Philadelphia, Pennsylvania, USA
February 22, 2017

• Fourth Quarter 2016 GAAP net earnings of $0.34 per diluted share compared to $0.96 for the fourth quarter of 2015
• Fourth Quarter 2016 Non-GAAP net earnings of $0.34 per diluted share compared to $0.44 for the fourth quarter of 2015
• Year ended December 31, 2016 GAAP net loss of $0.24 per diluted share compared to net earnings of $1.98 for the year ended December 31, 2015
• Year ended December 31, 2016 Non-GAAP net earnings of $1.72 per diluted share compared to $1.47 for the year ended December 31, 2015

Chemtura Corporation (NYSE:CHMT) (Euronext Paris:CHMT) (the "Company," "Chemtura," "We," "Us" or "Our") today announced financial results for the fourth quarter and year ended December 31, 2016.  The Company also filed with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2016.  For the fourth quarter of 2016, Chemtura reported net sales of $385 million and net earnings on a GAAP basis of $22 million, or $0.34 per diluted share.  Net earnings on a Non-GAAP basis were $22 million, or $0.34 per diluted share.  For the year ended December 31, 2016, Chemtura reported net sales of $1,654 million and a net loss on a GAAP basis of $15 million, or $0.24 per diluted share.  Net earnings on a Non-GAAP basis were $111 million, or $1.72 per diluted share.

Fourth Quarter 2016 Financial Results

The discussion below includes financial information on both a GAAP and non-GAAP basis.  Later in this release, we explain our Non-GAAP metrics including how each is calculated, why we use the specific metric and the internal controls around our Non-GAAP metrics.  We have provided reconciliations of our GAAP financial information to our Non-GAAP financial metrics in the supplemental schedules attached to this release.  The use of Non-GAAP metrics is not a substitute for GAAP measures and should not be considered as such.

The following is a summary of the unaudited financial results on a GAAP and Non-GAAP basis (a description of our Non-GAAP metrics appears later in this release):

CEO Remarks

"In the fourth quarter, we focused on finishing the year strong and on progressing towards closing the Lanxess transaction," said Craig Rogerson, Chemtura's Chairman, President and Chief Executive Officer.  "We are pleased that our shareholders have overwhelmingly approved the merger with Lanxess and that we have already received a number of regulatory clearances.  The post-closing integration planning is on course and our respective organizations are well positioned to create a stronger, more diverse and higher performing specialty chemical company."

Mr. Rogerson continued, "In the fourth quarter, we were able to continue our strong 2016 performance.  Fourth quarter operating income increased 14% versus the prior year on overall lower revenue.  Sequentially, revenue and operating income were lower for our industrial businesses, which is often the case in the last quarter of the year.  For the full year, excluding the impact of the pension settlement charge incurred earlier in the year and the expenses related to the merger and post-closing integration planning, 2016 operating income increased 36% over our 2015 results."

"Our IEP Segment posted higher fourth quarter revenue and operating income compared to the fourth quarter of 2015," said Mr. Rogerson.  "Higher prices for bromine-based products and increased sales of our polymer co-catalyst products led the way for IEP's year-over-year improvements.  Also, in 2015, IEP's fourth quarter performance was dragged down by charges related to exiting a product line, which did not repeat in the fourth quarter of 2016.  Sequentially, revenue and operating income were lower compared to the third quarter of 2016 due in part to lower bromine sales in the U.S., lower sales of clear brine fluids and seasonally lower fumigant sales.  It is worth noting that sales of flame retardants, such as tetrabrom, into certain electronic applications increased sequentially."

"Our IPP Segment reported lower fourth quarter sales and operating income compared to prior year and sequentially.  Year-over-year declines in IPP sales and operating income are attributable to unfavorable product mix and lower demand across many of our IPP product lines.  We also saw lower prices in certain IPP products compared to last year, as we passed along lower raw material costs to certain of our customers.  In addition, sales prices for urethanes products used in mining and oil and gas applications were lower in the fourth quarter of 2016 compared to last year due to continued weakness in those industries, although we did experience volume growth from new urethane applications in Asia.  Sequential declines in IPP sales and operating income were predominately due to year-end order timing, unfavorable product mix and higher raw material and manufacturing costs."

"For the calendar year of 2016, we delivered on our commitment to increase operating profitability," observed Mr. Rogerson.  "Excluding the first quarter pension settlement charge resulting from the pension annuity transaction and merger and integration costs, 2016 operating profit of $221 million increased by $59 million, or 36% compared to 2015 calendar year operating profit of $162 million.  The improvement was less visible in our earnings per share due to the loss from the pension settlement charge, the merger and integration expenses and the 2015 tax benefit from certain tax credits and the release of valuation allowance which resulted in a lower than normal tax rate for the prior year."

Mr. Rogerson concluded, "Looking ahead, we will continue to work with our Lanxess colleagues to ensure a smooth transition and integration into the Lanxess organization post-closing.  We expect that the transaction will close by the middle of 2017.  We will also continue to execute on our business plan."

