Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Huntsman Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Huntsman Corporation and subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of operations and comprehensive loss, members equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedules I and II on pages 47 through 49. These financial statements and financial statement schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Huntsman Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements of Huntsman Corporation presented herein, the consolidated financial statements reflect the financial position and results of operations and cash flows as if Huntsman Holdings LLC and Huntsman Corporation were combined for all periods presented.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of computing depreciation for certain assets effective January 1, 2003. In addition, the Company adopted Statements of Financial Accounting Standards Nos. 141 and 142 effective January 1, 2002.
/s/ Deloitte & Touche LLP |
|
Houston, Texas
March 14, 2005 (September 21, 2005 as to the effects of the discontinued operations described in Note 27)
1
CONSOLIDATED
BALANCE SHEETS
|
|
December 31, |
|
||||
(Dollars in Millions) |
|
2004 |
|
2003 |
|
||
ASSETS |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
243.2 |
|
$ |
197.8 |
|
Restricted cash |
|
8.9 |
|
10.5 |
|
||
Accounts and notes receivables (net of allowance for doubtful accounts of $25.8 and $26.5, respectively) |
|
1,528.3 |
|
1,096.1 |
|
||
Accounts receivable from affiliates |
|
12.1 |
|
6.6 |
|
||
Inventories |
|
1,253.9 |
|
1,039.3 |
|
||
Prepaid expenses |
|
45.0 |
|
39.6 |
|
||
Deferred income taxes |
|
11.9 |
|
14.7 |
|
||
Other current assets |
|
95.8 |
|
108.3 |
|
||
Total current assets |
|
3,199.1 |
|
2,512.9 |
|
||
Property, plant and equipment, net |
|
5,150.9 |
|
5,079.3 |
|
||
Investment in unconsolidated affiliates |
|
170.9 |
|
158.0 |
|
||
Intangible assets, net |
|
245.6 |
|
316.8 |
|
||
Goodwill |
|
3.3 |
|
3.3 |
|
||
Deferred income taxes |
|
34.5 |
|
28.8 |
|
||
Notes receivable from affiliates |
|
23.6 |
|
25.3 |
|
||
Other noncurrent assets |
|
608.6 |
|
613.0 |
|
||
Total assets |
|
$ |
9,436.5 |
|
$ |
8,737.4 |
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable |
|
$ |
992.0 |
|
$ |
812.0 |
|
Accounts payable to affiliates |
|
30.6 |
|
20.1 |
|
||
Accrued liabilities |
|
782.1 |
|
702.0 |
|
||
Deferred income taxes |
|
10.8 |
|
15.1 |
|
||
Current portion of long-term debt |
|
37.5 |
|
135.8 |
|
||
Current portion of long-term debtaffiliates |
|
|
|
1.3 |
|
||
Total current liabilities |
|
1,853.0 |
|
1,686.3 |
|
||
Long-term debt |
|
6,221.1 |
|
5,737.5 |
|
||
Long-term debtaffiliates |
|
40.9 |
|
35.5 |
|
||
Deferred income taxes |
|
217.9 |
|
234.8 |
|
||
Other noncurrent liabilities |
|
745.3 |
|
584.7 |
|
||
Total liabilities |
|
9,078.2 |
|
8,278.8 |
|
||
Minority interests in common stock of consolidated subsidiary |
|
36.8 |
|
30.5 |
|
||
Warrants issued by consolidated subsidiary |
|
128.7 |
|
128.7 |
|
||
Redeemable preferred members interest |
|
574.8 |
|
487.1 |
|
||
Commitments and contingencies (Notes 20 and 22) |
|
|
|
|
|
||
Stockholders equity (deficit): |
|
|
|
|
|
||
Preferred members interest (liquidation preference of $513.3) |
|
195.7 |
|
194.4 |
|
||
Common members interest: |
|
|
|
|
|
||
Class A units, 10,000,000 issued and outstanding, no par value |
|
|
|
|
|
||
Class B units, 10,000,000 issued and outstanding, no par value |
|
|
|
|
|
||
Additional paid-in capital |
|
712.5 |
|
800.2 |
|
||
Accumulated other comprehensive income |
|
181.0 |
|
61.2 |
|
||
Accumulated deficit |
|
(1,471.2 |
) |
(1,243.5 |
) |
||
Total stockholders deficit |
|
(382.0 |
) |
(187.7 |
) |
||
Total liabilities and stockholders deficit |
|
$ |
9,436.5 |
|
$ |
8,737.4 |
|
See accompanying notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
|
|
Year Ended December 31, |
|
|||||||
(Dollars in Millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Revenues: |
|
|
|
|
|
|
|
|||
Trade sales |
|
$ |
11,378.5 |
|
$ |
6,927.9 |
|
$ |
2,494.8 |
|
Related party sales |
|
47.9 |
|
90.7 |
|
166.2 |
|
|||
Total revenues |
|
11,426.4 |
|
7,018.6 |
|
2,661.0 |
|
|||
Cost of goods sold |
|
10,022.0 |
|
6,308.2 |
|
2,421.0 |
|
|||
Gross profit |
|
1,404.4 |
|
710.4 |
|
240.0 |
|
|||
Expenses: |
|
|
|
|
|
|
|
|||
Selling, general and administrative |
|
694.8 |
|
482.8 |
|
151.9 |
|
|||
Research and development |
|
83.0 |
|
65.6 |
|
23.8 |
|
|||
Other operating income |
|
(80.9 |
) |
(55.0 |
) |
(1.0 |
) |
|||
Restructuring and plant closing costs (credits) |
|
299.3 |
|
37.9 |
|
(1.0 |
) |
|||
Total expenses |
|
996.2 |
|
531.3 |
|
173.7 |
|
|||
Operating income |
|
408.2 |
|
179.1 |
|
66.3 |
|
|||
Interest expense |
|
(607.2 |
) |
(428.3 |
) |
(195.0 |
) |
|||
Interest (expense) incomeaffiliate |
|
(5.4 |
) |
19.2 |
|
13.1 |
|
|||
Loss on sale of accounts receivable |
|
(15.6 |
) |
(20.4 |
) |
|
|
|||
Equity in income (losses) of investment in unconsolidated affiliates |
|
4.0 |
|
(37.5 |
) |
(31.4 |
) |
|||
Other expense |
|
(25.8 |
) |
|
|
(7.6 |
) |
|||
Loss from continuing operations before income tax benefit, minority interest and accounting change |
|
(241.8 |
) |
(287.9 |
) |
(154.6 |
) |
|||
Income tax (benefit) expense |
|
(29.1 |
) |
30.8 |
|
8.5 |
|
|||
Loss from continuing operations before minority interest and accounting change |
|
(212.7 |
) |
(318.7 |
) |
(163.1 |
) |
|||
Minority interest in subsidiaries (income) loss |
|
(7.2 |
) |
1.5 |
|
(28.8 |
) |
|||
Loss from continuing operations before accounting change |
|
(219.9 |
) |
(317.2 |
) |
(191.9 |
) |
|||
Loss from discontinued operations, net of tax |
|
(7.8 |
) |
(2.6 |
) |
|
|
|||
Loss before accounting change |
|
(227.7 |
) |
(319.8 |
) |
(191.9 |
) |
|||
Cumulative effect of accounting change |
|
|
|
|
|
169.7 |
|
|||
Net loss |
|
(227.7 |
) |
(319.8 |
) |
(22.2 |
) |
|||
Preferred members interest dividend |
|
(87.7 |
) |
(74.3 |
) |
(17.8 |
) |
|||
Net loss available to common stockholders |
|
$ |
(315.4 |
) |
$ |
(394.1 |
) |
$ |
(40.0 |
) |
Net loss |
|
$ |
(227.7 |
) |
$ |
(319.8 |
) |
$ |
(22.2 |
) |
Other comprehensive income |
|
70.5 |
|
241.6 |
|
10.2 |
|
|||
Comprehensive loss |
|
$ |
(157.2 |
) |
$ |
(78.2 |
) |
$ |
(12.0 |
) |
Basic and diluted loss per share: |
|
|
|
|
|
|
|
|||
Loss from continuing operations before accounting change |
|
$ |
(1.40 |
) |
$ |
(1.78 |
) |
$ |
(0.95 |
) |
Loss from discontinued operations, net of tax |
|
(0.03 |
) |
(0.01 |
) |
|
|
|||
Cumulative effect of accounting change |
|
|
|
|
|
0.77 |
|
|||
Net loss |
|
$ |
(1.43 |
) |
$ |
(1.79 |
) |
$ |
(0.18 |
) |
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
Class A |
|
Class B |
|
|
|
|
|
Accumulated |
|
|
|
Mandatorily |
|
|||||||||
|
|
|
|
Preferred |
|
Common |
|
Common |
|
Additional |
|
|
|
Other |
|
|
|
Redeemable |
|
|||||||||
|
|
Common |
|
Members |
|
Members |
|
Members |
|
Paid-In |
|
Accumulated |
|
Comprehensive |
|
|
|
Preferred |
|
|||||||||
(Dollars in Millions) |
|
Stock |
|
Interest |
|
Interest |
|
Interest |
|
Capital |
|
Deficit |
|
Income (Loss) |
|
Total |
|
Members Interest |
|
|||||||||
Balance, January 1, 2002 |
|
$ |
181.0 |
|
$ |
100.0 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
(901.5 |
) |
$ |
(141.3 |
) |
$ |
(761.8 |
) |
$ |
|
|
Recapitalization and member contribution for/of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Initial capitalization of Huntsman Holdings |
|
(181.0 |
) |
(100.0 |
