solutia\'s ceo discusses q3 2011 results - earnings call transcript
by：Taian Lamination Film2020-10-07
Solutia (NYSE:SOA) At 11: 00 a. m. on October 27, 2011, the third quarter\'s 2011 earnings call. Michael Donnelly Chief Operating Officer and Executive Vice President james M. Sullivan - Chief financial officer, executive vice president and head of financeQuinn - President, President and President Suzanne Livingston Director IRAnalystsDavid L. Begleiter - Bill Hoffman, research arm of Deutsche Bank Frank J. , Research Department of RBC Capital Market Co. , Ltd. Mitsch - Wells Fargo Securities Co. , Ltd. , research DivisionMichael J. Sison - Capanke capital market CO. , Ltd. Research Department christopher W. Butler - Sidoti & Company, LLCLucy Watson- Jefferies & Company, Inc. Welcome to Q3 2011 Solutions Inc . . Earnings Release and Conference Call. My name is JIN. I\'m your operator on the phone today. [ Operation instructions] Please note that this meeting is being recorded. I turn the phone over now. Suzanne LivingstonMs. Livingston, you can start. Thank you, Kim. good morning. We are pleased that you have taken the time to attend the conference call for the third quarter of Solutia. Jeff Quinn, chairman, president and CEO of Solutia; Mike Donnelly, executive vice president and chief operating officer; Jim Sullivan, executive vice president and chief financial officer, was with me this morning. First of all, I would like to remind you that we are broadcasting this phone live on the internet and you can access this phone through our website, solutia. com. In addition, we will use the presentation materials published on the website today, as well as the earnings release for the release of 2011 results in the third quarter. Finally, 10-of Solutia- K will be submitted in the next few days. Please go to slide 2 if you wish. In this conference call, management may move forward Look at the report. These statements are based on management\'s current expectations and may change. There may be a big difference in our actual results. Please read our comments on forwarding Review the statement at the end of our press release or the statement in the SEC quarterly and annual documents. The statements we have prepared today include a reference We discuss GAAP finance at the time of earnings. For our non-reconciliation GAAP\'s measure of GAAP numbers, see the schedule in our earnings release and include it in today\'s slide. Now let me transfer the phone to Jeff. Jeffry N. QuinnThanks, Susannah, thank you all for attending our third quarter earnings call this morning. I want to apologize at the beginning as my voice is a bit harsh today and the weather is a bit bad so please forgive me. First of all, I will discuss some of the highlights of this quarter and some of the geographic trends we have seen in the market. Our COO, Mike Donnelly, will then review the current state of our end market and the progress we have made in working capital initiatives. Our CFO, Jim Sullivan, will then take you over the numbers for this quarter in detail, and finally, I will talk about our current focus areas and our expectations for the rest of 2011. Then we will open the phone for your question. Start with slide 4. In the third quarter, we continue to see an improvement in revenue, reflecting growth this year and rising sales prices for quality products. Demand for our high-end products is still strong in the high-end mezzanine, especially in our acoustic products, where demand for construction and automotive products increased 22% a year ago; Of our Saflex premium color options, this product has grown by 14% this yearover-year. In addition, we continue to see our performance films exceed expectations for super-premium car films. As we expected, the overall sales volume of the company declined slightly during the quarter, mainly due to the continuous correction of inventory in the Chinese tire market and the decline in solar sales, the heat transfer business is reduced due to the time of certain filling and the de-inventory of the electronic business, as well as the loss caused by the stripping of our other Rubber chemicals business. We find these events to be unique in nature, and at this time, we do not believe that we will enter into a global recession based on what we see, but without a doubt, we have seen some slowdown in certain markets and in certain geographical areas. However, as we said before, since September, the de-inventory we have seen in the Crystex business has returned to a more normal order model. We have no plans due to market worries about the macro economy- We do have some plans and we can act quickly if our market is rejected as it was in 2009. Overall, our adjusted EPS grew 7% year on yearover- Due to strong business practices, lower interest spending and improved manufacturing, but still affected by rising raw material prices. In the third quarter, we created $17 million in free cash flow and ended the quarter with $0. 449 billion in liquidity. Our capital structure continues to improve. to- To date, we have reduced our debt by $0. 127 billion, which includes the 25 million and 2017 notes for the third quarter of the $2020 share repurchase, bringing us closer to our 2x total debtto-EBITDA goal. Based on our strategy in performance film, in the third quarter, we announced an agreement to acquire South Wall technology, as well as additional capacity from Taiwan\'s Aimcore Technologies. These acquisitions further reinforce our global leadership in advanced film solutions. Southwall Technologies is a leading innovator in energy-efficient film and glass products in the automotive and construction markets, and Mike Donnelly will discuss this at a later conference call. Buying in an uncertain economic environment requires a lot of confidence in the value creation proposition of the transaction, and I have the same confidence in the south wall. This is a major strategic acquisition of technology that will drive the performance of our performance film business in the short term and make us successful in the long term. We expect this acquisition to end in 2012 and expect it to grow slightly per share in the first year with Solutia. In addition, additional Aimcore assets purchased will add Flexvue to the high- Growth markets in Asia. We look forward to welcoming the south wall to our global organization and building our Asian team further. Before I discuss the details of this quarter, I would like to say a few words about the management changes that have taken place this quarter. I hope one of the signs of my tenure at Solutia is not to be complacent. Our performance has been strong in the past and in the