Filed by Millennium Chemicals Inc.
Pursuant to Rule 425 under the Securities Act of 1933 and
Deemed Filed Pursuant to Rule 14a-12 under the Securities Exchange Act of 1934
Subject Company: Millennium Chemicals Inc.
Commission File No. 1-12091
Date: May 19, 2004
EXPLANATORY NOTE: On May 18, 2004, Millennium Chemicals Inc. held a conference
call to discuss the first quarter results for the 2004 fiscal year. The
following transcript of the conference call is being filed pursuant to Rule 425
under the Securities Act of 1933.
PRESENTATION
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OPERATOR
Please stand by for the Millennium Chemicals conference call. Good afternoon,
ladies and gentlemen and welcome to the Millennium Chemicals first quarter 2004
earnings conference call. At this time, all participants have been placed on a
listen-only mode and the floor will be opened for your questions following the
presentation. It is now my pleasure to turn the floor over to Thomas Van
Valkenburgh, Manager of Investor Relations. Sir, the floor is yours.
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THOMAS VAN VALKENBURGH - MILLENNIUM CHEMICALS INC. - MANAGER INVESTOR RELATIONS
THOMAS VAN VALKENBURGH
Good afternoon, and thank you for participating in Millennium Chemicals' analyst
conference call and welcome to those participants on the Internet. Today we will
cover results for the first quarter 2004 and our outlook. Speakers include Jack
Lushefski, our Executive Vice President and Chief Financial Officer and myself,
Thomas Van Valkenburgh, Manager of Investor Relations. Bob Lee, our President
and Chief Executive Officer is also here for the question-and-answer portion of
the call. As we announced in the invitation to this conference call, you can
view the slides and listen to our presentation live by accessing our website
www.millenniumchem.com and clicking on the Investor Relations icon.
The slides available to our Internet participants are meant as an enhancement
tool and they contain information which is either in our press release or which
we will discuss during this presentation. The slides will automatically move
forward during the presentation on your screen. Before we start, our lawyers
asked me to preface with our Safe Harbor legal statement. The statements made on
this conference call relating to matters that are not historical facts are
forward-looking statements. Our forward-looking statements are present
expectations. Actual events and results may differ materially due to the impact
of factors, such as industry cyclicality, general economic conditions,
production capacity, competitive products and prices and other risks and
uncertainties detailed in the company's SEC filings. Please note we disclaim any
obligation to update our forward-looking statements. In addition, any non-GAAP
financial measures discussed in this presentation will be reconciled to the most
directly comparable GAAP measure either in the presentation itself, or in
information to be posted with our presentation materials on our website.
In addition, in connection with the proposed business combination, Lyondell and
Millennium have filed relevant materials with the SEC, including our
registration statement containing a preliminary joint proxy statement and
prospectus which was filed on April 26, 2004. The definitive joint proxy
statement and prospectus will be sent to holders of Lyondell and Millennium
common stock when it becomes available. Investors and security holders are urged
to read the preliminary joint proxy statement and prospectus on file with the
SEC. The definitive joint proxy statement and prospectus, when it becomes
available, and any other relevant documents filed by Lyondell or Millennium
because they contain or will contain important information. Investors and
security holders may obtain a free copy of the preliminary joint proxy statement
and prospectus and a definitive joint proxy statement and prospectus when it
becomes available and any other documents filed by Lyondell and Millennium with
the SEC for free, at the SEC's website at www.sec.gov.
The preliminary joint proxy statement and prospectus and a definitive joint
proxy statement and prospectus when it becomes available and the other documents
filed by Millennium may also be obtained free from Millennium by calling
Millennium's Investor Relations department at 410-229-8113. The respective
executive officers and directors of Lyondell and Millennium and other persons
may be deemed to be participants in the solicitation of proxies in respect of
the proposed transaction. Information regarding Lyondell's executive officers
and directors is available in its proxy statement filed with the SEC by Lyondell
on March 16, 2004, and information regarding Millennium's directors and its
executive officers is available on Millennium's amendment number one to its
annual report on Form 10-K for the year ending December 31, 2003, which was
filed with the SEC on April 27, 2004.
