利安德巴塞爾 (LYB) 2003 Q4 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to the Millennium Chemicals fourth-quarter 2003 earnings conference call. (OPERATOR INSTRUCTIONS). It is now my pleasure to introduce your host, Mr. Mickey Foster. Sir, you may begin.

Good afternoon, and thank you for participating in Millennium Chemicals analyst conference call, and welcome to those participants on the Internet.

Today, we will cover results from the fourth quarter of 2003 and our outlook. Speakers include Bob Lee, our President and Chief Executive Officer; Jack Lushefski, our Executive Vice President and CFO; and myself, Mickey Foster, VP of Corporate and Investor Relations.

As we announced in the invitation to this conference call, you can view the slides and listen to the presentation live by accessing our web site -- www.Millenniumchem.com -- and clicking on the investor relations icon. The slides available to our Internet participants are meant as an enhancement tool, and they contain information which is either in our press release or which we will discuss during this presentation.

Here are two instructions for our Internet participants. First, in addition to asking questions on the conference call, as you have traditionally done, you can ask questions by clicking on the "send question" button located in the left-hand portion of your screen, and we will respond to them live during the Q&A portion of this call. Second, the slides will automatically move forward during the presentation on your screen.

Before we start, our lawyers asked me to preface with the Safe Harbor legal statement. The statements made on this conference call relating to matters that are not historical facts are forward-looking statements. Our forward-looking statements are present expectations. Actual events and results may differ materially due to the impact of factors such as industry cyclicality; general economic conditions; production capacity; competitive products and prices; and other risks and uncertainties detailed in the company's SEC filings. Please note that we disclaim any obligation to update our forward-looking statements. In addition, any non-GAAP financial measures discussed in this presentation will be reconciled to the most directly comparable GAAP measure, either in the presentation itself on in the information to be posted with our presentation materials on our web site.

Jack will begin and will cover the financials. I will then cover Ti02, Acetyls, specialties, and Equistar. And Bob will conclude with our 2003 progress and our priorities in 2004. Then, we will be glad to answer your questions. Jack?

Thanks, Mickey. Millennium reported a consolidated operating loss of 97 million for the fourth quarter of 2003. Operating income in the fourth quarter of 2003 was negatively impacted by asset impairment charges of 103 million -- 101 million after-tax -- associated primarily with the write-down of property, plant and equipment at our LeHavre, France Ti02 plant. The plant was a loss-maker in 2003, and although we will continue production there in 2004, we are planning on rationalizing capacity at that facility in the next few months to improve its cost structure.

The fourth quarter was also impacted by higher manufacturing costs in our Ti02 business segment due to unfavorable exchange rates, and to a lesser extent, higher maintenance and raw material costs.

Operating income for our Acetyls business was higher in both the fourth quarter of 2002 and the third quarter of 2003, as prices remained stable, and raw material prices declined.

Equistar's results were negatively impacted by high, volatile raw material and energy prices, as well as financing in severance costs. Mickey will discuss individual business segment performance in more detail when I complete my comments.

Moving to slide 4, this slide provides a reconciliation from our reported GAAP net loss to the adjusted loss we provide and will discuss on a subsequent slide. Reorganization expenses related to the cost reduction program outlined in our July, 2003 press release, asset impairment charges, Equistar's financing and severance costs, and tax accrual adjustments are highlighted as reconciling items for the fourth quarter 2003.

Moving to slide 5. This slide provides the same reconciliation from reported GAAP to the adjusted loss for the full year of 2003. The cumulative effect of accounting change for asset retirement obligations, reorganization expenses, asset impairment charges, the collection of a note receivable, our share of Equistar's loss on sale of assets, financing costs and severance, and tax accrual adjustments are included here as reconciling items.

Let's now move on and discuss Millennium's adjusted profit and loss summary slide, which provides abbreviated statements of operations to arrive at an adjusted net loss, after exclusion of these designated items. Table 5 in our press release provides a reconciliation from these figures to reported GAAP results, detailing each reconciling item on an after-tax basis, similar to our last two slides. Adjusted operating profit for the fourth quarter of 2003 was 8 million, down 14 million from the fourth quarter of 2002, and down 2 million from what was earned in the third quarter of 2003.

Fourth-quarter net interest expense was 24 million, up 2 million from the expense level for the fourth quarter of 2002, and up 1 million from the third quarter of 2003. Average net debt levels during the fourth quarter of 2003 were 53 million higher than average net debt levels during the third quarter of 2003. This was primarily due to an increase of 59 million from the termination of an accounts receivable securitization program done in conjunction with the amendment to the company's credit agreement.

Our share of Equistar's operations, on an after-interest basis, generated at adjusted equity loss of 24 million in the fourth quarter of 2003, compared to an adjusted equity loss of 34 million in the fourth quarter of 2002.

