Aug 6, 2009
Operator
Good day ladies and gentlemen, and welcome to the Second Quarter 2009 Huntsman Corporation Earnings Conference Call. My name is Lisa, and I'll be your coordinator for today.
At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference.
(Operator Instructions). As a reminder this conference is being recorded for replay purposes.
I would now like to turn the presentation over to your host for today's conference Mr. Kurt Ogden.
Please proceed sir.
Kurt Ogden
Thank you Lisa, and good morning everyone. I am Kurt Ogden, Huntsman Corporation's Vice President of Investor Relations.
Welcome the Huntsman's investor conference call for the second quarter 2009. Joining us on the call today are Peter Huntsman, President and CEO; and Kimo Esplin, Executive Vice President and CFO.
A recorded playback of this call will be available until midnight, August 13, 2009. The recorded playback maybe accessed from within the U.S.
by dialing 1-888-286-8010 and internationally by dialing 1-617-801-6888. The access code for both dial-in numbers is 50208849.
A recording of this call may also be accessed through our website. This morning before the market opened, we released our earnings for the second quarter 2009 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. Before we begin a discussion of our earnings, I would like to say a few words about forward-looking statements.
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 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 a reconciliation to the most directly comparable GAAP financial measures in our earnings release posted on our website at huntsman.com.
I'd like to outline the format for today's call. I will summarize a few highlights for the quarter and then turn the call over to Peter Huntsman, who will review the performance of our business in the quarter.
Finally, Kimo Esplin will address certain aspects of our business, including our liquidity and working capital. At the conclusion of our prepared remarks, we look forward to taking questions from you.
As we refer to earnings, we will be referring to adjusted EBITDA from continuing operations, which is EBITDA adjusted to exclude the impact of discontinued operations, restructuring, impairment and plant closing costs, income and expense associated with the terminated merger, the sale of accounts receivable, unallocated foreign exchange gains and losses and extraordinary gains and losses related to the purchase of the business. We focus on adjusted EBITDA from a management standpoint as we believe it is the best measure of the underlying performance of operations, and we have received feedback from many of you in the investment community that this is how you prefer to look at our business.
A reconciliation of EBITDA, adjusted EBITDA and adjusted net income from continuing operations attributable to Huntsman Corporation can be found in the appendix of our slides and in our second quarter earnings release. In our earnings release this morning, we reported second quarter 2009 revenue 1.867 million.
Adjusted EBITDA from continuing operations was 96 million and adjusted EPS from continuing operations of $0.27 loss per diluted share. As compared to results from the prior quarter, our second quarter 2009 adjusted EBITDA increased from 50 million to 96 million.
Sales volumes increased as average selling prices decreased with the fall of raw material costs, as reflected in the favorable change in direct costs. As compared to results from the prior year, our second quarter 2009 adjusted EBITDA from continuing operations, decreased from 210 million to 96 million.
Similar to what we saw last quarter, the most significant reason for the year-over-year decrease in adjusted EBITDA was the decrease in volume primarily attributable for the worldwide economic slowdown. The favorable decrease in direct costs which include raw material costs more than offset the decrease in average selling prices.
With that I will turn the call the over to Peter Huntsman our CEO.
Peter R. Huntsman
Kurt thank you very much and thanks to all of you for joining us this morning. Now let's turn to slide number 4.
Like most of our industries our Polyurethanes demand was down from where we were a year ago due to the drop in global economic activity. As mentioned during our last quarterly conference call and we believe that we have seen the worst of this recession.
Demand has started to recover in certain markets and demand destruction appears at this time to have stopped falling from what we were experiencing during the end of the fourth quarter and throughout most all of the first quarter of 2009. And Polyurethanes during the second quarter we saw our sales volumes increased by 14% over the first quarter.
While we are down 18% over the second quarter of the previous year, we are encouraged by many of the signs we are seeing around the world. We remain diligent in our efforts to manage fixed costs within this business, without sacrificing service to our customers and longer-term growth.
We have reduced inventories and rationalized operating rates to align our -- customer demand. This is been achieved by idling certain of our production lines, while also operating others at reduced rates.
We believe our three strategic global manufacturing sites located in North America, Europe and China, are among the most cost efficient MDI production site in the world, which will enhance our the ability to prosper-- as global economies improve and return to strong demand for MDI based Polyurethanes products. Propylene oxide and its co product MTBE performed very well in the quarter.
Propylene oxide along with MDI, are the key products driving growth in providing Polyurethanes solutions to our customers. MTBE delivered solid margins primarily as a result of seasonal effects and pricing of the gasoline, as we moved into the summer driving season.
Demand remains very strong outside the U.S. with a majority of our MTBE sold in the Mexico and South America, a smaller amount exported to Europe and Asia.
We expect MTBE as the co product of our propylene oxide production process to continue to be profitable for us in the foreseeable future. Turning to slide five, let's review our advanced material division.
Within our core business of formulated systems and specialty components, we saw a 6% increase in demand, during the second quarter compared to the first, with June being the strongest month thus far. At the same time, average selling prices remains stable and the cost of raw material decreased leading to an expansion in margins.
