Huntsman Corp (HUN) 2009 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q4 2009 Huntsman Corporation earnings conference call. My name is a Caitlin, and I'll be your operator for today. At this time, all participants are in listen only mode. Later we'll conduct a question and answer session.

(Operator Instructions) As a reminder this conference is being recorded for replay purposes. I will now like to turn the conference over it you're host for today's call, Mr. Kurt Ogden. Please proceed.

Thank you Caitlin, and good morning everyone. I'm Kurt Ogden, Huntsman Corporation's Vice President of Investor Relations. Welcome to Huntsman's investor conference call for the fourth quarter of 2009. Joining us on the call today are John Huntsman, the Founder of our Company, and Executive Chairman and Director, along with 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, February 26, 2010. 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 77218155. A recording of this call may also be accessed through our website.

This morning before the market opened, we released our earnings for the fourth 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 defer 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 reconciliations 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 for each of our divisions, after which, Kimo Esplin will address certain business trends and financial related items, and then Peter will provide some his concluding thoughts. At the conclusion of our prepared remarks, we look forward to taking questions from you.

As we refer to earnings we'll 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 and income can be found in the appendix of our slides and in our fourth quarter earnings release.

Let's turn to slide three. In our earnings release this morning, we reported fourth quarter 2009 revenue of $2.96 billion, adjusted EBITDA of $165 million and adjusted earnings per share of $0.27 per diluted share. Our adjusted EBITDA increased to $165 million in the fourth quarter 2009, compared to $51 million in the prior year, and decreased consistent with normal seasonal patterns, from $200 million in the prior quarter.

We've seen some swings in income tax expense and income tax benefit within our income statement recently. As we discussed last quarter, the primary reason for this is that we are required to book tax valuation allowances in countries such as Switzerland and the UK, for the most part, textile effects and pigments concentrated countries, where we have generated pre-tax losses over the past few years. As a result of these tax valuation allowances, when we incur ongoing pre-tax losses in these countries, we generally cannot recognize a corresponding tax benefit.

In the fourth quarter of 2009, as a result of year-end pension accounting and gains on pension assets in countries where we have valuation allowances, US GAAP provides that we recognize a tax benefit of some of our operating losses, otherwise not allowable, because of valuation allowances. In addition, we recorded some tax benefits from losses in countries where we don't have valuation allowances. We believe our normalized tax rate is approximately 30% to 35%; however, until we become profitable within the valuation allowance countries, such as Switzerland and UK, we will continue to have an unusual tax rate. This unique circumstance only impacts our GAAP reported tax line, and has no impact on our cash tax rate, which we believe is approximately 20%.

With that, I will turn the call over to Peter Huntsman our CEO, who will discuss our results in more detail.

Thank you very much. If you joined me in turning to slide number four. Our Polyurethanes business posted strong adjusted EBITDA results in the fourth quarter. Compared to the prior year, we saw improved demand across all regions, as well as increased contribution margins. Global demand for MDI increased 12% in the fourth quarter compared to the prior year.

Asia continues to lead the global recovery. Fueled in part by the Chinese stimulus programs, our Automotive, Appliance, Coatings and Elastomer sectors have seen a strong increase in demand. We also saw significant improvement in demand in the Americas, with growth and increased market penetration into composite wood products as a major driver.

In Europe, our largest market, we saw demand recovery to a lesser degree due to colder than normal weather. However there were notable increases across sectors not as affected by weather, such as Automotive, Adhesives, Coatings, Appliances, and Furniture. I want to emphasize that we're not just seeing strengthening from underlying market demand, but additional market penetration as MDI continues to replace less competitive alternatives.

Looking forward, I expect rising benzene costs to constrain contribution margins in the near term. To put that in perspective, it takes about 90 days to work costs through the value chain and on to our customers. Earnings in the fourth quarter this year for propylene oxide and it's co-product MTBE, were very similar to the third. Propylene oxide is a key raw material for our polyols, which combined with MDI form a polyurethane system. Strong contribution margins for MTBE were driven by favorable supply demand fundamentals.

We continue to see healthy demand outside of the United States. We produce propylene oxide and MTBE at our Port Neches, Texas facility. In January, this year we idled this facility for a turnaround and inspection that is planned to last until the end of the first quarter. It has been six years since this facility was last shut down for this type of maintenance. Any downtime is subject to construction and weather delays, but so far we are on schedule.

