ROHSTOFF INTERNATIONAL

13:00 | 02.03.2018
Hexion Inc. Announces Fourth Quarter and Fiscal Year 2017 Results

Hexion Inc. (“Hexion” or the “Company”) today announced results for the
fourth quarter and fiscal year ended December 31, 2017.

“Hexion posted solid Segment EBITDA gains, sales growth of 18% and
volume increases of approximately 10%, respectively, in the fourth
quarter of 2017,” said Craig A. Rogerson, Chairman, President and CEO.
“Our fourth quarter Segment EBITDA reflected continued strong demand and
year-over-year gains in our base epoxy resins, North American forest
products resins, and global formaldehyde businesses.”

Mr. Rogerson added: “Looking ahead, our outlook is positive for the key
end markets we serve. We also expect to further realize the structural
cost savings from our recently announced restructuring initiatives,
which will support 2018 Segment EBITDA growth. These savings, along with
continued growth across most product lines, are expected to drive
improved Segment EBITDA in 2018 versus the prior year.”
Fourth Quarter 2017 ResultsNet Sales. Net sales for the quarter ended December 31, 2017 were
$895 million, an increase of 18% compared with $758 million in the prior
year period. The increase in reported net sales was primarily driven by
the pass-through of higher raw material costs and broad-based volume
gains throughout the entire portfolio with significant gains in base
epoxy resins, Versatic™ Acids and Derivatives, our global forest product
resins and formaldehyde, and oilfield proppants businesses.
Segment EBITDA. Segment EBITDA for the quarter ended December 31,
2017 was $74 million, an increase of 7% compared with the prior year
period. Fourth quarter 2017 results were driven by growth in base epoxy
resins, North America and Latin America forest product resins and global
formaldehyde businesses, and phenolic specialty resins. Excluding $4
million of insurance proceeds in the prior year period related to the
Versatic™ Acids and Derivatives business that did not reoccur, fourth
quarter 2017 Segment EBITDA increased 14%.
Fiscal Year 2017 ResultsNet Sales. Net sales for the year ended December 31, 2017 were
$3.6 billion, an increase of 4% compared with $3.4 billion in the prior
year period. The increase in reported net sales was primarily driven by
volume gains in base epoxy resins, Versatic™ Acids and Derivatives,
global forest product resins and formaldehyde, and oilfield proppants
businesses. Net sales increased 10% when adjusting for recent
divestitures.
Segment EBITDA. Segment EBITDA for the year ended December 31,
2017 was $365 million, a decrease of 16% compared with the prior year
period, or 9%, when adjusted for divestitures. In fiscal year 2017,
growth in our base epoxy resins and global forest product businesses
partially offset declines in our specialty epoxy business.
Global Restructuring Programs
In 2017, the Company achieved approximately $26 million of cost savings,
including reductions in selling, general and administrative (SG&A)
expenses and targeted site rationalizations. In addition, Hexion
recently identified approximately $40 million in additional structural
cost savings with approximately 90% of the savings related to headcount
reductions. At December 31, 2017, Hexion had $50 million of total
in-process cost savings comprised of $12 million in SG&A savings and $38
million in manufacturing savings. The Company has taken the majority of
the actions and the impact will be essentially realized over the next 12
months.
Portfolio Optimization Initiatives
Hexion continues to position the Company for profitable growth by
strategically managing its portfolio. In January 2018, Hexion announced
that it sold its ATG business to MÜNZING CHEMIE GmbH. The Company
received approximately $50 million in proceeds from the transaction, or
approximately twelve times Segment EBITDA over the last twelve months.
Hexion will use the sale proceeds for general corporate purposes.

In addition, Hexion has initiated a process for the sale of a portion of
its Epoxy, Phenolic and Coatings Resins Segment. The Company expects
that sale proceeds will be used to reduce its debt. The Company does not
intend to comment further on its strategic activities unless and until
it otherwise deems further disclosure is appropriate or required.
Segment Results
Following are net sales and Segment EBITDA by reportable segment for the
fourth quarter and year ended December 31, 2017 and 2016. See “Non-U.S.
GAAP Measures” for further information regarding Segment EBITDA and a
reconciliation of net loss to Segment EBITDA.

