Kurt D. Ogden - Vice President, Investor Relations Peter R. Huntsman - President, Chief Executive Officer & Director J. Kimo Esplin - Chief Financial Officer & Executive Vice President.

Robert Andrew Koort - Goldman Sachs & Co. Mike Ritzenthaler - Piper Jaffray & Co (Broker) James Sheehan - SunTrust Robinson Humphrey, Inc. Eric B. Petrie - Citigroup Global Markets, Inc. (Broker) John E. Roberts - UBS Securities LLC Ivan M. Marcuse - KeyBanc Capital Markets, Inc. Daniel Rizzo - Jefferies LLC Frank J.

Mitsch - Wells Fargo Securities LLC Edlain Rodriguez - UBS Securities LLC Hassan I. Ahmed - Alembic Global Advisors LLC Herbert A. Hardt - Monness, Crespi, Hardt & Co., Inc. Christopher Silvio Perrella - Bloomberg LP (Research) Robert Amenta - JPMorgan Asset Management.

Good day, ladies and gentlemen, and welcome to the Second Quarter 2015 Huntsman Corporation Earnings Conference Call. My name is Denise, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

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

Thank you, Denise, and good morning, everyone. Joining us on the call today are Jon Huntsman, our Founder and Executive Chairman; 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 second quarter 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 non-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 will also refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted net income or loss. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted on our website at huntsman.com.

We have chosen to include certain comparisons of our results to prior periods on a pro forma basis, adjusted to include the acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood Holdings and the related sale of our TR52 product line, used in printing inks, to Henan Billions Chemicals.

We believe this helps to provide a better understanding of our Pigments and Additives division. In our earnings release this morning, we reported second quarter 2015 revenue of $2.740 billion, adjusted EBITDA of $385 million, and adjusted earnings per share of $0.63 per diluted share.

I will now turn the call over to Peter Huntsman, our President and CEO..

Thank you, Kurt. Good morning, everyone, and thank you for joining us. Let's turn to slide number three. Adjusted EBITDA for our Polyurethanes division in the second quarter of 2015 was $159 million. During the second quarter this year, we completed planned maintenance and a restart of our PO/MTBE facility in Port Neches, Texas.

We estimate the second quarter EBITDA impact was approximately $30 million within this division and $35 million through the company as the whole. Our PO/MTBE EBITDA declined $27 million, compared to the prior year, primarily as a result of our extended planned maintenance outage.

Margins improved compared to the first quarter as a result of strong octane demand, low butane costs and favorable industry business conditions, returning margins approximately to prior year levels. EBITDA from our MDI urethanes decreased $11 million, compared to the prior year.

However, for the first half of 2015, we saw another year-over-year improvement in earnings. This is the sixth year in a row, we've seen year-over-year improvements in our MDI business.

We expanded margins in our differentiated MDI portfolio, compared to the prior year, but this is more than offset by foreign currency headwinds, higher fixed costs, and the downstream impact from our extended PO/MTBE maintenance outage. We estimate the foreign currency exchange headwind was approximately $27 million. As a result of the stronger U.S.

dollar. Demand for MDI moderated in the second quarter. We are encouraged by the improving market conditions we saw in Europe, which is our largest market, as demand for insulation, composite wood products in the automotive market demonstrated attractive growth.

However, the Chinese economy slowed down and commercial construction activity in North America was less than we previously have seen. Turning to slide number 4, in our second quarter, our Performance Products division, recorded adjusted EBITDA $141 million with an EBITDA margin of 21%.

This is an improvement of $26 million, compared to the prior year's $115 million, notwithstanding a negative $11 million headwind from foreign currency. This business continues to receive a lack of focus from the investment community.

Approximately two-thirds of its earnings are generated from amines and maleic anhydride, where we have leading market positions with higher than GDP growth rates where – that serve attractive niche markets.

The balance of the business is comprised of surfactants and ethylene intermediates that are largely constructed around cost plus contractual arrangements and benefits from the U.S. Gulf Coast ethane advantage.

The combination of these product groups results in a business that has a profile characterized by low earnings volatility, attractive EBITDA margins and a high return on net assets.

We continue to see strong demand for our amines and maleic anhydride, a favorable supply-demand environment for amines-enabled margin expansion as the cost of raw materials decreased. During the second quarter this year, ethylene upstream intermediate benefited from industry supply outages. We estimate the EBITDA benefit was approximately $10 million.

Let's turn to slide number 5. In the second quarter, adjusted EBITDA in our Advanced Materials division was $58 million with an EBITDA margin of 21%. This business has undergone a very successful transformation. We successfully completed a major restructuring in this business in 2014.

Now, more than one-third of the earnings of this business are generator for the aerospace market, where we supply epoxy resins and hardeners used in composites. Our products are qualified and in many cases are required in long multi-year production runs of new generation aircraft.

We sell directly to the airplane manufacturers, as well as third-party suppliers such as Hexcel and Cytec. Compared to the prior year, sales volumes decreased as we deselected certain low-margin businesses with a high cost to serve. We'll continue to see the lower year-on-year sales volumes impact of this decision throughout the remainder of 2015.

Margins improved during the quarter across most end markets as local currency average selling prices increased in the Americas and global raw material cost such as bisphenol A and epichlorohydrin decreased. Turn to slide number 6. Our Textile Effects division reported adjusted EBITDA of $23 million in the second quarter.

