2. A Global Leader
Financial Highlights
(Dollars in millions, except per share data)
Year Ended December 31,
Income Statement Data 2006 (1) 2005(2)
Net Sales $5,205 $4,442
Hexion Specialty Chemicals, Inc.
Gross Profit 720 661
Based in Columbus, Ohio, Hexion Specialty Chemicals is
Operating Income 286 208
Net Income (Loss) (109) (87)
the global leader in thermoset resins. Hexion serves the
Net Loss Available to Common Shareholders (1.72) (1.41)
global wood and industrial markets through a broad range
(1) Net sales in 2006 include the acquisition of the coatings business from The Rhodia Group (“Coatings
of thermoset technologies, specialty products and technical
Acquisition”) and the global ink and adhesive resins business of Akzo Nobel (“Inks Acquisition”) from January
31, 2006 and June 1, 2006, respectively, and exclude the results from the Brazilian Consumer Divestiture since
support for customers in a diverse range of applications
March 31, 2006. Net sales in 2005 include Bakelite results from the date of acquisition, April 29, 2005.
(2) Includes data for Bakelite Aktiengesellschaft from its date of acquisition by Borden Chemical, Inc., on April 29, 2005.
and industries. Additional information is available at
www.hexion.com.
Balance Sheet Data
Current Assets $1,478 $1,375
Total Assets 3,508 3,209
Current Liabilities 1,111 908
Total Liabilities 4,909 3,758
Key Products Market Position/Description
Total Liabilities, Redeemable Preferred Stock, 3,508 3,209
Common Stock and Shareholder’s Deficit
Forest Product Resins #1 in N. America
Formaldehyde #1 Globally
Segment EBITDA (1) (2)
Epoxy Resins #1 Globally
$271
Epoxy and Phenolic Resins
Foundry Resins #1 in N. America
$244
Formaldehyde and $152
Molding Compounds #1 in Europe
Forest Product Resins
$152
Coatings and Inks Ink Resins #1 Globally
$81
$63
Versactic Acids & Derivatives #1 Globally
Performance Products $65 2006
$52 2005
Global leadership position
Oil Field Resins
(42% market share)
(1) Management believes that earnings before interest, taxes, depreciation and amortization (EBITDA) is a
meaningful indicator of financial performance. EBITDA is not intended to represent any measure of performance
Global leadership position
in accordance with generally accepted accounting principles, or GAAP, and the company’s calculation and use
of this measure may differ from other companies. These non-GAAP measures should not be used in isolation or
Composite Resins (44% market share in
as a substitute for measures of performance or liquidity and should not be considered an alternative to net loss
North America and Europe)
under GAAP for purposes of evaluating the company’s results of operations, prepared in accordance with
GAAP. Please see our full Form 10-K filed with the U.S. Securities and Exchange Commission.
(2) Corporate and Other segment primarily represents certain corporate general and administrative expenses that are
not allocated to the segments. In 2006, Corporate and Other expenses totaled ($45) compared to ($43) in 2005.
3. A Letter from the Chairman
To Our Stakeholders
Hexion Specialty Chemicals, Inc. strengthened One unified company Financial results included 2006 net sales of $5.2 billion,
an increase of 17 percent, and a net loss of $109 million.
its position in 2006 as the world’s largest On any given day, our products will bind, bond and coat
Hexion posted Adjusted EBITDA of $664 million, which
applications for more than 11,000 customers in more
thermoset resin company through strong includes our unrealized synergies and the pro forma impact
than 100 countries. These customers use any number
of acquisitions. (Please see footnote.) The impact of our
revenue growth, continued global expansion of Hexion specialty product platforms, including:
top-line growth coupled with our cost control efforts can
and leveraging our diversified product portfolio. Phenolic and epoxy resins, as well as versatic
n
be seen at the operating income level, where the company
acids and derivatives;
With market leading positions for the majority posted an increase of approximately 38 percent compared
to the prior year’s operating income. Selling, general and
Coatings, performance adhesives, specialty polymers,
n
of our key products, we offer a unique value administrative expenses were a modest 7.4 percent of net
molding compounds and ink raw materials; and
creation platform that far exceeds sales and were lower than 2005 levels. In addition, following
Formaldehyde and formaldehyde-based binding
n
our recapitalization process in November 2006, net debt
the inherent strengths of the and bonding resins.