Do-It-Yourself applications in repair adhesive including our Araldite branded products, which are more widely recognized in Europe and Asia as well as our coatings, power and electronics markets saw encouraging incremental growth as well. Our Asian business in general is been less affected by the economic downturn and China formulation sales represents about 55% of our Asian business.
It's been particularly robust. Sales and volumes are 6% higher than the same period in 2008.
Our more commodity base resin business, mainly situated in Europe and North America saw decreases in volumes and margins during the quarter. And if we're to operate more effectively within the context over lower demand environment, aggressive restructuring efforts within this business continue and our commercial sales force and supply chain functions have been simplified along with the realignment of our regional work force.
In addition, we have successfully secured a number of agreements with local governments to off set a portion of labor costs as we temporarily lay off employees. The benefits of these efforts are reflected in our results, as operating fixed cost decrease $9 million in the first half of 2009 compared to the prior year.
Turning to slide six. With regards to our textile effects division, we saw demand improve by 14% during the second quarter relative to the first.
Sales volumes increased within our apparels and home textile products as well as specialty textiles. We believe the improved sales volumes are attributed to three broad factors.
First, we are seeing an increase in demand in Asia, South America and to a lesser degree Europe. Second, we are benefiting from the effects or our recent reorganization of our global sales and marketing, focus resulting in an increase in the numbers of new customers.
Thirdly, as in many of our division, destocking has come to an end and we are seeing customers' restock their inventories as demand gradually increases. Our textile effects business has a highest contribution margin rate within the company.
We continue to address fixed cost within this division and in December of 2008, we announced the plan that will achieve $60 million in annual savings. We are on target to reach this goal by the end of the year and expect $23 million in annual savings during the second half 2009.
On June 23rd we acquired the Baroda Division of MCIL otherwise known as Metrochem for approximately $35 million including working capital. This acquisition was funded through local financings and local Huntsman Indian entities and as a result has a little impact on our overall liquidity.
Metrochem has been a significant supplier to our textile effects business in the past. This acquisition plays a key role in the restructuring plan of this business as we relocate our manufacturing closer to our customers in Asia and India and reduce further our European fixed cost.
We expect equivalent Asian manufacturing capacity costs to be significantly lower than existing European based costs. Turning to slide seven, our performance products divisions saw a contraction in margins during the second quarter, as the average selling prices caught up with their earlier decreases in raw material costs.
This decrease in average selling prices was primarily driven by contractual reset in our sales agreement, consistent with the outlook we provided during the first quarter conference call. Volumes remain relatively stable and increased slightly as compared to the first quarter.
Our performance specialty business, which represents around 50% of our divisional earnings, experienced a significant improvement in demand during the second quarter across most of its business units. The global demand for poly ethylenediamine and certain other specialty products remains robust despite the global recession.
We expect the construction of our ethylenediamine manufacturing facility in Jubail Saudi Arabia. A joint-venture with the Alabama Group to be complete later this year and operational in early 2010 with an annual capacity of £60 million.
Sales volumes in our performance intermediate businesses were essentially flat compared to the first quarter. However, the lag adjustment to selling prices sharply reduced margins from first quarter level.
In addition, plant maintenance in our U.S. based ethylene and ethylene oxide units during the quarter negatively impacted earnings, as we use purchase material to feed our derivatives units.
Demand for maleic anhydride improved in the second quarter as the period of customer destocking ended and export sales increased. Overall, maleic sales increased by 28% higher than the first quarter, yet margins declined as a result of higher raw material prices.
We've announced prices increases to counter these changing raw material prices. On slide 8, I will talk just a minute about our pigment business.
Earnings for the second quarter in 2009 within our pigment's division were positive and although it's nice to see them back in the black, we expect much more from this division in the future. Demand during the second quarter increased in all regions of the world compared to the first quarter.
Notably demand in Asia has returned to five year historical averages. The rebound in demand has been much lower in our core Europe and North American markets although we are encouraged by recent monthly customer order patterns.
We have seen some very positive signs within the industry recently. The beginning of the year, we believe industry inventory levels were as high as 90 plus days, where as at the end of the second quarter, we believe they've fallen to approximately 50 days, which is more inline with the historical averages for this time of the year.
We've taken aggressive action to mitigate the impact of the economic slowdown and are well and the plans to restructure our cost. We have seen benefit of this cost reduction efforts as fixed cost decrease by $12 million in the second quarter compared to the second quarter of 2008, including the benefits of closing our Grimsby UK facility, which we shutdown in late March.
Annual operating cost savings from the Grimsby UK closure will be approximately $28 million. We've recently announced price increases in all major markets and expect to see these increases taking effect in the third quarter.
Before sharing some concluding thoughts, I'd like to turn a few minutes over to Kimo Esplin our Chief Financial Officer. Kimo?
J. Kimo Esplin
Thanks Peter. Let's turn that slide number nine.
