SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-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 1-9988
HUNTSMAN POLYMERS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 75-2104131
(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 November 14, 2000, 1,000 Shares of Common Stock, par value
$0.01 per Share, of Huntsman Polymers Corporation were outstanding.
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION............................................................................................3
Item 1. Financial Statements................................................................................... 3
Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999........................3
Consolidated Statements of Operations for the Nine Months Ended September 30, 2000 and 1999 (unaudited) ......4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (unaudited).......5
Notes to Consolidated Financial Statements....................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................15
PART II -- OTHER INFORMATION.............................................................................................15
Item 1. Legal Proceedings......................................................................................15
Item 6. Exhibits and Reports on Form 8-K.......................................................................15
</TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, 2000 December 31, 1999
--------------------- ----------------------
(thousands of dollars)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ - $ -
Accounts and notes receivable, net 32,129 29,171
Accounts and advances receivable - affiliates 47,127 40,810
Inventories 88,227 73,891
Other current assets 1,928 2,296
--------------------- ----------------------
Total current assets 169,411 146,168
Properties, plant and equipment, net 904,124 947,757
Intangible assets, net 45,904 46,112
Other noncurrent assets 35,736 36,394
--------------------- ----------------------
Total assets $ 1,155,175 $ 1,176,431
===================== ======================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 77,004 $ 65,219
Accounts payable - affiliates 1,254 1,260
Accrued liabilities 12,395 18,925
Accrued interest 6,860 1,723
Current portion of long term debt - affiliates - 26,610
--------------------- ----------------------
Total current liabilities 97,513 113,737
Long-term debt:
Affiliates 320,036 283,485
Other 174,882 174,882
Deferred income taxes 86,056 100,684
Other noncurrent liabilities 33,140 35,113
--------------------- ----------------------
Total liabilities $ 711,627 $ 707,901
--------------------- ----------------------
Stockholder's equity:
Common Stock, $0.01 par value, 1 million shares
authorized; 1,000 shares issued and outstanding
authorized; 1,000 shares issued and outstanding - -
Additional paid-in capital 528,500 528,500
Accumulated deficit (84,952) (59,970)
--------------------- ----------------------
Total stockholder's equity 443,548 468,530
--------------------- ----------------------
Total liabilities and stockholder's equity $ 1,155,175 $ 1,176,431
===================== ======================
See accompanying notes to consolidated financial statements
</TABLE>
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------- ------------------- ------------------- ---------------------
(thousands of dollars)
Revenues:
<S> <C> <C> <C> <C>
Trade sales and services $ 50,447 $ 35,538 $ 148,601 $ 90,823
Affiliate sales 117,846 93,149 350,324 243,664
-------------------- ------------------- ------------------- ----------------------
Total revenues 168,293 128,687 498,925 334,487
Cost of goods sold 169,866 125,446 480,656 334,221
-------------------- ------------------- ------------------- ----------------------
Gross profit (1,573) 3,241 18,269 226
Selling, general and administrative 6,267 5,627 19,574 16,613
-------------------- ------------------- ------------------- ----------------------
Operating income (loss) (7,840) (2,386) (1,305) (16,347)
Interest expense, net:
Affiliate interest (9,219) (4,543) (22,414) (12,462)
Other interest (5,345) (5,234) (15,814) (15,676)
Other income (expense) (17) 2,642 (74) 3,337
-------------------- ------------------- ------------------- ----------------------
Net loss before income taxes (22,421) (9,521) (39,607) (41,148)
Income tax benefit (7,793) (3,633) (14,625) (15,636)
-------------------- ------------------- ------------------- ----------------------
Net loss $ (14,628) $ (5,888) $ (24,982) $ (25,512)
==================== =================== =================== ======================
See accompanying notes to consolidated financial statements
</TABLE>
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
----------------------- ---------------------
(thousands of dollars)
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (24,982) $ (25,512)
Reconciliation to net cash used in operations:
Depreciation and amortization 56,360 42,883