This business has improved dramatically over the past few years as a result of our restructuring efforts. We have aggressively focused on higher-margin products while reducing our structural fixed cost. Importantly, this is the first quarter where this business has met our 10% return on net asset hurdle rate.

The second quarter of this business is generally the strongest as mills and retailers prepare for the fall and winter seasons, when there is high demand for more fibers and darker shades that use more of our chemicals and dyes. We expect EBITDA to moderate closer to our first quarter results for the remainder of the year.

Let's turn to slide number 7, our Pigments and Additives division earned $35 million of adjusted EBITDA in the second quarter. Our non-TiO2 portion of this division earned $27 million, whereas our TiO2 business earned $8 million in the quarter.

Non-TiO2 EBITDA was essentially flat compared to the prior year whereas business conditions remain challenging for the TiO2 market. Average TiO2 selling prices decreased compared to the first quarter. The decrease was most pronounced in North America.

Our aggressive restructuring plans to capture $140 million in synergies and $35 million from the shutdown of the black-end of our Calais, France facility are progressing according to plan.

We expect to capture combined annual savings of $75 million in 2015, primarily in the second half and an annual savings run rate of $175 million by the second half of 2016. In addition, our new color pigments facility in Augusta, Georgia will be mechanically complete by the third quarter of this year.

We expect $30 million of annual EBITDA benefit from this facility when we rationalize capacity elsewhere and it's running at capacity. In total, we have $205 million of synergies and restructuring savings that will benefit this business by the middle of 2016.

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 go to slide 8. Our adjusted EBITDA increased to $385 million in the second quarter of 2015 from $363 million in the prior period. Average selling price has decreased at a modest – at a more modest pace than raw material costs which led to an overall improvement in margins of $102 million.

The benefit of adding Rockwood Performance Additives in TiO2 businesses contributed $43 million. The foreign currency negative EBITDA impact of approximately $49 million was primarily from the stronger U.S. dollar against major European currencies. Sales volumes decreased 10% compare to the prior year.

Adjusting for the impact of extended planned PO/MTBE maintenance, restructuring and de-selection of low-margin businesses, the decrease was only 2%. The extended planned maintenance at our PO/MTBE facility in Port Neches, Texas in the second quarter of this year reduced adjusted EBITDA by approximately $35 million.

Compared to the prior quarter, our adjusted EBITDA increased $100 million to $385 million from $285 million in the first quarter. The lion's share of this growth came from seasonal improvement in demand. This was partially offset by an estimated $21 million of foreign currency impact and higher fixed costs. Slide 9.

At the end of the quarter, we had $1.4 billion of liquidity. As it relates to our debt, we are launching an offer to extend our term loan B by two years to March 2019. Looking forward, we have approximately $198 million of 8.625% senior subordinated notes due 2021, which become callable in mid-September.

It is our current intention to exercise our right to redeem these notes for cash at approximately 104% of par, which will save us about $17 million of annual interest expense. During the quarter, we spent $147 million on capital expenditures.

We expect to spend approximately $525 million on base capital expenditures in 2015, net of partner contributions. In addition, in 2015 we expect to spend approximately $100 million combined on our new Chinese MDI facility, the completion of the Augusta, Georgia color pigments facility, and the replacement of the Rockwood IT systems.

We expect to see the benefits of our heavy capital expenditure investments beginning in 2016. More specifically our MDI expansion in Geismar, Louisiana will contribute approximately $30 million annually.

Our ethylene oxide facility in Port Neches, Texas, which – will generate approximately $35 million annually, and our new color pigment facility in Augusta, Georgia will contribute approximately $30 million annually.

Based on the preliminary allocation of purchase price accounting for the Rockwood performance additives and TiO2 businesses, we expect our annual depreciation and amortization rate to be approximately $400 million per year.

Our adjusted effective income tax rate for the second quarter 2015 was 32% and we expect our long-term adjusted effective tax rate to be approximately 30%. During the second quarter of 2015, the strong U.S. dollar reduced adjusted EBITDA by an estimated $49 million compared to the prior year.

Based on current foreign exchange rates, we expect the third quarter year-on-year FX headwind to moderate somewhat. We are diligently working to improve our free cash flow generation. As it relates to 2015, I'd like to remind you of a few items.

We believe we will be able to generate an improvement in our working capital investment by approximately $100 million. Through the first half of this year, when working capital seasonally builds, we used $123 million of cash. This is an improvement compared to last year when we used $315 million of cash in the first half.

Pension funding in excess of expense will be approximately $100 million. And cash restructuring payments will be approximately $200 million. In 2015, we have approximately $300 million of higher than normalized capital expenditures and cash restructuring activities. We expect these to normalize in 2016 and dramatically increase our free cash flow.

Peter?.

Thank you, Kimo. In spite of Q2 FX headwinds of $49 million compared to a year ago, and a charge of approximately $35 million from our extended plant maintenance, as well as a slowing Chinese led Asian economy, we had one of the strongest quarters in our history. Our performance products in Advanced Materials division each had EBITDA margins of 21%.

The rest of our non-TiO2 businesses including our color Pigments and Additives divisions all earned double-digit EBITDA margins. We reaffirm our guidance of stronger 2016 cash generation as we will be spending approximately $300 million less cash on CapEx and restructuring expenses.

We are on track to generate $205 million of synergies in restructuring savings in our Pigments and Additives business. While pricing in some of these markets continues to be weak in TiO2, we think that our cost reduction will offset any potential margin erosion due to price deterioration.