) |
|
|
|
|
274.0 |
|
|
|
|
|
(7.0 |
) |
7.0 |
|
|||||||||
Exchange of debt for equity |
|
|
|
|
|
|
|
|
|
361.7 |
|
|
|
|
|
361.7 |
|
391.4 |
|
|||||||||
Expense of exchange of debt |
|
|
|
|
|
|
|
|
|
(4.9 |
) |
|
|
|
|
(4.9 |
) |
(5.2 |
) |
|||||||||
Acquisition of minority interests in affiliates (Note 1) |
|
|
|
|
|
|
|
|
|
71.1 |
|
|
|
|
|
71.1 |
|
|
|
|||||||||
Notes receivable from HIH and payable to ICI |
|
|
|
|
|
|
|
|
|
169.7 |
|
|
|
|
|
169.7 |
|
|
|
|||||||||
Cash contribution |
|
|
|
|
|
|
|
|
|
3.4 |
|
|
|
|
|
3.4 |
|
|
|
|||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
(22.2 |
) |
|
|
(22.2 |
) |
|
|
|||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
|
10.2 |
|
1.8 |
|
|||||||||
Dividends accrued on mandatorily redeemable preferred members interest |
|
|
|
|
|
|
|
|
|
(17.8 |
) |
|
|
|
|
(17.8 |
) |
17.8 |
|
|||||||||
Balance, December 31, 2002 |
|
|
|
|
|
|
|
|
|
857.2 |
|
(923.7 |
) |
(131.1 |
) |
(197.6 |
) |
412.8 |
|
|||||||||
Acquisition of subsidiary at less carrying amount |
|
|
|
|
|
|
|
|
|
19.5 |
|
|
|
|
|
19.5 |
|
|
|
|||||||||
Distribution to member |
|
|
|
|
|
|
|
|
|
(2.2 |
) |
|
|
|
|
(2.2 |
) |
|
|
|||||||||
Preferred shares issued in exchange for investment in Advanced Materials |
|
|
|
194.4 |
|
|
|
|
|
|
|
|
|
|
|
194.4 |
|
|
|
|||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
(319.8 |
) |
|
|
(319.8 |
) |
|
|
|||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
241.6 |
|
241.6 |
|
|
|
|||||||||
Accumulated other comprehensive loss of HIH at May 1, 2003 (date of consolidation) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(49.3 |
) |
(49.3 |
) |
|
|
|||||||||
Dividends accrued on mandatorily redeemable preferred members interest |
|
|
|
|
|
|
|
|
|
(74.3 |
) |
|
|
|
|
(74.3 |
) |
74.3 |
|
|||||||||
Balance, December 31, 2003 |
|
|
|
194.4 |
|
|
|
|
|
800.2 |
|
(1,243.5 |
) |
61.2 |
|
(187.7 |
) |
487.1 |
|
|||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
(227.7 |
) |
|
|
(227.7 |
) |
|
|
|||||||||
Purchase accounting adjustment |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
49.3 |
|
50.6 |
|
|
|
|||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
70.5 |
|
70.5 |
|
|
|
|||||||||
Dividends accrued on redeemable preferred members interest |
|
|
|
|
|
|
|
|
|
(87.7 |
) |
|
|
|
|
(87.7 |
) |
87.7 |
|
|||||||||
Balance, December 31, 2004 |
|
$ |
|
|
$ |
195.7 |
|
$ |
|
|
$ |
|
|
$ |
712.5 |
|
$ |
(1,471.2 |
) |
$ |
181.0 |
|
$ |
(382.0 |
) |
$ |
574.8 |
|
See accompanying notes to consolidated financial statements
4
CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
Year Ended December 31, |
|
|||||||
(Dollars in Millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
(227.7 |
) |
$ |
(319.8 |
) |
$ |
(22.2 |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|||
Cumulative effect of accounting change |
|
|
|
|
|
(169.7 |
) |
|||
Equity in (income) losses of investment in unconsolidated affiliates |
|
(4.0 |
) |
37.5 |
|
31.4 |
|
|||
Depreciation and amortization |
|
536.8 |
|
353.4 |
|
152.7 |
|
|||
Provision for losses on accounts receivable |
|
0.7 |
|
11.3 |
|
(1.8 |
) |
|||
Non-cash restructuring and plant closing charges (credits) |
|
138.0 |
|
9.7 |
|
(5.3 |
) |
|||
Loss (gain) on disposal of plant and equipment |
|
2.4 |
|
2.4 |
|
0.5 |
|
|||
Loss on early extinguishment of debt |
|
25.6 |
|
|
|
6.7 |
|
|||
Noncash interest expense |
|
160.6 |
|
111.8 |
|
7.6 |
|
|||
Noncash interest on affiliate debt |
|
5.4 |
|
(21.1 |
) |
(13.1 |
) |
|||
Deferred income taxes |
|
(64.5 |
) |
(3.6 |
) |
|
|
|||
Unrealized gains on foreign currency transactions |
|
(111.7 |
) |
(58.3 |
) |
|
|
|||
Minority interests in subsidiaries income (loss) |
|
6.2 |
|
(1.5 |
) |
28.8 |
|
|||
Other |
|
(13.0 |
) |
|
|
|
|
|||
Changes in operating assets and liabilities (net of acquisitions): |
|
|
|
|
|
|
|
|||
Accounts and notes receivables |
|
(200.4 |
) |
81.0 |
|
(48.2 |
) |
|||
Change in receivables sold, net |
|
(90.0 |
) |
(11.5 |
) |
|
|
|||
Inventories |
|
(158.9 |
) |
87.8 |
|
1.3 |
|
|||
Prepaid expenses |
|
31.0 |
|
(2.8 |
) |
(12.3 |
) |
|||
Other current assets |
|
45.4 |
|
(15.9 |
) |
|
|
|||
Other noncurrent assets |
|
(49.0 |
) |
(24.3 |
) |
(6.4 |
) |
|||
Accounts payable |
|
49.8 |
|
(71.5 |
) |
56.9 |
|
|||
Accrued liabilities |
|
91.4 |
|
71.5 |
|
67.5 |
|
|||
Other noncurrent liabilities |
|
6.7 |
|
(10.7 |
) |
14.3 |
|
|||
Net cash provided by operating activities |
|
180.8 |
|
225.4 |
|
88.7 |
|
|||
Investing Activities: |
|
|
|
|
|
|
|
|||
Capital expenditures |
|
(226.6 |
) |
(191.0 |
) |
(70.2 |
) |
|||
Proceeds from sale of plant & equipment |
|
5.2 |
|
0.3 |
|
|
|
|||
Cash paid for intangible asset |
|
|
|
(2.3 |
) |
|
|
|||
Advances to unconsolidated affiliates |
|
(21.9 |
) |
(7.8 |
) |
(7.5 |
) |
|||
Net borrowings under revolving loan facilities |
|
2.1 |
|
|
|
|
|
|||
Net cash received from unconsolidated affiliates |
|
8.6 |
|
|
|
|
|
|||
Acquisition of minority interest |
|
|
|
(286.0 |
) |
|
|
|||
Loans and other assets |
|
1.0 |
|
|
|
|
|
|||
Change in restricted cash |
|
1.6 |
|
(1.4 |
) |
53.2 |
|
|||
Cash portion of AdMat acquisition |
|
|
|
(397.6 |
) |
|
|
|||
Purchase of Vantico senior notes |
|
|
|
(22.7 |
) |
|
|
|||
Net cash used in investing activities |
|
$ |
(230.0 |
) |
$ |
(908.5 |
) |
$ |
(24.5 |
) |
5
|
|
Year Ended December 31, |
|
|||||||
(Dollars in Millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Financing Activities: |
|
|
|
|
|
|
|
|||
Net borrowings (repayment) under revolving loan facilities |
|
$ |
113.8 |
|
$ |
(201.4 |
) |
$ |
32.1 |
|
Net (repayment) borrowings on overdraft |
|
(10.6 |
) |
7.5 |
|
|
|
|||
Repayment of long-term debt |
|
(2,489.4 |
) |
(426.6 |
) |
(121.6 |
) |
|||
Proceeds from long-term debt |
|
2,515.3 |
|
1,288.6 |
|
|
|
|||
Repayment of note payable |
|
(19.6 |
) |
(105.7 |
) |
|
|
|||
Proceeds from issuance of subsidiary warrants |
|
|
|
130.0 |
|
|
|
|||
Cash paid for reacquired subsidiary warrants |
|
|
|
(1.3 |
) |
|
|
|||
Proceeds from subordinated note issued to an affiliated entity |
|
|
|
|
|
|
|
|||
Shares of subsidiary issued to minority interests for cash |
|
5.4 |
|
1.7 |
|
|
|
|||
Cost of raising subsidiary equity capital |
|
|
|
(10.1 |
) |
|
|
|||
Debt issuance costs |
|
(35.5 |
) |
(58.2 |
) |
(16.6 |
) |
|||
(Distribution to) capital contribution from members |
|
|
|
(2.2 |
) |
5.2 |
|
|||
Cash contributed to subsidiary later exchanged for preferred tracking stock |
|
|
|
164.4 |
|
|
|
|||
Repayments of senior notes |
|
(333.4 |
) |
|
|
|
|
|||
Issuance of senior notes |
|
354.5 |
|
|
|
|
|
|||
Cash acquired in acquisition of equity method affiliate |
|
|
|
|
|
7.9 |
|
|||
Costs of early extinguishment of debt |
|
(17.0 |
) |
|
|
|
|
|||
Net cash provided by (used in) financing activities |
|
83.5 |
|
786.7 |
|
(93.0 |
) |
|||
Effect of exchange rate changes on cash |
|
11.1 |
|
9.5 |
|
3.6 |
|
|||
Increase (decrease) in cash and cash equivalents |
|
45.4 |
|
113.1 |
|
(25.2 |
) |
|||
Cash and cash equivalents at beginning of period |
|
197.8 |
|
22.5 |
|
47.7 |
|
|||
Cash and cash equivalents of HIH at May 1, 2003 (date of consolidation) |
|
|
|
62.2 |
|
|
|
|||
Cash and cash equivalents at end of period |
|
$ |
243.2 |
|
$ |
197.8 |
|
$ |
22.5 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|||
Cash paid for interest |
|
$ |
455.6 |
|
$ |
263.9 |
|
$ |
104.4 |
|
Cash paid for (received from) income taxes |
|
29.2 |
|
8.4 |
|
(1.5 |
) |
See accompanying notes to consolidated financial statements.
