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Hexion Inc. Announces Fourth Quarter 2020 Results

March 10, 2021 at 7:12 AM EST

Fourth Quarter 2020 Highlights

  • Net sales from continuing operations of $655 million, an increase of 4% compared with $630 million in the prior year period

  • Loss from continuing operations, net of taxes of $37 million

  • Net loss of $35 million

  • Segment EBITDA from continuing operations of $74 million compared to $53 million in the fourth quarter 2019. Both periods reflect the treatment of the pending divestiture as discontinued operations.
     

  • As previously announced, Hexion entered into a definitive agreement to sell our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses for approximately $425 million including cash consideration of $305 million

Hexion Inc. ("Hexion" or the "Company") today announced results for the fourth quarter ended December 31, 2020.

"We were pleased to drive strong results in the fourth quarter of 2020 as Segment EBITDA from continuing operations improved by 40 percent compared to the prior year reflecting our diversified portfolio and rebounding demand in many key end markets," said Craig Rogerson, Chairman, President and Chief Executive Officer. "It was also our highest fourth quarter Segment EBITDA from continuing operations in the last seven years reflecting our multi-year efforts to streamline our cost structure, while still strategically investing in the specialty portions of our business. In the fourth quarter of 2020, our Adhesives segment reflected continued strength in North America residential construction and gains in our global formaldehyde business. Segment EBITDA in our Coatings and Composites segment increased more than 100 percent year-over-year due to strong results in specialty epoxy from wind energy demand and Versatic Acids™ and Derivatives due to increasing demand in architectural coatings, as well as improved results in our base epoxy resins."

Mr. Rogerson added: "Despite softer overall earnings in 2020, we generated solid cash flow from operations. In the second half of the year, we generated $92 million of free cash flow1 and positive free cash flow for full year 2020 despite the pandemic and a weaker second quarter of 2020. As we conclude the year, I’d like to acknowledge the dedication and resiliency of our global associates as they focused on safely operating our plants without interruption and serving our valued customers in the face of the global pandemic. Last September, we were also pleased to announce the sale of our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses during a time when potential transactions within the industry were often paused because of the pandemic. When completed, this transaction will streamline our portfolio and specialty product mix, while improving the Company's financial flexibility and liquidity profile."

"Looking ahead, we are cautiously optimistic about the global economic conditions considering the potential ongoing impact of the pandemic. Several key end markets – housing and wind energy in particular – were strong through year-end and those trends have continued in early 2021. We expect to further strengthen our balance sheet and continue to deliver significant free cash flow in the coming year. Looking ahead, we also expect to pursue potential bolt-on and/or more transformational transactions. With solid momentum heading into 2021, we remain focused on driving year-over-year earnings growth and generating stakeholder value through opportunistic share repurchases and debt reduction."

Hexion Announces Strategic Divestiture

On September 27, 2020, the Company entered into a Purchase Agreement for the sale of its Phenolic Specialty Resin (PSR), Hexamine and European-based Forest Products Resins businesses (together with PSR, the "Held for Sale Business" or the "Business") for approximately $425 million to Black Diamond and Investindustrial. The consideration consists of $335 in cash and certain assumed liabilities with the remainder in future proceeds based on the performance of the Held for Sale business. The final purchase price is subject to customary post-closing adjustments.

Hexion expects to use the net proceeds to invest in its business and reduce its borrowings under its Senior Secured Term Loan, in accordance with its credit agreement. The transaction is intended to close in the first quarter of 2021, subject to regulatory approvals and other customary closing conditions, including Works Council consultation.

Fresh Start Accounting

Upon emerging from Chapter 11 on July 1, 2019 ("Effective Date") and qualifying for the application of fresh-start accounting, Hexion's assets and liabilities were recorded at their estimated fair values which, in some cases, were significantly different than amounts included in the Company's financial statements prior to the Effective Date. Accordingly, Hexion's financial condition and results of operations on and after the Effective Date are not directly comparable to our financial condition and results of operations prior to the Effective Date. References to "Successor" or "Successor Company" relate to the financial position and results of operations of the reorganized Company subsequent to the Effective Date. References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of the Company on or before the Effective Date.

Fourth Quarter 2020 Results

In January 2020, Hexion updated its reportable segments to align around two growth platforms: Adhesives; and Coatings and Composites. The Adhesives Segment is organized around Construction Adhesives, Industrial Adhesives, and Intermediates and Derivatives, while the Coatings and Composites Segment is organized around Composites, Performance Coatings, and Base Chemicals. Corporate and Other continues to be a reportable segment.

As of December 31, 2020, the Company reclassified the assets and liabilities of our Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets and reported the results of its operations for the three months and year ended December 31, 2020 as "(Loss) income from discontinued operations, net of taxes" on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented. See Schedules 9 and 10 for additional financial information for our Held for Sale Business.

