2. Forward-Looking Statements
Certain information in this presentation may be considered forward-looking information
within the meaning of the Private Securities Litigation Reform Act of 1995. This information
is based on the Company's current expectations and actual results could vary materially
depending on risks and uncertainties that may affect the Company's operations, markets,
services, prices and other factors as discussed in filings with the Securities and Exchange
Commission. These risks and uncertainties include, but are not limited to, industry and
economic conditions, competitive, legal, governmental and technological factors. There is
no assurance that the Company's expectations will be realized. The Company assumes
no obligation to update any forward-looking information contained in this presentation
should circumstances change, except as otherwise required by securities and other
applicable laws.
This presentation contains non-GAAP financial measures. A reconciliation to the
nearest U.S. GAAP financial measures is included at the end of the presentation.
2
3. Overview of First Quarter Results
Craig O. Morrison
Chairman, President & Chief Executive Officer
4. First Quarter 2007 Highlights
Hexion delivered a strong performance in Q107
Revenues increased 17% over prior year. Revenues increased 10%, net of acquisitions,
compared to prior year
Q107 operating income of $104 million compared to $110 million in prior year quarter. Last
year’s earnings, however, included a gain of $37 million on the sale of non-core assets, net of
which operating income was up 42 percent
Segment EBITDA(1) reached $170 million, a 29% increase compared to prior year
Hexion’s global diversification and technical service model has allowed it to offset the downturn in
North American housing and automotive markets
Flattening raw material prices have allowed the pricing, synergies and productivity initiatives to flow
to the bottom line
Hexion remains on track to achieve $175 million in targeted synergies
The Orica integration further diversified Hexion within the Asia Pacific Forest Products region and is
proceeding smoothly
Hexion’s Q107 results delivered a pro forma adjusted EBITDA of $679 million and an interest
coverage ratio of 2.34
Hexion Continues to Execute its Strategic and Operational Plan
(1) Segment EBITDA and Adjusted EBITDA are non-GAAP financial measures. The closest GAAP financial measure is Net Income (Loss). A table that reconciles these two measures is at the end of
this presentation. Management believes that Adjusted EBITDA is meaningful to investors because maintaining a minimum ratio of Adjusted EBITDA to Fixed Charges is a covenant that is contained
4
in Hexion’s loan agreements. Last Twelve Month (LTM) Adjusted EBITDA includes $94 million of in-process Hexion synergies and $23 million of acquisition adjustments.
5. Quarterly Results Driven by Diversified Portfolio
and Global Customer Base
Hexion Results
Quarter Ended March 31
∆
2006 2007
($ in millions)
↑ 17%
Revenue $1,233 $1,438
Q106 includes $37
Operating million gain on the sale
110 104 (5%)
Income of non-core assets
Q106 includes $31
million gain on an after-
Net income 35 4 nm tax basis on sale of non-
core assets
Segment
↑ 29%
132 170
EBITDA (1)
(1) Segment EBITDA excludes in-process synergies and the pro forma effect of acquisitions.
5
6. Strong Revenue Growth in Q107
Net Sales
1Q07 vs. 1Q06
Summary:
Epoxy & An emphasis on price initiatives drove
Phenolic 11% strong revenue growth across all
Resins
segments
Forest & Robust volumes in specialty product
16%
Formaldehyde
lines drove positive mix
Products
Coatings and Inks results largely
Coatings 32% driven by Akzo and Rhodia
& Inks
acquisitions
Performance
10%
Products
Continued Across-the-Board Segment Revenue Growth
6
7. Segment EBITDA Trends Positive in Q107
Segment EBITDA
1Q07 vs. 1Q06
Summary:
Strong Segment EBITDA improvement
across all areas of portfolio.
32%
EPRD
EPRD driven by a robust epoxy market
and disciplined pricing strategies
26%
FFP
FFP offset the N. American housing
downturn through global diversification
25%
C&I
and flattening raw material prices
SG&A expenses as percentage of
PP sales improved to 6.95% in Q107
13%
compared to 7.62% in Q106
EBITDA margin improvement of 100
basis points driven by ongoing pricing
and synergies
(1) Segment EBITDA excludes in-process synergies and the pro forma effect of acquisitions.
7
8. Volatile Raw Material Environment in Q107
A flattening of the raw material index allowed for pricing, synergy and productivity initiatives to fall to the
bottom line.
