Huntsman Corporation (HUN) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Huntsman Corporation Earnings Conference Call. My name is Tahisha, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Kurt Ogden, Huntsman Corporation's Vice President of Investor Relations. Please proceed.

Thank you, Tahisha, and welcome to Huntsman's First Quarter 2012 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 first quarter 2012 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, plant closing and transition costs, income and expense associated with the terminated merger and related litigation, acquisition-related expenses, certain legal and contract settlement costs, losses on the early extinguishment of debt, gain on consolidation of variable interest entity, extraordinary gain or losses on the acquisition of a business and losses and gains on disposition and acquisition of businesses and assets. A reconciliation of EBITDA, adjusted EBITDA and adjusted net income or loss can be found in the appendix of our slides and in our first quarter earnings release. Let's start -- let's turn to Slide 2. In our earnings release this morning, we reported first quarter 2012 revenue of $2,913,000,000, adjusted EBITDA of $397 million and adjusted earnings per share of $0.74 per diluted share. Our adjusted EBITDA was $397 million in the first quarter 2012 compared to $304 million in the prior year, an increase of 31%. Our adjusted EBITDA increased 63% compared to the prior quarter of $243 million. I will now turn the call over to Peter Huntsman, our President and CEO.

Thank you very much, Kurt. Good morning, everyone. Thank you for joining us. Let's turn to Slide #3. Adjusted EBITDA for our Polyurethanes division in the first quarter 2012 was $177 million, an improvement of $63 million compared to the prior year of $114 million. Sales volume for our MDI products increased 4% compared to the prior year. We saw improved demand geographically in each of our regions and across the majority of our end market segments. Despite troubling economic headlines, we saw growth in Europe with stronger demand in Northern Europe where we sell the majority of our product, far outweighing the negative impact of the recession-plagued Southern Europe. We continue to see growing demand in U.S. automotive and insulation. The Southeast Asia ASEAN markets have countered the slowdown in growth that we are seeing in China. We successfully raised our MDI selling prices in the quarter, which increased our contribution margin though these increases were partially offset by an increase in the cost of benzene. We expect further positive traction on our MDI average selling prices in the second quarter. Propylene oxide and its co-product, MTBE, continue to perform very well, primarily as a result of an attractive spread between premium gasoline and lower price natural gas-based raw material. In the first quarter, we saw exceptional margins in part due to industry supply outages. Coupled with strong demand, these outages led to an increase of approximately $55 million to $60 million compared to the prior year and prior quarter. By the first 2 weeks of the second quarter, most of these idle facilities had restarted, so we do not expect this benefit to continue into the second quarter. Turning to Slide #4. In the first quarter, our Performance Products division earned $90 million of adjusted EBITDA, an increase of 50% compared to the prior quarter. We believe that the demand for amines is improving and production from new industry supply is being absorbed into the market. As a result, we saw increased margin and an improvement in volumes compared to the prior quarter. It will take a while, however, for the industry to ramp up to the profitable levels we enjoyed in early 2011. Our margins of a year ago also had some benefits from industry outages that carried some short-term margin expansions. We continue to invest in our Performance Products businesses. We recently announced the increase of our North American ethylene oxide capacity by 250 million pounds to supply our growing downstream ethylene oxide derivative businesses. This specific project represents one of the ways we are leveraging the North American low ethylene cost advantage to supply our downstream derivatives' business in amines and surfactants. Our upstream businesses continue to perform well. It's worth noting, however, that we look forward to the -- that as we look forward to the remainder of the year, we will take our ethylene oxide unit down for planned maintenance in the third quarter of this year. This maintenance is performed once every 4 years, and we expect the EBITDA impact to be approximately $15 million. Turning to Slide #5. Adjusted EBITDA in the first quarter in our Advanced Materials division was $32 million. We believe this business has hit an inflection point and its earnings are on an upward trajectory. Demand for most of our products has improved with the modest exception -- or with the notable exception of the wind energy market in China which remains soft. We are encouraged by the general demand trends. North American demand was particularly strong in the first quarter. Our SG&A restructuring efforts are yielding benefits to the bottom line and are largely complete. At our recent Investor Day, we announced further restructuring that will benefit our annual manufacturing costs by approximately $15 million. However, we don't expect to see these benefits until the end of the year. We continue to expect this division to earn a higher EBITDA than it did last year. While it's early in the year, we are encouraged by the signs that we are seeing to date. During -- let's turn to Slide #6. Our Textile Effects division reported an adjusted EBITDA loss of $9 million in the first quarter. Sales volumes in the quarter were essentially unchanged compared to the prior year, but improved 5% compared to the prior quarter. Normal demand for this business is generally evenly split between the first and second halves of the year; however, the second quarter is generally the strongest quarter. We are encouraged by the positive U.S. economic indicators related to consumer confidence in retail data, but remain cautious with regards to our European markets. Our $75 million restructuring plans are proceeding well, but we don't expect to see meaningful benefits until the end of this year as we are operating 2 manufacturing platforms as we transition out of Switzerland. Consistent with a seasonal uptick in demand, we expect a small sequential improvement in our second quarter earnings. Let's move on to Slide #7. Our Pigments division earned $147 million of adjusted EBITDA in the first quarter, a meaningful improvement from $87 million last year and on more of an earnings plateau when compared to the fourth quarter. Adjusting for the impact of foreign currency and sales mix, our first quarter average selling prices increased 36% compared to the prior year and 3% compared to the prior quarter. Global demand for TiO2 was soft compared to the prior year exasperated by customer destocking in the Asia-Pacific region, but increased sequentially versus the prior quarter. We expect to see some improvement in demand in the second quarter with continued recovery in demand within North America and some improvement in Asia, but remain cautious with regards to Europe. We expect meaningful price increases for titanium-bearing ores throughout the year as inventories purchased at old rates are consumed and supply agreements are renewed. This impact will be magnified in the second half of the year. We expect to continue to raise our selling prices to offset these cost increases. The success of these selling price increases will largely depend on demand and GDP growth. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer.

