Huntsman Corporation (HUN) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Huntsman Corporation Earnings Conference Call. My name is Gina, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Kurt Ogden, Vice President of Investor Relations. Please go ahead.

Thank you. Thank you, Gina, and good morning, everyone. Welcome to Huntsman's Fourth Quarter 2011 Earnings Call. 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 fourth quarter and full year 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 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, certain legal and contract settlement costs, losses from early extinguishment of debt, gain on consolidation of variable interest entity and losses and gains on disposition and acquisitions of businesses and assets. Starting in the fourth quarter 2011, we no longer exclude unallocated foreign exchange gains and losses in adjusted EBITDA and adjusted net income or loss per share. We believe this more accurately reflects the ongoing cost of operating a global business. All relevant information for prior periods has been recast to reflect these changes. A reconciliation of EBITDA, adjusted EBITDA and adjusted net income or loss can be found in the appendix of our slides and in our fourth quarter earnings release. Let's turn to Slide 2. In our earnings release this morning, we reported fourth quarter 2011 revenue of $2,632,000,000, adjusted EBITDA of $243 million and adjusted earnings per share of $0.28 per diluted share. Our adjusted EBITDA was $243 million in the fourth quarter 2011 compared to $219 million in the prior year, an increase of 11%. Our adjusted EBITDA decreased compared to the prior quarter of $346 million primarily due to seasonality and customer de-stocking. I will now turn the call over to Peter Huntsman, our President and CEO.

Thank you, Kurt. Good morning, everyone. Thank you for taking the time to join us. Let's turn to Slide #3. Adjusted EBITDA for our Polyurethanes division for the fourth quarter of 2010 was $79 million. Sales volume for our MDI products increased 6% in 2011 compared to the prior year, supporting our assumption that MDI will continue to grow at a multiple of underlying GDP. Demand slowed in the fourth quarter as we saw customers' slow purchases, consistent with seasonality and accentuated by customer de-stocking throughout the value chain. The primary challenge for this business right now is improving its MDI contribution margins. Price increases have been announced for the first quarter, which will partially offset the increased cost of benzene. We expect additional price increases in the first half of 2012 will expand margins. Propylene oxide and its coproduct MTBE performed very well in 2011, though margins did contract in the fourth quarter consistent with year-end seasonality. We continue to see favorable, strong Latin American demand for MTBE, combined with an attractive spread between Brent Crude, which has an impact on MTBE pricing, and North American natural gas, which drives certain MTBE costs. We expect strong margins to continue in 2012. By reducing our fixed costs, aggressively increasing prices to offset raw materials and taking advantage of our low-cost energy in the U.S., we expect higher earnings in 2012 and 2011 for this business, primarily driven by expanding MDI and Polyurethanes' system margins. This business has more upside potential than any other within our company. Turning to Slide 4. In the fourth quarter, our Performance Products division earned $60 million of adjusted EBITDA. Approximately 2/3 of the production capacity for this business is located along the U.S. Gulf Coast, giving us a unique cost advantage where over 60% of our raw materials and manufacturing costs are natural gas liquids. As a result, earnings for upstream intermediate products have remained high through 2011. We have seen demand pressure in our downstream specialties products, most notably in amines. This was most prominent in the Asia Pacific region, primarily due to a reduction in government spending on infrastructure projects. Increased supply for ethyleneamines has come online within the last year, which puts further downward pressure on volumes and margins. We believe it will take a while for the industry to adjust to the new amines capacity, but we expect demand and margins to steadily improve from fourth quarter levels. We expect 2012 earnings for Performance Products to be similar to 2011. However, unlike the past 3 quarters where adjusted EBITDA has softened, I expect our EBITDA to increase throughout the year's capacity tightens and new demand in Asia and the growing energy sector take effect. Let's turn to Slide #5. Adjusted EBITDA in our Advanced Materials division was $15 million in the fourth quarter. The foreign currency impact from a stronger Swiss franc had the effect of decreasing our EBITDA by an estimated $4 million in the quarter compared to the prior year. Approximately 40% of the cash fixed cost for our Advanced Materials business are denominated in Swiss francs. In the fourth quarter, we announced a global restructuring program and expect $20 million of annual savings. We expect to see the full run rate savings in mid-2012. End-market demand within the Asia Pacific wind energy market has softened and increased competition has put margin pressure on the business. Partially offsetting this trend, we saw demand increase 19% globally within the aerospace and defense markets compared to the prior year accompanied by higher margins. Like other divisions, our Advanced Materials division will also implement a number of self-help items to minimize their FX exposure, grow value and expand North American capacity. I fully expect our earnings to strengthen throughout the year. Turning to Slide #6. Our Textile Effects division reported an adjusted EBITDA loss of $22 million in the fourth quarter. Sales volumes decreased 7% compared to the prior year and are down more than 30% from demand levels in the fourth quarter of 2007. Approximately 2/3 of our business is oriented towards natural fiber products such as cotton and wool. And although demand for synthetic fibers has improved modestly, demand for home textiles such as cotton sheets, cotton towels and cotton apparel remains weak. The foreign currency impact from a stronger Swiss franc have the effect of decreasing our EBITDA by an estimated $5 million in the quarter compared to the prior year. Approximately 50% of the cash fixed cost of our Textile Effects business are denominated in Swiss francs. We announced aggressive restructuring plans for this business in the fourth quarter, but don't expect to see meaningful benefits until the second half of 2012. The first half of 2012 will be negatively impacted by fixed costs related to products transfers out of Switzerland by approximately $10 million. We expect 2012 earnings to be better than 2011. Let's turn to Slide #7. Our Pigments division earned $145 million of adjusted EBITDA in the fourth quarter, more than double the prior period of $71 million. The earnings improvement was primarily driven by an increase in fourth quarter average selling price, which increased 38% compared to the prior year and 7% compared to the third quarter in local currency terms. We saw softer demand for TiO2 in the fourth quarter. In addition to a seasonal decrease in demand, we saw significant customer de-stocking particularly in the Asia Pacific region. We expect there will be meaningful increases in the future cost of titanium bearing ores. During 2012, we expect to benefit from certain ore supply contracts in our Pigments business that will effectively supply approximately 40% of our ore requirements at prices close to 2011 market levels, which are significantly below current market prices. The majority of these contracts will expire at the end of 2012 with the resulting benefits reflected through most of the first quarter of 2013. These contracts did not materially benefit our Pigments business in 2011. We will also try and offset the increases in direct cost with additional price increases. We expect 2012 earnings for this business to be less than 2011. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer.