 

 
Three Months Ended
 

 

December 31,

Year Ended December 31,(In millions)

2017
 
2016

2017
 
2016Net Sales (1):

 

Epoxy, Phenolic and Coating Resins

$

515

$

 

430

$

2,052

$

2,094

Forest Products Resins

 

 

380

 

328

 

1,539

 

1,344

 
Total Net Sales

895

758

3,591

3,438

Adjustment for dispositions (2)

 

 

 

 

 

(185

)
Adjusted Net Sales

$

 

895

 

$

 

758

 

$

3,591

 

$

3,253

 

 
Segment EBITDA:

Epoxy, Phenolic and Coating Resins

$

31

$

28

$

174

$

258

Forest Products Resins

62

56

257

240

Corporate and Other

 

 

(19

)

(15

)

(66

)

(65

)
Total Segment EBITDA

74

69

365

433

Adjustment for dispositions (2)

 

 

 

 

 

(30

)
Adjusted Segment EBITDA

$

 

74

 

$

 

69

 

$

365

 

$

403

 

 

(1)

 

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

(2)

Adjustments for dispositions impact the Epoxy, Phenolic and Coating
Resins segment.

 
Liquidity and Capital Resources
At December 31, 2017, Hexion had total debt of approximately $3.7
billion compared to $3.5 billion at December 31, 2016. In addition, at
December 31, 2017, the Company had $346 million in liquidity comprised
of $97 million of unrestricted cash and cash equivalents, $227 million
of borrowings available under the Company’s senior secured asset-based
revolving credit facility (the “ABL Facility”) and $22 million of time
drafts and availability under credit facilities at certain international
subsidiaries. Pro forma liquidity reflecting proceeds from the ATG
transaction totaled approximately $395 million. Hexion 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.
Earnings Call
Hexion will host a teleconference to discuss Fourth Quarter and Fiscal
Year 2017 results on Friday, March 2, 2018, at 9:00 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: (844) 492-6045International Participants: +1
(574) 990-2716Participant Passcode: 9597548

Live Internet access to the call and presentation materials will be
available through the Investor Relations section of the Company’s
website: www.hexion.com.
A replay of the call will be available for one week beginning at 1:00
p.m. Eastern Time on March 2, 2018. The playback can be accessed by
dialing (855) 859-2056 (U.S.) and +1 (404) 537-3406 (International). The
passcode is 9597548. A replay will also be available through the
Investor Relations section of the Company’s website.
Covenant Compliance
The instruments that govern the Company’s indebtedness contain, among
other provisions, restrictive covenants regarding indebtedness
(including an Adjusted EBITDA to Fixed Charges ratio incurrence test),
dividends and distributions, mergers and acquisitions, asset sales,
affiliate transactions and capital expenditures.

The indentures that govern the Company’s 6.625% First-Priority Senior
Secured Notes, 10.00% First-Priority Senior Secured Notes, 10.375%
First-Priority Senior Secured Notes, 13.75% 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 may restrict our ability to take certain actions
such as incurring additional debt or making acquisitions if the Company
is unable to meet this ratio (measured on a last twelve months, or LTM,
basis) of at least 2.0:1. The Adjusted EBITDA to Fixed Charges ratio
under the Secured Indentures is generally defined as the ratio of (a)
Adjusted EBITDA to (b) net interest expense excluding the amortization
or write-off of deferred financing costs, each measured on a LTM basis.
See “Non-U.S. GAAP Measures” for further information regarding Adjusted
EBITDA and Schedule 5 to the release for a calculation of the Adjusted
EBITDA to Fixed Charges ratio.

