Hexion Inc. Announces First Quarter 2018 Results

May 14, 2018

First Quarter 2018 Highlights

Net sales of $946 million, a 9% increase versus prior year
Net loss of $13 million
Segment EBITDA of $118 million, a 24% increase versus prior year
Completed the sale of the Additives Technology Group (ATG) business in
January 2018 generating $49 million in proceeds or approximately
twelve times Segment EBITDA over the last twelve months

COLUMBUS, Ohio–(BUSINESS WIRE)–Hexion Inc. (ÔÇ£HexionÔÇØ or the ÔÇ£CompanyÔÇØ) today announced results for the
first quarter ended March 31, 2018.

ÔÇ£Hexion reported strong Segment EBITDA gains of 24% and sales growth of
9%, respectively, in the first quarter of 2018,ÔÇØ said Craig A. Rogerson,
Chairman, President and CEO. ÔÇ£First quarter 2018 Segment EBITDA
reflected significant improvement in our base epoxy resins and phenolic
specialty resins businesses, as well as the positive impact of our
recent structural cost reduction initiatives. We also drove higher
Segment EBITDA in all regions of our formaldehyde and forest products
resins business.ÔÇØ

Mr. Rogerson added: ÔÇ£We continue to experience strong Segment EBITDA
growth in 2018 reflecting tailwinds across the portfolio including
improved demand in our forest products business, and continued strength
in market fundamentals in base epoxy resins, which are expected to
persist for the foreseeable future. We also expect our specialty epoxy
business to benefit from growing market demand for waterborne coatings
over the next few years and long-term secular growth in renewable energy
to support our wind energy business.ÔÇØ

First Quarter 2018 Results

Net Sales. Net sales for the quarter ended March 31, 2018 were
$946 million, an increase of 9% compared with $870 million in the prior
year period. The increase in reported net sales was driven by pricing
actions primarily in the base epoxy resins business and the pass-through
of higher raw material costs in the global forest products resins and
phenolic specialty resins businesses.

Segment EBITDA. Segment EBITDA for the quarter ended March 31,
2018 was $118 million, an increase of 24% compared with the prior year
period. Segment EBITDA in the first quarter of 2018 increased by $24
million, or 26%, when adjusted for divestitures. First quarter 2018
results reflected the ongoing cost reductions and improved margins in
the CompanyÔÇÖs base epoxy resins, phenolic specialty resins, and global
forest product resins and formaldehyde businesses.

Global Restructuring Programs

In the first quarter of 2018, the Company achieved $13 million of cost
savings, including reductions in selling, general and administrative
(SG&A) expenses and targeted site rationalizations. Hexion recently
identified approximately $40 million in additional structural cost
savings with approximately 90% of the savings related to headcount
reductions. At March 31, 2018, Hexion had $39 million of total
in-process cost savings. The Company has taken the majority of the
actions and the impact is expected to be realized by year-end 2018.

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the
first quarter ended March 31, 2018 and 2017. See ÔÇ£Non-U.S. GAAP
MeasuresÔÇØ for further information regarding Segment EBITDA and a
reconciliation of net loss to Segment EBITDA.

Three Months Ended March 31,
(In millions)	2018	2017
Net Sales (1):
Epoxy, Phenolic and Coating Resins	$	540	$	492
Forest Products Resins	406	378
Total Net Sales	946	870
Adjustment for disposition (2)	ÔÇö	(4)
Adjusted Net Sales	$	946	$	866
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	70	$	52
Forest Products Resins	67	61
Corporate and Other	(19	)	(18	)
Total Segment EBITDA	118	95
Adjustment for disposition (2)	ÔÇö	(1)
Adjusted Segment EBITDA	$	118	$	94

(1)	Intersegment sales are not significant and, as such, are eliminated within the selling segment.
(2)	Adjustment for disposition impacts the Forest Products Resins segment.

Liquidity and Capital Resources

At March 31, 2018, Hexion had total debt of approximately $3.8 billion
compared to $3.7 billion at December 31, 2017. In addition, at March 31,
2018, the Company had $282 million in liquidity comprised of $95 million
of unrestricted cash and cash equivalents, $145 million of borrowings
available under the CompanyÔÇÖs senior secured asset-based revolving
credit facility (the ÔÇ£ABL FacilityÔÇØ) and $42 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 First Quarter 2018 results
on Monday, May 14, 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) 492-6045
International Participants: +1
(574) 990-2716
Participant Passcode: 3793847

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 May 14, 2018. The playback can be accessed by
dialing (855) 859-2056 (U.S.) and +1 (404) 537-3406 (International). The
passcode is 3793847. A replay will also be available through the
Investor Relations section of the CompanyÔÇÖs website.

