Chemtura swings to Q4 2013 net loss of US$21M compared to net earnings of US$20M a year ago due to lower selling prices, net sales and operating income, weaker sales volumes, facility closures and related costs; net sales up 2.1% to US$544M

Chemtura Corporation, (NYSE / Euronext Paris: CHMT) (the “Company,” “Chemtura,” “We,” “Us” or “Our”) today announced financial results for the fourth quarter ended December 31, 2013. We also filed with the Securities and Exchange Commission our Annual Report on Form 10-K for the year ended December 31, 2013. For the fourth quarter of 2013, Chemtura reported net sales of $544 million and net earnings from continuing operations attributable to Chemtura on a GAAP basis of $13 million, or $0.13 per diluted share. Net earnings from continuing operations attributable to Chemtura on a managed basis were $16 million, or $0.16 per diluted share. Fourth Quarter 2013 Financial 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 managed basis financial information is provided in the supplemental schedules included in this release.

The following is a summary of fourth quarter and year ended December 31, 2013 financial results from continuing operations attributable to Chemtura on a GAAP basis:

The following is a summary of fourth quarter and year ended December 31, 2013 financial results from continuing operations attributable to Chemtura on a managed basis:

CEO Remarks

"We were encouraged to complete what has been a challenging year with a fourth quarter performance that exceeded our performance in the fourth quarter of 2012," commented Craig A. Rogerson, Chairman, President and CEO of Chemtura. “Were it not for the $5 million of expenses incurred in the quarter related to our exploration of a sale of Chemtura AgroSolutions, we would have delivered $70 million of Adjusted EBITDA, 11% higher than the $63 million we delivered in the fourth quarter of 2012. Further, we completed the second major divestiture of the year, closing the sale of our Consumer Products business on December 31, 2013.”

“The year-on-year improvement was again led by Chemtura AgroSolutions, delivering an $8 million or 57% increase in Adjusted EBITDA - even better than I had anticipated,” continued Mr. Rogerson. “Industrial Performance Products delivered $5 million or 18% year-over-year improvement in Adjusted EBITDA. After the changes in demand and price mainly around insulation foam applications during 2013, the fourth quarter challenge for Industrial Engineered Products was to show sequential improvement over the third quarter of 2013. The segment delivered $31 million of Adjusted EBITDA in the fourth quarter of 2013 compared to $11 million in the third quarter of 2013, but still short of the $40 million in the fourth quarter of 2012. As anticipated, the biggest component of the improvement was the actions taken in the third quarter to reduce manufacturing costs. We have actions in place to drive revenue, price and cost improvements in 2014 but the segment still is exposed to several challenging application markets. Excluding the Chemtura AgroSolutions transaction expenses in the fourth quarter of 2013, Corporate on an EBITDA basis was $3 million lower than last year, reflecting the benefit of our stranded cost eliminations."

“In 2013, we made significant progress in shaping our portfolio and giving visibility to the strategic direction of our remaining businesses,” commented Mr. Rogerson. “We successfully completed the divestitures of our Antioxidant and Consumer Products businesses. We have repaid debt to maintain our stated leverage goals and started the process of returning a significant portion of proceeds from our divestitures to our shareholders through stock repurchases. Our Chemtura AgroSolutions segment built on the improvements made in 2012, launching 110 new products and registrations in 2013, increasing revenues by 10% and Adjusted EBITDA by 28%. In 2013, Industrial Performance Products increased revenues by 10% and Adjusted EBITDA by 9%, having absorbed the impact of the start-up of its new plants in The Netherlands and China. Industrial Engineered Products took a step back due to difficult market conditions, but have actions in place to recover and grow.” 

Outlook

 

“As described at our Investor Day in December, for 2014 we target revenue growth in the order of 8-10% and growth in consolidated Adjusted EBITDA in the range of 20-30% as compared to 2013,” continued Mr. Rogerson. “This requires that we deliver year-over-year improvement in most quarters in 2014 (excluding project expenses incurred in the process to explore the sale of Chemtura AgroSolutions), but the first quarter will be our greatest challenge. Our Industrial Engineered Products segment delivered $31 million of Adjusted EBITDA in the first quarter of 2013 which is the same as they earned in the fourth quarter of 2013. However, they have headwinds from the timing of production and related manufacturing variances. Our other segments should deliver improvement to offset some but not all of this impact, so it looks like the first quarter will be our weakest quarter of the year."

"We anticipate being able to report to you on the outcome of our exploration of the sale of Chemtura AgroSolutions at some point in the first half of 2014,” concluded Mr. Rogerson. “Our process is proceeding as planned. We will report to investors as soon as it reaches a conclusion.”