Deferred income taxes (15,285) (15,673)
Amortization of debt issuance costs 651 651
Gain on sale of property (1,787) -
Changes in operating working capital:
Receivables (9,275) (20,854)
Inventories (14,336) (23,835)
Other current assets 368 (551)
Accounts payable 11,779 31,250
Other current liabilities 2,400 6,013
Deferred charges and other noncurrent assets (1,439) (5,664)
Deferred credits and other noncurrent liabilities (1,968) (3,500)
----------------------- ---------------------
Net cash provided by (used in) operations 2,486 (14,792)
INVESTING ACTIVITIES
Proceeds from sale of property 4,007 -
Capital expenditures of continuing operations (16,434) (57,554)
----------------------- ---------------------
Net cash used in investing activities (12,427) (57,554)
FINANCING ACTIVITIES
Intercompany (repayment to) borrowing from parent 9,941 (32,654)
Proceeds of capital contribution by parent - 105,000
----------------------- ---------------------
Net cash provided by financing activities 9,941 72,346
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD - -
----------------------- ---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ -
======================= =====================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 10,475 $ 10,274
Cash paid for income taxes $ - $ 931
See accompanying notes to consolidated financial statements
</TABLE>
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Huntsman Polymers Corporation and its subsidiaries (collectively
"the Company") manufacture products used in a wide variety of industrial
and consumer-related applications. The Company's principal products are
polyethylene (including low density polyethylene ("LDPE") and linear low
density polyethylene ("LLDPE")), polypropylene, amorphous polyalphaolefin
("APAO"), and styrene.
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.
Principles of Consolidation
The consolidated financial statements of the Company include its
wholly-owned subsidiaries. Intercompany transactions and balances are
eliminated.
Cash and Cash Equivalents
Highly liquid investments with an original maturity of three
months or less when purchased are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is
provided utilizing the straight line method over the estimated useful lives
of the assets, ranging from 3 to 20 years. Periodic maintenance and repairs
applicable to major units of manufacturing facilities are accounted for on
the prepaid basis by capitalizing the costs of the turnaround and
amortizing the costs over the estimated period until the next turnaround.
Normal maintenance and repairs of all other plant and equipment are charged
to expense as incurred. Renewals, betterments and major repairs that
materially extend the useful life of the assets are capitalized, and the
assets replaced, if any, are retired. Interest costs are capitalized as
part of major construction projects. Upon disposal of assets, the cost and
related accumulated depreciation are removed from the accounts and
resulting gain or loss is included in income.
Intangible Assets
Debt issuance costs are amortized over the term of the related
debt, ranging from five to ten years. Goodwill is amortized over a period
of 20 years. Other intangible assets are stated at their fair market values
at the time the Company, formerly known as Rexene Corporation, was acquired
by Huntsman Corporation and are amortized using the straight-line method
over their estimated useful lives of five to fifteen years or over the life
of the related agreement and are included in "Intangible assets, net."
Income Taxes
Deferred income taxes are provided for temporary differences
between financial statement income and taxable income using the asset and
liability method in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
Environmental Expenditures
Environmental related restoration and remediation costs are
recorded as liabilities and expensed when site restoration and
environmental remediation and clean-up obligations are either known or
considered probable and the related costs can be reasonably estimated.
Other environmental expenditures, which are principally maintenance or
preventative in nature, are recorded when expended and are expensed or
capitalized as appropriate.
Reclassifications
Certain amounts in the consolidated financial statements for
prior periods have been reclassified to conform with the current
presentation.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement, as
amended by SFAS No. 138 issued in June 2000, establishes accounting and
reporting standards for derivatives and for hedging activities. It requires
an entity to recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133," which delays the effective date for
implementation of SFAS No. 133 for one year, making it effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
is currently in the process of evaluating the impact of this statement on
its financial statements.