Thanks, Peter. Let's turn to Slide 8. Let's begin by addressing some items that impacted our earnings during the quarter. We expect our long-term effective tax rate to be approximately 30% to 35%. Our 2011 and 2010 full year effective tax rates were less than this, primarily due to tax valuation allowances in countries like the U.K., France and Spain where we have meaningful pigment operations. Tax valuation allowances have the effect of lowering and, in some cases, eliminating the tax effect in the P&L from these respective countries. Correspondingly, we have valuation allowances in Textile Effects-intense countries, notably Switzerland, that are currently generating pretax losses where we are not able to book income tax benefits, increasing our effective tax rates. In short, the effective tax rate is highly dependent on the country-by-country mix of profits and losses in Europe. In the fourth quarter we were required to recognize a partial release of tax valuation allowances, which have the effect of decreasing our effective income tax rate. As indicated in our press release this morning, this had the approximate benefit of $0.04 per diluted share on the fourth 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 LIFO primarily relates to inventories in our Performance Products business, we account for the movements in LIFO reserves within our corporate segment. Movements in LIFO reserves are included in our adjusted earnings. LIFO costs have been a headwind for the most of the year until the fourth quarter when we saw a moderation in raw materials. During 2011, we recognized $21 million of LIFO charges. Approximately 10% of our fixed costs are denominated in Swiss franc. Most of our Swiss-based production is sold in euros. And so long as the euro and the Swiss franc move in unison against the U.S. dollar, there's generally a natural hedge. In our Advanced Materials and Textile Effects businesses, the foreign currency impact from a stronger Swiss franc have the effect of decreasing our EBITDA by an estimated $57 million in 2011 compared to the prior year. Turning to Slide 9. In the fourth quarter 2011, our adjusted EBITDA increased to $243 million from $219 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 U.S. dollar. Compared to the third quarter of 2011, our fourth quarter adjusted EBITDA decreased from $346 million to $243 million. As Peter mentioned in his review of the businesses, fourth quarter seasonal demand trends were accentuated by customer de-stocking. Our average selling price was negatively impacted by foreign currency movements in all of our divisions with the exception of Textile Effects. Although we saw a moderation in raw material costs, it was more than offset by a decrease in local currency average selling prices. Slide 10. Our year-over-year sales revenue for the fourth quarter increased 9%, primarily as a result of higher average selling prices. We had more sales from our North American region than any other during the quarter. Sales in this market increased 14%. We saw an increase of 6% in Europe where 29% of our revenues came from. The Asia Pacific region, which made up 20% of our total revenues, decreased 7% in large part due to customer de-stocking. Our rest of world category, which includes emerging markets such as Central and South America and the Middle East, saw the most growth compared to the prior year of 31%. This category made up 18% of our total sales. Our largest divisions, Polyurethanes, Performance Products and Pigments, which account for approximately 80% of our revenue, recorded revenue increases of 10%, 8% and 21%, respectively. In total, our average selling prices improved 12%, while our sales volumes declined 4%. Compared to the prior quarter, consolidated revenues decreased 12%. This was primarily due to decrease in sales volume consistent with normal seasonality, and again, accentuated by customer de-stocking in the fourth quarter. We also saw a decrease in average selling prices within our Polyurethanes and Performance Products divisions for reasons Peter discussed in his remarks. On to Slide 11. At the end of the quarter, we had approximately $1 billion of cash and unused borrowing capacity. During the fourth quarter of 2011, we saw a release of cash invested in primary working capital of more than $200 million. The trend was consistent with the year-end seasonality and amplified by lower production volumes due to customer de-stocking. During the last 2 years, we have seen inflationary pressure on our raw material and energy costs. The majority of our raw material feedstocks are derived from crude. The average cost of crude increased approximately 20% and 30% in 2011 and 2010 compared to the prior year. Our days outstanding for primary working capital components remain in line with historical averages. We don't expect to see the same magnitude of inflationary pressure on raw materials in 2012 that we saw in 2011 and 2010. In 2011, we redeemed approximately $305 million of our senior subordinated notes, including all of our remaining 6.875% senior subordinated euro notes due 2013 worth approximately $94 million which were redeemed during the fourth quarter. As we generate additional free cash flow, we will continue to look for opportunities to reduce our outstanding leverage. We spent $327 million on net capital expenditures during 2011. In 2012, we expect to spend approximately $425 million on capital expenditures, which approximates our annual depreciation and amortization. Significant projects in 2012 include further investment in our MDI manufacturing technology, a new magnesium sulfate fertilizer facility at our Calais, France Pigments location, and the establishment of a new Asian technology center in Shanghai, China. I'll now turn the rest of the time over to Peter.