Total net sales for the quarter ended December 31, 2020 were $655 million, an increase of 4% compared with $630 million in the prior year period. Volumes positively impacted net sales by $63 million due to volume increases in Hexion's global formaldehyde, specialty epoxy and base epoxy resins, and Versatic Acids™ and Derivatives businesses. Pricing negatively impacted sales by $31 million due primarily to raw material price decreases contractually passed through to customers across many businesses. Foreign currency translation negatively impacted net sales by $7 million due to the weakening of various foreign currencies against the U.S. dollar in the fourth quarter of 2020 compared to the fourth quarter of 2019.

Net loss for the Successor three months ended December 31, 2020 was $35 million compared to a net loss of $46 million in the Successor period through December 31, 2019. Total Segment EBITDA from continuing operations for the quarter ended December 31, 2020 was $74 million, an increase of $21 million compared with the prior year period, or 40 percent, primarily reflecting improved results in our adhesives and coatings and composites businesses.

Fiscal Year 2020 Results

Total net sales for the year ended December 31, 2020 were $2.5 billion, a decrease of 10% compared with $2.8 billion in the prior year period. Pricing negatively impacted sales by $182 million due primarily to raw material decreases contractually passed through to customers across many of our businesses, as well as unfavorable product mix and continued competitive market conditions in our base epoxy resins and specialty epoxy resins businesses. Volume decreases negatively impacted net sales by $70 million, which was primarily due to volume decreases in our North American and Latin America forest products resins businesses and our North American formaldehyde business driven by COVID-19’s negative impact on global demand. These decreases were partially offset by volume increases in our specialty epoxy business driven by strong global demand in wind energy. Foreign currency translation negatively impacted net sales by $42 million.

Net loss for the year ended December 31, 2020 was $230 million compared to a net income of $2,805 million for the year ended December 31, 2019. Total Segment EBITDA from continuing operations for the year ended December 31, 2020 was $294 million, a decrease of 14 percent compared with $340 million in 2019, driven primarily by the impact of the global pandemic, weaker margins in the Company’s base epoxy resins business, and temporary manufacturing outages at our Pernis site which negatively impacted our 2020 Segment EBITDA by approximately $15 million. These Segment EBITDA decreases were partially offset by improved earnings in the specialty epoxy and Versatic™ Acids and Derivatives business, as well as continued cost reduction and productivity initiatives. Fiscal Year 2020 was also negatively impacted by the absence of $18 million of Segment EBITDA in the prior year related to deferred revenue that was accelerated on July 1, 2019 as part of Fresh Start Accounting.

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the Successor three and twelve months ended December 31, 2020 and Successor three and twelve months ended December 31, 2019.

 

Successor

 

Non-GAAP Combined

 

Three Months Ended December 31, 2020

 

Three Months Ended December 31, 2019

 

Twelve Months Ended December 31, 2020

 

Twelve Months Ended December 31, 2019

Net Sales (1):

             

Adhesives

$

314

   

$

332

   

$

1,188

   

$

1,454

 

Coatings and Composites

341

   

298

   

1,322

   

1,350

 

Total

$

655

   

$

630

   

$

2,510

   

$

2,804

 
               

Segment EBITDA:

             

Adhesives

$

58

   

$

57

   

$

214

   

$

251

 

Coatings and Composites

36

   

16

   

151

   

156

 

Corporate and Other

(20)

   

(20)

   

(71)

   

(67)

 

Total

$

74

   

$

53

   

$

294

   

$

340

 

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

Hexion Announces Site Expansion Plans

As part of its broader investment plan to drive innovation and growth in its specialty product lines, Hexion announced that it intends to expand its Portland, Oregon, manufacturing site. The Company is beginning the permitting stages of a second automated manufacturing line in Portland to support its recently-launched ArmorBuilt fire resistant wrap, a new product which greatly improves fire protection when applied to a substrate, such as wood utility poles. The first automated production line will come online at the end of the first quarter of 2021 and the second automated line is expected to start up around year-end 2021.

ArmorBuilt wrap is a proprietary wrap from Hexion that can be applied to either new or existing wood utility poles. Hexion has been providing high-performing adhesives for decades and has leveraged its expertise to develop a fire-retardant coating for more sustainable wooden utility poles that greatly improves their fire resistance. ArmorBuilt wrap has passed an industry approved wildfire simulation burn test for fire resistance.

Efficiency and Cost Savings Initiatives

In the fourth quarter of 2020, Hexion continued to implement the creation of a business services group with Capgemini to provide certain administrative functions to further improve the Company's organizational efficiency and reduce its costs in future years. In fiscal year 2020, the Company also achieved $23 million of cost savings related to all its cost savings initiatives. At December 31, 2020, Hexion had approximately $6 million of total in-process savings that it expects to realize over the next 12 months.

