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Sale of nylon biz marks historical development, Solutia

28 Jul '09
7 min read

Adjusted EBITDA margins expanded to 24 percent in the second quarter in comparison to 19 percent in the same period in 2008. Sales increased $27 million or 20 percent with Adjusted EBITDA increasing $15 million or 63 percent compared to the first quarter in 2009. This was primarily due to improved volumes and lower manufacturing and SG&A costs, partially offset by a decrease in selling prices.

CPFilms Segment
CPFilms' second quarter 2009 net sales were $54 million, down $17 million or 24 percent from the same period in 2008. Adjusted EBITDA decreased to $14 million for the second quarter of 2009 compared to $22 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 rebounded to 26 percent, in range with historical levels. Sales increased $20 million or 59 percent with Adjusted EBITDA increasing $12 million or 600 percent compared to the first quarter in 2009. This was primarily due to improved volumes, lower manufacturing costs in addition to selling price discipline.

Technical Specialties Segment
Technical Specialties' second quarter 2009 net sales were $190 million, down $85 million or 31 percent compared to the same period in 2008. Adjusted EBITDA held steady at $58 million for the second quarter of 2009 compared to the prior year period, primarily due to improved selling prices and lower raw material and SG&A costs offset by lower volumes and fixed cost absorption. Adjusted EBITDA margins expanded to 31 percent in the second quarter in comparison to 21 percent in the prior year period.

Sales increased $23 million or 14 percent with Adjusted EBITDA increasing $12 million or 26 percent compared to the first quarter in 2009. This was primarily due to improved volumes, and lower raw materials partially offset by a decrease in selling prices.

Unallocated and Other
Unallocated and other losses increased $8 million to $15 million compared to the second quarter 2008, primarily attributable to losses on currency transactions, and lower segment profit from other operations, partially offset by lower corporate expenses.

Leverage and Liquidity
For the second quarter of 2009, the Company reduced net debt by $206 million to $1,108 million and had liquidity of $211 million. Cash provided by continuing operations before reorganization activities less capital expenditures for six months ended June 2009 was $66 million compared to a use of $6 million for the same period for 2008.

The improvement in cash from continuing operations was primarily attributed to lower payments on interest expense, taxes and post-retirement obligations, lower working capital requirements in addition to reduced payout of our employee annual incentive plan, partially offset by higher cash payments on restructuring activities.

"We continue to focus on cash generation, debt reduction and liquidity enhancement during this difficult economic environment," said James M. Sullivan, executive vice president and chief financial officer. "To this end, we took significant steps this quarter to improve our capital structure and strengthen our balance sheet. We successfully completed a public offering of common stock that raised net proceeds of $119 million, which we used to further reduce our debt and for other general corporate purposes."

Outlook As anticipated, Solutia experienced a sequential improvement in earnings in the second quarter of 2009 over first quarter benefiting from some seasonal growth and the completion of downstream inventory destocking; however, overall demand remained relatively soft. Solutia does continue to expect lower volumes for the third quarter compared to the third quarter of 2008 and a modest increase in volumes in the fourth quarter of 2009 principally due to the low volumes experienced in the fourth quarter of 2008.

However, the additional actions taken by the Company to mitigate the weaker demand environment has allowed Solutia to reiterate its Adjusted EBITDA target for 2009 in the range of $325 million to $350 million. Additionally, following the strong cash generation achieved in the second quarter the Company now

Solutia Inc

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