Huntsman(HUN) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Presents Huntsman Corporation and Huntsman International LLC's unaudited condensed consolidated financial statements, covering balance sheets, income, equity, and cash flows, with detailed accounting notes Huntsman Corporation and Subsidiaries: Condensed Consolidated Balance Sheets Huntsman Corporation: Condensed Consolidated Balance Sheets (Selected Items) | Item | June 30, 2019 (Millions) | Dec 31, 2018 (Millions) | Change (Millions) | Change (%) | | :-------------------------------- | :----------------------- | :---------------------- | :---------------- | :--------- | | Total assets | $8,500 | $7,953 | $547 | 6.88% | | Total liabilities | $5,680 | $5,204 | $476 | 9.15% | | Total equity | $2,820 | $2,749 | $71 | 2.58% | | Total current assets | $3,013 | $2,958 | $55 | 1.86% | | Total current liabilities | $1,650 | $1,611 | $39 | 2.42% | Huntsman Corporation and Subsidiaries: Condensed Consolidated Statements of Operations Huntsman Corporation: Condensed Consolidated Statements of Operations (Selected Items) | Item | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (%) | | :------------------------------------------------ | :----------------- | :----------------- | :--------- | :--------------------- | :--------------------- | :--------- | | Total revenues | $2,194 | $2,404 | (9)% | $4,228 | $4,699 | (10)% | | Gross profit | $433 | $555 | (22)% | $830 | $1,095 | (24)% | | Operating income | $203 | $299 | (32)% | $348 | $595 | (42)% | | Income from continuing operations before income taxes | $170 | $293 | (42)% | $352 | $582 | (40)% | | Income tax expense | $(50) | $(4) | NM | $(102) | $(57) | 79% | | Net income attributable to Huntsman Corporation | $110 | $414 | (73)% | $229 | $688 | (66)% | Huntsman Corporation and Subsidiaries: Condensed Consolidated Statements of Comprehensive Income Huntsman Corporation: Condensed Consolidated Statements of Comprehensive Income (Selected Items) | Item | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (%) | | :------------------------------------------------ | :----------------- | :----------------- | :--------- | :--------------------- | :--------------------- | :--------- | | Net income | $118 | $623 | (81)% | $249 | $973 | (74)% | | Foreign currency translations adjustments | $(22) | $(202) | 89% | $20 | $(115) | NM | | Pension and other postretirement benefits adjustments | $13 | $20 | (35)% | $25 | $45 | (44)% | | Comprehensive income attributable to Huntsman Corporation | $103 | $271 | (62)% | $274 | $641 | (57)% | Huntsman Corporation and Subsidiaries: Condensed Consolidated Statements of Equity Huntsman Corporation: Condensed Consolidated Statements of Equity (Selected Items) | Item | Jan 1, 2019 (Millions) | Jun 30, 2019 (Millions) | Change (Millions) | Change (%) | | :-------------------------------- | :--------------------- | :---------------------- | :---------------- | :--------- | | Total Huntsman Corporation stockholders' equity | $2,520 | $2,611 | $91 | 3.61% | | Treasury stock | $(427) | $(542) | $(115) | 26.93% | | Retained earnings | $292 | $432 | $140 | 47.95% | - 5,540,254 shares of common stock were repurchased for approximately $115 million during the six months ended June 30, 2019[134] - Dividends of $0.1625 per share were declared, totaling $39 million for Q1 2019 and $38 million for Q2 2019[20][135] Huntsman Corporation and Subsidiaries: Condensed Consolidated Statements of Cash Flows Huntsman Corporation: Condensed Consolidated Statements of Cash Flows (Selected Items) | Item | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (Millions) | Change (%) | | :------------------------------------------ | :--------------------- | :--------------------- | :---------------- | :--------- | | Net cash provided by operating activities | $273 | $640 | $(367) | (57.34)% | | Net cash used in investing activities | $(118) | $(641) | $523 | (81.59)% | | Net cash (used in) provided by financing activities | $(48) | $64 | $(112) | NM | | Capital expenditures | $(136) | $(109) | $(27) | 24.77% | | Cash, cash equivalents and restricted cash at end of period | $449 | $763 | $(314) | (41.15)% | Huntsman International LLC and Subsidiaries: Condensed Consolidated Balance Sheets Huntsman International LLC: Condensed Consolidated Balance Sheets (Selected Items) | Item | June 30, 2019 (Millions) | Dec 31, 2018 (Millions) | Change (Millions) | Change (%) | | :-------------------------------- | :----------------------- | :---------------------- | :---------------- | :--------- | | Total assets | $8,896 | $8,335 | $561 | 6.73% | | Total liabilities | $6,220 | $5,847 | $373 | 6.38% | | Total equity | $2,676 | $2,488 | $188 | 7.56% | Huntsman International LLC and Subsidiaries: Condensed Consolidated Statements of Operations Huntsman International LLC: Condensed Consolidated Statements of Operations (Selected Items) | Item | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (%) | | :------------------------------------------------ | :----------------- | :----------------- | :--------- | :--------------------- | :--------------------- | :--------- | | Total revenues | $2,194 | $2,404 | (9)% | $4,228 | $4,699 | (10)% | | Gross profit | $433 | $556 | (22)% | $830 | $1,097 | (24)% | | Operating income | $204 | $301 | (32)% | $351 | $599 | (41)% | | Income from continuing operations before income taxes | $166 | $289 | (43)% | $344 | $574 | (40)% | | Income tax expense | $(49) | $(3) | NM | $(100) | $(55) | 82% | | Net income attributable to Huntsman International LLC | $107 | $411 | (74)% | $223 | $682 | (67)% | Huntsman International LLC and Subsidiaries: Condensed Consolidated Statements of Comprehensive Income Huntsman International LLC: Condensed Consolidated Statements of Comprehensive Income (Selected Items) | Item | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (%) | | :------------------------------------------------ | :----------------- | :----------------- | :--------- | :--------------------- | :--------------------- | :--------- | | Net income | $115 | $620 | (81)% | $243 | $967 | (75)% | | Foreign currency translations adjustment | $(21) | $(200) | 89.5% | $20 | $(115) | NM | | Pension and other postretirement benefits adjustments | $13 | $20 | (35)% | $26 | $45 | (42)% | | Comprehensive income attributable to Huntsman International LLC | $101 | $269 | (62)% | $269 | $638 | (58)% | Huntsman International LLC and Subsidiaries: Condensed Consolidated Statements of Equity Huntsman International LLC: Condensed Consolidated Statements of Equity (Selected Items) | Item | Jan 1, 2019 (Millions) | Jun 30, 2019 (Millions) | Change (Millions) | Change (%) | | :------------------------------------------ | :--------------------- | :---------------------- | :---------------- | :--------- | | Total Huntsman International LLC members' equity | $2,259 | $2,467 | $208 | 9.21% | | Retained earnings (accumulated deficit) | $(91) | $57 | $148 | NM | | Accumulated other comprehensive loss | $(1,308) | $(1,262) | $46 | (3.52)% | - Dividends paid to the parent company totaled $75 million for the six months ended June 30, 2019[42] Huntsman International LLC and Subsidiaries: Condensed Consolidated Statements of Cash Flows Huntsman International LLC: Condensed Consolidated Statements of Cash Flows (Selected Items) | Item | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (Millions) | Change (%) | | :------------------------------------------ | :--------------------- | :--------------------- | :---------------- | :--------- | | Net cash provided by operating activities | $265 | $630 | $(365) | (57.94)% | | Net cash used in investing activities | $(122) | $(664) | $542 | (81.63)% | | Net cash (used in) provided by financing activities | $(36) | $98 | $(134) | NM | | Capital expenditures | $(136) | $(109) | $(27) | 24.77% | | Cash, cash equivalents and restricted cash at end of period | $449 | $762 | $(313) | (41.08)% | Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, business activities, and financial performance 1. GENERAL - Huntsman is a global manufacturer of differentiated organic chemical products, operating in four segments: Polyurethanes, Performance Products, Advanced Materials, and Textile Effects[47][48] - On July 26, 2019, Huntsman signed an agreement to acquire the remaining 50% interest in the Sasol-Huntsman maleic anhydride joint venture for $92.5 million, expected to close in Q4 2019[52] - Unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP, reflecting normal recurring adjustments[46] 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - Adopted ASU No. 2016-02 (Leases) on January 1, 2019, resulting in the recognition of $495 million in operating lease liabilities and $466 million in operating lease right-of-use assets, with no significant impact on statements of operations[57] - Adopted ASU No. 2017-12 (Derivatives and Hedging) effective January 1, 2019, with no significant impact on condensed consolidated financial statements[57] - Applied SEC Final Rule Release No. 33-10532 (Disclosure Update and Simplification) beginning in Q1 2019, extending the annual requirement to disclose changes in stockholders' equity to interim periods[58] 3. BUSINESS COMBINATION - Acquired 100% of Demilec for approximately $353 million in April 2018, integrating it into the Polyurethanes segment[62][63] - The acquisition was aligned with the strategy to grow the downstream polyurethanes business and expand Demilec's portfolio internationally[63] - Recognized $140 million in goodwill, primarily attributable to projected future profitable growth, market penetration, and synergies[64] 4. BUSINESS DISPOSITIONS - Huntsman deconsolidated Venator in December 2018 after selling an additional 4% of shares, reducing ownership to approximately 49%[69] - The remaining interest