Good day, ladies and gentlemen, and welcome to the Huntsman Corporation fourth quarter 2008 earnings conference call. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Kurt Ogden. Please proceed, sir.

Thank you, operator, and good morning, everyone. My name is Kurt Ogden, Huntsman Corporation's Vice President of Investor Relations. Welcome the Huntsman's investor conference call for the fourth quarter of 2008. Joining us on the call today are Peter Huntsman, our President and CEO; and Kimo Esplin, our Executive Vice President and CFO. A recorded playback of this call will be available until midnight, March 5, 2008. The recorded playback may be accessed from the US by dialing 1-888-286-8010 and from outside the US by dialing 1-617-801-6888. The access code for both dial-in numbers is 46784120. A recording of this call may also be accessed through our website. This morning we released our earnings for the fourth quarter 2008 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 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 would like to outline the format for…

Kurt, thank you very much and thank you to all of you who have taken the time to join us this morning. I would like to draw your attention to slide number four in discussions with our Polyurethanes division. Our Polyurethanes business fourth quarter earnings were impacted broadly by four main factors. First, volumes were down as a result of the overall economic slowdown and customer destocking. Second, prices decreased primarily due to the strength of the US dollar against the euro, sharply lower Asian pricing and price pressure from the rapid declining raw material costs. Third, although raw material prices have fallen and lowered our cost of production, we still see higher valued raw material costs coming through our supply chain due to the lag time it takes to move costs through the inventory. Fourth, we incurred some nonrecurring items that were included in earnings, such as the lingering effects of Hurricanes Gustav and Ike in the US of $6 million and an inventory valuation charge related primarily to the decline in Asia pricing of $16 million. On a regional basis, we saw the largest decline in the Americas due in large part to further slowing in construction, which affected our composite wood products and insulation businesses, as well as a sharp drop in our sales to automotive suppliers. In Europe, which is our largest market for polyurethanes and represents nearly half of our volumes, the decrease in demand was driven by extended idling of automotive plants, construction activity in appliance-related customers slowing production in reaction to their reduced demand. Asia posted stable volumes as compared to a seasonally low fourth quarter last year and volume was negatively affected by a decrease of exports in the appliance and footwear markets, as well as a slowdown in domestic construction. We…

Thanks, Peter. Let's go to slide eight. We tried to provide a bit more transparency to our sales here. As you can see, revenue was down across all regions and across all segments as total company volume was down 21%, partially offset by a 3% increase in average selling price compared to the previous year. We have a very balanced global portfolio where our revenues are roughly a third US, a third Europe and a third rest of the world, Asia Pacific making up approximately 19% of the total. Asia was down farthest of all regions, as raw materials fell quicker and farther than other regions and destocking began really early November. Most of our businesses grow as a function of GDP. Global GDP was likely not down 20% in the fourth quarter, so, clearly, we have seen some industry destocking. This destocking impacted our company as it did the entire industry. No doubt our fourth quarter numbers reflect both the impact of a slowdown of GDP and this industry-wide destocking of inventory. Turning to slide nine, we feel that Huntsman is well positioned right now relative to our depth structure and liquidity. We currently enjoy low borrowing costs. Our weighted average borrowing rate is currently approximately 6.4% and our $1.5 billion term loan is priced at LIBOR plus 175. Our credit facility has covenant light features with the only financial covenant a senior secured leverage test of 3.75 times for the revolver that is only tested if drawn or letters of credit are issued and outstanding. At yearend, the revolver was undrawn with approximately $30 million of letters of credit outstanding. In addition to $629 million of unused borrowing capacity, we had $662 million of cash on the balance sheet at yearend. As you look at the maturity profile…

Thank you, Kino. In conclusion, the fourth quarter of 2008 was perhaps the most challenging in the history of our industry. However, we have taken decisive action to ensure the long-term prosperity of our business. We negotiated one the largest out of court settlements and collected $1 billion in cash from Apollo and Hexion to settle out a litigation against them and are pursuing a multibillion dollar lawsuit against Credit Suisse and Deutsche Bank. We recently announced the closure of our Grimsby, UK Ti02 facility, while at the same time temporarily suspending operations at a number of our other facilities to effectively manage the drop in demand we experienced during the quarter. We also announced the elimination of 1,250 positions, nearly 10% of our workforce whereby we expect to save approximately $150 million annually. All of our business divisions have seen an increase in demand since December of 2008. As we look at our sales volumes in January and February, I believe that the worst of industry destocking is now behind us and we will begin to see a more normalized recession level demand environment. With strong liquidity, lower costs and unfettered control of our business, we believe that we are in a unique position to focus on our company and prosper during these challenging global conditions. With that, I will turn the call over to Kurt.

