Huntsman Corp (HUN) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter Huntsman Corporation earnings conference call. My name is Kathy, and I will be your Operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today's call, to Mr. Kurt Ogden, Huntsman Corporation, Vice President of Investor Relations. Please proceed, sir.

Thank you very much, Kathy, and good morning, everyone. Joining us on the call today, are Jon Huntsman Executive Chairman and Founder, Peter Huntsman, President and CEO, and Kimo Esplin, Executive Vice President and CFO.

This morning before the market opened, we released our earnings for the third quarter 2011, 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. 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 reconciliations to the most directly comparable GAAP financial measures in our earnings release, posted on our website at huntsman.com.

As we refer to our 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, unallocated foreign exchange gains and losses, certain legal and contract settlement costs, losses from early extinguishment of debt, gain on the consolidation of variable interest entity, and losses and gains on disposition and acquisitions of businesses and assets. A reconciliation of EBITDA, adjusted EBITDA, and adjusted net income, or loss, can be found in the appendix of our slides and in our third quarter earnings release.

Let's turn to slide 2. In our earnings release this morning, we reported third-quarter 2011 revenue of $2.976 billion, adjusted EBITDA of $345 million, and adjusted earnings per share of $0.45 per diluted share. Our adjusted EBITDA was $345 million in the third quarter 2011 compared to $273 million in the prior year, an increase of 26%. Compared to the prior quarter of $318 million, our adjusted EBITDA increased 8%. I will now turn the call over to Peter Huntsman, our President and CEO.

Thank you, Kurt. Good morning everyone, and thank you for taking the time to join us. Let's turn to slide 3. Adjusted EBITDA for Polyurethanes division for the third quarter, 2010 was $140 million. I'm generally encouraged by the demand trends we saw in our MDI products, though we saw different regional trends within the quarter. In the Americas, we saw strong growth, both sequentially, and on a year-over-year basis, led by improvements in insulation, and the automotive sector demand, and further market substitutions for our wood products and furniture sectors.

In Europe, demand was essentially unchanged as we focused on margin protection and ceded some less profitable business to the competition. From a demand perspective, we saw the most improvement sequentially and on a year-over-year basis in the Asia region. However, the effect of tightening credit and increased regional supply, led to sequentially lower average selling prices and margin.

One of the sectors where we continue to see strong growth is insulation, which compared to the prior year, grew 21% in the quarter, and 17% year-to-date. The supply/demand balance for the MDI industry, as a whole, is relatively unchanged compared to the second quarter. We estimate the MDI industry operated around 90% of nameplate capacity in the third quarter. Propylene Oxide and its co-product MTBE have performed very well this entire year.

Earnings in the third quarter were above historical averages, and comparable to those in the second quarter of this year. Strong Latin America demand, combined with the large spread between Brent Crude, which has an impact on MTBE pricing, and WTI Crude, which drives certain MTBE raw material costs, had the effect of maintaining our high margins. We expect margins to contract in the fourth quarter, consistent with typical year-end seasonality.

Turning to slide 4, in the third quarter, our Performance Products division earned $97 million of adjusted EBITDA. As announced in our second quarter earnings call, during the third quarter our Port Neches, Texas facility underwent some planned maintenance, which had an impact, negatively, of about $8 million on EBITDA. Demand within this business was generally stable across all regions, though we did see some pockets of softness in amines and surfactants. We have seen increased supply of Ethyleneamines come online within the last year. This increased competition has put downward pressure on volumes and margins.

We expect an industry-wide seasonal slowdown, in demand, in the fourth quarter, accompanied by lower selling prices, as the cost of some of our raw materials has moderated. This business benefits more, than any other in our portfolio, from the low cost of North American natural gas, and we expect that to continue. Approximately 66% of our production capacity is located along the US Gulf Coast, giving us a unique cost advantage, where over 60% of our raw materials and manufacturing costs are Ethane-based.

Turning to slide 5. Adjusted EBITDA for our Advanced Materials division was $26 million in the third quarter. During the third quarter, we successfully raised our average selling price within the division. Unfortunately, this is more than offset by higher raw material cost and fixed costs within the business. The foreign currency impacts, primarily from a stronger Swiss franc, has a net effect of decreasing our EBITDA by an estimated $7 million in the quarter, compared to the prior year.

Approximately 40% of our cash fixed-costs for our Advanced Materials business are denominated in Swiss francs. Seeing an opportunity to improve the profitability and direction of this business, in July, we reorganized the senior leadership of this business. We recently announced a Global Restructuring program that will reduce 120 positions, primarily in Switzerland as part of the overall restructuring of this division.

We took a restructuring charge of $24 million in the third quarter, and expect approximately $20 million of annual savings from this restructuring. Although we will see some modest savings in the fourth quarter, we don't expect to see the full run-rate until the end of the second quarter, 2012. Given the industrial and consumer demand for many of the applications, I'm confident that we will see an improvement in 2012 in this division.

Turning to slide 6. Our Textile Effects division reported an adjusted EBITDA loss of $29 million for the third quarter. Sales volumes decreased 13%, compared to the prior year, and are down more than 30%, from demand levels, in the third quarter of 2007. Approximate 66% of our business is oriented towards natural fiber products, such as cotton and wool. Although demand for synthetic fiber has improved modestly, demand for home textiles, such as cotton sheets, cotton towels and cotton apparel remains weak.

