See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
As of March 31, 2023 and 2022, the amount of capital expenditures in accounts payable was $21 million and $41 million, respectively.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
As of March 31, 2023 and 2022, the amount of capital expenditures in accounts payable was $21 million and $41 million, respectively.
See accompanying notes to condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Certain Definitions
For convenience in this report, the terms “Company,” “Huntsman,” “our,” “us” or “we” may be used to refer to Huntsman Corporation and, unless the context otherwise requires, its subsidiaries and predecessors. In this report, “Huntsman International” refers to Huntsman International LLC (our wholly-owned subsidiary).
In this report, we may use, without definition, the common names of competitors or other industry participants. We may also use the common names or abbreviations for certain chemicals or products.
Interim Financial Statements
Our unaudited interim condensed consolidated financial statements and Huntsman International’s unaudited interim condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) and in management’s opinion reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of operations, comprehensive income, financial position and cash flows for the periods presented. Results for interim periods are not necessarily indicative of those to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022 for our Company and Huntsman International.
Description of Businesses
We are a global manufacturer of diversified organic chemical products. We operate in three segments: Polyurethanes, Performance Products and Advanced Materials. Our products comprise many different chemicals and formulations, which we market globally to a wide range of consumers that consist primarily of industrial and building product manufacturers. Our products are used in a broad range of applications, including those in the adhesives, aerospace, automotive, coatings and construction, construction products, durable and non-durable consumer products, electronics, insulation, packaging, power generation and refining. Many of our products offer effects such as premium insulation in homes and buildings and the light weighting of airplanes and automobiles that help conserve energy. We are a leading global producer in many of our key product lines, including MDI, amines, maleic anhydride and epoxy-based polymer formulations. We operate all of our businesses through Huntsman International, our wholly-owned subsidiary. Huntsman International is a Delaware limited liability company and was formed in 1999.
Huntsman Corporation and Huntsman International Financial Statements
Except where otherwise indicated, these notes relate to the condensed consolidated financial statements for both our Company and Huntsman International. The differences between our condensed consolidated financial statements and Huntsman International’s condensed consolidated financial statements relate primarily to different capital structures and purchase accounting recorded at our Company for the 2003 step-acquisition of Huntsman International Holdings LLC, the former parent company of Huntsman International that was merged into Huntsman International in 2005.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of our wholly-owned and majority-owned subsidiaries and any variable interest entities for which we are the primary beneficiary. Intercompany accounts and transactions have been eliminated.
Reclassfications
Certain amounts in the condensed consolidated financial statements for prior periods have been recast to present the results of operations of our textile chemicals and dyes business (“Textile Effects Business”) as discontinued operations. For more information, see “Note 3. Discontinued Operations and Business Disposition—Sale of Textile Effects Business.”
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
There were no accounting pronouncements that we adopted during the three months ended March 31, 2023. Recently issued accounting pronouncements that become effective subsequent to March 31, 2023 either will not have a material impact on us or are not applicable to us.
3. DISCONTINUED OPERATIONS AND BUSINESS DISPOSITION
SaLE of tEXTILE eFFECTS bUSINESS
On February 28, 2023, we completed the sale of our Textile Effects Business to Archroma, a portfolio company of SK Capital Partners (“Archroma”), for a purchase price of $593 million, which includes estimated adjustments to the purchase price for working capital plus the assumption of underfunded pension liabilities. The final purchase price is subject to customary post-closing adjustments. Upon the completion of the sale, we received net proceeds of $530 million, determined as the preliminary purchase price less $5 million for certain costs paid by Archroma on our behalf, $30 million of estimated net working capital adjustments and $28 million of cash that will be reimbursed to us as part of the final post-closing adjustments anticipated in 2023. In connection with the sale, we recognized a pre-tax gain of $153 million in the first quarter of 2023. Through the first quarter of 2023, we have paid cash taxes of approximately $12 million, and we expect to pay additional cash taxes of approximately $30 million. Certain amounts for prior periods have been recast to present the results of operations of our Textile Effects Business as discontinued operations.
The following table reconciles the carrying amounts of major classes of assets and liabilities of discontinued operations to total assets and liabilities of discontinued operations that are classified as held for sale in our condensed consolidated balance sheets (dollars in millions):
| | | December 31, | |
| | | 2022 | |
| Carrying amounts of major classes of assets held for sale: | | | | |
| Accounts receivable | | $ | 133 | |
| Inventories | | | 151 | |
| Other current assets | | | 11 | |
| Property, plant and equipment, net | | | 134 | |
| Deferred income taxes | | | 13 | |
| Operating lease right-of-use assets | | | 15 | |
| Other noncurrent assets | | | 15 | |
| Total current assets held for sale(1) | | $ | 472 | |
| Carrying amounts of major classes of liabilities held for sale: | | | | |
| Accounts payable | | $ | 63 | |
| Accrued liabilities | | | 47 | |
| Current operating lease liabilities | | | 2 | |
| Noncurrent operating lease liabilities | | | 17 | |
| Other noncurrent liabilities | | | 65 | |
| Total current liabilities held for sale(1) | | $ | 194 | |
| (1) | Total assets and liabilities held for sale as of December 31, 2022 are classified as current because we completed the sale of our Textile Effects Business on February 28, 2023. |
The following table reconciles major line items constituting pretax income of discontinued operations to after-tax income of discontinued operations, primarily related to our Textile Effects Business, as presented in our condensed consolidated statements of operations (dollars in millions):
| | | Three months | |
| | | ended | |
| | | March 31, | |
| | | 2023 | | | 2022 | |
| Major line items constituting pretax income of discontinued operations: | | | | | | | | |
| Trade sales, services and fees, net | | $ | 88 | | | $ | 197 | |
| Cost of goods sold | | | 69 | | | | 147 | |
| Gain on sale of our Textile Effects Business | | | 153 | | | | — | |
| Other expense items, net | | | 35 | | | | 27 | |
| Income from discontinued operations before income taxes | | | 137 | | | | 23 | |
| Income tax expense | | | (15 | ) | | | (5 | ) |
| Net income attributable to discontinued operations | | $ | 122 | | | $ | 18 | |
SaLE of Venator InterEST
On December 23, 2020, we completed the sale of approximately 42.4 million ordinary shares of Venator Materials PLC (“Venator”). Concurrent with the sale of ordinary shares, we entered into an option agreement, pursuant to which we granted an option to funds advised by SK Capital Partners, LP to purchase the remaining approximate 9.7 million ordinary shares we hold in Venator at $2.15 per share. The option will expire on June 23, 2023 and will not be exercisable so long as such exercise would result in a default or an “Event of Default” under Venator’s Term Loan Credit Agreement and Revolving Credit Agreement. We record this option at fair value with changes in fair value reported in earnings. We account for our remaining ownership interest in Venator as an investment in equity securities that are marked to fair value with changes in fair value reported in earnings. For the three months ended March 31, 2023 and 2022, we recorded net losses of $1 million and $2 million, respectively, to record our investment in Venator and related option at fair value. These net losses were recorded in “Fair value adjustments to Venator investment, net” in our condensed consolidated statements of operations.
4. INVENTORIES
We state our inventories at the lower of cost or market, with cost determined using average cost, last-in first-out (“LIFO”) and first-in first-out methods for different components of inventory. Inventories consisted of the following (dollars in millions):
| | | March 31, | | | December 31, | |
| | | 2023 | | | 2022 | |
| Raw materials and supplies | | $ | 238 | | | $ | 241 | |
| Work in progress | | | 43 | | | | 40 | |
| Finished goods | | | 809 | | | | 758 | |
| Total | | | 1,090 | | | | 1,039 | |
| LIFO reserves | | | (42 | ) | | | (44 | ) |
| Net inventories | | $ | 1,048 | | | $ | 995 | |
For both March 31, 2023 and December 31, 2022, approximately 8% of inventories were recorded using the LIFO cost method.
5. VARIABLE INTEREST ENTITIES
We evaluate our investments and transactions to identify variable interest entities for which we are the primary beneficiary. We hold a variable interest in the following joint ventures for which we are the primary beneficiary:
| |
● |
Rubicon LLC is our 50%-owned joint venture with Lanxess that manufactures products for our Polyurethanes and Performance Products segments. |
| |
● |
Arabian Amines Company (“AAC”) is our 50%-owned joint venture with Zamil group that manufactures products for our Performance Products segment. |
During the three months ended March 31, 2023, there were no changes in our variable interest entities.
