UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One) |
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 2006 |
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OR |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission |
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Exact Name of Registrant as Specified in
its |
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State of Incorporation |
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I.R.S. Employer Identification |
001-32427 |
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Huntsman Corporation |
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Delaware |
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42-1648585 |
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333-85141 |
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Huntsman International LLC |
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Delaware |
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87-0630358 |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer x
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES o NO x
On August 8, 2006, 221,572,172 shares of common stock of Huntsman Corporation were outstanding and 2,728 units of membership interests of Huntsman International LLC were outstanding. There is no established trading market for Huntsman International LLCs units of membership interests. All of Huntsman International LLCs 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). Huntsman International is a wholly owned subsidiary of Huntsman Corporation and is the principal operating company of Huntsman Corporation. The information reflected in this Quarterly Report on Form 10-Q is equally applicable to both Huntsman Corporation and Huntsman International, except where otherwise indicated. Huntsman International meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q 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 JUNE 30, 2006
TABLE OF CONTENTS
HUNTSMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Millions, Except Share and Per Share Amounts)
|
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June 30, |
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December 31, |
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2006 |
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2005 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
200.1 |
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$ |
142.8 |
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Restricted cash |
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32.9 |
|
|
|
||
Accounts receivable (net of allowance for doubtful accounts of $35.0 and $33.7, respectively) |
|
1,686.4 |
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1,475.2 |
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Accounts receivable from affiliates |
|
14.7 |
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7.4 |
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Inventories, net |
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1,545.6 |
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1,309.2 |
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Prepaid expenses |
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49.2 |
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46.2 |
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Deferred income taxes |
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45.0 |
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31.2 |
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Other current assets |
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63.7 |
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84.0 |
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Total current assets |
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3,637.6 |
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3,096.0 |
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Property, plant and equipment, net |
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4,646.4 |
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4,643.2 |
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Investment in unconsolidated affiliates |
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198.5 |
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175.6 |
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||
Intangible assets, net |
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203.2 |
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216.3 |
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||
Goodwill |
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91.3 |
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91.2 |
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Deferred income taxes |
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120.3 |
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94.2 |
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Notes receivable from affiliates |
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3.0 |
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Other noncurrent assets |
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545.7 |
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551.0 |
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Total assets |
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$ |
9,443.0 |
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$ |
8,870.5 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
1,134.0 |
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$ |
1,093.5 |
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Accrued liabilities |
|
659.2 |
|
747.2 |
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||
Deferred income taxes |
|
38.3 |
|
2.4 |
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Current portion of long-term debt |
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173.4 |
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44.6 |
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Total current liabilities |
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2,004.9 |
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1,887.7 |
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Long-term debt |
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4,258.7 |
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4,413.3 |
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Deferred income taxes |
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289.3 |
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258.3 |
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Other noncurrent liabilities |
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923.2 |
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770.2 |
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Total liabilities |
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7,476.1 |
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7,329.5 |
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Minority interests in common stock of consolidated subsidiaries |
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27.7 |
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20.4 |
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Commitments and contingencies (Notes 12 and 13) |
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Stockholders equity: |
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Common stock $0.01 par value, 1,200,000,000 shares authorized, 221,572,172 issued and 220,639,687 outstanding in 2006 and 221,200,997 issued and 220,451,484 outstanding in 2005 |
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2.2 |
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2.2 |
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Mandatory convertible preferred stock $0.01 par value, 100,000,000 shares authorized, 5,750,000 issued and outstanding |
|
287.5 |
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287.5 |
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||
Additional paid-in capital |
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2,792.8 |
