Overview
We operate in four segments: Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Our products comprise a broad range of chemicals and formulations, which we market globally to a diversified group of consumer and industrial customers. Our products are used in a wide range of applications, including those in the adhesives, aerospace, automotive, construction products, durable and non-durable consumer products, digital inks, electronics, medical, packaging, coatings and construction, power generation, refining, synthetic fiber, textile chemicals and dyes industries. We are a leading global producer in many of our key product lines, including MDI, amines, surfactants, maleic anhydride, epoxy-based polymer formulations, textile chemicals and dyes. Our revenues from continuing operations for the three months endedMarch 31, 2020 and 2019 were$1,593 million and$1,669 million , respectively.
Recent Developments
Sale of Chemical Intermediates Businesses
OnJanuary 3, 2020 , we completed the sale of our Chemical Intermediates Businesses to Indorama in a transaction valued at approximately$2 billion , comprising a cash purchase price of approximately$1.93 billion , which includes estimated adjustments to the purchase price for working capital, plus the transfer of approximately$72 million in net underfunded pension and other post-employment benefit liabilities. See "Note 4. Discontinued Operations and Business Dispositions-Sale of Chemical Intermediates Businesses" to our condensed consolidated financial statements.
Icynene-Lapolla Acquisition
OnFebruary 20, 2020 , we completed the Icynene-Lapolla Acquisition for$353 million , subject to customary closing adjustments, in an all-cash transaction funded from available liquidity. The acquired business is being integrated into our Polyurethanes segment. See "Note 3. Business Combinations and Acquisitions" to our condensed consolidated financial statements.
Acquisition of CVC Thermoset Specialties
OnMarch 15, 2020 , we entered into an agreement withEmerald Performance Materials LLC , which is majority owned by affiliates ofAmerican Securities LLC , to acquire CVC Thermoset Specialties, a North American specialty chemical manufacturer serving the industrial composites, adhesives and coatings markets. CVC Thermoset Specialties operates two manufacturing facilities located inAkron, Ohio andMaple Shade, New Jersey . Under the terms of the agreement, we agreed to pay$300 million , subject to customary closing adjustments, in an all-cash transaction funded from available liquidity. The transaction is expected to close around midyear of 2020. The acquired business is expected to be integrated into our Advanced Materials segment. Impacts of COVID-19 Pandemic
The recent outbreak of the novel coronavirus COVID-19, which was declared a pandemic by theWorld Health Organization onMarch 11, 2020 , has led to adverse impacts on theU.S. and global economies, softening demand for our products, and certain interruptions to our operations and supply chain. The COVID-19 pandemic has had a moderate adverse impact on our financial performance for the first quarter of 2020 and is having a significant impact so far in the second quarter of 2020. We believe the adverse impact of the COVID-19 pandemic will continue for the remainder of fiscal year 2020. For example, in the first quarter of 2020, we began to see the impacts of COVID-19 on our markets and operations, including softening demand, deteriorating margins across certain product lines, and logistical pressures in certain parts of our supply chain. The extent to which the COVID-19 pandemic will impact our business, including demand for our products, our operations, and results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on our customers, suppliers, and vendors and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future. Therefore, we cannot reasonably estimate the 38
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impact at this time. The risks to our business are more fully described in "Part II. Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q.
Outlook
We expect the following factors to impact our operating segments:
Polyurethanes:
? Significantly lower volumes due to global economic crisis
? Component MDI and polymeric systems margins remain depressed
? Stable differentiated MDI margins
? Slowly improving demand trends in
Performance Products:
? Significantly lower volumes due to global economic crisis
? Stable
? Stable margins in performance amines
Advanced Materials:
? Significantly lower volumes due to global economic crisis
? Growth in electrical infrastructure related markets
? Stable margins Textile Effects:
? Significantly lower volumes due to global economic crisis
? Long-term demand trends for sustainable solutions unchanged
During 2020, we expect to spend between approximately$225 million to$235 million on capital expenditures for continuing operations. We have deferred a portion of capital spending on a new MDI splitter inGeismar, Louisiana for six months leaving roughly$40 million of capital spend in 2020 with the remaining spend of approximately$120 million in 2021 and 2022. We expect our forward adjusted effective tax rate will be approximately 22% to 24%. For further information, see "-Non-GAAP Financial Measures" and "Note 17. Income Taxes" to our condensed consolidated financial statements.
