Huntsman CORP (HUN) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Huntsman CORP's 10-K for fiscal year 2022. Filing date: 2023-02-21. Report date: 2022-12-31. Accession: 0001437749-23-003950.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high.

Company profile: HUN · All MD&A years: index · Previous year: FY 2021 · Next year: FY 2023

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ReSULTS OF OPERATIONS

As discussed in “Note 4. Discontinued Operations and Business Dispositions—Discontinued Operations—Sale of Textile Effects Business” to our consolidated financial statements, the results from continuing operations primarily exclude the results of our Textile Effects Business for all periods presented. For each of our Company and Huntsman International, the following tables set forth our consolidated results of operations for the years ended December 31, 2022, 2021 and 2020 (dollars in millions, except per share amounts).

Huntsman Corporation

	December 31,			Percent change
	2022			2021			2020		2022 vs 2021		2021 vs 2020
Revenues	$	8,023			$	7,670		$	5,421			5	%	41	%
Cost of goods sold		6,477				6,086			4,444			6	%	37	%
Gross profit		1,546				1,584			977			(2	)%	62	%
Operating expenses		788				813			504			(3	)%	61	%
Restructuring, impairment and plant closing costs		86				40			41			115	%	(2	)%
Operating income		672				731			432			(8	)%	69	%
Interest expense, net		(62	)			(67	)		(86	)		(7	)%	(22	)%
Equity in income of investment in unconsolidated affiliates		67				143			42			(53	)%	240	%
Fair value adjustments to Venator investment, net and related loss on disposal		(12	)			(28	)		(88	)		(57	)%	(68	)%
Loss on early extinguishment of debt		—				(27	)		—			(100	)%	NM
(Costs) income associated with the Albemarle Settlement, net		(3	)			465			—			NM		NM
Other income, net		35				29			31			21	%	(6	)%
Income from continuing operations before income taxes		697				1,246			331			(44	)%	276	%
Income tax expense		(186	)			(191	)		(42	)		(3	)%	355	%
Income from continuing operations		511				1,055			289			(52	)%	265	%
Income from discontinued operations, net of tax		12				49			777			(76	)%	(94	)%
Net income		523				1,104			1,066			(53	)%	4	%
Reconciliation of net income to adjusted EBITDA:
Net income attributable to noncontrolling interests		(63	)			(59	)		(32	)		7	%	84	%
Interest expense, net from continuing operations		62				67			86			(7	)%	(22	)%
Income tax expense from continuing operations		186				191			42			(3	)%	355	%
Income tax expense from discontinued operations		19				21			246			(10	)%	(91	)%
Depreciation and amortization of continuing operations		281				278			267			1	%	4	%
Depreciation and amortization of discontinued operations		12				18			16			(33	)%	13	%
Other adjustments:
Business acquisition and integration expenses and purchase accounting inventory adjustments		12				22			31
EBITDA from discontinued operations(2)		(43	)			(88	)		(1,039	)
Fair value adjustments to Venator investment, net and related loss on disposal		12				28			88
Loss on early extinguishment of debt		—				27			—
Certain legal and other settlements and related expenses		7				13			5
Costs (income) associated with the Albemarle Settlement, net		3				(465	)		—
Gain on sale of businesses/assets		—				(30	)		(280	)
Income from transition services arrangements		(2	)			(8	)		(7	)
Certain nonrecurring information technology project implementation costs		5				8			6
Amortization of pension and postretirement actuarial losses		49				74			64
Plant incident remediation (credits) costs		(4	)			—			2
Restructuring, impairment and plant closing and transition costs(3)		96				45			44
Adjusted EBITDA(1)	$	1,155			$	1,246		$	605			(7	)%	106	%
Net cash provided by operating activities from continuing operations	$	892			$	915		$	231			(3	)%	296	%
Net cash (used in) provided by investing activities from continuing operations		(260	)			(508	)		1,474			(49	)%	NM
Net cash used in financing activities		(994	)			(977	)		(655	)		2	%	49	%
Capital expenditures from continuing operations		(272	)			(326	)		(237	)		(17	)%	38	%

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Huntsman International

	December 31,			Percent change
	2022			2021			2020		2022 vs 2021		2021 vs 2020
Revenues	$	8,023			$	7,670		$	5,421			5	%	41	%
Cost of goods sold		6,477				6,086			4,444			6	%	37	%
Gross profit		1,546				1,584			977			(2	)%	62	%
Operating expenses		784				806			498			(3	)%	62	%
Restructuring, impairment and plant closing costs		86				40			41			115	%	(2	)%
Operating income		676				738			438			(8	)%	68	%
Interest expense, net		(62	)			(67	)		(88	)		(7	)%	(24	)%
Equity in income of investment in unconsolidated affiliates		67				143			42			(53	)%	240	%
Fair value adjustments to Venator investment, net and related loss on disposal		(12	)			(28	)		(88	)		(57	)%	(68	)%
Loss on early extinguishment of debt		—				(27	)		—			(100	)%	NM
(Costs) income associated with the Albemarle Settlement, net		(3	)			465			—			NM		NM
Other income, net		34				26			28			31	%	(7	)%
Income from continuing operations before income taxes		700				1,250			332			(44	)%	277	%
Income tax expense		(188	)			(192	)		(42	)		(2	)%	357	%
Income from continuing operations		512				1,058			290			(52	)%	265	%
Income from discontinued operations, net of tax		12				49			777			(76	)%	(94	)%
Net income		524				1,107			1,067			(53	)%	4	%
Reconciliation of net income to adjusted EBITDA:
Net income attributable to noncontrolling interests		(63	)			(59	)		(32	)		7	%	84	%
Interest expense, net from continuing operations		62				67			88			(7	)%	(24	)%
Income tax expense (benefit) from continuing operations		188				192			42			(2	)%	357	%
Income tax expense from discontinued operations		19				21			246			(10	)%	(91	)%
Depreciation and amortization of continuing operations		281				278			267			1	%	4	%
Depreciation and amortization of discontinued operations		12				18			16			(33	)%	13	%
Other adjustments:
Business acquisition and integration expenses and purchase accounting inventory adjustments		12				22			31
EBITDA from discontinued operations(2)		(43	)			(88	)		(1,039	)
Fair value adjustments to Venator investment, net and related loss on disposal		12				28			88
Loss on early extinguishment of debt		—				27			—
Certain legal and other settlements and related expenses		7				13			5
Costs (income) associated with the Albemarle Settlement, net		3				(465	)		—
Gain on sale of businesses/assets		—				(30	)		(280	)
Income from transition services arrangements		(2	)			(8	)		(7	)
Certain nonrecurring information technology project implementation costs		5				8			6
Amortization of pension and postretirement actuarial losses		49				76			67
Plant incident remediation (credits) costs		(4	)			—			2
Restructuring, impairment and plant closing and transition costs(3)		96				45			44
Adjusted EBITDA(1)	$	1,158			$	1,252		$	611			(8	)%	105	%
Net cash provided by operating activities from continuing operations	$	895			$	918		$	233			(3	)%	294	%
Net cash (used in) provided by investing activities from continuing operations		(1,277	)			(710	)		1,748			80	%	NM
Net cash provided by (used in) financing activities		22				(778	)		(933	)		NM		(17	)%
Capital expenditures from continuing operations		(272	)			(326	)		(237	)		(17	)%	38	%