Non-Operating Activities Reflected in Our Fourth Quarter Financial Results

• In October 2013, we entered into a stock purchase agreement to sell our Consumer Products business, including dedicated manufacturing plants in the U.S. and South Africa, to KIK Custom Products Inc. ("KIK") for $315 million in cash at closing. On December 31, 2013, we entered into an amendment to the stock purchase agreement which, among other matters, reduced the purchase price by $15 million to reflect the resolution of certain pre-closing matters, and completed the sale of the Consumer Products business for an adjusted purchase price of $300 million. The purchase price was also subject to customary post-closing adjustments, primarily for working capital and assumed pension liabilities. The impact of several of these adjustments was estimated in the cash paid at closing and a final reconciliation will occur in the first half of 2014. The assets and liabilities of the Consumer Products business have been presented as assets and liabilities of discontinued operations for the comparative periods and earnings and direct costs associated with the Consumer Products business have been presented as earnings (loss) from discontinued operations, net of tax in the tables attached to this release for the current and comparative periods.
• On November 12, 2013, our Board of Directors (the "Board") authorized a further increase in our share repurchase program by $50 million (up to $191 million in the aggregate when combined with the May 9, 2013 authorization). The Board also authorized an additional $100 million under the share repurchase program upon the closing of the sale of the Consumer Products business (up to $291 million in the aggregate when combined with the May 9, 2013 and November 12, 2013 authorizations). The Board also extended the authorizations under the share repurchase program to November 9, 2014.
• In December 2013, we amended and restated our existing senior secured revolving credit facility, which was available through 2015 (the "ABL Facility"). The new senior secured revolving credit facility available through 2018 (the "2018 ABL Facility") provides for $175 million available to our domestic subsidiaries and €60 million available to Chemtura Sales Europe B.V., a Netherlands subsidiary, subject in each case to availability under the borrowing base, as well as providing a $125 million letter of credit sub-facility.
• We incurred $5 million of expenses in the fourth quarter of 2013 ($6 million process-to-date) related to our exploration of a sale of our Chemtura AgroSolutions business. We are incurring additional project expenses in the first quarter of 2014.

Fourth Quarter 2013 Business Segment Highlights

• Industrial Performance Products’ net sales increased $28 million or 13% as a result of a $26 million increase in sales volume, a $1 million year-over-year increase in selling prices and $1 million from favorable foreign currency translation. Operating income increased $5 million or 25% in the fourth quarter of 2013 to $25 million. Sales volume improvements were primarily in our petroleum additives and certain synthetic lubricant products in all regions except Europe. We recorded $3 million of unabsorbed costs related to our new Nantong, China and Ankerweg, The Netherlands facilities. Operating income also reflected increases in our selling, general and administrative costs ("SG&A") and research and development costs ("R&D") (collectively, "SGA&R") offset by lower raw material costs and the volume improvement impacted negatively by unfavorable product mix.
• Industrial Engineered Products’ net sales decreased $26 million or 12% reflecting a $14 million decrease in sales volume and $13 million in lower selling prices, partly offset by $1 million from favorable foreign currency translation. Operating income decreased $7 million or 25% in the fourth quarter of 2013 to $21 million. Operating income decreased by the lower selling prices and lower volume and unfavorable product mix of $13 million offset by favorable manufacturing costs and variances of $15 million and a net decrease in other costs of $4 million. Lower net sales and operating income reflected lower selling prices and weaker sales volumes year-over-year for our flame retardant products used in the insulation foam applications due to the reduction in demand in the first half of 2013. Some of this weakness was offset by an improvement in flame retardants sold into electronics applications and products utilized in energy related applications coupled with favorable selling prices for our tin-based organometallic products. Manufacturing costs and variances were favorable compared with prior year due to restructuring initiatives that were implemented in the third quarter of 2013.
• Chemtura AgroSolutions’ net sales increased $9 million or 9% resulting from $9 million in higher sales volume and $5 million in higher selling prices partly offset by $5 million of unfavorable foreign currency translation. Operating income increased $8 million in the fourth quarter of 2013 to $19 million. Operating income was favorably impacted by the higher selling prices, a $3 million increase in equity income which resulted from the sale of a product line by our ISEM S.r.l. ("ISEM") joint venture, lower raw material costs of $2 million and a decrease in other costs of $1 million partly offset by unfavorable foreign currency translation of $3 million. We continued to experience strong market demand for insecticides products in Latin America, particularly in Brazil. Operating income also benefited from favorable manufacturing variances due to the higher sales volumes.
• Corporate expenses for the fourth quarter of 2013 on a GAAP basis decreased by $4 million to $27 million compared with $31 million in 2012. Corporate expenses included amortization expense related to intangible assets and depreciation expense of $4 million for the fourth quarters of 2013 and 2012 and non-cash stock compensation expense of $2 million and $8 million for the fourth quarters of 2013 and 2012, respectively. The decrease in non-cash stock compensation expense was primarily due to a one-time correction recorded in the fourth quarter of 2012. This was offset by $5 million of project expenses incurred in our exploration of a sale of Chemtura AgroSolutions. Stranded costs related to the Antioxidant business were eliminated during the first half of 2013 such that there was no expense in the fourth quarter of 2013 but were $2 million for the fourth quarter of 2012. Stranded costs related to the Consumer Products business were $4 million for the fourth quarters of 2013 and 2012. In the fourth quarter of 2012, our Corporate segment included $3 million of amortization expense related directly to our Antioxidant and Consumer Products businesses. This amount has now been included in earnings (loss) on discontinued operations, net of tax.