Creditors of our variable interest entities have no recourse to our general credit. See “Note 7. Debt—Direct and Subsidiary Debt.” As the primary beneficiary of these variable interest entities at March 31, 2023, the joint ventures’ assets, liabilities and results of operations are included in our condensed consolidated financial statements.
The following table summarizes the carrying amounts of our variable interest entities’ assets and liabilities included in our condensed consolidated balance sheet as of March 31, 2023 and our consolidated balance sheet as of December 31, 2022 (dollars in millions):
| |
|
March 31, |
|
|
December 31, |
|
| |
|
2023 |
|
|
2022 |
|
| Current assets |
|
$ |
77 |
|
|
$ |
73 |
|
| Property, plant and equipment, net |
|
|
147 |
|
|
|
149 |
|
| Operating lease right-of-use assets |
|
|
28 |
|
|
|
28 |
|
| Other noncurrent assets |
|
|
141 |
|
|
|
140 |
|
| Deferred income taxes |
|
|
13 |
|
|
|
13 |
|
| Total assets |
|
$ |
406 |
|
|
$ |
403 |
|
| Current liabilities |
|
$ |
129 |
|
|
$ |
144 |
|
| Long-term debt |
|
|
24 |
|
|
|
26 |
|
| Noncurrent operating lease liabilities |
|
|
18 |
|
|
|
19 |
|
| Other noncurrent liabilities |
|
|
24 |
|
|
|
25 |
|
| Total liabilities |
|
$ |
195 |
|
|
$ |
214 |
|
The revenues, income from continuing operations before income taxes and net cash provided by operating activities for our variable interest entities for the three months ended March 31, 2023 and 2022 are as follows (dollars in millions):
| |
|
Three months |
|
| |
|
ended |
|
| |
|
March 31, |
|
| |
|
2023 |
|
|
2022 |
|
| Revenues |
|
$ |
— |
|
|
$ |
— |
|
| Income from continuing operations before income taxes |
|
|
15 |
|
|
|
5 |
|
| Net cash provided by operating activities |
|
|
25 |
|
|
|
8 |
|
6. RESTRUCTURING, IMPAIRMENT AND PLANT CLOSING COSTS
As of March 31, 2023 and December 31, 2022, accrued restructuring costs by type of cost consisted of the following (dollars in millions):
| |
|
Workforce reductions |
|
|
Other restructuring costs |
|
|
Total |
|
| Accrued liabilities as of January 1, 2023 |
|
$ |
76 |
|
|
$ |
— |
|
|
$ |
76 |
|
| (Credits) charges |
|
|
(10 |
) |
|
|
3 |
|
|
|
(7 |
) |
| Payments |
|
|
(17 |
) |
|
|
(4 |
) |
|
|
(21 |
) |
| Accrued liabilities as of March 31, 2023 |
|
$ |
49 |
|
|
$ |
(1 |
) |
|
$ |
48 |
|
Details with respect to our reserves for restructuring, impairment and plant closing costs by segment are provided below (dollars in millions):
| |
|
|
|
|
|
Performance |
|
|
Advanced |
|
|
Corporate |
|
|
|
|
|
| |
|
Polyurethanes |
|
|
Products |
|
|
Materials |
|
|
and other |
|
|
Total |
|
| Accrued liabilities as of January 1, 2023 |
|
$ |
24 |
|
|
$ |
5 |
|
|
$ |
10 |
|
|
$ |
37 |
|
|
$ |
76 |
|
| (Credits) charges |
|
|
(4 |
) |
|
|
1 |
|
|
|
2 |
|
|
|
(6 |
) |
|
|
(7 |
) |
| Payments |
|
|
(6 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
(11 |
) |
|
|
(21 |
) |
| Accrued liabilities as of March 31, 2023 |
|
$ |
14 |
|
|
$ |
6 |
|
|
$ |
8 |
|
|
$ |
20 |
|
|
$ |
48 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current portion of restructuring reserves |
|
$ |
14 |
|
|
$ |
6 |
|
|
$ |
8 |
|
|
$ |
20 |
|
|
$ |
48 |
|
| Long-term portion of restructuring reserves |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Details with respect to cash and noncash restructuring (credits) charges from continuing operations for the three months ended March 31, 2023 and 2022 are provided below (dollars in millions):
| |
|
Three months |
|
| |
|
ended |
|
| |
|
March 31, |
|
| |
|
2023 |
|
|
2022 |
|
| Cash credits |
|
$ |
(7 |
) |
|
$ |
— |
|
| Noncash charges: |
|
|
|
|
|
|
|
|
| Other noncash charges |
|
|
— |
|
|
|
— |
|
| Total restructuring, impairment and plant closing credits |
|
$ |
(7 |
) |
|
$ |
— |
|
Restructuring Activities
Beginning in the fourth quarter of 2022, we implemented a restructuring program to further realign our cost structure with additional restructuring in Europe. This program is associated with all of our segments and includes exiting and consolidating certain facilities, workforce relocation to lower cost locations and further personnel rationalization. During the first quarter of 2023, we evaluated current developments of this program and related anticipated cash costs, and we recorded a net restructuring credit of approximately $8 million for the three months ended March 31, 2023, primarily to adjust restructuring reserves that are no longer required for certain workforce reductions. We expect to record further restructuring expenses of approximately $7 million through the end of 2023.
Beginning in the first quarter of 2021, our Corporate function implemented a restructuring program to optimize our global approach to leveraging shared services capabilities. During the second quarter of 2022, this program was further expanded to include additional geographies. During the first quarter of 2023, we evaluated current developments of this program and related anticipated cash costs, and we recorded a net restructuring credit of approximately $5 million for the three months ended March 31, 2023, primarily to adjust restructuring reserves that are no longer required for certain workforce reductions. There were no significant restructuring costs incurred during the three months ended March 31, 2022. We expect to record further restructuring expenses of approximately $1 million through the end of 2023.
Beginning in the third quarter of 2020, our Polyurethanes segment implemented a restructuring program to optimize its downstream footprint. During the second quarter of 2022, this optimization program was further expanded to include the entire Polyurethanes business. In connection with this restructuring program, we recorded net restructuring expense of approximately $2 million in the three months ended March 31, 2023, primarily related to workforce reductions. There were no significant restructuring costs incurred during the three months ended March 31, 2022. We expect to record further restructuring expenses of approximately $1 million through the end of 2023.
Beginning in the second quarter of 2020, our Advanced Materials segment implemented restructuring programs in connection with the CVC Thermoset Specialties Acquisition, the alignment of the segment’s commercial organization and optimization of the segment’s manufacturing processes. In connection with these restructuring programs, we recorded net restructuring expense of approximately $2 million in the three months ended March 31, 2023, primarily related to a site closure. There were no significant restructuring costs incurred during the three months ended March 31, 2022. We expect to record further restructuring expenses of approximately $1 million through the end of 2023.
7. DEBT
Our outstanding debt, net of debt issuance costs, consisted of the following (dollars in millions):
| | | March 31, | | | December 31, | |
| | | 2023 | | | 2022 | |
| Senior Credit Facilities: | | | | | | | | |
| Revolving facility | | $ | — | | | $ | 55 | |
| Amounts outstanding under A/R programs | | | — | | | | 166 | |
| Senior notes | | | 1,462 | | | | 1,455 | |
| Variable interest entities | | | 33 | | | | 35 | |
| Other | | | 25 | | | | 26 | |
| Total debt | | $ | 1,520 | | | $ | 1,737 | |
| Current portion of debt | | $ | 11 | | | $ | 66 | |
| Long-term portion of debt | | | 1,509 | | | | 1,671 | |
| Total debt | | $ | 1,520 | | | $ | 1,737 | |
Direct and Subsidiary Debt
Substantially all of our debt, including the facilities described below, has been incurred by our subsidiaries (primarily Huntsman International). Huntsman Corporation is not a guarantor of such subsidiary debt.