Income (loss) per Share
Income (loss) per share is not presented because it is not
considered meaningful information due to the Company's ownership by a
single non-public shareholder.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
--------------------- -----------------------
<S> <C> <C>
Raw materials $ 16,395 $ 12,022
Work in progress 10,656 10,548
Finished goods 61,176 51,321
--------------------- -----------------------
Total inventories $ 88,227 $ 73,891
===================== =======================
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and
equipment are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
--------------------- -----------------------
<S> <C> <C>
Property, plant and equipment $ 1,065,089 $ 1,055,056
Less accumulated depreciation (160,965) (107,299)
--------------------- -----------------------
Total property, plant and equipment $ 904,124 $ 947,757
===================== =======================
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
--------------------- ---------------------
Affiliates:
<S> <C> <C>
Intercompany borrowings $ 257,226 $ 250,360
Capital lease - Affiliate 62,810 59,735
--------------------- ---------------------
Total affiliate debt 320,036 310,095
Less: Current portion of capital lease -
Affiliate - 26,610
--------------------- ---------------------
Total long-term debt - Affiliate 320,036 283,485
Other - 11 3/4% Senior Notes due 2004 174,882 174,882
--------------------- ---------------------
Total long-term portion $ 494,918 $ 458,367
===================== =====================
</TABLE>
During the first quarter of 2000, the Company amended the terms of
the Capital Lease Agreement with Huntsman Group Holdings Finance Company
("HGHFC"). As a result of the amendment, the Company is obligated to repay
the entire amount of the lease on September 30, 2002, the maturity date of
the Capital Lease Agreement. All other terms of the Capital Lease Agreement
remain unchanged.
5. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization are (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------------- ---------------
<S> <C> <C>
Debt issuance costs $ 7,173 $ 7,173
Less accumulated amortization (4,209) (3,558)
--------------------- ----------------
Total debt issuance costs $ 2,964 $ 3,615
--------------------- ----------------
Goodwill $ 42,406 $ 42,406
Less accumulated amortization (6,507) $ (4,924)
--------------------- -----------------
Total goodwill $ 35,899 $ 37,482
--------------------- -----------------
Other intangible assets $ 8,070 $ 5,396
Less accumulated amortization (1,029) (381)
--------------------- -----------------
Total other intangible assets $ 7,041 $ 5,015
--------------------- -----------------
Total intangible assets $ 45,904 $ 46,112
===================== =================
</TABLE>
6. CONTINGENCIES
Environmental Regulation
The Company and the industry in which it competes are subject to
extensive environmental laws and regulations concerning, for example,
emissions to the air, discharges to surface and subsurface waters and the
generation, handling, storage, transportation, treatment and disposal of
waste and other materials. The Company believes that, in light of its
historical expenditures and expected future results of operations, it will
have adequate resources to conduct its operations in compliance with
currently applicable environmental and health and safety laws and
regulations. However, in order to comply with changing facility permitting
and regulatory requirements, the Company may be required to make additional
significant site or operational modifications that are not currently
contemplated. Further, the Company has incurred, and may in the future
incur, liability to investigate and clean up waste or contamination at its
current or former facilities, or which it may have disposed of at
facilities operated by third parties.
On the basis of reasonable investigation and analysis,
management believes that the approximately $6.4 million accrued in the
September 30, 2000 balance sheet is adequate for the total potential
environmental liability of the Company with respect to contaminated sites.
Extensive environmental investigation of the groundwater, soils and solid
waste management units has been conducted at the Odessa Facility. Risk
assessments have been completed for a number of these units and corrective
measures have been defined and conducted. As of September 30, 2000, the
Texas Natural Resource Conservation Commission ("TNRCC") has approved
closure for 30 of the plant's solid waste management units.
