|
|
|
Q4 2007 STERLING CHEMICALS INC NEW Earnings Conference Call - Final
|
 |
|
|
|
| Copyright: | CCBN, Inc. and FDCH e-Media, Inc. | | Source: | FD (FAIR DISCLOSURE) WIRE | | Wordcount: | 3038 |
OPERATOR: Good morning, ladies and gentlemen. Welcome to the
conference call to discuss the year-end earnings release of Sterling
Chemicals Inc. A replay of the call will be available on Sterling's
website, www.SterlingChemicals.com, approximately two hours after the
live broadcast end.
At this time, I would like to turn the call over to Ms. Carla
[Stuckey], Corporate Controller of Sterling Chemicals.
CARLA STUCKEY, CORPORATE CONTROLLER, STERLING CHEMICALS, INC.: Thank
you for joining us today to discuss our year-end earnings. With me, I
have Rick Crump, President and CEO and John Beaver, Senior Vice
President and Chief Financial Officer. We will begin with the
prepared remarks and then we'll open the lines for questions as long
as time permits.
Our annual earnings release is furnished on Form 8-K and is available
on our website at www.SterlingChemicals.com, as is our annual report
filed under Form 10-K. In the Form 8-K, we have reconciled all of the
non-GAAP financial measures to the most directly comparable GAAP
measure in accordance with the Reg G requirement.
During this call, we may make forward-looking statements relating to
our expectations and beliefs concerning our future business and
financial performance. These forward-looking statements are based on
various assumptions and projections and are subject to risks and
uncertainties and our actual results could differ substantially.
These forward-looking statements speak only as of the date stated.
And except as required by law, we have no obligation to update them.
For further detail, please refer to the risk factors and cautionary
statements in our annual reports on Form 10-K for the year ended
December 31, 2007, which is currently on file with the SEC.
I will now turn it over to Rick to begin the discussion for the
result of our year ended December 31, 2007.
RICK CRUMP, PRESIDENT AND CEO, STERLING CHEMICALS, INC.: Thank you,
Carla. I would like to thank the attendees on today's call for your
continued interest in Sterling Chemicals.
I would like to cover a few highlights before I turn the financial
discussion over to John Beaver. First and most importantly, I want to
thank Sterling's employees for their continued commitment to a safe
and environmentally friendly workplace and the teamwork required for
us to make some difficult decisions to exit the Company's methanol,
acrylonitrile and styrene businesses.
Our people have shown a great amount of dedication and have worked
tirelessly on new opportunities to replace these legacy businesses.
Our balance sheet is very strong, as we currently have approximately
$160 million of cash on hand, which gives us the opportunity to
participate in any of the new development activities. The exit from
these unprofitable businesses now allows the Company to focus on our
more profitable business area. The closure of our styrene
acrylonitrile and methanol businesses has left over half of our
290-acre site in Texas City available for development. We have
identified several new opportunities and are working on both smaller
projects as well as multi-billion dollar capital project
opportunities. We believe we have a process in place that provides
the discipline to identify the right projects that they focus on
maximizing shareholder value.
We continue to pursue several strategic transactions involving the
development of our Texas City site. Our deepwater port facility's
rail access, other infrastructure assets, coupled with our expanses
experienced and talented operating team, our remaining operations,
strong balance sheet, and substantial cash position put us in an
excellent position to pursue our strategic growth initiatives, either
alone or in partnership with others.
In addition, we feel our close proximity to major oil refineries,
terminals and blending facilities positions us to pursue proven,
environmentally friendly technologies, including renewable fuels and
petroleum coke gasification. Our goal is to be more than a simple
provider of land and infrastructure. We believe that our managerial,
engineering and operational skills can add substantial value to the
development and operation of any of the projects under consideration.
If one or more of these strategic initiatives are consummated over
the next few months, the reduction to our workforce, the amount of
severance payments and other styrene business closure costs could be
reduced significantly.