Similar to the rest of our industry, our revenue decreased in all regions and across all segments of our company, as volume decreased 18% and average selling prices decreased 22% compared to the previous year, primarily as a result of the economic slowdown. The global impact of the slowdown is visible as you consider sales decreased 42% in Europe, 39% in U.S., Canada, 27% in Asia Pacific and 26% in the rest of the world countries.
On a more encouraging note, as we look at our second quarter sales compared to first quarter, volumes increased 11% as average selling prices fell 1%. Much of the increase in demand is attributable to seasonality; however, we are encouraged by the order pattern in overall monthly year-over-year sales volumes.
On a regional basis, Asia Pacific is leading the demand recovery along with our rest of world region, while U.S. and Canada has shown modest improvements.
European demand remained sluggish. Although, year-over-year price and volume were down in the second quarter, contribution margins actually improved, as raw material cost decreased and the benefits of our restructuring efforts began to appear.
Simply put, if our business had the same volumes just to previous year, our adjusted EBITDA would have been better than the previous year. Let's go to slide 10; as we consider our quarterly year-over-year sales volume, which reflect seasonal fluctuations, demand bottomed out in the fourth quarter last year at negative 21%.
Since then, quarterly comparisons have been incrementally become less worse as first quarter was negative 19% and second quarter was negative 18%. Although the absolute comparison isn't favorable the trend is encouraging, and we are guardedly optimistic that it will continue as we recover from the global economic recession.
Let's turn to slide 11. As we are aggressively managing our working capital investment and have made great strides with inventory reductions.
During the quarter, we achieved a favorable cash benefit in our primary working capital including the change in receivables associated with our off balance sheet accounts receivables securitization program of a $165 million. Total inventories have decreased in value 23%, compared to the end of the year, as finished goods have decreased 22% on a volume metric basis.
Part of our efforts to reduce working capital include reducing finished goods inventory balances. As we lowered our production and sold more than we produced, there was less fixed cost absorption, capitalized in inventories.
As a result, during the second quarter, our EBITDA was negatively effected by approximately $34 million of these charges. As a result of the settlement agreement with Credit Suisse and Deutsche Bank and the active management of our working capital, our total net debt including our off balance sheet accounts receivables securitization program, has decreased by $923 million from year end.
Turning to slide 12. As of June 30, 2009, we had $2.3 billion of cash and cash and 656 million of unused borrowing capacity, summing to a total of 3 billion of liquidity on hand at the end of the second quarter.
Although, much of this cash, came from our favorable settlement with the banks in June, our underlying business generated positive free cash flow from operations of approximately a 160 million during the quarter. As we sit here today, given the uncertainties in the world economies, we are targeting approximately 800 million to $1 billion of liquidity to provide future operating flexibility for the company.
We are considering a reduction and the size of our current credit revolving facility due 2010. In June, we reached the favorable settlement agreement with Credit Suisse and Deutsche Bank for 1.7 billion in cash in financing.
We expect to stay approximately $185 million of cash taxes associated with the settlement. Following the settlement, we redeemed all $296 million of our outstanding 11.58% senior secured notes due 2010 and all of our $198 million of outstanding 11.5% senior notes due 2012.
This debt reduction, which will be reflected in our balance sheet as of September 30, 2009 eliminate all meaningful debt maturities until 2013. Interest savings from the prepayment of the $494 million of high coupon debt, more than offset the costs associated with the $1.1 billion low coupon financing received from this settlement.
We expect to extend the maturity of our off balance sheet accounts receivable securitization program on a multi-year basis in the third quarter. Let me remind you, that we remain in discussions with insures of our outstanding insurance claims related to flyer at our previously owned Port Arthur, Texas facility.
As of the quarter end, our outstanding claims were 243 million. Binding arbitration is expected in November 2009.
Any additional recoveries are expect to be used to repay secured debt. I'll turn the call back over to Peter for some concluding remarks.
Peter R. Huntsman
Thank you Kimo. During the last conference call I answered a question about our litigation with the banks and stated that it was objective to improve our balance sheet.
I am very pleased to report that we've accomplished our objective with the settlement that we reached with Credit Suisse and Deutsche Bank. In the past 12 months, we've collected over $2.7 billion in cash and settlement payments.
These time consuming and expensive battle is behind us. We are now focused on our future.
We have no doubt that in light of with the current global economic situation and the prospects of years of risky resources consuming appeal, so we've made the right decision. We are one of the few companies that can report a stronger balance sheet today than we have 12 months ago.
Our liquidity is strong as its ever been, our covenants flexible and we have prepaid our debt and have no meaningful maturities for years to come and our dividend is secured. I am immensely proud of our team and Board for accomplishing what no other companies done during a time with so many failed deals.
As we look at the global economy, we are focused on growth and taking advantage of our international market. We are seeing our Asian business improve nicely and we are seeing early signs of recovery in some sectors in Europe and North America.
Our monthly order patterns continue to improve while many of our competitors are struggling with direction or which businesses to keep, we are well focused on expanding our market share around the world. We are also seeing signs of our previously announced cost reduction program.
As we announced earlier, we intend to eliminate $150 million from our cost structure by the end of this year. Early signs of our cost reduction program and increased volumes are showing in our results as our EBITDA nearly doubled from 50 million in the first quarter to $96 million in the second quarter.
