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Huntsman Corporation 10-Q Summary: Quarter Ended March 31, 2010

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the three-month period ended March 31, 2010, for Huntsman Corporation and its principal operating subsidiary, Huntsman International LLC. Huntsman is a global manufacturer of differentiated organic and inorganic chemical products operating in five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments. During the quarter, the company ceased operations of its Australian styrenics business, reporting results as discontinued operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 25% year-over-year, driven by higher average selling prices across most segments and increased sales volumes due to global economic recovery.
• Profitability Improvement: Net loss narrowed significantly by 41% compared to Q1 2009. Operating income turned positive ($22 million) from a loss of $87 million in the prior year.
• Debt Restructuring Costs: The company recorded a $155 million loss on the early extinguishment of debt. This included a $146 million loss from repurchasing $250 million of Convertible Notes and a $9 million loss from redeeming senior subordinated notes.
• Accounting Change Impact: Adoption of new accounting guidance (ASU 2009-16) required accounts receivable securitization programs to be treated as secured borrowings rather than sales. This increased reported accounts receivable by $254 million and negatively impacted operating cash flow presentation.
• Segment Performance: Polyurethanes, Advanced Materials, Textile Effects, and Pigments segments all reported improved EBITDA. Performance Products EBITDA declined slightly due to mechanical shutdowns.

Guidance, Outlook, and Risks

Outlook: Management expects second-quarter 2010 sales volumes to continue improving based on positive demand momentum. The company is actively working to increase product prices to offset rising raw material costs. Capital expenditures for 2010 are projected between $250 million and $275 million.

Risks and Contingencies:

• Liquidity and Covenants: The company is subject to a net senior secured leverage ratio covenant (max 3.75:1) on its Revolving Facility. Failure to meet this ratio could restrict access to liquidity.
• Legal Proceedings: Significant ongoing matters include antitrust litigation regarding MDI and polyether polyols (trial scheduled for 2012), asbestos exposure claims (indemnified by prior owners), and MTBE groundwater contamination litigation (tentative settlement reached).
• Environmental Remediation: The company faces potential costs related to the closure of its Australian styrenics facility and historical contamination at various sites, including the North Maybe Canyon Mine.
• Internal Investigation: An ongoing internal investigation is underway regarding the operations of a joint venture in India (Petro Araldite Pvt. Ltd.) concerning waste disposal and potential violations of the Foreign Corrupt Practices Act.

Investor Verification Checklist

• Verify the impact of the $155 million debt extinguishment loss on the company's ability to service remaining debt obligations.
• Confirm the status of the leverage covenant compliance given the recent debt refinancing and accounting changes.
• Monitor the resolution of the Port Arthur fire insurance arbitration, where preliminary rulings have reduced the claimed amount by approximately $70 million.
• Assess the potential financial impact of the ongoing internal investigation in India and the associated regulatory risks.
• Review the sustainability of the 25% revenue growth, specifically the ability to pass on raw material cost increases to customers.