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HUNTSMAN LLC FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
| (Mark One) | |
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2004 |
|
OR |
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 333-112279
HUNTSMAN LLC
(Exact name of registrant as specified in its charter)
| Utah (State or other jurisdiction of incorporation or organization) |
87-0533091 (I.R.S. Employer Identification No.) |
500 Huntsman Way
Salt Lake City, Utah 84108
(801) 584-5700
(Address of principal executive offices and telephone number)
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 ý NO o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES o NO ý
On November 15, 2004, 10,000,000 units of membership interest of the registrant were outstanding. There is no established trading market for the registrant's units of membership interest. All of the registrant's units of membership interest are held by an affiliate.
HUNTSMAN LLC
FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
HUNTSMAN LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in Millions)
| |
September 30, 2004 |
December 31, 2003 |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||
Current assets: |
|||||||||
| Cash and cash equivalents | $ | 179.0 | $ | 127.8 | |||||
| Accounts and notes receivables (net of allowance for doubtful accounts of $16.7 and $19.7, respectively) | 1,194.4 | 925.1 | |||||||
| Inventories | 953.3 | 892.9 | |||||||
| Prepaid expenses | 70.5 | 40.3 | |||||||
| Deferred income taxes | — | 3.0 | |||||||
| Other current assets | 43.5 | 87.0 | |||||||
| Total current assets | 2,440.7 | 2,076.1 | |||||||
Property, plant and equipment, net |
4,290.1 |
4,572.1 |
|||||||
| Investment in unconsolidated affiliates | 167.5 | 158.0 | |||||||
| Intangible assets, net | 252.6 | 281.9 | |||||||
| Goodwill | 3.3 | 3.3 | |||||||
| Deferred income taxes | — | 12.0 | |||||||
| Other noncurrent assets | 641.0 | 611.5 | |||||||
| Total assets | $ | 7,795.2 | $ | 7,714.9 | |||||
LIABILITIES AND MEMBER'S EQUITY (DEFICIT) |
|||||||||
Current liabilities: |
|||||||||
| Accounts payable, including overdraft of nil and $7.5, respectively | $ | 836.0 | $ | 752.1 | |||||
| Accrued liabilities | 595.6 | 585.7 | |||||||
| Deferred income taxes | 14.5 | 14.5 | |||||||
| Current portion of long-term debt | 51.9 | 134.0 | |||||||
| Total current liabilities | 1,498.0 | 1,486.3 | |||||||
Long-term debt |
5,358.3 |
5,059.8 |
|||||||
| Long-term debt—affiliates | 440.0 | 393.8 | |||||||
| Deferred income taxes | 155.7 | 234.8 | |||||||
| Other noncurrent liabilities | 474.1 | 456.2 | |||||||
| Total liabilities | 7,926.1 | 7,630.9 | |||||||
Minority interests |
83.6 |
134.5 |
|||||||
Commitments and contingencies (Note 15) |
|||||||||
Member's equity (deficit): |
|||||||||
| Member's equity, 10,000,000 units | 1,095.2 | 1,095.2 | |||||||
| Accumulated deficit | (1,345.6 | ) | (1,182.5 | ) | |||||
| Accumulated other comprehensive income | 35.9 | 36.8 | |||||||
| Total member's deficit | (214.5 | ) | (50.5 | ) | |||||
| Total liabilities and member's deficit | $ | 7,795.2 | $ | 7,714.9 | |||||
See accompanying notes to unaudited consolidated financial statements.
