Chemtura swings to profit of US$34M from year-ago period's loss of US$367M on net sales of US$677M, down 0.4%; industrial segment led improvement, CEO says

PHILADELPHIA , February 27, 2012 (press release) – Continues Trend of Strong Year-Over-Year Improvement

Achieves Fourth Quarter 2011 Net Sales of $677 million and $0.34 Earnings Per Share Chemtura Corporation, (NYSE: CHMT) (the “Company,” “Chemtura,” “We,” “Us” or “Our”) today announced financial results for the fourth quarter ended December 31, 2011. We also filed with the Securities and Exchange Commission our Annual Report on Form 10-K for the year ended December 31, 2011. For the fourth quarter of 2011, Chemtura reported net sales of $677 million and net earnings from continuing operations attributable to Chemtura on a GAAP basis of $34 million, or $0.34 per share. Net earnings attributable to Chemtura on a managed basis were $26 million, or $0.26 per share.

“We are committed to delivering further improvement in 2012”

Fourth Quarter 2011 Financial Results

CEO Remarks

“This quarter we again delivered year-on-year improvement in profitability – as we have delivered in each quarter of 2011,” commented Craig A. Rogerson, Chairman, President and CEO of Chemtura. “Our Industrial segments led the improvement. Their performance exceeded that in the fourth quarter of 2010 and sequentially compared to the third quarter of 2011. Performance improved despite sluggish global business conditions and the continued weakness in the demand for flame retardants from the electronics industry, particularly for printed wiring board applications. Consumer Products and Chemtura AgroSolutions lagged prior year performance. Lower “early buy” dealer demand in the U.S. compared to 2010 constrained Consumer Products’ performance. Dry conditions in Eastern Europe reduced winter planting for oil seed rape by 30% and less-than-planned improvement in Latin America limited Chemtura AgroSolutions’ contribution. We believe that both of these segments are positioned to make stronger contributions in 2012.”

Mr. Rogerson continued, “We ended 2011 with adjusted EBITDA for the year of $385 million, up 20% over 2010. 2011 has been a year of substantial progress and many achievements. With our reorganization behind us, we returned to sustained profitability. We generated significant cash flows from operations providing us the ability to increase our capital investment in support of our growth initiatives. We demonstrated flexibility in addressing significant raw material inflation without the loss of margin. We demonstrated our commitment to innovation with the introduction of many new products and applications and we invested in capacity to meet the demand generated by these products. We intensified our efforts in expanding our presence in the faster growing regions of the world and launched the building of a multipurpose plant in China to better serve our customers. Our success in fully recovering raw material cost increases, our investment in innovation and diversifying applications and our focus on performance and results delivery permitted us to weather the macroeconomic uncertainty in the second half of 2011 and still deliver year-on-year improvement. During the fourth quarter, we also repurchased 2 million shares of common stock under our share repurchase program. These achievements are contributing to our goal of transforming Chemtura into a superior performing specialty chemicals company.”

Outlook

“We are committed to delivering further improvement in 2012”, Mr. Rogerson stated. “Demand from our industrial customers so far in 2012 has been comparable to what we saw in the second half of 2011 and we have not yet seen recovery in the electronics markets. Our expectation is that we will see industrial demand start to recover before summer and then build in the second half of the year. In this environment, the challenge for our Industrial segments will be to match 2011 performance in the first half of 2012 and then surpass 2011 in the second half of the year. Our Industrial segments expect to deliver improvement for 2012 as a whole. A more positive economic environment will provide more rapid performance improvement.”

“We expect stronger performance from our Consumer Products and Chemtura AgroSolutions segments in 2012. Our Consumer Products segment has regained the mass market customer it lost for the 2011 season and introduced new products and brands. The anticipated increase in sales volume is expected to drive stronger performance in 2012. Chemtura AgroSolutions has extended its product offerings, gained new product registrations and strengthened its distribution channels. The resulting new product introductions in 2012 are expected to drive further recovery by this segment over that achieved in 2011.”

He concluded, “In short, we expect 2012 to be another year of improvement, keeping us on track to achieve our objective of step change growth in both revenue and profitability.”