at year-end was approximately $3.3 billion.
individual companies that merged The result is a leading specialty chemical company with
a No. 1 or No. 2 market share position in more than
to create Hexion in 2005. 75 percent of our revenue base. As a vertically integrated,
Thermoset resins are heat-activated
low-cost manufacturer with the scale, cost structure and
materials used in bonding, binding
skilled employee base to compete on a global basis,
As a leading specialty chemical company, much of our progress
and coating applications for thousands
our 104 plants are located throughout North America,
this year was driven by the strength of our core technologies, Latin America, Europe and the Asia-Pacific region. Our
of everyday products.
strong customer relationships and the mission-critical nature of expanded range of products, technologies and technical
thermoset resins. Thermoset resins are heat-activated materials support serves many industries and appeals to a diverse
used in bonding, binding and coating applications for thousands customer base. Our customers include familiar names
of everyday products. Our resin systems deliver essential like 3M, BASF, Bayer, DuPont, General Electric, Halliburton, In addition, Hexion continued to realize financial synergies
performance properties as a critical ingredient in adhesives, Honeywell, Owens Corning, PPG Industries, Brenntag, as planned. Integration teams worked to identify and capture
paints, and coatings, and as binding and bonding agents Saint-Gobain, Mitsui, Sumitomo, Sun Chemicals, Valspar additional savings in operations, raw materials purchasing,
used in materials across a wide range of industries. and Weyerhaeuser. Our thermoset resins ultimately corporate infrastructure and other areas to achieve these
help make these customers’ products lighter, stronger, synergies. By year-end 2006, we had achieved $70 million
more adhesive or more durable, while meeting any of the $125 million in targeted cost savings, known as
Looking ahead, Hexion is squarely focused on creating value
number of exacting performance requirements for the “Phase I synergies.” By year-end 2007, we expect to
for our stakeholders by driving operational efficiencies and
specific application. have taken all the actions necessary to achieve the full
generating free cash flow as we further build our position as
$125 million in Phase I synergies. Hexion also identified
a global leader. We were encouraged by the strong demand 2006 results
$50 million in Phase II synergies.
in 2006 for many of our products and the rapidly growing
Despite the dramatic raw material volatility experienced
applications in wind energy, aerospace, electronics, oilfield While a number of one-time integration and transaction costs,
throughout the year, Hexion posted improved revenues,
services, highly-specialized versatic coatings and others that as well as expenses associated with the extinguishment of
operating margins and earnings before interest, taxes,
utilize our resin materials. debt, impacted our earnings in 2006, we believe the strength
depreciation and amortization (EBITDA) from continuing
of Hexion’s underlying business is solid. We will continue to
operations in 2006. The increases were fueled by both
focus on maintaining operational discipline and controlling
organic growth from our existing customer base and several
costs, with a focus on generating free cash flow, achieving
accretive “bolt-on” acquisitions. More importantly, because of
synergies and reducing net debt over time. I encourage
our scale and diversification, Hexion benefits from a balanced
you to review Hexion’s full financial results found in our
revenue stream, with no one customer accounting for more
Form 10-K Annual Report on file with the U.S. Securities
than three percent of sales.
and Exchange Commission.
4. A Letter from the Chairman (continued)
2006 Highlights
Expanding Our Footprint: We made several
Building upon process One global mission
A platform for growth
strategic acquisitions during 2006 in the Coatings
Hexion is building a culture based on common business Looking ahead, Hexion will continue the process
Hexion helps customers across a broad range of industries
and Inks segment. These transactions, along with
processes across our global organization. This takes many of creating a world-class business that delivers
bring improved products to market. Our growth is linked to
several small acquisitions, contributed $331 million
forms, such as further aligning our research and technology value to the marketplace. We will work hard to
how successful we can be in helping our customers’ meet
teams with our business units to serve specific marketplace continue to deliver improved financial results and
their applications and product development needs and grow in incremental sales.
needs. We are also measuring new product development decrease net debt. I am proud of the efforts of
their businesses. It also depends on nurturing growth from
as a percentage of sales in order to track our progress in our team of approximately 7,000 associates who
existing and new product lines and pursuing acquisitions that
Extending Credit Maturities: We amended
innovation. We expect this effort to continue to stimulate remained focused on serving our customers
enhance our technology, market or geographic footprint.
and restated our senior secured credit facilities
growth as our expanded teams gain further experience during a year of organizational change.
