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Chemtura Reports 2009 Q4 Results
PHILADELPHIA -- Chemtura Corporation, debtor-in-possession, (Pink Sheets: CEMJQ) (the "Company" or "Chemtura") reported today that it has filed its Annual Report on Form 10-K for the year ended December 31, 2009 with the Securities and Exchange Commission. This release summarizes the financial results for the fourth quarter of 2009. Chemtura encourages investors to review the Form 10-K for more details of the performance for the year and for more complete disclosures on the Company. For the fourth quarter of 2009, the Company recorded a net loss on a GAAP basis of $89 million, or $0.36 per share, and net earnings on a managed basis of $20 million, or $0.08 per share.
Fourth Quarter 2009 Financial Results
The discussion below includes financial information on both a GAAP and managed basis. The Company presents managed basis financial information as management uses this information internally to evaluate and direct the performance of the Company's 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 |
| | | | | | | | | | | | | 2009 | | | | | 2008 | | | | % change |
| Net sales | | | | | | | | | | | $ | 656 | | | | $ | 690 | | | | (5)% |
| Operating loss | | | | | | | | | | | $ | (30 | ) | | | $ | (726 | ) | | | 96% |
| Net loss attributable to Chemtura | | | | | | | | | | | $ | (89 | ) | | | $ | (690 | ) | | | 87% |
| Net loss attributable to Chemtura – per share | | | | | | | | | | | $ | (0.36 | ) | | | $ | (2.84 | ) | | | 87% |
The following is a summary of fourth quarter financial results on a managed basis:
| (In millions, except per share data) | | | | Fourth Quarter |
| | | | | | 2009 | | | | 2008 | | | | % change |
| Net sales | | | | $ | 656 | | | $ | 690 | | | | (5)% |
| Operating profit (loss) | | | | $ | 52 | | | $ | (27 | ) | | | NM |
| Net earnings (loss) attributable to Chemtura | | | | $ | 20 | | | $ | (35 | ) | | | NM |
| Net earnings (loss) attributable to Chemtura – per share | | | | $ | 0.08 | | | $ | (0.14 | ) | | | NM |
U.S Chapter 11 Cases
* The Company's intent remains to emerge from Chapter 11 as soon as practicable. The receipt of creditors' proofs of claim as of October 30, 2009 (the "Bar Date") and their subsequent evaluation are critical steps towards the development and filing of a plan of reorganization (the "Plan"). The Plan will then provide the framework for the Company's stakeholders to agree upon the terms under which the Company will emerge from Chapter 11. The Plan is subject to confirmation by the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
* On February 9, 2010, the Bankruptcy Court gave interim approval of an Amended and Restated Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (the "Amended and Restated DIP Credit Agreement") by and among the Debtors, Citibank N.A. and the other lenders party thereto. The Amended and Restated DIP Credit Agreement provides for a first priority and priming secured revolving and term loan credit commitment of up to an aggregate of $450 million. The proceeds of the loans and other financial accommodations incurred under the Amended and Restated DIP Credit Agreement were used to refinance the obligations outstanding under the DIP Credit Facility and provide working capital for general corporate purposes. The Amended and Restated DIP Credit Agreement provided a substantial reduction in the Company's financing costs through interest rate reductions and the avoidance of the extension fees that would have been payable under the DIP Credit Facility in February and May 2010. It also provided the Company with more flexibility to operate its business. The Amended and Restated DIP Credit Agreement closed on February 12, 2010 with the drawing of the $300 million term loan and matures on the earlier of 364 days, the effective date of a Plan or the date of termination in whole of the Commitments (as defined in the Amended and Restated DIP Credit Agreement).
* On February 23, 2010, pursuant to the bidding procedures and following the auction process previously approved by the Bankruptcy Court, Chemtura entered into a Share and Asset Purchase Agreement (the "Artek SAPA") with Artek Aterian Holding Company, LLC, a Delaware limited liability company, and its sponsors, Aterian Investment Partners Distressed Opportunities, LP, a Delaware limited partnership and Artek Surfin Chemicals Ltd., an Indian private limited company (collectively "Artek"). The transaction is expected to close in the second quarter of 2010. The Artek SAPA resulted in an incremental $14 million of cash proceeds and favorable sales contract modifications compared to the initial share and asset purchase agreement with SK Atlas, LLC and SK Capital Partners II, LP.
* Net sales of the PVC additives business subject to the Artek SAPA were $236 million in 2009 and $374 million in 2008. Fourth quarter 2009 net sales were $59 million. The business is included in the Industrial Engineered Products segment.
