Hexion Specialty Chemicals Reports First Quarter 2009 Results

COLUMBUS, Ohio--(Business Wire)--
Hexion Specialty Chemicals, Inc., today reported its results for the first
quarter ended March 31, 2009. Results for the first quarter of 2009 include:

* Revenues of $914 million in the first quarter of 2009 compared to $1.64
billion during the prior year period as the sales decline reflected lower
volumes and the contractual pass through of lower raw material prices, which
more than offset pricing actions in certain specialty product lines.
* Operating income of $12 million for the first quarter of 2009 versus operating
income of $83 million for the comparable prior year period. The decline in
operating income in the current year period primarily reflected lower sales
compared to the prior year. First quarter 2009 operating income also benefited
from incremental productivity actions and a $21 million decrease in selling,
general and administrative (SG&A) costs compared to the first quarter of 2008,
as well as the reduction of $30 million in previously accrued expenses
associated with the terminated transaction with Huntsman Corporation.
* Net income attributable to Hexion Specialty Chemicals, Inc. of $116 million
for the 2009 quarter versus a net loss of $12 million in the prior year period.
First quarter 2009 net income included a $168 million gain from the early
extinguishment of debt as Hexion purchased portions of its outstanding debt for
amounts less than the face value of the debt securities.
* Segment EBITDA (earnings before interest, taxes, depreciation and
amortization) totaled $61 million in the first quarter of 2009 compared to $154
million during the prior year period. Lower volumes and reduced operating rates
negatively impacted first quarter Segment EBITDA. (Note: Segment EBITDA is a
non-GAAP financial measure and is defined and reconciled to Net Income later in
this release.)

"Our first quarter 2009 sales reflected the pass through of lower raw material
costs to our customers, weak demand across many of our markets and the negative
impact of customers continuing to carefully manage their inventory levels," said
Craig O. Morrison, Chairman, President and CEO. "First quarter 2009 Segment
EBITDA improved sequentially compared to the fourth quarter of 2008, although
EBITDA declined versus the prior year due to lower sales and unfavorable
operating efficiencies related to lower volumes, offset by our ongoing focus on
controlling expenses as productivity actions during the quarter drove cost
reductions across all functional areas. In addition, our first quarter 2009
earnings were supported by strong results from our Performance Products segment,
which posted record quarterly Segment EBITDA of $25 million primarily due to
positive pricing and favorable product mix within our Oilfield products."

"In response to the economic downturn, we continue to aggressively focus on the
items that management can control, such as running our plants as efficiently as
possible and continually reassessing our productivity targets. We also continue
to focus on cash management, evidenced by working capital improvements in the
first quarter of 2009. We were pleased that we were able to reduce our net debt
in the first quarter of 2009 by approximately $300 million, including our
previously announced repurchase of debt detailed below, while maintaining
liquidity in excess of $400 million."

Productivity and Synergy Update

The Company continued to steadily implement its restructuring actions. In the
first quarter of 2009, the Company achieved $22 million in productivity savings,
while expanding its targeted productivity initiatives by an additional $53
million.

Hexion expects that it will achieve approximately $125 million in incremental
productivity savings during 2009, with the remaining $25 million in targeted
productivity actions occurring in 2010. The Company expects to incur $75 million
to achieve these savings and will fund these costs through working capital
reductions.

"Our cost reduction initiatives are on track and additional measures will be
taken as needed to right-size operations to the business environment," Morrison
said.

Segment Results

Following are net sales and Segment EBITDA by reportable segment for the first
quarter ended March 31, 2009. Segment EBITDA is defined as EBITDA adjusted to
exclude certain non-cash and non-recurring expenses. Segment EBITDA or adjusted
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. (Note: Segment EBITDA is a non-GAAP financial measure and is defined
and reconciled to Net Income later in this release.)