The foreign currency impact, primarily from a stronger Swiss franc, had the net-effect of decreasing our EBITDA by an estimated $10 million in the quarter, compared to the prior year. Approximately 50% of the cash-fixed cost of our Textile Effects division are denominated in Swiss francs. In September, we announced our intention to restructure this business and reduce our cost infrastructure.

We plan on closing our production facilities and business support, in Basel, Switzerland, which will eliminate 600 positions. This represents a reduction of 15% of the divisions total workforce. We remain committed to our innovation capability, and the Basel-based Research and Technology Group will not be affected.

We expect that 100 positions will be moved to other sites, within the business, and another 100 will be hired within the key markets close to our customers. In the third quarter, we recorded a cash-restructuring charge of $73 million. We expect additional future cash-restructuring charges, of approximately $30 million, and annual savings of approximately $70 million.

During the third quarter, we will record a $53 million non-cash impairment of our Basel, Switzerland manufacturing facility. We do not expect to see hardly any benefits in 2012, as we wind down operations to be closed, and transfer products to more competitive sites, thus operating 2 sites simultaneously. We should see approximately 66% of the benefits in 2013, and in 2014, achieve the full benefits of this restructuring.

Let's turn to slide number 7. Our Pigments division earned $161 million of adjusted EBITDA for the third quarter. Demand for Ti02 remains high, although it has moderated slightly. Industry producer-inventory levels are less than 45 days, suggesting the supply chain is tight. Our inventory levels are significantly below the industry estimates, as we continue to sell everything we can make.

Our third-quarter 2011 sales volumes decreased 8%, compared to the prior year, primarily because we had lower finished-goods inventory available for sale. We continue to see positive traction with our announced prices. Third-quarter average-selling prices increased 38% on a local currency-basis, compared to the prior year. In addition to benefiting from improved industry economics, we've been reshaping our revenue mix to higher value-added products.

This includes a growing number of products, such as our free-flowing DELTIO products, which increased customer's ease of use, and mixing, as well as increasing sales volumes into higher value-added segments. This portfolio shift has contributed to increased average selling prices, and improved margins. Sales for our differentiated pigments, that command a premium over our commodity products, represent over 40% of our total sales in 2011. We expect there to be meaningful increases in raw material and energy costs in the future, most notably in the cost of Titanium bearing ores.

We expect the cost of our high grade feedstocks, such as roof tile, chloride and sulfate slag, to increase, more than Ilmenite, which is used for about 40% of our sulfate process production. We will continue to try to offset the increases in direct-costs, with additional price increases. Barring a major economic recession, we expect strong earnings from pigments for the next few years.

There will continue to be seasonal softness in destocking, at times, during the year, and we expect this to happen during the fourth quarter, thus we expect the fourth quarter to be lower than the third quarter. But, from what we see today, the industry should be strong for some years to come. Before sharing some concluding thoughts, I'd like to turn over a few minutes to Kimo Esplin, our Chief Financial Officer.

Thanks Peter. Let's turn to slide 8. Let me address some items that affected our earnings during the quarter. We expect our long-term effective tax rate to be approximately 30% to 35%. Our adjusted 2011 effective tax rate has been running below this, primarily due to tax valuation allowances in countries like the UK, France, and Spain, where we have meaningful pigments operations.

Tax valuation allowances, in these countries, have the effect of lowering, and in some cases, eliminating the tax effect, in the P&L, from these respective countries. We also have a tax valuation allowance in Switzerland, where our Textile Effects business has meaningful operations. The loss that's currently being generated by our Textile Effects business in Switzerland, pushed the effective tax rate higher, as we are unable to book benefits due to the valuation allowance.

The increase in the forecasted losses from our Textile Effects business, in the third quarter, had the effect of increasing our losses in Switzerland, and in turn, increasing our projected tax rate for the year. We are required to adjust our third-quarter, year-to-date tax rate to our expected full-year rate. This resulted in the recognition of more tax expense during the third quarter, and 38% adjusted-effective income tax rate.

We expect our fourth quarter and full-year 2012 adjusted tax rate to be slightly less than 30%. As indicated in our release this morning, this had a negative impact of approximately $0.08 per diluted share on our third-quarter 2011 results. For the most part, we use the weighted-average cost method for valuing our inventories. However, approximately 10% of our inventories are accounted for, using the LIFO cost method.

Although the LIFO costing primarily relates to inventories in our North American Performance Products business, we account for the movements in LIFO reserves within our Corporate LIFO, and other segments. Movements in LIFO reserves are included in our adjusted earnings. LIFO costs have been a headwind all year for us, due the continuous rise in raw material costs, and have the effect of reducing our earnings by $8 million in the third quarter, and $27 million year-to-date.

When raw material prices moderate, within our North American Performance Products business, we expect reduced LIFO movement. In our Advanced Materials and Textile Effects business, foreign currency had a negative impact of approximately $17 million on earnings, compared to prior year, primarily due to the strong Swiss franc. Approximately 33% of our fixed costs are denominated in US dollars, another 33% in euro, and approximately 10% are denominated in Swiss franc.

