2009 Third Quarter Highlights
Note: See reconciliation tables below for adjustments made to GAAP and discussion of items affecting results.
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"Solutia's record quarterly earnings and margins in the third quarter were attributable to an underlying improvement in sales volumes and aggressive cost reduction actions taken early in the global recession," said Jeffry N. Quinn, chairman, president and chief executive officer of Solutia Inc. "We have now raised the full-year range of Adjusted EBITDA outlook to $350 million to $365 million. The high level of commitment of our organization to continue to meet the needs of our customers while aligning our cost structure to current market conditions has yielded strong results. With industry-leading businesses, Solutia is well positioned for profitable growth as global markets continue to recover."
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Consolidated Results from Continuing Operations
Solutia Inc. (NYSE: SOA) today reported income from continuing operations attributable to Solutia of $29 million for the third quarter of 2009, compared to $21 million for the same period in 2008. These results were impacted by certain events affecting comparability (detailed below) totaling a net loss of $15 million in 2009. After adjusting for these items, income from continuing operations attributable to Solutia of $44 million in the third quarter of 2009 increased $23 million versus the third quarter of 2008. This improvement was primarily due to cost reductions, lower raw material and energy costs, and lower interest expense, partially offset by weakened demand and lower selling prices. For the quarter, Solutia posted basic and diluted earnings per share from continuing operations attributable to Solutia of $0.24, and, as adjusted, earnings per share of $0.37.
Consolidated EBITDA from continuing operations for the third quarter decreased to $99 million on net sales of $448 million from $108 million in the third quarter of 2008 on net sales of $587 million. After taking into consideration adjustments (as detailed below in the consolidated and segment EBITDA and Adjusted EBITDA table), Adjusted EBITDA increased to $119 million from $111 million.
Segment Data
In order to aid understanding of Solutia's business performance, the results of its business segments are presented on an adjusted basis and reconciled to the comparable GAAP measures in the below tables.
Saflex® Segment
Saflex's third quarter 2009 net sales were $182 million, down $39 million or 18 percent from the same period in 2008. Adjusted EBITDA increased to $47 million for the third quarter of 2009 compared to $36 million in the prior year period primarily due to lower raw material and SG&A costs, and improved manufacturing performance, partially offset by volume declines and lower selling prices. Adjusted EBITDA margins expanded to 26 percent in the third quarter of 2009 in comparison to 16 percent in the same period in 2008. Sales increased $22 million or 14 percent and Adjusted EBITDA increased $8 million or 20 percent compared to the second quarter in 2009. This was primarily due to improved volumes, lower raw material and manufacturing costs and improved manufacturing utilization rates.
CPFilms® Segment
CPFilms' third quarter 2009 net sales were $53 million, down $10 million or 16 percent from the same period in 2008. Adjusted EBITDA decreased to $12 million for the third quarter of 2009 compared to $15 million in the same period in 2008, primarily due to lower window films revenue and lower fixed cost absorption, partially offset by reduced SG&A costs. Adjusted EBITDA margins were at 23 percent for the third quarter of 2009 in comparison to 24 percent in the same period in 2008. Sales decreased $1 million or 2 percent and Adjusted EBITDA decreased $2 million or 14 percent compared to the second quarter in 2009. This was primarily due to seasonality in window film sales.
Technical Specialties Segment
Technical Specialties' third quarter 2009 net sales were $209 million, down $85 million or 29 percent compared to the same period in 2008. Adjusted EBITDA decreased to $72 million for the third quarter of 2009 compared $75 million in the prior year period primarily due to lower selling prices, volume declines and lower fixed cost absorption partially offset by lower raw material and SG&A costs. Adjusted EBITDA margins expanded to 34 percent in the third quarter of 2009 from 26 percent in the prior year period. Sales increased $19 million or 10 percent and Adjusted EBITDA increased $14 million or 24 percent compared to the second quarter in 2009. This was primarily due to improved volumes, and higher manufacturing utilization rates, partially offset by a decrease in selling prices.
Unallocated and Other
Unallocated and other losses decreased $3 million to $12 million compared to the third quarter 2008, primarily attributable to lower corporate expenses partially offset by currency transaction losses.
Leverage and Liquidity
For the third quarter of 2009, the Company reduced net debt by $21 million to $1,087 million and had liquidity of $225 million. Cash provided by continuing operations before reorganization activities less capital expenditures for the nine months ended September 2009 was $96 million compared to $42 million for the same period in 2008. The year over year improvement in cash flow was primarily attributed to lower payments on interest, taxes and post-retirement obligations, lower working capital levels and reduced payout on the company's annual cash incentive plan, partially offset by higher cash payments on restructuring activities.