Thank you, Kimo. 2011 ended as the most profitable year in our history, while operating the businesses that we now own. We paid down our debt. We had a record year with our safety and environmental performance, and we expanded our businesses around the world. We also ended 2011 with one of the slowest fourth quarters our industry has globally experienced. Between economic uncertainty, tight credit in Asia and wavering consumer confidence, customers lowered their inventories and operated with as little working capital as possible. While 6 weeks into 2012 does not give us ample time to judge the entire year, I am encouraged by what I'm seeing across the board compared to this past quarter. Again, it's too early to tell if demand has improved due to restocking of inventory, prebuying ahead of rising raw material costs or improving economic conditions, but compared to the past quarter, we are seeing improved demand across the board. Aside from macroeconomic improvements we are projecting throughout 2011, you have heard me outlined with each business initiatives to better control our foreign currency exposure, lower our fixed cost, open new markets and increase value. As I've said in past calls, most of our divisions are capable of earning substantially more than what they did during the fourth quarter and 2011. I believe that our Pigments division will be under margin pressure this year as we absorb record raw material increases in titanium ores. At the same time, from what I see now, improvements in our other businesses should offset the pressure we expect in our Pigments business. I expect 2012 to look similar to 2011, but with stronger earnings from more of our division. In short, 2011 was a great year, but I believe the best is yet to come. With that, I'll turn the time back over to Kurt Ogden.

Thank you, Peter. Gina, we're now prepared to take questions.

[Operator Instructions] And your first question comes from the line of Kevin McCarthy with Bank of America Merrill Lynch.

Peter, your macro view sounds reasonably positive here entering 2012, and yet if I look at your EBITDA comments across the segments, several of them are flat-to-down. And so I guess, 2 questions. Number one, why is that, since you're coming off of pretty low volumes in the fourth quarter, why would you not expect some improvement there volumetrically in terms of operating leverage? And then number two, if you roll up all of these segments, and net it out, what is your all-in total company EBITDA direction in 2012, please?