Thanks. Let's turn to Slide 8. In the first quarter 2012, our adjusted EBITDA increased to $397 million from $304 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. Sales volumes increased as we saw improved demand for some of our products, and these improvements were partially offset by an increase in SG&A and other indirect costs. Compared to the fourth quarter of 2011, our first quarter adjusted EBITDA increased from $243 million to $397 million. Much of the increase was the result of seasonal improvement in demand across most of our businesses. Increased average selling prices in our Polyurethane and Pigments businesses led to increased margins. Our raw material, SG&A and indirect costs were essentially the same. Slide 9. Our year-over-year sales revenue for the first quarter increased 9%, primarily as a result of higher average selling prices. The majority of our sales in the quarter came from North America and Europe, which increased 5% and 15%, respectively. Sales revenue decreased in the Asia-Pacific region by 3%, in large part due to customer destocking. Whereas 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 21%. Our Polyurethane and Pigments businesses, which accounted for approximately 75% of our first quarter earnings, recorded revenue increases of 17% and 16%, respectively. Notably, our PO/MTBE revenue increased 33%. In total, our average selling price improved 7% adjusted for the impact of foreign currency, while our sales volume increased 2%. Compared to the prior year, consolidated revenues increased 11%. This is primarily due to an increase in sales volume consistent with normal seasonality. Our average selling price, adjusted for the impact of foreign currency, increased 2%, primarily as a result of increases in our Polyurethanes and Pigments businesses. Let's go to Slide 10. At the end of the quarter, we had approximately $1.1 billion of cash and unused borrowing capacity. During the first quarter of 2012, we redeemed approximately $86 million of our 7.5% senior subordinated notes due 2015 and repaid all of the approximately $27 million outstanding under our Australian credit facility. During the period, we also successfully completed an amendment of our senior secured credit facilities. The amendment increased the capacity of our revolving credit facility to $400 million and extended the maturity of our revolving credit facility and $346 million of our term loan B facility from 2014 to 2017. Recognizing the improvement in our earnings and debt reduction that has taken place thus far, Moody's upgraded our corporate credit rating to Ba3 on March 14, followed by Standard & Poor's who upgraded our credit rating to BB on April 26. We reiterate our commitment to reducing our debt and furthering improving our credit profile. Our target is to have sustainable net debt leverage of 2 to 2.5x EBITDA. At the end of the first quarter, our net debt leverage was 2.6x. We spent $81 million on capital expenditures in the first quarter. In 2012, we expect to spend between $425 million and $450 million on capital expenditures, which approximates our annual depreciation and amortization. Peter?

