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Huntsman Corporation 10-Q Summary: Period Ended June 30, 2009

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended June 30, 2009, for Huntsman Corporation and its principal operating subsidiary, Huntsman International LLC. Huntsman is a global manufacturer of differentiated organic and inorganic chemical products operating in five segments: Polyurethanes, Advanced Materials, Textile Effects, Performance Products, and Pigments. The company operates in a challenging global economic environment characterized by reduced demand and lower selling prices across all segments.

Key Financial Metrics (Six Months Ended June 30, 2009)

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased 35% year-over-year due to lower sales volumes and average selling prices across all segments, driven by the global economic slowdown.
• Restructuring Costs: Restructuring, impairment, and plant closing costs increased significantly to $77 million (from $5 million in 2008), primarily related to workforce reductions and the closure of the Grimsby, U.K. titanium dioxide plant.
• Litigation Gain: The primary driver of net income was an $868 million gain recognized from the Texas Bank Litigation Settlement Agreement. Without this non-operating item, the company would have reported a significant operating loss.
• Liquidity Improvement: Cash and cash equivalents increased by $1,638 million to $2,295 million, bolstered by litigation settlement proceeds and improved working capital management (inventory reduction of $338 million).
• Debt Restructuring: Total debt increased by approximately $800 million due to the issuance of $600 million in 2016 Senior Notes and a $500 million Term Loan C as part of the litigation settlement.

Guidance, Outlook, and Risks

• Outlook: Management expects industry conditions to remain challenging through the second half of 2009. Sales volumes increased in Q2 2009 compared to Q1 2009, but average selling prices remain mixed.
• Cost Reduction: The company is executing a program to reduce fixed costs by more than $150 million by year-end 2009, including a reduction of approximately 1,250 full-time employee positions.
• Debt Redemption: Subsequent to the reporting period, the company redeemed $494 million in senior notes (due 2010 and 2012) to reduce interest costs.
• Key Risks:
  • Legal Proceedings: Ongoing antitrust litigation regarding polyether polyol products; MTBE groundwater contamination lawsuits; and asbestos exposure claims.
  • Environmental: Compliance costs related to EU REACH regulations and potential greenhouse gas regulations.
  • Insurance Recovery: Approximately $243 million remains outstanding from the Port Arthur plant fire insurance claim, with binding arbitration scheduled for November 2009.
  • Working Capital: Volatility in accounts receivable and inventory due to economic conditions and foreign currency fluctuations.

Investor Verification Checklist

• Non-Recurring Income: Verify the sustainability of earnings by excluding the $868 million litigation gain, which masks underlying operating losses.
• Debt Covenants: Confirm compliance with the Senior Credit Facilities leverage covenant, noting the waiver obtained in April 2009 and the associated higher interest rates.
• Restructuring Execution: Monitor the progress of the $150 million cost-reduction initiative and the associated cash outflows for severance and plant closures.
• Insurance Arbitration: Track the outcome of the November 2009 arbitration regarding the Port Arthur fire claim, which could impact future cash flows.
• Segment Performance: Assess the recovery of sales volumes in the Polyurethanes and Pigments segments, which faced the most significant price and volume declines.