Most of our Swiss franc-based production is sold in euros, and so long as the euro and the Swiss franc move in unison, against the US dollar, there is generally a natural hedge. Unfortunately, the Swiss franc has appreciated approximately 20% in the past year, compared to the US dollar, and more than 10% compared to the euro. As Peter discussed, we recently announced plans to restructure our Advanced Materials and Textile Effects businesses.

We recorded $155 million of restructuring charges during the third quarter of 2011, consisting of $102 million of cash charges,and $53 million of non-cash impairment of assets. We expect additional future cash charges, from all of our restructuring plans of approximately $35 million. We expect future annual benefits of approximately $90 million from this restructuring. We will see some modest benefits in 2012, 75% of the benefits in 2013, and the full $90 million run-rate by the end of 2013.

Turning to slide 9. In the third-quarter 2011, our adjusted EBITDA increased to $345 million, from $273 million in the prior year. The primary reason for this year-over-year increase, was an improvement in margins. As increased selling prices, more than compensated, for the increase in raw material costs.

Improved margins were partially offset by a decrease in sales volumes, and an increase in SG&A and other indirect costs, including foreign currency movements against the US dollar. Compared to the second quarter of 2011, our third-quarter adjusted EBITDA increased from $318 million, to $345 million. The primary reason for the sequential increase in adjusted EBITDA was a decrease in our SG&A and other indirect costs.

Turning to slide 10. For year-over-year sales revenue, for the third quarter, increased 24%, primarily as a result of higher average selling prices. We had more sales from a North American Region, than any other, during the quarter. Sales, in this market, increased 32%. Year-over-year improvements in revenue were most notable in Europe, which increased 34%.

The Asia Pacific Region, which made up 21% of our total revenues, increased 16%, while our rest-of-the-world category, which includes emerging markets, such as Central and South America and the Middle East, made up 15% of our total sales, and improved 3%. Our largest divisions, Polyurethanes, Performance Products, and Pigments, which account for approximately 80% of our revenues, recorded revenue increases of 26%, 25% and 39%, respectively.

In total, our average selling price improved 20%, adjusted for the impact of foreign currency, while our sales volumes declined 5%. Compared to the prior quarter, consolidated revenues increased modestly, by 1%, due to improvements in our sales mix.

Let's go to slide 11. At the end of the quarter, we had approximately $1 billion of cash and unused borrowing capacity. During the third-quarter 2011, our cash net-investment and primary working capital increased $111 million. Although the net value of our primary working capital has increased year-to-date, consistent with the underlying rise in raw material and energy costs, these trends reversed in the course of the third quarter.

Our days-outstanding for primary working capital components, remains in-line with historical averages. In August, we announced that our Board of Directors authorized the repurchase of up to $100 million, in shares, of our common stock. During the third quarter of 2011, we acquired approximately 4 million shares of our outstanding common stock for approximately $50 million, under the repurchase program.

We continue to reduce our outstanding debt. During the quarter, we redeemed approximately $111 million of our senior-subordinated notes. Yesterday, we provided notice that we will redeem all of our outstanding 6.875% senior-subordinated euro notes, due 2013, worth approximately $93 million. As we generate additional free-cash flow, we will continue to look for opportunities to reduced our outstanding leverage. We spent $93 million on capital expenditures, net of reimbursements, during the third quarter.

In 2011, we expect to spend approximately $350 million on capital expenditures. Yesterday, we announced the sale of our Stereolithography and Digitalis Manufacturing Machine business, to 3D Systems Corporation, for $41 million in cash. We determined these pieces of our business were not part of our Advanced Materials division core competitive strengths. The impact on our P&L will be minimal. Associated revenues were $7 million, in 2010. I will now turn the time back over to Peter, for some concluding remarks.

Thank you, Kimo. In spite of shifting demands, anemic economic growth and uncertainty, from one quarter to the next, we had a record quarter of adjusted EBITDA. Even with fourth quarter adjusted EBITDA, typically 20% lower than third quarter adjusted EBITDA due to seasonality and destocking, we are well on our way to a record year.

I will repeat what I have said in previous quarters. I continue to believe that North America and Global economic conditions, simply do not match most of the dour economic headlines and forecast. I shall not attempt to forecast Global economic directions, however, I do not see the signs of a double-dip recession in North America. If anything, I question where much of the supply will come from, should we see a recovery, in housing, to pre-2008 recession levels.

While we are seeing strong earnings in our Pigments division, I personally expect that our MDI, Polyurethanes, and Advanced Materials divisions, will see major improvements in the coming year. I expect that we will earn a record adjusted EBITDA this year, in our Performance Products group, and I see room for continued improvements in the coming years. As painful as it is been for us to make the employment cuts in Textile Effects, this past quarter, as we complete our recently announced restructuring program, we should be generating positive cash flow by the end of the implementation of this program.

In short, this Company has earned nearly $1.2 billion of adjusted EBITDA, in the past four quarters. As I look out over 2012, and 2013, barring a global economic recession, I do not see why these should not be stronger years for us. 2011 will be a very strong year for us, but I'm even more optimistic, when I look into the future, than our past. With that, I will turn the time over to Kurt.

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

Our first question comes from the line of Robert Koort, please proceed.

