Susannah Livingston - VP of IR and Communications
Jeff Quinn - Chairman, President and CEO
Jim Voss - EVP, Global Operations
Jim Sullivan - EVP and CFO
Lucy Watson - Jefferies
David Begleiter - Deutsche Bank
Frank Mitsch - BB&T Capital Markets
Douglas Chudy - KeyBanc Capital Markets
Laurence Jollon - Barclays Capital
Solutia Inc. (SOA) Q4 2009 Earnings Conference Call January 28, 2010 10:00 AM ET
Good day, ladies and gentlemen, and welcome to the Q4 2009, Solutia, Inc. earnings conference call. My name is [Kiyana] and I will be your operator for today. At this time all participants are in a listen-only mode. (Operator Instructions).
I would now like to turn the call over to Ms. Susannah Livingston, Vice President of Investor Relations and Communications. You may proceed.
Good morning to everyone. We are pleased that you have taken the time to join Solutia's fourth quarter conference call. Jeff Quinn, Solutia's Chairman, President and Chief Executive Officer; Jim Voss, Executive Vice President, Global Operations; Jim Sullivan, Executive Vice President and Chief Financial Officer are with me this morning.
First, I would like to remind you that we are webcasting this call which you can access through our website solutia.com. Also we'll be using presentation materials today which are posted on the website along with the press release issued last night announcing fourth quarter results.
In addition, Solutia's Form 10K will be filed within a couple of weeks. If you would please turn to slide two, during this call management may make forward-looking statements. These statements are based on management's current expectations and are subject to change. Our actual results may differ materially.
Please read our commentary on forward-looking statements at the end of our press release or the statements in our quarterly and annual SEC filings. Our prepared remarks today include references to non-GAAP financials in our discussions of earnings. For reconciliation of our non-GAAP measures to GAAP figures, please see the schedules in our earnings release and contained in the slides today. Also just to be clear, we define EBITDA as earnings from continuing operations before interest, taxes, depreciation, amortization, non-controlling interest and reorganization items. Adjusted EBITDA is EBITDA including certain gains and charges and stock-based compensation expense.
Now let me turn the call over to Jeff.
Thanks, Susannah, and thanks to each of you for joining us this morning for our quarterly earnings call. As Susannah said, with me this morning are two key members of our executive team; Jim Voss, our Executive Vice President of Global Operations; and Jim Sullivan, our Chief Financial Officer. I want to begin by discussing some highlights from the year and the quarter before I hand it over to Jim Voss, who would talk about the state of our end markets, review some of our management initiatives for 2010. And then Jim Sullivan will provide a more detailed review of the numbers for the quarter and talk about our expectations for 2010. After which, I'll provide some closing remarks and then we'll open it up for your questions.
As set forth on slide four, this past year Solutia was faced with many challenges and changes. At the onset of 2009, we realized we were heading into a year fraught with challenging market conditions and quickly made very tough decisions to implement aggressive cost reductions, and containment programs. We shifted to a linear corporate structure, changed our employee compensation programs, reduce capital spending, and strategically aligned our manufacturing footprints.
Even facing depressed market conditions, we completely sell the Nylon business, which marked a significant milestone for the company and marked the completion of our transformation into a pure-play performance materials and specialty chemicals company. Signs of recovery in our end markets progressed favorably throughout the year as we expended sequential revenue improvements in each quarter and year-over-year EBITDA improvement in the third quarter and now finally here in the fourth quarter both year-over-year revenue in EBITDA improvement.
All this advanced events coupled with the exceptional leadership of the man and women of Solutia lead to a year with record EBITDA margins in spite of one of the worst economies in my history in business. During this time, we do not lose sight of our balance sheet and we continue to improve our capital structure through paying down debt, extending maturities and generating cash, which lead to a reduction of net debt of approximately $315 million.
Many of you on the call today were super supportive in the two equity offerings and the bond deal that we did during 2009, and we really appreciate that support. We will continue to work hard through the year to prove that your faith in us was justified.
In summary, we took the final steps in our transformation and became the company we were meant to be, a world-class leader in specialty chemicals and performance materials. At Solutia, we not only survive but thrive during these turbulent times.
Turning to slide five for some more detailed financials. When I spoke at our conference back in December, I mentioned that we expected to be at the high-end of our guidance or above, and as this slide depicts, we not only met that promise but exceeded it.
We ended the year with adjusted EBITDA of $386 million, remarkably close to 2008, in a year where sales were down 21%. Our EBITDA margins for the year ended at 23%, as I mentioned before, a record for Solutia.
As you can see, we're not merely succeeding, but we're exceeding our own high expectations. The path to this point has not been easy, but the progress is clear. If we would look for a moment at the left hand chart and compare 2005 and 2009, you would note that remarkably our revenue for those two years was the same, as a result of the recession this year, depressing sales. But look at the right hand part of the chart. In 2009, we made $386 million in EBITDA compared to $265 million in 2005, a 46% increase. EBITDA margins went from less than 16% to over 23% during that period. Again, the path has not been easy, but the progress we have made is indeed clear.
On slide six you will note, our fourth quarter performance which can not go and mention. This quarter was an inflection point, the first time this year, where both revenue and EBITDA were favorable year-over-year with net sales of $470 million up 10% and up 5% sequentially, adjusted EBITDA of $115 million was up 60% year over year, but downslide sequentially by 3%.
