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TheStreet Open House

Chemtura Reports Fourth Quarter And Full Year 2012 Financial Results

Stocks in this article: CHMT

Fourth Quarter 2012 Business Segment Highlights

  • Industrial Performance Products’ net sales increased $3 million or 1% as a result of a $4 million increase in sales volume, offset by a $1 million year-on-year decrease in selling prices. Operating income on a managed basis decreased $9 million in the fourth quarter of 2012 to $20 million, primarily reflecting $5 million in unfavorable changes in product mix, $3 million in higher manufacturing costs and a $4 million increase in other costs, offset by $3 million in lower raw material costs. On a GAAP basis, operating income decreased $8 million as compared to the same period last year due to the factors discussed above and the impact of accelerated recognition of asset retirement obligations of $1 million in 2011. Petroleum additive products reported an increase in sales volume; however, due to product mix, margins were lower. Urethane products continued to see demand weakness in Europe and Asia with some improvement toward the end of the quarter due to the benefit of new product introductions.
  • Industrial Engineered Products’ net sales increased $27 million or 14% primarily reflecting a $27 million increase in sales volumes. Selling price increases of $2 million were offset by a $2 million unfavorable foreign currency translation. Operating income decreased $2 million from the fourth quarter of 2011. The decrease in operating income reflected $13 million in unfavorable manufacturing costs and variances and a $1 million increase in other costs, partially offset by a $10 million increase in sales volume and product mix changes and the $2 million increase in selling prices. Increase in year-over-year demand for our oilfield, electronic and insulation foam products offset lower demand from building, construction and automotive applications and for our tin-based organometallic products. The unfavorable manufacturing variances resulted from reductions in demand for certain product lines and the impact of new production capacity in El Dorado and Bergkamen added during 2012.
  • Consumer Products’ net sales increased $2 million or 2% reflecting higher sales volume. Operating income increased $4 million to $5 million, benefiting from $2 million in lower manufacturing costs, $1 million in lower selling, general and administrative (“SG&A”) and research and development (“R&D”, collectively “SGA&R”) costs, $1 million from favorable volume and product mix and $1 million in lower raw material costs, offset slightly by $1 million in higher distribution costs associated with the increase in volume. Volume increases are the result of a successful “Early Buy” program in the U.S. dealer channel. Lower manufacturing costs were the result of higher volumes and targeted efficiency gains at one of our plants. Cost controls and organizational restructuring delivered the reduction in SGA&R.
  • Chemtura AgroSolutions’ net sales increased $12 million or 14%, resulting from $12 million in higher sales volume and $2 million in higher selling prices partly offset by $2 million of unfavorable foreign currency translation. Operating income on a managed basis increased $5 million reflecting a $4 million increase in volume and favorable product mix and the higher selling prices, offset in part by a $1 million increase in other costs. On a GAAP basis, operating income increased $6 million as compared to the same period last year due to the factors discussed above and the impact of accelerated depreciation of property, plant and equipment of $1 million in 2011. We had record sales due to increases in the Americas as a result of drier climate, growth in resale and seed treatment products, and changes to our distribution channels in Latin America. Operating income reflected the benefit of strong sales volume, prices and reductions in our cost base.
  • Corporate expenses for the fourth quarter of 2012 on a GAAP basis decreased to $29 million compared with $32 million in 2011. The decrease was primarily due to an $8 million charge in 2011 related to an ongoing evaluation of a UK pension benefit matter, partially offset by the higher non-cash stock-based compensation expense in 2012 discussed earlier. Corporate expenses include amortization expense related to intangible assets of $5 million and $7 million for the fourth quarters of 2012 and 2011, respectively.