Liquidity and Capital Resources

As of December 31, 2020, total debt was approximately $1.8 billion and consisted primarily of the Company’s approximately $1.2 billion Senior Secured Term Loans due 2026 and $450 million Senior Notes due 2027. At December 31, 2020, the Company had $561 million in liquidity, including $200 million of unrestricted cash and cash equivalents. In addition, Hexion has no upcoming maturities on its term loan or notes until 2026. 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 2020 results on Wednesday, March 10, 2021 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: (574) 990-2716

Participant Passcode: 3359947

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 following the call and can be access by dialing (855) 859-2056 (U.S.) and (404) 537-3406 (International). The passcode is 3359947.

Non-U.S. GAAP Measures

Segment EBITDA

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) income 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 Schedules 4 and 5 to this release for reconciliation of net (loss) income to Segment EBITDA.

Pro Forma EBITDA

Pro Forma 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. The Company believes that including the supplemental adjustments that are made to calculate Pro Forma 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. Pro Forma EBITDA and Fixed Charges are not defined terms under U.S. GAAP. Pro Forma EBITDA is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to net income determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. Additionally, Pro Forma 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 Indenture governing the Senior Notes due 2027 should not be considered an alternative to interest expense. See Schedule 6 to this release for reconciliation of net income to Pro Forma EBITDA and the calculation of the Fixed Charges Ratio.

Free cash flow

Free cash flow is a liquidity measure used by the Company and is defined by the Company as net cash provided by (used in) operations, less capital expenditures on property, plant and equipment. We believe that free cash flow provides useful information to management, investors, analysts and other parties in evaluating the Company's liquidity and credit quality assessment because it provides an indication of the long-term cash generating ability of our business. See Schedule 7 to this release for the Company's free cash flow by quarter.

Net debt

Net debt is defined by the Company as total debt less cash and cash equivalents. We believe that net debt provides useful information to management, investors, analysts and other parties in evaluating changes to the Company's capital structure and credit quality assessment. See Schedule 8 to this release for the Company's net debt by quarter.

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," "might," "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 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, uncertainties related to COVID-19 and the impact of our responses to it and the other factors listed in the Risk Factors section of our SEC filings. For a more detailed discussion of these and other risk factors, see the Risk Factors section of our most recent 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 adhesive, coatings, composites 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. Additional information about Hexion Inc. and its products is available at www.hexion.com.

1 Free cash flow is a non-GAAP financial measure and is a liquidity measure used by the Company. Free cash flow is defined by the Company as net cash provided by (used in) operating activities less capital expenditures on property, plant and equipment. See Schedule 7 to this release for the Company's free cash flow by quarter.

See Attached Financial Statements

HEXION INC.

SCHEDULE 1: CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

Successor

 

Successor

   

Predecessor

(In millions)

Three Months Ended December 31, 2020

 

Three Months Ended December 31, 2019

 

Twelve Months Ended December 31, 2020

 

July 2, 2019 through December 31, 2019

   

January 1, 2019 through July 1, 2019

     

Net sales

$

655

   

$

630

   

$

2,510

   

$

1,323

     

$

1,481

 

Cost of sales (exclusive of depreciation and amortization shown below)

529

   

530

   

2,043

   

1,117

     

1,211

 

Selling, general and administrative expense

67

   

62

   

231

   

124

     

128

 

Depreciation and amortization

48

   

44

   

191

   

93

     

43

 

Gain on disposition

   

5

   

   

     

 

Asset impairments

   

   

16

   

     

 

Business realignment costs

12

   

11

   

69

   

22

     

14

 

Other operating expense, net

9

   

8

   

24

   

16

     

17

 

Operating (loss) income

(10)

   

(30)

   

(64)

   

(49)

     

68

 

Interest expense, net

24

   

27

   

100

   

55

     

89

 

Other non-operating income, net

(3)

   

(4)

   

(15)

   

     

(11)

 

Reorganization items, net

   

   

   

     

(2,970)

 

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

(31)

   

(53)

   

(149)

   

(104)

     

2,960

 

Income tax expense (benefit)

6

   

(4)

   

14

   

(10)

     

201

 

(Loss) income from continuing operations before earnings from unconsolidated entities

(37)

   

(49)

   

(163)

   

(94)

     

2,759

 

Earnings from unconsolidated entities, net of taxes

   

1

   

2

   

2

     

1

 

(Loss) income from continuing operations, net of taxes

(37)

   

(48)

   

(161)

   

(92)

     

2,760

 

(Loss) income from discontinued operations, net of taxes

2

   

3

   

(69)

   

4

     

135

 

Net (loss) income

$

(35)

   

$

(45)

   

$

(230)

   

$

(88)

     

$

2,895

 

Net income attributable to noncontrolling interest

   

(1)

   

   

(1)

     

(1)

 

Net (loss) income attributable to Hexion Inc.

$

(35)

   

$

(46)

   

$

(230)

   

$

(89)

     

$

2,894

 

HEXION INC.