Three months ended March 31,
2009 2008
Net Sales to Unaffiliated Customers(1)(2):
Epoxy and Phenolic Resins $ 384 $ 639
Formaldehyde and Forest Products Resins 266 570
Coatings and Inks 194 332
Performance Products 70 95
$ 914 $ 1,636

Segment EBITDA(2):
Epoxy and Phenolic Resins $ 22 $ 74
Formaldehyde and Forest Products Resins 21 53
Coatings and Inks 1 18
Performance Products 25 22
Corporate and Other (8 ) (13 )

(1) Intersegment sales are not significant and, as such, are eliminated within
the selling segment.

(2) Certain of the Company`s product lines have been realigned, resulting in
reclassifications between segments. Prior period balances have been reclassified
to conform to current presentations.

Reconciliation of Segment EBITDA to Net Income (Loss) (Unaudited)

(U.S. Dollars in Millions)

Three months ended March 31,
2009 2008
Segment EBITDA:
Epoxy and Phenolic Resins $ 22 $ 74
Formaldehyde and Forest Products Resins 21 53
Coatings and Inks 1 18
Performance Products 25 22
Corporate and Other (8 ) (13 )

Reconciliation:
Items not included in Segment EBITDA
Terminated merger and settlement income (expense), 30 (9 )
net
Integration costs - (7 )
Non-cash charges (10 ) (6 )
Unusual items:
(Losses) gains on divestiture of assets (3 ) 7
Business realignments (16 ) (3 )
Other (3 ) (7 )
Total unusual items (22 ) (3 )
Total adjustments (2 ) (25 )
Interest expense, net (64 ) (78 )
Gain on extinguishment of debt 168 -
Income tax expense (3 ) (11 )
Depreciation and amortization (44 ) (52 )
Net income (loss) attributable to Hexion Specialty 116 (12 )
Chemicals, Inc.
Net income attributable to noncontrolling interest 1 1
Net income (loss) $ 117 $ (11 )

Liquidity and Capital Resources

At March 31, 2009, Hexion had $3.571 billion of debt. In addition, at March 31,
2009, Hexion had $410 million in liquidity including $108 million of
unrestricted cash and cash equivalents, $220 million of borrowings available
under our senior secured revolving credit facilities, and $82 million of
borrowings available under additional credit facilities at certain domestic and
international subsidiaries and the commitment from certain affiliates of Apollo.
At March 31, 2009, the $100 million term loan from affiliates of Apollo was
funded and net cash of $63 million was received for the sale of Hexion`s
receivables to affiliates of Apollo. In addition, working capital improvements
contributed to Hexion`s generation of $157 million of cash from operations in
the first quarter of 2009 compared to $18 million in the first quarter of 2008.

Hexion was in compliance at March 31, 2009 with all of the terms of its
outstanding indebtedness, including the financial covenants. Although Hexion
anticipates that the remainder of 2009 will be challenging, the Company expects
to have adequate liquidity to fund its ongoing operations and cash debt service
obligations for the foreseeable future from cash flows provided by operating
activities, amounts available for borrowings under our credit facilities and
amounts available from its parent. Hexion continues to take a number of actions
in its efforts to preserve liquidity and improve its cost structure, including:

* Rationalizing its manufacturing footprint as Hexion either ceased production
or announced pending actions at several locations, including: Pleasant Prairie,
Wisconsin (closed in January 2009); Columbus, Georgia (closed in January 2009);
a UV-cured inks manufacturing/research and development site in Cincinnati, Ohio
(closed in April 2009); Tianjin, China, where Hexion plans to close the site by
June 2009; Sokolov, The Czech Republic, a dispersions and monomers facility
where the Company is restructuring operations; and Maastricht, The Netherlands,
where Hexion announced its intent to restructure its adhesives operations,
subject to Works Council approvals.
* Continuing to focus on reducing working capital (defined as accounts
receivable and inventories less accounts and drafts payable) in 2009.
* Reducing discretionary SG&A spending wherever possible, such as travel
restrictions, salary actions for non-exempt associates (where allowable),
temporarily suspending company matching payments for its 401(k) plan and other
personnel-related costs. SG&A expenses were down $21 million, or 20 percent, in
the first quarter of 2009 versus the first quarter of 2008.
* Hexion also continues to investigate the sale of non-core assets to further
increase liquidity.

