

Got it. Thank you.

Thank you.

Your next question comes from the line of Sam Epee-Bounya from Columbia Management. Please proceed.

Good morning, gentlemen. Thank you for taking my question. Just some housekeeping item. You have I would say a decent liquidity position. I understand the [stocking horse] bid for Tronox. Is there any use of cash down the road? Should we expect another bolt-on acquisition or larger acquisition, or will the company focus on debt reduction?

Our company at this point, obviously we're going to -- the board will very closely scrutinize acquisition opportunities. But while we're in these market conditions or the volatile market conditions that we see globally, cash is king right now and we want to make sure that we preserve that liquidity, the cash liquidity that we have in this company as best we can. And I think that that will continue to be a top priority with this Board. How much cash and so forth would inevitably go something like a Tronox, that would be determined obviously at the time of financing, should we be successful. But at this point, our number one priority in the company is to make sure that we keep strong liquidity positions, we've protected our dividend, we make sure that we're in a position to weather any cyclicality. And I think we're one of the few chemical companies in the world that can say that our balance sheet today is stronger than it's ever been in our history.

Thank you. Appreciate. If I may, second question, regarding your mid-cycle EBITDA now. Given that you've repositioned your portfolio in Asia and you're doing additional work on the cost savings, what do you see as your I would say mid-cycle EBITDA now, given your positioning in Asia and those efficiency products?

I think that you've got to factor in our Asian segments, and since you looked over the last two years, we've added a capacity that now is sold out in Singapore and our [amine], Saudi Arabia, a new plant coming on. We have a maleic anhydride facility that came on earlier this year. We've cut out $150 million to $200 million of costs over the last two to 2.5 years from our business and really positioned fully operating in the last two years now our MDI facility in China. And so I look at it -- I think that if you look at our average mid-cycle EBITDA from where we were two or three years ago to where we are today, personally I would increase that EBITDA by probably $150 million to $200 million.

Thank you.

If you look at the third quarter 2008 prior to the real downturn, we would have done roughly $250 million without a hurricane. You look at the third quarter 2009, of course we're $200 million, but we pointed out a couple of things that were important. One was from a volumetric variance standpoint, we were down roughly $30 million. Also we have, because we are reducing physical inventories, had about a $30 million inventory adjustment relative to absorbed fixed costs. So you get back to that $250 million to $260 million EBITDA third quarter and that's not a bad number to think about -- at least on a quarterly basis, on a third quarter basis. And seasonally, that's probably our second strongest quarter, second quarter is typically our strongest.

Thank you, gentlemen.

Your next question comes from the line of Chris Willis from Impala. Please proceed.

I think that given the time constraints and so forth that we have, we'll take this as our last question. So we'll go ahead, Chris.

Please unmute your line.

Well, might have been too early for Chris. Should we go to the next one?

Your next question comes from the line of Adrayll Askew from Hartford Investment Management. Please proceed.

Thanks, got in just on the wire. I guess most of my questions have been answered, guys, but appreciate the call and great quarter. Very happy with the results here. My question is on working capital. I guess in the current raw material price and volume environment that we're in, any sense of whether working capital will be a source or use of funds in the next two quarters?

As Peter mentioned, a big turnaround in propylene oxide business in the first quarter and so we really need to build inventories in advance of that 65 day turnaround in the fourth quarter. We would expect inventories to build and working capital to build modestly in the fourth quarter. And first quarter tends to be a building quarter in seasonal businesses like titanium dioxide in advance of a paint season for the second and third quarter. So my guess is over the next six months, we'll have modest builds in capital.

Operator, before we sign off here, I would just ask our Chairman and my father if he has any closing comments here.

Thank you, Peter. This is Jon Huntsman, the Executive Chairman, and it's hard to believe that 40 years ago we started this business as young and almost in one room and have watched a lot of peaks and valleys and challenges evolve over this period of time. I have to say that today is really a great day for Huntsman Corporation. We have a strong balance sheet. We have an incredibly talented management team.

When one looks around the world at the chemical companies that are left, and I say that are left because over the years, people have always said well Huntsman won't be around, Huntsman won't be around, we've got Union Carbide, we've got Texaco, we've got [Arco] -- they're all gone. We're here. We're stronger than ever. We have a tremendous leadership team. Peter is by far the finest CEO in the world in the chemical industry. Last few weeks ago I went partially around the world, visited a lot of our sites, visited many of our competitors, visited with a lot of the leaders of governments around the country.

And I just have to say that Huntsman is really excited about what happens now in our 40th year. We've withstood the Arab oil embargo of 1972. We withstood all of the depressions and recessions and oil scares over the years and we've never had a time that looked better. We've never had a management team that was more professional and committed and we're moving really aggressively. We have a tremendous Board of Directors and I guess, it's -- many people today will be saying these are the worst of times. These are the tough challenges. We're in the middle of a recession.

I guess we would say we're really looking forward to great growth in the future and to the sound management that we have at the present time and moving as fast as we can possibly move in certain parts of Asia and some of the growth areas. A very solid company, very solid financing and very experienced team of people and a great product mix. And we really thank those analysts out there who have -- some of you I look at those names, some of you were just out of college when you started tracking us, you were just young analysts and have retired, so congratulations. Thank you very, very much for your interest in our company. Operator, thank you very much.

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