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2,779.8 |
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Unearned stock-based compensation |
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(17.0 |
) |
(11.8 |
) |
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Accumulated deficit |
|
(1,175.3 |
) |
(1,505.8 |
) |
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Accumulated other comprehensive income (loss) |
|
49.0 |
|
(31.3 |
) |
||
Total stockholders equity |
|
1,939.2 |
|
1,520.6 |
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||
Total liabilities and stockholders equity |
|
$ |
9,443.0 |
|
$ |
8,870.5 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
1
HUNTSMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In Millions, Except Per Share Amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenues: |
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Trade sales, services and fees |
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$ |
3,315.9 |
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$ |
3,278.4 |
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$ |
6,489.6 |
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$ |
6,603.0 |
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Related party sales |
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28.0 |
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61.1 |
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42.0 |
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85.8 |
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||||
Total revenues |
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3,343.9 |
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3,339.5 |
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6,531.6 |
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6,688.8 |
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Cost of goods sold |
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2,885.7 |
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2,830.1 |
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5,695.0 |
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5,590.2 |
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Gross profit |
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458.2 |
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509.4 |
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836.6 |
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1,098.6 |
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Operating expenses: |
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Selling, general and administrative |
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184.1 |
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170.6 |
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357.3 |
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332.3 |
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Research and development |
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26.0 |
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25.6 |
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53.3 |
|
49.9 |
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||||
Other operating (income) expense |
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(96.5 |
) |
5.3 |
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(93.9 |
) |
50.0 |
|
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Restructuring, impairment and plant closing costs |
|
9.2 |
|
18.8 |
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17.0 |
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29.2 |
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||||
Total expenses |
|
122.8 |
|
220.3 |
|
333.7 |
|
461.4 |
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||||
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|
|
|
|
|
|
|
|
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Operating income |
|
335.4 |
|
289.1 |
|
502.9 |
|
637.2 |
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||||
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|
|
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|
|
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Interest expense, net |
|
(94.6 |
) |
(101.1 |
) |
(181.4 |
) |
(240.7 |
) |
||||
Loss on accounts receivable securitization program |
|
(5.3 |
) |
(2.4 |
) |
(8.1 |
) |
(5.6 |
) |
||||
Equity in income of unconsolidated affiliates |
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1.4 |
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2.9 |
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2.1 |
|
5.2 |
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Loss on early extinguishment of debt |
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(2.0 |
) |
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|
(235.0 |
) |
||||
Other income (expense) |
|
0.4 |
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(4.5 |
) |
0.1 |
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(0.8 |
) |
||||
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Income from continuing operations before income taxes and minority interest |
|
237.3 |
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182.0 |
|
315.6 |
|
160.3 |
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|
|
|
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|
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Income tax expense |
|
(24.3 |
) |
(29.0 |
) |
(32.7 |
) |
(61.1 |
) |
||||
Minority interest in subsidiaries (income) loss |
|
(0.3 |
) |
0.1 |
|
(0.7 |
) |
0.1 |
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Income from continuing operations |
|
212.7 |
|
153.1 |
|
282.2 |
|
99.3 |
|
||||
Loss from discontinued operations, net of tax of nil |
|
(0.3 |
) |
(40.4 |
) |
(0.8 |
) |
(43.0 |
) |
||||
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Income before extraordinary gain and accounting change |
|
212.4 |
|
112.7 |
|
281.4 |
|
56.3 |
|
||||
Extraordinary gain on the acquisition of a business, net of tax of nil |
|
50.5 |
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|
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50.5 |
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|
|
||||
Cumulative effect of change in accounting principle, net of tax of $1.9 |
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|
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4.0 |
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|
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|
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Net income |
|
262.9 |
|
112.7 |
|
331.9 |
|
60.3 |
|
||||
Preferred stock dividends |
|
|
|
|
|
|
|
(43.1 |
) |
||||
Net income available to common stockholders |
|
$ |
262.9 |
|
$ |
112.7 |
|
$ |
331.9 |
|
$ |
17.2 |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
262.9 |
|
$ |
112.7 |
|
$ |
331.9 |
|
$ |
60.3 |
|
Other comprehensive income (loss) |
|
49.3 |
|
(105.0 |
) |
80.3 |
|
(151.6 |
) |
||||
Comprehensive income (loss) |
|
$ |
312.2 |
|
$ |
7.7 |
|
$ |
412.2 |
|
$ |
(91.3 |
) |
(continued)
2
Huntsman Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and
Comprehensive Income (loss) (UNaudited)Continued
(In Millions, Except Per Share Amounts)
|
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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||||||||
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2006 |
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2005 |
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2006 |
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2005 |
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Basic income per share: |
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|
|
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|
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Income from continuing operations |
|
$ |
0.96 |
|
$ |
0.69 |
|
$ |
1.28 |
|
$ |
0.25 |
|
Loss from discontinued operations, net of tax |
|
|
|
(0.18 |
) |
|
|
(0.19 |
) |
||||
Extraordinary gain on the acquisition of a business, net of tax |
|
0.23 |
|
|
|
0.22 |
|
|
|
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Cumulative effect of change in accounting principle, net of tax |