As previously announced, in the first quarter of 2009, Hexion repurchased on the
open market $196 million in face value of its outstanding debt securities for
$26 million. Of the $196 million in face value of repurchased debt securities,
the Company purchased: $92 million in face value of its 9.75% second-priority
senior secured notes due 2014; $80 million in face value of its floating rate
second-priority senior secured notes due 2014 and $24 million in face value of
various unsecured debentures due 2016 and beyond. In addition, after the quarter
closed, Hexion purchased $180 million of Hexion LLC outstanding debt for $24
million.

Outlook

"We continue to believe that market conditions will remain challenging in 2009,"
Morrison said. "We believe our second quarter 2009 sales and EBITDA will still
be well below prior year results and generally in-line with the results achieved
in the first quarter of 2009, adjusting for seasonality. As a result, we are
continuing to take incremental actions that strengthen our balance sheet and
enhance liquidity. We also benefit from our ability to leverage Apollo`s
investment as an equity cure for covenant compliance within our senior credit
facility should the weak economic conditions persist."

Earnings Call

Hexion will host a teleconference to discuss First Quarter 2009 results on
Wednesday, May 13, 2009, at 1:00 p.m. Eastern Time.

Interested parties are asked to dial-in approximately 10 minutes before the call
begins at the following numbers:

U.S. Participants: 866-202-1971
International Participants: 617-213-8842
Participant Passcode: 59322838

Live Internet access to the call and presentation materials will be available
through the Investor Relations section of the Company`s website: www.hexion.com.

A replay of the call will be available for three weeks beginning at 4 p.m.
Eastern Time on May 13, 2009. The playback can be accessed by dialing
888-286-8010 (U.S.) and 617-801-6888 (International). The passcode is 96143873.
A replay also will be available through the Investor Relations Section of the
Company`s website.

Reconciliation of Last Twelve Month Net Loss to Adjusted EBITDA

Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain
non-cash and certain non-recurring costs. Adjusted EBITDA also includes expected
future cost savings and other adjustments permitted in calculating covenant
compliance under the indentures governing certain of the Company's debt
instruments and the Company's senior credit facility. Certain covenants in these
agreements (i) require the Company to maintain leverage ratio and (ii) restrict
the Company's ability to take certain actions such as incurring additional debt
or making certain acquisitions if the Company is unable to meet a fixed charge
coverage ratio. Our senior credit facility requires that the Company`s ratio of
senior secured debt to Adjusted EBITDA (measured on a trailing four-quarter
basis) not exceed 4.25 to 1.00 as of the last day of each fiscal quarter. Senior
secured debt is defined to include borrowings under our senior credit facility
and certain other indebtedness secured by liens (not including indebtedness
secured by second-priority liens or certain indebtedness of our foreign
subsidiaries that are not loan parties to our senior credit facility). The
covenant to incur additional indebtedness and the ability to make future
acquisitions requires an Adjusted EBITDA to Fixed Charges ratio (measured on a
trailing four-quarter basis) of 2.0:1.0. Fixed charges are defined as interest
expense excluding the amortization or write-off of deferred financing costs.
Failure to comply with these covenants can result in limiting long-term growth
prospects by hindering the Company's ability to incur future indebtedness or
grow through acquisitions. The Company believes that including the supplemental
adjustments applied in presenting Adjusted EBITDA is appropriate to provide
additional information to investors to demonstrate compliance with financial
covenants and assess the Company's future ability to incur additional
indebtedness. Adjusted EBITDA and fixed charges are not defined terms under
accounting principles generally accepted in the United States of America (US
GAAP).

Adjusted EBITDA is not intended to represent any measure of earnings or cash
flow in accordance with US 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 as a substitute for measures of performance or liquidity.
Adjusted EBITDA should not be considered an alternative to operating income or
net loss under US GAAP to evaluate the Company's results of operations or as an
alternative to cash flows as a measure of liquidity. Fixed Charges should not be
considered an alternative to interest expense.