We've also been focused on managing cash and working capital more intensely over the past six months. As was mentioned earlier, our reported, which as mentioned earlier, reported EBITDA could have been a $130 million for the second quarter but we chose to manage working capital and reduced production with the cost of EBITDA in some of our divisions.
The result of this focus is apparent and that in spite of these challenging market conditions, our business generated free cash-flow from our operations with approximately a $160 million during the second quarter. In short our balance sheet in strong.
Our business is improving and we are technologically and geographically well positioned to take advantage, as the global economy continue its recovery. With that, I'll turn the call back over to Kurt.
Kurt Ogden
Thank you Peter. Lisa that concludes our prepared remarks.
Could you explain the procedure for Q&A and then open the line for questions.
Operator
Yes. (Operator Instructions).
Please stand by for your first question. Your first question comes from the line of P.J.
Juvekar with Citi. Please proceed.
P.J. Juvekar
Yeah. Good morning Peter and Kimo.
Peter Huntsman
Hello P.J.
P.J. Juvekar
In performance products, that business had held up well so far, and sort of the decline in 2Q. And I think Peter you mentioned that some of that stuff is contractually tied to raw materials.
Can you tell us how much of those volumes are contractually tied to -- and just give us some idea about what happened to that business?
Peter Huntsman
It varies from the businesses that are within that business. But roughly about half of sales that we have within that division are tied in some form or the other to raw material pricing.
And again in specialty, some of the specialty applications so forth you might have lower number than that in some of the more commodity areas that are more dependent on raw material, values and so forth. You are going to have a higher number than that.
Does not category the, across the board that way. So I think that again we, we saw volumes pretty flat out.
Remind you that a big chunk of this business is going into the consumer end user applications, soap, detergents, and so forth. What we dint see is much of a follow off in the first quarter, as we did in some of our businesses and likewise we probably won't see as robust a bounce in the second quarter where we are seeing some of our other businesses come back stronger.
So, to answer your question directly it's about 50%, but that business should continue to do well through the year, yeah.
P.J. Juvekar
And it is a good question on polyethyleneamines and MDI which probably was 90% of your total EBITDA. What are the trends in the three regions, U.S, Europe and Asia and what are the operating rates in each region?
Thank you.
Peter Huntsman
Thank you. The operating rates in the second quarter we were about a 66%, the industry was operating at about 60, 65%.
Fair to say that in Asia we were operating in the high 90%. We were essentially sold out in Asia.
We are seeing strong demand coming from the automotive, from the infrastructure, demand in infrastructure and the insulation. In North America throughout the quarter we saw a pick up that was due in part -- two are focused on spray on foam applications.
So these are applications we are seeing in North America where you are able to spray on a liquid, we are all saying that it goes into a form and this is particularly around re insulating older buildings. Europe we are seeing a bit of a increase that's taking place in the insulation markets as well.
So I think that as you look across the board and you figure that in Asia we're operating in the high 90% and U.S and Europe it would been around 50 to 60% as we are trying to reduced inventories at the same time. So certainly we saw the capacity utilization rates improved throughout quarters well from the beginning of the quarter till the end of the quarter.
J. Kimo Esplin
Just to follow up on Peter regionally for polymer I think, I think its interesting. When you look at year-over-year regional MDI volumes, Asia was up about 5%, Europe was down 20%, Americas was down 30%.
To give you sense, but when you look at it sequentially, Asia up 55%, Europe up 10%, America is up 17%. So sequentially we're seeing some good strength particularly in Asia that's not surprised anyone.
To give you a sense for seasonality, first quarter to second quarter, we typically don't see that kind of seasonality. First quarter to second quarter in Asia for example last first quarter to second quarter, we were only at volume metrically 15% and here we are up 55% in Asia.
So really, really strong Asian results.
Peter Huntsman
It's safe to say, P.J. that we're also seeing these results continue into July, but this is more than just destocking a restocking excuse me that's taking place.
So, I think that we are, we certainly have turned a corner here and I look forward to stronger markets coming back in Europe and U.S certainly Asia is very strong right now.
P.J. Juvekar
Thank you very much.
Operator
Your next question comes from the line of Mike Judd with Greenwich Consultants. Please proceed.
Michael Judd
, Yeah so just looking at your chart 11, I guess the, the application there is that your inventory to sales ratio is down to around 15% versus around 20% at the end of March. Is that about right?
J. Kimo Esplin
Well I don't have that calculation in front of me, but that could be right.
Peter Huntsman
It sounds about right.
Michael Judd
Okay. And then in terms of, how you expect to manage your inventories to the remainder of the year.
Could you just comment on any plans there please?
Peter Huntsman
That's going to be again depending business-by-business. Depending on inventory levels and so forth.
I think that you'll start seeing a slowing down of reducing of inventories by the end of the third quarter. Some of these businesses have objectives between now and the end of the reduce inventory.