in Venator is accounted for as an equity method investment using the fair value option[69] - Recorded a loss of $18 million for Q2 2019 and a gain of $57 million for YTD Q2 2019 related to fair value adjustments to the Venator investment[71] 5. INVENTORIES - Inventories are stated at the lower of cost or market, with cost determined using LIFO, FIFO, and average cost methods[74] Net Inventories | Item | June 30, 2019 (Millions) | Dec 31, 2018 (Millions) | Change (Millions) | Change (%) | | :-------------------- | :----------------------- | :---------------------- | :---------------- | :--------- | | Raw materials and supplies | $222 | $215 | $7 | 3.26% | | Work in progress | $55 | $51 | $4 | 7.84% | | Finished goods | $868 | $927 | $(59) | (6.36)% | | Total | $1,145 | $1,193 | $(48) | (4.02)% | | LIFO reserves | $(51) | $(59) | $8 | (13.56)% | | Net inventories | $1,094 | $1,134 | $(40) | (3.53)% | 6. VARIABLE INTEREST ENTITIES - Huntsman consolidates Rubicon LLC, Arabian Amines Company, and Sasol-Huntsman as primary beneficiaries[75] - Huntsman plans to acquire the remaining 50% interest in the Sasol-Huntsman maleic anhydride joint venture[75] Financial Impact of Variable Interest Entities (Selected Items) | Metric | Q2 2019 (Millions) | Q2 2018 (Millions) | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | | :--------------------------------------- | :----------------- | :----------------- | :--------------------- | :--------------------- | | Revenues | $31 | $39 | $67 | $77 | | Income from continuing operations before income taxes | $4 | $9 | $13 | $19 | | Net cash provided by operating activities | $29 | $14 | $60 | $29 | 7. LEASES - Adopted the new lease standard (ASU 2016-02) on January 1, 2019, recognizing $495 million in operating lease liabilities and $466 million in operating lease right-of-use assets[77][57] - The weighted-average remaining lease term is 10 years, with a weighted-average discount rate of 4.3%[82] Operating Lease Expense (YTD Q2 2019) | Item | YTD Q2 2019 (Millions) | | :-------------------------------- | :--------------------- | | Cost of goods sold | $32 | | Selling, general and administrative | $8 | | Research and development | $3 | | Total operating lease expense | $43 | Undiscounted Cash Flows of Operating Lease Liabilities (June 30, 2019) | Year ending December 31, | Amount (Millions) | | :----------------------- | :---------------- | | 2019 (excluding YTD Q2) | $39 | | 2020 | $73 | | 2021 | $68 | | 2022 | $60 | | 2023 | $55 | | Thereafter | $293 | | Total lease payments | $588 | | Less imputed interest | $(109) | | Total | $479 | 8. DEBT Huntsman Corporation: Outstanding Debt (Net of Issuance Costs) | Item | June 30, 2019 (Millions) | Dec 31, 2018 (Millions) | | :-------------------------- | :----------------------- | :---------------------- | | Revolving facility | $185 | $50 | | Amounts outstanding under A/R programs | $236 | $252 | | Senior notes | $1,977 | $1,892 | | Variable interest entities | $81 | $86 | | Other | $26 | $40 | | Total debt | $2,505 | $2,320 | | Current portion of debt | $228 | $96 | | Long-term portion of debt | $2,277 | $2,224 | Huntsman International LLC: Outstanding Debt (Net of Issuance Costs) | Item | June 30, 2019 (Millions) | Dec 31, 2018 (Millions) | | :-------------------------------- | :----------------------- | :---------------------- | | Total debt, excluding debt to affiliates | $2,505 | $2,320 | | Notes payable to affiliates-current | $100 | $100 | | Notes payable to affiliates-noncurrent | $373 | $488 | | Total debt | $2,978 | $2,908 | - Issued $750 million of 4.50% senior notes due 2029, using proceeds to redeem $650 million of 4.875% senior notes due 2020, resulting in a $23 million loss on early extinguishment of debt[99] - Huntsman International has a $1.2 billion senior unsecured revolving credit facility maturing in May 2023, with $185 million outstanding at June 30, 2019[90][91] - Amended U.S. and EU A/R Programs, extending scheduled commitment termination dates to April 2022[93] 9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Huntsman uses derivative instruments (foreign currency contracts, interest rate swaps) to manage exposure to interest rates, foreign exchange rates, and commodity pricing risks[106][109][110] - Designated approximately €475 million (approximately $540 million) of euro-denominated debt as a hedge of its net investment in European operations[113] - Had approximately $191 million in notional amount outstanding in forward foreign currency contracts as of June 30, 2019[109] - Entered into a six-year $17 million notional value interest rate hedge with a fixed rate of 2.66% on January 9, 2019[110] 10. FAIR VALUE - Elected the fair value option for its equity method investment in Venator, which is valued using market observable pricing[116] Fair Value of Financial Instruments (June 30, 2019) | Instrument | Carrying Value (Millions) | Estimated Fair Value (Millions) | | :--------------------------------------- | :------------------------ | :-------------------------- | | Non-qualified employee benefit plan investments | $24 | $24 | | Interest rate contracts | $(1) | $(1) | | Long-term debt (including current portion) | $(2,505) | $(2,664) | Fair Value of Financial Instruments (December 31, 2018) | Instrument | Carrying Value (Millions) | Estimated Fair Value (Millions) | | :--------------------------------------- | :------------------------ | :-------------------------- | | Non-qualified employee benefit plan investments | $23 | $23 | | Forward swap contract (Venator) | $14 | $14 | | Long-term debt (including current portion) | $(2,320) | $(2,403) | 11. REVENUE RECOGNITION - Revenue is recognized when control of promised goods is transferred to customers, typically at shipment[122][127] - Transaction price includes variable consideration (discounts/rebates) estimated using historical and current trend information[128][129] Revenue by Segment (Q2 2019 vs Q2 2018) | Segment | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | | :------------------ | :----------------- | :----------------- | :--------- | | Polyurethanes | $1,198 | $1,313 | (9)% | | Performance Products | $537 | $593 | (9)% | | Advanced Materials | $275 | $292 | (6)% | | Textile Effects | $215 | $227 | (5)% | | Total | $2,194 | $2,404 | (9)% | Revenue by Segment (YTD Q2 2019 vs YTD Q2 2018) | Segment | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (%) | | :------------------ | :--------------------- | :--------------------- | :--------- | | Polyurethanes | $2,265 | $2,535 | (11)% | | Performance Products | $1,077 | $1,196 | (10)% | | Advanced Materials | $547 | $571 | (4)% | | Textile Effects | $404 | $427 | (5)% | | Total | $4,228 | $4,699 | (10)% | 12. EMPLOYEE BENEFIT PLANS Net Periodic Benefit Cost (Huntsman Corporation, YTD Q2 2019) | Plan Type | Amount (Millions) | | :-------------------------- | :---------------- | | Defined Benefit Plans | $22 | | Other Postretirement Benefit Plans | $0 | Net Periodic Benefit Cost (Huntsman International, YTD Q2 2019) | Plan Type | Amount (Millions) | | :-------------------------- | :---------------- | | Defined Benefit Plans | $24 | | Other Postretirement Benefit Plans | $0 | - $42 million in contributions were made to pension and other postretirement benefit plans during YTD Q2 2019, with an additional $51 million expected for the remainder of 2019[133] 13. HUNTSMAN CORPORATION STOCKHOLDERS' EQUITY - Repurchased 5,540,254 shares of common stock for approximately $115 million during the six months ended June 30, 2019, under a program authorized for up to an additional $950 million[134] - Paid dividends of $38 million ($0.1625 per share) in Q2 2019 and $39 million ($0.1625 per share) in Q1 2019 to common stockholders[135] 14. OTHER COMPREHENSIVE INCOME Huntsman Corporation: Net Current-Period Other Comprehensive Income (YTD Q2 2019) | Component | Amount (Millions) | | :--------------------------------------- | :---------------- | | Foreign currency translation adjustment | $20 | | Pension and other postretirement benefits adjustments | $25 | | Total Net current-period other comprehensive income | $45 | Huntsman International: Net Current-Period Other Comprehensive Income (YTD Q2 2019) | Component | Amount (Millions) | | :--------------------------------------- | :---------------- | | Foreign currency translation adjustment | $20 | | Pension and other postretirement benefits adjustments | $26 | | Total Net current-period other comprehensive income | $46 | - Huntsman Corporation's Accumulated Other Comprehensive Loss decreased from $(1,316) million at January 1, 2019, to $(1,271) million at June 30, 2019[136] 15. COMMITMENTS AND CONTINGENCIES - Huntsman denied an indemnification demand from banks related to the Wisconsin Litigation concerning a failed acquisition by Hexion[150] - The company does not believe the outcome of any of these legal matters will have a material effect on its financial condition, results of operations, or liquidity[151] 16. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS - Environmental, Health and Safety (EHS) capital expenditures totaled $22 million for the six months ended June 30, 2019[152] - Accrued $7 million for environmental liabilities as of June 30, 2019, for cleanup obligations, site reclamation, and closure costs[156] - Involved in remediation efforts at approximately nine former facilities or third-party sites in the U.S. under CERCLA and ongoing requirements at Port Neches, Texas, and Geismar, Louisiana, under RCRA[157][158] - Unable to reasonably estimate potential liabilities at the North Maybe Canyon Mine CERCLA site[159] 17. STOCK-BASED COMPENSATION PLANS - Approximately 8 million shares remained available for grant under the 2016 Stock Incentive Plan as of June 30, 2019[162] Stock-Based Compensation