Thank you, Peter. Before we take any questions, I would like to mention that we will be doing a [non-deal] roadshow March 2 through March 6. We will be traveling to a number of major cities in the US, including LA, Chicago, Boston, Philadelphia and New York, and hosting group lunches as well as one-on-ones. The purpose of these meetings is to reengage with the investment community and is not related in any manner to any security offering. Our one-on-one schedule is largely complete. However, if you are interested in participating in one of the group luncheons, please contact me directly at 801-584-5959. Operator, that concludes our prepared remarks. Would you explain the procedure for Q&A and then open line for questions?

(Operator Instructions). Our first question comes from Frank Mitsch with BB&T Capital Markets. Frank Mitsch - BB&T Capital Markets: Good morning, gentlemen. I must say I'm honored to be asking the first question on a Huntsman call in about a year or so.

Two years actually. Frank Mitsch - BB&T Capital Markets: Time flies when you're having fun, folks. Peter, I was struck by the use of the term "prosper." As I look at these three expectations for '09, it's not even calling for a dime in earnings for the year. Can you add some flesh behind why you believe Huntsman will prosper and what might that mean in terms of financial performance?

Frank, again, it's nice to hear from you and we look forward to seeing you here throughout the year. Look, 2009 is going to be a very challenging year. But I look at the company, we are in the process of working with insurance companies to collect another $200 million of insurance claims throughout the year. We have a multibillion dollar case against Credit Suisse and Deutsche Bank, and we would expect to be victorious there. We're in the process of cutting $150 million of costs out of our business. I think that this industry is going to go through a tremendous shakeup in 2009. I believe that you'll kind of see three buckets, if you will, of companies that come out of the backend of these challenging times. I think you'll see a group of companies that plainly just don't make it, that fall by the wayside, go through bankruptcy or do some form of liquidation. I think you'll see a second group of companies that will have to go through some massive transformation, selling off assets and so forth in order to survive. I think that there will be a third group of companies, which I believe Huntsman will be part of, that will be part of some industry consolidation that will be taking place, we'll have an opportunity while many of our competitors are going through some very dire times here, perhaps even struggling with bankruptcy over 2009 to stay focused on our business. Our liquidity is strong and I think that we are going to come out of 2009 a stronger company than when we went into 2009. I'm not in denial here. This is just going to be a tough and challenging year. But at the same time, I believe that this company has a number of opportunities that are unique to Huntsman that will provide value throughout the year and better position us to create value for our shareholders. Frank Mitsch - BB&T Capital Markets: All right. That's very helpful. Certainly, you make the point about the liquidity of the firm being quite strong at this point in time. There had been talk in certain circles that perhaps as we progressed through the year, the company might look at a special dividend. But if I hear you talk, Peter, I mean it sounds like you believe that there will be opportunities to add on to the Huntsman portfolio and strengthen various business segments as we progress through 2009. Is that fair?

Well, I think that we're going to be looking for opportunity. Look, Frank, I'm not trying to usurp anything that clearly is a Board direction for our company, but our priority is going to be preservation of cash. I would not say that it is fair to assume that Huntsman is going to go out and lever up our balance sheet and spend our cash in acquisitions. I do think that this industry in 2009, when I look at some of the more fragmented segments of where we compete, areas like Ti02, like pigments and so forth, you are going to see industry consolidation. You're going to see an opportunity to merge with others, combine with others, further cut cost and so forth. I don't think that those moves require that we add debt on our balance sheet and that we spend the comfortable cash position that we have today. So, no, I want to be very clear on this call. It is not our objective to go out and look at deals out there where we're going to be spending capital. But I do think that there'll be opportunities to restructure this company through, perhaps, unconventional means that we haven't necessarily had in the past is.

This is Kimo. Frank, we were specific of the billion settlement that we were going to use all of those proceeds for liquidity and debt repayment. We indicated if there were further settlements through the year, that we would consider returning some of that back to shareholders. But as it relates to the billion, that's all staying in the company and it's for preservation of the business.

I don't think there's a better asset in any chemical or any industrial company today than liquidity and cash. We're certainly going to be guarding that very carefully. Hopefully, we'll have an opportunity to add through that as we take advantage of lower inventories ourselves throughout the year and the cost of raw materials falling. That, obviously, will help us offset some of the lower earnings that we'll be experiencing throughout the year. Frank Mitsch - BB&T Capital Markets: All right, terrific. Look forward to seeing you on the roadshow.