In addition, we recorded an adjusted EPS of $0.43 a share, excluding a certain charges, which Jim Sullivan will cover shortly. This is an encouraging to us in light of the fact that the fourth quarter has historically been our weakest quarter due to the seasonality in some of our businesses.
Now turning to slide seven, to drill a bit deeper on some of the highlights for the quarter. Volumes improved 13% compared to 2008 and sequentially by 3%. In fact, the fourth quarter was our highest revenue quarter for 2009, which again is unusual given the seasonality. Asia was again an integral part of the results for the quarter, especially in Crystex, CPFilms and Saflex all of which reported increasing volumes over last year and in most cases sequentially as well. In addition, Saflex again experienced positive growth, in the automotive sector, CPFilms experienced record sales in Brazil and strong demand in Australia in window films driven by efforts to offset seasonality.
Importantly, as our end markets have improved over the near term, so too have our manufacturing run rates through the year, we ended the year with a total Solutia utilization rate, in the mid 70's, a tremendous improvement over the 54% that we experienced at the beginning of the year. The continued recovery of the automotive markets, the successful implementation about cost reduction programs, and a lower raw material cost profile have resulted in another quarter with top of the industry margins of 24.5%. By all measures, it was an excellent quarter in a piviotable year. Through perseverance, resilience, and reorganization, as well as the ongoing commitment to operational excellence, we have positioned our businesses for growth in the coming year.
I'd now like to turn the call over to Jim Voss, but with a brief introduction first. Some of you've had the opportunity to meet Jim; he travelled with Jim Sullivan in May on the bond road show like last year. Jim is our Executive Vice President of Global Operations. Jim worked for me at Premcor, but I come here to Solutia and then joined us here at Solutia in March of 2005, as Senior Vice President of Business Operations at the time. In that role he was responsible for many of the functions that directly supported our business such as ES&H, HR, IT and Procurement.
Then he became President of Flexsys, which was part of the Technical Specialty segment in 2007. You may recall, you know after Jim Sullivan and his team had done, a nice job of completing that acquisition, Jim Voss was given the task of integrating it into Solutia and then running it. I think the results that reflect speak for themselves, had it not been for the strong performance of that business, the emergence from bankruptcy would have been a much different story. After we emerged in 2008, Jim Voss remained the technical specialist business segments, as well as taking over late in the year to sort of notice the Nylon business along until we could sell it. And then in January of this year January '09, I made a management change and put all three business segments under Jim's leadership, really due to the need to restructure our global operations, to prepare for growth, and importantly to drive strong cost reduction programs and best practices across the entire company.
Jim has been the driving force behind our restructuring and cost savings efforts and also our efforts to improve manufacturing efficiency. Jim has been a great partner for Jim Sullivan and me, and the business leadership team that he has put together with Tim Wessel running Saflex, Mike Donnelly running Technical Specialties and Ray Kollar running CPFilms is and will continue to perform at a very high level.
I think the Solutia's business leadership is in the best shape. It's been in the history of our company. Jim, however, does not want to be complacent or rest upon his past accomplishments, so I'll turn it over Jim now, and he can give you a little peak of what lies ahead. Jim?
Hey, thanks a lot Jeff, and it's great to be here. I will briefly touching our end markets efficiency and organizational restructuring actions, as well as update you on our businesses. First, our end markets and businesses here on slide number nine. On the left side of the slide is the exposure we have to our various end markets. You will note our exposure to automotive ended the year at 54%.
There is no doubt that automotive volumes were challenged in 2009, but demand improved each quarter throughout the year, not to mention our exposure to the replacement market, which is important to both Saflex, and Technical Specialties, provided stability.
On the OEM side, global automotive builds are showing signs of stability with an improvement of 9% from quarter three to quarter four and is evidenced by the recent release of JD Power's forecast, will hold this level of production with 63.5 million global builds in 2010, and an increase of 8%. Interestingly this year was a pivotal year fro automotive, as China has overtaken the U.S as the worlds largest automotive production market with 12.4 million units manufactured in 2009, a growth rate of 46%.
Our local footprints that we established back in China back in 2007 with the Suzhou Saflex plant, is an integral part of us maintaining our leadership and success in this world area. The construction market represents 20% of our revenue, with almost 80% of this being commercial construction and the remaining residential. As we have been saying all year, we continue to expect this market to be challenged and we do not expect much of recovery in 2010. However, PVB growth has historically outperformed construction trends due to the impact of codes, regulations and design trends. In addition, Saflex architectural volumes continue to improve in Asia as volumes were up 3% for the year, an important point as Asia is one of the most dynamic segments in the world.
Just as important, we recognized the value of the global push for energy generations from renewable sources and energy conservation. We expect this drive will benefit all of our divisions. Therminol, our heat transfer fluid experienced tremendous growth serving the solar market with sales four times that of 2008, CPFilms is well positioned to benefit as stimulus fund proceeds or spent with products that are 10 times less costly than window replacements. And despite 2009 being a challenging year for the Photovoltaic market, Solutia's growth was inline with expectations with a growth rate of over 300%. In fact, we just launched a 2nd Generation Encapsulant for the Photovoltaic market. This product, PA41, significantly reduces encapsulant thickness, and therefore model unit cost, while providing the same performance and durability.
Moving on to slide number 10, as Jeff has said in the past, 2009 was about operational reorganization, building our foundation for growth, and some near term enhancements to cash flow generation.