As I look at our order patterns, cost improvement programs, expanded capacities, and growth in our aerospace, tolling, downstream derivatives, eco-friendly products and growth in the European and North American markets, I see continued opportunity to strengthen our company.

Importantly, we remain committed to a separation of our Pigments and Additives business by the end of 2016. On past quarterly calls, I have avoided commenting on our stock price as this is something that obviously changes on a daily basis.

As I look at the loss of equity value that we've experienced in the past weeks, I simply see no justification for the market valuations that we're seeing. In short, as I look at the remainder of the year, I see a better second half than first half. With that, I'll turn the call over to Kurt to start Q&A..

Thanks, Peter.

Denise, will you please explain the procedure for questions – for Q&A, and then open the line for questions?.

Sure. Our first question comes from Rob Koort with Goldman Sachs. Please proceed..

Thanks very much. Appreciate the bridge you provided on slide 8. I was wondering, Kimo, if you could give us a little more granularity on that price-cost benefit, how it's distributed across the segments. And you showed sequentially that it helped a little bit in the first to second quarter.

Do you think you're at the end of those raw material benefits as you go into the third and fourth quarters sequentially?.

We should enjoy the same level of margin expansion in the third quarter or similar that we did in the second quarter. In other words, I think we're holding price where we're going to hold price. And I think if there was a delay to our customers, it's gone and we passed through.

So, I think we're at a pretty stable level in terms of margin expansion relative to last year..

Okay. And then, Peter, you made the comments around your stock price and valuation. I'm wondering if you shouldn't just call yourself a commodity chemical company because it appears they all have higher multiples. So, some reason the market doesn't want to give you credit for anything you're doing.

Do you think it really comes down to the biggest concern I hear from people is that the debt balance doesn't seem to decline and the cash flow generation always seems just out of reach? Can you talk a little bit about how you see that cash flow generation or net debt level trending over the next several quarters?.

Well, I think, Bob, there's no doubt that we have undertaken some very aggressive cost restructuring programs and expansions of some of – particularly some of our downstream businesses in international operations.

And I think that you've heard multiple times in the past quarters and again on this call, this next year, as we look at the cost benefit that we will see, assuming that EBITDA stays flat, which as I look into this next year, we outlined some of the new projects that will becoming on, the expansions that will be on, we won't have the T&I that we had during the first quarter and second quarter of this year.

I certainly would expect our EBITDA to improve in 2016 over 2015. But even if thing stays the same, we'll see approximately $300 million less of restructuring charges and CapEx. And I think that when we see that – those less charges coming through in 2016. I think that that's a more normalized level of spending for this company.

And this company ought to be generating several hundred million dollars a year of free cash flow.

So as I – again, as I look at over the last couple of years, really the result when we went through the recession in 2009, 2010, and we really thought a need for restructuring a lot of the cost and so forth, the vast majority of our cost in restructuring – I believe it's publicly been announced, it's behind us.

And as I look at – to 2016, we're very much committed as a company that that's going to be a year of very strong cash flow for us. And I think that, again, the proof's going to be in the actual results of that happening..

Great. Thank you..

Thank you..

Our next question comes from Mike Ritzenthaler with Piper Jaffray. Please proceed..

Morning. If we could take a step back and maybe take a fresh look at the path of $2 billion in EBITDA, I'd be curious about your thoughts around a couple of things, Peter. I guess first, the impact of currency rates on the goal. It sounds like that might be kind of a $200 million-ish headwind.

And I guess secondly on that, whether you see Performance Products and Advanced Materials may be over earning a bit versus that goal?.

Yeah, I mean, when we set that goal, we did that. Now, it's been just over a year ago. And I think that, as we look at the major changes of this last year, certainly, what we did not see when we put that goal, and I'm not sure anybody saw it, was the impact of currency fluctuation.

And I also don't think that anybody would have foreseen a year ago when we saw crude oil prices were at around 100-plus dollars a barrel, where we see crude oil today. So, on one hand, we certainly have been hit by the FX impact of probably around $100 million a year.

I would think on the other side that we ought to have seen some sort of (23:05-23:06) at least on a short-term basis of lower raw materials. But look, at the end of the day, the FX impact is going to be longer term for us, and we just got to suck it up and be more aggressive.

And as I look at what we originally committed to the market around our Textile Effect, our Advanced Materials, and our Performance Products, we believe – we've increased the earnings of those businesses, the potential earnings of those businesses by approximately $150 million.

We decreased our target and our goal for the TiO2 and for the Rockwood acquisition. I still – again in my personal opinion, you're certainly at the bottom – what I would consider to be the bottom in pricing on TiO2 and so forth.

If I look at upside on the Pigments and Additives side of the business, I certainly see upside in the coming years in that end of the business. And as we look at the goal around our MDI polyurethanes business, again, I think that we've continued to hold fast at what we see in that business.

So, again the $2 billion number that's out there, the – that some of the parts I believe is something that we still are targeting on, that we believe the composite of those parts is going to continue to change. I suspect that over the course of the next year or two, those various components that make up that $2 billion will continue to fluctuate.

But we need to be focused on the long-term objective here and the strength of those individual divisions..

Maybe I can just add a real quick, clearly, that we're not happy with nearly $50 million of FX translational headwinds in the second quarter. But of course, Europe has a lower cost currency. And in the quarter, we saw volumes in Europe grow nearly – well, 8%.

