Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number
Exact Name of Registrant as Specified in its Charter, Principal Office Address and Telephone Number
State of Incorporation or Organization
I.R.S. Employer Identification No.
001-32427
Huntsman Corporation 10003 Woodloch Forest Drive The Woodlands, Texas 77380 (281) 719-6000
Delaware
42-1648585
333-85141
Huntsman International LLC 10003 Woodloch Forest Drive The Woodlands, Texas 77380 (281) 719-6000
87-0630358
Securities registered pursuant to Section 12(b) of the Act:
Registrant
Title of each class
Trading Symbol
Name of each exchange on which registered
Huntsman Corporation
Common Stock, par value $0.01 per share
HUN
New York Stock Exchange
Huntsman International LLC
NONE
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.
Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
Large accelerated filer ☐
Non-accelerated filer ☒
Emerging Growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
On October 20, 2021, 218,030,754 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 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 presents information for two registrants: Huntsman Corporation and Huntsman International LLC. Huntsman International LLC 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 is equally applicable to both Huntsman Corporation and Huntsman International LLC, except where otherwise indicated. Huntsman International LLC meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and, to the extent applicable, is therefore filing this form with a reduced disclosure format.
HUNTSMAN CORPORATION AND SUBSIDIARIES
HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED September 30, 2021
TABLE OF CONTENTS
Page
PART I
FINANCIAL INFORMATION
4
ITEM 1.
Condensed Consolidated Financial Statements (Unaudited)
Huntsman Corporation and Subsidiaries:
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
5
Condensed Consolidated Statements of Comprehensive Income
6
Condensed Consolidated Statements of Equity
7
Condensed Consolidated Statements of Cash Flows
9
Huntsman International LLC and Subsidiaries:
11
12
13
14
15
Huntsman Corporation and Subsidiaries and Huntsman International LLC and Subsidiaries:
Notes to Condensed Consolidated Financial Statements
17
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
39
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
56
ITEM 4.
Controls and Procedures
PART II
OTHER INFORMATION
57
Legal Proceedings
ITEM 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 6.
Exhibits
58
FORWARD-LOOKING STATEMENTS
Certain information set forth in this report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, profit margins, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other projected financial measures; projected impact of COVID-19 on our operations and future financial results; management’s plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions, divestitures, business separations, spin-offs, or other distributions, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic and capital markets conditions; the timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that we intend or believe will or may occur in the future. In some cases, forward-looking statements can be identified by terminology such as “believes,” “expects,” “may,” “will,” “should,” “anticipates” or “intends” or the negative of such terms or other comparable terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements.
All forward-looking statements, including without limitation any projections derived from management’s examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations, beliefs and projections will be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements whether because of new information, future events or otherwise, except as required by securities and other applicable law.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. Any forward-looking statements should be considered in light of the risks set forth in “Part II. Item 1A. Risk Factors” below and “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share and Per Share Amounts)
September 30,
December 31,
2021
2020
ASSETS
Current assets:
Cash and cash equivalents(a)
Accounts and notes receivable (net of allowance for doubtful accounts of $25 and $26, respectively), ($336 and $198 pledged as collateral, respectively)(a)
Accounts receivable from affiliates
Inventories(a)
Other current assets
Total current assets
Property, plant and equipment, net(a)
Investment in unconsolidated affiliates
Intangible assets, net
Goodwill
Deferred income taxes
Operating lease right-of-use assets
Other noncurrent assets(a)
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable(a)
Accounts payable to affiliates
Accrued liabilities(a)
Current portion of debt(a)
Current operating lease liabilities(a)
Total current liabilities
Long-term debt(a)
Noncurrent operating lease liabilities(a)
Other noncurrent liabilities(a)
Total liabilities
Commitments and contingencies (Notes 15 and 16)
Equity
Huntsman Corporation stockholders’ equity:
Common stock $0.01 par value, 1,200,000,000 shares authorized, 259,468,984 and 258,520,411 shares issued and 217,028,320 and 220,046,262 shares outstanding, respectively
Additional paid-in capital
Treasury stock, 42,448,875 and 38,477,091 shares, respectively
Unearned stock-based compensation
Retained earnings
Accumulated other comprehensive loss
Total Huntsman Corporation stockholders’ equity
Noncontrolling interests in subsidiaries
Total equity
Total liabilities and equity
(a)
At September 30, 2021 and December 31, 2020, respectively, $31 and $2 of cash and cash equivalents, $10 and $6 of accounts and notes receivable (net), $52 and $38 of inventories, $161 and $167 of property, plant and equipment (net), $23 each of other noncurrent assets, $144 and $119 of accounts payable, $13 each of accrued liabilities, $13 and $47 of current portion of debt, $6 and $5 of current operating lease liabilities, $53 and $3 of long-term debt, $22 and $17 of noncurrent operating lease liabilities and $76 and $82 of other noncurrent liabilities from consolidated variable interest entities are included in the respective balance sheet captions above. See “Note 6. Variable Interest Entities.”
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Amounts)
Three months
Nine months
ended
Revenues:
Trade sales, services and fees, net
Related party sales
Total revenues
Cost of goods sold
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Restructuring, impairment and plant closing (credits) costs
Gain on sale of India-based DIY business
Other operating income, net
Total operating expenses
Operating income
Interest expense, net
Equity in income of investment in unconsolidated affiliates
Fair value adjustments to Venator investment
Loss on early extinguishment of debt
Other income, net
Income (loss) from continuing operations before income taxes
Income tax expense
Income (loss) from continuing operations
(Loss) income from discontinued operations, net of tax
Net income
Net income attributable to noncontrolling interests
Net income attributable to Huntsman Corporation
Basic income (loss) per share:
Income (loss) from continuing operations attributable to Huntsman Corporation common stockholders
(Loss) income from discontinued operations attributable to Huntsman Corporation common stockholders, net of tax
Net income attributable to Huntsman Corporation common stockholders
Weighted average shares
Diluted income (loss) per share:
Amounts attributable to Huntsman Corporation common stockholders:
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Millions)
Other comprehensive (loss) income, net of tax:
Foreign currency translations adjustments
Pension and other postretirement benefits adjustments
Other comprehensive (loss) income, net of tax
Comprehensive income
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Huntsman Corporation
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In Millions, Except Share Amounts)
Huntsman Corporation Stockholders' Equity
Accumulated
Shares
Additional
Unearned
other
Noncontrolling
common
Common
paid-in
Treasury
stock-based
Retained
comprehensive
interests in
Total
stock
capital
compensation
earnings
loss
subsidiaries
equity
Balance, January 1, 2021
Other comprehensive loss
Issuance of nonvested stock awards
Vesting of stock awards
Recognition of stock-based compensation
Repurchase and cancellation of stock awards
Stock options exercised
Dividends declared on common stock ($0.1625 per share)
Balance, March 31, 2021
Other comprehensive income
Dividends declared to noncontrolling interests
Dividends declared on common stock ($0.1875 per share)
Balance, June 30, 2021
Other comprehensive (loss) income
Treasury stock repurchased
Balance, September 30, 2021
Balance, January 1, 2020
Balance, March 31, 2020
Net (loss) income
Balance, June 30, 2020
Balance, September 30, 2020
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities:
Less: Loss (income) from discontinued operations, net of tax
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities from continuing operations:
Unrealized losses on fair value adjustments to Venator investment
Cash received from return on investment in unconsolidated subsidiary
Depreciation and amortization
Noncash lease expense
Gain on disposal of businesses/assets
Noncash restructuring and impairment charges
Stock-based compensation
Other, net
Changes in operating assets and liabilities:
Accounts and notes receivable
Inventories
Prepaid expenses
Other noncurrent assets
Accounts payable
Accrued liabilities
Taxes paid on sale of Chemical Intermediates Businesses
Other noncurrent liabilities
Net cash provided by operating activities from continuing operations
Net cash used in operating activities from discontinued operations
Net cash provided by operating activities
Investing Activities:
Capital expenditures
Cash received from sale of businesses
Acquisition of businesses, net of cash acquired
Insurance proceeds for recovery of property damage
Net cash (used in) provided by investing activities
(Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Financing Activities:
Net borrowings (repayments) on revolving loan facilities
Proceeds from issuance of long-term debt
Repayments of long-term debt
Repayments of short-term debt
Repayments of notes payable
Debt issuance costs paid
Dividends paid to noncontrolling interests
Dividends paid to common stockholders
Repurchase and cancellation of awards
Proceeds from issuance of common stock
Repurchase of common stock
Costs of early extinguishment of debt
Net cash used in financing activities
Effect of exchange rate changes on cash
(Decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental cash flow information:
Cash paid for interest
Cash paid for income taxes
For both September 30, 2021 and 2020, the amount of capital expenditures in accounts payable was $54 million. For the nine months ended September 30, 2021, the amount of cash paid for taxes in connection with the earnout provision achieved under the terms of the sales agreement of the India-based do-it-yourself (“DIY”) business was $3 million. See “Note 4. Discontinued Operations and Business Dispositions—Sale of India-Based Do-It-Yourself Consumer Adhesives Business.”
(In Millions, Except Unit Amounts)
Huntsman International LLC members’ equity:
Members’ equity, 2,728 units issued and outstanding
Total Huntsman International LLC members’ equity
Net income attributable to Huntsman International LLC
Foreign currency translations adjustment
Comprehensive income attributable to Huntsman International LLC
Huntsman International LLC Members
Members'
Accumulated other
Units
Amount
Dividends paid to parent
Contribution from parent
Noncash compensation
(Increase) decrease in receivable from affiliate
Repayments of notes payable to affiliate
For both September 30, 2021 and 2020, the amount of capital expenditures in accounts payable was $54 million. For the nine months ended September 30, 2021, the amount of cash paid for taxes in connection with the earnout provision achieved under the terms of the sales agreement of the India-based DIY business was $3 million. See “Note 4. Discontinued Operations and Business Dispositions—Sale of India-Based Do-It-Yourself Consumer Adhesives Business.”
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Certain Definitions
For convenience in this report, the terms “Company,” “Huntsman,” “our,” “us” or “we” may be used to refer to Huntsman Corporation and, unless the context otherwise requires, its subsidiaries and predecessors. In this report, “Huntsman International” refers to Huntsman International LLC (our wholly-owned subsidiary).
In this report, we may use, without definition, the common names of competitors or other industry participants. We may also use the common names or abbreviations for certain chemicals or products.