Income tax benefit, recognized for the fourth quarter of 2003, was about 25 percent, slightly lower than the full-year benefit of 30 percent due to adjustments to previous quarterly estimates. The adjusted net loss for the quarter was 31 million, or 48 cents per share, versus a net loss of 25 million, or 39 cents per share in the fourth quarter of 2002.

Turning to our balance sheet and cash flow. Net debt at the end of the quarter was 1.258 billion, a balance that is 53 million more than the balance at the end of the third quarter of 2003, and 141 million higher than our net debt balance at the beginning of 2003. Cash on hand increased by 51 million during the quarter, and by 84 million since the beginning of the year.

Our balance of cash at the end of 2003, plus available borrowings under our revolving credit facility, totaled to more than 280 million of liquidity, which is more than we had at the beginning of 2003. We were utilizing 52 million of our revolving credit facility at the end of 2003, and expect to pay that entire balance during the first quarter of 2004 with cash repatriated from Australia and Europe. The repatriation is not expected to result in any cash payment of tax. Millennium does not have any significant debt maturing in either 2004 or 2005.

Slide 8 details our change it net debt for both the fourth quarter and full year of 2003. The asset impairment charges, taken during the quarter, were non-cash items, and are added back to our operating loss. Semiannual interest payments were made for bonds during the fourth quarter, which totaled to about 49 million. Tax payments for the quarter were minimal, and capital spending remained at a low level for both the quarter and the year.

Trade working capital, defined as accounts receivable plus inventories, less accounts payable, contributed cash for the quarter of 42 million. Trade working capital was a use of cash during the year, due to a large reduction of trade payables and an increase in Ti02 finished goods inventory. Ti02 finished goods inventory increased in the first half of 2003 and decreased in the second half of 2003.

As previously stated, the termination of our accounts receivable securitization program had the effect of increasing on-balance-sheet debt by 59 million in the fourth quarter, and by 57 million for the year 2003. Excluding the effect of this AR securitization program, net debt would have declined slightly in the fourth quarter of 2003.

I will close with the slide showing the history of capital spending and an estimate of that figure for 2004. Our employees worked very hard last year to control capital expenditures, without sacrificing safety or environmental compliance. Capital spending in the fourth quarter was 19 million, compared to 10 million in the third quarter of 2003. For the full year of '03, capital spending was 48 million, compared to 71 million in 2002. We will continue to control capital spending. And full-year spending for 2004 is expected to approximately be 60 million.

Now, I will turn it over to Mickey, who will discuss some details about performance in our business segments, and at Equistar.

Thanks, Jack. We'll first discuss titanium dioxide. The Ti02 segment reported fourth-quarter operating income of $1 million, compared to 17 million in the fourth quarter of 2002 and 7 million in the third quarter of 2003. The fourth quarter of 2003 operating income excludes the 103 million of asset impairment charges. The sequential decline from the third quarter of 2003 to the fourth quarter of 2003 was due primarily to higher manufacturing costs resulting from unfavorable currency exchange rates, and to a lesser extent, higher maintenance and raw material costs.

Now, looking at price, in local currencies, average fourth-quarter prices decreased 1 percent from the fourth quarter of 2002, and decreased 1 percent from the third quarter of 2003. In U.S. dollar terms, the fourth-quarter worldwide average selling prices increased 5 percent from the fourth quarter of 2002, and increased 1 percent in the third quarter of 2003.

Now, looking at sales volumes, fourth-quarter 2003 Ti02 sales volume of 152,000 metric tons represented an increase of 7 percent from the fourth quarter of 2002, and was up 2 percent from the third quarter of 2003. Full-year 2003 sales volume of 591,000 metric tons was 6 percent lower than sales volume in 2002.

Now, looking at operating rates. The fourth-quarter 2003 Ti02 operating rate was 88 percent of annual (indiscernible) capacity of 690,000 metric tons, compared to 96 percent in the fourth quarter of 2002, and 84 percent in the third quarter of 2003.

Now, turning to our outlook. Operating income in the first quarter of 2004 is expected to be slightly higher than the fourth quarter of 2003, but substantially lower than the first quarter of 2003. Higher sales volumes are expected, but manufacturing costs are expected to remain high, in part, due to the expected continued weakness of the U.S. dollar compared to foreign currencies.

Now, looking at our Acetyls segment, the Acetyls segment reported fourth-quarter operating income of $9 million, compared to 8 million in the fourth quarter 2002 and 6 million in the third quarter of 2003. This was the best quarter for Acetyls over the last three years. In the aggregate, the weighted average U.S. dollar price for VAM and acetic acids in the fourth quarter of 2003 increased 10 percent, compared to the fourth quarter of 2002, and was consistent with the third quarter of 2003. Aggregate volume for VAM and acetic acid in the fourth quarter of 2003 decreased 3 percent from the fourth quarter of 2002, and decreased 6 percent from the third quarter of 2003.

Looking at the outlook for Acetyls, operating income in the Acetyls business segment for the first quarter of 2004 is expected to be lower than the fourth quarter of 2003, reflecting anticipated higher feedstock costs, both in average quarterly ethylene and natural gas costs.