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Huntsman Corporation

	Year ended			Year ended			Year ended
	December 31, 2022			December 31, 2021			December 31, 2020
					Tax									Tax									Tax
	Gross			and other(4)			Net		Gross		and other(4)			Net			Gross		and other(4)		Net
Reconciliation of net income to adjusted net income
Net income								$	523									$	1,104								$	1,066
Net income attributable to noncontrolling interests									(63	)									(59	)								(32	)
Business acquisition and integration expenses and purchase accounting inventory adjustments	$	12			$	(2	)		10		$	22			$	(6	)		16		$	31		$	(6	)		25
Income from discontinued operations(2)(5)		(43	)			31			(12	)		(88	)			39			(49	)		(1,039	)		262			(777	)
Fair value adjustments to Venator investment, net and related loss on disposal		12				—			12			28				—			28			88			(9	)		79
Loss on early extinguishment of debt		—				—			—			27				(6	)		21			—			—			—
Certain legal and other settlements and related expenses		7				(2	)		5			13				(3	)		10			5			(1	)		4
Costs (income) associated with the Albemarle Settlement, net		3				(1	)		2			(465	)			55			(410	)		—			—			—
Gain on sale of businesses/assets		—				—			—			(30	)			3			(27	)		(280	)		31			(249	)
Income from transition services arrangements		(2	)			—			(2	)		(8	)			2			(6	)		(7	)		2			(5	)
Certain nonrecurring information technology project implementation costs		5				(1	)		4			8				(2	)		6			6			(1	)		5
Amortization of pension and postretirement actuarial losses		49				(11	)		38			74				(16	)		58			64			(14	)		50
Plant incident remediation (credits) costs		(4	)			1			(3	)		—				—			—			2			—			2
Establishment of significant deferred tax asset valuation allowance(6)		—				49			49			—				—			—			—			—			—
Restructuring, impairment and plant closing and transition costs(3)		96				(23	)		73			45				(11	)		34			44			(11	)		33
Adjusted net income(1)								$	636									$	726								$	201
Weighted average shares-basic									201.0										219.2									220.6
Weighted average shares-diluted									203.0										221.4									221.9
Basic net income attributable to Huntsman Corporation per share:
Income from continuing operations								$	2.23									$	4.55								$	1.17
Income from discontinued operations									0.06										0.22									3.52
Net income								$	2.29									$	4.77								$	4.69
Diluted net income attributable to Huntsman Corporation per share:
Income from continuing operations								$	2.21									$	4.50								$	1.16
Income from discontinued operations									0.06										0.22									3.50
Net income								$	2.27									$	4.72								$	4.66
Other non-GAAP measures:
Diluted adjusted net income per share(1)								$	3.13									$	3.28								$	0.91
Net cash provided by operating activities from continuing operations								$	892									$	915								$	231
Capital expenditures from continuing operations									(272	)									(326	)								(237	)
Free cash flow from continuing operations(1)								$	620									$	589								$	(6	)
Effective tax rate									27	%									15	%								13	%
Impact of non-GAAP adjustments(7)									(7	)%									3	%								5	%
Adjusted effective tax rate(1)									20	%									18	%								18	%
Other cash flow measure:
Net cash proceeds from the Albemarle Settlement(8)								$	78									$	333								$	—
Taxes paid on sale of businesses(9)									—										(3	)								(257	)

NM—Not meaningful

(1)	See “—Non-GAAP Financial Measures.”
(2)	Includes the gain on the sale of our Chemical Intermediates Businesses in 2020.
(3)	Includes costs associated with transition activities relating primarily to our Corporate program to optimize our global approach to leverage shared services capabilities as well as our 2020 acquisition of CVC Thermoset Specialties, a North American specialty chemical manufacturer serving the industrial composites, adhesives and coatings markets (“CVC Thermoset Specialties Acquisition”).
(4)	The income tax impacts, if any, are computed on the pre-tax adjustments 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.
(6)	During the year ended December 31, 2022, we established a $49 million significant deferred tax asset valuation allowance in The Netherlands. We eliminated the effect of this significant change in deferred tax asset valuation allowances from our presentation of adjusted net income to allow investors to better compare our ongoing financial performance from period to period.
(7)	For details regarding the tax impacts of our non-GAAP adjustments, please see the reconciliation of our net income to adjusted net income noted above.
(8)	Represents net cash proceeds received in connection with the arbitration award we won on October 28, 2021 in excess of $600 million against Albemarle Corporation (“Albemarle”) for fraud and breach of contract (the “Albemarle Settlement”). On November 4, 2021, Albemarle agreed to waive any appeal and pay $665 million to us.
(9)	Represents the taxes paid in connection with the sale of the Chemical Intermediates Businesses and the sale of the India-based DIY business. For more information, see “Note 4. Discontinued Operations and Business Dispositions” to our consolidated financial statements.