Interim Financial Statements
Our unaudited interim condensed consolidated financial statements and Huntsman International’s unaudited interim condensed consolidated financial statements 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, comprehensive income (loss), 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 unaudited 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, 2020 for our Company and Huntsman International.
Description of Businesses
We are a global manufacturer of differentiated organic chemical products. We operate in four segments: Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Our products comprise a broad range of chemicals and formulations, which we market globally 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, insulation, medical, packaging, coatings and construction, power generation, refining, synthetic fiber, textile chemicals and dyes industries. We are a leading global producer in many of our key product lines, including MDI, amines, maleic anhydride, epoxy-based polymer formulations, textile chemicals and dyes.
We operate our businesses through Huntsman International, our wholly-owned subsidiary. Huntsman International is a Delaware limited liability company and was formed in 1999.
Huntsman Corporation and Huntsman International Financial Statements
Except where otherwise indicated, these notes relate to the condensed consolidated financial statements for both 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 2003 step-acquisition of Huntsman International Holdings LLC, the former parent company of Huntsman International that was merged into Huntsman International in 2005; and
the different capital structures.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of our wholly-owned and majority-owned subsidiaries and any variable interest entities for which we are the primary beneficiary. Intercompany accounts and transactions have been eliminated.
Recent Developments
Amendments to Accounts Receivable Securitization Programs
On July 1, 2021, we entered into amendments to our U.S. accounts receivable securitization program (“U.S. A/R Program”) and our European accounts receivable securitization program (“EU A/R Program” and collectively with the U.S. A/R Program, “A/R Programs”) that, among other things, extended the scheduled termination dates of our A/R Programs from April 2022 to July 2024. For additional information, see “Note 8. Debt—Direct and Subsidiary Debt—A/R Programs.”
Use of Estimates
The preparation of financial statements in conformity with U.S. 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.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncements ADopted During 2021
We adopted the following accounting pronouncement during 2021, which did not have a significant impact on our condensed consolidated financial statements:
3. BUSINESS COMBINATIONS AND ACQUISITIONS
Acquisition of gaBRIEL Performance Products
On January 15, 2021, we completed the acquisition of Gabriel Performance Products, a North American specialty chemical manufacturer of specialty additives and epoxy curing agents for the coatings, adhesives, sealants and composite end-markets (“Gabriel Acquisition”), from funds affiliated with Audax Private Equity in an all-cash transaction of approximately $251 million, subject to customary closing adjustments. The purchase price was funded from available liquidity, and the acquired business is being integrated into our Advanced Materials segment. Transaction costs related to this acquisition were approximately nil and $2 million, respectively, for the three and nine months ended September 30, 2021 and were recorded in other operating income, net in our condensed consolidated statements of operations.
We accounted for the Gabriel Acquisition using the acquisition method. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed. The preliminary allocation of acquisition cost to the assets acquired and liabilities assumed is summarized as follows (dollars in millions):
Fair value of assets acquired and liabilities assumed:
Cash paid for the Gabriel Acquisition
Cash
Accounts receivable
Property, plant and equipment
Intangible assets
Total fair value of net assets acquired
The acquisition cost allocation is preliminary pending final determination of the fair value of assets acquired and liabilities assumed, including final valuation of certain liabilities, property, plant and equipment, intangible assets, leases and deferred taxes. Intangible assets acquired included in this preliminary allocation consist primarily of trademarks, technology and trade secrets. The applicable amortization periods are still being assessed. For purposes of this preliminary allocation of fair value, we have assigned any excess of the acquisition cost over the estimated preliminary fair value to goodwill. The estimated goodwill recognized is attributable primarily to projected future profitable growth in our Advanced Materials specialty portfolio and synergies. We expect that a portion of the estimated goodwill arising from the acquisition will be deductible for income tax purposes, but the amount is still being assessed. It is possible that material changes to this preliminary allocation of acquisition cost could occur.
The acquired business had revenues and net income of $81 million and $14 million, respectively, for the period from the date of acquisition to September 30, 2021.
Acquisition of CVC Thermoset Specialties
On May 18, 2020, we completed our acquisition of CVC Thermoset Specialties, a North American specialty chemical manufacturer serving the industrial composites, adhesives and coatings markets (“CVC Thermoset Specialties Acquisition”). We acquired the business for $304 million from Emerald Performance Materials LLC, which is majority owned by affiliates of American Securities LLC, in an all-cash transaction funded from available liquidity. The acquired business was integrated into our Advanced Materials segment.
We accounted for the CVC Thermoset Specialties Acquisition using the acquisition method. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed. The allocation of acquisition cost to the assets acquired and liabilities assumed is summarized as follows (dollars in millions):
Cash paid for the CVC Thermoset Specialties Acquisition
Intangible assets acquired consist primarily of trademarks, trade secrets and customer relationships, which are predominantly being amortized over a period of 20 years. The goodwill recognized is attributable primarily to projected future profitable growth in our Advanced Materials specialty portfolio and synergies. None of the goodwill arising from the acquisition is deductible for income tax purposes.
Acquisition of Icynene-Lapolla
On February 20, 2020, we completed our acquisition of Icynene-Lapolla, a leading North American manufacturer and distributor of spray polyurethane foam insulation systems for residential and commercial applications (“Icynene-Lapolla Acquisition”). We acquired the business from an affiliate of FFL Partners, LLC for $353 million in an all-cash transaction funded from available liquidity. The acquired business was integrated into our Polyurethanes segment.
We accounted for the Icynene-Lapolla Acquisition using the acquisition method. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed. The allocation of acquisition cost to the assets acquired and liabilities assumed is summarized as follows (dollars in millions):
Cash paid for the Icynene-Lapolla Acquisition
Prepaid expenses and other current assets
As a result of the final valuation of the assets and liabilities, reallocations were made during the first quarter of 2021 in certain current asset and liability, property, plant and equipment, intangible asset, goodwill, other noncurrent assets and deferred tax balances. Intangible assets acquired consist primarily of trademarks, trade secrets and customer relationships, which are predominantly being amortized over a period of 10 years. The goodwill recognized is attributable primarily to projected future profitable growth, penetration into downstream markets and synergies. None of the goodwill arising from the acquisition is deductible for income tax purposes.
PRO FORMA INFORMATION FOR ACQUISITIONS
If the Gabriel Acquisition, the CVC Thermoset Specialties Acquisition and the Icynene-Lapolla Acquisition were to have occurred on January 1, 2020, the following estimated pro forma revenues, net (loss) income, net (loss) income attributable to Huntsman Corporation and Huntsman International would have been reported (dollars in millions):
2020(1)
2021(1)
Revenues
Net income attributable to Huntsman International
(1)
Includes pro forma information for the Gabriel Acquisition only.
4. DISCONTINUED OPERATIONS AND BUSINESS DISPOSITIONS
On November 3, 2020, we completed the sale of the India-based DIY business to Pidilite Industries Ltd. and received cash of approximately $257 million. Under the terms of the agreement, an earnout provision of up to approximately $28 million of additional cash was attainable if the business achieved, within 18 months, certain sales revenue targets in line with the DIY business' 2019 performance. The performance criteria of the earnout provision were satisfied in the second quarter of 2021, and we received the full payment of $28 million. As a result, we recognized an additional pretax gain of $28 million in the second quarter of 2021, which was recorded in gain on sale of India-based DIY business in our condensed consolidated statements of operations.
SaLE of Venator InterEST
Loss from continuing operations
Net loss
Net loss attributable to Venator
Sale of Chemical Intermediates Businesses
On January 3, 2020, we completed the sale of our chemical intermediates businesses, which included PO/MTBE, and our surfactants business (“Chemical Intermediates Businesses”) to Indorama Ventures Holdings L.P. (“Indorama”) in a transaction valued at approximately $2 billion, comprised of a cash purchase price of approximately $1.92 billion and the transfer of approximately $72 million in net underfunded pension and other post-employment benefit liabilities. In connection with this sale, we recognized a net after-tax gain of $748 million in the first nine months of 2020. Also, in connection with this sale, we entered into long-term supply agreements with Indorama to supply us with certain raw materials at market prices.
The following table reconciles major line items constituting pretax income of discontinued operations to after-tax income of discontinued operations as presented in our condensed consolidated statements of operations (dollars in millions):
Major line items constituting pretax income of discontinued operations(1):
Trade sales, services and fees, net(2)
Cost of goods sold(2)
Gain on sale of the Chemical Intermediates Businesses
Insurance proceeds
Other (income) expense items, net
Income from discontinued operations before income taxes
Net (loss) income attributable to discontinued operations
Discontinued operations include our Chemical Intermediates Businesses, our Australian styrenics operations and our North American polymers and base chemicals operations for all periods presented.
(2)
Includes eliminations of trade sales, services and fees, net and cost of sales between continuing operations and discontinued operations.
5. INVENTORIES
We state our inventories at the lower of cost or market, with cost determined using last-in first-out (“LIFO”), first-in first-out and average cost methods for different components of inventory. Inventories consisted of the following (dollars in millions):
Raw materials and supplies
Work in progress
Finished goods
LIFO reserves
Net inventories
For both September 30, 2021 and December 31, 2020, approximately 7% of inventories were recorded using the LIFO cost method.
6. VARIABLE INTEREST ENTITIES
We evaluate our investments and transactions to identify variable interest entities for which we are the primary beneficiary. We hold a variable interest in the following joint ventures for which we are the primary beneficiary:
Rubicon LLC is our 50%-owned joint venture with Lanxess that manufactures products for our Polyurethanes and Performance Products segments.
Arabian Amines Company (“AAC”) is our 50%-owned joint venture with Zamil group that manufactures products for our Performance Products segment.
During the nine months ended September 30, 2021, there were no changes in our variable interest entities.
Creditors of these entities have no recourse to our general credit. See “Note 8. Debt—Direct and Subsidiary Debt.” As the primary beneficiary of these variable interest entities at September 30, 2021, the joint ventures’ assets, liabilities and results of operations are included in our condensed consolidated financial statements.
