Filed Pursuant to Rule 424(b)(3)

Registration No. 333-176961

PROSPECTUS SUPPLEMENT

(To Prospectus dated May 20, 2014)

Hexion U.S. Finance Corp. Hexion Nova Scotia Finance, ULC

$134,016,000

9.00% Second-Priority Senior Secured Notes due 2020

This is supplement No. 3 to the prospectus dated May 20, 2014 that relates to the 9.00% Second-Priority Senior Secured Notes due 2020 (the “Notes”), issued by Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC, each of which are wholly-owned subsidiaries of Momentive Specialty Chemicals Inc. (“MSC”) (each a “Co-Issuer” and also referred to herein as, an “Issuer” or the “Issuers”). The Notes and the related guarantees thereof have previously been registered under the Securities Act of 1933, as amended, on a registration statement bearing File No. 333-176961.

The selling security holder may sell the Notes covered by this prospectus in one or more transactions, directly to purchasers or through underwriters, brokers or dealers or agents, in public or private transactions, at fixed prices, prevailing market prices at the times of sale, prices related to the prevailing market prices, varying prices determined at the times of sale or negotiated prices. See “Plan of Distribution.”

We will not receive any of the proceeds from the sale of the Notes by the selling security holder. The selling security holder will pay any brokerage commissions and/or similar charges incurred for the sale of the Notes.

Recent Developments

We have attached to this prospectus supplement the Quarterly Report on Form 10-Q of MSC for the quarterly period ended September 30, 2014 filed on November 10, 2014 and the financial statements for Momentive International Holdings Cooperatief U.A. for the nine months ended September 30, 2014 and 2013. The attached information updates and supplements, and should be read together with, the Issuers’ prospectus dated May 20, 2014, as supplemented from time to time.

See “Risk Factors” beginning on page 17 of the prospectus for a discussion of certain risks you should consider before making an investment decision in the notes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the notes or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is November 12, 2014.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 1-71

MOMENTIVE SPECIALTY CHEMICALS INC.

(Exact name of registrant as specified in its charter)

New Jersey	13-0511250
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

180 East Broad St., Columbus, OH 43215	614-225-4000
(Address of principal executive offices including zip code)	(Registrant’s telephone number including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  oNo  x.

Number of shares of common stock, par value $0.01 per share, outstanding as of the close of business on November 1, 2014: 82,556,847

MOMENTIVE SPECIALTY CHEMICALS INC.

INDEX

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Momentive Specialty Chemicals Inc. Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	6
	Condensed Consolidated Statement of Deficit for the nine months ended September 30, 2014	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Controls and Procedures	41
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42

2

MOMENTIVE SPECIALTY CHEMICALS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except share data)	September 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $16 and $14, respectively)	$	117		$	393
Short-term investments	10			7
Accounts receivable (net of allowance for doubtful accounts of $15 and $16, respectively)	725			601
Inventories:
Finished and in-process goods	301			257
Raw materials and supplies	135			103
Other current assets	78			72
Total current assets	1,366			1,433
Investment in unconsolidated entities	49			45
Deferred income taxes	18			21
Other long-term assets	128			134
Property and equipment:
Land	88			88
Buildings	305			308
Machinery and equipment	2,449			2,427
	2,842			2,823
Less accumulated depreciation	(1,783		)	(1,776		)
	1,059			1,047
Goodwill	122			112
Other intangible assets, net	85			82
Total assets	$	2,827		$	2,874
Liabilities and Deficit
Current liabilities:
Accounts payable	$	504		$	483
Debt payable within one year	128			109
Interest payable	90			83
Income taxes payable	18			12
Accrued payroll and incentive compensation	63			47
Other current liabilities	118			127
Total current liabilities	921			861
Long-term liabilities:
Long-term debt	3,706			3,665
Long-term pension and post employment benefit obligations	209			234
Deferred income taxes	21			21
Other long-term liabilities	154			163
Total liabilities	5,011			4,944
Commitments and contingencies (See Note 6)
Deficit
Common stock—$0.01 par value; 300,000,000 shares authorized, 170,605,906 issued and 82,556,847 outstanding at September 30, 2014 and December 31, 2013	1			1
Paid-in capital	525			522
Treasury stock, at cost—88,049,059 shares	(296		)	(296		)
Accumulated other comprehensive loss	(56		)	(21		)
Accumulated deficit	(2,357		)	(2,275		)
Total Momentive Specialty Chemicals Inc. shareholder’s deficit	(2,183		)	(2,069		)
Noncontrolling interest	(1		)	(1		)
Total deficit	(2,184		)	(2,070		)
Total liabilities and deficit	$	2,827		$	2,874

See Notes to Condensed Consolidated Financial Statements

3

MOMENTIVE SPECIALTY CHEMICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2014			2013			2014			2013
Net sales	$	1,347		$	1,249		$	3,977		$	3,691
Cost of sales	1,188			1,092			3,491			3,239
Gross profit	159			157			486			452
Selling, general and administrative expense	84			93			275			274
Asset impairments	—			—			—			7
Business realignment costs	6			4			24			15
Other operating expense, net	4			2			7			4
Operating income	65			58			180			152
Interest expense, net	77			77			230			227
Loss on extinguishment of debt	—			—			—			6
Other non-operating expense (income), net	18			(2		)	23			1
Loss before income tax and earnings (losses) from unconsolidated entities	(30		)	(17		)	(73		)	(82		)
Income tax expense	2			57			23			31
Loss before earnings from unconsolidated entities	(32		)	(74		)	(96		)	(113		)
Earnings (losses) from unconsolidated entities, net of taxes	4			(2		)	14			5
Net loss	$	(28	)	$	(76	)	$	(82	)	$	(108	)

See Notes to Condensed Consolidated Financial Statements

4

MOMENTIVE SPECIALTY CHEMICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2014			2013			2014			2013
Net loss	$	(28	)	$	(76	)	$	(82	)	$	(108	)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(40		)	24			(41		)	(8		)
Gain recognized from pension and postretirement benefits	1			4			6			7
Net losses on cash flow hedges reclassified to earnings	—			—			—			1
Other comprehensive (loss) income	(39		)	28			(35		)	—
Comprehensive loss	$	(67	)	$	(48	)	$	(117	)	$	(108	)

See Notes to Condensed Consolidated Financial Statements

5

MOMENTIVE SPECIALTY CHEMICALS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended September 30,
(In millions)	2014			2013
Cash flows used in operating activities
Net loss	$	(82	)	$	(108	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	109			113
Deferred tax (benefit) expense	(2		)	30
Non-cash asset impairments	—			7
Loss on extinguishment of debt	—			6
Unrealized foreign currency losses (gains)	32			(29		)
Other non-cash adjustments	(3		)	1
Net change in assets and liabilities:
Accounts receivable	(142		)	(138		)
Inventories	(90		)	(70		)
Accounts payable	40			94
Income taxes payable	3			32
Other assets, current and non-current	34			3
Other liabilities, current and long-term	(31		)	36
Net cash used in operating activities	(132		)	(23		)
Cash flows used in investing activities
Capital expenditures	(133		)	(96		)
Capitalized interest	—			(1		)
Purchase of businesses	(64		)	—
Purchases of securities, net	(4		)	(1		)
Change in restricted cash	(2		)	4
Disbursement of affiliated loan	(50		)	—
Repayment of affiliated loan	50			—
Investment in unconsolidated affiliates, net	(2		)	(13		)
Proceeds from sale of assets	—			1
Net cash used in investing activities	(205		)	(106		)
Cash flows provided by financing activities
Net short-term debt borrowings	25			16
Borrowings of long-term debt	213			1,128
Repayments of long-term debt	(174		)	(1,045		)
Long-term debt and credit facility financing fees	—			(37		)
Net cash provided by financing activities	64			62
Effect of exchange rates on cash and cash equivalents	(5		)	(2		)
Decrease in cash and cash equivalents	(278		)	(69		)
Cash and cash equivalents (unrestricted) at beginning of period	379			401
Cash and cash equivalents (unrestricted) at end of period	$	101		$	332
Supplemental disclosures of cash flow information
Cash paid (received) for:
Interest, net	$	215		$	193
Income taxes paid (refunded), net	23			(4		)
Non-cash financing activities:
Non-cash issuance of debt in exchange for loans of parent	$	—		$	200
Non-cash distribution declared to parent	—			208
Settlement of note receivable from parent	—			24

See Notes to Condensed Consolidated Financial Statements

6

MOMENTIVE SPECIALTY CHEMICALS INC.