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Non-GAAP Financial Measures

Our consolidated financial statements are prepared in accordance with U.S. 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 U.S. 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 U.S. GAAP financial measures in their entirety and not to rely on any single financial measure. These non-GAAP measures exclude the impact of certain income and 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 of Huntsman Corporation or Huntsman International, as appropriate, before interest, income tax, depreciation and amortization, net income attributable to noncontrolling interests and certain Corporate and other items, as well as eliminating the following adjustments: (a) business acquisition and integration expenses and purchase accounting inventory adjustments; (b) EBITDA from discontinued operations; (c) fair value adjustments to Venator investment, net and related loss on disposal; (d) loss on early extinguishment of debt; (e) certain legal and other settlements and related expenses; (f) costs (income) associated with the Albemarle Settlement, net; (g) gain on sale of businesses/assets; (h) income from transition services arrangements related to the sale of our Chemical Intermediates Businesses to Indorama; (i) certain nonrecurring information technology project implementation costs; (j) amortization of pension and postretirement actuarial losses; (k) plant incident remediation (credits) costs; and (l) restructuring, impairment and plant closing and transition costs. Starting in the fourth quarter of 2021, we began to include income and costs associated with the Albemarle Settlement, net in our adjustments since such income and costs represents a one-time legal settlement and does not reflect our ongoing financial performance. We believe that net income of Huntsman Corporation or Huntsman International, as appropriate, is the performance measure calculated and presented in accordance with U.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 of Huntsman Corporation or Huntsman International, as appropriate, or other measures of performance determined in accordance with U.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 of Huntsman Corporation or Huntsman 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 supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business rather than U.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 to Huntsman Corporation: (a) business acquisition and integration expenses and purchase accounting inventory adjustments; (b) income from discontinued operations; (c) fair value adjustments to Venator investment, net and related loss on disposal; (d) loss on early extinguishment of debt; (e) certain legal and other settlements and related expenses; (f) costs (income) associated with the Albemarle Settlement, net; (g) gain on sale of businesses/assets; (h) income from transition services arrangements associated with the sale of our Chemical Intermediates Businesses to Indorama; (i) certain nonrecurring information technology project implementation costs; (j) amortization of pension and postretirement actuarial losses; (k) plant incident remediation (credits) costs; (l) establishment of significant deferred tax asset valuation allowance; and (m) restructuring, impairment and plant closing and transition costs. Basic adjusted net income per share excludes 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.

We believe adjusted net income 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.

Free Cash Flow

We believe free cash flow from continuing operations is an important indicator of our liquidity as it measures the amount of cash we generate. 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.

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Adjusted Effective Tax Rate

We believe that the effective tax rate of Huntsman Corporation or Huntsman International, as appropriate, is the performance measure calculated and presented in accordance with U.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, such as, business acquisition and integration expenses and purchase accounting inventory adjustments, certain legal and other settlements and related expenses, gains on sale of businesses/assets and certain tax only items, including tax law changes not yet enacted and certain changes in valuation allowances that we believe are not indicative of the businesses’ operational profitability and that may obscure underlying business results and trends.

Our forward-looking adjusted effective tax rate is calculated based on our forecast effective tax rate, and the range of our forward-looking adjusted effective tax rate equals the range of our forecast effective tax rate. We disclose forward-looking adjusted effective tax rate because we cannot adequately forecast certain items and events that may or may not impact us in the near future, such as business acquisition and integration expenses and purchase accounting inventory adjustments, certain legal and other settlements and related expenses, gains on sale of businesses/assets and certain tax only items, including tax law changes not yet enacted. Each of such adjustment has not yet occurred, is out of our control and/or cannot be reasonably predicted. In our view, our forward-looking adjusted effective tax rate represents the forecast effective tax rate on our underlying business operations but does not reflect any adjustments related to the items noted above that may occur and can cause our effective tax rate to differ.

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

For the year ended December 31, 2022, income from continuing operations attributable to Huntsman Corporation was $448 million, a decrease of $548 million from $996 million in the 2021 period. For the year ended December 31, 2022, income from continuing operations attributable to Huntsman International was $449 million, a decrease of $550 million from $999 million in the 2021 period. The decreases noted above were the result of the following items:

Column 1	Column 2	Column 3
	●	Revenues for the year ended December 31, 2022 increased by $353 million, or 5%, as compared with the 2021 period. The increase was primarily due to higher average selling prices in all our segments, partially offset by lower sales volumes in all our segments. See “—Segment Analysis” below.

Column 1	Column 2	Column 3
	●	Gross profit for the year ended December 31, 2022 decreased by $38 million, or 2%, as compared with the 2021 period. The decrease resulted from lower gross profit in our Polyurethanes segment, partially offset by higher gross profits in our Performance Products and Advanced Materials segments. See “—Segment Analysis” below.

Column 1	Column 2	Column 3
	●	Our operating expenses and the operating expenses of Huntsman International for the year ended December 31, 2022 decreased by $25 million and $22 million, respectively, or 3% for both, as compared with the 2021 period, primarily related to lower selling, general and administrative costs.

Column 1	Column 2	Column 3
	●	Restructuring, impairment and plant closing costs for the year ended December 31, 2022 increased by $46 million, or 115%, as compared with the 2021 period. For more information on restructuring activities, see “Note 12. Restructuring, Impairment and Plant Closing Costs” to our consolidated financial statements.

Column 1	Column 2	Column 3
	●	Interest expense, net for the year ended December 31, 2022 decreased by $5 million, or 7%, as compared with the 2021 period, primarily related to the redemption in full of our 2021 Senior Notes in the first quarter of 2021.

