Huntsman Corporation — 2018 Form 10-K summary
Period note: The supplied filing is the annual report for the fiscal year ended December 31, 2018, filed February 12, 2019—not a 2017 Q4 filing. Figures below are for FY2018, with FY2017 comparisons; quarterly figures are identified separately.
Business context and reporting period
Huntsman is a global differentiated-chemicals manufacturer operating through four segments: Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Huntsman International LLC is its wholly owned principal operating subsidiary. The company reported approximately 10,000 employees worldwide.
Financial performance and liquidity
| Metric (USD millions, except per-share amounts) | FY2018 | FY2017 |
|---|---|---|
| Revenue | 9,379 | 8,358 |
| Gross profit | 2,025 | 1,806 |
| Operating income | 1,038 | 845 |
| Income from continuing operations | 845 | 583 |
| Net income attributable to Huntsman Corporation | 337 | 636 |
| Diluted EPS | $1.39 | $2.61 |
| Adjusted EBITDA (non-GAAP) | 1,469 | 1,259 |
| Cash from continuing operating activities | 963 | 842 |
| Capital expenditures | 313 | 282 |
| Free cash flow (company-defined, non-GAAP) | 651 | 594 |
Revenue increased 12%. Gross margin was approximately 21.6% in both years; operating margin increased to approximately 11.1% from 10.1%. Adjusted EBITDA margin was approximately 15.7%, versus 15.1%. These margins are calculated from reported figures.
At year-end, cash and cash equivalents were $340 million, total debt was $2.320 billion (including $96 million current), and debt to total capitalization was approximately 46%. Huntsman reported $1.525 billion of combined cash and unused borrowing capacity: $340 million cash, $44 million available under its revolving facility and $1.141 billion available under receivables programs. The new $1.2 billion unsecured revolving facility matures in May 2023; $50 million was drawn at year-end. The filing describes $312 million of combined variable-rate borrowings.
Reported total net income was $650 million, down from $741 million, while net income attributable to Huntsman fell to $337 million from $636 million. The principal reason was the $195 million after-tax loss from discontinued operations in 2018, including Venator valuation and deconsolidation losses. Continuing-operations income attributable to Huntsman increased to $764 million from $478 million.
Material changes versus the prior comparable period
- Revenue rose across all four segments: Polyurethanes $5.094 billion (+16%); Performance Products $2.355 billion (+12%); Advanced Materials $1.116 billion (+7%); Textile Effects $824 million (+6%).
- Adjusted EBITDA increased in Polyurethanes to $946 million from $850 million, Performance Products to $367 million from $296 million, Advanced Materials to $225 million from $219 million, and Textile Effects to $101 million from $83 million.
- Growth reflected higher selling prices in all segments and higher volumes in Polyurethanes and Performance Products. Strong MDI market conditions, new Chinese MDI capacity and improved margins contributed; 2017 hurricane and maintenance disruptions also made comparisons favorable.
- Interest expense declined to $115 million from $165 million, mainly following 2017 term-loan repayments. Income from unconsolidated affiliates rose to $55 million from $13 million, primarily reflecting the Sinopec PO/MTBE joint venture.
- Huntsman acquired Demilec for approximately $353 million in cash, integrating its North American spray-foam business into Polyurethanes. It repurchased approximately 10.4 million shares for $276 million and increased the quarterly dividend to $0.1625 per share.
- Venator was deconsolidated in December 2018 after Huntsman sold a further 4% interest, retaining approximately 49%. The 2018 balance-sheet comparison is materially affected by Venator’s removal: 2017 included assets and liabilities held for sale.
Outlook, commentary, risks and unusual items
- Management’s outlook anticipated continued growth and stable margins in differentiated Polyurethanes and Advanced Materials, growth in specialty amines, surfactants and Textile Effects, and continued break-even results in Advanced Materials commodity businesses. It also cited lower component MDI, MTBE and upstream-intermediate margins, currency headwinds, higher fixed costs and R&D spending, and higher Textile Effects raw-material costs.
- For 2019, management expected approximately $390 million in capital expenditures, including $50 million for a new MDI splitting unit in Geismar, and expected an adjusted effective tax rate of approximately 22%–24%, versus 19% in 2018. It expected approximately $93 million of pension and postretirement contributions in 2019.
- Unusual Venator items included a $270 million after-tax valuation allowance, a $427 million pretax loss on deconsolidation recorded in discontinued operations, and a $57 million pretax fair-value loss on the retained investment. The Venator investment is marked to market through earnings, potentially creating significant earnings volatility.
- Key disclosed risks include chemical-market cyclicality, volatile raw-material costs and supply interruptions, manufacturing outages, foreign-exchange and trade-policy exposure, environmental and process-safety obligations, cybersecurity, pension underfunding, and debt covenant/liquidity constraints. The company also disclosed ongoing remediation matters and litigation, including its Rockwood-related arbitration; the filing states that the outcome of most disclosed proceedings is not expected to materially affect financial condition, results or liquidity.
- The filing reported effective disclosure controls and internal control over financial reporting, and the auditor issued an unqualified opinion on the financial statements.
Q4 context: The filing’s unaudited quarterly table reports FY2018 Q4 revenue of $2.236 billion, gross profit of $406 million and continuing-operations income of $91 million. Huntsman Corporation reported a $340 million net loss attributable to the company and diluted loss per share of $1.43, principally reflecting Venator-related discontinued-operation and fair-value losses. Q4 2017 revenue was $2.203 billion and net income attributable to Huntsman was $246 million.
Most important facts for investors to verify
- Confirm the intended period: this is a FY2018 10-K, although the request metadata specifies 2017 Q4.
- Review the reconciliation of non-GAAP adjusted EBITDA and free cash flow to GAAP measures, and the exclusions used in management’s adjusted tax-rate outlook.
- Assess the value and earnings sensitivity of Huntsman’s retained 49% Venator investment, including subsequent share-price changes and any further monetization.
- Verify available borrowing capacity, receivables-program eligibility and covenants, near-term debt maturities, and planned capital spending and pension contributions.
- Track segment margin trends and the stated headwinds—particularly MDI/MTBE pricing, raw-material pass-through, FX and Textile Effects costs—as well as material environmental or legal developments.