future, but I have identified areas where we are not doing as well as we should. So I made a tough decision and changed our management structure and as early as August I appointed Mike Donnelly as our COO. Mike and I share a common vision in the leadership and strategy of the company, driving and maintaining outstanding operational performance while positioning Solutia to achieve its growth potential. In his nearly 40 years of experience, Mike has an excellent record in manufacturing operations and technology, as well as a wealth of general management experience. Since becoming part of solution Tia, Mike has contributed to outstanding business results in the technical professional business area and during his recent tenure as president and general manager of performance films. He played an important role in putting the division on a solid path to the full realization of its global potential. I look forward to your receiving Mike\'s call today and meeting him in person on our investor day scheduled for December 15 in New York. I have also changed our EVA business by appointing Nadim Qureshi as the head of the business and I have asked Nadim to move to Shanghai to run the business outside Asia, to ensure proper attention to the business in the Chinese market. Nadim previously established the nylon plastic and polymer business in China, when we had the old nylon business and recently in our strategic group. He\'s an MBA polymer chemist, before joining us. He worked at AD Little and CRA years ago. Nadim highlighted the importance of my immediate improvement in the direction of the business and he reported directly to me in the new position. Nadim has taken steps to strengthen our organization and improve our relationship with key customers in the region. I am optimistic that, under the leadership of Nadim, in the context of our renewed focus, in the current very difficult market environment, we will be able to reach the full potential of this business. Net sales in the third quarter were $0. 519 billion, up 2% and 2010 respectively from 4% and in the second quarter. The adjusted EBITDA was $0. 121 billion, down 7% from 2010 and 14% in the second quarter, and the adjusted EBITDA profit margin was 23%. We recorded $0. 45 Adjusted EPS, up 7% from 2010. The raw material environment is still challenging throughout the year. In the third quarter, affected by rising raw material prices, we expect prices to reach $29 million compared to the third quarter of last year. In the fourth quarter, we expect the price of raw materials to ease on a continuous basis, but will still rise by more than 2010. Therefore, our view is that on an ever-increasing basis, the cost of raw materials for the whole year of 2011 will increase by about 12% to 14%, more than 2010. Strong business efforts have brought prices up slightly from the second quarter of this year. Jim Sullivan will introduce the specific situation of these market segments with rising prices and raw materials in a short time. Manufacturing utilization across the company is low to medium In the third quarter of 80%, the demand in our terminal market and operating areas continued to be stable. When it comes to regions, slide 6 is our geographic revenue and the annual growth we have experienced --over-year. Overall, our net sales by world region only changed slightly compared to the previous quarter, net sales in Europe decreased slightly on a percentage basis and net sales in the United States increasedS. In other parts of the world, it is mainly Brazil. The figures in this table reflect the quarterover- Annual growth of each market segment by region of the world. As mentioned earlier, sales growth in the third quarter has generally cooled down --- Most of the world grew by a few percentage points compared to last year, which is in line with our overall growth. In the Asia- In the Pacific, advanced Interlayers have strong quarterly performance in car and construction sales. The high-end products of the performance film experienced another strong quarter, mainly in Asia, while due to the slowdown in production, stock correction in the Chinese tire market, the decline in technical expertise in the Asian region. In Europe, advanced mezzanine continues to experience growth, although slower than in the previous quarter, as high-end acoustic products are resilient in the challenging construction market, and we received some new customers in 2011. In the U. S. As some of our key customers gain a share in their market, and some increase in intermediate sales, advanced mezzanine sales in the construction market have improved. As a reminder, the technical profession will certainly be affected by the decrease in revenue from other Rubber chemicals businesses that we have withdrawn from. So, in general, we see a stable demand environment in which the growth of individual markets reflects the balanced geographic risk of our portfolio and our-- The end market we serve. I recognize that the state of the geographic Terminal Market is a topic of much discussion today, especially for Europe, and how any potential downturn may affect solutions. We are closely monitoring our market and keeping an eye on any demand signals from our customers. At the moment, apart from what we have discussed today, we have not seen significant changes in our needs. Now I want to transfer the call to Mike Donnelly, our COO. Mike? D. Thank you, Michael DonnellyThanks. good morning, Jeff. I am happy to be here today and look forward to meeting many of you in the coming months. If you turn your attention to slide 8, I would like to make some comments about our end market. Despite the slowdown, most of our end markets continue to grow. Our electronics market is up 1%. to- Driven mainly by the electronic display market, it has grown from last year. In the third quarter we went through some extra soft The reader market is still digesting excess inventory. Overall, the new low The Kindle pricing will drive demand growth in 2012. Also, we did go through the replacement of silicon. It is mainly sold to film distribution in the tablet market. As we have said in the past, we are working to upgrade our production processes and quality control systems in Martinsville, Virginia, which are almost complete. We believe that these upgrades will enable us to regain our materials in early 2012. The construction market accounts for 12% of our revenue. Sales of construction products continue to grow steadily around the world, and sales in the quarter increased by 8% compared to the same period last year, in part because our construction Saflex acoustic products continue to grow strongly. Sales of these products