Exhibit 99
FOR IMMEDIATE RELEASE
Borden Chemical Reports Results for
Fourth Quarter and Fiscal Year 2004
COLUMBUS, Ohio – (March 16, 2005) – Borden Chemical, Inc. today reported its results for the fourth quarter and year ended December 31, 2004. Highlights include:
| | • | | quarterly volume growth of 3.7 percent and annual volume growth of 6 percent; |
| | • | | quarterly earnings before interest, taxes, depreciation and amortization (Segment EBITDA) of $40.2 million, an increase of 13.3 percent versus previous year period, and full-year segment EBITDA of $154.5 million, an increase of 20.9 percent over the previous year; |
| | • | | quarterly adjusted EBITDA of $44.7 million and full-year adjusted EBITDA of $172.7 million. |
| | • | | quarterly net income of $6.5 million and an annual net loss of $179.7 million due to one-time sale related costs and tax write-offs. |
“Our strong operating results for the fourth quarter and full year demonstrate the ability of our businesses to generate consistent, positive results,” said Craig O. Morrison, president and chief executive officer. “We continue to focus on providing customers with products and services that solve their application needs, while managing our margins and controlling costs.”
Fourth Quarter Results
Sales for the fourth quarter totaled $454.7 million versus $356.5 million for the same period last year, with the 27.6 percent increase resulting primarily from higher average selling prices and volume improvement. The sales volume increase of 3.7 percent for the period reflects continued strength in domestic and international wood markets, as well as strong volume growth in industrial resins and oilfield products.
Earnings before interest, taxes, depreciation and amortization (Segment EBITDA) totaled $40.2 million for the quarter versus $35.5 million for the fourth quarter 2003.Higher volumes and selling prices more than offset increased raw material costs during the period. (Segment EBITDA is considered by management to be a key measure of operating performance. Additional detail regarding this metric and a reconciliation of Segment EBITDA to net income (loss) as reported under generally accepted accounting principles, or GAAP, is included as part of this press release.) Adjusted EBITDA for the quarter was $44.7 million. (Adjusted EBITDA is defined as EBITDA
adjusted to exclude unusual items 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.)
The company’s operating income for the quarter was $22.9 million versus operating income of $5 million for the previous year period, with the increase driven largely by improved margins and a $11 million decrease in business realignment expense and impairments versus the fourth quarter 2003.
The company recorded net income for the fourth quarter period of $6.5 million compared with a net loss of $4.8 million for the fourth quarter 2003. The improvement was due primarily to enhanced operating results, which were partially offset by higher interest expense.
Quarterly BUSINESS SEGMENT RESULTS
North American Forest Products
North American Forest Products net sales increased $60.2 million, or 32.7 percent, to $244 million in the fourth quarter compared with the same period in 2003, while Segment EBITDA increased $5.6 million, or 24.2 percent. The sales increase resulted from improved volumes reflecting continued strength in the housing and furniture markets and strong board pricing. The sales increase also resulted from Borden Chemical’s ability to pass through raw material price increases, and favorable product mix. The Segment EBITDA improvement primarily reflects improved product contribution margins despite record high costs for key raw materials, as well as reduced operating costs.
North American Performance Resins
North American Performance Resins net sales increased $24.1 million, or 27.5 percent, to $111.9 million during the period from the previous year period, primarily due to improved volumes and increased selling prices. Volume improvements in the foundry resins, industrial and oilfield resins businesses were partially offset by volume declines in the laminate and melamine derivatives segment. Segment EBITDA increased $1.9 million, or 17.2 percent, versus the comparable period last year driven by sales and volume improvements as well as improved product mix.
International Operations
International net sales increased $13.9 million, or 16.4 percent, to $98.8 million in the fourth quarter compared to the same period in 2003. Improved European volumes, higher selling prices related to the pass through of increased raw material costs and foreign currency translation across all regions were the significant factors driving the sales increase. Segment EBITDA decreased $0.8 million, or 8.9 percent, reflecting reduced margins due to pricing pressures as well as costs of $1.3 million associated with a mechanical failure at a Brazilian formaldehyde plant. The company believes the majority of the impact of the mechanical failure is covered by insurance.
