Consumables

Chemtura Reports 2010 Fourth Quarter Results

Tuesday 08. March 2011 - Successfully emerged from Chapter 11 during the fourth quarter with a significantly stronger balance sheet

Chemtura Corporation, (NYSE: CHMT) (the “Company,” “Chemtura,” “Registrant,” “We,” “Us” and “Our”) reports a net loss from continuing operations attributable to Chemtura on a GAAP basis of $367 million, or $2.25 per share, for the fourth quarter of 2010 and net earnings on a managed basis of $7 million, or $0.04 per share.
Fourth Quarter 2010 Financial Results

The discussion below includes financial information on both a GAAP and 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 the 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 financial results on a GAAP basis:

(In millions, except per share data) Fourth quarter
2010 2009 % change
Net sales $ 680 $ 598 14 %
Operating loss $ (29 ) $ (31 ) 6 %
Loss from continuing operations, net of tax $ (367 ) $ (94 ) NM
Loss from continuing operations, net of tax – per
share
$ (2.25 ) $ (0.38 ) NM
NM = Not Meaningful

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

(In millions, except per share data) Fourth quarter
2010 2009 % change
Net sales $ 680 $ 598 14 %
Operating profit $ 34 $ 45 (24 %)
Net earnings attributable to Chemtura $ 7 $ 15 (53 %)
Net earnings attributable to Chemtura – per share $ 0.04 $ 0.06 (33 %)
CEO Quote

“Chemtura has successfully emerged from its Chapter 11 reorganization, leaner, fitter and with a much stronger balance sheet, fulfilling the goals we set for this process,” commented Craig A. Rogerson, Chairman, President and CEO. “We are focused on innovation, profitable growth, particularly from those regions that offer the highest growth rates, execution with an emphasis on meeting customer needs, and active portfolio management. These strategies, together with cyclical recovery in some of the industries we serve, enabled us to exceed our financial targets for 2010 and lay the foundation for further improvement in 2011.”

Mr. Rogerson further noted, “With our focus on innovation, in 2010, we commercialized new products in all of our segments and we expanded our sales to the Asia Pacific region by 52%. As a result, this region grew to 19% of our total revenues in 2010. We focused our portfolio with the divestiture of the PVC Additives business in the second quarter of 2010 and continued to improve operating efficiency through a number of restructuring initiatives, raw material including the launch of our operational improvement plan in El Dorado, Arkansas. We exceeded our financial targets in 2010 despite the difficulties faced by our Chemtura AgroSolutionsTM business and the headwinds of rapidly inflating raw material costs. In the fourth quarter, we improved our execution on recovering raw material cost increases with the net deficit between input cost and selling price increases declining to $5 million, compared to the $15 million we experienced in the third quarter of 2010. This remains an intense area of focus as we enter 2011.”

Mr. Rogerson concluded, “All connected with Chemtura enter 2011 invigorated by all we have achieved in 2010 and all the many opportunities we have ahead of us. Our solid operating performance in 2010, which included exceeding our fourth quarter and full year projections, reflected in these financial results lays the foundation for further significant improvement in 2011. Our performance targets for 2011 are appropriately aggressive and we have plans and actions in place to achieve them.”

Fourth Quarter 2010 Significant Events

On November 10, 2010, we announced that we had successfully completed our financial restructuring and emerged from protection under Chapter 11 of the United States Bankruptcy Code. In connection with our emergence, our new common stock was listed on the New York Stock Exchange (“NYSE”), and on November 11, 2010, our new common stock started trading on the NYSE under the ticker symbol “CHMT.” In accordance with the confirmed plan of reorganization (the “Plan”), we have fully satisfied creditors’ allowed claims (including interest) in cash and/or stock in the reorganized Company and also provided a prorated value to equity holders.
With the successful completion of our financial restructuring, we have significantly reduced our debt, improved our cost structure and resolved a considerable number of environmental and other liabilities.
We continually monitor and evaluate business and competitive conditions that may affect the carrying value of our goodwill by segment. We have previously disclosed risks inherent in our Chemtura AgroSolutions financial projections as a result of the recent below-expectation performance of this business. Given another quarter of missed expectations, we determined that the goodwill associated with this business could not be sustained. As such, we recorded a non-cash charge of $57 million to reduce the carrying value of goodwill associated with this segment.
Fourth Quarter 2010 Business Segment Highlights