Fourth Quarter 2011 Business Segment Highlights

Industrial Performance Products’ net sales increased $7 million or 2% driven principally by higher selling prices of $25 million, offset by lower sales volume of $18 million within our antioxidants and petroleum additives businesses. Operating income on a managed basis increased $9 million reflecting the $25 million increase in selling prices, a $2 million reduction in distribution costs, a $2 million reduction in selling, general and administrative and research and development (collectively “SGA&R”) and a $2 million reduction in other costs, partially offset by a $17 million increase in raw material costs and a $5 million increase in manufacturing costs. On a GAAP basis, operating income increased $8 million as compared to the same period last year as 2011 was impacted by accelerated recognition of asset retirement obligations.

Industrial Engineered Products’ net sales increased $3 million or 2% driven by higher selling prices of $29 million and a $1 million benefit of favorable foreign currency translation, partially offset by a $27 million reduction in sales volume. Lower volume was primarily due to reduced demand from the electronics industry, particularly from printed wiring board applications offset in part by volume gains in our sales of clear brine fluids for oilfield applications and GeoBrom® for mercury control applications. Price increases had been implemented during the prior quarters of 2011 in response to substantially higher raw material costs and a significant ongoing investment to ensure a sustainable and reliable supply of bromine and its derivatives. Operating income on a managed basis increased $13 million from the fourth quarter of 2010 primarily due to the $29 million increase in selling prices, partially offset by a $5 million increase in manufacturing costs, a $3 million increase in raw material costs, $3 million in lower sales volume and a $5 million increase in other costs. The increase in manufacturing costs compared to the fourth quarter of 2010 was primarily due to lower production volumes of certain brominated flame retardants. On a GAAP basis, operating income 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. U.S. sales volume reflected lower activity during our traditional “early buy” program in the professional dealer channel. A level of uncertainty in the economic outlook led dealers to be cautious until the season starts in full in late spring. Operating income decreased $8 million primarily due to a $3 million increase in raw material costs, a $2 million increase in manufacturing costs (primarily due to lower production and production mix changes resulting in lower fixed cost absorption), lower sales volume and unfavorable mix of $2 million and an increase in other costs of $1 million.

Chemtura AgroSolutions’ net sales decreased $11 million or 11% primarily due to lower sales volume. Sales volumes were impacted by dry conditions in Eastern Europe which reduced winter planting for oil seed rape by 30% and less-than-planned improvement in Latin America where we saw a continuing impact from new registrations from providers of generic products. Operating income on a managed basis decreased $3 million primarily due to lower sales volume and unfavorable mix. On a GAAP basis, operating income decreased $4 million as 2011 was impacted by accelerated depreciation of property, plant and equipment.

On a GAAP basis, corporate expenses for the fourth quarter of 2011 were $31 million compared with $29 million in 2010. The increase was primarily due to an $8 million charge related to an ongoing evaluation of a UK pension benefit matter, partially offset by lower stock-based compensation expense. Corporate expenses included amortization expense related to intangible assets of $9 million for the fourth quarters of 2011 and 2010, respectively.

Fourth Quarter 2011 Results - GAAP

Net sales for the fourth quarter of 2011 were $3 million lower than 2010. The decrease in net sales was attributable to lower sales volume of $58 million and unfavorable foreign currency translation of $1 million, partially offset by higher selling prices of $56 million. The higher selling prices were achieved by the Industrial Performance Products and Industrial Engineered Products segments.

Gross profit for the fourth quarter of 2011 was $170 million, an increase of $6 million compared with the fourth quarter of 2010. Gross profit as a percentage of net sales increased to 25% for the fourth quarter of 2011 as compared with 24% in the fourth quarter of 2010. The increase in gross profit was primarily due to $56 million in higher selling prices. This improvement was partially offset by $23 million in higher raw material costs, $13 million of lower sales volume and unfavorable product mix, $11 million of unfavorable manufacturing variances (in all segments except Chemtura AgroSolutions) and a $3 million increase in other costs.

Operating income for the fourth quarter of 2011 was $63 million compared with an operating loss of $29 million for the fourth quarter of 2010. The increase of $92 million was primarily due to a $56 million decrease in impairment charges, a $27 million gain on the sale of our 50% interest in Tetrabrom Technologies Ltd. in 2011, a $6 million increase in gross profit, a $3 million decrease in accelerated depreciation of property, plant and equipment and $3 million of other cost decreases, which was offset by a $3 million charge for restructuring activities in 2011.

