hexion finalq407

Fourth Quarter and Fiscal Year 2007 Earnings Conference Call

March 11, 2008

2

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.

Forward-Looking Statements

Overview of Fourth Quarter and Fiscal Year 2007 Results

Craig O. MorrisonChairman, President & Chief Executive Officer

4

Fourth Quarter and Fiscal Year 2007 Summary Performance

� Hexion Specialty Chemicals Fourth Quarter 2007 highlights:

� Revenues increased 13% over prior year� Operating income of $21 million compared to $59 million. Q407 operating income

negatively impacted by $40 million of asset impairments, manufacturing interruptions and planned turnarounds

� A 30% increase in our raw material index created a negative $16 million lead/lag impact on EBITDA� Hexion posted Segment EBITDA (1) of $125 million, a 2% increase over prior year

� Hexion Specialty Chemicals Fiscal Year 2007 highlights:

� Revenues reached $5.8 billion, a 12% increase over prior year� Operating income increased to $302 million, a 22% increase over prior year results when

excluding gains from the sale of businesses � Segment EBITDA (1) of $611 million, a 17% increase over prior year

� Year-end 2007 pro forma adjusted EBITDA of $707 million (1)

� Hexion remains on track to achieve $175 million in targeted synergies

� Arkema GmbH transaction closed in Nov. 2007, an Eastern German forest products business

� Ongoing progress with the regulatory review process for Hexion’s pending merger with Huntsman Corporation (2)

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 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. Year-ended 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 conditions.

5

Fourth Quarter and Fiscal Year 2007Summary Financial Performance

Quarter Ended December 31

(1) Segment EBITDA excludes in-process synergies and the pro forma effect of acquisitions.

611

(65)

302

$ 5,810

2007

524

(109)

286

$ 5,205

2006

↑↑↑↑ 17%

nm

↑↑↑↑ 6%

↑↑↑↑ 12%

∆∆∆∆

↑↑↑↑ 2%

nm

↓↓↓↓ 64%

↑↑↑↑ 13%

∆∆∆∆

(55)(63)Net loss

123

59

$ 1,309

2006

21Operating Income

125

$ 1,480

2007

Segment EBITDA (1)

Revenue

($ in millions)

Year Ended

FY06 operating income increased 22% excluding gain on the sale of assets

Hexion Posted Strong YearHexion Posted Strong Year--overover--Year Revenue and Segment EBITDA GainsYear Revenue and Segment EBITDA Gains

Q407 operating income included $40 million of asset impairments, planned turnarounds & manufacturing interruptions

6

Fourth Quarter 2007 Results Impacted by Raw Material Headwinds

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Hexion Composite Raw Material Index

Source: CMAI data.

Q1 Q2 Q3

20072006

Q4Q4Q3Q2Q1

� 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� Current prices remain volatile; closely monitoring market conditions for 2008

Key Raw Materials at or near Historical Highs as of Year-end 2007

7

14%

25%

(3%)

15%

Net Sales

Performance Products

Coatings& Inks

Forest & Formaldehyde

Products

Epoxy & Phenolic

Resins

Q407 vs. Q406 FY07 vs. FY06

Broad Product Portfolio Supports Ongoing Revenue Growth;Broad Product Portfolio Supports Ongoing Revenue Growth;58% of Hexion58% of Hexion’’s Total Sales were from International Markets in FY07s Total Sales were from International Markets in FY07

Strong Revenue Growth in Fourth Quarter & Fiscal Year 2007

13%

15%

6%

9%

8

Fourth Quarter and Fiscal Year 2007 EBITDA

(6%)

(9%)

55%

43%

Segment EBITDA

Q407 vs. Q406 FY07 vs. FY06

Diversified Portfolio is Key to 2007 PerformanceDiversified Portfolio is Key to 2007 Performance

24%

6%

6%

26%Performance Products

Coatings& Inks

Forest & Formaldehyde

Products

Epoxy & Phenolic

Resins

9

Hexion Remains on Pace to Achieve $175 Million in Synergies

Sourcing Manufacturing SG&A

$155

$20

As of FY05

$105

$70

As ofFY06

As ofFY07

$55Unrealized Synergies

$120Achieved Synergies

Achieved($ millions)

