COLUMBUS, OH, April 1, 2013 (Business Wire) -
Momentive Specialty Chemicals Inc. ("Momentive Specialty Chemicals" or the "Company") today announced results for the fourth quarter and year ended December 31, 2012. Results for the fourth quarter of 2012 include:
Revenues of $1.1 billion versus $1.2 billion in the fourth quarter of 2011.
Operating income of $15 million compared to operating income of $19 million for the prior year period. Fourth 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"). Fourth quarter 2012 operating income was also negatively impacted by $8 million due to a temporary manufacturing outage at one of our epoxy resin facilities.
Net loss of $(52) million versus net loss of $(47) million in the prior year period. Fourth quarter 2012 results reflect the same factors impacting operating income.
Segment EBITDA totaled $84 million compared to $106 million during the prior year period.
Fiscal year 2012 results include:
Revenues of $4.8 billion in 2012 compared to $5.2 billion during the prior year period driven primarily by the impact of volume decreases of $260 million and unfavorable foreign currency translation of $193 million.
Operating income of $202 million in 2012 compared to operating income of $368 million for the prior year period. Full-year 2012 operating income reflected the same trends as the fourth quarter of 2012. Selling, general and administrative expense decreased by $13 million due to lower project and transaction costs, as well as various cost reduction initiatives.
Net income of $324 million in 2012 versus net income of $118 million in 2011. 2012 and 2011 results reflect the same factors impacting operating income. 2012 net income also reflected a $365 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 $490 million in 2012 compared to $635 million in 2011. In addition, the Company reported Adjusted EBITDA for the last twelve months of $530 million, which includes cost reduction program savings, as well as savings that the Company expects to achieve in connection with the shared services agreement with MPM.
"Fourth quarter 2012 reflected strong results in our forest products business with EBITDA gains in all geographic regions within the Forest Products Resins segment, offset by continued headwinds in our oilfield and base epoxy resins businesses," said Craig O. Morrison, Chairman, President and CEO. "Considering the economic volatility we continue to experience, particularly in Europe, we are aggressively pursuing our cost reduction initiatives and the savings from the shared services agreement with MPM. Between these two programs, as of year-end 2012, we have identified an incremental $25 million in cost savings that we expect to achieve over the next 12 to 15 months."
"To address the softer demand we experienced in some of our end markets in 2012, we took the necessary actions to rationalize our manufacturing footprint throughout the year. At the same time, we continued to refocus our investments in higher growth regions of the world. For example, our growth projects, such as a phenolic resins joint venture in China and a new acrylic resins plant in Thailand, remain on track to begin operations in 2013. We were also pleased to recently form a strategic joint venture, Momentive Specialty Chemicals Australia Pty Ltd, to serve forest products customers in Australia and New Zealand. Our oilfield business also continued to expand its reach through the opening of another transload site in early February as we further strengthen our presence in the various shale drilling regions."
"We continue to carefully manage our balance sheet and were pleased to generate $177 million in cash from operations in 2012. Net working capital also totaled $476 million at year-end 2012, a decrease of $92 million compared to December 31, 2011. We will continue to carefully focus on carefully managing liquidity and cash flows."
"Finally, we successfully completed refinancing portions of our capital structure in the first quarter of 2013, which further extended our debt maturity profile. Following these transactions, we do not have any material debt maturities prior to 2018."
Following are net sales and Segment EBITDA by reportable segment for the fourth quarter and twelve-months ended December 31, 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.
In January 2013, the Company issued $1.1 billion aggregate principal amount of 6.625% First-Priority Senior Secured Notes due 2020 at an issue price of 100.75% (the "New First-Priority Senior Secured Notes"). The Company used the net proceeds of $1.108 billion ($1.1 billion plus a premium of $8 million) to repay approximately $910 million of term loans under the Company's senior secured credit facilities, to purchase and redeem $120 million principal amount of the Company's Floating Rate Second-Priority Senior Secured Notes due 2014, to pay related transaction costs and expenses and to provide incremental liquidity of $54 million. The New First-Priority Senior Secured Notes were issued as additional notes under the indenture governing the Company's existing 6.625% First-Priority Senior Secured Notes due 2020 and have the same terms as such notes.
In January 2013, the Company also issued $200 million aggregate principal amount of 8.875% Senior Secured Notes due 2018 (the "New Senior Secured Notes"). The New Senior Secured Notes were issued to lenders in exchange for loans of MSC Holdings, which were retired in full. The New Senior Secured Notes were issued as additional notes under the indenture governing the Company's existing 8.875% Senior Secured Notes due 2018 and have the same terms as such notes.