Certain of our subsidiaries have third-party debt agreements that contain certain restrictions with regard to dividends, distributions, loans or advances. In certain circumstances, the consent of a third party would be required prior to the transfer of any cash or assets from these subsidiaries to us.
Debt Issuance Costs
We record debt issuance costs related to a debt liability on the balance sheets as a reduction to the face amount of that debt liability. As of both March 31, 2023 and December 31, 2022, the amount of debt issuance costs directly reducing the debt liability was $8 million. We amortize debt issuance costs using either a straight line or effective interest method, depending on the debt agreement, and record them as interest expense.
Revolving Credit Facility
On May 20, 2022, Huntsman International entered into a new $1.2 billion senior unsecured revolving credit facility (the “2022 Revolving Credit Facility”). Borrowings will bear interest at the rates specified in the credit agreement governing the 2022 Revolving Credit Facility, which will vary based on the type of loan and Huntsman International’s debt ratings. Under the credit agreement, the interest rate margin and the commitment fee rates are also subject to adjustments based on the Company’s performance on specified sustainability target thresholds with respect to annual percentage reduction in operational greenhouse gas emissions intensity and annual percentage reduction in water consumption intensity. Unless previously terminated in accordance with its terms, the credit agreement will mature in May 2027. Huntsman International may increase the 2022 Revolving Credit Facility commitments up to an additional $500 million, subject to the satisfaction of certain conditions.
The following table presents certain amounts under our 2022 Revolving Credit Facility as of March 31, 2023 (monetary amounts in millions):
| | | | | | | | | | | Unamortized | | | | | | | | | | | |
| | | | | | | | | | | discounts and | | | | | | | | | | | |
| | | Committed | | | Principal | | | debt issuance | | | Carrying | | | | | | | |
| Facility | | amount | | | outstanding | | | costs | | | value | | | Interest rate(2) | | Maturity | |
| 2022 Revolving Credit Facility | | $ | 1,200 | | | $ | — | (1) | | $ | — | (1) | | $ | — | (1) | | Term Secured Overnight Financing Rate (“SOFR”) plus 1.475% | | | May 2027 | |
| (1) | On March 31, 2023, we had an additional $13 million (U.S. dollar equivalents) of letters of credit and bank guarantees issued and outstanding under our 2022 Revolving Credit Facility. |
| (2) | Interest rates on borrowings under the 2022 Revolving Credit Facility vary based on the type of loan and Huntsman International’s debt ratings. The representative interest rate for U.S. dollar borrowings as of March 31, 2023 was 1.475% above term SOFR. |
A/R Programs
Our U.S. accounts receivable securitization program (“U.S. A/R Programs”) and our European accounts receivable securitization program (“EU A/R Program” and collectively with the U.S. A/R Program, “A/R Programs”) are structured so that we transfer certain of our trade receivables to the U.S. special purpose entity (“U.S. SPE”) and the European special purpose entity (“EU SPE”) in transactions intended to be true sales or true contributions. The receivables collateralize debt incurred by the U.S. SPE and the EU SPE.
On July 1, 2021, we entered into amendments to our A/R Programs that, among other things, extended the respective scheduled termination dates of our A/R Programs from April 2022 to July 2024.
Information regarding our A/R Programs as of March 31, 2023 was as follows (monetary amounts in millions):
| | | | | Maximum funding | | | Amount | | | |
| Facility | | Maturity | | availability(1) | | | outstanding | | | Interest rate(2) |
| U.S. A/R Program | | July 2024 | | $ | 150 | | | $ | — | | (3) | Applicable rate plus 0.90% |
| EU A/R Program | | July 2024 | | € | 100 | | | € | — | | | Applicable rate plus 1.30% |
| | | | | (or approximately $109) | | | | | | |
| (1) | The amount of actual availability under our A/R Programs may be lower based on the level of eligible receivables sold, changes in the credit ratings of our customers, customer concentration levels and certain characteristics of the accounts receivable being transferred, as defined in the applicable agreements. |
| (2) | The applicable rate for our U.S. A/R Program is defined by the lender as USD LIBOR. The applicable rate for our EU A/R Program is either USD LIBOR, EURIBOR or SONIA (Sterling Overnight Interbank Average Rate). In anticipation of the transition away from USD LIBOR, the amendments we made in July 2021 to our A/R Programs incorporated replacement rates for the USD LIBOR. |
| (3) | As of March 31, 2023, we had approximately $8 million (U.S. dollar equivalents) of letters of credit issued and outstanding under our U.S. A/R Program. |
As of March 31, 2023 and December 31, 2022, $306 million and $272 million, respectively, of accounts receivable were pledged as collateral under our A/R Programs.
Senior Notes
Our senior notes consisted of the following (monetary amounts in millions):
| | | | | | | | | | | Unamortized | |
| | | | | | | | | | | premiums, | |
| | | | | | | | | | | discounts | |
| | | | | | | | | | | and debt | |
| Notes | | Maturity | | Interest rate | | | Amount outstanding | | issuance costs | |
| 2025 Senior Notes | | April 2025 | | | 4.25 | % | | €300 (€299 carrying value $(325)) | | $ | 1 | |
| 2029 Senior Notes | | February 2029 | | | 4.50 | % | | $750 ($740 carrying value) | | | 10 | |
| 2031 Senior Notes | | June 2031 | | | 2.95 | % | | $400 ($397 carrying value) | | | 3 | |
Variable Interest Entity Debt
As of March 31, 2023, AAC, our consolidated 50%-owned joint venture, had $33 million outstanding under its loan commitments and debt financing arrangements. As of March 31, 2023, we have $9 million classified as current debt and $24 million as long-term debt on our condensed consolidated balance sheets. We do not guarantee these loan commitments, and AAC is not a guarantor of any of our other debt obligations.
Compliance with Covenants
We believe that we are in compliance with the covenants contained in the agreements governing our material debt instruments, including our 2022 Revolving Credit Facility, our A/R Programs and our senior notes.
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to market risks, such as changes in interest rates, foreign exchange rates and commodity prices. From time to time, we enter into transactions, including transactions involving derivative instruments, to manage certain of these exposures. We also hedge our net investment in certain European operations.
Our revenues and expenses are denominated in various foreign currencies, and our cash flows and earnings are thus subject to fluctuations due to exchange rate variations. From time to time, we may enter into foreign currency derivative instruments to minimize the short-term impact of movements in foreign currency rates. Where practicable, we generally net multicurrency cash balances among our subsidiaries to help reduce exposure to foreign currency exchange rates. Certain other exposures may be managed from time to time through financial market transactions, principally through the purchase of spot or forward foreign exchange contracts (generally with maturities of one year or less). We do not hedge our foreign currency exposures in a manner that would eliminate the effect of changes in exchange rates on our cash flows and earnings. As of March 31, 2023, we had approximately $387 million in notional amount (in U.S. dollar equivalents) outstanding in forward foreign currency contracts related to continuing operations.
From time to time, we may purchase interest rate swaps and/or other derivative instruments to reduce the impact of changes in interest rates on our floating-rate exposures. Under interest rate swaps, we agree with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount.
We review our non-U.S. dollar denominated debt and derivative instruments to determine the appropriate amounts designated as hedges. As of March 31, 2023, we have designated approximately €175 million (approximately $190 million) of euro-denominated debt as a hedge of our net investment. For the three months ended March 31, 2023 and 2022, the amounts recognized on the hedge of our net investment were a loss of $4 million and a gain of $3 million, respectively, and were recorded in other comprehensive (loss) income in our condensed consolidated statements of comprehensive income.