3
HUNTSMAN LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars in Millions)
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
2004 |
2003 |
||||||||||||
| |
|
As restated, see Note 20 |
|
As restated, see Note 20 |
||||||||||||
| REVENUES: | ||||||||||||||||
| Trade sales | $ | 2,638.8 | $ | 2,039.5 | $ | 7,457.2 | $ | 4,373.8 | ||||||||
| Related party sales | 15.9 | 5.4 | 40.2 | 80.0 | ||||||||||||
| Total revenues | 2,654.7 | 2,044.9 | 7,497.4 | 4,453.8 | ||||||||||||
| Cost of goods sold | 2,348.7 | 1,852.4 | 6,697.8 | 4,053.6 | ||||||||||||
| Gross profit | 306.0 | 192.5 | 799.6 | 400.2 | ||||||||||||
EXPENSES: |
||||||||||||||||
| Selling, general and administrative | 117.2 | 121.0 | 369.5 | 265.1 | ||||||||||||
| Research and development | 13.9 | 18.1 | 46.3 | 37.4 | ||||||||||||
| Other operating expense (income) | 8.4 | (0.6 | ) | 22.8 | (20.6 | ) | ||||||||||
| Restructuring and plant closing costs | 43.2 | 4.8 | 202.4 | 27.2 | ||||||||||||
| Total expenses | 182.7 | 143.3 | 641.0 | 309.1 | ||||||||||||
| Operating income | 123.3 | 49.2 | 158.6 | 91.1 | ||||||||||||
Interest expense, net |
(138.0 |
) |
(122.7 |
) |
(415.5 |
) |
(260.9 |
) |
||||||||
| Loss on accounts receivable securitization program | (3.7 | ) | (3.4 | ) | (10.2 | ) | (11.9 | ) | ||||||||
| Equity in income (losses) of investment in unconsolidated affiliates | 1.3 | 0.6 | 3.0 | (37.5 | ) | |||||||||||
| Other income (expense) | 3.1 | 0.7 | (0.8 | ) | 0.4 | |||||||||||
Loss before income tax and minority interests |
(14.0 |
) |
(75.6 |
) |
(264.9 |
) |
(218.8 |
) |
||||||||
| Income tax benefit (expense) | 56.7 | (2.1 | ) | 49.2 | 4.2 | |||||||||||
| Minority interests in subsidiaries' (income) loss | (21.0 | ) | 21.0 | 52.6 | 36.8 | |||||||||||
| Net income (loss) | 21.7 | (56.7 | ) | (163.1 | ) | (177.8 | ) | |||||||||
Other comprehensive (loss) income |
9.5 |
13.5 |
(0.9 |
) |
72.7 |
|||||||||||
| Comprehensive income (loss) | $ | 31.2 | $ | (43.2 | ) | $ | (164.0 | ) | $ | (105.1 | ) | |||||
See "Note 1—General" concerning the consolidation of HIH, effect as of May 1, 2003, and its effect on comparability of amounts.
See accompanying notes to unaudited consolidated financial statements.
4
HUNTSMAN LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF MEMBER'S EQUITY (DEFICIT) (UNAUDITED)
(Dollars and Units in Millions)
| |
Member's equity |
|
|
|
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
Accumulated other comprehensive income (loss) |
|
||||||||||||
| |
Units |
Amount |
Accumulated deficit |
Total |
|||||||||||
| Balance, December 31, 2003 | 10,000 | $ | 1,095.2 | $ | (1,182.5 | ) | $ | 36.8 | $ | (50.5 | ) | ||||
| Net loss | — | — | (163.1 | ) | — | (163.1 | ) | ||||||||
| Other comprehensive loss | — | — | — | (0.9 | ) | (0.9 | ) | ||||||||
| Balance, September 30, 2004 | 10,000 | $ | 1,095.2 | $ | (1,345.6 | ) | $ | 35.9 | $ | (214.5 | ) | ||||
See accompanying notes to unaudited consolidated financial statements.
5
HUNTSMAN LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Millions)
| |
Nine Months Ended September 30, |
|||||||
|---|---|---|---|---|---|---|---|---|
| |
2004 |
2003 |
||||||
| |
|
As restated, see Note 20 |
||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (163.1 | ) | $ | (177.8 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Equity in (income) losses of investment in unconsolidated affiliates | (3.0 | ) | 37.5 | |||||
| Depreciation and amortization | 335.8 | 212.1 | ||||||
| Provision for losses on accounts receivable | 2.1 | 3.8 | ||||||
| Non-cash restructuring and plant closing costs | 109.0 | 12.3 | ||||||
| Loss on early extinguishment of debt | 1.9 | — | ||||||
| Loss on disposal of plant and equipment | 2.0 | 3.0 | ||||||
| Non-cash interest expense | 103.7 | 58.4 | ||||||
| Deferred income taxes | (73.6 | ) | (17.3 | ) | ||||
| Unrealized gain on foreign currency transactions | (20.4 | ) | (16.0 | ) | ||||
| Minority interests in subsidiaries | (52.6 | ) | (37.2 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | (198.4 | ) | 9.2 | |||||
| Change in receivables sold, net | (64.9 | ) | (10.2 | ) | ||||
| Inventories | (63.4 | ) | 43.8 | |||||
| Prepaid expenses | 12.9 | (36.0 | ) | |||||
| Other current assets | 45.6 | 8.4 | ||||||
| Other noncurrent assets | (25.6 | ) | (29.4 | ) | ||||
| Accounts payable | 99.4 | (79.0 | ) | |||||
| Accrued liabilities | (1.7 | ) | (3.5 | ) | ||||
| Other noncurrent liabilities | 17.4 | 1.4 | ||||||
| Net cash provided by (used in) operating activities | 63.1 | (16.5 | ) | |||||
| Investing Activities: | ||||||||
| Capital expenditures | (137.7 | ) | (128.4 | ) | ||||
| Investment in unconsolidated affiliates | (11.8 | ) | (6.1 | ) | ||||
| Proceeds from sale of assets | 0.1 | 0.1 | ||||||