(US Dollars in Millions)
March 31, 2009
LTM Period
Reconciliation of Net Loss to Adjusted EBITDA
Net loss $ (1,057 )
Income taxes (25 )
Gain on extinguishment of debt (168 )
Interest expense, net 290
Depreciation and amortization expense 195
EBITDA (765 )
Adjustments to EBITDA:
Terminated merger and settlement costs(1) 988
Integration costs(2) 20
Net income attributable to noncontrolling interest (5 )
Non-cash items(3) 30
Unusual items:
Loss on divestiture of assets 5
Business realignments(4) 54
Derivative settlement(5) 37
Other(6) 21
Total unusual items 117
Productivity program savings(7) 150
Adjusted EBITDA $ 535
Fixed charges(8) $ 227
Ratio of Adjusted EBITDA to Fixed Charges(9) 2.36

(1) Primarily represents accounting, consulting, tax and legal costs related to
the terminated Huntsman merger and related litigation, including the $550
million payment to Huntsman to terminate the merger and settle litigation and
the non-cash push-down of settlement costs paid by Apollo of $200 million, net
of Apollo`s recovery of $15 million in insurance proceeds related to the $200
million settlement payment.

(2) Primarily represents redundancy and incremental administrative costs
associated with integration programs. Also includes costs to implement a new
consolidations and financial reporting system.

(3) Includes non-cash charges for impairments of property and equipment and
intangible assets, impairments of goodwill, accelerated depreciation,
stock-based compensation and unrealized foreign exchange and derivative
activity.

(4) Represents plant rationalization and headcount reduction and other costs
associated with business realignments.

(5) Primarily represents derivative settlements on a portion of our cross
currency and interest rate swaps.

(6) Primarily includes pension expense related to formerly owned businesses,
business optimization expenses, management fees and realized foreign currency
activity.

(7) Represents pro forma impact of in-process productivity program savings.

(8) Reflects pro forma interest expense based on interest rates at April 22,
2009 as if our repurchases of our outstanding debt securities had taken place at
the beginning of the period.

(9) We are required to have an Adjusted EBITDA to Fixed Charges ratio of greater
than 2.0 to 1.0 to be able to incur additional indebtedness under our indenture
for the Second Priority Senior Secured Notes. As of March 31, 2009, the Company
was able to satisfy this covenant and incur additional indebtedness under this
indenture.

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
2008 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 the current credit crises and economic
downturn and their related impact on liquidity and 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 2008 Annual Report on Form 10-K, and our other reports, with
the SEC.

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. Additional information is available at www.hexion.com.

(See Attached Financial Statements)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

HEXION SPECIALTY CHEMICALS, INC. (Unaudited)

Three Months ended
March 31,
(In millions) 2009 2008
Net sales $ 914 $ 1,636
Cost of sales 824 1,429
Gross profit 90 207
Selling, general and administrative expense 83 104
Terminated merger and settlement (income) expense, net (30 ) 9
Integration costs - 7
Other operating expense, net 25 4
Operating income 12 83
Interest expense, net 64 78
Gain on extinguishment of debt (168 ) -
Other non-operating (income) expense, net (4 ) 6
Income (loss) before income tax, earnings from 120 (1 )
unconsolidated entities
Income tax expense 3 11
Income (loss) before earnings from unconsolidated entities 117 (12 )
Earnings from unconsolidated entities, net of taxes - 1
Net income (loss) 117 (11 )
Net income attributable to noncontrolling interest (1 ) (1 )
Net income (loss) attributable to Hexion Specialty $ 116 $ (12 )
Chemicals, Inc.
Comprehensive income attributable to Hexion Specialty $ 82 $ 28
Chemicals, Inc.

