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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 1O-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 333-85141
HUNTSMAN ICI CHEMICALS LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 87-0630358
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 HUNTSMAN WAY
SALT LAKE CITY, UTAH 84108
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (801) 584-5700
INDICATE BY A CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES |X| NO |_|
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS
AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF
SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES |_| NO |_|
AT OCTOBER 31, 2000, 1000 MEMBER EQUITY UNITS OF HUNTSMAN ICI
CHEMICALS LLC WERE OUTSTANDING.
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HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PAGE
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets....................2
Consolidated Statements of Operations and
Comprehensive Income...................................3
Consolidated Condensed Statements of Cash Flows..........5
Footnotes to Interim Financial Statements................6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...................17
Item 3 - Quantitive and Qualitative Disclosures about
Market Risk...........................................21
Part II- Other Information
Item 6 - Exhibits and Reports on Form 8-K........................22
PART I
ITEM 1. FINANCIAL STATEMENTS
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Millions of Dollars)
September 30, 2000 December 31, 1999
(Unaudited)
------------------ -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 103.1 $ 138.9
Accounts and notes receivable, net 657.0 629.4
Inventories 441.0 381.3
Other current assets 93.6 79.3
------------ ------------
TOTAL CURRENT ASSETS 1,294.7 1,228.9
Properties, plant and equipment, net 2,607.2 2,656.2
Other noncurrent assets 872.9 933.3
------------ ------------
TOTAL ASSETS $ 4,774.8 $ 4,818.4
============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 702.2 $ 676.4
Current portion of long-term debt 66.9 51.7
Other current liabilities 32.4 44.1
------------ ------------
TOTAL CURRENT LIABILITIES 801.5 772.2
Long-term debt 2,437.8 2,453.3
Other noncurrent liabilities 445.1 480.9
------------ ------------
TOTAL LIABILITIES 3,684.4 3,706.4
------------ ------------
MINORITY INTERESTS 9.2 8.0
------------ ------------
EQUITY:
Members' equity, 1,000 units 1,026.1 1,026.1
Retained earnings 213.9 80.6
Accumulated other comprehensive loss (158.8) (2.7)
------------ ------------
TOTAL EQUITY 1,081.2 1,104.0
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 4,774.8 $ 4,818.4
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(Millions of Dollars)
HSCC PREDECESSOR
COMPANY
THREE MONTHS ENDED SEPTEMBER 30, ----------------
-------------------------------- NINE MONTHS ENDED SIX MONTHS ENDED
2000 1999 SEPTEMBER 30, 2000 JUNE 30, 1999
--------------- -------------- ------------------ ----------------
REVENUES:
Trade sales and services $ 999.5 $ 819.6 $ 2,956.8 $ 134.0
Related party sales 126.7 126.5 358.7 29.0
Tolling fees 10.7 12.8 31.0 29.0
----------- ----------- ----------- -----------
TOTAL REVENUES 1,136.9 958.9 3,346.5 192.0
COST OF GOODS SOLD 941.5 760.7 2,764.0 134.1
----------- ----------- ----------- -----------
GROSS PROFIT 195.4 198.2 582.5 57.9
EXPENSES:
Selling, general and
administrative 73.0 65.0 205.2 3.2
Research and development 15.2 19.3 44.9 2.1
----------- ----------- ----------- -----------
TOTAL EXPENSES 88.2 84.3 250.1 5.3
----------- ----------- ----------- -----------
OPERATING INCOME 107.2 113.9 332.4 52.6
INTEREST EXPENSE, NET 56.0 52.4 165.0 18.1
OTHER EXPENSE (INCOME), NET 0.7 (0.5) 2.4 -
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 50.5 62.0 165.0 34.5
INCOME TAX EXPENSE 8.7 7.9 21.6 13.1
MINORITY INTERESTS IN SUBSIDIARIES 0.8 0.8 2.1 -
----------- ----------- ----------- -----------
NET INCOME 41.0 53.3 141.3 21.4
Preferred stock dividends 2.2
Net income available to common
equity holders 41.0 53.3 141.3 19.2
Other comprehensive income (loss)-
foreign currency translation
adjustments (74.1) 22.5 (156.1) -
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (33.1) $ 75.8 $ (14.8) $ 19.2
============ =========== ============ ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Millions of Dollars)
ACCUMULATED
MEMBERS' EQUITY OTHER
----------------- RETAINED COMPREHENSIVE
UNITS AMOUNT EARNINGS INCOME TOTAL
----- ------ -------- ------------- -----
Balance, January 1, 2000 1,000 $ 1,026.1 $ 80.6 $ (2.7) $ 1,104.0
Net income 141.3 141.3
Dividend (8.0) (8.0)
Foreign currency translation
adjustments (156.1) (156.1)
----- --------- -------- --------- ----------
Balance, September 30, 2000 1,000 $ 1,026.1 $ 213.9 $ (158.8) $ 1,081.2
===== ========= ======== ========= ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
HSCC PREDECESSOR
COMPANY
----------------
NINE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 JUNE 30, 1999
------------------ ------------------ ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 141.3 $ 53.3 $ 21.4
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 160.0 48.6 15.6
Interest on subordinated note 3.6
Other non-cash adjustments to net income 7.0 9.6 6.6
Net changes in operating assets and
liabilities (112.1) 23.4 (6.7)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 196.2 134.9 40.5
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of businesses from Imperial Chemical
Industries PLC ("ICI"), net of cash acquired (2,284.8)
Purchase of business from BP Chemicals, Limited (116.6)
Acquisition of other businesses (146.9)
Capital expenditures (125.4) (44.0) (4.0)
Cash received from unconsolidated affiliates 7.5
Advances to unconsolidated affiliates (9.0) (15.9)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (273.8) (2,461.3) (4.0)
------------- ------------- -------------
FINANCING ACTIVITIES:
Borrowings under senior credit facilities 100.0 1,670.0
Issuance of senior subordinated notes 807.0
Debt issuance costs (74.3)
Cash contributions by parent 598.0
Cash distributions to parent (8.0) (620.0)
Repayments of long-term debt (38.1) (35.0)
------------- ------------- -------------
NET CASH USED IN FINANCING ACTIVITIES 53.9 2,380.7 (35.0)
