SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 333-88057
HUNTSMAN ICI HOLDINGS LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 87-0630359
(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 May 15, 2000, 1000 member equity units of Huntsman ICI Holdings
LLC were outstanding.
HUNTSMAN ICI HOLDINGS LLC AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
PAGE
Part I - Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 2
Consolidated Statements of 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 10
Item 3. Quantitive and Qualitative Disclosures about
Market Risk 13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 14
PART I
ITEM 1. FINANCIAL STATEMENTS
HUNTSMAN ICI HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Millions of Dollars)
March 31, 2000 December 31,
(Unaudited) 1999
-------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 67.9 $ 138.9
Accounts and notes receivable, net 653.4 629.4
Inventories 408.2 381.3
Other current assets 99.1 79.3
------------ ------------
TOTAL CURRENT ASSETS 1,228.6 1,228.9
Properties, plant and equipment, net 2,668.2 2,656.2
Other noncurrent assets 827.2 893.4
------------ ------------
TOTAL ASSETS $ 4,724.0 $ 4,778.5
============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 702.3 $ 676.4
Current portion of long-term debt 54.4 51.7
Other current liabilities 34.4 44.1
------------ ------------
TOTAL CURRENT LIABILITIES 791.1 772.2
Long-term debt 2,919.7 2,951.6
Other noncurrent liabilities 464.8 481.6
------------ ------------
TOTAL LIABILITIES 4,175.6 4,205.4
------------ ------------
MINORITY INTERESTS 8.5 8.0
------------ ------------
EQUITY:
Members' equity, 1,000 units 518.1 518.1
Retained earnings 69.4 49.7
Accumulated other comprehensive loss (47.6) (2.7)
------------ ------------
TOTAL EQUITY 539.9 565.1
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 4,724.0 $ 4,778.5
============ ============
See accompanying notes to consolidated condensed financial statements
HUNTSMAN ICI HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(Millions of Dollars)
HSCC PREDECESSOR
COMPANY
----------------
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
------------- ----------------
REVENUES:
Trade sales and services $ 931.7 $ 58.9
Related party sales 111.0 10.8
Tolling fees 12.2 13.7
------------- ---------------
TOTAL REVENUES 1,054.9 83.4
COST OF GOODS SOLD 873.6 61.8
------------- ---------------
GROSS PROFIT 181.3 21.6
EXPENSES:
Selling, general and administrative 67.6 1.8
Research and development 17.9 0.9
------------- ---------------
TOTAL EXPENSES 85.5 2.7
------------- ---------------
OPERATING INCOME 95.8 18.9
Interest expense, net 71.3 9.4
Other expense 0.4 -
------------- ---------------
Income before income taxes 24.1 9.5
Income tax expense 3.9 3.6
Minority interests in subsidiaries 0.5 -
------------- ---------------
NET INCOME 19.7 5.9
Preferred stock dividends - 1.1
Net income available to common 19.7
equity holders 4.8
Other comprehensive loss - foreign
currency translation adjustments (44.9) -
------------- ---------------
COMPREHENSIVE (LOSS) INCOME $ (25.2) $ 4.8
============= ===============
See accompanying notes to consolidated condensed financial statements
HUNTSMAN ICI HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Millions of Dollars)
ACCUMULATED
OTHER
MEMBERS' EQUITY COMPREHEN-
--------------- RETAINED SIVE
UNITS AMOUNT EARNINGS INCOME TOTAL
----- ------ -------- ----------- -----
Balance, January 1, 2000 1,000 $ 518.1 $ 49.7 $ (2.7) $ 565.1
Net income 19.7 19.7
Foreign currency
translation adjustments (44.9) (44.9)
----- ------- ------- ------- -------
Balance, March 31, 2000 1,000 $ 518.1 $ 69.4 $ (47.6) $ 539.9
===== ======= ======= ======= =======
See accompanying notes to consolidated condensed financial statements
HUNTSMAN ICI HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
HSCC PREDECESSOR
COMPANY
----------------
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19.7 $ 5.9
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 52.9 7.9
Interest on subordinated note 17.0 1.8
Other non-cash adjustments to net
income 0.7 1.8
Net changes in operating assets and
liabilities (75.6) (9.0)
------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 14.7 8.4
------------ ------------
INVESTING ACTIVITIES:
Acquisition of assets (26.8)
Cash received from unconsolidated affiliates 3.5
Advances to unconsolidated affiliates (7.2)
Capital expenditures (28.0) (1.2)
------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES (58.5) (1.2)
------------ ------------
FINANCING ACTIVITIES:
Repayments of long-term debt (25.8)
------------ ------------
NET CASH USED IN FINANCING
ACTIVITIES (25.8) -
Effect of exchange rate changes on cash (1.4) -
------------ -------------
Increase (decrease) in cash and cash
equivalents (71.0) 7.2
Cash and cash equivalents at beginning
of period 138.9 2.6
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 67.9 $ 9.8
============ ============
See accompanying notes to consolidated condensed financial statements
HUNTSMAN ICI HOLDINGS LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Effective June 30, 1999, pursuant to a contribution agreement and ancillary
agreements between Huntsman ICI Holdings LLC ("Holdings" or the "Company"),
Huntsman Specialty Chemicals Corporation ("HSCC"), Imperial Chemicals
Industries PLC ("ICI") and Huntsman ICI Chemicals LLC ("Chemicals"), 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, through its wholly-owned subsidiary Chemicals, 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):
March 31, 2000 December 31, 1999
-------------- -----------------
Raw materials $ 117.2 $ 97.8
Work in progress 18.5 20.6
Finished goods 248.9 225.6
-------------- ----------------
TOTAL 384.6 344.0
Materials and supplies 23.6 37.3
-------------- ----------------
NET $ 408.2 $ 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, polyols, aniline,
PO and MTBE
Petrochemicals Ethylene, propylene, benzene, cyclohexane and
paraxylene
Tioxide TiO(2)
Sales between segments are generally recognized at external market prices.