CONDENSED CONSOLIDATED STATEMENT OF DEFICIT (Unaudited)

(In millions)	Common Stock		Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Momentive Specialty Chemicals Inc. Deficit			Noncontrolling Interest			Total
Balance at December 31, 2013	$	1	$	522	$	(296	)	$	(21	)	$	(2,275	)	$	(2,069	)	$	(1	)	$	(2,070	)
Net loss	—		—		—			—			(82		)	(82		)	—			(82		)
Other comprehensive loss	—		—		—			(35		)	—			(35		)	—			(35		)
Purchase of business from related party (see Note 3)	—		3		—			—			—			3			—			3
Balance at September 30, 2014	$	1	$	525	$	(296	)	$	(56	)	$	(2,357	)	$	(2,183	)	$	(1	)	$	(2,184	)

See Notes to Condensed Consolidated Financial Statements

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In millions, except share data)

1. Background and Basis of Presentation

Based in Columbus, Ohio, Momentive Specialty Chemicals Inc., (which may be referred to as “MSC” or the “Company”) serves global industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries. The Company’s business is organized based on the products offered and the markets served. At September 30, 2014, the Company had two reportable segments: Epoxy, Phenolic and Coating Resins and Forest Products Resins.

The Company’s direct parent is Momentive Specialty Chemicals Holdings LLC (“MSC Holdings”), a holding company and wholly owned subsidiary of Momentive Performance Materials Holdings LLC (“Momentive Holdings”), the ultimate parent entity of MSC. Momentive Holdings is controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, LLC and its subsidiaries, “Apollo”). Apollo may also be referred to as the Company’s owner.

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company, its majority-owned subsidiaries in which minority shareholders hold no substantive participating rights and variable interest entities (“VIEs”) in which the Company is the primary beneficiary. Intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement have been included. Results for the interim periods are not necessarily indicative of results for the entire year.

Year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the accompanying notes included in the Company’s most recent Annual Report on Form 10-K.

2. Summary of Significant Accounting Policies

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and also requires the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, it requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Subsequent Events—The Company has evaluated events and transactions subsequent to September 30, 2014 through November 10, 2014, the date of issuance of its unaudited Condensed Consolidated Financial Statements.

Recently Issued Accounting Standards

In May, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes the existing revenue recognition guidance and most industry-specific guidance applicable to revenue recognition. According to the new guidance, an entity will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period and early application is not permitted. The Company is currently assessing the potential impact of ASU 2014-09 on its financial statements.

In August 2014, the FASB issued Accounting Standards Board Update No. 2014-15: Presentation of Financial Statements - Going Concern - Disclosures of Uncertainties about an entity's Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides new guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards and to provide related footnote disclosures. This new guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The requirements of ASU 2014-15 are not expected to have a significant impact on the Company’s financial statements.

8

3. Related Party Transactions

Administrative Service, Management and Consulting Arrangement

The Company is subject to a Management Consulting Agreement with Apollo (the “Management Consulting Agreement”) that renews on an annual basis, unless notice to the contrary is given by either party. Under the Management Consulting Agreement, the Company receives certain structuring and advisory services from Apollo and its affiliates. The Management Consulting Agreement provides indemnification to Apollo, its affiliates and their directors, officers and representatives for potential losses arising from these services. Apollo is entitled to an annual fee equal to the greater of $3 or 2% of the Company’s Adjusted EBITDA. Apollo elected to waive charges of any portion of the annual management fee due in excess of $3 for the calendar year 2014.

During both the three months ended September 30, 2014 and 2013 and during both the nine months ended September 30, 2014 and 2013, the Company recognized expense under the Management Consulting Agreement of $1 and $2, respectively. This amount is included in “Other operating (income) expense, net” in the Company’s unaudited Condensed Consolidated Statements of Operations.

Transactions with MPM

Shared Services Agreement

On October 1, 2010, the Company entered into a shared services agreement with Momentive Performance Materials Inc. (“MPM”) (which, from October 1, 2010 through October 24, 2014, was a subsidiary of Momentive Holdings) (the “Shared Services Agreement”). Under this agreement, the Company provides to MPM, and MPM provides to the Company, certain services, including, but not limited to, executive and senior management, administrative support, human resources, information technology support, accounting, finance, technology development, legal and procurement services. The Shared Services Agreement is subject to termination by either the Company or MPM, without cause, on not less than 30 days’ written notice, and expires in October 2015 (subject to one-year renewals every year thereafter; absent contrary notice from either party). The Shared Services Agreement establishes certain criteria upon which the costs of such services are allocated between the Company and MPM. Pursuant to this agreement, during the nine months ended September 30, 2014 and 2013, the Company incurred approximately $100 and $90, respectively, of net costs for shared services and MPM incurred approximately $76 and $67, respectively, of net costs for shared services. Included in the net costs incurred during the nine months ended September 30, 2014 and 2013, were net billings from the Company to MPM of $31 and $21, respectively, to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to the applicable allocation percentage. The allocation percentage for 2014 remains unchanged from 2013, which was 57% for the Company and 43% for MPM. The Company had accounts receivable from MPM of $14 and $4 as of September 30, 2014 and December 31, 2013, respectively, and accounts payable to MPM of less than $1 at December 31, 2013. During the nine months ended September 30, 2014 and 2013, the Company realized approximately $3 and $6, respectively, in cost savings as a result of the Shared Services Agreement.

On April 13, 2014, Momentive Performance Materials Holdings Inc. (MPM’s direct parent company), MPM and certain of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On October 24, 2014, in conjunction with MPM’s emergence from Chapter 11 bankruptcy and the consummation of MPM’s plan of reorganization, the Shared Services Agreement was amended to, among other things, (i) exclude the services of certain executive officers, (ii) provide for a transition assistance period at the election of the recipient following termination of the Shared Services Agreement of up to 12 months, subject to one successive renewal period of an additional 60 days and (iii) provide for the use of an independent third-party audit firm to assist the Steering Committee with its annual review of billings and allocations. Additionally, upon emergence from Chapter 11 bankruptcy, MPM paid all previously unpaid amounts to the Company related to the Shared Services Agreement.

Sales and Purchases of Products and Services with MPM

The Company also sells products to, and purchases products from, MPM pursuant to a Master Buy/Sell Agreement dated as of September 6, 2012 (the “Master Buy/Sell Agreement”). Prices under the agreement are determined by a formula based upon certain third party sales of the applicable product, or in the event that no qualifying third party sales have taken place, based upon the average contribution margin generated by certain third party sales of products in the same or a similar industry. The standard terms and conditions of the seller in the applicable jurisdiction apply to transactions under the Master Buy/Sell Agreement. A subsidiary of MPM also acts as a non-exclusive distributor in India for certain of the Company’s subsidiaries pursuant to Distribution Agreements dated as of September 6, 2012 (the “Distribution Agreements”). Prices under the Distribution Agreements are determined by a formula based on the weighted average sales price of the applicable product less a margin. The Master Buy/Sell Agreement and Distribution Agreements have initial terms of 3 years and may be terminated for convenience by either party thereunder upon 30 days’ prior notice in the case of the Master/Buy Sell Agreement and upon 90 days’ prior notice in the case of the Distribution Agreements. Pursuant to these agreements and other purchase orders, during the three months ended September 30, 2014 and 2013, the Company sold less than $1 and $1, respectively, of products to MPM and purchased $2. During the nine months ended September 30, 2014 and 2013, the Company sold less than $1 and $1, respectively, of products to MPM and purchased $6 and $4, respectively. As of both September 30, 2014 and December 31, 2013, the Company had less than $1 of accounts receivable from MPM and $1 of accounts payable to MPM related to these agreements.

9

Other Transactions with MPM

In March 2014, the Company entered into a ground lease with a Brazilian subsidiary of MPM to lease a portion of MPM’s manufacturing site in Itatiba, Brazil for purposes of constructing and operating an epoxy production facility. In conjunction with the ground lease, the Company also entered into a site services agreement whereby MPM’s subsidiary will provide to the Company various services such as environmental, health and safety, security, maintenance and accounting, amongst others, to support the operation of this new facility. The Company paid less than $1 to MPM under this agreement during both the three and nine months ended September 30, 2014.

In April 2014, the Company purchased 100% of the interests in MPM’s Canadian subsidiary for a purchase price of approximately $12. As a part of the transaction the Company also entered into a non-exclusive distribution agreement with a subsidiary of MPM, whereby the Company will act as a distributor of certain of MPM’s products in Canada. The agreement has a term of 10 years, and is cancelable by either party with 180 days’ notice. The Company is compensated for acting as distributor at a rate of 2% of the net selling price of the related products sold. Additionally, MPM is providing transitional services to the Company for a period of 6 months subsequent to the transaction date. During the three and nine months ended September 30, 2014, the Company purchased approximately $10 and $20, respectively, of products from MPM under this distribution agreement, and earned less than $1 from MPM as compensation for acting as distributor of the products. As of September 30, 2014, the Company had $3 of accounts payable to MPM related to the distribution agreement.

As both the Company and MPM shared a common ultimate parent at the time of the transaction, this purchase was accounted for as a transaction under common control as defined in the accounting guidance for business combinations, resulting in the Company recording the net assets of the acquired entity at carrying value. Additionally, the gain on the purchase of $3 was accounted for as a capital contribution, and is reflected as an addition to “Paid-in-Capital” in the unaudited Condensed Consolidated Balance Sheets. In addition, the Company has recasted its prior period financial statements on a combined basis to reflect the release of the valuation allowance related to the expected realization of deferred tax benefits attributable to MPM’s Canadian subsidiary during the year ended December 31, 2011. This retrospective adjustment to the Company’s unaudited Condensed Consolidated Financial Statements resulted in a $12 decrease in “Accumulated deficit” as of December 31, 2013.