Thank you, Kimo. First quarter 2012 was a record quarter for Huntsman Corporation. Our earnings this past quarter demonstrated our unique balance of products and geographic locations. Our main objective this year is to increase the margin of our differentiated chemistry. While this company will continue to benefit from our North American gas advantage, we still have real opportunity to improve profits from our MDI polyurethanes, amines, epoxies, maleic and textile chemicals. I continue to expect these businesses to have a stronger year than we did in 2011. Our performance this past quarter demonstrates that focus and commitment. We are not just determined to have an improvement in the quantity of our earnings this year, but our quality as well. Our earnings will obviously be impacted by global economic growth, something that is out of our control. However, we will be focused on those items that we can control. We will continue to expand our ability to increase North American production to take advantage of low-cost raw materials. We will be expanding our chemistry and geographic reach to take advantage of growth in more markets and applications. We will continue to control our costs and be even more competitive in this low-cost global market. As I mentioned in our recent Investor Day, we have nearly $200 million of cost improvement plans that are being completed or soon to start. We will continue to strengthen our balance sheet and pay down debt. 2011 was a record year for Huntsman. I feel better about our prospects for 2012 than I did 3 months ago when I last spoke to this group. Most of the before-mentioned initiatives have been started, but the impact will not be seen until the coming quarters. While I'm very encouraged by this past quarter, I'm even more enthusiastic about our future. With that, I'll turn the time back over to Kurt Ogden.

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

[Operator Instructions] And your first question comes from the line of Frank Mitsch from Wells Fargo.

Hey, Peter, I just wanted to flush out on the TiO2 side. You noticed that volumes are off again in the first quarter as they were in the fourth quarter and that's not dissimilar from what we've been seeing from others. You did mention, I guess, pricing was up 3% sequentially. What's your take on the price versus the ore cost increase as we progress through 2Q and beyond? And when do you think we might be getting closer to flat? I mean, I know it's going to be difficult to show volume increase this year because you were running pretty flat out the second and third part of last year. But when do we get closer to kind of flattish volumes in the TiO2 front?

Well, Frank, as we prepare for these calls, this is something that just behind the scenes. This is something that we really grapple with, trying to get exactly where we are on kind of this matrix of raw material. When does it actually hit our bottom line, selling prices, the ability to increase price and the demand that we see going forward? In the circuitous way, I'm trying to tell you, I really don't know. But as we look at the demand that is out there, as we look at a gradual second quarter and as we look at when the ore prices come in, it is all going to be a function of inventories and how much that we have in inventory and when that works its way through the system.

I appreciate the candor. If we could turn over to the EO side of the business, when you're talking about Performance Products, you're mentioning that you want to do a, what, 250 million-pound expansion there. Can you talk about your ethylene supply? I mean, obviously, you have a cracker but I'm suspecting that most of that is already sold out. Could you talk a little bit about the timing of the EO facility and the source of ethylene that you're envisioning there?

We are not to the point where we're ready to announce the timing of the EO coming on to the market. The engineering studies that we have in place right now tell us that there -- we will have some element of an expansion taking place on the ethylene side. I do not believe that it will be in situ with the EO demand. So we will be buying a little bit more on the merchant market than we are buying today. But we see this as an opportunity to both improve our capacity for ethylene and improve our capacity for ethylene oxide. We have the equipment and the ability in place to expand that ethylene oxide capacity by 250 million pounds. Exactly when that will be, starting in the corresponding amount of manufactured versus purchased ethylene, we've not made that public yet.

Okay, great. And then lastly, the turnaround in the third quarter, those -- that $15 million of cost, that's all in the third quarter, correct?

Yes, that should be all within the third quarter.

Your next question comes from the line of Laurence Alexander from Jefferies. Robert Walker - Jefferies & Company, Inc., Research Division: This is Rob Walker on for Lawrence. I guess, first, just to follow up on your MTBE comments. Just to clarify, it was a $55 million to $60 million benefit to the quarter, and I guess so x that Polyurethanes is running around $120 million or so in terms of EBITDA. And I guess, what are your expectations for kind of that segment profitability going forward in Q2 and Q3 if the MTBE rolls off?

You said what was our expectation on the MDI side or on the PO/MTBE? Robert Walker - Jefferies & Company, Inc., Research Division: The whole segment.