Fourth Quarter 2009 Business Segment Highlights
* Consumer Performance Products' net sales declined 5% or $5 million compared with the fourth quarter of 2008 due to reduced sales volume primarily driven by the deemphasizing of participation in the distribution channel which commenced in the second half of 2008, as well as reduced promotional activities within the specialty and multi-purpose cleaners business. The volume impact was partially offset by the benefit of price increases and the impact of favorable foreign currency translation. Operating profit on a managed basis increased $12 million primarily due to lower raw material and energy costs, the benefit of price increases and reduced operating expenses, partially offset by the impact from the reduction in sales volume. On a GAAP basis, operating profit increased $11 million.
* Industrial Performance Products' net sales declined 7% or $20 million compared with the same period last year driven primarily by reduced sales volume and selling prices. Operating profit on a managed basis increased $25 million primarily due to lower raw material, energy and manufacturing costs, partially offset by the impact from the reduction in sales volume and lower selling prices. The lower sales prices in 2009 reflected the corresponding reductions in raw material costs. On a GAAP basis, operating profit increased $26 million.
* Crop Protection Engineered Products' net sales declined 2% or $2 million compared with the same period last year primarily due to lower prices. Conditions in the global agrochemical market remain challenging due to lower crop commodity prices and restrictions on credit to growers. The fourth quarter relies heavily on southern hemisphere demand. While growers delayed purchasing until later in the season, sales were robust in the later part of the fourth quarter. Operating profit decreased $6 million primarily due to lower sales prices and higher per unit manufacturing costs.
* Industrial Engineered Products' net sales declined 3% or $7 million compared with the same period last year primarily due to reduced prices. The recovery in demand from electronics applications experienced in the third quarter of 2009 continued in the fourth quarter. However, demand from building and construction and consumer durable polymer applications that experienced the most significant declines in demand at the onset of the recession in the fourth quarter of 2008, continued to show modest recovery reflecting the condition of the broader economy. Operating profit increased $37 million from the fourth quarter of 2008 primarily due to lower raw material, energy and manufacturing costs and variances.
* Corporate expense on a managed basis for the fourth quarter of 2009 was $17 million compared with $28 million in the same quarter last year. Corporate expense included amortization expense related to intangibles of $10 million and $13 million for the fourth quarters of 2009 and 2008, respectively. The decrease in corporate expense was primarily related to lower amortization expense, lower pension and other post-retirement benefit plan costs and the favorable benefit of restructuring programs and controls on discretionary spending. On a GAAP basis, corporate expense for the fourth quarter of 2009 was $18 million compared with $27 million in the same quarter last year.
Fourth Quarter Results - GAAP
* Net sales for the fourth quarter of 2009 were $656 million compared with fourth quarter 2008 net sales of $690 million. The decrease in net sales was attributable to reduced sales volumes of $24 million primarily due to the impact of the global economic recession and a reduction in selling prices of $20 million, partially offset by favorable foreign currency translation of $10 million.
* Gross profit for the fourth quarter of 2009 was $175 million, an increase of $64 million compared with the same quarter last year. The increase in gross profit was primarily due to a $72 million decrease in raw material and energy costs, a $30 million impact from favorable manufacturing costs, $3 million from favorable foreign currency impacts and a $1 million decrease in other costs. These impacts were partially offset by $20 million from reduced selling prices, $18 million from the impact of lower volume and unfavorable product mix and a $4 million increase in distribution costs. The lower sales prices in 2009 primarily reflected corresponding reductions in raw material costs. Gross profit as a percentage of net sales increased to 27% in the quarter from 16% in the same quarter last year primarily due to lower product costs.
* The operating loss for the fourth quarter of 2009 was $30 million compared with an operating loss of $726 million for the fourth quarter of 2008. The increase in the operating profit is primarily due to a $658 million decrease in impairment of long-lived assets (2008 included a $665 million impairment of goodwill associated with the Consumer Performance Products, Industrial Performance Products and Industrial Engineered Products segments), a $64 million increase in gross profit discussed above, a $26 million decrease in facility closures, severance and related costs, a $16 million decrease in depreciation and amortization (primarily due to lower accelerated depreciation of property, plant and equipment) and a $5 million reduction in other costs offset by a $73 million charge for adjustments to expected allowable claims primarily related to revised estimates for legal and environmental matters.
* Interest expense of $17 million in the fourth quarter of 2009 was $2 million lower than the same period in 2008. Lower interest expense from not recording contractual interest expense on pre-petition unsecured debt as a result of the Chapter 11 cases was partially offset by an increase due to borrowings under the DIP Credit Facility at higher interest rates than the Company's pre-petition debt.
* Other expense, net was $4 million in the fourth quarter of 2009 compared with expense of $8 million for the same quarter in 2008. The decrease is primarily due to fees in 2008 associated with the amendment and waiver agreement with lenders under the Company's pre-petition credit facility and lower fees associated with the Company's accounts receivable financing facilities (due to its termination), partially offset by unfavorable foreign currency impacts.