|
|
|
|
|
|
|
0.02 |
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|
|
|
|
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Net income |
|
$ |
1.19 |
|
$ |
0.51 |
|
$ |
1.50 |
|
$ |
0.08 |
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Weighted average shares |
|
220.6 |
|
220.5 |
|
220.6 |
|
220.5 |
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Diluted income per share: |
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Income from continuing operations |
|
$ |
0.91 |
|
$ |
0.66 |
|
$ |
1.21 |
|
$ |
0.25 |
|
Loss from discontinued operations, net of tax |
|
|
|
(0.18 |
) |
|
|
(0.19 |
) |
||||
Extraordinary gain on the acquisition of a business, net of tax |
|
0.22 |
|
|
|
0.21 |
|
|
|
||||
Cumulative effect of change in accounting principle, net of tax |
|
|
|
|
|
|
|
0.02 |
|
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|
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|
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Net income |
|
$ |
1.13 |
|
$ |
0.48 |
|
$ |
1.42 |
|
$ |
0.08 |
|
|
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Weighted average shares |
|
233.2 |
|
233.0 |
|
233.1 |
|
220.5 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
HUNTSMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
|
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Six Months Ended June 30, |
|
||||
|
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2006 |
|
2005 |
|
||
Operating Activities: |
|
|
|
|
|
||
Net income |
|
$ |
331.9 |
|
$ |
60.3 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
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Extraordinary gain on the acquisition of a business, net of tax |
|
(50.5 |
) |
|
|
||
Cumulative effect of change in accounting principle, net of tax |
|
|
|
(4.0 |
) |
||
Equity in income of unconsolidated affiliates |
|
(2.1 |
) |
(5.2 |
) |
||
Depreciation and amortization |
|
234.5 |
|
249.4 |
|
||
Provision for (reversal of) losses on accounts receivable |
|
2.2 |
|
(3.9 |
) |
||
(Gain) loss on disposal of assets |
|
(92.4 |
) |
1.1 |
|
||
Loss on pending disposal of discontinued operations |
|
|
|
36.4 |
|
||
Loss on early extinguishment of debt |
|
|
|
235.0 |
|
||
Noncash interest expense |
|
2.1 |
|
37.6 |
|
||
Noncash restructuring, impairment and plant closing costs |
|
12.3 |
|
0.1 |
|
||
Deferred income taxes |
|
18.4 |
|
28.1 |
|
||
Net unrealized loss on foreign currency transactions |
|
26.9 |
|
12.6 |
|
||
Stock-based compensation |
|
8.2 |
|
3.8 |
|
||
Minority interest in subsidiaries income (loss) |
|
0.7 |
|
(0.1 |
) |
||
Other, net |
|
(9.1 |
) |
(14.1 |
) |
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Accounts receivable |
|
63.3 |
|
75.7 |
|
||
Inventories, net |
|
23.1 |
|
(79.9 |
) |
||
Prepaid expenses |
|
1.3 |
|
27.5 |
|
||
Other current assets |
|
38.6 |
|
(7.6 |
) |
||
Other noncurrent assets |
|
(41.7 |
) |
9.2 |
|
||
Accounts payable |
|
(81.8 |
) |
(61.9 |
) |
||
Accrued liabilities |
|
(140.7 |
) |
(113.2 |
) |
||
Other noncurrent liabilities |
|
(21.7 |
) |
(32.0 |
) |
||
Net cash provided by operating activities |
|
323.5 |
|
454.9 |
|
||
|
|
|
|
|
|
||
Investing Activities: |
|
|
|
|
|
||
Capital expenditures |
|
(211.3 |
) |
(128.7 |
) |
||
Acquisition of business, net of cash acquired |
|
(136.0 |
) |
|
|
||
Investment in unconsolidated affiliates, net |
|
(14.4 |
) |
(8.4 |
) |
||
Proceeds from sale of assets |
|
201.1 |
|
4.8 |
|
||
Net proceeds from (investment in) government securities, restricted as to use |
|
7.2 |
|
(40.9 |
) |
||
Change in restricted cash |
|
(32.9 |
) |
(4.6 |
) |
||
Net cash used in investing activities |
|
(186.3 |
) |
(177.8 |
) |
||
|
|
|
|
|
|
||
Financing Activities: |
|
|
|
|
|
||
Net repayments under revolving loan facilities |
|
(1.9 |
) |
(53.0 |
) |
||
Net repayments on overdraft facility |
|
(6.2 |
) |
|
|
||
Repayment of long-term debt |
|
(69.5 |
) |
(1,584.1 |
) |
||
Proceeds from long-term debt |
|
22.9 |
|
6.2 |
|
||
Call premiums related to early extinguishment of debt |
|
|
|
(106.7 |
) |
||
Repayment of notes payable |
|
(22.3 |
) |
(14.9 |
) |
||
Dividend paid to preferred stockholders |
|
(7.2 |
) |
(3.6 |
) |
||
Net proceeds from issuance of common and preferred stock |
|
|
|
1,491.9 |
|
||
Contribution from minority shareholder |
|
6.2 |
|
3.6 |
|
||
Other, net |
|
|
|
(2.6 |
) |
||
Net cash used in financing activities |
|
(78.0 |
) |
(263.2 |
) |
||
Effect of exchange rate changes on cash |
|
(1.9 |
) |
(5.9 |
) |
||
Increase in cash and cash equivalents |
|
57.3 |
|
8.0 |
|
||
Cash and cash equivalents at beginning of period |
|
142.8 |
|
243.2 |
|
||
Cash and cash equivalents at end of period |
|
$ |
200.1 |
|
$ |
251.2 |
|
Supplemental cash flow information: |
|
|
|
|
|
||
Cash paid for interest |
|
$ |
182.9 |
|
$ |
206.8 |
|
Cash paid for income taxes |
|
12.4 |
|
13.3 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
HUNTSMAN INTERNATIONAL LLC AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions)
|
|
June 30, |
|
December 31, |
|
||
|
|
2006 |
|
2005 |
|
||
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
186.2 |
|
$ |
132.5 |
|
Restricted cash |
|
32.9 |
|
|
|
||
Accounts receivable (net of allowance for doubtful accounts of $35.0 and $33.7, respectively) |
|
1,686.4 |
|
1,475.2 |
|
||
Accounts receivable from affiliates |
|
20.2 |
|
10.4 |
|
||
Inventories, net |
|
1,545.6 |
|
1,309.2 |
|
||
Prepaid expenses |
|
47.4 |
|
45.9 |
|
||
Deferred income taxes |
|
40.6 |
|
31.2 |
|
||
Other current assets |
|
49.4 |
|
69.9 |
|
||
Total current assets |
|
3,608.7 |
|
3,074.3 |
|
||
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
4,353.8 |
|
4,336.7 |
|
||
Investment in unconsolidated affiliates |
|
198.5 |
|
175.6 |
|
||
Intangible assets, net |
|
208.7 |
|
222.0 |
|
||
Goodwill |
|
91.3 |
|
91.2 |
|
||
Deferred income taxes |
|
120.3 |
|
94.2 |
|
||
Notes receivable from affiliates |
|
|
|
3.0 |
|
||
Other noncurrent assets |
|
635.8 |
|
636.0 |
|
||
Total assets |
|
$ |
9,217.1 |
|
$ |
8,633.0 |
|
|
|
|
|
|
|
||
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable |
|
$ |
1,134.0 |
|
$ |
1,092.7 |
|
Accounts payable to affiliates |
|
6.5 |
|
8.7 |
|
||
Accrued liabilities |
|
643.9 |
|
732.3 |
|
||
Deferred income taxes |
|
38.3 |
|
2.4 |
|
||
Current portion of long-term debt |
|
172.3 |
|
44.6 |
|
||
Total current liabilities |
|
1,995.0 |
|
1,880.7 |
|
||
|
|
|
|
|
|
||
Long-term debt |
|
4,258.7 |
|
4,413.3 |
|
||
Deferred income taxes |
|
282.0 |
|
216.9 |
|
||
Other noncurrent liabilities |
|
934.8 |
|
770.0 |
|
||
Total liabilities |
|
7,470.5 |
|
7,280.9 |
|
||
|
|
|
|
|
|
||
Minority interests in common stock of consolidated subsidiaries |
|
27.7 |
|
20.4 |
|
||
|
|
|
|
|
|
||
Commitments and contingencies (Notes 12 and 13) |
|
|
|
|
|
||
|
|
|
|
|
|
||
Members equity: |
|
|
|
|
|
||
Members equity, 2,728 units issued and outstanding |
|
2,802.1 |
|
2,794.0 |
|
||
Accumulated deficit |
|
(1,096.4 |
) |
(1,384.0 |
) |
||
Accumulated other comprehensive income (loss) |
|
13.2 |
|
(78.3 |
) |
||
Total members equity |
|
1,718.9 |
|
1,331.7 |
|
||
Total liabilities and members equity |
|
$ |
9,217.1 |
|
$ |
8,633.0 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
HUNTSMAN INTERNATIONAL LLC AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Dollars in Millions)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
||||
Trade sales, services and fees |
|
$ |
3,315.9 |
|
$ |
3,278.4 |
|
$ |
6,489.6 |
|
$ |
6,603.0 |
|
Related party sales |
|
28.0 |
|
61.1 |
|
42.0 |
|
85.8 |
|
||||
Total revenues |
|
3,343.9 |
|
3,339.5 |
|
6,531.6 |
|
6,688.8 |
|
||||
Cost of goods sold |
|
2,882.4 |
|
2,826.4 |
|
5,687.7 |
|
5,580.8 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
461.5 |
|
513.1 |
|
843.9 |
|
1,108.0 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
183.4 |
|
173.5 |
|
355.8 |
|
330.5 |
|
||||
Research and development |
|
26.0 |
|
25.6 |
|
53.3 |
|
49.9 |
|
||||
Other operating (income) expense |
|
(96.5 |
) |
5.3 |
|
(93.9 |
) |
50.0 |
|
||||
Restructuring, impairment and plant closing costs |
|
9.2 |
|
18.8 |
|
17.0 |
|
29.2 |
|
||||
Total expenses |
|