Well, I think that as we look at the first quarter moving into the second quarter, as we look at the dynamics of the first quarter, you had about 60,000 barrels a day of MTBE capacity that was shut down during various parts of the first quarter. That represents about 1/3 of the oxygenate's capacity in North America. So it had some major outages during the first quarter, and all of that is -- most of all that has come up -- back into the market and came into the market at the latter part of the first quarter or the beginning of the second quarter. So where MTBE profitability is going to be in the second quarter, I think that's probably going to continue to be, I would say, better than average, but certainly not at the levels that we saw in the first quarter. And I think that in my script, I quantified that amount and what we would see going forward. We will see -- on the MDI side, we believe that, throughout the year, that we're going to see a gradual tightening of that market taking place on the Polyurethanes market. We believe that globally, that market is running at about a 90% capacity utilization rate, give or take 2 or 3 percentage points up or down from that 90% capacity utilization. So I think that we're at an interesting inflection point when it comes to pricing, when it comes to margin expansion. And I believe that we'll see a gradual improvement in that MDI profitability throughout the year. Robert Walker - Jefferies & Company, Inc., Research Division: Okay. And then just to follow up on Frank's questions on Pigments. Any change to your prior outlook for profits and Pigments to be down slightly in 2012, given kind of some of the favorable pricing that's gone through, especially in the U.S.? And roughly, if you have quantified it in the past, what is your volume forecast and better-than-that profit forecast?

I wouldn't be in a position right now to give a volume and a pricing forecast. I would say that, as we look at TiO2, I believe that the industry, the TiO2 industry, will be taking price increases on raw materials throughout 2012. I don't think that it's any secret that the paint companies are minimizing their offtake of TiO2. I don't think that it's probably happening as aggressively as some would have you believe. But I stand by my earlier comments that I believe that TiO2 will not necessarily peak, but will plateau, and will come off gradually in the latter part of the year in the -- probably during the third and fourth quarters depending on demand. And I think that the combination of the price -- of the demand that you see throughout the year and the prices that are coming through on your titanium-bearing ores, I think there's going to be some margin pressure going forward.

I'll just add that the market probably saw, on a spot basis, ore prices increase somewhere between $500 and $900 a ton depending on chloride sulfate and the mix of ores that each of those technologies use. If someone has 60 days of inventory and some raw materials, you probably don't see any of those ore increases at Huntsman or at any of our competitors until sometime in the second quarter. We've mentioned that we do have a -- we think a better mix of ore purchases than the market given our position in ilmenite, that is a lower-cost ore. And also that we have some contracts that benefit us. So that we will see in the second quarter much less than that $500 to $900 a ton market increase in ore.

And I hope that we are not confusing people too badly here, but one of the unique things about TiO2 that we don't necessarily see in our other businesses is that people will contract multiple quarters out on raw materials. I don't believe that there's a lot of those sort of contracts that are being written today but various players, including Huntsman, will have legacy contracts for raw materials that will be unwinding throughout 2012, early 2013. And I don't think that it's fair to say -- I mean, if you were looking at a lot of other products, if benzene prices were to go up x percentage, I think most of the MDI players would have that hit at about the same time depending on the inventory they have on raw material. If you were to look at the raw material ores for TiO2, I think that's going to be more of a gradual process, and it will vary competitor by competitor. And I don't think there's any visibility on who is where in that.

Your next question comes from the line of Kevin McCarthy from Bank of America Merrill Lynch.

Kimo, with regard to TiO2, would it be safe to say that the titanium ore costs that you would have expensed in the first quarter would relate entirely to ore purchase in 2011?

Yes, I think that's fair.

Okay. And then looking ahead to 2Q, what is the anticipated sequential increase in ore cost? Presumably you'd be working through the inventory that would have been procured in 2011 and kind of moving into ore that you would have bought at a new contract level in 2012. So how should we think about that sequential flow-through into the June quarter?

You could see between $300 and $350 a ton in TiO2 terms, first quarter to second quarter.

Okay, great. And then if I may switch gears to MDI. Would you comment briefly on the relative strength that you saw in Southeast Asia versus the weakness in China. What is driving that disparity? And what is your outlook, let's say, for the next couple of quarters there?