Thanks, Frank.

The next question is from Mike Judd with Greenwich Consultants.

Yes. Thanks for taking my question. As I read your comments about the dividend, it sounded like you might be having some second thoughts about maintaining it at the level that it's been. We got a roughly 17% yield at this point. Can you talk a little bit about that? And then, I have a follow-up please.

I'll just comment on that quickly. I would say that this Board is very committed to the dividend. I'm not going to put myself in a position of a very esteemed colleague of mine saying "no way, no how" of cutting a dividend. But I would say that we're very committed to our dividend. We feel that this is something that we should be able to pay throughout 2009. But, this is a decision that the Board weighs very carefully and will decide on a quarterly basis. Again, I will not try to speak for all the Board members in any future decisions that they may take, but the dividend payment for us is something that's very important and something that we'd certainly like to see going forward.

Okay. Secondly, I wonder if you could help me understand, there's a number of moving pieces here in 2009, there's obviously the potential to receive some cash from the insurance claims. But, I guess, your accounts receivable securitization program matures in November, and then, there's also $205 million of debt that's basically maturing this year. How should we be thinking about, first of all, that $205 million, when does that mature in the year? And in terms of the insurance claims, what would be a realistic expectation in terms of how that breaks down either on a quarterly basis or should we just pack it all into the fourth quarter?

Sure. Let's talk about AR securitization. That's always has been a 364-day facility. We rolled that forward again in November of 2008. We would expect that we'll be able to do that going forward with the four institutions that backstopped that facility. That's probably of our capital structure the most secure and strongest asset we have. The $205 million of maturities in 2009, some of that is just the convention of accounting and how we mark things as current, but there's roughly $100 million of that to $205 million that is really working capital, evergreen kind of debt in Asia. There's another $30 million of Australian debt that really matures in 2010. I think it's May of 2010, but because there's cash collateral there, I think our accounts require that to be a current maturity. Generally, anything that is a revolver, historically, we have marked as current maturity, but it may have a longer expiration date. Finally there are some insurance proceeds of roughly $25 million. We finance our insurance premiums every year and we just renew that the next year. So really most of that $205 million is not what I would consider to be real hard maturities. It's sort of evergreen working capital debt for the most part.

Okay. On the insurance claims that you have, is it reasonable just to pack them into the December quarter if there's going to be some?

Fourth quarter is probably likely that those things will be settled.

Okay. Finally, on this cash issue, I apologize if I missed this in your presentation. But with the restructuring that you're doing, is there a cash component of the restructuring that you have planned so far and how does that play out? How much of it plays out first half versus second half?

It's pretty even through the year, roughly $125 million for 2009.

Thanks for the help.

The next question is from Laurence Alexander with Jefferies.

Good morning. I guess, first of all, wanted to start off with Performance Products. Peter, could you revisit how much of Performance Products is on a tolling basis? And then, if you take a step back and look across your portfolio as raw materials come down this year, how much you expect to pass-through and how much you expect to keep, I mean, what you have as contractual pass-throughs?

About a quarter of that business is on a tolling basis, about three quarters of it is not. Obviously in times like today, this is probably too categorical of an answer, but I just assume probably not be in tolling basis when raw material prices are falling as fast as they are. I like the quarter to a third of our business is in that tolling basis, because, typically, if you look at the percentage of our business, what products we have on tolling basis, those are usually more commodity-driven products, such as ethylene glycol and so forth, where you make decent margin in those, maybe 20% of the time or something. So I'd rather have stability in those. But in our more specialty-oriented businesses, those are weighed much greater towards just market supply/demand and pricing in a supply/demand basis. I believe that as competition, obviously, will heat up throughout the year, there's going to be some pricing pressure. But I think the demand that we're seeing in those businesses going into personal care products and detergents and the agrochemicals business and so forth, I think they're going to continue to hold up pretty well. I think we're seeing pricing holding up quite well. It's pretty early in the year to make long range forecasts, but this is an end of our business that we have a lot of confidence in. I think for the last couple of years, we've said that our Performance Products division is probably our least understood and probably one of the least valued division in our portfolio and I continue to stand by it. I think it's a great end of our business.

We've always said it's pretty countercyclical for the underlying commodity raw material environment and we're seeing it here.