The following table summarizes the carrying amount of our variable interest entities’ assets and liabilities included in our condensed consolidated balance sheet as of September 30, 2021 and our consolidated balance sheet as of December 31, 2020 (dollars in millions):
Current assets
Property, plant and equipment, net
Current liabilities
Long-term debt
Noncurrent operating lease liabilities
The revenues, income from continuing operations before income taxes and net cash provided by operating activities for our variable interest entities for the three and nine months ended September 30, 2021 and 2020 are as follows (dollars in millions):
Income from continuing operations before income taxes
7. RESTRUCTURING, IMPAIRMENT AND PLANT CLOSING COSTS
As of September 30, 2021 and December 31, 2020, accrued restructuring costs by type of cost and initiative consisted of the following (dollars in millions):
Workforce reductions
Other restructuring costs
Accrued liabilities as of January 1, 2021
2021 charges for 2020 and prior initiatives
2021 charges for 2021 initiatives
2021 payments for 2020 and prior initiatives
2021 payments for 2021 initiatives
Accrued liabilities as of September 30, 2021
Details with respect to our reserves for restructuring, impairment and plant closing costs by segment and initiative are provided below (dollars in millions):
Performance
Advanced
Textile
Corporate
2021 charges (credits) for 2020 and prior initiatives
Current portion of restructuring reserves
Long-term portion of restructuring reserves
Details with respect to cash and noncash restructuring charges from continuing operations for the three and nine months ended September 30, 2021 and 2020 are provided below (dollars in millions):
Cash charges:
2020 charges for 2019 and prior initiatives
2020 charges for 2020 initiatives
Noncash charges:
Accelerated depreciation
Gain on sale of assets
Other noncash (credits) charges
Total restructuring, impairment and plant closing costs
2021 Restructuring Activities
Beginning in the first quarter of 2021, our Corporate and other segment incurred restructuring costs related to a restructuring program to optimize our global approach to leveraging shared services capabilities. In connection with this restructuring program, we recorded restructuring expense of approximately $16 million in the nine months ended September 30, 2021 primarily related to workforce reductions, and we expect to record further restructuring expenses of approximately $3 million through 2023.
Beginning in the third quarter of 2020, our Polyurethanes segment implemented a restructuring program to optimize its downstream footprint. In connection with this restructuring program, we recorded restructuring expense of approximately $4 million in the nine months ended September 30, 2021 primarily related to workforce reductions and accelerated depreciation, partially offset by a gain on sale of assets of approximately $3 million. We expect to record further restructuring expenses of between approximately $4 million and $5 million through the first half of 2022.
Beginning in the second quarter of 2020, our Advanced Materials segment implemented restructuring programs in connection with the CVC Thermoset Specialties Acquisition, the alignment of the segment’s commercial organization and optimization of the segment’s manufacturing processes. In connection with these restructuring programs, we recorded restructuring expense of approximately $8 million in the nine months ended September 30, 2021 primarily related to accelerated depreciation.
2020 Restructuring Activities
Beginning in the second quarter of 2020, our Polyurethanes segment implemented a restructuring program to reorganize its spray polyurethane foam business to better position this business for efficiencies and growth in coming years. In connection with this restructuring program, we recorded restructuring expense of approximately $6 million in the nine months ended September 30, 2020 primarily related to workforce reductions and accelerated depreciation.
Beginning in the third quarter of 2020, our Polyurethanes segment implemented a restructuring program to optimize its downstream footprint. In connection with this restructuring program, we recorded restructuring expense of approximately $1 million in the third quarter of 2020.
Beginning in the second quarter of 2020, our Performance Products segment implemented a restructuring program, primarily related to workforce reductions, in response to the sale of our Chemical Intermediates Businesses to Indorama. In connection with this restructuring program, we recorded restructuring expense of approximately $4 million in the nine months ended September 30, 2020.
Beginning in the second quarter of 2020, our Advanced Materials segment implemented restructuring programs, primarily related to workforce reductions, in connection with the CVC Thermoset Specialties Acquisition and the alignment of the segment's commercial organization and optimization of the segment's manufacturing processes. In connection with these restructuring programs, we recorded restructuring expense of approximately $10 million in the nine months ended September 30, 2020.
During 2020, our Textile Effects segment implemented restructuring programs to rationalize and realign structurally across various functions and certain locations within the segment. In connection with these restructuring programs, we recorded restructuring expense of approximately $10 million in the nine months ended September 30, 2020, related primarily to workforce reductions.
8. DEBT
Our outstanding debt, net of debt issuance costs, consisted of the following (dollars in millions):
Senior Credit Facilities:
Revolving facility
Amounts outstanding under A/R programs
Senior notes
Variable interest entities
Other
Total debt
Current portion of debt
Long-term portion of debt
Direct and Subsidiary Debt
Huntsman Corporation’s direct debt and guarantee obligations consist of a guarantee of certain indebtedness incurred from time to time to finance certain insurance premiums. Substantially all of our other debt, including the facilities described below, has been incurred by our subsidiaries (primarily Huntsman International). Huntsman Corporation is not a guarantor of such subsidiary debt.
Certain of our subsidiaries have third-party debt agreements that contain certain restrictions with regard to dividends, distributions, loans or advances. In certain circumstances, the consent of a third party would be required prior to the transfer of any cash or assets from these subsidiaries to us.
Debt Issuance Costs
We record debt issuance costs related to a debt liability on the balance sheet as a reduction to the face amount of that debt liability. For September 30, 2021 and December 31, 2020, the amount of debt issuance costs directly reducing the debt liability was $10 million and $9 million, respectively. We record the amortization of debt issuance costs as interest expense.
Revolving Credit Facility
As of September 30, 2021, our $1.2 billion senior unsecured revolving credit facility (“Revolving Credit Facility”) was as follows (monetary amounts in millions):
Unamortized
Discounts and
Committed
Principal
Debt Issuance
Carrying
Facility
Outstanding
Costs
Value
Interest Rate(2)
Maturity
USD LIBOR plus 1.50%
On September 30, 2021, we had an additional $10 million (U.S. dollar equivalents) of letters of credit and bank guarantees issued and outstanding under our Revolving Credit Facility.
Interest rates on borrowings under the Revolving Credit Facility vary based on the type of loan and Huntsman International’s debt ratings. The representative interest rate as of September 30, 2021 was 1.50% above LIBOR.
Term Loan Credit Facility
On September 24, 2019, Huntsman International entered into a 364-day term loan facility (the “2019 Term Loan”), pursuant to which Huntsman International borrowed an aggregate principal amount of €92 million (or $101 million equivalent). We used the net proceeds from the 2019 Term Loan to finance our acquisition of the 50% noncontrolling interest that we did not own in the Sasol-Huntsman maleic anhydride joint venture. On September 22, 2020, we repaid the 2019 Term Loan in full at maturity.
A/R Programs
Our A/R Programs are structured so that we transfer certain of our trade receivables to the U.S. special purpose entity (“U.S. SPE”) and the European special purpose entity (“EU SPE”) in transactions intended to be true sales or true contributions. The receivables collateralize debt incurred by the U.S. SPE and the EU SPE.
On July 1, 2021, we entered into amendments to our A/R Programs that, among other things, extended the respective scheduled termination dates of our A/R Programs from April 2022 to July 2024.
Information regarding our A/R Programs as of September 30, 2021 was as follows (monetary amounts in millions):
Maximum Funding
Availability(1)
U.S. A/R Program
July 2024
(3)
Applicable rate plus 0.90%
EU A/R Program
Applicable rate plus 1.30%
(or approximately $117)
The amount of actual availability under our A/R Programs may be lower based on the level of eligible receivables sold, changes in the credit ratings of our customers, customer concentration levels and certain characteristics of the accounts receivable being transferred, as defined in the applicable agreements.
The applicable rate for our U.S. A/R Program is defined by the lender as USD LIBOR. The applicable rate for our EU A/R Program is either USD LIBOR or EURIBOR.
As of September 30, 2021, we had approximately $7 million (U.S. dollar equivalents) of letters of credit issued and outstanding under our U.S. A/R Program.
As of September 30, 2021 and December 31, 2020, $336 million and $198 million, respectively, of accounts receivable were pledged as collateral under our A/R Programs.
Senior Notes
On January 15, 2021, Huntsman International redeemed in full €445 million (approximately $541 million) in aggregate principal amount of our 5.125% senior notes due 2021 (“2021 Senior Notes”) at the redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date. In connection with this redemption, we incurred an incremental cash tax liability of approximately $15 million in the first quarter of 2021 related to foreign currency exchange gains.
On May 26, 2021, Huntsman International completed a $400 million offering of its 2031 Senior Notes. On June 23, 2021, Huntsman International applied the net proceeds from the offering, along with cash on hand, to redeem in full $400 million in aggregate principal amount of its 2022 Senior Notes and to pay accrued but unpaid interest of approximately $2 million. In addition, we paid redemption premiums and related fees and expenses of approximately $25 million and recognized a corresponding loss on early extinguishment of debt of $26 million in the second quarter of 2021.
The 2031 Senior Notes bear interest at 2.95% per year, payable semi‑annually on June 15 and December 15 of each year, and will mature on June 15, 2031. Huntsman International may redeem the 2031 Senior Notes in whole or in part at any time prior to March 15, 2031 at a price equal to 100% of the principal amount thereof plus a “make‑whole” premium as of, and accrued and unpaid interest, if any, to, but not including, the date of redemption. Huntsman International may redeem the 2031 Senior Notes at any time in whole or from time to time in part, on or after March 15, 2031 at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to, but not including, the date of redemption.
Variable Interest Entity Debt
On September 30, 2021, AAC, our consolidated 50%-owned joint venture, entered into a new term loan facility of 177 million SAR (approximately $47 million) with Saudi British Bank, of which approximately 104 million SAR (approximately $27 million) was funded with the remainder being funded subsequent to September 30, 2021. A portion of these funds were used to repay existing debt subsequent to September 30, 2021.
Note Payable from Huntsman International to Huntsman Corporation
During the first quarter of 2020, our intercompany loan of $380 million to our subsidiary Huntsman International was repaid to us in full.
Compliance with Covenants
We believe that we are in compliance with the covenants contained in the agreements governing our material debt instruments, including our Revolving Credit Facility, our A/R Programs and our senior notes.
9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to market risks, such as changes in interest rates, foreign exchange rates and commodity prices. From time to time, we enter into transactions, including transactions involving derivative instruments, to manage certain of these exposures. We also hedge our net investment in certain European operations.
Our revenues and expenses are denominated in various foreign currencies, and our cash flows and earnings are thus subject to fluctuations due to exchange rate variations. From time to time, we may enter into foreign currency derivative instruments to minimize the short-term impact of movements in foreign currency rates. Where practicable, we generally net multicurrency cash balances among our subsidiaries to help reduce exposure to foreign currency exchange rates. Certain other exposures may be managed from time to time through financial market transactions, principally through the purchase of spot or forward foreign exchange contracts (generally with maturities of one year or less). We do not hedge our foreign currency exposures in a manner that would eliminate the effect of changes in exchange rates on our cash flows and earnings. As of September 30, 2021, we had approximately $178 million in notional amount (in U.S. dollar equivalents) outstanding in forward foreign currency contracts.