$70

Summary

� Achieved $15 million in targeted synergies in Q407

� All Phase II actions expected to be taken in 2008

� Synergies continue to contribute toward Hexion’s improvement in gross and operating margins in FY07 compared to FY06

� SG&A as a percentage of sales improved to 7.1% in FY07 vs. 7.4% in FY06

FY06 FY07

$120

Sourcing

Manufacturing

SG&A

Targeted Synergy Focus Areas

$72 mm

$66 mm

$37 mm

($ in millions)

10

Site Actions Designed to StrategicallyOptimize Manufacturing Footprint

Productivity and Synergy Programs Continue

� Site actions related to Hexion’s synergy programs include:

� Hernani, Spain (Phenolic Resins)

� Santo Varao, Portugal (Inks)

� Pleasant Prairie, Wisconsin (Inks)

� Lynwood, California (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)

(1) Sites operational; actions included stopping production of heatset ink vehicles at Pleasant Prairie location and solvent-based coatings at our Lynwood California facility.

(1)

(1)

Financial Review

William CarterExecutive Vice President & Chief Financial Officer

12

Epoxy and Phenolic Resins Fourth Quarter 2007 Segment Highlights

$66

$539

2006

↓ (6)%$62 Segment EBITDA

↑ 14%

∆∆∆∆

$616

2007

Revenue

($ in millions)


Q407 Sales Comparison YOY

14%--7%7%--

TotalAcquisitions /Divestitures

CurrencyTranslationPrice/MixVolume

� Ongoing revenue growth enhanced by pricing and favorable product mix.

� Q407 planned turnarounds and manufacturing outages negatively impacted Segment EBITDA

13

Epoxy and Phenolic Resins Fiscal Year 2007 Segment Highlights

$271

$2,152

2006

↑ 24%$337 Segment EBITDA

↑ 13%

∆∆∆∆

$2,424

2007

Revenue

($ in millions)

Year Ended December 31

FY07 Sales Comparison YOY

13%--6%10%(3)%

TotalAcquisitions/Divestitures


� Strong revenue growth reflects pricing initiatives and favorable product mix

� Ongoing EBITDA improvement despite inflationary raw material environment

� Segment EBITDA growth supported by positive demand from wind energy, aerospace and international construction

14

Formaldehyde and Forest Products Resins Fourth Quarter 2007 Segment Highlights

$43

$357

2006

↓ (9)%$39 Segment EBITDA

↑ 25%

∆∆∆∆

$448

2007

Revenue

($ in millions)



25%16%6%6%(3)%



� Revenue growth reflects strong pass-through capabilities as well as broad-based international growth

� Methanol spiked dramatically in Q407:

� Sept. ’07: $0.95/gal.� Dec. ’07: $2.62/gal

� North American downturn partially offset by favorable international growth

15

Formaldehyde and Forest Products Resins Fiscal Year 2007 Segment Highlights

$156

$1,440

2006

↑ 6%$165Segment EBITDA

↑ 15%

∆∆∆∆

$1,663

2007

Revenue

($ in millions)



15%10%3%9%(7)%



� Strong international demand drove year-over-year gains in revenue and Segment EBITDA

� Contractual pass-through capabilities offset rapid rise in raw materials in FY07

16

Coatings and Inks Fourth Quarter 2007 Segment Highlights

$11

$326

2006

↑ 55% $17 Segment EBITDA

↓ (3)%

∆∆∆∆

$316

2007

Revenue

($ in millions)



(3)%(3)% 7%5%(12)%

TotalDivestituresCurrency

TranslationPrice/MixVolume

� Ongoing North American housing pressures continued to negatively impact coatings demand

� Focused cost control programs, coupled with site rationalizations significantly improved cost structure

17

Coatings and Inks Fiscal Year 2007 Segment Highlights

$81

$1,254

2006

↑ 6% $86 Segment EBITDA

↑ 6%

∆∆∆∆

$1,330

2007

Revenue

($ in millions)