increased by 12% year on year. to-date. In addition, after four consecutive months of decline, the construction bill index turned positive. Revenue from Energy Solutions fell 5% year on yearto-date. The group includes PVB and EVA, our solar energy industrial products, which are used as packaging agents for solar modules; And Therminol for centralized solar applications. In addition, in our performance film department, we provide solar window film for construction and automotive applications. Our aftermarket solar window film continues to grow in the North for 25% yearsto- The date is driven by the strong performance of our premium V- KOOL brand in Asia. Therminol in the solar market continues to achieve new solar plant filling, but is declining year by yearover- Year due to filling time. We expect strong growth in the fourth quarter. Now, let\'s talk about our solar energy module packaging agent, which accounts for 4% to 5% of total sales, less than half of our energy solution revenue. We believe in this end market and focus on executing our strategy to win a growing and long term market. Win oem terms. There is no doubt that the market is still facing challenges, but as Solarbuzz points out, the module installation is expected to be around 21 gigawatts in 2011. This is equivalent to about 10% growth, which is not too bad once the market is more in line with the installation through excess inventory and production. Our capacity building plan in China remains firm. Our factory in Suzhou is producing high Quality materials. Our progress in China, Asia continues as we are conducting advanced test certifications for Tier 1 and tier 2 customers, and we expect sales in early 2012. In addition, we saw continuous growth in EVA sales in the quarter, up 28% from 2011. Moving on. 19% of Solutia\'s revenue comes from automotive OEM. Growth slowed in the third quarter as Europe\'s sovereign debt situation, potential austerity measures and volatility in financial markets remained an obstacle to car production and sales. Year-to- At present, the market of Solutia has increased by 4%. J. D. Power\'s forecast for annual global construction is currently 76. 9 million or 3 units in 2011. Growth of 6% over 10 years, including improvements in Asia in the fourth quarter and seasonal improvements in Europe in the fourth quarter. Our alternative market, including automotive glass, building glass, aftermarket film applications and the tire and rubber market, accounts for 35% of our revenue. Despite a decline in the US economyS. Mileage in July and this year-to- Since the beginning of this year, our sales in replacement glass and after-sales glass have remained strong, up 8% year on year. to- Date, reflecting improved car and building revenue as well as performance film and advanced mezzanine. With regard to commercial tires, the tonnage of trucks in August was almost flat compared with July, but increased by 5% year-on-year --over-year. Finally, in our alternative Tire and Rubber Market, this final market will grow by about 7% in addition to other Rubber chemicals sales that were stripped off last year, and the downturn in demand from Chinese tire producers has affected this quarter. Slide 9 is what we think of working capital. Our quarter- The final DSO or days sales fell to 40 days compared to 44 days at the end of the previous quarter. Ensuring that customers make payments in a timely manner and improve payment terms where possible remains our focus and has achieved very good results this year. DPO was flat this quarter. Our stock days on hand or DOH increased by 5 days, driving the increase in current capital for the quarter. These constructions are purposeful, as our businesses are prepared for scheduled factory shutdowns related to technical work and start-up of new lines in the coming months, while higher demand for certain products, Overall, our working capital as a percentage of sales was flat compared to 19% in the second quarter. This is an area of concern for the past year. 5 years has become a part of our culture, rooted not only in our corporate finance group, but also in the day-to-day activities of the business. This is a process of our organization and it will continue to be a focus and discipline area. Finally, if you go to slide 10, there\'s the last slide before I hand it over to Jim. As Jeff mentioned earlier, we look forward to welcoming the addition of the south wall and the additional capacity of Taiwan\'s Aimcore assets. The performance film strategy for this year is in line with our goal, up 19%to-date. We believe that the acquisition of Southwell will help to enhance our global leadership in the film industry, improve our growth in the existing market, accelerate the gradual change in our technical efforts, and further expand our geographical footprint The acquisition has joined the business and market expertise of Solutia and the technology and manufacturing capabilities of Southwall. It ensures that Solutia gets the proprietary XIR technology from Southwall, which is our high-end V- KOOL window movie In addition, it will increase the \"state-of-the-art\" manufacturing capabilities and capabilities to enable us to optimize asset utilization globally to support rapid Growth in high demand Technology films for electronic products and energy markets. In addition, this acquisition will enable Solutia to extend its product offering to our current Saflex customers by providing Southwall patented XIR transparent film encapsulated between Saflex PVB layers Finally, over 25 years of leadership and technology from the south wall, as well as a combination of expertise with Solutia, will create what we consider to be the world\'s largest talent pool for the majors of sputtering. Due to the increase In Taiwan, performance film manufacturing assets will be expanded to three continents: Europe, North America and Asia; And support the future development of this business. Now I want to transfer the call to Jim Sullivan, our CFO. Jim? James M. Thank you, Mike. good morning, everyone. Let\'s start with slide 12 and take a closer look at the financial situation for the quarter. This slide details the items we excluded from our adjusted EBITDA calculations in 2011 and 2010. In the third quarter of 2011, we excluded a net income of US $23 million, including the sale of US $29 million in our 2% remaining interest in the previous Integrated Nylon business, partially offset by severance payments related to senior management changes mentioned in Jeff\'s discussion, as well as expenses related to Aimcore and Southwall acquisitions. Turn to slide 13. In the third quarter, net sales increased by $8 million or 2% year on year, continuing to maintain growth momentum. ago period. Net sales increased by $24 million, or about 5%, based on the impact of divestiture. The positive impact of rising average sales prices and foreign currency translation accounted for 4% per cent, while sales fell by 3% per cent. Sales fell by $24 million, or 4%, compared to 2011, mainly due to seasonal declines in sales, partially offset by moderate continuous increases in sales prices. Move to slide 14. 