Effect of exchange rate changes on cash (12.1) 13.1 -
------------- ------------- -------------
Increase (decrease) in cash and cash
equivalents (35.8) 67.4 1.5
Cash and cash equivalents at beginning
of period 138.9 - 2.6
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 103.1 $ 67.4 $ 4.1
============= ============= =============
NON-CASH FINANCING AND INVESTING ACTIVITIES :
Non-cash capital contribution by parent $ - $ 1,053.0 $ -
============= ============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
HUNTSMAN ICI CHEMICALS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Effective June 30, 1999, pursuant to a contribution agreement and ancillary
agreements between Huntsman ICI Holdings LLC ("Holdings"), Huntsman
Specialty Chemicals Corporation ("HSCC"), Imperial Chemicals Industries PLC
("ICI") and Huntsman ICI Chemicals LLC ("Chemicals" or the "Company"), the
Company acquired assets and stock representing ICI's polyurethane
chemicals, selected petrochemicals (including ICI's 80% interest in the
Wilton olefins facility) and titanium dioxide businesses and HSCC's
propylene oxide business. In addition, the Company also acquired the
remaining 20% ownership interest in the Wilton olefins facility from BP
Chemicals, Limited ("BP Chemicals") (together, the "Transaction").
The Company manufactures products used in a wide variety of industrial and
consumer-related applications. The Company's principal products are
methylene diphenyl diiscocyanate ("MDI"), propylene oxide ("PO"), methyl
tertiary butyl ether ("MTBE"), ethylene, propylene, and titanium dioxide
("TiO2"). The Company is a wholly-owned subsidiary of Holdings.
The accompanying consolidated condensed financial statements of the Company
are unaudited. However, 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
financial statements and notes to consolidated financial statements
included in the Company's 1999 annual report on form 10-K, filed with the
Securities and Exchange Commission on March 22, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 1999 amounts have been reclassified to conform to the 2000
presentation.
3. INVENTORIES
Inventories consist of the following (in millions):
September 30, 2000 December 31, 1999
------------------ ------------------
Raw materials $ 127.6 $ 97.8
Work in progress 17.3 20.6
Finished goods 274.0 225.6
------------------ ------------------
SUBTOTAL 418.9 344.0
Materials and supplies 22.1 37.3
------------------ ------------------
TOTAL $ 441.0 $ 381.3
================== ==================
4. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation from time to time in the ordinary
course of its business. In management's opinion, after consideration of
indemnifications, none of such litigation is material to the Company's
financial condition or results of operations. The Company has entered into
various purchase commitments for materials and supplies in the ordinary
course of business. These agreements extend from three to ten years and the
purchase price is generally based on market prices subject to certain
minimum price provisions.
5. ENVIRONMENTAL MATTERS
The operation of any chemical manufacturing plant, the distribution of
chemical products and the related production of by-products and wastes,
entail risk of adverse environmental effects. The Company is subject to
extensive federal, state, local and foreign laws, regulations, rules and
ordinances relating to pollution, the protection of the environment and the
generation, storage, handling, transportation, treatment, disposal and
remediation of hazardous substances and waste materials. In the ordinary
course of business, the Company is subject continually to environmental
inspections and monitoring by governmental enforcement authorities. The
Company may incur substantial costs, including fines, damages and criminal
or civil sanctions, or experience interruptions in our operations for
actual or alleged violations arising under any environmental laws. In
addition, production facilities require operating permits that are subject
to renewal, modification and, in some circumstances, revocation. Violations
of permit requirements can also result in restrictions or prohibitions on
plant operations, substantial fines and civil or criminal sanctions. The
Company's operations involve the generation, handling, transportation, use
and disposal of numerous hazardous substances. Changes in regulations
regarding the generation, handling, transportation, use and disposal of
hazardous substances could inhibit or interrupt operations and have a
material adverse effect on business. From time to time, these operations
may result in violations under environmental laws, including spills or
other releases of hazardous substances to the environment. In the event of
a catastrophic incident, the Company could incur material costs as a result
of addressing and implementing measures to prevent such incidents. Given
the nature of the Company's business, there can be no assurance that
violations of environmental laws will not result in restrictions imposed on
the Company's operating activities, substantial fines, penalties, damages
or other costs. In addition, potentially significant expenditures could be
necessary in order to comply with existing or future environmental laws. In
management's opinion, after consideration of indemnifications, there are no
environmental matters which are material to the company's financial
condition or results of operations.
6. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company derives its revenues, earnings and cash flows from the
manufacture and sale of a wide variety of specialty and commodity chemical
products. The Company manages its businesses in three segments, Specialty
Chemicals (the former ICI polyurethanes business and HSCC's propylene oxide
business); Petrochemicals (the petrochemicals businesses acquired from ICI
and BP Chemicals); and Tioxide (the titanium dioxide business acquired from
ICI).
The major products of each business group are as follows:
SEGMENT PRODUCTS
------- --------
Specialty Chemicals MDI, toluene diisocyanate, thermoplastic
polyurethane, polyols, aniline, PO and MTBE
Petrochemicals Ethylene, propylene, benzene, cyclohexane
and paraxylene
Tioxide TiO2
Sales between segments are generally recognized at external market prices.