Refer to "Forward-Looking Statements" for a discussion of our use of forward-looking statements in this Form 10-Q.
39 Table of Contents Results of Operations For each of our Company andHuntsman International , the following tables set forth the condensed consolidated results of operations (dollars in millions, except per share amounts): Huntsman Corporation Three months ended March 31, Percent 2020 2019 Change Revenues$ 1,593 $ 1,669 (5)% Cost of goods sold 1,296 1,310 (1)% Gross profit 297 359 (17)% Operating expenses 240 243 (1)%
Restructuring, impairment and plant closing costs 3
1 200% Operating income 54 115 (53)% Interest expense, net (18) (30) (40)% Equity in income of investment in unconsolidated affiliates 2 10 (80)% Fair value adjustments to Venator investment (110) 76 NM Loss on early extinguishment of debt - (23) (100)% Other income, net 10 5 100% (Loss) income from continuing operations before income taxes (62) 153 NM Income tax expense (7) (45) (84)% (Loss) income from continuing operations (69) 108 NM Income from discontinued operations, net of tax 777 23 NM Net income 708 131 440% Reconciliation of net income to adjusted EBITDA: Net income attributable to noncontrolling interests (3) (12) (75)% Interest expense, net from continuing operations 18 30 (40)% Income tax expense from continuing operations 7 45 (84)% Income tax expense from discontinued operations 238 5 NM Depreciation and amortization of continuing operations 67 67 - Depreciation and amortization of discontinued operations - 23 (100)% Other adjustments: Business acquisition and integration expenses and purchase accounting inventory adjustments 13
1
EBITDA from discontinued operations(1) (1,015)
(51)
Fair value adjustments to Venator investment 110
(76)
Loss on early extinguishment of debt -
23
Certain legal settlements and related expenses 2
-
Gain on sale of businesses/assets (2)
-
Certain nonrecurring information technology project implementation costs 1
-
Amortization of pension and postretirement actuarial losses 18
17
Restructuring, impairment and plant closing and transition costs(2) 3 1 Adjusted EBITDA(3)$ 165 $ 204 (19)%
Net cash used in operating activities from continuing operations
$ (40) $
(40) - Net cash provided by (used in) investing activities from continuing operations
1,511 (45) NM Net cash (used in) provided by financing activities (354) 183 NM Capital expenditures from continuing operations (61) (61) - 40 Table of ContentsHuntsman International Three months ended March 31, Percent 2020 2019 Change Revenues$ 1,593 $ 1,669 (5)% Cost of goods sold 1,296 1,310 (1)% Gross profit 297 359 (17)% Operating expenses 238 241 (1)%
Restructuring, impairment and plant closing costs 3
1 200% Operating income 56 117 (52)% Interest expense, net (20) (35) (43)% Equity in income of investment in unconsolidated affiliates 2 10 (80)% Fair value adjustments to Venator investment (110) 76 NM Loss on early extinguishment of debt - (23) (100)% Other income, net 9 4 125% (Loss) income from continuing operations before income taxes (63) 149 NM Income tax expense (7) (44) (84)% (Loss) income from continuing operations (70) 105 NM Income from discontinued operations, net of tax 777 23 NM Net income 707 128 452% Reconciliation of net income to adjusted EBITDA: Net income attributable to noncontrolling interests (3) (12) (75)% Interest expense, net from continuing operations 20 35 (43)% Income tax expense from continuing operations 7 44 (84)% Income tax expense from discontinued operations 238 5 NM Depreciation and amortization of continuing operations 67 67 - Depreciation and amortization of discontinued operations - 23 (100)% Other adjustments: Business acquisition and integration expenses and purchase accounting inventory adjustments 13
1
EBITDA from discontinued operations(1) (1,015)
(51)
Fair value adjustments to Venator investment 110
(76)
Loss on early extinguishment of debt -
23
Certain legal settlements and related expenses 2
-
Gain on sale of businesses/assets (2)
-