From time to time, we may purchase interest rate swaps and/or other derivative instruments to reduce the impact of changes in interest rates on our floating-rate exposures. Under interest rate swaps, we agree with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount.
We review our non-U.S. dollar denominated debt and derivative instruments to determine the appropriate amounts designated as hedges. As of September 30, 2021, we have designated approximately €120 million (approximately $140 million) of euro-denominated debt as a hedge of our net investment. For the nine months ended September 30, 2021 and September 30, 2020, the amount recognized on the hedge of our net investment was a gain of $7 million and a loss of $31 million, respectively, and were recorded in other comprehensive income in our condensed consolidated statements of comprehensive income.
10. FAIR VALUE
The fair values of financial instruments were as follows (dollars in millions):
September 30, 2021
December 31, 2020
Estimated
Fair Value
Non-qualified employee benefit plan investments
Investment in Venator
Option agreement for remaining Venator shares
Long-term debt (including current portion)
The carrying amounts reported in the balance sheets of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. Our investment in Venator is marked to fair value, which is obtained through market observable pricing using prevailing market prices (Level 1). Additionally, the estimated fair value of the option agreement related to the remaining ordinary shares we hold in Venator is based on a valuation technique using market observable inputs (Level 2). See “Note 4. Discontinued Operations and Business Dispositions—Sale of Venator Interest.” The fair values of non-qualified employee benefit plan investments are obtained through market observable pricing using prevailing market prices (Level 1). The estimated fair values of our long-term debt are based on quoted market prices for the identical liability when traded in an active market (Level 1). The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2021 and December 31, 2020. Although we are not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since September 30, 2021, and current estimates of fair value may differ significantly from the amounts presented herein.
During the nine months ended September 30, 2021, there were no instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3), and there were no gains or losses (realized and unrealized) included in earnings for instruments categorized as Level 3 within the fair value hierarchy.
11. REVENUE RECOGNITION
The following tables disaggregate our revenue from continuing operations by major source for the three months ended September 30, 2021 and 2020 (dollars in millions):
Corporate and
Polyurethanes
Products
Materials
Effects
Eliminations
Primary Geographic Markets(1)
U.S. and Canada
Europe
Asia Pacific
Rest of world
Major Product Groupings
MDI urethanes
Differentiated
Specialty
Non-specialty
Textile chemicals and dyes
The following tables disaggregate our revenue from continuing operations by major source for the nine months ended September 30, 2021 and 2020 (dollars in millions):
Geographic information for revenues is based upon countries into which product is sold.
12. EMPLOYEE BENEFIT PLANS
Components of the net periodic benefit costs from continuing operations for the three and nine months ended September 30, 2021 and 2020 were as follows (dollars in millions):
Other Postretirement
Defined Benefit Plans
Benefit Plans
Service cost
Interest cost
Expected return on assets
Amortization of prior service benefit
Amortization of actuarial loss
Net periodic benefit cost
Settlement loss
Huntsman International
During the nine months ended September 30, 2021 and 2020, we made contributions to our pension and other postretirement benefit plans of $45 million and $73 million, respectively. During the remainder of 2021, we expect to contribute an additional amount of approximately $9 million to these plans.
13. HUNTSMAN CORPORATION STOCKHOLDERS’ EQUITY
Share Repurchase Program
On February 7, 2018 and on May 3, 2018, our Board of Directors collectively authorized us to repurchase up to an aggregate of $1 billion in shares of our common stock. The share repurchase program is supported by our free cash flow generation. Repurchases may be made through the open market, including through accelerated share repurchase programs, or in privately negotiated transactions, and repurchases may be commenced or suspended from time to time without prior notice. Shares of common stock acquired through the repurchase program are held in treasury at cost. Subsequent to the end of the first quarter of 2020, we suspended share repurchases under our existing share repurchase program in order to enhance our liquidity position in response to COVID-19. During the third quarter of 2021, we resumed the share repurchase program and repurchased 3,971,784 shares of our common stock for approximately $102 million, excluding commissions.
Dividends on Common Stock
On April 28, 2021, our Board of Directors declared a $0.1875 per share cash dividend on our common stock. This represents a 15% increase from the previous dividend. During the quarters ended September 30, 2021 and September 30, 2020, we paid $42 million and $36 million, respectively, or $0.1875 and $0.1625 per share, respectively, to common stockholders. During the quarters ended June 30, 2021 and June 30, 2020, we paid $41 million and $36 million, respectively, or $0.1875 and $0.1625 per share, respectively, to common stockholders. During the quarters ended and March 31, 2021 and March 31, 2020, we paid $36 million and $37 million, respectively, or $0.1625 per share each to common stockholders.
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of other comprehensive (loss) income and changes in accumulated other comprehensive loss by component were as follows (dollars in millions):
Pension
Foreign
and other
Amounts
currency
postretirement
income of
attributable to
translation
benefits
unconsolidated
noncontrolling
Huntsman
adjustment(a)
adjustments(b)
affiliates
interests
Corporation
Beginning balance, January 1, 2021
Other comprehensive loss before reclassifications, gross
Tax expense
Amounts reclassified from accumulated other comprehensive loss, gross(c)
Net current-period other comprehensive (loss) income
Ending balance, September 30, 2021
Amounts are net of tax of $56 million as of both September 30, 2021 and January 1, 2021.
(b)
Amounts are net of tax of $139 million and $153 million as of September 30, 2021 and January 1, 2021, respectively.
(c)
See table below for details about these reclassifications.
Beginning balance, January 1, 2020
Other comprehensive (loss) income before reclassifications, gross
Ending balance, September 30, 2020
Amounts are net of tax of $68 million as of both September 30, 2020 and January 1, 2020.
Amounts are net of tax of $125 million and $148 million as of September 30, 2020 and January 1, 2020, respectively.
Three Months Ended September 30,
Amounts reclassified
Affected line item in
from accumulated
the statement
Details about Accumulated Other
where net income
Comprehensive Loss Components(a):
is presented
Amortization of pension and other postretirement benefits:
Prior service credit
Actuarial loss
(b)(d)
Total before tax
Total reclassifications for the period
Net of tax
Nine Months Ended September 30,
comprehensive loss
Pension and other postretirement benefits amounts in parentheses indicate credits on our condensed consolidated statements of operations.
These accumulated other comprehensive loss components are included in the computation of net periodic pension costs. See “Note 12. Employee Benefit Plans.”
(d)
Amounts include approximately $1 million of actuarial losses related to discontinued operations for both the three months ended September 30, 2021 and 2020. Amounts include approximately $4 million of actuarial losses related to discontinued operations for both the nine months ended September 30, 2021 and 2020.
International
Amounts are net of tax of $43 million for both September 30, 2021 and January 1, 2021.
Amounts are net of tax of $164 million and $178 million as of September 30, 2021 and January 1, 2021, respectively.
Amounts are net of tax of $55 million as of both September 30, 2020 and January 1, 2020.
Amounts are net of tax of $150 million and $174 million as of September 30, 2020 and January 1, 2020, respectively.
In connection with the sale of our Chemical Intermediates Businesses, we recognized $41 million of pension and other post-employment benefit settlement losses during the nine months ended September 30, 2020.
15. COMMITMENTS AND CONTINGENCIES
Legal Matters
We are a party to various proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various environmental, products liability and other laws. Except as otherwise disclosed in this report, we do not believe that the outcome of any of these matters will have a material effect on our financial condition, results of operations or liquidity.
16. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
EHS Capital Expenditures
We may incur future costs for capital improvements and general compliance under environmental, health and safety (“EHS”) laws, including costs to acquire, maintain and repair pollution control equipment. For the nine months ended September 30, 2021 and 2020, our capital expenditures for EHS matters totaled $25 million and $17 million, respectively. Because capital expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, our capital expenditures for EHS matters have varied significantly from year to year and we cannot provide assurance that our recent expenditures are indicative of future amounts we may spend related to EHS and other applicable laws.
Environmental Reserves
We have accrued liabilities relating to anticipated environmental cleanup obligations, site reclamation and closure costs and known penalties. Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated. Our liability estimates are calculated using present value techniques as appropriate and are based upon requirements placed upon us by regulators, available facts, existing technology and past experience. The environmental liabilities do not include amounts recorded as asset retirement obligations. We had accrued $5 million and $4 million for environmental liabilities as of September 30, 2021 and December 31, 2020, respectively. Of these amounts, $2 million and $1 million were classified as accrued liabilities in our condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively, and $3 million was classified as other noncurrent liabilities in our condensed consolidated balance sheets as of both September 30, 2021 and December 31, 2020. In certain cases, our remediation liabilities may be payable over periods of up to 30 years. We may incur losses for environmental remediation in excess of the amounts accrued; however, we are not able to estimate the amount or range of such potential excess.
Environmental Matters
Under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and similar state laws, a current or former owner or operator of real property in the U.S. may be liable for remediation costs regardless of whether the release or disposal of hazardous substances was in compliance with law at the time it occurred, and a current owner or operator may be liable regardless of whether it owned or operated the facility at the time of the release. Outside the U.S., analogous contaminated property laws, such as those in effect in France and Australia, can hold past owners and/or operators liable for remediation at former facilities. Currently, there are approximately nine former facilities or third-party sites in the U.S. for which we have been notified of potential claims against us for cleanup liabilities, including, but not limited to, sites listed under CERCLA. Based on current information and past experiences at other CERCLA sites, we do not expect these third-party claims to have a material impact on our condensed consolidated financial statements.
Under the Resource Conservation and Recovery Act (“RCRA”) in the U.S. and similar state laws, we may be required to remediate contamination originating from our properties as a condition to our hazardous waste permit. Some of our manufacturing sites have an extended history of industrial chemical manufacturing and use, including on-site waste disposal. We are aware of soil, groundwater or surface contamination from past operations at some of our sites, and we may find contamination at other sites in the future. For example, our Geismar, Louisiana facility is the subject of ongoing remediation requirements imposed under RCRA. Similar laws exist in a number of locations in which we currently operate, or previously operated, manufacturing facilities, such as Australia, India, France, Hungary and Italy.