For the three and nine months ended September 30, 2000, sales to ICI and
its affiliates accounted for approximately 8% of consolidated revenues.
HSCC
PREDECESSOR
COMPANY
THREE MONTHS ENDED ----------------
SEPTEMBER 30, NINE MONTHS ENDED SIX MONTHS ENDED
------------------------- SEPTEMBER 30, JUNE 30,
2000 1999 2000 1999
----------- ------------ ----------------- ----------------
NET SALES:
Specialty Chemicals $ 549.1 $ 466.0 $ 1,589.3 $ 192.0
Petrochemicals 371.9 257.3 1,093.2
Tioxide 243.3 254.8 740.5
Sales between segments,
Petrochemicals sales
to Specialty Chemicals (27.4) (19.2) (76.5)
----------- ----------- ----------- -----------
TOTAL $ 1,136.9 $ 958.9 $ 3,346.5 $ 192.0
=========== =========== =========== ===========
OPERATING INCOME:
Specialty Chemicals $ 44.3 $ 71.0 $ 173.3 $ 52.6
Petrochemicals 13.9 7.4 35.3
Tioxide 49.0 35.5 123.8
----------- ----------- ----------- -----------
TOTAL $ 107.2 $ 113.9 $ 332.4 $ 52.6
=========== =========== =========== ===========
EBITDA (1):
Specialty Chemicals $ 76.8 $ 98.7 $ 265.1 $ 68.2
Petrochemicals 24.5 17.3 69.3
Tioxide 57.9 47.0 155.6
----------- ----------- ----------- -----------
TOTAL EBITDA 159.2 163.0 490.0 68.2
Depreciation & amortization (52.7) (48.6) (160.0) (15.6)
Interest expense, net (56.0) (52.4) (165.0) (18.1)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES $ 50.5 $ 62.0 $ 165.0 $ 34.5
=========== =========== =========== ===========
(1) EBITDA is defined as earnings from continuing operations before
interest expense, depreciation and amortization, and taxes.
7. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
The following are consolidating condensed financial statements which
present, in separate columns: Chemicals carrying its investment in
subsidiaries under the equity method; the Guarantors on a combined, or
where appropriate, consolidated basis, carrying its investment in the
Non-Guarantors under the equity method; and the Non-Guarantors on a
consolidated basis. Additional columns present eliminating adjustments and
consolidated totals as of September 30, 2000 and December 31,1999 and for
the three and nine months ended September 30, 2000 and for the three months
ended September 30, 1999. There are no restrictions limiting transfers of
cash from guarantor and non-guarantor subsidiaries to Chemicals. The
Combined Guarantors are wholly owned subsidiaries of Chemicals and have
fully and unconditionally guaranteed the Senior Subordinated Notes on a
joint and several basis. The Company has not presented seperate financial
statements and other disclosures concerning the Combined Guarantors because
management has determined that such information is not material to
investors.
HUNTSMAN ICI CHEMICALS LLC
CONSOLIDATING CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000
(UNAUDITED)
(MILLIONS OF DOLLARS)
PARENT ONLY CONSOLIDATED
HUNTSMAN ICI NON- HUNTSMAN
CHEMICALS GUARANTORS GUARANTORS ELIMINATIONS ICI CHEMICALS
------------ ---------- ---------- ------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3.6 $ - $ 99.5 $ - $ 103.1
Accounts and notes receivables, net 188.9 33.5 505.5 (70.9) 657.0
Inventories 47.0 50.1 343.9 - 441.0
Other current assets 15.7 82.8 102.5 (107.4) 93.6
------------ ------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 255.2 166.4 1,051.4 (178.3) 1,294.7
Properties, plant and equipment, net 573.6 363.0 1,670.6 - 2,607.2
Investment in unconsolidated
affiliates 2,662.2 765.1 1.3 (3,271.7) 156.9
Other noncurrent assets 350.6 1,432.1 275.3 (1,342.0) 716.0
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $ 3,841.6 $ 2,726.6 $ 2,998.6 $ (4,792.0) $ 4,774.8
============ ============ ============ ============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 151.0 $ 54.2 $ 601.5 $ (104.5) $ 702.2
Current portion of long-term debt 57.5 - 9.4 - 66.9
Other current liabilities 69.6 10.8 25.8 (73.8) 32.4
------------ ------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 278.1 65.0 636.7 (178.3) 801.5
Long-term debt 2,435.2 - 1,344.6 (1,342.0) 2,437.8
Other noncurrent liabilities 47.1 3.9 394.1 - 445.1
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 2,760.4 68.9 2,375.4 (1,520.3) 3,684.4
------------ ------------ ------------ ------------ ------------
MINORITY INTERESTS - - 9.2 - 9.2
------------ ------------ ------------ ------------ ------------
EQUITY:
Members' equity, 1,000 units 1,026.1 - - - 1,026.1
Subsidiary equity 2,577.7 572.9 (3,150.6) -
Retained earnings 213.9 309.9 115.6 (425.5) 213.9
Accumulated other comprehensive
loss (158.8) (229.9) (74.5) 304.4 (158.8)
------------ ------------ ------------ ------------ ------------
TOTAL EQUITY 1,081.2 2,657.7 614.0 (3,271.7) 1,081.2
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES AND EQUITY $ 3,841.6 $ 2,726.6 $ 2,998.6 $ (4,792.0) $ 4,774.8
============ ============ ============ ============ ============
HUNTSMAN ICI CHEMICALS LLC
CONSOLIDATING CONDENSED BALANCE SHEETS
DECEMBER 31, 1999
(UNAUDITED)
(MILLIONS OF DOLLARS)
PARENT ONLY CONSOLIDATED
HUNTSMAN ICI NON- HUNTSMAN
CHEMICALS GUARANTORS GUARANTORS ELIMINATIONS ICI CHEMICALS
------------ ---------- ---------- ------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9.0 $ 0.2 $ 129.7 $ - $ 138.9
Accounts and notes receivables, net 189.9 33.0 406.5 - 629.4
Inventories 47.6 16.5 317.2 - 381.3
Other current assets 13.0 5.1 61.2 - 79.3
------------ ------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 259.5 54.8 914.6 - 1,228.9
Properties, plant and equipment, net 828.6 0.3 1,827.3 - 2,656.2