Purchases and Sales of Products and Services with Affiliates Other than MPM

The Company sells products to various Apollo affiliates other than MPM. These sales were $18 and $25 for the three months ended September 30, 2014 and 2013, respectively, and $105 and $91 for the nine months ended September 30, 2014 and 2013, respectively. Accounts receivable from these affiliates were $15 and $17 at September 30, 2014 and December 31, 2013, respectively. The Company also purchases raw materials and services from various Apollo affiliates other than MPM. These purchases were $1 and $6 (as revised from $37 to correct for a data accumulation error, which the Company does not believe is material) for the three months ended September 30, 2014 and 2013, respectively, and $4 and $25 (as revised from $103 to correct for a data accumulation error, which the Company does not believe is material) for the nine months ended September 30, 2014 and 2013, respectively. The Company had accounts payable to these affiliates of $1 and less than $1 at September 30, 2014 and December 31, 2013, respectively.

Other Transactions and Arrangements

Momentive Holdings purchases insurance policies which also cover the Company and MPM. Amounts are billed to the Company annually based on the Company’s relative share of the insurance premiums and amortized over the term of the policy. No amounts were billed to the Company from Momentive Holdings for either the three months or nine months ended September 30, 2014 or 2013. The Company had accounts payable to Momentive Holdings of less than $1 and $4 under these arrangements at September 30, 2014 and December 31, 2013, respectively.

The Company sells finished goods to, and purchases raw materials from, its foundry joint venture between the Company and HA-USA Inc. (“HAI”). The Company also provides toll-manufacturing and other services to HAI. The Company’s investment in HAI is recorded under the equity method of accounting, and the related sales and purchases are not eliminated from the Company’s unaudited Condensed Consolidated Financial Statements. However, any profit on these transactions is eliminated in the Company’s unaudited Condensed Consolidated Financial Statements to the extent of the Company’s 50% interest in HAI. Sales and services provided to HAI were $27 and $25 for the three months ended September 30, 2014 and 2013, respectively, and $83 and $78 for the nine months ended September 30, 2014 and 2013, respectively. Accounts receivable from HAI were $8 and $16 at September 30, 2014 and December 31, 2013, respectively. Purchases from HAI were $12 and $11 (as revised from $21 to correct for a data accumulation error, which the Company does not believe is material) for the three months ended September 30, 2014 and 2013, respectively, and $27 and $27 (as revised from $52 to correct for a data accumulation error, which the Company does not believe is material) for the nine months ended September 30, 2014 and 2013, respectively. The Company had accounts payable to HAI of $3 and $6 at September 30, 2014 and December 31, 2013. Additionally, HAI declared dividends to the Company of $3 during the three months ended September 30, 2014, and $9 and $15 during the nine months ended September 30, 2014 and 2013, respectively. No amounts remain outstanding related to these previously declared dividends as of September 30, 2014.

The Company’s purchase contracts with HAI represent a significant portion of HAI’s total revenue, and this factor results in the Company absorbing the majority of the risk from potential losses or the majority of the gains from potential returns. However, the Company does not have the power to direct the activities that most significantly impact HAI, and therefore, does not consolidate HAI.

10

In February 2013, the Company and HAI resolved a dispute regarding raw material pricing. As part of the resolution, the Company will provide discounts to HAI on future purchases of dry and liquid resins totaling $16 over a period of three years. During the three and nine months ended September 30, 2014, the Company issued $1 and $4, respectively, of discounts to HAI under this agreement. During both the three and nine months ended September 30, 2013, the Company issued $1 of discounts to HAI under this agreement. As of September 30, 2014 and December 31, 2013, $8 and $12, respectively, remained outstanding under this agreement. As of both September 30, 2014 and December 31, 2013, $5 of the outstanding amount was classified in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets, with the remaining amount included in “Other long-term liabilities.”

The Company had royalties receivable from its unconsolidated forest products joint venture in Russia of $6 as of both September 30, 2014 and December 31, 2013.

As of both September 30, 2014 and December 31, 2013, the Company had approximately $10 of cash on deposit as collateral for a loan that was extended by a third party to one of the Company’s unconsolidated joint ventures, which is classified as restricted cash.

In February 2014, the Company made a restricted purpose loan of $50 to Superholdco Finance Corp (“Finco”), a newly formed subsidiary of Momentive Holdings, which was repaid in full during the three months ended September 30, 2014. The loan had a maturity date in February 2015, and bore interest at LIBOR plus 3.75% per annum. The loan was fully collateralized by the assets of Finco. On April 7, 2014, Finco entered into an agreement with MPM under which it purchased approximately $51 of accounts receivable from MPM, paying 95% of the proceeds in cash, with the remaining 5% to be paid in cash when the sold receivables were fully collected. The agreement also appointed MPM to act as the servicer of the receivables on behalf of Finco. Interest incurred under the loan agreement was less than $1 for the nine months ended September 30, 2014.

Finco is deemed to be a VIE, and the Company’s loan to Finco represented a variable interest in Finco. The power to direct the activities that most significantly impact the VIE is shared between the Company and the other related party variable interest entity holder. However, as of September 30, 2014, the Company does not absorb the majority of the risk from potential losses or the majority of the gains from potential returns of the VIE, and therefore, the Company does not consolidate Finco. As of September 30, 2014, the carrying value of both Finco’s assets and liabilities was $0.

4. Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement provisions establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This guidance describes three levels of inputs that may be used to measure fair value:

• Level 1: Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date.

• Level 3: Unobservable inputs that are supported by little or no market activity and are developed based on the best information available in the circumstances. For example, inputs derived through extrapolation or interpolation that cannot be corroborated by observable market data.

Recurring Fair Value Measurements

As of September 30, 2014, the Company had derivative liabilities of less than $1, which were measured using Level 2 inputs, and consist of derivative instruments transacted primarily in over-the-counter markets. There were no transfers between Level 1, Level 2 or Level 3 measurements during the three or nine months ended September 30, 2014 or 2013.

The Company calculates the fair value of its Level 2 derivative liabilities using standard pricing models with market-based inputs, adjusted for nonperformance risk. When its financial instruments are in a liability position, the Company evaluates its credit risk as a component of fair value. At both September 30, 2014 and December 31, 2013, no adjustment was made by the Company to reduce its derivative liabilities for nonperformance risk.

When its financial instruments are in an asset position, the Company is exposed to credit loss in the event of nonperformance by other parties to these contracts and evaluates their credit risk as a component of fair value.

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Non-recurring Fair Value Measurements

The Company recorded losses of $7 as a result of measuring assets at fair value on a non-recurring basis during the nine months ended September 30, 2013, which were valued using Level 3 inputs.

During the nine months ended September 30, 2013, as a result of the likelihood that certain long-lived assets would be disposed of before the end of their estimated useful lives, resulting in lower future cash flows associated with these assets, the Company wrote down long-lived assets with a carrying value of $8 to fair value of $1, resulting in an impairment charge of $7 within its Epoxy, Phenolic and Coating Resins segment. These assets were valued by using a discounted cash flow analysis based on assumptions that market participants would use. Significant unobservable inputs in the model included projected short-term future cash flows associated with these long-lived assets through the projected disposal date. Future projected short-term cash flows were derived from forecast models based upon budgets prepared by the Company’s management.

Non-derivative Financial Instruments

The following table summarizes the carrying amount and fair value of the Company’s non-derivative financial instruments:

	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
September 30, 2014
Debt	$	3,834	$	—	$	3,815	$	9	$	3,824
December 31, 2013
Debt	$	3,774	$	—	$	3,820	$	10	$	3,830

Fair values of debt classified as Level 2 are determined based on other similar financial instruments, or based upon interest rates that are currently available to the Company for the issuance of debt with similar terms and maturities. Level 3 amounts represent capital leases whose fair value is determined through the use of present value and specific contract terms. The carrying amounts of cash and cash equivalents, short term investments, accounts receivable, accounts payable and other accrued liabilities are considered reasonable estimates of their fair values due to the short-term maturity of these financial instruments.