I think again, I would want to remind you that in China, we're not necessarily seeing a negative growth. We're certainly not in a recession in China. We're just seeing the rate of growth flow precipitously. I think that you saw a great deal of work that was being done on infrastructural spending and so forth. And since the Chinese New Year, you certainly have started to see some repurchases coming back in China. I think, that as we look at the ASEAN market, and by that, I'm talking about everything kind of east of Myanmar coming all the way down and everything except China, we are seeing these markets for us, at least, grow better than what China is growing on a percentage basis and largely offsetting that.

Let me give you just a little color in Asia. We saw 28% growth in our insulation business year-over-year in the first quarter in Asia. So insulation and commercial construction continues to be very strong in that region, as Peter said, in China and outside of China. There are a couple of soft spots in Asia. Appliances, in particular, wasn't all that strong for us. We saw some negative growth there. But generally, pretty strong insulation business across the board.

It would appear that those applications that are more consumer-driven, local consumer-driven; what are the Chinese buying, what are the Indonesians buying and so forth rather than what's being exported appear to be stronger than the export demand for the end-use application.

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

Peter, you talked a little bit about Polyurethanes being compromised a little bit on the raw materials side. Can you give us a sense of how much more headwind is in front of you? Do you think we're going to have stability going forward?

Well, I think that, as we look at our single largest price component, it would be benzene. And as we look at our averaged benzene cost for the first quarter, it's right around $4, $4.05, right around there. Current price for benzene on the market, as you look at it as of yesterday or today, you're looking at about $4.15 or so. So a very small benzene, by and large, for the first quarter moving into the second quarters, it's been fairly flat. I mean, it's maybe been up 1% or so. We think that there will be pricing momentum for MDI that will more than offset that.

So year-over-year, that same comparison that Peter was talking about, Bob, we were, what, $3.25 roughly a year ago. Excuse me, in the fourth quarter, sequential comparison up to $4, as Peter said, in the first quarter. Roughly, $1 a gallon of benzene equals about $0.08 a pound MDI.

Got it. And then can you talk a little bit about regional variation in TiO2 markets. I get the sense that the Asian market was falling apart a little bit last year and created a bigger pricing delta to other regions and maybe it offered some customers that have flexibility to consider using Chinese product. Where are the price differentials today? And have you seen any of that shift?

We've seen recently more pricing activity and success in Asia. As you know, Asia tends to be a spot market in terms of -- not a contractual price. And so it's a little bit more volatile. But I think we're finding that the regions now are much closer in terms of actual absolute prices. Asia is still just a little bit lower than our other regions, but much closer given the price activity in the first quarter.

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

Peter, maybe you can talk about what's happening in the epoxy business? You had some volume growth there, but propylene had dropped in 4Q but it's now going back up. Can you just talk about those 2 forces and how that impact your profitability?

We continue to see a fairly strong demand, but the impact of propylene in that business, I believe that we'll be able to offset that in price increases in our epoxy businesses and derivative businesses. So yes, propylene is going up. Epichlorohydrin is, I believe, taking some of that and we're seeing a small increase in epichlorohydrin. But as I look towards the second quarter, for us, and for some reason, as we look over the last couple of years, first quarter has always been the strongest quarter for our epoxy business. And as we look into the second quarter, I think that our volumes seem to be holding up, and our pricing seems to be stable or increasing enough to offset the -- any increases that we're seeing to date at this point in epichlorohydrin.

Okay. And just secondly on TiO2 ore, are there any specific contracts that expire for you in 2013? And is it true that ore producers are reluctant to sign long-term contracts again? Because they had these unprofitable contracts for a long time and now just like many other commodities, they want to sign up long-term contracts.

We're seeing on the ore side that contracts are really only out 6 months. We're not seeing multiyear contracts.

Your next question comes from the line of Edlain Rodriguez from Lazard Capital Markets.

Peter, a quick question. During the Investor Day back in early March, you talked about seeing 1Q EBITDA at about last year's level. Like what changed so dramatically in the last 4 -- 3, 4 weeks of the quarter for the outperformance that we saw? And has that momentum continued into Q2?