2011 adjustment EBITDA for the third quarter to $0. 121 billion reduce $9 million or 7% to 2010 under $20 million or 14% and the second quarter. Excluding 2010 earnings from divestiture, the adjusted EBITDA fell by $6 million or 5% in the quarter compared with last year. These two years-over- Annual and continuous comparisons, higher average selling prices and higher manufacturing costs are offset by the impact of lower volumes and higher raw material costs on revenue. The company\'s 15 bridges of the yearover- Annual and quarterly changes in earnings per share. Adjusted earnings per share for the third quarter of 2011 totaled $0. 45, progress $0. 03, an increase of 7% over 2010. The lower interest expenditure and the lower tax rate offset the adjusted EBITDA decline and the loss of revenue from the divestiture business. Adjusted earnings per share fell by $0 compared to the second quarter. The impact due to the lower EBITDA is partially offset by the increased tax rate. The year-to- About 13% of the effective tax rate reflects the company\'s advantageous tax attributes in the United States. S. NOL\'s position, and the benefits of enjoying tax holidays in Malaysia and China, we do expect tax rates to remain low to medium Teenagers for a while. Now, let\'s start with slide 16 and discuss our report section using the advanced middle tier. Sales for the third quarter totaled $0. 227 billion, up 7% year on yearover- It is mainly due to the favorable currency conversion effect caused by the stronger euro against the dollar. S. dollar. The increase in revenue brought about by an average selling price increase of 2% was offset by an equal decline in sales. In the quarter, Saflex building revenue grew by 21% over 2010, sales increased by 8%, and sales prices rose by 13% in combination with a good portfolio. Saflex Auto OEM and replacement revenue grew by 10%, mainly due to rising sales prices and improved product mix, as overall sales were flat from the previous year. Sales of Saflex high-end products, including acoustics and Vanceva colors, increased by 17% compared to 2010. VistaSolar sealant fell by about 40% compared to the third quarter of this yearago period. In the second quarter of this year, the adjusted EBITDA of the senior peers totaled $47 million, down $1 million or 2% year on year. over-year. The decline in revenue was driven by the rise in raw material costs this quarter, and the increase in average sales prices, improved product mix and reduced costs associated with our annual incentive plan only partially offset this. Sales of premium mezzanine declined by $5 million or 2% in turn. Saflex\'s seasonally lower sales were partially offset by an increase in Europe\'s visaso sales, as the solar industry improved slightly in the third quarter compared with the second. The adjusted EBITDA fell $5 million in a row, the Saflex transaction volume was lower and the raw material cost was higher, which exceeded the revenue growth caused by the higher volume of VistaSolar transactions. Year-to- The date growth of our construction market and better product mix, as well as the reduction in manufacturing costs caused by the increase in sales prices and production output implemented throughout the year, offset the increase in raw material costs. This led to an annual increase of $8 million in adjusted EBITDAto- Date of the same period of 2010. Looking forward to the advanced mezzanine, we expect sales in the fourth quarter to be slightly lower than in the third quarter, as translation is expected to have a negative impact due to the growth of the US economyS. The dollar is expected to exceed a modest increase in Saflex car sales, mainly in Asia. The Saflex building volume is expected to remain at the level of improvement achieved in the third quarter for the rest of this year, while the visaso building volume did not show a meaningful recovery until 2012. We expect the adjusted EBITDA profit margin in this segment to be low- Within 20%, the expected gains due to rising sales prices are primarily offset by lower fixed-cost absorption in inventory control actions and a modest increase in manufacturing costs. In addition, we are still expected to launch the second Saflex production line at the Suzhou factory in China in 2012. The results of the performance film are summarized on slide 17. Net sales for the third quarter were $74 million, up $1 million from 2010, up 1%. Sales prices and currency conversion rose 1%, partially offset by a slight decline in sales of 1%. After-sales market car window film sales rose 15% in the quarter, with most of the growth of 2010 from the strong demand in Asia quality Novomatrix V The brand of KOOL and Huper Optik and the continued development of the pre-delivery installation market in the region. Sales of building window films in the after-sales market increased by about 4% in the quarter, compared with 2010 in the same period. This growth has also occurred mainly in Asia. Sales of Flexvue fell by about 22% in the quarter due to e-commerce The reader industry eliminated excess inventory in the temporary replacement of release liner sales mentioned earlier by Mike. Performance film\'s adjusted EBITDA for the third quarter totaled $12 million, down $1 million from 2010. The decrease is mainly due to the increase in spending on sputtering technology, as well as the upgrade of our production process and quality control system to meet the stricter requirements of the electronic market. Rising sales prices and lower manufacturing costs offset the rise in raw material costs this quarter. In the third quarter, Performance film\'s sales and adjusted EBITDA fell by $12 million and $7 million respectively, mainly due to a seasonal slowdown in the number of films in the aftermarket window. Year-to- Driven by strong new car sales, new EnerLogic film products and new channels, the EBITDA after performance film adjustment grew by 19%, such as our high-end V- KOOL products partially offset this by the cost increase as we expand our Asian business and implement quality improvements in our manufacturing facilities. Looking ahead to performance films, we expect sales in the fourth quarter and adjusted EBITDA to decline from the third quarter due to normal seasonality. However, in addition, since the products in this area are the most discretionary products in our portfolio, consumer demand is slightly slower and we expect to decline this yearover- Annual sales of window films and electronics in the fourth quarter. Turn to slide 18. The third quarter net sales of technical professional companies was $0. 