Industrial Performance Products’ net sales increased 9% or $24 million driven primarily by increased sales volume and higher selling prices, partially offset by unfavorable foreign currency translation and the sale of the sodium sulfonate business. The higher sales volume in the fourth quarter of 2010 was due to increased demand across our customers’ industry segments, as well as strong growth in the Asia Pacific region. Operating profit declined $7 million as the benefit of higher volume and higher selling prices were offset by the greater impact of higher raw material and energy costs, higher distribution costs and the sale of the sodium sulfonate business.
Industrial Engineered Products’ net sales increased 33% or $47 million primarily due to increased sales volume and higher selling prices. Operating profit on a managed basis increased $10 million from the fourth quarter of 2009 primarily due to higher selling prices, increased volume and favorable product mix, partially offset by higher raw material and energy costs and unfavorable manufacturing costs. On a GAAP basis, operating profit increased $6 million and was impacted by accelerated depreciation charges resulting from restructuring initiatives in this segment.
Consumer Products’ net sales of $89 million were unchanged from the fourth quarter of 2009. Operating profit on a managed basis declined $4 million primarily due to higher raw material and energy costs. On a GAAP basis, operating profit decreased $3 million.
Chemtura AgroSolutionsTM net sales increased 13% or $11 million primarily due to increased sales volume. Sales were higher in all regions as compared with the fourth quarter of 2009. Operating profit of $9 million was unchanged as the impact of increased volume was offset by higher raw material and other costs.
Corporate expense for the fourth quarter of 2010 was $29 million compared with $20 million in 2009. Corporate expense included amortization expense related to intangibles of $9 million and $10 million for the fourth quarter of 2010 and 2009, respectively. The increase in Corporate expense was primarily due to $6 million of stock-based compensation expense associated with our emergence incentive award plans.
Fourth Quarter 2010 Results – GAAP

Net sales for the fourth quarter of 2010 were $680 million, an increase of $82 million compared with fourth quarter 2009 net sales of $598 million. The increase in net sales was attributable to increased sales volumes of $65 million and an increase in selling prices of $25 million, partially offset by unfavorable foreign currency translation of $2 million and the sale of the sodium sulfonate business which reduced revenues by $6 million compared with 2009.
Gross profit for the fourth quarter of 2010 was $164 million, a decrease of $2 million compared with the same quarter last year. Gross profit as a percentage of sales decreased to 24% in the quarter as compared with 28% in the same quarter last year primarily due to the lag between increases in raw material costs and the resulting increases in selling prices. The decrease in gross profit was primarily due to higher raw material costs of $30 million and unfavorable manufacturing and other variable costs of $15 million. These unfavorable impacts were partially offset by $25 million in higher selling prices and $18 million from the impact of higher sales volume (net of product mix impacts).
The operating loss for the fourth quarter of 2010 was $29 million compared with an operating loss of $31 million for the fourth quarter of 2009. The decrease in operating loss was primarily due to a $71 million decrease in changes in estimates related to expected allowable claims (primarily related to revised estimates for legal and environmental liabilities) and a $1 million increase in equity income, which was offset by a $55 million increase in impairment charges, a $12 million increase in selling, general and administrative and research and development costs (collectively “SGA&R”), a $2 million decrease in gross profit and a $1 million increase in depreciation and amortization. SGA&R included an expense of $7 million for stock-based compensation expense associated with our emergence incentive plans.
Interest expense of $27 million in the fourth quarter of 2010 was $10 million higher than the same period in 2009. Had we emerged from Chapter 11 on October 1, 2010, the amount of interest we would have recorded during the fourth quarter of 2010 would have been approximately $15 million. The increased interest in the quarter was the result of recording interest expense associated with $455 million in aggregate principal amount of the Senior Notes and the $295 million Term Loan (both issued as part of the exit financing facilities contemplated under the Plan), and interest on claims for the Chapter 11 pre-emergence period, partially offset by lower financing costs under the Amended DIP Credit Facility entered into in February 2010 compared with the same period in 2009.
The loss on early extinguishment of debt included $70 million related to make-whole and no-call claim settlements relating to our legacy bonds and $5 million related to the termination of the Amended DIP Credit facility agreement and completion of exit financing as a result of our emergence from Chapter 11.
Other expense, net was $4 million in the fourth quarter of 2010 compared to other expense, net of $6 million for the fourth quarter of 2009.
Reorganization items, net in the fourth quarter of 2010 was $223 million compared with $31 million in the fourth quarter of 2009. Reorganization items primarily comprised professional fees directly associated with the Chapter 11 reorganization and the impact of the claims settlement process. The increase is primarily due to higher professional fees and settlement losses incurred upon the consummation of our confirmed Plan.
Net loss from continuing operations attributable to Chemtura for the fourth quarter of 2010 was $367 million, or $2.25 per share, compared with net loss from continuing operations attributable to Chemtura of $94 million, or $0.38 per share, for the fourth quarter of 2009.
Earnings from discontinued operations for the fourth quarter of 2009 was $4 million, which represented the operations of the PVC additives business.
The gain on sale of discontinued operations in the fourth quarter of 2009 was $1 million.
Fourth Quarter 2010 Results – Managed Basis