Investment in unconsolidated
affiliates 2,239.2 720.0 0.9 (2,771.2) 188.9
Other noncurrent assets 502.4 1,470.6 263.0 (1,491.6) 744.4
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $ 3,829.7 $ 2,245.7 $ 3,005.8 $ (4,262.8) $ 4,818.4
============ ============ ============ ============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 189.5 $ 18.8 $ 468.1 $ - $ 676.4
Current portion of long-term debt 36.3 - 15.4 - 51.7
Other current liabilities - 12.5 31.6 - 44.1
------------ ------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 225.8 31.3 515.1 - 772.2
Long-term debt 2,451.4 - 1,493.5 (1,491.6) 2,453.3
Other noncurrent liabilities 48.5 4.4 428.0 - 480.9
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 2,725.7 35.7 2,436.6 (1,491.6) 3,706.4
------------ ------------ ------------ ------------ ------------
MINORITY INTERESTS - - 8.0 - 8.0
------------ ------------ ------------ ------------ ------------
EQUITY:
Members' equity, 1,000 units 1,026.1 - - - 1,026.1
Subsidiary equity - 2,126.8 553.6 (2,680.4) -
Retained earnings 80.6 98.7 21.9 (120.6) 80.6
Accumulated other comprehensive
loss (2.7) (15.5) (14.3) 29.8 (2.7)
------------ ------------ ------------ ------------ ------------
TOTAL EQUITY 1,104.0 2,210.0 561.2 (2,771.2) 1,104.0
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES AND EQUITY $ 3,829.7 $ 2,245.7 $ 3,005.8 $ (4,262.8) $ 4,818.4
============ ============ ============ ============ ============
HUNTSMAN ICI CHEMICALS LLC
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(MILLIONS OF DOLLARS)
PARENT ONLY CONSOLIDATED
HUNTSMAN ICI NON- HUNTSMAN
CHEMICALS GUARANTORS GUARANTORS ELIMINATIONS ICI CHEMICALS
------------ ---------- ---------- ------------ -------------
REVENUES:
Trade sales and services $ 276.9 $ 48.0 $ 674.6 $ - $ 999.5
Related party sales 54.9 12.7 131.1 (72.0) 126.7
Tolling fees 10.7 - - - 10.7
------------ ------------ ------------ ------------ ------------
TOTAL REVENUE 342.5 60.7 805.7 (72.0) 1,136.9
COST OF GOODS SOLD 278.0 51.8 683.7 (72.0) 941.5
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 64.5 8.9 122.0 - 195.4
EXPENSES:
Selling, general and administrative 24.3 1.4 47.3 - 73.0
Research and development 11.8 - 3.4 - 15.2
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 36.1 1.4 50.7 - 88.2
------------ ------------ ------------ ------------ ------------
OPERATING INCOME 28.4 7.5 71.3 - 107.2
INTEREST EXPENSE (INCOME), NET 59.4 (32.6) 29.2 - 56.0
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFLILIATES 71.1 31.0 - (102.1) -
OTHER EXPENSE (INCOME) (0.9) - 1.6 - 0.7
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 41.0 71.1 40.5 - 50.5
INCOME TAX EXPENSE - - 8.7 - 8.7
MINORITY INTERESTS IN SUBSIDIARIES - - 0.8 - 0.8
------------ ------------ ------------ ------------ ------------
NET INCOME 41.0 71.1 31.0 (102.1) 41.0
Other comprehensive loss -
foreign currency translation
adjustments (74.1) (108.2) (30.2) 138.4 (74.1)
------------ ------------ ------------ ------------ ------------
COMPREHENSIVE (LOSS) INCOME $ (33.1) $ (37.1) $ 0.8 $ 36.3 $ (33.1)
============= ============ ============ ============ ============
HUNTSMAN ICI CHEMICALS LLC
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(MILLIONS OF DOLLARS)
PARENT ONLY CONSOLIDATED
HUNTSMAN ICI NON- HUNTSMAN
CHEMICALS GUARANTORS GUARANTORS ELIMINATIONS ICI CHEMICALS
------------ ---------- ---------- ------------ -------------
REVENUES:
Trade sales and services $ 236.8 $ 51.0 $ 531.8 $ - $ 819.6
Related party sales 43.5 7.3 273.1 (197.4) 126.5
Tolling fees 12.8 - - - 12.8
------------ ------------ ------------ ------------ ------------
TOTAL REVENUE 293.1 58.3 804.9 (197.4) 958.9
COST OF GOODS SOLD 190.0 52.5 715.6 (197.4) 760.7
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 103.1 5.8 89.3 - 198.2
EXPENSES:
Selling, general and administive 41.7 0.1 23.2 - 65.0
Research and development 12.6 - 6.7 - 19.3
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 54.3 0.1 29.9 - 84.3
------------ ------------ ------------ ------------ ------------
OPERATING INCOME 48.8 5.7 59.4 - 113.9
INTEREST EXPENSE (INCOME), NET 53.2 (31.0) 30.2 - 52.4
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATES 57.7 22.2 - (79.9) -
OTHER EXPENSE (INCOME) - 0.6 (1.1) - (0.5)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 53.3 58.3 30.3 (79.9) 62.0
INCOME TAX EXPENSE - 0.6 7.3 - 7.9
MINORITY INTERESTS IN SUBSIDIARIES - - 0.8 - 0.8
------------ ------------ ------------ ------------ ------------
NET INCOME 53.3 57.7 22.2 (79.9) 53.3
Other comprehensive income -
foreign currency translation
adjustments 22.5 47.1 14.5 (61.6) 22.5
------------ ------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 75.8 $ 104.8 $ 36.7 $ (141.5) $ 75.8
============ ============ ============ ============ ============
HUNTSMAN ICI CHEMICALS LLC
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30,2000
(UNAUDITED)
(MILLIONS OF DOLLARS)
PARENT ONLY CONSOLIDATED
HUNTSMAN ICI NON- HUNTSMAN
CHEMICALS GUARANTORS GUARANTORS ELIMINATIONS ICI CHEMICALS
------------ ---------- ---------- ------------ -------------
REVENUES:
Trade sales and services $ 816.8 $ 145.8 $ 1,994.2 $ - $ 2,956.8
Related party sales 142.5 33.5 370.7 (188.0) 358.7
Tolling fees 31.0 - - - 31.0
------------ ------------ ------------ ------------ ------------
TOTAL REVENUE 990.3 179.3 2,364.9 (188.0) 3,346.5
COST OF GOODS SOLD 772.2 150.1 2,029.7 (188.0) 2,764.0
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 218.1 29.2 335.2 - 582.5