Column 1	Column 2	Column 3
	●	Equity in income of investment in unconsolidated affiliates for the year ended December 31, 2022 decreased to $67 million from $143 million in the 2021 period. The decrease was primarily attributable to a decrease in income at our PO/MTBE joint venture in China, in which we hold a 49% interest.

Column 1	Column 2	Column 3
	●	Fair values adjustments to our investment in Venator and the related option to sell our remaining Venator shares was a net loss of $12 million for the year ended December 31, 2022 as compared with a net loss of $28 million in the 2021 period. For more information, see “Note 4. Discontinued Operations and Business Dispositions—Separation and Deconsolidation of Venator” to our consolidated financial statements.

Column 1	Column 2	Column 3
	●	Loss on early extinguishment of debt was nil for the year ended December 31, 2022 as compared with $27 million in the 2021 period, primarily due to the redemption in full of our 2022 Senior Notes in the second quarter of 2021. See “Note. 14. Debt—Notes” to our consolidated financial statements.

Column 1	Column 2	Column 3
	●	(Costs) income associated with the Albemarle Settlement, net was $(3) million for the year ended December 31, 2022 as compared with $465 million for the year ended December 31, 2021 and was related to the arbitration award we won on October 28, 2021 in excess of $600 million against Albemarle for fraud and breach of contract.

Column 1	Column 2	Column 3
	●	Our income tax expense for the year ended December 31, 2022 decreased to $186 million from $191 million in the 2021 period. The income tax expense of Huntsman International for the year ended December 31, 2022 decreased to $188 million from $192 million in the 2021 period. The decrease in income tax expense was primarily due to a decrease in income from continuing operations before income taxes offset by an increase in valuation allowance. Our income tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, along with the impact of valuation allowances in certain tax jurisdictions. For more information concerning income taxes, see “Note 19. Income Taxes” to our consolidated financial statements.

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Segment Analysis

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

								Percent
								change
	Year ended December 31,			favorable
(Dollars in millions)	2022			2021			(unfavorable)
Revenues
Polyurethanes	$	5,067			$	5,019			1	%
Performance Products		1,713				1,485			15	%
Advanced Materials		1,277				1,198			7	%
Total reportable segments’ revenues		8,057				7,702			5	%
Intersegment eliminations		(34	)			(32	)		NM
Total	$	8,023			$	7,670			5	%
Huntsman Corporation
Adjusted EBITDA(1)
Polyurethanes	$	628			$	879			(29	)%
Performance Products		469				359			31	%
Advanced Materials		233				204			14	%
Total reportable segments’ adjusted EBITDA		1,330				1,442			(8	)%
Corporate and other		(175	)			(196	)		11	%
Total	$	1,155			$	1,246			(7	)%
Huntsman International
Adjusted EBITDA(1)
Polyurethanes	$	628			$	879			(29	)%
Performance Products		469				359			31	%
Advanced Materials		233				204			14	%
Total reportable segments’ adjusted EBITDA		1,330				1,442			(8	)%
Corporate and other		(172	)			(190	)		9	%
Total	$	1,158			$	1,252			(8	)%

NM—Not meaningful
(1)	For more information, including reconciliation of total reportable segments’ adjusted EBITDA to income from continuing operations before income taxes of Huntsman Corporation or Huntsman International, as appropriate, see “Note 26. Operating Segment Information” to our consolidated financial statements.

	Year ended December 31, 2022 vs 2021
	Average selling prices(1)
	Local			Foreign currency		Sales	Mix and
	currency			translation impact		volumes(2)	other
Period-over-period increase (decrease)
Polyurethanes		16	%		(5	)%	(10	)%	—
Performance Products		27	%		(3	)%	(11	)%	2	%
Advanced Materials		20	%		(5	)%	(19	)%	11	%

Column 1	Column 2
(1)	Excludes revenues from tolling arrangements, byproducts and raw materials.

Column 1	Column 2
(2)	Excludes sales volumes of byproducts and raw materials.

Polyurethanes

The increase in revenues in our Polyurethanes segment for 2022 compared to 2021 was primarily due to higher MDI average selling prices, partially offset by lower sales volumes and the negative impact of weaker major international currencies against the U.S. dollar. MDI average selling prices increased in Europe and the Americas regions. Sales volumes decreased due to lower demand across all our regions and across all markets, other than automotive. The decrease in segment adjusted EBITDA was primarily due to lower sales volumes, lower MDI margins in Europe and Asia, the negative impact of weaker major international currencies against the U.S. dollar and lower equity earnings from our minority-owned joint venture in China. These negative impacts were partially offset by lower fixed costs across all regions and higher MDI margins in the Americas.

Performance Products

The increase in revenues in our Performance Products segment for 2022 compared to 2021 was due to higher average selling prices, partially offset by lower sales volumes. Average selling prices increased across all product lines primarily in response to an increase in raw material costs. Sales volumes decreased across all regions primarily due to slowing construction activity, fewer wind power installations in China and reduced demand in the coatings, adhesives and other industrial markets. The increase in segment adjusted EBITDA was primarily due to increased sales revenue and margins, partially offset by higher fixed costs.

Advanced Materials

The increase in revenues in our Advanced Materials segment for 2022 compared to 2021 was primarily due to higher average selling prices, partially offset by lower sales volumes. Average selling prices increased across all of our end market segments primarily in response to higher raw material, energy and logistics costs as well as improved sales mix. Although sales volumes increased in our aerospace market, overall sales volumes decreased due to lower volumes in our non-aerospace markets resulting from deselection of lower margin business and weaker end market demand, particularly in the fourth quarter of 2022. The increase in segment adjusted EBITDA was primarily due to higher sales prices and improved sales mix.

