Huntsman Corporation — 2019 Form 10-K Summary
Period clarification: The supplied filing is the annual report for the fiscal year ended December 31, 2019, filed February 13, 2020—not a 2018 Q4 filing. The figures below are primarily full-year 2019 results compared with 2018; dollars are in millions unless noted.
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. Results from the Chemical Intermediates Businesses are reported as discontinued operations for all periods presented; 2018 results also exclude Venator from continuing operations following its December 2018 deconsolidation.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $6,797 | $7,604 | Down 11% |
| Gross profit / gross margin | $1,382 / 20.3% | $1,764 / 23.2% | Margin down 2.9 percentage points |
| Operating income / operating margin | $469 / 6.9% | $827 / 10.9% | Down 43% |
| Adjusted EBITDA (non-GAAP) | $846 | $1,161 | Down 27% |
| Income from continuing operations | $429 | $689 | Down 38% |
| Net income attributable to Huntsman Corporation | $562 | $337 | Up from prior year |
| Diluted EPS: continuing / total | $1.70 / $2.44 | $2.52 / $1.39 | Continuing EPS lower; total EPS higher |
| Operating cash flow from continuing operations | $656 | $704 | Down 7% |
| Capital expenditures from continuing operations | $274 | $251 | Up 9% |
| Free cash flow from continuing operations (non-GAAP) | $389 | $454 | Down |
| Cash and cash equivalents at year-end | $525 | $340 | Up $185 |
| Total debt at year-end | $2,389 | $2,320 | Up $69 |
Working capital was $1,747, up $400 year over year, including $1,208 of current assets and $512 of current liabilities held for sale. The company reported $1,684 of cash and unused borrowing capacity: $525 cash, $1,153 available under its revolving facility and $6 under receivables programs. Debt to total capitalization was approximately 44%; variable-rate borrowings were approximately $328, and current debt was $212.
The effective tax result included a $38 tax benefit in 2019 versus a $45 expense in 2018. A substantial 2019 tax benefit related to the tax basis in the Venator investment; the filing notes significant judgment and $231 of valuation allowances on deferred tax assets.
Material changes versus 2018
- Revenue declined in every segment. Lower selling prices were the main pressure in Polyurethanes; weaker volumes and prices affected Performance Products; lower volumes affected Advanced Materials and Textile Effects.
- All four segments reported lower adjusted EBITDA: Polyurethanes $548 (down 32%), Performance Products $168 (down 15%), Advanced Materials $201 (down 11%) and Textile Effects $84 (down 17%).
- Net income attributable to Huntsman rose despite weaker continuing operations, reflecting, among other items, the comparison with 2018 discontinued-operation losses. Continuing operations are the more useful indicator of the year-on-year operating decline.
- Huntsman issued $750 of 4.50% senior notes due 2029 and used proceeds to redeem $650 of 2020 notes, recognizing a $23 early-extinguishment loss. It also acquired the remaining 50% interest in its Sasol-Huntsman maleic anhydride venture for $101, funded by a term loan maturing in September 2020.
- Share repurchases were $208 in 2019; the annual dividend was $0.65 per share, unchanged from 2018.
Outlook, transactions and risks
- 2020 outlook: Management anticipated demand headwinds in several Polyurethanes markets, with growth in insulation and stable differentiated MDI margins; Performance Products growth in performance amines but soft maleic anhydride demand; weak industrial and aerospace demand in Advanced Materials; and specialty-product growth and improving margins in Textile Effects.
- Management expected 2020 capital expenditures of approximately $300–$325, including about $80 for a new Geismar MDI splitter, and an adjusted effective tax rate of approximately 22%–24%. Pension and postretirement contributions were expected to be about $88 in 2020.
- The Chemical Intermediates Businesses sale to Indorama closed January 3, 2020, for a transaction value of approximately $2 billion, including about $1.93 billion cash and transfer of approximately $72 of net underfunded pension and other post-employment liabilities. Expected after-tax cash proceeds were approximately $1.6 billion. Management said proceeds could support strategic investment, debt prepayment, repurchases and dividends.
- Huntsman agreed to acquire Icynene-Lapolla for $350 in cash, with the transaction expected to close in Q1 2020. The business was expected to join Polyurethanes.
- At the filing date, the company reported that the coronavirus outbreak had led it to restrict travel to China and idle its Chinese manufacturing facilities as a safety precaution; it said the full impact was unknown.
- Key risks include cyclical demand and pricing, raw-material and energy cost volatility, plant outages and safety incidents, trade restrictions, foreign-exchange exposure, competition, cybersecurity, environmental and regulatory obligations, pension underfunding, debt covenants and refinancing needs. The filing cites a Port Neches-area fire and insurance claim, and an Istanbul systems-house fire. A Rockwood-related fraud and contract dispute concerning the Augusta facility was in arbitration; Huntsman sought damages, with no outcome stated.
Most important facts for investors to verify
- Confirm the reporting-period mismatch: this is a 2019 annual filing, not a 2018 Q4 report.
- Review continuing-operations performance separately from discontinued operations and non-GAAP adjusted EBITDA/free cash flow reconciliations.
- Track the final sale proceeds and post-closing adjustments for the Chemical Intermediates Businesses, and how proceeds are allocated among debt reduction, investment and shareholder returns.
- Assess liquidity against the $212 current debt balance, including the 2020-maturing term loan, and confirm availability under credit and receivables facilities.
- Monitor demand, margins and volumes by segment, particularly MDI pricing, maleic anhydride conditions, aerospace exposure and the effects of the China disruption.
- Evaluate the sustainability of cash flow, dividends and repurchases alongside planned capital spending and pension contributions.
- Follow the Venator investment’s valuation and related tax assumptions, and developments in material litigation, environmental matters and fire-related claims.