Total Hexion composite raw material index increased 24% year-over-year
Q107 average prices compared to Q106:
phenol ↑ 17%, methanol ↑ 56%, and urea ↑ 35%
Contractual lead-lag: $1 million positive impact in Q107
Ongoing focus on pricing actions to compensate for the rapid rise in raw materials
Anticipate favorable trends over balance of 2007, but prices remain volatile
Hexion Composite Raw Material Index
1.4
1.3
1.2
1.1
1.0
Q1 Q2 Q3 Q4 Q1
2006 2007 Source: CMAI data.
Certain Key Raws Currently Remain at or near Historical Highs 8
9. On Track to Achieve $175 Million in Synergies
Achieved
Summary:
($ millions)
$125
Achieved $11 million in targeted
synergies in Q107
$70 Anticipate achieving $125 million in
synergies by year-end 2007
Synergy achievement remains an
ongoing focus of senior management
team
Targeted Synergy Focus Areas
FY ’07
FY ’06A
Est.
Sourcing M anufacturing SG&A
$33 mm
Sourcing
$75 mm
Manufacturing
As of As of As of
FY05 FY06 Q107 SG&A
$67 mm
Achieved Synergies $20 $70 $81
Unrealized Synergies $155 $105 $94
Hexion Continues to Achieve Targeted Synergies 9
11. Epoxy and Phenolic Resins Segment Highlights
Some relief in phenol
Quarter Ended March 31 pricing sequentially from
Q406 and solid demand in
Q107 from certain product
∆
2007 2006
($ in millions) lines helped improve
segment margins
↑ 11%
Revenue $582 $526
Continued strength in
European and Specialty
Segment Epoxy businesses
↑ 32%
$96 $73
EBITDA
Strong performance in
versatic acid and
derivatives
Q107 Sales Comparison YOY
Volume Price/Mix Currency Acquisitions/ Total
Translation Divestitures
(1%) 6% 6% -- 11%
11
12. Formaldehyde and Forest Product Resins
Segment Highlights
Segment results driven by our
ability to pass through higher
Quarter Ended March 31
phenol and methanol costs,
strong international volumes
∆
2007 2006 and cost control initiatives
($ in millions)
Orica and Wright Chemical
↑ 16%
Revenue $413 $356 added $3.4 million in Q107
Segment EBITDA
Segment
↑ 26%
$43 $34
EBITDA
Q107 Sales Comparison YOY
Volume Price/Mix Currency Acquisitions/ Total
Translation Divestitures
(9%) 19% 1% 5% 16%
12
13. Coatings and Inks Segment Highlights
Stronger pricing partially
Quarter Ended March 31 offset by N. American
housing market adversely
impacting coating volumes
∆
2007 2006
($ in millions)
Additional progress in site
↑ 32% rationalization efforts in
Revenue $343 $260
Hamburg (Germany),
Mölndal (Sweden) and
Segment Lynwood, California
↑ 25%
$25 $20
EBITDA
Site rationalizations
underscore move for
Hexion to bolster
waterborne and powder
Q107 Sales Comparison YOY
coating systems versus
Volume Price/Mix Currency Acquisitions/ Total
solvent-borne
Translation Divestitures
technologies
(5%) 6% 5% 26% 32%
13
14. Performance Products Segment Highlights
Quarter Ended March 31 Oilfield products
continued to deliver
strong volume and
∆
2007 2006
($ in millions)
pricing performance
↑ 10%
Revenue $100 $91 Segment volume
decline driven primarily
by foundry products
Segment
↑ 13%
$18 $ 16 reflecting the
EBITDA
N. American auto
slowdown
Q107 Sales Comparison YOY
Volume Price/Mix Currency Acquisitions/ Total
Translation Divestitures
(1%) 10% 1% -- 10%
14
15. Balance Sheet Update
Q107 cash flow impacted by:
Acquisition of Orica Adhesives & Resins business
(Accounted for $63 million of $110 million increase in borrowings)
Working capital investments in business growth, including global wind
energy markets
Maintaining capital expenditure targets of $120 million in 2007
Cash plus borrowing availability of $187 million at March 31, 2007
Net Debt Outstanding as of Q107 Totals $3.4 Billion
15
17. Summary
Strong quarterly revenue and Segment EBITDA performance compared to prior
year period from Hexion’s diversified portfolio and demand from international
markets
Continued focus on pricing actions to recapture the escalating raw material trend
Progress toward completing $175 million in synergies continues as planned
Hexion continues to focus on expanding its international footprint