5. Debt Obligations

Debt outstanding at September 30, 2014 and December 31, 2013 is as follows:

	September 30, 2014				December 31, 2013
	Long-Term		Due Within One Year		Long-Term		Due Within One Year
ABL Facility	$	65	$	—	$	—	$	—
Senior Secured Notes:
6.625% First-Priority Senior Secured Notes due 2020 (includes $6 and $7 of unamortized debt premium at September 30, 2014 and December 31, 2013, respectively)	1,556		—		1,557		—
8.875% Senior Secured Notes due 2018 (includes $4 of unamortized debt discount at both September 30, 2014 and December 31, 2013)	1,196		—		1,196		—
9.00% Second-Priority Senior Secured Notes due 2020	574		—		574		—
Debentures:
9.2% debentures due 2021	74		—		74		—
7.875% debentures due 2023	189		—		189		—
8.375% sinking fund debentures due 2016	20		20		40		20
Other Borrowings:
Australia Facility due 2014	—		32		—		35
Brazilian bank loans	10		45		13		45
Capital Leases	8		1		9		1
Other	14		30		13		8
Total	$	3,706	$	128	$	3,665	$	109

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6. Commitments and Contingencies

Environmental Matters

The Company’s operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials. The Company is subject to extensive environmental regulation at the federal, state and local levels as well as foreign laws and regulations, and is therefore exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Environmental Institution of Paraná IAP—On August 10, 2005, the Environmental Institute of Paraná (IAP), an environmental agency in the State of Paraná, provided Hexion Quimica Industria, the Company’s Brazilian subsidiary, with notice of an environmental assessment in the amount of 12 Brazilian reais. The assessment related to alleged environmental damages to the Paranagua Bay caused in November 2004 from an explosion on a shipping vessel carrying methanol purchased by the Company. The investigations performed by the public authorities have not identified any actions of the Company that contributed to or caused the accident. The Company responded to the assessment by filing a request to have it cancelled and by obtaining an injunction precluding execution of the assessment pending adjudication of the issue. In November 2010, the Court denied the Company’s request to cancel the assessment and lifted the injunction that had been issued. The Company responded to the ruling by filing an appeal in the State of Paraná Court of Appeals. In March 2012, the Company was informed that the Court of Appeals had denied the Company’s appeal, and on June 4, 2012 the Company filed appeals to the Superior Court of Justice and the Supreme Court of Brazil. The Company continues to believe it has strong defenses against the validity of the assessment, and does not believe that a loss is probable. At September 30, 2014, the amount of the assessment, including tax, penalties, monetary correction and interest, is 36 Brazilian reais, or approximately $15.

Hillsborough County—The Company is named in a lawsuit filed on July 12, 2004 in Hillsborough County, Florida Circuit Court, for an animal feed supplement processing site formerly operated by the Company and sold in 1980. The lawsuit is filed on behalf of multiple residents of Hillsborough County living near the site and it alleges various injuries from exposure to toxic chemicals. The Company does not have adequate information from which to estimate a potential range of liability, if any. The court dismissed a similar lawsuit brought on behalf of a class of plaintiffs in November 2005.

The following table summarizes all probable environmental remediation, indemnification and restoration liabilities, including related legal expenses, at September 30, 2014 and December 31, 2013:

	Number of Sites		Liability				Range of Reasonably Possible Costs
Site Description	September 30, 2014	December 31, 2013	September 30, 2014		December 31, 2013		Low		High
Geismar, LA	1	1	$	15	$	16	$	9	$	22
Superfund and offsite landfills – allocated share:
Less than 1%	15	16	1		1		1		1
Equal to or greater than 1%	12	12	7		8		5		14
Currently-owned	13	12	9		8		8		22
Formerly-owned:
Remediation	12	11	19		8		16		28
Monitoring only	4	4	1		1		—		1
Total	57	56	$	52	$	42	$	39	$	88

These amounts include estimates for unasserted claims that the Company believes are probable of loss and reasonably estimable. The estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based. To establish the upper end of a range, assumptions less favorable to the Company among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates. At September 30, 2014 and December 31, 2013, $12 and $14, respectively, have been included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets with the remaining amount included in “Other long-term liabilities.”

Following is a discussion of the Company’s environmental liabilities and the related assumptions at September 30, 2014:

Geismar, LA Site—The Company formerly owned a basic chemicals and polyvinyl chloride business that was taken public as Borden Chemicals and Plastics Operating Limited Partnership (“BCPOLP”) in 1987. The Company retained a 1% interest, the general partner interest and the liability for certain environmental matters after BCPOLP’s formation. Under a Settlement Agreement approved by the United States Bankruptcy Court for the District of Delaware among the Company, BCPOLP, the United States Environmental Protection Agency and the Louisiana Department of Environmental Quality, the Company agreed to perform certain of BCPOLP’s obligations for soil and groundwater contamination at BCPOLP’s Geismar, Louisiana site. The Company bears the sole responsibility for these obligations because there are no other potentially responsible parties (“PRP”) or third parties from whom the Company could seek reimbursement.

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A groundwater pump and treat system to remove contaminants is operational, and natural attenuation studies are proceeding. If closure procedures and remediation systems prove to be inadequate, or if additional contamination is discovered, costs that would approach the higher end of the range of possible outcomes could result.

Due to the long-term nature of the project, the reliability of timing and the ability to estimate remediation payments, a portion of this liability was recorded at its net present value, assuming a 3% discount rate and a time period of 24 years. The range of possible outcomes is discounted in a similar manner. The undiscounted liability, which is expected to be paid over the next 24 years, is approximately $20. Over the next five years, the Company expects to make ratable payments totaling $6.

Superfund Sites and Offsite Landfills—The Company is currently involved in environmental remediation activities at a number of sites for which it has been notified that it is, or may be, a PRP under the United States Comprehensive Environmental Response, Compensation and Liability Act or similar state “superfund” laws. The Company anticipates approximately 50% of the estimated liability for these sites will be paid within the next five years, with the remainder over the next twenty-five years. The Company generally does not bear a significant level of responsibility for these sites, and as a result, has little control over the costs and timing of cash flows.

The Company’s ultimate liability will depend on many factors including its share of waste volume, the financial viability of other PRPs, the remediation methods and technology used, the amount of time necessary to accomplish remediation and the availability of insurance coverage. The range of possible outcomes takes into account the maturity of each project, resulting in a more narrow range as the project progresses. To estimate both its current reserves for environmental remediation at these sites and the possible range of additional costs, the Company has not assumed that it will bear the entire cost of remediation of every site to the exclusion of other known PRPs who may be jointly and severally liable. The Company has limited information to assess the viability of other PRPs and their probable contribution on a per site basis. The Company’s insurance provides very limited, if any, coverage for these environmental matters.

Sites Under Current Ownership—The Company is conducting environmental remediation at a number of locations that it currently owns, of which ten sites are no longer in operation. As the Company is performing a portion of the remediation on a voluntary basis, it has some control over the costs to be incurred and the timing of cash flows. The Company expects to pay approximately $5 of these liabilities within the next five years, with the remainder over the next ten years. The factors influencing the ultimate outcome include the methods of remediation elected, the conclusions and assessment of site studies remaining to be completed, and the time period required to complete the work. No other parties are responsible for remediation at these sites.

Formerly-Owned Sites—The Company is conducting, or has been identified as a PRP in connection with, environmental remediation at a number of locations that it formerly owned and/or operated. Remediation costs at these former sites, such as those associated with our former phosphate mining and processing operations, could be material. The Company has accrued those costs for formerly-owned sites which are currently probable and reasonably estimable. One such site is the Coronet Industries, Inc. Superfund Alternative Site in Plant City, Florida. The current owner of the site has alleged that it has incurred environmental costs at the site for which it believes it has a contribution claim against the Company, and that additional future costs are likely to be incurred. In July 2014, the Company reached a non-binding agreement with the current owner of the site, subject to negotiation of an acceptable settlement agreement and required approvals. Pursuant to the agreement, the Company would pay $10 in fulfillment of the contribution claim against the Company for past remediation costs. Additionally, the Company would accept a 40% allocable share of specified future remediation costs at this site. At this time, the Company does not have adequate information to enable it to estimate a potential range of liability for such future remediation costs. The final costs to the Company will depend on the method of remediation chosen and the level of participation of third parties.

Monitoring Only Sites—The Company is responsible for a number of sites that require monitoring where no additional remediation is expected. The Company has established reserves for costs related to these sites. Payment of these liabilities is anticipated to occur over the next ten or more years. The ultimate cost to the Company will be influenced by fluctuations in projected monitoring periods or by findings that are different than anticipated.

Indemnifications—In connection with the acquisition of certain of the Company’s operating businesses, the Company has been indemnified by the sellers against certain liabilities of the acquired businesses, including liabilities relating to both known and unknown environmental contamination arising prior to the date of the purchase. The indemnifications may be subject to certain exceptions and limitations, deductibles and indemnity caps. While it is reasonably possible that some costs could be incurred, except for those sites identified above, the Company has inadequate information to allow it to estimate a potential range of liability, if any.

Non-Environmental Legal Matters

The Company is involved in various legal proceedings in the ordinary course of business and had reserves of $11 and $16 at September 30, 2014 and December 31, 2013, respectively, for all non-environmental legal defense costs incurred and settlement costs that it believes are probable and estimable. At both September 30, 2014 and December 31, 2013, $7 has been included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets, with the remaining amount included in “Other long-term liabilities.”