We believe that additional revenues and profits as a result of these
strategic initiatives could begin as early as the end of 2009. We
expect to minimize the residual fixed cost impact due to the styrene
plant closure, where possible, over the next year. Based on these
assumptions and incorporating the effects of the recent economic
downturn, we expect to be able to generate 20 to $25 million of
EBITDA from our continuing operations during 2008. These amounts are
net of our corporate SG&A costs of approximately $9 million. The
shutdown of our styrene operations has dramatically reduced our
ongoing capital expenditures for the Company, based on our budgeted
capital expenditures for the upcoming year expected to be
approximately $7 million.
We have maintained our commitment to environmental health and safety,
which starts at the top of this Company with our Board of Directors.
We set a new Company safety record this past summer, completing over
290 consecutive days without a recordable injury and have continue to
maintain strong environmental health and safety performances for the
rest of 2007 and into 2008 as well. We are currently at 238 days
without a recordable injury. We recognize with the changes our
Company is going through and especially keen emphasis and this area
is essential to achieve our goal of no injuries or impact to the
environment.
Our acetic acid business continued to make strong contributions to
EBITDA during 2007. We continue to operate at near capacity due to
strong demand for this product. We remain focused on expanding this
business as we and our business partner, BP Chemicals, continue to
track to increase the capacity of this plant to 1.2 billion pounds
per year during 2009.
In addition to pursuing new projects that could be brought to the
Texas City site, we continue to evaluate strategic acquisition
opportunities that could strengthen or enhance our existing business.
The pursuit of these strategic initiatives to find ways to increase
the value of our Company continue to progress. Since these
discussions are in various stages of development, we will be unable
to comment in greater detail on these activities in the
question-and-answer session.
Now I would like to turn for the financial review to John Beaver.
JOHN BEAVER, SVP, FINANCE AND CFO, STERLING CHEMICALS, INC.: Thank
you, Rick. First, I'd like to bring everyone's attention to the Form
8-K that was filed on March 4, 2008. On March 3rd, 2008, the audit
committee of our Board of Directors in conjunction with management
concluded that our previously filed consolidated financial statements
and other financial information in the related reports of our
independent registered public accounting firm as contained in our
annual reports on Form 10-K for the fiscal years ended December 31st,
2006 through 2003 and our condensed consolidated financial statements
contained in our quarterly reports on Form 10-Q for the previously
mentioned fiscal years and for the quarter ended September 30, June
30, and March 31, 2007 should no longer be relied upon and should be
restated due to the following errors.
First, paid-in-time dividends on our Series A preferred stock were
incorrectly recorded as 4% of the Series A preferred stock
liquidation value versus the fair value of the dividend. As a result
of this error, redeemable preferred stock was understated and
additional paid-in capital was overstated.
Second, disputed revenues were inappropriately recognized, resulting
in a gross-up of the consolidated statements of operations for the
fiscal year ended December 31st, 2006 and for each of the quarterly
periods in 2007. Both revenue and SG&A expenses were overstated
for these periods as were accounts receivable and allowance for
doubtful accounts. Subsequent to the issuance as a Form 8-K, we
became aware of one-third of the adjustment to previously
consolidated financial statements and one disclosure that had been
omitted from previously filed financial statements. The current and
noncurrent liabilities of our pension and post-retirement benefit
plans were incorrectly recorded in the balance sheet as of December
31st, 2006 and for each of the quarterly periods in 2007. Current
liabilities were overstated and noncurrent liabilities were
understated.
Operating statements were not properly disclosed in accordance with
FAS No. 131, disclosure about segments of enterprise and related
information. Historically, we believe the operations constituted one
operating segment. However, after additional analysis, we now believe
we operated in three segments. These errors did not impact our
previously reported cash, cash equivalents, cash flows, or EBITDA.
The restatement of our financial statements is reflected in our 2007
annual report on Form 10-K that was filed last Friday. In addition,
we will restate the effective condensed consolidated financial
statements within our quarterly reports on Form 10-Q on a prospective
basis.