So, we're seeing growth in Europe from that lower cost base and while you had headwind in one place, you may see some growth in another place that we didn't anticipate a year ago..

Okay. Interesting. Thanks for the color on that. And I guess one thing that I've been curious about, too, is as MDI prices have softened how have the differentiated or systems' pricing products held up versus your expectations and versus components? I guess one would expect that the system should be somewhat decoupled from broader industry trends.

But I'd be curious about your thoughts on whether those systems have had pricing that's held up versus your expectations..

Yeah.

Yeah, I would say, as we look at the overall MDI supply chain, if you will, I would think just as kind of as a rule of thumb, the component – polymeric component side of the business, the more commoditized side of the business, probably has just, at least – from my view at least, has weakened perhaps a bit more than we would have expected; whereas the downstream variance, the polyols business, the systems businesses, that's actually held up a bit better.

And so, at the same time that you're hearing about component prices and even demand in certain areas fall off in Asia – in Europe, where we have twice the size business than we do in Asia, as Kimo mentioned, yeah, we're seeing quite strong growth in that area. And we're seeing margins that are being maintained in the downstream business.

So, certainly, the strategy that we started a few years back of looking -- of taking as much of the component portion of the business and moving out into the variants, moving out downstream, certainly paying off today..

Okay. Thanks very much..

Our next question comes from James Sheehan with SunTrust. Please proceed..

Thanks for taking my question.

Peter, could you just give us your outlook for MDI operating rates in the second half of the year and where are those currently taking those by geographic region?.

Well, again, I think that that's always a tough one. I mean, I assume that you're asking how it is from our company's point of view, not the industry. The industry is always a tough one when you see certain facilities that are coming online that are 400,000 tons, 500,000 tons, 600,000 tons.

How – what rate and what capacity utilization, so forth, our competitors are able to achieve? At this present time, I'm really not certain of that; nor do I want to speculate on that. I do kind of get a feel, though, that certainly the markets are tighter in Europe and North America than they are in Asia.

Asia has seen the impact in the first and second quarter of a lot of capacity coming on stream. I would say that today, as we look at it, that the Asian markets are probably operating in somewhere in the mid – perhaps even little bit lower than that, 80%, the mid-80% capacity utilization.

In Europe, you're probably seeing something just shy of 90%, the high 80%. And in the U.S., you're probably seeing something in the low 90s.

Again, as you're getting back to the previous comments that I made, as you look at the more commoditized end of that, I think that you're probably seeing a wider variation from the polymeric commoditized side of the MDI chain. That's the part – that's a grade that I can export around the world. I can move it around the world and so forth.

In the more downstream derivatized side, which has a limited shelf life, it's expensive to move around the world. And so, when you look at these capacity utilizations, it's important to note that there's also a large section of the MDI business that really is regional. And it's kind of tough to be moving those products around the world..

Great. And also on TiO2, you got some synergies occurring.

Could you just give us some color on the cadence of your capturing of those synergies in the second half?.

Sure. So, we said $75 million for the year. We captured roughly $20 million in the first half. We'll get the $55 million in the second half..

Thank you very much..

Thank you..

Our next question comes from P.J. Juvekar with Citi. Please proceed..

Morning. This is Eric Petrie on for P.J..

Hey, Eric..

Could you give us an update on your TiO2 utilization and then your inventory levels? And then secondly, are you seeing more competitively priced Chinese volumes in Europe?.

As I look around right – at the industry right now, a quarter ago, we reported inventory rates were up at around 63, 64 days in the first quarter. And right now, we're seeing inventory rates probably around the mid-40 days, 45, 46, 47 days of inventory, which is a little bit lower than I would have expected a quarter ago.

As we look at the global price on TiO2 pigments, frankly, we're not seeing a lot of imports coming in from Asia into the European market. And those imports – the amount of those imports today are really quite low.

And so, as we look at the amount of imports today, a matter of fact, I'm just looking at a chart here, you go back like two years and it's the lowest it's been over the last couple of years here. And so, it's – I don't think that Asian pricing of TiO2, in my opinion, really affects global markets that well.

And if I – if you look at Asia and exports out of Asia going into North America, Latin America, Europe, that really hasn't grown much in the last year or two. It's been very flat. Most of the Asian business that leaves China goes and stays within the Asian market.

So, not seeing a great deal of product coming into the European market from North America or Asia..

I think just to comment on price, I think what's happened is I think what we've been calling for a couple of quarters now, with the weakening U.S. dollar, European U.S. dollar prices are – excuse me, the strengthening of the U.S. dollar – U.S. dollar prices in Europe are significantly lower than dollar prices in the U.S. (32:15).

And I think we said at the end of the first quarter that differential was sort of the highest it's even been. And the only thing that could happen would be that European prices had to go up, or likely, U.S. prices would come down. And we've seen U.S. prices come down. Prices in euros in Europe are fairly flat.

So, in terms of global pricing, you're seeing U.S. prices fall to something closer to a historical differential between U.S. and European dollar prices..

Great color. And then, did you touch on utilization? And then, secondly, in MDI, you noted slowing demand in China. How do you see second half playing out? And then, remind us what your polymeric versus downstream systems exposure is in the region..

Yeah. On TiO2, our capacity utilization rate for us is 86%, 87% capacity utilization. I wouldn't care to speculate what's going on in the rest of the world. I just -it's not published in – I'd just be speculating at this point.

