ROHSTOFF INTERNATIONAL

12:30 | 14.11.2017
Hexion Inc. Announces Third Quarter 2017 Results

Hexion Inc. (“Hexion” or the “Company”) today announced results for the
third quarter ended September 30, 2017.

“Hexion posted strong topline sales growth of 12% and volume gains of
9%, respectively, in the third quarter of 2017,” said Craig A. Rogerson,
Chairman, President and CEO. “Our Segment EBITDA reflected continued
year-over-year gains in our base epoxy resins, North American forest
products resins, and global formaldehyde businesses offset by challenges
associated with the hurricanes and continued weakness in global wind
energy demand. We saw sequential profitability growth in our specialty
epoxy resins business driven by strong growth in our waterborne coatings
business and stable wind energy volumes. In addition, we continue to
position the Company for profitable growth by strategically optimizing
our cost structure and investing in our specialty portfolio.”

Mr. Rogerson added: “We were pleased to complete our Edmonton research
and development facility expansion, which is focused on developing next
generation forest product resins as we continue to strategically invest
in our technology infrastructure. Finally, we expect to deliver
year-over-year EBITDA growth and generate solid levels of free cash flow
in the fourth quarter.”
Third Quarter 2017 ResultsNet Sales. Net sales for the quarter ended September 30, 2017
were $914 million, an increase of 12% compared with $819 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 volume gains
in oilfield proppants, base epoxy resins and North American forest
product resins and formaldehyde businesses.
Segment EBITDA. Segment EBITDA for the quarter ended September
30, 2017 was $96 million, a decrease of 14% compared with the prior year
period. Adjusted for the $6 million negative impact of hurricanes,
Segment EBITDA totaled $102 million, or a decrease of 9% compared to the
prior year. Third quarter 2017 results were driven by growth in our
North American forest product resins and formaldehyde businesses, as
well as improvements in base epoxy resins and oilfield proppants, which
was offset by a year-over-year decline in the specialty epoxy resins
business driven by destocking and competitive pressures in our global
wind energy business. In addition, the Company benefited from insurance
proceeds in the prior year period related to its Versatic™ Acids and
Derivatives business that did not reoccur in the third quarter of 2017.
Global Restructuring Programs
In the first nine months of 2017, the Company achieved approximately $20
million of total in-process cost savings. As part of its ongoing
commitment to optimize its cost structure and further streamline the
organization, Hexion has identified approximately $40 million in
additional structural cost savings. The Company remains committed to
redeploying portions of its cost savings into strategic growth
initiatives, such as its recently completed Edmonton research and
development expansion and additional waterborne coatings capacity. With
the addition of the new cost savings program, Hexion had $54 million of
total in-process cost savings, which it expects to be achieved over the
next 12 to 18 months.
Segment Results
Following are net sales and Segment EBITDA by reportable segment for the
three and nine months ended September 30, 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 September 30,
 
Nine Months Ended September 30,(In millions)
2017
 
2016
2017
 
2016Net Sales (1):

Epoxy, Phenolic and Coating Resins

$

528

$

476

$

1,537

$

1,664

Forest Products Resins

386

 

343

 

1,159

 

1,016

 
Total Net Sales

914

819

2,696

2,680

Adjustment for dispositions (2)

 

 

 

(185

)
Adjusted Net Sales

$

914

 

$

819

 

$

2,696

 

$

2,495

 

 
Segment EBITDA:

Epoxy, Phenolic and Coating Resins

$

45

$

64

$

143

$

230

Forest Products Resins

66

65

195

184

Corporate and Other

(15

)

(17

)

(47

)

(50

)
Total Segment EBITDA

$

96

$

112

$

291

$

364

Adjustment for dispositions (2)

 

 

 

(30

)
Adjusted Segment EBITDA

$

96

 

$

112

 

$

291

 

$

334

 

(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 September 30, 2017, Hexion had total debt of approximately $3.7
billion compared to $3.5 billion at December 31, 2016. In addition, at
September 30, 2017, the Company had $310 million in liquidity comprised
of $100 million of unrestricted cash and cash equivalents, $188 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. 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 Third Quarter 2017 results
on Tuesday November 14, 2017, at 8:30 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: 92147239