6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Description of Business
Huntsman Corporation (the Company and, unless the context otherwise requires, including its predecessors and subsidiaries) is a global manufacturer and marketer of differentiated and commodity chemicals. The Company produces a wide range of products for a variety of global industries, including the chemical, plastics, automotive, aviation, footwear, paints and coatings, construction, technology, agriculture, healthcare, consumer products, textile, furniture, appliance and packaging industries. The Company operates at facilities located in North America, Europe, Asia, Australia, South America and Africa. The Companys business is organized into six reportable operating segments: Polyurethanes, Advanced Materials, Performance Products, Pigments, Polymers and Base Chemicals.
Certain Definitions
In this report, HMP refers to HMP Equity Holdings Corporation (a 100% owned subsidiary of the Company) and, unless the context otherwise requires, its subsidiaries, HLLC or Huntsman LLC refers to Huntsman LLC (a 100% owned subsidiary of HMP) and, unless the context otherwise requires, its subsidiaries, Huntsman Polymers refers to Huntsman Polymers Corporation (a 100% owned subsidiary of HLLC) and, unless the context otherwise requires, its subsidiaries, Huntsman Specialty refers to Huntsman Specialty Chemicals Corporation (a 100% owned subsidiary of HLLC), HCCA refers to Huntsman Chemical Company Australia Pty. Ltd. (a 100% owned indirect subsidiary of HLLC) and, unless the context otherwise requires, its subsidiaries, HIH refers to Huntsman International Holdings LLC (a subsidiary, which as of February 16, 2005, is owned 58% by the Company and 42% by Huntsman LLC) and, unless the context otherwise requires, its subsidiaries, HI refers to Huntsman International LLC (a 100% owned subsidiary of HIH) and, unless the context otherwise requires, its subsidiaries, AdMat refers to Huntsman Advanced Materials LLC (a 90.3% owned indirect subsidiary of the Company) and, unless the context otherwise requires, its subsidiaries, Vantico refers to Vantico Group S.A. (a 100% owned subsidiary of AdMat) and, unless the context otherwise requires, its subsidiaries, Investments Trust refers to HMP Equity Trust (59% holder of the common stock of the Company), Huntsman Family Holdings refers to Huntsman Family Holdings LLC (an owner with MatlinPatterson of Investments Trust), MatlinPatterson refers to MatlinPatterson Global Opportunities Partners L.P., MatlinPatterson Global Opportunities Partners (Bermuda) L.P. and MatlinPatterson Global Opportunities Partners B L.P. (collectively, an owner with Huntsman Family Holdings of Investments Trust), and ICI refers to Imperial Chemical Industries PLC (a former indirect owner of certain of HIHs membership interests) and its subsidiaries.
Company
The Company was formed in 2004 to hold, among other things, the equity interests of Huntsman LLC and AdMat. The formation was between entities under common control. The transfer of the net assets of Huntsman LLC and AdMat was recorded at historical carrying value. The consolidated financial statements of the Company presented herein reflect the financial position, results of operations and cash flows as if Huntsman LLC, AdMat and the Company were combined for all periods presented.
On February 16, 2005, the Company completed an initial public offering of 55,681,819 shares of its common stock sold by it and 13,579,546 shares of its common stock sold by a selling stockholder, in each case at a price to the public of $23 per share, and 5,750,000 shares of its 5% mandatory convertible preferred stock sold by it at a price to the public of $50 per share. Each share of preferred stock will be convertible into between approximately 1.77 and approximately 2.17 shares of the Companys common stock, subject to anti-dilution adjustments, depending upon the trading price of its common stock prior to the third anniversary of the initial public offering. This will result in between approximately 10.2 million and approximately 12.5 million additional shares of the Companys common stock outstanding upon conversion.
The net proceeds to the Company from its initial public offering of common and preferred stock were approximately $1,500 million, substantially all of which are being used to repay outstanding indebtedness of certain of the Companys subsidiaries, including HMP, Huntsman LLC and HIH, as follows:
On February 16, 2005, the Company used $41.6 million of net proceeds from the offering to redeem in full the subordinated note due Horizon Ventures LLC.
On February 28, 2005, the Company used $1,216.7 million of net proceeds from the offering, along with $35.0 million in available cash, to redeem
all of the outstanding 15% senior secured discount notes due 2008 of HMP (the HMP Senior Discount Notes);
$452.3 million of the outstanding 13.375% senior discount notes due 2009 of HIH (the HIH Senior Discount Notes); and
$159.4 million of the outstanding 11.625% senior secured notes due 2010 of Huntsman LLC (the HLLC Senior Secured Notes).
7
On March 14, 2005, the Company expects to use $151.7 million of net cash proceeds from the offering to redeem the remaining outstanding HIH Senior Discount Notes, $78.0 million of the outstanding 11.5% senior notes due 2012 of Huntsman LLC (the HLLC Senior Notes) and to pay $7.8 million to HMP warrant holders for a consent fee pursuant to an amendment in connection with the Reorganization Transaction. On March 17, 2005, the Company expects to use $26.8 million of the net cash proceeds from the offering to redeem an additional $24.0 million of the HLLC Senior Notes.
In connection with the repayment of indebtedness discussed above, the Company expects to record a loss on early extinguishment of debt in the first quarter of 2005 of approximately $235 million.
In connection with the completion of its initial public offering, the Company consummated a reorganization transaction (the Reorganization Transaction). In the Reorganization Transaction, the Companys predecessor, Huntsman Holdings, became its wholly owned subsidiary, and the existing beneficial holders of the common and preferred membership interests of Huntsman Holdings received shares of common stock in exchange for their interests.
As a result of the Companys cash contributions that were used to redeem the HIH Senior Discount Notes and its contribution to HIH of the senior subordinated reset discount notes due 2009 of HIH that were originally issued to ICI (the HIH Senior Subordinated Discount Notes), the Companys ownership interest in HIH increased from 40% to 58%, and, accordingly, Huntsman LLCs interest in HIH decreased from 60% to 42%.
In connection with its initial public offering and as part of the Reorganization Transaction, the Company exercised its right under the outstanding warrants to purchase common stock of HMP (the HMP Warrants) to require that all the HMP Warrants and any shares of HMP equity securities issued upon exercise of the HMP Warrants be exchanged for newly issued shares of the Companys common stock. Under the terms of the HMP Warrants, an aggregate of approximately 16.9 million shares of the Companys common stock will be issued in exchange for the outstanding HMP Warrants on March 14, 2005.
Investments Trust holds approximately 59% of the Companys common stock. Jon M. Huntsman and Peter R. Huntsman control the voting of the shares of the Companys common stock held by Investments Trust. However, the shares of common stock held by Investments Trust will not be voted in favor of certain fundamental corporate actions without the consent of MatlinPatterson, through its representatives David J. Matlin or Christopher R. Pechock, and Jon M. Huntsman and Peter R. Huntsman have agreed to cause all of the shares of common stock held by Investments Trust to be voted in favor of the election to the Companys board of directors of two nominees designated by MatlinPatterson.
The Company operates its businesses through three principal operating subsidiaries: Huntsman LLC, HIH and AdMat. Each of the Companys principal operating subsidiaries is separately financed, its debt is non-recourse to the Company (with the exception of certain limited guarantees executed by the Company in connection with the construction financing of certain manufacturing facilities in China), and the Company has no contractual obligations to fund its respective operations. Moreover, the debt of Huntsman LLC is non-recourse to HIH and AdMat, the debt of HIH is non-recourse to Huntsman LLC and AdMat, and the debt of AdMat is non-recourse to Huntsman LLC and HIH.
HLLC Restructuring
Prior to September 30, 2002, Huntsman LLC was owned by members of the Huntsman family and by certain affiliated entities. On September 30, 2002, Huntsman LLC and its subsidiary, Huntsman Polymers, completed debt for equity exchanges (the HLLC Restructuring). Pursuant to the HLLC Restructuring, the Huntsman family contributed all their equity interests in Huntsman LLC and its subsidiaries, including minority interests acquired from Consolidated Press Holdings Limited (Consolidated Press) and the interests described in the second following paragraph, to the Company in exchange for equity interests in the Company. MatlinPatterson and Consolidated Press exchanged approximately $679 million in principal amount of Huntsman LLCs outstanding subordinated notes and Huntsman Polymers outstanding senior notes they held into equity interests in the Company. There was also approximately $84 million in accrued interest that was cancelled as a result of the exchange. The net book value of the $763 million of principal and accrued interest, after considering debt issuance costs, was $753 million. The Company contributed its investment in Huntsman LLC to HMP.
In the HLLC Restructuring, the effective cancellation of debt was recorded as a capital contribution because MatlinPatterson and Consolidated Press received equity of the Company in exchange. The fair value of the equity received approximated the carrying value of the debt exchanged. No gain was recorded on the HLLC Restructuring.
As mentioned above, on September 30, 2002, the Company effectively acquired the following interests:
The remaining 20% interest in JK Holdings Corporation and the remaining 20% interest in Huntsman Surfactants Technology Corporation, both previously accounted for as consolidated subsidiaries;
The remaining 50% interest in Huntsman Chemical Australia Unit Trust (HCA Trust) and HCPH Holdings Pty Limited (HCPH), formerly accounted for as an investment in unconsolidated affiliates using equity method accounting; and
The remaining 19.9% interest in Huntsman Specialty Chemicals Holdings Corporation (HSCHC).
