Chemtura posts preliminary results for Q3, expects pre-tax earnings to soar 144% year-over-year to US$22M, revenues to rise nearly 9% to US$773M; board authorizes US$50M share repurchase over next twelve months

Alison Gallant

Alison Gallant

Oct 18, 2011 – Business Wire

PHILADELPHIA , October 18, 2011 (press release) – Chemtura Corporation, (NYSE:CHMT - News) (the “Company,” “Chemtura,” “We,” “Us” and “Our”) today announced that our Board of Directors has authorized us to invest up to $50 million in the repurchase of shares of our common stock over the next twelve months. The shares are expected to be repurchased from time to time through open market purchases. The program, which does not obligate us to repurchase any particular amount of common stock, may be modified or suspended at any time at the Board’s discretion. The manner, price, number and timing of such repurchases, if any, will be subject to a variety of factors, including market conditions and applicable rules and regulations of the Securities and Exchange Commission (“SEC”).

In connection with this share repurchase program, we are reporting our preliminary operating results for the third quarter of 2011. All references in this release to our financial results for the third quarter of 2011 and related disclosures refer to our anticipated results for such period, and should be considered preliminary until we file our third quarter 2011 Quarterly Report on Form 10-Q with the SEC. As previously announced, we will issue our third quarter 2011 earnings release and file our Quarterly Report on Form 10-Q after the market closes on Tuesday, November 1, 2011 and hold our quarterly teleconference for investors at 9:00 a.m. (EST) on Wednesday, November 2, 2011.

Preliminary Third Quarter 2011 Operating Results

The discussion below includes financial information on both a GAAP and non-GAAP managed basis. We present managed basis financial information as management uses this information internally to evaluate and direct the performance of our operations and believes that managed basis financial information provides useful information to investors. A reconciliation of GAAP and The following is a summary of third quarter 2011 financial results on a GAAP basis:

 

(In millions)
 
Third Quarter
   
2011
     
2010
     
% change
Net Sales   $ 773       $ 710       9%
Operating profit   $ 45       $ 69       (35%)
Earnings from continuing operations before income taxes   $ 22       $ 9       144%

 

The following is a summary of third quarter financial results on a managed basis:

 

(In millions)  
Third Quarter
   
2011
     
2010
     
% change
Net Sales   $ 773       $ 710       9%
Operating Profit   $ 46       $ 38       21%
Earnings from continuing operations before income taxes   $ 29       $ 32       (9%)

CEO Remarks

“We believe that the share repurchase program represents an effective use of our capital and our continued confidence in the long-term growth prospects of Chemtura,” commented Craig A. Rogerson, Chairman, President and CEO of Chemtura. “It also reflects our confidence in our ability to manage our business and its cash flows through whatever changes in economic conditions we may encounter and the recognition that there may be opportunities where purchases of our common stock offer the ability to deliver superior returns to our shareholders. We have strong liquidity and no debt maturities until 2015 and, apart from seasonal working capital swings, expect to deliver positive free cash flow in 2012 and beyond.”

Mr. Rogerson continued, “In light of our announcement of the share repurchase program, we also are announcing at this time preliminary operating results through the third quarter. Net sales and operating profitability in the quarter showed the year-on-year improvement we forecast despite the uncertain macroeconomic outlook. Chinese demand for our Great Lakes Solutions business, particularly electronics, slowed as anticipated due to the influence of local economic policy and industry trends. The strength of demand from other markets partially offset these trends. Many industrial customers became more cautious as the quarter progressed, but this impact did not impede us from demonstrating year-on-year performance improvement.”

Mr. Rogerson continued, “Our Consumer Products segment saw Hurricane Irene herald the end of what had been their toughest season in recent years. We are focused on laying the foundation for a stronger season in 2012 with new product introductions and have already recaptured the requirements of the mass market customer we lost for the 2011 season as well as additional new business. Meanwhile, Chemtura AgroSolutions saw the benefit of continued recovery in European demand which contributed to the 13% year-on-year increase in net sales. We are evaluating additional steps to accelerate the recovery in this segment.”

Mr. Rogerson concluded, “Our adjusted EBITDA for the last twelve months increased from $320 million at December 31, 2010 to $374 million at September 30, 2011.”