Included in the computation of operating income was $4 million of stock-based compensation expense compared with $7 million in the fourth quarter of 2010. Stock-based compensation expense in both periods included expense primarily related to grants under the emergence incentive plans approved by the Bankruptcy Court in our Chapter 11 proceedings.

Interest expense of $15 million during the fourth quarter of 2011 was $12 million lower than the fourth quarter of 2010. The decrease was due to post-petition interest recorded during the fourth quarter of 2010 of $8 million and interest expense on the borrowings in 2010 under the Amended DIP Credit Facility which was terminated on November 10, 2010 (the effective date of our Plan of Reorganization).

Other income, net was $1 million in the fourth quarter of 2011 compared with other expense, net of $4 million for the fourth quarter of 2010. The change is primarily the result of net foreign currency losses in 2010.

Reorganization items, net in the fourth quarter of 2010 was $223 million. The 2010 expense primarily comprised professional fees directly associated with the Chapter 11 reorganization and the impact of the terms of negotiated claims settlements under the provisions of the Plan. The decrease in expense during 2011 reflects our emergence from Chapter 11 in November 2010 and primarily relates to fees incurred in resolving disputed claims.

The income tax expense from continuing operations in the fourth quarter of 2011 was $15 million compared with $8 million in the fourth quarter of 2010.

Net earnings from continuing operations attributable to Chemtura for the fourth quarter of 2011 was $34 million, or $0.34 per share, compared with net loss from continuing operations attributable to Chemtura of $367 million, or $2.25 per share, for the fourth quarter of 2010.

Fourth Quarter 2011 Results - Managed Basis

On a managed basis, fourth quarter 2011 gross profit was $171 million, as compared with $164 million in the same period last year. Gross profit as a percentage of net sales increased to 25% for the fourth quarter of 2011 as compared with 24% in the fourth quarter of 2010. The increase in gross profit was due to higher selling prices, partially offset by higher raw material and manufacturing costs, decreased sales volume and unfavorable product mix.

On a managed basis, fourth quarter 2011 operating income was $52 million as compared with $34 million in the same period last year. The increase in operating income primarily reflected the increase in gross profit, lower SGA&R costs and lower depreciation expense.

Adjusted EBITDA in the fourth quarter of 2011 was $89 million as compared with $78 million in the fourth 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 $385 million at December 31, 2011.

Earnings from continuing operations before income taxes on a managed basis in the fourth quarters of 2011 and 2010 exclude pre-tax GAAP charges of $11 million and $369 million, respectively. These charges are primarily related to accelerated recognition of asset retirement obligations; accelerated depreciation of property, plant and equipment; facility closures, severance and related costs; gain or loss on the sale of business or assets; impairment charges; changes in estimates related to expected allowable claims; loss on early extinguishment of debt; legal matters; and costs associated with the Chapter 11 reorganization.

Chemtura has chosen to apply an estimated tax rate to our managed basis pre-tax income to simplify for investors the comparison of underlying operating performance. Following our emergence from Chapter 11, we developed an estimated managed basis tax rate of 28% reflecting the expected performance of our core operations in 2011. The estimated managed basis tax rate reflects (i) the impact of the adjustments made in the preparation of pre-tax managed basis income; (ii) the exclusion of the benefit or charge arising from the creation or release of valuation allowances on U.S. income; and (iii) the utilization of foreign tax credits generated in the current year. We applied the 28% tax rate in the preparation of our managed basis financial statements throughout 2011 and will reevaluate the tax rate for 2012 if circumstances warrant. The 28% managed basis tax rate reflects the benefit of lower international corporate tax rates as compared with the U.S. Federal corporate tax rate as well as the conclusion that we will indefinitely re-invest the majority of the earnings of our foreign subsidiaries in our international operations.

Chemtura’s managed basis tax rate of 35% in 2010 represented a standard tax rate for our core operations to simplify comparison of underlying operating performance during the course of the Chapter 11 proceedings.

Cash Flows Details - GAAP

Net cash provided by operating activities for the fourth quarter of 2011 was $91 million as compared with net cash used in operating activities of $245 million for the fourth quarter of 2010. The increase was primarily related to cash payments made in 2010 as part of the settlement of Chapter 11 claims upon emergence in accordance with our confirmed Plan of Reorganization.

