Market Snapshot
  • U.S.
  • Europe
  • Asia
Ticker Volume Price Price Delta
DJIA 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 2.54 0.14%
NASDAQ 4,095.52 9.29 0.23%
Ticker Volume Price Price Delta
STOXX 50 3,155.81 16.55 0.53%
FTSE 100 6,625.25 41.08 0.62%
DAX 9,409.71 91.89 0.99%
Ticker Volume Price Price Delta
NIKKEI 14,512.38 -3.89 -0.03%
TOPIX 1,171.40 -1.97 -0.17%
HANG SENG 22,760.24 64.23 0.28%

Momentive Specialty Chemicals Inc. Announces Third Quarter 2012 Results



  Momentive Specialty Chemicals Inc. Announces Third Quarter 2012 Results

Business Wire

COLUMBUS, Ohio -- November 13, 2012

Momentive Specialty Chemicals Inc. (“Momentive Specialty Chemicals” or the
“Company”) today announced results for the third quarter ended September 30,
2012. Results for the third quarter of 2012 include:

  * Revenues of $1.2 billion versus $1.3 billion in the third quarter of 2011.
  * Operating income of $51 million compared to operating income of $101
    million for the prior year period. Third quarter 2012 operating income
    reflected lower volumes and unfavorable product mix shift, partially
    offset by the positive impact of savings from the shared services
    agreement with Momentive Performance Materials Inc. (MPM).
  * Net income of $364 million versus net income of $39 million in the prior
    year period. Third quarter 2012 results reflect the same factors impacting
    operating income and a $373 million tax benefit as a result of the release
    of a significant portion of the Company's valuation allowance in the
    United States.
  * Segment EBITDA totaled $115 million compared to $162 million during the
    prior year period.

“Our overall results reflected the economic volatility we experienced in the
third quarter of 2012,” said Craig O. Morrison, Chairman, President and CEO.
“Our Forest Products business continues to reflect the improving North
American housing climate, continued year-over-year growth in our formaldehyde
business and strong demand in Latin America. However, declines in our base
epoxy resins and oilfield businesses negatively impacted our Epoxy, Phenolic
and Coatings Division. Our specialty product portfolio and end market
diversity continues to support our long-term growth plans.”

“We continue to make steady progress achieving savings from the shared
services agreement with Momentive Performance Materials Inc. During the first
nine months of 2012, we realized approximately $19 million in cost savings as
a result of the Shared Services Agreement, bringing our total cumulative
savings to $49 million since the program was initiated in late 2010. We have
also identified $30 million of additional MSC savings from both the shared
services agreement and cost reduction initiatives that we expect to achieve
over the next 12 to 15 months as we further optimize our manufacturing
footprint and enhance our cost structure.”

“We were also pleased to generate $27 million in cash flow from operations in
the first nine months of 2012, a $55 million improvement compared to the prior
year. Going forward, we continue to focus aggressively on working capital
improvements and expect further improvements for the remainder of 2012.”

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the
three- and nine-months ended September 30, 2012 and 2011. Segment EBITDA is
defined as EBITDA adjusted to exclude certain non-cash and non-recurring
expenses. Segment EBITDA is an important measure used by the Company's senior
management and board of directors to evaluate operating results and allocate
capital resources among segments. Corporate and Other primarily represents
certain corporate, general and administrative expenses that are not allocated
to the segments. (Note: Segment EBITDA is defined and reconciled to Net Income
later in this release).

Net Sales to Unaffiliated Customers ^(1):

                Three Months Ended September 30,     Nine Months Ended
                                                     September 30,
                2012                2011             2012            2011
Epoxy,
Phenolic and    $   751             $  870           $  2,341        $  2,688
Coating
Resins
Forest
Products        426                 452              1,331           1,366
Resins
Total           $   1,177           $  1,322         $  3,672        $  4,054

(1) Intersegment sales are not significant and, as such, are eliminated within
the selling segment.