To wrap up the year, let me review the results from our global reorganization and cost reduction program. We ended the year spending $44 million on capital expenditures, a reduction of $54 million over 2008. Our SG&A cost reduction initiatives and efforts to better align our manufacturing footprint to the global demand profile has played out well in 2009, as we have established a new and sustainable low cost base. Our 2009 initiatives to streamline the organization and leverage certain centralization efforts was quite successful and will carry over and be the bedrock for our growth strategies in 2010 and beyond.
Due to the success of these actions, we ended the year with cash savings of $190 million over 2008, and EBITDA savings of $140 million. Obviously, this was a good success, and this should be directly attributed to the men and women of Solutia. This was a very detailed and deliberate plan designed for short term gains, and most importantly, long term sustainability. Globally, the entire organization executed at a very high level.
Managing working capital has continued to be a focus as well. We have remained disciplined in our effort to control our inventory levels, as sales volumes have improved. For the year, our DSO improved by two days, despite the increase in trade receivables and DOH improved by 11 days. As our balance sheet continues to improve, so will our payable terms.
Let's move onto slide 11. Though we had a short focus in cost in 2009, we did not loose sight of our gross strategies or our product innovation plans. In Saflex, we began investing capital at the end of last year in order to significantly expand our capacity of high performance products. One example is our Ghent, Belgium acoustic interlayer expansion, which will support the growing demand of architectural and automotive markets. In fact, our Silent Glass Technology product was just awarded first place by US Glass Magazine in its annual Product of the Year contest.
In addition, we will continue to focus our technology programs on encapsulants for the fast growing area of Photovoltaic. In CPFilms, driving awareness of our films benefits is an important factor to success. Importantly, in the fourth quarter we increased product channels through relationships with dealers, specifically at the GMs prep site in Brazil and in Mexico. Selling into the touch screen electronic display and energy markets, will also support CPFilms strategy for growth.
In Technical Specialties, we have steadily increased our investment in technology in order to accelerate our pipeline of new products by Crystex's high dispersion and high temperature stability. In addition, we will continue to focus on high growth applications related to energy conservation in the Therminol business.
Commercialization early this year of the new Skydrol PE-5 product will not only meet, but exceed the needs of major airframe manufacturers and the next generation of aircraft. In summary, as we entered 2010, our team remains focused on a long term opportunities that drive value and growth for our shareholders, our customers and our employees.
Our market leading brands set the standard for their industries, and our world class infrastructure and ingenuity enable us to better serve our customers. All of this coupled with our relentless focus on safety, operational execution and cost discipline, position Solutia to continue to deliver exceptional financial results, as we move forward.
Now I'd like to turn the call over to Jim Sullivan, our Chief Financial Officer Jim.
Thanks Jim. Good morning to everyone. I will begin my discussion with Solutia's consolidated sales and earnings from continuing operations and then breakdown our results by reporting segment. I will conclude with comments on cash flow, debt, liquidity in our 2010 full year outlook.
To enhance transparency and highlight the key underlying trends of our business, we have adjusted reported EBITDA in all periods to exclude certain charges and gains, as well as stock based compensation. Slide 13 details the items excluded in our calculation of adjusted EBITDA.
During the fourth quarter, we took several accounting charges related to our ongoing restructuring and portfolio enhancement activities. Including a $9 million charge for severance and retraining cost associated with our company wide cost reduction program, $3 million related to the consolidation of our CPFilms manufacturing and distribution activities in Europe and $1 million charge associated with the previously announced closure of our Ruabon Wales facility.
We also recorded a non-cash pension settlement charge of $5 million in the quarter. As communicated last quarter, this charge is driven predominantly by headcount reductions associated with our 2009 restructuring actions.
We also recorded a $3 million net gain on the sale of our Thiurams business. Turing to slide 14, here we bridge the company's sequential and year-over-year quarterly movements in sales. Compared to the third quarter, sales were up 22 million or 5%, volumes were up 3%, average selling prices were about flat and currency accounted for the remaining 2% sequential improvement.
Year-over-year net sales were up 41 million or 10%. As expected, the fourth quarter was our inflection point for year-over-year top line growth. Volumes were up 13%, currency movements boosted the top line by 4% and average selling prices were down 7%.
Slide 15 bridges our fourth quarter adjusted EBITDA of $115 million. Versus the third quarter, adjusted EBITDA was only down $4 million or 3%. Increased manufacturing and SG&A cost were partially offset by higher sales volumes, improved average selling prices and modestly higher manufacturing utilization rates.
The sequential increase in our manufacturing and SG&A cost was to a large extent driven by items, which are not expected to repeat going forward. We will discuss this in more detail as we review the business segment results shortly. Year-over-year adjusted EBITDA was up $43 million or 60%. Higher sales and production volumes, lower raw material cost, and an improved manufacturing and SG&A cost structure were partially offset by lower average selling prices.
Now let's turn to our business segment starting on slide 16, with Saflex. Fourth quarter sales for this business totaled $215 million, the highest quarterly level of the year, and up 18%, compared to the third quarter.
Volumes were up 15%, average selling prices were flat, and currency translation accounted for the remaining 3% improvement. As anticipated, automotive related volumes were up sequentially once again in the fourth quarter with Europe and Asia regions being the strongest.