Revenues for the year ended December 31, 2007 were $811 million
compared to revenues of $666 million for the year ended December 31,
2006, an increase of $145 million or approximately 22%. This increase
was primarily due to an increase in styrene sales volumes, largely
attributable to our styrene units having been shut down in the first
quarter of 2006 to repair the damage caused by a fire that occurred
in the unit in September, 2005 and also increased acetic acid
revenues. The increased revenues from styrene and acetic acid sales
in 2007 were partially offset by a decrease in plasticizer sales in
2007 due to the shutdown of our oxo alcohol facility in 2006.
The EBITDA for the year ended December 31, 2007, was $7.8 million, a
decrease of $41 million from adjusted EBITDA of $49 million for the
year ended December 31st, 2006. This decrease was primarily
attributable to the shutdown of our styrene operations in the fourth
quarter of 2007. Also during 2006, we received $15 million of
insurance proceeds for the settlement of claims and payments received
under our property damage and business interruption insurance
policies related to the fire that occurred in our styrene unit in
2005.
In 2007, we had a net loss attributable to common stockholders of
$36.5 million, including $17.6 million of preferred stock dividends
compared to a net loss of $117.4 million in 2006.
We expect to present our styrene -related results as part of
discontinued operations beginning in the first quarter of 2008.
We currently have approximately $160 million of available cash in
addition to our unused revolving credit facility to aggressively
pursue the strategic growth initiatives Rick previously mentioned.
The liquidation of our styrene related working capital is essentially
complete. The decommissioning of the styrene operations is nearing
completion. Our last shipment of styrene occurred in January of 2008
and through March 2008, we have incurred approximately $10 million of
closer costs, primarily related to the decommissioning of the styrene
facility. Capital expenditures totaled $6.4 million during 2007.
Next I would also like to let everyone know that after a long
relationship with Deloitte & Touche, we have decided to change
auditors and will be engaging Grant Thornton for the 2008 annual
auditing quarterly reviews. Due to the reduced size of the Company
and the fact that our previously engagement partner was leaving the
firm, we thought it was a good time to make the change. We will be
filing the 8-K announcing this change very soon.
This is the end of our prepared remarks. With that, I would like to
open the meeting to your questions and answers and will ask the
operator to coordinate the session.
OPERATOR: (OPERATOR INSTRUCTIONS). Jed Nussbaum.
JED NUSSBAUM, ANALYST, REDWOOD CAPITAL MANAGEMENT, L.L.C.: Good
morning. Can you just address the decline in segment adjusted EBITDA
in particularly acetic acid, the plasticizers as well from 2006 to
2007?
RICK CRUMP: Sure, Jed. In 2007, let's talk on acetic first. You may
recall that we mentioned that we had the blend gas dispute that
started in August of 2006. And we are taking basically we're not
recognizing any revenue associated with that dispute, since that
dispute began in August of 2006.
So in 2007, we really have 12 months of the impact of that dispute.
And then in 2006, we only have five months, so that's some of the
difference. In addition, we, in December of 2007, based upon
information received from BP, we reduced our operating rates slightly
for the end of 2007, in large part due to somewhat less demand in
acetic acid and the derivative product, vinyl acetate monomer. So
that slightly reduced our profit-sharing component in 2007 -- our
estimate of profit-sharing component.
JED NUSSBAUM: Thanks. And can you give us an update on the dispute
over the blend gas?
RICK CRUMP: The discussions with BP have continued and are what I
would characterize in their final stages to be resolved. I think both
parties feel like we have come to a reasonable conclusion to that
issue as well as other items in the contract that will be amended as
part of settling that dispute. So I think we are in the final stages
of that negotiation.
JED NUSSBAUM: Great. And then finally, you just mentioned that you
took your operating rates down slightly in the fourth quarter. Can
you comment on business activity in the first quarter?