Other information regarding the participants in the proxy solicitation and the
description of their direct and indirect interests, by security holdings or
otherwise, is contained in the preliminary joint proxy statement and prospectus
and other relevant materials filed with the SEC and will be contained in the
definitive joint proxy statement and prospectus and other relevant materials to
be filed with the SEC. Turning now to Millennium's performance in the first
quarter, Jack will begin and will cover the financials and I will cover TiO2,
Acetyl, Specialties and Equistar, then we'll be glad to answer questions. Jack.
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JACK LUSHEFSKI - MILLENNIUM CHEMICALS INC. - CFO, EVP
Thanks, Tom and I hope you are all still with us after that lengthy disclosure
and disclaimer statement. First quarter highlights. Millennium reported a net
loss for the first quarter of 2004 of 10 million. Operating income in the first
quarter of 2004 for the titanium dioxide segment improved by $11 million,
compared to the fourth quarter of 2003, excluding the asset impairment charges
in the fourth quarter of $103 million. Global demand for titanium dioxide was
very strong in the first quarter of 2004, with positive pricing momentum
beginning in almost all major markets. Margins for our Acetyls business were in
line with the fourth quarter of 2003 despite higher raw material costs, in
particular, natural gas. Equistar's results were positively impacted by higher
average prices and strong demand. In addition, Millennium lowered its net debt
by $34 million during the quarter. This is extremely important, since debt
reduction is our highest priority this year.
Tom will discuss individual business segment performance in more detail, when I
complete my comments. Moving to the next slide. This slide provides a
reconciliation from our reported GAAP net loss to the adjusted loss we provide
and will discuss on a subsequent slide. Increase in legacy liabilities,
professional fees related to our proposed business combination with Lyondell,
and reorganization costs related to the cost reduction program announced last
year are highlighted as reconciling items for the first quarter 2004. Let's now
move on and discuss millennium's adjusted profit and loss summary slide, which
provides abbreviated statements of operations to arrive at an adjusted net loss
after exclusion of certain designated items. Table five in our press release
provides a reconciliation from these figures to reported GAAP results detailing
each reconciling item on an after-tax basis similar to our last slide.
Adjusted operating profits for first quarter of 2004 was $23 million, down $4
million from the first quarter of last year, but up $15 million from what was
earned in the fourth quarter of 2003. First quarter net interest expense was $25
million, up $3 million from the expense level for the first quarter of 2003, and
up about $1 million from the fourth quarter of 2003. Our share of Equistar's
operations on an after-interest basis generated equity earnings of $2 million in
the first quarter of 2004, compared to an adjusted equity loss of $39 million in
the first quarter of 2003. The adjusted net loss after tax for the quarter was
$3 million, or 5 cents per share, versus a net loss of $23 million or 36 cents
per share for the first quarter of 2003. Turning to our balance sheet and cash
flow, net debt at the end of the first quarter was $1.224 billion, a balance
that is $34 million less than the balance at the end of the fourth quarter of
2003. The $34 million reduction in net debt during the first quarter of '04 was
primarily due to a decrease of $22 million in trade working capital, and a
fairly low level of capital expenditures.
Cash balances totaled $196 million at the end of March and together with our
revolving credit facility availability provided Millennium with a significant
amount of liquidity. In the first quarter of 2004, the company repatriated cash
of approximately $107 million from Australia and Europe to the U.S. The cash was
used to reduce outstanding borrowings under the company's credit agreement and
for general corporate purposes. At the end of the first quarter of '04, the
company had $21 million of outstanding undrawn letters of credit and no
outstanding borrowings under the credit agreement. And accordingly, had $129
million of unused availability under this facility. The next slide details our
change in net debt during the first quarter of '04. Depreciation and
amortization expense in the first quarter was $24 million, compared to $27
million in the first quarter of '03.
The lower depreciation and amortization charge was primarily due to the
write-down of property, plant and equipment at the company's Le Havre TiO2
manufacturing plant. That write-down was taken in the fourth quarter of 2003.
Asset impairment charges recorded in the first quarter of '04 reflect the
writeoff of capital spending at the Le Havre TiO2 plant during the quarter due
to the impairment in value. Interest payments were negligible during the quarter
and as I previously said, capital expenditures were fairly low. Trade working
capital defined as accounts receivable, plus inventory less accounts payable,
contributed cash for the quarter of $22 million. TiO2 finished goods inventory
units decreased by about 5% in the first quarter of '04 and Millennium's average
days of finished goods inventory was about 60 days.