Well, I think that our all-in EBITDA direction 2012 is quite similar to 2011. I would say though that what I'm seeing on a division-by-division basis, as we look at the last 6 months of 2011, I believe that there was a great deal of inventory de-stocking that took place. I believe that the slowdown, particularly in the fourth quarter, that you saw a slowdown in demand that was much greater than what the overall economies were experiencing globally. I also believe that around the world that supply chains and inventory levels, now again, this is not in every customer and in every product, but generally I believe that inventory levels with our customers for virtually, well, for certainly the vast majority of our products, is at a very, very low level. And I think that as we start looking at order patterns into 2012, I'm encouraged by what I see particularly in North America. Europe continues to surprise me. I think every morning you wake up that Europe is on the brink of an economic cataclysmic wreck, and yet the overall demand in Europe continues to be, I would say, quite stable. As I look at Asia, and I'm speaking here really in the last 2 weeks, because as you know the Chinese New Year ended in the end of January, so I'm looking at relatively recent developments, I believe that China is reentering the market. And as we look at some of the macro trends, particularly where we directly supply customers, we're starting to see a pickup in that customer demand. So that gives me -- as I sit here today and I look at the direction of 2012, again, bear in mind we're 6 weeks into 2012, but as I look at 2012 today, I feel better than I did 6 weeks ago, about 2012. And I certainly feel better about 2012 than I did in our last quarter call 3 months ago.

Okay. And then just to follow up, Peter, if I may, you've been forthright that you anticipate lower margins and lower profits in TiO2 Pigment, what has changed there? Has the market loosened materially in your views such -- that it's going to be difficult for producers to fully recover some of the cost increases among titanium-bearing ores?

Well, again, I think that, hopefully we've been very consistent. We were talking, again, about third quarter performance. We were talking about getting somewhere between 50% and 75% of our prices that we were shooting for at that time. And I think that we achieved in the third quarter, throughout the fourth quarter, probably the lower end of that range that we gave. As we look at the pricing initiatives we have announced in the first quarter, I think that we will be able to capture a chunk of that price increase. It's too early to tell. I'm not pessimistic about TiO2. And I've said in the past, I don't believe that TiO2 is necessarily going to peak as much as it's going to plateau. And I think that, that plateau is going to be somewhat choppy. As TiO2 producers take in raw material increases, they will be trying to offset those increases with various price increases for TiO2. And they won't necessarily always be corresponding on a quarterly basis price increases for TiO2 to exactly offset their raw material cost increases. And so you're going to see some quarters that may be down and some quarters that are going to be up from -- up sequentially. I think it's going to be choppy. I think again, am I -- are we going to see this sort of increase in profitability year-over-year in TiO2 in 2012 that we saw in 2011? No, I don't think so. But I am a lot more bullish on the other ends of our businesses, the other divisions that have taken, and I have announced in this call, something close between the last 2 calls close to $100 million of costs that will be taken out of our company this year. I believe that that's a fairly -- that's a very conservative number. I believe that we have taken steps to offset some of the exposure that we have in foreign currency. And as I look across the board in the other divisions, I'm confident that those other divisions will offset any sluggishness that we see in TiO2. But again, I want to be very clear, I'm not bearish on TiO2 for this next year. As much as I just think, it's going to be a year where the paint companies have publicly announced that they're going to be trying to ship as much chloride to sulfate capacity. They're going to be trying to put in as much Chinese and other Asian capacities as they can. I don't think they'll be as successful as they think they will. But it's going to be a battle throughout the year. And I think it's going to be something of a plateau.

Your next question comes from the line of Laurence Alexander with Jefferies. Laurence Alexander - Jefferies & Company, Inc., Research Division: I guess 2 questions. First, as you think about your -- if you're EBITDA will be roughly flattish in 2012, can you walk through some of the steps down to your free cash flow? Like how much of a working capital you think you'll be using? And what you think the corporate and unallocated run rate will be for 2012?

Sure. You asked a tough question, Lawrence, because working capital really is a -- it depends on what your views on energy prices are going to be. Again, we consume benzene, we consume butane, all of those are derivatives of crude and natural gas. So if you assume energy prices and raw materials are somewhat flat, and of course we have to set aside ore because ore will increase, we will consume some working capital but not nearly what we have been consuming over the last 3 years. We've outlined what we thought capital expenditures would be, so that's right around depreciation, $425 million. Cash interest is going to be right around $220 million. And we've said the taxes will be right around that 30% mark. Laurence Alexander - Jefferies & Company, Inc., Research Division: And secondly on Polyurethanes, can you flush out a little bit your comments on expectations? They're like -- it sounds as if you're positioning for a back-end loaded year, and just wanted to see if we can tease out how you think the demand recovery will ramp up? And then at what point you will be at a crossover to recouping the margin loss to raw materials?