Thanks very much. Bob Koort at Goldman Sachs. To talk a little bit about the dynamics for MDI in Asia, I guess we've been hearing some commentary recently about some price pressure there. Maybe your Chinese-based competitor seeking volume over price, and then what is the status of (inaudible) from BSF, and then your own project there?

I think longer-term, Bob, that the market certainly is going through some destocking. In the Asian market, as we typically see at this time of year, as we look at the overall capacity utilization-rate and the lack of new production coming on, as we look out over the next couple of years, we look at our own potential expansion in Asia, and what BSF has announced in Yamato. We are still looking, at least two to three years down the road, and more likely, perhaps even longer than that.

As I look at of the next couple of years, I see capacity, if anything, getting tighter in Asia. I would say that, in Asia, that their pockets of destocking, that are taking place right now, but we continue to see the Asian economies grow at a fairly decent rate. And I think, again, longer-term these trends are going to be favorable for us.

Bob, if you look at our year-over-year MDI sales, remember, year-over-year, for the quarter, we had roughly 9% increase. Asia had a 16% year-over-year third-quarter MDI growth-rate, in terms of volumes. That was really led by darn near 50% increase in our Construction, related to insulation business in Asia and automotive was about 6%. So, third-quarter sales pretty strong.

Got it. And then, Kimo, in the past you have been helpful in talking a little bit about your cost position on Titanium ores, certainly the ore providers talked about pretty dramatic increases. Can you give us some sense of how those phase into you and what we should expect fast-forward, from a cost standpoint?

From an ore standpoint, you remember we said, that 2011 ore prices would increase about 40%. 2012, the jury is still out, but it could be as much as double. So, you might want to think about it in Ti02 terms. We might see as much of $700 a ton increase, in Ti02 terms, in ore cost, in 2012. Now, that is $700 a ton, obviously, in Ti02 terms. You have got to think about pricing. This year alone, in 2011 we have probably seen $1000 a ton, in terms of price increases.

Kimo, you're talking, when you say, $600, $700 of ore cost, that's your net year-on-year, not some benchmark, is that right?

We are thinking about what market would be.

Okay, that's just where I'm asking for some clarity, because these contracts, the legacy in ore, was for annualized for multi-year contracts, and now the industry is trying to go to shorter durations, so --

My guess is, that our mix of contracts looks an awful lot like everyone else's. Everyone has multiple contracts, the rollover, one year, two year, three years. And they are all going shorter. So my guess is, that a possible doubling of ore cost in 2012, is going to be pretty close to what everyone else is going to experience.

This is Peter. One thing that you might want to just bear in note, and I mentioned this during the call, is that, obviously, not all ores, raw materials are the same for all producers. You look at something like Chloride slag, this next year, that could increase as much as, close to $1000 a ton, where Ilmenite, which is a raw material for a Sulfate plant, increased by around $100 a ton. So as we look at our Sulfate production, about 40%, 45% of our raw material for the Sulfate production is Ilmenite.

And, as we look at, at least over the next couple of years, is titanium ores are going to be tight here. I'd much rather be in a position with a Sulfate facility buying Ilmenite, than a Chloride facility that is going to be paying much, much higher raw material costs, than what Huntsman would pay. In short, I think that our portfolio of production facilities will advantage us for the rest of the market.

Great, it is very helpful, thank you.

Thanks Bob.

Our next question comes from the line of Kevin McCarty, please pronounce the name of your firm. Thank you.

Yes, good morning, gentlemen. This is Kevin McCarthy with Bank of America, Merrill Lynch.

Hello Kevin.

With regard to your Ti02 to volume, in the quarter, down 8% year-over-year, can you give us a feel for how much of that might relate to industry conditions with slower macro growth? For example, relative to the inventory-related constraints that you cited?

I think virtually all of that was inventory. We were able to sell everything that we could make, in the third quarter. There might have been 1% build in inventory or 1% or 2% build in inventory. I remind you, that typically, during, especially during the fourth quarter, we are building inventory, so the only reason that we saw decrease, in the third quarter in sales is because we didn't have as much inventory to sell, in the third quarter, as a year ago. Had we had that same amount of inventories a year ago, we would've been able to sell that.

You remember Kevin, we said that we weren't going to see much seasonality in our business in the second and third quarters, simply because of that reason. We didn't have the kind of inventory to be able to pick it up this year.

If we make it, we are selling it.

Okay. In that context, how would you characterize your Ti02 pigment inventory in days at September 30? I imagine it is at a relatively low number. Where would you put that?

We are significantly below the industry, which is the low 40s. We are well below that.

Okay. And then coming back to ore, if I may, you mentioned Ilmenite was 40% of your mix. How would you break down the remaining 60% among root tile, slag, and other?

Some of that, obviously, is going to vary on pricing and then use-demand.

If you think about our ore requirements, just in terms of tons of ore, and this doesn't reflect the contained ore, if you will, but we will purchase roughly 32% of our ores, our Chloride-based ores, that's Chloride slag and root tile. And that 68% of our ores are Sulfate ores. That doesn't reflect the contained Titanium. You have to adjust that for the contained Titanium. So Sulfate ores are roughly split 50/50, Sulfate slag and Ilmenite, and same with Chloride slag and root tile, for our Chloride ores.