Now, looking at specialties. The specialty chemicals segment reported fourth-quarter operating loss of 1 million, compared to a loss of 2 million in the fourth quarter of 2002, and a loss of 1 million in the third quarter of 2003. Sales volume increased 1 percent from the fourth quarter of 2002, and was down 8 percent from the third quarter of 2003. Average selling prices increased 7 percent, compared to the fourth quarter of 2002, and increased 5 percent from the third quarter of 2003.

Results for the specialty chemicals business segment in the first quarter of 2004 are expected to slightly improved from the fourth quarter of 2003. Sales volumes are expected to increase with improved operating efficiency and favorable product mix. Also, Bob will discuss other actions we are taking in this segment later.

Now, turning to Equistar. Millennium's 29.5 percent stake in Equistar generated an equity loss on investment of 31 million in the fourth quarter 2003, compared to an equity loss of 34 million in the fourth quarter of 2002, and a 12 million equity loss in the third quarter of 2003.

Equistar's results were negatively impacted by high volatile raw material and energy prices, as well as financing and severance costs. Compared with the third quarter of 2003, the fourth quarter of 2003 results were negatively impacted by an increase in the cost of ethylene production, which was driven by higher crude oil and natural gas liquid prices. Price actions were implemented to offset the increases, but the timing of implementation was insufficient to fully offset the cost increases. Additionally, a scheduled maintenance turnaround at an ethylene plant had a negative 5 to 10 million impact on Equistar's fourth-quarter results.

Now, turning to Equistar's outlook. The early weeks of 2004 have yielded strong volumes, where raw material and energy cost increases are pressuring margins. Equistar has responded by announcing product price increases across the majority of their product lines. The improved economy should lead to improved performance for 2004.

Now, I will turn it over to Bob, who will discuss our progress on our priorities.

Thanks, Mickey. Since I took office in July of 2003, our focus has been on three key priorities. Increasing customer focus, reducing costs, and improving financial flexibility. These same priorities will continue as our main focus into 2004.

I would like to provide you with some of the highlights on our progress and our plans in these key areas for 2004. With respect to customers, I am proud to say we are back in the customer business. In titanium dioxide, our marketshare continues to improve over last year, and based on negotiations during the last few months, I expect our sales volumes to continue to increase in 2004. Early indications of increased demand, as well as the economy improving this year, should support the price increases announced last fall. This will be a key business driver to improving our margins in 2004.

On our costs, while the savings from our reorganization will continue to have a positive impact, that was not enough to offset the negative affect of currency exchange on our manufacturing costs in 2003. The increase in the Australian dollar and the Brazilian real is compressing our average margin. Our highest priority this year will be to address these higher cost positions through both structural and control measures. All costs and capital expenditures will continue to be managed tightly, and key metrics have been established for manufacturing performance.

With regards to our financial flexibility, we stabilized our debt level in the fourth quarter, and our liquidity, as well as our debt maturity schedule have been improved. We slowed our Ti02 plants in the second half of 2003 and managed to reduce finished goods inventory during a period when inventory builds normally take place.

We will continue to seek options to reduce our debt in 2004, as it remains a high priority. We are progressing with our plans to dispose of noncore assets and have uncovered smaller potential areas of opportunity in our asset base that have limited strategic value to Millennium.

We have completed and begun to execute on our strategic review of the fragrance and flavor business. As a result of this review, we are implementing a plan to reduce product offerings by 20 percent from 155 to 125; reduce our total costs by 10 percent; reduce finished product warehouses from five to two; simplify and reduce costs of our raw material procurement; and take advantage of our low-cost currency position with aggressive selling.

As these measures are being implemented, we will entertain offers on the business, as it is not a key strategic asset for the company, long-term.

Now, this concludes the formal part of the presentation. Thanks for your attention. And now we would be happy to take your questions.

(OPERATOR INSTRUCTIONS). Don Carson, Merrill Lynch.

Thank you. A couple of Ti02 questions. First, Bob, you mentioned on another business -- flavors and fragrance, where you are doing some aggressive selling, I am just wondering if that is going on in Ti02 as well, because you did talk about gaining Ti02 share and that recent negotiations lead to expect you will gain more share. Have you been offering some advantage prices to win marketshare back? Or, can you be more specific on how you gained marketshare back?

And then one operational question which is -- how much did the lower operating rate contribute to your losses? And what kind of an operating rate do you need to get back to the 20 million run rate that you had earlier in 2003?

Okay, first off regarding the Ti02 marketshare. No, we have not been offering wild special deals. What we are doing is being competitive, number one. We were not competitive this time last year; we certainly were not competitive in the first half of 2003. What we are now doing is being competitive. And, the fact that we've got our new product offering out there, and are being competitive with it, our customers are giving us some volume. The statistics for new products for us, for instance -- I think over 40 percent of our product sales during the quarter were products that we did not have several years ago. So, it is the new products and being competitive.