Fourth Quarter 2013 Results – GAAP

• Consolidated net sales of $544 million for the fourth quarter of 2013 were $11 million or 2% higher than 2012 driven by higher sales volume of $21 million, offset by lower selling prices of $7 million and unfavorable foreign currency translation of $3 million.
• Gross profit for the fourth quarter of 2013 was $133 million, an increase of $6 million compared with the fourth quarter of 2012. Gross profit as a percentage of net sales of 24% remained constant as compared with the same quarter of 2012. Gross profit benefited from favorable manufacturing costs and variances of $19 million, lower raw material costs of $3 million and a decrease in net other costs of $7 million, partly offset by unfavorable product mix of $8 million, the lower selling prices of $7 million, unfavorable foreign currency translation of $3 million, a charge of $2 million related to an increase in our excess inventory reserves and $3 million of costs related to our new Nantong, China and Ankerweg, The Netherlands facilities.
• Operating income for the fourth quarter of 2013 decreased $1 million to $24 million compared with $25 million for the fourth quarter of 2012. The decrease was primarily due to an $11 million increase in facility closures, severance and related costs, partly offset by a $6 million increase in gross profit, a $4 million increase in equity income primarily resulting from the sale of a product line by our ISEM joint venture in Italy.
• Included in the computation of operating income for the fourth quarters of 2013 and 2012 was $2 million and $10 million, respectively, of stock-based compensation expense. The decrease was primarily due to a one-time correction recorded in the fourth quarter of 2012 coupled with a reduction in staff count resulting from our restructuring plans.
• Interest expense was $15 million during the fourth quarter of 2013 which was $2 million lower than 2012, primarily due to lower interest expense as a result of our debt refinancing activities during the second half of 2013.
• Other expense, net was $2 million in the fourth quarter of 2013 compared with other income of $23 million in the fourth quarter of 2012. The decrease was primarily due to a $21 million gain in the fourth quarter of 2012, which related to the release of the cumulative translation adjustments associated with the rationalization of certain European subsidiaries no longer required.
• Reorganization items, net were $1 million in the fourth quarter of 2012 which is comprised primarily of professional fees directly associated with our Chapter 11 reorganization.
• The income tax benefit in the fourth quarter of 2013 was $6 million compared with income tax expense of $10 million in the fourth quarter of 2012.
• Net earnings from continuing operations attributable to Chemtura for the fourth quarter of 2013 was $13 million, or $0.13 per diluted share, compared with $19 million, or $0.19 per diluted share, for the fourth quarter of 2012.
• Loss from discontinued operations, net of tax attributable to Chemtura for the fourth quarter of 2013 was $3 million, or $0.03 per diluted share compared with earnings from discontinued operations, net of tax attributable to Chemtura of $1 million, or $0.01 per diluted share for the fourth quarter of 2012. Discontinued operations included the Antioxidant and Consumer Products businesses.
• Loss on sale of discontinued operations, net of tax attributable to Chemtura for the fourth quarter of 2013, was $31 million, or $0.32 per diluted share, which primarily represented the sale of the Consumer Products business.