Okay, thank you very much.

Our next question comes from the line of PJ Juvekar. Please proceed.

Yes, hi, good morning.

Good morning PJ.

Is it fair to say that the real bottle-necking Ti02 is in the ore, and so any value creation going forward will slow upstream to the ore?

I'm not sure that is necessarily accurate, PJ. If you see a drop in demand, or destocking that is taking place in Ti02,, it is not like ore is going into Ti02 and a host of other products. If demand drops for Ti02, demand is also going to drop for ore. I just don't buy the argument that you're going to see prices skyrocket because demand skyrockets in ores, and without demand, doing likewise in Ti02.

I think Ti02 supply/demand is very similar to that which is found in ore. So, as Peter said, when you have a situation where the downstream product and the upstream product are similar, I think you are going to see very similar pricing practice.

No doubt in 2010 and 2011, you saw Ti02 leading the price charge. But in 2012, perhaps, you will see the ore side of that, but I believe that as ore prices go up, that the Ti02 industry, if they absorb those ore prices, will also be able to pass that on to consumers.

Fair enough. And second question for Kimo, on operating cash flow, it has been somewhat weak this year. And I know that you had working capital build year-to-date. When you see that kind of operating cash flow improving?

PJ, that's a function, really, of our raw materials. In short, of where natural gas and crude and ores have gone. As I mentioned, our days-inventory and days-receivables are very consistent with the historical trends. As, we have seen, raw materials moderate here, in the third quarter, I think you are going to start to see some benefits. Where I'm sitting today, you should expect to see cash flow from working capital in the fourth quarter, given those raw material trends.

Thank you.

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

Hi. Good morning. Thanks very much for the adjustments to your financial presentation, providing pre-tax income on an adjusted basis. It was really easy to work with this morning.

Jeff, thanks for input on that.

You took $102 million in restructuring charges, what did you spend that on? In cash charges?

That's almost all headcount reduction.

So how many people did you let go, or how may people do you plan to let go?

Roughly 600.

600.

That's in the Textile Effects end of the business. In the Advanced Materials, 120 positions, so roughly about 720 to 730.

And why won't you see the benefit next year? Why do you have to wait until 2013?

We will be actually operating, so picture as we shutdown facility. We have facilities today that are literally producing scores of different grades of Textile Effects products. And we don't shut down 1 plant on one day, and the next day we start operating the second plant. We have to transition those products from 1 product to the next, over to a new plant.

That plant needs to continue to absorb its fixed cost, and it needs to continue to operate, until the last of those products have been certified, accepted by our customers, and matched, if you will, by a second low cost facility. So again, hypothetically, you have a facility in Switzerland, that is slated to come down, it is being replaced by a lower cost facility, closer to our customers and China.

That facility in Switzerland will continue to have its fixed cost and will continue to operate until the very last of those grades has been transferred, accepted by its customers. Over the course of 2012, you will see those grades transferring to China. The facility in China will have to increase its production, will have to increase its cost, to be able to take those grades. So essentially, over 2012, while that transference is taking place we are operating 2 facilities simultaneously.

It won't be until the latter part of 2012, we believe that there will be full certification, full transfer of those various grades to where you can fully shut down and eliminate all of the fixed costs, associated with your Swiss assets. We will be pushing that as aggressively as we can, and as hard as we can, but I think we are also hindered, a little bit, by how quickly our customers will accept re-qualifications and so forth. Sorry about the long laborious answer, but I think it is a very good question. We are cutting our costs, as quickly as we possibly can. But we will have to do this in order.

Okay. In the quarter, you spoke of a $17 million currency-hit from the appreciation of the Swiss franc, but it also looks like you had some other currency benefits. What was the net currency effect in the quarter?

The $17 million is the net. The headwinds from Swiss franc was greater than the $17 million.

Okay. And in Ti02, it looks, to me, that you are selling your product at an average price of somewhere between $3,900 and $4,000 a ton. Is that right?

I think, on average, that would be -- yes, on average.

I think the average price in the third quarter was $3,650 a ton.

Is that exclusive of currency benefits? Or inclusive?

That is net with changes in currency.

So it doesn't include the currency benefits?

It does include the currency benefits.

It does, okay. And then lastly, you said that you thought Ti02 would be -- or pigments would be pretty strong over the next few years. Did you mean that you expected that your adjusted EBITDA to grow, or just to stay high, or you are agnostic about that?

I think I try to avoid any sort of quarterly numbers. Again recognizing that Ti02 will continue to be a seasonal product, where you will see very strong demand in the second and third quarter, we could imagine the first and fourth quarter. But I think, that as you look at year-on-year of 2011, 2012, 2013, going into 2014, as far as we can see, I believe that Ti02 will continue to be a very strong -- some quarters improving, and perhaps, some quarters we see destocking slackening a bit.

I'm not trying to be evasive on the answer. I wouldn't get in to try to forecast it on a yearly and quarterly basis, but I do believe that the sort of margin percentages that we are seeing today will continue with variations, with seasonality throughout the year.

But what I meant was over a multi-year period, did you expect your adjusted EBITDA to grow or to shrink or to stay the same? Not on a quarterly basis, but over the next several years?