122.1 |
|
223.2 |
|
332.2 |
|
459.6 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
339.4 |
|
289.9 |
|
511.7 |
|
648.4 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
(95.7 |
) |
(102.1 |
) |
(183.7 |
) |
(236.8 |
) |
||||
Loss on accounts receivable securitization program |
|
(5.3 |
) |
(2.4 |
) |
(8.1 |
) |
(5.6 |
) |
||||
Equity in income of unconsolidated affiliates |
|
1.4 |
|
2.9 |
|
2.1 |
|
5.2 |
|
||||
Loss on early extinguishment of debt |
|
|
|
(2.0 |
) |
|
|
(76.0 |
) |
||||
Other income (expense) |
|
0.4 |
|
(0.9 |
) |
0.1 |
|
(1.1 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations before income taxes and minority interest |
|
240.2 |
|
185.4 |
|
322.1 |
|
334.1 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
(65.1 |
) |
(40.4 |
) |
(78.8 |
) |
(68.6 |
) |
||||
Minority interest in subsidiaries (income) loss |
|
(0.3 |
) |
0.1 |
|
(0.7 |
) |
0.1 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
174.8 |
|
145.1 |
|
242.6 |
|
265.6 |
|
||||
Loss from discontinued operations, net of tax of nil |
|
(0.3 |
) |
(40.4 |
) |
(0.8 |
) |
(43.0 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Income before extraordinary gain and accounting change |
|
174.5 |
|
104.7 |
|
241.8 |
|
222.6 |
|
||||
Extraordinary gain on the acquisition of a business, net of tax of nil |
|
46.1 |
|
|
|
46.1 |
|
|
|
||||
Cumulative effect of change in accounting principle, net of tax of $1.5 |
|
|
|
|
|
|
|
4.2 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
220.6 |
|
104.7 |
|
287.9 |
|
226.8 |
|
||||
Other comprehensive income (loss) |
|
57.2 |
|
(104.9 |
) |
91.5 |
|
(155.2 |
) |
||||
Comprehensive income (loss) |
|
$ |
277.8 |
|
$ |
(0.2 |
) |
$ |
379.4 |
|
$ |
71.6 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
HUNTSMAN INTERNATIONAL LLC AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
|
|
Six Months Ended June 30, |
|
||||
|
|
2006 |
|
2005 |
|
||
Operating Activities: |
|
|
|
|
|
||
Net income |
|
$ |
287.9 |
|
$ |
226.8 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Extraordinary gain on the acquisition of a business, net of tax |
|
(46.1 |
) |
|
|
||
Cumulative effect of change in accounting principle, net of tax |
|
|
|
(4.2 |
) |
||
Equity in income of unconsolidated affiliates |
|
(2.1 |
) |
(5.2 |
) |
||
Depreciation and amortization |
|
220.9 |
|
236.1 |
|
||
Provision for (reversal of) losses on accounts receivable |
|
2.2 |
|
(3.9 |
) |
||
(Gain) loss on disposal of assets |
|
(92.4 |
) |
1.1 |
|
||
Loss on pending disposal of discontinued operations |
|
|
|
36.4 |
|
||
Loss on early extinguishment of debt |
|
|
|
76.0 |
|
||
Noncash interest expense |
|
4.1 |
|
31.4 |
|
||
Noncash restructuring, impairment and plant closing costs |
|
12.3 |
|
0.1 |
|
||
Deferred income taxes |
|
64.5 |
|
38.3 |
|
||
Net unrealized loss on foreign currency transactions |
|
26.9 |
|
12.6 |
|
||
Minority interest in subsidiaries income (loss) |
|
0.7 |
|
(0.1 |
) |
||
Other, net |
|
1.5 |
|
(0.4 |
) |
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Accounts receivable |
|
63.3 |
|
75.7 |
|
||
Inventories, net |
|
23.1 |
|
(79.9 |
) |
||
Prepaid expenses |
|
(0.1 |
) |
28.7 |
|
||
Other current assets |
|
38.6 |
|
(7.6 |
) |
||
Other noncurrent assets |
|
(53.4 |
) |
(2.7 |
) |
||
Accounts payable |
|
(81.8 |
) |
(61.9 |
) |
||
Accrued liabilities |
|
(141.3 |
) |
(106.6 |
) |
||
Other noncurrent liabilities |
|
(10.7 |
) |
(30.5 |
) |
||
Net cash provided by operating activities |
|
318.1 |
|
460.2 |
|
||
Investing Activities: |
|
|
|
|
|
||
Capital expenditures |
|
(211.3 |
) |
(128.7 |
) |
||
Acquisition of business, net of cash acquired |
|
(136.0 |
) |
|
|
||
Investment in unconsolidated affiliates, net |
|
(14.4 |
) |
(8.4 |
) |
||
Proceeds from sale of assets |
|
201.1 |
|
4.8 |
|
||
Change in restricted cash |
|
(32.9 |
) |
(4.6 |
) |
||
Net cash used in investing activities |
|
(193.5 |
) |
(136.9 |
) |
||
Financing Activities: |
|
|
|
|
|
||
Net repayments under revolving loan facilities |
|
(1.9 |
) |
(53.0 |
) |
||
Net repayments on overdraft facility |
|
(6.2 |
) |
|
|
||
Repayment of long-term debt |
|
(69.5 |
) |
(1,037.8 |
) |
||
Proceeds from long-term debt |
|
22.9 |
|
6.2 |
|
||
Call premiums related to early extinguishment of debt |
|
|
|
(65.5 |
) |
||
Repayment of notes payable |
|
(20.5 |
) |
(13.9 |
) |
||
Contribution from parent |
|
|
|
837.6 |
|
||
Contribution form minority shareholder |
|
6.2 |
|
3.6 |
|
||
Other, net |
|
|
|
(0.4 |
) |
||
Net cash used in financing activities |
|
(69.0 |
) |
(323.2 |
) |
||
Effect of exchange rate changes on cash |
|
(1.9 |
) |
(5.9 |
) |
||
Increase (decrease) in cash and cash equivalents |
|
53.7 |
|
(5.8 |
) |
||
Cash and cash equivalents at beginning of period |
|
132.5 |
|
243.5 |
|
||
Cash and cash equivalents at end of period |
|
$ |
186.2 |
|
$ |
237.7 |
|
Supplemental cash flow information: |
|
|
|
|
|
||
Cash paid for interest |
|
$ |
183.3 |
|
$ |
206.8 |
|
Cash paid for income taxes |
|
12.4 |
|
13.3 |
|
Supplemental non-cash information:
On February 28, 2005, HMP contributed Huntsman International Holdings senior subordinated discount notes at an accreted value of $422.8 million to Huntsman International in exchange for equity. During the six months ended June 30, 2006 and 2005, Huntsman Corporation contributed $8.2 million and $3.8 million, respectively, to Huntsman International related to stock-based compensation.
See accompanying notes to unaudited condensed consolidated financial statements.
7
HUNTSMAN CORPORATION AND SUBSIDIARIES
HUNTSMAN INTERNATIONAL LLC
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
1. General
Certain Definitions
Company, our, us, or we may be used to refer to Huntsman Corporation and, unless the context otherwise requires, its subsidiaries and predecessors. Any references to our Company, we, us or our as of a date prior to October 19, 2004 (the date of our formation) are to Huntsman Holdings, LLC and its subsidiaries (including their respective predecessors). In this report, Huntsman International Holdings refers to Huntsman International Holdings LLC (our 100% owned subsidiary that merged into Huntsman International LLC on August 16, 2005) and, unless the context otherwise requires, its subsidiaries; Huntsman International refers to Huntsman International LLC (our 100% owned subsidiary) and, unless the context otherwise requires, its subsidiaries; Huntsman Advanced Materials refers to Huntsman Advanced Materials Holdings LLC (our 100% owned indirect subsidiary, the membership interests of which we contributed to Huntsman International on December 20, 2005) and, unless the context otherwise requires, its subsidiaries; Huntsman LLC refers to Huntsman LLC (our 100% owned subsidiary that merged into Huntsman International on August 16, 2005); HPS refers to Huntsman Polyurethanes Shanghai Ltd. (consolidated splitting joint venture with Shanghai Chlor-Alkali Chemical Company, Ltd); SLIC refers to Shanghai Isocynate Investment BV (our unconsolidated manufacturing joint venture with BASF AG and three Chinese chemical companies); HMP refers to HMP Equity Holdings Corporation (our 100% owned subsidiary that merged into us on March 17, 2005); and MatlinPatterson refers to MatlinPatterson Global Opportunities Partners L.P., MatlinPatterson Global Opportunities Partners (Bermuda) L.P. and MatlinPatterson Global Opportunities Partners B, L.P. (collectively, an owner of HMP Equity Trust).
Description of Business
We are among the worlds largest global manufacturers of differentiated and commodity chemical products. We manufacture a broad range of chemical products and formulations, which are marketed in more than 100 countries to a diversified group of consumer and industrial customers. Our products are used in a wide range of applications, including those in the adhesives, aerospace, automotive, construction products, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber industries and textile industries. We are a leading global producer in many of our key product lines, including methylene diphenyl diisocyanate (MDI), amines, surfactants, epoxy-based polymer formulations, maleic anhydride and titanium dioxide.
