Huntsman CORP quarterly report, Q1 FY2019

Business context and reporting period

This is Huntsman Corporation and Huntsman International LLC’s unaudited Form 10-Q for the quarter ended March 31, 2020—not 2019 Q1 as stated in the request metadata. Huntsman is a global specialty chemicals manufacturer operating four continuing segments: Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Unless noted, figures below are for Huntsman Corporation and in millions of dollars.

Financial performance and liquidity

Metric	Q1 2020	Q1 2019
Revenue	$1,593	$1,669
Gross profit / gross margin	$297 / 18.6%	$359 / 21.5%
Operating income	$54	$115
Adjusted EBITDA	$165	$204
Continuing-operations net income (loss), attributable to Huntsman	$(72)	$96
Net income attributable to Huntsman	$705	$119
Basic and diluted EPS	$3.16, including $3.48 from discontinued operations	$0.51
Operating cash flow, continuing operations	$(40)	$(40)
Capital expenditures, continuing operations	$61	$61
Free cash flow, continuing operations	$(101)	$(101)

Reported net income included $777 million of income from discontinued operations, principally the sale of the Chemical Intermediates Businesses; it does not represent recurring continuing-business earnings. A $110 million fair-value loss on the Venator investment also affected continuing results, versus a $76 million gain a year earlier.

• Revenue fell 5%; management cited lower average selling prices across segments and lower volumes in all segments except Textile Effects. Gross profit declined 17% and adjusted EBITDA fell 19%.
• Segment adjusted EBITDA: Polyurethanes $84 (down 32%); Performance Products $58 (up 29%); Advanced Materials $48 (down 9%); Textile Effects $20 (down 9%).
• Cash and cash equivalents were $1,594 at March 31, compared with $525 at year-end. Total debt was $2,183, down from $2,389; cash exceeded reported debt by approximately $589. Working capital was $2,000.
• Reported available liquidity was $2,930: $1,594 cash, $1,193 unused revolving-credit capacity and $143 available under receivables programs. Huntsman stated that it was in compliance with material debt covenants.

Material changes and unusual items

• Huntsman completed the sale of its Chemical Intermediates Businesses to Indorama on January 3, 2020, for approximately $1.93 billion cash, plus transfer of about $72 million in net underfunded pension and other post-employment benefit liabilities. It recorded a $758 million after-tax gain and received $1.915 billion in sale proceeds during the quarter. Approximately $375 million of sale-related income taxes were expected to be paid during 2020.
• On February 20, Huntsman acquired Icynene-Lapolla for $353 million cash; the business contributed $27 million revenue and a $6 million net loss from acquisition through quarter-end. The preliminary purchase-price allocation included $130 million goodwill and $165 million intangible assets.
• Huntsman agreed to acquire CVC Thermoset Specialties for $300 million cash, subject to adjustments, with closing expected around midyear 2020. The filing does not report completion.
• Share repurchases totaled $96 million during Q1; the company temporarily suspended repurchases after quarter-end to preserve liquidity amid COVID-19. The quarterly common dividend was $0.1625 per share.
• Debt included a $101 million euro-denominated term loan maturing September 22, 2020. Huntsman said it intended to renew, repay or extend most short-term facilities over the next 12 months.

Outlook, risks and contingencies

Management said COVID-19 had moderately hurt Q1 performance and was having a significant impact so far in Q2, with adverse effects expected to continue through 2020. The company cited weaker demand, margin deterioration and supply-chain and logistics pressures; it said the eventual financial impact could not be reasonably estimated.

• Management expected significantly lower volumes across all four segments because of the global economic crisis. It anticipated depressed component MDI and polymeric-systems margins, slowly improving China demand, stable performance-amines margins, and stable margins in Advanced Materials. These are expectations, not quantified earnings guidance.
• Expected 2020 continuing-operations capital expenditures were approximately $225–$235 million. A portion of the Geismar MDI-splitter spending was deferred; the filing describes roughly $40 million of 2020 spend and approximately $120 million in 2021–2022, while also citing COVID-related project delays. The schedule should be verified against subsequent disclosures.
• Management expected a forward adjusted effective tax rate of approximately 22%–24% and about $67 million of additional pension and postretirement contributions during the remainder of 2020.
• Other risks include customer credit deterioration, supply-chain and transportation disruptions, manufacturing interruptions, delayed capital-project benefits, and remote-work cybersecurity and continuity risks.
• Environmental liabilities accrued were $4 million; Huntsman noted potential remediation losses above accruals could occur but could not estimate the range. It also said it could not reasonably estimate potential liability at the North Maybe Canyon Mine site. The company reported no material developments in previously disclosed legal proceedings.

Key facts investors should verify

1. How COVID-19 affected subsequent-quarter volumes, margins, cash generation and liquidity, given the filing’s warning that the impact was uncertain.
2. Final sale-price adjustments and the timing and amount of the expected approximately $375 million tax payment related to the Chemical Intermediates divestiture.
3. Final Icynene-Lapolla purchase accounting and integration performance, and whether the CVC acquisition closed on expected terms and timing.
4. Repayment, renewal or extension of the $101 million term loan due September 2020 and continued access to revolving and receivables-program liquidity.
5. Progress on the revised Geismar project schedule, 2020 capital spending and management’s segment outlook.