Certain nonrecurring information technology project implementation costs 1
-
Amortization of pension and postretirement actuarial losses 18
18
Restructuring, impairment and plant closing and transition costs(2) 3 1 Adjusted EBITDA(3)$ 166 $ 206 (19)% Net cash used in operating activities from continuing $ $ operations (42)
(44) (5)% Net cash provided by (used in) investing activities from continuing operations
1,790 (54) NM Net cash (used in) provided by financing activities (631) 195 NM Capital expenditures from continuing operations (61) (61) - 41 Table of Contents Huntsman Corporation Three months ended Three months ended March 31, 2020 March 31, 2019 Tax and Tax and Gross other(4) Net Gross other(4) Net Reconciliation of net income to adjusted net income Net income$ 708 $ 131 Net income attributable to noncontrolling interests (3) (12) Business acquisition and integration expenses and purchase accounting inventory adjustments$ 13 $ (3) 10$ 1 $ - 1 Income from discontinued operations(1)(5) (1,015) 238 (777) (51) 28 (23) Fair value adjustments to Venator investment 110 - 110 (76) - (76) Loss on early extinguishment of debt - - - 23 (5) 18 Certain legal settlements and related expenses 2 - 2 - - - Gain on sale of businesses/assets (2) - (2) - - - Certain nonrecurring information technology project implementation costs 1 - 1 - - - Amortization of pension and postretirement actuarial losses 18 (4) 14 17 (4) 13 Significant activities related to deferred tax assets and liabilities(6) - - - - 32 32 Restructuring, impairment and plant closing and transition costs(2) 3 (1) 2 1 - 1 Adjusted net income(3)$ 65 $ 85
Weighted average shares-basic 223.2 233.1 Weighted average shares-diluted 223.2 235.1 Basic net income attributable toHuntsman Corporation per share: (Loss) income from continuing operations$ (0.32) $ 0.41 Income from discontinued operations 3.48 0.10 Net income$ 3.16 $ 0.51 Diluted net income attributable toHuntsman Corporation per share: (Loss) income from continuing operations$ (0.32) $ 0.41 Income from discontinued operations
3.48 0.10 Net income$ 3.16 $ 0.51 Other non-GAAP measures:
Diluted adjusted net income per share(3)$ 0.29 $ 0.36 Net cash used in operating activities from continuing operations$ (40) $ (40) Capital expenditures from continuing operations (61) (61) Free cash flow from continuing operations(3) $
(101)$ (101) NM-Not meaningful
(1)Includes the gain on the sale of our Chemical Intermediates Businesses in 2020.
Includes costs associated with transition activities relating to the
migration of our information system data centers and the transition of our
(2) Textile Effects segment's production from
facility. These transition costs were included in either selling, general and
administrative expenses or cost of sales on our condensed consolidated statements of operations.
(3) See "-Non-GAAP Financial Measures."
The income tax impacts, if any, of each adjusting item represent a ratable (4) allocation of the total difference between the unadjusted tax expense and the
total adjusted tax expense, computed without consideration of any adjusting
items using a with and without approach.
(5) In addition to income tax impacts, this adjusting item is also impacted by
depreciation and amortization expense and interest expense.
During the three months ended
deferred tax expense due to the reduction of tax rates in
allowances and deferred tax assets and liabilities from our presentation of
adjusted net income to allow investors to better compare our ongoing financial performance from period to period. 42 Table of Contents Non-GAAP Financial Measures Our condensed consolidated financial statements are prepared in accordance with GAAP, which we supplement with certain non-GAAP financial information. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures in their entirety and not to rely on any single financial measure. These non-GAAP measures exclude the impact of certain expenses that we do not believe are indicative of our core operating results.