Our new acoustic product offering continues to outpace the overall market and OEM rates, in fact for the year auto acoustic volumes were up 10% over 2008, despite the decline in global auto production.
The introduction of our Saflex, Q series acoustic products for Automotive Heads-Up Display is just one example. This new application has a single focused virtual image near the front of the vehicle and provides improved sound attenuation in the car cabin for consumers.
Architectural volumes were also up sequentially about 4%, mainly in the European market. We continue to see robust demand for our architectural acoustic products and the new capital project to expand 3.2 meter acoustic production at our Ghent, Belgium manufacturing facility is well on its way with expected completion later this year.
Saflex delivered a new record adjusted EBITDA of $49 million in the quarter, up $2 million or 4% versus the third quarter. Sequentially higher volumes offset a higher raw material cost profile and some higher costs in the manufacturing and SG&A areas comprising several one-off items including a bad debt provision and inventory reserve increase and some higher employee related costs.
Production variances were also less favorable than in the previous quarter as we managed down our inventory levels during the fourth quarter. However, the structural cost improvements implemented earlier in the year were maintained as volumes returned, allowing the business to achieve a very solid EBITDA margin of 23% for the quarter.
Year-over-year fourth quarter sales for Saflex were up $27 million or 14%. Volumes increased 15%, average selling prices were down 6% and favorable currency movements accounted for the remaining 5%.
Sales volumes were up in both architectural and automotive product lines, but to a much greater degree in automotive and especially in Asia. Prices were lower versus the fourth quarter of '08 as the increases implemented in 2008 were challenged in the first half of the 2009 due to the weaker demand profile over that period.
Solar energy volumes continue to trend up on a year-over-year basis and were in line with our targeted growth rate. For the year solar revenue totaled $20 million, a $15 million or 75% increase over 2008.
Versus the fourth quarter of 2008, Saflex adjusted EBIDA was up $16 million or 48%. Strong volume recovery from last year and an improved overall cost profile more than offset the impact from lower average selling prices.
Truly a remarkable year for Saflex. Despite at 16% decrease in revenue, adjusted EBITDA increase $18 million or 13% and EBITDA margins improved to a record 23% from 17% in 2008.
CPFilms results are summarized on slide 17. Net sales for this business totaled $44 million in the quarter, down $9 million or 17% compared to the third quarter. The sequential volume decline was primarily driven by normal, low seasonal demand for window film during the winter months. However, strong sales volumes we're achieved in South America and Asia. CPFilms fourth quarter adjusted EBITDA totaled $5 million, down $7 million versus the third quarter, again due to seasonally lower volumes. CPFilms adjusted EBITDA margin for the quarter was 11% versus the primary year quarter CPFilms sales were up $4 million or 10%. All of the year-over-year improvement was volume related and was mainly driven by window film sales in the Americas and in Asia, as well as precision coating sales for electronic applications in the US
Adjusted EBITDA was up $3 million on improved volumes and lower raw material cost. While there was positive sequential progression of the business for CPFilms across the year, total year result fell well below 2008 levels and frankly leaves much room for improvement going forward. As Jim Voss mentioned we have exciting new product and geographic growth opportunities in this business.
We are also very well positioned from an asset perspective to handle new business, which we believe will eventually flow from government stimulus money earmarked for improving energy efficiency in government buildings, low income housing and public schools.
Turning to slide 18, Technical Specialties net sales for the quarter totaled $208 million, about flat with the third quarter. Crystex volumes were at the highest level of the year in the fourth quarter. The continued strength of this product line was offset by seasonally slower sales on the fluids products lines and lower sales of other rubber chemicals. The sales of other rubber chemicals is expected to continue to trend lower as we wind down our inventory positions on the materials previously manufactured at our Ruabon, Wales; and Cologne, Germany; facilities.
Adjusted EBITDA for the third quarter totaled $71 million, down $1 million versus the third quarter adjusted EBITDA for the fourth quarter, I should say totaled $71 million down, $1 million versus the third quarter mainly due to higher manufacturing startup cost and as we brought back online our Monongahela Crystex plant and we incurred higher legal costs associated with the defense of our PPD technology patents. These cost increases were mostly offset by improved raw material costs and increased manufacturing utilization rates, as the business positioned itself from an inventory standpoint to handle an increased demand environment in 2010.
Technical Specialties' adjusted EBITDA margin in the quarter was 34%, reflecting the current significant operating leverage and attractive incremental margin profile in the segment. Year-over-year sales in Technical Specialties were up 14 million or 7%. Overall volumes were up 13%, currency was up 3%, partially offset by average selling prices being down 9%. Again Crystex was the main driver of the volume improvement, though all business performed solidly versus last year. The decrease in pricing is mainly attributable to Santoflex and the other rubber chemicals product lines.
Technical specialties suggested EBITDA was up $28 million compared to the fourth quarter of 2008. Higher sales and production volumes, lower raw material costs and improved overall cost structure more than offset the impact from lower average selling prices. Very strong results for the year in this segment with revenue down 24%, adjusted EBITDA was up $12 million or 5%, and EBITDA margins increased to a record 32%, versus 23% in 2008.
Moving on to slide 19, here we highlight our results for unallocated and other reporting segment. Total net expense in the quarter for this segment was $10 million, down $2 million versus third quarter, but up $4 million versus last year.