Corporate and other

Corporate and other includes unallocated corporate overhead, unallocated foreign currency exchange gains and losses, last-in first-out (“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 2022, adjusted EBITDA from Corporate and other for Huntsman Corporation increased by $21 million to a loss of $175 million from a loss of $196 million for 2021. For 2022, adjusted EBITDA from Corporate and other for Huntsman International increased by $18 million to a loss of $172 million from a loss of $190 million for 2021. The increase in adjusted EBITDA from Corporate and other resulted primarily from an increase in unallocated foreign currency exchange gains and a decrease in corporate overhead costs and LIFO valuation losses.

Year Ended December 31, 2021 Compared with Year Ended December 31, 2020

For the year ended December 31, 2021, income from continuing operations attributable to Huntsman Corporation was $996 million, an increase of $739 million from $257 million in the 2020 period. For the year ended December 31, 2021, income from continuing operations attributable to Huntsman International was $999 million, an increase of $741 million from $258 million in the 2020 period. The increases noted above were the result of the following items:

Column 1	Column 2	Column 3
	●	Revenues for the year ended December 31, 2021 increased by $2,249 million, or 41%, as compared with the 2020 period. The increase was primarily due to higher average selling prices as well as higher sales volumes in all our segments.

Column 1	Column 2	Column 3
	●	Gross profit for the year ended December 31, 2021 increased by $607 million, or 62%, as compared with the 2020 period. The increase resulted from higher gross profits in all our segments.

Column 1	Column 2	Column 3
	●	Our operating expenses and the operating expenses of Huntsman International for the year ended December 31, 2021 increased by $309 million and $308 million, respectively, or 61% and 62%, respectively, as compared with the 2020 period, primarily related to higher selling, general and administrative costs and the gain on sale of our India-based DIY business in 2020. See “Note 4. Discontinued Operations and Business Dispositions—Sale of India-Based-Do-It-Yourself Consumer Adhesives Business” to our consolidated financial statements.

Column 1	Column 2	Column 3
	●	Our interest expense, net and the interest expense, net of Huntsman International for the year ended December 31, 2021, decreased by $19 million and $21 million, respectively, or 22% and 24%, respectively, as compared with the 2020 period, primarily related to the redemption in full of our 2021 Senior Notes in the first quarter of 2021.

Column 1	Column 2	Column 3
	●	Equity in income of investment in unconsolidated affiliates for the year ended December 31, 2021 increased to $143 million from $42 million in the 2020 period. The increase was primarily attributable to an increase in income at our PO/MTBE joint venture in China, in which we hold a 49% interest.

Column 1	Column 2	Column 3
	●	Fair value adjustments to our investment in Venator and the related option to sell our remaining Venator shares and the related loss on disposal was a net loss of $28 million for the year ended December 31, 2021 as compared with a net loss of $88 million in the 2020 period. For more information, see “Note 4. Discontinued Operations and Business Dispositions—Separation and Deconsolidation of Venator” to our consolidated financial statements.

Column 1	Column 2	Column 3
	●	Loss on early extinguishment of debt was $27 million for the year ended December 31, 2021 as compared with nil in the 2020 period, primarily due to the redemption in full of our 2022 Senior Notes in the second quarter of 2021. See “Note. 14. Debt—Notes” to our consolidated financial statements.

Column 1	Column 2	Column 3
	●	Income associated with the Albemarle Settlement, net was $465 million for the year ended December 31, 2021 related to the arbitration award we won on October 28, 2021 in excess of $600 million against Albemarle for fraud and breach of contract.

Column 1	Column 2	Column 3
	●	Our income tax expense for the year ended December 31, 2021 increased to $191 million from $42 million in the 2020 period. The income tax expense of Huntsman International for the year ended December 31, 2021 increased to $192 million from $42 million in the 2020 period. The increase in income tax expense was primarily due to an increase in income from continuing operations before income taxes. Our income tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, along with the impact of valuation allowances in certain tax jurisdictions. For more information concerning income taxes, see “Note 19. Income Taxes” to our consolidated financial statements.

For an analysis of our segments’ results of operations for the fiscal years ended December 31, 2021 and 2020, see “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 15, 2022.

Selected Quarterly Financial Data

For each of our Company and Huntsman International, the following tables set forth a summary of selected quarterly financial data for the years ended December 31, 2022 and 2021 (dollars in millions). The results of our Textile Effects Business are reported as discontinued operations for all periods presented.

Huntsman Corporation

	Three months ended
	March 31,		June 30,			September 30,		December 31,
	2022		2022			2022		2022
Revenues	$	2,192		$	2,170		$	2,011	$	1,650
Gross profit		515			492			349		190
Income from continuing operations		222			229			116		(56	)
Net income		240			242			115		(74	)
Net income attributable to Huntsman Corporation		223			228			100		(91	)

	Three months ended
	March 31,		June 30,			September 30,		December 31,
	2021		2021			2021		2021
Revenues	$	1,644		$	1,817		$	2,097	$	2,112
Gross profit		345			379			437		423
Income from continuing operations		87			155			219		594
Net income		100			172			225		607
Net income attributable to Huntsman Corporation		83			156			209		597

Huntsman International

	Three months ended
	March 31,		June 30,			September 30,		December 31,
	2022		2022			2022		2022
Revenues	$	2,192		$	2,170		$	2,011	$	1,650
Gross profit		515			492			349		190
Income from continuing operations		225			230			115		(58	)
Net income		243			243			114		(76	)
Net income attributable to Huntsman International		226			229			99		(93	)

	Three months ended
	March 31,		June 30,			September 30,		December 31,
	2021		2021			2021		2021
Revenues	$	1,644		$	1,817		$	2,097	$	2,112
Gross profit		345			379			437		423
Income from continuing operations		89			156			219		594
Net income		102			173			225		607
Net income attributable to Huntsman International		85			157			209		597

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Liquidity and Capital Resources

The following is a discussion of our liquidity and capital resources and generally does not include separate information with respect to Huntsman International in accordance with General Instruction I of Form 10-K.