As part of our growth plans, Hexion completed a number of
working together. In addition, our Six Sigma program is and repaid, repurchased or redeemed certain
We are well positioned for future growth. I am
strategic “bolt-on” acquisitions during 2006, including: the
aggressively spreading a planning discipline through our
excited about the potential of Hexion and the
decorative coatings and adhesives business unit of the Rhodia debt. We used $397 million of the proceeds to
organization as these quality and process control initiatives
opportunities we have as a world leader in the
Group; the global ink and adhesive resins business of Akzo
redeem our preferred stock and $500 million of
are a key part of our productivity and cost savings efforts.
specialty chemicals arena.
Nobel; and the global wax compounds business of Rohm
the proceeds to fund a common stock dividend
Another key measure for our organization is our environmental
and Haas Company. In January 2007, we also completed
to our shareholders.
health and safety performance. We significantly reduced safety
the acquisition of the adhesives and resins business of Orica
Sincerely,
incidents throughout the year, resulting in an occupational injury
Limited, further strengthening our presence in the forest
and illness rate that placed Hexion within the upper quartile
products marketplace in the Asia-Pacific region. In total,
Achieving Synergies: We realized $50 million of
of chemical companies. We improved our environmental
these acquisitions represented approximately $550 million
planned synergies in 2006 and are on pace to meet
performance across a range of metrics including spills and
in annual net sales based on historical revenue of the
Craig O. Morrison
or exceed our planned $125 million of synergies by
releases, permit exceedences and emissions. Excellence in
respective acquisitions.
Chairman, President and Chief Executive Officer
safety and environmental performance is vitally important to our the end of 2007.
people, our customers and the communities in which we operate.
Hexion will continue to set aggressive goals in this area.
Recovering Pricing: Despite experiencing
Hexion’s growth is also linked to how effectively we can Footnote
We were encouraged by the significant volatility in our raw material costs and
develop our global workforce. We are focused on creating a Management also believes that earnings before interest, taxes,
strong demand in 2006 for many depreciation and amortization (EBITDA) is a meaningful indicator phenol and methanol prices remaining at historically
culture that is flexible, open, and collaborative—one that of financial performance. EBITDA is not intended to represent
high levels at year-end 2006, Hexion was able to
promotes teamwork, leverages the discipline of process and
of our products and the rapidly any measure of performance in accordance with generally
accepted accounting principles, or GAAP, and the company’s
rewards performance. Teamwork is vital as we work across pass along most of these increased costs in many
growing applications in wind calculation and use of this measure may differ from other
markets and geographies to effectively serve our customers. companies. These non-GAAP measures should not be used in
of our product lines.
energy, aerospace, electronics, Process is critical to optimize efficiencies and best practices isolation or as a substitute for measures of performance or
liquidity and should not be considered an alternative to net loss
across our global operations, and to enable us to “scale up”
oilfield services, highly-specialized under GAAP for purposes of evaluating the company’s results of
Serving Customers Via a Diverse Portfolio:
by efficiently absorbing additional acquisitions and businesses. operations, prepared in accordance with GAAP. Please see our
versatic coatings. full Form 10K filed with the U.S. Securities and Exchange
And we believe rewarding performance enables us to attract, We experienced strong customer demand for a
Commission.
develop and retain a world-class workforce.
number of our products, including epoxy resins
and intermediates, phenolic specialty resins, oilfield
services and international forest product resins
and formaldehyde applications, helping partially
offset softer demand in products associated with
North American residential new construction and
automotive markets.