6%6% 5%4%(9)%



� Ongoing pricing actions helped offset North American housing decline

� Site rationalizations will continue to optimize cost structure

18

Performance Products Fourth Quarter 2007 Segment Highlights

$ 14

$ 87

2006

↑ 43%$ 20Segment EBITDA

↑ 15%

∆∆∆∆

$ 100

2007

Revenue

($ in millions)



15%--1%11%3%



� Strong regional demand for Oilfield products continued in the U.S. and Mexico in Q407

� New oilfield technology products have dramatically impacted revenue and EBITDA results: Proptrac™, XRT Ceramax™ and Prime Plus™

19

Performance Products Fiscal Year 2007 Segment Highlights

$ 61

$ 359

2006

↑ 26%$ 77Segment EBITDA

↑ 9%

∆∆∆∆

$ 393

2007

Revenue

($ in millions)



9%--1%8%--



� Oilfield and Asia Pacific growth contributed to strong year-over-year revenue and Segment EBITDA gains

20

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

� 2007 capital expenditures totaled $123 million

� 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

Summary

Craig O. Morrison

22

Summary: Hexion Fourth Quarter and Fiscal Year 2007 Results

� Hexion delivered strong financial results in FY07 with a 12% increase in revenues and a 17% increase in Segment EBITDA

� The company remains on track to achieve $175 million in targetedsynergies

� Recently announced site closings will continue to improve overall cost structure

� December 31, 2007 pro forma adjusted EBITDA of $707 million

� On March 5, 2008, Hexion announced post-merger senior leaders for the company, contingent on the close of the acquisition of Huntsman

Hexion Continues to Execute its Strategic and Operational Plan

(1)

(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 conditions.

Appendices

24

Reconciliation of Non-GAAP Financial Measures

(121)--(69)--Loss on extinguishment of debt

2(21)6(5)Business realignments

(1)

--

--

(109) (65)(55) (63) Net income (loss)

(171)(198)(48)(53)Depreciation and amortization

(14)(44)27(1)Income tax benefit (expense)

(242)(310)(71)(73)Interest expense, net

(85) (124)(17) (61)Total adjustments

14 (31)3 (14)Total unusual items

(10)(17)(2)(8)Other

(14)------Discontinued operations

(3)(1)--Purchase accounting effects/inventory step-up

39 8(1) Gain on sale of business

Unusual items:

(22)(54)(9)(37)Non-cash charges

(57)(38)(12)(10)Integration costs

(20)(1)1Transaction costs

Items not included in Segment EBITDA

Reconciliation:

524 611123 125Total

(45)(54)(11)(13)Corporate and Other

6177 14 20 Performance Products

8186 11 17 Coatings and Inks

156 165 43 39 Formaldehyde and Forest Product Resins

271337 66 62 Epoxy and Phenolic Resins

Segment EBITDA:2006200720062007

Fiscal Year ended Dec. 31Three months ended Dec. 31,($ millions)

25

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 (4) 21

Other (5) 20

Total unusual items 34

In process Synergies (6) 55

Adjusted EBITDA (7) 707

Fixed Charges (8) 274

Ratio of Adj. EBITDA to Fixed Charges 2.58

$

Fixed Charge Covenant Calculations

Year EndedDec. 31, 2007

$

26

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 thebeginning 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.

27

Debt at December 31, 2007

1,9952,282Floating rate term loans due 2013

--69Australian Multi-Currency Term/Working Capital Facility due 2012

6256259.75% Second-priority senior secured notes due 2014

200200Floating rate second-priority senior secured notes due 2014

3,720

58

12

34

78

247

115

--

12/31/2007

3,392Total debt

64Other

11Capital Leases

34Industrial Revenue Bonds due 2009

Other Borrowings:

78Sinking fund debentures: 8.375% due 2016

2477.875% debentures 2023

1159.2% debentures due 2021

Debentures:

Senior Secured Notes:

23Revolving credit facilities due 2011

12/31/2006

($ in millions)

$ $

$ $

Senior Secured Credit Facilities:

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