I think that we would expect it to remain in the general vicinity where it is today. Again, with opportunities to expand some quarters, and you'll probably see some quarters where you'll see contraction. I don't think that this is going to continue to grow up to where it is 40%, 50% EBITDA margins. Look at the margins today, I don't see Ti02 peaking. I see a plateauing, and I see a plateauing for a couple of years that way, at least for a couple of years.

Okay, thank you very much.

Thank you.

Our next question comes from the line of Roger Spitz of Bank of America. Please proceed.

Could you speak about how Propylene Oxide volumes and contribution-margins move, versus Q2, 2011, and any outlook on PO demand for Q4, 2011?

Roger, you remember that Propylene Oxide MTBE -- we have a pretty stable Propylene Oxide contribution. And it is the MTBE that sort of moves around. A good benchmark for that would be see factors. And see factors fell, second quarter to third quarter, from a roughly $1.20 per gallon to about $1.5 a gallon. So they fell roughly $0.15, $0.16. That is probably a good relative change, on a sequential basis in our PO/MTBE margins.

That see factor, you remember deals, exclusively, with MTBE on the Propylene Oxide side. Again I think you that you will see fairly stable earnings, as a lot of that business is done on a toll basis, so we don't see a great deal of volatility in the PO side of the earnings.

Okay, and on Advance Materials, which if not both, raw materials were responsible for that controversial margin compression in Q3? Was it EPI or BPA, or perhaps something else, or both?

I believe it is a combination of both.

Okay, and lastly on pigments. You said, you expected prices, I think I heard, up in 2011 or a $1000 a metric ton, you spoke about expecting more cost on, in Ti02 terms, up in 2012, on $700 a metric ton. But, have you said, or can you say what you expect ore costs in 2011, to be up to, in Ti02 terms?

In 2011, ore costs were up about $210 -- about 20%.

Great, thank you very much.

Just a follow up on Roger's question. I think Bisphenol-A prices rose, year-over-year, about 34%. And Epichlorohydrine prices rose about 18% in Advanced Materials.

Just to clarify, the ore costs in 2011 were up about 20%, over 2010. Just want to make sure I had that clear.

Thank you very much.

Our next question comes from the line of Frank Smith of Wells Fargo. Please proceed.

Good morning, gentlemen.

Good morning Frank.

Good morning Mr. Smith.

I've got some good news for you. Your forecast on insulation sales are probably light, given how cold my house is without power, so a lot of people, here in the Northeast are going to be burning a lot of insulation, so I think I am going to goose my numbers, there. (laughter) So, that is good news for Huntsman.

Frank, Do you have Polyurethane Spray insulation in your attic?

Obviously not, if he's freezing. (laughter)

(laughter).

You've got that pink stuff in your house.

Yes, I'm getting rid of the pink stuff and going with the spray foam, absolutely. Keeping on the topic of Ti02, you prices were up 15%, sequentially in the third quarter. We have heard from some others that they are anticipating prices up in Q4. Do you have a feel on how much pigment prices might be up in the fourth quarter relative to the third quarter?

From the third quarter, we announced a $450 a ton increase, and about 50% of that has been achieved. We are still fighting in certain areas for it and so forth, but again, a 50% increase on $450 a ton, that's a pretty solid increased.

All right, terrific, and 50% has already been achieved, great. And on the Performance Products area, you did talk a little bit about the LIFO impact with raw materials and, obviously Ethane costs are up, here in the fourth quarter. Would you anticipate a material negative LIFO -impact, in Q4, in that segment?

I wouldn't expect that to be material in the fourth quarter.

All right. Great. And then lastly, you bought back 4 million shares, if my math is correct, at a price $0.07 above where the stock is trading right now. Actually, it has been rising as we've been talking here. What sort of expectation should we have on the completion of that timing, of the completion, of that share re-purchase program?

Again, I don't want to get out in front of our Board, Frank. But, our Board continues to believe that our stock is undervalued. And, we will continue to follow the direction of the Board as far as buying additional shares going forward. It would be unfair for me, at this point, to try to say what the last $50 million of that, how that will be spent, and so forth.

All right, thank you.

Thank you.

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

Good morning.

Hello, Laurence.

I guess the first question just on pension funding. Do you plan on making a pension contribution in the fourth quarter?

I think it will be modest. I think it is roughly $15 million.

Okay. On Ti02, just want to triangulate on the various comments that you have made on the fourth quarter. Given how much destocking occurred this quarter, do you expect volumes to be down, sequentially, just with seasonality offsetting the impact of the destocking?

Yes, again, in the fourth quarter we are expecting, and seeing, a combination of seasonality, which is what we see every fourth quarter, that shouldn't be coming as a surprise. And, with the increases in pricing that we see, you will see destocking taking place in the fourth quarter, particularly in Asia. I think that supply lines, and this is probably -- I do not want to be too general here, but I think this is probably typical in a lot of chemicals, not just Ti02.

Between suppliers and customers in North America and Europe, you typically have few middle-men traders, distributors and so forth. And supplies, inventories, from what I see, just anecdotally, and this would be for Ti02, but also for other products, you see very little inventories. Particularly North America, between the producers and the customers, inventories are very low right now.

