Exhibit 99.1
| 
|
|
|
Press Release |
Contacts:
Investors: | William Kuser | 203-573-2213 |
Media: | Mary Ann Dunnell | 203-573-3034 |
Chemtura Reports Fourth Quarter and Full Year 2006 Results
MIDDLEBURY, CT – February 11, 2007 - Chemtura Corporation (NYSE: CEM; the “Company”) reported today a loss from continuing operations for the fourth quarter of 2006 of $145.9 million, or $0.61 per diluted share, and a loss from continuing operations on a non-GAAP basis of $3.3 million or $0.01 per diluted share. The discussion below includes information on both a GAAP and non-GAAP basis. The Company has presented the non-GAAP financial information because the Company’s management uses the non-GAAP information internally to evaluate and manage the performance of the Company’s operations, and management believes that the non-GAAP financial information provides useful information to investors. A reconciliation of the GAAP and non-GAAP financial information has been provided in the supplemental schedules included in this release.
The following is a summary of the fourth quarter and full year results:
| | Fourth quarter | | Full Year | |
(In millions) | | 2006 | | 2005 | | %
change | | 2006 | | 2005 | | %
change | |
Net sales (a) | | $ | 873.6 | | $ | 876.1 | | — | | $ | 3,722.7 | | $ | 2,986.6 | | 25 | % |
Operating profit (loss) (b) | | $ | (15.6 | ) | $ | (0.4 | ) | NM | | $ | 35.6 | | $ | 55.4 | | (36 | )% |
Loss from continuing operations (b) | | $ | (145.9 | ) | $ | (93.0 | ) | (57 | )% | $ | (218.1 | ) | $ | (184.9 | ) | (18 | )% |
Diluted loss per share from continuing operations | | $ | (0.61 | ) | $ | (0.39 | ) | (56 | )% | $ | (0.91 | ) | $ | (1.04 | ) | 13 | % |
The following is a summary of the fourth quarter and full year 2006 results on a non-GAAP basis as compared with the fourth quarter and full year 2005 results on a pro forma and non-GAAP basis. The pro forma basis reflects the impact of the merger with Great Lakes Chemical Corporation (the Merger) as if it occurred on January 1, 2005, which has been set forth in the supplemental disclosures attached to this press release:
| | Fourth quarter | | Full Year | |
(In millions) | |
2006
| |
2005
| | %
change | |
2006
| | Pro forma
2005 | | %
change | |
Net sales (a) | | $ | 873.6 | | $ | 876.1 | | — | | $ | 3,722.7 | | $ | 3,898.4 | | (5 | )% |
Non-GAAP operating profit (b) | | $ | 29.5 | | $ | 47.7 | | (38 | )% | $ | 260.9 | | $ | 351.4 | | (26 | )% |
Non-GAAP earnings (loss) from continuing operations (b) | | $ | (3.3 | ) | $ | 8.6 | | (138 | )% | $ | 92.1 | | $ | 143.6 | | (36 | )% |
Non-GAAP diluted earnings (loss) per share from continuing operations | | $ | (0.01 | ) | $ | 0.04 | | (125 | )% | $ | 0.38 | | $ | 0.60 | | (37 | )% |
NM = Not meaningful.
(a) Includes $48.3 million for 2005 relating to the Polymer Processing Equipment business that was deconsolidated in April 2005.
(b) Includes $2.3 million ($1.4 million after-tax) and $8.8 million ($5.6 million after-tax) for the fourth quarter and year ended 2006, respectively, which represents the effects of implementing FASB Statement 123R for stock-based compensation.
“Although we have made progress on a number of fronts during 2006 – strengthening our balance sheet, resolving legacy antitrust issues, reshaping our portfolio, and generating cash – fourth quarter and full year results are significantly below our expectations,” said Robert Wood, chairman and CEO. “Most of the underperformance was in Rubber Additives, EPDM Polymers and non-Flame Retardant Plastics Additives. We have taken steps and have gained momentum coming into 2007 by addressing all of these matters with the announced divestiture of Rubber Chemicals and EPDM and the aggressive overhaul of the non-Flame Retardant Plastics Additives business.
“Our mandate for 2007 is clear: Fix non-Flame Retardant Plastics Additives; continue to restructure our portfolio; streamline costs while exploring revenue enhancing opportunities; and continue to strengthen the organization’s talent base and processes. We believe that accomplishing these objectives will create improved earnings and lead to long-term success,” Wood concluded.
Fourth Quarter Results
Fourth quarter 2006 net sales of $873.6 million were less than one percent below fourth quarter 2005 net sales of $876.1 million. The decrease is primarily due to lower sales of $10.4 million related to the sale of the Company’s Industrial Water Additives business (“IWA”) in May 2006 and an $18.1 million decrease in sales volume, which were mostly offset by increased selling prices of $16.1 million and favorable foreign currency translation of $12 million.
The operating loss for the fourth quarter of 2006 was $15.6 million as compared with an operating loss of $0.4 million for the fourth quarter of 2005. The $15.2 million decrease is primarily due to higher raw material and energy costs of $24.7 million, additional depreciation due to the change in the useful life of certain assets at several of the Company’s manufacturing facilities of $7.2 million, higher facility closures, severance and related costs of $9.0 million, the accelerated recognition of asset retirement obligations of $8.8 million, lower sales volume of $7.2 million, $5.8 million of unfavorable manufacturing costs resulting from lower production volumes, an increase in the provision for doubtful accounts of $5.0 million primarily resulting from the depressed economic situation in the agricultural markets in Brazil, $4.2 million costs of other strategic and corporate initiatives, the absence of a $3.2 million gain related to a previously divested business, and inventory write-offs of $3.1 million. These charges were partially offset by a decrease in antitrust costs of $17.1 million, increased selling prices of $16.1 million, reduced merger costs of $16.0 million and cost reduction program savings of $12.8 million. The operating loss also includes $2.3 million ($1.4 million after-tax) related to incremental stock-based compensation expense for the quarter ended December 31, 2006, associated with the adoption of FASB Statement No. 123R, “Share Based Payment,” on January 1, 2006.
