UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10 Q/A
Amendment No. 1
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(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2006 |
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OR |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission |
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Exact Name of Registrant as Specified in
its |
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State of Incorporation |
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I.R.S. Employer Identification |
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001-32427 |
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Huntsman Corporation |
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Delaware |
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42-1648585 |
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333-85141 |
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Huntsman International LLC |
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Delaware |
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87-0630358 |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Huntsman Corporation |
YES x |
NO o |
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Huntsman International LLC |
YES x |
NO o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
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Huntsman Corporation |
Large accelerated filer x |
Accelerated filer o |
Non-accelerated filer o |
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Huntsman International LLC |
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Huntsman Corporation |
YES o |
NO x |
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Huntsman International LLC |
YES o |
NO x |
On November 10, 2006, 221,566,854 shares of common stock of Huntsman Corporation were outstanding and 2,728 units of membership interests of Huntsman International LLC were outstanding. There is no established trading market for Huntsman International LLC’s units of membership interests. All of Huntsman International LLC’s units of membership interests are held by Huntsman Corporation.
This Quarterly Report on Form 10-Q/A presents information for two registrants: Huntsman Corporation and Huntsman International LLC (“Huntsman International”). Huntsman International is a wholly owned subsidiary of Huntsman Corporation and is the principal operating company of Huntsman Corporation. The information reflected in this Quarterly Report on Form 10-Q/A is equally applicable to both Huntsman Corporation and Huntsman International, except where otherwise indicated. Huntsman International meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q/A and, to the extent applicable, is therefore filing this form with a reduced disclosure format.
Explanatory Note
This Amendment No. 1 on Form 10-Q/A amends Items 1, 2 and 4 of Part I of the Quarterly Report on Form 10-Q previously filed for the quarter ended September 30, 2006, by Huntsman Corporation and Huntsman International LLC. This Form 10-Q/A is filed in connection with the restatement of our financial statements for the three and nine months ended September 30, 2006. Financial statement information and related disclosures included in this Form 10-Q/A reflect, where appropriate, changes as a result of the restatement. All other information contained in this Form 10-Q/A is as of the date of the original filing. In addition, Exhibits 31.1, 31.2, 32.1 and 32.2 of the original filing have been amended to contain currently dated certifications from our Chief Executive Officer and Chief Financial Officer.
In February 2007, we discovered an error in our calculation of the impairment loss related to the sale of our European base chemicals and polymers business. We concluded that there was $99.0 million in additional non-cash asset impairment charges recorded in discontinued operations for the three and nine months ended September 30, 2006 related to the sale of our European base chemicals and polymers business. In connection with the sale of the European base chemicals and polymers business, we agreed to take action to remove the accounts receivable of this business from our accounts receivable securitization program so that the purchaser could acquire such accounts receivable. The additional non-cash charges resulted primarily because we had not appropriately included the effect of the re-purchase of these receivables in the determination of the impairment loss.
The significant effects on us and Huntsman International of the restatement are described in “Note 23. Restatement” to our condensed consolidated financial statements (unaudited).
HUNTSMAN CORPORATION AND SUBSIDIARIES
HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q/A FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2006
TABLE OF CONTENTS
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Huntsman Corporation and Subsidiaries: |
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Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited) |
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Huntsman International LLC and Subsidiaries: |
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) |
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Huntsman Corporation and Subsidiaries and Huntsman International LLC and Subsidiaries: |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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HUNTSMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Millions, Except Share and Per Share Amounts)
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September 30, |
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December 31, |
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2006 |
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2005 |
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(As restated, see Note 23) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
245.8 |
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$ |
142.8 |
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Accounts receivable (net of allowance for doubtful accounts of $56.9 and $33.7, respectively) |
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1,398.0 |
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1,475.2 |
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Accounts receivable from affiliates |
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17.4 |
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7.4 |
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Inventories, net |
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1,422.2 |
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1,309.2 |
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Prepaid expenses |
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73.0 |
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46.2 |
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Deferred income taxes |
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59.3 |
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31.2 |
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Other current assets |
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134.2 |
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84.0 |
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Current assets held for sale |
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401.9 |
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— |
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Total current assets |
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3,751.8 |
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3,096.0 |
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Property, plant and equipment, net |
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3,942.1 |
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4,643.2 |
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Investment in unconsolidated affiliates |
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199.7 |
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175.6 |
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Intangible assets, net |
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194.9 |
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216.3 |
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Goodwill |
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91.3 |
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91.2 |
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Deferred income taxes |
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120.6 |
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94.2 |
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Notes receivable from affiliates |
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— |
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3.0 |
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Other noncurrent assets |
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471.9 |
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551.0 |
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Noncurrent assets held for sale |
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531.4 |
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— |
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Total assets |
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$ |
9,303.7 |
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$ |
8,870.5 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
1,046.8 |
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$ |
1,093.5 |
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Accrued liabilities |
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601.3 |
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747.2 |
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Deferred income taxes |
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24.3 |
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2.4 |
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Current portion of long-term debt |
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226.8 |
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44.6 |
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Current liabilities held for sale |
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323.2 |
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— |
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Total current liabilities |
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2,222.4 |
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1,887.7 |
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Long-term debt |
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4,099.1 |
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4,413.3 |
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Deferred income taxes |
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207.7 |
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258.3 |
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Other noncurrent liabilities |
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851.5 |
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770.2 |
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Noncurrent liabilities held for sale |
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74.4 |
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— |
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Total liabilities |
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7,455.1 |
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7,329.5 |
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Minority interests in common stock of consolidated subsidiaries |
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29.5 |
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20.4 |
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Commitments and contingencies (Notes 13 and 14) |
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Stockholders’ equity: |
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Common stock $0.01 par value, 1,200,000,000 shares authorized, 221,576,862 issued and 220,639,647 outstanding in 2006 and 221,200,997 issued and 220,451,484 outstanding in 2005 |
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2.2 |
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2.2 |
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Mandatory convertible preferred stock $0.01 par value, 100,000,000 shares authorized, 5,750,000 issued and outstanding |
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287.5 |
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287.5 |
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Additional paid-in capital |
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2,795.4 |
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2,779.8 |
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Unearned stock-based compensation |
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(14.9 |
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(11.8 |
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Accumulated deficit |
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(1,357.8 |
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(1,505.8 |
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Accumulated other comprehensive income (loss) |
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106.7 |
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(31.3 |
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Total stockholders’ equity |
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1,819.1 |
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1,520.6 |
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Total liabilities and stockholders’ equity |
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$ |
9,303.7 |
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$ |
8,870.5 |
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See accompanying notes to unaudited condensed consolidated financial statements.