Segment EBITDA:

                     Three Months Ended September     Nine Months Ended
                     30,                              September 30,
                     2012             2011            2012          2011
Epoxy, Phenolic      $   76           $   126         $  291        $  433
and Coating Resins
Forest Products      49               46              151           141
Resins
Corporate and        (10      )       (10      )      (36     )     (45     )
Other
                                                                             

Reconciliation of Segment EBITDA to Net Income (Unaudited)

                         Three Months Ended           Nine Months Ended
                         September 30,                September 30,
                         2012          2011           2012          2011
Segment EBITDA:
Epoxy, Phenolic and      $  76         $  126         $  291        $  433
Coating Resins
Forest Products Resins   49            46             151           141
Corporate and Other      (10     )     (10     )      (36     )     (45     )
                                                                     
Reconciliation:
Items not included in
Segment EBITDA:
Asset impairments and    (5      )     (2      )      (53     )     (23     )
other non-cash charges
Business realignment     (11     )     (1      )      (29     )     (9      )
costs
Integration costs        (2      )     (5      )      (8      )     (15     )
Net income from
discontinued             —             —              —             2
operations
Other                    (2      )     (10     )      2             2        
Total adjustments        (20     )     (18     )      (88     )     (43     )
Interest expense, net    (66     )     (67     )      (198    )     (196    )
Income tax benefit       373           5              371           2
Depreciation and         (38     )     (43     )      (115    )     (127    )
amortization
Net income               $  364        $  39          $  376        $  165   
                                                                             

Liquidity and Capital Resources

At September 30, 2012, Momentive Specialty Chemicals had total debt of
approximately $3.5 billion, unchanged compared to December 31, 2011. In
addition, at September 30, 2012, the Company had $591 million in liquidity
comprised of $337 million of unrestricted cash and cash equivalents, $181
million of borrowings available under our senior secured revolving credit
facilities, and $73 million of borrowings available under additional credit
facilities at certain international subsidiaries.

At September 30, 2012, the Company was in compliance with all financial
covenants that govern its senior secured credit facilities, including its
senior secured debt to Adjusted EBITDA ratio. Momentive Specialty Chemicals
expects to have adequate liquidity to fund its ongoing operations for the next
twelve months from cash on its balance sheet, cash flows provided by operating
activities and amounts available for borrowings under its credit facilities.

Outlook

“As macroeconomic volatility and cyclicality in certain end markets are
expected to persist through year-end 2012, we remain focused on cost control
initiatives and managing our balance sheet,” Morrison said. “While we believe
it is prudent to bolster near-term profitability and liquidity, we also remain
committed to investing in our leading specialty product portfolio and global
footprint. Recently, for example, we began construction on our phenolic
specialty resins joint venture manufacturing facility in China that will serve
the region's growing auto and electronic end markets. Going forward, we
believe we remain well positioned for strong growth and free cash flow
generation due to our leading portfolio of thermoset resin technologies,
geographic and customer diversity and strategic investments in the
higher-growth regions.”

Earnings Call

Momentive Specialty Chemicals Inc. will host a teleconference to discuss third
quarter 2012 results on Tuesday, November 13, 2012, at 9 a.m. Eastern Time.

Interested parties are asked to dial-in approximately 10 minutes before the
call begins at the following numbers:

U.S. Participants: 800-706-7741
International Participants: 617-614-3471
Participant Passcode: 72710859

Live Internet access to the call and presentation materials will be available
through the Investor Relations section of the Company's website:
www.momentive.com.

A replay of the call will be available for three weeks beginning at 12 p.m.
Eastern Time on November 13, 2012. The playback can be accessed by dialing
888-286-8010 (U.S.) and + 617-801-6888 (International). The passcode is
71260412. A replay also will be available through the Investor Relations
Section of the Company's website.

Covenant Compliance

Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain
non-cash and non-recurring costs and to reflect other permitted adjustments
(including the expected future impact of announced acquisitions and in-process
cost saving initiatives), in each case as determined under the governing debt
agreement. Certain covenants and tests in the Company's debt agreements (i)
require the Company to maintain a leverage ratio and (ii) restrict the
Company's ability to take certain actions such as incurring additional debt or
making certain acquisitions if the Company is unable to meet a fixed charge
coverage ratio. Our senior credit facility requires that the Company's ratio
of senior secured debt to Adjusted EBITDA (measured on a trailing four-quarter
basis) not exceed 4.25 to 1.00 as of the last day of each fiscal quarter.
Senior secured debt is defined to include borrowings under our senior credit
facility and certain other indebtedness secured by liens (not including
indebtedness secured by second-priority liens or certain indebtedness of our
foreign subsidiaries that are not loan parties to our senior credit facility).
Under the indentures governing certain of the Company's debt instruments, the
Company's ability to incur additional indebtedness and make future
acquisitions is restricted unless the Company has an Adjusted EBITDA to Fixed
Charges ratio (measured on a trailing four-quarter basis) of 2.0:1.0. Fixed
charges are defined as interest expense excluding the amortization or
write-off of deferred financing costs. Failure to comply with these ratios can
result in limiting long-term growth prospects by hindering the Company's
ability to incur future indebtedness or grow through acquisitions.