I mentioned this very briefly in my comments, I would just remind you that this is a business where on one side we go from taking in ethane, cracking it to ethylene, producing ethylene oxide, taking it right into an amine or surfactant, taking it to a large downstream consumer. And so, unlike some of our other businesses that may have waterborne raw materials for a month or two, this is a very lean supply chain. So when raw material prices fall, this business will see it typically within a matter of weeks or even days because of the type of footprint that we have in Port Neches, Texas.

Secondly, you mentioned that you think most of the bulk of the destocking might be done or behind us. What's your read on the underlying level of demand, particularly in Europe? Are you comfortable with your geographic footprint, both for the next 12 to 18 months, but also longer term?

I'm very comfortable with our geographic footprint. I think that we look at the US and Europe which today is two thirds of our business. We look at these as very solid markets. They are suffering obviously an economic downturn right now, but longer term these are solid markets with solid currencies. I think that if we could eventually build upwards of 35 to 40% over the next couple of years of sales coming out of China and India, a manufacturing base more in the Middle East, taking advantage of some of these areas, we're going to see greater growth in these markets that I just mentioned. I think we are uniquely positioned there to take advantage of those areas. And so, your question around destocking, I personally think that most of the destocking, it will vary product by product. But most of the de-stocking in my opinion that we're seeing from our customers has already occurred. Now, as I say that, it will also take us time to destock our inventories if we saw a falloff that was incredibly sudden in some of our divisions in the latter part of November, the middle part of November. As I said in some of comments, in our Pigments business and perhaps in some of our other divisions, it will take us until the end of the first quarter to get rid of our inventory, especially the higher priced materials in our inventory. But I think that in the fourth quarter, there were two factors that went into the falloff in demand. Obviously, there was massive destocking that took place. The credit markets were frozen and people were having to utilize their inventories as almost a form of a lender to free up cash. You also saw a fall-off in economic demand. I think that as we get through our first quarter and we get back into just a sluggish economic demand, I think you will see capacity utilization rates upwards of, again, depending on what business you're in, it will probably be in the 80 to 90 percentile where it would have been in the 90 to 100 percentile 6 to 12 months ago.

Thank you.

The next question is from Sergey Vasnetsov with Barclays Capital.

Good morning, Peter and Kimo. With this conference call, welcome back to being a public company again.

Thank you, Sergey. Did you like our fancy slides?

Absolutely, I love it. The more, the better. (Inaudible) I don't know what they're going to do. I want to ask you about the Performance Products business once again. It's done exceptionally well in any conditions, particularly in challenging conditions that we've seen in the fourth quarter. What is your outlook for this business for the full 2009? Would you expect this business to be up in earnings on adjusted EBITDA?

Sergey, first of all, it's nice to hear from you. I would just remind the people on this call it's been about six weeks since we've been out of our merger agreement with Hexion. When you say welcome back, it's great to be back. I would just say with the Performance Products, Sergey, we're not going to be giving division by division forecasts as to where we would see business performance in 2009. I would be disappointed if this business didn't do as well in 2009 as it did in 2008.

Certainly, I think the trends we have seen in the fourth quarter will continue. We will hold on to price, but people will hack away at it. That's the sort of the market we're in and we will enjoy the lower raw material environment. But, clearly, we will continue to see good performance certainly in the first half of the year.

Again, I make my comments here in February. So, we've still got another 10 months ago, but I've got absolute confidence in this business being able to perform.

Okay. That's good to hear. On the Polyurethanes, this segment has been hit pretty hard by volumes, since volumes could be challenging for this business for this year. What is your sense? Is it the second quarter when we can see the new so-called normalized recession demands for this and other businesses?

Let me remind you, Sergey, I'm just looking at a slide now, you may have seen it. It's really 20 years of quarterly industry history in MDI, and I'm counting one, two, three, four, five quarters in that 20 years where we've had negative demand and none of them exceeded 5%. And here we were down, I think, we said in earnings release 13%, so huge for this business. Certainly not kind of the 35% we've seen in Ti02 or 30% we saw in textile effects, but for this business, it has really, really been shellacked from a demand standpoint. As we think about all of the infrastructure investment and stimulus packages, whether it be Chinese rail or insulation in government buildings, we think this business of all the businesses that we have will probably be central to a lot of what's going on for stimulus. And so, whether its government buildings insulation or whether they're building infrastructure like rail, I think you're going to be seeing a lot of MDI consumed, and we would expect that to be kicked in with shovel-ready projects by midyear.

Okay. Lastly, on Pigments, this segment and indeed this industry has had fairly challenging times for a while and there was a lot of talk about possible industry consolidation. Given that one of the companies is in difficult conditions, is it one of the areas for the creative thinking in terms of consolidation and growth that you had in mind when you talked about it?