218 billion, down $6 million, or 3%, from 2010. Based on the impact of the other Rubber chemicals business divested, the actual results were adjusted by 2010, and sales in this area increased by $8 million, or 3%. The average selling price increased by 5%, the currency translation increased by 3%, and the overall sales decreased by 5%. Santoflex sales rose about 5% in the third quarter, with strong sales in Asia. Crystex\'s overall sales fell by about 7%, and the decline in China\'s truck and bus market from low to low was more pronounced. The market demand and inventory of tire companies have exceeded the low order Percentage growth in other world regions. As expected, production of specialty fluids is down by about 15% per yearover- The third quarter of this year, but as Mike said earlier, it was mainly due to the expected delivery of two large solar fills in the fourth quarter. Year-over- All product lines achieved an annual increase in sales prices. The adjusted EBITDA for technical expertise in the third quarter of 2011 totaled $75 million, down $7 million from the previous year. According to the adjustment of the divestiture business, EBITDA\'s share price fell by US $4 million, or about 5%. The increase in manufacturing costs offset the main driving force for this year-over- The cost of raw materials for the Santoflex product line has fallen annually. In the product line with rising sales prices, the increase is not enough to offset the rise in raw material costs. At present, there is a surplus supply of Degraded drugs in the market. Technical Professional sales fell by about 3% month on month, and EBITDA decreased by 8% year on year after adjustment. This is mainly driven by the time that Crystex\'s inventory goes out of stock, Santoflex\'s large Therminol fills, and raw materials are not covered. Year-to- Up to now, the adjusted EBITDA has fallen by $11 million, driven primarily by the divestiture of other Rubber chemicals businesses. The rise in sales prices in this area, coupled with improved cost conditions and strong liquidity, exceeds the increase in raw material costs. Looking into the future, it is expected that the number of technical specialties will increase in the fourth quarter, mainly as Chinese demand returns to a more normal model and Crystex due to scheduled large solar filling. The adjusted EBITDA profit margin of this segment is also expected to rise in the fourth quarter, with an increase in output and a decrease in raw material prices exceeding the seasonally lower production levels and production increase items- Related costs related to Crystex technology program and the expansion of Guan Dan Crystex. Next is slide 19, where we will focus on the results of the unassigned and other reporting sections. Net expenditure for the quarter totaled $13 million, unchanged from 2010. Corporate spending fell by $2 million, mainly due to a decrease in spending related to the company\'s annual incentive compensation plan. This savings was offset by a decrease in dividend income from the retention interest in the Integrated Nylon business sold in the third quarter of the previous year. Slide 20 details the company\'s operating cash flow and capital expenditures. Total operating cash for the third quarter was $47 million,to- Between $2011 and $0. 144 billion, a decrease of $67 million over the same period in 2010. The year-over- Adjusted EBITDA\'s annual earnings were offset by Mike\'s earlier reference to target inventory growth and higher incentive payments so far in 2011. The recall in 2010, the incentive payment in the fourth quarter, and the incentive payment in first quarter of 2011. Capital expenditure totaled $30 million in the third quarter, up $16 million year on yearago period. Third-quarter and third-year growthto- Compared to 2010, date is primarily related to key strategic projects that will structurally improve our global cost profile and expand the capacity and quality of our factories in China, Belgium and Malaysia Due to plans to reduce working capital, capital expenditure in fourth quarter of 2011 is expected to be the highest quarter of the year. Our free cash flow for the full year is expected to be between $0. 12 billion and $0. 13 billion. Continue to slide 21. Here we summarize the general situation of our debt liquidity. As of this quarter, our total debt was $1,337,000,000, down $25 million from the second quarter. As Jeff mentioned in the third quarter, the company bought back $25 million in the open market and $2017 in 2020 Notes, reducing total debt year by yearto- The date is $0. 127 billion. The total debt of the company is 12- As of the end of the third quarter, the adjusted EBITDA was 2. 6x. In terms of liquidity, the company\'s position at the end of the quarter was very strong at $0. 449 billion, including $0. 279 billion available for our cash flow revolver and $0. 17 billion in cash on hand. With this I will turn it back to Jeff and make some closing remarks. Jeff? Jeffry N. Thank you, Jim. We will make some final comments before we open for your question. First, let me talk about the company\'s expectations for the rest of the year. Improve the product portfolio with quality products and continue to focus on keeping us low Combining the cost structure with a stable demand environment gives us the confidence to set the adjusted EPS guidance for the whole year at about $2 per share. On the specific topic of raw materials, we recognize that on a unified basis, raw materials are a headwind for us. We have made good progress towards the goal of fully recovering these costs by raising sales prices, but especially in the past few years, we have not achieved this in the senior mezzanine business. As we mentioned in our recent press release, we plan to change this dynamic in future contracts and will continue to implement price increases in 2012, including models that reduce the risk of fluctuations in raw materials. Our expectations for the other two parts remain firm. Through the various price increases we have implemented so far, we expect to make up for the impact of rising raw material costs by the end of the year. As for this quarter, while uncertainty in the world economy continues to affect our final markets and operating areas, our commitment to excellence, as