Adjusted EBITDA
Our management uses adjusted EBITDA to assess financial performance. Adjusted EBITDA is defined as net income ofHuntsman Corporation orHuntsman International , as appropriate, before interest, income tax, depreciation and amortization, net income attributable to noncontrolling interests and certain Corporate and other items, as well as eliminating the following adjustments: (a) business acquisition and integration expenses and purchase accounting inventory adjustments; (b) EBITDA from discontinued operations; (c) fair value adjustments to Venator investment; (d) loss on early extinguishment of debt; (e) certain legal settlements and related expenses (income); (f) loss (gain) on sale of businesses/assets; (g) certain nonrecurring information technology project implementation costs; (h) amortization of pension and postretirement actuarial losses; and (i) restructuring, impairment and plant closing and transition costs (credits). We believe that net income ofHuntsman Corporation orHuntsman International , as appropriate, is the performance measure calculated and presented in accordance withU.S. GAAP that is most directly comparable to adjusted EBITDA. We believe adjusted EBITDA is useful to investors in assessing the businesses' ongoing financial performance and provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of the businesses' operational profitability and that may obscure underlying business results and trends. However, this measure should not be considered in isolation or viewed as a substitute for net income ofHuntsman Corporation orHuntsman International , as appropriate, or other measures of performance determined in accordance withU.S. GAAP. Moreover, adjusted EBITDA as used herein is not necessarily comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation. Our management believes this measure is useful to compare general operating performance from period to period and to make certain related management decisions. Adjusted EBITDA is also used by securities analysts, lenders and others in their evaluation of different companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be highly dependent on a company's capital structure, debt levels and credit ratings. Therefore, the impact of interest expense on earnings can vary significantly among companies. In addition, the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate. As a result, effective tax rates and tax expense can vary considerably among companies. Finally, companies employ productive assets of different ages and utilize different methods of acquiring and depreciating such assets. This can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Nevertheless, our management recognizes that there are material limitations associated with the use of adjusted EBITDA in the evaluation of our Company as compared to net income ofHuntsman Corporation orHuntsman International , as appropriate, which reflects overall financial performance. For example, we have borrowed money in order to finance our operations and interest expense is a necessary element of our costs and ability to generate revenue. Our management compensates for the limitations of using adjusted EBITDA by using this measure to supplementU.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business rather thanU.S. GAAP results alone. Adjusted Net Income Adjusted net income is computed by eliminating the after-tax amounts related to the following from net income attributable toHuntsman Corporation : (a) business acquisition and integration expenses and purchase accounting inventory adjustments; (b) loss (income) from discontinued operations; (c) fair value adjustments to Venator investment; (d) loss on early extinguishment of debt; (e) certain legal settlements and related (income) expenses; (f) loss (gain) on sale of businesses/assets; (g) certain nonrecurring information technology project implementation costs; (h) amortization of pension and postretirement actuarial losses; (i) significant activities related to deferred tax assets and liabilities; and (j) restructuring, impairment and plant closing and transition costs (credits). Basic adjusted net income per share excludes 43
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dilution and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period. Adjusted diluted net income per share reflects all potential dilutive common shares outstanding during the period and is computed by dividing adjusted net income by the weighted average number of shares outstanding during the period increased by the number of additional shares that would have been outstanding as dilutive securities. Adjusted net income and adjusted net income per share amounts are presented solely as supplemental information.
Free Cash Flow
Management internally uses a free cash flow measure: (a) to evaluate our liquidity, (b) evaluate strategic investments, (c) plan stock buyback and dividend levels and (d) evaluate our ability to incur and service debt. We have historically defined free cash flow as cash flows provided by operating activities and used in investing activities, excluding acquisition/disposition activities and including non-recurring separation costs. Starting with the quarter endedMarch 31, 2020 , we updated our definition of free cash flow to a presentation more consistent with today's market standard of net cash provided by operating activities less capital expenditures. Using our updated definition, our free cash flow for the years endedDecember 31, 2019 , 2018 and 2017 were$382 million ,$453 million and$438 million , respectively. Free cash flow is not a defined term underU.S. GAAP, and it should not be inferred that the entire free cash flow amount is available for discretionary expenditures.