8
The Company accounted for the acquisition of the minority interests as an equity contribution with a value of $71.1 million (including cash of $7.9 million and net of debt assumed of $35.3 million).
Also related to the HLLC Restructuring, in June 2002, MatlinPatterson entered into an agreement with ICI (the Option Agreement). The Option Agreement provided BNAC, Inc. (BNAC), then a MatlinPatterson subsidiary, with an option to acquire the ICI subsidiary that held a 30% membership interest in HIH (the ICI 30% Interest) on or before May 15, 2003 upon the payment of $180 million plus accrued interest from May 15, 2002, and subject to completion of the purchase of the HIH Senior Subordinated Discount Notes. Concurrently, BNAC paid ICI $160 million to acquire the HIH Senior Subordinated Discount Notes, subject to certain conditions, including the obligation to make an additional payment of $100 million plus accrued interest to ICI. The HIH Senior Subordinated Discount Notes were pledged to ICI as collateral security for such additional payment. BNACs sole business purpose was to acquire both the HIH Senior Subordinated Discount Notes and the ICI 30% Interest, and to participate in the HLLC Restructuring.
In connection with the HLLC Restructuring, all the shares in BNAC were contributed to HMP. The Company caused BNAC to be merged into HMP. As a result of its merger with BNAC, HMP held the interests formerly held by BNAC in the HIH Senior Subordinated Discount Notes and the option to acquire the subsidiary of ICI that held the ICI 30% Interest. The HIH Senior Subordinated Discount Notes were valued at $273.1 million (including accrued interest of $13.2 million) and the note payable to ICI of $103.5 million (including accrued interest of $3.5 million) was recorded by the Company. The net contribution to HMP of $169.7 million (the $160 million paid by BNAC for the HIH Senior Subordinated Discount Notes plus net accrued interest) was accounted for as an equity contribution.
HIH Consolidation Transaction
Prior to May 9, 2003, the Company owned, indirectly, approximately 61% of the membership interests of HIH. The Company accounted for its investment in HIH on the equity method due to the significant management participation rights formerly granted to ICI pursuant to the HIH limited liability company agreement. On May 9, 2003, the Companys indirect subsidiary, HMP, exercised the option under the Option Agreement and purchased the ICI subsidiary that held ICIs 30% membership interest in HIH, and, at that time, HMP also purchased approximately 9% of the HIH membership interests held by institutional investors (the HIH Consolidation Transaction). The total consideration paid in connection with the HIH Consolidation Transaction was approximately $286 million. As a result of the HIH Consolidation Transaction, the Company (indirectly through HMP and its subsidiaries) owns 100% of the HIH membership interests. Accordingly, as of May 1, 2003, HIH is a consolidated subsidiary of the Company and is no longer accounted for on an equity basis.
The Company accounted for the acquisition using the purchase method. Accordingly, the results of operation and cash flows of the acquired interests were consolidated with those of the Company beginning in May 2003. During the second quarter of 2004, the Company finalized the allocation of the purchase price. As part of its final purchase price allocation, the Company valued the related pension liabilities, recorded deferred taxes and reclassified certain other amounts resulting in a corresponding increase in property, plant and equipment of approximately $286 million. The following is a summary of the final allocation of the purchase price to assets acquired and liabilities assumed (dollars in millions):
Current assets |
|
$ |
533.6 |
|
Property, plant and equipment, net |
|
1,605.9 |
|
|
Noncurrent assets |
|
194.5 |
|
|
Current liabilities |
|
(344.3 |
) |
|
Long-term debt |
|
(1,427.6 |
) |
|
Deferred taxes |
|
(145.4 |
) |
|
Noncurrent liabilities |
|
(130.7 |
) |
|
Cash paid for acquisition |
|
$ |
286.0 |
|
AdMat Acquisition
On June 30, 2003, the Company, MatlinPatterson, SISU Capital Ltd. (SISU), Huntsman Group Inc., and Morgan Grenfell Private Equity Limited (MGPE) completed a restructuring and business combination involving Vantico, whereby ownership of the equity of Vantico was transferred to AdMat in exchange for substantially all of the issued and outstanding Vantico senior notes (Vantico Senior Notes) and approximately $165 million of additional equity (the AdMat Transaction). The Company entered into the AdMat Transaction in order to expand its liquid epoxy resins product lines and to integrate its polyurethanes products into liquid epoxy resins. In connection with the AdMat Transaction, AdMat issued $250 million aggregate principal amount of its 11% senior secured notes due 2010 (the AdMat Fixed Rate Notes) and $100 million aggregate principal amount of its senior secured floating rate notes due 2008 at a discount of 2%, or for $98 million (the AdMat Floating Rate Notes and, collectively with the AdMat Fixed Rate Notes, the AdMat Senior Secured Notes). Proceeds from the issuance of the AdMat Senior Secured Notes, along with a portion of the additional equity, were used to purchase 100% of the Vantico senior secured credit facilities (the Vantico Credit Facilities). Also in connection with the AdMat Transaction, AdMat entered into a $60 million senior secured revolving credit facility (the AdMat Revolving Credit Facility). The AdMat Transaction was completed as follows:
MatlinPatterson and SISU, as holders of the majority of the Vantico Senior Notes, exchanged their Vantico Senior Notes for equity in AdMat Holdings;
MatlinPatterson and SISU contributed cash and a short-term bridge loan to Vantico, with a total value of approximately $165 million, prior to June 30, 2003 for equity of AdMat Holdings;
9
MGPE exchanged its interest as lender under an existing bridge loan to Vantico for equity in AdMat Holdings;
AdMat Holdings contributed cash, its interest in the bridge loan and the Vantico Senior Notes, valued at $67.8 million, to AdMat in exchange for equity of AdMat;
AdMat acquired substantially all of the remaining Vantico Senior Notes for cash of $22.7 million;
As part of acquisition of Vantico, AdMat was required to purchase 100% of the outstanding Vantico Credit Facilities and other credit facilities, including a revolving credit facility and a restructuring facility;
AdMat exchanged substantially all the Vantico Senior Notes and its interest under the bridge loan, valued at $67.8 million, for equity in Vantico, acquiring all of the outstanding equity interests in Vantico;
MatlinPatterson formed AdMat Investment and contributed all of its equity in AdMat Holdings to AdMat Investment in return for preferred equity with a liquidation preference of $513.3 million and all of the common equity of AdMat Investment;
MatlinPatterson transferred its preferred and common equity in AdMat Investment to the Company, and the Company then contributed the preferred and common equity in AdMat Investment to Huntsman Group Inc. The value assigned to the preferred membership units was equal to the fair value of the net assets acquired as shown below:
Cash |
|
$ |
164.4 |
|
Vantico Senior Notes |
|
67.8 |
|
|
MatlinPatterson contributed assets |
|
232.2 |
|
|
Acquisition subsidiary organization costs |
|
(10.1 |
) |
|
Purchase accounting adjustments |
|
1.5 |
|
|
Minority interest |
|
(29.2 |
) |
|
Preferred members interest as of December 31, 2003 |
|
194.4 |
|
|
Purchase accounting adjustment |
|
1.3 |
|
|
Preferred members interest at December 31, 2004 |
|
$ |
195.7 |
|
HGI owns the preferred equity of AdMat Investment and contributed the common equity of AdMat Investment to us.
The AdMat Transaction has been accounted for as follows:
For financial reporting purposes, the equity contribution of the AdMat Investment equity of $195.7 million has been allocated to preferred members interest.
For financial reporting purposes, the 9.7% of AdMat Holdings not owned by the Company is shown in the accompanying consolidated balance sheet as Minority interest in common stock of consolidated subsidiary of $29.2 million.
The results of operations of AdMat Investment for the six months ended December 31, 2003 and the year ended December 31, 2004 are included in the consolidated statements of operations.
There were no contingent payments or commitments in connection with the AdMat Transaction. The total purchase price of AdMat was derived from the fair value of equity exchanged or debt instruments acquired as follows (dollars in millions):
Cash paid for the Vantico Credit Facilities and other credit facilities |
|
$ |
431.3 |
|
Equity issued for Vantico Senior Notes |
|
67.8 |
|
|
Cash paid for Vantico Senior Notes |
|
22.7 |
|
|
Total purchase price of AdMat |
|
$ |
521.8 |
|
The Company has completed its allocation of the purchase price to the assets and liabilities of AdMat, which is summarized as follows (dollars in millions):
Current assets |
|
$ |
415.8 |
|
Current liabilities |
|
(242.4 |
) |
|
Property, plant and equipment, net |
|
397.9 |
|
|
Intangible assets, net |
|
37.0 |
|
|
Deferred taxes |
|
(8.6 |
) |
|
Other noncurrent assets |
|
44.2 |
|
|
Other noncurrent liabilities |
|
(122.1 |
) |
|
Total purchase price of AdMat |
|
521.8 |
|
|
Minority interest |
|
(29.2 |
) |
|
Preferred members interest |
|
(195.7 |
) |
|
Net assets acquired |
|
$ |
296.9 |
|
The acquired intangible assets represent trademarks and patents which have a weighted-average useful life of approximately 1530 years. The following table reflects the Companys results of operations on a pro forma basis as if the business combination of HIH and AdMat had been completed at the beginning of the periods presented utilizing HIH and AdMats historical results (dollars in millions, except per unit amounts):
|
|
2003 |
|
2002 |
|
||
Revenue |
|
$ |
9,190.1 |
|
$ |
8,012.2 |
|
Loss before minority interest and cumulative effect of accounting change |
|
(367.0 |
) |
(359.3 |
) |
||
Net loss |
|
(395.6 |
) |
(166.8 |
) |
||
Net loss per common share |
|
(1.79 |
) |
(0.76 |
) |
||
The pro forma information is not necessarily indicative of the operating results that would have occurred had the HIH Consolidation Transaction and the AdMat Transaction been consummated at the beginning of the period presented, nor are they necessarily indicative of future operating results.