For the three months ended March 31, 2000, sales to ICI and its affiliates
accounted for approximately 8% of consolidated revenues.
HSCC PREDECESSOR
COMPANY
----------------
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
------------- ----------------
NET SALES:
Specialty Chemicals $ 491.2 $ 83.4
Petrochemicals 345.3
Tioxide 241.5
Sales between segments, Petrochemical
sales to Specialty Chemicals (23.1)
------------ ------------
TOTAL $ 1,054.9 $ 83.4
============ ============
OPERATING INCOME (LOSS):
Specialty Chemicals $ 62.1 $ 18.9
Petrochemicals (0.2)
Tioxide 33.9
------------ ------------
TOTAL $ 95.8 $ 18.9
============ ============
EBITDA(1):
Specialty Chemicals $ 91.1 $ 26.8
Petrochemicals 11.3
Tioxide 45.9
------------ ------------
TOTAL EBITDA 148.3 26.8
Depreciation & Amortization (52.9) (7.9)
Interest Expense, net (71.3) (9.4)
------------ ------------
INCOME BEFORE INCOME TAXES $ 24.1 $ 9.5
============ ============
(1) EBITDA is defined as earnings from continuing operations before
interest expense, depreciation and amortization, and taxes.
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 MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1999 (PRO FORMA)
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 MARCH 31,
2000 1999 (PRO FORMA)
---------- ----------------
Specialty Chemicals sales $ 491 $ 419
Petrochemical sales 322 221
Tioxide sales 242 230
---------- ----------
Total revenues 1,055 870
Cost of goods sold 874 708
---------- ----------
Gross profit 181 162
Expenses of selling, general,
administrative, research and
development 86 104
---------- ----------
Operating income 95 58
Interest expense, net 71 72
Other income - -
---------- ----------
Net income (loss) before income taxes
and minority interest 24 (14)
Income tax expense 4 3
Minority interests in subsidiaries 1 -
---------- ----------
Net income (loss) $ 19 $ (17)
========== ==========
Depreciation and amortization $ 53 $ 45
========== ==========
EBITDA (1) $ 148 $ 103
Net reduction in corporate overhead
allocation and insurance expenses - 6
Rationalization of TiO(2) operations - 2
---------- ----------
Adjusted EBITDA $ 148 $ 111
========== ==========
(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.
REVENUES. Revenues for the business in the three months ended March 31,
2000 increased by $185 million, or 21%, to $1,055 million from $870 million
during the same period in 1999.
Specialty Chemicals - Total MDI sales volumes increased by 21% from the
1999 period. A strong recovery in the Asian economies led to an increase in
sales volumes of 46%, while in Europe and the Americas sales volumes grew
by 22% and 16%, respectively. Polyol sales volumes also grew by 27% with
the increase arising in the European and U.S. markets. PO sales volumes
increased 24% as a result of higher production rates in the 2000 period.
Average sales prices of MTBE in the three months ended March 31, 2000
increased by 91% compared to the 1999 period due largely to higher gasoline
and crude oil prices. These gains were partially offset by a 10% decrease
in average selling prices for MDI and polyols compared to the same period
in 1999, approximately half of which was due to a weakening in the Euro
versus the U.S. dollar.