The corporate spending component of this segment was flat with the third quarter and down $3 million versus the year ago period. Currency fluctuations on working capital and other balance sheet exposures were positive this quarter, but not to the extent they were in the fourth quarter of 2008. Also miscellaneous expense items in the quarter netted to $1 million, as compared to $3 million of miscellaneous income in the prior year period.
Importantly, for the year corporate spending was down $12 million or 23%, as the company streamlined its corporate business processes without the Nylon division in the portfolio.
Cash generation and debt reduction continue to be key focus areas for our company. Slide 20, details the company's 2009, operating and investing cash flows by quarter. For the quarter, cash provided by continuing operations less capital expenditures totaled $59 million. Sequentially, cash generation was up primarily due to tight controls over our working capital positions. Total working capital as a percentage of sales dropped to 19% in the fourth quarter, compared to 23% at the end of the third quarter and 20% at the end of 2008.
Cash interest in the quarter was down slightly versus the third quarter, because our senior unsecured notes have different interest payment period than our term loan. Importantly, as we have entered the last month of this quarter, as we entered December, our cash position was so strong that we opportunistically use that position to make a voluntary contribution into our US Pension Plan.
This as we came out of the third quarter was not contemplated. We contributed $39 million, which reduced our 2010 pension contribution by a similar amount. So, you may recall, when we talked to you in the past about 2010 pension being around $70 million, it will be down by similar amount for this year.
Capital spending in the quarter totaled $17 million higher than the third quarter rate, as we move forward in earnest on a Saflex Q series acoustic conversion at our Ghent, Belgium plant. We ended the year with cash from continuing operations less capital expenditures of $155 million, well exceeding our guidance of $125 million coming out of the third quarter. This strong result was achieved even after that $39 million voluntary pension contribution.
Turning to discontinued operations, cash flow was a use in the fourth quarter at $15 million, which included a final working capital true up on the Nylon sales transaction. Offsetting the discontinued operations cash outflow in the quarter were two favorable non-free cash flow items. We've receive $6 million of cash form the sales of miscellaneous assets, most notably our Thiurams, other rubber chemicals business.
And we also received $9 million of cash from a restricted escrow account that was established at the time we sold our 50% interest in (Inaudible) to ICL in 2005. This cash was released out of the escrow due to a settlement of the remaining outstanding flame on this business.
Moving on to slide 21, here we summarize our debt profile. We ended the quarter with net debt of $1.49 billion, down $59 million from the third quarter on a pro forma basis after taking in to consideration the new senior unsecured notes and the credit agreement amendment that was executed in October.
The fourth quarter debt position was comprised of $876 million on the term loan, $16 million of other short term foreign debt and $400 million on the unsecured notes, netted against the $243 million cash position. Our quarter ended with $363 million of global liquidity.
Briefly, in reference to our term loan financial covenants as of December 31, the maximum leverage covenant, which is calculated on gross debt basis remained at 4.5 and our actual performance was 3.23. The maximum leverage covenant will remain at 4.5 through the end of 2010. The minimum fixed charge coverage covenants remains at a 1.15 versus our actual performance as of the end of the year of 2.7. Overall, a very impressive fourth quarter and full year in 2009.
Now, let's move to our 2010 outlook on slide 22. As we begin the New Year, overall demand levels are holding steady to slightly improving on a sequential basis. We continue to expect sales volumes in the aggregate to be relatively similar to the back half of 2009, of course adjusting for the wind down of other rubber chemical sales coming out of our Ruabon Wales and COLOGNE, Germany facilities.
Overall, based on our current outlook, we expect sales to be up in the range of 5 to 10% in 2010 compared to 2009. We do expect some pricing pressure, as several of our key markets are still operating at relatively low manufacturing utilization rates.
In addition, as we've stated in the past, we will be reinstating some employee incentive programs during 2010, and we estimate we will bring back about $25 million to $30 million of cost. However, as revenue and production levels increased, we will leverage our improved cost structure to maintain or modestly improve our industry leading EBITDA margins. Overall, we expect adjusted EBITDA in the range of $415 million to $455 million, and cash from continuing operations less capital expenditures in the range of $100 million to $150 million.
Our cash guidance is slightly lower than 2009 actual, notwithstanding higher EBITDA. This is mainly due to an increase in working capital as sales volumes improved, modestly higher capital expenditures, higher foreign tax payments on the increased earnings, as well as the environmental remediation spending. As we have stated in the past, environmental remediation spending in 2008, and really to a large extent in 2009, was funded by a restricted cash account. This account was depleted late 2009, so, in 2010, environmental remediation spending, which we estimate to be around $25 million, will be funded out of cash from operations.
With that, I will turn it back to Jeff for some closing remarks, Jeff.
Thanks, Jim. A few final comments before we open it up for your questions. First, turning to slide 24, as I mentioned during our last quarterly call, we believe our portfolio is weighted heavily towards growth. During our current long-range planning cycle, the two films businesses will deliver the majority of top-line growth for Solutia. These businesses share many similar attributes in market leadership, innovation and cost advantage. They will provide this earnings growth and revenue growth over the next three years.
Crystex and our other specialty fluids businesses are core businesses with strong cash flow contributions to support our growth. They too share quality leadership in their respective industries and the global manufacturing equipment to serve our customers worldwide.
Finally, as we had demonstrated this year, we will continue to actively manage our portfolio to address businesses that do not meet our growth and earnings expectations.