Fourth Quarter 2013 Results - Managed Basis

• On a managed basis, fourth quarter 2013 gross profit was $133 million, as compared with $127 million in the same period last year. Gross profit as a percentage of net sales remained constant at 24%. The increase in gross profit was primarily due to favorable manufacturing costs and variances and lower raw material costs, partly offset by unfavorable product mix and lower selling prices.
• On a managed basis, fourth quarter 2013 operating income was $38 million as compared with $28 million in the same period last year. The increase in operating income primarily reflected the increases in gross profit and equity income.
• Adjusted EBITDA in the fourth quarter of 2013 was $65 million as compared with $63 million in the fourth quarter of 2012 (see the tables attached to this earnings release for a reconciliation of the computation of Adjusted EBITDA). Excluding the $5 million of expenses related to the exploration of the sale of Chemtura AgroSolutions, Adjusted EBITDA in the fourth quarter of 2013 would have been $70 million. The increase in Adjusted EBITDA was principally driven by higher gross profit and equity income. Adjusted EBITDA for the last twelve months decreased from $313 million at December 31, 2012 to $275 million at December 31, 2013. Excluding the $6 million of expenses related to the exploration of the sale of Chemtura AgroSolutions, Adjusted EBITDA for the twelve months ended December 31, 2013 would have been $281 million. Adjusted EBITDA excludes the Antioxidant and Consumer Products businesses which are classified as discontinued operations.
• Net earnings from continuing operations before income taxes on a managed basis in the fourth quarters of 2013 and 2012 were $23 million and $13 million, respectively, and exclude pre-tax GAAP adjustments of $16 million and $16 million, respectively. These adjustments are primarily related to facility closures, severance and related costs, accelerated depreciation of property, plant and equipment and a gain or loss related to the liquidation of entities.
• 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. In 2012, we applied an estimated managed basis tax rate of 28% reflecting the expected performance of our core operations in 2012. With a projected shift in relative profitability to the U.S. from international operations, in 2013, we are applying an estimated managed basis tax rate of 31%. 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; (iii) the utilization of foreign tax credits generated in the current year; and (iv) the conclusion that we will indefinitely re-invest the majority of the earnings of our foreign subsidiaries in our international operations. We will continue to monitor our estimated managed basis tax rate and may modify it based on changes in the composition of our taxable income and in tax rates around the world.

Cash Flows Details - GAAP

• Net cash provided by operating activities for the fourth quarter of 2013 was $20 million as compared with $107 million for the fourth quarter of 2012. The reduction was primarily due to a smaller net working capital inflow in the fourth quarter of 2013 than in the fourth quarter of 2012 and the timing within the year of cash contributions to pension plans.
• Capital expenditures for the fourth quarter of 2013 were $46 million compared with $55 million in the fourth quarter of 2012.
• Cash income taxes paid (net of refunds) in the fourth quarters of 2013 and 2012 were $5 million and $16 million, respectively.
• During the fourth quarter of 2013, we repurchased 0.2 million shares at a cost of $4 million. As of December 31, 2013, the remaining authorization under our share repurchase program was approximately $196 million.
• Our total debt was $898 million as of December 31, 2013 compared with $894 million as of September 30, 2013. In January 2014, we repaid $110 million of our senior secured term loan facility due 2016 (the “Term Loan") with proceeds from the sale of our Consumer Products business. In light of this transaction, we classified the $110 million as short-term borrowings in our Consolidated Balance Sheet as of December 31, 2013. Cash and cash equivalents increased to $549 million as of December 31, 2013 compared with $311 million as of September 30, 2013. The increase was primarily the result of cash proceeds from the sale of the Consumer Products business.
• Total debt less cash and cash equivalents of $349 million as of December 31, 2013 decreased $234 million compared with total debt less cash and cash equivalents of $583 million as of September 30, 2013. The decrease was primarily due to cash proceeds from the sale of the Consumer Products business.

Chemtura Corporation, with 2013 net sales of $2.2 billion ¹, is a global manufacturer and marketer of specialty chemicals, and agrochemicals. Additional information concerning us is available at www.chemtura.com.

¹ 2013 net sales of $2.2 billion reflects discontinued operations treatment for the sale of Chemtura’s Antioxidants and Consumer Products businesses.

CHEMTURA CORPORATION

Index of Financial Statements and Schedules

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Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions)

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Consolidated Balance Sheets
(In millions)

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Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)

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Segment Net Sales and Operating Income (Unaudited)
(In millions)

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Major Factors Affecting Net Sales and Operating Results (Unaudited)
Quarter and Year ended December 31, 2013 versus 2012
(In millions)

The following table summarizes the major factors contributing to the changes in operating results versus the prior year:

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GAAP and Managed Basis Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)

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GAAP and Managed Basis Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)

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GAAP and Managed Basis Segment Net Sales and Operating Income (Unaudited)
(In millions of dollars)

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GAAP and Managed Basis Segment Net Sales and Operating Income (Unaudited)
(In millions of dollars)