Results For 2004
For the full year ended December 31, 2004, Borden Chemical generated sales of $1.69 billion compared with sales of $1.43 billion for the same period in 2003. Operating income was $73.6 million versus $66.5 million in 2003. Segment EBITDA was $154.5 million, versus $127.7 million for 2003. Year-over-year sales volumes increased 6 percent. The company recorded a net loss of $179.7 million for the year, compared with 2003 net income of $23 million. The 2004 loss included a non-cash charge of $137.1 million recorded in the second quarter related to the company’s ability to utilize net deferred tax assets on a go-forward basis, and $69 million in legacy legal, unusual and transaction-related expenses. Adjusted EBITDA for the year was $172.7 million.
Update on Bakelite Acquisition
On October 7, Borden Chemical announced the signing of a definitive agreement to acquire Bakelite AG from its parent company, Rütgers AG. Borden Chemical will use a combination of debt and cash to finance the transaction. The company anticipates closing the acquisition in the second quarter 2005.
Segment EBITDA and Adjusted EBITDA to GAAP Reconciliation
Borden Chemical uses Segment EBITDA as the primary measure of its performance because management believes it provides a more complete understanding of the company’s financial condition and operating results. Management uses Segment EBITDA to calculate various financial ratios and to measure company performance, and believes some debt investors also utilize this metric for similar purposes. Segment EBITDA is intended to show unleveraged, pre-tax operating results. This is the profitability measure the company uses to set management and executive compensation. Segment EBITDA is not intended to represent any measure of performance in accordance with generally accepted accounting principles, or GAAP, and Borden Chemical’s calculation and use of this measure may differ from other companies. This non-GAAP measure should not be used in isolation or as a substitute for a measure of performance or liquidity and should not be considered an alternative to net income under GAAP for purposes of evaluating our results of operations, prepared in accordance with GAAP.
Adjusted EBITDA is defined as EBITDA adjusted to exclude unusual items 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. Borden Chemical believes that
the inclusion of supplemental adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors to demonstrate compliance with our financing covenants.
Reconciliation of Segment EBITDA and Adjusted EBITDA to Net (Loss) Income
(in thousands)
| | | | | | | | |
| | | Three Months ended December 31,
| |
| | | 2004
| | | 2003
| |
Net income (loss) | | $ | 6,477 | | | $ | (4,822 | ) |
Depreciation and amortization | | | 13,191 | | | | 12,643 | |
Adjustments to Segment EBITDA(a) | | | 4,099 | | | | 17,847 | |
Interest expense (including affiliated) | | | 21,620 | | | | 12,126 | |
Transaction related costs | | | 585 | | | | — | |
Other non-operating expense (income) | | | (1,120 | ) | | | 1,040 | |
Income tax benefit | | | (4,692 | ) | | | (3,388 | ) |
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Segment EBITDA | | $ | 40,160 | | | $ | 35,446 | |
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Management fees (b) | | | 1,098 | | | | 839 | |
Brazil reactor impact (b) | | | 1,300 | | | | — | |
Full year impact of acquisitions (b) | | | (495 | ) | | | 654 | |
Cost savings (b) | | | 925 | | | | 1,725 | |
Benefit plan subsidy amendment (b) | | | 75 | | | | 375 | |
Purchasing power savings (b) | | | 1,625 | | | | 1,625 | |
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Adjusted EBITDA | | $ | 44,688 | | | $ | 40,664 | |
Reconciliation of Segment EBITDA and Adjusted EBITDA to Net (Loss) Income
(in thousands)
| | | | | | | | |
| | | Twelve Months ended December 31,
| |
| | | 2004
| | | 2003
| |
Net (loss) income | | $ | (179,668 | ) | | $ | 22,976 | |
Depreciation and amortization | | | 49,724 | | | | 47,319 | |
Adjustments to Segment EBITDA(a) | | | 31,150 | | | | 13,885 | |
Interest expense (including affiliated) | | | 64,321 | | | | 46,696 | |
Transaction related costs | | | 41,322 | | | | — | |
Other non-operating expense | | | 1,265 | | | | 1,529 | |
Income tax expense (benefit) | | | 146,337 | | | | (4,659 | ) |
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Segment EBITDA | | $ | 154,451 | | | $ | 127,746 | |
| | |
Management fees (b) | | | 2,608 | | | | 3,350 | |
Brazil reactor impact (b) | | | 3,000 | | | | — | |
Full year impact of acquisitions (b) | | | — | | | | 3,579 | |
9 Cost savings (b) | | | 4,900 | | | | 11,900 | |
Benefit plan subsidy amendment (b) | | | 1,200 | | | | 7,656 | |
Purchasing power savings (b) | | | 6,500 | | | | 6,500 | |
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Adjusted EBITDA | | $ | 172,659 | | | $ | 160,731 | |
| (a) | Includes costs and income associated with business realignment activities, dispositions and legacy businesses. In addition, 2004 YTD amounts include acquisition-related management compensation costs of $14.3 million. |
| (b) | To arrive at Adjusted EBITDA, we are required to make adjustments to net income for management fees paid to our Sponsors, unusual operating impacts and certain pro forma adjustments. These pro forma adjustments include the full year impact of completed acquisitions, approved amendments to our post retirement plan and cost savings and purchasing savings we expect to achieve. |
CONSOLIDATED STATEMENTS OF OPERATIONS
BORDEN CHEMICAL, INC.
(unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31,
| | | Twelve Months Ended
December 31,
| |
(In thousands, except per share data)
| | 2004
| | | 2003
| | | 2004
| | | 2003
| |
Net sales | | $ | 454,748 | | | $ | 356,481 | | | $ | 1,686,021 | | | $ | 1,434,813 | |
Cost of goods sold | | | 371,902 | | | | 283,160 | | | | 1,361,482 | | | | 1,148,519 | |
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Gross margin | | | 82,846 | | | | 73,321 | | | | 324,539 | | | | 286,294 | |
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Distribution expense | | | 19,914 | | | | 16,998 | | | | 75,246 | | | | 66,383 | |
Marketing expense | | | 11,744 | | | | 10,724 | | | | 46,985 | | | | 42,398 | |
General & administrative expense | | | 26,617 | | | | 24,415 | | | | 122,231 | | | | 100,021 | |
Business realignment expense and impairments | | | 1,296 | | | | 12,133 | | | | 4,427 | | | | 4,748 | |
Other operating expense | | | 405 | | | | 4,095 | | | | 2,073 | | | | 6,202 | |
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Operating income | | | 22,870 | | | | 4,956 | | | | 73,577 | | | | 66,542 | |
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Interest expense | | | 21,620 | | | | 12,024 | | | | 64,183 | | | | 46,138 | |
Affiliated interest expense, net | | | — | | | | 102 | | | | 138 | | | | 558 | |
Transaction related costs | | | 585 | | | | — | | | | 41,322 | | | | — | |
Other non-operating (income) expense | | | (1,120 | ) | | | 1,040 | | | | 1,265 | | | | 1,529 | |
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Income (loss) before income tax | | | 1,785 | | | | (8,210 | ) | | | (33,331 | ) | | | 18,317 | |
Income tax (benefit) expense | | | (4,692 | ) | | | (3,388 | ) | | | 146,337 | | | | (4,659 | ) |
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Net income (loss) | | $ | 6,477 | | | $ | (4,822 | ) | | $ | (179,668 | ) | | $ | 22,976 | |
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Comprehensive income (loss) | | $ | 22,237 | | | $ | 9,206 | | | $ | (158,968 | ) | | $ | 60,420 | |
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Basic and Diluted Per Share Data | | | | | | | | | | | | | | | | |
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Net income (loss) – basic | | $ | 0.07 | | | $ | (0.02 | ) | | $ | (1.12 | ) | | $ | 0.11 | |
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Net income (loss) – dilutive | | $ | 0.07 | | | $ | (0.02 | ) | | $ | (1.12 | ) | | $ | 0.11 | |
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Average number of common shares outstanding during the period: | | | | | | | | | | | | | | | | |
Basic | | | 96,906 | | | | 199,308 | | | | 159,923 | | | | 199,310 | |
Dilutive | | | 96,906 | | | | 199,308 | | | | 159,923 | | | | 200,267 | |
CONSOLIDATED BALANCE SHEETS
BORDEN CHEMICAL, INC.