Petrochemicals - Sales volumes of ethylene and propylene increased by 53%
and 31% respectively. In addition to the volume from the 20% of the olefins
facility acquired from BP Chemicals on June 30, 1999, further increases
were attributable to increased customer demand. In aromatics, paraxylene
and cyclohexane sales volumes rose by 28% and 11% in response to stronger
demand. Sales volumes of cumene increased by 136% reflecting the resolution
of production problems encountered in 1999. Ethylene prices rose 64%,
propylene 79%, benzene 50% and paraxylene 56%. Revenues for the first three
months of 1999 included $62 million relating to crude oil trading. This
activity was discontinued following the consummation of the Transaction.
Tioxide - Sales volume increased by 10% compared to the 1999 period with
demand strong worldwide. Western European and North American volumes grew
by 11% and 8% respectively, while the strengthening of the Asian economy
impacted positively on volumes and prices in that region. Overall the
benefits of increased volume were partially offset by a 4% decline in
average selling prices. While local selling prices rose in the North
American, Asian and South African markets, these rises were partially
offset by a decline in European prices , which was a result of the adverse
impact of the Euro's continued weakening versus the U.S. dollar.
GROSS PROFIT. Gross profit for the business in the three months ended March
31, 2000 increased by $19 million, or 12%, to $181 million from $162
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 rise in the major
raw materials for MDI, benzene and chlorine. The price of benzene increased
by over 70% in both the European and American markets compared to the same
period in 1999. Fixed production costs remained largely unchanged. The
increased gross profit in PO was attributable to higher PO production rates
and increased MTBE selling prices compared to the same period in 1999.
These gains were partially offset by an increase in the cost of PO's major
raw materials: isobutane, methanol and propylene.
Petrochemicals - Gross profit improved over the equivalent period in 1999,
due to the effect of higher sales volumes and the mitigation of feedstock
price increases by hedging activities.
Tioxide - Increased volume led to improved gross profit compared to the
1999 period. The adverse impact of exchange rates on gross profit was more
than offset by the general increase in local selling prices and fixed
production cost savings as a result of Tioxide's 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 three months
ended March 31, 2000 decreased by $18 million, or 17%, to $86 million from
$104 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 three months ended March 31, 1999 and lower corporate
overhead allocations following the Transaction. SG&A expenses also
decreased as a result of ongoing restructuring activities.
INTEREST EXPENSE. Net interest expense in the three months ended March 31,
2000 was relatively unchanged from the same period in 1999.
INCOME TAXES. The effective income tax rate declined in the three months
ended March 31, 2000 from the same period in 1999 due to a greater share of
the income being earned in the U.S., which income is not subject to U.S.
Federal income tax at the company level.
NET INCOME. Net income in the three months ended March 31, 2000 increased
by $36 million to $19 million from a loss of $17 million during the same
period in 1999 as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had no outstandings under our $400 million
revolving credit facility and had approximately $68 million in cash
balances. We also maintain $80 million of short-term overdraft facilities,
of which approximately $63 million was available on March 31, 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
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.
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 US 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 (with maturities of six 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 March 31, 2000, we have outstanding in the
notional amount of approximately $15 million equivalent of foreign exchange
forward contracts with third party banks with final settlement of not more
than 60 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 year-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 $14 million. This
increase would be reduced by approximately $4 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 March 31, 2000, the Company had forward
purchase and sales contracts for 249,000 and 151,000 tons (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 a gain and losses of approximately
$2 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 March 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Huntsman ICI Holdings 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 15th day of May, 2000.
HUNTSMAN ICI HOLDINGS LLC
By: /s/ L. Russell Healy
----------------------------
L. Russell Healy
Senior Vice President and
Finance Director
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<ALLOWANCES> 8,200 0
<INVENTORY> 408,200 0
<CURRENT-ASSETS> 1,228,600 0
<PP&E> 2,840,000 0
<DEPRECIATION> 171,800 0
<TOTAL-ASSETS> 4,724,000 0
<CURRENT-LIABILITIES> 791,100 0
<BONDS> 2,919,700 0
0 0
0 0
<COMMON> 518,100 0
<OTHER-SE> 21,800 0
<TOTAL-LIABILITY-AND-EQUITY> 4,724,000 0
<SALES> 1,042,700 69,700
<TOTAL-REVENUES> 1,054,900 83,400
<CGS> 873,600 61,800
<TOTAL-COSTS> 959,100 64,500
<OTHER-EXPENSES> 400 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 72,900 9,500
<INCOME-PRETAX> 24,100 9,500
<INCOME-TAX> 3,900 3,600
<INCOME-CONTINUING> 19,700 5,900
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,700 5,900
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