I'm very -- I've got high expectations for Polyurethanes this year, and I don't think that it is particularly back-end loaded. As I look at MDI, I think that we are going out some very aggressive price increases, and I think that the first 2 quarters of the year is going to be very vital for us. As I look at benzene from the fourth quarter to where we finished the fourth quarter with an average price of around $3.20 per gallon. Benzene today is just over $4 a gallon. That's going to put a cost on the business, so we've got to get our prices up here in the first quarter going into the second quarter, about $0.10-plus per pound. And with the pricing initiatives that we've announced, that we are going to be continuing to announce and pushing throughout the first and second quarter, I'm confident that we can stay at or ahead of this very high benzene prices. And so, no, I don't believe that as I talk about the optimism that I have for 2012, I don't personally believe that this is a back-end loaded. I think that the first 2 quarters, as a matter of fact, are going to be very vital to us. And I believe that the demand that we're seeing, the order patterns that we're seeing and the pricing initiatives that we have are going to be reflective as much in the first 2 quarters as the last 2 quarters.

Your next question comes from the line of Bob Koort with Goldman Sachs.

This is Brian Maguire on for Bob. I think, Kimo, I think last quarter, on the conference call you mentioned that ore cost might be up as much as 100% in 2012. And it sounds like now the impact of your legacy contracts will shield you from some of that impact in 2012. But as you look out to 2013, is that the kind of impact you're expecting to have on your pigment costs from the ore cost, please?

Our comments last quarter around our ore costs on a TiO2 per ton basis doubling, that included our view on our contracts. So we think the market will increase, in fact, more than that.

Remember, when we talk about ore prices, that you're talking about multiple different grades of ores going into multiple technologies of TiO2 production. And so for us today to try to forecast what impact that will have in 2013, I think that you will see a doubling of ore prices does not translate equally across the board of x dollars per ton impact on the business.

Got it. But without the legacy contracts it would be more than -- it would more than double in 2012?

Absolutely. And we've said we think that we would expect that most of the industry would have similar contracts. So there's this notion of market. And then there is this -- what we're going to experience and probably our peers will experience in terms of ore pressure. But we do have contracts like, again, everyone does, I think, through 2012 and 2013. And you're right, if we didn't have those contracts, our ore cost would go up more than the two-fold that we're talking about.

Okay. And could you also talk about what kind of volume assumptions you have for pigments in 2012? I think you maybe mentioned that overall, the EBITDA will be down and part of that is the cost inflation. But volumes kind of tailed off a little bit in the back half of 2011. Some of the paint companies had mentioned that they're no longer worried about availability and they're not going to have the same level of inventory build early in 2012. How do you kind of see overall volumes shaking out?

Our effective capacity is right around 500,000 tons, and we have operated at that level for several years. So I think you should expect that we will operate again right around 500,000 tons which we did in 2011 and the prior year.

Okay. And just -- I might sneak one last one in, what are some of the big components driving the significantly higher CapEx in 2012?

Well, we outlined a few things. I don't know that spending depreciation is a big number. I think we would like to target, on average, over 10 years. Roughly depreciation in the last 3 years, we have significantly underspent depreciation. So there are several very great return projects that we're spending on. I think I mentioned we're doing some things in TiO2, not in terms of de-bottlenecking capacity, but adding some fertilizer capacity. We have a new just recently announced technology center in Shanghai and we're growing I think all of our businesses including amines and MDI.

Aside from the EH and -- environmental health and safety on CapEx next year, I think there's a good mix between growth projects and efficiency projects. So the fertilizer business in TiO2, what in the world are we getting the fertilizer for in TiO2? What's the byproduct of a sulfate process that is going to greatly reduce our cost for producing TiO2? And I wouldn't say that that necessarily is a growth project, but it's certainly going to be a margin-enhancing project. And so we have -- we think multiple opportunities such as that, as well as growth projects around the world.

Your next question comes from the line of Mike Ritzenthaler with Piper Jaffray.

My first question is after meeting with the renewable energy team within Brazil's influential Embrapa organization last week in Brasilia, it was clear to me that the policy tools being put into place for growing wind power over the next 3 to 4 years are staggering in Brazil. They're trying to 3x their capacity. How would you characterize Huntsman's position in the Brazilian market versus other markets in Asia and Europe and elsewhere for participation in these epoxies and specialty resins?

I think in our epoxies business we have a warehouse. We have blending facilities in Brazil. And I think that we're able to compete in that market as well if not better than our peers. And I think that wind market is probably not going to see the growth that it has the last couple of years. And so -- but I think in China, in places like Brazil and so forth, I think that it's -- there's going to be opportunity. And I think that speaks well for the global footprint that we have of our business. Whether that growth takes place in Brazil, whether it takes place in China, whether it takes place in Central Asia, we're going to be there to take advantage of it.