Orica integration is proceeding smoothly following February 1st transaction
completion
Hexion’s Q107 results delivered a pro forma adjusted EBITDA of $679 million and
an interest coverage ratio of 2.34
Hexion Continues to Execute its Strategic and Operational Plan
17
19. Reconciliation of Non-GAAP Financial Measures
Three months ended March 31
Segment EBITDA
2007 2006
Epoxy and Phenolic Resins 96 73
$ $
Formaldehyde and Forest Product Resins 43 34
Coatings and Inks 25 20
Performance Products 18 16
Corporate and Other (12) (11)
170 132
T otal
Reconciliation:
Items not included in Segment EBITDA
Transaction costs (3)
Integration costs (9) (10)
Non-cash charges (6) (7)
Unusual items:
Gain on sale of business 37
Purchase accounting effects/inventory step-up (1)
Business realignments (6)
Other (1) (2)
Total unusual items (7) 34
Total adjustments (22) 14
Interest expense, net (76) (54)
Income tax benefit (expense) (21) (19)
Depreciation and amortization (47) (38)
$ $
Net income (loss) 4 35
19
20. Fixed Charge Covenant Calculations
Year ended Dec. 31 LTM Period
2006
Reconciliation of Net Loss to Adj. EBIT DA
$ (109) $ (140)
Net loss
Income taxes 14 16
Interest expense, net 242 264
Loss from extinguishment of debt 121 121
Depreciation and amortization expense 171 180
EBITDA 439 441
Adjustments to EBIT DA
Acquisitions EBITDA (1) 35 23
Transaction costs (2) 20 17
Integration costs (3) 57 56
Non-cash charges (4) 22 21
Unusual items:
Gain on divestiture of business (39) (2)
Purchase accounting effects/inventory step-up 3 2
Discontinued operations 14 14
Business realignments (2) 4
Other (5) 10 9
Total unusual items (14) 27
In process Synergies 105 94
(6)
Adjusted EBITDA 664 679
(7)
Fixed Charges $ 290 290
$
(8)
Ratio of Adj. EBITDA to Fixed Charges 2.29 2.34
20
21. Fixed Charge Covenant Calculations cont.
Footnotes
(1) Represents incremental EBITDA from the Orica adhesives & resins (A&R) acquisition as if it had taken place at
the beginning of the period.
(2) Represents the write-off of deferred accounting, legal and printing costs from the Company’s proposed IPO, as
well as costs associated with terminated acquisition activities.
(3) Represents redundancy and plant rationalization costs and incremental administrative costs from integration
programs. Also includes costs to implement a single, company-wide management information and accounting
system.
(4) Includes non-cash charges for impairments of fixed assets, stock-based compensation, and unrealized foreign
exchange and derivative losses.
(5) Includes the impact of the announced exit from the European solvent coating resins business, one-time benefit
plan costs and management fees.
(6) Represents estimated net unrealized synergy savings resulting from the Hexion formation.
(7) We are required to have an Adjusted EBITDA to Fixed Charges ratio of greater than 2.0 to 1.0 to incur additional
indebtedness under our indenture for the Second Priority Senior Secured Notes. As of March 31, 2007, we were able
to satisfy this covenant and incur additional indebtedness under this indenture.
(8) The fixed charges reflect pro forma interest expense as if the Orica A&R Acquisition and the amendment of our
May 2006 senior secured credit facilities, which occurred on January 31, 2007 and November 3, 2006, respectively,
had taken place at the beginning of the period.
21
22. Debt Outstanding at March 31, 2007
($ in millions)
3/31/2007 12/31/2006
$
$
Revolving Credit Facilities 80 23
Senior Secured Notes:
9.75% Second-priority senior secured notes due 2014 625 625
Floating rate second-priority senior secured notes due 2014 200 200
Credit Agreements:
Floating rate term loans due 2013 1,990 1,995
Debentures:
9.2% debentures due 2021 115 115
7.875% debentures 2023 247 247
Sinking fund debentures: 8.375% due 2016 78 78
Other Borrowings:
Industrial Revenue Bonds due 2009 34 34
Capital Leases 11 11
Other 114 64
Total debt 3,494 3,392
$ $
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