9. FAIR VALUE
The fair values of financial instruments were as follows (dollars in millions):
| | | March 31, 2023 | | | December 31, 2022 | |
| | | Carrying | | | Estimated | | | Carrying | | | Estimated | |
| | | value | | | fair value | | | value | | | fair value | |
| Non-qualified employee benefit plan investments | | $ | 14 | | | $ | 14 | | | $ | 15 | | | $ | 15 | |
| Investment in Venator | | | 4 | | | | 4 | | | | 5 | | | | 5 | |
| Option agreement for remaining Venator shares | | | — | | | | — | | | | — | | | | — | |
| Long-term debt (including current portion) | | | (1,520 | ) | | | (1,418 | ) | | | (1,737 | ) | | | (1,578 | ) |
The carrying amounts reported in the balance sheets of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair values of non-qualified employee benefit plan investments are obtained through market observable pricing using prevailing market prices (Level 1). The estimated fair values of our long-term debt are based on quoted market prices for the identical liability when traded in an active market (Level 1). Our investment in Venator is marked to fair value, which is obtained through market observable pricing using prevailing market prices (Level 1). Additionally, the estimated fair value of the option agreement related to the remaining ordinary shares we hold in Venator, which rounds to nil as of both March 31, 2023 and December 31, 2022, is based on a valuation technique using market observable inputs (Level 2). See “Note 3. Discontinued Operations and Business Disposition—Sale of Venator Interest.” The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2023 and December 31, 2022. Although we are not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, 2023, and current estimates of fair value may differ significantly from the amounts presented herein.
During the three months ended March 31, 2023, we held no instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3), and there were no gains or losses (realized and unrealized) included in our earnings for instruments categorized as Level 3 within the fair value hierarchy.
10. REVENUE RECOGNITION
The following tables disaggregate our revenue from continuing operations by major source for the three months ended March 31, 2023 and 2022 (dollars in millions):
| |
|
|
|
|
|
Performance |
|
|
Advanced |
|
|
Corporate and |
|
|
|
|
|
| 2023 |
|
Polyurethanes |
|
|
Products |
|
|
Materials |
|
|
eliminations |
|
|
Total |
|
| Primary geographic markets(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. and Canada |
|
$ |
386 |
|
|
$ |
157 |
|
|
$ |
89 |
|
|
$ |
(3 |
) |
|
$ |
629 |
|
| Europe |
|
|
272 |
|
|
|
74 |
|
|
|
116 |
|
|
|
(4 |
) |
|
|
458 |
|
| Asia Pacific |
|
|
258 |
|
|
|
79 |
|
|
|
62 |
|
|
|
(1 |
) |
|
|
398 |
|
| Rest of world |
|
|
75 |
|
|
|
24 |
|
|
|
22 |
|
|
|
— |
|
|
|
121 |
|
| |
|
$ |
991 |
|
|
$ |
334 |
|
|
$ |
289 |
|
|
$ |
(8 |
) |
|
$ |
1,606 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Major product groupings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| MDI urethanes |
|
$ |
991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
991 |
|
| Differentiated |
|
|
|
|
|
$ |
334 |
|
|
|
|
|
|
|
|
|
|
|
334 |
|
| Specialty |
|
|
|
|
|
|
|
|
|
$ |
268 |
|
|
|
|
|
|
|
268 |
|
| Other |
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
21 |
|
| Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(8 |
) |
|
|
(8 |
) |
| |
|
$ |
991 |
|
|
$ |
334 |
|
|
$ |
289 |
|
|
$ |
(8 |
) |
|
$ |
1,606 |
|
| |
|
|
|
|
|
Performance |
|
|
Advanced |
|
|
Corporate and |
|
|
|
|
|
| 2022 |
|
Polyurethanes |
|
|
Products |
|
|
Materials |
|
|
eliminations |
|
|
Total |
|
| Primary geographic markets(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. and Canada |
|
$ |
560 |
|
|
$ |
205 |
|
|
$ |
106 |
|
|
$ |
(3 |
) |
|
$ |
868 |
|
| Europe |
|
|
355 |
|
|
|
120 |
|
|
|
128 |
|
|
|
(4 |
) |
|
|
599 |
|
| Asia Pacific |
|
|
360 |
|
|
|
124 |
|
|
|
71 |
|
|
|
(1 |
) |
|
|
554 |
|
| Rest of world |
|
|
111 |
|
|
|
31 |
|
|
|
30 |
|
|
|
(1 |
) |
|
|
171 |
|
| |
|
$ |
1,386 |
|
|
$ |
480 |
|
|
$ |
335 |
|
|
$ |
(9 |
) |
|
$ |
2,192 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Major product groupings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| MDI urethanes |
|
$ |
1,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,386 |
|
| Differentiated |
|
|
|
|
|
$ |
480 |
|
|
|
|
|
|
|
|
|
|
|
480 |
|
| Specialty |
|
|
|
|
|
|
|
|
|
$ |
306 |
|
|
|
|
|
|
|
306 |
|
| Other |
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
29 |
|
| Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9 |
) |
|
|
(9 |
) |
| |
|
$ |
1,386 |
|
|
$ |
480 |
|
|
$ |
335 |
|
|
$ |
(9 |
) |
|
$ |
2,192 |
|
| (1) |
Geographic information for revenues is based upon countries into which product is sold. |
11. EMPLOYEE BENEFIT PLANS
Components of the net periodic benefit (credit) cost from continuing operations for the three months ended March 31, 2023 and 2022 were as follows (dollars in millions):
Huntsman Corporation
| |
|
|
|
|
|
|
|
|
|
Other postretirement |
|
| |
|
Defined benefit plans |
|
|
benefit plans |
|
| |
|
Three months |
|
|
Three months |
|
| |
|
ended |
|
|
ended |
|
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
| Service cost |
|
$ |
6 |
|
|
$ |
11 |
|
|
$ |
— |
|
|
$ |
— |
|
| Interest cost |
|
|
23 |
|
|
|
13 |
|
|
|
1 |
|
|
|
— |
|
| Expected return on assets |
|
|
(31 |
) |
|
|
(38 |
) |
|
|
— |
|
|
|
— |
|
| Amortization of prior service benefit |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
| Amortization of actuarial loss |
|
|
8 |
|
|
|
12 |
|
|
|
— |
|
|
|
1 |
|
| Net periodic benefit cost (credit) |
|
$ |
5 |
|
|
$ |
(3 |
) |
|
$ |
— |
|
|
$ |
— |
|
Huntsman International
| |
|
|
|
|
|
|
|
|
|
Other postretirement |
|
| |
|
Defined benefit plans |
|
|
benefit plans |
|
| |
|
Three months |
|
|
Three months |
|
| |
|
ended |
|
|
ended |
|
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
| Service cost |
|
$ |
6 |
|
|
$ |
11 |
|
|
$ |
— |
|
|
$ |
— |
|
| Interest cost |
|
|
23 |
|
|
|
13 |
|
|
|
1 |
|
|
|
— |
|
| Expected return on assets |
|
|
(31 |
) |
|
|
(38 |
) |
|
|
— |
|
|
|
— |
|
| Amortization of prior service benefit |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
| Amortization of actuarial loss |
|
|
8 |
|
|
|
12 |
|
|
|
— |
|
|
|
1 |
|
| Net periodic benefit cost (credit) |
|
$ |
5 |
|
|
$ |
(3 |
) |
|
$ |
— |
|
|
$ |
— |
|
During both of the three months ended March 31, 2023 and 2022, we made contributions to our pension and other postretirement benefit plans related to continuing operations of $11 million. During the remainder of 2023, we expect to contribute an additional amount of approximately $28 million to these plans.
12. HUNTSMAN CORPORATION STOCKHOLDERS’ EQUITY
Share Repurchase Program
On October 26, 2021, our Board of Directors approved a share repurchase program of $1 billion. On March 25, 2022, our Board of Directors increased the authorization of our share repurchase program from $1 billion to $2 billion. The share repurchase program is supported by our free cash flow generation. Repurchases may be made in the open market, including through accelerated share repurchase programs, or in privately negotiated transactions, and repurchases may be commenced or suspended from time to time without prior notice. Shares of common stock acquired through the repurchase program are held in treasury at cost. During the three months ended March 31, 2023, we repurchased 3,472,020 shares of our common stock for approximately $101 million, including commissions, under this share repurchase program. From April 1, 2023 through April 25, 2023, we repurchased an additional 588,282 shares of our common stock for approximately $16 million.
Dividends on Common Stock
During the quarters ended March 31, 2023 and March 31, 2022, we declared dividends of $44 million and $45 million, respectively, or $0.2375 and $0.2125 per share, respectively, to common stockholders.