noted this year, our strategic focus on value creation and our record of fulfilling and exceeding those commitments have not changed --over- Revenue grew year on year this quarter. We will continue our strategy to diversify our investments in the geographic and end markets, and we will continue to invest in innovation -- Strong cash generation and strong balance sheet support for high-end products. There is no doubt that we will do so while maintaining close contact with customers and terminals The market\'s reaction to the World events before us. Our commitment to these principles creates flexibility that has laid the solution for steady growth over the past few years, and it is this flexibility that will continue to position the company\'s future success. Thank you for your continued attention and continued support to Solutia. Now, we want to hand it back to the operator and open it up for your problem. Question-and- [Answer] Operation instructions] At this time, we have the question of Frank Mitchell from Wells Fargo. Frank J. Mitsch - Jeff, Research Department of Wells Fargo Securities Co. , Ltd. , you have done a good job in outlining the price of raw materials, and you also remind us of what actions you have taken in artificial intelligence to change your contract terms. What we should consider is that you may not return to parity in the fourth quarter, but our expectation is that we should see this in the first quarter? Should we think so? Jeffry N. QuinnI thinks this is a good approximation, Frank, yes. Frank J. Mitsch - The research department of Wells Fargo Securities Co. , Ltd. is very good. One of the things I was impressed with, I think, is that in the release, you\'re talking about a higher order of sales in the fourth quarter. Can you provide some comments on what you see? - You saw the end of the inventory. - End of go-to-stock in electronics and the Chinese truck and bus market? D. Michael DonnellyFrank, this is Mike. We clearly see that the tire market in China is changing, so there was a massive overconstruction in the first and second quarters and a destocking in the third quarter. This is clearly returning to normal. Our sales in September were good and showed the fourth quarter. In terms of electronic products, in terms of electronic products Reader market, we are in e- We provide them to the front. Playing with laminated products, the business is overstocked and actually increases production. As a result, this combination also reduced transaction volume in the third quarter --- Or, frankly, there was very little volume in the third quarter. But again, we are optimistic that the market will pick up in September and the market will return to normal. Frank J. Mitsch - The research department of Wells Fargo Securities Co. , Ltd. is very good. Finally, I think you mentioned you-- Alternative glass markets in the United StatesS. It\'s up 8%, for me. - The impression on me is quite a number. Do you feel comfortable? - Can you continue to grow your business at this level? Jeffry N. First, this is indeed a function of market growth. Second, our building products are doing very well. The Q series or acoustic products are popular in the industry and provide sound insulation barriers that people like. Therefore, we are very optimistic about the product line and the continuous performance. The next question comes from Lawrence Alexander of Jefferies. Lucy Watson - Jefferies & Company, Inc. This is Lucy. it\'s for Lawrence today. I want-- There is a comment in your press release on some of the lower discretionary spending in the third quarter. I just want to know how much good is this quarter? If, I think, if this is ongoing, how much benefit should it have in the fourth quarter? James M. This is Jim Sullivan. Of course, we always keep a close eye on our spending levels, but as the global economic environment changes slightly in the third quarter, we redouble our efforts in this area. What I would say is that it may have contributed millions of dollars in revenue in the third quarter, and we expect that level to continue until the fourth quarter. Lucy Watson - Jefferies & Company, Inc. Okay, research. Regarding the adjusted pricing mechanism in your announced Saflex, have you started discussions with the customer? If so, how has your initiative been received so far? Jeffry N. I mean, we \'ve started the conversation and it\'s going to be an ongoing conversation in the coming months, months. I think it\'s like any change in industry practice, and you have to be able to prove that there are benefits on both sides of the equation. That way the dialogue will continue. I mean, over the last few years, we have been proud of the Saflex business, not only in terms of technology and cost, but also in terms of customer service, we are all leaders in the market, however, give an appropriate evaluation of the products we offer, but make sure to provide real value to our customers. So this will continue to be an ongoing dialogue, with no change, and sometimes there will be certain obstacles to change. However, we are very confident that in sufficient time, we can demonstrate that this change and this mechanism are fair to both parties and that this mechanism is appropriate given the value of the product. Lucy Watson - Jefferies & Company, Inc. Okay, research. The last one is fast. You mentioned the strength of Brazil in your prepared statement. I just want to know how big the market is now in Solutia? What parts of the business show the greatest strength? Jeffry N. Kunney means, I think in general, it\'s on the slide, and in terms of the rest of the world, it\'s on the deck, and a large part of it is about 12% of South America. Brazil is one of the fastest growing markets. D. Michael DonnellyIt has a small base. Jeffry N. QuinnYes. I mean, but -- It\'s a strong growing economy, and we\'re going to be involved in that whole portfolio, but it\'s a very small base from the start. D. As you know, Michael donnelland Lucy, we have the manufacturing business of rubber products and Saflex in Brazil. The next question is from Christopher Butler of Sidoti & Company. Christopher W. Butler - Sidoti & Company, LLCNot will beat the contract change here, but I have to imagine that your client sees these longer price contracts as a benefit because inflation is the standard for resin costs. Do you expect that in order to facilitate this change, you have to give some return to the customer? Jeffry N. I think it should be-- Every time you try to influence a change in business practice, it\'s a giving --and- You must be able to prove that it creates value for your customers. In addition to pricing, we offer