SCHEDULE 2: CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except share data)

December 31, 2020

 

December 31, 2019

Assets

     

Current assets:

     

Cash and cash equivalents (including restricted cash of $4)

$

204

   

$

254

 

Accounts receivable (net of allowance for doubtful accounts of $3)

331

   

316

 

Inventories:

     

Finished and in-process goods

180

   

211

 

Raw materials and supplies

85

   

82

 

Current assets held for sale

114

   

99

 

Other current assets

39

   

40

 

Total current assets

953

   

1,002

 

Investment in unconsolidated entities

10

   

14

 

Deferred tax assets

7

   

6

 

Long-term assets held for sale

342

   

400

 

Other long-term assets

85

   

44

 

Property and equipment:

     

Land

79

   

82

 

Buildings

122

   

114

 

Machinery and equipment

1,270

   

1,148

 
 

1,471

   

1,344

 

Less accumulated depreciation

(212)

   

(63)

 
 

1,259

   

1,281

 

Operating lease assets

103

   

110

 

Goodwill

164

   

164

 

Other intangible assets, net

1,079

   

1,125

 

Total assets

$

4,002

   

$

4,146

 

Liabilities and Equity

     

Current liabilities:

     

Accounts payable

$

339

   

$

289

 

Debt payable within one year

82

   

70

 

Interest payable

30

   

35

 

Income taxes payable

6

   

17

 

Accrued payroll and incentive compensation

42

   

43

 

Current liabilities associated with assets held for sale

70

   

69

 

Current portion of operating lease liabilities

19

   

20

 

Other current liabilities

111

   

95

 

Total current liabilities

699

   

638

 

Long-term liabilities:

     

Long-term debt

1,710

   

1,715

 

Long-term pension and post employment benefit obligations

250

   

223

 

Deferred income taxes

161

   

149

 

Operating lease liabilities

76

   

82

 

Long-term liabilities associated with assets held for sale

74

   

56

 

Other long-term liabilities

209

   

208

 

Total liabilities

3,179

   

3,071

 

Equity

     

Common stock—$0.01 par value; 100 shares authorized, issued and outstanding
at both December 31, 2020 and 2019

   

 

Paid-in capital

1,169

   

1,165

...

Accumulated other comprehensive loss

(27)

   

(1)

 

Accumulated deficit

(319)

   

(89)

 

Total Hexion Inc. shareholder’s equity

823

   

1,075

 

Noncontrolling interest

   

 

Total equity

823

   

1,075

 

Total liabilities and equity

$

4,002

   

$

4,146

 

HEXION INC.

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

 

Successor

       

Predecessor

(In millions)

Year Ended December 31, 2020

   

July 2, 2019 through December 31, 2019

   

January 1, 2019 through July 1, 2019

Cash flows provided by (used in) operating activities

             

Net (loss) income

$

(230)

   

$

(88)

     

$

2,895

 

Less: (Loss) income from discontinued operations, net of tax

(69)

   

4

     

135

 

(Loss) income from continuing operations

(161)

   

(92)

     

2,760

 

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

             

Depreciation and amortization

191

   

93

     

43

 

Non-cash asset impairments

16

   

     

 

Non-cash reorganization items, net

   

     

(3,156)

 

Non-cash impact of inventory step-up

   

27

     

 

Deferred tax expense (benefit)

9

   

(9)

     

140

 

Loss on sale of assets

9

   

4

     

3

 

Unrealized foreign currency gains

(3)

   

(1)

     

(7)

 

Non-cash stock based compensation expense

17

   

8

     

 

Unrealized losses on pension and postretirement benefit plan liabilities

4

   

5

     

 

Financing fees included in net loss

   

     

136

 

Other non-cash adjustments

(1)

   

(2)

     

(1)

 

Net change in assets and liabilities:

             

Accounts receivable

(3)

   

108

     

(73)

 

Inventories

35

   

15

     

(20)

 

Accounts payable

44

   

(15)

     

(15)

 

Income taxes payable

(9)

   

(3)

     

15

 

Other assets, current and non-current

(21)

   

25

     

3

 

Other liabilities, current and non-current

(11)

   

11

     

9

 

Net cash provided by (used in) operating activities from continuing operations

116

   

174

     

(163)

 

Net cash provided by (used in) operating activities from discontinued operations

15

   

50

     

(10)

 

Net cash provided by (used in) operating activities

131

   

224

     

(173)

 

Cash flows used in investing activities

             

Capital expenditures

(108)

   

(47)

     

(41)

 

Proceeds from sale of assets, net

3

   

     

1

 

Net cash used in investing activities from continuing operations

(105)

   

(47)

     

(40)

 

Net cash used in investing activities from discontinued operations

(21)

   

(11)

     

(2)

 

Net cash used in investing activities

(126)

   

(58)

     

(42)

 

Cash flows (used in) provided by financing activities

             

Net short-term debt repayments

(7)

   

(24)

     

(4)

 

Borrowings of long-term debt

256

   

118

     

2,313

 

Repayments of long-term debt

(293)

   

(130)

     

(2,261)

 

Return of capital to parent

(13)

   

     

 

Proceeds from rights offering

   

     

300

 

Financing fees paid

   

(2)

     

(136)

 

Net cash used in (provided by) financing activities

(57)

   

(38)

     

212

 

Effect of exchange rates on cash and cash equivalents, including restricted cash

2

   

1

     

 

Change in cash and cash equivalents, including restricted cash

(50)

   

129

     

(3)

 

Cash, cash equivalents and restricted cash at beginning of period

254

   

125

     

128

 

Cash, cash equivalents and restricted cash at end of period

204

   

254

     

125

 

Supplemental disclosures of cash flow information

             

Cash paid for:

             

Interest, net

$

103

   

$

22

     

$

71

 

Income taxes, net

16

   

10

     

10

 

Reorganization items, net

   

     

188

 

HEXION INC.