5. 2006 Annual Report
This Is Hexion
Hexion holds leading market share
positions in 75 percent of its revenue
based on its complete range of thermoset
resin technologies, strong technical service
component and a vertically integrated,
Hexion Specialty Chemicals is the world’s
low-cost manufacturing base.
largest producer of thermoset resins, with
2006 net sales exceeding $5.2 billion and
leading positions across various end-markets
and geographies. With approximately 7,000 Epoxy and Phenolic Resins – 2006 Net Sales $2,152 (dollars in millions)
employees and 104 sites, Hexion serves the Major Products: Primary Application:
n Epoxy Resins and Intermediates n Adhesive and Structural
global wood and industrial markets through n Composite Resins n Adhesive and Structural
a broad range of thermoset technologies, n Molding Compounds n Adhesive and Structural
n Formaldehyde-based Resins and Intermediates:
specialty products and technical support – Phenolic Specialty Resins Adhesive and Structural
n
for customers in a diverse range of n Epoxy Coating Resins Coating
n
n Versatic Acids and Derivatives Coating
n
applications and industries.
Formaldehyde and Forest Products Resins – 2006 Net Sales $1,385
Major Products: Primary Application:
n Formaldehyde-based Resins and Intermediates:
– Forest Products Resins Adhesive and Structural
n
– Formaldehyde Applications Adhesive and Structural
n
Coatings and Inks – 2006 Net Sales $1,254
Major Products: Primary Application:
n Polyester Resins n Coating
n Alkyd Resins n Coating
n Acrylic Resins n Coating
n Ink Resins and Additives n Coating
Performance Products – 2006 Net Sales $414
Major Products: Primary Application:
n Phenolic Encapsulated Substrates n Adhesive and Structural
6. Selected Financial Statements Hexion Specialty Chemicals, Inc.
n
Consolidated Consolidated
Statements of Operations Balance Sheets
Year Ended December 31,
Year Ended December 31,
(In millions)
(In millions, except share and per share data)
ASSETS 2006 2005
2006 2005 2004
Current Assets
Net sales $ 5,205 $ 4,442 $ 2,019
Cash and equivalents $ 64 $ 183
Cost of sales 4,485 3,781 1,785 Accounts receivable (less allowance for doubtful accounts of $21 and $19, respectively) 763 589
Inventories:
Gross profit 720 661 234
Finished and in-process goods 362 287
Selling, general & administrative expense 384 391 163 Raw materials and supplies 187 146
Other current assets 102 131
Transaction costs 20 44 56
Assets of discontinued operations — 39
Integration costs 57 13 — Total Current Assets 1,478 1,375
Other Assets 107 103
Other operating (income) expense, net (27) 5 6
Property and Equipment
Operating income 286 208 9 Land 96 62
Buildings 276 205
Interest expense 242 203 117
Machinery and equipment 2,009 1,779
Loss on extinguishment of debt 121 17 — 2,381 2,046
Less accumulated depreciation (830) (655)
Other non-operating expense, net 3 16 5
1,551 1,391
Loss from continuing operations before income tax, earnings from
Goodwill 193 164
(80) (28) (113)
unconsolidated entities and minority interest
Other Intangible Assets, net 179 176
Income tax expense 14 48 — $ 3,508 $ 3,209
Total Assets
Loss from continuing operations before earnings from unconsolidated
(94) (76) (113)
entities and minority interest
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDER’S DEFICIT (In millions, except share and per share data)
Earnings from unconsolidated entities, net of taxes 3 2 —
Current Liabilities
Minority interest in net (income) loss of consolidated subsidiaries (4) (3) 8
Accounts and drafts payable $ 616 $ 493
Loss from continuing operations (95) (77) (105) Debt payable within one year 66 38
Interest payable 58 45
Loss from discontinued operations (14) (10) —
Income taxes payable 108 91
Net loss (109) (87) (105) Other current liabilities 263 216
Liabilities of discontinued operations — 25
Accretion of redeemable preferred stock 33 30 —
Total Current Liabilities 1,111 908