And windmills, we play really in 2 areas. One is in the resin for carbon fiber and the composites, and the other is in amines which acts as a hardener or an additive in that process.

Right. And then just to expand on amines, I guess a little bit there. ASPs are down year-over-year, as well as volumes. And you had highlighted in your prepared comments a little bit more about that. I was wondering if you could expand a little bit more into the market dynamics there in terms of how much new capacity came online. And looking out over the next couple of years, is there more expected? And then maybe the geographic, sort of the geographic breakdown there and how long it will take the market to normalize? Is it a 6 to 12, or a 12 to 18 kind of months event?

Sure. Well, we have our facility in Jubail, Saudi Arabia that came on in 2010. We've seen Tosoh in Japan, Akzo just recently in China and Delamine in the Netherlands bring on capacity. It is really -- there are 5 players in this industry, major players. And we would expect that early on in 2012, that most of the players would pull back production and that the industry would come into balance.

But of everything that's been announced over the course that come on, certainly 2/3 if not more than that, of the announced capacity is already in the market. So we will not -- certainly we'll not see as much new capacity coming in the market in the next 2 years as we saw in the past 2 years. So I think from here on out, we would expect the market to certainly be tightening.

Your next question comes from the line of P.J. Juvekar with Citigroup.

This is Eric Petrie in for P.J. today. First question would be in terms of pigments. I'd like to get into a little more detail where you see inventory levels geographically? You referred anecdotally that your inventory levels are higher and that first quarter '12 contracts are being settled at 1/4 of what producers have announced in terms of price increases? Any comments there?

Yes, first of all, I don't know if you attributed my comments to saying that we were getting 1/4 of the price increases in the first quarter. I did not say that. We've announced a $330 a ton increase in the U.S., $300 Europe, $350 in APAC, so pretty aggressive price increasing coming out in the first half, and it's just too early to tell. Do you get 100% of that? We've never got 100% of every price increases that we've put through in the TiO2 business, but we believe that we'll get a portion of that. And again it's too early to tell. As we look at the TiO2 inventory levels, our inventory levels have increased from the fourth quarter -- excuse me, from the third quarter going into the fourth quarter by a few weeks. And I imagine that the industry, the preliminary industry data will show that that's probably pretty similar to the rest of the industry in general. That should not be -- there are 2 things in mind, one, this time of the year, we're always building TiO2 inventory even in the tightest of market conditions because of the slowness of construction seasonality and so forth. And there was no doubt, particularly in Asia in the first quarter, a great deal of shifting of inventory that took place that typically is held by brokers and by distributors throughout the Asian markets that came back to the producers. So I'm not sure that when you see the inventory numbers in the fourth quarter that they're necessarily accurate because I think in order to have a full picture of inventories that you need to be able to see the producer inventories and the customer inventories. And in parts of Asia, particularly China, you've got to look at the producer inventories, the broker's and distribution's inventories, and the ultimate paint and coatings, and ink, and the ultimate consumers of TiO2. And I think that when you iron out all of those inventory levels, I'm not sure that you saw inventory grow as much as it grew with the producers. I hope that makes sense. I don't think that the inventory should be a sole indicator to the health of the overall pigments industry.

Okay, that's helpful. Just curious to reconcile with last quarter's comments. You said that Huntsman was significantly below the industry average. So I'm just trying to get a sense of -- did the industry inventory overall, excluding Huntsman, decline?

The industry data that I have seen, and I don't believe that it's complete data at this point, would lead me to believe that the inventory levels have grown as they always do from the third to the fourth quarter. Our inventory grew from the third and fourth quarter. I don't believe that our ratio to the industry has changed during that time period. So if we were significantly behind in the third quarter, I feel comfortable, again, with the data that I have seen thus far that we remain significantly, I might say, significantly weeks, plural, behind the industry as far as number of days of inventory.

When he says behind, meaning below.

Below, right.

All right, helpful. And then my second question, in Performance Products, what kind of EBITDA benefit can we expect given that average quarter today at same prices have declined about 30% quarter-over-quarter?

On the ethane side?

Yes.

I think that most of that will be shown in the profitability of some of the upstream businesses. But certainly, in the amines businesses, further downstream. So I'm not sure exactly how to calculate FX. We're not selling ethylene. We don't sell the first line derivatives of ethylene, ethylene oxide into the market. Our ethane that we consume internally, going into ethylene, goes into literally hundreds of derivative products in the surfactants and the amines industry. And I would hope that we would be able to, over the course of next quarter or so, to be able to capture, certainly get part of that.

That's a business that we sort of ended the year on a softer note, and we'll probably start the year a little softer in Performance Products. But we think it's going to be a good year, and it's going to be flat to up relative to 2011 EBITDA.