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of other comprehensive (loss) income and changes in accumulated other comprehensive loss by component were as follows (dollars in millions):
Huntsman Corporation
| | | | | | | Pension | | | Other | | | | | | | | | | | | | | | | | |
| | | Foreign | | | and other | | | comprehensive | | | | | | | | | | | Amounts | | | Amounts | |
| | | currency | | | postretirement | | | income of | | | | | | | | | | | attributable to | | | attributable to | |
| | | translation | | | benefits | | | unconsolidated | | | | | | | | | | | noncontrolling | | | Huntsman | |
| | | adjustments(a) | | | adjustments(b) | | | affiliates | | | Other, net | | | Total | | | interests | | | Corporation | |
| Beginning balance, January 1, 2023 | | $ | (648 | ) | | $ | (652 | ) | | $ | 2 | | | $ | 5 | | | $ | (1,293 | ) | | $ | 25 | | | $ | (1,268 | ) |
| Other comprehensive income (loss) before reclassifications, gross | | | 27 | | | | (24 | ) | | | — | | | | (1 | ) | | | 2 | | | | (2 | ) | | | — | |
| Tax impact | | | — | | | | 2 | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| Amounts reclassified from accumulated other comprehensive loss, gross(c) | | | 28 | | | | 72 | | | | — | | | | — | | | | 100 | | | | — | | | | 100 | |
| Tax impact | | | (1 | ) | | | 24 | | | | — | | | | — | | | | 23 | | | | — | | | | 23 | |
| Net current-period other comprehensive income (loss) | | | 54 | | | | 74 | | | | — | | | | (1 | ) | | | 127 | | | | (2 | ) | | | 125 | |
| Ending balance, March 31, 2023 | | $ | (594 | ) | | $ | (578 | ) | | $ | 2 | | | $ | 4 | | | $ | (1,166 | ) | | $ | 23 | | | $ | (1,143 | ) |
| (a) | Amounts are net of tax of $56 million and $55 million as of March 31, 2023 and January 1, 2023, respectively. |
| (b) | Amounts are net of tax of $57 million and $31 million as of March 31, 2023 and January 1, 2023, respectively. |
| (c) | See table below for details about these reclassifications. |
| | | | | | | Pension | | | Other | | | | | | | | | | | | | | | | | |
| | | Foreign | | | and other | | | comprehensive | | | | | | | | | | | Amounts | | | Amounts | |
| | | currency | | | postretirement | | | income of | | | | | | | | | | | attributable to | | | attributable to | |
| | | translation | | | benefits | | | unconsolidated | | | | | | | | | | | noncontrolling | | | Huntsman | |
| | | adjustments(a) | | | adjustments(b) | | | affiliates | | | Other, net | | | Total | | | interests | | | Corporation | |
| Beginning balance, January 1, 2022 | | $ | (420 | ) | | $ | (810 | ) | | $ | 8 | | | $ | 6 | | | $ | (1,216 | ) | | $ | 13 | | | $ | (1,203 | ) |
| Other comprehensive loss before reclassifications, gross | | | (20 | ) | | | — | | | | — | | | | (1 | ) | | | (21 | ) | | | 1 | | | | (20 | ) |
| Tax impact | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Amounts reclassified from accumulated other comprehensive loss, gross(c) | | | — | | | | 13 | | | | — | | | | — | | | | 13 | | | | — | | | | 13 | |
| Tax impact | | | — | | | | (4 | ) | | | — | | | | — | | | | (4 | ) | | | — | | | | (4 | ) |
| Net current-period other comprehensive (loss) income | | | (20 | ) | | | 9 | | | | — | | | | (1 | ) | | | (12 | ) | | | 1 | | | | (11 | ) |
| Ending balance, March 31, 2022 | | $ | (440 | ) | | $ | (801 | ) | | $ | 8 | | | $ | 5 | | | $ | (1,228 | ) | | $ | 14 | | | $ | (1,214 | ) |
| (a) | Amounts are net of tax of $56 million for both March 31, 2022 and January 1, 2022. |
| (b) | Amounts are net of tax of $77 million and $81 million as of March 31, 2022 and January 1, 2022, respectively. |
| (c) | See table below for details about these reclassifications. |
| | | Three Months Ended March 31, | | | |
| | | 2023 | | | 2022 | | | |
| | | Amounts reclassified | | | Amounts reclassified | | | Affected line item in |
| | | from accumulated | | | from accumulated | | | the statement |
| Details about accumulated other | | other | | | other | | | where net income |
| comprehensive loss components(a): | | comprehensive loss | | | comprehensive loss | | | is presented |
| Amortization of pension and other postretirement benefits: | | | | | | | | | | |
| Prior service credit | | $ | (2 | ) | | $ | (2 | ) | (b)(c) | Other income, net |
| Actuarial loss | | | 8 | | | | 15 | | (b)(c) | Other income, net |
| Curtailment gains | | | (1 | ) | | | — | | (d) | Other income, net |
| Settlement losses | | | 67 | | | | — | | (d) | Other income, net |
| | | | 72 | | | | 13 | | | Total before tax |
| | | | 24 | | | | (4 | ) | | Income tax expense |
| Total reclassifications for the period | | $ | 96 | | | $ | 9 | | | Net of tax |
| (a) | Pension and other postretirement benefits amounts in parentheses indicate credits on our condensed consolidated statements of operations. |
| (b) | These accumulated other comprehensive loss components are included in the computation of net periodic pension costs. See “Note 11. Employee Benefit Plans.” |
| (c) | Amounts include approximately $1 million of actuarial losses and prior service credits related to discontinued operations for both of the three months ended March 31, 2023 and 2022. |
| | |
| (d) | In connection with the sale of our Textile Effects Business, we recognized $67 million of pension settlement losses and $1 million of pension curtailment gains for the three months ended March 31, 2023. |
Huntsman International
| | | | | | | Pension | | | Other | | | | | | | | | | | | | | | | | |
| | | Foreign | | | and other | | | comprehensive | | | | | | | | | | | Amounts | | | Amounts | |
| | | currency | | | postretirement | | | income of | | | | | | | | | | | attributable to | | | attributable to | |
| | | translation | | | benefits | | | unconsolidated | | | | | | | | | | | noncontrolling | | | Huntsman | |
| | | adjustments(a) | | | adjustments(b) | | | affiliates | | | Other, net | | | Total | | | interests | | | International | |
| Beginning balance, January 1, 2023 | | $ | (653 | ) | | $ | (628 | ) | | $ | 2 | | | $ | 1 | | | $ | (1,278 | ) | | $ | 25 | | | $ | (1,253 | ) |
| Other comprehensive income (loss) before reclassifications, gross | | | 27 | | | | (24 | ) | | | — | | | | — | | | | 3 | | | | (2 | ) | | | 1 | |
| Tax impact | | | — | | | | 2 | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| Amounts reclassified from accumulated other comprehensive loss, gross(c) | | | 28 | | | | 72 | | | | — | | | | — | | | | 100 | | | | — | | | | 100 | |
| Tax impact | | | (1 | ) | | | 24 | | | | — | | | | — | | | | 23 | | | | — | | | | 23 | |
| Net current-period other comprehensive income (loss) | | | 54 | | | | 74 | | | | — | | | | — | | | | 128 | | | | (2 | ) | | | 126 | |
| Ending balance, March 31, 2023 | | $ | (599 | ) | | $ | (554 | ) | | $ | 2 | | | $ | 1 | | | $ | (1,150 | ) | | $ | 23 | | | $ | (1,127 | ) |
| (a) | Amounts are net of tax of $43 million and $42 million as of March 31, 2023 and January 1, 2023, respectively. |
| (b) | Amounts are net of tax of $81 million and $55 million as of March 31, 2023 and January 1, 2023, respectively. |
| (c) | See table below for details about these reclassifications. |
| | | | | | | Pension | | | Other | | | | | | | | | | | | | | | | | |
| | | Foreign | | | and other | | | comprehensive | | | | | | | | | | | Amounts | | | Amounts | |
| | | currency | | | postretirement | | | income of | | | | | | | | | | | attributable to | | | attributable to | |
| | | translation | | | benefits | | | unconsolidated | | | | | | | | | | | noncontrolling | | | Huntsman | |
| | | adjustments(a) | | | adjustments(b) | | | affiliates | | | Other, net | | | Total | | | interests | | | International | |
| Beginning balance, January 1, 2022 | | $ | (424 | ) | | $ | (786 | ) | | $ | 8 | | | $ | 2 | | | $ | (1,200 | ) | | $ | 13 | | | $ | (1,187 | ) |
| Other comprehensive loss before reclassifications, gross | | | (20 | ) | | | — | | | | — | | | | (1 | ) | | | (21 | ) | | | 1 | | | | (20 | ) |
| Tax impact | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Amounts reclassified from accumulated other comprehensive loss, gross(c) | | | — | | | | 13 | | | | — | | | | — | | | | 13 | | | | — | | | | 13 | |
| Tax impact | | | — | | | | (4 | ) | | | — | | | | — | | | | (4 | ) | | | — | | | | (4 | ) |
| Net current-period other comprehensive (loss) income | | | (20 | ) | | | 9 | | | | — | | | | (1 | ) | | | (12 | ) | | | 1 | | | | (11 | ) |
| Ending balance, March 31, 2022 | | $ | (444 | ) | | $ | (777 | ) | | $ | 8 | | | $ | 1 | | | $ | (1,212 | ) | | $ | 14 | | | $ | (1,198 | ) |
| (a) | Amounts are net of tax of $43 million for both March 31, 2022 and January 1, 2022. |
| (b) | Amounts are net of tax of $101 million and $105 million as of March 31, 2022 and January 1, 2022, respectively. |
| (c) | See table below for details about these reclassifications. |