North Maybe Canyon Mine Remediation
The North Maybe Canyon Mine site is a CERCLA site and involves a former phosphorous mine near Soda Springs, Idaho, which is believed to have been operated by several companies, including a predecessor company to us. In 2004, the U.S. Forest Service notified us that we are a CERCLA potentially responsible party (“PRP”) for contamination originating from the site. In February 2010, we and Wells Cargo (another PRP) agreed to conduct a Remedial Investigation/Feasibility Study of a portion of the site and are currently engaged in that process. At this time, we are unable to reasonably estimate our potential liabilities at this site.
17. STOCK-BASED COMPENSATION PLANS
As of September 30, 2021, we had approximately 7 million shares remaining under the stock-based compensation plans available for grant. Option awards have a maximum contractual term of 10 years and generally must have an exercise price at least equal to the market price of our common stock on the date the option award is granted. Outstanding stock-based awards generally vest annually over a three-year period.
The compensation cost from continuing operations under the stock-based compensation plans for our Company and Huntsman International were as follows (dollars in millions):
Huntsman Corporation compensation cost
Huntsman International compensation cost
The total income tax benefit recognized in the condensed consolidated statements of operations for us and Huntsman International for stock-based compensation arrangements was $2 million and $3 million for the nine months ended September 30, 2021 and 2020, respectively.
Stock Options
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of our common stock through the grant date. The expected term of options granted was estimated based on the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior. The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions noted below represent the weighted average of the assumptions utilized for stock options granted during the periods.
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of stock options granted during the period (in years)
A summary of stock option activity under the stock-based compensation plans as of September 30, 2021 and changes during the nine months then ended is presented below:
Weighted
Average
Remaining
Aggregate
Exercise
Contractual
Intrinsic
Option Awards
Price
Term
(in thousands)
(years)
(in millions)
Outstanding at January 1, 2021
Granted
Exercised
Forfeited
Outstanding at September 30, 2021
Exercisable at September 30, 2021
The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2021 was $11.48 per option. As of September 30, 2021, there was $6 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of approximately 1.7 years.
The total intrinsic value of stock options exercised during the nine months ended September 30, 2021 and 2020 was approximately $8 million and $4 million, respectively. Cash received from stock options exercised during each of the nine months ended September 30, 2021 and 2020 was approximately $6 million and $2 million, respectively. The cash tax benefit from stock options exercised during each of the nine months ended September 30, 2021 and 2020 was approximately $2 million and $1 million, respectively.
Nonvested Shares
Nonvested shares granted under the stock-based compensation plans consist of restricted stock and performance share unit awards, which are accounted for as equity awards, and phantom stock, which is accounted for as a liability award because it can be settled in either stock or cash.
The fair value of each performance share unit award is estimated using a Monte Carlo simulation model that uses various assumptions, including an expected volatility rate and a risk-free interest rate. For the nine months ended September 30, 2021 and 2020, the weighted-average expected volatility rate was 44.9% and 34.0%, respectively, and the weighted average risk-free interest rate was 0.2% and 1.4%, respectively. For the performance share unit awards granted in the nine months ended September 30, 2021 and 2020, the number of shares earned varies based upon the Company achieving certain performance criteria over a three-year performance period. The performance criteria are total stockholder return of our common stock relative to the total stockholder return of a specified industry peer group for the three-year performance periods.
A summary of the status of our nonvested shares as of September 30, 2021 and changes during the nine months then ended is presented below:
Equity Awards
Liability Awards
Grant-Date
Nonvested at January 1, 2021
Vested
(1)(2)
Nonvested at September 30, 2021
As of September 30, 2021, a total of 457,294 restricted stock units were vested but not yet issued, of which 30,438 vested during the nine months ended September 30, 2021. These shares have not been reflected as vested shares in this table because, in accordance with the restricted stock unit agreements, shares of common stock are not issued for vested restricted stock units until termination of employment.
A total of 110,542 performance share unit awards are reflected in the vested shares in this table, which represents the target number of performance share unit awards for this grant and were included in the balance at December 31, 2020. During the nine months ended September 30, 2021, only 76,055 performance share unit awards with a grant date fair value of $41.93 were issued related to this vest due to the target performance criteria not being met.
As of September 30, 2021, there was $36 million of total unrecognized compensation cost related to nonvested share compensation arrangements granted under the stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of approximately 2.0 years. The value of share awards that vested during the nine months ended September 30, 2021 and 2020 was $18 million and $24 million, respectively.
18. INCOME TAXES
We use the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed on an individual tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of our businesses and cumulative income or losses during the applicable period. Cumulative losses incurred over the applicable period limits our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable jurisdictions could affect the realization of deferred tax assets in those jurisdictions.
During the nine months ended September 30, 2021 and 2020, there was no tax benefit or expense recognized in connection with the net losses of $28 million and $100 million, respectively, on fair value adjustments to our Venator investment and related option to sell our remaining Venator shares recorded as part of non-operating income from continuing operations. As of December 31, 2019, we have recognized the portion of our Venator investment tax basis in excess of book that we ultimately expect to be able to utilize; therefore, no incremental tax benefit has been recognized on the year-to-date fair value losses incurred in 2020 or 2021. As a significant, unusual and non-operating item, these amounts were treated discretely and excluded from the annual effective tax rate calculation for interim reporting.
We recorded income tax expense from continuing operations of $114 million and $9 million for the nine months ended September 30, 2021 and 2020, respectively. Our tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions.
Huntsman International recorded income tax expense from continuing operations of $115 million and $9 million for the nine months ended September 30, 2021 and 2020, respectively. Our tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions.
19. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing net income attributable to Huntsman Corporation common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflects all potential dilutive common shares outstanding during the period and is computed by dividing net income attributable to Huntsman Corporation common stockholders by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities.
Basic and diluted earnings per share is determined using the following information (in millions):
Numerator:
Basic and diluted income (loss) from continuing operations:
Income (loss) from continuing operations attributable to Huntsman Corporation
Basic and diluted net income:
Denominator:
Weighted average shares outstanding
Dilutive shares:
Stock-based awards
Total weighted average shares outstanding, including dilutive shares
Additional stock-based awards of approximately 1.0 million and 3.8 million weighted average equivalent shares of stock were outstanding during the three months ended September 30, 2021 and 2020, respectively, and approximately 1.5 million and 6.1 million weighted average shares of stock were outstanding during the nine months ended September 30, 2021 and 2020, respectively. However, these stock-based awards were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2021 and 2020 because the effect would be anti-dilutive.
20. OPERATING SEGMENT INFORMATION
We derive our revenues, earnings and cash flows from the manufacture and sale of a wide variety of differentiated and commodity chemical products. We have four operating segments, which are also our reportable segments: Polyurethanes, Performance Products, Advanced Materials and Textile Effects. We have organized our business and derived our operating segments around differences in product lines.
The major products of each reportable operating segment are as follows:
Segment
MDI, polyols, TPU and other polyurethane-related products
Performance Products
Specialty amines, ethyleneamines, maleic anhydride and technology licenses
Advanced Materials
Basic liquid and solid epoxy resins; specialty resin compounds; cross-linking, matting, and curing and toughening agents; epoxy, acrylic and polyurethane-based formulations; specialty nitrile latex, alkyd resins and carbon nano materials
Textile Effects
Sales between segments are generally recognized at external market prices and are eliminated in consolidation. Adjusted EBITDA is presented as a measure of the financial performance of our global business units and for reporting the results of our operating segments. The adjusted EBITDA of our reportable operating segments excludes items that principally apply to our Company as a whole. The revenues and adjusted EBITDA from continuing operations for each of our reportable operating segments are as follows (dollars in millions):
Corporate and eliminations
Huntsman Corporation:
Segment adjusted EBITDA(1):
Corporate and other(2)
Reconciliation of adjusted EBITDA to net income (loss):
Interest expense, net—continuing operations
Income tax expense—continuing operations
Income tax expense—discontinued operations
Depreciation and amortization—continuing operations
Other adjustments:
Business acquisition and integration expenses and purchase accounting inventory adjustments
EBITDA from discontinued operations(3)
Certain legal and other settlements and related income (expenses)
Gain on sale of businesses/assets
Income from transition services arrangements
Certain nonrecurring information technology project implementation costs
Amortization of pension and postretirement actuarial losses
Plant incident remediation costs
Restructuring, impairment and plant closing and transition costs
Huntsman International:
We use segment adjusted EBITDA as the measure of each segment’s profit or loss. We believe that segment adjusted EBITDA more accurately reflects what the chief operating decision maker uses to make decisions about resources to be allocated to the segments and assess their financial performance. Segment adjusted EBITDA is defined as net income of Huntsman Corporation or Huntsman International, as appropriate, before interest, income tax, depreciation and amortization, net income attributable to noncontrolling interests and certain Corporate and other items, as well as eliminating the following adjustments: (a) business acquisition and integration expenses and purchase accounting inventory adjustments; (b) EBITDA from discontinued operations; (c) fair value adjustments to Venator investment; (d) loss on early extinguishment of debt; (e) certain legal and other settlements and related income (expenses); (f) gain on sale of businesses/assets; (g) income from transition services arrangements related to the sale of our Chemical Intermediates Businesses to Indorama; (h) certain nonrecurring information technology project implementation costs; (i) amortization of pension and postretirement actuarial losses; (j) plant incident remediation costs; and (k) restructuring, impairment, plant closing and transition costs.
Corporate and other includes unallocated corporate overhead, unallocated foreign exchange gains and losses, LIFO inventory valuation reserve adjustments, loss on early extinguishment of debt, unallocated restructuring, impairment and plant closing costs, nonoperating income and expense and gains and losses on the disposition of corporate assets.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We operate in four segments: Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Our products comprise a broad range of chemicals and formulations, which we market globally 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, insulation, medical, packaging, coatings and construction, power generation, refining, synthetic fiber, textile chemicals and dyes industries. We are a leading global producer in many of our key product lines, including MDI, amines, maleic anhydride, epoxy-based polymer formulations, textile chemicals and dyes. Our revenues from continuing operations for the nine months ended September 30, 2021 and 2020 were $6,146 million and $4,350 million, respectively.
On July 1, 2021, we entered into amendments to our A/R Programs that, among other things, extended the scheduled termination dates of our A/R Programs from April 2022 to July 2024. For additional information, see “Note 8. Debt—Direct and Subsidiary Debt—A/R Programs” to our condensed consolidated financial statements.