Adjusted Effective Tax Rate
We believe that the effective tax rate ofHuntsman Corporation orHuntsman International , as appropriate, is the performance measure calculated and presented in accordance withU.S. GAAP that is most directly comparable to adjusted effective tax rate. We believe our adjusted effective tax rate provides improved comparability between periods through the exclusion of certain items that management believes are not indicative of the businesses' operational profitability and that may obscure underlying business results and trends. We do not provide reconciliations for adjusted effective tax rate on a forward-looking basis because we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as business acquisition and integration expenses, merger costs, certain legal and other settlements and related costs, gains on sale of business/assets and amortization of pension and postretirement actuarial losses. Each of such adjustments has not yet occurred, is out of our control and/or cannot be reasonably predicted. For the same reasons, we are unable to address the probable significance of the unavailable information.
Three Months Ended
As discussed in "Note 4. Discontinued Operations and Business Dispositions-Sale of Chemical Intermediates Businesses" to our condensed consolidated financial statements, the results from continuing operations exclude the results of our Chemical Intermediates and Businesses and the results of our former polymers, base chemicals and Australian styrenics business for all periods presented. The decrease of$168 million attributable toHuntsman Corporation and the decrease of$166 million in net income attributable toHuntsman International from continuing operations, respectively, was the result of the following items:
Revenues for the three months ended
5%, as compared with the 2019 period. The decrease was primarily due to lower
? average selling prices in all our segments and lower sales volumes in all our
segments, except for our Textile Effects segment. See "-Segment Analysis"
below.
Our gross profit and the gross profit of
? three months ended
compared to a gain of with the 2019 period. The decrease resulted from lower
gross margins in all our segments. See "-Segment Analysis" below.
Our interest expense, net and the interest expense, net of Huntsman
International for the three months ended
million and
? compared with the 2019 period, primarily related to higher interest income on
deposits held and lower interest expense resulting from repayments of outstanding borrowings on our 2018 Revolving Credit Facility and other prepayable debt.
For the three months ended
? in fair value adjustments to our investment in Venator as a result of recording
our equity method investment in Venator at fair value 44 Table of Contents compared to a$76 million gain in the 2019 period. See "Note 4. Business Dispositions-Separation and Deconsolidation of Venator" to our condensed consolidated financial statements.
Loss on early extinguishment of debt for the three months ended
? decreased to nil from
repayment in full of our 2020 Senior Notes in the first quarter of 2019. See
"Note. 7. Debt-Notes" to our consolidated financial statements.
Our income tax expense for the three months ended
primarily due to the decrease in pretax income as well as the one-time
? reduction in our
rate change. Our income tax expense is significantly affected by the mix of
income and losses in the tax jurisdictions in which we operate, as impacted by
the presence of valuation allowances in certain tax jurisdictions. For further
information concerning income taxes, see "Note 17. Income Taxes" to our condensed consolidated financial statements. Segment Analysis Three months Percent ended Change March 31, Favorable (Dollars in millions) 2020 2019 (Unfavorable) Revenues Polyurethanes$ 888 $ 924 (4)% Performance Products 292 300 (3)% Advanced Materials 241 272 (11)% Textile Effects 180 189 (5)% Corporate and eliminations (8) (16) NM Total$ 1,593 $ 1,669 (5)% Huntsman Corporation Segment adjusted EBITDA(1) Polyurethanes$ 84 $ 124 (32)% Performance Products 58 45 29% Advanced Materials 48 53 (9)% Textile Effects 20 22 (9)% Corporate and other (45) (40) (13)% Total$ 165 $ 204 (19)%Huntsman International Segment adjusted EBITDA(1) Polyurethanes$ 84 $ 124 (32)% Performance Products 58 45 29% Advanced Materials 48 53 (9)% Textile Effects 20 22 (9)% Corporate and other (44) (38) (16)% Total$ 166 $ 206 (19)% NM-Not meaningful
For more information, including reconciliation of segment adjusted EBITDA to
(1) net income of
see "Note 19. Operating Segment Information" to our condensed consolidated financial statements. 45 Table of Contents Three months ended March 31, 2020 vs 2019 Average Selling Price(1) Local Foreign Currency Mix & Sales Currency Translation Impact Other Volumes(2) Period-Over-Period (Decrease) Increase Polyurethanes (6)% (1)% 4% (1)% Performance Products (3)% (1)% 4% (3)% Advanced Materials 1% (2)% 1% (11)% Textile Effects (3)% (1)% (2)% 1% Three months ended
Average Selling Price(1) Local Foreign Currency Mix & Sales Currency Translation Impact Other Volumes(2) Period-Over-Period (Decrease) Increase Polyurethanes 1% - - (10)% Performance Products 1% - 2% 2% Advanced Materials (2)% - 3% (1)% Textile Effects 2% - (1)% (1)%
(1) Excludes revenues from tolling arrangements, byproducts and raw materials.