Market conditions and margins on MTBE will undoubtedly fluctuate during the time that our facility is idle. However, based on historical margins, we now estimate the EBITDA impact on the first quarter to be approximately $30 million to $35 million, including unabsorbed fixed costs.

Turning to slide number five, let's talk about our Advanced Materials division. Just as demand for products from our Advanced Material Division was slower to drop a year ago, we've seen a slower recovery compared to our other divisions. Fourth quarter increased in year over year demand in our core businesses, formulated systems, and specialty components, when combined [grossed] 3%. While EBITDA for this division was flat compared to a year ago, EBITDA for the formulated and components, the specialty and growth side of this division, was up in the fourth quarter $14 million compared to last year, and $8 million compared to the third quarter of this year.

We've seen improved demand for our carbon fiber reinforcement resins used within the Aerospace sector. Additionally, our epoxy resins used in composites for wind materials have seen favorable demand. In our Electronics sector we have captured additional market share in large part due to a halogen-free product used in circuit boards that's been very well received in the marketplace.

Our more commoditized based liquid resins market, which represents approximately 15% of Advanced Materials revenues, has seen a more severe delay in demand correction within the worldwide economic turn down as volumes decreased 10%. This downturn has been most acute in Europe. Our fourth quarter results improved from a year earlier, and from our most recent third quarter, due in large part to falling raw material costs. During the first quarter, we're seeing prices for many of our raw materials increase, and we expect this to result in near term margin compression.

Turning to slide six. We're encouraged with the improvement of our Textile Effects divisions earnings. In the fourth quarter we cut our losses by $7 million compared to a year earlier, and $9 million as compared to previous quarter. We expect this division to continue to improve and return to profitability in 2010.

Although demand recovery in consumer oriented markets has been somewhat muted, we saw increased year over year sales volumes of 25% in our Asian and Middle East region, which is our largest market, as well as 4% growth in the Americas. We've seen a restocking of supply chain for automotive demand and improved demand for certain specialties synthetics that go into sports apparel and swim wear. Due to improved demand, we've seen positive quarter over quarter improvements on selling prices, which has had a positive impact on earnings.

One of our major global competitors in Textile Dyes, Dye Star, declared bankruptcy and was recently acquired by Indian-based Kiri Dyes and Chemicals Limited. As a result of the market confusion created by this disruption, we believe we've been able to win competitive marketshare.

In December of 2008, we announced our intent to reduce fixed costs for this division by $60 million by the end of 2009. I'm pleased to say that we've captured all of those savings and a bit more. We continue to be focused on the top line and are very optimistic about the numbers - - a number of new product launches that will happen later this year.

Turning to slide number seven, as we signaled in our last earnings call, slide - - last quarter, the increase in raw material costs had an effect of compressing margins within our Performance Products division, and as a result, our earnings decreased. That said, we saw an underlying improvement in demand of 15%, during the quarter compared to last year. Our Performance Specialties business, which represents around 50% of our divisional earnings, saw an overall improvement in demand during the fourth quarter, primarily driven by strong demand in the Asia Pacific region for your amines product.

This business also generated an adjusted EBITDA of $9 million better than the previous year. Volume growth in amines was particularly strong in the Coatings, Fuels, Lubricants and Agri-chemical markets. Construction of our new ethylene amines facility, in Gebile, Saudi Arabia is complete, and we will have a commissioning ceremony with our 50/50 joint venture partner the Zamil Group, later this month.

Huntsman's 50% share of this venture should benefit our EBITDA by approximately $8 million in 2010. Compared to a year ago, sales volumes increased in both our Performance Intermediates, and Maleic Anhydride businesses. These business groups are absorbing higher raw material costs in natural gas and crude oil. We're pushing through price increases as we attempt to offset these rising costs.

On slide eight, in the fourth quarter, our Pigments division earned $23 million of adjusted EBITDA; this is the best quarter since early 2007. We've seen our earnings improve over $35 million from the year earlier, and over $7 million from the previous quarter's earnings. We're seeing a robust demand, -- a recovering demand, in the Asia Pacific and Latin America markets, while the recovery in Europe, which is our largest market, is more modest. And the North American market appears we've finally reached a demand level that is growing as opposed to contracting.