Net loss available to common shareholders (142) (117) (105) Long-Term Liabilities
Long-term debt 3,326 2,303
Comprehensive loss $ (11) $ (172) $ (36)
Long-term pension obligations 197 200
Basic and Diluted Per Share Data Non-pension postemployment benefit obligations 26 117
Deferred income taxes 142 138
Loss from continuing operations $ (1.55) $ (1.30) $ (1.27)
Other long-term liabilities 107 92
Loss from discontinued operations (0.17) (0.11) — Total Liabilities 4,909 3,758
Minority interest in consolidated subsidiaries 13 11
Net loss available to common shareholders $ (1.72) $ (1.41) $ (1.27)
Commitments and Contingencies
Common stock dividends declared $ 6.12 $ 6.66 $ — Redeemable Preferred Stock - $0.01 par value; liquidation preference $25 per share;
— 364
60,000,000 shares authorized, 14,781,959 issued and outstanding at December 31, 2005
Weighted average number of common shares outstanding during the period—
82,583,068 82,629,906 82,629,906
basic and diluted Shareholder’s Deficit
Common stock - $0.01 par value; 300,000,000 shares authorized, 170,605,906 issued
and 82,556,847 outstanding at December 31, 2006; 300,000,000 shares authorized, 1 1
170,678,965 issued and 82,629,906 outstanding at December 31, 2005
Additional paid-in (deficit) capital (17 ) 515
Treasury stock, at cost – 88,049,059 shares (296) (296)
Accumulated other comprehensive income (loss) 81 (70)
Accumulated deficit (1,183) (1,074)
This Summary Annual Report is intended to provide investors with an overview of Hexion Specialty Chemicals, Inc. and our businesses, our performance
in 2006 and our plans for the future. It does not include nor is it intended as a substitute for the information contained in our Annual Report on Form 10-K Total Shareholder’s Deficit (1,414) (924)
for the year ended December 31, 2006 on file with the U.S. Securities and Exchange Commission. Investors and others interested in the company are
$ 3,508 $ 3,209
Total Liabilities, Redeemable Preferred Stock and Shareholder’s Deficit
encouraged to carefully review the Form 10-K and other Hexion Specialty Chemicals, Inc. filings with the SEC to obtain a more complete understanding
of the company and its operations.
7. Selected Financial Statements Hexion Specialty Chemicals, Inc.
Selected Financial Statements Hexion Specialty Chemicals, Inc. n
n
Consolidated Statements of Shareholder’s
Consolidated
Deficit and Comprehensive Income
Statements of Cash Flows
Year Ended December 31, Accumulated
(In millions) Common Paid-in Treasury Receivable Other Accumulated Total
2006 2005 2004 Stock Capital Stock from Parent Comprehensive Deficit
(Loss) Income (a)
Cash Flows Provided by (used in) Operating Activities
(In millions)
Net loss $ (109) $ (87 ) $ (105 )
Balance, December 31, 2003 $ 1 $ 143 $ — $ — $ 82 $ (74) $ 152
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 171 147 86
Net loss — — — — — (105) (105 )
Loss on sale of discontinued operations 14 — —
Gain on sale of businesses, net of taxes (33) (2 ) (1) Translation adjustments — — — — 67 — 67
Write-off of deferred IPO costs 15 — —
2
Minimum pension liability adjustment, net of tax — — — — 2 —
Write-off of deferred financing fees 27 11 —
Minority interest in net income of consolidated subsidiaries 4 3 (8) Comprehensive loss — — — — — — (36 )
Stock based compensation expense 6 12 4
Acquisition of Resolution Specialty to Consolidated group — 57 — — — — 57
Deferred tax benefit (18) (3 ) (3)
Amortization of deferred financing fees 9 9 5 Acquisition of Borden Chemical to Consolidated group — 1,252 (296) (542) (131) (817) (534 )
Debt redemption interest adjustment 6 — —
Interest accrued on notes from parent of Borden Chemical — 19 — (19) — — —
Impairments 12 8 2
Other non-cash adjustments (3) 19 — Compensation expense under deferred compensation plan — 4 — — — — 4
Net change in operating assets and liabilities (net of acquisitions):
Deferred tax adjustments as a result of the Combination — 48 — — — — 48