What was the other part of your question?.

The second part was regarding MDI demand in China, you saw slowing this quarter.

How do you see second half playing out? And then, what is your crude polymeric versus downstream systems exposure in the region?.

Crude polymeric versus downstream, I'm not sure that we publicly have ever broken that sort of granularity out. What we've said is globally, we're roughly 70% differentiated sort of through systems and what we call variance. And that certainly would be higher in Europe and the U.S.

than it would be in China and Asia just because those are two more mature economies, as far as the downstream utilization. And between Europe and the Americas, just to remind you, that's 75% of our overall volume, with 25% going in – and not just in China, but the entire Asian region.

But as it relates to sort of our mix of business in China and Asia, obviously insulation; it's 40% of our total business. It's well represented in Asia. And in the last couple of quarters, we've seen that building and construction segment soft and we would expect that to continue be soft in the second half. That's a system business..

If we look at the order patterns – the most recent order patterns that we're seeing internally, I don't see things getting worse in China. But again, that's – I mean, that's kind of on the ground order patterns that we're seeing today. I don't see (35:09) things getting worse.

I'm not going to say I see things screaming up through the roof or anything, but I remain – personally, I remain cautiously optimistic. By and large, the Chinese economy is something that longer term we believe in. It's going to continue to have heavy investments in infrastructure and the domestic economy and so forth.

And you obviously are going to see some growing pains with stock market and so forth. But by and large, as we look at over the next couple of years, it's going to be a great market for us..

Thank you..

Our next question comes from John Roberts with UBS. Please proceed..

Thank you.

Given the TiO2 industry has weakened further, do you think you could participate in additional consolidation? Or have you already bitten off as much consolidation as you can and it's somebody else's turn?.

I would just say that as we look at the separation of our TiO2 business, we've publicly said that it's our goal to see that separation occur in an IPO fashion by the end of 2016.

Obviously, if something were to occur before then that would allow us to be part of a consolidation play that would create value for our shareholders and be in the best interest of our shareholders before that time period, of course, we'd be open to that. But at this point, I wouldn't want to comment any further on that..

Any – let me just say that any consolidation opportunity would be in combining with another player and we would not be a cash acquirer of the other business. It would be a reduction of our interest in TiO2..

Yeah. Fair to say..

And then the Solvay transaction with Cytec today might suggest your Advanced Materials segment could fit with a large number of plastic firms.

Instead of separating the most commodity business, have you thought about maybe separating the most specialty?.

Well, at 15 times EBITDA, that does sound interesting, doesn't it? 40% of our Advanced Materials business goes into composites, so they are – there's the Cytec, Hexcel, Toray kind of customer base..

I would just say that again, I don't want to get into speculation and so forth, but I think that this company has demonstrated in the past and we continue to demonstrate that our first and foremost objective aside from running safe operations is creating shareholder value.

And obviously, if we saw something that was going to be a benefit to our shareholders and to our company, we're obviously going to be pursuing it..

Okay. Thank you..

Thank you..

Our next question comes from Ivan Marcuse with KeyBanc. Please proceed..

Hi. Thanks for taking my question. You mentioned that you saw a weakness in North America.

Do you believe that was weather-related or do you see it as something changing in the industry? And what's sort of your outlook for, I guess, North American construction as it goes for MDI?.

I think part of that may have been weather-related in the earlier part of the quarter here. I continue to believe that the U.S. is going to be a sound and growing economy. And again, as we look out over the next couple of quarters and so forth, I think we'll remain bullish on it..

I think folks forget, for our North American business in polyurethanes, while we have a big insulation business, that in the U.S. it's largely commercial insulation, and that's where we saw the disappointment, is in commercial insulation.

We do see a strong and growing residential spray foam business in insulation, but still largely a commercial weight in the U.S..

Okay. And then as a follow-up too, you mentioned that you expect the EBITDA in the second half to be better than the first half. If I do the quick math, it looks like you did $670 million, but that would include around $90 million to $100 million or so of outages, et cetera.

So if you look at the second half, is it the way to think about it is that you'll do $800 million in EBITDA plus or is there other moving parts that I need to think about?.

I think as I look at the EBITDAs and what we actually generated, including the T&I expenses, typically our fourth quarter on a seasonal basis, like all companies, would be slowing down a bit. And as I would get business conditions in the second half versus the first half, I don't see any raw material change..

Okay. Thanks..

Our next question comes from Laurence Alexander with Jefferies. Please proceed..

Hi. This is Dan Rizzo in for Laurence.

Just given that the recent changes, just wondering update on just thinking around the urgency for deconsolidating the Pigment business, has anything changed or what are your thoughts on that?.

Well, I think when we talk about recent changes and so forth, when it comes to a separation of the business and we've only talked publicly about potential IPO and did say early on the call that there might be other options out there. And I'm not going to go down discuss any detail in those areas.

As we look at an IPO, we've also said that we kind of need three things that we think will make for a successful IPO. That would be, we need to be well into our cost improvement program. We need to see a broader economic condition where an IPO would be conducive to the overall – the timing is right from a stock market point of view.

And also that there is some visibility going forward in Pigments to where somebody can see a reason to buy the stock in the growth and earnings. And just because you have an IPO doesn't mean – you have the ability to do an IPO doesn't mean that's the right time to do an IPO.