Following is a discussion of significant non-environmental legal proceedings:

Brazil Tax Claim— On October 15, 2012, the Appellate Court for the State of Sao Paulo rendered a unanimous decision in favor of the Company on this claim, which has been pending since 1992. In 1992, the State of Sao Paulo Administrative Tax Bureau issued an assessment against the Company’s Brazilian subsidiary claiming that excise taxes were owed on certain intercompany loans made for centralized cash management purposes. These loans and other internal flows of funds were characterized by the Tax Bureau as intercompany sales. Since that time, management and the Tax Bureau have held discussions and the Company filed an administrative appeal seeking cancellation of the

14

assessment. The Administrative Court upheld the assessment in December 2001. In 2002, the Company filed a second appeal with the highest-level Administrative Court, again seeking cancellation of the assessment. In February 2007, the highest-level Administrative Court upheld the assessment. The Company requested a review of this decision. On April 23, 2008, the Brazilian Administrative Tax Tribunal issued its final decision upholding the assessment against the Company. The Company filed an Annulment action in the Brazilian Judicial Courts in May 2008 along with a request for an injunction to suspend the tax collection. The injunction was granted upon the Company pledging certain properties and assets in Brazil during the pendency of the Annulment action in lieu of depositing an amount equivalent to the assessment with the Court. In September 2010, in the Company’s favor, the Court adopted its appointed expert’s report finding that the transactions in question were intercompany loans and other legal transactions. The State Tax Bureau appealed this decision in December 2010, and the Appellate Court ruled in the Company’s favor on October 15, 2012. On January 7, 2013, the State Tax Bureau appealed the decision to the Superior Court of Justice. The Company has replied to the appeal, and on August 6, 2014, the Superior Court of Justice ruled in favor of the Company. With no additional appeals left to the State of Sao Paulo Tax Authority, on August 21, 2014, the above decision in favor of the Company was declared “res judicata” (final decision which ended the claim).

Other Legal Matters—The Company is involved in various other product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings in addition to those described above, including actions that allege harm caused by products the Company has allegedly made or used, containing silica, vinyl chloride monomer and asbestos. The Company believes it has adequate reserves and that it is not reasonably possible that a loss exceeding amounts already reserved would be material. Furthermore, the Company has insurance to cover claims of these types.

7. Pension and Postretirement Benefit Plans

Following are the components of net pension and postretirement expense (benefit) recognized by the Company for the three and nine months ended September 30, 2014 and 2013:

	Pension Benefits												Non-Pension Postretirement Benefits
	Three Months Ended September 30,												Three Months Ended September 30,
	2014						2013						2014				2013
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans		Non-U.S. Plans		U.S. Plans			Non-U.S. Plans
Service cost	$	1		$	3		$	1		$	3		$	—	$	—	$	—		$	—
Interest cost on projected benefit obligation	3			5			3			4			—		—		—			—
Expected return on assets	(4		)	(4		)	(4		)	(3		)	—		—		—			—
Amortization of prior service cost (benefit)	—			—			—			1			—		—		(1		)	—
Amortization of net losses	1			1			2			3			—		—		—			—
Net expense (benefit)	$	1		$	5		$	2		$	8		$	—	$	—	$	(1	)	$	—

	Pension Benefits												Non-Pension Postretirement Benefits
	Nine Months Ended September 30,												Nine Months Ended September 30,
	2014						2013						2014				2013
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans		Non-U.S. Plans		U.S. Plans			Non-U.S. Plans
Service cost	$	2		$	11		$	2		$	11		$	—	$	—	$	—		$	—
Interest cost on projected benefit obligation	9			13			8			13			—		1		—			—
Expected return on assets	(12		)	(11		)	(11		)	(9		)	—		—		—			—
Amortization of prior service cost (benefit)	—			—			—			1			—		—		(1		)	1
Amortization of net losses	5			3			7			7			—		—		—			—
Net expense (benefit)	$	4		$	16		$	6		$	23		$	—	$	1	$	(1	)	$	1

8. Segment Information

The Company’s business segments are based on the products that the Company offers and the markets that it serves. At September 30, 2014, the Company had two reportable segments: Epoxy, Phenolic and Coating Resins and Forest Products Resins. A summary of the major products of the Company’s reportable segments follows:

• Epoxy, Phenolic and Coating Resins: epoxy specialty resins, phenolic encapsulated substrates, versatic acids and derivatives, basic epoxy resins and intermediates, phenolic specialty resins and molding compounds, polyester resins, acrylic resins and vinylic resins

• Forest Products Resins: forest products resins and formaldehyde applications

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Reportable Segments

Following are net sales and Segment EBITDA (earnings before interest, income taxes, depreciation and amortization) by reportable segment. Segment EBITDA is defined as EBITDA adjusted for certain non-cash items and other income and expenses. Segment EBITDA is the primary performance measure used by the Company’s senior management, the chief operating decision-maker and the board of directors to evaluate operating results and allocate capital resources among segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals. Corporate and Other is primarily corporate general and administrative expenses that are not allocated to the segments, such as shared service and administrative functions, foreign exchange gains and losses and legacy company costs not allocated to continuing segments.

Net Sales ⁽¹⁾:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Epoxy, Phenolic and Coating Resins	$	878	$	806	$	2,557	$	2,370
Forest Products Resins	469		443		1,420		1,321
Total	$	1,347	$	1,249	$	3,977	$	3,691

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

Segment EBITDA:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Epoxy, Phenolic and Coating Resins	$	79		$	77		$	227		$	218
Forest Products Resins	63			58			188			172
Corporate and Other	(17		)	(15		)	(53		)	(47		)

Reconciliation of Segment EBITDA to Net Loss:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	79		$	77		$	227		$	218
Forest Products Resins	63			58			188			172
Corporate and Other	(17		)	(15		)	(53		)	(47		)
Reconciliation:
Items not included in Segment EBITDA:
Asset impairments	—			—			—			(7		)
Business realignment costs	(6		)	(4		)	(24		)	(15		)
Integration costs	(1		)	(4		)	(6		)	(9		)
Other	(29		)	(17		)	(52		)	(43		)
Total adjustments	(36		)	(25		)	(82		)	(74		)
Interest expense, net	(77		)	(77		)	(230		)	(227		)
Loss on extinguishment of debt	—			—			—			(6		)
Income tax expense	(2		)	(57		)	(23		)	(31		)
Depreciation and amortization	(38		)	(37		)	(109		)	(113		)
Net loss	$	(28	)	$	(76	)	$	(82	)	$	(108	)

Items Not Included in Segment EBITDA

Not included in Segment EBITDA are certain non-cash items and other income and expenses. For the three and nine months ended September 30, 2014, these items primarily include expenses from retention programs, losses on the disposal of assets and unrealized foreign exchange transaction gains and losses. For the three and nine months ended September 30, 2013, these items primarily include expenses from retention programs and unrealized foreign exchange losses. Business realignment costs for the three and nine months ended September 30, 2014 and September 30, 2013 primarily relate to costs for environmental remediation at certain formerly owned locations and expenses from minor restructuring programs. Integration costs for the three and nine months ended September 30, 2014 and 2013 primarily represent integration costs associated with the previous integration of MSC and MPM.

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9. Summarized Financial Information of Unconsolidated Affiliate

Summarized financial information of the unconsolidated affiliate HAI as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013 is as follows:

	September 30, 2014		December 31, 2013
Current assets	$	38	$	29
Non-current assets	26		21
Current liabilities	24		15
Non-current liabilities	1		—

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net sales	$	45	$	43	$	139	$	132
Gross profit	11		11		34		33
Pre-tax income	7		7		22		38
Net income	7		8		22		38

10. Changes in Accumulated Other Comprehensive Loss

Following is a summary of changes in “Accumulated other comprehensive loss” for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30, 2014									Three Months Ended September 30, 2013
	Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments		Total
Beginning balance	$	(146	)	$	129		$	(17	)	$	(216	)	$	111	$	(105	)
Other comprehensive (loss) income before reclassifications, net of tax	—			(40		)	(40		)	—			24		24
Amounts reclassified from Accumulated other comprehensive loss, net of tax	1			—			1			4			—		4
Net other comprehensive income (loss)	1			(40		)	(39		)	4			24		28
Ending balance	$	(145	)	$	89		$	(56	)	$	(212	)	$	135	$	(77	)

	Nine Months Ended September 30, 2014									Nine Months Ended September 30, 2013
	Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total			Gains and (Losses) on Cash Flow Hedges			Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total
Beginning balance	$	(151	)	$	130		$	(21	)	$	(1	)	$	(219	)	$	143		$	(77	)
Other comprehensive loss before reclassifications, net of tax	—			(41		)	(41		)	—			(6		)	(8		)	(14		)
Amounts reclassified from Accumulated other comprehensive loss, net of tax	6			—			6			1			13			—			14
Net other comprehensive income (loss)	6			(41		)	(35		)	1			7			(8		)	—
Ending balance	$	(145	)	$	89		$	(56	)	$	—		$	(212	)	$	135		$	(77	)

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	Amount Reclassified From Accumulated Other Comprehensive Loss for the Three Months Ended:
Amount Reclassified From Accumulated Other Comprehensive Loss	September 30, 2014			September 30, 2013			Location of Reclassified Amount in Income
Amortization of defined benefit pension and other postretirement benefit items:
Actuarial losses	$	2		$	5		(1)
Total before income tax	2			5
Income tax benefit	(1		)	(1		)	Income tax expense (benefit)
Total	$	1		$	4

	Amount Reclassified From Accumulated Other Comprehensive Loss for the Nine Months Ended:
Amount Reclassified From Accumulated Other Comprehensive Loss	September 30, 2014			September 30, 2013			Location of Reclassified Amount in Income
Gains and losses on cash flow hedges:
Interest rate swaps	$	—		$	—		Interest expense, net
Total before income tax	—			—
Income tax benefit	—			1			Income tax expense (benefit)
Total	$	—		$	1
Amortization of defined benefit pension and other postretirement benefit items:
Prior service costs	$	—		$	1
Actuarial losses	8			14			(1)
Total before income tax	8			15
Income tax benefit	(2		)	(2		)	Income tax benefit (expense)
Total	6			13
Total	$	6		$	14

(1) These accumulated other comprehensive income components are included in the computation of net pension and postretirement benefit expense (see Note 7).