As we've been stating all year on the road and at conferences and depicted on slide 25, our portfolio has changed dramatically over the last six years that I've had the pleasure of being the CEO here at Solutia. Our focus is continue to involve over these years as the company has transformed, but this year out of necessity due to the economic meltdown, our focus has been on our cost base to right size our businesses.
We have not lost sight of the growth and ingenuity that will move us to the next level and secure our place, as one of the leading performance materials and specialty chemical firms in the world. We have one of those strongest portfolios in this space, as evident by our year-end EBIDA margins of 23%.
We believe we are well positioned to deliver outstanding financial results for our shareholders as we move forward, and we have positioned ourselves for growth both internal and external in the coming year. We have taken the pivotal steps in our company's transformation and to become a world class leader in specialty chemicals and performance materials. 2009 represents a new era for Solutia.
In many ways we now have completed the reorganization and transformation that we started way back in December 2003, when we initiated the bankruptcy process. The period time really began in the third quarter in 2008 through 2009 was bit of a detour, but now we are aware we were meant to be, I think the best is yet to come, the future is bright and 2009 represent a significant period for Solutia. The men and women in this organization have constantly risen to challenges that they have been faced with over the last six years and I believe once again, we are up to the challenge and will be successful in our endeavors.
Now, I'd like to turn the call back over to Susannah and to open it up for question and answers. Thanks.
Thanks, Jeff. (Operator Instructions). Our first question comes from the line of Laurence Alexander of Jefferies. You may proceed.
Lucy Watson - Jefferies
Hi this Lucy Watson on for Laurence today.
Lucy Watson - Jefferies
I guess you gave us a figure of $20 million in sales on in Saflex for [solar] in 2009. Do you have the total revenues from products into the solar market for 2009 and what are your expectations in 2010?
The solar revenue Lucy in 2009 was $20 million. So it increased approximately $15 million over what we achieved in 2008. If you look at 2010 what we've always said is kind of by the end of 2010, leading into 2011 we ought to be at that $15 million to $20 million square meter rate, which would be approximately $75 million to $100 million of sales. That's the guidance that we put out there. So if you just look at 2010 going from $40 million to that $75 million to a $111 million, I would expect it to be kind of in the middle of the range. Now, that's just Saflex. We of course, as you know, have sales in to solar in our other segments, in particular in 2009 Therminol had a very strong solar sales with their liquid going into the concentrating solar powers systems and then in CPFilms as well. So overall if you look at the revenue across the portfolio, in solar in 2009 we would estimate that to be probably closer to $75 million to $85 million and growing from there substantially over the next several years.
Lucy Watson - Jefferies
Okay. And then both what percent of the sales mix do you expect electronics to compose for CPFilms in 2010 and should the new applications that you are targeting affect the seasonality at all in that business?
No, it's a different seasonality Lucy than what we would see in window films. The window films clearly has the slowest season in the winter months and especially given the fact that right now our sales base is largely, not largely but significantly North American we're growing outside of North America rapidly and as we do that especially in some of the warmer regions of the world, I think that seasonality will improve. In terms of electronics. A different type of business, I don't know that we are yet at a point where we could say that there is pattern one way or another. What we can tell you is, we're growing off a small base right now but very, very rapidly. We talked to you in the past about our films being on the Kindle reader. We're looking at other applications and the team is very, very excited about that going forward.
I don't think we are at a point where we want to start breaking down CPFilms revenues into each of the product lines and frankly I don't even have the number in front of me. But it is a relatively small number compared to the total in 2009 but rapidly growing.
Lucy Watson - Jefferies
Okay, great and what are your expectation for price in Technical Specialties going forward?
The way we think about pricing as we discussed in our outlook, we see some pricing pressure in a few points in the portfolio and Technical Specialties in particular, in other rubber chemical and the PPD or Saflex product line. We would expect to see a little bit of pressure there. As we entered 2010, frankly things are going pretty well so for. So, we'll monitor that very closely. We are the world leader in our Saflex product line. And are focused primarily in the western markets but we're going to do what we have to do, to protect our market. And as you know in 2009, we had to give away a little bit of price but as with all of our price in working with our customers, we focused on the values that we bring, not in the price but in the service and I think we've had good success in demonstrating consistently over a period of time that in doing that we deserve a premium to the market.
Yeah. And losing those businesses now in Crystex and the two fluids businesses obviously with the quality differential and the market share differential relative to PPDs and ORCs, we'll have an improved ability to maintain and increase price as demand in those businesses remain strong.
Thanks you. Our next question comes from the line of David Begleiter of Deutsche Bank. You may proceed.
David Begleiter - Deutsche Bank
Jeff and Jim on Crystex, are you seeing any pressure yet from rising raw materials? And what's the potential to raise selling price, if you do see rising pressure from, Voss?
Yeah. This is Jim Voss. I think, we've seen the little bit of rise in raw material prices but again I think we haven't seen any pressure at all in terms of, from the market perspective. The demand is starting to come back. As we go into this year, we're pleased with what we're seeing. And I think the position we have round the globe as well, we have seven manufacturing plants in Crystex around the world. Our closest competitor has one, so not only do we have some long-term contracts for sulfur in places but we have several locations that we get the raw material from. So we feel pretty good there.
And Dave you'll remember, as we experienced technology back in 2008, especially in times of increasing raw material cost in the Crystex business that changes the dynamics and makes our product even more competitive, because our processes tend to be more efficient in our competition. And we have the quality and certainty of supply that we're able to provide our customers that gives us a better value equation for our customers during periods of turbulence in the marketplace.