TNRCC Flare Investigation
By letter dated January 28, 1999, the TNRCC notified the Company
of allegations that the Company's olefins plant may have violated its air
permit by emitting visible smoke from its process/emergency flare in late
December 1998 or early January 1999. During that period, the olefins plant
was in the midst of start up after extensive construction. As required by
Texas law, the Company had given prior notice to the TNRCC of the start up
and that excess emissions might result. The TNRCC investigated this matter
after receiving numerous complaints from residents of a subdivision near
the Odessa facility. A draft Agreed Order with a proposed $15,000 penalty
was sent by the TNRCC to the Company. Following discussions with the
Company, the TNRCC re-drafted the Agreed Order with a proposed $7,500
penalty. The Company agreed to an Order stipulating that $1,500 of the
$7,500 be deferred, a $3,000 fine paid and $3,000 offset with a
supplemental environmental project for a neighborhood monitoring program
near the facility. When the Agreed Order was presented to the Commission,
Odessa residents attending the hearing opposed its entry. The Commission
remanded the matter back to the Commission staff for further consideration.
The Company will meet with the TNRCC staff to determine whether a
settlement can be reached.
As a result of the start-up flaring during late December 1998
and January 1999, complaining citizens have hired counsel to consider
bringing legal action to recover damages alleged to have been caused by
that flaring. One such action has been filed, and three other actions have
been threatened. Company lawyers believe that the Company has strong
defenses to these suits, but because the number of plaintiffs could be as
high as 5,000 to 6,000, substantial damages might be sought.
Other Matters
The Company has received information from the United States
Environmental Protection Agency ("EPA") that an enforcement action is
likely to be brought under the Federal Clean Air Act for alleged violations
discovered by the EPA during an inspection of the Odessa facility in April
1997, during the time when the facility was owned and operated by Rexene
Corporation. Although the Company cannot estimate with reasonable certainty
the level of civil penalties the government may seek, the Company believes
that the ultimate outcome is not likely to have a material effect on the
Company's financial position.
The Company continually reviews its estimates of potential
environmental liabilities. However, no assurance can be given that all
potential liabilities arising out of the Company's present or past
operations have been identified or fully assessed or that the amounts that
might be required to remediate such conditions will not be significant to
the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The markets in which the Company competes are generally cyclical
markets that are sensitive to relative changes in supply and demand as well
as general economic conditions. Historically, these products have
experienced alternating periods of tight supply, rising prices and
increased profits followed by periods of large capacity additions resulting
in oversupply, lower selling prices and lower profits. Certain of the
Company's products, such as APAO, are generally less sensitive to economic
cycles.
Principal raw materials purchased by the Company consist of
ethane and propane extracted from natural gas liquids ("NGLs"), propylene
and benzene (all four of which are referred to as "feedstocks") for the
polyethylene, polypropylene and styrene businesses. Management believes the
feedstock supplies available in Odessa, Texas are currently adequate for
the Company's requirements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues
The Company's revenue increased $39.6 million to $168.3 million
for the three months ended September 30, 2000 from $128.7 million for the
same period in 1999. The major factors contributing to the increase in
revenue were higher sales prices in all the Company's product lines and
higher sales volumes in polyethylene and styrene. Polypropylene, olefins,
APAO and FPO all experienced lower sales volumes. The higher sales price
was mainly due to the Company's ability to pass through escalated raw
material costs resulting from the rapid rise in oil, natural gas and
utility prices. Polyethylene revenue increased $10.5 million to $74.2
million due mainly to higher pricing driven by escalating raw materials
described above and higher production volumes from the new LLDPE facility.
Olefins revenue increased $14.6 million to $33.2 million due principally to
a 92% increase in the average sales price. Styrene revenue increased $9.8
million to $26.4 million due primarily to a 2.8 million-pound increase in
sales volume and a 52.6% increase in the average sales price. Polypropylene
revenue increased $4.7 million to $23.1 million due principally to a 34%
increase in the average sales price.
Gross Profit
The Company's gross profit decreased $4.8 million to a loss of
$1.6 million for the three months ended September 30, 2000 from income of
$3.2 million for the same period in 1999. The decrease in gross profit was
primarily due to lower sales volumes.