Sergey, I think you are absolutely right. One of our divisions that we think we will see some sort of an industry restructuring take place. Obviously, you're seeing Tronox going to bankruptcy. You have seen both Huntsman and [Chris Bell] I think take very responsible steps in shutting down capacity and reducing operating rates and so forth. I'm sure that some of the other competitors probably have done likewise. I shouldn't say I'm sure, I would imagine they probably have seen overall demand. I think that the Ti02 industry is poised to rebound. I would remind you that it wasn't too many years ago this was a business that regularly delivered $150 million to $250 million EBITDA a year for us. And today, I think the business is better operated. It's got a lower cost structure and I look forward to those times returning as such. But I do think that that is an area where we will see some industry consolidation taking place and if Huntsman can play a role in that and it's creative, it is able to create value to our shareholders, we'll certainly entertain any ideas.

I would just point out again, the volume decrease we saw in the industry, our business specifically, 38% down, in a business that is pretty GDP-oriented and is pretty stable demand, at least, certainly from a coating standpoint, what is the real demand out there for pigments? It's probably a lot like what you're seeing in coatings. If you look at AXO or you look at Sherwin-Williams, I don't know what they're seeing, but it's probably closer to 10% reduction in architectural coatings. So, clearly, there's a big destocking going on. I think once you get back to normal levels, you're going to see a lot more pricing power because a lot of capacity has come out. Frankly, over the last number of years, this industry has been operating in the mid 90% utilization rates. This is in an industry that's been in the 80s. So, I think with capacity coming out and post destocking, I think you're going to see this business pick up pretty quick.

Okay. Thank you for the help.

(Operator Instructions). The next question is from Jeff Zekauskas with JPMorgan.

Jeff, does anyone ever get your name right on these calls?

Well, some do. I don't know if I can limit myself to one question, but I'll try to be really quick. If you could just give some quick financial items, what was cash flow from operations either for the quarter or for the year, and what was shareholders' equity?

We're going to file the 10-K today, Jeff. So we're just digging through that. We will grab it. Give us a minute.

Okay. What's the cash tax rate and the book tax rate that you expect for 2009?

Cash rate is going to be right around 10%, Jeff. We have used up the US NOL. When you're dealing with small taxable numbers in these global businesses we've got here, book rates can pop all over the place. So it's going to be really hard on a quarter-to-quarter basis to give you some help there. I think long-term we're at 30 to 35% book effective rate company. We have some NOLs in Switzerland and in the UK, and depending on Pigments gets to profitability, if textile effects rolls into profitability, that's going to throw that around a little bit. But generally, we are 30 to 35%.

That's helpful. Can you tell me what kind of pension contribution do you have to make in 2009 and will your pension and OPEB expenses that pass through the income statement be very different in 2009 than they are in 2008?

Let me get the pension real quick here. In the meantime, let me give you net cash provided by operating activities.

That would be great.

$767 million.

$767 million, okay.

As it relates to pension, our increased expense flowing through the P&L will increase by about $50 million in 2009 versus 2008. Our contributions over and above expense will be about $50 million as a cash flow item.

Lastly, we've heard about what Dow Chemical has to say about the first quarter and what BASF has to say about the first quarter. And with Huntsman, there are many businesses with many moving pieces. It sounds volumes won't be down as much, but you have some raw materials issues. Is it fair to say that adjusted EBITDA in Q1 will roughly resemble adjusted EBITDA in Q4 of '08?

Jeff, there's so much noise right now and there's so much volatility around inventory values and demand and reducing operations, I've got to say when I look at fourth quarter and first quarter operations, forget just the financial results of the operations, these are just really unprecedented times. I'm not trying to sound evasive, but I think it's just going to be really tough to tell. I think that we are seeing in January and even moving into February better sales volumes than we saw in December, but we won't necessarily see the effects in all of our businesses because of that because we're still trying to work through higher value-added inventories from the fourth quarter. So it would probably be the second quarter that you start to see the effect of some of this. Kimo, I don't know if you want at add any more light on what we see.

No, listen, if you're looking at the fourth quarter, I do think a little bit about an adjusted EBITDA with a half twist I suppose, adjusted EBITDA 50, plus lower of cost or market of 34, and then hurricane of 18, kind of a $100 million number when I think about the fourth quarter. But, really, we've got a lot of this higher inventory flowing through in the first quarter more so than we had in the first quarter, because, obviously, raw materials really didn't fall in our set of businesses until the 1st of November when benzene really started to fall like a rock. So, anyway, there's a lot of different moving pieces. You're right, and we're not being helpful at all.

