Huntsman Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter and nine months ended September 30, 2011, not 2010 Q3 as indicated in the request metadata. It reports Huntsman Corporation and its wholly owned operating subsidiary, Huntsman International LLC. Financial statements are unaudited; amounts below are in U.S. dollars unless stated otherwise.
Business context and reporting period
Huntsman is a global chemical manufacturer operating through Polyurethanes, Performance Products, Advanced Materials, Textile Effects and Pigments. The filing compares Q3 and the first nine months of 2011 with the comparable 2010 periods.
Key financial metrics and changes
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $2.976bn | $2.401bn | $8.589bn | $6.838bn |
| Gross profit | $490m | $415m | $1.451bn | $1.081bn |
| Operating income | $77m | $167m | $459m | $316m |
| Net income (loss) attributable to Huntsman Corp. | ($34m) | $55m | $142m | ($3m) |
| Basic EPS | ($0.14) | $0.23 | $0.60 | ($0.01) |
| Operating cash flow | Not presented separately for quarter | Not presented separately for quarter | $25m | ($350m) |
| Capital expenditures | Not presented separately for quarter | Not presented separately for quarter | $217m | $132m |
- Revenue rose 24% in Q3 and 26% year to date, principally on higher selling prices; Q3 sales volumes declined 5% overall year over year. Gross margin was approximately 16.5% in Q3 versus 17.3% in Q3 2010, and 16.9% year to date versus 15.8%.
- Q3 operating income fell 54%, largely because restructuring, impairment and plant-closing costs increased to $155m from $4m. The nine-month total was $171m versus $24m.
- Management-reported adjusted EBITDA was $345m for Q3, up 26%, and $965m for nine months, up 48% for Huntsman Corporation. These are non-GAAP measures; the filing provides reconciliations.
- Segment EBITDA for Q3: Polyurethanes $136m (up from $99m); Performance Products $97m (down from $101m); Advanced Materials $2m (down from $42m); Textile Effects ($157m) (prior-year $7m); Pigments $161m (up from $64m). Textile Effects’ result includes major restructuring and impairment charges.
- Cash and cash equivalents at September 30 were $453m at Huntsman Corporation and $234m at Huntsman International. Corporation total current assets were $4.274bn and current liabilities $1.958bn, or working capital of $2.316bn. Debt excluding affiliate debt was $4.077bn, down from $4.146bn at year-end 2010; current debt fell to $230m from $519m. Cash declined $513m during the first nine months.
- Reported available liquidity was $1.024bn, comprising $459m cash and restricted cash, $275m unused revolving capacity and $290m availability under receivables programs. Availability under receivables programs may depend on eligibility and other conditions.
Management outlook, material developments and risks
- Management described demand as generally stable but customer outlook as uncertain amid sluggish global economic conditions; the company has limited long-term visibility because customers typically order three to five weeks ahead.
- For the remainder of 2011, management expected moderation in oil- and natural-gas-based raw-material prices and average selling prices, with an exception for Pigments, where higher titanium-bearing ore costs were expected and the company intended to seek price increases. Expected 2011 capital expenditures were approximately $350m, net of reimbursements. The expected Q4 and full-year adjusted tax rate was slightly below the stated 30%–35% long-term rate.
- The Textile Effects restructuring, announced September 27, was intended to improve competitiveness and mitigate the strong Swiss franc and weak textile conditions. The plan, including potential Basel closures, remained subject to employee consultation. Huntsman recorded $73m for probable workforce reductions and $53m for impairment, expected about $31m of additional charges through 2013, and projected approximately $70m in annualized savings once implemented. It estimated $104m of restructuring cash payments and $20m of related capital spending over the next several years.
- Management also planned Advanced Materials restructuring, estimating approximately $20m of annual savings when fully realized. The filing notes an additional $1m of expected charges for the headquarters relocation through 2012.
- Debt and liquidity developments included a March amendment extending $650m of term loans to April 2017 at a higher interest margin; Huntsman had no revolving-facility borrowings at quarter-end. The company said it believed it was in compliance with material debt covenants. A/R-program performance failures could trigger termination, repayment and potentially defaults under credit facilities.
- After quarter-end, Huntsman announced completion of a $41m cash sale of its stereolithography resin and Digitalis businesses. Huntsman International also gave notice that it would redeem the remaining €68m (about $93m) of 6.875% notes due 2013; estimated payment was about €69m (about $94m), excluding accrued interest.
- Notable contingencies include continuing antitrust litigation. A U.S. class settlement for $33m was approved and Huntsman was dismissed from that class action; $11m was paid in 2011 and two further $11m installments were due in 2012 and 2013. Direct-action and other antitrust cases remained unresolved. The filing also describes asbestos claims, environmental remediation exposures and an ongoing India-related investigation; potential outcomes or total exposure are not clearly quantified in the filing.
- Foreign-exchange, interest-rate and commodity risks remain relevant. Huntsman disclosed approximately $275m notional of foreign-currency forward contracts and stated that its hedging does not eliminate currency effects. It also identified possible environmental compliance and remediation costs, and uncertainty regarding the consequences of the India investigation.
Most important facts for investors to verify
- Confirm that the intended filing is the September 30, 2011 10-Q, given the request metadata’s 2010 Q3 label.
- Track Textile Effects consultation, execution, cash costs and whether projected $70m annual savings are achieved; also monitor Advanced Materials’ restructuring and savings.
- Reconcile operating cash generation with working-capital use, capital spending, dividends, repurchases and the $513m decline in cash; validate the availability and conditions of stated liquidity.
- Review debt maturities, refinancing needs, covenant headroom and the planned redemption of the 2013 notes, including the effects of the higher extended-term-loan margin.
- Monitor Pigments raw-material inflation and pass-through pricing, customer demand and volumes, and the ongoing legal, environmental and India-related contingencies.