As of December 31, 2011, our accounts receivable balance was $458 million as compared with $489 million as of December 31, 2010 and $497 million as of September 30, 2011.

As of December 31, 2011, our inventory balance was $542 million as compared with $528 million at December 31, 2010 and $562 million as of September 30, 2011.

Capital expenditures for both the fourth quarters of 2011 and 2010 were $62 million. Capital expenditures for the year ended December 31, 2011 were $154 million compared with $124 million for the year end December 31, 2010.

Cash income taxes paid (net of refunds) in the fourth quarter of 2011 were $8 million compared with $1 million in the fourth quarter of 2010. Cash income taxes paid (net of refunds) for the 2011 full year were $16 million compared to $6 million for 2010.

During the fourth quarter of 2011, we repurchased 2 million shares of our common stock for $22 million under our previously announced share repurchase program.

Our total debt was $753 million as of December 31, 2011 compared to $775 million as of September 30, 2011. The decrease is primarily due to a reduction in borrowings under our revolving credit facility due to the seasonal reduction in working capital. Cash and cash equivalents decreased to $180 million as of December 31, 2011 compared with $191 million as of September 30, 2011.

On October 26, 2011, certain of our European subsidiaries entered into a trade receivables financing facility that permits the sale, on a revolving basis, of certain trade receivables up to a maximum amount outstanding at any time of €68 million (approximately $88 million). There were no outstanding borrowings under the facility at December 31, 2011.

 
CHEMTURA CORPORATION
Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)
     
      Quarters Ended December 31,     Years Ended December 31,
      2011     2010       2011     2010
                           
Net sales   $ 677     $ 680       $ 3,025     $ 2,760  
                           
Cost of goods sold     507       516         2,296       2,103  
Gross profit     170       164         729       657  
Gross profit %     25 %     24 %       24 %     24 %
                           
Selling, general and administrative     84       83         339       315  
Depreciation and amortization     34       41         140       175  
Research and development     10       11         43       42  
Facility closures, severance and related costs     3       -         3       1  
Gain on sale of business     (27 )     -         (27 )     (2 )
Impairment charges     1       57         4       57  
Changes in estimates related to expected allowable claims     2       2         3       35  
Equity Income     -       (1 )       (3 )     (4 )
                           
Operating income (loss)     63       (29 )       227       38  
Interest expense     (15 )     (27 )       (63 )     (191 )
Loss on early extinguishment of debt     -       (75 )       -       (88 )
Other income (expense), net     1       (4 )       -       (6 )
Reorganization items, net     -       (223 )       (19 )     (303 )
                           

Earnings (loss) from continuing operations before income taxes

    49       (358 )       145       (550 )
Income tax expense     (15 )     (8 )       (25 )     (22 )
                           
Earnings (loss) from continuing operations     34       (366 )       120       (572 )
Loss from discontinued operations, net of tax     -       -         -       (1 )
Loss on sale of discontinued operations, net of tax     -       -         -       (12 )
                           
Net earnings (loss)     34       (366 )       120       (585 )
                           
Less: Net earnings attributed to non-controlling interests     -       (1 )       (1 )     (1 )
                           
Net earnings (loss) attributable to Chemtura   $ 34     $ (367 )     $ 119     $ (586 )
                           

Basic and diluted per share information - attributable to Chemtura:

                     
Earnings (loss) from continuing operations   $ 0.34     $ (2.25 )     $ 1.19     $ (2.58 )
Loss from discontinued operations, net of tax     -       -         -       -  
Loss on sale of discontinued operations, net of tax     -       -         -       (0.05 )
Net earnings (loss) attributable to Chemtura   $ 0.34     $ (2.25 )     $ 1.19     $ (2.63 )
                           
Weighted average shares outstanding - Basic     99.6       163.7         100.1       223.0  
                           
Weighted average shares outstanding - Diluted     100.1       163.7         100.3       223.0  
                           

Amounts attributable to Chemtura stockholders:

                         
Earnings (loss) from continuing operations   $ 34     $ (367 )     $ 119     $ (573 )
Loss from discontinued operations, net of tax     -       -         -       (1 )
Loss on sale of discontinued operations, net of tax     -       -         -       (12 )
Net earnings (loss) attributable to Chemtura   $ 34     $ (367 )     $ 119     $ (586 )
 
 

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