Due to improved demand, we've seen positive quarter over quarter traction on the price increases announced earlier, which have had a positive impact on our bottom line. We're benefiting from the structural cost improvements implemented during 2009 as well. As this division is still far from re-investment economics, we are anticipating further improvements throughout 2010, as global economics improve.

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

Thanks, Peter. Let's all turn to slide nine. From 2002 through 2008 we saw a pretty dramatic increase in direct costs, which primarily are raw material and utility costs on a per pound sold basis. Direct costs per pound peaked in 2008 before the pressure of rising raw material costs receded in 2009.

Despite this volatility in underlying raw material costs, our contribution margin per pound sold remained constant through the energy volatility of the past several years, and during the challenging economic environment of 2009 recession. This really underscores the point that I previously tried to make that the greatest challenge for us in 2009 was underlying demand, and not price. This also validates our decision to exit our commodity businesses a few years ago, as our experience with commodity businesses showed that in periods of over-supplier recession, similar to 2009, unit margins fall in addition to falling volumes. This of course has not been the case with our business in 2009.

On to slide ten. We think quarterly sales volume on a year over year basis is an appropriate measure of underlying demand, as it adjusts for seasonal fluctuations. Demand bottomed in the fourth quarter last year at negative 21%, as a result of dramatic de-stocking from the global economic recession. We are encouraged by the trend in recent quarters, as demand increased 3% and 13% in the third and fourth quarters of 2009.

Slide 11 bridges the fourth quarter 2008 adjusted EBITDA of $51 million, to the fourth quarter 2009 adjusted EBITDA of $165 million. An increase in volumes was the primary reason for the year over year increase in adjusted EBITDA. We also benefited from increased margins as prices lagged following raw material costs.

In 2009 our adjusted EBITDA decreased to $511 million from $643 million in 2008. Our average selling prices decreased less than the decrease of direct costs, which include raw material costs. Again, the most significant reason for the decrease in earnings was the decrease in sales volume, which created an approximate $350 million headwind in 2009. As underlying demand returns, plus a full year's benefit of our cost cutting and improved manufacturing efficiencies, we can see a clear path back to normalized EBITDA of more than $1 billion.

On slide 12, our year over year sales revenue for the fourth quarter was up 2%, primarily as a result of improved recovery and global demand. Sales recovery was most dramatic in the Asia Pacific region, with a year over year increase of 27%, and in our Pigments segment, with a year over year increase of 33%. Product pricing fell $75 million less than raw materials, thereby increasing contribution margins. We saw small decrease of 1% in our quarter over quarter sales trend, primarily as a result of seasonal volume declines. Contribution margins expanded as fourth quarter price increases outpaced raw material increases.

Let's turn to slide 13. During 2009, we were quite successful in managing our working capital. In the fourth quarter, we achieved a favorable cash benefit in our primary working capital of $74 million, which includes the change in receivables associated with our off balance sheet accounts receivable securitization program.

During the year, we have generated approximately $490 million in cash. The majority of this benefit, was derived through aggressive management of our inventories. During 2009, our inventory pounds have decreased 20%, as inventory values decreased 21%.

On to slide 14. At the end of the year, we had approximately $1.8 billion of cash, and approximately $800 million of unused borrowing capacity summing up to a total of $2.5 billion in liquidity on hand. This compares to $2.4 billion at the end of third quarter, an increase of $98 million.

Despite the impact of the worldwide economic recession on earnings in 2009, and adjusting for cash received from the Texas Bank litigation settlement of certain bond redemptions, our liquidity increased approximately $135 million during the year. This was largely due to effective working capital management, reduced capital expenditures, and minimal scheduled debt maturities. In 2009, capital expenditures were $189 million. We expect to spend between $250 million and $275 million on capital expenditures in 2010.

We are currently seeking to amend our existing revolving credit facility and reduce the available borrowing limit to an amount of approximately $300 million, and extend the maturity from August 2010, to February 2014. We have no cash borrowings outstanding under this facility, and expect to use it primarily to facilitate the issuance of letters of credit and bank guarantees.

During the fourth quarter of 2009, we replaced our existing short-term 364-day accounts receivable securitization program that was scheduled to mature November 2009. We replaced it with two new multi-year securitization programs, a US program and a European program. The US program provides for financing up to $250 million. The European program provides for financing up to $225 million Euros.