Selling, General and Administrative
The Company's selling, general and administrative expenses
increased $0.7 million to $6.3 million for the three months ended September
30, 2000 from $5.6 million for the same period in 1999. This increase is
primarily due to higher overhead allocations from an affiliate of the
Company, reflecting increased information technology, safety, environmental
and international support services.
Affiliate Interest
The Company's affiliate interest increased $4.7 million to $9.2
million for the three months ended September 30, 2000 from $4.5 million for
the same period in 1999, primarily due to a decrease in capitalized
interest related to lower levels of construction in progress in the 2000
period.
Other Income (Expense)
The Company's other income decreased $2.6 million to expense of
$17,000 for the three months ended September 30, 2000 from income of $2.6
million in the same period in 1999. This change was primarily due to higher
legal costs in 2000 relating to plant construction disputes and the absence
of a one-time receipt in 1999 of the final settlement of an insurance claim
relating to the January 1998 transformer fire, partially offset by the
receipt of other one-time items in the 2000 period.
Net Loss
The Company's net loss increased $8.7 million to $14.6 million
for the three months ended September 30, 2000 from $5.9 million for the
same period in 1999. The decrease is a result of the reasons stated above.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues
The Company's revenue increased $164.4 million to $498.9 million
for the nine months ended September 30, 2000 from $334.5 million for the
same period in 1999. The major factors contributing to the increase in
revenue were higher sales prices in all product lines as well as higher
sales volume in polyethylene, styrene and polypropylene. Olefins, FPO and
APAO experienced lower sales volumes in the 2000 period.
Polyethylene sales revenue increased $75.0 million to $231.2
million for the first nine months of 2000 favorably impacted by the new
LLDPE facility. Olefins revenue increased $42.6 million to $86.1 million
due primarily to a 120% increase in sales price driven by the rise in raw
material and energy prices. Styrene sales revenue increased $35.8 million
to $82.8 million due to higher sales volumes and prices. Polypropylene
sales revenue increased $13.4 million to $69.1 million due mainly to a
22.5% increase in average sales prices.
Gross Profit
The Company's gross profit increased $18.0 million to $18.3
million for the nine months ended September 30, 2000 from $0.3 million for
the same period in 1999. The increase in gross profit was primarily due to
the completed and successful start-up of the LLDPE facility and olefins
expansion.
Selling, General and Administrative
The Company's selling, general and administrative expenses
increased $3.0 million to $19.6 million for the nine months ended September
30, 2000 from $16.6 million for the same period in 1999. This increase is
primarily due to higher overhead allocations from an affiliate of the
Company, reflecting increased information technology, safety, environmental
and international support services.
Affiliate Interest
The Company's affiliate interest increased $9.9 million to $22.4
million for the nine months ended September 30, 2000 from $12.5 million for
the same period in 1999, primarily due to a decrease in capitalized
interest related to fewer construction projects in progress in 2000.
Other Income (Expense)
The Company's other income decreased $3.4 million to expense of
$0.1 million for the nine months ended September 30, 2000 from income of
$3.3 million for the same period in 1999. This change was primarily due to
higher legal costs in 2000 relating to plant construction disputes and the
absence of a one-time receipt in 1999 of the final settlement of an
insurance claim relating to the January 1998 transformer fire, partially
offset by the receipt of other one-time items in the 2000 period.
Net Loss
The Company's net loss decreased $0.5 million to $25.0 million
for the nine months ended September 30, 2000 from $25.5 million for the
same period in 1999. The decrease is a result of the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months
ended September 30, 2000 was $2.5 million, as compared to a net use of
$14.8 million in the same period in 1999. This increase is attributable to
a smaller net loss during the 2000 period, higher depreciation and
amortization expenses during the 2000 period associated with the recently
expanded facilities, and a smaller investment in working capital.
Net cash used in investing activities for the nine months ended
September 30, 2000 was $12.4 million, as compared to $57.6 million for the
same period in 1998. This decrease is attributable to a decrease in capital
expenditures and the net proceeds from the sale of property in the 2000
period.