1
HUNTSMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(In Millions, Except Per Share Amounts)
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Three Months Ended |
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Nine Months Ended |
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2006 |
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2005 |
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2006 |
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2005 |
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(As restated, |
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(As restated, |
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Revenues: |
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Trade sales, services and fees |
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$ |
2,665.0 |
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$ |
2,562.8 |
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$ |
8,024.7 |
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$ |
8,040.3 |
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Related party sales |
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21.0 |
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25.1 |
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63.0 |
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80.7 |
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Total revenues |
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2,686.0 |
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2,587.9 |
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8,087.7 |
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8,121.0 |
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Cost of goods sold |
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2,313.1 |
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2,184.2 |
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6,893.7 |
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6,771.9 |
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Gross profit |
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372.9 |
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403.7 |
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1,194.0 |
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1,349.1 |
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Operating expenses: |
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Selling, general and administrative |
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209.7 |
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161.8 |
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555.8 |
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487.4 |
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Research and development |
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35.3 |
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22.1 |
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88.6 |
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72.0 |
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Other operating (income) expense |
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(28.6 |
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7.5 |
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(122.8 |
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42.0 |
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Restructuring, impairment and plant closing costs |
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3.5 |
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66.6 |
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20.0 |
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91.6 |
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Total expenses |
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219.9 |
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258.0 |
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541.6 |
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693.0 |
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Operating income |
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153.0 |
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145.7 |
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652.4 |
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656.1 |
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Interest expense, net |
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(83.4 |
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(101.1 |
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(264.8 |
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(341.8 |
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Loss on accounts receivable securitization program |
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(4.0 |
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(2.8 |
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(10.8 |
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(7.5 |
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Equity in income of unconsolidated affiliates |
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0.5 |
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1.8 |
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2.6 |
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7.0 |
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Loss on early extinguishment of debt |
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(14.5 |
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(41.4 |
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(14.5 |
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(276.4 |
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Other income (expense) |
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1.3 |
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(2.5 |
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1.4 |
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(3.3 |
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Income (loss) from continuing operations before income taxes and minority interest |
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52.9 |
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(0.3 |
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366.3 |
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34.1 |
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Income tax benefit (expense) |
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17.4 |
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(13.5 |
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(16.0 |
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(36.9 |
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Minority interest in subsidiaries’ income |
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(0.4 |
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(1.6 |
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(1.1 |
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(1.5 |
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Income (loss) from continuing operations |
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69.9 |
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(15.4 |
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349.2 |
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(4.3 |
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(Loss) income from discontinued operations, net of tax |
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(259.4 |
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(14.5 |
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(257.3 |
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30.7 |
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(Loss) income before extraordinary gain and accounting change |
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(189.5 |
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(29.9 |
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91.9 |
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26.4 |
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Extraordinary gain on the acquisition of a business, net of tax of nil |
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7.2 |
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— |
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57.7 |
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— |
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Cumulative effect of change in accounting principle, net of tax of $1.9 |
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— |
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— |
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— |
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4.0 |
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Net (loss) income |
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(182.3 |
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(29.9 |
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149.6 |
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30.4 |
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Preferred stock dividends |
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— |
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— |
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— |
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(43.1 |
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Net (loss) income available to common stockholders |
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$ |
(182.3 |
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$ |
(29.9 |
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$ |
149.6 |
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$ |
(12.7 |
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Net (loss) income |
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$ |
(182.3 |
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$ |
(29.9 |
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$ |
149.6 |
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$ |
30.4 |
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Other comprehensive income (loss) |
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57.7 |
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(25.4 |
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138.0 |
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(177.0 |
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Comprehensive (loss) income |
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$ |
(124.6 |
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$ |
(55.3 |
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$ |
287.6 |
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$ |
(146.6 |
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(continued)
2
HUNTSMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME (UNAUDITED)—CONTINUED
(In Millions, Except Per Share Amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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(As restated, |
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(As restated, |
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Basic income (loss) per share: |
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Income (loss) from continuing operations |
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$ |
0.32 |
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$ |
(0.07 |
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$ |
1.58 |
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$ |
(0.22 |
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(Loss) income from discontinued operations, net of tax |
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(1.18 |
) |
(0.07 |
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(1.16 |
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0.14 |
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Extraordinary gain on the acquisition of a business, net of tax |
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0.03 |
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— |
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0.26 |
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— |
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Cumulative effect of change in accounting principle, net of tax |
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— |
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— |
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— |
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0.02 |
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Net (loss) income |
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$ |
(0.83 |
) |
$ |
(0.14 |
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$ |
0.68 |
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$ |
(0.06 |
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Weighted average shares |
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220.6 |
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220.5 |
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220.6 |
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220.5 |
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Diluted income (loss) per share: |
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Income (loss) from continuing operations |
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$ |
0.30 |
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$ |
(0.07 |
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$ |
1.50 |
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$ |
(0.22 |
) |
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(Loss) income from discontinued operations, net of tax |
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(1.11 |
) |
(0.07 |
) |
(1.11 |
) |
0.14 |
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Extraordinary gain on the acquisition of a business, net of tax |
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0.03 |
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— |
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0.25 |
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— |
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Cumulative effect of change in accounting principle, net of tax |
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— |
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— |
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— |
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0.02 |
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Net (loss) income |
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$ |
(0.78 |
) |
$ |
(0.14 |
) |
$ |
0.64 |
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$ |
(0.06 |
) |
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Weighted average shares |
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233.2 |
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220.5 |
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233.1 |
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220.5 |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
HUNTSMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
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Nine Months Ended September 30, |
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2006 |
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2005 |
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(As restated |
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Operating Activities: |
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Net income |
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$ |
149.6 |
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$ |
30.4 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Extraordinary gain on the acquisition of a business, net of tax |
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(57.7 |
) |
— |
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Cumulative effect of change in accounting principle, net of tax |
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— |
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(4.0 |
) |
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Equity in income of unconsolidated affiliates |
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(2.6 |
) |
(7.0 |
) |
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Depreciation and amortization |
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353.2 |
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372.9 |
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Provision for losses on accounts receivable |
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3.5 |
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12.2 |
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(Gain) loss on disposal of assets |
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(92.4 |
) |
3.6 |
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Loss on pending disposal of discontinued operations |
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280.2 |
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36.4 |
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Loss on early extinguishment of debt |
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14.5 |
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276.4 |
|
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Noncash interest (income) expense |
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(5.9 |
) |
46.0 |
|
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Noncash restructuring, impairment and plant closing costs |
|
16.8 |
|
40.8 |
|
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Deferred income taxes |
|
2.0 |
|
67.8 |
|
||
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Net unrealized (gain) loss on foreign currency transactions |
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(8.7 |
) |
21.5 |
|
||
|
Stock-based compensation |
|
13.0 |
|
6.4 |
|
||
|
Minority interest in subsidiaries’ income |
|
1.1 |
|
1.5 |
|
||
|
Other, net |
|
(0.2 |
) |
(16.4 |
) |
||
|
Changes in operating assets and liabilities: |
|
|
|
|
|
||
|
Accounts receivable |
|
182.2 |
|
132.3 |
|
||
|
Inventories, net |
|
(18.6 |
) |
(109.9 |
) |
||
|
Prepaid expenses |
|
(39.2 |
) |
(12.1 |
) |
||
|
Other current assets |
|
(13.0 |
) |
(1.2 |
) |
||
|
Other noncurrent assets |
|
(20.0 |
) |
17.4 |
|
||
|
Accounts payable |
|
68.5 |
|
(64.7 |
) |
||
|
Accrued liabilities |
|
(204.5 |
) |
(115.0 |
) |
||
|
Other noncurrent liabilities |
|
(10.9 |
) |
(26.0 |
) |
||
|
Net cash provided by operating activities |
|
610.9 |
|
709.3 |
|
||
|
|
|
|
|
|
|
||
|
Investing Activities: |
|
|
|
|
|
||
|
Capital expenditures |
|
(327.0 |
) |
(202.0 |
) |
||
|
Acquisition of business, net of cash acquired |
|
(173.2 |
) |
— |
|
||
|
Investment in unconsolidated affiliates, net |
|
(13.6 |
) |
(2.9 |
) |
||
|
Proceeds from sale of assets |
|
209.0 |
|
10.6 |
|
||
|
Net proceeds from (investment in) government securities, restricted as to use |
|
10.8 |
|
(33.7 |
) |
||
|
Change in restricted cash |
|
— |
|
8.9 |
|
||
|
Other, net |
|
(1.0 |
) |
— |
|
||
|
Net cash used in investing activities |
|
(295.0 |
) |
(219.1 |
) |
||
|
|
|
|
|
|
|
||
|
Financing Activities: |
|
|
|
|
|
||
|
Net borrowings (repayments) under revolving loan facilities |
|
62.8 |
|
(117.1 |
) |
||
|
Net (repayments) borrowings on overdraft |
|
(4.7 |
) |
17.3 |
|
||
|
Repayment of long-term debt |
|
(422.4 |
) |
(3,685.1 |
) |
||
|
Proceeds from long-term debt |
|
137.2 |
|
1,873.1 |
|
||
|
Debt issuance costs paid |
|
(3.3 |
) |
(15.8 |
) |
||
|
Call premiums related to early extinguishment of debt |
|
(12.5 |
) |
(109.0 |
) |
||
|
Net borrowings on notes payable |
|
32.7 |
|
12.5 |
|
||
|
Dividend paid to preferred stockholders |
|
(10.8 |
) |
(7.2 |
) |
||
|
Net proceeds from issuance of common and preferred stock |
|
— |
|
1,491.9 |
|
||
|
Contribution from minority shareholder |
|
6.2 |
|
3.6 |
|
||
|
Other, net |
|
— |
|
4.8 |
|
||
|
Net cash used in financing activities |
|
(214.8 |
) |
(531.0 |
) |
||
|
Effect of exchange rate changes on cash |
|
1.9 |
|
(2.6 |
) |
||
|
Increase (decrease) in cash and cash equivalents |
|
103.0 |
|
(43.4 |
) |
||
|
Cash and cash equivalents at beginning of period |
|
142.8 |
|
243.2 |
|
||
|
Cash and cash equivalents at end of period |
|
$ |
245.8 |
|
$ |
199.8 |
|
|
Supplemental cash flow information: |
|
|
|
|
|
||
|
Cash paid for interest |
|
$ |
314.6 |
|
$ |
348.5 |
|
|
Cash paid for income taxes |
|
27.8 |
|
19.6 |
|
||
See accompanying notes to unaudited condensed consolidated financial statements.