No, actually that's quite helpful. Okay. Thank you very much.

Thank you, Jeff. Operator, we told you that we would do this call for about one hour. Why don't we go for another 10 or 15 minutes or so I think given the number of people that are in line and see if we can answer some more questions here?

(Operator Instructions). The next question comes from Laurence Jollon with Barclays Capital.

Good morning. I just wanted to think through your free cash flow profile for '09. I know you're not providing guidance, but if I look just back to the envelope, $230 million of CapEx, $250 million of cash interest, $50 million of pension cash contributions in excess of expense, as well as, call it, $125 million of cash costs associated with the restructuring. It looks like you're going to have to do cash EBITDA before the cash cost restructuring of 600 to 650. And I'm just trying to reconcile that with $50 million to $100 million of EBITDA in the fourth quarter and potentially a similar quarter in the first quarter.

No, I think those are pretty good numbers. The real question is working capital, right? What we said was while we enjoyed roughly $100 million of working capital benefit in the fourth quarter, it was largely because of lower sales. We have an awful lot of inventory that is enjoying lower costs, albeit, on an average basis, we should benefit from an inventory standpoint in terms of working capital. Now, for the year, what will that be? That's really going to be largely a function of what your view of crude oil is. Are we going to stay at 40 or are we going to go to 60? Wherever that is, but we should have some working capital benefit this year

Thank you, sir. The next question is from [Roger Speets] with Banc of America.

Thanks very much. The $34 million of LCM charge related to the inventory, is that related to inventory that you held on December 31, '08 or to inventory sold during Q4 '08?

Roger, that lower of cost or market is inventory sitting in the tanker on a railcar at 12/31. So it's on our balance sheet at the end of the year.

Thank you, sir. The next question is from Michael Boam with BlueBay Asset Management.

Hi. I'll try and keep this fairly short. Do you actually have the inventory data on payables balance to hand at yearend?

Yes, we can grab those. Give me a second. We will go to the next question.

Okay, fine. Just looking at the divisions where you posted EBITDA loss, I know that it's incredibly difficult operating conditions. In hindsight, do you think you were maybe a little bit slow taking things offline, because it sounds like you have seen some inventory build that you don't necessarily want at higher cost. Just thinking through to the first quarter, now you are sort of more aware of the environment. Should the cost base be better positioned for what we're going through aside from the inventory issue?

Hindsight being 20/20, we had known that we were going to be suffering one of the most severe falloffs of demand and destocking event in our industry's history. Yes, I would have liked to have known that earlier and responded sooner. But I think that we started shutting down flats, capacities, idling facilities around the world starting in November when we saw this taking place, and I think that we probably did about as well as could be expected. I'm not sure that there's a chemical company out there or an ongoing industrial concern that is not grappling with the impact of the fourth quarter and some of the spillover that will take place in the first quarter of managing inventories and production issues and so forth. Sure, I'd like to have done things different. But knowing what we knew at the time, I think that we responded quickly and we responded as best we could.

Let me just add a little bit of color to that. Put yourself in November and pick a country, China. You start November out with benzene, our major raw material at $4 a gallon and within two weeks it's $1. We didn't see construction in Shanghai falloff. People are using spray foam to insulate those buildings. It's our customer who formulates and creates spray foam that said I'm seeing benzene fall by fourfold and I'm just not going to buy. And that was the unpredictable thing. How much inventory does he have, not what is the ultimate end demand here that was really the question. We didn't know how quickly he was going to come back. So it's really hard to know how to run that Caojing, China plant that really supplies that Shanghai formulator. Anyway, back to your question earlier, our accounts receivable as of 12/31/08 that is net of our off balance sheet AR securitization of roughly $450 million was $905 million and our inventory was $1.5 billion.

On the payables.

It was $728 million.

Okay. I guess the question I'm asking, should we expect to see Pigments and textile effects still in negative territory through Q1?

Through Q1?

Yes.

Well the environment that those folks are operating in is similar to Q4, but we're doing an awful lot of work in terms of roughly 400 people we're letting go in textile effects and we're shutting down a plant in the UK. So, there is an awful lot of things that are happening there. So I think you will see costs come out of those businesses fairly rapidly in 2009.

Certainly you won't see all of that cost come out in the first quarter. So we'll see where we come out.

Thank you, sir. The next question is from Kristin McDuffy with Goldman Sachs.