value to our customers in many ways. I don\'t think the discussion will only turn into a discussion about the price. There are various problems in mixing and quantity related to quality products. But, of course, it is not illogical to say that there is some relationship between pricing and reducing volatility and pricing. So it\'s a very complicated negotiation, and frankly it varies from customer to customer. Therefore, we are fully looking forward to having an interesting conversation with every customer. However, we must continue to pay attention to the value of our products and the value of the technical sales and services we provide as a distinct distinction in the market. Christopher W. Butler - Sidoti & Company, llc and shifting gears, you said that you have accumulated some inventory for the expected downtime for the fourth quarter. Is there -- As a result of these turnaround, do you have any additional fees in the full year EPS guide you are looking forward to in the fourth quarter? James M. Chris Sullivan, Jim Sullivan. We did talk about it when I gave you some part of the adviceand- We expect in the fourth quarter. Of course, when we reduce the inventory level, we will find some fixed costs. Also, I comment that we expect a little more cost for the advanced middle tier, which is in Saflex. When you run your facility at a lower speed, your yield performance is not always that good and we are trying to take this into account. Hopefully some of the discretionary spending priorities we talked about earlier will start to work, but from a cost perspective, these are key projects. Christopher W. Butler - Can you give our Sidoti & Company, LLCAny EPS impact? James M. SullivanNot specifically in each of these. I would just like to say, however, that this is reflected in the general guidance that we have put forward in part. We will be hit by a slight drop in our inventory. Our production will be slightly lower in the fourth quarter. Some of them are only seasonal during the holidays. We expect to monetize working capital in the fourth quarter, which, as I mentioned, will help drive our cash flow to its highest level this year. So there will definitely be some shortages if you want. Penalties for this period. Christopher W. Butler - Sidoti & Company, LLCAnd is finally in the acquisition, can you talk about the synergies you are looking forward to and how you will achieve them? D. This is Mike Donnelly. There will be a comprehensive synergy. When you integrate the two companies, we see synergy in the SGA, which is very normal. We see the synergy of manufacturing technology in exchange for this technology to optimize these assets around the world. We have a team to address these value drivers and make plans today to address them and make sure we complete them as planned and as planned. Christopher W. Butler - Sidoti & Company, LLCAre do you plan to keep your management unchanged after the transaction is completed? D. Of course, not all management will be complete. There will be some changes when we integrate. The next question is Mike Sison from KeyBanc. Michael J. Sison - Capanke capital market CO. , Ltd. According to the $2 guidance of EPS for 11 years, did research department jim do this? - The assumption of EBITDA is that if I am mathematically correct, the price of EBIT is about $520 and $400? James M. Sullivani is in the area of EBITDA. Michael J. Sison - Capanke capital market CO. , Ltd. Okay, good. Then, Jeff, you are very enthusiastic about the south wall. Any color on what kind of growth you expect to see in the business next year may give us some longer The long-term growth potential of the business? Jeffry N. Kun en Mike, we will definitely talk about these topics in investor days in a few weeks. I think that not only has a very positive impact on the current business, but also the development technology that shows the prospect. So we will address this here in a few weeks as we will present our views for 2012. Michael J. Sison - Capanke capital market CO. , Ltd. Okay, no problem. You can then also reach this on analyst day, but when you-- You launched a fairly radical goal next. - For last year\'s 2015, when you think about where the business will end this year, what do you need to see to get \"12\", \"13\" back on this track? Jeffry N. If you look at it-- On investor day in December, one of the things we promise to do is that we will try to make ourselves accountable for making up for any change in perspective. I think the real-the issue -- The biggest problem is the EVA business, as the PV business is a very volatile and difficult market this year. So we will discuss it. But obviously, this is one of our areas. - We will take a closer look and talk about our long term. Short-term views are affected by disappointing short-term Semester outlook and performance. So -- We will then talk about other businesses and where they are. But I feel really good. - Each of these three companies is expected to achieve the kind of growth we talked about last year. Michael J. Sison - Capanke capital market CO. , Ltd. Okay, good. Mike, you have some comments on solar. Any view of inventory- We know something is being installed, but how do you measure if the inventory is-- Or when they get to the point where the installation matches production? D. Michael donnellyou\'s data is mainly from Solarbuzz. So as they\'ve -- From a market perspective, they are indeed the best we think about the market. Inventory seems to be falling. If production is reasonable, we expect to start to balance at some point in 12 years. Michael J. Sison - Capanke capital market CO. , Ltd. Okay, good. Last question about Crystex The competitive environment is-- It\'s unusual to see businesses seeing destocking to some extent, but on a competitive basis, I guess all players are fairly rational? D. The answer is yes. As we said before, when there is a big downturn in the economy and China falls in the third quarter, there will be some changes in market share. There are also some lower quality software that can be replaced because in these environments these companies want to save some money. But once it is restored, we are back to normal position and high growth, because frankly our products give them the best productivity and give them the best return, this will come back. The last question comes from Bill Hoffmann of RBC Capital. Bill Hoffman - Research Department of RBC Capital Market Co. , Ltd. - I was wondering if you could explain the new facilities for the Chinese packaging business, just to find out how the market looks like it\'s seen now given some of our disruptionsD. Michael DonnellyAs you may know that the