So kind of tough to say exactly where will be, where demand will be between now and the end of the year. But we certainly believe that there is continued room for to be able to manage our working capital and to continue to get cash out.
Again assuming that there is no a severe drop off in demand or change in raw material prices.
J. Kimo Esplin
We manage our inventories based on our forward look, as supposed to a financial calculation which is a backward look. So we obviously think a lot about where demand is and where we are going.
And also we manage it on a volume metric basis. So its pounds, if you see raw materials move up, you are going to see obviously working capital move up a bit.
But that we still think we have some room to go. With stronger demand, we are going to build little bit of working capital.
Michael Judd
Thanks.
Operator
Your next question comes from the line of Laurence Alexander with Jefferies & Co. please proceed.
Laurence Alexander
Good morning.
J. Kimo Esplin
Good morning.
Peter Huntsman
Good morning.
Laurence Alexander
I guess, couple questions first. In terms of the normal seasonality, what you know normally see in North America like you mentioned and North America volumes were up above 4% sequentially.
And what you normally have seen?
J. Kimo Esplin
In terms of volumes, we would typically see first quarter to second quarter in a 7-8% range, in terms of seasonality. Second quarter is always our strongest sales quarter.
Third quarter is the second best quarter. Obviously, and I am speaking globally yeah I think your question was specifically on North America.
I don't know but my North America only so of first quarter, second quarter is, typically you'll see 7 to 8% stronger volumes in the second quarter globally. Obviously, first and fourth quarter are little slower particularly in Europe where the holiday seasons are as well.
Peter Huntsman
European does well with holiday seasons in the third quarter as well in August time frame, so they which we definitely not see in North America so, they do much better than we do in that regards.
Laurence Alexander
And then could you discuss on some raw materials. I mean what you saw this quarter was this quarter, was there benefit for headwind and then particularly what you are thinking next for the few quarter is particularly, propane and benzene?
Peter Huntsman
I think that if we look at raw materials, on average if you look from the first quarter to the second quarter and you look at something like crude oil, again we don't buy crude oil, but there was a 40% increase in crude oil. There is a 18% decrease in natural gas.
And so we're buying raw materials that are somewhat attached to both of those products in somewhere in between. So its really a hard spot, bright?
I think if we look across the board from first quarter to second quarter and we look at some of our larger raw materials of that Rapaflo hydrin, ethane, nitro-butane, methanol, propane, benzene, most all of these products are up in the second quarter and I think that in the third quarter, if you look at what we've seen that's far in July and in the early August, they look like they've kind of plat code a little bit but I wish I was seeing some downward pressure on raw materials. As I look around the globe right now, and I see the improvement in Asia and I see an improvement in demand.
I see an improvement in optimism with our customers. I see the improvement in our balance sheet.
The only storm clouds that I really see from my perspective right now as I look at over the next couple of quarters, the necessities the uncertainties around raw materials. They frankly might be they still won't make any right reason as to why they would have doubled from the low during the last six months, but that is something we've been very aggressive with price increases and we'll continue to watch that very closely.
J. Kimo Esplin
Let me just point it back to slide three, in terms of year-over-year comparisons, on slide three, direct costs decreased 318 million and prices decreased $243 million. So contribution margins expanded on a quarter-over-quarter basis.
Direct cost which is again for our business, you should translate into utility costs and the raw material costs. Prices versus direct cost were about the same.
So, contribution margins were very similar to the previous quarter.
Laurence Alexander
And then lastly on which areas in particular do you think you can make significant market share gains? And how does this tie into your M&A strategy going forward?
Peter Huntsman
I think that right now, if I look at, what we're seeing is with the number of our customers that are starting to looking at increasing demand and so forth, there is a number of questions our customers' have around, who is going to be in a supply position here for the next few years. Who can we rely on, on longer-term contracts, on specking and materials and so forth.
I look across the entire kind of the entire range of customers and I'm speaking more globally here in across all of our businesses. Unlike any time that I've seen in last 20 years or so, a lot of our customers are really questioning where is the chemical industry going and who is going to be here in the next year or so, and there's never been a time we've seen to do some of the larger chemical companies questions what divisions they're going to keep, where they're going to sell off, what is going to be the dispositions of those assets and so forth.
So I think, not only do we have an opportunity to keep what we've got, but I think with the strength of our balance sheet and our direction going forward, I think that we've got an opportunity to not recklessly what we are doing it by buying in volume and lowering prices. So buying and get -- earning added volume, because we've got a great story to tell.
And I think that across the board I would hope that our businesses would be able to grow better than the underlying GDP growth in those particular areas. So, again I think that we are looking to be very aggressive in that area as a company.
Laurence Alexander
And does that customer try to reach you being more aggressive on M&A?
Peter Huntsman
I think that we'll look at M&A on a case-by-case basis is an opportunity may arrive, but we're really focused really the core business at hand today.
J. Kimo Esplin
Generally in these down turns, we have seen great discipline from all players not to build inventories, and as we've talked about the relationship between price and raw materials has been maintained year-over-year from a contribution standpoint. So, we haven't seen prices deteriorate significantly relative to raw material.
