Huntsman Corporation — Form 10-Q summary
Period note: The request metadata says 2014 Q3, but the supplied filing is for the quarter ended September 30, 2015, with comparisons to 2014. The filing covers Huntsman Corporation and its wholly owned operating subsidiary, Huntsman International LLC. Financial amounts below are in millions of U.S. dollars unless stated otherwise.
Business context and reporting period
Huntsman is a global chemicals manufacturer operating five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments and Additives. The Pigments and Additives results include the Rockwood businesses acquired October 1, 2014, so year-over-year comparisons are affected by the acquisition.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $2,638 | $2,884 | $7,967 | $8,627 |
| Gross profit | $473 | $515 | $1,472 | $1,470 |
| Gross margin | 17.9% | 17.9% | 18.5% | 17.0% |
| Operating income | $169 | $202 | $392 | $568 |
| Operating margin | 6.4% | 7.0% | 4.9% | 6.6% |
| Net income attributable to Huntsman Corporation | $55 | $188 | $89 | $361 |
| Diluted earnings per share | $0.22 | $0.76 | $0.36 | $1.47 |
| EBITDA | $255 | $293 | $630 | $881 |
| Adjusted EBITDA | $311 | $356 | $981 | $1,048 |
For the nine months, operating cash flow was $387 (up from $343); capital expenditures were $454 (up from $351); investing cash flow was $(383); and financing cash flow was $(418), versus positive $62 in 2014. Cash and cash equivalents ended September at $433, down from $860 at year-end 2014. Working capital was $2,186, down $521 from year-end.
At September 30, total debt excluding affiliate debt was $4,867, down from $5,200 at year-end; Huntsman Corporation also reported $7 of noncurrent affiliate notes payable. Current and long-term debt were $158 and $4,709, respectively. Huntsman International separately reported $100 of current and $802 of noncurrent affiliate notes payable. The company reported $1,215 of combined cash and unused borrowing capacity: $437 cash and restricted cash, $609 revolving-facility availability, and $169 A/R-program availability.
Material changes versus the prior comparable period
- Q3 revenue fell 9%, and net income attributable to Huntsman fell 71%. Management attributed the revenue decline principally to lower selling prices and lower sales volumes in most segments; gross profit declined $42.
- Nine-month revenue fell 8% and attributable net income fell 75%. Operating income decreased 31%, while restructuring, impairment and plant-closing costs rose to $221 from $91.
- Nine-month adjusted EBITDA declined to $981 from $1,048; reported EBITDA fell to $630 from $881. Foreign-exchange movements reduced adjusted EBITDA by an estimated $113 versus the prior-year period.
- Polyurethanes nine-month segment EBITDA declined to $384 from $506, including an estimated $90 reduction from the planned Port Neches PO/MTBE maintenance outage. Pigments and Additives recorded segment EBITDA of $(156), versus $31, including $175 of restructuring and related costs; acquisition-related revenues increased this segment’s reported sales.
- Performance Products, Advanced Materials, and Textile Effects reported higher nine-month segment EBITDA than in 2014, supported by margins, mix, or lower restructuring costs, despite lower revenues.
- Cash from operations improved, but higher capital spending and debt repayments contributed to the cash decline. The company issued €300 of 2025 senior notes and used proceeds toward redemption of 2021 senior subordinated notes; nine-month debt-extinguishment losses were $31.
Outlook, management commentary, risks and unusual items
- Management prioritized core-business improvement, free-cash-flow generation, lower planned capital spending, restructuring, and separation of Pigments and Additives. It expected approximately $450 of 2016 capital expenditures, net of reimbursements, and approximately $200 in Q4 2015 capital spending.
- Management expected a 2015 tax rate of approximately 43%, an adjusted effective tax rate of approximately 30%, and a long-term effective tax rate of approximately 30%.
- Outlook described seasonal Q4 demand slowdowns across several businesses; challenging titanium dioxide conditions; expected 2016 demand improvement in Polyurethanes; and growth-project benefits for Performance Products. Management cited more than $100 of incremental Pigments and Additives synergy and restructuring savings. Separately, the restructuring program was expected to reduce costs by approximately $140, with Calais capacity reductions expected to generate approximately $35 of annual savings; both were targeted for completion or realization by mid-2016.
- On September 29, the board authorized up to $150 of share repurchases; none had been made through September 30, and management intended to begin in Q4 2015. The quarterly dividend was $0.125 per share.
- Material risks include foreign-exchange and commodity-price exposure, variable chemical demand and pricing, covenant and receivables-program termination risks, environmental compliance and remediation costs, and legal contingencies. The company reported compliance with material debt covenants and no borrowings under its $625 revolving facility, though letters of credit and guarantees were outstanding.
- Outstanding matters include titanium dioxide antitrust litigation, for which possible losses could not be estimated and no accrual was recorded; a product-delivery claim with current customer claims of about €113 ($126), with possible company loss estimated at €0–€113 and no accrual; and environmental matters. Environmental liabilities accrued were $54, including $18 for the Star Lake Canal site, matched by an indemnity receivable.
- Unusual items include $73 of accelerated depreciation associated with the planned Calais TiO2 closure, a third-party nitrogen-tank explosion disrupting Uerdingen production with an estimated $8 impact, and $66 received on termination of cross-currency contracts.
Most important facts for investors to verify
- Confirm the reporting period: the supplied filing is Q3 2015, not Q3 2014.
- Assess whether lower prices, volumes, currency effects, and the Port Neches outage continued to weigh on segment performance after the quarter.
- Track Pigments and Additives restructuring costs, savings realization, separation plans, and the effect of titanium dioxide market conditions.
- Reconcile operating cash generation against elevated capital expenditures, planned Q4 spending, the announced buyback, and debt maturities.
- Review the assumptions behind adjusted EBITDA and adjusted net income, which are non-GAAP measures, and the scale of foreign-exchange impacts.
- Monitor litigation and environmental exposures, including the unaccrued claims whose potential losses are not reliably estimable.