The Company believes that including the supplemental adjustments applied in
presenting Adjusted EBITDA in the indentures governing certain of the
Company's debt instruments is appropriate to assess the Company's future
ability to incur additional indebtedness or make future acquisitions. Adjusted
EBITDA and fixed charges are not defined terms under accounting principles
generally accepted in the United States of America (US GAAP). Adjusted EBITDA
is not intended to represent any measure of earnings or cash flow in
accordance with US GAAP and the Company's calculation and use of this measure
may differ from other companies. These non-GAAP measures should not be used in
isolation or as a substitute for measures of performance or liquidity.
Adjusted EBITDA should not be considered an alternative to operating income or
net loss under US GAAP to evaluate the Company's results of operations or as
an alternative to cash flows as a measure of liquidity. Fixed Charges should
not be considered an alternative to interest expense.

Reconciliation of Last Twelve Month Net Income to Adjusted EBITDA

The following table reconciles net loss to EBITDA and Adjusted EBITDA, as
calculated under certain of the Company's indentures, for the period
presented:

                                                   September 30, 2012
                                                   LTM Period
Reconciliation of Net Income to Adjusted EBITDA
Net income                                         $     329
Income tax benefit                                 (366          )
Interest expense, net                              264
Depreciation and amortization                      155            
EBITDA                                             382
Adjustments to EBITDA:
Asset impairments and other non-cash charges^(1)   70
Business realignments ^(2)                         34
Integration costs ^(3)                             19
Other ^(4)                                         23
Cost reduction programs savings ^(5)               16
Savings from Shared Services Agreement^(6)         14             
Adjusted EBITDA                                    $     558      
Fixed charges ^(7)                                 $     252      
Ratio of Adjusted EBITDA to Fixed Charges ^(8)     2.21           

(1) Represents asset impairments, stock-based compensation, accelerated
depreciation on closing facilities and unrealized foreign exchange and
derivative activity.

(2) Represents headcount reduction expenses and plant rationalization costs
related to cost reduction programs and other costs associated with business
realignments.

(3) Primarily represents integration costs associated with the Momentive
Combination.

(4) Primarily includes pension expense related to formerly owned businesses,
business optimization expenses, management fees, retention program costs, and
certain intercompany or non-operational realized foreign currency activity.

(5) Represents pro forma impact of in-process cost reduction programs savings.

(6) Primarily represents pro forma impact of expected savings from the Shared
Services Agreement with MPM in conjunction with the Momentive Combination.

(7) Reflects pro forma interest expense based on interest rates at November 5,
2012, as if the March Refinancing Transactions had taken place at the
beginning of the period.

(8) The Company’s ability to incur additional indebtedness is restricted under
the indentures governing certain notes, unless the Company has an Adjusted
EBITDA to Fixed Charges ratio of 2.0 to 1.0. As of September 30, 2012, the
Company was able to satisfy this test.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements within
the meaning of and made pursuant to the safe harbor provisions of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. In addition, our management may from time to
time make oral forward-looking statements. All statements, other than
statements of historical facts, are forward-looking statements.
Forward-looking statements may be identified by the words “believe,” “expect,”
“anticipate,” “project,” “plan,” “estimate,” “may,” “will,” “could,” “should,”
“seek” or “intend” and similar expressions. Forward-looking statements reflect
our current expectations and assumptions regarding our business, the economy
and other future events and conditions and are based on currently available
financial, economic and competitive data and our current business plans.
Actual results could vary materially depending on risks and uncertainties that
may affect our operations, markets, services, prices and other factors as
discussed in the Risk Factors section of our most recent Annual Report on Form
10-K and our other filings with the Securities and Exchange Commission (the
“SEC”). While we believe our assumptions are reasonable, we caution you
against relying on any forward-looking statements as it is very difficult to
predict the impact of known factors, and it is impossible for us to anticipate
all factors that could affect our actual results. Important factors that could
cause actual results to differ materially from those in the forward-looking
statements include, but are not limited to, a weakening of global economic and
financial conditions, interruptions in the supply of or increased cost of raw
materials, changes in governmental regulations and related compliance and
litigation costs, difficulties with the realization of cost savings in
connection with our strategic initiatives, including transactions with our
affiliate, Momentive Performance Materials Inc., pricing actions by our
competitors that could affect our operating margins, the impact of our
substantial indebtedness, our failure to comply with financial covenants under
our credit facilities or other debt, and the other factors listed in the Risk
Factors section of our most recent Annual Report on Form 10-K and in our other
SEC filings, including our quarterly reports on Form 10-Q. For a more detailed
discussion of these and other risk factors, see the Risk Factors section in
our most recent Annual Report on Form 10-K and our other filings made with the
SEC. All forward-looking statements are expressly qualified in their entirety
by this cautionary notice. The forward-looking statements made by us speak
only as of the date on which they are made. Factors or events that could cause
our actual results to differ may emerge from time to time. We undertake no
obligation to publicly update or revise any forward-looking statement as a
result of new information, future events or otherwise, except as otherwise
required by law.