Outlook
We expect the following factors to impact our operating segments:
Polyurethanes:
Fourth quarter 2021 adjusted EBITDA estimated to be between $200 million and $220 million
Positive trends in construction, though impacted by raw material constraints
Automotive market continues to be weak
Performance Products:
Fourth quarter 2021 adjusted EBITDA estimated to be between $95 million and $100 million
Commercial initiatives to positively impact results
Advanced Materials:
Fourth quarter 2021 adjusted EBITDA estimated to be between $47 million and $52 million
Aerospace continues to recover
Pricing increases to offset raw material cost increases
Fourth quarter 2021 adjusted EBITDA estimated to be between $20 million and $22 million
Favorable trends in sustainable solutions
In the third quarter of 2021, our adjusted effective tax rate was 15%. For 2021, our adjusted effective tax rate is expected to be approximately 19% to 20%, which is below our previously expected rate of approximately 22% to 24% due largely to tax benefits for increased export sales and services taxed at a U.S. income tax rate lower than 21%. We continue to expect our forward adjusted effective tax rate will be approximately 22% to 24%. For further information, see “—Non-GAAP Financial Measures” and “Note 18. Income Taxes” to our condensed consolidated financial statements.
Refer to “Forward-Looking Statements” for a discussion of our use of forward-looking statements in this Quarterly Report on Form 10-Q.
Results of Operations
For each of our Company and Huntsman International, the following tables set forth the condensed consolidated results of operations (dollars in millions, except per share amounts):
Percent
Change
Operating expenses, net
(Loss) income from discontinued operations, net of tax(1)
Reconciliation of net income to adjusted EBITDA:
Interest expense, net from continuing operations
Income tax expense from continuing operations
Income tax expense from discontinued operations
Depreciation and amortization of continuing operations
EBITDA from discontinued operations(1)
Certain legal and other settlements and related (income) expenses
Adjusted EBITDA(2)
Capital expenditures from continuing operations
September 30, 2020
Tax and
Gross
other(3)
Net
Reconciliation of net income to adjusted net income
Loss from discontinued operations(1)(4)
Certain legal and other settlements and related income
Adjusted net income(2)
Weighted average shares-basic
Weighted average shares-diluted
Basic net income attributable to Huntsman Corporation per share:
Income from continuing operations
Income from discontinued operations
Diluted net income attributable to Huntsman Corporation per share:
Other non-GAAP measures:
Diluted adjusted net income per share(2)
Income from discontinued operations(1)(4)
Certain legal and other settlements and related expenses
(Loss) income from discontinued operations
Free cash flow from continuing operations(2)
Other cash flow measure:
Taxes paid on sale of businesses(5)
NM—Not meaningful
Includes the gain on the sale of our Chemical Intermediates Businesses recognized predominantly in the first quarter of 2020.
See “—Non-GAAP Financial Measures.”
The income tax impacts, if any, of each adjusting item represent a ratable allocation of the total difference between the unadjusted tax expense and the total adjusted tax expense, computed without consideration of any adjusting items using a with and without approach.
(4)
In addition to income tax impacts, this adjusting item is also impacted by depreciation and amortization expense and interest expense.
(5)
Represents the taxes paid in the second quarter of 2021 in connection with the earnout provision achieved under the terms of the sales agreement of the India-based DIY business and taxes paid in the first half of 2020 in connection with the sale of the Chemical Intermediates Businesses. For more information, see “Note 4. Discontinued Operations and Business Dispositions” to our condensed consolidated financial statements.
Non-GAAP Financial Measures
Our condensed consolidated financial statements are prepared in accordance with GAAP, which we supplement with certain non-GAAP financial information. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures in their entirety and not to rely on any single financial measure. These non-GAAP measures exclude the impact of certain income and expenses that we do not believe are indicative of our core operating results.
Adjusted EBITDA
Our management uses adjusted EBITDA to assess financial performance. Adjusted EBITDA is defined as net income of Huntsman Corporation or Huntsman International, as appropriate, before interest, income tax, depreciation and amortization, net income attributable to noncontrolling interests and certain Corporate and other items, as well as eliminating the following adjustments: (a) business acquisition and integration expenses and purchase accounting inventory adjustments; (b) EBITDA from discontinued operations; (c) fair value adjustments to Venator investment; (d) loss on early extinguishment of debt; (e) certain legal and other settlements and related (income) expenses; (f) gain on sale of businesses/assets; (g) income from transition services arrangements related to the sale of our Chemical Intermediates Businesses to Indorama; (h) certain nonrecurring information technology project implementation costs; (i) amortization of pension and postretirement actuarial losses; (j) plant incident remediation costs; and (k) restructuring, impairment and plant closing and transition costs. We believe that net income of Huntsman Corporation or Huntsman International, as appropriate, is the performance measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to adjusted EBITDA.
We believe adjusted EBITDA is useful to investors in assessing the businesses’ ongoing financial performance and provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of the businesses’ operational profitability and that may obscure underlying business results and trends. However, this measure should not be considered in isolation or viewed as a substitute for net income of Huntsman Corporation or Huntsman International, as appropriate, or other measures of performance determined in accordance with U.S. GAAP. Moreover, adjusted EBITDA as used herein is not necessarily comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation. Our management believes this measure is useful to compare general operating performance from period to period and to make certain related management decisions. Adjusted EBITDA is also used by securities analysts, lenders and others in their evaluation of different companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be highly dependent on a company’s capital structure, debt levels and credit ratings. Therefore, the impact of interest expense on earnings can vary significantly among companies. In addition, the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. As a result, effective tax rates and tax expense can vary considerably among companies. Finally, companies employ productive assets of different ages and utilize different methods of acquiring and depreciating such assets. This can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
Nevertheless, our management recognizes that there are material limitations associated with the use of adjusted EBITDA in the evaluation of our Company as compared to net income of Huntsman Corporation or Huntsman International, as appropriate, which reflects overall financial performance. For example, we have borrowed money in order to finance our operations and interest expense is a necessary element of our costs and ability to generate revenue. Our management compensates for the limitations of using adjusted EBITDA by using this measure to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business rather than U.S. GAAP results alone.
Adjusted Net Income
Adjusted net income is computed by eliminating the after-tax amounts related to the following from net income attributable to Huntsman Corporation: (a) business acquisition and integration expenses and purchase accounting inventory adjustments; (b) loss (income) from discontinued operations; (c) fair value adjustments to Venator investment; (d) loss on early extinguishment of debt; (e) certain legal and other settlements and related (income) expenses; (f) gain on sale of businesses/assets; (g) income from transition services arrangements related to the sale of our Chemical Intermediates Businesses to Indorama; (h) certain nonrecurring information technology project implementation costs; (i) amortization of pension and postretirement actuarial losses; (j) plant incident remediation costs; and (k) restructuring, impairment and plant closing and transition costs. Basic adjusted net income per share excludes dilution and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period. Adjusted diluted net income per share reflects all potential dilutive common shares outstanding during the period and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities. Adjusted net income and adjusted net income per share amounts are presented solely as supplemental information.
We believe adjusted net income is useful to investors in assessing the businesses’ ongoing financial performance and provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of the businesses’ operational profitability and that may obscure underlying business results and trends.
Free Cash Flow
We believe free cash flow is an important indicator of our liquidity as it measures the amount of cash we generate. Management internally uses a free cash flow measure: (a) to evaluate our liquidity, (b) evaluate strategic investments, (c) plan stock buyback and dividend levels and (d) evaluate our ability to incur and service debt. Starting with the quarter ended March 31, 2020, we updated our definition of free cash flow to a presentation more consistent with today’s market standard of net cash provided by operating activities less capital expenditures. Free cash flow is not a defined term under U.S. GAAP, and it should not be inferred that the entire free cash flow amount is available for discretionary expenditures.
Adjusted Effective Tax Rate
We believe that the effective tax rate of Huntsman Corporation or Huntsman International, as appropriate, is the performance measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to adjusted effective tax rate. We believe our adjusted effective tax rate provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of the businesses’ operational profitability and that may obscure underlying business results and trends. We do not provide reconciliations for adjusted effective tax rate on a forward-looking basis because we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as business acquisition and integration expenses, merger costs, certain legal and other settlements and related costs, gains on sale of businesses/assets and amortization of pension and postretirement actuarial losses. Each of such adjustments has not yet occurred, is out of our control and/or cannot be reasonably predicted. For the same reasons, we are unable to address the probable significance of the unavailable information.
Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020
As discussed in “Note 4. Discontinued Operations and Business Dispositions—Sale of Chemical Intermediates Businesses” to our condensed consolidated financial statements, the results from continuing operations exclude the results of our Chemical Intermediates Businesses and the results of our former polymers, base chemicals and Australian styrenics businesses for all periods presented. The increase of $166 million in net income from continuing operations attributable to Huntsman Corporation and the increase of $165 million in net income from continuing operations attributable to Huntsman International was the result of the following items:
Revenues for the three months ended September 30, 2021 increased by $775 million, or 51%, as compared with the 2020 period. The increase was primarily due to higher average selling prices as well as higher sales volumes in all our segments. See “—Segment Analysis” below.
Gross profit for the three months ended September 30, 2021 increased by $204 million, or 73%, as compared with the 2020 period. The increase resulted from higher gross profits in all our segments. See “—Segment Analysis” below.
For the three months ended September 30, 2021, we recorded a credit of $1 million in restructuring, impairment and plant closing (credits) costs compared with costs of $12 million in the 2020 period. For more information concerning restructuring activities, see “Note 7. Restructuring, Impairment and Plant Closing Costs” to our condensed consolidated financial statements.
Equity in income of investment in unconsolidated affiliates for the three months ended September 30, 2021 increased to $34 million from $21 million in the 2020 period, primarily related to an increase in income at our PO/MTBE joint venture in China, in which we hold a 49% interest.
For the three months ended September 30, 2021, we recorded a net loss of $3 million in fair value adjustments to our investment in Venator and related option to sell our remaining Venator shares compared with a gain of $6 million in the 2020 period. See “Note 4. Business Dispositions—Sale of Venator Interest” to our condensed consolidated financial statements.
Our income tax expense for the three months ended September 30, 2021 increased to $38 million from $15 million in the 2020 period. The income tax expense of Huntsman International for the three months ended September 30, 2021 increased to $39 million from $15 million in the 2020 period. The increase in income tax expense was primarily due to the increase in pretax income, exclusive of the fair value adjustments to our investment in Venator, partially offset by approximately $11 million of tax benefits for increased export sales and services taxed at a U.S. income tax rate lower than 21% in the third quarter of 2021. Our income tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions. For further information concerning income taxes, see “Note 18. Income Taxes” to our condensed consolidated financial statements.