Company
We were formed in 2004 to hold, among other things, the equity interests of Huntsman International, Huntsman Advanced Materials and Huntsman LLC. Huntsman International was formed in 1999 to operate businesses acquired in a transaction among Huntsman International Holdings, Huntsman Specialty Chemicals Corporation and Imperial Chemical Industries PLC (ICI).
In February 2005, we completed an initial public offering of common stock and mandatory convertible preferred stock. In connection with our initial public offering, we completed a transaction in which our predecessor, Huntsman Holdings, LLC, became our wholly owned subsidiary, and the existing beneficial holders of the common and preferred members interests of Huntsman Holdings, LLC received shares of our common stock in exchange for their interests (the Reorganization Transaction). Also during 2005, we completed a series of transactions designed to simplify our consolidated groups financing and public reporting structure, to reduce our cost of financing and to facilitate other organizational efficiencies, including the following:
· On August 16, 2005, Huntsman LLC merged into Huntsman International (the Huntsman LLC Merger). At that time, Huntsman International Holdings also merged into Huntsman International (collectively with the Huntsman LLC Merger, the Affiliate Mergers). As a result of the Huntsman LLC Merger, Huntsman International succeeded to the assets, rights and obligations of Huntsman LLC.
8
Huntsman International entered into supplemental indentures under which it assumed the obligations of Huntsman LLC under its outstanding debt securities. The Huntsman International subsidiaries that guarantee Huntsman Internationals outstanding debt securities now provide guarantees with respect to these securities, and all of Huntsman LLCs subsidiaries that guaranteed its debt securities continue to provide guarantees with respect to these debt securities. In addition, Huntsman LLCs guarantor subsidiaries executed supplemental indentures to guarantee all of Huntsman Internationals outstanding debt securities.
· On December 20, 2005, we agreed to pay $125 million to affiliates of SISU Capital Limited and other third parties to acquire the 9.7% of the equity of Huntsman Advanced Materials that we did not already own. In conjunction with this acquisition, we amended our senior secured credit facilities and increased our existing term loan B by $350 million. We used proceeds from the increased term loan, together with approximately $74 million of cash on hand, to acquire the equity interest in Huntsman Advanced Materials, to redeem Huntsman Advanced Materials $250 million of outstanding 11% senior secured notes due 2010, to pay $35.6 million in call premiums plus accrued interest, and to pay other related costs. We then contributed our 100% ownership interest in Huntsman Advanced Materials to Huntsman International (the Huntsman Advanced Materials Minority Interest Transaction).
As a result of these transactions, we now operate all of our businesses through Huntsman International and substantially all of our debt obligations are obligations of Huntsman International and/or its subsidiaries.
HMP Equity Trust holds approximately 59% of our common stock. Jon M. Huntsman and Peter R. Huntsman control the voting of the shares of our common stock held by HMP Equity Trust. However, the shares of our common stock held by HMP Equity Trust will not be voted in favor of certain fundamental corporate actions without the consent of MatlinPatterson, through its representatives David J. Matlin or Christopher R. Pechock, and Jon M. Huntsman and Peter R. Huntsman have agreed to cause all of the shares of our common stock held by HMP Equity Trust to be voted in favor of the election to our board of directors of two nominees designated by MatlinPatterson.
Accounting for Certain Transactions
The Reorganization Transaction was accounted for as an exchange of shares between entities under common control similar to the pooling method. Our Condensed Consolidated Financial Statements (Unaudited) presented herein reflect the results of operations and cash flows as if Huntsman Holdings, LLC and our Company were combined for all periods presented.
The Affiliate Mergers and the Huntsman Advanced Materials Minority Interest Transaction were accounted for as an exchange of shares between entities under common control similar to the pooling method. Huntsman Internationals Condensed Consolidated Financial Statements (Unaudited) presented herein reflect the results of operations and cash flows as if Huntsman International Holdings, Huntsman LLC, Huntsman Advanced Materials and Huntsman International were combined for all periods presented.
Huntsman Corporation and Huntsman International Financial Statements
Except where otherwise indicated, these notes relate to the Condensed Consolidated Financial Statements (Unaudited) for each of our Company and Huntsman International. The differences between our financial statements and Huntsman Internationals financial statements relate primarily to the following:
· purchase accounting recorded at our Company for the step-acquisition of Huntsman International Holdings in May 2003;
· HMP debt that was reflected at our Company and that was repaid in 2005; and
· the different capital structures.
9
Principles of Consolidation
Our Condensed Consolidated Financial Statements (Unaudited) and Huntsman Internationals Condensed Consolidated Financial Statements (Unaudited) include the accounts of our wholly-owned and majority-owned subsidiaries and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated.
Interim Financial Statements
Our interim Condensed Consolidated Financial Statements (Unaudited) and Huntsman Internationals interim Condensed Consolidated Financial Statements (Unaudited) were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP or U.S. GAAP) and in managements opinion, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2005 for each of our Company and Huntsman International.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the consolidated financial statements for prior periods have been reclassified to conform with the current presentation.
2. Recently Issued Accounting Pronouncements
We adopted Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costsan amendment of ARB No. 43, on January 1, 2006. SFAS No. 151 requires abnormal amounts of idle facility expense, freight costs, handling costs and wasted material expense to be recognized as current-period charges. It also requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The adoption of SFAS No. 151 did not have an impact on our consolidated financial statements.
We adopted SFAS No. 154, Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB Statement No. 3, on January 1, 2006. SFAS No. 154 requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change or unless specific transition provisions are proscribed in the accounting pronouncements. SFAS No. 154 does not change the accounting guidance for reporting a correction of an error in previously issued financial statements or a change in accounting estimate. We will apply this standard prospectively.
In September 2005, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 04-13, Accounting for Purchase and Sales of Inventory with the Same Counterparty, that requires companies to recognize an exchange of finished goods for raw materials or work-in-process within the same line of business at fair value. All other exchanges of inventory should be reflected at the carrying amounts. This pronouncement is effective for
10
transactions entered into or modified after March 31, 2006. The adoption of EITF Issue No. 04-13 did not have a significant impact on our consolidated financial statements.
In June 2006, the EITF reached a consensus on Issue No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, that concludes that an employees right to a compensated absence under a sabbatical or other similar benefit arrangement accumulates; therefore, such benefits should be accrued over the required service period. This pronouncement is effective for fiscal years beginning after December 15, 2006. We are evaluating this pronouncement to determine its impact on our consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109 by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006. We are reviewing FIN 48 to determine its impact on our consolidated financial statements.