On the cost relative to operating rate, Don, I think what we said in the third quarter is still consistent. We were running at about 96 percent operating rate in the second quarter. And, had we run at a reasonable rate in the third quarter, we said it would probably help us by about $12 million. I think those numbers, even with the currency situations, still hold. If we got back into the low 90 percent operating rate, it would improve us by about $12 million.

Can you just expand on what you mean by being competitive, but you were not competitive a year ago, but you are competitive now -- what does that mean specifically on pricing?

A year ago, Don, we were -- circumstances were different. We had record low inventories. There were to price initiatives out there trying to the implemented. And, at the time, the company was looking at a forecast that said we could sell more than we could make. So, we were probably well out in front of everybody, and stubbornly so. And some of our customers -- we did not lose any customers completely, but they certainly moved a lot of volume away from us. And we especially got hurt in North America, and that is now coming back. I spent a tremendous amount of time with our customers over the past six months. The commercial team is -- they are proud of their product offerings. They are proud of their relationships they have with their customers. And, what they are doing now is, they are allowed to be competitive.

Okay, and final question. You talked about reducing inventories. The DOC data suggests that, for those who report in industry inventories, just under 40 days as of the end of December in the U.S. How does that compare to your U.S. inventory? And what does your ex-U.S. inventory look like?

We look at the inventories more on a global basis, because it is a global product, certainly. As a matter of fact, DuPont manufactures most of their product here in North America and ships it around the world. Globally, we believe inventories sit just shy of two months. And globally, we are higher than that, but similar to where we were this time last year. So, going into the coating season, we think the industry is in average shape.

Okay. Thank you.

Bill Young, CSFB.

You talked about higher prices for Ti02, based on the proposals made for the fall. How much of those increases have you realized so far? And, how long do you think it's going to take you to get the entire amount, if you think you can get there?

Yeah, Bill, to this point, we have not gotten any of that, and we don't believe the industry has gotten any of that. What we believe -- they are still out there. We believe that if the numbers that we are seeing early in the quarter continue to hold, that demand will allow implementation by the end of the first quarter.

And Bill, our strongest demand geographic region right now is Asia-Pacific. And, that's probably where you will see prices go up first -- right there.

We are getting some minor activity in select markets in Asia now.

Secondly, you talked about your noncore businesses. We have not heard much about your stake in Equistar lately. Bob, maybe you can fill us in on how you feel about this as a strategic holding.

Well, we are in constant dialogue with the folks at Liondale (ph) regarded the running of Equistar. We have constant dialogue on strategy, we have dialogue on costs. We think Dan (ph) and the team at Liondale are phenomenal operators, and we are constantly encouraging them to be great, even better operators.

But they do a fine job. We look it as a significant opportunity, strategically, for us to generate a lot of cash. And, it is either going to come from distributions as the cycle turns, or strategically, if we are able to monetize it sooner. It is not a long-term strategic asset for us, but it is a critical asset for us in our financial flexibility. So, we are anxiously looking forward to cash and debt reduction from that stake.

Okay. Great. One real quick follow-up question. Have you given up price, you think, in Ti02? Or you think you've held it where you have not got any increases?

It is moved sideways, pretty much, Bill. The U.S. market is fairly firm. The Asian market is firming plus. Europe is, as in all businesses, sloppy, but still going sideways.

Okay. Super. Thank you.

Leslie Ravitz, Morgan Stanley.

Good afternoon. A couple of questions tied into Ti02 and also Equistar. One, to the French plant that you wrote down, is there any residual book value?

Not on the property plant and equipment.

Okay. And I missed a little bit of what you said -- you're going to run it through part of 2004, and then shut it down permanently?

No, we didn't say that, Wes. I said in my comments -- this is Jack -- that we're going to continue to produce Ti02 there in 2004, but we are going to rationalize the production facility, which means we will reduce the rate of capacity in some way.

If we went to year-end 2004, what would your global Ti02 capacity at?

I don't know what it will be at, but it will be less at the French plant than it is now.

Okay. And on Equistar, do you expect cash dividends this year -- cash distributions?

As of this moment, we would not expect cash distributions until early 2005.

Thank you.

Kunal Banejee, Goldman Sachs.

Good afternoon. Just three questions. First, on your sales versus costs, my understanding was that you were pretty well naturally hedged, because you have sales offsetting any currency effects on your cost structure. Can you just talk a little bit about why there is more of an amplification on the cost side versus the revenue side? That is the first question.

Jack, let me start (indiscernible). Strategically, over the years, we have tried to position our company to be as much dollar-based revenue as we could, because it was the most stable of currencies. Jack, do you want to take it from there?

Sure. Where we are on that, Kunal, for the quarter, going from the third quarter to the fourth quarter, overall, profitability was negatively affected by about $2 million due to exchange. And, that breaks down -- there is plus of about 5 million on the revenue side, and a minus of about 7 on the cost side. And, depending on which currency you look at -- for instance, we are long euros in the world; there are more sales there than we have production costs. The reason for that is a lot of the production that we make in the UK is sold in Europe. And some of our costs that we have in Europe are dollar-based.