The loss from continuing operations for the fourth quarter of 2006 was $145.9 million, or $0.61 per diluted share, compared with a loss of $93.0 million, or $0.39 per diluted share, for the fourth quarter of 2005. The decrease was primarily due to an increase in tax expense of $90.1 million. The Company intends to repatriate cash generated overseas to reduce U.S. debt. Fourth quarter earnings reflect a charge of $123.0 million to establish a deferred tax liability related to this repatriation strategy. Other
2
significant changes to the loss from continuing operations include the $15.2 million decrease in operating profit discussed above and a $3.8 million increase in the negative effect of foreign exchange partially offset by improvements due to the absence of costs for debt retirement in 2006 as compared with debt retirement charges of $44.2 million in December 2005, lower interest expense of $8.2 million and a gain on the sale of the Company’s equity interest in the Davis Standard venture of $5.7 million.
During the fourth quarter of 2006, the Company recorded a gain on sale of discontinued operations of $1.6 million (net of taxes of $0.2 million), or $0.01 per diluted share, related to the sale of the OrganoSilicones business to General Electric Company (“GE”) in July of 2003. This gain represents the reversal of reserves for certain contingencies that the Company no longer expects to incur.
During the fourth quarter of 2005, the Company recorded a gain on sale of discontinued operations of $22.3 million (net of taxes of $7.3 million), or $0.09 per diluted share, primarily due to purchase price adjustments related to the July 2003 sale of the OrganoSilicones business unit and a cumulative effect of accounting change of $0.5 million (net of taxes of $0.3 million), related to the implementation of FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.”
Fourth Quarter Non-GAAP Results
On a non-GAAP basis, fourth quarter 2006 operating profit was $29.5 million as compared with fourth quarter 2005 pro forma non-GAAP operating profit of $47.7 million.
The non-GAAP loss from continuing operations for the fourth quarter of 2006 of $3.3 million or $0.01 per diluted share, excludes pre-tax charges of $18.8 million for antitrust costs resulting primarily from settlement offers and legal fees associated with the antitrust investigations and civil lawsuits, $9.1 million for additional depreciation due to the change in the useful life of certain assets at several of the Company’s manufacturing facilities, $8.8 million related to the acceleration of asset retirement obligations, $7.4 million for facility closures, severance and related costs and a $5.7 million gain on the sale of the Company’s equity interest in the Davis Standard venture. Non-GAAP earnings from continuing operations includes $2.3 million ($1.4 million after-tax) related to the incremental stock-based compensation expense for the quarter ended December 31, 2006, associated with the adoption of FASB Statement No. 123R, “Share Based Payment,” on January 1, 2006.
Non-GAAP earnings from continuing operations for the fourth quarter of 2005 excludes pre-tax charges of $44.2 million for the loss on early extinguishment of debt, $35.9 million for antitrust costs resulting primarily from settlement offers made to certain rubber chemicals, EPDM and indirect class action claimants and legal fees associated with the antitrust investigations and civil lawsuits, $17.2 million for Merger costs, and a $3.2 million gain related to a previously divested business.
Full Year Results
Net sales for the year ended December 31, 2006 of $3,722.7 million were $736.1 million above net sales for the comparable period of 2005 of $2,986.6 million. The increase was primarily due to $855.6 million in additional sales resulting from the Merger, a $62.8 million increase in selling prices and $5.0 million due to favorable foreign currency translation, partially offset by a $108.3 million decrease in sales volume, the absence of $48.3 million of sales due to the deconsolidation of the Company’s Polymer Processing Equipment business in April 2005, $21.5 million due to the divestiture of the IWA business in May 2006 and $9.1 million due to the net effect of other acquisitions and divestitures.
Operating profit for the year ended December 31, 2006 was $35.6 million as compared with $55.4 million for the twelve months ended December 31, 2005. This 36 percent decrease is primarily a result of a $80.3 million charge related to the impairment of non-current assets, higher antitrust costs of $40.4
3
million due primarily to additional settlements throughout 2006, $90.4 million in higher raw material and energy costs, $55.3 million in lower sales volume, $34.4 million in unfavorable manufacturing costs resulting from lower production volumes, $7.3 million in unfavorable currency translation, higher freight costs of $14.9 million related to fuel surcharges, $14.4 million costs of other strategic and corporate initiatives, a net loss on sale of IWA of $12.3 million, an increase in the provision for doubtful accounts of $8.5 million primarily resulting from the depressed economic situation in the agricultural markets in Brazil, inventory write-offs of $8.6 million, $7.7 million due to the absence of operating profit due to the sale of IWA, $8.8 million related to the incremental effect of stock option expense, an increase in depreciation and amortization resulting from a full year of depreciation for the Great Lakes assets, and $15.9 million additional depreciation due to the change in useful lives of certain assets at several of the Company’s manufacturing facilities. These charges were offset in part by $130.2 million of additional operating profit resulting from businesses acquired in the Merger through the first six months of 2006, $62.8 million in higher selling prices, $74.3 million in cost reduction program savings, lower facility closures, severance and related costs of $17.2 million, lower merger costs of $28.2 million, the absence of the write-off of in-process research and development of $73.3 million and purchase accounting inventory adjustments of $37.1 million in 2005 related to the Merger.
The loss from continuing operations for the year ended December 31, 2006 was $218.1 million, or $0.91 per diluted share, compared with the loss from continuing operations of $184.9 million, or $1.04 per diluted share, for the year ended December 31, 2005. The decrease primarily reflects the decline in operating profit discussed above and an increase in tax expense of $35.5 million. The Company intends to repatriate cash generated overseas to reduce U.S. debt. 2006 earnings reflect a charge of $123.0 million to establish a deferred tax liability related to this repatriation strategy. Additionally, these declines were partly offset by a reduction in costs associated with the loss on early extinguishment of debt of $11.1 million, a decrease in interest expense of $5.2 million, a $5.7 million gain on the sale of the Company’s equity interest in the Davis Standard venture as well as $6.3 million of additional equity income generated by this venture in 2006.
For the year ended December 31, 2006, the Company recorded a gain on sale of discontinued operations of $47.5 million (net of taxes of $21.3 million), or $0.20 per diluted share, related to the sale of the OrganoSilicones business to GE in July of 2003. This gain primarily represents the recognition of the additional contingent earn-out proceeds related to the combined performance of GE’s existing Silicones business and the OrganoSilicones business from the date of the sale through September 30, 2006.