3. Inventories
Inventories consisted of the following (dollars in millions):
|
June 30, |
|
December 31, |
|
|||
|
|
2006 |
|
2005 |
|
||
|
|
|
|
|
|
||
Raw materials and supplies |
|
$ |
340.5 |
|
$ |
374.1 |
|
Work in progress |
|
210.8 |
|
82.1 |
|
||
Finished goods |
|
1,110.6 |
|
988.1 |
|
||
Total |
|
1,661.9 |
|
1,444.3 |
|
||
|
|
|
|
|
|
||
LIFO reserves |
|
(100.9 |
) |
(119.7 |
) |
||
Lower of cost or market reserves |
|
(15.4 |
) |
(15.4 |
) |
||
Net |
|
$ |
1,545.6 |
|
$ |
1,309.2 |
|
As of June 30, 2006 and December 31, 2005, approximately 15% and 21%, respectively, of inventories were recorded using the last-in, first-out cost method.
In the normal course of operations, we exchange raw materials with other companies. No gains or losses are recognized on these exchanges and the net open exchange positions are valued at our cost. The amount included in inventory under open exchange agreements payable by us at June 30, 2006 was $1.8 million (10.9 million pounds of feedstock and products). The amount included in inventory under open exchange agreements payable by us at December 31, 2005 was $3.8 million (8.8 million pounds of feedstock and products).
4. Business Disposition and Combination
Sale of U.S. Butadiene and MTBE Business
On June 27, 2006, we sold the assets comprising our U.S. butadiene and MTBE business operated by our Base Chemicals segment. The total sales price was approximately $262 million, of which $192 million was paid at closing, while the additional $70 million will be payable after the restart of our Port Arthur, Texas olefins unit that was damaged in a fire (see Note 16. Port Arthur, Texas Plant Fire) and the related resumption of crude butadiene supply; provided that we achieve certain intermediate steps toward restarting the plant and that the restart occurs within 30 months of this sale. The final purchase price also remains subject to a customary post-closing working capital adjustment in the third quarter of 2006. In connection with this sale, we recognized a pre-tax gain of $90.9 million, of which $9.5 million was due to the liquidation of LIFO reserves. We expect to recognize an additional pre-tax gain of $70 million upon completion of the conditions referenced above.
11
The carrying value of the assets sold at June 27, 2006 was as follows (dollars in millions):
ASSETS |
|
|
|
|
Accounts and notes receivable, net |
|
$ |
67.5 |
|
Inventories, net |
|
11.8 |
|
|
Other current assets |
|
2.6 |
|
|
Property, plant and equipment, net |
|
83.2 |
|
|
Other noncurrent assets |
|
2.0 |
|
|
Total assets |
|
167.1 |
|
|
LIABILITIES |
|
|
|
|
Accounts payable |
|
64.6 |
|
|
Accrued liabilities |
|
0.1 |
|
|
Other noncurrent liabilities |
|
1.3 |
|
|
Total liabilities |
|
66.0 |
|
|
Net assets |
|
$ |
101.1 |
|
The results of operations of this business have not been classified as a discontinued operation under applicable accounting rules because of the expected continuing cash flows from the MTBE business we continue to operate in our Polyurethanes segment.
In connection with the sale, we agreed to indemnify the buyer with respect to any losses resulting from (i) the breach of representations and warranties contained in the asset purchase agreement, (ii) any pre-sale liabilities related to the pre-sale operations of the assets sold not assumed by the buyer, and (iii) any environmental liability related to the pre-sale operations of the assets sold. We are not required to pay under these indemnification obligations until claims against us exceed $5 million. Upon exceeding this $5 million threshold, we generally are obligated to provide indemnification for any losses in excess of $5 million, up to a limit of $137.5 million. We believe that there is only a remote likelihood that we will be required to pay any material amounts under the indemnity provision. As a result, we have estimated that the fair value of this indemnity at the date of the closing of the sale is minimal, and accordingly, no amounts have been recorded.
Acquisition of Textile Effects Business
On June 30, 2006, we acquired the global textile effects (Textile Effects) business of Ciba Specialty Chemicals Inc. for approximately $172.1 million (CHF 215 million) in cash, of which $139.2 million was paid on June 30, 2006 and $32.9 million was paid on July 3, 2006. The amount paid on July 3, 2006 was reflected in restricted cash and accrued liabilities in the accompanying June 30, 2006 condensed consolidated balance sheets (unaudited). This purchase price is subject to a post-closing working capital adjustment that is expected to be finalized in the third quarter of 2006. We acquired the Textile Effects business in order to expand our differentiated chemicals business portfolio. The operating results of Textile Effects will be consolidated with our operating results beginning on July 1, 2006 and will be reported with our Advanced Materials operations as part of our new Materials and Effects segment.
We have accounted for the Textile Effects acquisition using the purchase method in accordance with SFAS No. 141, Business Combinations. As such, we analyzed the fair value of tangible and intangible assets acquired and liabilities assumed, and we determined that the fair value of net assets acquired exceeded cost. Because the fair value of the acquired assets and liabilities assumed exceeded the acquisition price, the valuation of the long-lived assets acquired was reduced to zero in accordance with SFAS No. 141. The remaining excess was recorded as an extraordinary gain, net of taxes (which were not applicable because the gain was recorded in purchase accounting). The preliminary allocation of the purchase price to the assets and liabilities acquired is summarized as follows (dollars in millions):
12
|
Huntsman |
|
Huntsman |
|
|||
Acquisition cost: |
|
|
|
|
|
||
Acquisition payment, exclusive of post-closing working capital adjustment |
|
$ |
172.1 |
|
$ |
172.1 |
|
Estimated post-closing working capital adjustment |
|
(25.1 |
) |
(25.1 |
) |
||
Direct costs of acquisition |
|
4.5 |
|
4.5 |
|
||
Total acquisition costs |
|
151.5 |
|
151.5 |
|
||
|
|
|
|
|
|
||
Fair value of assets acquired and liabilities assumed: |
|
|
|
|
|
||
Cash |
|
7.7 |
|
7.7 |
|
||
Accounts receivable |
|
251.4 |
|
251.4 |
|
||
Inventories |
|
229.6 |
|
229.6 |
|
||
Prepaid expenses and other current assets |
|
15.4 |
|
15.4 |
|
||
Accounts payable |
|
(108.3 |
) |
(108.3 |
) |
||
Accrued liabilities |
|
(31.2 |
) |
(31.2 |
) |
||
Short-term debt |
|
(5.2 |
) |
(5.2 |
) |
||
Deferred taxes |
|
(2.4 |
) |
(6.8 |
) |
||
Noncurrent liabilities |
|
(155.0 |
) |
(155.0 |
) |
||
Total fair value of net assets acquired |
|
202.0 |
|
197.6 |
|
||
Extraordinary gain on the acquisition of a business excess of fair value of net assets acquired over cost |
|
$ |
50.5 |
|
$ |
46.1 |
|
This purchase price allocation is preliminary pending finalization of the determination of the fair value of assets acquired and liabilities assumed, including valuation of working capital acquired and pension and other post-retirement benefits assumed, finalization of restructuring plans, estimates of asset retirement obligations and deferred taxes. We are assessing and formulating plans to exit certain activities of the Textile Effects business and expect to involuntarily terminate the employment of, or relocate, certain Textile Effects employees. These plans include the exit of various manufacturing, sales and administrative activities throughout the business through 2009. This preliminary purchase price allocation includes recorded liabilities for workforce reduction, non-cancelable lease termination costs and demolition and decommissioning costs of $56.3 million, $2.3 million and $13.6 million, respectively. We have not yet finalized plans to exit certain business activities and may record additional liabilities for workforce reduction, demolition and non-cancelable lease costs as these plans are finalized. We expect that it is reasonably possible that material changes to the allocation could occur and any changes to our purchase price allocation will be recorded as an adjustment to the extraordinary gain in future periods.