Raw material inventory also declined. The use of cash for other assets and
liabilities represented cash used to fund pension trust, retiree healthcare, pay
annual insurance premiums and other long-term liabilities. I'll close with a
slide showing the history of capital spending and an estimate of that figure for
2004. Capital spending in the first quarter of '04 was $10 million, compared to
$8 million in the first quarter of '03 and $19 million in the fourth quarter of
'03. We will continue to control capital spending and full-year capital spending
is expected to be approximately $60 million. Now, I will turn it over to Tom,
who will discuss some details about performance in our business segments and at
Equistar.
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THOMAS VAN VALKENBURGH - MILLENNIUM CHEMICALS INC. - MANAGER INVESTOR RELATIONS
THOMAS VAN VALKENBURGH
Thanks, Jack. Looking at TiO2 operating income, the titanium dioxide segment
reported first quarter 2004 operating income of $12 million, compared to $21
million in the first quarter last year and $1 million of operating income in the
first quarter of 2003. The fourth quarter 2003 operating income excludes the
$103 million of asset impairment charges. The sequential increase from the
fourth quarter 2003, to the first quarter of 2004 was due primarily to both
higher sales volume and lower cost of goods sold. Turning to the next slide. In
U.S. dollar terms, the average global first quarter price was similar to both
last year's first quarter, and the fourth quarter of 2003. In local currencies,
average first quarter prices decreased 7% from last year's first quarter and
decreased 3% from the fourth quarter of 2003.
Local European prices were down as a result of weaker economic conditions during
the quarter, compared to other regions of the world and where the primary
contributor to the decline. The price increases that were announced in the first
quarter 2004 are being phased in through the second quarter of 2004. Turning to
global sales volume, first quarter of 2004, TiO2 sales volume of 167,000 metric
tons increased 15% from the first quarter of last year and increased 11% from
the fourth quarter of 2003. Millennium estimates that the total global TiO2
market increased three to 5% versus the first quarter of last year. Improved
global economic conditions primarily account for the increased demand.
The company's TiO2 market share increased, which is consistent with the
company's objective of offering leading market performance products and being
price competitive in all markets to regain market share lost over the last few
years. Asia Pacific represented the company's largest percent sales growth
region in the first quarter of 2004, compared to the first quarter last year.
Taking a look at the global operating rate, the first quarter 2004 TiO2 plant
production operating rate was 93% of annual name plate capacity of 690,000
metric tons compared to an operating rate of 88% in both last year's first
quarter and the fourth quarter of 2003.
The decrease in name plate capacity to 670,000 metric tons will occur in the
second quarter, and is primarily related to a rationalization of production
equipment at the company's Le Havre manufacturing plant, partially offset by
increases at capacity at both the company's Ashtabula, Ohio and Australian
chloride plants. TiO2 outlook, seasonal higher sales volume and improved local
currency pricing is expected in the second quarter of 2004. The company expects
higher prices as a result of implementing previous price increase announcements,
however, lower production volume due to scheduled maintenance downtime at
several plants is expected to increase cost of goods produced. Turning now to
Acetyls, the Acetyls segment reported first quarter 2004 operating income of $9
million compared to $7 million in the first quarter of last year, and $9 million
in the fourth quarter of 2003. In the aggregate, the weighted average U.S.
dollar price for VAM and acetic acid in the first quarter of 2004 increased 4%
from prices both in the first quarter of 2003 and in the fourth quarter of 2003.
Aggregate sales volume for VAM and acetic acid in the first quarter increased 8%
from the first quarter of 2003 and increased 3% from the fourth quarter of 2003.
Turning now to Acetyls' outlook., sales volume is expected to be similar to the
first quarter of 2004, and local currency sales prices are expected to be
slightly higher than the first quarter of 2004. Scheduled maintenance shutdowns
will also reduce production in the Acetyls segments and higher natural gas costs
may compress margins.
Turning now to Specialties. The Specialties chemical segment reported first
quarter 2004 operating income of $2 million, compared to operating income of $2
million in the first quarter 2003, and an operating loss of $1 million in the
fourth quarter of 2003. Sales volume increased 8% from the first quarter of
2003, and was 21% higher than the fourth quarter of 2003 due to seasonal demand.