Laurence Alexander
Okay. Thank you.
Operator
Your next question comes for the line of Frank Mitsch with BBT Capital. Please proceed.
Frank Mitsch
Hi, good morning fellows.
Peter Huntsman
Hey Frank.
J. Kimo Esplin
Hey Frank.
Frank Mitsch
Just a couple of clarifications in talking about the performance products area and the half of businesses tied to raw materials and the price increases that you have been looking to push through. Is it fair to say that as we stand here through July and into August, those contracts have reset for the third quarter that we are in fact looking at higher margins than we were in the second quarter?
Peter Huntsman
Good question, Frank. It's really hard to tell, because typically those contract prices is lag about a quarter.
And so, you will see an opportunities on the first quarter, we saw raw material prices falling very rapidly. And in the sales prices or the -- certainly, the beginning of the first quarter, we didn't see the certain fall off in raw material prices that we were -- that we saw by the end of the first quarter.
And the prices subsequently fell in the second quarter now. Prices have kind of bottomed out and some cases are going back up.
Those contractual prices will start resetting as we get in near the end of the third quarter and throughout the third quarter here. So, really it's too early to tell Frank, but I think that we certainly are taking very aggressive stand on price increases and holding the line there.
Frank Mitsch
Okay, great. And if I could also follow up on the industry consolidation question, obviously with your improved balance sheet and the fact that you pushed out your nearest maturities several years.
It would stand the reason that you guys could be a meaningful consolidator in the industry. So, how would you look at the areas that might have the most interest in terms of Huntsman playing the role of a consolidator and where would TiO2 rank on that list?
Peter Huntsman
I think it is -- I can't get into speculation as to what we would be doing, but we certainly would be interested in playing a roll and consolidation where it makes sense to our shareholders and where it allows us to maintain a strong position of equity and where we have a natural fit with strong synergies.
Frank Mitsch
Would you then I mean partly you are saying you got advanced materials, text balls, I mean realistically or any of those more attractive or less attractive than others?
Peter Huntsman
No, it all would depend on where the value is potential purchase price what we would fit the geographically would be and so forth. So, we really don't have a packing order that would say division A is going to get priority over division B or whatever.
It really is an area around opportunity for the great shareholder value and long term stability.
Frank Mitsch
Great, thank you Peter.
Operator
Your next question come from the line of Laurence Jollon with Barclays Capital.
Laurence Jollon
Good morning. Just regarding your comments on target levels of liquidity and the 800 million to $1 billion range, I jus wanted to confirm that first.
And then secondly, if I think about your -- tax payment and redemption of a two-bond issues of the $1.7 billion in cash -- sorry.
J. Kimo Esplin
I am sorry, I only got part of that. Let me just confirm again 800 to $1 billion of targeted liquidity today.
As we look to the future, I dint hear the rest question, I'm sorry.
Laurence Jollon
I apologize; can you hear me better now?
J. Kimo Esplin
A little bit, yes, please if you wouldn't mind.
Laurence Jollon
I apologize. So your target levels of equity of 800 million to 1 billion, if I think about your liquidity levels post-tax settlement as well as or tax payment I should say and post redemption of the two bonds issues, I think about pro forma cash, I'll call it 1.7 billion and if you right size your revolver maybe half the size, currently as I think about liquidity, I'll call it a 1.9 billion.
So, given your target liquidity levels, you have about 800 million to 1 billion of cash that you can put to work. So I wanted to make sure one that I am thinking about that correctly and then two, is that targeted towards acquisitions, shareholder dividends or continued debt repayment?
J. Kimo Esplin
Well, we are going to weigh all of our opportunities and we would include further debt repayments and growth opportunities as Peter has indicated. We would consider about maintaining that sort of 800 to $1 billion of liquidity.
As you ran through the numbers, I didn't follow exactly how you are getting to the 1.9 billion. Again if you start at the sort of $3 billion and recognize, we've taken out about $500 million of notes, round it up roughly $200 million of taxes and some fees in there.
And you have the revolver right. And so the revolver is a question, how much we will need and as we have indicated, it will be much smaller than it is today going forward.
Laurence Jollon
Okay, and...
Peter Huntsman
We don't see anything wrong with having more liquidity than $1 billion.
Laurence Jollon
I guess my concern from a credit perspective, which is the -- as the business ramps back up and who knows when that will be, we all know that Huntsman has significant working capital requirements during gross phases in '07 and '08, I think you burned 3 to 400 million of cash from working capital. So, I guess the question is do you feel like that's enough.
J. Kimo Esplin
Absolutely. And that's how we've sort of taken a look at what our working capital needs are.
And I think your 3 to 400 million is high in 2008 earnings. Certainly inventories did that; they were offset with payables and are accounts receivables securitization funding that grows as AR grows.
Laurence Jollon
Okay, that's great; thanks for the color. And then just house keeping question if you don't mind: would you mind giving us the operating cash flow number for the second quarter first and then secondly to 63 million of restructuring costs in the quarter or are those largely cash in nature?
J. Kimo Esplin
The 63 million of restructuring charges will be cashed. They are cashed at the time we take the charges.