EXPENSES:
Selling, general and administive 84.4 8.8 112.0 - 205.2
Research and development 33.8 - 11.1 - 44.9
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 118.2 8.8 123.1 - 250.1
------------ ------------ ------------ ------------ ------------
OPERATING INCOME 99.9 20.4 212.1 - 332.4
INTEREST EXPENSE (INCOME), NET 170.8 (97.1) 91.3 - 165.0
EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFLILIATES 211.2 93.7 - (304.9) -
OTHER EXPENSE (INCOME) (1.0) - 3.4 - 2.4
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 141.3 211.2 117.4 (304.9) 165.0
INCOME TAX EXPENSE - - 21.6 - 21.6
MINORITY INTERESTS IN SUBSIDIARIES - - 2.1 - 2.1
------------ ------------ ------------ ------------ ------------
NET INCOME 141.3 211.2 93.7 (304.9) 141.3
Other comprehensive loss -
foreign currency translation
adjustments (156.1) (214.4) (60.2) 274.6 (156.1)
------------ ------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (14.8) $ (3.2) $ 33.5 $ (30.3) $ (14.8)
============ ============ ============ ============ ============
HUNTSMAN ICI CHEMICALS LLC
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(MILLIONS OF DOLLARS)
PARENT ONLY CONSOLIDATED
HUNTSMAN ICI NON- HUNTSMAN
CHEMICALS GUARANTORS GUARANTORS ELIMINATIONS ICI CHEMICALS
------------ ---------- ---------- ------------ -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ (44.2) $ 110.7 $ 129.7 $ - $ 196.2
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Acquisition of businesses (132.9) (14.0) (146.9)
Cash received from unconsolidated
affiliates 7.5 7.5
Advances to unconsolidated affiliates (9.0) (9.0)
Capital expenditures (28.3) (0.8) (96.3) (125.4)
------------ ------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (170.2) 6.7 (110.3) - (273.8)
============ ============ ============ ============ ============
FINANCING ACTIVITIES:
Borrowings under senior credit facility 100.0 100.0
Repayments of long-term debt (35.7) (2.4) (38.1)
Cash contributions by parent 203.5 19.2 (222.7) -
Cash distributions from subsidiaries 222.1 (222.1) -
Cash distributions to parent (8.0) (222.1) 222.1 (8.0)
Cash distributions to subsidiaries (203.5) (19.2) 222.7 -
Intercompany advances - net of repayments 134.1 (79.8) (54.3) -
------------ ------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 209.0 (117.6) (37.5) - 53.9
Effect of exchange rate changes on cash - - (12.1) - (12.1)
------------ ------------ ------------ ------------ ------------
Decrease in cash and cash equivalents (5.4) (0.2) (30.2) - (35.8)
Cash and cash equivalents at beginning of
period 9.0 0.2 129.7 - 138.9
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3.6 $ - $ 99.5 $ - $ 103.1
=========== ============ ============ ============ ============
HUNTSMAN ICI CHEMICALS LLC
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(MILLIONS OF DOLLARS)
PARENT ONLY CONSOLIDATED
HUNTSMAN ICI NON- HUNTSMAN
CHEMICALS GUARANTORS GUARANTORS ELIMINATIONS ICI CHEMICALS
------------ ---------- ---------- ------------ -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 55.7 $ 4.5 $ 222.0 $ (147.3) $ 134.9
------------ ------------ ------------ ------------ ------------
Investing activities:
Purchase of businesses from ICI,
net of cash acquired (551.7) (322.2) (1,410.9) (2,284.8)
Purchase of business from BP chemicals (116.6) (116.6)
Advances to unconsolidated affiliates (15.9) (15.9)
Capital expenditures (17.2) (26.8) (44.0)
------------ ------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (701.4) (322.2) (1,437.7) - (2,461.3)
Financing Activities:
Borrowings under senior credit facilities 1,670.0 1,670.0
Issuance of senior subordinated notes 807.0 807.0
Debt issurance costs (74.3) (74.3)
Cash contributions by parent 598.0 1,710.0 0.7 (1,710.7) 598.0
Cash distributions to parent (620.0) (620.0)
Cash distributions to subsidiaries (1,710.7) (147.3) 1,858.0 -
Intercompany advances - net of repayments (14.7) (1,245.0) 1,259.7 -
------------ ------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 655.3 317.7 1,260.4 147.3 2,380.7
Effect of exchange rate changes on cash - - 13.1 - 13.1
Increase in cash and cash equivalents 9.6 - 57.8 - 67.4
Cash and cash equivalents at beginning of period - - - - -
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9.6 $ - $ 57.8 $ - $ 67.4
============ ============ ============ ============ ============
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Non-cash capital contribution by parent $ 1,053.0 $ $ $ 0.0
============ ============ ============ ============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement for Forward Looking Information
Certain information set forth in this report contains "forward-looking
statements" within the meaning of federal securities laws. Forward-looking
statements include statements concerning our plans, objectives, goals,
strategies, future events, future revenues or performance, capital
expenditures, financing needs, plans or intentions relating to acquisitions
and other information that is not historical information. In some cases,
forward-looking statements can be identified by terminology such as
"believes," "expects," "may," "will," "should," or "anticipates", or the
negative of such terms or other comparable terminology, or by discussions
of strategy. We may also make additional forward-looking statements from
time to time. All such subsequent forward-looking statements, whether
written or oral, by us or on our behalf, are also expressly qualified by
these cautionary statements.