Average selling prices decreased 4% compared to both the first quarter of 2003
and the fourth quarter of 2003 primarily due to changes in product mix. Business
conditions in the second quarter of 2004 are expected to be similar to the first
quarter of 2004. Now turning to Equistar, Millennium's 29.5% stake in Equistar
generated equity earnings on investment of $2 million in the first quarter of
2004, compared to an equity loss of $43 million in the first quarter of 2003,
and a $31 million equity loss in the fourth quarter of 2003.
Improving economic conditions and tight supply demand balances in several
Equistar products contributed to improved results during the quarter. Compared
to the first quarter of 2003, the first quarter of 2004 results improved
significantly due to the average prices for ethylene and ethylene derivatives
increasing by approximately 3 cents per pound. Equistar's combined ethylene and
ethylene derivative sales volumes increased by approximately 5%. Compared to the
fourth quarter of 2003, the first quarter of 2004 results improved significantly
as ethylene and ethylene derivatives such as ethylene -- ethylene oxygenates and
polyethylene prices averaged two cents per pound to three and a half cents per
pound higher than during the fourth quarter. Price increases in Equistar's
products, more than offset the impact of rising raw material costs driven by
average crude oil prices that were four dollars per barrel higher in the first
quarter of 2004 versus the fourth quarter of 2003. Significantly higher
co-product prices such as polypropylene, benzene and fuels more than offset the
impact of an increase of approximately $100 million in crude oil base liquid raw
material costs for all of Equistar.
Ethylene and ethylene derivative volumes were relatively unchanged versus the
fourth quarter of 2003. Take a look at Equistar outlook. The level and
volatility of crude oil and natural gas prices continue to negatively impact the
industry, creating uncertainties both for near-term project margin and demand.
Although Equistar continues to face raw material price uncertainties, improving
industry conditions have enabled Equistar to deal with this volatility more
successfully than during the past three years. If Equistar continues to
experience solid global economic growth and some stabilization of energy prices,
Equistar's business could enjoy very positive conditions later in the year.
Before I turn the call over to your questions, I need to remind you that
Millennium's and Lyondell's proposed business combination has not closed. We
purposefully have not discussed the Millennium and Lyondell combination during
this call. We are also very limited in terms of the breadth and depth of
discussion that we can have regarding the proposed business combination.
Therefore, I apologize in advance if we have to respond to some of your
questions with a very minimal answer or even by saying that we can't comment at
this time. This now concludes the formal part of the presentation. Thanks for
your attention and now we'd be happy to take your questions.
QUESTION AND ANSWER
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OPERATOR
Thank you. The floor is now open for questions. [Operator instructions]
Your first question is coming from John Roberts of Buckingham Research. Please
state your question.
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JOHN ROBERTS
Good afternoon, guys.
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UNIDENTIFIED
Hi, John.
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JOHN ROBERTS
There was a significant tax advantage once upon a time about keeping Acetyls and
the Equistar ownership in the same legal entity and then I think it faded as an
issue as you generated enough losses to offset any gains of separating the two.
Does that issue go away completely in this transaction with Lyondell that they
are completely distinct, separable assets or are they still sort of bundled
together the way they are being sold?
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ROBERT LEE
Well, John as Millennium will still exist as a reporting entity due to the bond
structure that we have, it's anticipated that the Acetyls group will stay within
the Millennium structure for the foreseeable future.
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JOHN ROBERTS
Okay. So the --
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JACK LUSHEFSKI
John, this is Jack. The Acetyls business is held in asset form by the same
company that owns the 29.5% share of Equistar.
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JOHN ROBERTS
Okay.
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JACK LUSHEFSKI
And we have not changed that, and I don't think as Bob said that there would be
any reason to change that going forward.
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JOHN ROBERTS
Okay.
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JACK LUSHEFSKI
And the separation issue in terms of - if you ever did want to separate the two,
it's no longer a cash, you know, tax issue.
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JOHN ROBERTS
And I asked the question because the Acetyls business, I don't know if things
are changing there. There's been a -- I think Acetex announced a joint venture
plan in Saudi Arabia and I know the technology has been relatively closely held
between you and Celenese and BP. I don't know if you are -- anything is changing
there in terms of the technology makes the business more attractive, less
attractive. Are you familiar with that plan that's been announced?
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ROBERT LEE
Yes, I think the timing for that John is somewhere past 2007. And, you know, we
believe that we do have superior technology to the Acetex group. We're watching
it closely. Certainly we'll see how that thing actually measures out, if they
actually get it built on time, on schedule. But -- I don't think at this point
in time it hinders the value of our group at all.