Cost (YTD Q2 2019) | Entity | Amount (Millions) | | :-------------------- | :---------------- | | Huntsman Corporation | $15 | | Huntsman International | $14 | Stock Option Activity (YTD Q2 2019) | Item | Shares (thousands) | | :------------------------ | :----------------- | | Outstanding at January 1, 2019 | 4,545 | | Granted | 896 | | Exercised | (167) | | Forfeited | (41) | | Outstanding at June 30, 2019 | 5,233 | - Total unrecognized compensation cost related to nonvested stock option arrangements was $12 million, and for nonvested share compensation arrangements was $30 million, both expected to be recognized over approximately 2.1 years[168][172] 18. INCOME TAXES - Huntsman Corporation recorded income tax expense from continuing operations of $102 million for the six months ended June 30, 2019, with an effective tax rate of 29%[177] - Huntsman International recorded income tax expense from continuing operations of $100 million for the six months ended June 30, 2019, with an effective tax rate of 29%[178] - A non-cash income tax expense of $32 million was recognized due to reduced cantonal income tax rates in Switzerland[175] - The $58 million gain on fair value adjustments to the Venator investment was not subject to tax under The Netherlands' statutory participation exemption[176] 19. NET INCOME PER SHARE Huntsman Corporation: Basic and Diluted Net Income Per Share (YTD Q2 2019) | Metric | Basic EPS | Diluted EPS | | :-------------------------------- | :-------- | :---------- | | Income from continuing operations | $0.99 | $0.98 | | Net income | $0.99 | $0.98 | Huntsman Corporation: Basic and Diluted Net Income Per Share (YTD Q2 2018) | Metric | Basic EPS | Diluted EPS | | :-------------------------------- | :-------- | :---------- | | Income from continuing operations | $2.01 | $1.98 | | Income from discontinued operations | $0.86 | $0.84 | | Net income | $2.87 | $2.82 | - Additional stock-based awards of 3.5 million weighted average equivalent shares were anti-dilutive and excluded from diluted EPS computation for the six months ended June 30, 2019[181] 20. OPERATING SEGMENT INFORMATION - Huntsman operates in four reportable segments: Polyurethanes, Performance Products, Advanced Materials, and Textile Effects[182] Revenues by Segment (Q2 2019 vs Q2 2018) | Segment | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | | :------------------ | :----------------- | :----------------- | :--------- | | Polyurethanes | $1,198 | $1,313 | (9)% | | Performance Products | $537 | $593 | (9)% | | Advanced Materials | $275 | $292 | (6)% | | Textile Effects | $215 | $227 | (5)% | | Total | $2,194 | $2,404 | (9)% | Adjusted EBITDA by Segment (Huntsman Corporation, Q2 2019 vs Q2 2018) | Segment | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | | :------------------ | :----------------- | :----------------- | :--------- | | Polyurethanes | $201 | $269 | (25)% | | Performance Products | $71 | $94 | (24)% | | Advanced Materials | $55 | $62 | (11)% | | Textile Effects | $28 | $29 | (3)% | | Corporate and other | $(37) | $(39) | 5% | | Total | $318 | $415 | (23)% | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of Huntsman's financial condition and results of operations for Q2 2019, covering performance, outlook, segment analysis, liquidity, and critical accounting policies Overview - Huntsman is a global manufacturer of differentiated organic chemical products across four segments: Polyurethanes, Performance Products, Advanced Materials, and Textile Effects[185] Total Revenues | Period | Amount (Millions) | | :-------------------- | :---------------- | | YTD Q2 2019 | $4,228 | | YTD Q2 2018 | $4,699 | Recent Developments - On July 26, 2019, Huntsman signed a definitive agreement to acquire the remaining 50% interest in the Sasol-Huntsman maleic anhydride joint venture for $92.5 million, expected to close in Q4 2019[186] Outlook - Expected capital expenditures for 2019 are between $350 million to $360 million[187] - Expected forward adjusted effective tax rate is approximately 22% to 24%[189] - Polyurethanes: Expect volume growth and stable margins in differentiated business, but lower overall component MDI margins year over year and continued demand headwinds in Europe and China. An unplanned outage at the Rotterdam facility is expected to impact Q3 2019 EBITDA by approximately $20 million[188] - Performance Products: Anticipate growth in key downstream markets (gas treating, oilfield services) and stable margins in maleic anhydride, but lower margins in upstream intermediates and ethyleneamines businesses[188] - Advanced Materials: Expect steady growth in aerospace markets but demand headwinds in Europe and China[188] - Textile Effects: Anticipate growth in specialty markets but continued headwinds in China and with foreign currency[188] Results of Operations Three Months Ended June 30, 2019 Compared with Three Months Ended June 30, 