Fourth Quarter Trends

Commenting on trends for the fourth quarter of 2011, Mr. Rogerson observed, “We have started the fourth quarter with similar business conditions to those we experienced in September. Our industrial customers remain cautious as to the macroeconomic and business outlook, and we see areas of localized weakness. Nevertheless, we remain focused on driving performance and are prepared to make the necessary adjustments to our operating plans to meet the changes in our business environment, as warranted.”

Preliminary Third Quarter 2011 Business Segment Highlights

    * Industrial Performance Products’ net sales increased $21 million or 7% driven principally by higher selling prices of $24 million and $3 million of favorable foreign exchange translation, offset by lower sales volume of $4 million driven by our antioxidants business and a decrease of $2 million due the divestitures of the natural sodium sulfonates and oxidized petrolatum product lines in 2010. Operating profit increased $4 million reflecting the $24 million increase in selling prices together with favorable foreign exchange translation and lower REACh registration costs, partially offset by a $22 million increase in raw material costs and slightly higher selling, general and administrative and research and development (collectively “SGA&R”) costs.
    * Industrial Engineered Products’ net sales increased $32 million or 17% driven by higher selling prices of $39 million and a $3 million benefit of favorable foreign currency translation, partially offset by a $10 million reduction in sales volume. Price increases have been implemented in response to substantially higher raw material costs and a significant ongoing investment to ensure a sustainable and reliable supply for bromine and its derivatives. Operating profit on a managed basis increased $12 million from the third quarter of 2010 primarily due to the $39 million increase in selling prices, partially offset by a $16 million increase in manufacturing costs, primarily as a result of lower volumes, and by an $11 million increase in raw material costs. On a GAAP basis, operating profit increased $17 million as compared to the same period last year as 2010 was impacted by accelerated depreciation of property, plant and equipment.
    * Consumer Products’ net sales decreased $2 million or 2% due to lower sales volume and lower selling prices, partially offset by the benefit of favorable foreign currency translation. U.S. sales volume continued to reflect lower demand in the mass market channel where inventories continued to be managed by our customers at lower levels during the quarter. Additionally, the European selling season was shortened by unfavorable weather conditions in the region. Operating profit decreased $8 million primarily due to a $7 million increase in manufacturing costs related to the decrease in sales volume, unfavorable product mix and lower selling prices. These factors were partially offset by decreased SGA&R expenses.
    * Chemtura AgroSolutions’ net sales increased $12 million or 13% primarily due to increased sales volume. Sales improved in all regions, except Asia Pacific. Operating profit on a managed basis increased $2 million due to higher sales volume and lower SGA&R expense. On a GAAP basis, operating profit increased $5 million as 2010 was impacted by a $3 million unfavorable legal settlement.
    * On a GAAP basis, corporate expenses for the third quarter of 2011 were $28 million compared to $30 million in 2010. Corporate expenses included amortization expense related to intangibles of $9 million and $10 million for the third quarter of 2011 and 2010, respectively.

