Huntsman Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended June 30, 2011, not 2010 Q2 as stated in the request metadata. It compares results with 2010. Dollar amounts are in millions unless otherwise stated. The filing covers Huntsman Corporation and its wholly owned operating subsidiary, Huntsman International LLC.
Business context and reporting period
Huntsman is a global chemicals manufacturer operating five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects and Pigments. Its products serve industrial and consumer markets. The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $2,934 | $2,343 | $5,613 | $4,437 |
| Gross profit | $501 | $385 | $961 | $666 |
| Operating income | $220 | $127 | $382 | $149 |
| Net income attributable to Huntsman Corporation | $114 | $114 | $176 | $(58) |
| Basic earnings per share | $0.48 | $0.48 | $0.74 | $(0.25) |
| Adjusted EBITDA | $318 | $257 | $620 | $380 |
- Q2 revenue rose 25% year over year; gross profit rose 30%. Approximate gross margin increased to 17.1% from 16.4%, and operating margin to 7.5% from 5.4%.
- Six-month revenue rose 27%, while operating income increased to $382 from $149. Huntsman Corporation’s six-month net income improved from a $58 loss to $176 income. The 2010 comparison included substantial debt-extinguishment losses; 2010 discontinued operations also benefited from a Port Arthur fire-insurance settlement.
- Q2 segment EBITDA was $142 for Polyurethanes, $113 for Performance Products, $28 for Advanced Materials, $(7) for Textile Effects and $112 for Pigments. Polyurethanes and Pigments increased strongly year over year; Advanced Materials declined, and Textile Effects remained loss-making.
- Six-month operating cash flow was $1, versus cash used of $442 in 2010. The improvement reflected stronger operating results and working-capital movements, but receivables and inventory absorbed significant cash. Capital expenditures were $124, leaving operating cash flow less capital expenditures at approximately $(123).
- Cash and cash equivalents were $683 at June 30, down from $966 at December 31, 2010; including restricted cash, cash totaled $690. Management reported $1,231 of combined cash and unused borrowing capacity: $274 available under the revolving facility and $267 under receivables programs, in addition to cash and restricted cash.
- Debt excluding affiliate debt was $4,175 at June 30, versus $4,146 at year-end; Huntsman Corporation reported total debt of $4,179 including affiliate debt. Current debt was $289. Working capital was $2,381, up from $1,955.
Material changes and unusual items
- Higher selling prices across most businesses and stronger volumes in most segments drove revenue growth. Management attributed pricing increases in part to higher raw-material costs and currency effects.
- Huntsman began consolidating its 50/50 Sasol-Huntsman joint venture on April 1, 2011. The change added the venture’s assets, liabilities and results to the consolidated statements; a $12 gain on consolidation was recorded. It reported $44 revenue and $7 earnings from consolidation through June 30.
- Huntsman acquired Laffans Petrochemicals’ chemical business in India on April 2 for approximately $23, integrating it into Performance Products.
- Huntsman International extended $650 of Term Loan B principal to an April 2017 maturity in March 2011; the amendment increased the applicable margin on that portion by 1 percentage point. U.S. and European receivables programs were extended to April 2014 and their margins reduced.
- On July 25, 2011, after quarter-end, Huntsman International redeemed the remaining $75 of 7.375% notes due 2015 for $77, and expected a $2 extinguishment loss in Q3.
- The $33 urethanes antitrust class settlement was accrued in prior quarters. Huntsman paid $11 into escrow in June 2011 and expected two further $11 installments; final court approval was pending, and separate direct-action and other antitrust cases remain unresolved.
Outlook, risks and contingencies
- Management said global demand was strong and expected stable-to-improving markets for the rest of 2011. It expected near-term selling-price increases to continue in most businesses, particularly Pigments, and anticipated improving margins if global economic growth continued despite elevated raw-material and energy costs. No quantified earnings or revenue guidance was provided.
- Management cited economic risks including U.S. and European government budget issues and China’s inflation-containment efforts. Results are also exposed to changes in commodity prices, interest rates and foreign exchange; Huntsman stated that its currency hedges do not eliminate exchange-rate exposure.
- An Australian subsidiary was out of compliance with a financial covenant under its credit facility. The lender had agreed to modify terms, with amendment expected in Q3 2011; the $34 outstanding was classified as current.
- Other material exposures include asbestos claims, antitrust litigation, environmental remediation and the India joint-venture investigation. The filing says some potential losses cannot be estimated; environmental liabilities accrued were $41. The company reported cooperation with U.S. authorities regarding the India matter, with possible penalties and remediation costs not yet determinable.
- Management expected approximately $350 of 2011 capital expenditures and about $68 of additional pension and postretirement contributions during the remainder of 2011. It also expected approximately $50 of cash expenditures associated with legal reserves over several years.
- Restructuring accruals were $46 at June 30; Huntsman expected a further $5 of charges, primarily related to the Grimsby, U.K. plant closure. Disclosure controls were assessed as effective at quarter-end.
Important facts for investors to verify
- Confirm the correct reporting period: this filing reports Q2 and first-half 2011, despite the request metadata identifying 2010 Q2.
- Assess whether cash generation improves as receivables and inventory growth moderates; first-half operating cash flow was only $1 despite higher earnings.
- Review debt maturities, refinancing needs and the status of the Australian covenant amendment, including the classification of short-term borrowings.
- Track whether management’s stable-to-improving market and margin expectations hold amid elevated input costs and economic uncertainty.
- Monitor final court approval and payment timing for the $33 antitrust settlement, remaining litigation, and potentially unquantifiable environmental and India-related exposures.
- Separate recurring operating performance from unusual items, discontinued operations, joint-venture consolidation effects and non-GAAP adjusted measures when comparing periods.