But, turning to some of the other currencies, sterling, the Australian dollar, and the Brazilian real, we're short on all of those currencies. The production that comes from those plants is sold generally on a U.S. dollar basis. So, depending on which currencies move and where we sell and the mix, we can, at times, have a negative P&L effect, overall, and that was the case in the fourth quarter of 2003.

So, the drop from 7 to 1 -- two of that was the currency issue. The other four, then, was a mix of the other items that you mentioned?

We indicated in our release that real prices, local currency prices, did decline about 1 percent from the third quarter. That had a couple of million dollar negative effect on us. There was a little bit of a pickup in volume, but not nearly enough to offset that real price decline.

The dollar-based pricing was up 1 percent -- right?

That is right.

Secondly, on the inventory issue, just going back there, my understanding why that you had over-produced by about 20,000 tons in the second quarter, relative to demand. And you were utilizing the second half there to kind of pare that overhang down. And when I do the math, you were probably down about four of those in the third quarter. But, I was a little surprised to see production match sales in the fourth quarter. I was expecting a little bit of a pull back. Are you basically carrying that into the first quarter now in the hope that the demand pick-up is going to help you whittle down the inventories there?

That is correct. Our indications at this point indicate that we need some good inventory for 2004. Prospects for 2004, in terms of industry growth, look good. The indicators that we look at are good. The order pattern of our customers are all improving. This would be -- typically we would go into the coating season about with the amount of inventory -- we are slightly high, but with about the amount of inventory we have now. So, we are pretty comfortable with it, and quite frankly, I think the prospects of selling a good hunk of it in 2004 are there.

Excuse me, we would usually build inventory in the fourth quarter of the year in anticipation of the coating season. We did not (technical difficulty) (multiple speakers) So really, running the plants at 88 percent utilization was a low number for the fourth quarter versus history.

I will say, Kunal, for the month of January, our sales were up nicely over last January. So, we are starting the year off, as Bob said, in a strong position.

Okay. And then finally, on that asset impairment, it looks like the rationalization is occurring at the sulfate end of your business there. Can we draw any broader conclusions from that? Is it systemic around Europe that it is just basically going away from sulfate capacity? And, related to that, are you done with the impairments in Europe? Or, can we expect some other ones?

Well, strategically, on sulfate assets, we have a couple of sulfate assets that are very profitable, and we are very comfortable with the products coming out of those plants and the prospects for those plants. LeHavre had reached a point where it -- at it's current structural condition, we believe, is going to have difficulty sustaining profitability over the long haul. So, we are looking at all options for that plant to improve our total profitability. We do not have any other plants anywhere near the degree of issue as we have with LeHavre. That's not to say that we are not taking strong looks at improving the cost profile of other sulfate plants as well as a couple of our chloride plants.

Just one last question. Were those assets stepped up at the time of the Rhone-Poulenc acquisition or no?

(multiple speakers) No, they were actually stepped down. They were bought below book value and -- (multiple speakers) now are stepped down again.

All right. Thank you.

Greg Goodney (ph), UBS.

The LeHavre plant, are there any other assets other than your sulfate Ti02 plant there? I mean, are there any other production facilities?

At LeHavre?

Yes.

No. There is a back-integrated sulfuric acid plant, but it is just primarily sulfate Ti02.

When we did the acquisition in 1999 or so, it also included another plant.

We do have another plant in France in the extreme eastern part of France, our Thann facility, that is primarily an anotase (ph) producer, it produces for the paper industry as well as specialized performance products for denox (ph) and other applications. And, they also have a titanium tetrachloride facility there. But, that is in the eastern part of France.

Okay. In terms of Bill's question, in terms of the price increases, I assume there were 2 price increases -- right? The second quarter increase of, say, roughly 6 cents, and the one that was announced in December of 4 cents. When you say none of it got in, are you referring to one? Both? Can you clarify that for me a little bit?

There was only be one in the early fall. There was not a December 4 cents price increase.

We were referring to the latest round of worldwide price increases, which were done at different periods through the fall and early winter. But all of them, essentially, raised the price once in each major market around the world.

Okay, well, I'm still a little confused. You're saying the December increase, that I thought was led by DuPont, was not an industry-wide increase?

I did not see an increase, Greg, by DuPont.

Okay, so it is the second-quarter increase that we are referring to here?

No, the increases were announced in the third quarter, September, October for implementation over the course of the next 60 to 90 days. We are at the tail end of that. They have not been implemented yet, but they are still on the table.

Okay. That is my question. Thanks a bunch, guys.

David Silver, J.P. Morgan.

A couple of questions regarding titanium dioxide. I was wondering if you could remind me what the capacity might be at the LeHavre facility. I think it's around 100,000 tons. Is that correct?

We have it at 95.

95 -- how many lines would that be made up of?

It is two lines currently.

Okay.

