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Hexion Specialty Chemicals Reports Fourth Quarter and Fiscal Year 2007 Results

Published on 2008-03-13. Author : SpecialChem

COLUMBUS, Ohio -- Hexion Specialty Chemicals, Inc. has reported its results for the fourth quarter and fiscal year ended December 31, 2007. Highlights for the fourth quarter of 2007 include:

  • Revenues of $1.48 billion in 2007 compared to $1.31 billion during the prior year period, an increase of 13 percent.
  • Operating income of $21 million for the fourth quarter of 2007 versus $59 million for the comparable prior year period. Fourth quarter 2007 operating income was negatively impacted by asset impairments of $24 million related to the Company's continued site rationalizations and $16 million of manufacturing interruptions and planned facility turnarounds.
  • Net loss of $63 million for the 2007 quarter versus a net loss of $55 million in the fourth quarter of 2006.
  • Despite increased raw material costs, manufacturing interruptions and planned facility turnarounds, Segment EBITDA (earnings before interest, taxes, depreciation and amortization) increased 2 percent to $125 million in fourth quarter 2007 compared to $123 million during the prior year period due to improved product mix and ongoing cost reduction programs. (Note: Segment EBITDA is a non-GAAP financial measure and is defined and reconciled to Net Income later in this release).

Highlights for fiscal year 2007 include:

  • Revenues of $5.8 billion, a 12 percent increase compared to fiscal year 2006. Acquisitions, net of divestitures, added $222 million in incremental sales.
  • Full year operating income reached $302 million, an increase of 22 percent, compared to $247 million recorded in fiscal year 2006 after excluding gains from the sale of businesses.
  • The Company posted a net loss of $65 million in 2007 compared to a net loss of $109 million in fiscal year 2006. Fiscal year 2007 results included $98 million in higher interest and tax expenses compared to the prior year period. Fiscal year 2006 results included a $121 million loss on the extinguishment of debt and a $39 million net gain from the sale of businesses.
  • Hexion recorded 2007 Segment EBITDA of $611 million compared to $524 million in 2006, an increase of 17 percent. Adjusted EBITDA was $707 million for the year ended December 31, 2007. (Note: Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled to Net Income later in this release).

"Our fourth quarter 2007 Segment EBITDA was negatively impacted by $16 million in raw material inflation, $7 million in planned turnaround maintenance costs and $9 million in manufacturing outages when compared to the fourth quarter of 2006," said Craig O. Morrison, Chairman, President and CEO. "Fortunately, our manufacturing operations have returned to normal production at this time and our pricing actions partially offset raw material headwinds in the fourth quarter of 2007. We are also working to achieve the selective pricing actions that have recently been announced, while closely monitoring the ongoing raw material volatility."

"Our strong gains in 2007 operating income and Segment EBITDA demonstrate our success in serving our growing global customer base, achieving synergies and managing costs. I am also pleased with the improvement in our balance sheet in 2007 as we generated $174 million in cash from operations and completed two bolt-on acquisitions, while maintaining a strong liquidity position of $485 million based on cash plus available borrowing capacity under our credit facilities. Looking ahead to 2008, we will continue to focus on offsetting challenging North American market conditions through our strategy of international diversification, synergy achievement, productivity initiatives and leveraging our global footprint to better serve our customers."

As part of its ongoing synergy program, Hexion achieved $15 million in synergies in the fourth quarter of 2007. As of December 31, 2007, Hexion has achieved $120 million in synergies from its full program targeting $175 million in savings.

During the fourth quarter of 2007, Hexion also announced that it had completed the purchase of ARKEMA GmbH, which had 2006 revenues of approximately EUR 101 million, or $127 million. Terms of the agreement were not disclosed. Based in the Leuna industrial park in east central Germany, the ARKEMA German resins and formaldehyde business manufactures formaldehyde and formaldehyde-based resins including urea-formaldehyde, phenol-formaldehyde and melamine-based resins systems. The acquisition expands the Company's presence in Germany, the largest wood panels market in Europe, and in Eastern Europe.

Transaction Update

Hexion recently announced that both it and Huntsman Corporation have agreed to allow additional time for the Federal Trade Commission to review the proposed merger of the two companies. As a result, the merger is not expected to be completed before May 3. To accommodate the extension, Hexion has also given notice to Huntsman that on April 5, it will exercise its option to extend the Termination Date under the Merger Agreement for 90 days, and thus, if the conditions to Hexion's extension right are met on April 5, the termination date under the Merger Agreement will be extended until July 4, 2008.

"We are fully cooperating with regulatory agencies and will continue to work closely with Huntsman and the agencies in order to obtain the regulatory approvals required to complete the merger," Morrison said.

Hexion announced on July 12, 2007, that it had entered into a definitive agreement to acquire Huntsman Corporation in an all-cash transaction valued at approximately $10.6 billion, including the assumption of debt. Under the terms of the Merger Agreement, the cash price per share to be paid by Hexion will increase each day beginning on April 5, 2008 through consummation of the merger at the equivalent of approximately 8% per annum (less any dividends or distributions declared or made). The transaction was approved by Huntsman shareholders on October 16, 2007 and is subject to customary closing conditions, including regulatory approval in the U.S. and several other countries.

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the fourth quarter and full year 2007. Segment EBITDA is defined as EBITDA adjusted to exclude certain non-cash and non-recurring expenses. Segment EBITDA is the primary performance measure used by the Company to evaluate operating results and allocate resources among segments. Segment EBITDA is also the profitability measure used in management and executive incentive compensation programs. Corporate and Other primarily represents certain corporate, general and administrative expenses that are not allocated to the segments.

About Hexion Specialty Chemicals:

Based in Columbus, Ohio, Hexion Specialty Chemicals serves the global wood and industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries. Hexion Specialty Chemicals is controlled by an affiliate of Apollo Management, L.P.

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" or similar expressions. Forward-looking statements reflect our current views about future events and are based on currently available financial, economic and competitive data and on our current business plans. Actual results could vary materially depending on risks and uncertainties that may affect our markets, services, prices and other factors as discussed in our 2006 Annual Report on Form 10-K, and our other filings, with the Securities and Exchange Commission (SEC). 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 our 2006 Annual Report on Form 10-K, and our other filings, with the SEC.

Source: Hexion Specialty Chemicals, Inc.

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