RICK CRUMP: Yes, right at the end of 2007, as John mentioned,
actually the acetic acid industry experienced a number of plant
operating difficulties. Sterling didn't participate in those,
thankfully. But a number of significant other players experienced
problems during the year and there was quite a bit of catch-up on
product exchanges that occurred right at the end of fourth quarter
last year that actually slowed the offtakes of vinyl acetate monomer
from our customers as well as the industry in general as those things
work their way through the system.
We did have some temporary slowdown. Since the first of the year, we
have been back up operating near capacity. There have been some raw
material interruptions that occurred during the first quarter, but
they are not demand related, so other than those relatively minor
interruptions, the overall demand for acetic acid has held up very
well, even in light of the general economic slowdown that is being
reported.
JED NUSSBAUM: Okay, thanks.
OPERATOR: There appears to be no more questions at this time, so I
would like to turn the conference back over to you for any closing
comments that you may have.
CARLA STUCKEY: I just wanted to thank everyone for attending and just
remind everyone that a replay of the call will be available on our
website in approximately two hours.
OPERATOR: Actually, a question just popped up. Do you guys want to go
ahead and take that?
CARLA STUCKEY: Sure.
OPERATOR: Jordan [Holland].
JORDAN HOLLAND, ANALYST: Just a quick question on the guidance. I
think you guys just said 20 to $25 million in EBITDA for '08. Is that
correct?
JOHN BEAVER: Right, Jordan.
JORDAN HOLLAND: I think last call you guys had -- were looking at 25
to $30 million. What would be the cause of the decline?
RICK CRUMP: I was going to say part of it is as a result of the
expectation that we are seeing a general economic slowdown. Acetic
acid basically goes into a broad range of consumer products. And
while the physical demand for the product has remained strong as I
just commented, I do think our expectation is to see a bit of margin
contraction during the year as a result of just slower general
economic conditions.
JORDAN HOLLAND: Okay. Great. And on the cash balance, did you say you
are at 160? That's currently?
RICK CRUMP: Correct.
JORDAN HOLLAND: Okay. All right, guys. That's it. Thanks.
RICK CRUMP: Operator, were there any additional questions?
OPERATOR: No, that's the last one.
CARLA STUCKEY: Okay. Then, thanks, everyone, for your participation.
RICK CRUMP: Thank you.
[Thomson Financial reserves the right to make changes to documents,
content, or other information on this web site without obligation to
notify any person of such changes.
In the conference calls upon which Event Transcripts are based,
companies may make projections or other forward-looking statements
regarding a variety of items. Such forward-looking statements are
based upon current expectations and involve risks and uncertainties.
Actual results may differ materially from those stated in any
forward-looking statement based on a number of important factors and
risks, which are more specifically identified in the companies' most
recent SEC filings. Although the companies may indicate and believe
that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL
REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE
EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE
MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE
SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL
OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY ASSUME ANY
RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON
THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT.
USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL
ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY
INVESTMENT OR OTHER DECISIONS.]
[Copyright: Content copyright 2008 Thomson Financial. ALL RIGHTS
RESERVED. Electronic format, layout and metadata, copyright 2008
Voxant, Inc. (www.voxant.com) ALL RIGHTS RESERVED. No license is
granted to the user of this material other than for research. User
may not reproduce or redistribute the material except for user's
personal or internal use and, in such case, only one copy may be
printed, nor shall user use any material for commercial purposes or
in any fashion that may infringe upon Thomson Financial's or Voxant's
copyright or other proprietary rights or interests in the material;
provided, however, that members of the news media may redistribute
limited portions (less than 250 words) of this material without a
specific license from Thomson Financial and Voxant so long as they
provide conspicuous attribution to Thomson Financial and Voxant as
the originators and copyright holders of such material. This is not a
legal transcript for purposes of litigation.]
This is a news service of Thomson Business Intelligence Service ©2006. This content is for your personal use only, subject to Terms and Conditions. No redistribution allowed.
|
|
|
|
|
|
|