So you remember what we did in 2008 when that happened, and I believe going forward our experience will be the same, and if you forgotten that was a three price increases, I think in 2008, so that was in pretty good demand time. So we might not be able to match that record but certainly, we continue to look for ways of capturing a more fair sharing of the value that Crystex creates for our customers.
David Begleiter - Deutsche Bank
Understood. And just on the other rubber chemicals Jeff, what's the timeline for this repositioning to occur for Santoflex and the other businesses?
Dave, I think you'll remember last year, you know, we said sort of over the next 12 to 18 months and I am quite confident if still sticking with that timeframe, you know, that we gave. So, that probably means in 2010, we should see real movement there, because we've burnt, a period of those 18 months already right, but I think that 2010 will be an important and pivotable year in terms of working through that portion of our portfolio.
David Begleiter - Deutsche Bank
And for Jim Sullivan, Jim, what's the potential to refinance the term loan in 2010?
Well, I think, David based on our very strong performance in '09 and our expectations from '10; I would expect that we will continue the credit profile continues to improve. Our access to capital on the markets are good. We have cash interest rate on the term loan of about 7.25. If I look at the trading comps for companies similar situated, I believe that there is a real good opportunity there to bring down the rate and provide a nice payback and internal rate of return to our shareholders. So, we're evaluating that and as we always do, we'll continue to look at the capital structure and what make sense for the company. We have many final decisions, but clearly that looks to be an opportunity for us early in 2010.
Our next question comes from the line of Frank Mitsch of BB&T Capital Markets. You may proceed.
Frank Mitsch - BB&T Capital Markets
There was some commentary with respect to automotive bills in 2010 being materially up from 2009, I was wondering if you could take a moment or two, and talk about what you might be seeing sequentially in the first quarter versus where you ended the year on the fourth quarter? And if you could take a tour around the world in terms of where you would anticipate to see better strength for your business geographically?
Okay. I think maybe just talk a little bit about global demand that as we see it person in the businesses and maybe go back and talk a little bit about regionally. I think in Saflex, we've seen the year start very much like it ended with demand profile here in January being very close to what happened in December, which would translate to a nicer increase year-over-year from last January in Saflex. In Technical Specialties, we have seen a nice continuation of improvement overall as we moved into January in both Crystex and PPDs. We maybe in the fluids businesses they are always kind of dependent upon the timing of fields and what not and I think maybe in January there was one project (Inaudible) slip that might make January be a little bit off on volumes. But that is just timing, so but Flexsys volumes are up, the rubber chemical volumes are up as we begin the year, which is really good, because December was a huge month for Crystex, especially in Asia and then, you know, in CPFilms I think we see, a nice continuation and improvement of volumes there as we got [new year].
You know, we've strengthened Asia and then in all world areas, but specifically in Asia. So, I think overall, we are seeing the same type of continued sequential improvement that we experienced in 2009 where things getting a little bit better, slowly but surely, generally I think it's a fair statement to say that that growth and that improvement is led by Asia with nice pockets of things, no of growth in the rest of the world areas, but really in Asian, Asian led growth.
Frank Mitsch - BB&T Capital Markets
Okay. And you know as I look at your, as I look at your guidance for 2010 on the adjusted EBITDA line, if you annualized the fourth quarter, which I guess traditionally is not the strongest quarter for Solutia, but if you annualized that you actually come up with the number above the top end of the other range. Now I know that you have some added cost that are added back in but would you anticipate coming off of the level of activity from the fourth quarter, it doesn't sound like that's happening at least here in the first quarter?
No, but we see that not happening, we see, there is that $30 million or so of additional costs that we anticipate being added by again this year for incentive programs and 401(k) math and some of those things you can't, we don't think we can do without forever, So that is significant, and then as you look at 10, you look at volumes being continuing to kind of stay, kind of looking a little bit like a back-half of nine and maybe slight improvement. We'd see a little bit of some sales price pressure perhaps, or a little of that and maybe some raw materials, so we believe that the guidance is certainly where our expectations are, and humanely achievable, but we did, it does take into account that is barely significant, year-over-year delta of the incentive programs and certainly we are intent on maximizing profitability and will be pushing towards the top end of that guidance and beyond as market conditions allow us to.
Our next question comes from the line of Douglas Chudy of KeyBanc Capital Markets. You may proceed.
Douglas Chudy - KeyBanc Capital Markets
I just want to start off, Saflex pricing declines seem to accelerate here a little bit during the quarter. Can you talk about, may be, where that's coming from and what type of trends you see heading in to 2010?
Yeah, Doug. Saflex, the price pressure that we saw was really mostly in the first half of the year, we had, you may recall we had implemented some price increases across 2008 in the back half of 08 and that did fall away to a large extent in the first half of '09, as we were confronted with an extremely weak demand environment, especially in the first quarter and on the auto side in particular, but things firmed up in the back half of the year. We're not all of the way through our negotiation process. As you know, we started the negotiation in the fourth quarter of the prior year, and that means we'll conclude to a large extent by the end of the first quarter of this year.
