Solutia Q3 net income surges 56% year-over-year to US$75M as net sales rise 1.5% to US$519M; results reflect US$31M gain from sale of company's 2% interest in Ascend Performance Materials

ST. LOUIS , October 27, 2011 (press release) – Third Quarter Highlights

* Net sales of $519 million; a 2% increase from the same period in 2010
* Diluted earnings per share from continuing operations of $.62
* Adjusted Earnings per Share (Adjusted EPS) of $.45; a 7% increase from the same period in 2010
* Repurchased $25 million of the 2017/2020 notes in the quarter
* Adjusted EPS guidance for 2011 of approximately $2.00, from the previous range of $1.95 to $2.05


Nine Months Highlights

* Net sales of $1,571 million; an 8% increase from the same period in 2010
* Diluted earnings per share from continuing operations of $1.71
* Adjusted EPS from continuing operations of $1.52, an increase of 26% from the same period in 2010
* Debt pay down of $127 million

"The product, end-market and geographic diversity of Solutia's portfolio, in combination with solid operational execution, has once again delivered year-over-year increased earnings in the third quarter, despite higher raw material costs and challenging economic conditions," said Jeffry N. Quinn, chairman, president and chief executive officer of Solutia Inc. "We continue to adapt to the dynamics of today's slower global economic environment, seizing opportunities in emerging markets, closely controlling discretionary spending and positioning Solutia for sustainable earnings growth."

Third Quarter 2011: Consolidated Results from Continuing Operations

Solutia Inc. (NYSE:SOA - News) today reported net sales for the third quarter 2011 of $519 million, up $8 million or 2 percent from the same period in 2010. Adjusting for divested businesses, sales were up $24 million or 5 percent, primarily due to favorable currency exchange rate fluctuations. Reported income from continuing operations attributable to Solutia was $75 million for the third quarter 2011, up $29 million from the same period in 2010. Both periods were impacted by certain events affecting comparability (detailed below), which resulted in a net after-tax gain of $20 million in 2011, and a net after-tax charge of $4 million in 2010. Excluding these items, Adjusted Earnings increased $5 million. Adjusted EBITDA in the third quarter of 2011 totaled $121 million, down $9 million from the same period in 2010. Adjusted EPS totaled $.45, up $.03 or 7 percent from the same period in 2010 despite the lower adjusted EBITDA primarily due to lower interest expense and a lower tax rate.

Segment Data

In order to aid understanding of Solutia's business performance, the results of its business segments are presented on an adjusted basis and reconciled to the comparable GAAP measures in the below tables.

Advanced Interlayers Segment

Advanced Interlayers' third quarter 2011 net sales totaled $227 million, an increase of $15 million or 7 percent from the same period in 2010. Adjusted EBITDA decreased $1 million to $47 million for the third quarter of 2011 compared to the prior year period. This earnings decrease was primarily due to higher raw material costs, partially offset by improved selling prices, improved product mix and lower annual incentive compensation expense.

"The third quarter reflects the strength of the Saflex® interlayers business as growth in architectural and automotive sales, boosted by premium product offerings, more than offset the impact of a continued weak demand profile in the solar encapsulant market," said D. Michael Donnelly, executive vice president and chief operating officer. "We have announced the intention to explore new pricing structures for Saflex in 2012, which are designed to lessen the impact that volatility in raw material costs brings to our business and to our customers."

Performance Films Segment

Performance Films' third quarter 2011 net sales totaled $74 million, an increase of $1 million or 1 percent from the same period in 2010. Adjusted EBITDA decreased $1 million to $12 million for the third quarter of 2011 compared to the prior year period. This earnings decrease was primarily due to higher raw materials costs and increased selling costs, partially offset by improved selling prices.

"Steady results for Performance Films in the third quarter included strong performance of our premium window film brands, which continued to exceed growth expectations, offset by lower sales into the electronics market," said Donnelly. "The recently announced agreement to acquire Southwall Technologies Inc. positions us well to capitalize on the high-growth opportunities for advanced films solutions, including securing access to a key base material for V-KOOL® premium aftermarket window films."

Technical Specialties Segment

Technical Specialties' third quarter 2011 net sales totaled $218 million, a decrease of $6 million or 3 percent from the same period in 2010. Adjusting for divested other rubber chemicals businesses, sales were up $8 million or 3 percent. Adjusted EBITDA decreased $7 million to $75 million for the third quarter of 2011 compared to the prior year period. This decrease in earnings was primarily due to higher raw material costs and the loss of earnings from the other rubber chemicals businesses divested since the third quarter of 2010.

"Notwithstanding a slower demand profile, raw material cost inflation persisted across the Technical Specialties segment in the third quarter of 2011. While selected selling price increases mitigated cost pressures in the Specialty Fluids and Crystex® insoluble sulfur product lines, the price increases achieved in our Santoflex® product lines were not sufficient due to current over-supply conditions in the antidegradant rubber chemical market," said Donnelly. "Also in the third quarter, we completed an expansion of our Texas operations to help meet the increased demand for Therminol® heat transfer fluid across a diverse set of end markets, including the high-growth concentrating solar power market."

Unallocated and Other

Unallocated and other expenses in the quarter reduced Adjusted EBITDA by $13 million, flat compared to the third quarter of 2010.