Pending Merger Transaction with Lanxess

On February 1, 2017, Chemtura's stockholders voted to approve and adopt the agreement and plan of merger (the "Merger Agreement") we entered into on September 25, 2016 with Lanxess Deutschland GmbH, a limited liability company under the laws of Germany ("Lanxess"), and LANXESS Additives Inc., a Delaware corporation and an indirect, wholly owned subsidiary of Lanxess ("Merger Subsidiary").  The merger remains subject to customary closing conditions.  Assuming timely satisfaction of the remaining closing conditions, we currently expect the merger to close by mid-2017.

Fourth Quarter Overview - GAAP

See tables that follow for a quantitative summary of the components of change by segment between the fourth quarter of 2016 and the fourth quarter of 2015 ("year-over-year") and compared to the third quarter of 2016 ("sequential").

Industrial Performance Products ("IPP")

Our IPP segment delivered lower net sales and lower operating income both year-over-year and sequentially.

Year-over-year, the reduction in net sales was primarily the result of lower volume and lower sales prices.  During 2016, we continued to pass along the benefit of lower raw material costs to certain of our customers where required by contract.  Lower volume and unfavorable product mix in our petroleum additive products, particularly in synthetic lubricants, base stocks and detergents, were partially offset by increased sales of our lower priced intermediate products.  New application demand for our urethane products, particularly in Asia, offset the continued low demand for our urethane products used in mining and oil and gas applications that we experienced all year.  Sequentially, the primary drivers of the decline in net sales were lower volumes and unfavorable product mix.  In the third quarter of 2016, we benefited from additional volume for our inhibitor products due to a temporary shutdown of an Asian competitor's plant.  With production restored, demand returned to normal levels in the fourth quarter, although seasonally lower.  Sales prices showed a modest increase over the previous quarter.

Operating income year-over-year benefited from favorable raw material and distribution costs which were offset by the lower volume and unfavorable product mix and higher costs for manufacturing, inventory adjustments and selling, general and administrative ("SG&A").  Sequentially, the impact of lower net sales, coupled with higher costs for raw material, manufacturing and inventory adjustments in the fourth quarter, reduced operating income.

Industrial Engineered Products ("IEP")

Our IEP segment reported an improvement in year-over-year net sales and operating income.  On a sequential basis, our IEP segment reported lower net sales and lower operating income.

Year-over-year, the increase in net sales was primarily driven by higher sales prices in our Emerald Innovation 3000TM products, as well as in our bromine and bromine-based derivative products.  We saw a significant improvement in volume for our organometallic polymerization co-catalysts and tin specialty products due to increased customer demand, which was offset in part by slower demand for our Emerald Innovation 3000TM product and the reduced demand for our clear brine fluids used in the drilling of deep offshore oil and gas wells that we have experienced all year.  Sequentially, the benefit of increases in sales prices for bromine and bromine-based derivatives and tin specialty products were partly offset by some competitive reductions in sales prices for certain brominated flame retardant products.  Sales volumes benefited from increased demand for tetrabrom which was completely offset by the reduced demand for clear brine fluids, fumigants and bromine and bromine-based derivative products.

Operating income on a year-over-year basis benefited from the higher sales prices and the volume improvement in our organometallic products.  Lower raw material costs in certain products were offset by the higher cost of tin, which in many cases we were able to pass along to our customers under formula-based pricing.  Unfavorable manufacturing and absorption variances in 2016 were offset by the absence of a charge we recorded in the fourth quarter of 2015 related to the discontinuance of a product.  Sequentially, operating income saw slightly higher costs in all categories, offset in part by increased sales prices.

Corporate

Our general corporate expense decreased slightly on a year-over-year basis, with some increase in our management incentive accruals offset by favorable pension and environmental accruals and lower charges for amortization.  Sequentially, general corporate expense remained relatively flat.

During the fourth and third quarters of 2016, we recorded $2 million and $11 million, respectively, of merger and integration costs, which primarily are comprised of legal and other fees associated with the signing of the Merger Agreement with Lanxess and the charge related to the Addivant preferred stock noted below.

Contemporaneous with the execution of the Merger Agreement, we entered into an agreement with SK Blue Holdings, Ltd., and Addivant USA Holdings Corp (collectively, "Addivant") that committed us to surrender our shares of Addivant preferred stock to Addivant along with a cash payment of $1 million in exchange for a modification of a non-compete agreement entered into in conjunction with the sale of our antioxidants business to Addivant in 2013.  Reflecting the terms of this agreement, in the third quarter of 2016, we took a charge of $5 million which is included in the merger and integration costs described above.  The agreement with Addivant also provided for certain other modifications to our continuing supply agreements with Addivant that are contingent upon the completion of the Merger.

Agrochemical Manufacturing Segment

The Agrochemical Manufacturing segment reported lower net sales but operating income was relatively flat both year-over-year and sequentially.