Full Year Pro Forma and Non-GAAP Results
Net sales for the year ended December 31, 2006 were $3,722.7 million or 5 percent less than pro forma net sales of $3,898.4 million for the year ended December 31, 2005. Of this decrease $221.6 million was attributable to lower volume, $48.3 million was due to the deconsolidation of the Polymer Processing Equipment business unit in April 2005, an additional $34 million was due to declines in volume and selling prices resulting from supply agreements related to the divestiture of the IWA business in May 2006, $9.1 million due to the net effect of other acquisitions and divestitures and $9 million due to unfavorable foreign currency effects, partially offset by a $146.3 million increase in selling prices.
On a non-GAAP basis, operating profit for the year ended December 31, 2006 of $260.9 million was $90.5 million or 26% lower than pro forma non-GAAP operating profit for the year ended December 31, 2005 of $351.4 million. This decrease is comprised of raw material and energy cost increases of $101.2 million, lower volumes of $83.3 million, $50 million of unfavorable manufacturing costs, $14.9 million of
4
higher freight costs, $14.4 million costs of other strategic and corporate initiatives, $7.3 million of unfavorable foreign currency translation, $8.8 million related to the incremental effect of stock option expense, $7.7 million due to the sale of the IWA business in May 2006, $8.6 million of inventory write-offs, an increase in the provision for doubtful accounts of $8.5 million and other net increases in operating costs, which were partially offset by selling price increases of $146.3 million and synergy cost savings of $74.3 million.
Non-GAAP earnings from continuing operations for the year ended December 31, 2006 of $92.1 million, or $0.38 per diluted share, excludes pre-tax charges of $89.5 million for antitrust costs resulting primarily from settlement offers made to certain rubber chemicals, plastic additives and urethanes civil and indirect claimants and legal fees associated with the antitrust investigations and civil lawsuits, impairment of non-current assets of $80.3 million, a $44.0 million loss on early extinguishment of debt related to the retirement of the Company’s Senior Floating Rate Notes due 2010 and the 9.875% Senior Notes due 2012, $17.0 million for Merger costs, a $12.3 million loss on the sale of the IWA business, $17.8 million for additional depreciation due to the change in the useful life of certain assets at several of the Company’s manufacturing facilities, $8.8 million accelerated recognition of asset retirement obligations and $5.5 million for facility closures, severance and related costs. Also excluded from non-GAAP earnings are a $5.7 million gain on sale of the Company’s equity interest in the Davis Standard venture, a $4.3 million favorable settlement of a contractual matter and $4.0 million of interest income on a favorable tax settlement.
Pro forma non-GAAP earnings from continuing operations for the year ended December 31, 2005 of $143.6 million, or $0.60 per diluted share, excludes pre-tax charges of $23.9 million for facility closures, severance and related costs, which included a charge of $19.5 million related to the closure of the Company’s Tarrytown, NY facility, $45.2 million of merger costs, $49.1 million for antitrust costs, $55.1 million for the loss on the early extinguishment of debt and $4.6 million for direct costs resulting from Hurricanes Katrina and Rita, partially offset by a pre-tax credit of $7.2 million for insurance recoveries related to a fire at the Company’s Conyers, GA facility and a $3.2 million gain related to a previously divested business.
The non-GAAP effective tax rate for the full year 2006 is 35.3%.
Non-GAAP operating profit, non-GAAP earnings from continuing operations and non-GAAP earnings per share from continuing operations are considered non-GAAP financial measures. A reconciliation of the Company’s GAAP operating profit to non-GAAP and pro forma operating profit and of the Company’s GAAP earnings from continuing operations to non-GAAP and pro forma earnings from continuing operations is set forth in the supplemental disclosures attached to this press release.
Fourth Quarter Earnings Q&A Teleconference
Copies of the release as well as informational slides will be available on the Investor Relations section at www.chemtura.com. The company will host a teleconference to review these results on Monday, February 12, at 9 a.m. EST. Interested parties are asked to dial in approximately 10 minutes prior to the start time at (913) 981-5592. Replay of the call will be available for two weeks starting at 12:30 p.m. EST on February 12. To access the replay, call (719) 457-0820 and enter access code 7042015.
Live Internet access to the 2006 fourth quarter conference call will be available through the Investor Relations section of the Company’s Web site.
5
Chemtura Corporation, with 2006 sales of $3.7 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.
###
Supplemental Historical Pro Forma and Non-GAAP Financial Information
Included in the Appendix to this press release are supplemental financial tables containing unaudited pro forma and non-GAAP adjusted Consolidated Statements of Earnings and Segment Operating Profit. The attached schedules reflect adjustments to previously furnished information for changes in depreciation and amortization related to the Company’s fair value adjustment of Great Lakes’ property, plant and equipment and intangible assets. The schedules also reflect certain additional reclassifications to conform the former Great Lakes presentation to the Company’s presentation.
Unaudited Pro Forma Financial Information
The attached unaudited pro forma results of operations for the fourth quarter and year ended December 31, 2005 give effect to the Merger using the purchase method as if the Merger had been consummated as of January 1, 2005. The pro forma unaudited results of operations combine the historical results of operations of the Company and Great Lakes with the following adjustments:
(1) Pension – Represents a reduction in pension expense, principally due to the elimination of the impact of amortization of historical gains and losses from Great Lakes’ historical net periodic benefit cost.
(2) Interest – Represents the impact on interest expense of amortization of the fair value adjustment to Great Lakes’ long-term debt.
(3) Purchase accounting depreciation – Represents the impact on depreciation expense of the fair value adjustment and change in the remaining useful life of Great Lakes’ property, plant and equipment.
(4) Amortization – Represents the impact on amortization expense of the fair value adjustment and change in remaining useful life of Great Lakes’ intangible assets.
(5) Inventory accounting – Represents the impact of conforming Great Lakes’ inventory capitalization policy to a consistently applied method utilized by the Company.
(6) Merger costs – Represents the reversal of merger costs incurred by Great Lakes in connection with the Merger.