One large line and one smaller line.

Okay.

It is not proportionate.

Okay. Good. They're not equal size?

Correct.

Okay. Bob, in the past, you have discussed an improving titanium, more feedstock situation. And I believe you had indicated that there might be some meaningful change around the first of the year. Could you maybe just update us on that, and when you think we might be able to see the impact on the bottom line, moving forward thanks.

Certainly, David, our ore suppliers are working with us. They are under some pressure; we are under some pressure. We've gone through a round of negotiations with them during the fall. And, it is fair to say our prices are not going up. And, I would just as soon leave it at that.

Okay. Very good. Thank you.

Tuon San (ph), Banc of America Securities.

Just a quick question on the accounting of the increase in pension cost. Is that going to flow through the income statement? Or is that going to go through your working capital?

The 10 million that we referred to in the release is going to be a P&L charge -- an additional P&L charge in 2004.

Okay, so I guess as far as your working capital charges, with regard to your pension healthcare and other costs, that is still kind of around the 20 to 25 million level?

We made another comment about funding to pension trusts, and we indicated that funding to pension trusts would increase by about 5 million, worldwide, next year.

Okay, so then, we would be looking at about 25 to 30 through the working capital, and then the 10 through the income statement?

Well, let me deal with total cash increases. We have our typical medical insurance program; we are largely self-insured in the U.S. And, the cost of that program will increase by a couple of million dollars in 2004. We will have that net increase, along with this pension funding increase of about 5. So, cash-wise, we will have about a $7 million increase, or so, related to our normal medical insurance program and pension funding. The P&L is the 10 from the pension. And the additional 2 million, or so, that we pay for our medical program would also be an extra P&L charge next year.

Okay. That is helpful. I guess back to the operations. I know it is early right now, but is there any sort of range that you might put on cash flows for '04 at this point?

(multiple speakers) No, we don't (indiscernible) cash flows. We've said many times that our goal is to reduce net debt in 2004, either through operations or sale of assets.

Okay. Thank you very much.

We still have six more audio questions. Bob Goldberg, New Vernon Associates.

I was wondering on Ti02, it sounds like you are seeing fairly strong volumes early in '04. Have operating rates increased, at all, from the 88 percent in the fourth quarter?

Yes. At this point in time, we plan to run the plants in the low 90s. Should demand be even stronger, we would bump that up a little bit. If it looks like it does not sustain itself, we will yank it down a little bit. But right now, our plans are for the low 90s.

And on the accounts receivable facility that you have paid off, is there anything else off-balance-sheet that we should be aware of? Or does that take care of most of the off-balance-sheet debt?

That took care of the off-balance-sheet debt. We had disclosed that. It was just a program that we eliminated in our last re-negotiation of our credit facility.

And, on the renegotiated covenants, can you talk about -- I am not aware that it is public -- the new ratios that you have to comply with? I imagine you've relaxed them so that the first part of the year you will be okay. How long does the (indiscernible) covenants or relaxed covenant go through?

We have relaxed them, and they are essentially changed through the middle of '06. And, we have filed an 8-K with the amendments included. So, that information is public.

Thank you.

Christopher Miller, J.P. Morgan.

I just wanted to follow up a little bit on the capital spending budget for '04. It looks like you've got a 60 million number; that is a bit of an increase. What is that increase targeted towards, and how comfortable are you at your current CapEx run rate? An how long do you think that this is sustainable at this point?

There are no major projects in there for next year. It is essentially some cost reduction projects, maintenance and reliability projects, pretty much spread throughout our plants, worldwide. There are no major capacity increases of any sort in there. We are comfortable that we will be able to target the 60 million. And, that probably gives us maintenance capital of about 40 million or so. And maybe 20 on top of that for various improvements that we think are necessary.

And, in terms of sustainability, not too long ago we were spending at a level that was well over $100 million a year, on average. Now, for the last two years, we have brought that down to 70 and, sort of, 50, respectively. But, we believe spending at about 60 million is definitely something we can do for a short period of time, a couple of years, without any adverse ramifications.

You mentioned in your comments, in terms of debt paydowns, asset sales. Excluding the potential divestiture of your stake in Equistar, is there any other color you could give us in terms of business lines that you might be interested in selling?

Obviously, as I mentioned, we would entertain offers on the fragrance and flavors business. We have a few of the smaller performance businesses that we are looking at to potentially monetized.

They are not disclosed; they're part of our Ti02 business segment.

Okay. And then lastly, any updates you could give us in terms of customer contracts, either wins or losses? Any developments on that front recently?

We do not disclose that.

Customer gains and losses?

Yes.

I cannot give you any detail on that. I can tell you that we have spent a lot of time with -- probably over the past three or four months, I have met almost all of our significant customers in North America. I have met almost all of them in Europe. Within the next couple of months, I will meet most of them in South America. And as many as I can in Asia. It's a bit more fragmented out there, so it is tougher. But, they like our new products and they like them for very selfish reasons -- they allow them to take cost out of their system. So, they like the fact that we are being competitive and not asking for a higher price than everyone else in the world; that we're just asking for the price. So, net-net, we are gaining in the places we would like to be gaining.