Preliminary Third Quarter 2011 Results - GAAP

    * Net sales for the third quarter of 2011 were $773 million or $63 million higher than 2010. The increase in net sales was attributable to higher selling prices of $62 million and a $12 million benefit from favorable foreign currency translation, partially offset by decreased sales volume of $9 million and a reduction in net sales of $2 million due to the divestiture of the natural sodium sulfonates and oxidized petrolatum product lines in the third quarter of 2010. The higher selling prices were achieved by the Industrial Performance Products and Industrial Engineered Products segments during the third quarter of 2011.
    * Gross profit for the third quarter of 2011 was $174 million, an increase of $14 million compared with the third quarter of 2010. Gross profit as a percentage of sales remained constant at 23% for the third quarter of 2011 and 2010. The increase in gross profit was primarily due to $62 million in higher selling prices, a $4 million benefit from favorable currency translation, $3 million in 2010 for non-recurring environmental costs and a $6 million decrease in other costs. These improvements were partially offset by $34 million in higher raw material costs, $22 million of unfavorable manufacturing costs, a $3 million increase in distribution costs, and $2 million of lower sales volume and unfavorable product mix.
    * Operating profit for the third quarter of 2011 was $45 million compared with an operating profit of $69 million for the third quarter of 2010. The decrease of $24 million was primarily due to $40 million benefit in 2010 for changes in estimates related to expected allowable claims, a $2 million gain on sale of a business in 2010, a $2 million benefit for restructuring activities in 2010 and $3 million of other cost increases, which was offset by a $14 million increase in gross profit, $5 million of accelerated depreciation of property, plant and equipment in 2010, $3 million related to a 2010 legal settlement and a $1 million decrease related to losses on disposal of assets.
    * Included in the computation of operating profit was $6 million of stock compensation expense (including expense related to grants under the emergence incentive plans approved by the Bankruptcy Court) compared with $1 million in the third quarter of 2010.
    * Interest expense of $16 million during the third quarter of 2011 was $19 million lower than the third quarter of 2010. In 2010, we made a determination that it was probable that obligations for interest on unsecured claims would ultimately be paid based on the estimated claim recoveries reflected in our plan of reorganization filed during the second quarter of 2010 (the “Plan”). Thus, the decrease from 2010 to 2011 was due to the post-petition interest recorded during the third quarter of 2010 of $21 million, partially offset by increased interest expense in 2011 associated with the Senior Notes and Term Loan secured in August 2010 compared with interest expense on the borrowings in 2010 under the Amended DIP Credit Facility.
    * Other expense, net was $1 million in the third quarter of 2011 compared to other income, net of $8 million for the third quarter of 2010. The change is primarily the result of net foreign currency gains in 2010.
    * Reorganization items, net of $6 million in the third quarter of 2011 was $27 million lower than the third quarter of 2010. The expense in both periods primarily comprised professional fees directly associated with the Chapter 11 reorganization and the impact of negotiated claims settlement for which Bankruptcy Court approval has been obtained or requested. The decrease reflects our emergence from Chapter 11 in November 2010.
    * The income tax (provision) benefit for the third quarter of 2011 will address a foreign tax matter that relates to an acquisition made by a predecessor company in the 1990s. An exposure of up to $6 million has been identified that we will likely record in the third quarter financial statements. As of this date, our review of the income tax (provision) benefit is not complete and therefore not included in this press release.

Preliminary Third Quarter 2011 Results - Managed Basis

    * On a managed basis, third quarter 2011 gross profit was $174 million, as compared with third quarter 2010 gross profit of $163 million. Gross profit as a percentage of net sales remained constant at 23%. The increase in gross profit was due to higher selling prices and the benefit of favorable foreign currency translation, partially offset by higher raw material, manufacturing and distribution costs, decreased sales volume and unfavorable product mix.
    * On a managed basis, third quarter 2011 operating profit was $46 million as compared with third quarter 2010 operating profit of $38 million. The increase in operating profit primarily reflected the increase in gross profit, partially offset by higher SGA&R.
    * Adjusted EBITDA in the third quarter of 2011 was $87 million as compared with $74 million in the third quarter of 2010. (See the tables attached to this earnings release for a reconciliation of the computation of Adjusted EBITDA.) The increase in adjusted EBITDA was principally driven by higher gross profit. Adjusted EBITDA for the last twelve months increased from $320 million at December 31, 2010 to $374 million at September 30, 2011.
    * Earnings from continuing operations before income taxes on a managed basis in the third quarters of 2011 and 2010 exclude pre-tax GAAP charges of $7 million and $23 million, respectively. These charges are primarily related to accelerated depreciation of property, plant and equipment; facility closures, severance and related costs; gain or loss on the sale of business or assets; changes in estimates related to expected allowable claims; legal settlements; and costs associated with the Chapter 11 reorganization.