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JOHN ROBERTS
Okay, you didn't compete to do a project instead of them? I don't know if that
was a competitive technology bidding.
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ROBERT LEE
No, we did not.
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JOHN ROBERTS
Thank you.
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OPERATOR
Thank you. Your next question come is coming from PJ Juvekar of Smith Barney.
Please state your question.
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DEREK SADOWSKI
Good afternoon, this is actually Derek Sadowski sitting in for PJ. I'm looking
at your titanium dioxide volumes. The operating rates are improving and it seems
like [unintelligible]price increases and it's starting to stick. And I was
wondering how come you or anybody else in the industry hasn't stepped up and
announced additional price increases?
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ROBERT LEE
Good question, Derek, but we did in Southeast Asia, Middle Eastern Africa, and
central and South America on --
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UNIDENTIFIED
May 7th.
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ROBERT LEE
We announced May 7th for effect July 1st. So we're out there. One of our
competitors is also out there in some of those markets. It is happening.
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DEREK SADOWSKI
But nothing else in North America?
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ROBERT LEE
Right now, people are focused -- we're focused and others are focused on
implementing the price announcement that was made earlier this year, the 5 cents
that we announced in February. We and we believe others in the industries are
determined to get all that 5 cents.
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DEREK SADOWSKI
Okay.
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JACK LUSHEFSKI
Derek, you have to remember we were dealing also in the first quarter with the
price increase that was announced last year in '03. So we had one price increase
from '03, which was being implemented. Then, of course, the price increase that
we announced pretty much globally in the first quarter of '04 and now recently
another round of price increases that Bob just mentioned. So certainly within
the past couple of months there have been a lot of price increases in almost all
the major markets.
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DEREK SADOWSKI
Okay and you also announced a price increase in VAM. Was that increase put in
place mainly to offset high raw materials or are you expecting some additional
margin expansion from that increase?
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ROBERT LEE
Well, basically it -- natural gas prices, as they are today, that increase is to
maintain margin.
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DEREK SADOWSKI
Okay.
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ROBERT LEE
If natural gas should settle, settle back some, we'll have an opportunity to
improve margin, but right now, we are passing on our costs.
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DEREK SADOWSKI
Okay. Great. Thank you.
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OPERATOR
Thank you. Your next question is coming from Bill Young of Credit Suisse First
Boston.
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BILL YOUNG
Good afternoon, gentlemen.
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ROBERT LEE
Hi, Bill.
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BILL YOUNG
On this TiO2 thing, it's hard to get your hands around which price increase is
going through when, but have you actually been paid a higher price in the
beginning of the second quarter or maybe say another way, why are you so
confident after -- after months and months and months of prices not going up
that they are finally getting up? And related to that, you said your inventories
were better what do you hear about producing inventories overall in the TiO2
area?
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ROBERT LEE
I will take, Bill, the first one the confidence about price. Obviously it's a
customer interface issue. We have constant dialogue with our customers. I think
if you have listened to some of the paint manufacturers recent conference calls,
you hear them saying with some resignation that the raw material costs are going
up. They are seeing -- they are seeing strong demand pull through in the
coatings segment, especially. They are seeing tremendous profit improvement and
they see the ability to pass along costs. So they are passing on price increases
in anticipation of these. And quite frankly, it's a fairly tight market. Nobody
has put on any additional capacity, of significant size in quite a while and
quite frankly the recent announcement in the industry by ourselves, by Kerr
McGee and by Huntsman of actually reducing capacity for [unintelligible]
capacity around the world has got the -- it's got supply/demand relatively
balanced and we're able to get some price improvement. Now it's not happening as
quickly as we would like, and we're muddling our way through it and part of that
was the confusion of those price increases as you were talking about. Some of
them sliding in from last year but that confusion is now out of the market place
and we're seeing it happen.
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BILL YOUNG
You're realizing more into your banks from -- you know what you are collecting?
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ROBERT LEE
That's correct. We are starting to realize more into our bank. Absolutely.
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ROBERT LEE
On the inventory side for the industry as I a whole, basically the industry is
below 60 days. Probably in the 45-day range would be our estimate. We're below
60, slightly higher than probably the industry; although we have made a
significant dent in our inventory position, and continue to as we're in the
coating season. We think all conditions are aligned to allow our price to
improve, especially in North America and Asia. I mean, our demand in Asia as
Jack mentioned was phenomenal first quarter. We had significant growth and now
we're -- you know, we're relatively balanced in our inventory position.