4
HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions)
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
2006 |
|
2005 |
|
||
|
|
|
(As restated, see Note 23) |
|
|
|
||
|
ASSETS |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Current assets: |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
229.5 |
|
$ |
132.5 |
|
|
Accounts receivable (net of allowance for doubtful accounts of $56.9 and $33.7, respectively) |
|
1,398.0 |
|
1,475.2 |
|
||
|
Accounts receivable from affiliates |
|
22.9 |
|
10.4 |
|
||
|
Inventories, net |
|
1,422.2 |
|
1,309.2 |
|
||
|
Prepaid expenses |
|
72.1 |
|
45.9 |
|
||
|
Deferred income taxes |
|
56.8 |
|
31.2 |
|
||
|
Other current assets |
|
120.0 |
|
69.9 |
|
||
|
Current assets held for sale |
|
401.9 |
|
— |
|
||
|
Total current assets |
|
3,723.4 |
|
3,074.3 |
|
||
|
|
|
|
|
|
|
||
|
Property, plant and equipment, net |
|
3,707.8 |
|
4,336.7 |
|
||
|
Investment in unconsolidated affiliates |
|
199.7 |
|
175.6 |
|
||
|
Intangible assets, net |
|
200.0 |
|
222.0 |
|
||
|
Goodwill |
|
91.3 |
|
91.2 |
|
||
|
Deferred income taxes |
|
120.6 |
|
94.2 |
|
||
|
Notes receivable from affiliates |
|
— |
|
3.0 |
|
||
|
Other noncurrent assets |
|
561.0 |
|
636.0 |
|
||
|
Noncurrent assets held for sale |
|
500.1 |
|
— |
|
||
|
Total assets |
|
$ |
9,103.9 |
|
$ |
8,633.0 |
|
|
|
|
|
|
|
|
||
|
LIABILITIES AND MEMBERS’ EQUITY |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Current liabilities: |
|
|
|
|
|
||
|
Accounts payable |
|
$ |
1,046.8 |
|
$ |
1,092.7 |
|
|
Accounts payable to affiliates |
|
4.6 |
|
8.7 |
|
||
|
Accrued liabilities |
|
585.6 |
|
732.3 |
|
||
|
Deferred income taxes |
|
32.9 |
|
2.4 |
|
||
|
Current portion of long-term debt |
|
226.6 |
|
44.6 |
|
||
|
Current liabilities held for sale |
|
314.6 |
|
— |
|
||
|
Total current liabilities |
|
2,211.1 |
|
1,880.7 |
|
||
|
|
|
|
|
|
|
||
|
Long-term debt |
|
4,099.1 |
|
4,413.3 |
|
||
|
Deferred income taxes |
|
194.4 |
|
216.9 |
|
||
|
Other noncurrent liabilities |
|
892.5 |
|
770.0 |
|
||
|
Noncurrent liabilities held for sale |
|
51.7 |
|
— |
|
||
|
Total liabilities |
|
7,448.8 |
|
7,280.9 |
|
||
|
|
|
|
|
|
|
||
|
Minority interests in common stock of consolidated subsidiaries |
|
29.5 |
|
20.4 |
|
||
|
|
|
|
|
|
|
||
|
Commitments and contingencies (Notes 13 and 14) |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Members’ equity: |
|
|
|
|
|
||
|
Members’ equity, 2,728 units issued and outstanding |
|
2,806.8 |
|
2,794.0 |
|
||
|
Accumulated deficit |
|
(1,254.2 |
) |
(1,384.0 |
) |
||
|
Accumulated other comprehensive income (loss) |
|
73.0 |
|
(78.3 |
) |
||
|
Total members’ equity |
|
1,625.6 |
|
1,331.7 |
|
||
|
Total liabilities and members’ equity |
|
$ |
9,103.9 |
|
$ |
8,633.0 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Dollars in Millions)
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
|
|
(As restated, |
|
|
|
(As restated, |
|
|
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
||||
|
Trade sales, services and fees |
|
$ |
2,665.0 |
|
2,562.8 |
|
$ |
8,024.7 |
|
$ |
8,040.3 |
|
|
|
Related party sales |
|
21.0 |
|
25.1 |
|
63.0 |
|
80.7 |
|
||||
|
Total revenues |
|
2,686.0 |
|
2,587.9 |
|
8,087.7 |
|
8,121.0 |
|
||||
|
Cost of goods sold |
|
2,307.8 |
|
2,179.4 |
|
6,881.1 |
|
6,757.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross profit |
|
378.2 |
|
408.5 |
|
1,206.6 |
|
1,363.3 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||
|
Selling, general and administrative |
|
211.1 |
|
160.9 |
|
555.7 |
|
484.7 |
|
||||
|
Research and development |
|
35.3 |
|
22.1 |
|
88.6 |
|
72.0 |
|
||||
|
Other operating (income) expense |
|
(28.6 |
) |
7.5 |
|
(122.8 |
) |
42.0 |
|
||||
|
Restructuring, impairment and plant closing costs |
|
3.5 |
|
66.6 |
|
20.0 |
|
91.6 |
|
||||
|
Total expenses |
|
221.3 |
|
257.1 |
|
541.5 |
|
690.3 |
|
||||
|
Operating income |
|
156.9 |
|
151.4 |
|
665.1 |
|
673.0 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest expense, net |
|
(84.6 |
) |
(102.7 |
) |
(268.3 |
) |
(339.5 |
) |
||||
|
Loss on accounts receivable securitization program |
|
(4.0 |
) |
(2.8 |
) |
(10.8 |
) |
(7.5 |
) |
||||
|
Equity in income of unconsolidated affiliates |
|
0.5 |
|
1.8 |
|
2.6 |
|
7.0 |
|
||||
|
Loss on early extinguishment of debt |
|
(18.1 |
) |
(45.3 |
) |
(18.1 |
) |
(121.3 |
) |
||||
|
Other income (expense) |
|
1.2 |
|
(2.2 |
) |
1.3 |
|
(3.3 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income from continuing operations before income taxes and minority interest |
|
51.9 |
|
0.2 |
|
371.8 |
|
208.4 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income tax benefit (expense) |
|
21.3 |
|
(12.0 |
) |
(58.2 |
) |
(42.9 |
) |
||||
|
Minority interest in subsidiaries’ income |
|
(0.4 |
) |
(1.6 |
) |
(1.1 |
) |
(1.5 |
) |
||||
|
Income (loss) from continuing operations |
|
72.8 |
|
(13.4 |
) |
312.5 |
|
164.0 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
(Loss) income from discontinued operations, net of tax |
|
(239.4 |
) |
(14.5 |
) |
(237.3 |
) |
30.7 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
(Loss) income before extraordinary gain and accounting change |
|
(166.6 |
) |
(27.9 |
) |
75.2 |
|
194.7 |
|
||||
|
Extraordinary gain on the acquisition of a business, net of tax of nil |
|
8.9 |
|
— |
|
55.0 |
|
— |
|
||||
|
Cumulative effect of change in accounting principle, net of tax of $1.5 |
|
— |
|
— |
|
— |
|
4.2 |
|
||||
|
Net (loss) income |
|
(157.7 |
) |
(27.9 |
) |
130.2 |
|
198.9 |
|
||||
|
Other comprehensive income (loss) |
|
59.8 |
|
(24.3 |
) |
151.3 |
|
(179.5 |
) |
||||
|
Comprehensive (loss) income |
|
$ |
(97.9 |
) |
$ |
(52.2 |
) |
$ |
281.5 |
|
$ |
19.4 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
HUNTSMAN INTERNATIONAL LLC AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
|
|
|
Nine Months Ended September 30, |
|
||||
|
|
|
2006 |
|
2005 |
|
||
|
|
|
(As restated, |
|
|
|
||
|
Operating Activities: |
|
|
|
|
|
||
|
Net income |
