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Huntsman Corporation 10-Q Summary: Period Ended June 30, 2008

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended June 30, 2008, for Huntsman Corporation and its wholly-owned subsidiary, Huntsman International LLC. Huntsman is a global manufacturer of differentiated chemical products operating in six segments: Polyurethanes, Materials and Effects, Performance Products, Pigments, Polymers, and Base Chemicals. The company is currently engaged in a pending merger with Hexion Specialty Chemicals, Inc., which is the subject of significant litigation.

Key Financial Metrics (Six Months Ended June 30, 2008)

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 15% year-over-year, driven primarily by higher average selling prices across all segments and increased sales volumes in the Polyurethanes segment.
• Profitability Pressure: Despite revenue growth, Operating Income decreased 24% and Gross Profit declined 4%. This was due to sharply higher raw material and energy costs that outpaced price increases in several segments, particularly Polyurethanes and Pigments.
• Turnaround in Net Income: The company reported a net income of $31.0 million compared to a net loss of $24.3 million in the prior year. This improvement was significantly aided by a reversal of an extraordinary loss on a prior acquisition (Textile Effects) and lower restructuring costs ($5.0 million vs. $24.4 million).
• Discontinued Operations: Results from discontinued operations (U.S. Base Chemicals, North American Polymers, European Base Chemicals, and TDI) contributed a net income of $3.8 million, compared to a loss of $127.7 million in the prior year, which included a $240.0 million impairment charge.
• Liquidity: Working capital decreased by $161.9 million. Accounts receivable and inventory increased due to higher sales volumes and raw material costs, partially offset by increased accounts payable.

Guidance, Outlook, and Risks

• Merger Litigation (Critical Risk): On June 18, 2008, Hexion and Apollo Management filed suit in Delaware Chancery Court seeking a declaratory judgment that they are not obligated to consummate the merger. They claim the combined company would be insolvent and that a material adverse effect has occurred. Huntsman is vigorously defending the agreement and has filed counterclaims. Trial is scheduled for September 8, 2008. Failure to close could result in significant stock price volatility and potential termination fees.
• Capital Expenditures: The company expects to spend approximately $440 million on capital projects in 2008, including expansions in maleic anhydride and titanium dioxide facilities.
• Insurance Claims: The company is awaiting final settlement of insurance claims related to the April 2006 fire at its Port Arthur, Texas facility. While $325 million has been received to date, an additional $275 million is claimed as due.
• Market Risks: The company faces exposure to foreign currency fluctuations and commodity pricing. It utilizes derivative instruments to hedge these risks but noted significant unrealized losses on cross-currency swaps in the first half of 2008.

Investor Verification Checklist

• Merger Status: Monitor the Delaware Chancery Court proceedings regarding the Hexion merger, specifically the solvency arguments and the September 8 trial date.
• Raw Material Costs: Verify the sustainability of gross margins given the lag between rising raw material/energy costs and the ability to pass these costs to customers.
• Debt Covenants: Review compliance with financial covenants in the Senior Credit Facilities, particularly given the increased borrowing under the Revolving Facility ($323.4 million outstanding).
• Insurance Recovery: Track the resolution of the Port Arthur fire insurance litigation and the timing of expected additional recoveries.
• Discontinued Operations: Confirm the finalization of post-closing adjustments for the sold U.S. Base Chemicals and North American Polymers businesses.