(7) In-process research and development costs – Represents the reversal of the write-off of in-process research and development.
(8) Purchase accounting – Reversal of purchase accounting inventory fair value impact.
The unaudited pro forma results of operations do not give effect to synergies and cost savings. The pro forma results of operations do not purport to be indicative of what the actual results of operations would have been had the Merger been completed on the dates assumed or the results of operations that may be achieved in the future.
Conformed Great Lakes
The financial information presented as Conformed Great Lakes in the Appendix reflects reclassifications of historical Great Lakes financial information to conform to the Company’s presentation.
Non-GAAP Financial Measures
The information presented in this press release and in the attached financial tables includes financial measures that are not calculated or presented in accordance with Generally Accepted Accounting Principles in the United States (GAAP). These non-GAAP financial measures consist of adjusted results of operations of the Company that exclude certain expenses, gains and losses that may not be indicative of the core operations of the Company. Excluded items include facility closures, severance and related costs, antitrust costs, Merger costs, asset impairments, increased depreciation due to the change in useful life of assets, unusual and non-recurring
6
catastrophic events or settlements, loss on early extinguishment of debt, and gains and losses on disposition of business units. In addition to the non-GAAP financial measures discussed above, the Company has applied a non-GAAP effective income tax rate to our non-GAAP income before taxes. This rate incorporates an assumed mix of foreign earnings and taxes, permanent book-tax differences, various tax planning strategies and other assumptions. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are provided in the attached financial tables. The Company believes that such non-GAAP financial measures provide useful information to investors and may assist them in evaluating the Company’s underlying performance and identifying operating trends. In addition, management uses these non-GAAP financial measures internally to allocate resources and evaluate the performance of the Company’s operations. While the Company believes that such measures are useful in evaluating the Company’s performance, investors should not consider them to be a substitute for financial measures prepared in accordance with GAAP. In addition, these non-GAAP financial measures may differ from similarly titled non-GAAP financial measures used by other companies and do not provide a comparable view of the Company’s performance relative to other companies in similar industries.
Forward-Looking Statement
Certain statements made in this release are forward-looking statements that involve risks and uncertainties, including, but not limited to, general economic conditions; significant international operations and interests; the outcome and timing of antitrust investigations and related civil lawsuits to which Chemtura is subject; the ability to obtain increases in selling prices; the ability to retain sales volumes in the event of increasing selling prices; the ability to absorb fixed cost overhead in the event of lower volumes; pension and other post-retirement benefit plan assumptions; energy and raw material prices, availability and quality; production capacity; changes in interest rates and foreign currency exchange rates; changes in technology, market demand and customer requirements; the enactment of more stringent environmental laws and regulations; the ability to realize expected cost savings under Chemtura’s cost-reduction initiatives; the ability to successfully execute our portfolio divesture plan; the ability to reduce Chemtura’s debt levels; the ability to successfully integrate the Crompton and Great Lakes businesses, operations and information systems and achieve anticipated benefits from the Merger, including costs savings and synergies; and other risks and uncertainties detailed in filings with the Securities and Exchange Commission by Chemtura or its predecessor companies. These statements are based on Chemtura’s estimates and assumptions and on currently available information. The forward-looking statements include information concerning our possible or assumed future results of operations. Chemtura’s actual results may differ significantly from the results discussed. Forward-looking information is intended to reflect opinions as of the date this release was issued and such information will not necessarily be updated by Chemtura.
7
CHEMTURA CORPORATION
Condensed Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share data)
| | Fourth Quarter | | Twelve Months Ended | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | |
Net sales | | $ | 873,612 | | $ | 876,133 | | $ | 3,722,707 | | $ | 2,986,608 | |
| | | | | | | | | |
Cost of products sold (*) | | 690,966 | | 657,030 | | 2,814,214 | | 2,203,115 | |
Selling, general and administrative (*) | | 91,678 | | 105,308 | | 394,673 | | 333,080 | |
Depreciation and amortization | | 65,890 | | 53,715 | | 214,151 | | 157,822 | |
Research and development | | 16,338 | | 15,261 | | 65,453 | | 51,826 | |
Facility closures, severance and related costs | | 7,395 | | (1,582 | ) | 5,482 | | 22,713 | |
Antitrust costs | | 18,782 | | 35,889 | | 89,534 | | 49,109 | |
Merger costs | | 1,118 | | 17,166 | | 17,010 | | 45,230 | |
In-process research and development | | — | | (2,100 | ) | — | | 73,300 | |
(Gain) loss on sale of businesses, net (*) | | (79 | ) | (3,199 | ) | 12,283 | | (3,199 | ) |
Income related to sale of Gustafson joint venture | | — | | — | | (1,500 | ) | — | |
Impairment of non-current assets | | — | | — | | 80,263 | | — | |
Equity income | | (2,871 | ) | (989 | ) | (4,416 | ) | (1,765 | ) |
| | | | | | | | | |
Operating profit (loss) | | (15,605 | ) | (366 | ) | 35,560 | | 55,377 | |
Interest expense | | 21,614 | | 29,815 | | 102,485 | | 107,701 | |
Loss on early extinguishment of debt | | 133 | | 44,232 | | 44,030 | | 55,091 | |
Other expense, net (*) | | 4,512 | | 4,665 | | 6,427 | | 12,237 | |
| | | | | | | | | |
Loss from continuing operations before income taxes | | (41,864 | ) | (79,078 | ) | (117,382 | ) | (119,652 | ) |
Income tax expense | | 104,034 | | 13,890 | | 100,708 | | 65,198 | |
| | | | | | | | | |
Loss from continuing operations | | (145,898 |
)
| (92,968 | ) | (218,090 | ) | (184,850 | ) |
Earnings from discontinued operations | | — | | 14 | | — | | 2,645 | |
Gain (loss) on sale of discontinued operations | | 1,566 | | 22,345 | | 47,491 | | (3,889 | ) |
Cumulative effect of accounting change | | — | | (546 | ) | — | | (546 | ) |
| | | | | | | | | |
Net loss | | $ | (144,332 | ) | $ | (71,155 | ) | $ | (170,599 | ) | $ | (186,640 | ) |