| Net cash received from unconsolidated affiliates | 10.1 | 2.4 | ||||||
| Advances to unconsolidated affiliates | (2.8 | ) | (3.2 | ) | ||||
| Net cash used in investing activities | (142.1 | ) | (135.2 | ) | ||||
| Financing Activities: | ||||||||
| Net borrowings under revolving loan facilities | 70.8 | 59.3 | ||||||
| Proceeds from long-term debt | 1,827.5 | 375.5 | ||||||
| Repayment of long-term debt | (1,729.3 | ) | (250.9 | ) | ||||
| Payments on notes payable | (8.6 | ) | — | |||||
| Repayment of overdraft | (7.5 | ) | — | |||||
| Capital contribution by minority shareholder | 2.7 | 1.8 | ||||||
| Debt issuance costs | (25.5 | ) | (23.0 | ) | ||||
| Net cash provided by financing activities | 130.1 | 162.7 | ||||||
| Effect of exchange rate changes on cash | 0.1 | 4.4 | ||||||
| Increase in cash and cash equivalents | 51.2 | 15.4 | ||||||
| Cash and cash equivalents at beginning of period | 127.8 | 31.4 | ||||||
| Cash and cash equivalents of HIH at May 1, 2003 (date of consolidation) | — | 62.2 | ||||||
| Cash and cash equivalents at end of period | $ | 179.0 | $ | 109.0 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | 332.3 | $ | 218.3 | ||||
| Cash paid for income taxes | $ | 20.1 | $ | 6.6 | ||||
See accompanying notes to unaudited consolidated financial statements.
6
HUNTSMAN LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
Description of Business
Huntsman LLC (the "Company," including its subsidiaries, unless the context otherwise requires) is a leading manufacturer and marketer of a wide range of chemical products that are sold to diversified consumer and industrial end markets. The Company has 48 primary manufacturing facilities located in North America, Europe, Asia, Australia, South America and Africa and sells its products globally through its five principal business segments: Polyurethanes, Performance Products, Polymers, Pigments and Base Chemicals.
Company
The Company is a Utah limited liability company and all of its units of interest are owned by HMP Equity Holdings Corporation ("HMP"). HMP is a Delaware corporation and is owned 100% by Huntsman Group Inc., a Delaware corporation, subject to warrants that, if exercised, would entitle the holders to acquire up to 12% of the common stock of HMP. Huntsman Group Inc. is owned 100% by Huntsman Holdings, LLC, a Delaware limited liability company ("Huntsman Holdings"). The voting membership interests of Huntsman Holdings are owned 50.2% by the Huntsman family, 47.8% by MatlinPatterson Global Opportunities Partners, L.P. ("MatlinPatterson"), 1.8% by Consolidated Press Holdings Limited and its subsidiaries ("Consolidated Press") and 0.2% by senior management. In addition, Huntsman Holdings has issued certain non-voting preferred units to Huntsman Holdings Preferred Member LLC, which, in turn, is owned 93.7%, indirectly, by MatlinPatterson, 3.6% by Consolidated Press, 1.8% by the Huntsman Cancer Foundation, 0.6% by senior management and 0.3% by the Huntsman family. Huntsman Holdings has also issued certain non-voting preferred units to the Huntsman family, MatlinPatterson and Consolidated Press that track the performance of an affiliate, Huntsman Advanced Materials LLC. Huntsman Advanced Materials LLC's results of operations are not included in the Company's consolidated financial statements. The Huntsman family has board and operational control of the Company.
The Company owns 60% of the membership interests of Huntsman International Holdings LLC ("HIH"), and, prior to May 9, 2003, HMP owned approximately 1% of the membership interests of HIH. On May 9, 2003, HMP completed the acquisition of the 30% of the HIH membership interests held by Imperial Chemical Industries PLC ("ICI") and the remaining approximately 9% of the HIH membership interests held by certain institutional investors (the "HIH Consolidation Transaction"). HIH is a global manufacturer and marketer of polyurethanes, amines, surfactants, titanium dioxide ("TiO2") and basic petrochemicals. HIH and its subsidiaries are non-guarantor, unrestricted subsidiaries of the Company pursuant to the Company's various debt agreements. HIH and its subsidiaries, including Huntsman International LLC ("HI"), are separately financed from the Company, their debt is non-recourse to the Company, and the Company is not obligated to make cash contributions to, or investments in, HIH and its subsidiaries.
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 HMP's 100% direct and indirect ownership of HIH and the resulting termination of ICI's 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 HIH's
7
results of operations are consolidated with the Company's results of operations, with HMP's 40% interest in HIH recorded as a minority interest. 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.