2018 Huntsman Corporation: Key Financial Changes (Q2 2019 vs Q2 2018) | Item | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (Millions) | Change (%) | | :------------------------------------------------ | :----------------- | :----------------- | :---------------- | :--------- | | Revenues | $2,194 | $2,404 | $(210) | (9)% | | Gross profit | $433 | $555 | $(122) | (22)% | | Operating expenses | $230 | $254 | $(24) | (9)% | | Income from continuing operations before income taxes | $170 | $293 | $(123) | (42)% | | Income tax expense | $(50) | $(4) | $(46) | NM | | Net income attributable to Huntsman Corporation | $110 | $414 | $(304) | (73)% | - Revenues decreased primarily due to lower average selling prices across all segments (except Textile Effects) and lower sales volumes in Advanced Materials and Textile Effects[209] - Gross profit decreased due to lower gross margins across all segments[209] - Income tax expense increased significantly due to discrete items, including tax expense related to the change in tax rate in Switzerland in 2019, partially offset by tax benefits from valuation allowance releases in 2018[213] - A loss of $18 million was recorded in fair value adjustments to the Venator investment[213] Segment Analysis (Three Months) Revenue by Segment (Q2 2019 vs Q2 2018) | Segment | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | | :------------------ | :----------------- | :----------------- | :--------- | | Polyurethanes | $1,198 | $1,313 | (9)% | | Performance Products | $537 | $593 | (9)% | | Advanced Materials | $275 | $292 | (6)% | | Textile Effects | $215 | $227 | (5)% | | Total | $2,194 | $2,404 | (9)% | Adjusted EBITDA by Segment (Huntsman Corporation, Q2 2019 vs Q2 2018) | Segment | Q2 2019 (Millions) | Q2 2018 (Millions) | Change (%) | | :------------------ | :----------------- | :----------------- | :--------- | | Polyurethanes | $201 | $269 | (25)% | | Performance Products | $71 | $94 | (24)% | | Advanced Materials | $55 | $62 | (11)% | | Textile Effects | $28 | $29 | (3)% | | Corporate and other | $(37) | $(39) | 5% | | Total | $318 | $415 | (23)% | - Polyurethanes: Revenue decreased 9% due to lower average MDI and MTBE selling prices, partially offset by higher MDI and MTBE sales volumes (new Chinese MDI facility, Demilec acquisition). Adjusted EBITDA decreased due to lower MDI margins[218] - Performance Products: Revenue decreased 9% due to lower average selling prices (lower raw material costs, weakened market conditions), partially offset by slightly higher sales volumes. Adjusted EBITDA decreased due to lower average selling prices and margins[219] - Advanced Materials: Revenue decreased 6% due to lower sales volumes (power and automotive markets) and lower average selling prices (stronger U.S. dollar). Adjusted EBITDA decreased due to higher fixed costs and raw material costs[220][222] - Textile Effects: Revenue decreased 5% due to lower sales volumes (U.S.-China trade uncertainties), partially offset by higher average selling prices (raw material costs). Adjusted EBITDA decreased due to lower sales volumes and higher raw material costs[223] - Corporate and other: Adjusted EBITDA loss decreased by $2 million for Huntsman Corporation and $3 million for Huntsman International, primarily due to decreased corporate overhead and increased unallocated foreign currency exchange gain, partially offset by a LIFO inventory reserve adjustment[224] Six Months Ended June 30, 2019 Compared with Six Months Ended June 30, 2018 Huntsman Corporation: Key Financial Changes (YTD Q2 2019 vs YTD Q2 2018) | Item | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (Millions) | Change (%) | | :------------------------------------------------ | :--------------------- | :--------------------- | :---------------- | :--------- | | Revenues | $4,228 | $4,699 | $(471) | (10)% | | Gross profit | $830 | $1,095 | $(265) | (24)% | | Operating expenses | $481 | $496 | $(15) | (3)% | | Income from continuing operations before income taxes | $352 | $582 | $(230) | (40)% | | Income tax expense | $(102) | $(57) | $(45) | 79% | | Net income attributable to Huntsman Corporation | $229 | $688 | $(459) | (66)% | - Revenues decreased primarily due to lower average selling prices across all segments (except Textile Effects) and lower sales volumes across all segments (except Polyurethanes)[225] - Gross profit decreased due to lower gross margins across all segments[225] - A gain of $58 million was recorded in fair value adjustments to the Venator investment[225] - Loss on early extinguishment of debt increased to $23 million due to the early repayment of 2020 Senior Notes[226] - Income tax expense increased due to a non-cash tax expense related to a Swiss tax rate change, partially offset by tax benefits from valuation allowance releases in 2018[229] Segment Analysis (Six Months) Revenue by Segment (YTD Q2 2019 vs YTD Q2 2018) | Segment | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (%) | | :------------------ | :--------------------- | :--------------------- | :--------- | | Polyurethanes | $2,265 | $2,535 | (11)% | | Performance Products | $1,077 | $1,196 | (10)% | | Advanced Materials | $547 | $571 | (4)% | | Textile Effects | $404 | $427 | (5)% | | Total | $4,228 | $4,699 | (10)% | Adjusted EBITDA by Segment (Huntsman Corporation, YTD Q2 2019 vs YTD Q2 2018) | Segment | YTD Q2 2019 (Millions) | YTD Q2 2018 (Millions) | Change (%) | | :------------------ | :--------------------- | :--------------------- | :--------- | | Polyurethanes | $341 | $530 | (36)% | | Performance Products | $151 | $196 | (23)% | | Advanced Materials | $108 | $121 | (11)% | | Textile Effects | $50 | $55 | (9)% | | Corporate and other | $(75) | $(82) | 9% | | Total | $575 | $820 | (30)% | - Polyurethanes: Revenue decreased 11% due to lower MDI and MTBE selling prices, partially offset by higher MDI sales volumes. Adjusted EBITDA decreased due to lower MDI and MTBE margins[232][234] - Performance Products: Revenue decreased 10% due to lower sales volumes and average selling prices, driven by weakened market conditions and lower raw material costs. Adjusted EBITDA decreased due to these factors[235] - Advanced Materials: Revenue decreased 4% due to lower sales volumes and average selling prices. Adjusted EBITDA decreased due to higher fixed costs and the impact of a stronger U.S. dollar[236] - Textile Effects: Revenue decreased 5% due to lower sales volumes (U.S.-China trade uncertainties), partially offset by higher average selling prices. Adjusted EBITDA decreased due to lower sales volumes and higher raw material costs[237] - Corporate and other: Adjusted EBITDA loss decreased by $7 million for both Huntsman Corporation and Huntsman International, primarily due to lower corporate overhead and a LIFO inventory reserve benefit, partially offset by increased foreign currency exchange loss[238] Non-GAAP Financial Measures - Adjusted EBITDA is defined as net income before interest, income tax, depreciation and amortization, noncontrolling interests, and specific adjustments (e.g., acquisition/integration expenses, merger costs, fair value adjustments to Venator investment, restructuring costs)[200] - Adjusted Net Income is computed by eliminating the after-tax amounts of specific non-recurring or non-operational items from net income attributable to Huntsman Corporation or Huntsman International[203][205] - Free Cash Flow is defined as cash flows provided by operating activities from continuing operations and used in investing activities from continuing operations, excluding acquisition/disposition activities and including non-recurring separation costs[207] - These non-GAAP measures are used by management and investors to assess ongoing financial performance, improve comparability between periods, and understand underlying business results and trends, by excluding items not indicative of core operating profitability[201] Liquidity and Capital Resources - Total liquidity as of June 30, 2019, was $1,538 million, comprising $449 million in cash and restricted cash, $1,007 million in availability under the 2018 Revolving Credit Facility, and $82 million in availability under A/R Programs[257] - Expected capital expenditures for 2019 are between $350 million to $360 million, to be funded by cash provided by operations[187][257] - Repurchased 5,540,254 shares of common stock for approximately $115 million during the six months ended June 30, 2019[259] - Agreed to acquire the remaining 50% interest in the Sasol-Huntsman maleic anhydride joint venture for $92.5 million, expected to close in Q4 2019[259] - Expected to receive approximately $40 million in proceeds and recognize a corresponding gain on disposal in Q3 2019 from the sale of Textile Effects production facilities in Basel, Switzerland[259] Cash Flows for the Six Months Ended June 30, 2019 Compared with Six Months Ended June 30, 2018 - Net cash provided by operating activities from continuing operations decreased by $66 million (19.47%) to $273 million in YTD Q2 2019, primarily due to lower operating income[241] - Net cash used in investing activities from continuing operations significantly decreased by $362 million (75.42%) to $118 million in YTD Q2 2019, mainly due to the absence of a $370 million business acquisition seen in the prior year[243] - Net cash (used in) provided by financing activities shifted from a $64 million inflow in YTD Q2 2018 to a $48 million outflow in YTD Q2 2019[244] - Free cash flow from continuing operations decreased by $91 million (39.57%) from $230 million in YTD Q2 2018 to $139 million in YTD Q2 2019[245] Changes in Financial Condition - Working capital increased by $16 million (1%) from $1,347 million at December 31, 2018, to $1,363 million at June 30, 2019[246] Key Balance Sheet Changes (Dec 31, 2018 to