|
$ |
130.2 |
|
$ |
198.9 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
|
Extraordinary gain on the acquisition of a business, net of tax |
|
(55.0 |
) |
— |
|
||
|
Cumulative effect of change in accounting principle, net of tax |
|
— |
|
(4.2 |
) |
||
|
Equity in income of unconsolidated affiliates |
|
(2.6 |
) |
(7.0 |
) |
||
|
Depreciation and amortization |
|
332.9 |
|
352.8 |
|
||
|
Provision for losses on accounts receivable |
|
3.5 |
|
12.2 |
|
||
|
(Gain) loss on disposal of assets |
|
(92.4 |
) |
3.6 |
|
||
|
Loss on pending disposal of discontinued operations |
|
260.2 |
|
36.4 |
|
||
|
Loss on early extinguishment of debt |
|
18.1 |
|
121.3 |
|
||
|
Noncash interest (income) expense |
|
(2.9 |
) |
40.6 |
|
||
|
Noncash restructuring, impairment and plant closing costs |
|
16.8 |
|
40.8 |
|
||
|
Deferred income taxes |
|
44.2 |
|
73.9 |
|
||
|
Net unrealized (gain) loss on foreign currency transactions |
|
(8.7 |
) |
21.5 |
|
||
|
Minority interest in subsidiaries’ income |
|
1.1 |
|
1.5 |
|
||
|
Other, net |
|
12.9 |
|
(1.7 |
) |
||
|
Changes in operating assets and liabilities: |
|
|
|
|
|
||
|
Accounts receivable |
|
183.4 |
|
137.2 |
|
||
|
Inventories, net |
|
(18.6 |
) |
(109.9 |
) |
||
|
Prepaid expenses |
|
(39.2 |
) |
(12.3 |
) |
||
|
Other current assets |
|
(13.0 |
) |
(1.2 |
) |
||
|
Other noncurrent assets |
|
(30.7 |
) |
13.2 |
|
||
|
Accounts payable |
|
68.5 |
|
(63.6 |
) |
||
|
Accrued liabilities |
|
(211.8 |
) |
(123.3 |
) |
||
|
Other noncurrent liabilities |
|
7.7 |
|
(13.4 |
) |
||
|
Net cash provided by operating activities |
|
604.6 |
|
717.3 |
|
||
|
|
|
|
|
|
|
||
|
Investing Activities: |
|
|
|
|
|
||
|
Capital expenditures |
|
(327.0 |
) |
(202.0 |
) |
||
|
Acquisition of business, net of cash acquired |
|
(173.2 |
) |
— |
|
||
|
Investment in unconsolidated affiliates, net |
|
(13.6 |
) |
(2.9 |
) |
||
|
Proceeds from sale of assets |
|
209.0 |
|
10.6 |
|
||
|
Change in restricted cash |
|
— |
|
8.9 |
|
||
|
Other, net |
|
(1.0 |
) |
— |
|
||
|
Net cash used in investing activities |
|
(305.8 |
) |
(185.4 |
) |
||
|
|
|
|
|
|
|
||
|
Financing Activities: |
|
|
|
|
|
||
|
Net borrowings (repayments) under revolving loan facilities |
|
62.8 |
|
(117.1 |
) |
||
|
Net (repayments) borrowings on overdraft |
|
(4.7 |
) |
17.3 |
|
||
|
Repayment of long-term debt |
|
(422.4 |
) |
(3,135.5 |
) |
||
|
Proceeds from long-term debt |
|
137.2 |
|
1,873.1 |
|
||
|
Debt issuance costs paid |
|
(3.3 |
) |
(15.8 |
) |
||
|
Call premiums related to early extinguishment of debt |
|
(12.5 |
) |
(67.8 |
) |
||
|
Net borrowings on notes payable |
|
33.0 |
|
14.0 |
|
||
|
Contribution from parent |
|
— |
|
837.6 |
|
||
|
Contribution from minority shareholder |
|
6.2 |
|
3.6 |
|
||
|
Other, net |
|
— |
|
6.1 |
|
||
|
Net cash used in financing activities |
|
(203.7 |
) |
(584.5 |
) |
||
|
|
|
|
|
|
|
||
|
Effect of exchange rate changes on cash |
|
1.9 |
|
(2.6 |
) |
||
|
Increase (decrease) in cash and cash equivalents |
|
97.0 |
|
(55.2 |
) |
||
|
Cash and cash equivalents at beginning of period |
|
132.5 |
|
243.5 |
|
||
|
Cash and cash equivalents at end of period |
|
$ |
229.5 |
|
$ |
188.3 |
|
|
|
|
|
|
|
|
||
|
Supplemental cash flow information: |
|
|
|
|
|
||
|
Cash paid for interest |
|
$ |
315.2 |
|
$ |
348.5 |
|
|
Cash paid for income taxes |
|
$ |
27.8 |
|
$ |
19.6 |
|
|
|
|
|
|
|
|
||
|
Supplemental non-cash information: |
|
|
|
|
|
||
On February 28, 2005, HMP contributed the Huntsman International Holdings senior subordinated discount notes at an accreted value of $422.8 million to Huntsman International in exchange for equity. During the nine months ended September 30, 2006 and 2005, Huntsman Corporation contributed $13.0 and $6.4, respectively to Huntsman International related to stock-based compensation.
See accompanying notes to unaudited condensed consolidated financial statements.
7
HUNTSMAN CORPORATION AND SUBSIDIARIES
HUNTSMAN INTERNATIONAL LLC
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
1. General
Certain Definitions
“Company,” “our,” “us,” or “we” may be used to refer to Huntsman Corporation and, unless the context otherwise requires, its subsidiaries and predecessors. Any references to our “Company,” “we,” “us” or “our” as of a date prior to October 19, 2004 (the date of our formation) are to Huntsman Holdings, LLC and its subsidiaries (including their respective predecessors). In this report, “Huntsman International Holdings” refers to Huntsman International Holdings LLC (our 100% owned subsidiary that merged into Huntsman International LLC on August 16, 2005) and, unless the context otherwise requires, its subsidiaries; “Huntsman International” refers to Huntsman International LLC (our 100% owned subsidiary) and, unless the context otherwise requires, its subsidiaries; “Huntsman Advanced Materials” refers to Huntsman Advanced Materials Holdings LLC (our 100% owned indirect subsidiary, the membership interests of which we contributed to Huntsman International on December 20, 2005) and, unless the context otherwise requires, its subsidiaries; “Huntsman LLC” refers to Huntsman LLC (our 100% owned subsidiary that merged into Huntsman International on August 16, 2005); “HPS” refers to Huntsman Polyurethanes Shanghai Ltd. (our consolidated splitting joint venture with Shanghai Chlor-Alkali Chemical Company, Ltd); “SLIC” refers to Shanghai Isocynate Investment BV (our unconsolidated manufacturing joint venture with BASF AG and three Chinese chemical companies); “HMP” refers to HMP Equity Holdings Corporation (our 100% owned subsidiary that merged into us on March 17, 2005); “HMP Equity Trust” refers to HMP Equity Trust (the holder of approximately 59% of our common stock); and “MatlinPatterson” refers to MatlinPatterson Global Opportunities Partners L.P., MatlinPatterson Global Opportunities Partners (Bermuda) L.P. and MatlinPatterson Global Opportunities Partners B, L.P. (collectively, an owner of HMP Equity Trust).