| | | | | | | | | |
Basic earnings (loss) per common share: | | | | | | | | | |
Loss from continuing operations | | $ | (0.61 | ) | $ | (0.39 | ) | $ | (0.91 | ) | $ | (1.04 | ) |
Earnings from discontinued operations | | — | | — | | — | | 0.01 | |
Gain (loss) on sale of discontinued operations | | 0.01 | | 0.09 | | 0.20 | | (0.02 | ) |
Cumulative effect of accounting change | | — | | — | | — | | — | |
Net loss | | $ | (0.60 | ) | $ | (0.30 | ) | $ | (0.71 | ) | $ | (1.05 | ) |
| | | | | | | | | |
Diluted earnings (loss) per common share: | | | | | | | | | |
Loss from continuing operations | | $ | (0.61 | ) | $ | (0.39 | ) | $ | (0.91 | ) | $ | (1.04 | ) |
Earnings from discontinued operations | | — | | — | | — | | 0.01 | |
Gain (loss) on sale of discontinued operations | | 0.01 | | 0.09 | | 0.20 | | (0.02 | ) |
Cumulative effect of accounting change | | — | | — | | — | | — | |
Net loss | | $ | (0.60 | ) | $ | (0.30 | ) | $ | (0.71 | ) | $ | (1.05 | ) |
| | | | | | | | | |
Weighted average shares outstanding - basic | | 240,700 | | 239,937 | | 240,486 | | 178,404 | |
| | | | | | | | | |
Weighted average shares outstanding - diluted | | 240,700 | | 239,937 | | 240,486 | | 178,404 | |
(*) Certain amounts relating to operations have been reclassified from other expense (income), net to cost of products sold and selling, general and administrative expense in 2005 to be comparable to the 2006 presentation. Additionally, certain amounts related to Witco corporation’s legacy pension and post-retirement benefit obligations and losses on sale of businesses have been reclassified to selling, general and administrative expense and gain (loss) on sale of businesses, net, for the twelve months of 2006 and the fourth quarter and twelve months of 2005.
9
CHEMTURA CORPORATION
Condensed Consolidated Balance Sheets
(In thousands of dollars)
| | December 31,
2006 | | December 31,
2005 | |
| | (Unaudited) | | | |
ASSETS | | | | | |
| | | | | |
CURRENT ASSETS | | | | | |
Cash and cash equivalents | | $ | 95,113 | | $ | 138,556 | |
Accounts receivable | | 342,141 | | 547,857 | |
Inventories | | 660,408 | | 661,617 | |
Other current assets | | 243,560 | | 193,570 | |
Total current assets | | 1,341,222 | | 1,541,600 | |
| | | | | |
NON-CURRENT ASSETS | | | | | |
Property, plant and equipment, net | | 1,147,233 | | 1,192,335 | |
Cost in excess of acquired net assets | | 1,161,235 | | 1,211,459 | |
Intangible assets, net | | 559,023 | | 620,677 | |
Other assets | | 165,259 | | 419,932 | |
| | | | | |
| | $ | 4,373,972 | | $ | 4,986,003 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
| | | | | |
CURRENT LIABILITIES | | | | | |
Short-term borrowings | | $ | 48,118 | | $ | 60,168 | |
Accounts payable | | 284,637 | | 310,485 | |
Accrued expenses | | 436,429 | | 444,336 | |
Income taxes payable | | 53,920 | | 160,700 | |
Total current liabilities | | 823,104 | | 975,689 | |
| | | | | |
NON-CURRENT LIABILITIES | | | | | |
Long-term debt | | 1,063,360 | | 1,309,603 | |
Pension and post-retirement health care liabilities | | 439,924 | | 618,539 | |
Other liabilities | | 329,242 | | 306,775 | |
| | | | | |
STOCKHOLDERS’ EQUITY | | | | | |
Common stock | | 2,522 | | 2,515 | |
Additional paid-in capital | | 3,005,101 | | 2,950,649 | |
Accumulated deficit | | (1,088,432 | ) | (869,873 | ) |
Accumulated other comprehensive loss | | (34,007 | ) | (141,052 | ) |
Treasury stock at cost | | (166,842 | ) | (166,842 | ) |
Total stockholders’ equity | | 1,718,342 | | 1,775,397 | |
| | | | | |
| | $ | 4,373,972 | | $ | 4,986,003 | |
10
CHEMTURA CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands of dollars)
| | Twelve Months Ended | |
Increase (decrease) to cash | | 2006 | | 2005 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net loss | | $ | (170,599 | ) | $ | (186,640 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operations: | | | | | |
Loss on sale of businesses, net | | 12,283 | | — | |
(Gain) loss on sale of discontinued operations | | (47,491 | ) | 3,889 | |
(Gain) loss on sale of equity interest in venture | | (5,729 | ) | — | |
Impairment of non-current assets | | 80,263 | | — | |
Loss on early extinguishment of debt | | 44,030 | | 55,091 | |
Depreciation and amortization | | 214,151 | | 160,602 | |
Stock-based compensation expense | | 13,703 | | 5,001 | |
Provision for doubtful accounts | | 19,793 | | 11,253 | |
Equity income, net of cash distributions | | 2,790 | | (1,528 | ) |
In-process research and development | | — | | 73,300 | |
Cumulative effect of accounting change | | — | | 546 | |
Changes in assets and liabilities, net of assets acquired and liabilities assumed: | | | | | |
Accounts receivable | | 23,462 | | 73,439 | |
Accounts receivable - securitization | | 194,307 | | (104,771 | ) |
Inventories | | 22,487 | | 32,561 | |
Accounts payable | | (33,496 | ) | (60,276 | ) |
Deposit for civil antitrust settlement | | (51,000 | ) | — | |
Pension and post-retirement health care liabilities | | (68,317 | ) | (49,772 | ) |
Other | | 158 | | (91,907 | ) |
Net cash provided by (used in) operations | | 250,795 | | (79,212 | ) |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Net proceeds from divestments | | 196,141 | | 108,809 | |
Acquisitions, net of cash acquired | | (8,842 | ) | 57,397 | |
Merger transaction costs paid | | (8,540 | ) | (16,259 | ) |
Capital expenditures | | (127,999 | ) | (104,365 | ) |
Other investing activities | | 331 | | 5,563 | |
Net cash provided by investing activities | | 51,091 | | 51,145 | |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
(Payments on) proceeds from credit facility | | (414,095 | ) | 383,000 | |
Payments on long-term borrowings | | 497,262 | | (406,498 | ) |
Proceeds on long-term borrowings | | (323,689 | ) | 9,000 | |
Proceeds from (payments on) short-term borrowings | | (16,125 | ) | 35,667 | |
Premium paid on early extinguishment of debt | | (35,703 | ) | (40,657 | ) |
Payments for debt issuance costs | | (5,775 | ) | (2,547 | ) |
Dividends paid | | (48,099 | ) | (35,555 | ) |
Repayment of life insurance policy loan | | (9,854 | ) | — | |
Proceeds from exercise of stock options | | 3,359 | | 75,275 | |
Other financing activities | | (2,017 | ) | (856 | ) |
Net cash (used in) provided by financing activities | | (354,736 | ) | 16,829 | |
| | | | | |
CASH AND CASH EQUIVALENTS | | | | | |
Effect of exchange rates on cash and cash equivalents | | 9,407 | | (8,906 | ) |
| | | | | |
Change in cash and cash equivalents | | (43,443 | ) | (20,144 | ) |
Cash and cash equivalents at beginning of period | | 138,556 | | 158,700 | |
| | | | | |
Cash and cash equivalents at end of period | | $ | 95,113 | | $ | 138,556 | |
Note: The 2005 Condensed Consolidated Statement of Cash Flows have not been adjusted to reflect discontinued operations and thus includes the cash flows of the Refined Products business, which was sold in June 2005.
