Huntsman Corporation and Huntsman International — 2010 Form 10-K Summary
Period clarification: The supplied filing is the annual report for the fiscal year ended December 31, 2010, not a 2009 fourth-quarter filing. It also includes comparative 2009 and 2008 results. Dollar amounts are in millions unless stated otherwise.
Business context and reporting period
Huntsman is a global chemicals manufacturer operating through its wholly owned principal operating company, Huntsman International LLC. Its five segments are Polyurethanes, Performance Products, Advanced Materials, Textile Effects and Pigments. The filing covers the year ended December 31, 2010; Huntsman Corporation and Huntsman International report the same consolidated revenue but have different net income because of parent-company and financing items.
Financial performance and liquidity
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $9,250 | $7,665 |
| Gross profit | $1,461 | $1,078 |
| Operating income | $410 | $13 |
| Net income attributable to Huntsman Corporation | $27 | $114 |
| Net income (loss) attributable to Huntsman International | $180 | $(410) |
| Adjusted EBITDA, Huntsman Corporation | $872 | $529 |
| Net cash from operating activities | $(58) | $1,104 |
| Capital expenditures, net of reimbursements | $202 | $189 |
- Revenue rose 21%, reflecting higher selling prices and sales volumes across all segments. Gross margin improved to approximately 15.8% from 14.1%; operating margin rose to approximately 4.4% from 0.2%.
- Huntsman Corporation reported diluted EPS of $0.11, versus $0.48 in 2009. The filing’s adjusted net income for the Corporation was $200 million, or adjusted diluted EPS of $0.83; these are non-GAAP measures.
- Reported EBITDA was $700 million, down from $1,158 million, while adjusted EBITDA increased 65% to $872 million. The difference reflects significant unusual items, including the 2009 merger-related settlement gain and 2010 debt-extinguishment losses.
- Operating cash flow turned negative, primarily reflecting the absence of the prior-year bank-litigation settlement proceeds, unfavorable working-capital movements, and the 2010 accounting change that brought receivables-program borrowings onto the balance sheet.
- At year-end, Huntsman Corporation had $966 million cash, $7 million restricted cash, $4.15 billion total debt including affiliate debt, and $1.955 billion working capital. Management reported $1.434 billion of cash and unused borrowing capacity. Debt to total capitalization was approximately 69%; about $2.3 billion of borrowings were variable rate.
- Huntsman Corporation paid $0.40 per share in dividends during 2010, totaling $96 million. The Board retains discretion over future dividends.
Material changes versus comparable periods
- All five segments increased revenue year over year. Segment EBITDA improved in Performance Products ($363 million versus $246 million), Advanced Materials ($143 million versus $59 million), Textile Effects ($1 million versus a $64 million loss) and Pigments ($205 million versus a $25 million loss). Polyurethanes EBITDA fell to $319 million from $388 million.
- Polyurethanes results were affected by an approximately $40 million estimated impact from a planned 60-day Port Neches PO/MTBE outage and by lower MTBE margins. The outage concluded in March 2010.
- 2010 included a $183 million loss on early extinguishment of debt. In 2009, Huntsman Corporation’s results included $835 million of net income associated with the terminated merger and related litigation, principally the bank litigation settlement gain.
- A $110 million pretax insurance settlement related to the former Port Arthur plant fire was recorded in discontinued operations in 2010. Discontinued operations also included a $7 million pretax settlement of claims related to the 2005 Gulf Coast storms.
- Effective January 1, 2010, new accounting guidance required receivables-program balances to be reported as secured borrowings rather than off-balance-sheet sales. The filing identifies a $254 million increase in receivables and cash used in operating activities from this change.
Outlook, commentary, risks and contingencies
- Management said global demand was recovering, selling prices and seasonally adjusted utilization were improving, and early indicators for 2011 were encouraging. It expected raw-material and energy costs to remain elevated, while anticipating stronger margins over the next few years.
- Management stated that Huntsman could reach adjusted EBITDA of $1.325 billion within two to three years, based on its view of improving global economic trends. This is a management outlook, not a guarantee.
- Management identified growth in Asia and emerging markets and debt reduction as strategic priorities. It expected approximately $159 million of pension and postretirement contributions in 2011.
- Debt and refinancing remain significant concerns: $519 million of debt was classified as current at year-end, and the company said it intended to renew or extend most short-term facilities. Covenants and receivables-program performance requirements can restrict liquidity; management reported covenant compliance at year-end.
- A 1% increase in interest rates was estimated to raise annual interest expense by approximately $23 million, before hedges and cash balances. The company’s ratings were below investment grade.
- Material legal and regulatory exposures include urethane-product and titanium-dioxide antitrust actions, asbestos claims, environmental remediation, MTBE-related litigation and the investigation of the Indian joint venture PAPL. The filing says potential penalties and remediation costs in the PAPL matter could not yet be estimated.
- Environmental liabilities accrued were $48 million at year-end. The filing cautions that remediation costs could exceed accruals and that total costs at known sites could not be estimated. A high-risk chemical facility was expected to require $8–$10 million of security upgrades in 2011–2012.
- Post-year-end items included a $100 million redemption of 7.375% notes in January 2011, with an expected $3 million early-extinguishment loss; a proposed approximately $40 million Calais fertilizer investment subject to conditions; and planned consolidation of the Sasol-Huntsman joint venture in first-quarter 2011.
Important facts for investors to verify
- Confirm the filing period: this is FY 2010, although the request metadata specifies 2009 Q4.
- Assess recurring operating performance separately from the 2009 litigation gain, 2010 debt-extinguishment losses, insurance recoveries, and other adjustments included in adjusted EBITDA and adjusted net income.
- Reconcile the sharp cash-flow decline, including working-capital changes and the receivables accounting change, and assess the availability and renewal of short-term financing.
- Review debt maturities, refinancing needs, variable-rate exposure, covenant headroom and the stated debt-reduction objective.
- Monitor progress on management’s adjusted EBITDA outlook, segment margins and volumes, pension contributions, and the planned joint-venture consolidation and investments.
- Track developments in the PAPL investigation, antitrust litigation and environmental matters, including whether liabilities or expected costs change.