In connection with our ongoing insurance claim related to the April 29, 2006, Port Arthur, Texas fire, we've received partial insurance proceeds to date of $365 million. We are currently in binding arbitration with the insurers. While a final ruling is not expected until after additional oral arguments scheduled for March 2010, based on preliminary rulings, we do not expect additional recoveries to exceed $200 million. Additional anticipated recoveries will be used to repay secured debt.

On January 11, 2010, we re-purchased all of our outstanding 7% convertible notes due 2018. The convertible notes were issued to Apollo in connection with the terminated merger agreement with Hexion. The total purchase amount was approximately $382 million. At the time of this re-purchase, the notes were convertible into approximately 31.8 million shares of Huntsman common stock. This early extinguishment of convertible notes will result in a loss on early extinguishment of debt of approximately $146 million in the first quarter 2010.

In the future, depending on market conditions, we may from time to time, seek to re-purchase or redeem additional debt securities in open market purchases, privately negotiated transactions, tender offers, or otherwise. Any such re-purchase or redemptions and the timing and the amount thereof will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. No assurance can be given that we will engage in or complete any such transactions.

The bottom line is that we've got more than sufficient liquidity, no meaningful debt maturities until 2013, other than the $400 million of accounts receivables securitization, and an attractive weighted average borrowing cost of 5%. We think this will provide financial flexibility in the future for us to further differentiate Huntsman as an attractive investment option. I'll turn the call back over to Peter for some concluding remarks.

Thank you Kimo. A year ago at this time we reported the worst quarter since becoming a public Company. The very future and direction of our economy and industry were in question. In the past four quarters, there is little doubt that we have passed through one of the most volatile times in generations.

We committed to you that it was our objective to not just survive, but to emerge from this recession a stronger Company. Today we reported an EBITDA that is better than three times what we reported a year ago. Our costs are $150 million lower, our liquidity has vastly improved thanks to legal settlements, improved earnings, and aggressive working capital management. Despite all of the market fluctuations, we've been able to maintain a constant contribution margin on a per unit basis. This speaks well for the products that we have kept in our Company, as being less cyclical than our formally owned commodity businesses.

Lastly, I believe that we are well positioned to capitalize on the fact that we're evenly weighed between the Americas, Europe and Asia. We've been able to take advantage of our strong Asian business, and we will see improvements in our business in the US and Europe as they continue their recovery.

While the global economy still has a way to go to get back on its feet, our position and view of the future is much better today than it was a year ago. We look forward to an improving 2010. Thank you for your support during this past year. With that I'll turn the call back over to Kurt Ogden.

Thanks Peter. Let me take a minute to remind everyone that we'll be hosting an Investor Day on May 12 in New York City. Presenters will include John Huntsman's, Peter Huntsman, and Kimo Esplin, as well as the Presidents of each of our divisions. This event will provide a unique opportunity to learn more about our business in an in-depth manner.

We invite anyone interested in participating to email us at ir@huntsman.com to register for the event. Caitlin that concludes our prepared remarks. Would you explain the procedure for q and a, and the open the line for questions?

(Operator Instructions) Your first question comes from the line of Laurence Alexander of Jefferies. Please proceed.

Hi, this is Lucy Watson on for Lawrence today.

Hello.

You mentioned your $1 billion EBITDA target, would you mind updating the time line that you expect you could get there?

Right, and we don't refer to it's a target. This business is capable of certainly doing better than a billion dollars of EBITDA. It really is what we would consider to be normalized, taking 2005, 2006, 2007 and really, three quarters of 2008 before the recession hit us, as to what we were operating the business at. And as we look at volume variances off of our current earnings for 2009 and even the fourth quarter, when you add volume variances you sort of get to those numbers, so it really is a macroeconomic question around volumes. When we think volumes will return back to where they were, say, in '07 or, in fact, most of '08 for our business, we would get back to that billion dollars, or more.

Thanks. And I may have missed it, but what was your net debt at year-end?

Net debt I think is included in our earnings release and it should be on page eight of the earnings release. Is $2.462 billion for 12-31-09, and that excludes the off balance sheet AR securitization program of another $254 million.

Okay. And what would you, what should we expect for the gap between raw materials and pricing in 2010. Do you expect to maintain direct contribution margins?