Accounts receivable (112) 8 (81 )
Inventories (56) 57 (53 ) Balance, December 31, 2004 $ 1 $ 1,523 $ (296 ) $ (561) $ 20 $ (996) $ (309 )
Accounts and drafts payable 86 (23 ) 133
Net loss — — — — — (87) (87 )
Income taxes payable 15 58 —
Other assets, current and non-current (3) (53 ) (20 ) Translation adjustments — — — — (69) — (69 )
Other liabilities, current and long-term (7) 12 9
(16 )
Minimum pension liability adjustment, net of tax of $8 — — — — (16) —
Net cash used in operating activities of discontinued operations (3) (5 ) —
Net cash provided by (used in) operating activities 21 171 (32) Comprehensive loss (172 )
Cash Flows used in Investing Activities
Effect of the Hexion Formation — (581) — 581 — — —
Capital expenditures (122) (103 ) (57 )
Capitalized interest (3) — — Purchase accounting related to acquisition of minority interest — 121 — — (5) 11 127
Casualty loss insurance proceeds 2 — —
Dividends declared ($6.66 per share) — (550) — — — — (550 )
Acquisition of businesses, net of cash acquired (201) (252 ) (152 )
Proceeds from the sale of businesses, net of cash sold 47 3 —
Stock-based compensation expense — 12 — — — — 12
Cash combination of Borden Chemical — — 185
Redeemable preferred stock accretion — (30) — — — — (30 )
Proceeds from the sale of assets — — 4
Net cash used in investing activities of discontinued operations — (2 ) —
Interest accrued on notes from parent of Borden Chemical — 20 — (20) — — —
Net cash used in investing activities (277) (354 ) (20 )
Other — — — — — (2) (2 )
Cash Flows provided by Financing Activities
Net short-term debt borrowings (repayments) 13 (4 ) (6)
Balance, December 31, 2005 $ 1 $ 515 $ (296 ) $ — $ (70) $ (1,074) $ (924 )
Borrowings of long-term debt 4,471 1,193 293
Repayments of long-term debt (3,433) (748 ) (195 ) Net loss — — — — — (109) (109 )
Payment of dividends on common stock (485) (523 ) —
Translation adjustments, net of tax of $1 — — — — 80 — 80
Proceeds from issuance of preferred stock, net of issuance costs — 334 —
Redemption of preferred stock (397) — — Deferred losses on cash flow hedges — — — — (4) — (4 )
Long-term debt and credit facility financing fees (38) (22 ) —
22
Minimum pension liability adjustment, net of tax of $2 — — — — 22 —
IPO related costs (4) (11 ) —
Capital contribution related to Resolution Specialty transaction — — 60 Comprehensive loss (11 )
Other — — (4)
Impact of adoption of new accounting standard for
— — — — 53 — 53
Net cash from financing activities of discontinued operations 1 — — pension and postretirement obligations, net of tax of $0
Net cash provided by financing activities 128 219 148
Dividends declared ($6.12 per share) — (505) — — — — (505 )
Effect of exchange rates on cash and equivalents 9 (5 ) 7
(Decrease) increase in cash and equivalents (119) 31 103 Stock-based compensation expense — 6 — — — — 6
Cash and equivalents at beginning of year 183 152 49
Redeemable preferred stock accretion — (33) — — — — (33 )
Cash and equivalents at end of year 64 $ 183 $ 152
Balance, December 31, 2006 $ 1 $ (17) $ (296) $ — $ 81 $ (1,183) $ (1,414 )
Supplemental Disclosures of Cash Flow Information
Cash paid:
(a) Accumulated other comprehensive income at December 31, 2006 represents $103 of net foreign currency translation gains, net of tax, a $4 unrealized loss
Interest, net 220 $ 192 $ 102
on derivative instruments, net of tax, and a $18 loss, net of tax, relating to net actuarial losses and prior service costs for the Company’s defined benefit
Debt redemption costs 94 — —
pension and postretirement benefit plans. Accumulated other comprehensive loss at December 31, 2005 represents $23 of net foreign currency translation
Income taxes, net 16 8 3
gains and a $93 net loss relating to the Company’s minimum pension liability adjustment.
Non-cash investing and financing activity:
See Notes to Consolidated Financial Statements in our Form 10-K filed with the U.S. Securities and Exchange Commission