All forward-looking statements, including without limitation, management's
examination of historical operating trends, are based upon our current
expectations and various assumptions. Our expectations, beliefs and
projections are expressed in good faith and we believe there is a
reasonable basis for them, but, there can be no assurance that management's
expectations, beliefs and projections will result or be achieved. All
forward-looking statements apply only as of the date made. We undertake no
obligation to publicly update or revise forward-looking statements which
may be made to reflect events or circumstances after the date made or to
reflect the occurrence of unanticipated events.
Three and Nine Months Ended September 30, 2000 Compared to Three Months
Ended September 30, 1999 and Pro Forma Nine Months Ended September 30,
1999.
In order to present data which is useful for comparative purposes, the
following tabular data for 2000 and pro forma 1999 and related discussion,
have been prepared as if the Transaction (excluding the acquisition of 20%
of the Wilton olefins facility in June 1999 from BP Chemicals) had taken
place in January 1999. These results do not necessarily reflect the results
which would have been obtained if the Transaction actually occurred on the
date indicated, or the results which may be expected in the future.
(Millions of Dollars)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
(PRO FORMA)
---------- ---------- --------- --------
Specialty Chemicals sales $ 549 $ 466 $ 1,589 $ 1,359
Petrochemicals sales 345 238 1,017 728
Tioxide sales 243 255 740 745
---------- ---------- --------- --------
Total revenues 1,137 959 3,346 2,832
Cost of goods sold 942 761 2,764 2,262
---------- ---------- --------- --------
Gross profit 195 198 582 570
Expenses of selling, general,
administrative, research and
development 88 84 250 288
---------- ---------- --------- --------
Operating income 107 114 332 282
Interest expense, net 56 52 165 168
Other expense (income) 1 - 2 (1)
--------------------- ---------- --------
Net income before income taxes and
minority interest 50 62 165 115
Income tax expense 8 8 22 18
Minority interests in subsidiaries 1 1 2 1
---------- ---------- --------- --------
Net income $ 41 $ 53 $ 141 $ 96
========== === ====== ========= = ======
Depreciation and amortization $ 53 $ 49 $ 160 $ 137
========== === ====== ========= = ======
EBITDA (1) $ 159 $ 163 $ 490 $ 420
Net reduction in corporate overhead
allocation and insurance expenses 11
Rationalization of TiO2 operations 5
---------- ---------- --------- --------
Adjusted EBITDA $ 159 $ 163 $ 490 $ 436
========== === ====== ========= = ======
(1) EBITDA is defined as earnings from continuing operations before
interest expense, depreciation and amortization, and taxes. EBITDA is
included in this report because it is a basis on which we assess our
financial performance and debt service capabilities, and because
certain covenants in our borrowing arrangements are tied to similar
measures. However, EBITDA should not be considered in isolation or
viewed as a substitute for cash flow from operations, net income or
other measures of performance as defined by GAAP or as a measure of a
company's profitability or liquidity. We understand that while EBITDA
is frequently used by security analysts, lenders and others in their
evaluation of companies, EBITDA as used herein is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999.
REVENUES. Revenues for the three months ended September 30, 2000 increased
by $178 million, or 19%, to $1,137 million from $959 million during the
same period in 1999.
Specialty Chemicals -Total MDI sales volumes increased by 31% compared to
the 1999 period. In the Americas, sales volumes grew by 17% following
completion of the MDI expansion project at our Geismar, Louisiana facility
which occurred in the first quarter of 2000. European sales volumes grew by
31% due to strong demand. A strong recovery in the Asian economies led to a
99% increase in sales volumes in that region. Polyol sales volumes grew by
27% with the increase primarily attributable to the European region. PO and
MTBE sales volumes decreased due to an unscheduled plant shutdown in
September, which was resolved in October. Average sales prices of MTBE
increased by 45% compared to the 1999 period due largely to higher gasoline
prices. These gains were partially offset by declines in average selling
prices for MDI and polyols compared to the same period in 1999, a
substantial portion of which was due to a weakening in the value of the
Euro versus the U.S. dollar.
Petrochemicals - Sales volumes of the Company's primary olefins, ethylene
and propylene, increased by 9% and 8%, respectively. In aromatics,
paraxylene and cyclohexane sales volumes increased by 21% and 23%
respectively. These increases were attributable to strong customer demand.
Average ethylene selling prices rose 39%, average propylene selling prices
rose by 67%, average cyclohexane selling prices rose by 58% and average
paraxylene selling prices rose by 49% due to higher feedstock prices and
improved market conditions.
