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. Today’s Presenters
Craig O. Morrison William Carter
Chairman, President & Executive Vice President &
Chief Executive Officer Chief Financial Officer
Joined Hexion in March 2002 as Joined Hexion in April 1995 as CFO of
President and CEO of Borden Chemical Borden Inc.
Previous roles include: Key member of Borden restructuring
team
President & GM, Alcan
Pharmaceutical and Cosmetic Previous roles include:
Packaging
20 years at Pricewaterhouse LLP,
President and COO, Paxar including role as Engagement Partner
for Borden
President and GM, Van Leer
Containers, Inc.
Manager, General Electric Plastics
Consultant, Bain & Company
3
5. 2007 Results Continue to Validate Hexion’s
Strategy as the Global Thermoset Resins Leader
Strong top line growth of 12% versus FY06
Operating income reached $302 million, a 22% percent increase
compared to FY06, net of divestitures
Segment EBITDA of $611 million, an increase of 17%, versus $524
million in prior year (1)
Adjusted EBITDA of $707 million resulting in an interest coverage ratio
of 2.58
The Arkema forest products transaction – completed in Q407 –
continues our accretive bolt-on acquisition strategy in the high-growth
east German region
Announced Huntsman merger provides an opportunity for
transformational growth as a leading global specialty chemical
company (2)
Hexion Posted Strong Year-over-Year Performance
(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 the Company is required to have an Adjusted EBITDA to Fixed Charges ratio of greater than 2.0 to 1.0 to incur
additional indebtedness under its indenture for the Second Priority Senior Secured Notes. As of December 31, 2007, the Company was able to satisfy this covenant and incur additional indebtedness under its
indentures. December 31, 2007 Adjusted EBITDA includes $55 million of in-process Hexion synergies and $38 million of acquisition adjustments.
(2) Transaction remains subject to various conditions, including expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Act, review by foreign jurisdictions and other customary closing
5
conditions.
6. Hexion Historical Summary
Hexion Pro Forma Revenue Hexion EBITDA
($ millions) ($ millions)
$5,810 $707 (3)
$5,205
$611
(1)
$4,717
$524
$4,105 (1)
$480
$364
2004 2005 2006 2007 Adj PF
2004 2005 2006 2007
2007
Revenue CAGR: 12 % EBITDA CAGR: 19 %
(1) Includes the acquisition of Bakelite in April 2005 as if it occurred on January 1, 2005.
(2) 2007 Adjusted EBITDA includes $55 million of in-process Hexion synergies and $38 million of acquisition adjustments.
Note: 2004 Pro Forma Revenue and Pro Forma Adjusted EBITDA consists of the combined results of Borden, RPP, RSM, and Bakelite, as if Hexion had been formed on
January 1, 2003. Resolutions Specialty Materials and Resolution Performance Products owned by affiliates of Apollo Management L.P. prior to formation of Hexion.
6
7. Raw Material Volatility continues into 2008 Value
Creation
55% increase over past two years
Negative lead/lag impact of $16 million in Q407
Hexion Composite Raw Material Index at December 2007 increased 30% compared
to Q307
Ongoing focus on pricing actions to compensate for the rapid rise in raw materials
Hexion Composite Raw Material Index
1.6
1.5
1.4
1.3
1.2
1.1
1.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007
Source: CMAI data.
Key Raw Materials at or near Historical Highs as of Year-end 2007
7
8. Hexion’s Diversification Offsets Segment
Cyclicality and Provides Growth Opportunities
2007 Revenue: $5.8 billion
End Use Markets (1) 2007 Geographies
Food & Beverage
Ot her
2%
5%
Asia Pacific
Archit ect ural
4%
& ROW
Indust rial/ Marine
Const ruct ion 18%
16% United
4%
Oil Field E&P
States
4%
Elect ronics
42%
6% Consumer/
Durable Goods
14%
Civil Engineering
6%
Repair/ Remodel
Europe
7%
New Home
42%
Const ruct ion
Graphic Art s
12%
Aut omot ive
7%
11%
Stable and Diversified Revenue Base: Largest Customer < 3% of 2007 Sales
Top Ten Customers: ≈15% of 2007 Sales 8
(1) Based on 2006 results.