We always have a fairly robust footnote in our Q that we will walk you through it. I don't have any other number back in mind.
My Q, which will be filed today. Net cash provided from operating activities for the six month's 2009 was 1.9 billion.
Laurence Jollon
Thanks very much.
Operator
Your next question comes from the line of Michael Boam with BlueBay Asset Management. Please proceed.
Michael Boam
Hi it's a Mike Boam with BlueBay Asset Management.
Peter Huntsman
Hello Mike.
Michael Boam
Hi. I just have a sort of follow up, a lot of more questions have been asked, but I'll just follow-up on one Laurence's.
I just wonder in terms of the facilities that we saw in this part of the litigation supplement; are there any restrictions on the cash that's been injected by Huntsman Corporation into Huntsman International. Anyway you've been refunded shows, because I know that return loans half short-term maturity or maturity on demand such a very good prohibits the department of those special dividends?
J. Kimo Esplin
Well, within the Huntsman International, where the debt facilities sit including the facilities we received in the settlement, they have the typical restrictions in the credit agreement, the unsecured notes have typical intensity of restrictions as it relates to dividends and other types of payment. The $632 million of cash went to Huntsman Corporation and there are no indentures of credit agreement limitations as it relates to that cash.
At the end of the quarter, we have roughly $1 billion of cash at Huntsman Corporation.
Michael Boam
Okay. But what I mean appreciate it or the cash flows captured in the restricted payment capacity and that cash effectively just slowed, but one of the appropriate.
I guess when I was asking is was there anything in any of the Credit Suisse or Deutsche Bank facilities provided an actual restriction against those cash flows? Or are those two facilities effectively essentially exactly the same as everything else and there is no limitation on that cash flow, but...
J. Kimo Esplin
I think you'll find the unsecured notes very similar to the subordinated indentures that we have and the terms fee facility looks just like the credit agreement in turn of the...
Michael Boam
Okay. Then I guess let's go back to, I don't know three years.
I think at one point in time, management I think, it's fair to say probably just once with the widest stock traded post the initial public offering. I'm wondering you came on publicly at that time and said was that you now more appropriate enhancements to become an investment grade related company, largely because I think you felt the leverage on the company was effectively suppressing the equity volume.
I just wonder if that's still some today, because obviously with the money that you've received through these various settlements, you have a very opportune moderns to substantially reduce leverage permanently, and as you say, maintain very adequate liquidity.
J. Kimo Esplin
Well, I don't recall the feelings or the expression that our ratings was suppressing our equity values couple of years ago. I mean, listen we are believers in the de-leveraging.
We think we have more debt than we'd like right now. We feel comfortable with our liquidity and our flexibility.
But obviously with this down turn, we are exploring a deeper cycle than we ever have envisioned, and I think that's probably the case with all of our competitors throughout the world. So, we are committed to de-leveraging; that's not to say we won't take advantage of opportunities that will create significant value along the way here.
But you remember the 1.7 billion that we've received, the 1.1 billion is debt. Low cost coupon flexible debt.
And so that will give us the liquidity we need and we are paying down other high coupon debt, but it wasn't just pure cash for de-leveraging. For the most part, it provided us greater flexibility and good economics additional liquidity.
Peter Huntsman
I think that your comment also from three years ago was around the context of our strategy and our decisions to sell off some of our commodity assets, which I think looking back on a three years ago, the value that we obtained and the timing of the sell off of our olefins, polyolefins, butadine businesses and so aromatics businesses was right on. I think that we certainly had an objective then.
We do think our debt and looking at improving the quality of our cash flows as well. So I think that we've accomplished those objectives largely in the last three years.
And today we find ourselves in certainly different operating environments, but environments nonetheless, where we see a lot of future potential here.
Michael Boam
Okay. And then if I can have one final question, I'd like to touch on the TiO2 subjects.
I guess historically again some new set, but it's going to be something analysts said of Huntsman. In terms of portfolio, you'd look to position yourselves in high growth markets, which TiO2 suffer maybe Asia is necessarily one.
And I think it's fair to say that people know that this industry needs to be consolidated given the poor pricing environment and profitability in the industry as a whole. Now obviously titanium ox (ph) is potentially off the side at the moment.
If it is you could acquire that at a substantially discounted price, would you be that you would be interested irrespective of the growth prospects for the industry?
Peter Huntsman
I think that we wouldn't want to comment anymore that we already have on that. If we see opportunity that will benefit our shareholders, we'll certainly look at it very closely.
I think that as we said in the past, the TiO2 industry is a good industry. It's got great prospects, we believe, and we'll look at it on a case-by-case basis.
Michael Boam
Okay, thank you very much.
Peter Huntsman
Thank you. Operator, I think we've got just a few more minutes here to top the hour.
So, we'll take one or two more questions.
Operator
Yes sir, your next question is from the line of Roger Smith (ph) with Bank of America.
Peter Huntsman
Hi Roger.
Unidentified Analyst
Hi, good morning guys. In performance products your Q2, '09 margins expanded as raw material fell faster than selling prices.