Description of Business
We are among the world’s largest global manufacturers of differentiated and commodity chemical products. We manufacture a broad range of chemical products and formulations, which we market in more than 100 countries to a diversified group of consumer and industrial customers. Our products are used in a wide range of applications, including those in the adhesives, aerospace, automotive, construction products, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber, textile chemicals and dye industries. We are a leading global producer in many of our key product lines, including methylene diphenyl diisocyanate (“MDI”), amines, surfactants, epoxy-based polymer formulations, textile chemicals, dyes, maleic anhydride and titanium dioxide.
Company
We were formed in 2004 to hold, among other things, the equity interests of Huntsman International, Huntsman Advanced Materials and Huntsman LLC. Huntsman International was formed in 1999 to operate businesses acquired in a transaction among Huntsman International Holdings, Huntsman Specialty Chemicals Corporation and Imperial Chemical Industries PLC (“ICI”).
In February 2005, we completed an initial public offering of common stock and mandatory convertible preferred stock. In connection with our initial public offering, we completed a transaction in which our predecessor, Huntsman Holdings, LLC, became our wholly owned subsidiary, and the existing beneficial holders of the common and preferred members interests of Huntsman Holdings, LLC received shares of our common stock in exchange for their interests (the “Reorganization Transaction”). Also during 2005, we completed a series of transactions designed to simplify our consolidated group’s financing and public reporting structure, to reduce our cost of financing and to facilitate other organizational efficiencies, including the following:
8
· On August 16, 2005, Huntsman LLC merged into Huntsman International (the “Huntsman LLC Merger”). At that time, Huntsman International Holdings also merged into Huntsman International (collectively with the Huntsman LLC Merger, the “Affiliate Mergers”). As a result of the Huntsman LLC Merger, Huntsman International succeeded to the assets, rights and obligations of Huntsman LLC. Huntsman International entered into supplemental indentures under which it assumed the obligations of Huntsman LLC under its outstanding debt securities. The Huntsman International subsidiaries that guarantee Huntsman International’s outstanding debt securities now provide guarantees with respect to these securities, and all of Huntsman LLC’s subsidiaries that guaranteed its debt securities continue to provide guarantees with respect to these debt securities. In addition, Huntsman LLC’s guarantor subsidiaries executed supplemental indentures to guarantee all of Huntsman International’s outstanding debt securities.
· On December 20, 2005, we agreed to pay $125 million to affiliates of SISU Capital Limited and other third parties to acquire the 9.7% of the equity of Huntsman Advanced Materials that we did not already own. In conjunction with this acquisition, we amended our senior secured credit facilities and increased our existing term loan B by $350 million. We used proceeds from the increased term loan, together with approximately $74 million of cash on hand, to acquire the equity interest in Huntsman Advanced Materials, to redeem Huntsman Advanced Materials’ $250 million of outstanding 11% senior secured notes due 2010, to pay $35.6 million in call premiums plus accrued interest, and to pay other related costs. We then contributed our 100% ownership interest in Huntsman Advanced Materials to Huntsman International (the “Huntsman Advanced Materials Minority Interest Transaction”).
As a result of these transactions, we now operate all of our businesses through Huntsman International and substantially all of our debt obligations are obligations of Huntsman International and/or its subsidiaries.
On June 27, 2006, we sold the assets comprising our U.S. butadiene and MTBE business operated by our Base Chemicals segment. On June 30, 2006, we acquired the global textile effects business of Ciba Specialty Chemicals Inc (the “Textile Effects Acquisition”). On September 27, 2006, we entered into a Sale and Purchase Agreement with SABIC (UK) Petrochemicals Holdings Limited (“SABIC”) to sell all of our European base chemicals and polymers business. Each of these transactions is consistent with our announced intention to evaluate and potentially dispose of certain of our commodity chemicals businesses and to expand our differentiated chemicals portfolio. For more information concerning these transactions, see “Note 3. Discontinued Operations” and “Note 4. Business Disposition and Combination.”
HMP Equity Trust holds approximately 59% of our common stock. Jon M. Huntsman and Peter R. Huntsman control the voting of the shares of our common stock held by HMP Equity Trust. However, the shares of our common stock held by HMP Equity Trust will not be voted in favor of certain fundamental corporate actions without the consent of MatlinPatterson, through its representatives David J. Matlin or Christopher R. Pechock, and Jon M. Huntsman and Peter R. Huntsman have agreed to cause all of the shares of our common stock held by HMP Equity Trust to be voted in favor of the election to our board of directors of two nominees designated by MatlinPatterson.
Accounting for Certain Transactions
The Reorganization Transaction was accounted for as an exchange of shares between entities under common control similar to the pooling method. Our condensed consolidated financial statements (unaudited) presented herein reflect the results of operations and cash flows as if Huntsman Holdings, LLC and our Company were combined for all periods presented.
The Affiliate Mergers and the Huntsman Advanced Materials Minority Interest Transaction were accounted for as an exchange of shares between entities under common control similar to the pooling method. Huntsman International’s condensed consolidated financial statements (unaudited) presented herein reflect the results of operations and cash flows as if Huntsman International Holdings, Huntsman LLC, Huntsman Advanced Materials and Huntsman International were combined for all periods presented.
9
Huntsman Corporation and Huntsman International Financial Statements
Except where otherwise indicated, these notes relate to the condensed consolidated financial statements (unaudited) for each of our Company and Huntsman International. The differences between our financial statements and Huntsman International’s financial statements relate primarily to the following:
· purchase accounting recorded at our Company for the step-acquisition of Huntsman International Holdings in May 2003;
· HMP debt that was reflected at our Company and that was repaid in 2005; and
· the different capital structures.
Principles of Consolidation
Our condensed consolidated financial statements (unaudited) and Huntsman International’s condensed consolidated financial statements (unaudited) include the accounts of our wholly-owned and majority-owned subsidiaries and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated, except for intercompany sales between discontinued and continuing operations.
Interim Financial Statements
Our interim condensed consolidated financial statements (unaudited) and Huntsman International’s interim condensed consolidated financial statements (unaudited) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) and in management’s opinion, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2005 for each of our Company and Huntsman International.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform with the current presentation.
2. Recently Issued Accounting Pronouncements
We adopted Statement of Financial Accounting Standards (“SFAS”) No. 151, Inventory Costs—an amendment of ARB No. 43, on January 1, 2006. SFAS No. 151 requires abnormal amounts of idle facility expense, freight costs, handling costs and wasted material expense to be recognized as current-period charges. It also requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The adoption of SFAS No. 151 did not have an impact on our consolidated financial statements.
10
We adopted SFAS No. 154, Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3, on January 1, 2006. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change or unless specific transition provisions are proscribed in the accounting pronouncements. SFAS No. 154 does not change the accounting guidance for reporting a correction of an error in previously issued financial statements or a change in accounting estimate. We will apply this standard prospectively.
In September 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 04-13, Accounting for Purchase and Sales of Inventory with the Same Counterparty, that requires companies to recognize an exchange of finished goods for raw materials or work-in-process within the same line of business at fair value. All other exchanges of inventory should be reflected at the carrying amounts. This pronouncement is effective for transactions entered into or modified after March 31, 2006. The adoption of EITF Issue No. 04-13 did not have a significant impact on our consolidated financial statements.