Cash Flows For Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

Net cash provided by operating activities from continuing operations for 2022 and 2021 was $892 million and $915 million, respectively. The decrease in net cash provided by operating activities from continuing operations during 2022 compared with 2021 was primarily attributable to decreased operating income as described in “—Results of Operations” above, partially offset by a net cash inflow of $357 million related to changes in operating assets and liabilities for 2022 as compared with 2021. The decrease in net cash provided by operating activities from continuing operations noted above includes the receipt of the final arbitration award of $332.5 million, partially offset by the payment of legal fees and taxes of approximately $255 million in 2022 associated with the Albemarle Settlement as compared with $332.5 million in net proceeds associated with the Albemarle Settlement received in 2021.

Net cash used in investing activities from continuing operations for 2022 and 2021 was $260 million and $508 million, respectively. During 2022 and 2021, we paid $272 million and $326 million, respectively, for capital expenditures, including $100 million during 2021, on a new MDI splitter in Geismar, Louisiana. During 2021, we received $43 million for the sale of businesses, primarily due to the receipt of $28 million pursuant to an earnout provision in connection with the sale of our India-based DIY business. See “Note 4. Discontinued Operations and Business Dispositions—Sale of India-Based Do-It-Yourself Consumer Adhesives Business” to our consolidated financial statements. During 2021, we paid $245 million for the acquisition of businesses, primarily related to approximately $242 million paid for the acquisition of Gabriel Performance Products, net of cash acquired. See “Note 3. Business Combinations and Acquisitions—Acquisition of Gabriel Performance Products” to our consolidated financial statements.

Net cash used in financing activities for 2022 and 2021 was $994 million and $977 million, respectively. During 2022 and 2021, we paid $1,005 million and $200 million for repurchases of our common stock, respectively. During 2022, we had net borrowings of $219 million under our 2022 Revolving Credit Facility. During 2021, we redeemed in full €445 million (approximately $541 million) in aggregate principal amount of our 2021 Senior Notes, and we redeemed in full $400 million in aggregate principal amount of our 2022 Senior Notes. Additionally, during 2021, we issued $400 million in aggregate principal amount of our 2031 Senior Notes and received borrowings of approximately 177 million SAR (approximately $47 million) related to funding on a new term loan facility of our consolidated 50%-owned joint venture, AAC. See “Note 14. Debt—Direct and Subsidiary Debt—Variable Interest Entity Debt” to our consolidated financial statements.

Free cash flow from continuing operations for 2022 and 2021 were proceeds of cash of $620 million and $589 million, respectively. The increase in free cash flow from continuing operations was primarily attributable to a decrease in cash used for capital expenditures during 2022 as compared with 2021, despite the decrease in cash provided by operating activities from continuing operations during 2022 as compared with 2021, which included a decrease of approximately $255 million in net proceeds associated with the Albemarle Settlement.

Cash Flows For Year Ended December 31, 2021 Compared with Year Ended December 31, 2020

Net cash provided by operating activities from continuing operations for 2021 and 2020 was $915 million and $231 million, respectively. The increase in net cash provided by operating activities from continuing operations during 2021 compared with 2020 was primarily attributable to increased operating income as described in “—Results of Operations” above, including $332.5 million in proceeds associated with the Albemarle Settlement, partially offset by a net cash outflow of $42 million related to changes in operating assets and liabilities for 2021 as compared with 2020.

Net cash (used in) provided by investing activities from continuing operations for 2021 and 2020 was $(508) million and $1,474 million, respectively. During 2021 and 2020, we paid $326 million and $237 million, respectively, for capital expenditures, including $100 million and $54 million during 2021 and 2020, respectively, on a new MDI splitter in Geismar, Louisiana. During 2021, we received $43 million for the sale of businesses, primarily due to the receipt of $28 million pursuant to an earnout provision in connection with the sale of our India-based DIY business. In January 2020, we received approximately $1.92 billion for the sale of our Chemical Intermediates Businesses, and in November 2020, we received approximately $257 million for the sale of our India-based DIY business. See “Note 4. Discontinued Operations and Business Dispositions—Discontinued Operations—Sale of Chemical Intermediates Businesses” and “Note 4. Discontinued Operations and Business Dispositions—Sale of India-Based Do-It-Yourself Consumer Adhesives Business” to our consolidated financial statements. During 2021, we paid $245 million for the acquisition of businesses, primarily related to approximately $242 million paid for the Gabriel Acquisition, net of cash acquired. During 2020, we paid approximately $650 million in connection with the Icynene-Lapolla Acquisition and the CVC Thermoset Specialties Acquisition, net of cash acquired. See “Note 3. Business Combinations and Acquisitions” to our consolidated financial statements. In December 2020, we completed the sale of approximately 42.4 million ordinary shares of Venator and received approximately $99 million. See “Note 4. Discontinued Operations and Business Dispositions—Separation and Deconsolidation of Venator” to our consolidated financial statements. During the year ended December 31, 2020, we entered into a sale and leaseback agreement to sell certain properties in Basel, Switzerland, for which we received approximately $73 million in proceeds from the sale of assets.

Net cash used in financing activities for 2021 and 2020 was $977 million and $655 million, respectively. The increase in net cash used in financing activities was primarily due to the redemption in full of €445 million (approximately $541 million) in aggregate principal amount of our 2021 Senior Notes and the redemption in full of $400 million in aggregate principal amount of our 2022 Senior Notes during 2021. During 2021 and 2020, we paid $200 million and $96 million, respectively, for repurchases of our common stock. During 2021, we issued $400 million in aggregate principal amount of our 2031 Senior Notes and received borrowings of approximately 177 million SAR (approximately $47 million) related to funding on a new term loan facility of our consolidated 50%-owned joint venture, AAC. See “Note 14. Debt—Direct and Subsidiary Debt—Variable Interest Entity Debt” to our consolidated financial statements. During 2020, we repaid a total of $203 million on our 2018 $1.2 billion senior unsecured credit facility and repaid in full $109 million on our 364-day term loan facility (the “2019 Term Loan”).