Tioxide - Sales volumes declined by 5% compared to the 1999 period. 1999
sales benefitted from a reduction in finished goods inventory. Average
selling prices increased by 2%, higher local currency selling prices were
partially offset by the Euro's continued weakening against the U.S. dollar.
GROSS PROFIT. Gross profit for the three months ended September 30, 2000
decreased by $3 million, or 2%, to $195 million from $198 million during
the same period in 1999.
Specialty Chemicals - MDI and polyols benefited from increased sales
volumes. However, this benefit was more than offset by a substantial
increase in prices for their major raw material, benzene. The decreased
gross profit in PO was attributable to an increase in the cost of PO's
major raw materials, propylene, methanol and isobutane. The higher cost of
PO's raw materials was primarily a result of higher crude oil and crude oil
derivative prices.
Petrochemicals - Gross profit improved over the same period in 1999, due to
higher sales volumes and higher average selling prices. These increases
were partially offset by higher feedstock prices.
Tioxide -Gross profit improved over the same period in 1999 due mainly to
lower production costs resulting from Tioxide's ongoing manufacturing
excellence program. The adverse impact of exchange rates on selling prices
has been partially offset by a favorable impact on local currency operating
costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDING RESEARCH AND
DEVELOPMENT EXPENSES). Selling, general and administrative expenses
(including research and development expenses) ("SG&A") in the three months
ended September 30, 2000 increased by $4 million, or 5%, to $88 million
from $84 million for the same period in 1999.
INTEREST EXPENSE. Net interest expense in the three months ended September
30, 2000 increased by $4 million to $56 million from $52 million during the
same period in 1999 due to an increase in interest rates.
INCOME TAXES. The effective income tax rate increased in the three months
ended September 30, 2000 from the same period in 1999, due to a greater
share of income being earned outside the U.S., which income is subject to
local income tax.
NET INCOME. Net income in the three months ended September 30, 2000
decreased by $12 million to $41 million from $53 million during the same
period in 1999 as a result of the factors discussed above.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE PRO FORMA NINE
MONTHS ENDED SEPTEMBER 30, 1999.
REVENUES. Revenues for the nine months ended September 30, 2000 increased
by $514 million, or 18%, to $3,346 million from $2,832 million during the
same period in 1999.
Specialty Chemicals - Total MDI sales volumes increased by 22% compared to
the 1999 period. In the Americas, sales volumes grew by 15% following the
completion of the MDI expansion project at our Geismar, Louisiana facility.
European sales volumes grew by 23% due to strong demand. A strong recovery
in the Asian economies led to an increase in sales volumes of 47% in that
region. Polyol sales volumes grew by 23% with the increase attributable to
the European and U.S. regions. PO sales volumes increased 10% as a result
of higher sales to polyol customers. Average sales prices of MTBE in the
nine months ended September 30, 2000 increased by 68% compared to the 1999
period due largely to higher gasoline prices. These gains were partially
offset by declines in average selling prices for MDI and polyols compared
to the same period in 1999, a substantial portion of which was due to a
weakening in the value of the Euro versus the U.S. dollar.
Petrochemicals - Sales volumes of the Company's primary olefins, ethylene
and propylene, increased by 39% and 26%, respectively. In addition to the
volume attributable to the 20% of the olefins facility acquired from BP
Chemicals on June 30, 1999, increases were attributable to increased
customer demand. In aromatics, paraxylene and cyclohexane sales volumes
rose by 13% and 8% respectively. Average ethylene selling prices rose 56%,
average propylene selling prices rose 77%, average cyclohexane selling
prices rose 50% and average paraxylene selling prices rose 54% due to
higher feedstock prices and improved market conditions. Revenues for nine
months ended September 30, 1999 included $160 million relating to crude oil
trading. This activity was discontinued following the consummation of the
Transaction.
Tioxide - Sales volume was relatively unchanged in 2000 compared to the
1999. While local currency selling prices rose in the North American, Asian
and South African markets, these increases were more than offset by a
decline in European prices resulting from the Euro's continued weakening
against the U.S. dollar.
GROSS PROFIT. Gross profit for the nine months ended September 30, 2000
increased by $12 million, or 2%, to $582 million from $570 million during
the same period in 1999.
Specialty Chemicals - MDI and polyols benefited from increased sales
volumes, however, this benefit was more than offset by an increase in
prices for their major raw materials for MDI, benzene and chlorine. The
decreased gross profit in PO was attributable to an increase in the cost of
PO's major raw materials, isobutane, methanol and propylene which more than
offset higher PO sales to polyol customers and increased MTBE selling
prices compared to 1999.
Petrochemicals - Gross profit improved over the same period in 1999, due to
the effect of higher sales volumes. In addition, higher sales prices were
only partially offset by higher feedstock prices.
Tioxide - The adverse impact of exchange rates on gross profit was more
than offset by both the general increase in local selling prices and fixed
production cost savings as a result of Tioxide's ongoing manufacturing
excellence program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDING RESEARCH AND
DEVELOPMENT EXPENSES). Selling, general and administrative expenses
(including research and development expenses) ("SG&A") in the nine months
ended September 30, 2000 decreased by $38 million, or 13%, to $250 million
from $288 million for the same period in 1999. The decrease was primarily a
result of one-time expenses relating to restructuring and pension costs
incurred in the nine months ended September 30, 1999. SG&A expenses also
decreased as a result of ongoing restructuring activities and lower
corporate overhead allocations following the Transaction.
INTEREST EXPENSE. Net interest expense in the nine months ended September
30, 2000 was relatively unchanged from the same period in 1999.