I think that as we look into, from the time of our Investor Day, to what we saw in our ultimate results, obviously we saw a strengthening that took place in the oxygenates and the MTBE. But I think and I hope that as we focus here, my comments are around not just the quantity of our earnings but the quality of earnings. And I think that what -- at least that gave me kind of pause for more optimism as we look at something like our Advanced Materials had their best quarter in the last 2 or 3 quarters here. Our Textile Effects business had its best quarter in the last 2 quarters or so, 2 or 3 quarters. The traction we're starting to get in MDI. Again, I kind of see this rising tide taking place as we are able to continue to manage our cost, focus on our marginal improvement in pricing across our differentiated businesses. As I said in my comments, as I look to the first quarter, I think it was kind of across the board. We just saw an improvement in all the divisions from where they were in the fourth quarter moving into the second. As I look into the second quarter, I obviously see the margin dropping on the MTBE side of the business. But I feel that, that gradual improvement that is going to be taking place on the differentiated side of the business ever so slightly will continue to work its way through the second quarter. Again, focusing on the quality of the earnings, not just the quantity.

Okay, that makes sense. And one last question on Europe. I mean, Huntsman continues to perform well there. How does that match with what we hear out there in terms of the weakness there? I mean, it seems like you continue to outperform. Like, what's driving that?

Well, I think that a lot of the headlines that you read about Europe were coming from Southern Europe. The issues around Spain and Italy and Greece and Portugal, and we don't see a great deal about what is taking place in Northern Europe. So if I look at something like the -- well, if I look at something like the insulation market, in Southern Europe, this is just in MDI, to give you an example in Polyurethanes. In Southern Europe, I'm seeing a 21% drop in demand in insulation. In Northern Europe, I'm seeing a 21% growth in Northern Europe, and there is a split in our business of about 3:1 Northern Europe versus Southern Europe. So if I look at something like composite wood products in Northern Europe up 24%, Southern Europe down 17%. Automotives, Northern Europe up 10%, Southern Europe down 20%. So you really see this bifurcation. I can go through it application by application and it's not too dissimilar. Europe's bifurcation that I'm seeing at least taking place in Southern versus the Northern European economy. I believe a lot of the negative headlines are coming out of Southern Europe. And that's -- I remain -- again, I remain very cautious. Those numbers I just gave you were Q1-on-Q1 of a year-ago. And I remain cautious about all of Europe because they're obviously things that economically, that can spread throughout the entire continent. But as I look at Europe today, headlines negatively demand, business negatively coming out of the southern part of the continent, which represents about 25% to 30% of our business. The northern parts of Europe continue to do quite well for us. And as I look into the second quarter, I don't see, in the order patterns, I don't see a great deal of change taking place.

Just to comment on the directional guidance we gave at the Investor Day. One of the things that really surprised us at the end of the quarter, again, was this MTBE price. It was, I think, Lyondell that was out in February and March. And that's when we saw C factors or sort of the quasi raw material margin in MTBE skyrocket at the end of the quarter sort of in February and March, and that really was the windfall we saw.

And as you know, MTBE pricing, these C factors that Kimo's talking about, they move on a daily basis. So this is something that can be up 10%, 20% in a matter of a couple of days and back down that much. So kind of a tough thing to try to forecast.

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

Just a couple of things back to TiO2, just to make sure I got this right. It sounds like all of your contracts, longer-term contracts, will have rolled over by 2013. Am I right in that?

Most of them. We have, I think, a contract that goes through the end of 2013, but we've said 40% of our raw materials are under contract, at least, through the end of 2013.

Okay. And you're talking about TiO2 contracts, right?

Yes, ore contracts.

Okay. On the Pigments side, I think Peter mentioned that demand would be up in the second quarter. Was he referring to the year-ago quarter or was he referring to the first quarter?

Well, I'll tell you about it. The demand -- we're seeing demand -- a gradual improvement in the second quarter, and that's for TiO2 finished pigment.

Is that on a year-over-year basis, Peter?

Well, I think we're talking mostly about Asia in sequential improvement. And that's where everyone's sort of focused because everything else has been fairly flat.

Okay. So year-over-year you may still have negative comps in terms of volume?

Yes, that could be true.

Okay. Turning to the urethanes market. If you look at -- the force majeure down in the first quarter. If you look at the raw material pressure, maybe there's some pre-price increase buying. And then on top of all that, in North America, we had this warm weather. So I'm just thinking, about demand going forward, do you think that full year you'll be able to maintain a 7% year-over-year volume growth?