| | | Three Months Ended March 31, | | | |
| | | 2023 | | | 2022 | | | |
| | | Amounts reclassified | | | Amounts reclassified | | | Affected line item in |
| | | from accumulated | | | from accumulated | | | the statement |
| Details about accumulated other | | other | | | other | | | where net income |
| comprehensive loss components(a): | | comprehensive loss | | | comprehensive loss | | | is presented |
| Amortization of pension and other postretirement benefits: | | | | | | | | | | |
| Prior service credit | | $ | (2 | ) | | $ | (2 | ) | (b)(c) | Other income, net |
| Actuarial loss | | | 8 | | | | 15 | | (b)(c) | Other income, net |
| Curtailment gains | | | (1 | ) | | | — | | (d) | Other income, net |
| Settlement losses | | | 67 | | | | — | | (d) | Other income, net |
| | | | 72 | | | | 13 | | | Total before tax |
| | | | 24 | | | | (4 | ) | | Income tax expense |
| Total reclassifications for the period | | $ | 96 | | | $ | 9 | | | Net of tax |
| (a) | Pension and other postretirement benefits amounts in parentheses indicate credits on our condensed consolidated statements of operations. |
| (b) | These accumulated other comprehensive loss components are included in the computation of net periodic pension costs. See “Note 11. Employee Benefit Plans.” |
| (c) | Amounts include approximately $1 million of actuarial losses and prior service credits related to discontinued operations for both of the three months ended March 31, 2023 and 2022. |
| | |
| (d) | In connection with the sale of our Textile Effects Business, we recognized $67 million of pension settlement losses and $1 million of pension curtailment gains for the three months ended March 31, 2023. |
14. COMMITMENTS AND CONTINGENCIES
Legal Matters
On April 29, 2022, a New Orleans jury awarded us approximately $94 million in our long-running court battle against Praxair/Linde, one of the industrial gas suppliers to our Geismar, Louisiana MDI manufacturing site. The case was filed after Praxair refused to properly maintain its own Geismar facility and then repeatedly failed to supply our requirements for industrial gas needed to manufacture MDI under long-term supply contracts that expired in 2013. After adding mandatory pre-judgment and post-judgment interest to the award, we expect damages to exceed $125 million before deducting for taxes and legal fees. The award is subject to a pending appeal, and if affirmed, we expect to receive net proceeds of approximately $50 million to $60 million. We have not yet recognized the award in our condensed consolidated statements of operations and the timing of the resolution of this matter is unknown.
We are a party to various other proceedings instituted by private plaintiffs, governmental authorities and others arising under provisions of applicable laws, including various environmental, products liability and other laws. We do not believe that the outcome of any of these matters will have a material effect on our financial condition, results of operations or liquidity.
15. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
EHS Capital Expenditures
We may incur future costs for capital improvements and general compliance under environmental, health and safety (“EHS”) laws, including costs to acquire, maintain and repair pollution control equipment. For the three months ended March 31, 2023 and 2022, our capital expenditures from continuing operations for EHS matters totaled $6 million and $7 million, respectively. Because capital expenditures for these matters are subject to evolving regulatory requirements and depend, in part, on the timing, promulgation and enforcement of specific requirements, our capital expenditures for EHS matters have varied significantly from year to year and we cannot provide assurance that our recent expenditures are indicative of future amounts we may spend related to EHS and other applicable laws.
Environmental Reserves
We have accrued liabilities relating to anticipated environmental cleanup obligations, site reclamation and closure costs and known penalties. Liabilities are recorded when potential liabilities are either known or considered probable and can be reasonably estimated. Our liability estimates are calculated using present value techniques as appropriate and are based upon requirements placed upon us by regulators, available facts, existing technology and past experience. The environmental liabilities do not include amounts recorded as asset retirement obligations. We had accrued $5 million for environmental liabilities as of both March 31, 2023 and December 31, 2022. Of these amounts, $1 million was classified as accrued liabilities in our condensed consolidated balance sheets as of both March 31, 2023 and December 31, 2022 and $4 million was classified as other noncurrent liabilities in our condensed consolidated balance sheets as of both March 31, 2023 and December 31, 2022. In certain cases, our remediation liabilities may be payable over periods of up to 30 years. We may incur losses for environmental remediation in excess of the amounts accrued; however, we are not able to estimate the amount or range of such potential excess.
Environmental Matters
Under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and similar state laws, a current or former owner or operator of real property in the U.S. may be liable for remediation costs regardless of whether the release or disposal of hazardous substances was in compliance with law at the time it occurred, and a current owner or operator may be liable regardless of whether it owned or operated the facility at the time of the release. Outside the U.S., analogous contaminated property laws can hold past owners and/or operators liable for remediation at former facilities. Currently, there are approximately six former facilities or third-party sites in the U.S. for which we have been notified of potential claims against us for cleanup liabilities, including, but not limited to, sites listed under CERCLA. Based on current information and past experiences at other CERCLA sites, we do not expect these third-party claims to have a material impact on our condensed consolidated financial statements.
Under the Resource Conservation and Recovery Act (“RCRA”) in the U.S. and similar state laws, we may be required to remediate contamination originating from our properties. Similar laws exist in a number of non-U.S. locations in which we currently operate, or previously operated, manufacturing facilities. Some of our manufacturing sites have an extended history of industrial chemical manufacturing and use, including on-site waste disposal. We are aware of soil, groundwater or surface contamination from past operations at some of our sites, and we may find contamination at other sites in the future. For example, our Geismar, Louisiana facility is the subject of ongoing remediation requirements imposed under RCRA.
North Maybe Canyon Mine Remediation
The North Maybe Canyon Mine site is a CERCLA site and involves a former phosphorous mine near Soda Springs, Idaho, which is believed to have been operated by several companies, including a predecessor company to us. In 2004, the U.S. Forest Service notified us that we are a CERCLA potentially responsible party (“PRP”) for contamination originating from the site. In February 2010, we and Wells Cargo (another PRP) agreed to conduct a Remedial Investigation/Feasibility Study of a portion of the site and are currently engaged in that process. At this time, we are unable to reasonably estimate our potential liabilities at this site.
16. STOCK-BASED COMPENSATION PLANS
As of March 31, 2023, we had approximately 5 million shares remaining under the stock-based compensation plans available for grant. Option awards have a maximum contractual term of 10 years and generally must have an exercise price at least equal to the market price of our common stock on the date the option award is granted. Outstanding stock-based awards generally vest annually over a three-year period or in total at the end of a three-year period. Certain performance share unit awards vest in total at the end of a two-year period.
The compensation cost from continuing operations under the stock-based compensation plans for our Company and Huntsman International were as follows (dollars in millions):
| | | Three months | |
| | | ended | |
| | | March 31, | |
| | | 2023 | | | 2022 | |
| Huntsman Corporation compensation cost | | $ | 9 | | | $ | 10 | |
| Huntsman International compensation cost | | | 8 | | | | 8 | |
The total income tax benefit recognized in the condensed consolidated statements of operations for us and Huntsman International for stock-based compensation arrangements was $1 million and $4 million for the three months ended March 31, 2023 and 2022, respectively.