Covenant Compliance

The instruments that govern the CompanyÔÇÖs 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 CompanyÔÇÖs 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 ÔÇ£Secured
IndenturesÔÇØ) 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 last twelve
months (ÔÇ£LTMÔÇØ) basis. See ÔÇ£Non-U.S. GAAP MeasuresÔÇØ for further
information regarding Adjusted EBITDA and Schedule 5 to the release for
a calculation of the Adjusted EBITDA to Fixed Charges ratio.

The CompanyÔÇÖs 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 CompanyÔÇÖs 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 March 31, 2018,
the CompanyÔÇÖs 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. Adjusted Segment EBITDA is defined as Segment EBITDA adjusted
for disposition. See Schedule 4 to this release for reconciliation of
net loss to Segment EBITDA and Adjusted 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
CompanyÔÇÖs 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 managementÔÇÖs 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 ÔÇ£believe,ÔÇØ ÔÇ£expect,ÔÇØ ÔÇ£anticipate,ÔÇØ ÔÇ£project,ÔÇØ ÔÇ£plan,ÔÇØ
ÔÇ£estimate,ÔÇØ ÔÇ£may,ÔÇØ ÔÇ£will,ÔÇØ ÔÇ£could,ÔÇØ ÔÇ£should,ÔÇØ ÔÇ£seekÔÇØ or ÔÇ£intendÔÇØ 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 ÔÇ£SECÔÇØ). 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 March 31,
(In millions)	2018	2017
Net sales	$	946	$	870
Cost of sales	789	737
Gross profit	157	133
Selling, general and administrative expense	82	79
Gain on disposition	(44	)	ÔÇö
Asset impairments	25	ÔÇö
Business realignment costs	9	7
Other operating expense (income), net	9	(6	)
Operating income	76	53
Interest expense, net	83	83
Loss on extinguishment of debt	ÔÇö	3
Other non-operating (income) expense, net	(1	)	2
Loss before income tax and earnings from unconsolidated entities	(6	)	(35	)
Income tax expense	8	8
Loss before earnings from unconsolidated entities	(14	)	(43	)
Earnings from unconsolidated entities, net of taxes	1	1
Net loss	$	(13	)	$	(42	)

HEXION INC.
SCHEDULE 2: CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)	March 31, 2018	December 31, 2017
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $18)	$	113	$	115
Accounts receivable (net of allowance for doubtful accounts of $19)	504	462
Inventories:
Finished and in-process goods	255	221
Raw materials and supplies	95	92
Current assets held for sale	ÔÇö	6
Other current assets	56	44
Total current assets	1,023	940
Investment in unconsolidated entities	21	20
Deferred income taxes	8	8
Long-term assets held for sale	ÔÇö	2
Other long-term assets	46	49
Property and equipment:
Land	90	84
Buildings	294	291
Machinery and equipment	2,354	2,327
2,738	2,702
Less accumulated depreciation	(1,838	)	(1,778	)
900	924
Goodwill	113	112
Other intangible assets, net	34	42
Total assets	$	2,145	$	2,097
Liabilities and Deficit
Current liabilities:
Accounts payable	$	372	$	402
Debt payable within one year	66	125
Interest payable	101	82
Income taxes payable	12	12
Accrued payroll and incentive compensation	63	47
Current liabilities associated with assets held for sale	ÔÇö	2
Other current liabilities	121	135
Total current liabilities	735	805
Long-term liabilities:
Long-term debt	3,703	3,584
Long-term pension and post employment benefit obligations	256	262
Deferred income taxes	11	11
Other long-term liabilities	180	177
Total liabilities	4,885	4,839
Deficit
Common stockÔÇö$0.01 par value; 300,000,000 shares authorized, 170,605,906 issued and 82,556,847 outstanding at March 31, 2018 and December 31, 2017	1	1
Paid-in capital	526	526
Treasury stock, at costÔÇö88,049,059 shares	(296	)	(296	)
Accumulated other comprehensive income (loss)	6	(8	)
Accumulated deficit	(2,976	)	(2,964	)
Total Hexion Inc. shareholderÔÇÖs deficit	(2,739	)	(2,741	)
Noncontrolling interest	(1	)	(1	)
Total deficit	(2,740	)	(2,742	)
Total liabilities and deficit	$	2,145	$	2,097