10. Hexion’s Value Creation Levers Fuel Global
Top and Bottom Line Growth Thermoset
Leader
Core Business Processes
•Six Sigma
Experienced •SAP
Achieving
Management •Sourcing
Synergies
Team
Value
Creation
Global
Accretive
Footprint
Acquisitions
Growth
Initiatives
Hexion Continues to Execute its Strategic and Operational Plan 10
11. Six Sigma Savings Exceeded $44 million in 2007 Core
Business
Processes
Six Sigma Focused on
2007 Six Sigma Savings
Continuous Improvement
($ in millions)
$20
Wide range of projects, including:
$15 Volume: Capacity creation
Raw Materials: yield
improvement
$7
Operational cost efficiencies
$5
Distribution: freight savings
$2
Approximately 275 active Six
Sigma projects anticipated in FY08
Margin Distribution
Processing
Volume/ Inventories
Over and Other
Costs
Growth
Materials
11
12. Synergies Remain an Ongoing Focus of
Synergy
Senior Management Achievement
Hexion Synergy Run Rate Summary
($ millions)
$150 million run rate achieved in 2007
All Phase II actions expected to be taken in
2008
$175
SG&A as a percentage of sales improved to
$150 7.1% in FY07 vs. 7.4% in FY06
$70 Total Synergy Program Targets
SG&A
$37 mm Sourcing
$72 mm
FY06 FY07 FY08
$66 mm
Sourcing Manufacturing SG&A
Manufacturing
Hexion Continues to Achieve Targeted Synergies
12
13. Synergy Actions Designed to Strategically Synergy
Optimize Manufacturing Footprint Achievement
Site actions related to Hexion’s synergy programs
include:
Hernani, Spain (Phenolic Resins)
Santo Varao, Portugal (Inks)
(1)
Pleasant Prairie, Wisconsin (Inks)
Lynwood, California (1) (Coatings)
Clayton, U.K. (Coatings)
Hamburg, Germany (Coatings)
Molndal, Sweden (Coatings)
LaVal, Quebec (Forest Products)
Virginia, Minnesota (Forest Products)
Vancouver, British Columbia (Forest Products)
High Point, North Carolina (Forest Products)
Productivity and Synergy Programs Continue
(1) Sites operational; actions included stopping production of heatset ink vehicles at Pleasant Prairie location and solvent-based coatings at our Lynwood California facility.
13
14. Our Broad Geographic Footprint Allows Hexion Global
to Serve Customers Around the Globe Footprint
Europe: 32 Mfg. Sites
North America: 41 Mfg. Sites
Asia Pacific: 20 Mfg. Sites
Latin America: 6 Mfg. Sites
Hexion’s Existing Footprint Provides a Significant Growth Platform
14
(1) Reflects manufacturing facilities as of Dec. 31, 2007
15. Hexion Continues to Focus on Key Growth Initiatives Growth
Initiatives
Global
Technology
Expansion
Reformulation
Technology
Cross
Fertilization
Hexion’s Product Portfolio Provide a Strong Base for Growth
15
16. New Product Development: Customer-Driven
Growth
Solutions Initiatives
Product Description
Adhesive technologies designed to provide engineered wood
materials with structural fire performance equal to solid
lumber. www.hexitherm.com
Ultra-low emitting resin technologies for wood product
manufacturers ( urea formaldehyde- based or utilize
alternative chemistries). www.ecobind.com
Family of oilfield technology products designed for high-
pressure, high-temperature (HPHT) wells
Non-radioactive, resin-coated proppant with “tracer materials”
to track proppant location within wells
550 Scientists Globally and Strong Technical Field Staff Deliver Customer Solutions
Aimed at Improving Plant Yields and Reducing Fixed Costs
16
17. Six Opportunistic Bolt-On Acquisitions in FY06-’07 Successful
Acquisitions
Acquisitions
Rhodia
Coatings
Akzo Nobel
Coatings & Inks
Rohm and
Haas Wax
Assets
Orica Resins
Wright Chemical
Arkema GmbH
17
18. Experienced Management Team Provides The
Capability and Capacity to Successfully Lead Experienced
Management
Hexion Team
Chairman & CEO
Craig Morrison CFO
Bill Carter
Human Resources
President President President Judy Sonnett
Epoxy & Phenolic & Performance
Environmental Health
Coating Forest Product Products & Inks
& Safety
Resins Resins Resins
Rick Monty
Kees Verhaar Jody Bevilaqua Sarah Coffin
Chief Technology
Officer
Divisions structured to optimize assets and Rich Myers
market alignment Business Development
Elliot Fullen
Functional leaders selected for industry leading expertise
IT