Could you first please break out by segment the effect of your higher raw material costs that flow through your cost of goods sold? And then, second, could you clarify whether the EBITDA that we used to calculate compliance with your maintenance covenants, is this similar to the GAAP EBITDA that you provide on a quarterly basis?

Kristin, I'll take the last one. It's really an adjusted EBITDA that's similar to the way we report, but it's not exact. It has its own definitions and its credit agreement. I think you're asking about the $60 million of costs sitting on the balance sheet relative to a LIFO basis. We haven't broken that down, but because Polyurethanes is the largest business that we have, you would expect that a big chunk of that is Polyurethanes.

Thank you, sir. The next question is from Bob Amenta with JPMorgan.

Thank you. Good morning.

Hi, Bob.

One real follow-up on that. I don't know if I'm missing something. On that $60 million, is this something that when we get to March 31 that the $60 million will have flowed through as a negative in Q1 or is that the number, because a lot of companies obviously had a Q4 situation? I mean, more of the commodity guys, the big ones, Lyondell and INEOS, some of these big guys had massive numbers in Q4 LIFO type. Do you have that number for Q4? Is the $60 million, that number or is that a different number?

No. For Q4 what we've identified is a lower of cost or market adjustment, which is inventory, finished goods and raw materials sitting at our site that we own that we've had to markdown, right, because the market value is lower than the cost to produce that product. What we've identified in the $60 million is inventory sitting on our balance sheet, if you were to account for it on a LIFO basis, that is the current market environment, it would be $60 million lower, that inventory. That $60 million will largely flow through the first quarter. What we've said is, we, for the most part, account on an average basis. If we have 70 days of average inventory, generally, you'll see most of that flow through the first quarter, but some of it will obviously push into the second quarter. I think the specific question, will that $60 million hit our P&L? Absolutely.

Thank you, sir. The next question is from [Kelly Remakandra] with State Street Global Advisors.

Hi. Kimo, quick question. Just a clarification. I saw in one of your financial statements, I think it was last year's 10-K, some reference to an acceleration clause on the Term B on your term loan that says something to the effect that three months before a debt is due if you don't pay it off that 2014 back loan becomes due. Can you just clarify that, does that mean like your 2010 notes should have to be paid by July of next year?

Yes. I think its $295 million of senior secured notes due in October of 2010. If we haven't taken down $200 million roughly of that $300 million, then the revolver would accelerate maturity by three months. Likewise when you get out to the outer years in 2012, 2013, the same holds true for that term loan maturity, they accelerate three months if we don't take out the bonds before then.

Thank you, sir. The next question is from Chris DeYoung with Schroders.

Most of my questions have been answered and I have several that I'll just condense it down to the one. Being a fixed income guy, when I hear words of dividends, I think I heard special dividend, it gets my attention. What is the current RP basket?

Let me just make sure you know that the Huntsman Company didn't say special dividend. I believe that was a shareholder. What we said is $1 billion is going to be used for liquidity and debt repayment. What we've indicated is if there are further settlements with the banks, we would consider other things as a part of the use of its proceeds. But we wanted to assure fixed income folks and shareholders the billion is there. We have not ever stated publicly what the baskets are on our restricted payments. I guess I'm suggesting we're not going to do it now.

Thank you, sir. The next question is James Jago with Pangaea Asset Management.

Hi, guys, thanks for the call. I think you may have alluded to this, but can you flesh out what drove the approximate 30% increase in operating expenses in the fourth quarter over prior year?

You saw a whole bunch of raw material prices and there is a lot of --

Not the cost of goods sold, excuse me, on the kind of SG&A side.

When you think about our fixed costs, over half of them sit in Europe and 55% of our people are in Europe, by the way. So currency will whip that all over the place.

I think, obviously, as we see an exchange rate where the euro is weakening as we are today, that should be to our benefit.

Thank you, sir. The next question comes from Joseph Onofrio with Jayhawk Capital.

Hi, guys. Thanks for taking my calls. With liquidity improving, it sounds like you guys are pretty upbeat. I know insiders were previously buying. Can we expect to see any of that in the future or can you give me a little bit of color on that?

You are talking to the CFO and the CEO here, and I think we were both in a race to buying stock at $23 a share here a couple of months ago.

I think I bought it at $25.

I bought it at $25, $23. I know my father has bought a lot of stock, personally. I don't think there's another chemical company in the world where management is so levered into the stock. It certainly isn't a question of trust one way or the other. The question is probably availability of personal liquidity to be able to buy more. I'm just being myself here. Our CFO is a fat cat. He probably has a lot more.