In June 2006, the EITF reached a consensus on Issue No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, that concludes that an employee’s right to a compensated absence under a sabbatical or other similar benefit arrangement accumulates; therefore, such benefits should be accrued over the required service period. This pronouncement is effective for fiscal years beginning after December 15, 2006. The adoption of this pronouncement is not expected to have an impact on our consolidated financial statements.
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109 by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006. We are reviewing FIN 48 to determine its impact on our consolidated financial statements.
In June 2006, the EITF reached a consensus on Issue 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation), that concludes that the presentation of taxes within the Issue’s scope is an accounting policy decision that should be disclosed. If the taxes are reported on a gross basis, companies are required to disclose the amounts of those taxes if such amounts are deemed significant. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2006. We are evaluating this pronouncement to determine what disclosures will be required in our financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are reviewing SFAS No. 157 to determine the statement’s impact on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158 requires most public companies to recognize the overfunded or underfunded status of their defined benefit postretirement plan(s) (other than multiemployer plans) as an asset or liability in their statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. In addition, effective for fiscal years ending after December 15, 2008, SFAS No. 158 requires a company to measure the funded status of a plan as of the date of its year-end statement of financial position. We will be required to recognize the funded status of our defined benefit pension and other postretirement benefit plans and to provide the required disclosures as of the end of 2006. As of the end of 2008, we will be required to measure the funded status of our plans as of December 31. If we and Huntsman International had adopted SFAS No. 158 as of December 31, 2005, the net increase to the defined benefit pension and other postretirement benefit obligations would have been $300.6 million and $366.7 million, respectively. We are reviewing SFAS No. 158 to determine the statement’s impact on our 2006 consolidated financial statements.
11
In September 2006, the Securities and Exchange Commission released Staff Accounting Bulletin 108 (“SAB 108”) which provides guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 requires entities to quantify the effects of unadjusted errors using both a balance sheet and an income statement approach. Entities are required to evaluate whether either approach results in a quantifying misstatement that is material. SAB 108 is effective for fiscal years ending after November 15, 2006. We are currently evaluating SAB 108 to determine its impact on our consolidated financial statements.
3. Discontinued Operations
European Base Chemicals and Polymers Business
On September 27, 2006, we entered into a Sale and Purchase Agreement with SABIC to sell all of the outstanding equity interests of Huntsman Petrochemicals (UK) Limited for an aggregate purchase price of $700 million in cash plus the assumption by the purchaser of approximately $126 million in unfunded pension liabilities. The final purchase price is subject to adjustments relating to working capital, investment in our low density polyethylene (“LDPE”) plant currently under construction in Wilton, U.K. and unfunded pension liabilities. In connection with this sale, we agreed to take action to remove the accounts receivable of the European base chemicals and polymers business from our accounts receivable securitization program so that the purchaser could acquire all such accounts receivable. These accounts receivable totaled approximately $92.3 million at September 30, 2006. As a result of this transaction, SABIC will acquire our European base chemicals and polymers business. The transaction will not include our Teesside, U.K.-based Pigments operations or the Wilton, U.K.-based aniline and nitrobenzene operations of our Polyurethanes segment. The transaction is conditioned upon, among other things, receipt of necessary approvals under applicable antitrust laws and other relevant regulations and other customary closing conditions. This transaction is expected to close by the end of 2006. We intend to use the net proceeds from the transaction to redeem in full the remaining $250 million outstanding principal amount of our 9.875% senior notes due 2009 and to repay a portion of the debt under our senior credit facilities.
Beginning on September 30, 2006, the assets and liabilities of our European base chemicals and polymers business have been classified as held for sale and its results of operations for current and prior periods have been classified as discontinued operations in our financial statements in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The following major classes of assets and liabilities are presented as held for sale in the accompanying September 30, 2006 condensed consolidated balance sheet (unaudited) (dollars in millions):
|
|
Huntsman |
|
Huntsman |
|
|||
|
|
|
Corporation |
|
International |
|
||
|
ASSETS |
|
|
|
|
|
||
|
Accounts and notes receivable, net |
|
$ |
186.1 |
|
$ |
186.1 |
|
|
Inventories, net |
|
187.3 |
|
187.3 |
|
||
|
Other current assets |
|
28.5 |
|
28.5 |
|
||
|
Property, plant and equipment, net |
|
470.9 |
|
439.6 |
|
||
|
Other noncurrent assets |
|
60.5 |
|
60.5 |
|
||
|
Total assets |
|
933.3 |
|
902.0 |
|
||
|
LIABILITIES |
|
|
|
|
|
||
|
Accounts payable |
|
183.3 |
|
183.3 |
|
||
|
Accrued liabilities |
|
139.9 |
|
131.3 |
|
||
|
Other noncurrent liabilities |
|
74.4 |
|
51.7 |
|
||
|
Total liabilities |
|
397.6 |
|
366.3 |
|
||
|
Net assets |
|
$ |
535.7 |
|
$ |
535.7 |
|
The following results of our European base chemicals and polymers business have been presented as discontinued operations in the accompanying condensed consolidated statements of operations (unaudited) (dollars in millions):
12
Huntsman Corporation:
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revenues |
|
$ |
711.1 |
|
$ |
534.0 |
|
$ |
1,841.1 |
|
$ |
1,689.4 |
|
|
Costs and expenses |
|
(678.3 |
) |
(553.7 |
) |
(1,806.1 |
) |
(1,583.2 |
) |
||||
|
Loss on pending disposal |
|
(280.2 |
) |
— |
|
(280.2 |
) |
— |
|
||||
|
Operating loss |
|
(247.4 |
) |
(19.7 |
) |
(245.2 |
) |
106.2 |
|
||||
|
Income tax (expense) benefit |
|
(11.2 |
) |
5.8 |
|
(10.5 |
) |
(31.9 |
) |
||||
|
(Loss) income from discontinued operations, net of tax |
|
$ |
(258.6 |
) |
$ |
(13.9 |
) |
$ |
(255.7 |
) |
$ |
74.3 |
|
Huntsman International:
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revenues |
|
$ |
711.1 |
|
$ |
534.0 |
|
$ |
1,841.1 |
|
$ |
1,689.4 |
|
|
Costs and expenses |
|
(678.2 |
) |
(553.7 |
) |
(1,806.0 |
) |
(1,583.2 |
) |
||||
|
Loss on pending disposal |
|
(260.2 |
) |
— |
|
(260.2 |
) |
— |
|
||||
|
Operating loss |
|
(227.3 |
) |
(19.7 |
) |
(225.1 |
) |
106.2 |
|
||||
|
Income tax (expense) benefit |
|
(11.3 |
) |
5.8 |
|
(10.6 |
) |
(31.9 |
) |
||||
|
(Loss) income from discontinued operations, net of tax |
|
$ |
(238.6 |
) |
$ |
(13.9 |
) |
$ |
(235.7 |
) |
$ |
74.3 |
|
The loss on pending disposal in 2006 represents the impairment of long-lived assets resulting from the write-down of the European base chemicals and polymers business to the purchase price less cost to sell. The actual loss on disposal may differ from this estimate as we finalize certain tax matters in the U.K. In addition, we expect to incur a pension settlement loss of approximately $27 million during the first quarter of 2007 and an additional loss on disposal of approximately $2 million for successful completion bonuses upon closing of the transaction. In connection with this sale, the Compensation Committee of our Board of Directors has authorized the accelerated vesting of certain stock-based compensation awards. Accordingly, we expect to record additional compensation expense of approximately $1 million during the fourth quarter of 2006. The European base chemicals and polymers business is reported in segment EBITDA of our Base Chemicals operating segment in the accompanying condensed consolidated financial statements (unaudited).