11
CHEMTURA CORPORATION
Condensed Segment Net Sales and Operating Profit (Loss) (Unaudited)
(In thousands of dollars)
| | Fourth Quarter | | Twelve Months Ended | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
NET SALES | | | | | | | | | |
| | | | | | | | | |
Plastic Additives | | $ | 394,020 | | $ | 363,797 | | $ | 1,604,142 | | $ | 1,156,627 | |
Polymers | | 117,195 | | 126,253 | | 492,021 | | 517,471 | |
Specialty Additives | | 131,781 | | 140,147 | | 555,585 | | 561,090 | |
Crop Protection | | 81,749 | | 82,068 | | 360,134 | | 353,610 | |
Consumer Products | | 115,406 | | 120,964 | | 565,699 | | 261,258 | |
Other (a) | | 33,461 | | 42,904 | | 145,126 | | 136,552 | |
Total net sales | | 873,612 | | 876,133 | | 3,722,707 | | 2,986,608 | |
| | | | | | | | | |
OPERATING PROFIT (LOSS) | | | | | | | | | |
| | | | | | | | | |
Plastic Additives | | $ | 11,978 | | $ | 15,938 | | $ | 102,435 | | $ | 73,466 | |
Polymers | | 14,499 | | 18,671 | | 66,259 | | 94,355 | |
Specialty Additives | | 8,895 | | 19,736 | | 57,520 | | 95,978 | |
Crop Protection | | 7,416 | | 7,850 | | 64,559 | | 82,106 | |
Consumer Products | | 6,683 | | 12,707 | | 70,483 | | 23,215 | |
Other (a) | | 4,544 | | 3,347 | | 15,454 | | 5,208 | |
| | 54,015 | | 78,249 | | 376,710 | | 374,328 | |
| | | | | | | | | |
General corporate expense, including amortization | | (42,404 | ) | (32,441 | ) | (138,078 | ) | (94,698 | ) |
Facility closures, severance and related costs | | (7,395 | ) | 1,582 | | (5,482 | ) | (22,713 | ) |
Antitrust costs | | (18,782 | ) | (35,889 | ) | (89,534 | ) | (49,109 | ) |
Merger costs | | (1,118 | ) | (17,166 | ) | (17,010 | ) | (45,230 | ) |
Purchase accounting - inventory fair value impact | | — | | — | | — | | (37,100 | ) |
In-process research and development | | — | | 2,100 | | — | | (73,300 | ) |
Gain (loss) on the sale of businesses, net | | 79 | | 3,199 | | (12,283 | ) | 3,199 | |
Income related to sale of Gustafson joint venture | | — | | — | | 1,500 | | — | |
Impairment of non-current assets | | — | | — | | (80,263 | ) | — | |
Total operating profit (loss) | | $ | (15,605 | ) | $ | (366 | ) | $ | 35,560 | | $ | 55,377 | |
(a) As a result of the April 29, 2005 contribution of the assets of the Polymer Processing Equipment segment in exchange for a non-controlling interest in the Davis-Standard LLC venture, Polymer Processing Equipment ceased to be a reporting segment of the Company. The Company is recording its proportionate share of the venture’s earnings in Other expense, net.