The following tables reflect our and Huntsman Internationals results of operations on a pro forma basis as if the Textile Effects acquisition had been completed at the beginning of each period presented utilizing historical results for each entity (dollars in millions, except per share amounts):
Huntsman Corporation:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
Revenues |
|
$ |
3,616.8 |
|
$ |
3,621.5 |
|
$ |
7,050.1 |
|
$ |
7,233.5 |
|
Income before extraordinary gain and accounting change |
|
225.0 |
|
130.2 |
|
300.5 |
|
80.6 |
|
||||
Net income |
|
275.5 |
|
180.7 |
|
351.0 |
|
135.1 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic income per share: |
|
|
|
|
|
|
|
|
|
||||
Income before extraordinary gain and accounting change |
|
$ |
1.02 |
|
$ |
0.59 |
|
$ |
1.36 |
|
$ |
0.17 |
|
Net income |
|
1.25 |
|
0.82 |
|
1.59 |
|
0.42 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Diluted income per share: |
|
|
|
|
|
|
|
|
|
||||
Income before extraordinary gain and accounting change |
|
$ |
0.96 |
|
$ |
0.56 |
|
$ |
1.29 |
|
$ |
0.17 |
|
Net income |
|
1.18 |
|
0.78 |
|
1.51 |
|
0.42 |
|
13
Huntsman International:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
Revenues |
|
$ |
3,616.8 |
|
$ |
3,621.5 |
|
$ |
7,050.1 |
|
$ |
7,233.5 |
|
Income before extraordinary gain and accounting change |
|
187.1 |
|
122.2 |
|
260.9 |
|
246.9 |
|
||||
Net income |
|
233.2 |
|
168.3 |
|
307.0 |
|
297.2 |
|
||||
Our net income and the net income of Huntsman International for all periods reflects $50.5 million and $46.1 million, respectively, of extraordinary gain on the acquisition of Textile Effects.
5. Restructuring, Impairment and Plant Closing Costs
While we continuously focus on identifying opportunities to reduce our operating costs and maximize our operating efficiency, we have now substantially completed our comprehensive global cost reduction program, referred to as Project Coronado. Project Coronado was a program designed to reduce our annual fixed manufacturing and selling, general and administrative costs, as measured at 2002 levels, by $200 million. In connection with Project Coronado, we announced the closure of eight smaller, less competitive manufacturing units in our Polyurethanes, Materials and Effects, Performance Products and Pigments segments. These and other actions have resulted in the reduction of approximately 1,500 employees in these businesses since 2000.
As of June 30, 2006 and December 31, 2005, accrued restructuring, impairment and plant closing costs by type of cost and initiative consisted of the following (dollars in millions):
|
|
|
|
|
|
|
|
Other |
|
|
|
|||||
|
|
Workforce |
|
Demolition and |
|
Non-cancelable |
|
restructuring |
|
|
|
|||||
|
|
reductions(1) |
|
decommissioning |
|
lease costs |
|
costs |
|
Total(3) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Accrued liabilities as of December 31, 2005 |
|
$ |
54.2 |
|
$ |
5.8 |
|
$ |
6.5 |
|
$ |
11.8 |
|
$ |
78.3 |
|
Textile Effects opening balance sheet liabilities at June 30, 2006 |
|
56.3 |
|
13.6 |
|
2.3 |
|
|
|
72.2 |
|
|||||
2006 charges for 2003 initiatives |
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
|||||
2006 charges for 2004 initiatives |
|
3.1 |
|
|
|
|
|
0.6 |
|
3.7 |
|
|||||
2006 charges for 2005 initiatives |
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
|||||
2006 charges for 2006 initiatives |
|
2.1 |
|
|
|
|
|
|
|
2.1 |
|
|||||
Reversals of reserves no longer required (2) |
|
(2.5 |
) |
(2.2 |
) |
|
|
|
|
(4.7 |
) |
|||||
Partial reversal of Advanced Materials opening balance sheet liabilities |
|
(2.5 |
) |
|
|
|
|
|
|
(2.5 |
) |
|||||
2006 payments for 2003 initiatives |
|
(5.3 |
) |
|
|
(0.1 |
) |
(0.1 |
) |
(5.5 |
) |
|||||
2006 payments for 2004 initiatives |
|
(13.4 |
) |
(1.6 |
) |
(0.4 |
) |
(0.8 |
) |
(16.2 |
) |
|||||
2006 payments for 2005 initiatives |
|
(3.8 |
) |
|
|
|
|
(0.7 |
) |
(4.5 |
) |
|||||
2006 payments for 2006 initiatives |
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|||||
Foreign currency effect on reserve balance |
|
2.4 |
|
0.2 |
|
0.1 |
|
|
|
2.7 |
|
|||||
Accrued liabilities as of June 30, 2006 |
|
$ |
94.1 |
|
$ |
15.8 |
|
$ |
8.4 |
|
$ |
10.8 |
|
$ |
129.1 |
|
(1) With the exception of liabilities recorded in connection with business combinations, 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. The remaining accrued liabilities related to these charges of $37.8 million represent workforce reductions to be paid by the end of 2011. Liabilities for workforce reductions recorded in connection with business combinations were accrued in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, and are expected to be paid through 2009.
14
(2) The reversal of workforce reduction reserves relates to differences between the actual payments made to employees upon termination and the original estimates of termination payments, redeployment of employees whose positions were originally expected to be terminated, changes to applicable laws and regulations, and revisions to original estimates based on information currently available.