Division Presidents: Kevin McGuire
Average 25 years in chemical and resin industry experience Sourcing
Nathan Fisher
Strong track record of merger integration and growth
Six Sigma
Management ownership of approximately 7% Dalchand Laljit
Legal
Mary Ann Jorgenson
18
20. Financial Highlights
Highly diversified revenue base
Customers, end markets, geographies
Stable primary end market demand
Strong free cash flow characteristics
Low capital expenditures
Low annual total capex requirements
Maintenance capex requirement of $65 million or 1-2% of sales
Opportunity to optimize manufacturing footprint, reducing capex
requirements in longer-term
Low working capital requirements with opportunities for continued
improvement
Favorable tax attributes due to NOLs and tax efficient structuring will minimize
cash taxes going forward
SAP “Single Global Instance” system: as of Dec. 31, 2007, locations that
comprise 90% of our revenue are on the new system
Significant cross-selling opportunities and cost reduction initiatives will enhance
Hexion revenue and EBITDA over the long-term
20
21. Epoxy and Phenolic Resins
Fiscal Year 2007 Segment Highlights
Strong revenue and EBITDA
Year Ended December 31
growth reflects favorable
product mix and positive
∆
2007 2006
($ in millions) demand from a variety of
applications, including wind
↑ 13% energy, electronics,
Revenue $2,424 $2,152
aerospace and international
construction
Segment
↑ 24%
$337 $271
EBITDA
21
22. Formaldehyde and Forest Products Resins
Fiscal Year 2007 Segment Highlights
International markets drove
Year Ended December 31
revenue and Segment
EBITDA gains despite rapid
∆
2007 2006
($ in millions) rise in raw materials and
slowdown in North American
↑ 15% housing
Revenue $1,663 $1,440
Segment
↑ 6%
$165 $156
EBITDA
22
23. Coatings and Inks
Fiscal Year 2007 Segment Highlights
Focused cost control
Year Ended December 31
programs, coupled
with site rationalizations,
∆ significantly improved
2007 2006
($ in millions)
cost structure
↑ 6%
Revenue $1,330 $1,254
Segment
↑ 6%
$86 $81
EBITDA
23
24. Performance Products
Fiscal Year 2007 Segment Highlights
Robust demand for oilfield
Year Ended December 31
products, combined with
Asia Pacific regional growth,
∆
2007 2006 contributed to strong
($ in millions)
revenue and Segment
↑ EBITDA gains
Revenue $ 393 $ 359 9%
Segment
↑ 26%
$ 77 $ 61
EBITDA
24
25. Pro Forma Free Cash Flow
($ millions) PF Adj.
12/31/07 Comment
Pro Forma Adj. EBITDA $707 Includes $55mm effect of in process synergies and $38mm of
acquisitions/divestitures
Less: Cash Taxes (40) Highly favorable tax situation due to NOLs, structuring
Less: Cash Interest Expense (300)
Less: Capital Expenditures (125) $125mm normalized annual target; 2008E capital expense
target reflects additional growth projects
Change in Working Capital -- Significant reduction opportunity over the next two years
offsets growth impacts
Other (25) Pension, OPEB, and other cash costs
PF Free Cash Flow ~ $220
25
26. Low Capital Intensity
Capital Expenditures
% of Sales
($ millions)
$125
$123
$122
$125 3.5%
$115
3.3%
3.0%
$111
3.0%
2.5%
$100
2.3%
2.0%
2.4%
2.1% 1.5%
$75
1.0%
0.5%
$50 0.0%
2003 2004 2005 2006 2007
Capital Expenditures Capex as % of Sales
Hexion targeting $150 million of annual capex in 2008 (1)
$55 - $60 million for maintenance projects in 2008
26
(1) 2008 targeted capital expenditures excludes any Huntsman merger-related activities and synergy-related projects
27. Balance Sheet Update
Hexion generated $174 million in cash from operations in 2007
In FY07, Hexion funded $130 million for the acquisitions of
Orica and Arkema GmbH and $100 million for Huntsman
acquisition costs
Strong liquidity position: cash plus borrowing availability of
$485 million at December 31, 2007
Ongoing focus on working capital improvements in 2008 and
maintaining a disciplined approach to capital spending
27
28. Long Dated Debt Maturity Profile
Debt Maturities
$2,400
$2,200
$2,000
$1,800
$1,600
($ in m illions)
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015+
Note: Debt maturity graphs exclude capital leases, other debt, and Borden foreign bank debt.