TDI
On July 6, 2005, we sold our toluene di-isocyanate (“TDI”) business. The sale involved the transfer of our TDI customer list and sales contracts. We discontinued the use of our remaining TDI assets. TDI has been accounted for as a discontinued operation under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, the following results of TDI have been presented as discontinued operations in the accompanying condensed consolidated statements of operations (unaudited) (dollars in millions):
13
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revenues |
|
$ |
— |
|
$ |
1.0 |
|
$ |
— |
|
$ |
24.4 |
|
|
Costs and expenses |
|
(0.8 |
) |
(1.6 |
) |
(1.6 |
) |
(31.6 |
) |
||||
|
Loss on disposal |
|
— |
|
— |
|
— |
|
(36.4 |
) |
||||
|
Operating loss |
|
(0.8 |
) |
(0.6 |
) |
(1.6 |
) |
(43.6 |
) |
||||
|
Income tax expense |
|
— |
|
— |
|
— |
|
— |
|
||||
|
Loss from discontinued operations, net of tax |
|
$ |
(0.8 |
) |
$ |
(0.6 |
) |
$ |
(1.6 |
) |
$ |
(43.6 |
) |
We expect to incur approximately $0.5 million of additional costs related to the TDI transaction through the first quarter of 2007. The TDI business is reported in segment EBITDA of our Polyurethanes segment in our accompanying condensed consolidated financial statements (unaudited).
4. Business Disposition and Combination
Sale of U.S. Butadiene and MTBE Business
On June 27, 2006, we sold the assets comprising our U.S. butadiene and MTBE business operated by our Base Chemicals segment. The total sales price was approximately $274 million, which includes approximately $12 million of favorable post-closing working capital adjustments, of which $192 million was paid to us at closing, $7.9 million was received in the third quarter of 2006 and $4.1 million was received in October 2006. The additional $70 million will be payable to us after the restart of our Port Arthur, Texas olefins unit that was damaged in a fire (see “Note 16. Port Arthur, Texas Plant Fire”) and the related resumption of crude butadiene supply; provided that we achieve certain intermediate steps toward restarting the plant and the restart occurs within 30 months of this sale. In connection with this sale, we recognized a pre-tax gain of $90.3 million, of which $9.5 million was due to the liquidation of LIFO reserves. We expect to recognize an additional pre-tax gain of $70 million upon completion of the conditions referenced above.
The carrying value of the assets and liabilities sold at June 27, 2006 was as follows (dollars in millions):
|
ASSETS |
|
|
|
|
|
Accounts and notes receivable, net |
|
$ |
80.3 |
|
|
Inventories, net |
|
12.7 |
|
|
|
Other current assets |
|
2.6 |
|
|
|
Property, plant and equipment, net |
|
83.2 |
|
|
|
Other noncurrent assets |
|
2.0 |
|
|
|
Total assets |
|
180.8 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Accounts payable |
|
65.7 |
|
|
|
Accrued liabilities |
|
0.1 |
|
|
|
Other noncurrent liabilities |
|
1.3 |
|
|
|
Total liabilities |
|
67.1 |
|
|
|
Net assets |
|
$ |
113.7 |
|
The results of operations of this business were not classified as a discontinued operation under applicable accounting rules because of the expected continuing cash flows from the MTBE business we continue to operate in our Polyurethanes segment.
14
In connection with the sale, we agreed to indemnify the buyer with respect to any losses resulting from (i) the breach of representations and warranties contained in the asset purchase agreement, (ii) any pre-sale liabilities related to the pre-sale operations of the assets sold not assumed by the buyer, and (iii) any environmental liability related to the pre-sale operations of the assets sold. We are not required to pay under these indemnification obligations until claims against us exceed $5 million. Upon exceeding this $5 million threshold, we generally are obligated to provide indemnification for any losses in excess of $5 million, up to a limit of $137.5 million. We believe that there is a remote likelihood that we will be required to pay any material amounts under the indemnity provision. As a result, we have estimated that the fair value of this indemnity at the date of the closing of the sale is minimal, and accordingly, no amounts have been recorded.
Textile Effects Acquisition
On June 30, 2006, we acquired the textile effects business of Ciba Specialty Chemicals Inc. for approximately $172.1 million (CHF 215 million) in cash, of which $139.2 million was paid on June 30, 2006 and $32.9 million was paid on July 3, 2006. This purchase price is subject to finalization of post-closing working capital adjustments, which are currently estimated to be $21.4 million. We acquired the textile effects business in order to expand our differentiated chemicals business portfolio. The operating results of the textile effects business have been consolidated with our operating results beginning on July 1, 2006 and are reported with our advanced materials operations as part of our Materials and Effects segment.
We have accounted for the Textile Effects Acquisition using the purchase method in accordance with SFAS No. 141, Business Combinations. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed, and we determined the excess of fair value of net assets acquired over cost. Because the fair value of the acquired assets and liabilities assumed exceeded the acquisition price, the valuation of the long-lived assets acquired was reduced to zero in accordance with SFAS No. 141. Accordingly, no basis was assigned to property, plant and equipment or any other non-current assets and the remaining excess was recorded as an extraordinary gain, net of taxes (which were not applicable because the gain was recorded in purchase accounting). The preliminary allocation of the purchase price to the assets and liabilities acquired is summarized as follows (dollars in millions):
|
|
|
Huntsman |
|
Huntsman |
|
||
|
Acquisition cost: |
|
|
|
|
|
||
|
Acquisition payment, exclusive of post-closing working capital adjustment |
|
$ |
172.1 |
|
$ |
172.1 |
|
|
Estimated post-closing working capital adjustment |
|
(21.4 |
) |
(21.4 |
) |
||
|
Direct costs of acquisition |
|
8.8 |
|
8.8 |
|
||
|
Total acquisition costs |
|
159.5 |
|
159.5 |
|
||
|
|
|
|
|
|
|
||
|
Fair value of assets acquired and liabilities assumed: |
|
|
|
|
|
||
|
Cash |
|
7.7 |
|
7.7 |
|
||
|
Accounts receivable |
|
250.3 |
|
250.3 |
|
||
|
Inventories |
|
233.6 |
|
233.6 |
|
||
|
Prepaid expenses and other current assets |
|
12.6 |
|
12.6 |
|
||
|
Deferred taxes |
|
7.9 |
|
5.3 |
|
||
|
Accounts payable |
|
(95.8 |
) |
(95.8 |
) |
||
|
Accrued liabilities |
|
(35.3 |
) |
(35.3 |
) |
||
|
Short-term debt |
|
(5.0 |
) |
(5.0 |
) |
||
|
Noncurrent liabilities |
|
(158.8 |
) |
(158.9 |
) |
||
|
Total fair value of net assets acquired |
|
217.2 |
|
214.5 |
|
||
|
Extraordinary gain on the acquisition of a business — excess of fair value of net assets acquired over cost |
|
$ |
57.7 |
|
$ |
55.0 |
|
This purchase price allocation is preliminary pending finalization of the determination of the fair value of assets acquired and liabilities assumed, including final valuation of working capital acquired and pension and other
15
post-retirement benefits assumed, finalization of restructuring plans, estimates of asset retirement obligations and determination of related deferred taxes. During the third quarter of 2006, we revised our estimates of fair value of working capital, restructuring liabilities and deferred taxes. We are assessing and formulating plans to exit certain activities of the textile effects business and expect to involuntarily terminate the employment of, or relocate, certain textile effects employees. We expect to spend approximately $150 million over the next three years on capital expenditures and a restructuring program that will see textile effects’ operations expand significantly in Asia but consolidate in the Americas and in Europe. We estimate that we will eliminate up to 650 positions and will create approximately 300 new positions, globally. These plans include the exit of various manufacturing, sales and administrative activities throughout the business through 2009. This preliminary purchase price allocation includes recorded liabilities for workforce reduction, non-cancelable lease termination costs and demolition, decommissioning and other restructuring costs of $63.9 million, $3.4 million, $1.5 million and $4.8 million, respectively. We have not yet finalized plans to exit certain business activities and may record additional liabilities for workforce reduction, demolition and non-cancelable lease costs as these plans are finalized. We expect that it is reasonably possible that material changes to the allocation could occur and any changes to our purchase price allocation will be recorded as an adjustment to the extraordinary gain in future periods.