10
The HIH Consolidation Transaction and the AdMat Transaction have resulted in changes in the Companys operating segments. Prior to the HIH Consolidation Transaction, the Company reported its operations through three principal operating segments. After the HIH Consolidation Transaction but prior to the AdMat Transaction, the Company reported its operations through five segments. The Company now reports its operations through six segments: Polyurethanes, Advanced Materials, Performance Products, Pigments, Polymers and Base Chemicals.
On March 19, 2004, the Company acquired MGPEs 2.1% equity in AdMat Holdings for $7.2 million.
As of December 31, 2004, the Company owned approximately 90% of AdMat Holdings, directly and indirectly. The remaining approximately 10% of the equity of AdMat Holdings is owned by unrelated third parties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company and its majority wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Revenue Recognition
The Company generates substantially all of its revenues through sales in the open market and long-term supply agreements. The Company recognizes revenue when it is realized or realizable, and earned. Revenue for product sales is recognized when a sales arrangement exists, risk and title to the product transfer to the customer, collectibility is reasonably assured, and pricing is fixed or determinable. This occurs at the time shipment is made.
Cost of Goods Sold
The Company classifies the costs of manufacturing and distributing its products as cost of goods sold. Manufacturing costs include variable costs, primarily raw materials and energy, and fixed expenses directly associated with production. Manufacturing costs include, among other things, plant site operating costs and overhead, production planning and logistics costs, repair and maintenance costs, plant site purchasing costs, and engineering and technical support costs. Distribution, freight and warehousing costs are also included in cost of goods sold.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
Cash and Cash Equivalents
The Company considers cash in checking accounts and cash in short-term highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
Securitization of Accounts Receivable
HI securitizes certain trade receivables in connection with a revolving accounts receivable securitization program in which HI grants a participating undivided interest in certain of its trade receivables to a qualified off-balance sheet entity. HI retains the servicing rights and a retained interest in the securitized receivables. Losses are recorded on the sale and are based on the carrying value of the receivables as allocated between the receivables sold and the retained interests and their relative fair value at the date of the transfer. Retained interests are subsequently carried at fair value which is estimated based on the present value of expected cash flows, calculated using managements best estimates of key assumptions including credit losses and discount rates commensurate with the risks involved. For more information, see Note 11. Securitization of Accounts Receivable.
Inventories
Inventories are stated at the lower of cost or market, with cost determined using last-in first-out, first-in first-out, and average costs methods for different components of inventory.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives or lease term as follows:
Buildings and equipment |
|
1060 years |
|
Plant and equipment |
|
325 years |
|
Furniture, fixtures and leasehold improvements |
|
520 years |
|
Until January 1, 2003, approximately $1.3 billion of the total plant and equipment was depreciated using the straight-line method on a group basis at a 4.7% composite rate. When capital assets representing complete groups of property were disposed of, the difference between the disposal proceeds and net book value was credited or charged to income. When miscellaneous assets were disposed of, the difference between asset costs and salvage value was charged or credited to accumulated depreciation. Effective January 1, 2003, the Company changed its method of accounting for depreciation for the assets previously recorded on a group basis to the component method. Specifically, the net book value of all the assets on January 1, 2003 were allocated to individual components and are being depreciated over their remaining useful lives and gains and losses are recognized when a component is retired. This change encompassed both a change in accounting method and a change in estimate and resulted in a decrease to depreciation expense for the year ended December 31, 2003 by $43.0 million. The change from the group method to the composite method was made in order to reflect more precisely overall depreciation expense based on the lives of individual components rather than overall depreciation expense based on the average lives for large groups of related assets.
11
Interest expense capitalized as part of plant and equipment was $6.7 million, $5.1 million and $3.3 million for the years ended December 31, 2004, 2003 and 2002, respectively.
Periodic maintenance and repairs applicable to major units of manufacturing facilities are accounted for on the prepaid basis by capitalizing the costs of the turnaround and amortizing the costs over the estimated period until the next turnaround. Normal maintenance and repairs of plant and equipment are charged to expense as incurred. Renewals, betterments and major repairs that materially extend the useful life of the assets are capitalized, and the assets replaced, if any, are retired.
Investment in Unconsolidated Affiliates
Investments in companies in which the Company exercises significant management influence are accounted for using the equity method.
Intangible Assets and Goodwill
Intangible assets are stated at cost (fair value at the time of acquisition) and are amortized using the straight-line method over the estimated useful lives or the life of the related agreement as follows:
Patents and technology |
|
530 years |
|
Trademarks |
|
1530 years |
|
Licenses and other agreements |
|
515 years |
|
Other intangibles |
|
515 years |
|
Prior to January 2002, the Company amortized goodwill over periods ranging from 1020 years. Effective January 1, 2002, the Company ceased amortizing goodwill in accordance with SFAS No. 142. All goodwill is recorded within the Base Chemicals segment.
Other Noncurrent Assets
Other noncurrent assets consist primarily of spare parts, deferred debt issuance costs, employee benefit assets and capitalized turnaround costs. Debt issuance costs are amortized using the interest method over the term of the related debt.
Carrying Value of Long-Term Assets
Upon the occurrence of a triggering event, the Company evaluates the carrying value of long-term assets based upon current and anticipated undiscounted cash flows and recognizes an impairment when such estimated cash flows are less than the carrying value of the asset. Measurement of the amount of impairment, if any, is based upon the difference between carrying value and fair value. Fair value is generally estimated by discounting estimated future cash flows using a discount rate commensurate with the risks involved. See Note 10. Restructuring and Plant Closing Costs.
Financial Instruments
The carrying amount reported in the balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying value of the senior secured credit facilities of the Companys subsidiaries approximates fair value since they bear interest at a variable rate plus an applicable margin. The fair value of the fixed rate and floating rate notes of the Companys subsidiaries is estimated based on interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. See Note 22. Fair Value of Financial Instruments.
Income Taxes
The Company uses 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. The Company evaluates the resulting deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances have been established against the entire U.S. and a material portion of the non-U.S. deferred tax assets due to an uncertainty of realization. Valuation allowances are reviewed each period on a tax jurisdiction by 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.
Subsequent to the AdMat Transaction, substantially all non-U.S. operations of AdMat are treated as the Companys branches for U.S. income tax purposes and are, therefore, subject to both U.S. and non-U.S. income tax. Until the Company has sufficient U.S. taxable income to utilize U.S. foreign tax credits, most AdMat income will continue to be effectively taxed in both the U.S. and in the non-U.S. jurisdictions in which it is earned.
For non-U.S. entities that are not treated as branches for U.S. tax purposes, the Company does not provide for income taxes on the undistributed earnings of these subsidiaries as earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely. The undistributed earnings of foreign subsidiaries that are deemed to be permanently invested were $30.0 million at December 31, 2004. It is not practicable to determine the unrecognized deferred tax liability on those earnings.
Derivatives and Hedging Activities
The Company follows Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair-value hedge, the changes in the fair value of the derivative and the hedged items are recognized in earnings. If the derivative is designated in a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and will be recognized in the income statement when the hedged item affects earnings. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recognized in earnings.
12
Environmental Expenditures
Environmental related restoration and remediation costs are recorded as liabilities when site restoration and environmental reme-diation and clean-up obligations are either known or considered probable and the related costs can be reasonably estimated. Other environmental expenditures that are principally maintenance or preventative in nature are recorded when expended and expensed or capitalized as appropriate. See Note 23. Environmental Matters.
Asset Retirement Obligations
The Company accrues for asset retirement obligations, which consist primarily of landfill closure costs in the period in which the obligations are incurred and the Company has sufficient information to estimate a range of potential settlement dates for the obligation. These costs are accrued at estimated fair value. When the related liability is initially recorded, the Company capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company will recognize a gain or loss for any difference between the settlement amount and the liability recorded.
Asset retirement obligations consist primarily of landfill capping and closure and post-closure costs. The Company is legally required to perform capping and closure and post-closure care on the landfills and reclamation on the quarries. In accordance with SFAS No. 143, Accounting for Asset Retirement Obligations, each landfill the Company recognizes the fair value of a liability for an asset retirement obligation and capitalizes that cost as part of the cost basis of the related asset. The related assets are being depreciated on a straight-line basis over 27 years. The Company has additional asset retirement obligations with indeterminate settlement dates; the fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate a range of potential settlement dates for the obligation. An asset retirement obligation related to these assets will be recognized when the Company knows such information.
The following table describes changes to the asset retirement obligation liability:
|
|
Year Ended |
|
|
|
|
December 31, 2004 |
|
|
Asset retirement obligation at the beginning of the period |
|
$ |
|
|
Liabilities incurred |
|
6.7 |
|
|
Accretion expense |
|
0.5 |
|
|
Liabilities settled |
|
|
|
|
Revisions in estimated cash flows |
|
|
|
|
Asset retirement obligation at the end of the period |
|
$ |
7.2 |
|
If the asset retirement obligation and measurement provisions of SFAS No. 143 had been in effect on January 1, 2002, the aggregate carrying amount of those obligations would have been $5.0 million. The amortization of the asset retirement cost and accretion of asset retirement obligation for each of 2002 and 2003 would have been immaterial.
Research and Development
Research and development costs are expensed as incurred.
Foreign Currency Translation
The accounts of the Companys subsidiaries outside of the United States, except for those operating in highly inflationary economic environments, consider local currency to be the functional currency. Accordingly, assets and liabilities are translated at rates prevailing at the balance sheet date. Revenues, expenses, gains and losses are translated at a weighted average rate for the period. Cumulative translation adjustments are recorded to stockholders equity as a component of accumulated other comprehensive income (loss).
