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Hexion Specialty Chemicals Reports First Quarter 2009 Results

Published on 2009-05-12. Author : SpecialChem

COLUMBUS, Ohio -- Hexion Specialty Chemicals, Inc., reported its results for the first quarter ended March 31, 2009. Results for the first quarter of 2009 include:

  • Revenues of $914 million in the first quarter of 2009 compared to $1.64 billion during the prior year period as the sales decline reflected lower volumes and the contractual pass through of lower raw material prices, which more than offset pricing actions in certain specialty product lines.
  • Operating income of $12 million for the first quarter of 2009 versus operating income of $83 million for the comparable prior year period. The decline in operating income in the current year period primarily reflected lower sales compared to the prior year. First quarter 2009 operating income also benefited from incremental productivity actions and a $21 million decrease in selling, general and administrative (SG&A) costs compared to the first quarter of 2008, as well as the reduction of $30 million in previously accrued expenses associated with the terminated transaction with Huntsman Corporation.
  • Net income attributable to Hexion Specialty Chemicals, Inc. of $116 million for the 2009 quarter versus a net loss of $12 million in the prior year period. First quarter 2009 net income included a $168 million gain from the early extinguishment of debt as Hexion purchased portions of its outstanding debt for amounts less than the face value of the debt securities.
  • Segment EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $61 million in the first quarter of 2009 compared to $154 million during the prior year period. Lower volumes and reduced operating rates negatively impacted first quarter Segment EBITDA. (Note: Segment EBITDA is a non-GAAP financial measure and is defined and reconciled to Net Income later in this release.)

"Our first quarter 2009 sales reflected the pass through of lower raw material costs to our customers, weak demand across many of our markets and the negative impact of customers continuing to carefully manage their inventory levels," said Craig O. Morrison, Chairman, President and CEO. "First quarter 2009 Segment EBITDA improved sequentially compared to 2 the fourth quarter of 2008, although EBITDA declined versus the prior year due to lower sales and unfavorable operating efficiencies related to lower volumes, offset by our ongoing focus on controlling expenses as productivity actions during the quarter drove cost reductions across all functional areas. In addition, our first quarter 2009 earnings were supported by strong results from our Performance Products segment, which posted record quarterly Segment EBITDA of $25 million primarily due to positive pricing and favorable product mix within our Oilfield products."

"In response to the economic downturn, we continue to aggressively focus on the items that management can control, such as running our plants as efficiently as possible and continually reassessing our productivity targets. We also continue to focus on cash management, evidenced by working capital improvements in the first quarter of 2009. We were pleased that we were able to reduce our net debt in the first quarter of 2009 by approximately $300 million, including our previously announced repurchase of debt detailed below, while maintaining liquidity in excess of $400 million."

Productivity and Synergy Update

The Company continued to steadily implement its restructuring actions. In the first quarter of 2009, the Company achieved $22 million in productivity savings, while expanding its targeted productivity initiatives by an additional $53 million.

Hexion expects that it will achieve approximately $125 million in incremental productivity savings during 2009, with the remaining $25 million in targeted productivity actions occurring in 2010. The Company expects to incur $75 million to achieve these savings and will fund these costs through working capital reductions.

"Our cost reduction initiatives are on track and additional measures will be taken as needed to right-size operations to the business environment," Morrison said.

Reconciliation of Last Twelve Month Net Loss to Adjusted EBITDA

Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash and certain non-recurring costs. Adjusted EBITDA also includes expected future cost savings and other adjustments permitted in calculating covenant compliance under the indentures governing certain of the Company's debt instruments and the Company's senior credit facility. Certain covenants in these agreements (i) require the Company to maintain 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). The covenant to incur additional indebtedness and the ability to make future acquisitions requires an Adjusted EBITDA to Fixed Charges ratio (measured on a trailing four8 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 covenants 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 is appropriate to provide additional information to investors to demonstrate compliance with financial covenants and assess the Company's future ability to incur additional indebtedness. 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.

Forward Looking Statements

Certain statements in this press release are forward-looking statements within the meaning 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, the management of Hexion Specialty Chemicals, Inc. (which may be referred to as "Hexion," "we," "us," "our" or the "Company") may from time to time make oral forward-looking statements. Forward looking statements may be identified by the words "believe," "expect," "anticipate," "project," "plan," "estimate," "will" or "intend" or similar expressions. Forward-looking statements reflect our current views about future events and are based on currently available financial, economic and competitive data and on our current business plans. Actual results could vary materially depending on risks and uncertainties that may affect our markets, services, prices and other factors as discussed in our 2008 Annual Report on Form 10-K, and our other filings, with the Securities and Exchange Commission (SEC). Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: economic factors such as the current credit crises and economic downturn and their related impact on liquidity and an interruption in the supply of or increased pricing of raw materials due to natural disasters; competitive factors such as pricing actions by our competitors that could affect our operating margins; and regulatory factors such as changes in governmental regulations involving our products that lead to environmental and legal matters as described in our 2008 Annual Report on Form 10-K, and our other reports, with the SEC.

About Hexion Specialty Chemicals

Based in Columbus, Ohio, Hexion Specialty Chemicals 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.

Source: Hexion Speciality Chemicals


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