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 1:30
p.m. Eastern Time on November 14, 2017. The playback can be accessed by
dialing (855) 859-2056 (U.S.) and +1 (404) 537-3406 (International). The
passcode is 92147239. A replay also will 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 September 30,
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 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, including transactions with our
affiliate, Momentive Performance Materials Inc., 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 StatementsHEXION INC.SCHEDULE 1: CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS (Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,(In millions)
2017
 
2016
2017
 
2016
Net sales

$

914

$

819

$

2,696

$

2,680

Cost of sales(1)

797

 

701

 

2,312

 

2,357

 

Gross profit

117

118

384

323

Selling, general and administrative expense

75

69

227

235

Gain on dispositions

(240

)

Asset impairments

13

13

Business realignment costs (income)

10

(3

)

27

42

Other operating expense, net

1

 

7

 

4

 

6

 

Operating income

18

45

113

280

Interest expense, net

82

76

247

235

(Gain) loss on extinguishment of debt

(3

)

3

(47

)

Other non-operating (income) expense, net

(3

)

2

 

(4

)

1

 

(Loss) income before income tax and earnings from unconsolidated
entities

(61

)

(30

)

(133

)

91

Income tax expense

9

 

16

 

16

 

40

 

(Loss) income before (losses) earnings from unconsolidated entities

(70

)

(46

)

(149

)

51

(Losses) earnings from unconsolidated entities, net of taxes

 

(1

)

3

 

8

 

Net (loss) income

$

(70

)

$

(47

)

$

(146

)

$

59

 

(1)

 

Cost of sales for the three and nine months ended September 30, 2016
includes $21 and $127, respectively, of accelerated depreciation
related to the closure of our Norco, LA facility.

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

 
September 30,
 

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

2016Assets

Current assets:

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

$

118

$

196

Accounts receivable (net of allowance for doubtful accounts of $18
and $17, respectively)

500

390

Inventories:

Finished and in-process goods

240

199

Raw materials and supplies

92

88

Other current assets

49

 

45

 

Total current assets

999

 

918

 

Investment in unconsolidated entities

20

18

Deferred income taxes

12

10

Other long-term assets

49

43

Property and equipment:

Land

84

79

Buildings

288

273

Machinery and equipment

2,312

 

2,353

 

2,684

2,705

Less accumulated depreciation

(1,766

)

(1,812

)

918

893

Goodwill

113

121

Other intangible assets, net

45

 

52

 

Total assets

$

2,156

 

$

2,055

 
Liabilities and Deficit

Current liabilities:

Accounts payable

$

347

$

368

Debt payable within one year

121

107

Interest payable

101

70

Income taxes payable

13

13

Accrued payroll and incentive compensation

47

55

Other current liabilities

126

 

159

 

Total current liabilities

755

 

772

 

Long-term liabilities:

Long-term debt

3,612

3,397

Long-term pension and post employment benefit obligations

263

246

Deferred income taxes

13

13

Other long-term liabilities

173

 

166

 

Total liabilities

4,816

 

4,594

 
Deficit

Common stock—$0.01 par value; 300,000,000 shares authorized,
170,605,906 issued and 82,556,847 outstanding at September 30, 2017
and December 31, 2016

1

1

Paid-in capital

526

526

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

(296

)

(296

)

Accumulated other comprehensive loss

(14

)

(39

)

Accumulated deficit

(2,876

)

(2,730

)

Total Hexion Inc. shareholder’s deficit

(2,659

)

(2,538

)

Noncontrolling interest

(1

)

(1

)

Total deficit

(2,660

)

(2,539

)

Total liabilities and deficit

$

2,156

 

$

2,055

 

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

 
Nine Months Ended September 30,(In millions)
2017
 

 
2016Cash flows used in operating activities

Net (loss) income

$

(146

)

$

59

Adjustments to reconcile net (loss) income to net cash used in
operating activities:

Depreciation and amortization

85

101

Non-cash asset impairments and accelerated depreciation

27

127

Deferred tax (benefit) expense

(1

)

3

Gain on dispositions

(240

)

Gain on sale of assets

(1

)

Amortization of deferred financing fees

12

11

Loss (gain) on extinguishment of debt

3

(47

)

Unrealized foreign currency gains

(5

)

(40

)

Other non-cash adjustments

(4

)

3

Net change in assets and liabilities:

Accounts receivable

(89

)

(88

)

Inventories

(29

)

(32

)