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BILL YOUNG
One follow-up on that. I keep asking this question because I'm not an expert on
it, but it seems like we're getting an awful lot of rain in the upper Midwest,
and the Northeast again this season. How would you compare it to last year when
the weather was not really conducive to a lot of painting?
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ROBERT LEE
Well, it's certainly better this year than it was last and paint is flying off
the shelves. Our -- our paint customers and the big boxes don't hold a whole lot
of inventory, this stuff is being pulled through. And economic conditions are
much better. So people are continuing on with projects.
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BILL YOUNG
Okay. Thanks very much, Bob.
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ROBERT LEE
Take care.
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OPERATOR
Thank you. Your next question is coming from Bob Goldberg of New Vernon
Associates.
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BOB GOLDBERG
Good afternoon.
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ROBERT LEE
Hi, Bob.
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BOB GOLDBERG
Is there any particular reason why your inventory levels should be above the
industry average?
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ROBERT LEE
Because it's been that way from -- for almost a year now. We were -- Bob, our
inventory got substantially out of control in the summer of last year, after we
came out of the spring where we had no coating season. We had no -- we had SARS,
we had the Gulf War, we had the plants running at high rates with phenomenal
reliability, and we have been managing it down, as logically as we can, pretty
much since July. So it's still higher than the industry average. But it's
substantially less high. It used to be almost double the industry average. And
it's a lot lower now. We're taking a very logical approach to how we get it down
and optimize total cash flow.
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BOB GOLDBERG
You had a very good cash flow quarter in 1q. Is it fair to assume that there is
going to be further reduction in inventory in the second quarter which would
drive additional --
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ROBERT LEE
Well, what you will see in the second quarter, Bob is we had a phenomenal volume
quarter in the first quarter. So inventory was reduced but that money is
basically still tied up in receivables. Those receivables will be collected and
inventory reduction continues to happen. So the second quarter should be a great
cash quarter for us. Yeah, having said that we also have significant interest
payments to make in the second quarter but the good news is unlike last year,
where we had to borrow the money to pay our interest payments this year we can
fund it from operational cash flow, which is terrific.
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BOB GOLDBERG
I'm also fuzzy on the -- you gave a reconciliation of GAAP to non-GAAP, what are
the -- were the asset impairment charges of $3 million was that not considered a
special item?
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ROBERT LEE
That was the depreciation in Le Havre. In effect we wrote down the assets. So
when we spend capital at that plant, we're not allowed to capitalize it. So in
effect that's the capital we spent at Le Havre plant.
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JACK LUSHEFSKI
We didn't hold that out as designated because essentially the depreciation if we
had not had that charge would have been $3 or 4 million and the capital that we
spent was $3 million. So the numbers were substantially the same.
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BOB GOLDBERG
I understand that, but in the second quarter you won't have the capital or the
depreciation. So isn't the base level --
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JACK LUSHEFSKI
We will -- we will continue to spend some capital at Le Havre. We're doing
everything we can to minimize that, of course, but there are necessary
replacements and other projects that will need to be completed during the course
of the year. So we'll continue to spend some capital at Le Havre through the
remainder of the year.
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BOB GOLDBERG
Okay. And also on the TiO2 operating rate, can you give us some idea of where
the -- where the industry is globally in terms of an operating rate? You
obviously -- it's 93% for yourselves but where is it?
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ROBERT LEE
We estimate that the industry as a whole probably operated in the first quarter
at about 90%. We were slightly higher than that. So maybe they were low 90s and
we were 93. Not -- not that dissimilar.
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BOB GOLDBERG
And where would you say you need to be to get -- obviously you're saying the
price increases are not coming quite fast enough and that's probably a function
of the operating rate not being quite high enough. Is that fair?
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ROBERT LEE
It's -- it's -- partly, Bob. It's also a function of mind set changes. Prices
have been falling for so long for our customers that it's been difficult to
convince them that -- that it's time for prices to go up, that the supply and
demand is balanced, that -- that it's time. They are seeing their business take
off quite nicely. And we believe that we will enjoy high operating rates for the
foreseeable future. I mean, for the balance of the year. We believe the industry
will enjoy high operating rates for the balance of the year, because we think
the demand is there to substantiate it.