Preliminary Cash Flows Details - GAAP

    * As of September 30, 2011, our accounts receivable balance was $497 million as compared with $496 million as of September 30, 2010 and $615 million as of June 30, 2011.
    * As of September 30, 2011, our inventory balance was $562 million as compared with $533 million at September 30, 2010 and $602 million as of June 30, 2011.
    * Capital expenditures for the third quarter of 2011 were $37 million compared with $24 million in the third quarter of 2010. Capital expenditures for the nine months ending September 30, 2011 were $92 million compared to $62 million for the nine months ending September 30, 2010.
    * Our total debt was $775 million as of September 30, 2011 compared to $846 million as of June 30, 2011. The decrease is primarily due to a reduction in borrowings under our revolving credit facility. Cash and cash equivalents increased to $191 million as of September 30, 2011 compared with $143 million as of June 30, 2011. The decrease in borrowings under our revolving credit facility and the increase in cash and cash equivalents during the quarter are primarily due to the seasonal reduction in working capital during the quarter.

Third Quarter Earnings Q&A Teleconference

Following the issuance of our third quarter 2011 earnings release on November 1, 2011, we will make copies of the release, as well as informational slides, available on the Investor Relations section on our Web site at www.chemtura.com. We will host a teleconference to review these results at 9:00 a.m. (EST) on Wednesday, November 2, 2011. Interested parties are asked to dial in approximately 10 minutes prior to the start time. The call-in number for U.S. based participants is (877) 494-3128 and for all other participants is (404) 665-9523. The conference ID code is 10536229. Replay of the call will be available for thirty days, starting at 10 a.m. (EST) on Thursday, October 3, 2011. To access the replay, call toll-free (855) 859-2056, (800) 585-8367, or (404) 537-3406, and enter access code 10536229. An audio webcast of the call can be accessed via the link below during the time of the call:

http://www.talkpoint.com/viewer/starthere.asp?Pres=136920

Chemtura Corporation, with 2010 sales of $2.8 billion, is a global manufacturer and marketer of specialty chemicals, agrochemicals and pool, spa and home care products. Additional information concerning us is available at www.chemtura.com.

Managed Basis Financial Measures

The information presented in this press release and in the attached financial tables includes financial measures that are not calculated or presented in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). Our managed basis financial measures consist of adjusted results of operations that exclude certain expenses, gains and losses that may not be indicative of our core operations. Excluded items include costs associated with the bankruptcy reorganization; facility closures, severance and related costs; gains and losses on sale of business; increased depreciation due to the change in useful life of assets; unusual and non-recurring settlements; accelerated recognition of asset retirement obligations and impairment charges. They also include the computation of Adjusted EBITDA. Reconciliations of these managed basis financial measures to their most directly comparable GAAP financial measures are provided in the attached financial tables. We believe that such managed basis financial measures provide useful information to investors and may assist them in evaluating our underlying performance and identifying operating trends. In addition, management uses these managed basis financial measures internally to allocate resources and evaluate the performance of our operations. While we believe that such measures are useful in evaluating our performance, investors should not consider them to be a substitute for financial measures prepared in accordance with GAAP. In addition, these managed basis financial measures may differ from similarly titled managed basis financial measures used by other companies and do not provide a comparable view of our performance relative to other companies in similar industries.

CHEMTURA CORPORATION                      
Consolidated Summary Financial Information (Unaudited)
(In millions)                      
                       
      Quarters Ended September 30,       Nine Months Ended September 30,
      2011   2010       2011   2010
                       
Net sales   $ 773   $ 710       $ 2,348   $ 2,080  
                       
Cost of goods sold     599     550         1,789     1,587  
Gross profit     174     160         559     493  
Gross profit %     23 %   23 %       24 %   24 %
                       
Selling, general and administrative     84     85         255     232  
Depreciation and amortization     35     40         106     134  
Research and development     11     11         33     31  
Facility closures, severance and related costs     -     (2 )       -     1  
Gain on sale of business     -     (2 )       -     (2 )
Impairment charges     -     -         3     -  
Changes in estimates related to expected allowable claims     -     (40 )       1     33  
Equity Income     (1 )   (1 )       (3 )   (3 )
                       
Operating profit     45     69         164     67  
Interest expense     (16 )   (35 )       (48 )   (164 )
Loss on early extinguishment of debt     -     -         -     (13 )
Other (expense) income, net     (1 )   8         (1 )   (2 )
Reorganization items, net     (6 )   (33 )       (19 )   (80 )
                       
Earnings (loss) from continuing operations before income taxes
  $ 22   $ 9       $ 96   $ (192 )

 

 

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