11. Acquisition

In January2014, the Company acquired a manufacturing facility in Shreveport, Louisiana, which increased the Company’s capacity to provide resin coated proppants to its customers in this region, which has a high concentration of shale and natural gas wells. The allocation of the consideration exchanged was based upon a valuation of the acquired company’s net identifiable assets and liabilities as of the transaction date. The allocation of fair value to the assets acquired and liabilities assumed at the date of acquisition resulted in $5 allocated to working capital, $18 allocated to property and equipment, $16 allocated to other intangible assets and $13 allocated to goodwill.

Other intangible assets primarily consist of customer relationships, which are being amortized on a straight-line basis over their estimated useful life of 10 years.

The pro forma impacts of this acquisition are not material to the Company’s unaudited Condensed Consolidated Financial Statements.

12. Income Taxes

The effective tax rate was (7)% and (335)% for the third quarter of 2014 and 2013, respectively. The effective tax rate was (32)% and (38)% for the first nine months of 2014 and 2013, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating losses generated in jurisdictions where no tax benefit was recognized due to the maintenance of a full valuation allowance.

For the three and nine months ended September 30, 2014, income tax expense relates primarily to income from certain foreign operations. Losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance.

18

For the three months ended September 30, 2013, income tax expense relates primarily to income from certain foreign operations. For the first nine months of 2013, income tax benefit relates primarily to a discrete tax benefit of $29 related to the signing of the American Taxpayer Relief Act of 2012 during the first quarter of 2013, which provided for the exclusion of certain foreign earnings from U.S. federal taxation from January 1, 2012 through December 31, 2013.

13. Guarantor/Non-Guarantor Subsidiary Financial Information

The Company and certain of its U.S. subsidiaries guarantee debt issued by its wholly owned subsidiaries Hexion Nova Scotia, ULC and Hexion U.S. Finance Corporation (together, the “Subsidiary Issuers”), which includes the 6.625% First-Priority Senior Secured Notes due 2020, 8.875% Senior Secured Notes due 2018 and the 9.00% Second-Priority Senior Secured Notes due 2020.

The following information contains the condensed consolidating financial information for MSC (the parent), the Subsidiary Issuers, the combined subsidiary guarantors (Momentive Specialty Chemical Investments Inc.; Borden Chemical Foundry, LLC; Lawter International, Inc.; HSC Capital Corporation; Momentive International, Inc.; Momentive CI Holding Company; NL COOP Holdings LLC and Oilfield Technology Group, Inc.) and the combined non-guarantor subsidiaries, which includes all of the Company’s foreign subsidiaries.

All of the Subsidiary Issuers and Subsidiary Guarantors are 100% owned by MSC. All guarantees are full and unconditional, and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its domestic subsidiaries by dividend or loan. While the Company’s Australian and Brazilian subsidiaries are restricted in the payment of dividends and intercompany loans due to the terms of their credit facilities, there are no material restrictions on the Company’s ability to obtain cash from the remaining non-guarantor subsidiaries.

This information includes allocations of corporate overhead to the combined non-guarantor subsidiaries based on net sales. Income tax expense has been provided on the combined non-guarantor subsidiaries based on actual effective tax rates.

19

MOMENTIVE SPECIALTY CHEMICALS INC.

SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)

	Momentive Specialty Chemicals Inc.			Subsidiary Issuers		Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0, $0 and $16, respectively)	$	9		$	2	$	—		$	106		$	—		$	117
Short-term investments	—			—		—			10			—			10
Accounts receivable, net	220			—		2			503			—			725
Intercompany accounts receivable	87			103		1			82			(273		)	—
Intercompany loans receivable - current portion	248			—		—			29			(277		)	—
Inventories:
Finished and in-process goods	115			—		—			186			—			301
Raw materials and supplies	58			—		—			77			—			135
Other current assets	29			—		—			49			—			78
Total current assets	766			105		3			1,042			(550		)	1,366
Investment in unconsolidated entities	339			—		33			30			(353		)	49
Deferred income taxes	—			—		—			18			—			18
Other assets, net	21			56		1			50			—			128
Intercompany loans receivable	1,083			3,364		28			13			(4,488		)	—
Property and equipment, net	532			—		—			527			—			1,059
Goodwill	66			—		—			56			—			122
Other intangible assets, net	58			—		—			27			—			85
Total assets	$	2,865		$	3,525	$	65		$	1,763		$	(5,391	)	$	2,827
Liabilities and (Deficit) Equity
Current liabilities:
Accounts payable	$	166		$	—	$	—		$	338		$	—		$	504
Intercompany accounts payable	185			4		—			84			(273		)	—
Debt payable within one year	27			—		—			101			—			128
Intercompany loans payable within one year	29			—		—			248			(277		)	—
Interest payable	4			85		—			1			—			90
Income taxes payable	5			—		—			13			—			18
Accrued payroll and incentive compensation	22			—		—			41			—			63
Other current liabilities	66			—		—			52			—			118
Total current liabilities	504			89		—			878			(550		)	921
Long-term liabilities:
Long-term debt	353			3,326		—			27			—			3,706
Intercompany loans payable	3,398			—		6			1,084			(4,488		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	641			—		244			—			(885		)	—
Long-term pension and post employment benefit obligations	39			—		—			170			—			209
Deferred income taxes	7			2		—			12			—			21
Other long-term liabilities	106			—		—			48			—			154
Total liabilities	5,048			3,417		250			2,219			(5,923		)	5,011
Total Momentive Specialty Chemicals Inc. shareholders (deficit) equity	(2,183		)	108		(185		)	(455		)	532			(2,183		)
Noncontrolling interest	—			—		—			(1		)	—			(1		)
Total (deficit) equity	(2,183		)	108		(185		)	(456		)	532			(2,184		)
Total liabilities and (deficit) equity	$	2,865		$	3,525	$	65		$	1,763		$	(5,391	)	$	2,827

20

MOMENTIVE SPECIALTY CHEMICALS INC.

DECEMBER 31, 2013

CONDENSED CONSOLIDATING BALANCE SHEET

	Momentive Specialty Chemicals Inc.			Subsidiary Issuers		Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0, $0 and $14, respectively)	$	165		$	5	$	—		$	223		$	—		$	393
Short-term investments	—			—		—			7			—			7
Accounts receivable, net	179			—		—			422			—			601
Intercompany accounts receivable	190			89		—			374			(653		)	—
Intercompany loans receivable - current portion	216			—		—			278			(494		)	—
Inventories:
Finished and in-process goods	105			—		—			152			—			257
Raw materials and supplies	38			—		—			65			—			103
Other current assets	27			—		—			45			—			72
Total current assets	920			94		—			1,566			(1,147		)	1,433
Investment in unconsolidated entities	351			—		29			28			(363		)	45
Deferred income taxes	—			—		—			21			—			21
Other assets, net	31			59		2			42			—			134
Intercompany loans receivable	1,251			3,355		29			4,221			(8,856		)	—
Property and equipment, net	491			—		—			556			—			1,047
Goodwill	52			—		—			60			—			112
Other intangible assets, net	47			—		—			35			—			82
Total assets	$	3,143		$	3,508	$	60		$	6,529		$	(10,366	)	$	2,874
Liabilities and (Deficit) Equity
Current liabilities:
Accounts payable	$	165		$	—	$	—		$	318		$	—		$	483
Intercompany accounts payable	130			—		—			523			(653		)	—
Debt payable within one year	20			—		—			89			—			109
Intercompany loans payable within one year	173			—		—			321			(494		)	—
Interest payable	10			72		—			1			—			83
Income taxes payable	4			—		—			8			—			12
Accrued payroll and incentive compensation	19			—		—			28			—			47
Other current liabilities	65			—		—			62			—			127
Total current liabilities	586			72		—			1,350			(1,147		)	861
Long term liabilities:
Long-term debt	309			3,326		—			30			—			3,665
Intercompany loans payable	3,388			—		7			5,461			(8,856		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	762			—		261			—			(1,023		)	—
Long-term pension and post employment benefit obligations	50			—		—			184			—			234
Deferred income taxes	7			2		—			12			—			21
Other long-term liabilities	110			6		—			47			—			163
Total liabilities	5,212			3,406		268			7,084			(11,026		)	4,944
Total Momentive Specialty Chemicals Inc. shareholders (deficit) equity	(2,069		)	102		(208		)	(554		)	660			(2,069		)
Noncontrolling interest	—			—		—			(1		)	—			(1		)
Total (deficit) equity	(2,069		)	102		(208		)	(555		)	660			(2,070		)
Total liabilities and (deficit) equity	$	3,143		$	3,508	$	60		$	6,529		$	(10,366	)	$	2,874

21

MOMENTIVE SPECIALTY CHEMICALS INC.