Jun 30, 2019) | Item | Dec 31, 2018 (Millions) | Jun 30, 2019 (Millions) | Change (Millions) | Change (%) | | :-------------------------- | :---------------------- | :---------------------- | :---------------- | :--------- | | Cash and cash equivalents | $340 | $449 | $109 | 32% | | Inventories | $1,134 | $1,094 | $(40) | (4)% | | Other current assets | $146 | $101 | $(45) | (31)% | | Accounts payable | $961 | $925 | $(36) | (4)% | | Accrued liabilities | $554 | $437 | $(117) | (21)% | | Current portion of debt | $96 | $228 | $132 | 138% | | Current operating lease liabilities | $0 | $60 | $60 | NM | Short-Term and Long-Term Liquidity - Combined cash and unused borrowing capacity totaled $1,538 million as of June 30, 2019[257] - Anticipates $350-$360 million in capital expenditures for 2019, to be funded from operations[257] - Repurchased 5,540,254 shares for approximately $115 million during the first half of 2019[259] - Agreed to acquire the remaining 50% interest in the Sasol-Huntsman maleic anhydride joint venture for $92.5 million, expected to close in Q4 2019[259] - Expected proceeds of approximately $40 million and a corresponding gain on disposal in Q3 2019 from the sale of Textile Effects production facilities in Basel, Switzerland[259] - Approximately $418 million of cash and cash equivalents held by foreign subsidiaries, generally not subject to U.S. taxation upon repatriation due to the U.S. Tax Reform Act[261] Critical Accounting Policies - Critical accounting policies are discussed in the Annual Report on Form 10-K for the year ended December 31, 2018[262] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Huntsman manages market risks from interest rates, foreign exchange rates, and commodity prices using derivative instruments, including hedging its net investment in European operations with euro-denominated debt - Huntsman is exposed to market risks, such as changes in interest rates, foreign exchange rates, and commodity pricing risks[263] - The company uses derivative instruments, including foreign currency derivative instruments and interest rate swaps, to manage these exposures[265][266] - Approximately €475 million (approximately $540 million) of euro-denominated debt has been designated as a hedge of the net investment in European operations[270] - As of June 30, 2019, Huntsman had approximately $191 million in notional amount outstanding in forward foreign currency contracts[265] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - The chief executive officer and chief financial officer concluded that disclosure controls and procedures were effective as of June 30, 2019[272] - No changes to internal control over financial reporting occurred during the quarter ended June 30, 2019, that materially affected or are reasonably likely to materially affect it[273] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material developments occurred regarding legal proceedings referenced in the Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material developments with respect to the legal proceedings referenced in Part I, Item 3 of the Annual Report on Form 10-K for the year ended December 31, 2018[275] ITEM 1A. RISK FACTORS Refers readers to the "Risk Factors" section in the Annual Report on Form 10-K for the year ended December 31, 2018, for information on potential risks - For information regarding risk factors, refer to "Part I. Item 1A. Risk Factors" in the Annual Report on Form 10-K for the year ended December 31, 2018[276] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Details shares repurchased under the company's share repurchase program and shares withheld for tax obligations during Q2 2019, including over 4 million shares repurchased for approximately $81.4 million Share Repurchase Activity (Q2 2019) | Month | Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased Under Publicly Announced Plans | Approximate Dollar Value Remaining Under Plans | | :---- | :--------------------- | :--------------------------- | :---------------------------------------------------- | :--------------------------------------------- | | April | 465,222 | $23.86 | 464,848 | $679,000,000 | | May | 3,125,291 | $20.07 | 3,124,730 | $616,000,000 | | June | 424,909 | $17.83 | 424,909 | $608,000,000 | | Total | 4,015,422 | $20.27 | 4,014,487 | | - During the six months ended June 30, 2019, Huntsman repurchased 5,540,254 shares of common stock for approximately $115 million[278] ITEM 6. EXHIBITS Lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate organizational documents, loan agreement amendments, and CEO/CFO certifications - Exhibits include Amended and Restated Certificate of Incorporation, Fifth Amended and Restated Bylaws, Master Amendment No. 7 to the U.S. Receivables Loan Agreement, Amended and Restated European Receivables Loan Agreement, and Certifications of Chief Executive Officer and Chief Financial Officer[283]