The Company’s ABL Facility does not have any financial maintenance
covenant other than a minimum Fixed Charge Coverage Ratio of 1.0 to 1.0
that would only apply if the Company’s availability under the ABL
Facility at any time is less than the greater of (a) $35 million and (b)
12.5% of the lesser of the borrowing base and the total ABL Facility
commitments at such time. The Fixed Charge Coverage Ratio under the
credit agreement governing the ABL Facility is generally defined as the
ratio of (a) Adjusted EBITDA minus non-financed capital expenditures and
cash taxes to (b) debt service plus cash interest expense plus certain
restricted payments, each measured on an LTM basis. At December 31,
2017, the Company’s availability under the ABL Facility exceeded such
levels; therefore, the minimum fixed charge coverage ratio did not apply.
Non-U.S. GAAP Measures
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 other segments.
Segment EBITDA should not be considered a substitute for net loss or
other results reported in accordance with U.S. GAAP. Segment EBITDA may
not be comparable to similarly titled measures reported by other
companies. See Schedule 4 to this release for reconciliation of net loss
to Segment EBITDA.

Adjusted EBITDA is defined as EBITDA adjusted for certain non-cash and
certain non-recurring items 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
instrument. As the Company is highly leveraged, it 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 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 loss determined in accordance with
U.S. GAAP or operating cash flows determined in accordance with U.S.
GAAP. Additionally, Adjusted 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 the
Company uses 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. See Schedule 5 to this release for reconciliation of
net loss to Adjusted EBITDA and the Fixed Charges Ratio.
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
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, the loss of, or
difficulties with the further realization of, cost savings in connection
with our strategic initiatives, the impact of our substantial
indebtedness, our failure to comply with financial covenants under our
credit facilities or other debt, pricing actions by our competitors that
could affect our operating margins, changes in governmental regulations
and related compliance and litigation costs and the other factors listed
in our SEC filings. 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 Quarterly Report on Form 10-Q 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, Hexion Inc. is a global leader in thermoset
resins. Hexion 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. Hexion Inc. is controlled by investment funds affiliated
with Apollo Global Management, LLC. Additional information about Hexion
Inc. and its products is available at www.hexion.com.
See Attached Financial Statements
 
HEXION INC.SCHEDULE 1: CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

 

 

Three Months Ended

December 31,

Year Ended December 31,(In millions)
2017
 
2016

2017
 
2016
Net sales

$

895

$

758

$

3,591

$

3,438

Cost of sales (1)

778

 

681

 

3,090

 

3,038

 

Gross profit

117

77

501

400

Selling, general and administrative expense

80

93

307

328

Gain on dispositions

(240

)

Asset impairments

13

Business realignment costs

25

13

52

55

Other operating expense, net

13

 

7

 

17

 

13

 

Operating (loss) income

(1

)

(36

)

112

244

Interest expense, net

82

75

329

310

(Gain) loss on extinguishment of debt

(1

)

3

(48

)

Other non-operating expense (income), net

4

 

(8

)

 

(7

)

Loss before income tax and earnings from unconsolidated entities

(87

)

(102

)

(220

)

(11

)

Income tax expense (benefit)

2

 

(2

)

18

 

38

 

Loss before earnings from unconsolidated entities

(89

)

(100

)

(238

)

(49

)

Earnings from unconsolidated entities, net of taxes

1

 

3

 

4

 

11

 

Net loss

$

(88

)

$

(97

)

$

(234

)

$

(38

)

 

(1)

 

Cost of sales for the year ended December 31, 2017 and 2016 includes
accelerated depreciation of $14 and $129, respectively, related
primarily to facility rationalizations within our Epoxy, Phenolic
and Coatings Resins segment.

 

 

 

HEXION INC.SCHEDULE 2: CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

December 31,
December 31,(In millions, except share data)
2017
2016Assets

Current assets:

Cash and cash equivalents (including restricted cash of $18 and $17,
respectively)

$

115

$

196

Accounts receivable (net of allowance for doubtful accounts of $19
and $17, respectively)

462

390

Inventories:

Finished and in-process goods

221

199

Raw materials and supplies

92

88

Current assets held for sale

6

Other current assets

44

 

45

 

Total current assets

940

 

918

 

Investments in unconsolidated entities

20

18

Deferred income taxes

8

10

Long-term assets held for sale

2

Other long-term assets

49

43

Property and equipment:

Land

84

79

Buildings

291

273

Machinery and equipment

2,327

 

2,353

 

2,702

2,705

Less accumulated depreciation

(1,778

)

(1,812

)

924

893

Goodwill

112

121

Other intangible assets, net

42

 

52

 

Total assets

$

2,097

 

$

2,055

 
Liabilities and Deficit

Current liabilities:

Accounts payable

$

402

$

368

Debt payable within one year

125

107

Interest payable

82

70

Income taxes payable

12

13

Accrued payroll and incentive compensation

47

55

Current liabilities associated with assets held for sale

2

Other current liabilities

135

 

159

 

Total current liabilities

805

 

772

 

Long-term liabilities:

Long-term debt

3,584

3,397

Long-term pension and postretirement benefit obligations

262

246

Deferred income taxes

11

13

Other long-term liabilities

177

 

166

 

Total liabilities

4,839

 

4,594

 
Deficit

Common stock—$0.01 par value; 300,000,000 shares authorized,
170,605,906 issued and 82,556,847 outstanding at December 31, 2017
and 2016

1

1

Paid-in capital

526

526

Treasury stock, at cost—88,049,059 shares

(296

)

(296

)

Accumulated other comprehensive loss

(8

)

(39

)

Accumulated deficit

(2,964

)

(2,730

)

Total Hexion Inc. shareholders’ deficit

(2,741

)

(2,538

)

Noncontrolling interest

(1

)

(1

)

Total deficit

(2,742

)

(2,539

)

Total liabilities and deficit

$

2,097

 

$

2,055

 

 

 
HEXION INC.SCHEDULE 3: CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 

 
Year Ended December 31,(In millions)
2017
 
2016Cash flows used in operating activities

Net loss

$

(234

)

$

(38

)

Adjustments to reconcile net loss to net cash used in operating
activities:

Depreciation and amortization

115

131

Non-cash asset impairments and accelerated depreciation

27

129

Deferred tax (benefit) expense

(3

)

2

Gain on dispositions

(240

)

(Gain) loss on sale of assets

(1

)

7

Amortization of deferred financing fees

16

15

Loss (gain) on extinguishment of debt

3

(48

)

Unrealized foreign currency losses (gains)

3

(52

)

Unrealized (gains) losses on pension and postretirement benefit plan
liabilities

(4

)

34

Other non-cash adjustments

(5

)

3

Net change in assets and liabilities:

Accounts receivable

(50

)

(1

)

Inventories

(10

)

(8

)

Accounts payable

19

27

Income taxes payable

9

17

Other assets, current and non-current

1

(22

)

Other liabilities, current and non-current

(39

)

24

 

Net cash used in operating activities

(153

)

(20

)
Cash flows (used in) provided by investing activities

Capital expenditures

(117

)

(140

)

Capitalized interest

(1

)

(1

)

Proceeds from dispositions, net

281

Cash received on buyer’s note

75

Change in restricted cash

1

(9

)

Investment in affiliates

(1

)

Proceeds from sale of assets, net

8

 

5

 

Net cash (used in) provided by investing activities

(109

)

210

 
Cash flows provided by (used in) financing activities

Net short-term debt borrowings (repayments)

21

(22

)

Borrowings of long-term debt

1,429

644

Repayments of long-term debt

(1,251

)

(856

)

Long-term debt and credit facility financing fees

(25

)

(1

)

Net cash provided by (used in) financing activities

174

 

(235

)

Effect of exchange rates on cash and cash equivalents

6

(4

)

Decrease in cash and cash equivalents

(82

)

(49

)

Cash and cash equivalents (unrestricted) at beginning of year

179

 

228

 

Cash and cash equivalents (unrestricted) at end of year

$

97

 

$

179

 
Supplemental disclosures of cash flow information

Cash paid for:

Interest, net

$

302

$

306

Income taxes, net of cash refunds

13

24

Non-cash investing activities:

Acceptance of buyer’s note

75

 

 
HEXION INC.SCHEDULE 4: RECONCILIATION OF NET LOSS TO SEGMENT EBITDA
(Unaudited)
 

