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  1. 1. First Quarter 2007 Earnings Conference Call May 14, 2007
  2. 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. 3. Overview of First Quarter Results Craig O. Morrison Chairman, President & Chief Executive Officer
  4. 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 $23 million of acquisition adjustments.
  5. 5. Quarterly Results Driven by Diversified Portfolio and Global Customer Base Hexion Results Quarter Ended March 31 ∆ 2006 2007 ($ 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. 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. 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. 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. 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 $94 Hexion Continues to Achieve Targeted Synergies 9
  10. 10. Financial Review William Carter Executive Vice President & Chief Financial Officer
  11. 11. Epoxy and Phenolic Resins Segment Highlights Some relief in phenol Quarter Ended March 31 pricing sequentially from Q406 and solid demand in Q107 from certain product ∆ 2007 2006 ($ in millions) lines helped improve segment margins ↑ 11% Revenue $582 $526 Continued strength in European and Specialty Segment Epoxy businesses ↑ 32% $96 $73 EBITDA Strong performance in versatic acid and derivatives Q107 Sales Comparison YOY Volume Price/Mix Currency Acquisitions/ Total Translation Divestitures (1%) 6% 6% -- 11% 11
  12. 12. Formaldehyde and Forest Product Resins Segment Highlights Segment results driven by our ability to pass through higher Quarter Ended March 31 phenol and methanol costs, strong international volumes ∆ 2007 2006 and cost control initiatives ($ in millions) Orica and Wright Chemical ↑ 16% Revenue $413 $356 added $3.4 million in Q107 Segment EBITDA Segment ↑ 26% $43 $34 EBITDA Q107 Sales Comparison YOY Volume Price/Mix Currency Acquisitions/ Total Translation Divestitures (9%) 19% 1% 5% 16% 12
  13. 13. Coatings and Inks Segment Highlights Stronger pricing partially Quarter Ended March 31 offset by N. American housing market adversely impacting coating volumes ∆ 2007 2006 ($ in millions) Additional progress in site ↑ 32% rationalization efforts in Revenue $343 $260 Hamburg (Germany), Mölndal (Sweden) and Segment Lynwood, California ↑ 25% $25 $20 EBITDA Site rationalizations underscore move for Hexion to bolster waterborne and powder Q107 Sales Comparison YOY coating systems versus Volume Price/Mix Currency Acquisitions/ Total solvent-borne Translation Divestitures technologies (5%) 6% 5% 26% 32% 13
  14. 14. Performance Products Segment Highlights Quarter Ended March 31 Oilfield products continued to deliver strong volume and ∆ 2007 2006 ($ 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. 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
  16. 16. Summary Craig O. Morrison
  17. 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
  18. 18. Appendix
  19. 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. 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. 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. 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 $ $ 22