I think that that's going to be really a byproduct of global GDP and to what happens in Europe. Europe's a very large MDI market for us. And also what takes place in North America. We saw some kind of a weaker-than-expected GDP here that was announced in the last couple of days. Again, I think, when I look at our widespread of chemistry and our widespread of application in MDI, I continue to be bullish that longer term we're going to continue to see growth that is around the 7% to 8% sort of growth, year-on-year growth, that we've seen in MDI for the last 15 or 20 years. What we see specifically over the next 2 to 3 quarters, I just -- there's just so much uncertainty out there. I wouldn't care to speculate on that.

Just to catch a mistake. I'm sure you caught it, but I meant to say 40% of our ore contracts are contracted through the end of 2012, not 2013.

Okay. I was surprised by that. Okay. So just to sum up, in urethanes, you're not concerned about maybe there were some pre-price increase buying in the first quarter and the warm weather in North America kind of boosted things up. As far as April's concerned, things are still going gangbusters?

Yes, I -- gangbusters is a pretty strong word. But if we look into April compared to January, February, and March, I don't believe that the profitability that we're seeing in MDI today is precipitated by a closure or by prebuying. I think that it's pretty constant demand that we're seeing across the board.

Your next question comes from the line of Jeff Zekauskas from JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: You made really lovely progress in your operating expenses in that they went from $291 million last year to $265 million. Can you talk about what's behind that? And how much you might be able to lower your operating expenses this year?

Well, as you know, we have several initiatives that are ongoing, and some of it, European focused. We are -- we've taken some cost out of Switzerland in Advanced Materials and we're in the middle of this Textile Effects restructuring. We think in total, we will have nearly $200 million of benefit of reducing our operating costs globally in the next 12 to 18 months. There were also some costs in the prior periods related to legal settlement costs that will not be going forward and we didn't see in the first quarter. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. As far as TiO2 goes, if it turned out you didn't have this 40% of advantaged raw material contracts and say that they had expired at the beginning of 2012, how much would you have made in the first quarter in TiO2?

Well, we said that the contracts are worth, on a mark-to-market basis, could be around $100 million or so. And I mentioned a number that in the second quarter, we think ore material -- our direct cost will go up on TiO2 terms right around $300 to $350 a ton. And we produce right around 500,000 tons of TiO2, so I think you can do that math and see that it's probably, what is that, $35 million. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. In Performance Products, your EBITDA fell about $25 million and you talked about benefits from ethane-based products and you talked about amines pressures. Could you disentangle the $25 million EBITDA swing into what benefit you got in one place, and what hit you took in another?

I think that the single largest benefit that we had from first quarter of a year ago was some amines facilities in North America that were shut down for maintenance, and I believe some of that was unplanned. So we saw an unusually tight first quarter of a year ago. And we saw high prices, strong margins because of shortages that were in the industry. If I remember right, there may have even been some force majeures that took place during that time period. And as you saw those facilities start up, I think you'd see sequentially from the first quarter last year into the second and third quarter, you saw the profitability for that division drop. I -- our cost advantage that we see relative to our European and Asian peers today and North American gas, I believe, is as strong today as it was a year ago. That certainly has not weakened. It's the end-product pricing on amines that we've seen for the most part.

Just to try to quantify that a little bit for you, Jeff. Year-over-year EBITDA in amines is down around $20 million. We benefited, I think, from lower raw material environment in North America by about $10 million or about half that. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. And then lastly, in rough terms, in urethanes, is MTBE/PO roughly, I don't know, 40% of adjusted EBITDA in the quarter which would be around $70 million?

We haven't ever broke that out for the market. What we have said, Jeff, is it's averaged about $100 million. Obviously, the first quarter run rate is more than $100 million. And -- but fundamentally, C factors, we think are a little higher than that average, but not a lot going forward. And that's simply because of the lower raw material environment in North America. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: I'm sorry, I didn't understand what you said. So did you say that the EBITDA piece from MTBE/PO was $100 million in the first quarter?

No, no, I'm sorry. On average -- over the last several years, it's averaged on an annual basis of about $100 million. And what we're pointing out, obviously, if you divide that up by 4 quarters, $25 million, we said that it was $50 million higher than normalized, right? So obviously, it was much higher run rate than that $100 million.