Yes. I would hope that we would be able to maintain a contribution margin. Again, that is obviously dependent on economic, macroeconomic conditions and crude oil being somewhat stable. I think that most people would assume if we're in an economic recovery that you're going to see higher raw material costs.

I would remind listeners that as we see higher raw materials come into our business, that it typically takes us 30 to 90 days to be able to implement higher, to be able to take those costs and pass those through to our customers. So, you might see a little bit of a lag if we're seeing higher raw materials costs coming through the system during that time period. But, on average, we would hope that the contribution margins would remain constant to throughout 2010. And therefore, you're looking at - - as recovery will continue through 2010. You will, you will see volume increasing, and obviously that will be the main impetus for having stronger earnings throughout the year.

And over time, I would expect that that contribution margin per unit would continue to improve as it has over the last several years as we continue to invest in the mix of businesses that have higher margins, including the amines, polyurethanes, maleic anhydride, and our advanced materials formulation businesses.

Thank you.

Your next question comes from the line of Frank Mitsch of BB&T Capital Markets, please proceed.

Good morning, gentlemen. Peter, I found the slide ten fairly interesting in terms of showing the recovery. Obviously, you had a very easy year over year comp and did quite well. I'm curious as to how, how would you surmise the first quarter right now, we're about halfway through or a little bit more than that. With the first quarter, you have a relatively easy comp year over year. Are we, are we looking at the same low teens types of volume growth here?

It's obviously - - totally - - to really speculate as to where we'll be. What we're seeing, or what we'll end up by the end of the first quarter, Frank, but as we get, what we've seen thus far in January, I would say that we continue to see that sort of improvement. Asia continues to be very strong for us.

I would note that we're going through an Asian Chinese New Year right now that celebrates throughout most of Southeast Asia, and then of course, we had this at this time last year. The US, we're starting to see certainly more glimmers of light than we saw three months ago, and just from my personal view, Europe is probably a little more lackluster than I would have thought three months ago when I kind of gave a last analysis. So, we continue to see Asia being the, the real engine for growth here.

As I review and have an opportunity to meet with customers, and speak with our marketing and sales folks in Asia, we're not seeing large inventory builds. It really is quite a diverse market in consumption in China, and Southeast Asia, where we continue to see really broad growth across the entire spectrum of all of our products.

So, I remain quite optimistic about the Asian market. And the US, I don't want to say the US is roaring back, but certainly the US is growing better today than, than I would have anticipated a quarter ago.

Frank, back to slide ten, I do think that's an interesting one. When you look at sort, I look at the hurricane adjusted numbers because that's more of a normalized, I think 2008, but down 19% '08 fourth quarter, up 11%, that would suggest we have 7%, 8% down volumes relative to, I don't know normalized of 2007, there's a good normalized year, but that does feel kind of like what we're in. We're, we've come along ways, but we're still a little shy of what would be more normalized.

That's, that's certainly fair. I appreciate that. And given the fact that you are so strong in the global basis, how did 2009 end up with a, you're geographic spread and, what impact did foreign exchange have in the fourth quarter, and, any thoughts on the first quarter would be very helpful.

On a, a geographic spread, we're looking at about 23% of our business is Asia Pacific, 30% in Europe, 31% in US and Canada. As you look at that on a year on year basis - - 7% would be the rest of the world, most of that taking place in Latin America. Which I might note, Latin America for us, which dominates that 16% has been a growing market. That's up 7% year on year.

Asia Pacific is up 27% year on year, US is down 8%, and Europe is down 4%. So you know, as you look at it, it is kind of that roughly a third, a third and a third with the rest of world kind of fluctuating, you know, on the low teens there. What was your question on foreign currency.

Yes, foreign exchange impact fourth quarter, and given where the dollar has a appreciably strengthened relative to the EURO, what might be the expectation of a foreign exchange impact on your first quarter?

Let me take sort of the fourth quarter number and then we can speak to sort of first quarter. Foreign exchange had the effect of increasing price by 4%. So, mix and price were down year over year 12%, FX up 4% for the net 8%, Frank?

Yes.

But, in EBITDA terms, it had the effect of reducing EBITDA for transaction and translation FX purposes by nearly $20 million. And, that may be a little counter intuitive, but with European currencies as they are, we've watched the EURO, at least in this period, time period, strengthen fourth quarter '08 to fourth quarter '09, but the swings were really, we saw the Swissee and the Sterling sort of move in different directions, and that's where we have costs in the UK, and in Switzerland. But, we're selling in EUROS, so it tended to whip-saw us a little bit, and hurt us notwithstanding stronger EURO.