Stock Options
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of our common stock through the grant date. The expected term of options granted was estimated based on the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior. The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions noted below represent the weighted average of the assumptions utilized for stock options granted during the periods.
During each of the three months ended March 31, 2023 and 2022, no stock options were granted.
A summary of stock option activity under the stock-based compensation plans as of March 31, 2023 and changes during the three months then ended is presented below:
| | | | | | | | | | | Weighted | | | | | |
| | | | | | | Weighted | | | average | | | | | |
| | | | | | | average | | | remaining | | | Aggregate | |
| | | | | | | exercise | | | contractual | | | intrinsic | |
| Option awards | | Shares | | | price | | | term | | | value | |
| | | (in thousands) | | | | | | | (years) | | | (in millions) | |
| Outstanding at January 1, 2023 | | | 3,413 | | | $ | 21.93 | | | | | | | | | |
| Exercised | | | (45 | ) | | | 21.79 | | | | | | | | | |
| Forfeited | | | (10 | ) | | | 29.72 | | | | | | | | | |
| Outstanding at March 31, 2023 | | | 3,358 | | | | 21.91 | | | | 4.3 | | | $ | 20 | |
| Exercisable at March 31, 2023 | | | 3,270 | | | | 21.76 | | | | 4.2 | | | | 20 | |
As of March 31, 2023, there was approximately $1 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of approximately 0.9 years.
The total intrinsic value of stock options exercised during the three months ended March 31, 2023 and 2022 was approximately nil and $11 million, respectively. Cash received from stock options exercised during the three months ended March 31, 2023 and 2022 was approximately nil and $5 million, respectively. The cash tax benefit from stock options exercised during the three months ended March 31, 2023 and 2022 was approximately nil and $2 million, respectively.
Nonvested Shares
Nonvested shares granted under the stock-based compensation plans consist of restricted stock and performance share unit awards, which are accounted for as equity awards, and phantom stock, which is accounted for as a liability award because it can be settled in either stock or cash. The fair value of each restricted stock and phantom stock award is estimated to be the closing stock price of Huntsman’s stock on the date of grant.
We grant two types of performance share unit awards. For one type of performance share unit award, the performance criteria are total stockholder return of our common stock relative to the total stockholder return of a specified industry peer group for the three-year performance periods. The fair value of each performance share unit award is estimated using a Monte Carlo simulation model that uses various assumptions, including an expected volatility rate and a risk-free interest rate. For the three months ended March 31, 2023 and 2022, the weighted-average expected volatility rate was 37.6% and 43.5%, respectively, and the weighted average risk-free interest rate was 4.38% and 1.67%, respectively. For the performance share unit awards granted during the three months ended March 31, 2023 and 2022, the number of shares earned varies based upon the Company achieving certain performance criteria over a three-year performance period.
During the first quarter of 2022, we granted a second type of performance share unit award, which also includes a market condition. The performance criteria are our corporate free cash flow achieved relative to targets set by management, modified for the total stockholder return of our common stock relative to the total stockholder return of a specified industry peer group for the two-year performance period. The fair value of each performance share unit award is estimated using a Monte Carlo simulation model that uses various assumptions, including an expected volatility rate and a risk-free interest rate. For the three months ended March 31, 2022, the weighted-average expected volatility rate was 37.9% and the weighted average risk-free interest rate was 1.43%. For the performance share unit awards granted during the three months ended March 31, 2022, the number of shares earned varies based upon the Company achieving certain performance criteria over a two-year performance period. No performance share unit awards of this type were granted during the three months ended March 31, 2023.
A summary of the status of our nonvested shares as of March 31, 2023 and changes during the three months then ended is presented below:
| | | Equity awards | | | Liability awards | |
| | | | | | | | Weighted | | | | | | | Weighted | |
| | | | | | | | average | | | | | | | average | |
| | | | | | | | grant-date | | | | | | | grant-date | |
| | | Shares | | | | fair value | | | Shares | | | fair value | |
| | | (in thousands) | | | | | | | | (in thousands) | | | | | |
| Nonvested at January 1, 2023 | | | 1,802 | | | | $ | 35.15 | | | | 257 | | | $ | 31.61 | |
| Granted | | | 945 | | | | | 36.54 | | | | 114 | | | | 30.83 | |
| Vested | | | (711 | ) | (1)(2) | | | 27.28 | | | | (165 | ) | | | 29.51 | |
| Forfeited | | | (22 | ) | | | | 37.53 | | | | (5 | ) | | | 33.07 | |
| Nonvested at March 31, 2023 | | | 2,014 | | | | | 38.55 | | | | 201 | | | | 32.85 | |
| (1) | As of March 31, 2023, a total of 115,685 restricted stock units were vested but not yet issued, of which 9,400 vested during the three months ended March 31, 2023. These shares have not been reflected as vested shares in this table because, in accordance with the restricted stock unit agreements, shares of common stock are not issued for vested restricted stock units until termination of employment. |
| (2) | A total of 264,624 performance share unit awards are reflected in the vested shares in this table, which represents the target number of performance share unit awards for this grant and were included in the balance at December 31, 2022. During the three months ended March 31, 2023, an additional 132,314 performance share unit awards with a grant date fair value of $22.85 were issued due to the target performance criteria being exceeded. |
As of March 31, 2023, there was approximately $52 million of total unrecognized compensation cost related to nonvested share compensation arrangements granted under the stock-based compensation plans. That cost is expected to be recognized over a weighted-average period of approximately 2.3 years. The value of share awards that vested during the three months ended March 31, 2023 and 2022 was approximately $28 million and $31 million, respectively.
17. INCOME TAXES
We use the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed on an individual tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of our businesses and cumulative income or losses during the applicable period. Cumulative losses incurred over the applicable period limits our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable jurisdictions could affect the realization of deferred tax assets in those jurisdictions.
Huntsman Corporation
We recorded income tax expense from continuing operations of $11 million and $60 million for the three months ended March 31, 2023 and 2022, respectively. Our tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions.
Huntsman International
Huntsman International recorded income tax expense from continuing operations of $11 million and $60 million for the three months ended March 31, 2023 and 2022, respectively. Our tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions.
18. EARNINGS PER SHARE
Basic income per share excludes dilution and is computed by dividing net income attributable to Huntsman Corporation by the weighted average number of shares outstanding during the period. Diluted income per share reflects all potential dilutive common shares outstanding during the period and is computed by dividing net income attributable to Huntsman Corporation by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as potential dilutive securities.
Basic and diluted income per share is determined using the following information (in millions):
| |
|
Three months |
|
| |
|
ended |
|
| |
|
March 31, |
|
| |
|
2023 |
|
|
2022 |
|
| Numerator: |
|
|
|
|
|
|
|
|
| Income from continuing operations attributable to Huntsman Corporation |
|
$ |
31 |
|
|
$ |
205 |
|
| Net income attributable to Huntsman Corporation |
|
$ |
153 |
|
|
$ |
223 |
|
| |
|
|
|
|
|
|
|
|
| Denominator: |
|
|
|
|
|
|
|
|
| Weighted average shares outstanding |
|
|
182.7 |
|
|
|
212.7 |
|
| Dilutive shares: |
|
|
|
|
|
|
|
|
| Stock-based awards |
|
|
1.7 |
|
|
|
2.7 |
|
| Total weighted average shares outstanding, including dilutive shares |
|
|
184.4 |
|
|
|
215.4 |
|
Additional stock-based awards of approximately 1.5 million and 0.4 million weighted average equivalent shares of stock were outstanding during the three months ended March 31, 2023 and 2022, respectively. However, these stock-based awards were not included in the computation of diluted income per share for the respective periods mentioned above because the effect would be anti-dilutive.
19. OPERATING SEGMENT INFORMATION
We derive our revenues, earnings and cash flows from the manufacture and sale of a wide variety of diversified organic chemical products. We have three operating segments, which are also our reportable segments: Polyurethanes, Performance Products and Advanced Materials. We have organized our business and derived our operating segments around differences in product lines.