production of many modules has moved sharply to China in the past year. We see this and that\'s why we are very active in building assets in China. So we\'re right-- We did the right thing. Our market is right. Our products are now Grade 1 and Grade 2. So we hope to have sales in early 2012. Bill Hoffman - Does RBC Capital Markets, LLC, research, look like this? - I mean, isn\'t there some meaningful weakness in that market? Does this look like, is this a slower ramp? Timing of such facilities? Jeffry N. This is Jeff, Bill. One thing that I think might happen is that the whole qualification process took only a little bit of time because there was-- The market did not demand products as strongly as it did a year ago. But we see that the power and logic of action there are the same. But we are really stepping up our focus on the market, and frankly that\'s why the business is going to run out in China. As I mentioned, the new head of business will be based in Shanghai and work very actively locally to develop this market. We will build a truly strong team in the field of PV, which will be based in China. So I mean the ramp. The rise may be a little slower than in a really strong market environment, but frankly, we still believe that in the medium and long term, the West\'s strategy of strong quality, german quality products produced in China at competitive prices, with the technical sales and services that have been the logo of the global business of Solutia for many years, will create a very strong total value for our Chinese customers. We look forward to fierce competition in this market with Chinese competitors and other Western competitors trying to create a foothold in the region, a strategy that is still on track. Bill Hoffman - The research department of RBC Capital Market Co. , Ltd. is very helpful in this regard. One more question. This is a bit more general. When you see the European market and your location there, it is clear that there are some buildings and cars etc. Can you talk about the dynamics of the terminal market that you see there? Or in the past month or so, people will take back more? Or is things roughly stable at this point? D. Given the uncertainty of the European economy, our market has been surprisingly resisted or rebounded in Europe. Our car tires are doing well. - Our glass products, especially the building products, are doing a good job. The most influential thing we see in Europe is the window movie side, where consumption is more free, and these products happen to enter the hotter countries, so-- Spain, Italy and Portugal are the most serious financial problems. Jeffry N. I think it\'s Kun. - Let\'s have another one? Okay. Sorry, one more question. I thought we were. - We need to summarize. We have time to answer another question. David Begleiter from Deutsche BankDavid L. Begleiter - Deutsche Bank, Jeff, Research Department, a few things. First of all, in the second quarter, your sales price rose $22 million, $4 million higher than raw\'s ph]. But in the third quarter, I think your price is already behind raw\'s $11 million, why? James M. This is Jim Sullivan. Let\'s break it down by segment. First of all, as we mentioned in our release In September, we saw some unexpected loss of raw materials in the Saflex business. The good news is that we are in the process of negotiating new contracts on prices, so we see a slight change in this dynamic in the fourth quarter. In terms of technical expertise, in fact, price increases continue to cover raw materials in our Crystex business and fluid business. As we talked on the phone, the challenge we face is in the Santoflex business. While we did get some prices there during the quarter, it\'s not enough to just offset the raw materials, and you know, this particular segment is a bit oversupply at the moment. David L. Begleiter - Research Department of Deutsche Bank. Jeff, how is the merger pipeline going in terms of M & A and debt reduction? Do you expect an additional South Wall? Type transactions for the next 12 months? Jeffry N. QuinnDavid, we will continue to look at this small strategic bolt carefully and thoughtfully -- About the type of acquisition, just like the south wall that we have been interested in and pursuing frankly for many years. You can\'t always control when these things happen. But, of course, this is a very balanced approach as we move forward, we will continue to delay and we will continue to really balance the priorities of cash flow usage. So we look at these things from the perspective of opportunity. But we will -- I mean, it\'s a priority, but it\'s just one of many priorities and definitely not at the top of the list. I think keeping the balance sheet strong, deleveraging, and then finally considering the way to return excess cash flow to shareholders, at this point, if not a higher priority, is at least equal to that. David L. Begleiter - Research Department of Deutsche Bank. Finally, on the Saflex and pricing structure, you-- Are these structures in place this year or are there any time to negotiate later? In this year\'s annual price negotiations, I think the problem last year was that operating interest rates were not high enough to support higher levels of price increases. Is this the same level now? In this case, we just don\'t see an operating rate high enough to push the maximum price increase required? D. Michael DonnellyI believes that we hope to make significant progress in developing a new pricing structure- As we enter the new year. This is not the case in all cases, which is uncertain. I think in terms of the market environment and the environment, we think that in terms of the market dynamics we enter pricing, it may be a little more positive than it was a year ago. But a stronger economic environment will certainly improve that. But net- Net, I think the situation is better than last year. Jeffry N. Kunenwell, with this, we\'re done. Thank you very much again for your continued attention to Solutia. Regardless of the economic environment, we are still very focused on execution and delivery performance. I know there must be a lot of uncertainty in the current economic environment, and we are not getting rid of these concerns and changes. But we are still focused on doing our best to deal with our problems. I think this will continue to be a sign of the performance of this company, they do a good job and play cards in the transaction. Thank you very much for your attention to our company today, and thank you very much for your attention to our company. Thank you, ladies and gentlemen. This concludes today\'s meeting. Thank you for your participation. You can disconnect now.