I see. Okay. And, a preliminary peak on Q1?

Generally, I mean, this is a real generalization, typically because we have a large European business as the EURO weakens that would hurt us in dollar terms. But, a lot of it has to do with what we think the Sterling and the Swissee are going to do relative to the EURO, because for the most part, we're, in Europe we're selling in your EUROS, but our costs are in those relative currencies. And, as you know, the Swissee and the Sterling, have really not correlated well with the EURO in the last couple of years.

Okay. All right. Much appreciated, thank you.

Your next question come from the line of P.J. Juvekar, of Citi.

Yes, Hi, Good Morning.

Hi, P.J.

I've got a couple of questions, one on MDI, and one on TiO2. On MDI, what's happening in the biggest end market, which is insulation. That's corelated to construction and housing, that end market still seems to be weak, so can you just talk about where the demand is coming from?

In the fourth quarter on insulation, we have seen those markets cool, and on a, both on a quarterly basis and year on year basis, insulation is down. What we are seeing in, and are projecting that through 2010, that will be recovering. As we look at the other sectors within MDI, our appliance, footwear, auto, furniture, all of those are, are up. And so it's a mixed bag and obviously MDI is a very diverse product that goes into several hundred end use applications.

So remember MDI was up year over year 10%, notwithstanding insulation being down pretty big.

Interesting, thank you. And, on Ti02, there have been some price increases announced. Can you tell us if they're sticking, and what kind of volume growth do you expect in 2010?

I think that as we look at 2010, we would look at volume growth as being modest, but that modest volume growth is also going to be helped out by a restocking of inventories. There were, as we talked about in the last conference call, inventories particularly going into the winter months were, very, very low in comparison to the seasonal times that we typically see. But we are seeing a restocking taking place, and we are seeing demand taking place as you look in, in our pigments business, on a year on year basis in the Americas, we were up 6%, in Europe we're up 29%, and in Asia, year over year, we're up 100%.

Overall, the business is up year on year 36%. And now, those are very impressive numbers. I would just note though, that this, of all of our businesses, this business was hit the hardest. You know when you saw the recession and housing and automotive, it really started a few years ago, we talk about you know, coming out of the trough for Ti02 in particular, that is a trough that's been in the making for the last two and a half to three years. And, you know, as we look at that business and the opportunity for improvement in that business, we continue to be optimistic.

As you look at the, the release, you can see that year over year prices were flat in Ti02. And you know, volume was up big. I think when you think about that flat price, direct costs fell nearly $50 million, so I mean, the benefit you've seen in titanium dioxide is not only some volume, but more importantly we were able to hold price as raw material fell.

Okay. And now that is Tronox off the table, are you looking for actively for other opportunities, and can you tell us which product areas.

I think, PJ, you know we want to maintain the strength of the balance sheet that we have today. And, obviously we would be interested in, in smaller bolt on acquisitions, if we saw something like Tronox, an opportunity like that, come on the market, we would seriously consider it just like we did Tronox. We'd want to, obviously shoot for something that would be a acretive on day one. But, yes, at this point, I think that our largest focus continues to be with the organic growth that we have internally, and recovering in the business on hand.

But, you know, Kimo just said you know your interest rates are pretty attractive. Are you just going to hold the cash, or are you actually going to pay down debt?

Well, we've been opportunistic, we just used nearly $400 million to buy in the convertible note, and I think, you know, we will continue to do that sort of thing. If we find attractive opportunities to, to purchase bonds in the open market for tender, we will do that over time.

Okay. Thank you.

I think that, we need to, to just also bare in mind, as optimistic as we are about some of the improvements or signs of improvements that we see, you know, as we look around the world, there's still, there's still some real pit falls out there and we want to make sure we maintain a strong balance sheet, and able to, to pay our dividends, able to invest in our business and be strong here.

Thank you.

Thanks, PJ.

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

Hi, good morning.

Jeff, I know how to say you're last name.

A couple things, to start off in pigments, on a sequential basis, your revenues were down about $14 million, but your adjusted EBITDA went from about 4 to 23. So, what really was the sequential determining factor that listed your profitability so much, and, are we now at some kind of sustainable run rate in the low 20s or, is there something [anomilis] about the result.