Typically in China, where you have a lot of distributors, you have a lot of brokers, you have a lot of middle-men, if you will, you have more inventory built into the system in Asia. And you have greater room for destocking that typically goes on for two to three months. And typically, that happens during the fourth quarter, and typically ends sometime around Chinese New Year, which is the latter, middle part of January.

Now, again, that's pretty typical in the chemical industry for about the last five to 10 years now. I'm not saying that anything that's all that revolutionary. I think that we would be seeing many of those same trends taking place in Ti02. Where you will see in the fourth quarter, both seasonality taking place, inventories will be built up in the season, and you also see some destocking taking place.

Would the impact of the incremental margins on the destocking be enough to offset the price increases that you've put through, so that net margins would be down sequentially?

I think your margins are going to most likely remain stable. And your volumes are what are going to be going down. Margins, if anything, in fourth quarter, with the announced price increases and everything, may well be going up. But again, on seasonality and destocking, with volumes going down, the health of the product, per ton, may actually increase in the fourth quarter. But it is going to be the volume being down in the fourth quarter.

And then lastly, just quickly, as a think about the raw material profile, for next year, given the rise in ore prices, do you think, in aggregate, your raw materials will be a source or use of working capital next year?

In this particular end of the business --

No, sorry, I just mean across the entire portfolio.

Across entire portfolio, it would all depend on what happens with raw materials in general. In the last couple of months we've seen Benzene prices, and natural gas prices, crude prices, by and large, trending downward. And should that continued through 2012, that should be freeing up working capital for us.

Thank you.

Thanks Laurence.

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

Hello, Greg.

Good morning, gentlemen. It's tough being in the back end of the queue, with so many good questions asked by my colleagues. But could I ask about MDI? You noted the weakness in Asia, my question is, have you been able to hold MDI prices up in North America and Europe, in October, November with the weakening of Benzene or are MDI prices drifting downward?

There certainly is pressure to move downward, but demand, I would say, as we look at demand, the areas, if you were to ask me six months ago, what the region, that would most surprise me, from what was actually seen, it would be the Americas. And I think, that as you look at the US economy, personally, just my personal gut, is that the US economy is doing better than the numbers will bear out.

And I would very much hope that, as we seen Benzene prices go lower, this ought to be an opportunity to expand on MDI prices in the European and US market. Now again, a lot of that will depend on what we see over the course of the next couple of months in Europe. Which, just look at the trends in the stock market, in the last 6 or 7 trading sessions, where we've gone up 100s of points, per hour, almost, depending on what's going on in Europe.

Okay. Second question, you mentioned that you expanding 40,000 tons in Titanium Dioxide, Could you remind us what the timing is on that, and why isn't that a bigger number? Are you just bottlenecked in your plants?

These tend to be older plants and the bottlenecks that could be done, for the most part, have been done, and it is pretty pricey to get tons out of these plants. And I think that's the case, for all of the facilities around the world, of our competitors, as well. So 40,000 tons really comes over three years, and multiple plants, and they tend to be $2500 a ton, de-bottleneck opportunities.

Okay. So what is your expectation, say next year, will you get a significant chunk of that, or is it further down the line?

I think it is probably further down the line. I think, as we look at our Ti02 business, and one thing that I mentioned in the call that hope was picked up, is the real shift that we've seen in the Huntsman Business. This is beyond the industry changes, and the Huntsman Business of moving towards more specialty-oriented grades.

I would hope that, as we look at the Business profile in 2012, versus 2010, that we are more profitable, per ton, in comparison to the rest of the industry, because of the transformation that we are taking, and moving our tonnage into higher quality, higher margin, more consistent margins end-use applications, and being less dependent on just 1 or 2 large macro applications.

Okay. Last question, if I could. In terms of ore security of supply, a major consultant has projected a shortfall in ore supply, in say three to five years, and recently, a competitor of yours has made a move to back-integrate ore. My question to you, is will you be able to get ores to sustain your operating rates, in say, a couple years? What are you doing to assure that you are going to have access to ores?

We have strong contracts that are in place today. We continue to have multiple suppliers and multiple sourcing. Again, I'm just speaking in my personal opinion here. I think there's been a lot of hype about Titanium ores. Titanium, the demand for Titanium ores, are only going to grow as fast as the Ti02 industry. I don't see the Titanium ore producers, all of them obviously are looking, a number of them at least, are looking at expansions and de-bottlenecks, and where they can get their last ton, just like Ti02.

I struggle to see a scenario where ore supplies, somehow, diminish in the coming years and supply demand for Ti02 substantially increases, and we are running around trying to figure out where we pick up ore. I don't buy that scenario, and I have a tough time seeing how that comes about. I think we are going to continue to be well positioned, to continue to receive a wide variety of grades of ores, from a number of suppliers, and if anything, this should work to our advantage.

And I don't -- I know I have said this before, but I believe that these assets of Huntsman, comparison to the rest of the industry, I don't think that there's another supplier or another Global quality Ti02 producer out there, that's able to buy as much Ilmenite, process as much Ilmenite, as we do. And the diversity of that supply is going to be a unique advantage to Huntsman.

Okay, thank you for that.

Thanks Greg.

Our next question is from the line of Laurence Jollon of Credit Suisse. Please proceed.