Recovering, probably. We've recovered share that we lost over the 18 months or so leading up to the middle of last year.

We still have a ways to go.

Okay, could you kind of benchmark -- I mean, given whatever number of customers you believe you lost on, say, a percentage basis -- ?

Again, we did not lose any customer; we lost volume from customers. Nobody walked away from us completely. And, those customers are giving us back volume. We have gotten a lot back; we still have a ways to go. And, we believe we have the product mix and the competitive attitude to get it back.

Okay. Great. Thank you so much. I sure appreciated.

John Roberts, Buckingham Research.

Thanks. Can you give us an update in your natural gas hedging activities? Secondly, in the Acetyls business, it seems to be the area where there is nothing strategic at least going on. Am I overlooking anything there?

Let's start with the natural gas. We have some hedges in place, John, for the month of February -- about 40 percent of our needs are hedged. And by hedged, really, what we have are caps that, at the moment, are out of the money -- cash prices that we are paying are below the caps right now. And that percentage declines significantly in March. And then, from March forward, we do not have hedges in place at this time.

But, in Acetyls, we are sort of nationally hedged with 30 percent or so.

30 percent of our contracts, or so, in Acetyls have (indiscernible) adjustments for increases in natural gas prices. On top of that, we hedged an additional percent that I mentioned. So, for February, for instance, we are largely hedged, or we are largely protected from any kind of large spikes that could take place in the natural gas market.

In terms of strategic issues, John, there is not a whole lot we're talking about going on in Acetyls. It is running very well; the plant is running extremely well. I think we probably had record production of acetic acid during the fourth quarter.

I guess we have focused a bit too much on the problems, but the acetic acid business is doing extremely well for us. Prices are holding; we are able to pass on the cost of natural gas; we are holding our margins. We are looking at opportunities to debottleneck our facility in Houston. It is doing extremely well.

Thank you.

P.J. Juvekar, Smith Barney.

Your '02 results were quite disappointing. And I understand you had an FX impact. What can you do on the FX side? Is there any low-cost way of hedging your FX exposure?

We are certainly looking at. We are can certainly -- in Australia, we have flexibility on how we buy our ore, whether it's in A dollars or in dollars. But, as that plant was built there to supply the Asian market, the Asian market -- we don't believe we want to strategically have that move away from being a dollar revenue market. It will put more pressure on us to find cost reduction opportunities there. But, relatively limited, other than on the raw materials side.

Okay, so you don't have any outstanding hedges against the Australian dollar or the real or anything?

Well, what we were doing, P.J., is we were selling dollars forward -- anticipated sales dollars in the Pacific Rim, selling them forward into A's. And we did a lot of that when the dollar A dollar was more like 50 cents on the dollar. And that benefited us through the course of 2003. Those hedges are essentially running off now, and we are not inclined to put those same type of forward sales in place at 70 cents, 77 cents, on the dollar. So, no, at this point, we do not have hedges in place to deal with the margins in Australia.

As we said before, probably the best market in the world right now is the Asia-Pacific market. If there is anywhere in the world where we have begun to implement price increases, it is there. And, what we need over there is a price increase in U.S. dollars to get the margins back to where they were earlier in 2003.

Okay. And Bob, you talked about cost differential between you and DuPont is close to like $200 per ton. How much can you narrow that gap? And can you talk about some sources of where it's going to come from?

Well, we can continue, P.J. to narrow the gap on the basic execution of the plant. We continue to take our headcount down at the plant. We continue to control cost as best we can. And, the controllable cost side, we will make some more headway next year.

Structurally, we are still working with our process scientist on process improvement that will take both capital and cost out of our system that are step in nature. Nothing imminent to announce there, but we are working hard, and hope to do some trials, actually, this year for some of those technologies.

Six Sigma is working very, very well for us. The programs, to date, have taken a significant amount of cost out. We are targeting another $25 million for this year.

One more question on working capital. There was a big negative in 2003. Your inventories went up in the first half, and then they came down in the second half. How much cash can you squeeze out of working capital in '04?

We plan on selling more than we produce in 2004. So, we will make a dent in finished goods inventories again in 2004. But as well, P.J., we were probably a bit over-extreme on the aggressive side in working capital with stretching out our accounts payable. And, we have brought that back to a little bit of normalcy this year. So, we have a onetime cash cost going through our balance sheet as we normalize the payment of our vendors.

We had about 85 days of payables at the end of '02, which is probably the highest we've ever been at. And, we have brought that back to around 60 days or so.

But, Jack, working capital was a negative 120 million cash used. How much of that 120 was this (indiscernible) issue?

You can almost look right on the balance sheet and see that. 35 million or so. Say, 40 million.

So, you still had a big number in working capital, negative number. (multiple speakers)

Yes, and the other piece of that is the inventories, and to a lesser extent, our accounts receivable.