About the Company

Based in Columbus, Ohio, Momentive Specialty Chemicals Inc. (formerly known as
Hexion Specialty Chemicals, Inc.) is the global leader in thermoset resins.
Momentive Specialty Chemicals Inc. serves the global wood and industrial
markets through a broad range of thermoset technologies, specialty products
and technical support for customers in a diverse range of applications and
industries. Momentive Specialty Chemicals Inc. is an indirect wholly owned
subsidiary of Momentive Performance Materials Holdings LLC.

About Momentive

Momentive Performance Materials Holdings LLC (“Momentive”) is the ultimate
parent company of Momentive Performance Materials Inc. and Momentive Specialty
Chemicals Inc. Momentive is a global leader in specialty chemicals and
materials, with a broad range of advanced specialty products that help
industrial and consumer companies support and improve everyday life. Its
technology portfolio delivers tailored solutions to meet the diverse needs of
its customers around the world. Momentive was formed in October 2010 through
the combination of entities that indirectly owned Momentive Performance
Materials Inc. and Hexion Specialty Chemicals Inc. The capital structures and
legal entity structures of both Momentive Performance Materials Inc. and
Momentive Specialty Chemicals Inc. (formerly known as Hexion Specialty
Chemicals, Inc.), and their respective subsidiaries and direct parent
companies, remain separate. Momentive Performance Materials Inc. and Momentive
Specialty Chemicals Inc. file separate financial and other reports with the
Securities and Exchange Commission. Momentive is controlled by investment
funds affiliated with Apollo Global Management, LLC. Additional information
about Momentive and its products is available at www.momentive.com.

(See Attached Financial Statements)

 
MOMENTIVE SPECIALTY CHEMICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
                               Three Months Ended        Nine Months Ended
                               September 30,             September 30,
(In millions)                  2012        2011          2012        2011
Net sales                      $ 1,177     $ 1,322       $ 3,672     $ 4,054
Cost of sales                  1,037       1,137         3,182       3,445    
Gross profit                   140         185           490         609
Selling, general and           74          82            238         253
administrative expense
Asset impairments              —           —             23          18
Business realignment costs     11          1             29          9
Other operating expense        4           1             13          (20     )
(income), net
Operating income               51          101           187         349
Interest expense, net          66          67            198         196
Other non-operating (income)   (2      )   5             (1      )   3        
expense, net
(Loss) income from
continuing operations before   (13     )   29            (10     )   150
income tax and earnings from
unconsolidated entities
Income tax benefit             (373    )   (5      )     (371    )   (2      )
Income from continuing
operations before earnings     360         34            361         152
from unconsolidated entities
Earnings from unconsolidated   4           5             15          11       
entities, net of taxes
Net income from continuing     364         39            376         163
operations
Net income from discontinued   —           —             —           2        
operations, net of taxes
Net income                     $ 364       $ 39          $ 376       $ 165    
                                                                              