Favorable
(Dollars in millions)
(Unfavorable)
Segment adjusted EBITDA(1)
Corporate and other
For more information, including reconciliation of segment adjusted EBITDA to net income of Huntsman Corporation or Huntsman International, as appropriate, see “Note 20. Operating Segment Information” to our condensed consolidated financial statements.
Three months ended September 30, 2021 vs 2020
Average Selling Price(1)
Local
Foreign Currency
Mix &
Sales
Currency
Translation Impact
Volumes(2)
Period-Over-Period Increase (Decrease)
Three months ended September 30, 2021 vs June 30, 2021
Period-Over-Period (Decrease) Increase
Excludes revenues from tolling arrangements, byproducts and raw materials.
Excludes sales volumes of byproducts and raw materials.
The increase in revenues in our Polyurethanes segment for the three months ended September 30, 2021 compared to the same period of 2020 was largely due to higher MDI average selling prices and slightly higher sales volumes. MDI average selling prices increased in all our regions. Sales volumes increased primarily due to stronger demand in relation to the ongoing recovery from the global economic slowdown, partially offset by the impact of Hurricane Ida at our Geismar, Louisiana facility that occurred in the third quarter of 2021. The increase in segment adjusted EBITDA was primarily due to higher MDI margins resulting from higher MDI pricing and slightly higher sales volumes as well as stronger earnings from our PO/MTBE joint venture in China, partially offset by higher raw material costs.
Performance Products
The increase in revenues in our Performance Products segment for the three months ended September 30, 2021 compared to the same period of 2020 was primarily due to higher average selling prices and higher sales volumes. Average selling prices increased primarily due to stronger demand in relation to the ongoing recovery from the global economic slowdown as well as in response to an increase in raw material costs. Sales volumes also increased primarily due to stronger demand. The increase in segment adjusted EBITDA was primarily due to increased revenue and margins, partially offset by increased fixed costs.
The increase in revenues in our Advanced Materials segment for the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to higher sales volumes, higher average selling prices and the favorable net impact of the Gabriel Acquisition and the sale of the India-based DIY business. See “Note 3. Business Combinations and Acquisitions” and “Note 4. Discontinued Operations and Business Dispositions” to our condensed consolidated financial statements. Excluding our recent acquisition and divestiture, sales volumes increased across all of our specialty markets, primarily in relation to the ongoing recovery from the global economic slowdown. Average selling prices increased largely in response to higher raw material costs. The increase in segment adjusted EBITDA was primarily due to higher sales volumes and the benefit from our recent acquisition.
The increase in revenues in our Textile Effects segment for the three months ended September 30, 2021 compared to the same period of 2020 was due to higher sales volumes and higher average selling prices. Sales volumes increased primarily due to increased demand resulting from the ongoing recovery from the global economic slowdown, particularly in the North Asia and Americas regions. Average selling prices increased primarily in response to higher freight and logistics costs. The increase in segment adjusted EBITDA was primarily due to higher sales revenues, partially offset by higher fixed costs.
Corporate and other includes unallocated corporate overhead, unallocated foreign currency exchange gains and losses, LIFO inventory valuation reserve adjustments, loss on early extinguishment of debt, unallocated restructuring, impairment and plant closing costs, nonoperating income and expense and gains and losses on the disposition of corporate assets. For the three months ended September 30, 2021, adjusted EBITDA from Corporate and other for Huntsman Corporation decreased by $11 million to a loss of $48 million from a loss of $37 million for the same period of 2020. For the three months ended September 30, 2021, adjusted EBITDA from Corporate and other for Huntsman International decreased by $11 million to a loss of $47 million from a loss of $36 million for the same period of 2020. The decrease in adjusted EBITDA from Corporate and other was primarily due to a charge from a LIFO inventory valuation reserve adjustment and an increase in corporate overhead costs, partially offset by an increase in unallocated foreign currency exchange gains.
Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020
As discussed in “Note 4. Discontinued Operations and Business Dispositions—Sale of Chemical Intermediates Businesses” to our condensed consolidated financial statements, the results from continuing operations exclude the results of our Chemical Intermediates and Businesses and the results of our former polymers, base chemicals and Australian styrenics business for all periods presented. The increase of $542 million in net income from continuing operations attributable to Huntsman Corporation and the increase of $545 million in net income from continuing operations attributable to Huntsman International was the result of the following items:
Revenues for the nine months ended September 30, 2021 increased by $1,796 million, or 41%, as compared with the 2020 period. The increase was primarily due to higher average selling prices as well as higher sales volumes in all our segments. See “—Segment Analysis” below.
Gross profit for the nine months ended September 30, 2021 increased by $568 million, or 77%, as compared with the 2020 period. The increase resulted from higher gross profits in all our segments. See “—Segment Analysis” below.
Equity in income of investment in unconsolidated affiliates for the nine months ended September 30, 2021 increased to $118 million from $25 million in the 2020 period, primarily related to an increase in income at our PO/MTBE joint venture in China, in which we hold a 49% interest.
For the nine months ended September 30, 2021, we recorded a net loss of $28 million in fair value adjustments to our investment in Venator and related option to sell our remaining Venator shares compared with a loss of $100 million in the 2020 period. See “Note 4. Business Dispositions—Sale of Venator Interest” to our condensed consolidated financial statements.
Loss on early extinguishment of debt for the nine months ended September 30, 2021 was $27 million compared with nil in the 2020 period, primarily due to the full redemption of our 2022 Senior Notes in the second quarter of 2021. See “Note 8. Debt—Direct and Subsidiary Debt—Senior Notes” to our condensed consolidated financial statements.
Our income tax expense for the nine months ended September 30, 2021 increased to $114 million from $9 million in the 2020 period. The income tax expense of Huntsman International for the nine months ended September 30, 2021 increased to $115 from $9 million in the 2020 period. The increase in income tax expense was primarily due to pretax income, exclusive of the fair value adjustments to our investment in Venator, partially offset by approximately $11 million of tax benefits for increased export sales and services taxed at a U.S. income tax rate lower than 21% in the 2021 period. Our income tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions. For further information concerning income taxes, see “Note 18. Income Taxes” to our condensed consolidated financial statements.
Nine months ended September 30, 2021 vs September 30, 2020
The increase in revenues in our Polyurethanes segment for the nine months ended September 30, 2021 compared to the same period of 2020 was largely due to higher MDI average selling prices and higher sales volumes. MDI average selling prices increased mostly in China and Europe with increases in our Americas region during the third quarter of 2021. Sales volumes increased primarily due to stronger demand in relation to the ongoing recovery from the global economic slowdown, partially offset by some unplanned downtime resulting from the U.S. Gulf Coast Winter Storm Uri that occurred in the first quarter of 2021, the scheduled turnaround at our Rotterdam, Netherlands facility during the second quarter of 2021 and the impact of Hurricane Ida at our Geismar, Louisiana facility that occurred in the third quarter of 2021. The increase in segment adjusted EBITDA was primarily due to higher MDI margins resulting from higher MDI pricing and higher sales volumes as well as stronger earnings from our PO/MTBE joint venture in China, partially offset by higher raw material costs
The increase in revenues in our Performance Products segment for the nine months ended September 30, 2021 compared to the same period of 2020 was primarily due to higher average selling prices and higher sales volumes. Average selling prices increased primarily due to stronger demand in relation to the ongoing recovery from the global economic slowdown as well as in response to an increase in raw material costs. Sales volumes also increased primarily due to stronger demand. The increase in segment adjusted EBITDA was primarily due to increased revenue and margins, partially offset by increased fixed costs.
The increase in revenues in our Advanced Materials segment for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to higher sales volumes, higher average selling prices and the favorable net impact of the CVC Thermoset Specialties Acquisition, the Gabriel Acquisition and the sale of the India-based DIY business. See “Note 3. Business Combinations and Acquisitions” and “Note 4. Discontinued Operations and Business Dispositions” to our condensed consolidated financial statements. Excluding our recent acquisitions and divestiture and with the exception of our global aerospace business, sales volumes increased across all markets, primarily in relation to the ongoing recovery from the global economic slowdown. Average selling prices increased largely in response to higher raw material costs and due to the impact of a weaker U.S. dollar against major international currencies. The increase in segment adjusted EBITDA was primarily due to higher sales volumes and the benefit from our recent acquisitions.
The increase in revenues in our Textile Effects segment for the nine months ended September 30, 2021 compared to the same period of 2020 was primarily due to higher sales volumes and slightly higher average selling prices. Sales volumes increased primarily due to increased demand resulting from the ongoing recovery from the global economic slowdown. Average selling prices slightly increased primarily due to the impact of a weaker U.S. dollar against major international currencies. The increase in segment adjusted EBITDA was primarily due to higher sales revenues, partially offset by higher fixed costs.
Corporate and other includes unallocated corporate overhead, unallocated foreign currency exchange gains and losses, LIFO inventory valuation reserve adjustments, loss on early extinguishment of debt, unallocated restructuring, impairment and plant closing costs, nonoperating income and expense and gains and losses on the disposition of corporate assets. For the nine months ended September 30, 2021, adjusted EBITDA from Corporate and other for Huntsman Corporation decreased by $32 million to a loss of $146 million from a loss of $114 million for the same period of 2020. For the nine months ended September 30, 2021, adjusted EBITDA from Corporate and other for Huntsman International decreased by $30 million to a loss of $140 million from a loss of $110 million for the same period of 2020. The decrease in adjusted EBITDA from Corporate and other was primarily due to a charge from a LIFO inventory valuation reserve adjustment and an increase in corporate overhead costs, partially offset by an increase in unallocated foreign currency exchange gains.
Liquidity and Capital Resources
The following is a discussion of our liquidity and capital resources and does not include separate information with respect to Huntsman International in accordance with General Instructions H(1)(a) and (b) of Form 10-Q.
Cash Flows for the Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020
Net cash provided by operating activities from continuing operations for the nine months ended September 30, 2021 and 2020 was $163 million and $110 million, respectively. The increase in net cash provided by operating activities from continuing operations during the nine months ended September 30, 2021 compared with the same period in 2020 was primarily attributable to increased operating income as described in “—Results of Operations” above for the nine months ended September 30, 2021 as compared with the same period of 2020, partially offset by a $382 million unfavorable variance in operating assets and liabilities.