12
CHEMTURA CORPORATION | | SUPPLEMENTARY SCHEDULE |
Major Factors Affecting Pro Forma Net Sales and Operating Results (Unaudited)
Quarter and twelve months ended December 31, 2006 versus 2005
(In millions of dollars)
The following table summarizes the major factors contributing to the fourth quarter and twelve month changes in operating results versus the prior year pro forma operating results:
| | Quarter Ended December 31, | | Twelve Months Ended December 31, | |
| | | | Pre-tax | | | | Pre-tax | |
| | | | Earnings | | | | Earnings | |
| | | | (Loss) from | | | | (Loss) from | |
| | Net | | Continuing | | Net | | Continuing | |
| | Sales | | Operations | | Sales | | Operations | |
| | | | | | | | | |
2005 * | | $ | 876.1 | | $ | (81.2 | ) | $ | 3,898.4 | | $ | 51.4 | |
| | | | | | | | | |
2005 Facility closures, severance and related costs | | — | | (1.6 | ) | — | | 23.9 | |
2005 Antitrust costs | | — | | 35.9 | | — | | 49.1 | |
2005 Merger costs | | — | | 17.2 | | — | | 45.2 | |
2005 Gain/Loss on disposition of Business | | — | | (3.2 | ) | — | | (3.2 | ) |
2005 Hurricane costs | | — | | — | | — | | 4.6 | |
2005 Conveyors fire insurance recoveries | | — | | — | | — | | (7.2 | ) |
2005 Change in useful life of assets | | — | | 1.9 | | — | | 1.9 | |
2005 Early extinguishment of debt | | — | | 44.2 | | — | | 55.1 | |
| | 876.1 | | 13.2 | | 3,898.4 | | 220.8 | |
| | | | | | | | | |
Higher selling prices | | 16.1 | | 16.1 | | 146.3 | | 146.3 | |
Reduced unit volume/mix | | (18.1 | ) | (7.2 | ) | (221.6 | ) | (83.3 | ) |
Foreign currency impact | | 12.0 | | (0.2 | ) | (9.0 | ) | (7.3 | ) |
Polymer Processing Equipment | | — | | — | | (48.3 | ) | 3.0 | |
Industrial Water Additives divested business | | (10.4 | ) | (1.2 | ) | (34.0 | ) | (7.7 | ) |
Other acquisitions/divestitures | | (2.1 | ) | — | | (9.1 | ) | 2.5 | |
Cost savings | | — | | 12.8 | | — | | 74.3 | |
Higher raw materials/energy costs | | — | | (24.7 | ) | — | | (101.2 | ) |
Unfavorable manufacturing productivity/absorption | | — | | (5.8 | ) | — | | (50.0 | ) |
Higher freight costs | | — | | (1.9 | ) | — | | (14.9 | ) |
Other strategic and corporate initiatives | | — | | (4.2 | ) | — | | (14.4 | ) |
Stock option expense | | — | | (2.3 | ) | — | | (8.8 | ) |
Higher A/R securitization fees | | — | | (1.7 | ) | — | | (4.0 | ) |
Inventory write-offs | | — | | (3.1 | ) | — | | (8.6 | ) |
2005 interest income from tax settlement | | — | | — | | — | | (2.2 | ) |
Lower interest expense | | — | | 8.2 | | — | | 14.6 | |
Increase in provision for doubtful accounts | | — | | (5.0 | ) | — | | (8.5 | ) |
Other | | — | | 4.7 | | — | | (8.3 | ) |
| | 873.6 | | (2.3 | ) | 3,722.7 | | 142.3 | |
| | | | | | | | | |
2006 Accelerated recognition of asset retirement obligation | | — | | (8.8 | ) | — | | (8.8 | ) |
2006 Change in useful life of assets | | — | | (9.1 | ) | — | | (17.8 | ) |
2006 Facility closures, severance and related costs | | — | | (7.4 | ) | — | | (5.5 | ) |
2006 Antitrust costs | | — | | (18.8 | ) | — | | (89.5 | ) |
2006 Merger expense | | — | | (1.1 | ) | — | | (17.0 | ) |
2006 Gain (loss) on sale of business, net | | — | | 0.1 | | — | | (12.3 | ) |
2006 Impairment of long-lived assets | | — | | — | | — | | (80.3 | ) |
2006 Gain on sale of equity interest in Davis Standard venture | | — | | 5.7 | | — | | 5.7 | |
2006 Early extinguishment of debt | | — | | (0.1 | ) | — | | (44.0 | ) |
2006 Favorable settlement of contractual matter | | — | | — | | — | | 4.3 | |
2006 Revision to gain on sale of Gustafson joint venture | | — | | — | | — | | 1.5 | |
2006 Interest income from tax settlement | | — | | — | | — | | 4.0 | |
| | | | | | | | | |
2006 | | $ | 873.6 | | $ | (41.8 | ) | $ | 3,722.7 | | $ | (117.4 | ) |
* Represents the pro forma net sales and pre-tax earnings from continuing operations, giving effect to the Merger with Great Lakes as if it had been consummated as of the beginning of January 1, 2005.
13
CHEMTURA CORPORATION
Non-GAAP Condensed Consolidated Statement of Earnings (Unaudited)
(In thousands, except per share data)
| | Quarter Ended December 31, | | Twelve Months Ended December 31, | |
| | 2006 | | Pro Forma
2005 | | 2006 | | Pro Forma
2005 | |
| | | | | | | | | |
Net sales | | $ | 873,612 | | $ | 876,133 | | $ | 3,722,707 | | $ | 3,898,442 | |
| | | | | | | | | |
Cost of products sold (*) | | 682,189 | | 657,030 | | 2,805,437 | | 2,841,553 | |
Selling, general and administrative (*) | | 91,678 | | 105,308 | | 398,973 | | 443,449 | |
Depreciation and amortization | | 56,770 | | 51,792 | | 196,371 | | 199,527 | |
Research and development | | 16,338 | | 15,261 | | 65,453 | | 65,023 | |
Equity income | | (2,871 | ) | (989 | ) | (4,416 | ) | (2,503 | ) |
| | | | | | | | | |
Operating profit | | 29,508 | | 47,731 | | 260,889 | | 351,393 | |
Interest expense | | 21,614 | | 29,815 | | 102,485 | | 117,111 | |
Other expense, net (*) | | 10,241 | | 4,665 | | 16,129 | | 13,401 | |
| | | | | | | | | |
Earnings from continuing operations before income taxes | | (2,347 | ) | 13,251 | | 142,275 | | 220,881 | |
Income tax expense (benefit) | | 907 | | 4,639 | | 50,224 | | 77,310 | |
| | | | | | | | | |
Earnings (loss) from continuing operations | | $ | (3,254 | ) | $ | 8,612 | | $ | 92,051 | | $ | 143,571 | |
| | | | | | | | | |
Diluted earnings (loss) per share from continuing operations | | $ | (0.01 | ) | $ | 0.04 | | $ | 0.38 | | $ | 0.60 | |
| | | | | | | | | |
Weighted average shares outstanding - diluted | | 240,700 | | 242,616 | | 241,276 | | 239,646 | |
(*) Certain amounts relating to operations have been reclassified from Other expense (income), net to cost of products sold and Selling, general and administrative expense in 2005 to be comparable to the 2006 presentation. Additionally, certain amounts related to legacy Witco Corporation pension and post-retirement benefit obligations have been reclassified to Selling, general and administrative for the three months of 2005 and the fourth quarter and twelve months of 2005.
