Solutia Reports Fourth Quarter and Full-Year 2010 Results

ST LOUIS, Jan. 26, 2011 /PRNewswire/ --

Fourth Quarter Highlights

• Net sales increased 7% to $489 million from $456 million in 2009
• Basic and Diluted earnings per share from continuing operations of $.36
• Adjusted diluted earnings per share from continuing operations of $.36, down $.09 from the same period in 2009

Full-Year Highlights

• Net sales increased 21% to $1,950 million from $1,618 million in 2009
• Basic and Diluted earnings per share from continuing operations of $.73; Adjusted diluted earnings per share of $1.57, up $.36 from the same period in 2009
• Cash provided by continuing operations less capital expenditures increased 53% to $230 million from $150 million in 2009

Note: See reconciliation tables below for adjustments made to GAAP financial measures and discussion of items affecting results.

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"The year we just completed was a landmark in the development of Solutia as a leading global specialty chemicals and performance materials company," said Jeffry N. Quinn, chairman, president and chief executive officer of Solutia Inc.  "We delivered strong financial results highlighted by significant top-line growth and industry-leading margins, as well as earnings and cash flow that exceeded expectations. We also improved our balance sheet and enhanced our strategic positioning in high-growth markets around the globe through synergistic acquisitions, high-return organic growth projects, and customer-focused innovation."

Fourth Quarter 2010: Consolidated Results from Continuing Operations

Solutia Inc. (NYSE: SOA) today reported income from continuing operations attributable to Solutia of $43 million for the fourth quarter 2010, up $34 million from the same period in 2009.  The fourth quarter of 2009 was impacted by certain events affecting comparability (detailed below), which resulted in net after-tax charges of $45 million.  After adjusting for these items, income from continuing operations attributable to Solutia decreased $11 million as compared to the fourth quarter of 2009.  Adjusted diluted earnings per share for the fourth quarter totaled 36 cents, down 9 cents from the same period in 2009.  Despite higher sales volumes, year-over-year Adjusted diluted earnings per share decreased primarily due to higher raw material costs, depreciation and amortization expense and increased tax expense.  Adjusted EBITDA for the fourth quarter totaled $116 million, down $3 million from the same period in 2009.  

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.

Advanced Interlayers Segment

Advanced Interlayers' fourth quarter 2010 net sales totaled $222 million, an increase of $7 million or 3 percent from the same period in 2009.  Adjusted EBITDA increased $1 million to $50 million for the fourth quarter of 2010 compared to the prior year period.  This earnings increase was primarily due to higher sales volumes supplemented by additional sales volumes attributable to the acquisition of the Vistasolar business and improved manufacturing performance, which more than offset the impact of lower average selling prices and higher raw material costs.

"Advanced Interlayers delivered the segment's best quarterly revenue for the year in the fourth quarter due to Vistasolar sales, which more than offset the extremely strong auto volumes experienced in the same period in 2009.  Fourth quarter 2010 reflected a more normal buy pattern for auto compared to the same period in 2009," said James R. Voss, executive vice president and chief operating officer.  "We continue to invest in our capabilities to meet growing demand and provide cost-effective solutions for our customers around the world, including the increasing number of platforms in the original equipment manufacturer acoustic automotive market."

Performance Films Segment

Performance Films' fourth quarter 2010 net sales totaled $54 million, an increase of $10 million or 23 percent from the same period in 2009.  Adjusted EBITDA increased $1 million to $6 million for the fourth quarter of 2010 compared to the prior year.  This increase was primarily driven by higher sales volumes supplemented by sales volumes attributed to the Novomatrix acquisition, which more than offset increased manufacturing and selling costs.  

"Performance Films experienced success in the architectural market, particularly in large projects, as December delivered the second-best monthly results for architectural in 2010.  The segment continues to partner with large retailers and recently signed a new contract with a major North American retailer to support its current in-store program," said Voss.  "In addition, demand from the electronics sector in Asia continues to be strong as the popularity of high-tech devices, such as electronic tablets and e-readers, continues to escalate."

Technical Specialties Segment

Technical Specialties' fourth quarter 2010 net sales totaled $213 million, an increase of $19 million or 10 percent from the same period in 2009.  Adjusted EBITDA remained consistent at $75 million for the fourth quarter of 2010 compared to the prior year.  Technical Specialties experienced higher sales volumes, which offset higher raw material costs and increased manufacturing costs.

"Technical Specialties continues to experience increased demand for Crystex® insoluble sulfur from the rubber and tire industry and continues to make the necessary investments to meet the needs of our strategic partners and customers," added Voss.  "In addition, we have continued to maximize the value of our other rubber chemical assets through the strategic divestiture of selected assets, further positioning the segment for long-term success."

Unallocated and Other

Unallocated and other expenses reduced Adjusted EBITDA by $15 million, which was a $5 million increase compared to the fourth quarter of 2009, primarily attributed to expenses related to the reinstatement of our annual incentive compensation program.

Full-Year 2010: Consolidated Results from Continuing Operations

Net sales for the full year 2010 were $1,950 million, an increase of 21% as compared to 2009.  Income from continuing operations attributable to Solutia was $87 million in 2010 compared to $62 million in 2009.  These results were impacted by certain events affecting comparability (detailed below) totaling an after-tax charge of $101 million and $67 million in 2010 and 2009, respectively.  After consideration of these items in both periods, adjusted income increased by $59 million, from $129 million in 2009 to $188 million in 2010.  Adjusted diluted earnings per share was $1.57 for the year, up 36 cents from 2009.  Adjusted EBITDA was $504 million in 2010 versus $399 million in 2009.  The increase in net sales resulted from higher volumes (+19 percent) and the inclusion of Vistasolar and Novomatrix results on a partial year basis (+5 percent), partially offset by lower average selling prices and the effect of unfavorable exchange rate fluctuations.  Higher sales volumes were realized across all of our reporting segments due to the strengthening demand across the global automotive and industrial sectors.  The Adjusted EBITDA increase resulted from higher net sales and the impact of acquisitions, partially offset by higher raw material costs and the reinstatement of incentive compensation programs.