Accounts payable

(32

)

(35

)

Income taxes payable

8

26

Other assets, current and non-current

(4

)

(27

)

Other liabilities, current and long-term

(29

)

48

 

Net cash used in operating activities

(205

)

(131

)
Cash flows (used in) provided by investing activities

Capital expenditures

(86

)

(91

)

Capitalized interest

(1

)

(1

)

Proceeds from dispositions, net

281

Cash received on buyer’s note

45

Proceeds from sale of assets, net

5

1

Change in restricted cash

1

(11

)

Investment in affiliate

 

(1

)

Net cash (used in) provided by investing activities

(81

)

223

 
Cash flows provided by (used in) financing activities

Net short-term debt borrowings (repayments)

15

(13

)

Borrowings of long-term debt

1,291

461

Repayments of long-term debt

(1,079

)

(643

)

Long-term debt and credit facility financing fees paid

(25

)

 

Net cash provided by (used in) financing activities

202

 

(195

)

Effect of exchange rates on cash and cash equivalents

5

1

Change in cash and cash equivalents

(79

)

(102

)

Cash and cash equivalents (unrestricted) at beginning of period

179

 

228

 

Cash and cash equivalents (unrestricted) at end of period

$

100

 

$

126

 
Supplemental disclosures of cash flow information

Cash paid for:

Interest, net

$

205

$

210

Income taxes, net

10

20

Non-cash investing activity:

Acceptance of buyer’s note

$

$

75

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,

2017
 
2016
2017
 
2016Reconciliation:

 

Net (loss) income

$

(70

)

$

(47

)

$

(146

)

$

59

Income tax expense

9

16

16

40

Interest expense, net

82

76

247

235

Depreciation and amortization

29

30

85

101

Accelerated depreciation

14

 

21

 

14

 

127

 

EBITDA

$

64

$

96

$

216

$

562

Items not included in Segment EBITDA:

Asset impairments

$

13

$

$

13

$

Business realignment costs (income)

10

$

(3

)

27

$

42

Gain on dispositions

(240

)

Realized and unrealized foreign currency (gains) losses

(5

)

6

(7

)

(3

)

(Gain) loss on extinguishment of debt

(3

)

3

(47

)

Other

14

 

16

 

39

 

50

 

Total adjustments

32

 

16

 

75

 

(198

)

Segment EBITDA

$

96

 

$

112

 

$

291

 

$

364

 

 
Segment EBITDA:

Epoxy, Phenolic and Coating Resins

$

45

$

64

$

143

$

230

Forest Products Resins

66

65

195

184

Corporate and Other

(15

)

(17

)

(47

)

(50

)
Total

$

96

 

$

112

 

$

291

 

$

364

 

Adjustment for dispositions (1)

 

 

 

(30

)
Adjusted Segment EBITDA

$

96

 

$

112

 

$

291

 

$

334

 

(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

 

 
September 30, 2017

LTM Period
Net loss

$

(244

)

Income tax expense

13

Interest expense, net

323

Depreciation and amortization

115

Accelerated depreciation

16

 

EBITDA

223

Adjustments to EBITDA:

Asset impairments

13

Business realignment costs (1)

41

Realized and unrealized foreign currency gains

(15

)

Loss on extinguishment of debt

1

Unrealized loss on pension and postretirement benefits (2)

34

Other (3)

73

Cost reduction programs savings (4)

54

 

Adjusted EBITDA

$

424

 

Pro forma fixed charges (5)

$

313

 

Ratio of Adjusted EBITDA to Fixed Charges (6)

1.35

 

(1)

 

Primarily represents headcount reduction expenses and plant
rationalization costs related to cost reduction programs,
termination costs and other costs associated with business
realignments, as well as environmental liabilities related to closed
sites.

(2)

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

(3)

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

(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 LTM period. 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
September 30, 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 Secured Indentures unless the
Company has an Adjusted EBITDA to Fixed Charges ratio of at least
2.0 to 1.0. As of September 30, 2017, we did not satisfy this test.
As a result, we are subject to restrictions on our ability to incur
additional indebtedness and to make investments; however, there are
exceptions to these restrictions, including exceptions that permit
indebtedness under our ABL Facility (available borrowings of which
were $188 at September 30, 2017).

View source version on businesswire.com: http://www.businesswire.com/news/home/20171114005133/en/


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