Huntsman Corporation — 2011 Form 10-K Summary
Period clarification: The supplied filing is the annual report for the fiscal year ended December 31, 2011, not a 2010 Q4 filing. It includes unaudited quarterly data, including fourth-quarter 2011 comparisons. Amounts are in U.S. dollars 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. Huntsman International LLC is its wholly owned principal operating subsidiary. The company employed approximately 12,000 people and operated in 30 countries at year-end. The 10-K presents audited results for 2011 and comparative years 2010 and 2009.
Financial performance and key metrics
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $11.221 billion | $9.250 billion |
| Gross profit / gross margin | $1.840 billion / 16.4% | $1.461 billion / 15.8% |
| Operating income / operating margin | $606 million / 5.4% | $410 million / 4.4% |
| Net income attributable to Huntsman Corporation | $247 million | $27 million |
| Diluted EPS | $1.02 | $0.11 |
| EBITDA | $1.039 billion | $700 million |
| Adjusted EBITDA | $1.214 billion | $875 million |
| Cash from operating activities | $365 million | $(58) million |
| Capital expenditures, net of reimbursements | $327 million | $202 million |
Adjusted net income was $408 million in 2011 versus $200 million in 2010. Adjusted EBITDA and adjusted net income are non-GAAP measures; the filing cautions that they exclude items that may recur.
Fourth-quarter 2011 revenue was $2.632 billion, gross profit was $389 million, and net income attributable to Huntsman Corporation was $105 million. In Q4 2010, the corresponding figures were $2.412 billion, $380 million and $30 million.
At December 31, 2011, Huntsman Corporation reported cash and cash equivalents of $554 million, restricted cash of $8 million, current assets of $3.946 billion and current liabilities of $1.826 billion; working capital was $2.120 billion. Total debt excluding debt to affiliates was $3.942 billion, including $212 million current and $3.730 billion long-term. The company reported debt-to-total-capitalization of approximately 69%; about $2.4 billion of borrowings were variable-rate. It cited $1.043 billion of combined cash and unused borrowing capacity, comprising cash and restricted cash, $280 million revolving availability and $201 million A/R-program availability. Approximately $209 million of cash and restricted cash was held by foreign subsidiaries.
The company paid $96 million in common dividends in 2011, or $0.40 per share, and repurchased approximately $50 million of stock under its repurchase program.
Material changes versus 2010
- Revenue rose 21%, principally from higher selling prices across all segments and higher volumes in all segments except Advanced Materials, Textile Effects and Pigments. Gross profit increased 26%.
- Net income attributable to Huntsman Corporation increased to $247 million from $27 million. Results included $167 million of restructuring, impairment and plant-closing costs, compared with $29 million in 2010; $60 million of 2011 impairment charges were noncash.
- Operating cash flow improved from an outflow of $58 million to an inflow of $365 million. The 2010 comparison was affected by a $254 million increase in reported receivables following the accounting change that treated A/R-program transfers as secured borrowings.
- Debt excluding affiliate debt declined to $3.942 billion from $4.146 billion. The current portion fell to $212 million from $519 million, primarily after refinancing A/R programs and repaying or refinancing debt.
- Segment revenue and EBITDA were mixed. Polyurethanes revenue was $4.434 billion and EBITDA $469 million (up from $319 million); Performance Products $3.301 billion and $385 million (up from $363 million); Advanced Materials $1.372 billion and $125 million (down from $143 million); Textile Effects $737 million and $(199) million (versus $1 million); Pigments $1.642 billion and $501 million (up from $205 million).
- The company began consolidating its 50/50 Sasol-Huntsman joint venture in April 2011 and acquired Laffans’ chemical business in India. It sold its stereolithography resin and Digitalis businesses for $41 million cash, recognizing a pretax gain of $34 million.
Outlook, management commentary, risks and unusual items
- Management expected an improving global economy, slow growth in Europe, and growth in other regions subject to seasonal fluctuations. For 2012, it expected Pigments margin pressure to be offset by improved earnings in other segments; it cited improving MDI margins and demand, near-term amines margin pressure, and higher Pigments raw-material costs.
- Management forecast approximately $425 million of 2012 capital expenditures, net of reimbursements, and an effective tax rate of approximately 30%–35%. It expected to contribute approximately $154 million to pension and postretirement plans in 2012.
- Textile Effects restructuring included Basel, Switzerland closures; 2011 charges included $62 million for workforce reduction and $53 million for asset impairment. Approximately $25 million of additional restructuring and closing charges were expected through 2014. Advanced Materials recorded $20 million of restructuring charges and expected about $1 million more in 2012.
- Key risks include chemical-industry cyclicality; raw-material and energy price volatility and supply interruptions; foreign exchange exposure; significant debt, variable interest rates and restrictive covenants; and environmental, safety and regulatory costs. Management estimated that a 1% interest-rate increase, before hedges or offsets, could add approximately $24 million to annual interest expense.
- Contingencies include ongoing titanium-dioxide antitrust litigation and Canadian polyether-polyol class actions; environmental remediation exposures; and an India joint-venture investigation involving alleged environmental and reporting violations and payments to officials. The filing says potential India penalties and remediation costs could not then be estimated.
- A customer alleged claims of up to approximately €150 million relating to delivery of a different product than ordered. Huntsman had made no accrual, was investigating, and stated it believed insurance covered payments above $10 million; ultimate liability was uncertain.
- Environmental liabilities accrued were $36 million at year-end. A product-delivery claim and certain remediation exposures remain uncertain; management said potential environmental losses above accruals could not be estimated. Management also disclosed $1.311 billion of estimated future interest payments and $1.267 billion of purchase commitments, in addition to debt and lease obligations.
- Auditors issued an unqualified opinion on the consolidated financial statements and reported effective internal control over financial reporting. The filing includes an explanatory paragraph regarding the 2010 A/R-program accounting change.
Investor verification priorities
- Confirm the intended period: this document reports FY2011, not FY2010 Q4.
- Review cash-flow sustainability and working-capital needs, including the distinction between reported operating cash flow and the 2010 A/R accounting change.
- Assess debt maturities, variable-rate exposure, covenant headroom, and the accessibility of foreign-held cash and committed facilities.
- Evaluate the quality of 2011 earnings, including restructuring costs, the asset-sale gain, joint-venture consolidation, and the difference between GAAP and adjusted measures.
- Track whether Textile Effects restructuring delivers the expected improvement and whether forecast Pigments cost pressure materializes, particularly as favorable ore contracts expire.
- Monitor developments in antitrust, environmental, India-investigation and product-delivery matters, including potential exposure not accrued or not estimable.