Free cash flow from continuing operations for 2021 and 2020 were proceeds of cash of $589 million and use of cash of $6 million, respectively. The increase in free cash flow from continuing operations was primarily attributable to the increase in cash provided by operating activities from continuing operations, including $332.5 million in proceeds associated with the Albemarle Settlement, partially offset by an increase in cash used for capital expenditures during 2021 as compared with 2020.

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Changes in Financial Condition

The following information summarizes our working capital (dollars in millions):

	December 31,		December 31,			(Decrease)		Percent
	2022		2021			increase		change
Cash and cash equivalents	$	654		$	1,041		$	(387	)	(37	)%
Accounts and notes receivable, net		834			1,015			(181	)	(18	)%
Inventories		995			1,038			(43	)	(4	)%
Receivable associated with the Albemarle Settlement		—			333			(333	)	(100	)%
Other current assets		190			155			35		23	%
Current assets held for sale (1)		472			346			126		36	%
Total current assets		3,145			3,928			(783	)	(20	)%
Accounts payable		961			1,114			(153	)	(14	)%
Accrued liabilities		429			713			(284	)	(40	)%
Current portion of debt		66			12			54		450	%
Current operating lease liabilities		51			49			2		4	%
Current liabilities held for sale (1)		194			163			31		19	%
Total current liabilities		1,701			2,051			(350	)	(17	)%
Working capital	$	1,444		$	1,877		$	(433	)	(23	)%

Column 1	Column 2
(1)	Held for sale assets and liabilities are those of our Textile Effects Business. Total assets and liabilities held for sale as of December 31, 2022 are classified as current as we anticipate the sale of our Textile Effects Business will close in February 2023. For more information, see “Note 4. Discontinued Operations and Business Dispositions—Discontinued Operations—Sale of Textile Effects Business” to our consolidated financial statements.

Column 1

Column 2

(1)

Held for sale assets and liabilities are those of our Textile Effects Business. Total assets and liabilities held for sale as of December 31, 2022 are classified as current as we anticipate the sale of our Textile Effects Business will close in February 2023. For more information, see “Note 4. Discontinued Operations and Business Dispositions—Discontinued Operations—Sale of Textile Effects Business” to our consolidated financial statements.

Our working capital decreased by $433 million as a result of the net impact of the following significant changes:

Column 1	Column 2	Column 3
	●	The decrease in cash and cash equivalents of $387 million resulted from the matters identified on our consolidated statements of cash flows. See also “—Cash Flows Year Ended December 31, 2022 Compared with Year Ended December 31, 2021.”

Column 1	Column 2	Column 3
	●	Accounts and notes receivable, net decreased by $181 million primarily due to lower revenues in the fourth quarter of 2022 compared to the fourth quarter of 2021.

Column 1	Column 2	Column 3
	●	Inventories decreased by $43 million primarily due to lower inventory costs and volumes.

Column 1	Column 2	Column 3
	●	Receivable associated with the Albemarle Settlement decreased to nil due to the receipt of the final arbitration award payment of $332.5 million during the second quarter of 2022.

Column 1	Column 2	Column 3
	●	Accounts payable decreased by $153 million primarily due to lower inventory purchases.

Column 1	Column 2	Column 3
	●	Accrued liabilities decreased by $284 million primarily due to lower accrued compensation, current income taxes and approximately $200 million of legal fees associated with the Albemarle Settlement, offset by an increase in restructuring and plant closing reserves.

Column 1	Column 2	Column 3
	●	Current portion of debt increased by $54 million primarily due to net borrowings of $55 million under our 2022 Revolving Credit Facility that are classified as short term.

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Short-Term Liquidity

We depend upon our cash, our 2022 $1.2 billion senior unsecured revolving credit facility (“2022 Revolving Credit Facility”), our U.S. accounts receivable securitization program (“U.S. A/R Program”) and European accounts receivable securitization program (“EU A/R Program” and collectively with the U.S. A/R Program, “A/R Programs”) and other debt instruments to provide liquidity for our operations and working capital needs. As of December 31, 2022, we had $1,847 million of combined cash and unused borrowing capacity, consisting of $654 million in cash, $1,132 million in availability under our 2022 Revolving Credit Facility and $61 million in availability under our A/R Programs. Our liquidity can be significantly impacted by various factors. The following matters are expected to have a significant impact on our liquidity:

	●	During 2023, we expect to spend between approximately $240 million to $250 million on capital expenditures. Our future expenditures include certain environmental, health and safety upgrades; expansions of our existing manufacturing and other facilities; certain cost reduction projects, including those described below; and certain information technology expenditures. We expect to fund capital expenditures with cash provided by operations.
	●	During 2023, we expect to make contributions to our pension and postretirement benefit plans of approximately $37 million.
	●	From January 1, 2023 through February 7, 2023, we repurchased 691,326 shares of our common stock for approximately $21 million under our share repurchase program.
	●	On August 9, 2022, we entered into a definitive agreement to sell our Textile Effects Business to Archroma for a purchase price of $593 million in cash plus the assumption of underfunded pension liabilities, and we expect the net after tax cash proceeds to be approximately $540 million before fees and subject to certain customary purchase price adjustments as set forth in the purchase agreement. We expect the transaction to close on February 28, 2023.