Accounts receivable was a big hunk of that as well.

If you correct for the securitization program, we still used about 15 million of working capital in accounts receivable for the year. The 40 in payables and the rest is an inventories, substantially, finished goods inventories, Ti02.

And, the good news about the receivable bit of that is that we had a lot stronger sales in November, December of this year than we did last year. So, that meant our receivable balance, because of those late sales in the last two months of the year, are on our balance sheet. But certainly, we will have collected those in January and February.

Right.

Our days in receivables actually improved by three days from last year. So, the metrics were fine. It was more the timing of the sales and the prices that we're getting in fourth quarter of 2003 versus 2002.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). Ed Berea (ph), Sterling capital.

Just a couple of housekeeping ones, I think. The first one is, can you offer up how much went through the P&L in terms of severance in the fourth quarter out of Equistar and out of consolidated?

Sure. In our organization, we had a $2 million charge in the fourth quarter. And, our share of Equistar's costs was another $2 million in the fourth quarter. So, a total of 4 related to severance and reorganization.

Does that include specialty?

Yes.

Okay. With respect to '04 in the LeHavre facility, what are the expected cash costs in the downsizing for '04? Is that something you can share?

Very little, actually.

Just write-downs, mainly.

Essentially, we were planning on writing down -- we had accelerated the depreciation on some of the portions of the plant that we planned on rationalizing. And now, with the impairment charge, there is no balance remaining for property, plant and equipment at that facility. But, (multiple speakers)

As far as severance for '04 --?

It is going to be less than $1 million.

Basically, we will try to -- we are still managing that headcount down through attrition.

The next one was -- can you give us a D&A budget for '04, now? With the write-down, what D&A is going to be running?

The D&A that we will not have in France, due to the impairment, is about $12 million. So, if you take this year's actual, which is 113 -- so, you are talking about around 100 million or so or next year.

Okay. Running through just a couple of other tax positions, can you offer up what your NOL position is currently? Or, what your tax offsets are, in total?

We have U.S. NOL carryforwards at the end of '03 that are about $385 million. And, we have some additional AMT (ph) credits that are almost $100 million. So, we will not be a taxpayer in the U.S. for a good period of time.

And that would include the taxable income from Equistar?

Yes.

That could be offset --?

That would be offset with these NOLs and AMT.

The last couple of quick ones. Do you have the planned assets and planned obligations at 12/31 -- what that looked like?

I do. Worldwide -- our pension -- our accumulated benefit obligation is just north of 800 million. And the value of our assets in trust is about 725 million.

Okay. And do you, between those plans and I guess any other post-retirement plans -- have you been able to estimate this Medicare drug reimbursement -- what it will effectively do, if anything, to your liability position?

Actually, we have made some recent changes to our retiree medical plan that will reduce both our expense and cash outflows for retiree medical. So, we're not going to have any sort of -- well, actually, what happened, the changes to the plan effectively wiped out what's going to happen on Medicare.

So is the ABO (ph) position already inclusive of the new plan adjustments?

The ABO position that I gave you was strictly related to pension.

Okay. Okay.

The retiree medical liability that we have on our books is completely unfunded, of course. And that number is about $100 million or so.

Okay.

And, it will be declining pretty dramatically over the next several years.

Okay. That is all I have. Thank you.

Bob Goldberg, New Vernon Associates.

Just one quick follow-up on Ti02 and your guidance for the first quarter. You are saying that, sequentially, earnings are expected to be up slightly. It sounds like a 3 or 4 point improvement on operating rate, assuming the economy stays on-track. Plus depreciation is lowered by, let's say, 3 million. What are the offsets? Energy is going to be higher, sequentially; currency is more than negative in the first quarter? And what are you assuming in that guidance for pricing? Are you assuming any of the price increase goes in?

Certainly, on pricing, we are assuming that it does not take effect until the end of the first quarter. So, we get no benefit on pricing. We are assuming -- currency was worse at the end of the year than it was for the average for us in the fourth quarter. So, we have assumed that will continue. We have assumed relatively high natural gas costs for the first quarter. And, we have assumed that we will have to spend a couple of items on capital, as we make structural changes to LeHavre, and the capital will have to be expensed, because we have declared that this asset is impaired in LeHavre.

So, even though we have a $3 million depreciation benefit, if we spend $3 million on capital, that is going to go to the bottom line and wipes out the benefit.

You will not really see the benefit of the lower -- I'm sorry -- the higher operating rates until the second quarter?

That is when it will really kick in -- that is correct.

Right. Okay. Thanks.

There appear to be no further questions at this time. I will turn the floor back over to you for any further remarks.

Okay. Thank you. If you were unable to hear the entire call, playback will be available until Tuesday, February 10th by calling area code 973-341-3080, reservation number 44-30-833. And you can access the speech and slides on the Internet at www.millenniumchem.com. Thanks for listening, and if you have further questions, please call us. Thanks.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.