Yeah I think, listen, it's a seasonal business so, it's not going to be 20, 25 every quarter. But, I think we are at a point where, you know, we are going to see consistency in those levels. When you look at sequential numbers, I think, you're right, it's, you know, price was up roughly $10 million, volumes were down seasonally by about the same amount, and we enjoyed lower, lower direct costs. They've done a lot of work in terms of cost cutting, so we're seeing on a sequential basis improved SG&A and indirect costs by about $10 million, so there's self help in there.

Okay. And secondly in textiles, you talked about the progress that you're making, but you're still losing a lot of money on a EBITDA basis. When does that begin to come to an end? That is, can you see something occurring over a three or a six-month period, or, it would just take a little bit longer in that that?

I think that we're looking for a couple things there. We're obviously being aggressive in pricing, we're also being very aggressive in picking up volume. As you look at the textile industry, the overall demand in volumes, particularly in discretionary textiles or clothing and apparel, that people have a discretion to spend money on, that really was one of the first areas to drop off, aside from the pigments area in our business.

And that, you know, people going out and spending discretionary income on clothing and textiles would be probably one of the latter parts to fully recover. Now, that being said, I think we've done a lot of self help. I've mentioned the amount of costs that we've cut in that business.

We are moving our manufacturing to Asia. We are qualifying, we have moved most of our manufacturing and text tiles in Asia. It does take us time to re-qualify that product into our customers, and as we do that, we'll continue to see our costs lower. I would be very hopeful that by the middle of this year that we will see a profitable Textile Effects Division.

Jeff, we bought that business in 2006, you'll remember. We did, you know $75 million, $80 million of EBITDA, and continued to have, see that sort of number before our cost cutting in '06, '07, and things really started to soften up in '08, '09. But amazingly, we believe apparel consumption globally was down in 2009 nearly 20% compared to 2008, so that's, that's global apparel. Volumes have really come out of this business.

If you go back for five years and look at contribution margins per unit, they have been solid. They have not moved, so, this is again a business that's not anything about price. There's not been price deterioration or inability to get prices up because of higher raw materials and so forth. It is all about volumes and we are down from the time we bought this business, probably a third in terms of volumes. That's clearly affected our bottom line, so, and we believe we have not lost market share.

So in other words, the, it's really volumes that have hurt the business, so maybe when you begin to get a cyclical recovery later in the year that will change things.

I think that's the story.

So lastly, just the general drift your comments, so you spoke of having, as I understood it a $35 million head in the first quarter from the the turn around in MTBE, you've got a raw materials squeeze throughout your businesses. So, I take it that on a sequential basis, EBITDA should go down in the first quarter relative to the fourth quarter by some amount, and then as you increase your prices, and as you benefit from volumes, what you'd see is a recovery as you go through the year. Is that the general thrust of your remarks?

Generally first quarter, fourth quarter are similar, all things being equal. And, as you've said, we have with the turn around that will hit us by roughly $30 million, and we're seeing high raw material prices, which will have the effect of limiting our expansion of contribution margins. I don't think it's going to be a huge squeeze on a per unit basis, but you're right, I think with the turn around and given, all things being equal, first and fourth quarter typically similar, you're likely to see a lower first quarter.

Okay. Good. Thank you very much.

Your next question comes from the line of Bill Hoffman, of RBC Capital Markets. Please proceed.

Yeah, good morning. Peter, I wonder if you could help us a little bit. Just a little bit, somewhat of a hypothetical question here. If you took the second half volume, second half 2009 volumes, and annualized them in 2010, I'd like to get a sense of what you think the year over year difference might be? And then, just taking it one-step further, if you took some of the more differentiated product lines like the urethanes, advanced materials and performance products, where do you, where are you more heavily weighted to Asia and/or other higher growth regions?

Okay. Let's, let's take, let's take the first part of that question. Now the annualized volumes in the third and fourth quarter, ask that again?

Yes, basically if we thought that the business kind of stabilized in the second half of 2009 to a more steady state level, would volumes, what would 2010 look like year over year, and than the second part is just if we thought about some of these business segments, where are you more heavily weighted in higher growth regions.