On a managed basis, fourth quarter 2010 gross profit was $164 million, or 24% of net sales, as compared with fourth quarter 2009 gross profit of $166 million, or 28% of net sales. Higher raw material, energy and other costs were principally offset by the benefit of increases in selling prices and higher sales volume (net of product mix impacts).
On a managed basis, fourth quarter 2010 operating profit was $34 million as compared with fourth quarter 2009 operating profit of $45 million. The decrease in operating profit primarily reflected the increase in SGA&R resulting from stock-based compensation expense associated with our emergence incentive awards.
Adjusted EBITDA in the fourth quarter of 2010 was $79 million as compared with $84 million in the fourth quarter 2009. The decrease in adjusted EBITDA was primarily due to higher SGA&R expense.
The earnings from continuing operations before income taxes on a managed basis in the fourth quarter of 2010 and 2009 exclude pre-tax GAAP charges of $369 million and $107 million, respectively. These charges are primarily related to accelerated depreciation of property, plant and equipment; impairment charges; changes in estimates related to expected allowable claims; losses on early extinguishment of debt; post-petition interest expense on allowable claims; and costs associated with the Chapter 11 reorganization.
Chemtura’s managed basis tax rate of 35% represents a standard tax rate for our core operations to simplify comparison of underlying operating performance during the course of the Chapter 11 proceedings. With our emergence from Chapter 11, we are reassessing the rate that should be used in 2011 and will disclose our conclusion in our first quarter 2011 earnings release.
Cash Flows – GAAP

Net cash used in operating activities for the fourth quarter of 2010 was $245 million as compared with net cash provided by operating activities of $23 million for the fourth quarter of 2009. The decrease is primarily related to cash payments made as part of the settlement of Chapter 11 claims upon emergence in accordance with our confirmed Plan.
As of December 31, 2010, our accounts receivable balances from continuing operations were $489 million as compared with $496 million as of September 30, 2010, $560 million as of June 30, 2010, $521 million as of March 31, 2010 and $442 million as of December 31, 2009. Accounts receivable measured as days sales outstanding as of December 31, 2010 showed improvement compared with the measure as of December 31, 2009.
As of December 31, 2010, our inventory balance from continuing operations was $528 million as compared with $533 million as of September 30, 2010, $496 million as of June 30, 2010, $515 million at March 31, 2010 and $489 million at December 31, 2009. Inventory measured as days in inventory as of December 31, 2010 showed improvement compared with the measure as of December 31, 2009.
Capital expenditures for the fourth quarter of 2010 were $62 million compared with $33 million in the same period of 2009.
Our total debt of $751 million as of December 31, 2010 compared with $1,430 million as of December 31, 2009. The decrease is due to the payment of the Chapter 11 claims as a result of our emergence from Chapter 11. Cash and cash equivalents were $201 million as of December 31, 2010 compared with $263 million as of September 30, 2010.
We are monitoring the current strength of the leveraged loan market and evaluating an opportunistic re-pricing and moderate upsize of our existing $295 million Term Loan. An upsize transaction, if consummated, would result in a modest change to our senior secured leverage ratio and projected interest expense.