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

Just one quick question from me on MDI and end markets that you saw. Was there -- were there any abnormalities because of the outage benefit that you saw in terms of end-market demand? And I just wanted to give you an opportunity to talk a little bit more about the adhesives piece as opposed to the insulation.

Sure. Again, the outage that we experienced was in MTBE and not MDI. And so the MDI markets were not impacted by lack of supply. When we think about sort of our adhesives businesses, it grew globally at 2%, really driven by our European business that tends to be a more system-based region for us and we have a bigger adhesive business there. For some reason, our U.S. adhesive business was down a bit. But overall, Europe was, in fact, our highest growing sector overall at 7% and adhesives was a very strong part of that.

Your next question comes from the line of Roger Spitz from Bank of America Merrill Lynch.

Peter, regarding your comments of the outlook in amines, I think, on a margin pressure. Is this due to continuing ethyleneamine issues where we thought, I think, most of the -- or all of the capacity that came on is sort of already on or perhaps you're referring to, say, some of the ethanolamines where there's some recent start-up of Kayan's plants in Saudi Arabia and maybe a Chinese plant or 2?

I think that it is mostly the ethyleneamines, but the ethanolamines capacity will have some impact but much lesser compared to ethyleneamines. I think with the ethyleneamines, essentially that everything that is out there to come into the industry that's being built is in the industry. Off the top of my head, I don't know of any added capacity that is yet to come on, on ethyleneamines. So everything that can come into the industry has been absorbed by the industry, and I think that we saw the margin impact of that this past year. And now the industry's absorbing it and moving forward with it. I'm bullish, as I look throughout the rest of the year, that we ought to have, again, gradual margin recovery and pricing improvement taking place.

The only other amines that we participate in that is significant to comment on would be polyetheramines and that is not a supply issue. We have significant market share there. It was really demand that we saw fall off in the fourth quarter that we really saw come back in the first quarter much stronger.

Your last question comes from the line of Gregg Goodnight from UBS.

On Table 3, your average selling price for Polyurethanes is at 10%. If you parse that out between MDI and MTBE, what would be the contribution for MDI?

We saw MDI prices pretty flat year-over-year.

Okay. Second question. One of your competitors had an outage in March, and as I understand, declared force majeure. Would you comment on the tightness of the North American MDI market currently?

I don't see a great deal of tightness in MDI in the North American market. It feels like it's being said well enough. I don't see any panic, I don't see any massive increase in pricing or spikes taking place or anything in order patterns.

So perhaps typify as balanced?

Yes, I would say that it typifies balance and I hope whoever's having mechanical problems keeps having them.

Okay. Well, the last question I had is shutdown plans for MDI. Could you please remind us if you have any major planned outages and when they might be this year?

I -- do we have anything on the planned outages for this year for MDI?

Yes. One second, Gregg, we'll get that. And while we're pulling it up, you asked us a little bit about MDI pricing. You're probably aware that there are price initiatives that we have announced effective April 1 and May 1. The April 1 is roughly EUR 200 a ton in MDI in Europe. And in May 1, we have roughly $0.10 a pound in MDI, and we're optimistic on those price increases.

Okay. Could you comment on the success of your margin increase of $0.10?

We had a $0.10 on polyoles and systems for the Americas for March 1, but not MDI per se. And as we mentioned, we saw a sequential price increase of a little bit, but not much.

As we look at our MDI turnaround, our maintenance schedule, in North America, we've got 1 of 3 lines that will be down for 28 days, and that's taking place actually as we speak right now. That's spread over the first and the second quarter of 2012. And then we'll see a line come down -- line #2 come down in the Netherlands in the second quarter of this year and that will only be for 9 days. So I'm not sure that that's going to have a material impact on the business. So as I look at the T&I schedule, I think the big schedule that we're looking for is around the EO that I mentioned earlier, but nothing that I would say is material this year and well, I'm looking over all the PU business, don't see a lot of anything that would be material.

But we take those MDI units down just about every year anyway so...

Yes, they usually come down like 1 week or 2. And it's usually one line at a time and most of our facilities have multiple lines. So I think we try to factor that into our stated capacity.

And ladies and gentlemen, I would now like to turn the conference over back to Mr. Kurt Ogden for any closing remarks.

All right. Thank you, Tahisha. Listen, we just want to thank everybody for your interest in the company. And if you have additional questions, feel free to call us and we'll talk to you then. Thanks again.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.