Leverage and Liquidity

The Company ended the year with net debt of $1,272 million and liquidity of $466 million.  Cash provided by continuing operations less capital expenditures for the twelve months ended December 2010 was $230 million compared to $150 million for the same period in 2009.  The $80 million year-over-year increase in cash flow was primarily attributed to higher Adjusted EBITDA and lower restructuring payments, partially offset by higher incentive compensation payments, increased growth capital expenditures and higher tax payments on higher Ex-U.S. income.  "Our organizational focus on working capital was clearly evident in our 2010 results.  Although sales increased 21% or $332 million year over year, we were able to generate $16 million of positive cash flow from net working capital," said James M. Sullivan, executive vice president and chief financial officer.  

"Due to continued strong cash generation and our surplus liquidity position, we made a voluntary repayment on our Term Loan of $50 million in the fourth quarter and an additional $50 million pay down in January 2011, bringing the total debt reduction since June 30, 2010 to approximately $130 million," said Sullivan.  "Moving forward, we anticipate additional voluntary debt repayments in line with our objective to reduce the company's gross debt to Adjusted EBITDA to approximately two times."

Early 2010 refinancing activities extended maturities, reduced interest expense, and enhanced the company's strategic and operating flexibility.  In addition, the combination of targeted funding and favorable asset returns narrowed the company's frozen U.S. post-retirement obligations by approximately $100 million.  "The great strides made on the balance sheet have positioned Solutia very well to take advantage of the attractive growth opportunities that lie ahead," added Sullivan.

Outlook

"A combination of actions, including strategic deployment of capital – particularly in the rapidly growing Asia-Pacific region – has created the opportunity for continued strong momentum and earnings growth for Solutia in 2011," said Quinn.  As previously announced, in 2011, Solutia expects to generate revenue in the range of $2.1 to $2.2 billion, achieve Adjusted EBITDA in the range of $560 million to $600 million and deliver Adjusted EPS from continuing operations in the range of $2.00 to $2.25.  

Fourth Quarter Conference Call and Video

In an effort to enhance communications, Solutia has created a supplemental video available on its website and YouTube channel that focuses on the automotive market growth and recovery as well as other key drivers affecting quarterly earnings, available prior to the quarterly conference call.

The company will hold a conference call at 9:00 a.m. Central Time (10:00 a.m. Eastern Time) on Thursday, January 27, 2011, during which Solutia executives will elaborate upon the company's fourth quarter and full-year 2010 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 888-713-4209 (U.S.) or 617-213-4863 (international), and the passcode is 53788504.  Participants are encouraged to dial in 10 minutes early, and also may pre-register for the event by clicking here or from our investor webpage.  Pre-registrants will be issued a pin number to use when dialing into the live call that will provide quicker access to the conference.  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 passcode 36735744.

Important Information Regarding Outlook

There is no guarantee that Solutia will achieve its projected financial expectation for 2011 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.

The tables below are provided to assist the reader with comparability between the three months ended December 31, 2010 and comparable period in 2009 by providing consolidated and segment sales, EBITDA (1) and Adjusted EBITDA (2).

Use of Non-U.S. GAAP Financial Information and Reconciliation to Comparable GAAP Number

For the purpose of this press release, the company has used certain financial measures such as EBITDA (defined as earnings from continuing operations before interest expense, loss on debt extinguishment, income taxes, depreciation and amortization, less net income attributable to non-controlling interests), Adjusted EBITDA (to include EBITDA and exclude certain gains and losses that affect comparability, cost overhang associated with the sale of our Integrated Nylon business and the shutdown of the Primary Accelerators business, and non-cash stock compensation expense) and Adjusted Earnings Per Share, that are not determined in accordance with generally accepted accounting principles in the United States  (GAAP).  The company believes that these non-GAAP financial measures are useful to investors because they facilitate period-to-period comparisons of Solutia's performance and enable investors to assess the company's performance in the way that management and lenders do.  Our debt covenants and certain management reporting and incentive plans are measured against certain of these non-GAAP financial measures.  Reconciliations of these measures to GAAP measures are included immediately below.  

We are unable to reconcile our Adjusted EBITDA projections to comparable GAAP numbers because of the difficulty in predicting adjustments that would be required such as, but not limited to, income taxes, depreciation, amortization and other items.

Notes to Editor:  SOLUTIA and Radiance Logo™ and all other trademarks listed below are trademarks of Solutia Inc. and/or its affiliates.

Forward Looking Statements

This press release may contain forward-looking statements, 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.  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, 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.

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® polyvinyl butyral interlayers for glass lamination and for photovoltaic module encapsulation and VISTASOLAR® ethylene vinyl acetate films for photovoltaic module encapsulation;  LLumar®, Vista™, EnerLogic™, FormulaOne®, Gila®, V-KOOL®, Huper Optik®, IQue™, Sun-X™ and Nanolux™ aftermarket performance films for automotive and architectural applications; Flexvue™ advanced film component solutions for solar and electronic technologies; and technical specialties products including Crystex® insoluble sulfur, Santoflex® PPD antidegradants, Therminol® heat transfer fluids and Skydrol® aviation hydraulic fluids. 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 3,400 employees in more than 50 worldwide locations. More information is available at www.Solutia.com.

SOURCE Solutia Inc.

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