THREE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Momentive Specialty Chemicals Inc.			Subsidiary Issuers			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	597		$	—		$	—		$	816		$	(66	)	$	1,347
Cost of sales	531			—			—			723			(66		)	1,188
Gross profit	66			—			—			93			—			159
Selling, general and administrative expense	24			—			—			60			—			84
Business realignment costs	4			—			—			2			—			6
Other operating expense (income), net	1			—			(1		)	4			—			4
Operating income	37			—			1			27			—			65
Interest expense, net	8			68			—			1			—			77
Intercompany interest expense (income), net	45			(68		)	—			23			—			—
Other non-operating expense (income), net	62			—			—			(44		)	—			18
(Loss) income before income tax and earnings from unconsolidated entities	(78		)	—			1			47			—			(30		)
Income tax (benefit) expense	(1		)	(6		)	—			9			—			2
(Loss) income before earnings from unconsolidated entities	(77		)	6			1			38			—			(32		)
Earnings from unconsolidated entities, net of taxes	49			—			26			2			(73		)	4
Net (loss) income	$	(28	)	$	6		$	27		$	40		$	(73	)	$	(28	)
Comprehensive (loss) income	$	(67	)	$	7		$	26		$	35		$	(68	)	$	(67	)

22

MOMENTIVE SPECIALTY CHEMICALS INC.

THREE MONTHS ENDED SEPTEMBER 30, 2013

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Momentive Specialty Chemicals Inc.			Subsidiary Issuers			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	553		$	—		$	—		$	748		$	(52	)	$	1,249
Cost of sales	475			—			—			669			(52		)	1,092
Gross profit	78			—			—			79			—			157
Selling, general and administrative expense	28			—			—			65			—			93
Business realignment costs	2			—			—			2			—			4
Other operating (income) expense, net	—			—			(1		)	3			—			2
Operating income	48			—			1			9			—			58
Interest expense, net	7			68			—			2			—			77
Intercompany interest expense (income), net	31			(69		)	—			38			—			—
Other non-operating (income) expense, net	(25		)	—			—			23			—			(2		)
Income (loss) before income tax and losses from unconsolidated entities	35			1			1			(54		)	—			(17		)
Income tax expense (benefit)	61			—			—			(4		)	—			57
(Loss) income before losses from unconsolidated entities	(26		)	1			1			(50		)	—			(74		)
Losses from unconsolidated entities, net of taxes	(50		)	—			(32		)	—			80			(2		)
Net (loss) income	$	(76	)	$	1		$	(31	)	$	(50	)	$	80		$	(76	)
Comprehensive (loss) income	$	(48	)	$	1		$	(31	)	$	(40	)	$	70		$	(48	)

23

MOMENTIVE SPECIALTY CHEMICALS INC.

NINE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Momentive Specialty Chemicals Inc.			Subsidiary Issuers			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,770		$	—		$	—		$	2,392		$	(185	)	$	3,977
Cost of sales	1,560			—			—			2,116			(185		)	3,491
Gross profit	210			—			—			276			—			486
Selling, general and administrative expense	79			—			—			196			—			275
Business realignment costs	19			—			—			5			—			24
Other operating expense (income), net	4			—			(1		)	4			—			7
Operating income	108			—			1			71			—			180
Interest expense, net	23			202			—			5			—			230
Intercompany interest expense (income), net	132			(204		)	—			72			—			—
Other non-operating expense (income), net	67			—			—			(44		)	—			23
(Loss) income before income tax and earnings from unconsolidated entities	(114		)	2			1			38			—			(73		)
Income tax (benefit) expense	(2		)	(6		)	—			31			—			23
(Loss) income before earnings from unconsolidated entities	(112		)	8			1			7			—			(96		)
Earnings from unconsolidated entities, net of taxes	30			—			30			4			(50		)	14
Net (loss) income	$	(82	)	$	8		$	31		$	11		$	(50	)	$	(82	)
Comprehensive (loss) income	$	(117	)	$	8		$	31		$	10		$	(49	)	$	(117	)

24

MOMENTIVE SPECIALTY CHEMICALS INC.

NINE MONTHS ENDED SEPTEMBER 30, 2013

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Momentive Specialty Chemicals Inc.			Subsidiary Issuers			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,662		$	—		$	—		$	2,185		$	(156	)	$	3,691
Cost of sales	1,424			—			—			1,971			(156		)	3,239
Gross profit	238			—			—			214			—			452
Selling, general and administrative expense	85			—			—			189			—			274
Asset impairments	—			—			—			7			—			7
Business realignment costs	8			—			—			7			—			15
Other operating expense (income), net	3			(4		)	(1		)	6			—			4
Operating income	142			4			1			5			—			152
Interest expense, net	25			196			—			6			—			227
Intercompany interest expense (income), net	122			(199		)	—			77			—			—
Loss on extinguishment of debt	2			—			—			4			—			6
Other non-operating (income) expense, net	(18		)	—			—			19			—			1
Income (loss) before income tax and (losses) earnings from unconsolidated entities	11			7			1			(101		)	—			(82		)
Income tax expense	19			1			—			11			—			31
(Loss) income before (losses) earnings from unconsolidated entities	(8		)	6			1			(112		)	—			(113		)
(Losses) earnings from unconsolidated entities, net of taxes	(100		)	—			(55		)	2			158			5
Net (loss) income	$	(108	)	$	6		$	(54	)	$	(110	)	$	158		$	(108	)
Comprehensive (loss) income	$	(108	)	$	6		$	(54	)	$	(118	)	$	166		$	(108	)

25

MOMENTIVE SPECIALTY CHEMICALS INC.

NINE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Momentive Specialty Chemicals Inc.				Subsidiary Issuers			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries				Eliminations			Consolidated
Cash flows (used in) provided by operating activities	$	(349	)		$	(3	)	$	9		$	220			$	(9	)	$	(132	)
Cash flows provided by (used in) investing activities
Capital expenditures	(74		)		—			—			(59		)		—			(133		)
Acquisition of businesses	(52		)		—			—			(12		)		—			(64		)
Purchases of securities, net	—				—			—			(4		)		—			(4		)
Change in restricted cash	—				—			—			(2		)		—			(2		)
Disbursement of affiliated loan	—				—			—			(50		)		—			(50		)
Repayment of affiliated loan	—				—			—			50				—			50
Capital contribution to subsidiary	(16		)		—			(10		)	—				26			—
Investment in unconsolidated affiliates, net	—				—			—			(2		)		—			(2		)
Return of capital from subsidiary from sales of accounts receivable	272			(a)	—			—			—				(272		)	—
	130				—			(10		)	(79		)		(246		)	(205		)
Cash flows provided by (used in) financing activities
Net short-term debt borrowings	8				—			—			17				—			25
Borrowings of long-term debt	155				—			—			58				—			213
Repayments of long-term debt	(110		)		—			—			(64		)		—			(174		)
Net intercompany loan borrowings (repayments)	10				—			—			(10		)		—			—
Capital contribution from parent	—				—			10			16				(26		)	—
Common stock dividends paid	—				—			(9		)	—				9			—
Return of capital to parent from sales of accounts receivable	—				—			—			(272		)	(a)	272			—
	63				—			1			(255		)		255			64
Effect of exchange rates on cash and cash equivalents	—				—			—			(5		)		—			(5		)
Decrease in cash and cash equivalents	(156		)		(3		)	—			(119		)		—			(278		)
Cash and cash equivalents (unrestricted) at beginning of period	165				5			—			209				—			379
Cash and cash equivalents (unrestricted) at end of period	$	9			$	2		$	—		$	90			$	—		$	101

(a) During the nine months ended September 30, 2014, Momentive Specialty Chemicals Inc. contributed receivables of $272 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 30, 2014, the non-guarantor subsidiary sold the contributed receivables to certain banks under various supplier financing agreements. The cash proceeds were returned to Momentive Specialty Chemicals Inc. by the non-guarantor subsidiary as a return of capital. The sale of receivables has been included within cash flows from operating activities on the Combined non-guarantor subsidiaries. The return of the cash proceeds from the sale of receivables has been included as a financing outflow and an investing inflow on the Combined Non-Guarantor Subsidiaries and Momentive Specialty Chemicals Inc., respectively.

26

MOMENTIVE SPECIALTY CHEMICALS INC.