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

     
 

Three Months Ended
December 31, 2020

 

Three Months Ended
December 31, 2019

Reconciliation:

     

Net loss attributable to Hexion Inc.

$

(35)

   

$

(46)

 

Add: Net income attributable to noncontrolling interest

   

1

 

Less: Net income from discontinued operations

2

   

3

 

Net loss from continued operations

(37)

   

(48)

 

Income tax expense (benefit)

6

   

(4)

 

Interest expense, net

24

   

27

 

Depreciation and amortization

48

   

44

 

EBITDA

41

   

19

 

Adjustments to arrive at Segment EBITDA:

     

Business realignment costs (1)

12

   

11

 

Transaction costs (2)

2

   

6

 

Realized and unrealized foreign currency gains

(3)

   

(4)

 

Unrealized losses on pension and OPEB plan liabilities

4

   

5

 

Other non-cash items (3)

14

   

9

 

Other (4)

4

   

7

 

Total adjustments

33

   

34

 

Segment EBITDA

$

74

   

$

53

 
       

Segment EBITDA:

     

Adhesives

$

58

   

$

57

 

Coatings and Composites

36

   

16

 

Corporate and Other

(20)

   

(20)

 

Total

$

74

   

$

53

 

(1) Business realignment costs for the Successor and Predecessor periods below included:

 

Three Months Ended
December 31, 2020

 

Three Months Ended
December 31, 2019

Severance costs

$

2

   

$

5

 

In-process facility rationalizations

1

   

3

 

Contractual costs from exited business

2

   

 

Business services implementation

4

   

 

Legacy environmental reserves

1

   

3

 

Other

2

   

 

(2) For the Successor three months ended December 31, 2019, transaction costs included certain professional fees related to strategic projects.

(3) Other non-cash items for the Successor and Predecessor periods presented below included:

       
 

Three Months Ended
December 31, 2020

 

Three Months Ended
December 31, 2019

Fixed asset write-offs

$

6

   

$

5

 

Stock-based compensation costs

4

   

3

 

Long-term retention programs

2

   

(1)

 

Other

2

   

2

 

(4) Other for Successor and Predecessor periods presented below included:

       
 

Three Months Ended
December 31, 2020

 

Three Months Ended
December 31, 2019

Legacy and other non-recurring items

$

2

   

$

2

 

IT outage costs, net

   

1

 

Financing fees and other

2

   

4

 
 

Successor

   

Predecessor

 

Non-GAAP Combined

 

Year Ended December 31, 2020

 

July 2, 2019 through December 31, 2019

   

January 1, 2019 through July 1, 2019

 

Year Ended December 31, 2019

Reconciliation:

               

Net (loss) income attributable to Hexion Inc.

$

(230)

   

$

(89)

     

$

2,894

   

$

2,805

 

Add: Net income attributable to noncontrolling interest

   

1

     

1

   

2

 

Less: Net (loss) income from discontinued operations

(69)

   

4

     

135

   

139

 

Net (loss) income from continued operations

$

(161)

   

$

(92)

     

$

2,760

   

$

2,668

 

Income tax expense (benefit)

14

   

(10)

     

201

   

191

 

Interest expense, net

100

   

55

     

89

   

144

 

Depreciation and amortization (1)

191

   

93

     

43

   

136

 

EBITDA

144

   

46

     

3,093

   

3,139

 

Adjustments to arrive at Segment EBITDA:

               

Asset impairments and write-downs

$

16

   

$

     

$

   

$

 

Business realignment costs (2)

69

   

22

     

14

   

36

 

Transaction costs (3)

6

   

11

     

26

   

37

 

Realized and unrealized foreign currency losses (gains)

   

4

     

(7)

   

(3)

 

Unrealized losses on pension and OPEB plan liabilities

4

   

5

     

   

5

 

Reorganization items, net (4)

   

     

(2,943)

   

(2,943)

 

Non-cash impact of inventory step-up(5)

   

27

     

(27)

   

 

Accelerated deferred revenue (6)

   

     

18

   

18

 

Other non-cash items (7)

43

 

10

     

9

   

19

 

Other (8)

12

   

14

     

18

   

32

 

Total adjustments

150

   

93

     

(2,892)

   

(2,799)

 

Segment EBITDA

$

294

   

$

139

     

$

201

   

$

340

 
                 

Segment EBITDA:

               

Adhesives

$

214

   

$

116

     

$

135

   

$

251

 

Coatings and Composites

151

   

60

     

96

   

156

 

Corporate and Other

(71)

   

(37)

     

(30)

   

(67)

 

Total

$

294

   

$

139

     

$

201

   

$

340

 

(1) For the year ended December 31, 2020, accelerated depreciation of $2 has been included in "Depreciation and amortization." There was no accelerated deprecation in either the Successor year ended December 31, 2019 or in the Predecessor period January 1, 2019 through July 1, 2019.