"We continue to focus on cash generation, liquidity and the balance sheet to ensure we have a strong financial foundation upon which the Company can continue to grow and improve its operations," said James M. Sullivan, executive vice president and chief financial officer. "Of particular note, on October 15, we successfully completed a public offering of $400 million of senior unsecured notes due 2017, which, among other things, improves our capital structure and better aligns with our specialty chemical peers. The notes were issued at par and bear an annual rate of interest of 8.75 percent. Net proceeds to the Company after fees and expenses were $391 million, with $300 million used to prepay our senior secured term loan and the remaining balance retained for general corporate purposes. Importantly, in conjunction with this prepayment, Solutia received lender approval for amendments to its Term Loan and Revolving credit agreements which will improve the company's strategic, operational and financial flexibility going forward."
Outlook
Solutia experienced a sequential improvement in earnings in the third quarter of 2009 with overall demand trending up in a seasonally weaker quarter as compared to the second quarter. While a seasonal slowdown is expected in the fourth quarter, the company's current view is that there will continue to be a gradual increase in underlying demand with overall sales in the quarter approximating 2008 levels. Accordingly, Solutia is raising its full-year 2009 Adjusted EBITDA guidance from continuing operations to a range of $350 million to $365 million, and is maintaining its full-year 2009 cash from operations less capital expenditures outlook of approximately $125 million.
Third Quarter Conference Call
The Company will hold a conference call at 9 a.m. Central Time (10 a.m. Eastern Time) on Tuesday, October 27, 2009, during which Solutia executives will elaborate upon the Company's third quarter 2009 financial results.
A live webcast of the conference call and slides will be available through the Investors section of www.solutia.com . The phone number for the call is 888-713-4218 (U.S.) or 617-213-4870 (International), and the pass code is 63976970. Participants are encouraged to dial in 10 minutes early, and also may pre-register for the event at https://www.theconferencingservice.com/prereg/key.process?key=PKB6CQUXQ . Pre-registrants will be issued a pin number to use when dialing into the live call that will provide quick access to the conference by bypassing the operator upon connection. A replay of the event will be available through www.solutia.com for two weeks or by calling 888-286-8010 (U.S.) or 617-801-6888 (International) and entering the pass code 12506617.
The table below is provided to assist the reader with comparability between the third quarter 2009 and the third quarter 2008 by providing consolidated and segment sales, EBITDA(1) and Adjusted EBITDA (2).
Notes to Editor: Saflex and CPFilms are registered trademarks of Solutia Inc. and/or its subsidiaries.
Important Information Regarding Outlook
There is no guarantee that Solutia will achieve its projected financial expectation for 2009 which is based on management estimates, currently available information and assumptions which management believes to be reasonable. Such forward-looking statements are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of which are beyond the control of management. See "Forward-Looking Statements" below.
Forward Looking Statements
This press release contains forward-looking statements, including, but not limited to statements about projected financial performance, which can be identified by the use of words such as "believes," "expects," "may," "will," "intends," "plans," "estimates" or "anticipates," or other comparable terminology, or by discussions of strategy, plans or intentions. These statements are based on management's current expectations and assumptions about the industries in which Solutia operates and Solutia's ability to raise additional funds which is subject to market conditions. Forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that may cause actual results or achievements to be materially different from the future results or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the accuracy of our assumptions, the ability of third parties to finance an acquisition, and those risk and uncertainties described in Solutia's most recent Annual Report on Form 10-K, including under "Cautionary Statement About Forward Looking Statements" and "Risk Factors", and Solutia's quarterly reports on Form 10-Q. These reports can be accessed through the "Investors" section of Solutia's website at www.solutia.com . Solutia disclaims any intent or obligation to update or revise any forward-looking statements in response to new information, unforeseen events, changed circumstances or any other occurrence.
Discontinued Operations
Solutia announced on June 1, 2009, that it sold its Nylon business to an affiliate of SK Capital Partners II, L.P. Effective with the third quarter of 2008, the company began reporting results from its Nylon segment as discontinued operations.
Corporate Profile
Solutia is a market-leading performance materials and specialty chemicals company. The company focuses on providing solutions for a better life through a range of products, including: Saflex® interlayer for laminated glass; CPFilms® aftermarket window films sold under the LLumar® brand and others; and technical specialties including the Flexsys® family of chemicals for the rubber industry, Skydrol® aviation hydraulic fluid and Therminol® heat transfer fluid. Solutia's businesses are world leaders in each of their market segments. With its headquarters in St. Louis, Missouri, USA, the company operates globally with approximately 3,100 employees in more than 60 locations. More information is available at www.Solutia.com
-- Net sales of $448 million, a sequential improvement over second quarter 2009 of 9 percent -- Basic and diluted earnings per share from continuing operations of $0.24; Adjusted earnings per share of $0.37 -- Adjusted EBITDA of $119 million, a sequential improvement over second quarter 2009 of 24 percent and a year-over-year improvement of 7 percent; Adjusted EBITDA margins of 27 percent compared to 19 percent in the year ago period -- Increased Adjusted EBITDA guidance to a range of $350 million to $365 million, up from previously stated target of $340 million to $360 million
SOURCE Solutia Inc.
