HUN

Huntsman Corporation Q1 2009 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 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 reported results for continuing operations and discontinued operations (former Polymers and Base Chemicals businesses).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased 33% year-over-year due to lower sales volumes and average selling prices across all segments, driven by a worldwide economic slowdown.
• Profitability Collapse: Gross profit fell 60% to $145 million. The company swung from an operating income of $87 million in Q1 2008 to an operating loss of $94 million in Q1 2009.
• Restructuring Costs: Restructuring, impairment, and plant closing costs increased to $14 million from $4 million in the prior year, primarily due to the closure of the Grimsby, U.K. plant in the Pigments segment.
• Segment Performance:
  • Polyurethanes: Revenue down 40%; EBITDA down 80% to $26 million.
  • Pigments: Revenue down 31%; EBITDA turned negative at $(29) million due to volume declines and restructuring charges.
  • Performance Products: The only segment with increased EBITDA (up 53% to $81 million), driven by higher contribution margins from lower raw material costs.
• Tax Impact: Income tax expense increased significantly due to a $146 million valuation allowance recorded against U.K. net deferred tax assets.

Outlook, Risks, and Contingencies

• Debt Covenant Waiver: On April 16, 2009, Huntsman International obtained a waiver from lenders for its Senior Credit Facilities regarding the senior secured leverage ratio covenant. The waiver is effective through June 30, 2010, but requires an increase in interest rates on the revolving facility and imposes restrictions on restricted payments and intercompany note repayments.
• Liquidity: As of March 31, 2009, the company had $1.115 billion in combined cash and unused borrowing capacity. Management expects to spend approximately $125 million on restructuring programs through 2009.
• Legal Proceedings:
  • Texas Bank Litigation: Ongoing suit against Credit Suisse and Deutsche Bank affiliates regarding the terminated merger with Basell AF. Trial is set for June 8, 2009.
  • Port Arthur Fire Insurance: Binding arbitration is targeted for the latter half of 2009 to resolve the remaining $243 million claim from the 2006 plant fire.
  • Antitrust Matters: The company is a defendant in various civil antitrust suits regarding price-fixing allegations for polyether polyol products.
• Acquisition: The company expects to complete the acquisition of the Baroda division of Metrochem Industries Limited (MCIL) in the second quarter of 2009 for approximately $29 million.

Investor Verification Checklist

• Verify the status and potential recovery amount of the $243 million Port Arthur fire insurance claim pending arbitration.
• Monitor compliance with the Senior Credit Facilities leverage covenant waiver terms and the impact of increased interest rates on the revolving facility.
• Assess the progress of the Texas Bank Litigation trial scheduled for June 2009 and potential recovery or liability.
• Review the U.K. valuation allowance of $146 million and the likelihood of future profitability in that jurisdiction to reverse the allowance.
• Track the completion of the Baroda acquisition and integration costs.
• Monitor working capital trends, specifically the reduction in accounts receivable and inventory, to ensure they align with sales volume declines.