 
MOMENTIVE SPECIALTY CHEMICALS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
(In millions, except share data)                September 30,     December 31,
                                                2012              2011
Assets
Current assets
Cash and cash equivalents (including            $   340           $  431
restricted cash of $3)
Short-term investments                          5                 7
Accounts receivable (net of allowance for
doubtful accounts of $17 and $19,               637               592
respectively)
Inventories:
Finished and in-process goods                   294               254
Raw materials and supplies                      118               103
Other current assets                            97                72         
Total current assets                            1,491             1,459      
Deferred income taxes                           362               4
Other assets, net                               171               165
Property and equipment
Land                                            89                88
Buildings                                       296               298
Machinery and equipment                         2,343             2,300      
                                                2,728             2,686
Less accumulated depreciation                   (1,571     )      (1,477    )
                                                1,157             1,209
Goodwill                                        167               167
Other intangible assets, net                    93                104        
Total assets                                    $   3,441         $  3,108   
Liabilities and Deficit
Current liabilities
Accounts and drafts payable                     $   421           $  393
Debt payable within one year                    73                117
Affiliated debt payable within one year         2                 2
Interest payable                                60                61
Income taxes payable                            5                 15
Accrued payroll and incentive compensation      42                57
Other current liabilities                       145               132        
Total current liabilities                       748               777        
Long-term liabilities
Long-term debt                                  3,426             3,420
Long-term pension and post employment benefit   205               223
obligations
Deferred income taxes                           65                72
Other long-term liabilities                     162               156
Advance from affiliates                         —                 225        
Total liabilities                               4,606             4,873      
Commitments and contingencies
Deficit
Common stock—$0.01 par value; 300,000,000
shares authorized, 170,605,906 issued and       1                 1
82,556,847 outstanding at September 30, 2012
and December 31, 2011
Paid-in capital                                 752               533
Treasury stock, at cost—88,049,059 shares       (296       )      (296      )
Note receivable from parent                     (24        )      (24       )
Accumulated other comprehensive income          22                17
Accumulated deficit                             (1,621     )      (1,997    )
Total Momentive Specialty Chemicals Inc.        (1,166     )      (1,766    )
shareholder’s deficit
Noncontrolling interest                         1                 1          
Total deficit                                   (1,165     )      (1,765    )
Total liabilities and deficit                   $   3,441         $  3,108   
                                                                             

 
MOMENTIVE SPECIALTY CHEMICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
                                                             Nine Months Ended
                                                             September 30,
(In millions)                                                2012      2011
Cash flows provided by (used in) operating activities
Net income                                                   $ 376     $ 165
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization                                115       128
Deferred tax benefit                                         (388  )   (19   )
Non-cash asset impairments and accelerated depreciation      31        18
Unrealized foreign currency losses                           18        1
Other non-cash adjustments                                   5         (2    )
Net change in assets and liabilities:
Accounts receivable                                          (81   )   (147  )
Inventories                                                  (58   )   (88   )
Accounts and drafts payable                                  40        31
Income taxes payable                                         (2    )   (9    )
Other assets, current and non-current                        14        (28   )
Other liabilities, current and long-term                     (43   )   (78   )
Net cash provided by (used in) operating activities          27        (28   )
Cash flows (used in) provided by investing activities
Capital expenditures                                         (92   )   (109  )
Proceeds from sale of (purchases of) debt securities, net    2         (3    )
Change in restricted cash                                    —         3
Funds remitted to unconsolidated affiliates                  (1    )   (5    )
Proceeds from sale of business, net of cash transferred      —         173
Proceeds from sale of assets                                 10        3      
Net cash (used in) provided by investing activities          (81   )   62     
Cash flows used in financing activities
Net short-term debt (repayments) borrowings                  (7    )   11
Borrowings of long-term debt                                 451       455
Repayments of long-term debt                                 (479  )   (507  )
Repayment of advance from affiliates                         (7    )   —
Capital contribution from parent                             16        —
Long-term debt and credit facility financing fees            (13   )   (1    )
Distribution paid to parent                                  (2    )   (1    )
Net cash used in financing activities                        (41   )   (43   )
Effect of exchange rates on cash and cash equivalents        4         (3    )
Decrease in cash and cash equivalents                        (91   )   (12   )
Cash and cash equivalents (unrestricted) at beginning of     428       180    
period
Cash and cash equivalents (unrestricted) at end of period    $ 337     $ 168  

Contact:

Momentive Specialty Chemicals Inc.
Investors and Media:
John Kompa, 614-225-2223
john.kompa@momentive.com
Sponsored Links
Advertisement
Advertisements
Sponsored Links
Advertisement