I'm sorry, my questions have been answered. Thank you.

Thank you. Is there another question, Operator?

Yes, sir. Our next question comes from the line of -- one moment, Sir. Our next question comes from the line of Bill Hoffmann of RBC Capital Markets. Please proceed.

Thanks and good morning. Peter, you mentioned before, you just talked about, the normal seasonality in inventory. Just talking about the 20% into the fourth quarter. I just wonder if we -- we have, obviously, talked a lot about Ti02, but if you look at the other businesses, Polyurethane, Performance Products, Advanced Materials, etc.

How are you planning this year-end, versus normal year-ends, just given the amount of uncertainty out there? And I would also be curious, what you are hearing from your customers, as far as their outlook going into next year?

I think that's a very difficult question to answer and I'm not trying to be evasive. We have seen orders, long-term orders. So if I'm in October, ordering for November, where I'm ordering two months in advance, we've seen those orders have diminished, where short-term orders, where I am in November, ordering for November delivery, those orders have increased. What that tells me, isn't that people are necessarily buying less product, but that people are waiting for the last moment.

People are running low on inventories, again, this is not in every product, in every market, around the world. But there's not a lot of long-term vision out there, that we are seeing, from our customers. The fourth quarter, for us, as you look over the last five or six years, with Huntsman, and with the industry in general, you typically see third quarter is one of the stronger quarters for the year. Fourth quarter is usually down around 20%, and EBITDA, and I'm not sure that ours would be too dissimilar to that.

Ahead of seasonality. In addition to the typical seasonality, we have been more aggressive in reducing our inventory level, given the uncertainty in the world.

Okay. Thanks. Appreciate that. And then, the second question is really for you, Kimo, with regards to CapEx. Still targeting this $350 million for the year, (inaudible) fourth quarter, but as you looking into next year, as you finish out some of these projects, can you just give us some guidance on what your thinking about for next year?

Yes, I think we will probably spend close to depreciation next year.

Okay. And most of that front-end weighted? Like I say, as you finish some of those projects you are working on.

The pattern every year, for our capital, is really back-end weighted. That will continue to be the case, where we budget and it just takes a while to be able to get those projects up and going, and typically, we spend more in the second half of the year.

Okay,.

We also have a process internally, where as the year progresses, that we re-approve, if you will, internally, those projects. So, if the economy should flow for some reason, or if there is some reason why we don't want to go forward with those, we also take that into account as well.

Great, thank you.

Operator, why don't we take 1 more question here, before wrapping it up.

Thank you, Sir. Our next question comes from the line of Bill Young, and please pronounce the name of your company, Sir.

I'm it, it is Bill Young from ChemSpeak. How are you gentlemen?

Doing well, Bill. How are you?

Great. On the Textile Effects business, there have been restructuring, and shifting this production, and doing this, and doing that, for years now. And it seems like it has been really tough to generate a return. I realize what you said about, well we expected to have $70 million annual cost-savings, after a couple of years, as a run-rate. But tell me, is it worth staying in the business? It seems like it is been a real challenge long-term, and if you don't get the $70 million -- you just have to question why Huntsman stays in the business.

Thank you for the question. I think Management needs to explore, all ways to fix the Business, and to possibly exit the Business. As we explore those alternatives, if we can Affect the business, we have got to affect it. We have got to change it, and that's what we're doing here. With these kinds of margins, I'm sure you would understand, that it is probably not the easiest business to sell.

At some point, someone has to bite the bullet. Second, the Epoxy business, it doesn't sound like it is doing that well, underlying everything. What could be better or what are the issues that are confronting the Epoxy business right now?

I think that as we look at the Epoxy business, the Epoxy business is doing much better than, perhaps the numbers would suggest. And, as I said in my prepared remarks, I think that 2012 will be an improvement over 2011, as we are increasing our volumes, our sales. As we look at the delays that we have taken, and supplying product to the Avionics, the Aviation industry, and so forth, the Business is about $20 million, $25 million less, on it's last 12 months, as a look at it.

It is about $25 million below its average, 150% EBITDA run-rate, and we've taken about $20-ish million, or so, on the last 12 months, of a currency-hit on that. We've also cut $20 million. Going forward, we are going to lessen our exposure to the Swiss franc. But I remain very bullish on this particular business, I think we've got the right Management Team in place. I think that we are getting our cost structure rapidly put into place.

And I think that our aggressiveness, in moving volume, particularly moving into the higher- end, to the Aviation industry, and so forth. Again, as I look into 2012, and I rarely make forecasts going in, to a year-out, I think that this business is going to be, materially improved in the next 12 months.

Great, thank you.

Thank you very much, Bill. Again, I would just emphasize what I said in my prepared remarks, as I look across the board at our businesses here, it does appear that capacity, even with a rather anemic global-growth that is taking place, across the spectrum, we see very little new capacity that's coming on, globally. And I think that, as we look out over the next couple of years, we remain to be very optimistic about the macro-trends we are seeing. So Bill,, thank you very much for your question. With that, we will thank you all for joining us. Operator, that should conclude our call.

Thank you, Sir. Ladies and gentlemen, this concludes today's conference. Thank you for your participation, now disconnect, and have a great day.