So, again as we look, as we said a year ago, looking at the third quarter of this next year, I think that when we start to look at the pricing and the market trends and so forth, our cost reduction, I think that that's something that we still feel very confident about and short of something more attractive coming between now and then.

That's something that we remain focused on..

Okay. Thank you for the color. And then you flagged I think $100 million in pension expense I think for 2015.

In 2016, how should we think about the cash flow bridge in terms of pension contributions and potentially planned outages because I think you said restructuring is winding down?.

Yeah. Pension is really – of course, can be a function of interest rates. But we have said 2017 would be $75 million, and so I think it'll be somewhere between $100 million in 2015 and $75 million in 2017..

All right. Thank you..

Our next question comes from Frank Mitsch with Wells Fargo. Please proceed..

Hey. Good morning, gentlemen and nice results. Hey, Peter, on the timing of the IPO, just a word of advice, please avoid the summer because this year and the last couple of years have been absolutely brutal and I'm lobbying for my boss to take the next summer off because this is too much to handle. I hear you on the share price..

Frank, I'll make sure that our board take all of your personal needs into consideration..

Thank you. Volumes are down 10% on a total company basis, but down 2% on a pro forma basis. I believe I heard you say or keep on saying that volumes are up 8% in Europe.

Can you give us a tour of the world and talk about what volumes are going on a pro forma basis?.

Yeah. I think that as we look on a global basis, we see volumes in the U.S. and Canada, again this is kind of all of the business together, up about 7%; Europe, up about 8%; Asia Pacific, flat; and the rest of the world down 20-ish percent. And a big chunk of that obviously is the PO/MTBE on the rest of the world.

So, we export our PO/MTBE volumes, which are 1.3 billion pounds annually. Virtually all of that goes into the Latin America and rest of the world markets for us. So, that's where we saw obviously the biggest change.

But again, when you look at Europe and the U.S., strong single-digit growth certainly in excess of the GDP in those respective regions, and that trough is the bread and butter of our business..

Wow, interesting.

Would you care to offer some sense as to where you think Q3 is starting out in terms of volumes, mid-single digits, low-single digits in terms of volumes?.

Well, I think as we look at Q3, we're seeing a very similar quarter to what we saw in Q2. I think that we'll see some benefits obviously coming from our cost reduction that will be taking place in our Pigments and Additives and at the same time, we're going to see some of that offset by lower pricing and so forth.

Foreign currency, again that's a tough one to speculate, but as we look at where FX is today, I think that that's probably going to be something pretty similar to what we saw in the second quarter. As Kimo said, it'll probably be a little bit less than that.

And I would expect to see year-on-year growth in Performance Products, Advanced Materials, and so forth and Textile Effects. So as I look at overall, we had a very strong quarter in Q2 and I would assume that Q3 will look very much like that..

Terrific. Thank you so much..

Thank you..

Our next question comes from Hassan Ahmed with Alembic Global. Please proceed..

Hello, Hassan?.

Hassan?.

Hassan, your line is open..

(46:27)..

Our next question comes from Edlain Rodriguez with UBS. Please proceed..

Thank you. Good morning, guys..

Good morning..

Quick question, Peter. You talked about the portfolio shifting and so forth.

Now that the Textile business has stabilized somewhat and you've gone through all the restructurings, do you think this still belongs to the portfolio or does is it belong with somebody else?.

Well, I still think that there certainly is upside in Textile Effects and I said a year ago that this business in the next year or so, but did not hit double-digit return on asset and EBITDA margins that this will be a candidate for divestiture this last quarter.

It hit those thresholds and so forth, and I see the Textile Effects business is being one of our intricate and core businesses. So, yeah. And look, let me just be 100% honest as well.

If we were looking to do something with the divesture or something, I'm not sure that this would be the place in which I'd be saying we're making an announcement this business is on the block or something.

I have said earlier that we will continue to look at various parts and pieces of our business and evaluate how they are able to bring shareholder value to our company. Textile Effects is certainly one of those. But right now, as we look at the business, certainly, we've seen an improvement in the business because of cost restructuring.

I think that we have a very robust product pipeline of new products, growth opportunities. We'll see better than GDP. I think we'll see better growth in that business in our earnings relative to our peers.

If I believe for a minute that we didn't have further upside in any of our businesses of either new products or opportunities to expand markets and so forth, I would immediately recommend to our board of directors that that business probably would be more valuable with somebody else..

That makes sense. Another quick one just a clarification on Performance Products. And I think you've talked about one key risk is being like lower oil prices, but at the same time, you talked about a lot of the products have passed through mechanizing them.

So how do you reconcile those two? I mean, why would be there an impact on lower oil prices if you can pass through your cost up or down?.

Well, what we tried to do in that business and some of the very volatile ends of that business that involved our ethylene glycol and some of our intermediates. We want to make sure that we eliminate the volatility of those markets. And so many of those products, not all of them, but many of the products, we've sold them on long-term pulling basis.

So we think that will take quite a bit of the pulling out of – we have presently about 60% of our ethylene glycol is filled on a longer-term contractual basis that will involve a pulling element in that number. Again, I think that takes a lot of the volatility out of the earnings of the businesses.

The lower oil prices will be a benefit to the vast majority of our Performance Products downstream businesses because it means a lower raw material for those businesses. And because of the tightness in capacity utilization, we have an opportunity to capture that.