(unaudited)
(In thousands)
| | | | | | | | |
ASSETS
| | December 31,
2004
| | | December 31,
2003
| |
| | |
Current Assets | | | | | | | | |
Cash and equivalents | | $ | 122,111 | | | $ | 28,162 | |
Accounts receivable (less allowance for doubtful accounts of $10,197 in 2004 and $14,459 in 2003) | | | 226,235 | | | | 196,093 | |
Inventories: | | | | | | | | |
Finished and in-process goods | | | 55,656 | | | | 42,292 | |
Raw materials and supplies | | | 54,768 | | | | 38,819 | |
Deferred income taxes | | | 522 | | | | 27,085 | |
Other current assets | | | 22,469 | | | | 13,905 | |
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| | | | 481,761 | | | | 346,356 | |
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Other Assets | | | | | | | | |
Deferred income taxes | | | 3,582 | | | | 113,434 | |
Other assets | | | 49,732 | | | | 21,725 | |
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| | | | 53,314 | | | | 135,159 | |
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Property and Equipment | | | | | | | | |
Land | | | 32,945 | | | | 32,585 | |
Buildings | | | 103,504 | | | | 103,774 | |
Machinery and equipment | | | 733,285 | | | | 691,249 | |
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| | | | 869,734 | | | | 827,608 | |
Less accumulated depreciation | | | (421,728 | ) | | | (378,724 | ) |
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| | | | 448,006 | | | | 448,884 | |
| | |
Goodwill | | | 50,682 | | | | 57,516 | |
Other Intangible Assets | | | 10,351 | | | | 5,951 | |
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Total Assets | | $ | 1,044,114 | | | $ | 993,866 | |
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CONSOLIDATED BALANCE SHEETS
BORDEN CHEMICAL, INC.
(unaudited)
(In thousands, except share data)
| | | | | | | | |
LIABILITIES AND SHAREHOLDER’S DEFICIT
| | December 31,
2004
| | | December 31,
2003
| |
Current Liabilities | | | | | | | | |
Accounts and drafts payable | | $ | 222,173 | | | $ | 127,174 | |
Debt payable within one year | | | 11,588 | | | | 8,167 | |
Loans payable to affiliates | | | — | | | | 18,260 | |
Income taxes payable | | | 31,556 | | | | 34,977 | |
Interest payable | | | 26,022 | | | | 12,524 | |
Other current liabilities | | | 74,417 | | | | 71,546 | |
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| | | | 365,756 | | | | 272,648 | |
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Other Liabilities | | | | | | | | |
Long-term debt | | | 955,816 | | | | 529,966 | |
Non-pension postemployment benefit obligations | | | 114,502 | | | | 128,723 | |
Long-term pension obligations | | | 64,596 | | | | 66,656 | |
Other long-term liabilities | | | 92,269 | | | | 92,066 | |
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| | | | 1,227,183 | | | | 817,411 | |
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Commitments and Contingencies | | | | | | | | |
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Shareholder’s Deficit | | | | | | | | |
Common stock - $0.01 par value: authorized 300,000,000 shares, Issued 200,167,297, treasury 103,261,361, outstanding 96,905,936 in 2004; Issued 201,754,598, treasury 858,970, outstanding 200,895,628 in 2003 | | | 969 | | | | 2,009 | |
Paid-in capital | | | 1,274,358 | | | | 1,224,011 | |
Treasury stock | | | (295,881 | ) | | | — | |
Receivable from parent | | | (560,672 | ) | | | (512,094 | ) |
Deferred compensation | | | — | | | | (1,488 | ) |
Accumulated other comprehensive loss | | | (107,493 | ) | | | (128,193 | ) |
Accumulated deficit | | | (860,106 | ) | | | (680,438 | ) |
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| | | | (548,825 | ) | | | (96,193 | ) |
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Total Liabilities and Shareholder’s Deficit | | $ | 1,044,114 | | | $ | 993,866 | |
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Fourth Quarter and 2004 Year-end Results Conference Call Webcast
Borden Chemical will host a conference call and webcast today (Wednesday, March 16) at 2 p.m. ET to discuss its fourth quarter and year-end results. Members of the public can access the call athttp://www.bordenchem.com/aboutUs/WebCast.asp. A replay of the call will be available on the company website beginning at 5 pm that day for a period of 30 days.
About Borden Chemical
Borden Chemical is a leading producer of binding and bonding resins, performance adhesives, and the building-block chemical formaldehyde for various wood and industrial markets through its network of 48 manufacturing facilities in 9 countries. The company is owned by the investment firm Apollo Management, L.P. and is based in Columbus, Ohio. More information on Borden Chemical can be found on its website atwww.bordenchem.com.
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Forward-Looking Statements
Statements contained in this press release may include forward-looking information about the Company’s financial results and business prospects and are based on our currently available financial, economic and competitive data and on current business plans. Actual results could vary materially depending on risks and uncertainties that may affect the company’s operations, markets, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, industry and economic conditions, competitive, legal, governmental and technological factors. There is no assurance that the company’s expectations will be realized. The company assumes no obligation to update any forward-looking information contained in this document should circumstances change, except as otherwise required by securities and other applicable laws.
Contact:
Peter F. Loscocco
Director, Public Affairs & Investor Relations
614 225 4127
loscoccopf@bordenchem.com