(2) Business realignment costs for the Successor and Predecessor periods below included:

 

Successor

   

Predecessor

 

Non-GAAP Combined

 

Year Ended December 31, 2020

 

July 2, 2019 through December 31, 2019

   

January 1, 2019 through July 1, 2019

 

Year Ended December 31, 2019

Severance costs

$

16

   

$

9

     

$

8

   

$

17

 

In-process facility rationalizations

11

   

5

     

3

   

8

 

Contractual costs from exited business

8

   

     

   

 

Business services implementation

22

   

     

   

 

Legacy environmental reserves

9

   

7

     

1

   

8

 

Other

3

   

1

     

2

   

3

 

(3) For the year ended December 31, 2020, transaction costs included certain professional fees related to strategic projects. For the Successor period from July 2, 2019 through December 31, 2019 and the Predecessor period from January 1, 2019 through July 1, 2019, transaction costs primarily included $6 and $23, respectively, of certain professional fees and other expenses related to the Company’s Chapter 11 proceedings.

(4) Represents incremental costs incurred directly as a result of the Company’s Chapter 11 proceedings after the date of filing, gains on settlement of liabilities under the Plan and the net impact of fresh start accounting adjustments. The amounts excludes the "Non-cash impact of inventory step-up" discussed below.

(5) Represents $27 of non-cash expense related to the step up of finished goods inventory on July 1 as part of fresh start accounting that was expensed in the successor period upon the sale of the inventory.

(6) For the Predecessor period from January 1, 2019 through July 1, 2019, $18 of deferred revenue was accelerated on July 1 as part of Fresh Start accounting.

(7) Other non-cash items for the Successor and Predecessor periods presented below included:

 

Successor

   

Predecessor

 

Non-GAAP Combined

 

Year Ended December 31, 2020

 

July 2, 2019 through December 31, 2019

   

January 1, 2019 through July 1, 2019

 

Year Ended December 31, 2019

Fixed asset write-offs

$

13

   

$

6

     

$

3

   

$

9

 

Stock-based compensation costs

17

   

8

     

   

8

 

Long-term retention programs

9

   

(2)

     

5

   

3

 

One-time capitalized variance impact of inventory fresh start step-up

   

(4)

     

   

(4)

 

Other

4

   

2

     

1

   

3

 

(8) Other for Successor and Predecessor periods presented below included:

 

Successor

   

Predecessor

 

Non-GAAP Combined

 

Year Ended December 31, 2020

 

July 2, 2019 through December 31, 2019

   

January 1, 2019 through July 1, 2019

 

Year Ended December 31, 2019

Legacy and other non-recurring items

$

8

   

$

7

     

$

3

   

$

10

 

IT outage (recoveries) costs, net

(4)

   

     

9

   

9

 

Financing fees and other

8

   

7

     

6

   

13

 

HEXION INC.

SCHEDULE 5: RECONCILIATION OF NET LOSS TO SEGMENT EBITDA BY QUARTER (Unaudited):

 

Three Months Ended December 31, 2020

 

Three Months Ended September 30, 2020 (1)

 

Three Months Ended June 30, 2020

 

Three Months Ended March 31, 2020

Reconciliation:

             

Net loss attributable to Hexion Inc.

$

(35)

   

$

(94)

   

$

(42)

   

$

(59)

 

Add: Net income attributable to noncontrolling interest

   

   

   

 

Less: Net income (loss) from discontinued operations

2

   

(68)

   

(6)

   

3

 

Net loss from continuing operations

$

(37)

   

$

(26)

   

$

(36)

   

$

(62)

 

Income tax expense (benefit)

6

   

17

   

(12)

   

3

 

Interest expense, net

24

   

25

   

25

   

26

 

Depreciation and amortization (2)

48

   

47

   

47

   

49

 

EBITDA

$

41

   

$

63

   

$

24

   

$

16

 

Adjustments to arrive at Segment EBITDA:

             

Asset impairments

$

   

$

   

$

   

$

16

 

Business realignment costs (3)

12

   

19

   

18

   

20

 

Transaction costs (4)

2

   

1

   

1

   

2

 

Realized and unrealized foreign currency (gains) losses

(3)

   

(3)

   

   

6

 

Unrealized losses on pension and OPEB plan liabilities (5)

4

   

   

   

 

Other non-cash items (6)

14

   

6

   

12

 

11

Other (7)

4

   

5

   

1

   

2

 

Total adjustments

33

   

28

   

32

   

57

 

Segment EBITDA

$

74

   

$

91

   

$

56

   

$

73

 
               

Segment EBITDA:

             

Adhesives

$

58

   

$

58

   

$

43

   

$

55

 

Coatings and Composites

36

   

50

   

26

   

39

 

Corporate and Other

(20)

   

(17)

   

(13)

   

(21)

 

Total

$

74

   

$

91

   

$

56

   

$

73

 

(1) "Net loss attributable to Hexion Inc." and "Net income (loss) for discontinued operations" for the three months ended September 30, 2020 have been revised to reflect the correction of an immaterial error.