Net cash provided by financing activities for the nine months
ended September 30, 2000 was $9.9 million, as compared to $72.3 million for
the same period in 1999. This decrease was primarily attributable to $105.0
million in capital contributions received from the Company's parent in the
1999 period as well as a $32.7 million reduction in intercompany borrowings
in the 1999 period.
The Company maintains an intercompany loan agreement (the
"Intercompany Loan Agreement") with Huntsman Group Holdings Finance
Corporation, a wholly owned subsidiary of Huntsman Corporation. As of
September 30, 2000, the Company owed $257.2 million under the Intercompany
Loan Agreement. Subject to certain terms and conditions, the Company may
borrow additional amounts under the Intercompany Loan Agreement. The
Company has guaranteed on a secured basis, subject to the limitations
imposed by the indenture (the "Indenture") governing the Company's 11 3/4%
Senior Notes (the "Senior Notes"), Huntsman Corporation's senior secured
borrowings on a pari passu basis with substantially all of Huntsman
Corporation's domestic subsidiaries. The Company's liquidity is dependent
upon its results of operations and funds loaned to the Company by its
parent Huntsman Corporation under the Intercompany Loan Agreement. Lines of
credit under the Intercompany Loan Agreement remain available to the
Company. Huntsman Corporation and its lenders are currently discussing
amendments to the credit documents governing its senior secured borrowings
which would modify some of the financial covenants in those credit
documents. Huntsman Corporation currently is not in compliance with one of
those financial covenants. If the amendments are not approved, and if
Huntsman Corporation's lenders do not permit continued borrowings, then
Huntsman Corporation may no longer be able to provide funds to the Company
under the Intercompany Loan Agreement. Until such amendments are effected,
Huntsman Corporation's lenders could pursue their remedies including
acceleration of the senior secured borrowings, which would also cause an
acceleration of our obligations under the Intercompany Loan Agreement. This
would constitute an event of default under the Senior Notes. The Company
could also be required to make payment to Huntsman Corporation's lenders
pursuant to the Company's guaranty of the senior secured borrowings. While
there can be no assurance that approval of the amendments will be obtained,
Huntsman Corporation believes that the proposed amendments will be approved
by the required majority of its lenders in the near future.
Capital expenditures for the nine months ended September 30,
2000 were $16.4 million. The $41.1 million decrease in capital expenditures
for the nine months ended September 30, 2000 compared to the same period in
1999 was due primarily to a reduction in spending in connection with the
Company's modernization and expansion program, which was substantially
completed in the first quarter of 1999. The Company expects to spend
approximately $8.0 million during the balance of 2000 on capital projects.
The Company believes that, based on current levels of operation
and anticipated growth, its cash flow from operations, together with other
available sources of liquidity, will be adequate to make scheduled payments
of interest on the Senior Notes, to permit anticipated capital expenditures
and to fund working capital requirements. However, the ability of the
Company to satisfy these obligations depends on a number of significant
assumptions, including but not limited to, the demand for the Company's
products and raw material costs.
A number of potential environmental liabilities exist which
relate to certain contaminated property. In addition, a number of potential
environmental costs relate to pending or proposed environmental
regulations. No assurance can be given that all of the potential
liabilities arising out of the Company's present or past operations have
been identified or that the amounts that might be required to investigate
and remediate such sites or comply with pending or proposed environmental
regulations can be accurately estimated. The Company has approximately $6.4
million accrued in the September 30, 2000 balance sheet as an estimate of
its total potential environmental liability with respect to investigating
and remediating known and assessed site contamination. Extensive
environmental investigation of the groundwater, soil and solid waste
management units has been conducted at the Odessa facility. Risk
assessments have been completed for a number of these units and corrective
measures have been defined and conducted. If, however, additional
liabilities with respect to environmental contamination are identified,
there is no assurance that additional amounts that might be required to
investigate and remediate such potential sites would not have a material
adverse effect on the financial position, results of operations or cash
flows of the Company. In addition, future regulatory developments could
restrict or possibly prohibit existing methods of environmental compliance.