Subsidiaries that operate in economic environments that are highly inflationary consider the U.S. dollar to be the functional currency and include gains and losses from translation to the U.S. dollar from the local currency in the statement of operations.
Transaction gains and losses are recorded in the statement of operations and were a net gain of $118.8 million, a net gain of $67.8 million and a net loss of $3.2 million for the years ended December 31, 2004, 2003 and 2002, respectively.
Net Income (Loss) Per Share
Basic income (loss) per share excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares outstanding during the period. Dilutive income (loss) per share reflects potential dilution and is computed by dividing net income (loss) available to 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 if the potential dilutive units had been exercised.
In connection with the initial public offering of common stock on February 16, 2005, the Company issued 203,604,545 shares of common stock. On March 14, 2005, the Company will issue 16,850,001 shares of common stock in exchange for the HMP Warrants. In addition, the Company issued 749,513 shares of restricted stock in connection with the initial public offering. All share and per share data reflected in these financial statements have been retroactively restated to give effect to the shares issued in connection with the initial public offering and the shares to be issued in connection with the exchange of the HMP Warrants on March 14, 2005.
13
Basic and diluted loss per share is calculated as follows (in millions, except per unit amounts):
|
|
Year Ended December 31, |
|
|||||||
|
|
2004 |
|
2003 |
|
2002 |
|
|||
Loss from continuing operations before accounting change |
|
$ |
(219.9 |
) |
$ |
(317.2 |
) |
$ |
(191.9 |
) |
Preferred members interest dividend |
|
(87.7 |
) |
(74.3 |
) |
(17.8 |
) |
|||
Loss from continuing operations before accounting change available to stockholders |
|
$ |
(307.6 |
) |
$ |
(391.5 |
) |
$ |
(209.7 |
) |
Net loss |
|
$ |
(227.7 |
) |
$ |
(319.8 |
) |
$ |
(22.2 |
) |
Preferred members interest dividend |
|
(87.7 |
) |
(74.3 |
) |
(17.8 |
) |
|||
Net loss available to stockholders |
|
$ |
(315.4 |
) |
$ |
(394.1 |
) |
$ |
(40.0 |
) |
Basic and diluted weighted average shares |
|
220.5 |
|
220.5 |
|
220.5 |
|
|||
Basic and diluted loss per share: |
|
|
|
|
|
|
|
|||
Loss from continuing operations before accounting change |
|
$ |
(1.40 |
) |
$ |
(1.78 |
) |
$ |
(0.95 |
) |
Loss from discontinued operations, net of tax |
|
(0.03 |
) |
(0.01 |
) |
|
|
|||
Cumulative effect of accounting change |
|
|
|
|
|
0.77 |
|
|||
Net loss |
|
$ |
(1.43 |
) |
$ |
(1.79 |
) |
$ |
(0.18 |
) |
Because the Company reported a loss for each year, diluted loss per share excludes 749,513 shares of restricted stock since their effect is antidilutive.
Recently Issued Accounting Standards
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. FIN No. 46 addresses the requirements for business enterprises to consolidate related entities, for which they do not have controlling interests through voting or other rights, if they are determined to be the primary beneficiary as a result of variable economic interests. FIN No. 46 provides guidance for determining the primary beneficiary for entities with multiple economic entities with multiple economic interests. Transfers to a qualifying special purpose entity are not subject to this interpretation. In December 2003, the FASB issued a complete replacement of FIN 46 (FIN 46R) to clarify certain complexities. The Company adopted this standard on January 1, 2005. The impact of FIN 46R on the Companys financial statements was not significant.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the Companys consolidated financial statements.
In November 2004, the FASB issued SFAS No. 151, Inventory Costsan amendment of ARB No. 43. SFAS No. 151 requires abnormal amounts of idle facility expense, freight, handling costs, and wasted material to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The requirements of the standard will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is reviewing SFAS No. 151 to determine the statements impact on its consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. SFAS No. 153 addresses the measurement of exchanges of non-monetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this standard are effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company will apply this standard prospectively.
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which the employee is required to provide services in exchange for the award. This standard eliminates the alternative to use the intrinsic value method of accounting for share-based payments as previously provided in APB Opinion No. 25, Accounting for Stock Issued to Employees. This standard is effective for the Company beginning in January 2006. The Company is reviewing SFAS No. 123R to determine the statements impact on its consolidated financial statements.
3. INVENTORIES
Inventories consist of the following (dollars in millions):
|
|
December 31, |
|
||||
|
|
2004 |
|
2003 |
|
||
Raw materials and supplies |
|
$ |
332.0 |
|
$ |
283.6 |
|
Work in progress |
|
90.1 |
|
32.7 |
|
||
Finished goods |
|
924.1 |
|
749.5 |
|
||
Total |
|
1,346.2 |
|
1,065.8 |
|
||
LIFO reserves |
|
(91.9 |
) |
(15.5 |
) |
||
Lower of cost or market reserves |
|
(0.4 |
) |
(11.0 |
) |
||
Net |
|
$ |
1,253.9 |
|
$ |
1,039.3 |
|
14
As of December 31, 2004 and 2003, approximately 18% and 16%, respectively, of inventories were recorded using the last-in, first-out cost method (LIFO). At December 31, 2004, the excess of current cost over the stated LIFO value was $81.0 million.
For the year ended December 31, 2004, 2003, and 2002, inventory quantities were reduced resulting in a liquidation of certain LIFO inventory layers carried at costs that were lower than the cost of current purchases, the effect of which reduced the net loss by approximately $2.0 million, $1.0 million, and $1.7 million, respectively.
In the normal course of operations, the Company at times exchanges raw materials and finished goods with other companies for the purpose of reducing transportation costs. The net open exchange positions are valued at the Companys cost. Net amounts deducted from or added to inventory under open exchange agreements, which represent the net amounts payable or receivable by the Company under open exchange agreements, were approximately $11.3 million payable and $8.2 million payable (40.6 million and 26.9 million pounds) at December 31, 2004 and 2003, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment are as follows (dollars in millions):
|
|
December 31, |
|
||||
|
|
2004 |
|
2003 |
|
||
Land |
|
$ |
130.8 |
|
$ |
118.6 |
|
Buildings |
|
563.9 |
|
517.8 |
|
||
Plant and equipment |
|
6,422.2 |
|
6,387.3 |
|
||
Construction in progress |
|
251.8 |
|
253.8 |
|
||
Total |
|
7,368.7 |
|
7,277.5 |
|
||
Less accumulated depreciation |
|
(2,217.8 |
) |
(2,198.2 |
) |
||
Net |
|
$ |
5,150.9 |
|
$ |
5,079.3 |
|
Depreciation expense for the years ended December 31, 2004, 2003 and 2002 was $492.1 million, $336.7 million and $131.8 million, respectively.
Property, plant and equipment includes gross assets acquired under capital leases of $24.5 million and $23.9 million at December 31, 2004 and 2003, respectively; related amounts included in accumulated depreciation were $9.0 million and $5.4 million at December 31, 2004 and 2003, respectively.
5. INVESTMENT IN UNCONSOLIDATED AFFILIATES
The Companys ownership percentage and investment in unconsolidated affiliates were as follows (dollars in millions):
|
|
December 31, |
|
||||
|
|
2004 |
|
2003(1) |
|
||
Equity Method: |
|
|
|
|
|
||
Polystyrene Australia Pty Ltd. |
|
$ |
4.7 |
|
$ |
3.6 |
|
Condea-Huntsman GmbH and Co. KG (50%) |
|
17.5 |
|
13.2 |
|
||
Louisiana Pigment Company, L.P. (50%) |
|
121.6 |
|
130.4 |
|
||
Rubicon, LLC (50%) |
|
5.7 |
|
1.0 |
|
||
BASF Huntsman Shanghai Isocyanate Investment BV (50%)(2) |
|
17.9 |
|
6.1 |
|
||
Others |
|
1.0 |
|
1.2 |
|
||
Total equity method investments |
|
168.4 |
|
155.5 |
|
||
Cost Method: |
|
|
|
|
|
||
Gulf Advanced Chemicals Industry Corporation (10%) |
|
2.5 |
|
2.5 |
|
||
Total investments |
|
$ |
170.9 |
|
$ |
158.0 |
|
(1) Effective as of May 1, 2003, HIH is a consolidated subsidiary of the Company. For more information, see Note 1. GeneralHIH Consolidation Transaction.
(2) The Company owns 50% of BASF Huntsman Shanghai Isocyanate Investment BV. BASF Huntsman Shanghai Isocyanate Investment BV owns a 70% interest in a manufacturing joint venture, thus giving the Company an indirect 35% interest in the manufacturing joint venture.
Summarized Financial Information of Unconsolidated Affiliates
Summarized financial information of Sasol-Huntsman GmbH and Co. KG (Sasol), Louisiana Pigment Company, L.P. Rubicon, LLC, BASF AG (BASF), Huntsman Shanghai Isocyanate Investment BV and Polystyrene Australia Pty Ltd. as of December 31, 2004 and 2003 and for the years ended December 31, 2004, 2003 and 2002 is presented below (dollars in millions):
|
|
December 31, |
|
|||||||
|
|
2004 |
|
2003 |
|
2002 |
|
|||
Assets |
|
$ |
626.0 |
|
$ |
543.3 |
|
$ |
75.8 |
|
Liabilities |
|
293.8 |
|
268.4 |
|
67.5 |
|
|||
Revenues |
|
1,113.6 |
|
868.0 |
|
85.8 |
|
|||
Net income (loss) |
|
8.2 |
|
3.4 |
|
11.7 |
|
|||
The Companys equity in: |
|
|
|
|
|
|
|
|||
Net assets |
|
$ |
168.4 |
|
$ |
155.5 |
|
$ |
12.2 |
|
Net income (loss) |
|
4.4 |
|
1.5 |
|
9.7 |
|
Investment in HIH
Effective June 30, 1999, Huntsman Specialty, a consolidated unrestricted subsidiary of the Company, transferred its propylene oxide business to HIH. ICI transferred its polyurethane chemicals, selected petrochemicals (including ICIs 80% interest in the Wilton olefins facility) and titanium dioxide businesses to HIH. In addition, HIH also acquired the remaining 20% ownership interest in the Wilton olefins facility from BP Chemicals Limited for approximately $117.0 million.