Fourth Quarter 2012 Results - GAAP

  • Consolidated net sales for the fourth quarter of 2012 were $622 million or $44 million higher than 2011 driven primarily by higher sales volumes in our Industrial Engineered Products and Chemtura AgroSolutions segments and to a lesser extent increases in our Consumer Products and Industrial Performance Products segment.
  • Gross profit for the fourth quarter of 2012 was $152 million, an increase of $2 million compared with the fourth quarter of 2011. Gross profit as a percentage of net sales decreased to 24% as compared with 26% in the same quarter of 2011. Gross profit benefited from $10 million higher sales volume and product mix changes, $3 million in higher selling prices and $2 million in lower raw material and other costs, offset by $13 million in unfavorable manufacturing costs and variances.
  • Operating income for the fourth quarter of 2012 was $32 million compared with $53 million for the fourth quarter of 2011. The decrease of $21 million was primarily due to a $27 million gain from the sale of our 50% interest in Tetrabrom Technologies Ltd. in 2011, partly offset by the $2 million increase in gross profit and $4 million in lower SG&A costs. SG&A costs in 2011 included an $8 million charge related to an ongoing evaluation of a UK pension benefit matter.
  • Included in the computation of operating income for the fourth quarter of 2012 was $10 million, stock-based compensation expense compared with $4 million in the fourth quarter of 2011 as a result of the correction discussed earlier.
  • Interest expense was $17 million during the fourth quarter of 2012 which was slightly higher than 2011, primarily due to the additional Term Loan borrowings.
  • The loss on early extinguishment of debt of $1 million in the fourth quarter of 2012 related to the exercise of the accordion under the Term Loan.
  • Other income, net was $24 million in the fourth quarter of 2012 compared with less than $1 million for the fourth quarter of 2011. During the quarter, we recognized a $21 million gain related to the release of the cumulative translation adjustment associated with the rationalization of certain European subsidiaries no longer required.
  • Reorganization items, net was $1 million in the fourth quarter of 2012 which is comprised of professional fees directly associated with the Chapter 11 reorganization and the impact of negotiated settlements of claims for which Bankruptcy Court approval has been requested or obtained.
  • The income tax expense in the fourth quarter of 2012 was $10 million compared with expense of $14 million in the fourth quarter of 2011.
  • Net earnings from continuing operations attributable to Chemtura for the fourth quarter of 2012 was $27 million, or $0.27 per share, compared with $24 million, or $0.24 per share for the fourth quarter of 2011.
  • The loss from discontinued operations, net of tax attributable to Chemtura for the fourth quarter of 2012 was $7 million, or $0.07 per share, compared with earnings from discontinued operations, net of tax attributable to Chemtura of $10 million, or $0.10 per share for the fourth quarter of 2011. The fourth quarter of 2012, included an impairment charge of $11 million related to certain long-lived assets.

Fourth Quarter 2012 Results - Managed Basis

  • On a managed basis, fourth quarter 2012 gross profit was $152 million, as compared with $151 million in the same period last year. Gross profit as a percentage of net sales decreased to 24% as compared with 26% in the same quarter of 2011. The increase in gross profit was primarily due to higher sales volume and selling prices, primarily offset by unfavorable manufacturing costs and variances.
  • On a managed basis, fourth quarter 2012 operating income was $35 million as compared with $42 million in the same period last year. The decrease in operating income primarily reflected a $6 million true-up in stock-based compensation expense.
  • Adjusted EBITDA in the fourth quarter of 2012 was $75 million as compared with $74 million in the fourth quarter of 2011 (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 lower SGA&R costs after adjusting for stock-based compensation expense. Adjusted EBITDA for the last twelve months increased from $336 million at December 31, 2011 to $367 million at December 31, 2012. Adjusted EBITDA excludes the Antioxidant business which is classified as a discontinued operation.
  • Net earnings before income taxes on a managed basis in the fourth quarters of 2012 and 2011 were $21 million and $27 million, respectively and exclude pre-tax GAAP charges of $16 million and $11 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 sale of business or assets, impairment charges; changes in estimates related to expected allowable claims; legal matters; loss on early extinguishment of debt; gain on liquidated entities and costs associated with our 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. We continued to apply an estimated managed basis tax rate of 28% reflecting the expected performance of our core operations in 2011 and 2012. 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 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 2012 was $107 million as compared with $91 million for the fourth quarter of 2011. Net cash provided by operating activities in the year ended December 31, 2012 was $218 million as compared with $182 million in 2011. After the deduction of net cash used in investing activities, cash flow for 2012 was $78 million compared to $1 million in 2011.
  • Capital expenditures for the fourth quarter of 2012 were $55 million compared with $62 million in the fourth quarter of 2011.
  • Cash income taxes paid (net of refunds) in the fourth quarter of 2012 were $16 million compared with $8 million in the fourth quarter of 2011.
  • During the fourth quarter of 2012, we did not repurchase any of our common stock under our previously announced share repurchase program. From October 7, 2011 through December 31, 2012, we repurchased 3.4 million shares of common stock for a total purchase price of $41 million. As of December 31, 2012, the remaining authorization under the program was approximately $59 million.
  • Our total debt was $876 million as of December 31, 2012 compared to $752 million as of December 31, 2011. On October 31, 2012 we increased our Term Loan by $125 million. Cash and cash equivalents from continuing operations increased to $363 million as of December 31, 2012 compared with $179 million as of December 31, 2011. The change in cash includes the proceeds from the additional Term Loan borrowing.
  • Total debt less cash and cash equivalents from continuing operations of $513 million as of December 31, 2012 decreased $60 million compared to total debt less cash and cash equivalents for continuing operations of $573 million as of December 31, 2011.

Fourth Quarter Earnings Q&A Teleconference

Copies of this release, as well as informational slides, will be available on the Investor Relations section of our Web site at www.chemtura.com. We will host a teleconference to review these results at 9:00 a.m. (EST) on Tuesday, February 26, 2013. 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 86743421.

Replay of the call will be available for thirty days, starting at 10 a.m. (EST) on Wednesday, February 27, 2013. To access the replay, call toll-free (855) 859-2056, (800) 585-8367, or (404) 537-3406, and enter access code 86743421. An audio webcast of the call can be accessed via the link below during the time of the call:

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