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SOLUTIA, INC. Reports Operating Results (10-Q)

July 29, 2009 | About:

SOLUTIA, INC. (SOA) filed Quarterly Report for the period ended 2009-07-28.

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(r) interlayer for laminated glass; CPFilms(r) aftermarket window films sold under the LLumar(r) brand and others; high-performance nylon polymers and fibers sold under brands such as Vydyne(r) and Wear-Dated(r); and technical specialties including the Flexsys(r) family of chemicals for the rubber industry Skydrol(r) aviation hydraulic fluid and Therminol(r) 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 six thousand employees in more than sixty locations. SOLUTIA, INC. has a market cap of $739.2 million; its shares were traded at around $7.85 with a P/E ratio of 21.2 and P/S ratio of 0.4.

Highlight of Business Operations:

On June 1, 2009, we completed the sale of our Integrated Nylon business to an affiliate of S.K. Capital Partners II, L.P. (“Buyer”), a New York-based private equity firm for $50 million in cash, subject to adjustment for changes in working capital, and a two percent equity stake in a new company formed to hold all of the assets and certain liabilities of the Integrated Nylon business, including environmental, employee and pension liabilities of active employees. We will also receive an additional $4 million of cash in four annual installments beginning on September 1, 2011. We used the proceeds from the sale to pay down debt under our $450 million senior secured asset-based revolving credit facility (“Revolver”). Completion of the sale of the Integrated Nylon business completes the transformation of Solutia into a pure-play performance materials and specialty chemicals company.

On June 24, 2009 we completed a public offering of 24.7 million shares of common stock, including the over-allotment option as exercised by the underwriters of the offering, for $5.00 per share. Net proceeds, after deducting underwriting discounts and commissions, of $119 million were used to fully repay our $74 million German term loan and for general corporate purposes.

In the second quarter 2009, we reported sales of $410 million, a 29 percent decrease as compared to $577 million reported in the second quarter 2008. The decrease was driven by lower sales volumes and unfavorable currency exchange rate fluctuations, partially offset by higher selling prices. Our second quarter 2009 gross profit margin of 30 percent, an increase from 18 percent versus the same period in 2008, benefited from execution of significant cost reduction actions identified or initiated in the fourth quarter 2008, better plant performance, lower costs on raw material and energy and the lack of bankruptcy emergence fresh-start accounting impacts realized in the second quarter 2008. Selling, general and administrative expenses were $54 million, or 13 percent of sales as compared to $67 million or 12 percent of net sales in the same period in 2008. The decrease in selling, general and administrative expenses is due to reduced spending resulting from cost containment actions and lower net sales.

In the six months ended June 30, 2009, we reported sales of $749 million, a 31 percent decrease as compared to $1,094 million reported in the same period in 2008, which was driven by lower sales volumes and unfavorable currency exchange rate fluctuations, partially offset by higher selling prices. We reported a gross profit margin of 27 percent, an increase from 20 percent versus the same period in 2008. The increase in our gross profit margin is primarily related to the execution of the aforementioned cost reduction programs, better plant performance, lower raw material and energy costs and the lack of bankruptcy emergence fresh-start accounting impacts. Selling, general and administrative expenses were $104 million, or 14 percent of sales as compared to $131 million or 12 percent of net sales in the same period in 2008. The decrease in selling, general and administrative expenses is due to reduced spending resulting from cost containment actions and lower net sales.

We generated $148 million of cash from operations in the six months ended June 30, 2009 as compared to usage of $437 million in the same period in 2008. The increase is primarily attributable to a lack of reorganization activities in 2009 which required a cash usage of $375 million, primarily to facilitate our emergence from bankruptcy. The remaining increase of $210 million is due to lower payments on interest expense and our postretirement obligations, lower working capital requirements, reduced payout of our employee annual incentive plan and management s focus on monetizing the working capital balances of Integrated Nylon historically required by this business.

The increase in segment profit in comparison to the second quarter 2008 was a result of lower net charges, lower raw material costs of $10 million, effective implementation of cost containment initiatives, which resulted in better plant performance and lower selling, general and administrative expenses, substantially offset by lower net sales, as described above, and lower fixed cost absorption. Segment profit in the second quarter 2009 included a $3 million charge related to the general corporate restructuring and a $1 million charge related to the announced cessation of production of SAFLEX® plastic interlayer at our facility in Trenton, Michigan (“Trenton Facility”). Segment profit in the second quarter 2008 included charges of $24 million resulting from the expensing of the step-up in basis of our inventory in accordance with fresh-start accounting.

Read the The complete ReportSOA is in the portfolios of John Keeley of Keeley Fund Management, Charles Brandes of Brandes Investment.

Rating: 2.8/5 (4 votes)

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