(2) For the three months ended June 30, 2020 and March 31, 2020, accelerated depreciation of less than $1 and $2, respectively, has been included in "Depreciation and amortization."

(3) Business realignment costs for the periods presented below included:

 

Three Months Ended December 31, 2020

 

Three Months Ended September 30, 2020

 

Three Months Ended June 30, 2020

   

Three Months Ended March 31, 2020

 

Severance costs

$

2

   

$

4

   

$

2

   

$

8

 

In-process facility rationalizations

1

   

3

   

1

   

6

 

Contractual costs from exited business

2

   

2

   

4

   

 

Business services implementation

4

   

6

   

8

   

4

 

Legacy environmental reserves

1

   

4

   

2

   

2

 

Other

2

   

   

1

   

 
                               

(4) For the three months ended December 30, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, transaction costs include certain professional fees related to strategic projects.

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

(6) Other non-cash items for the periods presented below included:

 

Three Months Ended December 31, 2020

 

Three Months Ended September 30, 2020

 

Three Months Ended June 30, 2020

 

Three Months Ended March 31, 2020

Fixed asset write-offs

$

6

   

$

   

$

5

   

$

2

 

Stock-based compensation costs

4

   

4

   

4

   

5

 

Long-term retention programs

2

   

1

   

3

   

3

 

Other

2

   

1

   

   

1

 

(7) Other items for the periods presented below included:

 

Three Months Ended December 31, 2020

 

Three Months Ended September 30, 2020

 

Three Months Ended June 30, 2020

 

Three Months Ended March 31, 2020

Legacy and other non-recurring items

$

2

   

$

2

   

$

2

   

$

2

 

IT outage recoveries, net

   

   

(3)

   

(1)

 

Financing fees and other

2

   

3

   

2

   

1

 

HEXION INC.

SCHEDULE 6: CALCULATION OF THE RATIO OF PROFORMA EBITDA TO FIXED CHARGES (Unaudited)

 

December 31, 2020

 

LTM Period

Net loss

$

(222)

 

Net loss from discontinued operations

(61)

 

Net loss from continuing operations

$

(161)

 

Income tax expense

14

 

Interest expense, net

100

 

Depreciation and amortization

191

 

EBITDA

144

 

Adjustments to arrive at Pro Forma EBITDA:

 

Asset impairments

16

 

Business realignment costs (1)

69

 

Realized and unrealized foreign currency gains

 

Unrealized losses on pension and postretirement benefits (2)

4

 

Transaction costs (3)

6

 

Other non-cash items (4)

43

 

Other (5)

16

 

Cost reduction programs savings (6)

6

 

Pro Forma EBITDA

$

304

 

Pro forma fixed charges (7)

$

84

 

Ratio of Pro Forma EBITDA to Fixed Charges (8)

3.62

 

(1) Primarily represents costs related to certain in-process cost reduction activities, including severance costs of $16, $11 related to certain in-process facility rationalizations, $8 of contractual costs for exited businesses, $9 for future environmental clean-up of closed facilities and one-time implementation and transition costs associated with the creation of a business services group within the Company of $22.

(2) Represents non-cash losses from pension and postretirement benefit plan liability remeasurements.

(3) Represents certain professional fees related to strategic projects.

(4) Primarily include expenses for retention programs of $9, fixed asset disposals of $13, and share-based compensation costs of $17.

(5) Primarily includes legacy and other non-recurring expenses of $8, financing fees and other expenses of $8 and business optimization expense of $4, offset by IT outage recoveries of $4.

(6) 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. We expect the savings to be realized within the next 12 months.

(7) Reflects pro forma interest expense based on interest rates at December 31, 2020 and expected 2021 debt pay downs.

(8) The Company’s ability to incur additional indebtedness, among other actions, is limited under our Senior Secured Term Loans and Senior Notes, unless the Company has a Pro Forma EBITDA to Fixed Charges ratio of at least 2.0 to 1.0.

HEXION INC.