Settlement of note receivable from parent — 581 —
Unpaid common stock dividends declared 20 27 —
Redeemable preferred stock accretion — 30 —
Issuance of Note in Resolution Specialty transaction — — 50
8. Selected Financial Statements Hexion Specialty Chemicals, Inc.
n
Reconciliation of Net Loss Directors and
to Adjusted EBITDA Executive Officers
Year Ended December 31, 2006
(In millions)
Directors
Net loss $ (109)
Craig O. Morrison Director, Chairman, President and Chief Executive Officer
Income taxes 14
William H. Carter Director, Executive Vice President and Chief Financial Officer
Interest expense, net 242
Loss from extinguishment of debt 121 Marvin O. Schlanger Director, Vice Chairman
Depreciation and amortization expense 171
Joshua J. Harris Director
EBITDA 439
Scott M. Kleinman Director
Adjustments to EBITDA
Acquisitions EBITDA (1) 35
Robert V. Seminara Director
Transaction costs (2) 20
Jordan C. Zaken Director
Integration costs (3) 57
Non-cash charges (4) 22
Unusual items:
Executive Officers
Purchase accounting effects/inventory step-up 3
Joseph P. Bevilaqua Executive Vice President, President – Phenolic and Forest Products Resins
Gain on divestiture of business (39)
Discontinued operations 14 Cornelis Kees Verhaar Executive Vice President, President – Epoxy and Coating Resins
Business realignments (2)
Sarah R. Coffin Executive Vice President, President – Performance Products
Other (5) 10
Richard L. Monty Executive Vice President – Environmental Health and Safety
Total unusual items (14)
In process Synergies (6) 105 George F. Knight Senior Vice President – Finance and Treasurer
Adjusted EBITDA (7) $ 664
Fixed charges (8) $ 290
Ratio of Adjusted EBITDA to Fixed Charges 2.29
Investor Information
Corporate Contact Information
Hexion Specialty Chemicals, Inc.
(1) Represents the incremental EBITDA impact for the Coatings Acquisition, the Inks Acquisition, as well as two smaller acquisitions, and the Orica
Acquisition which closed February 1, 2007, less EBITDA generated prior to the Brazilian Consumer Divestiture, as if they had taken place at the
180 East Broad Street
beginning of the period.
Columbus, Ohio 43215
(2) Represents the write-off of deferred accounting, legal and printing costs associated with the Company’s proposed IPO, as well as costs associated
with terminated acquisition activities. +1 614 225 4000
(3) Represents redundancy and plant rationalization costs and incremental administrative costs associated with integration programs. It also includes www.hexion.com
costs related to the implementation of 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 announced Alkyds Divestiture, one-time benefit plan costs and management fees.
(6) Represents estimated net unrealized synergy savings resulting from the Hexion Formation.
(7) 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
our indenture for the Second Priority Senior Secured Notes. As of December 31, 2006, the Company was able to satisfy this covenant and incur
additional indebtedness under this indenture.
(8) The fixed charges reflect pro forma interest expense as if the debt refinancing and the Orica acquisition, which occurred in November 2006 and
February 2007, respectively, had taken place at the beginning of the period.
About This Report
This Summary Annual Report is intended to provide investors with an overview of Hexion Specialty Chemicals, Inc. and our businesses, our performance
in 2006 and our plans for the future. It does not include nor is it intended as a substitute for the information contained in our Annual Report on Form 10-K
for the year ended December 31, 2006 on file with the U.S. Securities and Exchange Commission. Investors and others interested in the company are
encouraged to carefully review the Form 10-K and other Hexion Specialty Chemicals, Inc. filings with the SEC to obtain a more complete understanding
of the company and its operations.
Forward Looking Statements
Certain statements in this press release are forward-looking statements within the meaning 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, the management of Hexion Specialty Chemicals, Inc. (which may be
referred to as “Hexion,” “we,” “us,” “our” or the “Company”) may from time to time make oral forward-looking statements. Forward looking statements
may be identified by the words “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “will” or “intend” and similar expressions. The forward-
looking statements contained herein reflect our current views with respect to future events and are based on our currently available financial, economic
and competitive data and on current business plans. 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 Item 1A – Risk Factors, of the Company’s Form 10-K filed with the
Securities Exchange Commission (SEC) on March 22, 2007. Important factors that could cause actual results to differ materially from those in the forward-
looking statements include, but are not limited to: economic factors such as an interruption in the supply of or increased pricing of raw materials due to
natural disasters, competitive factors such as pricing actions by our competitors that could affect our operating margins, and regulatory factors such as
changes in governmental regulations involving our products that lead to environmental and legal matters as described in Item 3 – Legal Proceedings, of
the Company’s Form 10-K filed with the SEC on March 22, 2007.