14
CHEMTURA CORPORATION
Non-GAAP Condensed Consolidated Statement of Earnings (Unaudited)
(In thousands, except per share data)
| | | | | | Non-GAAP | |
| | Quarter Ended | | | | Quarter Ended | |
| | December 31, | | Non-GAAP | | December 31, | |
| | 2006 | | Adjustments | | 2006 | |
| | | | | | | |
Net sales | | $ | 873,612 | | $ | — | | $ | 873,612 | |
| | | | | | | |
Cost of products sold | | 690,966 | | (8,777 | ) | 682,189 | |
Selling, general and administrative | | 91,678 | | — | | 91,678 | |
Depreciation and amortization | | 65,890 | | (9,120 | ) | 56,770 | |
Research and development | | 16,338 | | — | | 16,338 | |
Facility closures, severance and related costs | | 7,395 | | (7,395 | ) | — | |
Antitrust costs | | 18,782 | | (18,782 | ) | — | |
Merger costs | | 1,118 | | (1,118 | ) | — | |
Gain on sale of businesses, net | | (79 | ) | 79 | | — | |
Equity income | | (2,871 | ) | — | | (2,871 | ) |
| | | | | | | |
Operating profit (loss) | | (15,605 | ) | 45,113 | | 29,508 | |
Interest expense | | 21,614 | | — | | 21,614 | |
Loss on early extinguishment of debt | | 133 | | (133 | ) | — | |
Other expense, net | | 4,512 | | 5,729 | | 10,241 | |
| | | | | | | |
Earnings (loss) from continuing operations before income taxes | | (41,864 | ) | 39,517 | | (2,347 | ) |
Income tax expense (benefit) | | 104,034 | | (103,127 | ) | 907 | |
| | | | | | | |
Earnings (loss) from continuing operations | | $ | (145,898 | ) | $ | 142,644 | | $ | (3,254 | ) |
| | | | | | | |
Diluted earnings per share from continuing operations | | | | | | $ | (0.01 | ) |
| | | | | | | |
Diluted weighted average shares outstanding | | | | | | 240,700 | |
Non-GAAP Adjustments consist of the following:
| | Non-GAAP | |
| | | |
Accelerated recognition of asset retirement obligation | | $ | 8,777 | |
Change in useful life of property, plant and equipment | | 9,120 | |
Facility closures, severance and related costs | | 7,395 | |
Antitrust costs | | 18,782 | |
Merger costs | | 1,118 | |
Gain on sale of business | | (79 | ) |
Loss on early extinguishment of debt | | 133 | |
Gain on sale equity interest in Davis Standard venture | | (5,729 | ) |
Pre-Tax | | 39,517 | |
| | | |
Adjustment to apply a non-GAAP effective tax rate | | (103,127 | ) |
After-Tax | | $ | 142,644 | |
15
CHEMTURA CORPORATION
Non-GAAP Condensed Consolidated Statement of Earnings (Unaudited)
(In thousands, except per share data)
| | | | | | Non-GAAP | |
| | Twelve Months | | | | Twelve Months | |
| | Ended | | | | Ended | |
| | December 31, | | Non-GAAP | | December 31, | |
| | 2006 | | Adjustments | | 2006 | |
| | | | | | | |
Net sales | | $ | 3,722,707 | | $ | — | | $ | 3,722,707 | |
| | | | | | | |
Cost of products sold | | 2,814,214 | | (8,777 | ) | 2,805,437 | |
Selling, general and administrative | | 394,673 | | 4,300 | | 398,973 | |
Depreciation and amortization | | 214,151 | | (17,780 | ) | 196,371 | |
Research and development | | 65,453 | | — | | 65,453 | |
Facility closures, severance and related costs | | 5,482 | | (5,482 | ) | — | |
Antitrust costs | | 89,534 | | (89,534 | ) | — | |
Merger costs | | 17,010 | | (17,010 | ) | — | |
Loss on sale of businesses, net | | 12,283 | | (12,283 | ) | — | |
Income related to sale of Gustafson joint venture | | (1,500 | ) | 1,500 | | — | |
Impairment of non-current assets | | 80,263 | | (80,263 | ) | — | |
Equity income | | (4,416 | ) | — | | (4,416 | ) |
| | | | | | | |
Operating profit | | 35,560 | | 225,329 | | 260,889 | |
Interest expense | | 102,485 | | — | | 102,485 | |
Loss on early extinguishment of debt | | 44,030 | | (44,030 | ) | — | |
Other expense (income), net | | 6,427 | | 9,702 | | 16,129 | |
| | | | | | | |
Earnings (loss) from continuing operations before income taxes | | (117,382 | ) | 259,657 | | 142,275 | |
Income tax expense (benefit) | | 100,708 | | (50,484 | ) | 50,224 | |
| | | | | | | |
Earnings (loss) from continuing operations | | $ | (218,090 | ) | $ | 310,141 | | $ | 92,051 | |
| | | | | | | |
Diluted earnings per share from continuing operations | | | | | | $ | 0.38 | |
| | | | | | | |
Diluted weighted average shares outstanding | | | | | | 241,276 | |
Non-GAAP Adjustments consist of the following:
| | Non-GAAP | |
| | | |
Accelerated recognition of asset retirement obligation | | $ | 8,777 | |
Favorable settlement of contractual matter | | (4,300 | ) |
Change in useful life of property, plant and equipment | | 17,780 | |
Facility closures, severance and related costs | | 5,482 | |
Antitrust costs | | 89,534 | |
Merger costs | | 17,010 | |
Loss on sale of businesses, net | | 12,283 | |
Revision to sale of Gustafson joint venture | | (1,500 | ) |
Impairment of non-current assets | | 80,263 | |
Loss on early extinguishment of debt | | 44,030 | |
Gain on sale of equity interest in Davis Standard venture | | (5,729 | ) |
Interest income on tax settlement | | (3,973 | ) |
Pre-Tax | | 259,657 | |
| | | |
Adjustment to apply a non-GAAP effective tax rate | | (50,484 | ) |
After-Tax | | $ | 310,141 | |
16