(2) Excludes sales volumes of byproducts and raw materials.
Polyurethanes
The decrease in revenues in our Polyurethanes segment for the three months endedMarch 31, 2020 compared to the same period of 2019 was due to lower MDI average selling prices and modestly lower overall polyurethanes sales volumes. MDI average selling prices decreased primarily due to a decline in component MDI selling prices inChina andEurope . Overall polyurethanes sales volumes decreased slightly primarily due to decreased demand across most major markets, partially offset by modest growth in MDI sales volumes. The decrease in segment adjusted EBITDA was primarily due to lower MDI margins driven by lower MDI pricing, partially offset by higher MDI sales volumes. Performance Products The decrease in revenues in our Performance Products segment for the three months endedMarch 31, 2020 compared to the same period of 2019 was due to lower average selling prices and lower sales volumes. Average selling prices decreased primarily due to lower raw material costs. Sales volumes decreased primarily due to weakened market conditions in our maleic anhydride business, partially offset by higher sales volumes in our amines business. The increase in segment adjusted EBITDA was primarily due to higher margins in our performance amines business and lower fixed costs. Advanced Materials The decrease in revenues in our Advanced Materials segment for the three months endedMarch 31, 2020 compared to the same period in 2019 was due to lower sales volumes and lower average selling prices. Sales volumes decreased across most markets, particularly commodity, industrial and aerospace, primarily due to economic slowdown and customer destocking. Average selling prices decreased primarily due to the impact of a strongerU.S. dollar against major international currencies, partially offset by higher local currency selling prices. The decrease in segment adjusted EBITDA was primarily due to lower sales volumes, partially offset by lower fixed costs. Textile Effects The decrease in revenues in our Textile Effects segment for the three months endedMarch 31, 2020 compared to the same period of 2019 was due to lower average selling prices, partially offset by higher sales volumes. Average selling prices decreased as a result of competitive market pressures and the impact of a strongerU.S. dollar against major international currencies. Sales volumes increased mainly inEurope andAsia . The decrease in segment adjusted EBITDA was primarily due to lower sales revenues, partially offset by lower raw material costs and lower fixed costs. 46 Table of Contents Corporate and other Corporate and other includes unallocated corporate overhead, unallocated foreign currency exchange gains and losses, LIFO inventory valuation reserve adjustments, loss on early extinguishment of debt, unallocated restructuring, impairment and plant closing costs, nonoperating income and expense and gains and losses on the disposition of corporate assets. For the three months endedMarch 31, 2020 , adjusted EBITDA from Corporate and other forHuntsman Corporation decreased by$5 million to a loss of$45 million from a loss of$40 million for the same period of 2019. For the three months endedMarch 31, 2020 , adjusted EBITDA from Corporate and other forHuntsman International decreased by$6 million to a loss of$44 million from a loss of$38 million for the same period of 2019. The decrease in adjusted EBITDA from Corporate and other resulted primarily from a charge from a LIFO inventory reserve adjustment and an increase in corporate overhead costs, partially offset by a decrease in unallocated foreign currency exchange loss.