INCOME TAXES. The effective income tax rate declined in the nine months
ended September 30, 2000 from the same period in 1999, due to a greater
share of income being earned in the U.S., which is not subject to U.S.
federal income tax at the Company level.
NET INCOME. Net income in the nine months ended September 30, 2000
increased by $45 million to $141 million from $96 million during the same
period in 1999 as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, we had $100 million of outstanding borrowings
under our $400 million revolving credit facility and had approximately $103
million in cash balances. We also maintain $80 million of short-term
overdraft facilities, of which $77 million was available on September 30,
2000. We anticipate that borrowings under the credit facilities and cash
flow from operations will be sufficient for us to make required payments of
principal and interest on our debt when due, as well as to fund capital
expenditures.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No.133
as amended by SFAS N0.138 Accounting for Certain Derivative Instruments and
Certain Hedging Activities, established accounting and reporting standards
for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS No.133 is effective
for financial statements for the year ending December 31, 2001. The Company
is currently evaluating the effects of SFAS No.133 on its financial
statements.
RECENT EVENT
On August 31, 2000, we acquired the assets which comprised the Rohm and
Haas Company global thermoplastic polyurethanes business for a total
purchase price of approximately $120 million. The acquired business
operates manufacturing facilities located in Osnabruck, Germany and
Ringwood, Illinois.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to market risk, including changes in interest rates,
currency exchange rates, and certain commodity prices. Our exposure to
foreign currency market risk is limited since sales prices are typically
denominated in Euros or U.S. dollars. To the extent we have material
foreign currency exposure on known transactions, hedges are put in place
monthly to mitigate such market risk. Our exposure to changing commodity
prices is also limited (on an annual basis) since the majority of raw
material is acquired at posted or market related prices, and sales prices
for finished products are generally at market related prices which are set
on a quarterly basis in line with industry practice. To manage the
volatility relating to these exposures, we enter into various derivative
transactions. We hold and issue derivative financial instruments for
economic hedging purposes only.
Our cash flows and earnings are subject to fluctuations due to exchange
rate variation. Historically, the businesses transferred to us by ICI have
managed the majority of their foreign currency exposures by entering into
short-term forward foreign exchange contracts with ICI. In addition,
short-term exposures to changing foreign currency exchange rates at certain
of our foreign subsidiaries were managed, and will continue to be managed,
through financial market transactions, principally through the purchase of
forward foreign exchange contracts (typically with maturities of three
months or less) with various financial institutions. While the overall
extent of our currency hedging activities has not changed significantly, we
have altered the scope of our currency hedging activities to reflect the
currency denomination of our cash flows. In addition, we are now conducting
our currency hedging activities for our exposures arising in connection
with the businesses transferred to us by ICI with various financial
institutions. We do not hedge our currency exposures in a manner that would
entirely eliminate the effect of changes in exchange rates on our cash
flows and earnings. As of September 30, 2000, we have outstanding in the
notional amount of approximately $51 million equivalent of foreign exchange
forward contracts with third party banks with final settlement of not more
than 31 days. Predominantly, our hedging activity is to sell forward the
majority of our surplus non-U.S. dollar receivables for U.S. dollars. Using
sensitivity analysis, the foreign exchange loss due to these derivative
instruments from an assumed 10% unfavorable change in period-end rates,
when considering the effects of the underlying hedged firm commitment, is
not material.
Historically, Huntsman Specialty used interest rate swaps, caps and collar
transactions entered into with various financial institutions to hedge
against the movements in market interest rates associated with its floating
rate debt obligations. We do not hedge our interest rate exposure in a
manner that would entirely eliminate the effects of changes in market
interest rates on our cash flow and earnings. Under the terms of our senior
secured credit facilities, we are required to hedge a significant portion
of our floating rate debt. As a result, we have entered into approximately
$700 million notional amount of interest rate swap, cap and collar
transactions, approximately $650 million of which have terms ranging from
approximately three years to five years. The majority of these transactions
hedge against movements in U.S. dollar interest rates. The U.S. dollar swap
transactions obligate us to pay fixed amounts ranging from approximately
5.50% to approximately 7.00%. The U.S. dollar collar transactions carry
floors ranging from 5.00% to 6.00% and caps ranging from 6.60% to 7.50%. We
have also entered into a Euro-denominated swap transaction that obligates
us to pay a fixed rate of approximately 4.3%. Assuming a 1% (100 basis
point) increase in U.S. dollar interest rates, the effect on the annual
interest expense would be an increase of approximately $16 million. This
increase would be reduced by approximately $5 million as a result of the
effects of the interest rate swap, cap and collar transactions described
above.
In order to reduce our overall raw material costs, our petrochemical
business enters into various commodity contracts to hedge its purchase of
commodity products. We do not hedge our commodity exposure in a manner that
would entirely eliminate the effects of changes in commodity prices on our
cash flows and earnings. At September 30, 2000, the Company had forward
purchase and sales contracts for 76,000 and 36,000 tonnes (naphtha and
other hydrocarbons), respectively, which do not qualify for hedge
accounting. Assuming a 10% increase and a 10% decrease in the price per ton
of naphtha, the change would result in gains and losses of approximately $1
million, respectively.
PART II
ITEM 6.
a) Exhibit 27 - Financial Data Schedule
b) The Company filed no reports on Form 8-K for the quarter
ended September 30, 2000.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, HUNTSMAN ICI CHEMICALS LLC HAS DULY CAUSED THIS
REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF EVERBERG, COUNTRY OF BELGIUM, ON THE 31ST DAY OF
OCTOBER, 2000.
HUNTSMAN ICI CHEMICALS LLC
By: /s/ L. Russell Healy
-----------------------------
L. Russell Healy
Senior Vice President and
Finance Director