What we said there is, there is going to be pockets where we're going to have there, where you can see some price I think. Overall utilization rates in the market are still pretty low, but we're really focused again as, is trying to find ways to mitigate that and we had good success in the past and we talked about that, its product mix, introducing the premium products, there we talked about the acoustic products and focusing on those areas that we can truly add value. So on our basic rate products, I see a little bit of pressure, but on the mix basis, the team has really done a nice job over the year 2009 in mitigating that pressure through improved mix and I would expect they'll continue to do that in 2010.
Douglas Chudy - KeyBanc Capital Markets
Okay. Thanks Quinn and I guess taking a little bit longer term view; in the past you suggested that longer term EBITDA margins potential could be for the portfolio could be inside the 23 to 24% range. You seemed to achieve the low-end much sooner than expected and done so on a pretty difficult environment. Do you think the longer term, say next three to five years of margin potential for the businesses may be shifted upwards a little bit?
I think that, we all were jumping on that one there. I'll say we did achieve a break through in our cost structure and the change we made in our management structure has opened a lot of doors for us. And so we did achieve those type of margins before may be our own expectations. Certainly we had absolute, steadfast dedication to not letting that erode. As we worked through the portfolio some of those businesses that may be don't meet our expectations will be weeded out. That will have the natural mathematical can result of opening our overall EBITDA margins. We believe that, that is something that truly makes Solutia special, that margin profile. And our challenge and a challenge that we readily embrace is growing the company with those types of EBITDA margins. So I can assure you that, yeah our own goals and expectations and aspirations is to continue to push that margin profile, but at the same time balance that by growing the top line.
Douglas Chudy - KeyBanc Capital Markets
Okay thank you, that's helpful. And I guess just one last question more of a clarification. I mean you talked about winding down the other rubber chemicals. In terms of guidance does that assume it's completed in 2010 and may be just remind us kind of aside for that other rubber chemicals business?
Yeah other rubber chemicals in 2009, I want to say is roughly $120 million, $125 million of revenue.
Douglas Chudy - KeyBanc Capital Markets
I would say the range is little bit broad there, as you know 5to 10% and I think within that range we would expect some tweaking of the portfolio. I would expect coming out of 2010 to make some progress there but I don't think we're anticipating all of that $120 million to $125 million of revenue going away in 2010.
I think there frankly are some positions there that are pretty good positions and while they may not be [code] of the company unless we can find somebody who will value those positions, we'll take the cash flow. The one business that's in there that is challenged and I know the team is working real hard on is our primary accelerator business, and we'll see how that progresses across the year. But, it's a focus area for the company.
Our next question comes from the line of Laurence Jollon of Barclays Capital. You may proceed.
Laurence Jollon - Barclays Capital
Good afternoon. The first question Jim Sullivan following up on the question earlier on, on potential refinancing. Were you referencing potentially re-pricing the term loan, just given the high rates, or were you referencing potential bond deal, the term out portion of the term loan or any NOL options?
No, I think any NOL options Laurence, I do think that directionally over a longer-term basis, the company would like to see its senior secured debt be a little bit lower than it is now right, you can accomplish that through additional bonds or you can frankly our EBITDA is going to grow into that nicely in 2010. But, no, I think we are looking at all of that and it could be the term loan and we could take the term loan down a little bit with a bond. We are evaluating all of our alternatives that way.
Laurence Jollon - Barclays Capital
Okay, great. And then a little bit of a maintenance question Jim. It looked like your R&D and other expenses in the quarter was actually $4 million of the income, typically it's an expense. Was there any something one-time (Inaudible)?
Yeah. Laurence, R&D expense runs approximately $3 million on a quarterly basis and in the fourth, we incurred approximately $5 million of one-time gains that were classified as other income and included on the face of the income statement in that line item, R&D and other operating expenses. Now these items included the gain of approximately $4 million on the Therminol or I'm sorry in the Thiurams sale and a $1 million of gains related to CPFilms property related to that consolidation and restructuring that I spoke of.
Both of these items are included in our schedule of adjustments for the quarter, although the amount recorded on our adjustment schedule is different than these amounts due to the expenses associated with these actions, which are reflected in COGS and SG&A. So, it's kind of a geography thing. We got $5 million of gains running through that line that you see on the face of the statement, and we've got some losses, if you will, in SG&A and COGS. But on our cost schedule, we've netted it all together, so it's a net number. The CPFilms consolidation was a net of $3 million, and a gain on the Thiurams disposition was netted as well and that's a gain of $3 million. I don't know if that make sense.
Laurence Jollon - Barclays Capital
That's very helpful. Thanks a lot, Jim.
Okay. I think that we're out of time unfortunately and in closing, just a couple of thoughts. We've been through a significant journey here at Solutia over the course of our reorganization and then over the last year and a half since emergence battling sort of unprecedented economic times. We are pleased obviously where we find the companies the day in terms of its financial performance and its strategic positioning. We've completed the transformation stage. Now, our challenge is to demonstrate that we can prudently grow this company both in the top line and continue to improve the financial performance and to create shareholder value while doing so.
It's almost like we've completed our AAA experience and being called up to the big leagues, and now are ready to compete with our peers in this space toe-to-toe with a strategically well-positioned portfolio, a good financial position and a good businesses and technology cost position and market share.
So we recognized that we have many challenges ahead of us, but we also see many opportunities and we really look forward to continuing to work to deliver on those. We've been through a lot and again, as I said earlier, many of you had been very supportive in that process and we thank you for your continued support and we look forward to continue to deliver on your expectations. Thanks very much.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.
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