CONDENSED
CONSOLIDATE
D BALANCE
SHEETS

HEXION
SPECIALTY
CHEMICALS,
INC.
(Unaudited)

(In March 31, December 31,
millions, 2009 2008
except
share data)
Assets
Current
assets
Cash and $ 121 $ 127
cash
equivalents
(including
restricted
cash of $13
and $6,
respectivel
y)
Short-term 4 7
investments
Accounts 454 582
receivable
(net of
allowance
for
doubtful
accounts of
$23 and
$24,
respectivel
y)
Inventories
:
Finished 263 328
and in
-process
goods
Raw 111 141
materials
and
supplies
Other 72 84
current
assets
Total 1,025 1,269
current
assets
Other 101 108
assets, net
Property
and
equipment
Land 100 98
Buildings 297 307
Machinery 2,152 2,157
and
equipment
2,549 2,562
Less (1,137 ) (1,101 )
accumulated
depreciatio
n
1,412 1,461
Goodwill 167 170
Other 164 172
intangible
assets, net
Total $ 2,869 $ 3,180
assets

Liabilities
and
Shareholder
`s Deficit
Current
liabilities
Accounts $ 392 $ 372
and drafts
payable
Debt 110 113
payable
within one
year
Affiliated 4 -
debt
payable
Interest 52 51
payable
Income 38 34
taxes
payable
Other 231 309
current
liabilities
Total 827 879
current
liabilities

Long-term
liabilities
Long-term 3,357 3,746
debt
Affiliated 100 -
long-term
debt
Long-term 253 259
pension and
post
employment
benefit
obligations
Deferred 114 122
income
taxes
Other long 126 128
-term
liabilities
Advance 225 225
from
affiliates
Total 5,002 5,359
liabilities

Commitments
and
contingenci
es
Shareholder
`s Deficit
Common 1 1
stock-$0.01
par value;
300,000,000
shares
authorized,
170,605,906
issued and
82,556,847
outstanding
at March
31, 2009
and
December
31, 2008
Paid-in 503 517
capital
Treasury (296 ) (296 )
stock, at
cost
-88,049,059
shares
Accumulated (32 ) 2
other
comprehensi
ve (loss)
income
Accumulated (2,326 ) (2,442 )
deficit
Total (2,150 ) (2,218 )
Hexion
Specialty
Chemicals,
Inc.
shareholder
`s deficit
Noncontroll 17 39
ing
interest
Total (2,133 ) (2,179 )
shareholder
`s deficit
Total $ 2,869 $ 3,180
liabilities
and
shareholder
`s deficit

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

HEXION SPECIALTY CHEMICALS, INC. (Unaudited)

Three months ended
March 31,
(In millions) 2009 2008
Cash flows provided by operating activities
Net income (loss) $ 117 $ (11 )
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 44 52
Gain on extinguishment of debt (168 ) -
Pushdown of recovery of expense paid by shareholder (15 ) -
Loss (gain) on disposal of assets, net of tax 3 (5 )
Deferred tax (benefit) provision (3 ) 10
Other non-cash adjustments 12 8
Net change in assets and liabilities:
Accounts receivable 113 (78 )
Inventories 84 (36 )
Accounts and drafts payable (9 ) 50
Income taxes payable 3 12
Other assets, current and non-current 1 (1 )
Other liabilities, current and long-term (25 ) 17
Net cash provided by operating activities 157 18

Cash flows used in investing activities
Capital expenditures (27 ) (22 )
Capitalized interest (1 ) -
Deferred acquisition costs - (1 )
Proceeds from matured debt securities 3 -
Change in restricted cash (7 ) -
Proceeds from the sale of assets 1 8
Net cash used in investing activities (31 ) (15 )

Cash flows used in financing activities
Net short-term debt repayments (2 ) (2 )
Borrowings of long-term debt 40 179
Repayments of long-term debt (246 ) (190 )
Net borrowings of affiliated debt 104 -
Deconsolidation of noncontrolling interest in variable (24 ) -
interest entity
Payments of dividends on common stock (9 ) (1 )
Net cash used in financing activities (137 ) (14 )

Effect of exchange rates on cash and cash equivalents (2 ) 3
Decrease in cash and cash equivalents (13 ) (8 )
Cash and cash equivalents (unrestricted) at beginning of 121 199
period
Cash and cash equivalents (unrestricted) at end of period $ 108 $ 191

Hexion Specialty Chemicals, Inc.
Investors:
John Kompa, 614-225-2223
Director, Investor Relations
john.kompa@hexion.com
or
Media:
Peter F. Loscocco, 614-225-4127
Vice President, Public Affairs
peter.loscocco@hexion.com

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