Unfortunately, the CEO, CFO and all the officers of the company aren't receiving bonuses in 2008. So I did buy a few months ago.

I did too and I hope to be able to continue to buy in the future. I think it's a great price.

Thank you, sir. The next question is from Ben Segal with Winchester Capital.

Hi. I have two questions. Did you say your breakeven on cash flow was $600 million?

I didn't say that. There was a discussion around some of the components to cash flow in 2009, and what we said was there were roughly 250 of interest, not trying to predict LIBOR pricing, CapEx of 230, restructuring of 125, pension of 50. And then, we sort of punted on working capital, but we said it would be a benefit.

With regard to the earlier comments that liquidity has improved significantly, that you have confidence in your ability to resolve the matter with the insurance proceeds and with the banks, and given how adamant that you are about personally buying the stock, given that has a 17% rate of return here, I am more confused why at this point that you wouldn't take a little risk and purchase back your equity here? I understand what you said that you want to preserve liquidity and buy back debt, but this is pretty unusual.

Again, at the end of the day, that dividend is really going to be decided on a quarter-by-quarter basis by our Board. I suppose you can look at it. At least, in business school, they used to tell me, return that dividend to the shareholder and allow you to buy the shares with that cash flow.

Thank you, sir. The next question is from [Michelle Joginarti with Apitow.]

Hi. Sorry if you touched on this already, I had to hop off briefly. But just regarding the use of the liquidity, I know you said it would be for the use of cash to bolster liquidity and pay down debt. You noted that you had paid down revolver borrowings. Is that the extent of the debt reduction that you expect to do with liquidity and the rest with cash and the rest would just sort of sit on balance sheet or any other debt reduction plan?

Michelle, before Kimo answers that question, I would just like to tell the operator, we'll take one more question after Michelle here and we will wrap up the call at that point.

Let me just make a couple of points. We have no mandatory prepayments with this $1 billion cash proceeds from our settlement. Right now, we're going to be conservative. We're going to emphasize liquidity and flexibility. We're going to want to see this economy stabilize and our demand profile stabilize before we consider making permanent pay downs under our debt.

Thank you, sir. The next question is from William Young with ChemSpeak.

Thanks for taking my call. Did you actually tell us what the effect of average cost in FIFO if you had used LIFO in the fourth quarter? If you said that, I'm sorry, I missed it.

No. What we said was at yearend there's roughly $60 million higher inventory levels on our current basis versus a LIFO basis. We didn't try to adjust that for the fourth quarter. I don't have that in front of me, Bill.

Okay, great. This is kind of a long-term question. You've put your European MDI project at least on temporary hold. I realize you need to cut capital spending in this particular environment. Can you give us an idea of what you might expect there and in China on a longer-term basis for your MDI business?

We believe that our MDI business longer-term continues to be one of the crown jewels of our business and we are going to be revisiting this project on a regular basis. There's no doubt in my mind that longer-term MDI is going to return to its traditional growth rates of 8% growth. We will need more capacity in Europe, we will need more capacity in Asia and we are uniquely positioned I think with authorities in both locales and with a site in both locations that we're the front of the queue, if you will, of being able to expand capacity at both those sites. Those are both world-scale sites and I certainly wouldn't say that we've canceled those projects. We've just put them on hold. That is, I think, reasonable to do in these sort of market conditions.

Remind you that Europe is roughly half of our MDI consumption, and even through fairly anemic economic growth over the last three or four years, insulation growth in Europe has been double-digit. We would expect given their focus on conservation, once any sort of building program begins and people start spending money, you're going to start to see that sort of growth again. Operator Thank you, gentlemen.

Thank you, Bill. Thank you very much for your question, again. As I said earlier in the call, it's the first time in about two years we've had an opportunity to really talk about our business and we do it at a very challenging time in our industry. Again, I don't want to sound like the cockeyed optimist here, but I just wanted to let you all know we feel very confident about our products, our management team, about our balance sheet. We've have got some stormy seas here in 2009, but this is a great company. We have made some bold decisions here in the last couple of months. Morale in the company is strong. We're glad to be back in an unfettered position of running the company. I can't think of worse times, but I can't think of a better portfolio, better people and a better team here to be navigating these stormy waters. We look forward to seeing you on the road here. Again, this is the first time in two years we've been able to go out and talk to investors and talk to them about where we want to take this company and we look forward to seeing many of you here in the next week. If any of us on this call can be of service to you, please give us a call and we will respond as quickly as we can. Operator Thank you gentlemen. Ladies and gentlemen, this now concludes the conference for today. Thank you for your participation. Have a great day.