SCHEDULE 7: FREE CASH FLOW BY QUARTER (Unaudited):

 

Three Months Ended
December 31, 2020

 

Three Months Ended September 30, 2020

 

Three Months Ended June 30, 2020

 

Three Months Ended March 31, 2020

Net cash provided by (used in) operating activities from continuing operations

$

153

   

$

(5)

   

$

67

   

$

(99)

 

Capital expenditures from continuing operations

(30)

   

(26)

   

(26)

   

(26)

 

Free Cash Flow from continuing operations (1)

123

   

(31)

   

41

   

(125)

 

(1) Free cash flow is a liquidity measure used by the Company and is defined by the Company as net cash provided by (used in) operating activities, less capital expenditures on property, plant and equipment.

HEXION INC.

SCHEDULE 8: NET DEBT BY QUARTER (Unaudited):

 

December 31, 2020

 

September 30, 2020

 

June 30, 2020

 

March 31, 2020

Debt payable within one year

$

82

   

$

77

   

$

76

   

$

80

 

Long term debt

1,710

   

1,756

   

1,839

   

1,834

 

Total Debt (1)

$

1,792

   

$

1,833

   

$

1,915

   

$

1,914

 

Less: Cash and cash equivalents

(204)

   

(158)

   

(295)

   

(250)

 

Net Debt (2)

$

1,588

   

$

1,675

   

$

1,620

   

$

1,664

 

(1) Total debt represents the sum of "Debt payable within one year" and "Long-term debt" on the Condensed Consolidated Balance Sheets. Certain components of total debt are denominated in foreign currencies.

(2) Net debt represents "Total Debt" as defined above less "Cash and cash equivalents" on the Condensed Consolidated Balance Sheets.

HEXION INC.

SCHEDULE 9: ASSETS AND LIABILITIES FROM DISCONTINUED OPERATIONS (Unaudited):

 

December 31, 2020

   

December 31, 2019

 

Carrying amounts of major classes of assets held for sale:

         

Accounts receivable

$

66

   

$

49

 

Finished and in-process goods

18

   

21

 

Raw materials and supplies

17

   

18

 

Other current assets

12

   

11

 

Total current assets

113

   

99

 

Investment in unconsolidated entities

5

   

3

 

Deferred tax assets

2

   

 

Other long-term assets

7

   

11

 

Property, plant and equipment, net

310

   

297

 

Operating lease assets

13

   

12

 

Goodwill

14

   

14

 

Other intangible assets, net

61

   

63

 

Discontinued operations impairment

(75)

   

 

Total long-term assets

337

   

400

 

Total assets held for sale

$

450

   

$

499

 
           

Carrying amounts of major classes of liabilities held for sale:

         

Accounts payable

$

52

   

$

52

 

Income taxes payable

1

   

 

Accrued payroll

3

   

5

 

Current portion of operating lease liabilities

2

   

2

 

Other current liabilities

9

   

10

 

Total current liabilities

67

   

69

 

Long-term pension and post employment benefit obligations

36

   

29

 

Deferred income taxes

22

   

15

 

Operating lease liabilities

5

   

4

 

Other long-term liabilities

8

   

8

 

Total long-term liabilities

71

   

56

 

Total liabilities held for sale

$

138

   

$

125

 

HEXION INC.

SCHEDULE 10: FINANCIAL RESULTS FROM DISCONTINUED OPERATIONS (Unaudited):

 

Successor

   

Predecessor

 

Successor

     

Predecessor

 

Three Months Ended
December 31, 2020

 

Three Months Ended December 31, 2019

   

July 1, 2019

 

Twelve Months Ended
December 31, 2020

   

July 2, 2019 through December 31, 2019

   

January 1, 2019 through July 1, 2019

           

Major line items constituting pretax income of discontinued operations:

                           

Net sales

$

133

   

$

137

     

$

   

$

493

   

$

286

     

$

309

 

Cost of sales (exclusive of depreciation and amortization)

111

   

115

     

   

412

   

245

     

263

 

Selling, general and administrative expense

9

   

7

     

   

42

   

15

     

17

 

Depreciation and amortization

   

10

     

   

26

   

17

     

9

 

Asset impairments

8

   

     

   

75

   

     

 

Business realignment costs

2

   

1

     

   

3

   

2

     

1

 

Other operating expense (income), net

   

     

   

   

1

     

(1)

 

Operating income (loss)

3

   

4

     

   

(65)

   

6

     

20

 

Reorganization items, net

   

     

(135)

   

   

     

(135)

 

Other non-operating expense, net

4

   

1

     

   

5

   

1

     

 

(Loss) income from discontinued operations before income tax, earnings from unconsolidated entities

(1)

   

3

     

135

   

(70)

   

5

     

155

 

Income tax (benefit) expense

(2)

   

     

16

   

1

   

1

     

21

 

Income (loss) from discontinued operations, net of tax

$

1

   

$

3

     

$

119

   

$

(71)

   

$

4

     

$

134

 

Earnings from unconsolidated entities, net of tax

1

   

     

   

2

   

     

1

 

Net income (loss) attributable to discontinued operations

$

2

   

$

3

     

$

119

   

$

(69)

   

$

4

     

$

135

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210310005460/en/

Contacts

Investors and Media:
John Kompa
614-225-2223
john.kompa@hexion.com