With raw materials, I presume now rising, have you been seeing recently your margins compressing as raw materials raised perhaps faster than your selling prices?
Peter Huntsman
It's a little too early to get into where we are heading in the third quarter and I would just say that we are in that business, we are taking a very aggressive stand on pricing. And I think that we are making good headway here.
Unidentified Analyst
Okay, great. Thank you.
Operator
Your next question will come from the line of Bill Young with Kens Pick (ph). Please proceed.
Peter Huntsman
Good morning, Bill.
Unidentified Analyst
Hi Pete and Kimo.
J. Kimo Esplin
Hi, Bill.
Unidentified Analyst
Hi. Could you for both the advanced materials and polyurethanes give us what your mix is today, say, where you to find it commodity end versus value added specialties and what your gold is say by the end of 2010?
Peter Huntsman
I think that as we look at our advanced materials, I'm going to look to Kimo here to get some percentages. If we look at advanced materials, we look at our component business and our formulated business and we bought that business largely.
It had a very large base resins business. And we found that we were juts competing very aggressively against Dow and Hexion, and we're really one of the industry low cost producers.
Remember after we bought that business, our sales dropped as we got out of the more commoditized into that business and focused more on the components and the formulated side of that business. And I think as we look at our earnings in that business, that's probably about 80 to 85% of our earnings in that business.
And I would hope that over the course of the next year or so that we will continue in our advanced material to see 80 to 90% of our -- both of our growth and of profitability coming from the formulation and components. And then that would be your induced applications in the electronic -- electrical infrastructure, the aerospace industry, do-it-yourself engines and so forth, on the polyurethane side of the business.
On MDI, I kind of struggled with the question, because a lot of the bulk applications that we have in MDI, when I say bulk, I mean the product variable sellout by real count and so forth, we are going to the OSV and insulation applications at which we are very strong, and I think that our formulations and service net area are segments in that industry. And I think that will continue as we look over the next few years run energy conservation constructions coming back in the next few years.
I think that those will continue to be growth drivers for our business. I don't see too much of a change in our polyurethane strategy around MDI.
J. Kimo Esplin
When you look at advanced materials and you look at sort of what percentage of our sales are flowing into that BLR basically for the epoxy resin business, it's about 15% of our business.
Peter Huntsman
Our margins are lot lower than that.
J. Kimo Esplin
Yeah, absolutely. The base business right now is a breakeven business for us from a profitability standpoint, but the base resins are important.
We consume those base resins in the formulated product downstream. It's just that roughly 15% of our sales are coming to third parties -- are going to third parties from base resins, direct sales.
As it relates to polyurethanes, obviously we like the whole MDI business and the systems businesses, and we feel like those are very differentiated even when we are selling MDI directly not in a system. Obviously the propylene oxide, that MTBE business is important, because propylene oxide goes into polyolefin ultimately our system.
The MTBE piece is clearly -- is a commodity. And when you look at PO/MTBE sales, they are roughly 150 to $200 million a quarter.
I think in the second quarter, they were roughly $172 million. That's clearly the more commoditized part of the Polyurethanes business.
Peter Huntsman
Yeah, polyurethanes is to do without MDI, Bill. I think that we have -- we really, I think, did a very effective job about two years ago, three years ago and we had a new divisional President winning in and we really set our focus on two or three major applications and a couple of sub-set applications expanding in Asia and so forth.
And I think that we -- I don't see a lot of change now. I think it's the right strategy today and I think it will continue to see our polyurethanes business grow faster than our peers.
Unidentified Analyst
Well, what I struggle with is on the mail car shipments of MDI for say insulation or OSP, it was bulk MDI, like in the other guys emulate that and get a little more price competition.
Peter Huntsman
Well, I think that you probably can emulate the being a bought product. But I think that, we put ourselves certainly on the consistency of our product, the competitiveness of our service and so forth.
A lot of these products go to mills, where you are building OSP, materials, your mills are stacked and they're built around our materials. We are the material therefore start up, and so it's not just a matter of shifting from Huntsman product to be a buyer product every month whoever has got the cheapest product.
As you look at the insulation grades and so forth that we are producing, those are formulated base products, where we are selling the MDI -- we're also selling the form-related components go with that. And the end-used application so forth, I think that we are unique and we are the best in the industry in servicing those applications.
Now that other MDI applications, I would probably tip my hand at to be a buyer and say that they try put more effort behind those than we do.
Unidentified Analyst
Okay.
Peter Huntsman
So, I think we're unusually strong in those areas and we'll continue to put resources of development in customer service behind that.
Unidentified Analyst
Okay, great. Thanks Peter and Kimo
Peter Huntsman
Thanks. Operator, I think that we'd like to conclude the Q&A at this time.
And thank all of you for joining us. And again I would invite anybody, who have any questions, give Kurt Ogden a call, who is in charge of our Investor Relations.
If there are really difficult questions and you want call on a Sunday afternoon, call Kimo Esplin, and he'd love to take your questions. So, thank you all very much.
J. Kimo Esplin
All right thanks.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Good day.