 

 
Three Months Ended
 

 

 

December 31,

Year Ended December 31,(In millions)

2017
 
2016

2017
 
2016
Net loss

$

(88

)

$

(97

)

$

(234

)

$

(38

)

Income tax expense (benefit)

2

(2

)

18

38

Interest expense, net

82

75

329

310

Depreciation and amortization

30

30

115

131

Accelerated depreciation

 

 

2

 

14

 

129

 

EBITDA

$

26

$

8

$

242

$

570

Items not included in Segment EBITDA:

Asset impairments

$

$

$

13

$

Business realignment costs

25

13

52

55

Realized and unrealized foreign currency losses (gains)

10

(8

)

3

(11

)

Gain on dispositions

(240

)

(Gain) loss on extinguishment of debt

(1

)

3

(48

)

Unrealized (gains) losses on pension and OPEB plan liabilities

(4

)

34

(4

)

34

Other

 

17

 

23

 

56

 

73

 

Total adjustments

 

48

 

61

 

123

 

(137

)

Segment EBITDA

$

74

 

$

69

 

$

365

 

$

433

 

 
Segment EBITDA:

Epoxy, Phenolic and Coating Resins

$

31

$

28

$

174

$

258

Forest Products Resins

62

56

257

240

Corporate and Other

 

(19

)

(15

)

(66

)

(65

)
Total

74

69

365

433

Adjustment for dispositions (1)

 

 

 

 

(30

)
Adjusted Segment EBITDA

$

74

 

$

69

 

$

365

 

$

403

 

 

(1)

 

Adjustments for dispositions impact the Epoxy, Phenolic and Coating
Resins segment.

 

 
HEXION INC.SCHEDULE 5: RECONCILIATION OF LAST TWELVE
MONTHS NET LOSS TO ADJUSTED EBITDA
 

 
December 31, 2017

LTM Period
Net loss

$

(234

)

Interest expense, net

329

Income tax expense

18

Depreciation and amortization

115

Accelerated depreciation

14

 

EBITDA

242

Adjustments to EBITDA:

Asset impairments

13

Gain on extinguishment of debt

3

Business realignment costs (1)

52

Realized and unrealized foreign currency losses

3

Unrealized gains on pension and OPEB plan liabilities (2)

(4

)

Other (3)

65

Cost reduction programs savings (4)

50

 

Adjusted EBITDA

$

424

 

Pro forma fixed charges (5)

$

313

 

Ratio of Adjusted EBITDA to Fixed Charges (6)

1.35

 

 

(1)

 

Primarily represents costs related to headcount reduction expenses
and plant rationalization costs related to in-process and recently
completed cost reduction programs, termination costs and other costs
associated with business realignments.

(2)

Represents non-cash gains from pension and postretirement benefit
plan liability remeasurements.

(3)

Primarily includes certain professional fees related to strategic
projects, retention program costs, business optimization expenses,
management fees and expenses related to legacy liabilities.

(4)

Represents pro forma impact of in-process cost reduction programs
savings. Cost reduction program savings represent the unrealized
headcount reduction savings and plant rationalization savings
related to cost reduction programs and other unrealized savings
associated with the Company’s business realignments activities, and
represent our estimate of the unrealized savings from such
initiatives that would have been realized had the related actions
been completed at the beginning of the period presented. The savings
are calculated based on actual costs of exiting headcount and
elimination or reduction of site costs.

(5)

Reflects pro forma interest expense based on interest rates at
December 31, 2017, as if the refinancing transactions in February
2017 and May 2017 had taken place at the beginning of the period.

(6)

The Company’s ability to incur additional indebtedness, among other
actions, 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 December 31, 2017, we did not satisfy this test.
As a result, we are subject to restrictions on our ability to incur
additional indebtedness or to make investments; however, there are
exceptions to these restrictions, including exceptions that permit
indebtedness under our ABL Facility (available borrowings of which
were $227 at December 31, 2017).

 

View source version on businesswire.com: http://www.businesswire.com/news/home/20180302005226/en/


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