I think if you take the last six months of 2009, and you were to look at that on an ongoing basis, I would say that that's, those two quarters, while there's some flexibility and there's some noise in that, I think those two quarters represent more of a, certainly of a stable market condition. Again, there's up sides in that because you still have very anemic European, and US growth in there, and market conditions in there. But, I think that if you were to take that and, as Kimo just said, you look at the first and fourth quarters as kind of being somewhat similar, I'm not going to say that the second and third quarters are always the same, but typically those are quarters where you're building earnings and you're building momentum in both of those quarters, one before the summer rush and one before kind of the holiday Christmas rush.

Typically, those two quarters are your strongest quarters. So, if you kind of look at the third and fourth quarter, and look at that in a reverse way, looking at the first and second quarter, I would think that, that you'd be looking at something of an annualized number around 700 or so. Is that, I'm not saying that is a forecast for 2010, but that certainly would represent the ballpark of a stable return.

Now as you look at our products on a regional basis, you would certainly, your product that is most representative in the Asian markets, would be your MDI, you're textile effects, and growing quite rapidly, would be your performance products. And say, if we have any data here that would show what percentage on a - - we'll get back to you on a, a - -

Yes, that's fine, we can follow-up. No, but that's very helpful.

As you look at our production footprint and our sale footprint, MDI certainly is, would be the most even product on a global basis, and textile effects would have the, it's largest footprint for the three regions, would be in Asia.

Terrific. Thank you. Kimo, just a sort of a more generic question for you too. I guess, taking about $500 million of cash out of working capital in 2009, any thoughts on how much of that comes back in as the business recovers here in 2010?

Well, that's a good question. I mean, in terms of volumes, we were able to reduce pounds by 20%, which is tremendous. We hope as a management team we're going to be able to keep volumes down, notwithstanding demand coming back. Obviously, we're going to have to build some in terms of pounds. The real swing factor is dollars, price, and that's a function of crude and natural gas and all their derivatives. And so you should expect, even if we are able to keep our volumes at their current levels and be able to, to supply our customers globally with the inventories we've got, if crude goes up, you're going to see working capital move up.

Great. Thank you.

Operator, I think we've got time for one more question here.

Your next question comes from the line of Roger Spitz, of Banc of America. Please proceed.

Thanks, good morning. Excluding the POMTBE economics, can we infer that there was raw material margin compression in MDI? And, if so can you give a sense of how much that margin compression was year over year?

Say that one more time, Roger, I'm sorry.

Sure, reading between the lines, by excluding the POMTBE economics, it looks like there was raw material margin compression in MDI, and, if so, can you give a sense of how much that margin compression was.

Contribution margins through '08 and '09 were relatively constant, so it really was more volume, again, consistent with sort of theme we've seen everywhere, that impacted us in MDI.

Okay. Okay. And, was there margin expansion in POMTBE part of polyurethanes year over year, and if so, was it more in the MTBE rather than the PO or was it a mix of both.

Yes, the MTBE is where you've seen most of the margin expansion taking place. Propylene Oxide is - - a lot of that is sold on a tolling basis, so that's fairly consistent. Obviously, it will move with market variabilities but not nearly as much as MTBE and the seed factor that you would see with MTBE.

Got it. And lastly, can you identify some of the new MTBE plants that you inferred on the presentation slides?

Let's see, I think the Enterprise Facility in the Gulf Coast is started up here recently - - you're talking about the new start-up.

Yes. Yes.

And, the middle east has brought on some capacity. And, but you know over the last two years we've also lost about 20,000 barrels of MTBE capacity that's been shipped over to ETBE, so, there's quite a bit of noise in that about what's coming in and what's gone out.

Got it. All right. Well thank - - Go ahead.

We've seen demand for MTBE increase faster than GDP, so there are more countries at this time certainly that are shifting over to consume MTBE, and obviously if North America had a rational energy policy, we'd be doing the same thing here, but I won't get into that. So, you know, we continue to see it to be a strong demand product for us.

And you're going to stay with MTBE rather than shifting over to ETBE?

At this time we see no reason to make that shift and continue to make good money. I think our facility is one of the low cost producers in the world.

Great. Peter, Kimo, thanks very much.

You bet.

Thank you.

Operator, we're sensitive that we're encroaching on theTiger Woods press conference ,and we'll let you all go listen to that. So that will conclude our remarks. Thank.

Thank you all very much and feel free to contact Kurt Ogden if you have any further follow-up questions. Thank you.

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