On the other hand, we do have some of our surfactant products and some of our gas treating products and so forth that are used in the drilling and enhanced oil recovery.

We have seen lower demand in some of those areas, but at this point, that's more than been offset by growth that we've seen in other areas of amines and surfactants and the benefit that we've seen in lower raw material prices.

So, I know it all sounds a bit convoluted, but at the end of the day, that's the division, in my opinion, that certainly benefits from lower raw material prices, by and large..

Okay. That makes sense. Thank you..

Thank you..

We now have Hassan Ahmed back on the line. Please proceed, sir..

The alarm clock went off, Peter. Morning.

How are you doing?.

Hey, Hassan. Good to hear from you..

Sorry about earlier. I actually stupidly rather than hitting the unmute button, hit the hang up button. So, anyway, question around TiO2 supply. Obviously, a couple of moving parts. As we look at 2016, we have – Kimo was talking about the Mexico facility coming online, but also saying that they'll take an equivalent amount of capacity offline.

And then we've obviously, through the course of Q2, seen some consolidation in China. So what's your view about TiO2 supply as we look into 2016? And just sort of correlate supply/demand fundamentals in the near to medium term..

Well, Hassan, I have successfully called the bottom of the market in TiO2 correct about I think for the past three consecutive quarters..

Right..

And so while I'm hesitant to do that again, I do look at the number of producers that are operating, including Huntsman, in our more commoditized products below cash cost.

I look at the slowdown of exports, the uncompetitiveness of exports, and in these conditions today, this is not something that is sustainable going forward simply on the basis that producers can't afford to stay in business if you're paying people to take your product.

So as I look at the industry conditions, I know I sound like a broken record on this, but as you look at industry conditions typically and again, I'm talking about the more commoditized side of TiO2. Typically the further and the longer the downcycle occurs in any commodity, the more volatile and the more rapid the improvement will take place.

And I'm not sure that that's necessarily going to happen in TiO2. I'm careful to avoid speculating on what competitors may do or why they'd be bringing on additional unnecessary capacity in the industry that's already oversupplied but that's for them to work out.

As I look at the overall pricing and the overall margin, this industry is in need of improvement, and I don't think that the customer base of TiO2 is longer term served well by this because it does longer term add volatility and it has less investment into their supply platform.

So, I guess, Hassan, what I'm trying to say more than anything else is I look at the margins where they are today and I really struggle to see how they can go materially lower than where they are, particularly in Europe.

And I think you'll see continued weakening in pricing over the next course or so in North America as that gets in line with what we're seeing in Europe and Asia. But in longer term, I feel quite confident that as you look out over the next couple of quarters in the year and so forth that we will see margin improvement taking place..

Fair enough. And changing gears a bit, moving to the MDI side of things, obviously, we have what was supposed to be a Bayer MaterialScience's IPO in the first half of next year. It seems that they're talking about sort of accelerating that and doing it later this year.

Obviously, there'll be some valuation ramification associated with that in terms of people trying to assess how to value your Polyurethanes business.

But beyond that, in your mind, would there be any market ramifications? Meaning, as a pure play sort of polyurethanes company, would you expect the market to become a bit more rational?.

I've always and I'm not going to speculate on a particular play or even product and what that competitively might mean, but I think I've said in past calls that transparency and accountability in any business is healthy for that business.

And when a large conglomerate is able to take a division and fold it under another group and another division, I'm not sure how much market transparency and how much accountability is there.

When something is brought out and a division has to go through the quarterly spotlighting that we're going through right now when people have to account for margins and expansion, the CapEx and so forth, while it might be a hassle to go through for a company, I think it's a very healthy process to go through and it holds management accountable.

And I think that when you look at the recent spin-offs you've seen in some of the competing products that we have, I think by and large it's a very positive thing for the industry. I think that it brings accountability and it brings discipline..

Very helpful, Peter. Thanks so much..

Our next question comes from Herbert Hardt with Monness. Please proceed..

Good morning..

Good morning..

Given the relative lack of success of two of your competitors and TiO2 coming public in the last year, year-and-a-half, has there been any rethinking of taking your TiO2 operation public and trying to do something creative in a different way?.

I don't know. I don't believe so. I think that when we look at those two spin-offs and the timing of the spin-offs and the very structures of the spin-off, I think each of them were unique for the reasons, their timing and the structures, and what liabilities may or may not be with them and so forth.

I think that as we look at what we're focused on, what we can control, I think that when we look at the combination of Rockwood, Huntsman businesses, the diversity of technologies and the product ranges from color through to white pigments in TiO2, when we look at the ability to further consolidate in the industry to further enhance our cost competitiveness and so forth, I think that when we take this public, I think it'll be an attractive asset and I think that it'll be a great story to tell in the market.

So, I can't speculate and I can't comment on what competitors have done with their divisions but, no, I don't see any reason why we wouldn't continue to proceed forward as aggressively as possible..

Thank you for that.

But the other question then is when you look at what you paid for the acquisition plus the amount of money that's gone into restructuring, can you give us some idea what the total cost has been?.

Yeah. So roughly $1 billion cash, $200 million of pension purchase price. We think EBITDA in that business this year 2015 will be similar to last year, call it $170 million roughly. So we own the business on a cash basis at purchase, call it, 4.5 times.

We're going to add $200 million worth of value in terms of synergies and we'll put $200 million of cash into it. So, in terms of restructuring – so call it $1.2 billion of cash and we think we're going to have a business that will, on a pro forma basis with restructuring benefits, call it, $250 million.