The following table is a summary of the net assets of HIH as of May 1, 2003 (dollars in millions):
| Current assets | $ | 1,364.5 | |
| Property, plant and equipment, net | 3,082.2 | ||
| Other noncurrent assets | 740.4 | ||
| Total assets | $ | 5,187.1 | |
Current liabilities |
$ |
885.0 |
|
| Long term debt (including current portion) | 3,638.1 | ||
| Other noncurrent liabilities | 366.1 | ||
| Total liabilities | $ | 4,889.2 | |
Proposed Initial Public Offering of Parent Company
On September 13, 2004, the Company's ultimate parent announced a proposed initial public offering of common stock. A registration statement relating to the proposed offering is expected to be filed during the fourth quarter of 2004.
Interim Financial Statements
The unaudited consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in management's opinion, 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 shown, have been made. Results for interim periods are not necessarily indicative of those to be expected for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Company's special financial report on Form 10-K for the year ended December 31, 2003.
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.
8
2. Recently Issued Financial Accounting Standards
In January 2003, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities." FIN 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. 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 is required to adopt this financial interpretation on January 1, 2005. The Company does not believe that the impact of FIN 46R on its financial statements will be significant.
3. Inventories
Inventories consist of the following (dollars in millions):
| |
September 30, 2004 |
December 31, 2003 |
|||||
|---|---|---|---|---|---|---|---|
| Raw materials and supplies | $ | 260.0 | $ | 257.2 | |||
| Work in progress | 39.0 | 32.7 | |||||
| Finished goods | 721.9 | 619.8 | |||||
| Total | 1,020.9 | 909.7 | |||||
LIFO reserves |
(67.1 |
) |
(15.5 |
) |
|||
| Lower of cost or market reserves | (0.5 | ) | (1.3 | ) | |||
| Net | $ | 953.3 | $ | 892.9 | |||
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 Company's 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 $5.4 million receivable and $8.2 million payable (32.8 million and 26.9 million pounds, respectively) at September 30, 2004 and December 31, 2003, respectively.
9
4. Property, Plant and Equipment
The cost and accumulated depreciation of property, plant and equipment consist of the following (dollars in millions):
| |
September 30, 2004 |
December 31, 2003 |
|||||
|---|---|---|---|---|---|---|---|
| Land | $ | 105.6 | $ | 100.7 | |||
| Buildings | 356.3 | 383.4 | |||||
| Plant and equipment | 6,006.2 | 6,004.2 | |||||
| Construction in progress | 223.7 | 249.0 | |||||
| Total | 6,691.8 | 6,737.3 | |||||
| Less accumulated depreciation | (2,401.7 | ) | (2,165.2 | ) | |||
| Net | $ | 4,290.1 | $ | 4,572.1 | |||
5. Investments in Unconsolidated Affiliates
The Company's ownership percentage and investments in unconsolidated affiliates, primarily manufacturing joint ventures, consist of the following (dollars in millions):
| |
September 30, 2004 |
December 31, 2003 |
|||||
|---|---|---|---|---|---|---|---|
| Equity Method: | |||||||
| Polystyrene Australia Pty Ltd. (50%) | $ | 4.5 | 3.6 | ||||
| Sasol-Huntsman GmbH and Co. KG (50%) | 14.5 | 13.2 | |||||
| Louisiana Pigment Company, L.P. (50%) | 121.3 | 130.4 | |||||
| Rubicon, LLC (50%) | 5.6 | 1.0 | |||||
| BASF Huntsman Shanghai Isocyanate Investment BV (50%)(1) | 17.9 | 6.1 | |||||
| Others | 1.2 | 1.2 | |||||
| Total equity method investment | 165.0 | 155.5 | |||||
| Cost Method: | |||||||
| Gulf Advanced Chemicals Industry Corporation (4%) | 2.5 | 2.5 | |||||
| Total investment | $ | 167.5 | $ | 158.0 | |||
10
6. Intangible Assets
The gross carrying amount and accumulated amortization of intangible assets consist of the following (dollars in millions):
| |
September 30, 2004 |
December 31, 2003 |
||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Gross Carrying Amount |
Accumulated Amortization |
Net |
Gross Carrying Amount |
Accumulated Amortization |
Net |
||||||||||||
| Patents, trademarks, and technology | $ | 406.3 | $ | 169.0 | $ | 237.3 | $ | 405.0 | $ | 143.7 | $ | 261.3 | ||||||
| Licenses and other agreements | 18.3 | 10.7 | 7.6 | 18.3 | 9.5 | 8.8 | ||||||||||||
| Non-compete agreements | 49.6 | 42.5 | 7.1 | 49.6 | 38.5 | 11.1 | ||||||||||||
| Other intangibles | 1.3 | |||||||||||||||||