28
29. Hexion Capitalization (12/31/07)
($ millions)
Multiple of PF
12/31/07 Adj. EBITDA (1)
Cash $199
Revolver $0
Bank Debt 2,282 3.2
Net Total 1st Lien Senior Secured Debt $2,282 3.2x
Second-Priority Senior Secured Notes 825 4.4
Net Senior Secured Debt $3,107 4.4x
Sinking Fund Debentures due 2016 78 4.5
Debentures due 2021 115 4.7
Debentures due 2023 247 5.0
Other Debt 173 5.3
Net Debt $3,520 5.0x
Adj. EBITDA $707
(1) December 31, 2007 Adjusted EBITDA includes $55 million of Hexion in-process synergies and $38 million of acquisition adjustments.
29
31. Hexion & Huntsman: Creating a Global Leader
Pro forma Revenues = $15.5 billion
Combined Company Revenues (3)
Revenue by Region
by Reportable Segments (1) (2)
Huntsman
Perf. Produts
Pigments 15% Materials &
7% Effects North
ROW
Hexion Perf. 16% America
9%
Products
40%
2%
Coatings & Inks
8%
Form. & Forest
Asia Pacific
Products Europe
14%
11%
37%
Polyurethanes
Epoxy &
25%
Phenolic Resins
16%
“Newco” Establishes an Industry Leader with
Strong Top and Bottom Line Growth Potential
(1) Reflects Huntsman 2007 Revenue of $9.650.8 billion as presented in Huntsman’s Fourth Quarter 2007 earnings release. Huntsman revenue pro forma for butadiene/MTBE,
U.S. and European Base Chemicals and Polymers divestitures as disclosed in release. Hexion revenue reflects 2007 sales of $5.810 billion as presented in Hexion’s Form 10-K
filing.
(2) While Hexion and Huntsman each have divisions referred to as “Performance Products,” both the products and end-markets served in these segments are different and unique
from each other.
(3) Reflects Huntsman’s Q3 2007 YTD differentiated revenues, including Polyurethanes, Materials & Effects, Performance Products and Pigments, as presented at the Merrill
31
Lynch Leveraged Finance Conference (November 2007.) Hexion revenue reflects 2007 sales by geography of $5.8 billion as presented in Hexion’s Form 10-K filing.
32. Pending Transaction Provides Strong Growth
Potential in Asia Pacific Region
Hexion’s Asia Pacific Footprint (1)
“New Huntsman” in Asia
Asia Pacific region has 20 56 sites
manufacturing sites spread across $1.5 billion (17%) of Global Differentiated
China, Malaysia, Thailand, Korea, Revenue (2006PF)
New Zealand and Australia
FY07 ROW sales: $1.4 B
(1) Reflects 2006 PF Differentiated Revenue Distribution. Source of Huntsman map: February 2007 Analyst Day Presentation.
32
Pro forma 2006 revenues to include Polyurethanes, Advanced Materials, Textile Effects, Performance Products and Pigments.
34. Hexion - Summary
FY07 sales increased 12% and Segment EBITDA
increased 17% compared to prior year
Ongoing focus on pricing actions to compensate for the
rapid rise in raw materials
Diversified technology and global footprint provide an
ongoing basis for growth
On track to meet our $175 million synergy commitment
The announced merger with Huntsman, subject to
regulatory review and other customary closing conditions,
will create one of the world’s largest specialty chemical
(1)
companies
Hexion Continues to Execute its Strategic and Operational Plan
(1) Transaction remains subject to various conditions, including expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Act, review by foreign jurisdictions and other customary closing
34
conditions.