So, we think we have an accretive acquisition even at this sort of trough level..

Okay. Thank you very much..

Denise, this is Kurt. We're at the top of the hour. I believe we have time for two more questions..

Perfect. Our next question comes from Christopher Perrella with Bloomberg Intelligence. Please proceed..

Thank you for taking my question.

Peter, could you give a little bit more color on the European volume growth? Was that auto-led construction? What's sort of the mix that's driving growth in the region?.

Oh, I think that it's construction. I think that it's automotive. I think its aero – well, I don't think. Just looking at the numbers, it's aerospace, it's automotive, it's construction, it's growth coming from the Eastern European side in footwear and so forth. Basically, it's installation.

As we look across the board, I think that we're seeing a market for us that's growing and is stable..

All right. Thank you very much..

Thank you..

Our next question comes from the Bob Amenta with JPMorgan Asset Management. Please proceed..

Thanks. Good morning, guys..

Morning..

Morning..

I have two questions; one quick one. Just on those 8.625%, you mentioned $198 million, I know some were redeemed in April that I thought took to like $240 million.

Did you buy some back since then or did I miss something?.

Yeah. There were some purchases. $198 million is the right number..

$198 million is the right number. Okay. And then, not be beat the TiO2 horse, but obviously, the Chemours' stock is down 50%. And basically, it's just been a rough go of it. I just think, just looking at your equity multiple and then in some ways, you can't control this. On the other hand, it's kind of questions you're just stuck having to deal with.

But you're at one to two turns below and yet TiO2 or Pigments is only 10%, give or take, at current levels of your EBITDA. I can only imagine what multiple people are putting on that. What can you do? I mean, Chemours is still trading at 7 times 2016 estimate. Tronox is at 6 times.

Your entire company is only at 5.5 times, if we assume roughly $1.6 billion, $1.7 billion next year. I mean – and maybe you don't have an answer, but it's just kind of amazing and mind-boggling that, as someone said earlier, people just – I don't know, they're either too focused on it, or they're not focused on all the other things you're doing.

I mean is there anything creative? And I guess the bondholder side of this is, and I know you guys are generally conservative managers, so the fear would be as a bondholder that you start to maybe use debt to basically buyback stock. And I'm assuming that's not what you're looking to do, but I just wanted to confirm that..

Well, I'm not sure that we're in a position to comment on the strategy that would have to be decided on by the board.

But I think again to reiterate some of the things that we've said in the past, we do want to make sure – I believe that the fastest, the best things we could be doing in this company to enhance value, we're doing it right now, the generation of free cash flow.

And as we look at – it's wrapping up again the restructuring and our CapEx, the benefits that we have through our investments in the past couple of years in restructuring, improving our EBITDA, decreasing our restructuring expenses and our CapEx.

Generating several hundred million dollars of free cash flow coming out of the company I believe is the single most important thing we can be doing. Second to that is going to be the divesture, the separation of our Pigments and TiO2. You are right about the multiple.

Again, I don't want to get into what multiple others are trading, but as I look at the core EBITDA of this business, as I look at our MDI business trading in the high teens on a EBITDA to sales, our Performance Products, our Advanced Materials now, both of those in excess of 20% EBITDA margins and so forth.

As I look at the core of this, the non-white TiO2 business, all of it is in double-digit margin and a good majority of the core of our business, non-Pigments and Additives business, is approaching or in excess of 20% EBITDA to sales.

As I look at the strength of that portfolio, I think that it is among one of the strongest in the industry and I think that we need to have a successful separation or deconsolidation of our Pigments business and the generation of cash.

I think that the combination of those two things are the greatest value-enhancing things that we can be doing, steps that we can be taking.

And as I look at where we are today, what we're generating today, where we're heading today, I don't see any slowdown in that and I don't see any reason why we shouldn't be successful in implementing those things.

So, yes, I'm very frustrated as a large shareholder and as Chief Executive Officer of the share of our multiple and our stock price, but I think that we've also got to be disciplined and making sure that we preserve a strong balance street, we generate a max amount of cash and that we continue to make sure that our portfolio is going to be centered around those margins that are highest, growing and less volatile than we have.

So as I look at over the course of the next 12 months, I'm very enthusiastic about where we're heading and what we're doing and I just – it's befuddling to me as to why we'd be trading in the high teens with the caliber and the quality of the assets we have..

Yeah. I appreciate that. I guess just a clarification on deconsolidation. I was, one, hypothetically view IPO 20%, 30%. From an income statement perspective, would the Pigments business kind of leave the company? Or I guess it just seems like if it's still in any way associated with Huntsman, you're going to feel that drag.

So I'm just trying to figure out what maybe....

Bob, if you IPO 30%, it's still consolidated..

Yes, it's still. So when you say deconsolidation, you don't mean from a literal....

Well, sure, it's capacity consolidation. Obviously, if you take it public, there's opportunity to do secondaries to take it down..

Right. Okay. Well....

It's a two-step process. But again, we're exploring all of those options and we'll take the best option, but our commitment is 2016..

All right. Appreciate it. Thanks for the time..

Thank you..

We want to thank everybody for joining us on the call today. If there are additional questions, please feel free to reach out to a member of the IR team. Thanks again..

This concludes today's conference. You may now disconnect. Have a great day everyone..