The decrease in net sales was attributable to the change from a supply agreement to a tolling agreement in Brazil implemented earlier in 2016 (which reduced both net sales and cost of sales with no impact on operating profit).  We note that the results include net sales and operating profit related to the non-cash amortization, net of accretion, of a below-market contract obligation that is related to our supply agreements.  These amounts were $9 million, $9 million and $10 million in the fourth quarter of 2016, the fourth quarter of 2015 and the third quarter of 2016, respectively.

Income Taxes

Income tax expense was $14 million in the fourth quarter of 2016 compared with a benefit of $27 million in the fourth quarter of 2015 and expense of $17 million in the third quarter of 2016.  In the fourth quarter of 2015, we released $19 million of certain remaining U.S. federal and state tax valuation allowances as a result of our anticipated improvement in profitability in the U.S. and additional tax benefits were realized from increased utilization of foreign tax credit carrybacks to 2014 and the use of foreign net operating losses which became available due to a change in a foreign country's tax law.  As a result, our 2015 effective tax rate was 11%.  In 2016, our effective tax rate for the year was significantly increased by the tax treatment of the pension settlement accounting arising from the pension annuity transaction in the first quarter of 2016.

For purposes of calculating our Non-GAAP Earnings From Continuing Operations, we have applied a Non-GAAP tax rate of 28%.  The non-GAAP rate reflects adjustments to our U.S. GAAP provision to exclude the tax effects of certain types of income and expense as described in our Non-GAAP Measures policy below.

In the first quarter of 2015, we completed an evaluation based upon the forecast for the full year and we estimated our Non-GAAP tax rate to be 28%.  This rate was subject to fluctuations each quarter due to changes in our forecasted operating results of our continuing businesses, changes in the mix of income between U.S. and foreign jurisdictions and discrete items that are recorded in the periods in which they occur.  As 2015 progressed, we revised down our Non-GAAP rate for the inclusion of credits, deductions and return to provision adjustments but excluded those that directly related to the divestiture of Chemtura AgroSolutions.  In the fourth quarter of 2015, the Non-GAAP tax rate was further reduced for additional tax benefits we obtained.  Based on these adjustments to the effective rate, our Non-GAAP tax rate for the full year of 2015 was 13%.  Due to the reduction of the Non-GAAP tax rate from that used for the third quarter ended September 30, 2015, the resulting Non-GAAP tax provision for the fourth quarter of 2015 was lower than the full year rate.

If we exclude the benefit of the adjustments to our Non-GAAP rate during 2015 for the items discussed above, our estimated Non-GAAP tax rate in 2015 was 28%.  In the first quarter of 2016, we again estimated our Non-GAAP tax rate at 28%.  Each quarter we evaluated whether this estimate should be revised.  As the 2015 adjustments did not reoccur in 2016, our Non-GAAP tax rate for 2016 remained at 28% during the year and the Non-GAAP tax rate for the full year of 2016 was essentially the same as the 28% estimated rate applied during the year.

Cash income taxes paid (net of refunds) for the fourth quarter of 2016, the fourth quarter of 2015 and the third quarter of 2016 were $7 million, $4 million and $13 million, respectively.

Other Highlights

• Net cash provided by operating activities for the fourth quarter of 2016 was $50 million as compared with $42 million for the fourth quarter of 2015 and $43 million for the third quarter of 2016.  The cash contributions made to our pension and post-retirement benefit plans in the fourth quarter of 2016, the fourth quarter of 2015 and the third quarter of 2016 were $3 million, $4 million and $4 million, respectively.
• Net cash provided by operating activities for the full year of 2016 was $137 million as compared with $159 million for the full year of 2015.  The net cash provided by operating activities for the full year of 2016 was after the deduction of the $35 million cash contribution to our U.S. qualified pension plan made following the purchase of the pension annuity contract in the first quarter of 2016 and approximately $9 million in cash merger and integration costs related to the Lanxess transaction.  Excluding these two items, net cash provided by operating activities for the full year of 2016 would have been $181 million.
• Capital expenditures for the fourth quarter of 2016 were $26 million compared with $27 million in the fourth quarter of 2015 and $24 million in the third quarter of 2016.
• Our total debt was $476 million as of December 31, 2016 compared with $511 million as of December 31, 2015.  The decrease is primarily due to a prepayment of $39 million from cash-on-hand in the second quarter of 2016 on our senior secured term loan.  Debt as reported in our financial statements reflected the retrospective change in U.S. GAAP in the first quarter of 2016 to now report debt net of unamortized debt financing costs.
• Cash and cash equivalents were $220 million as of December 31, 2016 compared with $323 million as of December 31, 2015.  The decrease was primarily the result of capital expenditures, shares repurchased under our share repurchase program, the $35 million contribution of cash to our U.S. qualified pension plan in the first quarter of 2016 and a $39 million prepayment against our debt.

Website: http://www.chemtura.com

Published: February 22, 2017