Additionally, in late March 2013, the Company entered into a new $400 million asset-based revolving loan facility, which is subject to a borrowing base (the "ABL Facility"). The ABL facility replaced the Company's senior secured credit facilities, which included a $171 million revolving credit facility and a $47 million synthetic letter of credit facility at the time of the termination of such facilities upon the Company's entry into the ABL Facility.
Liquidity and Capital Resources
At December 31, 2012, Momentive Specialty Chemicals had total debt of approximately $3.5 billion, unchanged compared to December 31, 2011. In addition, at December 31, 2012, the Company had $666 million in liquidity comprised of $401 million of unrestricted cash and cash equivalents, $180 million of borrowings available under our senior secured revolving credit facilities, and $85 million of borrowings available under additional credit facilities at certain international subsidiaries.
At December 31, 2012, the Company was in compliance with all financial covenants that governed 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.
"Looking ahead, our broad product portfolio, diversified customer base and international footprint should help us navigate the expected economic volatility in 2013," Morrison said. "Our overall volumes are expected to be moderately higher in 2013 versus 2012. We expect our results to be supported by continued strength in North American housing while other product lines, such as oilfield proppants and base epoxy resins, continue to recover. Our focus remains on driving costs out of the business wherever possible while strategically investing in our specialty portfolio."
The instruments that govern the Company's indebtedness contain, among other provisions, restrictive covenants (and incurrence tests in certain cases) regarding indebtedness, dividends and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and, in one case, the maintenance of a financial ratio (depending on certain conditions beginning in March 2013).
The financial maintenance covenant in the credit agreement governing our senior secured credit facilities, which was terminated in March 2013, required us to have a senior secured debt to Adjusted EBITDA ratio equal to or less than 4.25:1 as of the last day of any fiscal quarter. The indentures that govern our 6.625% First-Priority Senior Secured Notes, 8.875% Senior Secured Notes and 9.00% Second-Priority Senior Secured Notes (collectively, the "Secured Indentures") contain an Adjusted EBITDA to Fixed Charges ratio incurrence test which restricts our ability to take certain actions such as incurring additional debt or making acquisitions if we are unable to meet this ratio (measured on a last twelve months, or LTM, basis) of at least 2.0:1. The Fixed Charge Coverage Ratio under the Secured Indentures is generally defined as the ratio (a) of Adjusted EBITDA to (b) net interest expense excluding the amortization or write-off of deferred financing costs, each measured on a last twelve months, or LTM, basis.
As indicated above, our new ABL Facility, which is subject to a borrowing base, replaced our senior secured credit facilities in March 2013. The financial maintenance covenant in the agreement governing the ABL Facility provides that if our availability under the ABL Facility is less than the greater of (a) $40 million and (b) 12.5% of the lesser of the borrowing base and the total ABL Facility commitments at such time, we are required to have an Adjusted EBITDA to Fixed Charges ratio (measured on a last twelve months, or LTM, basis) of at least 1.0 to 1.0 as of the last day of any fiscal quarter. The Fixed Charge Coverage Ratio under the agreement governing the ABL Facility is generally defined as the ratio (a) of Adjusted EBITDA minus non-financed capital expenditures and cash taxes to (b) debt service plus certain restricted payments, each measured on a last twelve months, or LTM, basis. If the ABL Facility was in effect as of December 31, 2012, the Company would not have had to meet such minimum ratio because, based on its indebtedness as of December 31, 2012, calculated on a pro forma basis reflecting the 2013 refinancing transactions, the availability under the ABL Facility would not have been below such levels, In any event, as of December 31, 2012, the Adjusted EBITDA to Fixed Charges ratio exceeded such minimum ratio requirement.
Adjusted EBITDA is defined as EBITDA further adjusted for certain non-cash and non-recurring costs and other adjustments calculated on a pro forma basis, including the expected future cost savings from business optimization programs or other programs and the expected future impact of acquisitions, in each case as determined under the governing debt agreement. The Company believes that including the supplemental adjustments that are made to calculate Adjusted EBITDA provides additional information to investors about the Company's ability to comply with its financial covenants and to obtain additional debt in the future. Adjusted EBITDA and Fixed Charges are not defined terms under accounting principles generally accepted in the United States of America (U.S. GAAP). Adjusted EBITDA is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to net income (loss) determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. Additionally, EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense (because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue), working capital needs, tax payments (because the payment of taxes is part of our operations, it is a necessary element of our costs and ability to operate), non-recurring expenses and capital expenditures. Fixed Charges under the Secured Indentures should not be considered an alternative to interest expense.
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.
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.