Liquidity and Capital Resources
The following is a discussion of our liquidity and capital resources and does
not include separate information with respect to
Cash Flows for the Three Months Ended
Net cash used in operating activities from continuing operations for both the three months endedMarch 31, 2020 and 2019 was$40 million . Although net cash used in operating activities from continuing operations was the same during the three months endedMarch 31, 2020 compared with the same period in 2019, the decrease in operating income as described in "-Results of Operations" above was offset by a$20 million favorable variance in operating assets and liabilities for the three months endedMarch 31, 2020 as compared with the same period
of 2019. Net cash provided by (used in) investing activities from continuing operations for the three months endedMarch 31, 2020 and 2019 was$1,511 million and$(45) million , respectively. During both the three months endedMarch 31, 2020 and 2019, we paid$61 million for capital expenditures. During the three months endedMarch 31, 2020 , we received$1.9 billion for the sale of our Chemical Intermediates Businesses and paid$346 million for the acquisition of a business, net of cash acquired. During the three months endedMarch 31, 2019 , we received$16 million in proceeds from the settlement of theDecember 3, 2018 sale of Venator ordinary shares toBank of America N.A . Net cash (used in) provided by financing activities for the three months endedMarch 31, 2020 and 2019 was$(354) million and$183 million , respectively. The increase in net cash used in financing activities was primarily due to repayments on our 2018 Revolving Credit Facility in the first quarter of 2020 and an increase in repurchases of common stock in the first quarter of 2020.
Free cash flow from continuing operations for both the three months ended
47 Table of Contents
Changes in Financial Condition
The following information summarizes our working capital position (dollars in millions): March 31, Less December 31, Increase Percent 2020 Acquisition(1) Subtotal 2019 (Decrease) Change Cash and cash equivalents$ 1,594 $ (7)$ 1,587 $ 525$ 1,062 202% Accounts and notes receivable, net 1,027 (41)
986 953 33 3% Inventories 1,008 (36) 972 914 58 6% Other current assets 145 (1) 144 155 (11) (7)%
Current assets held for sale(2) - -
- 1,208 (1,208) - Total current assets 3,774 (85) 3,689 3,755 (66) (2)% Accounts payable 856 (13) 843 822 21 3% Accrued liabilities 739 (10) 729 420 309 74% Current portion of debt 134 - 134 212 (78) (37)%
Current operating lease liabilities 45 - 45 42 3 7% Current liabilities held for sale(2) - - - 512 (512) - Total current liabilities 1,774 (23)
1,751 2,008 (257) (13)% Working capital$ 2,000 $ (62)$ 1,938 $ 1,747$ 191 11% NM-Not meaningful
Represents amounts related to the Icynene-Lapolla Acquisition. For more (1) information, see "Note 3. Business Combinations and Acquisitions-Acquisition
of Icynene-Lapolla" to our condensed consolidated financial statements. Represents amounts related to the sale of our Chemical Intermediates
Businesses. The assets and liabilities held for sale are classified as
(2) current as of
Intermediates Businesses on
4. Discontinued Operations and Business Dispositions-Sale of Chemical
Intermediates Businesses" to our condensed consolidated financial statements.
Our working capital increased by
? The increase in cash and cash equivalents of
matters identified on our condensed consolidated statements of cash flows.
? Inventories increased by
Accrued liabilities increased by
? current income taxes payable related to taxes payable on the sale of our
Chemical Intermediates Businesses.
Current portion of debt decreased by
? outstanding borrowings on our 2018 Revolving Credit Facility and other
prepayable debt. Direct and Subsidiary Debt
See "Note 7. Debt-Direct and Subsidiary Debt" to our condensed consolidated financial statements.
Debt Issuance Costs
See "Note 7. Debt-Direct and Subsidiary Debt-Debt Issuance Costs" to our condensed consolidated financial statements.
48 Table of Contents Revolving Credit Facility
See "Note 7. Debt-Direct and Subsidiary Debt-Revolving Credit Facility" to our condensed consolidated financial statements.
Term Loan Credit Facility
See "Note 7. Debt-Direct and Subsidiary Debt-Term Loan Credit Facility" to our condensed consolidated financial statements.
A/R Programs
See "Note 7. Debt-Direct and Subsidiary Debt-A/R Programs" to our condensed consolidated financial statements.
Notes
See "Note 7. Debt-Direct and Subsidiary Debt-Notes" to our condensed consolidated financial statements.
Note Payable from
See "Note 7. Debt-Direct and Subsidiary Debt-Note Payable from
Compliance with Covenants
See "Note 7. Debt-Compliance with Covenants" to our condensed consolidated financial statements.
