HUN

Huntsman Corporation 2009 10-K Summary

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2009, for Huntsman Corporation and its wholly-owned subsidiary, Huntsman International LLC. Huntsman is a global manufacturer of differentiated organic and inorganic chemical products. The company operates through five segments: Polyurethanes, Advanced Materials, Textile Effects, Performance Products, and Pigments. In 2009, the company reorganized its segments, splitting the former Materials and Effects segment into Advanced Materials and Textile Effects. The company employed approximately 11,000 associates worldwide as of year-end.

Key Financial Metrics

Note: Net income for 2009 includes a significant non-recurring gain of $835 million related to the Terminated Merger and related litigation.

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased 24% to $7.8 billion, driven by lower average selling prices and reduced sales volumes across all segments due to the global economic slowdown.
• Operating Loss: The company reported an operating loss of $71 million in 2009 compared to operating income of $165 million in 2008. This was primarily due to lower gross profits and increased restructuring costs.
• Restructuring Costs: Restructuring, impairment, and plant closing costs surged to $152 million in 2009 from $36 million in 2008. This included $63 million in costs related to the closure of the Australian styrenics facility.
• Litigation Gains: Income from the Terminated Merger and related litigation was $835 million in 2009 (vs. $780 million in 2008), largely due to an $868 million gain from the Texas Bank Litigation Settlement Agreement.
• Debt Reduction: Despite higher total debt, the company redeemed $494 million of high-interest senior notes in 2009 and repurchased $250 million of Convertible Notes in January 2010 (classified as current liability at year-end).

Guidance, Outlook, and Risks

Outlook: Management expects demand in Asia to remain robust and anticipates a recovery in the U.S. construction and automotive markets. However, demand recovery in Europe remains uncertain. The company expects raw material and energy costs to rise but intends to pass these costs to customers, though a lag of 90 to 120 days may occur. Capital expenditures for 2010 are projected between $250 million and $275 million.

Key Risks and Contingencies:

• Leverage: The company maintains a high debt-to-capitalization ratio (approx. 69%). It is subject to a leverage covenant on its Revolving Facility, currently waived to 5.00:1 through June 2010.
• Legal Proceedings: Significant ongoing litigation includes MTBE groundwater contamination cases (tentative settlement reached in Feb 2010, allocated portion not material) and antitrust suits regarding polyether polyols (trial set for May 2011).
• Environmental Liabilities: The company has accrued $41 million for environmental liabilities, including a $30 million estimate for remediation at the closing Australian facility.
• Insurance Arbitration: Binding arbitration regarding the 2006 Port Arthur plant fire is ongoing, with a final ruling expected after March 2010.

Investor Verification Checklist

• Recurring Earnings: Verify the company's underlying operating performance by excluding the $835 million litigation gain from 2009 net income.
• Debt Covenants: Confirm compliance with the Senior Credit Facilities leverage covenant and the status of the waiver extension or amendment.
• Convertible Notes Repurchase: Monitor the impact of the $146 million loss on early extinguishment of debt expected in Q1 2010 following the January 2010 repurchase.
• Segment Performance: Review the specific margin pressures in the Pigments and Textile Effects segments, which reported negative EBITDA in 2009.
• Environmental Costs: Track the finalization of environmental remediation costs for the Australian styrenics closure, as current estimates may change.