* Reorganization items, net of $31 million in the fourth quarter of 2009 represented items realized or incurred by the Company related to its reorganization under Chapter 11. Reorganization items, net includes professional fees directly associated with the reorganization; rejections or terminations of executory contracts and real property leases; gains resulting from the settlement of claims and restructuring initiatives for which Bankruptcy Court approval has been obtained.
* Net loss attributable to Chemtura for the fourth quarter of 2009 was $89 million, or $0.36 per share, compared with a net loss of $690 million, or $2.84 per share, for the fourth quarter of 2008. The increase primarily reflected the $696 million increase in operating profit discussed above; a $4 million decrease in other expense, net; a $2 million decrease in interest expense; a $1 million decrease in earnings attributable to non-controlling interests; and a $1 million gain on sale of discontinued operations in 2009 offset by a $72 million increase in income tax expense; and $31 million in reorganization items, net.
Fourth Quarter Results - Managed Basis
* On a managed basis, fourth quarter 2009 gross profit was $175 million, or 27% of net sales, as compared with fourth quarter 2008 gross profit of $111 million, or 16% of net sales. Decreases in raw material and energy costs along with manufacturing efficiencies were the primary drivers of the increase in margin percentage.
* On a managed basis, fourth quarter 2009 operating profit was $52 million as compared with fourth quarter 2008 operating loss of $27 million. The increase in operating profit primarily reflected the increase in gross profit, primarily due to lower raw material and energy costs and lower depreciation and amortization expense.
* Earnings before income taxes on a managed basis in the fourth quarter of 2009 and the loss before income taxes on a managed basis in the same period of 2008 exclude pre-tax GAAP charges of $113 million and $699 million, respectively. These charges primarily related to costs associated with the impairment of long-lived assets; changes in estimates related to expected allowable claims; the Chapter 11 reorganization; facility closures, severance and related costs; and accelerated depreciation of property, plant and equipment.
* Chemtura's managed basis tax rate of 35% represents a standard tax rate for the Company's core operations to simplify comparison of underlying operating performance during the course of the Chapter 11 cases. The Company has chosen to apply this rate to pre-tax income on a managed basis.
Cash Flows - GAAP
* Net cash provided by operating activities in the fourth quarter was $23 million as compared with net cash used in operating activities of $105 million in the same quarter last year.
* The Company's accounts receivable financing facilities were terminated in the first half of 2009. The balance of accounts receivable sold under the Company's accounts receivable financing facilities was $103 million as of December 31, 2008.
* The reduction in proceeds from the sale of accounts receivable was $211 million in the fourth quarter of 2008. Excluding the effect of accounts receivable financing facilities, net cash provided by operating activities for the fourth quarter of 2009 was $23 million as compared with $106 million in the fourth quarter of 2008. The decrease is primarily due to reductions in cash provided by accounts receivable and inventory. The Company made significant efforts to reduce working capital levels in the fourth quarter of 2008. These efficiencies were maintained in 2009, but 2008 cash flows from operations reflected the significant working capital reduction in that quarter. The fourth quarter of 2009 was also unfavorably impacted by cash payments of approximately $19 million for reorganization items relating to the Chapter 11 cases.
* As of December 31, 2009, the accounts receivable balance of $471 million was unchanged from September 30, 2009. As of December 31, 2008, the accounts receivable balance (before the sale of accounts receivable) was $495 million.
* As of December 31, 2009, the inventory balance was $540 million as compared with $531 million as of September 30, 2009 and $611 million at December 31, 2008. Inventory increased slightly versus September 30, 2009. The decrease from December 31, 2008 was primarily due to inventory reduction initiatives and the reduction in raw material prices.
* Capital expenditures for the fourth quarter of 2009 were $33 million compared with $27 million in the same period of 2008. Capital expenditures for the full year of 2009 were $56 million. The Company currently anticipates capital spending of approximately $120 million in 2010.
* The Company's total debt of $1,430 million as of December 31, 2009 increased slightly as compared with $1,413 million as of September 31, 2009, primarily related to letters of credit issued under the pre-petition credit agreement dated as of July 31, 2007 which is included in liabilities subject to compromise. As of December 31, 2009, $1,175 million of total debt is classified as liabilities subject to compromise. Cash and cash equivalents were $236 million as of December 31, 2009 compared with $228 million as of September 30, 2009 and $68 million as of December 31, 2008.
Chemtura Corporation, with 2009 net sales of $2.5 billion, is a global manufacturer and marketer of specialty chemicals, crop protection and pool, spa and home care products. Additional information concerning Chemtura is available at www.chemtura.com.