Nine Months 2011: Consolidated Results from Continuing Operations

Net sales for the nine months ending September 30, 2011 were $1,571 million, an increase of 8 percent as compared to the same period in 2010. Adjusting for acquisitions and divested businesses, sales were up $120 million or 9 percent, due to higher selling prices, increased volumes, and favorable currency exchange rate fluctuations. Reported income from continuing operations attributable to Solutia was $208 million in 2011 compared to $44 million from the same period in 2010. These results were impacted by certain events affecting comparability (detailed below), which resulted in a net after-tax gain of $24 million in 2011 and a net after-tax loss of $101 million in 2010. After consideration of these items in both periods, income increased by $39 million, from $145 million in 2010 to $184 million in 2011. Adjusted EBITDA totaled $397 million year-to-date 2011 versus $388 million from the same period in 2010. Adjusted EPS totaled $1.52 year-to-date, up $.31 from the same period in 2010. This increase was primarily due to higher sales volumes realized by all reporting segments, the inclusion of Vistasolar and Novomatrix results for the full year in 2011, higher average selling prices, improved manufacturing performance and lower annual incentive compensation expense. These improvements were partially offset by higher raw material prices, increased selling and R&D costs and the loss of earnings from the divestiture of the other rubber chemicals and plastic products businesses.

Leverage and Liquidity

The Company ended the third quarter with net debt of $1,167 million and liquidity of $449 million. Cash provided by continuing operations less capital expenditures for the quarter was $17 million compared to $91 million for the same period in 2010. The year-over-year decrease in cash flow in the quarter was primarily attributed to targeted inventory increases in advance of scheduled facility turnarounds in the fourth quarter of 2011 and first quarter of 2012, and higher strategic growth capital expenditures. During the quarter, the Company also sold its 2 percent retained interest in Ascend Performance Materials Holdings, Inc. for $31 million.

In the third quarter, the Company repurchased $25 million of its 2017/2020 notes bringing total debt reduction year to date to $127 million. "Solutia's strong liquidity position and cash generation capability positions us well to take advantage of attractive strategic growth opportunities while continuing to improve the balance sheet and progressing toward our goal of reducing gross leverage to approximately 2x over the near term," said James M. Sullivan, executive vice president and chief financial officer.

Outlook

The Company expects net sales in the fourth quarter of 2011 to be consistent with the third quarter as slightly higher volumes are expected to be substantially offset by the translation impact from a stronger U.S. dollar. On a year-over-year basis, continued higher raw material prices are expected to be more than offset by sales volume and sales price increases. The Company expects full-year 2011 net sales to be in the range of $2.05 billion and $2.1 billion with Adjusted EPS of approximately $2.00, and cash from operations less capital spending in the range of $120 million to $130 million.

   

SOLUTIA INC.

 

CONSOLIDATED STATEMENT OF OPERATIONS

 

(Dollars in millions, except per share amounts)

 

(Unaudited)

 
                         
 

Three Months Ended

 

Nine Months Ended

 
 

September 30,

 

September 30,

 
                         
 

2011

 

2010

 

2011

 

2010

 
                         

Net Sales

$

519

 

$

511

 

$

1,571

 

$

1,461

 

Cost of goods sold

 

370

   

353

   

1,090

   

996

 

Gross Profit

 

149

   

158

   

481

   

465

 

Selling, general and administrative expenses

 

65

   

62

   

187

   

194

 

Research and development expenses

 

6

   

5

   

17

   

13

 

Other operating expense (income), net

 

(30)

   

3

   

(43)

   

2

 

Operating Income

 

108

   

88

   

320

   

256

 

Interest expense

 

(24)

   

(35)

   

(78)

   

(109)

 

Other income (loss), net

 

-

   

2

   

(1)

   

15

 

Loss on debt extinguishment or modification

 

(2)

   

-

   

(4)

   

(89)

 

Income from Continuing Operations Before Income Tax Expense

 

82

   

55

   

237

   

73

 

Income tax expense

 

6

   

7

   

25

   

26

 

Income from Continuing Operations

 

76

   

48

   

212

   

47

 

Income (Loss) from Discontinued Operations, net of tax

 

-

   

2

   

-

   

(13)

 

Net Income

 

76

   

50

   

212

   

34

 

Net income attributable to noncontrolling interest

 

1

   

2

   

4

   

3

 

Net Income attributable to Solutia

$

75

 

$

48

 

$

208

 

$

31

 
                         

Basic Income (Loss) per Share attributable to Solutia:

                       

Income from Continuing Operations

$

0.62

 

$

0.38

 

$

1.74

 

$

0.37

 

Income (Loss) from Discontinued Operations

 

-

   

0.02

   

-

   

(0.11)

 

Net Income attributable to Solutia

$

0.62

 

$

0.40

 

$

1.74

 

$

0.26

 
                         

Diluted Income (Loss) per Share attributable to Solutia:

                       

Income from Continuing Operations

$

0.62

 

$

0.38

 

$

1.71

 

$

0.37

 

Income (Loss) from Discontinued Operations

 

-

   

0.02

   

-

   

(0.11)

 

Net Income attributable to Solutia

$

0.62

 

$

0.40

 

$

1.71

 

$

0.26

 
   
                       

 
 
   

Solutia is a market-leading performance materials and specialty chemicals company. The company focuses on providing solutions for a better life through a range of products, including: Saflex® polyvinyl butyral interlayers for glass lamination and for photovoltaic module encapsulation and VISTASOLAR® ethylene vinyl acetate films for photovoltaic module encapsulation; LLumar®, Vista™, EnerLogic®, FormulaOne®, Gila®, V-KOOL®, Huper Optik®, IQue™, Sun-X™ and Nanolux™ aftermarket performance films for automotive and architectural applications; Flexvue™ advanced film component solutions for solar and electronic technologies; and technical specialties products including Crystex® insoluble sulfur, Santoflex® PPD antidegradants, Therminol® heat transfer fluids and Skydrol® aviation hydraulic fluids. Solutia's businesses are world leaders in each of their market segments. With its headquarters in St. Louis, Missouri, USA, the company operates globally with approximately 3,300 employees in more than 50 worldwide locations. More information is available at www.Solutia.com .

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