Huntsman Corporation — 2015 Form 10-K
Period clarification: The supplied filing is the annual report for the fiscal year ended December 31, 2015, not a 2014 Q4 filing. It includes unaudited quarterly data for Q4 2015 and Q4 2014. Figures below are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Business context and reporting period
Huntsman is a global chemical manufacturer operating through five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments and Additives. Huntsman International LLC is its wholly owned principal operating subsidiary. The 2015 results include the Rockwood Performance Additives and Titanium Dioxide businesses, acquired October 1, 2014, for a full year for the first time.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $10,299 | $11,578 |
| Gross profit / gross margin | $1,848 / 17.9% | $1,919 / 16.6% |
| Operating income / operating margin | $405 / 3.9% | $633 / 5.5% |
| Net income attributable to Huntsman Corporation | $93 | $323 |
| Diluted earnings per share | $0.38 | $1.31 |
| EBITDA / adjusted EBITDA | $741 / $1,221 | $1,022 / $1,340 |
| Cash provided by operating activities | $575 | $760 |
| Capital expenditures | $663 | $601 |
| Cash and cash equivalents at year-end | $257 | $860 |
| Total debt at year-end | $4,796 | $5,127 |
Operating cash flow less capital expenditures was approximately negative $88 million in 2015, compared with positive $159 million in 2014. Year-end working capital was $1,917 million, down 29%. Management reported $1,023 million of combined cash, restricted cash, and unused borrowing capacity. Total debt includes the current portion; approximately $2.8 billion of borrowings were variable rate, and the reported debt-to-total-capitalization ratio was approximately 74%.
Q4 2015 revenue was $2,332 million, versus $2,951 million in Q4 2014. Huntsman-attributable net income was $4 million, compared with a loss of $38 million. Q4 restructuring, impairment, and plant-closing costs were $81 million, versus $67 million in Q4 2014.
Material changes versus the prior comparable period
- Revenue fell 11%, reflecting lower prices and volumes across most segments, a stronger U.S. dollar, and a planned PO/MTBE maintenance outage. Lower revenue included the offsetting full-year contribution from the Rockwood acquisition in Pigments and Additives.
- Net income attributable to Huntsman declined 71%, operating income fell 36%, and adjusted EBITDA decreased 9%. Gross profit fell 4%, but gross margin increased to 17.9% from 16.6% as cost of goods sold declined faster than revenue.
- Segment EBITDA was weaker in Polyurethanes ($516 million, down 23%), Textile Effects ($18 million, down 36%), and Pigments and Additives (a loss of $223 million versus a loss of $59 million). Performance Products was approximately flat at $438 million; Advanced Materials increased 7% to $195 million.
- Cash from operations declined by $185 million; capital expenditures rose by $62 million. Cash and cash equivalents fell by $603 million, while reported debt decreased by $331 million.
Outlook, commentary, risks, and unusual items
- Management expected cyclical businesses, particularly MTBE, ethylene, and titanium dioxide, to pressure 2016 profitability, while differentiated downstream businesses were expected to improve. The filing projected 2016 capital expenditures of approximately $450 million and a full-year tax rate and adjusted effective tax rate of approximately 30%.
- Segment outlook included improved Polyurethanes adjusted EBITDA, Performance Products adjusted EBITDA similar to 2015, moderate increases in Advanced Materials and Textile Effects, and slightly positive Pigments and Additives adjusted EBITDA. These are management expectations, not guarantees.
- Restructuring, impairment, and plant-closing costs totaled $302 million in 2015, up from $158 million. Pigments and Additives included major workforce and site actions, $68 million of accelerated depreciation tied to the Calais closure plan, and a $19 million South African asset impairment. The company expected approximately $140 million in Pigments and Additives annual savings and about $35 million in annual savings from Calais capacity reduction, with savings targeted by mid-2016.
- A planned PO/MTBE outage reduced 2015 segment EBITDA by an estimated $90 million. A third-party nitrogen tank explosion disrupted production at the Uerdingen facility. Huntsman also issued €300 million of 4.25% notes due 2025 and redeemed its remaining 2021 senior subordinated notes, recording a $31 million total loss on early debt extinguishment in 2015.
- Huntsman remained committed to separating its titanium dioxide business but said timing and execution depended on market conditions and board approval. Key risks include cyclical chemical markets and TiO2 oversupply, China demand, foreign exchange, raw-material pricing and supply, plant disruptions, environmental requirements, pension funding, and substantial debt and interest-rate exposure.
- Contingencies include unresolved TiO2 antitrust litigation, for which the company could not estimate a loss range and recorded no accrual; and a product-delivery claim with current customer claims of approximately €113 million. Huntsman estimated its possible loss range for that matter at zero to €113 million, noted insurance for liability above $10 million, and recorded no accrual. Environmental remediation accruals were $38 million; potential excess costs could not be estimated.
Most important facts for investors to verify
- Whether the 2016 segment outlook, cost savings, and $450 million capital-spending plan were achieved, and whether cash generation improved after the 2015 decline.
- The sustainability and cash impact of restructuring charges, including whether projected savings offset recurring costs and business weakness.
- Liquidity and refinancing capacity, including variable-rate debt exposure, covenant headroom, and the use of foreign-subsidiary cash.
- Progress and terms of any titanium dioxide separation, along with TiO2 pricing, demand, and utilization trends.
- Developments and potential financial exposure in the antitrust, product-delivery, environmental, and pension matters; the filing does not quantify a clear loss value for some contingencies.
- How much of adjusted EBITDA and adjusted net income reflects recurring performance, since these non-GAAP measures exclude items that may recur.