At this time, the Company is unable to determine the potential consequences
such possible future regulatory developments would have on its financial
condition. Management continually reviews its estimates of potential
environmental liabilities. The Company carries Pollution Legal Liability
insurance to address many of the potential environmental liabilities,
subject to its terms, limits, exclusions and deductibles, on both a sudden
and accidental basis and on a gradual basis for occurrences commencing
after July 1, 1997 on its operations. The Company also carries Pollution
Legal Liability and Closure and Post Closure insurance on certain
facilities at the Odessa manufacturing location, which are regulated by the
TNRCC. This insurance satisfies requirements of the TNRCC governing
operations at this location.
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 the Company's
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," "should," or
"anticipates", or the negative of such terms or other comparable
terminology, or by discussions of strategy. The Company may also make
additional forward-looking statements from time to time. All such
subsequent forward-looking statements, whether written or oral, by the
Company or on its 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
their current expectations and various assumptions. The Company's
expectations, beliefs and projections are expressed in good faith and the
Company believes there is a reasonable basis for them, but, there can be no
assurance that the Company's expectations, beliefs and projections will
result or be achieved. All forward-looking statements apply only as of the
date made. The Company undertakes no obligation to publicly update or
revise forward-looking statements that may be made to reflect events or
circumstances after the date made or to reflect the occurrence of
unanticipated events.
There are a number of risks and uncertainties that could cause
the Company's actual results to differ materially from the forward-looking
statements contained in or contemplated by this report. The following are
among the factors that could cause actual results to differ materially from
the forward-looking statements. There may be other factors, including those
discussed elsewhere in this report, that may cause the Company's actual to
differ materially from the forward-looking statements. Any forward-looking
statements should be considered in light of these factors.
1. The cyclical nature of the Company's business
2. Changes in the availability and/or price of feedstocks
3. Environmental and safety requirements, including permitting,
enforcement activities and the possibility of related
litigation
4. Changes in product mix and utilization of production
facilities
5. Unavailability of, and substantial delays in, transportation
of raw materials and products
6. Inability to obtain new customers or retain existing ones
7. Significant changes in competitive factors affecting the
Company
8. Significant changes from expectations in actual capital
expenditures and operating expenses and unanticipated
project delays
9. Occurrences affecting the Company's ability to obtain funds
from operations, debt or equity to finance needed capital
expenditures and other investments
10. Significant changes in the Company's relationship with its
employees and the potential adverse effects if labor
disputes or grievances were to occur
11. Significant changes in tax rates or policies or in rates of
inflation or interest
12. Changes in economic conditions
13. Changes in management or control of the Company
14. Changes in accounting principles and/or the application of
such principles to the Company
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has interest and market risk with respect to $175
million of its 11 3/4% Senior Notes due 2004. The market value of this debt
was $181.2 million and $186.1 million on September 30, 2000 and 1999,
respectively. The senior notes are redeemable at prices up to 105.875% of
par value through 2004. All other debt accrues interest at floating rates.
The Company's exposure to foreign currency market risk is minimal
since sales prices are typically denominated in U.S. dollars. The Company's
exposure to changing commodity prices is also minimal since substantially
all raw material is acquired at posted or market related prices, and sales
prices for finished products are generally at market related prices.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various lawsuits arising in the
ordinary course of business and does not believe that the outcome of any of
these lawsuits will have a material adverse effect on the Company's
financial position, results of operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Exhibits
-------- --------
27 Financial Data Schedule
(b) Reports Submitted on Form 8-K:
There were no reports submitted on Form 8-K during the
third quarter of 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUNTSMAN POLYMERS CORPORATION
Registrant
Date: November 14, 2000 By: /s/ J. Kimo Esplin
--------------------------
J. Kimo Esplin
Senior Vice President and
Chief Financial Officer