The following tables reflect our and Huntsman International’s results of operations on a pro forma basis as if the Textile Effects Acquisition had been completed at the beginning of each period presented utilizing historical results for each entity (dollars in millions, except per share amounts):
Huntsman Corporation:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
Revenues |
|
$ |
2,686.0 |
|
$ |
2,832.9 |
|
$ |
8,606.2 |
|
$ |
8,899.6 |
|
|
(Loss) income before extraordinary gain and accounting change |
|
(189.5 |
) |
(15.4 |
) |
111.1 |
|
50.0 |
|
||||
|
Net (loss) income |
|
(182.3 |
) |
(8.2 |
) |
168.8 |
|
111.7 |
|
||||
|
Basic (loss) income per share |
|
(0.83 |
) |
(0.04 |
) |
0.77 |
|
0.31 |
|
||||
|
Diluted (loss) income per share |
|
(0.78 |
) |
(0.04 |
) |
0.72 |
|
0.31 |
|
||||
Huntsman International:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
Revenues |
|
$ |
2,686.0 |
|
$ |
2,832.9 |
|
$ |
8,606.2 |
|
$ |
8,899.6 |
|
|
(Loss) income before extraordinary gain and accounting change |
|
(166.6 |
) |
(13.4 |
) |
94.4 |
|
218.3 |
|
||||
|
Net (loss) income |
|
(157.7 |
) |
(4.5 |
) |
149.4 |
|
277.5 |
|
||||
Our pro forma net income (loss) reflects an extraordinary gain on the Textile Effects Acquisition of $7.2 million for both the three months ended September 30, 2006 and 2005, and $57.7 million for both the nine months ended September 30, 2006 and 2005. The pro forma net income of Huntsman International reflects an extraordinary gain on the Textile Effects Acquisition of $8.9 million for both the three months ended September 30, 2006 and 2005, and $55.0 million for both the nine months ended September 30, 2006 and 2005.
16
5. Inventories
Inventories consisted of the following (dollars in millions):
|
|
September 30, |
|
December 31, |
|
|||
|
|
|
2006 |
|
2005 |
|
||
|
|
|
|
|
|
|
||
|
Raw materials and supplies |
|
$ |
329.7 |
|
$ |
374.1 |
|
|
Work in progress |
|
110.4 |
|
82.1 |
|
||
|
Finished goods |
|
1,124.4 |
|
988.1 |
|
||
|
Total |
|
1,564.5 |
|
1,444.3 |
|
||
|
|
|
|
|
|
|
||
|
LIFO reserves |
|
(120.5 |
) |
(119.7 |
) |
||
|
Lower of cost or market reserves |
|
(21.8 |
) |
(15.4 |
) |
||
|
Net |
|
$ |
1,422.2 |
|
$ |
1,309.2 |
|
As of September 30, 2006 and December 31, 2005, approximately 18% and 21%, respectively, of inventories were recorded using the last-in, first-out cost method.
In the normal course of operations, we exchange raw materials with other companies. No gains or losses are recognized on these exchanges and the net open exchange positions are valued at our cost. The amount included in inventory under open exchange agreements receivable by us at September 30, 2006 was $2.1 million (0.3 million pounds of feedstock and products). The amount included in inventory under open exchange agreements payable by us at December 31, 2005 was $3.8 million (8.8 million pounds of feedstock and products).
6. Restructuring, Impairment and Plant Closing Costs
While we continuously focus on identifying opportunities to reduce our operating costs and maximize our operating efficiency, we have now substantially implemented our comprehensive global cost reduction program, referred to as “Project Coronado.” Project Coronado was a program designed to reduce our annual fixed manufacturing and selling, general and administrative costs, as measured at 2002 levels, by $200 million. In connection with Project Coronado, we announced the closure of eight smaller, less competitive manufacturing units in our Polyurethanes, Materials and Effects, Performance Products and Pigments segments. These and other actions have resulted in the reduction of approximately 1,500 positions in these businesses since 2000.
17
As of September 30, 2006 and December 31, 2005, accrued restructuring costs by type of cost and initiative consisted of the following (dollars in millions):
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|||||
|
|
|
Workforce |
|
Demolition and |
|
Non-cancelable |
|
restructuring |
|
|
|
|||||
|
|
|
reductions(1) |
|
decommissioning |
|
lease costs |
|
costs |
|
Total(3) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accrued liabilities as of December 31, 2005 |
|
$ |
54.2 |
|
$ |
5.8 |
|
$ |
6.5 |
|
$ |
11.8 |
|
$ |
78.3 |
|
|
Textile Effects opening balance sheet liabilities at June 30, 2006 |
|
63.9 |
|
1.5 |
|
3.4 |
|
4.8 |
|
73.6 |
|
|||||
|
2006 charges for 2003 initiatives |
|
2.2 |
|
— |
|
— |
|
— |
|
2.2 |
|
|||||
|
2006 charges for 2004 initiatives |
|
3.1 |
|
0.1 |
|
— |
|
— |
|
3.2 |
|
|||||
|
2006 charges for 2005 initiatives |
|
2.1 |
|
— |
|
— |
|
0.2 |
|
2.3 |
|
|||||
|
2006 charges for 2006 initiatives |
|
2.1 |
|
— |
|
— |
|
— |
|
2.1 |
|
|||||
|
Reversal of reserves no longer required (2) |
|
(3.9 |
) |
(2.2 |
) |
(0.5 |
) |
— |
|
(6.6 |
) |
|||||
|
Partial reversal of Advanced Materials opening balance sheet liabilities |
|
(2.5 |
) |
— |
|
— |
|
— |
|
(2.5 |
) |
|||||
|
2006 payments for 2003 initiatives |
|
(7.1 |
) |
— |
|
(0.3 |
) |
(0.2 |
) |
(7.6 |
) |
|||||
|
2006 payments for 2004 initiatives |
|
(14.2 |
) |
(2.1 |
) |
(0.6 |
) |
(0.2 |
) |
(17.1 |
) |
|||||
|
2006 payments for 2005 initiatives |
|
(6.9 |
) |
— |
|
— |
|
(0.9 |
) |
(7.8 |
) |
|||||
|
2006 payments for 2006 initiatives |
|
(0.2 |
) |
— |
|
— |
|
— |
|
(0.2 |
) |
|||||
|
Reclassification of net activity in liabilities held for sale |
|
(7.1 |
) |
— |
|
— |
|
— |
|
(7.1 |
) |
|||||
|
Foreign currency effect on reserve balance |
|
2.6 |
|
0.2 |
|
0.3 |
|
0.1 |
|
3.2 |
|
|||||
|
Accrued liabilities as of September 30, 2006 |
|
$ |
88.3 |
|
$ |
3.3 |
|
$ |
8.8 |
|
$ |
15.6 |
|
$ |
116.0 |
|
(1) With the exception of liabilities recorded in connection with business combinations, accrued liabilities classified as workforce reductions consist primarily of restructuring programs involving ongoing termination benefit arrangements and restructuring programs involving special termination benefits. Accordingly, the related liabilities were accrued as a one-time charge to earnings in accordance with SFAS No. 112, Employers’ Accounting for Postemployment Benefits and with SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, respectively. The remaining accrued liabilities related to these charges of $24.4 million represent workforce reductions to be paid by the end of 2011. Liabilities for workforce reductions recorded in connection with business combinations were accrued in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, and are expected to be paid through 2009. Of the total workforce reduction reserves of $88.3 million, $68.2 million relates to 698 positions that have not been terminated as of September 30, 2006.
(2) The reversal of workforce reduction reserves relates to differences between the actual payments made to employees upon termination of such employees positions and the original estimates of termination payments, redeployment of employees whose positions were originally expected to be terminated, changes to applicable laws and regulations and revisions to original estimates based on information currently available.
(3) Accrued liabilities by initiatives were as follows (dollars in millions):
|
|
September 30, |
|
December 31, |
|
|||
|
|
|
2006 |
|
2005 |
|
||
|
|
|||||||