The major products of each reportable operating segment are as follows:
| Segment |
|
Products |
| Polyurethanes |
|
MDI, polyols, TPU and other polyurethane-related products |
| Performance Products |
|
Specialty amines, ethyleneamines, maleic anhydride and technology licenses |
| Advanced Materials |
|
Technologically-advanced epoxy, phenoxy, acrylic, polyurethane and acrylonitrile-butadiene-based polymer formulations; high performance thermoset resins, curing agents, toughening agents, and carbon nanotubes additives |
Sales between segments are generally recognized at external market prices and are eliminated in consolidation. We use adjusted EBITDA to measure the financial performance of our global business units and for reporting the results of our operating segments. This measure includes all operating items relating to the businesses. The adjusted EBITDA of operating segments excludes items that principally apply to our Company as a whole. The following schedule includes revenues and adjusted EBITDA for each of our reportable operating segments (dollars in millions).
| |
|
Three months |
|
| |
|
ended |
|
| |
|
March 31, |
|
| |
|
2023 |
|
|
2022 |
|
| Revenues: |
|
|
|
|
|
|
|
|
| Polyurethanes |
|
$ |
991 |
|
|
$ |
1,386 |
|
| Performance Products |
|
|
334 |
|
|
|
480 |
|
| Advanced Materials |
|
|
289 |
|
|
|
335 |
|
| Total reportable segments’ revenues |
|
|
1,614 |
|
|
|
2,201 |
|
| Intersegment eliminations |
|
|
(8 |
) |
|
|
(9 |
) |
| Total |
|
$ |
1,606 |
|
|
$ |
2,192 |
|
| |
|
|
|
|
|
|
|
|
| Huntsman Corporation: |
|
|
|
|
|
|
|
|
| Segment adjusted EBITDA(1): |
|
|
|
|
|
|
|
|
| Polyurethanes |
|
$ |
66 |
|
|
$ |
224 |
|
| Performance Products |
|
|
71 |
|
|
|
146 |
|
| Advanced Materials |
|
|
48 |
|
|
|
67 |
|
| Total reportable segments’ adjusted EBITDA |
|
|
185 |
|
|
|
437 |
|
| |
|
|
|
|
|
|
|
|
| Reconciliation of total reportable segments’ adjusted EBITDA to income from continuing operations before income taxes: |
|
|
|
|
|
|
|
|
| Interest expense, net—continuing operations |
|
|
(18 |
) |
|
|
(14 |
) |
| Depreciation and amortization—continuing operations |
|
|
(69 |
) |
|
|
(67 |
) |
| Corporate and other costs, net(2) |
|
|
(49 |
) |
|
|
(50 |
) |
| Net income attributable to noncontrolling interests |
|
|
13 |
|
|
|
17 |
|
| Other adjustments: |
|
|
|
|
|
|
|
|
| Business acquisition and integration expenses and purchase accounting inventory adjustments |
|
|
(1 |
) |
|
|
(6 |
) |
| Fair value adjustments to Venator investment, net |
|
|
(1 |
) |
|
|
(2 |
) |
| Certain legal and other settlements and related expenses |
|
|
(1 |
) |
|
|
(12 |
) |
| Costs associated with the Albemarle Settlement, net |
|
|
— |
|
|
|
(1 |
) |
| Loss on sale of business/assets |
|
|
— |
|
|
|
(4 |
) |
| Income from transition services arrangements |
|
|
— |
|
|
|
1 |
|
| Certain nonrecurring information technology project implementation costs |
|
|
(2 |
) |
|
|
(2 |
) |
| Amortization of pension and postretirement actuarial losses |
|
|
(8 |
) |
|
|
(12 |
) |
| Restructuring, impairment and plant closing and transition credits (costs)(3) |
|
|
6 |
|
|
|
(3 |
) |
| Income from continuing operations before income taxes |
|
|
55 |
|
|
|
282 |
|
| |
|
|
|
|
|
|
|
|
| Income tax expense—continuing operations |
|
|
(11 |
) |
|
|
(60 |
) |
| Income from discontinued operations, net of tax |
|
|
122 |
|
|
|
18 |
|
| Net income |
|
$ |
166 |
|
|
$ |
240 |
|
| |
|
Three months |
|
| |
|
ended |
|
| |
|
March 31, |
|
| |
|
2023 |
|
|
2022 |
|
| Huntsman International: |
|
|
|
|
|
|
|
|
| Segment adjusted EBITDA(1): |
|
|
|
|
|
|
|
|
| Polyurethanes |
|
$ |
66 |
|
|
$ |
224 |
|
| Performance Products |
|
|
71 |
|
|
|
146 |
|
| Advanced Materials |
|
|
48 |
|
|
|
67 |
|
| Total reportable segments’ adjusted EBITDA |
|
|
185 |
|
|
|
437 |
|
| |
|
|
|
|
|
|
|
|
| Reconciliation of total reportable segments’ adjusted EBITDA to income from continuing operations before income taxes: |
|
|
|
|
|
|
|
|
| Interest expense, net—continuing operations |
|
|
(18 |
) |
|
|
(14 |
) |
| Depreciation and amortization—continuing operations |
|
|
(69 |
) |
|
|
(67 |
) |
| Corporate and other costs, net(2) |
|
|
(47 |
) |
|
|
(47 |
) |
| Net income attributable to noncontrolling interests |
|
|
13 |
|
|
|
17 |
|
| Other adjustments: |
|
|
|
|
|
|
|
|
| Business acquisition and integration expenses and purchase accounting inventory adjustments |
|
|
(1 |
) |
|
|
(6 |
) |
| Fair value adjustments to Venator investment, net |
|
|
(1 |
) |
|
|
(2 |
) |
| Certain legal and other settlements and related expenses |
|
|
(1 |
) |
|
|
(12 |
) |
| Costs associated with the Albemarle Settlement, net |
|
|
— |
|
|
|
(1 |
) |
| Loss on sale of business/assets |
|
|
— |
|
|
|
(4 |
) |
| Income from transition services arrangements |
|
|
— |
|
|
|
1 |
|
| Certain nonrecurring information technology project implementation costs |
|
|
(2 |
) |
|
|
(2 |
) |
| Amortization of pension and postretirement actuarial losses |
|
|
(8 |
) |
|
|
(12 |
) |
| Restructuring, impairment and plant closing and transition credits (costs)(3) |
|
|
6 |
|
|
|
(3 |
) |
| Income from continuing operations before income taxes |
|
|
57 |
|
|
|
285 |
|
| |
|
|
|
|
|
|
|
|
| Income tax expense—continuing operations |
|
|
(11 |
) |
|
|
(60 |
) |
| Income from discontinued operations, net of tax |
|
|
122 |
|
|
|
18 |
|
| Net income |
|
$ |
168 |
|
|
$ |
243 |
|
| (1) |
We use segment adjusted EBITDA as the measure of each segment’s profit or loss. We believe that segment adjusted EBITDA more accurately reflects what the chief operating decision maker uses to make decisions about resources to be allocated to the segments and assess their financial performance. Segment adjusted EBITDA is defined as net income of Huntsman Corporation or Huntsman International, as appropriate, before interest, income tax, depreciation and amortization, net income attributable to noncontrolling interests and certain Corporate and other items, as well as eliminating the following adjustments: (a) business acquisition and integration expenses and purchase accounting inventory adjustments; (b) fair value adjustments to Venator investment, net; (c) certain legal and other settlements and related expenses; (d) costs associated with the Albemarle Settlement, net; (e) loss on sale of business/assets; (f) income from transition services arrangements; (g) certain nonrecurring information technology project implementation costs; (h) amortization of pension and postretirement actuarial losses; (i) restructuring, impairment, plant closing and transition credits (costs); and (j) income from discontinued operations, net of tax. |
| (2) |
Corporate and other costs, net includes unallocated corporate overhead, unallocated foreign currency exchange gains and losses, LIFO inventory valuation reserve adjustments, nonoperating income and expense and gains and losses on the disposition of corporate assets. |
| (3) |
Includes costs associated with transition activities related primarily to our Corporate program to optimize our global approach to leverage shared services capabilities. |