36. Reconciliation of Non-GAAP Financial Measures
($ millions) Fiscal Year ended Dec. 31
Three months ended Dec. 31,
2006 2006
2007 2007
Segment EBITDA:
Epoxy and Phenolic Resins 62 66 337 271
Formaldehyde and Forest Product Resins 39 43 165 156
Coatings and Inks 17 11 86 81
Performance Products 20 14 77 61
Corporate and Other (13) (11) (54) (45)
Total 125 123 611 524
Reconciliation:
Items not included in Segment EBITDA
(1)
--
Transaction costs 1 (20)
Integration costs (10) (12) (38) (57)
Non-cash charges (37) (9) (54) (22)
Unusual items:
8
--
Gain on sale of business (1) 39
(1)
(1)
Purchase accounting effects/inventory step-up -- (3)
-- (14)
Discontinued operations -- --
Business realignments (5) 6 (21) 2
Other (8) (2) (17) (10)
Total unusual items (14) 3 (31) 14
Total adjustments (61) (17) (124) (85)
Interest expense, net (73) (71) (310) (242)
Loss on extinguishment of debt -- (69) -- (121)
Income tax benefit (expense) (1) 27 (44) (14)
Depreciation and amortization (53) (48) (198) (171)
Net income (loss) (63) (55) (65) (109) 36
37. Fixed Charge Covenant Calculations
Year Ended
Dec. 31, 2007
Reconciliation of Net Loss to Adj. EBIT DA
Net loss (65)
$
Income taxes 44
Interest expense, net 310
Depreciation and amortization expense 198
EBITDA 487
Adjustments to EBIT DA
Acquisitions EBITDA (1) 38
Transaction costs 1
Integration costs (2) 38
Non-cash charges (3) 54
Unusual items:
Gain on divestiture of business (8)
Purchase accounting/inventory step-up 1
Business realignments 21
(4)
Other (5) 20
Total unusual items 34
In process Synergies 55
(6)
Adjusted EBITDA 707
$
(7)
Fixed Charges (8) 274
Ratio of Adj. EBITDA to Fixed Charges 2.58
37
38. Fixed Charge Covenant Calculations cont.
Footnotes
1) Represents the incremental EBITDA impact for the Orica Acquisition and the Arkema acquisition as if they had taken place at the
beginning of the period. Also includes the impact of in-process synergies related to the Coatings and Inks acquisitions.
2) Represents redundancy and incremental administrative costs from integration programs. Also includes costs related to implementation
of a single, company-wide management information and accounting system.
3) Includes non-cash charges for fixed asset impairments, stock based compensation, and unrealized foreign exchange and derivative
activity.
4) Represents plant rationalization, headcount reduction and other costs associated with business realignments.
5) Includes the impact of the announced divestiture of the European solvent coating resins business as if it had taken place at the
beginning of the period, management fees, costs to settle a lawsuit, realized foreign currency activity, and costs for unplanned plant
outages.
6) Represents estimated net unrealized synergy savings from the Hexion Formation.
7) The charges reflect pro forma interest expense at March 3, 2008 as if the Orica A&R acquisition, the Arkema acquisition, and the
amendment of our senior secured credit facilities had taken place at the beginning of the period.
8) Company is required to maintain an Adjusted EBITDA to Fixed Charges ratio of greater than 2.0 to 1.0 to incur additional indebtedness
under its indenture for the Second Priority Senior Secured Notes. As of December 31, 2007, the Company was able to satisfy this
covenant and incur additional indebtedness under this indenture.
38
39. Debt at December 31, 2007
($ in millions)
12/31/2007 12/31/2006
Senior Secured Credit Facilities:
Floating rate term loans due 2013 $ 2,282 $ 1,995
Revolving credit facilities due 2011 -- 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
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:
Australian Multi-Currency Term/Working Capital Facility due 2012 69 --
Industrial Revenue Bonds due 2009 34 34
Capital Leases 12 11
Other 58 64
Total debt $ 3,720 $ 3,392
39