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BOB GOLDBERG
What kind of demand growth do you think we may have this year for TiO2?
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ROBERT LEE
Well, we had originally projected back fall that we thought it would kick up to
5 to 7%. We're seeing -- we believe the first quarter was 3 to 5ish but now with
the bounce back and maybe it is catching up from demand and the fact that there
wasn't any significant demand last year, we think it might be a little more than
that 5 to 7% for the whole year.
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BOB GOLDBERG
Are you seeing that now? Or is it your expectation that it will continue to be
very strong?
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ROBERT LEE
We're seeing -- we're seeing some of that now, yes.
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BOB GOLDBERG
Thanks for the help.
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OPERATOR
Once again if you do have a question, you may press star one on your touch-tone
telephone at this time. Your next question is coming from Greg Goodnight of UBS.
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GREG GOODNIGHT
Good afternoon, gentlemen.
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ROBERT LEE
Hi, Greg
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GREG GOODNIGHT
You mentioned that your operating rates will be somewhat lower in the second
quarter. The Le Havre plant, as I see here is about 3% of your capacity. That's
coming out?
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ROBERT LEE
Yeah, we're taking out a net 3% I believe, yes.
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GREG GOODNIGHT
Right. Now, if -- excluding that 3%, will your operating rates be up, down or
flat?
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ROBERT LEE
We'll be -- it will be slightly down. We have a couple of significant, what we
call chlorinator terms which are significant projects at our chloride plants
that will slow us down to a little -- less -- certainly less than 93 but not
significantly less. Probably 90ish.
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JACK LUSHEFSKI
We will produce fewer tons in the second quarter.
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ROBERT LEE
Right.
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JACK LUSHEFSKI
But, again, because of the -- as you said, our capacity is going to drop. So the
number is going to be similar.
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GREG GOODNIGHT
Okay. I think I know where you are going now.
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JACK LUSHEFSKI
Yeah.
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GREG GOODNIGHT
The global capacity that you mentioned that came out, I'm aware of the Huntsman
-- I guess there were two plants one in South Africa and one in the UK which --
which we believe were about 1% of global capacity?
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ROBERT LEE
Right. And then we've, obviously talked about a net 3% of our capacity coming
out.
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GREG GOODNIGHT
Okay.
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ROBERT LEE
And then Kerr McGee announced that last year, that they were going to idle one
of their sulfate production lines in Savannah. We believe that was about 27,000
metric tons and they closed Antwerp a couple of years ago. That was about 30,000
metric tons.
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GREG GOODNIGHT
Okay. And all of those plants are now out? Shut down?
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ROBERT LEE
They are either out or idle. Yes.
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GREG GOODNIGHT
Okay. Next question if I could, chlorine prices, there was a significant
contract price increase in the second quarter. How much of a bite is that going
to take out of your margins in the second quarter? For TiO2?
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ROBERT LEE
That would affect our North American chlorine supply. Some of our other chlorine
supply, Greg, is effectively across the fence.
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GREG GOODNIGHT
Mm-hmm.
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ROBERT LEE
Formula driven in Australia and it's also different in the U.K. But in North
America we're locked into long-term contracts and won't feel that spike for a
while.
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GREG GOODNIGHT
Mm-hmm. Okay. So it may be a third quarter or fourth quarter issue rather than a
second quarter.
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ROBERT LEE
Correct.
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GREG GOODNIGHT
Okay. That's all I had. Thank you very much.
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ROBERT LEE
Thanks, Greg.
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OPERATOR
Thank you. Your next question is a follow-up coming from Bill Young, from Credit
Suisse First Boston.
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BILL YOUNG
Hi. For modeling purposes what would you recommend for tax rate for this year
and for next year?
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JACK LUSHEFSKI
We should probably stay around the 30% benefit rate, Bill, which is a little bit
different than what we had in the first quarter but that's about as close as you
will be able to get it.
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BILL YOUNG
30%. So that means you are not going to make a profit? Is that what you're
saying, 30% benefit rate.
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JACK LUSHEFSKI
We could do 30% either way.
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BILL YOUNG
Okay. Just want to clarify that. Okay. Thank you.
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OPERATOR
If there are any further questions, you may press star one on your touch-tone
telephone at this time. I'm showing no further questions at this time. I would
like to turn the floor back to the presenters for any further or closing
comments.
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OPERATOR
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