But as I said in my comments. I agree with what Kimo said. Directionally, if you look at the last 3 quarters of Performance Products, it has been sequentially down. And I believe that it will be ramping back up in that other direction.

Your next question comes from the line of Frank Mitsch with Wells Fargo Securities.

Peter, just wanted to try and reconcile on the TiO2 on the volume side of things. If you think about 2011, a pretty decent pace of business for the first 3 quarters and then some significant de-stocking, particularly in Asia, in the fourth quarter. We've heard from another producer where they expect their volumes in 2012 to be higher than 2011 given that de-stocking, and one would think that you would see some level of inventory restocking take place or at least see demands tick up a little bit. So I'm just trying to reconcile why you would think that your volumes in TiO2 for 2012 would be essentially flat with 2011, unless you're forecasting another fourth quarter de-stock at the end of '12?

Yes, our volume is going to be more capacity-constrained. Again, we're going to be selling what we produce in Pigments as we have for the last 2 years or so, Frank. And I don't mean to be anything less than ebullient as you've say in talking about TiO2. I would say that, again, the challenge is not going to be for Huntsman on the volume side, we'll sell what we -- we'll sell all we can make. The pressure is going to be on the pricing side. And look, if the demand is there and the pricing is there, I'm not here hoping that margins are down. I hope that we'd have another great year in TiO2, and I hope that we have higher margins, hope that 2012 is substantially better than 2011. I just think that there's going to be some -- whenever you see raw materials double in value and when you see your customers trying to move heaven and earth to minimize the consumption of the product you're producing, those are typically forces that you've just got to take into account. And I think that we're going to be extremely aggressive in our pricing and the products that we're taking in the market and expanding the value of our TiO2 business. But at the same time, I've, and again, we're going to sell everything that we can. If there is a restocking that takes place early in the year, that should bode well for the industry.

All right, terrific, that's very helpful. And just switching gears quickly, you did talk about the ethane side of things benefiting Performance Products, at least some of the downstream stuff. But apparently you guys, your venture with Sasol declared force majeure on maleic anhydride over in Germany. Can you talk about what that impact might be for the first quarter? How long might that force majeure last? And any color around that will be helpful.

I think that it's just going to be a couple of weeks, and I don't think it will be anything material to the bottom line. I think we've got some inventory there. We're going to be supplying customers as best we can out of our U.S. operations and so forth. So I wouldn't anticipate that there would be a material number there. But until we're out of it and until we're back up and running, we're doing everything we can to try to offset that. I also just note, Frank, that you mentioned about the ethanes benefiting Performance Products. Let's remember that I believe that those ethane economics are also going to benefit some of our other U.S. manufacturing base as well. I think, like most companies in our segment, we are going to be looking at 2012 very different than we may have looked at 18 months ago. The first question I'm asked by our Board of Directors and I'm asking our directors and our managers in the businesses, if you're building overseas, with the cost advantage we have in the U.S., why can't we bring that capacity back to the U.S. and take advantage of the gas and so forth economics here? So I think that that's going to be, as I've said in previous call, I believe that the ethane economics and the natural gas economics, utility cost and so forth, this is going to be a game changer over time for the North American chemical industry, and we're going to be in a position to take advantage of it. And every one of our products we produce have a North American component to them, and we're going to be looking as to how we can take advantage of that.

Your next question comes from the line of Andy Cash with UBS.

Just a couple of questions. First of all, given the activity on the M&A front, should we expect that in the next 12 to 24 months we might see some product mix changes at Huntsman Chemical?

Well, look, we're -- I don't think that we'd be talking about in a public forum right now what divisions we'd hope to sell off and so forth. I think that it's been obvious in the past. I have talked about in past calls that we would like to, I believe the words I used is something on optionality with our Pigments business, whether it's merging with another player, buying with another player, integrating and so forth. We are always going to be looking on a division-by-division basis. I believe that there's room for consolidation through mergers and so forth in surfactants and Textile Effects across the board. And with the large number of shareholders that we have on our Board of Directors and representing our families and so forth, we are going to be looking at every option that we can to create shareholder value while at the same time building a great business here. So as to your question, I think that we spend an appropriate amount of our time looking at M&A opportunities and potential activities.

Okay. Second question, looking over at the MDI side of things, could you say whether or not MDI margins so far in the first quarter are up year-over-year? And could you characterize how the margins may be developing in China versus the rest of the world?

