Huntsman CORP annual report, FY2011

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Huntsman Corporation: 2012 Form 10-K Summary

Period note: The supplied filing is Huntsman Corporation and Huntsman International LLC’s annual report for the year ended December 31, 2012, filed February 12, 2013. It is not a 2011 Q4 filing, as indicated in the request metadata. Financial amounts below 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 company. The group employed approximately 12,000 people and operated in 30 countries at year-end. Its products serve diverse industrial and consumer markets.

Financial performance and position

  • Revenue: $11.187 billion in 2012, down $34 million (less than 1%) from $11.221 billion in 2011.
  • Profitability: Gross profit was $2.034 billion, up 11%; gross margin was approximately 18.2%, versus 16.4% in 2011. Operating income rose 39% to $845 million; operating margin was approximately 7.6%, versus 5.4%. Net income attributable to Huntsman Corporation was $363 million, compared with $247 million. Diluted EPS was $1.51 versus $1.02.
  • EBITDA measures: EBITDA was $1.187 billion versus $1.039 billion; adjusted EBITDA, a non-GAAP measure, was $1.396 billion versus $1.214 billion. Adjusted net income was $542 million versus $408 million. These measures exclude specified items and should be read alongside GAAP results.
  • Segment EBITDA: Polyurethanes increased to $726 million from $469 million; Performance Products decreased to $360 million from $385 million; Advanced Materials fell to $54 million from $125 million; Textile Effects improved to a $49 million loss from a $199 million loss; Pigments declined to $352 million from $501 million.
  • Cash flow and investment: Operating cash flow was $774 million, up from $365 million. Investing cash outflow was $471 million, including $412 million of capital expenditures net of reimbursements; financing cash outflow was $473 million. Cash and cash equivalents at year-end were $387 million, down from $554 million.
  • Debt and liquidity: Debt excluding affiliate debt was $3.702 billion, compared with $3.942 billion at year-end 2011; total debt including affiliate debt was $3.706 billion. The filing reports a debt-to-total-capitalization ratio of approximately 66%. Combined cash and unused borrowing capacity was $887 million: $396 million in cash and restricted cash, $381 million available under the revolving facility and $110 million under receivables programs. Current liabilities were $2.181 billion against current assets of $4.119 billion.
  • Other key items: The company paid $96 million in common dividends, or $0.40 per share, the same annual amount as in 2011. It recorded $92 million in restructuring, impairment and plant-closing costs, versus $167 million. Pension and postretirement liabilities and funding needs remain significant; expected 2013 plan contributions were approximately $166 million.

Material changes versus 2011

  • Revenue was essentially flat, but gross profit and operating income improved. Higher Polyurethanes and Textile Effects margins and lower restructuring charges were important contributors.
  • Polyurethanes revenue rose 10%, supported by improved MDI demand, higher prices and stronger PO/MTBE sales. Pigments revenue fell 13%, primarily on lower volumes; its EBITDA fell 30% as margins and volumes weakened.
  • Performance Products revenue fell 7% amid lower prices and volumes; Advanced Materials revenue fell 3% as lower prices outweighed higher volumes. Textile Effects revenue rose 2% on higher volumes and market share, while restructuring costs eased substantially.
  • Cash flow from operations more than doubled, but year-end cash declined and inventory increased by $271 million, partly to support customer demand and planned maintenance outages.
  • Debt declined by approximately $240 million excluding affiliate debt. Huntsman issued $400 million of 4.875% senior notes due 2020 and used proceeds to redeem $400 million of 5.50% notes due 2016, recording a $77 million loss on early extinguishment. The full-year loss on early extinguishment of debt was $80 million.

Outlook, commentary and risks

  • Management outlook for 2013: EBITDA was expected to be similar to 2012 in Polyurethanes and Performance Products; better than 2012 in Advanced Materials; positive in Textile Effects; and below 2012 in Pigments. Management expected Pigments contribution margins to improve in the second half of 2013 and described near-term pressure. These are management expectations, not assurances.
  • Management anticipated favorable Polyurethanes conditions, particularly for MDI, and expected restructuring and cost-reduction benefits to lower costs and improve competitiveness by mid-2014. Planned capital expenditures for 2013 were approximately $450 million, and the projected full-year adjusted effective tax rate was approximately 35%.
  • Restructuring programs include a Polyurethanes target of $75 million in annualized fixed-cost reductions by Q3 2013; an Advanced Materials program expected to improve earnings by about $70 million by mid-2014; and further Textile Effects closure and restructuring charges of up to approximately $80 million through 2014.
  • Debt and liquidity risks: Approximately $2.1 billion of borrowings were variable-rate; the filing estimates a 1 percentage-point rate increase would add about $21 million to annual interest expense before hedges or offsets. Arabian Amines, a consolidated 50%-owned joint venture, was out of compliance with certain covenants on $180 million of debt, classified as current; the company said it was working with lenders to resolve the issue. Huntsman reported compliance with its own material debt covenants.
  • Legal and environmental matters: A titanium-dioxide antitrust class was certified; plaintiffs seek treble damages and the company could not estimate a loss range. A customer product-delivery claim had current asserted claims of approximately €113 million; Huntsman estimated a possible loss range of €0–€113 million, noted insurance for liability above $10 million, and recorded no accrual. The Port Neches flare matter could result in penalties or injunctive relief, but likelihood and magnitude were not estimable. Environmental liabilities accrued were $34 million, including $29 million for the former West Footscray, Australia site; additional remediation exposure could exceed accruals.
  • Principal business risks include economic and chemical-market cyclicality, raw-material and energy price volatility, supply disruptions, foreign-exchange movements, plant outages, competition, environmental regulation, litigation, and execution of restructuring plans. The filing also notes substantial deferred-tax valuation allowances of $736 million for Huntsman Corporation and continued uncertainty in realizing deferred tax assets.

Important facts for investors to verify

  • Confirm the intended period: the supplied report covers FY 2012, while the request specifies 2011 Q4.
  • Review segment trends and whether 2013 expectations were achieved, especially the planned recovery in Pigments and restructuring benefits.
  • Assess debt maturities, variable-rate exposure, available liquidity and the resolution of Arabian Amines’ covenant noncompliance.
  • Track developments in the titanium-dioxide antitrust case, product-delivery claim and Port Neches flare matter, including any changes to estimates, insurance recovery or accruals.
  • Monitor working capital, pension contributions, capital spending and the company’s ability to maintain dividends while funding operations and debt obligations.