Net cash (used in) provided by investing activities for the nine months ended September 30, 2021 and 2020 was $(439) million and $1,105 million, respectively. During the nine months ended September 30, 2021 and 2020, we paid $250 million and $170 million for capital expenditures, respectively. During the nine months ended September 30, 2021, we received $43 million for the sale of businesses, primarily due to the receipt of $28 million pursuant to an earnout provision in connection with the sale of our India-based DIY business, and we paid $245 million for the acquisition of businesses, primarily related to approximately $242 million paid for the Gabriel Acquisition, net of cash acquired. During the nine months ended September 30, 2020, we received approximately $1.92 billion for the sale of our Chemical Intermediates Businesses, and we paid $653 million in connection with the Icynene-Lapolla Acquisition and the CVC Thermoset Specialties Acquisition, net of cash acquired.
Net cash used in financing activities for the nine months ended September 30, 2021 and 2020 was $809 million and $546 million, respectively. During the nine months ended September 30, 2021, we redeemed in full €445 million (approximately $541 million) in aggregate principal amount of our 2021 Senior Notes, and we redeemed in full $400 million in aggregate principal amount of our 2022 Senior Notes. Additionally, during the nine months ended September 30, 2021, we issued $400 million in aggregate principal amount of our 2031 Senior Notes and received borrowings of approximately 104 million SAR (approximately $27 million) related to funding on a new term loan facility of our consolidated 50%-owned joint venture, AAC. See “Note 8. Debt—Direct and Subsidiary Debt—Variable Interest Entity Debt” to our condensed consolidated financial statements. During the nine months ended September 30, 2020, we repaid a total of $153 million on our Revolving Credit Facility and repaid in full $109 million on our 2019 Term Loan in the third quarter of 2020.
Free cash flow from continuing operations for the nine months ended September 30, 2021 and 2020 was a use of cash of $87 million and $60 million, respectively.
Changes in Financial Condition
The following information summarizes our working capital position (dollars in millions):
Less
(Decrease)
Acquisition(1)
Subtotal
Increase
Cash and cash equivalents
Accounts and notes receivable, net
Current operating lease liabilities
Working capital
Represents amounts related to the Gabriel Acquisition. For more information, see “Note 3. Business Combinations and Acquisitions—Acquisition of Gabriel Performance Products” to our condensed consolidated financial statements.
Our working capital decreased by $138 million as a result of the net impact of the following significant changes:
The decrease in cash and cash equivalents of $1,097 million resulted from the matters identified on our condensed consolidated statements of cash flows.
Accounts receivable increased by $316 million due to higher revenues in the third quarter of 2021 compared to the fourth quarter of 2020.
Inventories increased by $300 million primarily due to higher inventory costs and volumes.
Accounts payable increased by $102 million primarily due to higher inventory purchases.
Current portion of debt decreased by $577 million primarily due to the redemption of our 2021 Senior Notes in the first half of 2021.
See “Note 8. Debt—Direct and Subsidiary Debt” to our condensed consolidated financial statements.
Debt Issuance Costs
See “Note 8. Debt—Direct and Subsidiary Debt—Debt Issuance Costs” to our condensed consolidated financial statements.
Revolving Credit Facility
See “Note 8. Debt—Direct and Subsidiary Debt—Revolving Credit Facility” to our condensed consolidated financial statements.
See “Note 8. Debt—Direct and Subsidiary Debt—Term Loan Credit Facility” to our condensed consolidated financial statements.
A/R Programs
See “Note 8. Debt—Direct and Subsidiary Debt—A/R Programs” to our condensed consolidated financial statements.
Senior Notes
See “Note 8. Debt—Direct and Subsidiary Debt—Senior Notes” to our condensed consolidated financial statements.
Variable Interest Entity Debt
See “Note 8. Debt—Direct and Subsidiary Debt—Variable Interest Entity Debt” to our condensed consolidated financial statements.
See “Note 8. Debt—Direct and Subsidiary Debt—Note Payable from Huntsman International to Huntsman Corporation” to our condensed consolidated financial statements.
See “Note 8. Debt—Compliance with Covenants” to our condensed consolidated financial statements.
We depend upon our cash, Revolving Credit Facility, A/R Programs and other debt instruments to provide liquidity for our operations and working capital needs. As of September 30, 2021, we had $1,955 million of combined cash and unused borrowing capacity, consisting of $505 million in cash, $1,190 million in availability under our Revolving Credit Facility and $260 million in availability under our A/R Programs. Our liquidity can be significantly impacted by various factors. The following matters are expected to have a significant impact on our liquidity:
Short-Term Liquidity
Cash invested in our accounts receivable and inventory, net of accounts payable, was approximately $546 million for the nine months ended September 30, 2021, as reflected in our condensed consolidated statements of cash flows. We expect volatility in our working capital components to continue.
During 2021, we expect to spend approximately $350 million on capital expenditures, including spending of approximately $100 million on a new MDI splitter in Geismar, Louisiana. We expect to fund capital expenditures with cash provided by operations.
During the nine months ended September 30, 2021, we made contributions to our pension and postretirement benefit plans of $45 million. During 2021, we expect to contribute an additional amount of approximately $9 million to these plans.
Long-Term Liquidity
On a new MDI splitter being constructed in Geismar, Louisiana, we expect to spend approximately $50 million in the remainder of 2021 and 2022. We expect to fund capital expenditures with cash provided by operations.
During 2020, management implemented cost realignment and synergy plans. In connection with these plans, we expect to achieve annualized cost savings and synergy benefits of more than $120 million by the end of 2023 with associated net cash restructuring and integration costs of approximately $100 million. See “Note 7. Restructuring, Impairment and Plant Closing Cost” to our condensed consolidated financial statements.
As of September 30, 2021, we had $16 million classified as current portion of debt, including debt at our variable interest entities of $13 million and certain other short-term facilities and scheduled amortization payments totaling $3 million. We intend to renew, repay or extend the majority of these short-term facilities in the next twelve months.
As of September 30, 2021, we had approximately $365 million of cash and cash equivalents, including restricted cash, held by our foreign subsidiaries, including our variable interest entities. We intend to use cash held in our foreign subsidiaries to fund our local operations. Nevertheless, we could repatriate cash as dividends, which dividends would generally not be subject to U.S. taxation as a result of the U.S. Tax Reform Act. However, such repatriation may potentially be subject to certain foreign withholding taxes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, such as changes in interest rates, foreign exchange rates and commodity prices. From time to time, we enter into transactions, including transactions involving derivative instruments, to manage certain of these exposures. We also hedge our net investment in certain European operations. See “Note 9. Derivative Instruments and Hedging Activities” to our condensed consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of September 30, 2021, our disclosure controls and procedures were effective, in that they ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
No changes to our internal control over financial reporting occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). However, we can only give reasonable assurance that our internal controls over financial reporting will prevent or detect material misstatements on a timely basis. Ineffective internal controls over financial reporting could cause investors to lose confidence in our reported financial information and could result in a lower trading price for our securities.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forth below, there have been no material developments with respect to the legal proceedings referenced in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2020.
Rockwood Litigation
On February 6, 2017, we filed a lawsuit in New York state court against Rockwood Specialties Group, Inc., Rockwood Holdings, Inc. (collectively, “Rockwood”), Albemarle Corporation (as Rockwood’s successor) (“Albemarle”) and certain former Rockwood executives to recover damages for fraud and breach of contract in connection with our purchase of Rockwood’s pigments businesses, including its Color Pigments Division, for $1.1 billion in 2014. The case was ordered to arbitration under the rules of the American Arbitration Association and, after a two-week trial in May 2021, a panel consisting of three former federal judges awarded us in excess of $600 million for the fraud and breach, inclusive of punitive damages and statutory interest at 9%, of which we expect to net in excess of $400 million after attorney’s fees. The award is subject to confirmation and limited appeal in New York state court, and the arbitration panel directed us to file for reimbursement from Albemarle for attorney’s fees as prevailing party.
Texas Emissions Enforcement
On July 26, 2021, the Attorney General of the State of Texas filed a civil suit in the District Court of Travis County, Texas seeking civil penalties and attorney’s fees for alleged violations of the Texas Clean Air Act, Texas Commission on Environmental Quality regulations and facility permit terms. The complaint alleged multiple unauthorized emissions events and reporting discrepancies that occurred between December 2016 and June 2019 at our former manufacturing facility in Port Neches, Texas. The state is seeking monetary relief between $250,000 and $1 million. We completed the sale of our former Port Neches, Texas facility to Indorama Ventures Holdings L.P. on January 3, 2020. We believe that we are contractually indemnified for any defense costs and potential liability that may result from this action.
ITEM 1A. RISK FACTORS
For information regarding risk factors, see “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to shares of our common stock that we repurchased as part of our share repurchase program and shares of restricted stock granted under our stock incentive plans that we withheld upon vesting to satisfy our tax withholding obligations during the three months ended September 30, 2021.
Total number of
Approximate dollar
shares purchased
value of shares that
Total number
as part of publicly
may yet be purchased
of shares
price paid
announced plans
under the plans or
purchased
per share(1)
or programs(2)
programs(2)
July
August
September
On February 7, 2018 and on May 3, 2018, our Board of Directors authorized us to repurchase up to an aggregate of $1 billion in shares of our common stock. The share repurchase program is supported by our free cash flow generation. Repurchases may be made in the open market, including through accelerated share repurchase programs, or in privately negotiated transactions, and repurchases may be commenced or suspended from time to time without prior notice. Shares of common stock acquired through the repurchase program are held in treasury at cost. Subsequent to the end of the first quarter of 2020, we suspended share repurchases under our existing share repurchase program in order to enhance our liquidity position in response to COVID-19. During the third quarter of 2021, we resumed the share repurchase program and repurchased 3,971,784 shares of our common stock for approximately $102 million, excluding commissions.
ITEM 6. EXHIBITS
See the Exhibit Index at the end of this Quarterly Report on Form 10-Q for exhibits filed with this report.
EXHIBIT INDEX
Incorporated by Reference
Exhibit Number
Exhibit Description
Form
Exhibit
Filing Date
31.1
*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase
104
The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL and contained in Exhibit 101
Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
Dated: October 29, 2021
HUNTSMAN CORPORATION
HUNTSMAN INTERNATIONAL LLC
By:
/s/ PHILIP M. LISTER
Philip M. Lister
Executive Vice President and Chief Financial Officer
and Manager (Principal Financial Officer)
Vice President and Controller (Authorized Signatory and
Principal Accounting Officer)