HEXION INC.
SCHEDULE 3: CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
(In millions)	2018	2017
Cash flows used in operating activities
Net loss	$	(13	)	$	(42	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	30	28
Non-cash asset impairments	25	ÔÇö
Deferred tax expense	1	ÔÇö
Gain on sale of assets	ÔÇö	(3	)
Gain on disposition	(44	)	ÔÇö
Amortization of deferred financing fees	4	4
Loss on extinguishment of debt	ÔÇö	3
Unrealized foreign currency losses	3	4
Other non-cash adjustments	(1	)	(1	)
Net change in assets and liabilities:
Accounts receivable	(36	)	(91	)
Inventories	(30	)	(37	)
Accounts payable	(28	)	12
Income taxes payable	2	7
Other assets, current and non-current	(10	)	(2	)
Other liabilities, current and long-term	14	ÔÇö
Net cash used in operating activities	(83	)	(118	)
Cash flows provided by (used in) investing activities
Capital expenditures	(25	)	(30	)
Proceeds from disposition, net	49	ÔÇö
Proceeds from sale of assets, net	1	4
Net cash provided by (used in) investing activities	25	(26	)
Cash flows provided by financing activities
Net short-term debt (repayments) borrowings	(15	)	11
Borrowings of long-term debt	166	871
Repayments of long-term debt	(96	)	(791	)
Long-term debt and credit facility financing fees paid	(1	)	(22	)
Net cash provided by financing activities	54	69
Effect of exchange rates on cash and cash equivalents	2	2
Change in cash and cash equivalents	(2	)	(73	)
Cash and cash equivalents at beginning of period	115	196
Cash and cash equivalents at end of period	$	113	$	123
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net	$	61	$	52
Income taxes, net	5	3

HEXION INC.
SCHEDULE 4: RECONCILIATION OF NET LOSS TO SEGMENT EBITDA (Unaudited)
Three Months Ended March 31,
(In millions)	2018	2017
Reconciliation:
Net loss	$	(13	)	$	(42	)
Income tax expense	8	8
Interest expense, net	83	83
Depreciation and amortization	30	28
EBITDA	$	108	$	77
Items not included in Segment EBITDA:
Asset impairments	$	25	$	ÔÇö
Business realignment costs	9	7
Gain on disposition	(44	)	ÔÇö
Realized and unrealized foreign currency losses (gains)	7	(1	)
Loss on extinguishment of debt	ÔÇö	3
Other	13	9
Total adjustments	10	18
Segment EBITDA	$	118	$	95
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	70	$	52
Forest Products Resins	67	61
Corporate and Other	(19	)	(18	)
Total	$	118	$	95
Three Months Ended March 31,
(In millions)	2018	2017
Segment EBITDA	118	95
Adjustment for disposition(1)	ÔÇö	(1	)
Adjusted Segment EBITDA	118	94

(1)	Adjustment for disposition impacts the Forest Products Resins segment.

HEXION INC.
SCHEDULE 5: RECONCILIATION OF LAST TWELVE MONTHS NET LOSS TO ADJUSTED EBITDA (Unaudited)
March 31, 2018
LTM Period
Net loss	$	(205	)
Income tax expense	18
Interest expense, net	329
Depreciation and amortization	117
Accelerated depreciation	14
EBITDA	273
Adjustments to EBITDA:
Asset impairments	38
Business realignment costs (1)	54
Realized and unrealized foreign currency losses	11
Gain on disposition	(44	)
Unrealized gains on pension and postretirement benefits (2)	(4	)
Other (3)	67
Cost reduction programs savings (4)	39
Adjustment for ATG disposition(5)	(4	)
Adjusted EBITDA	$	430
Pro forma fixed charges (6)	$	314
Ratio of Adjusted EBITDA to Fixed Charges (7)	1.37

(1)	Primarily represents cost 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 resulting 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 CompanyÔÇÖs 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)	Represents pro forma LTM Adjusted EBITDA impact of the ATG disposition, which occurred during the first quarter of 2018.
(6)	Reflects pro forma interest expense based on interest rates at March 31, 2018.
(7)	The CompanyÔÇÖs 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 March 31, 2018, 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 $145 at March 31, 2018).

Contacts

Investors and Media:
Hexion Inc.
John Kompa,
614-225-2223
[email protected]

Hexion Inc. Announces First Quarter 2018 Results

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