Short-Term and Long-Term Liquidity
We depend upon our cash, 2018 Revolving Credit Facility, A/R Programs and other debt instruments to provide liquidity for our operations and working capital needs. As ofMarch 31, 2020 , we had$2,930 million of combined cash and unused borrowing capacity, consisting of$1,594 million in cash,$1,193 million in availability under our 2018 Revolving Credit Facility and$143 million in availability under our A/R Programs. We believe our existing cash balances, together with funds generated from operations and amounts available under our credit facility, will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future. Our liquidity can be significantly impacted by various factors. The following matters had, or are expected to have, a significant impact on our liquidity:
Cash invested in our accounts receivable and inventory, net of accounts
? payable, was approximately
2020, as reflected in our condensed consolidated statements of cash flows. We
expect volatility in our working capital components to continue.
During 2020, we expect to spend between approximately
million on capital expenditures for continuing operations. We have deferred a
? portion of capital spending on a new MDI splitter in
months leaving roughly
spend of approximately$120 million in 2021 and 2022. We expect to fund spending on all capital expenditures with cash provided by operations.
During the three months ended
? pension and postretirement benefit plans of
of 2020, we expect to contribute an additional amount of approximately$67 million to these plans.
On
Company to repurchase up to an additional
? stock in addition to the
repurchase authorization. Repurchases may be made through the open market,
including through accelerated share repurchase programs, or in privately negotiated transactions, 49 Table of Contents
and repurchases may be commenced or suspended from time to time without prior
notice. Shares of common stock acquired through the repurchase program are held
in treasury at cost. During the three months ended
repurchased 5,364,519 shares of our common stock for approximately
excluding commissions, under the repurchase program. Subsequent to the end of
the first quarter of 2020, we elected to temporarily suspend share repurchases
under our existing share repurchase program in order to enhance our liquidity
position in response to COVID-19.
Beginning in
49%, and we began accounting for our remaining interest in Venator as an equity
method investment using the fair value option. Accordingly, in the three months
ended
? method investment in Venator at fair value. Under the fair value option to
account for our equity method investment in Venator, amounts recorded in "Fair
value adjustments to Venator investment" could fluctuate depending upon the
change in market value of Venator common stock. See "Note 4. Discontinued
Operations and Business Dispositions-Separation and Deconsolidation of Venator"
to our condensed consolidated financial statements. OnJanuary 3, 2020 , we completed the sale of our Chemical Intermediates
Businesses to Indorama. See "Note 4. Discontinued Operations and Business
Dispositions-Sale of Chemical Intermediates Businesses" to our condensed
consolidated financial statements. During the first quarter of 2020, we
? received proceeds from the sale of
taxes of approximately
proceeds from this sale to: 1) invest in complementary strategic acquisitions
that develop our technology and product portfolio, 2) continue investing in
organic, internal opportunities, 3) prepay certain prepayable debt, and 4) to
repurchase shares opportunistically and pay a competitive dividend.
In connection with the
Businesses to Indorama, we assigned to Indorama an insurance claim related to
damages we incurred from a recent fire at a neighboring third-party property
near the
? the first
During the first quarter of 2020, we received
progress payments. In addition, we agreed with Indorama to cover certain
reinstatement costs pertaining to our damaged assets at the third-party site.
We currently do not expect these costs to be material.
As ofMarch 31, 2020 , we had$134 million classified as current portion of debt, including$101 million on our 2019 Term Loan, debt at our variable interest entities of$32 million and certain other short-term facilities and scheduled amortization payments totaling$1 million . We intend to renew, repay or extend the majority of these short-term facilities in the next twelve months. As ofMarch 31, 2020 , we had approximately$330 million of cash and cash equivalents, including restricted cash, held by our foreign subsidiaries, including our variable interest entities. We intend to use cash held in our foreign subsidiaries to fund our local operations. Nevertheless, we could repatriate cash as dividends and the repatriation of cash as a dividend would generally not be subject toU.S. taxation as a result of theU.S. Tax Reform Act. However, such repatriation may potentially be subject to limited foreign withholding taxes. Critical Accounting Policies Our critical accounting policies are presented in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
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