Long-Term Liquidity

	●	During 2020, management implemented cost realignment and synergy plans. In connection with these plans, we remain committed to achieving annualized cost savings and synergy benefits of approximately $140 million during 2023, as previously communicated. During 2021, management implemented additional cost realignment plans, and in connection with these plans, we expect to achieve further annualized cost savings of approximately $100 million by the end of 2023. Associated with these plans, we expect cash costs of approximately $225 million, including approximately $30 million of capital expenditures, through 2024, of which we have spent approximately $140 million to date.
	●	In early November 2022, we announced our commitment and specific plans to further realign our cost structure beyond the current in-progress cost optimization programs with additional restructuring in Europe. The new program includes exiting and consolidating certain facilities, workforce relocation to lower cost locations and further personnel rationalization. In connection with this program, we currently expect to achieve annualized cost savings of approximately $40 million by the end of 2023. Associated with this program, we expect cash costs of approximately $65 million, including approximately $15 million of capital expenditures, through 2024.
	●	On April 29, 2022, a New Orleans jury awarded us approximately $94 million in our long-running court battle against Praxair/Linde, one of the industrial gas suppliers to our Geismar, Louisiana MDI manufacturing site. The case was filed after Praxair refused to properly maintain its own Geismar facility and then repeatedly failed to supply our requirements for industrial gas needed to manufacture MDI under long-term supply contracts that expired in 2013. After adding mandatory pre-judgment and post-judgment interest to the award, we expect damages to exceed $125 million before deducting for taxes and legal fees. The award is subject to a pending appeal, and if affirmed, we expect to receive net proceeds of approximately $50 million to $60 million. We have not yet recognized the award in our consolidated statements of operations.
	●	On May 20, 2022, Huntsman International entered into the 2022 Revolving Credit Facility. Borrowings will bear interest at the rates specified in the credit agreement governing the 2022 Revolving Credit Facility, which will vary based on the type of loan and Huntsman International’s debt ratings. Under the credit agreement, the interest rate margin and the commitment fee rates are also subject to adjustments based on the Company’s performance on specified sustainability target thresholds with respect to annual percentage reduction in operational greenhouse gas emissions intensity and annual percentage reduction in water consumption intensity. Unless previously terminated in accordance with its terms, the credit agreement will mature in May 2027. Huntsman International may increase the 2022 Revolving Credit Facility commitments up to an additional $500 million, subject to the satisfaction of certain conditions. See “Note 14. Debt—Direct and Subsidiary Debt—Revolving Credit Facility” to our consolidated financial statements.
	●	On February 17, 2023, our Board of Directors declared a $0.2375 per share cash dividend on our common stock. This represents an approximate 12% increase from the previous dividend.

As of December 31, 2022, we had $66 million classified as current portion of debt, including net borrowings of $55 million under our 2022 Revolving Credit Facility, debt at our variable interest entities of $9 million and certain other short-term facilities and scheduled amortization payments totaling $2 million. We intend to renew, repay or extend the majority of these short-term facilities in the next twelve months.

As of December 31, 2022, we had approximately $619 million of cash and cash equivalents, including restricted cash, held by our foreign subsidiaries, including our variable interest entities. With the exception of certain amounts that we expect to repatriate in the foreseeable future, we intend to use cash held in our foreign subsidiaries to fund our local operations. Nevertheless, we could repatriate additional cash as dividends and the repatriation of cash as a dividend would generally not be subject to U.S. taxation. However, such repatriation may potentially be subject to limited foreign withholding taxes.

For more information regarding our debt, see “Note 14. Debt” to our consolidated financial statements.

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Critical Accounting Estimates

This discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires us to make judgments, estimates and assumptions that involve a significant level of estimation and uncertainty and are reasonably likely to have a material impact on our financial condition and/or results of operations. Summarized below are our critical accounting estimates.

Income Taxes

Deferred income taxes reflect the net effects of temporary differences between assets and liabilities for financial and tax reporting purposes. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized; valuation allowances are recorded to offset deferred tax assets unlikely to be realized. Valuation allowances are reviewed each period on a tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider cumulative income or losses during the applicable three-year period. Cumulative losses incurred over the three-year period limits our ability to consider other evidence, such as our projections for the future. Changes in expected future taxable income and tax planning strategies in applicable jurisdictions affect our assessment of the realization of deferred tax assets. Our judgments regarding valuation allowances are also influenced by factors outside of business results, including the costs and risks associated with any tax planning strategy associated with utilizing a deferred tax asset. As of December 31, 2022, we had total valuation allowances of $169 million, which represents an increase of $38 million from the prior year, and we have a recognized a net deferred tax liability of $103 million. See “Note 19. Income Taxes” to our consolidated financial statements for more information regarding our deferred tax assets and valuation allowances.

Employee Benefit Programs

We sponsor several contributory and non-contributory defined benefit plans, covering employees primarily in the U.S., the U.K., The Netherlands, Belgium and Switzerland, but also covering employees in a number of other countries. We fund the material plans through trust arrangements (or local equivalents) where the assets are held separately from us. We also sponsor unfunded postretirement plans which provide medical and, in some cases, life insurance benefits covering certain employees in the U.S. and Canada. Amounts recorded in our consolidated financial statements are recorded based upon actuarial valuations performed by various independent actuaries. Inherent in these valuations are numerous assumptions regarding expected long-term rates of return on plan assets, discount rates, compensation increases, mortality rates and health care cost trends. Each of these critical estimates are subject to uncertainty and are assessed by us using historical data, as well as projections of future conditions. These assumptions and changes during the period are described in “Note 18. Employee Benefit Plans” to our consolidated financial statements.

We retain third party actuaries to assist us with judgments necessary to make assumptions on which our employee pension and postretirement benefit plan obligations and expenses are based. The effect of a 1% change in three key assumptions is summarized as follows (dollars in millions):

	Statement of			Balance sheet
Assumptions	operations(1)			impact(2)
Discount rate
—1% increase	$	(35	)		$	(227	)
—1% decrease		47				255
Expected long-term rates of return on plan assets
—1% increase		(31	)			—
—1% decrease		31				—
Rate of compensation increase
—1% increase		9				24
—1% decrease		(5	)			(22	)

Column 1	Column 2
(1)	Estimated (decrease) increase on 2022 net periodic benefit cost

Column 1	Column 2
(2)	Estimated (decrease) increase on December 31, 2022 pension and postretirement liabilities and accumulated other comprehensive loss

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