15
In exchange for transferring its business, Huntsman Specialty retained a 60% common equity interest in HIH and received approximately $360.0 million in cash as a distribution from HIH. In exchange for transferring its businesses, ICI received a 30% common equity interest in HIH, approximately $2 billion in cash and discount notes of HIH with approximately $508.0 million of accreted value at issuance. Institutional investors acquired the remaining 10% common equity interest in HIH for $90.0 million in cash.
The transfer of Huntsman Specialtys propylene oxide business was recorded at the net book value of the assets and liabilities transferred. Prior to the HIH Consolidation Transaction, Huntsman LLC accounted for its investment in HIH on the equity method due to the significant management participation rights of ICI in HIH pursuant to HIHs limited liability company agreement.
The carrying value of Huntsman LLCs investment in HIH was less than its proportionate share of the underlying net assets of HIH at December 31, 2001 by approximately $176.1 million. Such difference was being accreted to income over a 20-year period. Management recorded an adjustment to reflect the accretion of the difference of $7.4 million in the investment basis in Huntsman LLCs consolidated financial statements for December 31, 2001. As discussed in Note 2. Summary of Significant Accounting Policies above, Huntsman LLC adopted SFAS No. 141 and increased its investment by $169.7 million as of January 1, 2002 to reflect its proportionate share of the underlying net assets of HIH.
On September 30, 2002, Huntsman LLC acquired the 19.9% interest in Huntsman Specialty Chemicals Holdings Corporation (HSCHC) which was previously owned by the Huntsman family directly. HSCHC holds 60% of the Companys investment in HIH. The estimated fair value of the 19.9% interest of $37.9 million has been recorded as an increase in the investment in HIH. The excess of $23.3 million over the Companys proportionate share of the net assets of HIH was accounted for as equity basis property and is being depreciated over the average useful life of property.
On November 2, 2000, ICI, Huntsman Specialty, HIH and HI entered into agreements (the ICI Agreements) pursuant to which ICI had an option to transfer to Huntsman Specialty or its permitted designated buyers the 30% membership interest in HIH that ICI indirectly held (the ICI 30% Interest). Pursuant to these agreements, on October 30, 2001, ICI exercised its put right requiring Huntsman Specialty or its nominee to purchase the ICI 30% Interest. On December 20, 2001, ICI and Huntsman Specialty amended ICIs put option arrangement under the ICI Agreements to, among other things, provide that the purchase of the ICI 30% Interest would occur on July 1, 2003, or earlier under certain circumstances, and to provide for certain discounts to the purchase price for the ICI 30% Interest. The amended option agreement also required Huntsman Specialty to cause HIH to pay up to $112 million of dividends to its members, subject to certain conditions. These conditions included the receipt of consent from HIs senior secured lenders and HIs ability to make restricted payments under the indentures governing its outstanding senior notes and senior subordinated notes, as well as the outstanding high yield notes of HIH. In addition, in order to secure its obligation to pay the purchase price for the ICI 30% Interest under the ICI Agreements, Huntsman Specialty granted ICI a lien on 30% of the outstanding membership interests in HIH.
As discussed in Note 1. General above, MatlinPatterson also entered into the Option Agreement with ICI in June 2002. The Option Agreement provided BNAC, then a MatlinPatterson subsidiary, with an option to acquire the ICI subsidiary that held the ICI 30% Interest on or before May 15, 2003 upon the payment of $180 million plus accrued interest from May 15, 2002, and subject to completion of the purchase of the HIH senior subordinated discount notes due 2009 (the HIH Senior Subordinated Discount Notes). Concurrently, BNAC paid ICI $160 million to acquire the HIH Senior Subordinated Discount Notes, subject to certain conditions, including the obligation to make an additional payment of $100 million plus accrued interest to ICI. The HIH Senior Subordinated Discount Notes were pledged to ICI as collateral security for such additional payment.
In connection with the HLLC Restructuring, all the shares in BNAC were contributed to the Company. The Company then caused BNAC to be merged into HMP. As a result of its merger with BNAC, HMP held the interests formerly held by BNAC in the HIH Senior Subordinated Discount Notes and the option to acquire the subsidiary of ICI that held the ICI 30% Interest.
Prior to May 9, 2003, the Company owned approximately 61% of the HIH membership interests. On May 9, 2003, the Company exercised its option under the Option Agreement and completed the HIH Consolidation Transaction. As a result, as of May 9, 2003, the Company indirectly owns 100% of the HIH membership interests. Prior to May 1, 2003, the Company accounted for its investment in HIH using the equity method of accounting due to the significant management participation rights formerly granted to ICI pursuant to the HIH limited liability company agreement. As a consequence of the Companys 100% indirect ownership of HIH and the resulting termination of ICIs management participation rights, the Company is considered to have a controlling financial interest in HIH. Accordingly, the Company no longer accounts for HIH using the equity method of accounting, but effective May 1, 2003, HIHs results of operations are consolidated with the Companys results of operations. Consequently, results of HIH through April 30, 2003 are recorded using the equity method of accounting, and results of HIH beginning May 1, 2003 are recorded on a consolidated basis. As a result, the summary historical financial data for periods ending prior to May 1, 2003 are not comparable to financial periods ending on or after May 1, 2003.
16
Summarized information for HIH as of December 31, 2002 and for the year then ended and the income statement information for the four months ended April 30, 2003 is as follows (dollars in millions):
|
|
Four Months Ended |
|
December 31, |
|
||
|
|
April 30, 2003 |
|
2002 |
|
||
|
|
(Unaudited) |
|
|
|
||
Assets |
|
$ |
5,187.1 |
|
$ |
5,044.1 |
|
Liabilities |
|
4,899.2 |
|
4,706.1 |
|
||
Revenues |
|
1,733.4 |
|
4,452.8 |
|
||
Net income (loss) |
|
(65.2 |
) |
(68.5 |
) |
||
The Companys equity in: |
|
|
|
|
|
||
Net assets |
|
$ |
179.3 |
|
$ |
202.8 |
|
Net loss |
|
(39.0 |
) |
(41.1 |
) |
6. INTANGIBLE ASSETS
The gross carrying amount and accumulated amortization of intangible assets are as follows (dollars in millions):
|
|
December 31, 2004 |
|
December 31, 2003 |
|
||||||||||||||
|
|
Carrying |
|
Accumulated |
|
|
|
Carrying |
|
Accumulated |
|
|
|
||||||
|
|
Amount |
|
Amortization |
|
Net |
|
Amount |
|
Amortization |
|
Net |
|
||||||
Patents, trademarks and technology |
|
$ |
411.3 |
|
$ |
173.8 |
|
$ |
237.5 |
|
$ |
427.0 |
|
$ |
144.5 |
|
$ |
282.5 |
|
Licenses and other agreements |
|
18.3 |
|
10.8 |
|
7.5 |
|
18.3 |
|
9.5 |
|
8.8 |
|
||||||
Non-compete agreements |
|
49.6 |
|
42.5 |
|
7.1 |
|
49.6 |
|
38.5 |
|
11.1 |
|
||||||
Other intangibles |
|
8.1 |
|
14.6 |
|
(6.5 |
) |
16.8 |
|
2.4 |
|
14.4 |
|
||||||
Total |
|
$ |
487.3 |
|
$ |
241.7 |
|
$ |
245.6 |
|
$ |
511.7 |
|
$ |
194.9 |
|
$ |
316.8 |
|
During 2004, the Company reversed certain valuation allowances on deferred tax assets and certain restructuring reserves recorded in the AdMat Transaction and recorded a corresponding reduction to intangible assets of approximately $31.9 million.
Amortization expense was $34.8 million, $32.0 million and $6.4 million for the years ended December 31, 2004, 2003, and 2002, respectively. Estimated future amortization expense for intangible assets over the next five years is as follows (dollars in millions):
Year Ending December 31: |
|
|
|
|
2005 |
|
$ |
30.3 |
|
2006 |
|
29.9 |
|
|
2007 |
|
27.9 |
|
|
2008 |
|
27.9 |
|
|
2009 |
|
27.8 |
|
|
7. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following (dollars in millions):
|
|
December 31, |
|
||||
|
|
2004 |
|
2003 |
|
||
Prepaid pension costs |
|
$ |
267.2 |
|
$ |
235.8 |
|
Debt issuance costs |
|
90.1 |
|
105.9 |
|
||
Capitalized turnaround expense |
|
116.6 |
|
83.9 |
|
||
Spare parts inventory |
|
103.0 |
|
100.5 |
|
||
Other noncurrent assets |
|
31.7 |
|
86.9 |
|
||
Total |
|
$ |
608.6 |
|
$ |
613.0 |
|
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following (dollars in millions):
|
|
December 31, |
|
||||
|
|
2004 |
|
2003 |
|
||
Payroll, severance and related costs |
|
$ |
197.1 |
|
$ |
150.1 |
|
Interest |
|
119.3 |
|
121.4 |
|
||
Volume and rebates accruals |
|
94.4 |
|
89.5 |
|
||
Income taxes |
|
49.4 |
|
53.0 |
|
||
Taxes (property and VAT) |
|
77.7 |
|
63.3 |
|
||
Restructuring and plant closing costs |
|
134.1 |
|
74.1 |
|
||
Environmental accruals |
|
7.7 |
|
8.6 |
|
||
Interest and commodity hedging accruals |
|
|
|
11.3 |
|
||
Other miscellaneous accruals |
|
102.4 |
|
130.7 |
|
||
Total |
|
$ |
782.1 |
|
$ |
702.0 |
|
9. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (dollars in millions):
|
|
December 31, |
|
||||
|
|
2004 |
|
2003 |
|
||
Pension liabilities |
|
$ |
414.7 |
|
$ |
367.0 |
|
Other postretirement benefits |
|
88.4 |
|
86.3 |
|
||
Environmental accruals |
|
27.4 |
|
26.3 |
|
||
Notes payableaffiliates |
|
29.9 |
|
29.1 |
|
||
Restructuring and plant closing costs |
|
19.0 |
|
2.7 |
|
||
Fair value of interest derivatives |
|
8.3 |
|
9.5 |
|
||
Other noncurrent liabilities |
|
157.6 |
|
63.8 |
|
||
Total |
|
$ |
745.3 |
|
$ |
584.7 |
|
17
10. RESTRUCTURING AND PLANT CLOSING COSTS
During the periods discussed below, the Company has pursued two major cost reduction programs to improve operational efficiencies, HLLC Restructuring (20012002) and Project Coronado (20032004). The Company has conducted, and with respect to Project Coronado continues to conduct, numerous discrete, but frequently individually immaterial, restructuring projects in connection with these two major programs.