Well, China is going to be -- again, from very early preliminary indicators that I've seen, I'm reluctant to say these sort of things so early in the quarter, but I'm very encouraged by the demand trends that I'm seeing in China particularly in MDI. And the reason I say particularly in MDI is we probably sell more product -- more MDI in China directly to customers. And so if you see an improvement in demand that will take place in the automotive industry or in the furniture industry or what have you, we have a tendency to see that earlier in the divisions where we sell directly to those customers because we'll see the demand very quickly. Whereas if we're selling it to a distributor or a broker who's turning around selling the product you might see a month or 2 lag time from when the customers seeing an improvement, the broker will then seen the improvement, the distributor, the sales agent, and then you'll see the improvement. So as I look at where we are today, margin in China on MDI is going to be all around demand and in consumption improving. And as I look at the early signs, again as I look at January, that was typically a sluggish month in China because of the Chinese New Year, but as I look at the numbers in February thus far, I believe that China's back in the market and buying, and that gives me confidence that we'll be able to achieve some price increases. We have announced a, I believe it's a $0.10 per pound MDI price in the first quarter. And I believe that that is going to -- we're out right now fighting for that, and it's our intention to continue to look for higher prices in that business.

And, Peter, just sort of to clarify and then just finally, I mean while demand sounds like it's coming back strongly, are you concerned about any capacity increases in China either in the second half of last year or the first half of this year that might keep price a little in place there?

No. Well, I'm always concerned about capacity coming into any market segment. But I think that when I look at the number of projects, particularly those projects that are being delayed, it's -- I'm not overly concerned about it. I think I said $0.10 price increase earlier, MDI in the first quarter, I should've said $0.15.

Your next question comes from the line of Jeff Zekauskas of JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: There's a $34 million gain in the quarter pretax. Where is that either in the segments or on the income statement, where does that show up?

So we sold our stereolithography business for $41 million. That should be in other income and expense. And that's included in adjusted EBITDA, right, Jeff? Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Yes. Second question is benzene came down a lot in the fourth quarter and your volumes were flat year-over-year in urethanes. So all things being equal, why wasn't profitability a little bit better? Or what restrained it versus the previous year on the fourth quarter?

It was -- if we look at fourth quarter, in comparison to the third quarter, even in comparison to the fourth quarter of last year, it was essentially flat. What constrained it was the lack of demand and the fall off that we saw particularly in Asia that we believe is coming back into the market. We saw flat volumes, so it was mostly volume, Jeff. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: So it sounds like there might have been a mix issue in the fourth quarter in urethanes, is that right?

No, I think it was mostly just the lack of volume that was sold.

So from a volume standpoint, urethanes was down from a demand standpoint, PO/MTBE was up. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. And you talked about your TiO2 ore contracts repricing at the end of '12. If you assume that they repriced today, what would be the effect on -- or what would be the numerical effect on that business?

It's really hard to tell, Jeff, because if they were to have been expiring right now, we probably would have replaced those contracts sometime last year. I mean, it's our intention and our -- the design of the business to have a number of contracts going out as far as you can. Now the duration that you're able to lock in those contracts is obviously shortened or has become tighter. But if we just had to walk away from those contracts today and buy at the market price today, I'm not sure I have that information in front of me.

Some of that has to do with what your view of 2012 ore prices are going to be and it's across several different grades. On a mark-to-market basis as we've said today, it's $100 million or more. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. And then lastly, you talked about how business was getting better sequentially. So chemical railcar shipments in the U.S. are pretty flat, and China is just beginning to recover from the fourth quarter. So is it fair to say that year-over-year volumes in general for the company for the first half over the first quarter are running a little bit down year-over-year? Or are they running a little bit up year-over-year?

I wouldn't have the first 6 weeks versus the first... Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Or whatever you have.

I think generally, it's up. The sentiment, directionally, it looks like it's up. But, yes, I think the answer is it's up. But I don't have the exact percentages on a division-by-division basis.

Okay, here's your final question from Roger Spitz.

In Advanced Materials, were you seeing any unit margin expansion given lower BPA and perhaps lower EPI cost?

As we look at the contribution margin on a cents-per-pound basis fourth quarter versus fourth quarter on a year-over-year basis, yes, there's a slight margin expansion on that. But again, it's volumes in the fourth quarter that that mostly hit us.

Gina, before we conclude the call today, let me remind everyone that we'll be hosting an Investor Day on March 8 in New York City. We invite anyone interested in attending to email us at ir@huntsman.com to register for the event. And for those unable to attend in person, the presentations will be webcast. A link to the webcast will be available, of course, on our website at huntsman.com within the Investor Relations section. But that concludes our comments today. Thank you, everyone, for joining us.

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