(3) Accrued liabilities by initiatives were as follows (dollars in millions):
|
June 30, |
|
December 31, |
|
|||
|
|
2006 |
|
2005 |
|
||
|
|
|
|
|
|
||
2001 initiatives |
|
$ |
1.4 |
|
$ |
1.4 |
|
2003 initiatives |
|
20.6 |
|
28.4 |
|
||
2004 initiatives |
|
32.7 |
|
47.7 |
|
||
2005 initiatives |
|
8.9 |
|
11.6 |
|
||
2006 initiatives |
|
73.6 |
|
|
|
||
Foreign currency effect on reserve balance |
|
(8.1 |
) |
(10.8 |
) |
||
Total |
|
$ |
129.1 |
|
$ |
78.3 |
|
Details with respect to our reserves for restructuring, impairment and plant closing costs are provided below by segment and initiative (dollars in millions):
|
|
|
|
Materials and |
|
Performance |
|
|
|
|
|
Base |
|
|
|
|||||||
|
|
Polyurethanes |
|
Effects |
|
Products |
|
Pigments |
|
Polymers |
|
Chemicals |
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Accrued liabilities as of December 31, 2005 |
|
$ |
10.9 |
|
$ |
7.8 |
|
$ |
25.6 |
|
$ |
16.6 |
|
$ |
3.4 |
|
$ |
14.0 |
|
$ |
78.3 |
|
Textile Effects opening balance sheet liabilities at June 30, 2006 |
|
|
|
72.2 |
|
|
|
|
|
|
|
|
|
72.2 |
|
|||||||
2006 charges for 2003 initiatives |
|
|
|
0.2 |
|
|
|
1.6 |
|
|
|
|
|
1.8 |
|
|||||||
2006 charges for 2004 initiatives |
|
0.1 |
|
0.2 |
|
1.0 |
|
1.9 |
|
|
|
0.5 |
|
3.7 |
|
|||||||
2006 charges for 2005 initiatives |
|
|
|
0.1 |
|
0.8 |
|
0.1 |
|
|
|
0.8 |
|
1.8 |
|
|||||||
2006 charges for 2006 initiatives |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
2.1 |
|
|||||||
Reversals of reserves no longer required |
|
(0.3 |
) |
(0.6 |
) |
(2.2 |
) |
(1.0 |
) |
(0.6 |
) |
|
|
(4.7 |
) |
|||||||
Partial reversal of Advanced Materials opening balance sheet accrual |
|
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
(2.5 |
) |
|||||||
2006 payments for 2003 initiatives |
|
(1.6 |
) |
(1.6 |
) |
|
|
(2.3 |
) |
|
|
|
|
(5.5 |
) |
|||||||
2006 payments for 2004 initiatives |
|
(1.0 |
) |
(0.4 |
) |
(6.1 |
) |
(5.8 |
) |
(0.3 |
) |
(2.6 |
) |
(16.2 |
) |
|||||||
2006 payments for 2005 initiatives |
|
(0.1 |
) |
(0.2 |
) |
(1.5 |
) |
(0.1 |
) |
|
|
(2.6 |
) |
(4.5 |
) |
|||||||
2006 payments for 2006 initiatives |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
(0.1 |
) |
|||||||
Foreign currency effect on reserve balance |
|
0.5 |
|
0.3 |
|
0.9 |
|
0.6 |
|
|
|
0.4 |
|
2.7 |
|
|||||||
Accrued liabilities as of June 30, 2006 |
|
$ |
8.5 |
|
$ |
77.5 |
|
$ |
18.5 |
|
$ |
11.6 |
|
$ |
2.5 |
|
$ |
10.5 |
|
$ |
129.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Current portion of restructuring reserve |
|
$ |
3.4 |
|
$ |
19.4 |
|
$ |
10.9 |
|
$ |
7.6 |
|
$ |
2.5 |
|
$ |
9.8 |
|
$ |
53.6 |
|
Long-term portion of restructuring reserve |
|
5.1 |
|
58.1 |
|
7.6 |
|
4.0 |
|
|
|
0.7 |
|
75.5 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Estimated additional future charges for current restructuring projects: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Estimated additional charges within one year |
|
$ |
|
|
$ |
0.5 |
|
$ |
0.7 |
|
$ |
1.8 |
|
$ |
12.5 |
|
$ |
|
|
$ |
15.5 |
|
Estimated additional charges beyond one year |
|
|
|
|
|
|
|
4.0 |
|
10.0 |
|
|
|
14.0 |
|
Details with respect to cash and non-cash restructuring charges for the six months ended June 30, 2006 by initiative are provided below (dollars in millions):
15
|
Cash |
|
Non-Cash |
|
|
|
||||
|
|
Charges |
|
(Credits) Charges |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
2006 credits for 2001 initiatives |
|
$ |
|
|
$ |
(2.0 |
) |
$ |
(2.0 |
) |
2006 charges for 2003 initiatives |
|
1.8 |
|
|
|
1.8 |
|
|||
2006 charges for 2004 initiatives |
|
3.7 |
|
|
|
3.7 |
|
|||
2006 charges for 2005 initiatives |
|
1.8 |
|
4.9 |
|
6.7 |
|
|||
2006 charges for 2006 initiatives |
|
2.1 |
|
|
|
2.1 |
|
|||
2006 charges for write offs associated with fire |
|
|
|
9.4 |
|
9.4 |
|
|||
Reversals of reserves no longer required |
|
(4.7 |
) |
|
|
(4.7 |
) |
|||
Total charges |
|
$ |
4.7 |
|
$ |
12.3 |
|
$ |
17.0 |
|
As of June 30, 2006 and December 31, 2005, we had reserves for restructuring, impairment and plant closing costs of $129.1 million and $78.3 million, respectively. During the six months ended June 30, 2006, we recorded additional net charges of $17.0 million (consisting of $4.7 million payable in cash and $12.3 million of non-cash charges) for workforce reductions, other restructuring costs associated with closure or curtailment of activities at our smaller, less efficient manufacturing facilities and write-offs due to the fire at our Port Arthur, Texas plant. During the six months ended June 30, 2006, we made cash payments against these reserves of $26.3 million.
During the six months ended June 30, 2006, our Polyurethanes segment recorded a non-cash restructuring, impairment and plant closing credit of $2.0 million, consisting primarily of a gain on the sale of our Shepton Mallet, U.K. site.
During the six months ended June 30, 2006, our Materials and Effects segment recorded net restructuring charges of $2.0 million, primarily related to the realignment of the technical organization in Bergkamen, Germany. This realignment and other existing initiatives are expected to result in additional restructuring charges of $0.5 million. Also during the six months ended June 30, 2006, our Materials and Effects segment reversed $2.5 million of reserves established in connection with the acquisition of our Advanced Materials business. This reserve reversal was recorded as a reduction to property, plant and equipment in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. In addition, we recorded $72.2 million of liabilities for workforce reduction, non-cancelable lease termination costs and demolition and decommissioning costs related to the Textile Effects acquisition. For more information, see Note 4. Business Disposition and CombinationAcquisition of Textile Effects Business.
During the six months ended June 30, 2006, our Polymers segment recorded a non-cash impairment charge of $4.9 million related to capital expenditures and turnaround costs associated with our Australian styrenics business that was previously impaired. The long-lived assets in this business were determined to be impaired in accordance with SFAS No. 144 and an impairment charge was recorded in 2005. Capital expenditures and turnaround costs in this business, which are necessary to maintain operations, are also considered to be impaired immediately after they are incurred. Management continues to evaluate the strategic and operational initiatives related to this business. Capital expenditures and turnaround costs related to this business are expected to result in additional restructuring charges of $22.5 million through 2009.
During the six months ended June 30, 2006, our Base Chemicals segment recorded a non-cash charge of $9.4 million to write off fixed assets that were destroyed and unamortized turnaround costs that will no longer be utilized as a result of the fire at our Port Arthur, Texas facility. For more information, see Note 16. Port Arthur, Texas Plant Fire.
16
6. Debt
Outstanding debt consisted of the following (dollars in millions):
Huntsman Corporation:
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2006 |
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2005 |
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Senior Credit Facilities: |
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