As of December 31, 2004, accrued restructuring and plant closing costs by type of cost and activity consist of the following (dollars in millions):
|
|
|
|
|
|
|
|
Other |
|
|
|
|||||
|
|
Workforce |
|
Demolition and |
|
Non-Cancelable |
|
Restructuring |
|
|
|
|||||
|
|
Reductions(1) |
|
Decommissioning |
|
Lease Costs |
|
Costs |
|
Total(2) |
|
|||||
Accrued liabilities as of December 31, 2001 |
|
$ |
44.2 |
|
$ |
2.8 |
|
$ |
6.9 |
|
$ |
6.4 |
|
$ |
60.3 |
|
2002 charges (credits) for 2001 initiatives |
|
|
|
1.0 |
|
(4.6 |
) |
(1.7 |
) |
(5.3 |
) |
|||||
2002 charges for 2002 initiatives |
|
1.6 |
|
2.7 |
|
|
|
|
|
4.3 |
|
|||||
2002 payments for 2001 initiatives(3) |
|
(40.3 |
) |
(0.5 |
) |
(1.7 |
) |
(4.7 |
) |
(47.2 |
) |
|||||
2002 payments for 2002 initiatives(3) |
|
(1.6 |
) |
(2.7 |
) |
|
|
|
|
(4.3 |
) |
|||||
Accrued liabilities as of December 31, 2002 |
|
3.9 |
|
3.3 |
|
0.6 |
|
|
|
7.8 |
|
|||||
HIH balance at consolidation on May 1, 2003(4) |
|
24.2 |
|
|
|
|
|
|
|
24.2 |
|
|||||
AdMat opening balance sheet liabilities at June 30, 2003 |
|
53.2 |
|
1.5 |
|
|
|
6.1 |
|
60.8 |
|
|||||
2003 credits for 2001 initiatives |
|
(2.0 |
) |
(0.3 |
) |
(0.2 |
) |
|
|
(2.5 |
) |
|||||
2003 charges for 2003 initiatives |
|
28.2 |
|
|
|
|
|
|
|
28.2 |
|
|||||
2003 payments for 2001 initiatives(3) |
|
(1.9 |
) |
(0.4 |
) |
(0.2 |
) |
|
|
(2.5 |
) |
|||||
2003 payments for 2003 initiatives(3) |
|
(39.2 |
) |
|
|
|
|
|
|
(39.2 |
) |
|||||
Accrued liabilities as of December 31, 2003 |
|
66.4 |
|
4.1 |
|
0.2 |
|
6.1 |
|
76.8 |
|
|||||
Adjustments to the opening balance sheet of AdMat |
|
(2.9 |
) |
|
|
(0.6 |
) |
0.7 |
|
(2.8 |
) |
|||||
2004 charges for 2003 initiatives |
|
25.1 |
|
|
|
|
|
0.4 |
|
25.5 |
|
|||||
2004 charges for 2004 initiatives |
|
106.5 |
|
5.1 |
|
6.2 |
|
18.0 |
|
135.8 |
|
|||||
2004 payments for 2001 initiatives |
|
|
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|||||
2004 payments for 2003 initiatives |
|
(48.0 |
) |
|
|
(0.4 |
) |
(3.0 |
) |
(51.4 |
) |
|||||
2004 payments for 2004 initiatives |
|
(31.4 |
) |
(0.4 |
) |
|
|
(4.6 |
) |
(36.4 |
) |
|||||
Non-cash settlements |
|
|
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|||||
Foreign currency effect on reserve balance |
|
6.3 |
|
|
|
|
|
|
|
6.3 |
|
|||||
Accrued liabilities as of December 31, 2004 |
|
$ |
122.0 |
|
$ |
8.8 |
|
$ |
4.7 |
|
$ |
17.6 |
|
$ |
153.1 |
|
(1) Substantially all of the positions terminated in connection with the restructuring programs were terminated under ongoing termination benefit arrangements. Accordingly, the related liabilities were accrued as a one-time charge to earnings in accordance with SFAS No. 112, Employers Accounting for Postemployment Benefits.
(2) Accrued liabilities by initiatives are as follows:
|
|
December 31, |
|
||||
|
|
2004 |
|
2003 |
|
||
2001 initiatives |
|
$ |
2.6 |
|
$ |
2.8 |
|
2002 initiatives |
|
|
|
|
|
||
2003 initiatives |
|
44.8 |
|
74.0 |
|
||
2004 initiatives |
|
99.4 |
|
|
|
||
Foreign currency effect on reserve balance |
|
6.3 |
|
|
|
||
Total |
|
$ |
153.1 |
|
$ |
76.8 |
|
(3) Includes impact of foreign currency translation.
(4) Prior to May 1, 2003, the Companys investment in HIH was recorded on the equity method. Effective May 1, 2003, HIH is recorded as a consolidated subsidiary. HIH accrued liabilities for workforce reductions include a $7.1 million liability at December 31, 2002 related to a prior period and a $19.1 million charge recorded in the first quarter of 2003, offset by $2.0 million in cash payments through May 1, 2003.
18
Details with respect to the Companys reserves for restructuring and plant closing costs are provided below by segments and activity (dollars in millions):
|
|
|
|
Advanced |
|
Performance |
|
|
|
|
|
Base |
|
Corporate |
|
|
|
||||||||
|
|
Polyurethanes |
|
Materials |
|
Products |
|
Pigments |
|
Polymers |
|
Chemicals |
|
& Other |
|
Total |
|
||||||||
Accrued liabilities as of December 31, 2001 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
25.1 |
|
$ |
35.2 |
|
$ |
|
|
$ |
60.3 |
|
2002 credits for 2001 initiatives |
|
|
|
|
|
|
|
|
|
(5.3 |
) |
|
|
|
|
(5.3 |
) |
||||||||
2002 charges for 2002 initiatives |
|
|
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
4.3 |
|
||||||||
2002 payments for 2001 initiatives(2) |
|
|
|
|
|
|
|
|
|
(17.0 |
) |
(30.2 |
) |
|
|
(47.2 |
) |
||||||||
2002 payments for 2002 initiatives(2) |
|
|
|
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
(4.3 |
) |
||||||||
Accrued liabilities as of December 31, 2002 |
|
|
|
|
|
|
|
|
|
2.8 |
|
5.0 |
|
|
|
7.8 |
|
||||||||
HIH balance at consolidation on May 1, 2003 |
|
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
24.2 |
|
||||||||
AdMat opening balance sheet liabilities at June 30, 2003 |
|
|
|
60.8 |
|
|
|
|
|
|
|
|
|
|
|
60.8 |
|
||||||||
2003 credits for 2001 initiatives |
|
|
|
|
|
|
|
|
|
|
|
(2.5 |
) |
|
|
(2.5 |
) |
||||||||
2003 charges for 2003 initiatives |
|
11.0 |
|
|
|
10.7 |
|
6.5 |
|
|
|
|
|
|
|
28.2 |
|
||||||||
2003 payments for 2001 initiatives(2) |
|
|
|
|
|
|
|
|
|
|
|
(2.5 |
) |
|
|
(2.5 |
) |
||||||||
2003 payments for 2003 initiatives(2) |
|
(19.4 |
) |
(9.3 |
) |
(8.3 |
) |
(2.2 |
) |
|
|
|
|
|
|
(39.2 |
) |
||||||||
Accrued liabilities as of December 31, 2003 |
|
15.8 |
|
51.5 |
|
2.4 |
|
4.3 |
|
2.8 |
|
|
|
|
|
76.8 |
|
||||||||
Adjustments to the opening balance sheet of AdMat |
|
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
(2.8 |
) |
||||||||
2004 charges for 2003 initiatives |
|
10.0 |
|
|
|
0.4 |
|
14.5 |
|
0.6 |
|
|
|
|
|
25.5 |
|
||||||||
2004 charges for 2004 initiatives(1) |
|
16.4 |
|
9.0 |
|
56.6 |
|
27.3 |
|
9.4 |
|
16.7 |
|
0.4 |
|
135.8 |
|
||||||||
2004 payments for 2001 initiatives |
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
(0.2 |
) |
||||||||
2004 payments for 2003 initiatives |
|
(11.5 |
) |
(26.0 |
) |
(2.4 |
) |
(10.9 |
) |
(0.6 |
) |
|
|
|
|