NINE MONTHS ENDED SEPTEMBER 30, 2013

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Momentive Specialty Chemicals Inc.				Subsidiary Issuers			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries				Eliminations			Consolidated
Cash flows (used in) provided by operating activities	$	(33	)		$	1		$	17		$	90			$	(98	)	$	(23	)
Cash flows provided by (used in) investing activities
Capital expenditures	(49		)		—			—			(47		)		—			(96		)
Capitalized interest	—				—			—			(1		)		—			(1		)
Purchases of securities, net	—				—			—			(1		)		—			(1		)
Capital contribution to subsidiary	(15		)		—			(10		)	—				25			—
Change in restricted cash	—				—			—			4				—			4
Proceeds from sale of assets	—				—			—			1				—			1
Return of capital from subsidiary from sales of accounts receivable	126			(a)	—			—			—				(126		)	—
Investment in unconsolidated affiliates, net	—				—			—			(13		)		—			(13		)
	62				—			(10		)	(57		)		(101		)	(106		)
Cash flows (used in) provided by financing activities
Net short-term debt borrowings	—				—			—			16				—			16
Borrowings of long-term debt	—				1,108			—			20				—			1,128
Repayments of long-term debt	(545		)		(120		)	—			(380		)		—			(1,045		)
Net intercompany loan borrowings (repayments)	437				(882		)	(2		)	447				—			—
Long-term debt and credit facility financing fees	(13		)		(24		)	—			—				—			(37		)
Capital contribution from parent	—				—			10			15				(25		)	—
Common stock dividends paid	—				(83		)	(15		)	—				98			—
Return of capital to parent from sales of accounts receivable	—				—			—			(126		)	(a)	126			—
	(121		)		(1		)	(7		)	(8		)		199			62
Effect of exchange rates on cash and cash equivalents	—				—			—			(2		)		—			(2		)
(Decrease) increase in cash and cash equivalents	(92		)		—			—			23				—			(69		)
Cash and cash equivalents (unrestricted) at beginning of period	276				—			—			125				—			401
Cash and cash equivalents (unrestricted) at end of period	$	184			$	—		$	—		$	148			$	—		$	332

(a) During the nine months ended September 30, 2013, Momentive Specialty Chemicals Inc. contributed receivables of $126 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 30, 2013, the non-guarantor subsidiary sold the contributed receivables to certain banks under various supplier financing agreements. The cash proceeds were returned to Momentive Specialty Chemicals Inc. by the non-guarantor subsidiary as a return of capital. The sale of receivables has been included within cash flows from operating activities on the Combined non-guarantor subsidiaries. The return of the cash proceeds from the sale of receivables has been included as a financing outflow and an investing inflow on the Combined Non-Guarantor Subsidiaries and Momentive Specialty Chemicals Inc., respectively.

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollar amounts in millions)

The following commentary should be read in conjunction with the audited financial statements and the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our most recent Annual Report on Form 10-K.

Within the following discussion, unless otherwise stated, “the third quarter of 2014” refers to the three months ended September 30, 2014 and “the third quarter of 2013” refers to the three months ended September 30, 2013.

Forward-Looking and Cautionary Statements

Certain statements in this report, including without limitation, certain statements made under the caption “Overview and Outlook,” are forward-looking statements within the meaning of and made pursuant to the safe harbor provisions 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, our management may from time to time make oral forward-looking statements. All statements, other than statements of historical facts, are forward-looking statements. Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “may,” “will,” “could,” “should,” “seek” or “intend” and similar expressions. Forward-looking statements reflect our current expectations and assumptions regarding our business, the economy and other future events and conditions and are based on currently available financial, economic and competitive data and our current business plans. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors as discussed in the Risk Factors section of this report and our other filings with the Securities and Exchange Commission (the “SEC”). While we believe our assumptions are reasonable, we caution you against relying on any forward-looking statements as it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, a weakening of global economic and financial conditions, interruptions in the supply of or increased cost of raw materials, the loss of, or difficulties with the further realization of, cost savings in connection with our strategic initiatives, including transactions with our affiliate, Momentive Performance Materials Inc., the impact of our substantial indebtedness, our failure to comply with financial covenants under our credit facilities or other debt, pricing actions by our competitors that could affect our operating margins, changes in governmental regulations and related compliance and litigation costs and the other factors listed in the Risk Factors section of this report and in our other SEC filings. For a more detailed discussion of these and other risk factors, see the Risk Factors section of this report and our most recent filings made with the SEC. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The forward-looking statements made by us speak only as of the date on which they are made. Factors or events that could cause our actual results to differ may emerge from time to time. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Overview and Outlook

Business Overview

We are the world’s largest producer of thermosetting resins, or thermosets, and a leading producer of adhesive and structural resins and coatings. Thermosets are a critical ingredient for virtually all paints, coatings, glues and other adhesives produced for consumer or industrial uses. We provide a broad array of thermosets and associated technologies and have significant market positions in all of the key markets that we serve.

Our products are used in thousands of applications and are sold into diverse markets, such as forest products, architectural and industrial paints, packaging, consumer products and automotive coatings, as well as higher growth markets, such as composites, UV cured coatings and electrical composites. Major industry sectors that we serve include industrial/marine, construction, consumer/durable goods, automotive, wind energy, aviation, electronics, architectural, civil engineering, repair/remodeling and oil and gas field support. Key drivers for our business include general economic and industrial conditions, including housing starts, auto build rates and active gas drilling rigs. In addition, due to the nature of our products and the markets we serve, competitor capacity constraints and the availability of similar products in the market may impact our results. As is true for many industries, our financial results are impacted by the effect on our customers of economic upturns or downturns, as well as by the impact on our own costs to produce, sell and deliver our products. Our customers use most of our products in their production processes. As a result, factors that impact their industries have significantly affected our results.

Through our worldwide network of strategically located production facilities, we serve more than 5,400 customers in over 100 countries. Our global customers include large companies in their respective industries, such as 3M, Akzo Nobel, BASF, Bayer, Dow, EP Energy, GE, Louisiana Pacific, Monsanto, Owens Corning, PPG Industries, Valspar and Weyerhaeuser.

Shared Services Agreement

In October 2010, we entered into a shared services agreement with MPM (which, from October 1, 2010 through October 24, 2014, was a subsidiary of Momentive Holdings) (the “Shared Services Agreement”), pursuant to which we provide to MPM, and MPM provides to us, certain services, including, but not limited to, executive and senior management, administrative support, human resources, information technology support, accounting, finance, technology development, legal and procurement services. The Shared Services Agreement is subject to termination by either the Company or MPM, without cause, on not less than 30 days’ written notice, and expires in October 2015 (subject to one-year renewals every year thereafter; absent contrary notice from either party). The Shared Services Agreement establishes certain criteria upon which the costs of such services are allocated between us and MPM and requires that the Steering Committee formed under the agreement

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meet no less than annually to evaluate and determine an equitable allocation percentage. The allocation percentage for 2014 remains unchanged from 2013, which was 57% for us and 43% for MPM.

The Shared Services Agreement has resulted in significant synergies for us, including shared services and logistics optimization, best-of-source contractual terms, procurement savings, regional site rationalization and administrative and overhead savings. We projected achieving a total of approximately $64 of cost savings in connection with the Shared Services Agreement, and through September 30, 2014, we have realized all of these savings on a run-rate basis.

On April 13, 2014, Momentive Performance Materials Holdings Inc. (MPM’s direct parent company), MPM and certain of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On October 24, 2014, in conjunction with MPM’s emergence from Chapter 11 bankruptcy and the consummation of MPM’s plan of reorganization, the Shared Services Agreement was amended to, among other things, (i) exclude the services of certain executive officers, (ii) provide for a transition assistance period at the election of the recipient following termination of the Shared Services Agreement of up to 12 months, subject to one successive renewal period of an additional 60 days and (iii) provide for the use of an independent third-party audit firm to assist the Steering Committee with its annual review of billings and allocations.

Reportable Segments

The Company’s business segments are based on the products that we offer and the markets that we serve. At September 30, 2014, the Company had two reportable segments: Epoxy, Phenolic and Coating Resins and Forest Products Resins. A summary of the major products of the Company’s reportable segments follows:

• Epoxy, Phenolic and Coating Resins: epoxy specialty resins, phenolic encapsulated substrates, versatic acids and derivatives, basic epoxy resins and intermediates, phenolic specialty resins and molding compounds, polyester resins, acrylic resins and vinylic resins

• Forest Products Resins: forest products resins and formaldehyde applications

2014 Overview

• Net sales increased $286, or 8%, in the first nine months of 2014 as compared to the nine months of 2013 due primarily to an increase in demand in our oil field, epoxy specialty, North American formaldehyde and Latin American forest products resins businesses. These increases were partially offset by competition-driven price decreases in certain businesses, which outpaced raw-material-driven price increases in certain other businesses.

• Segment EBITDA increased by $19, or 6%, in the first nine months of 2014 compared to the first nine months of 2013 due to the increase in sales volumes, cost control and productivity initiatives, as well as favorable product mix.

• In early 2014 we acquired a manufacturing facility in Shreveport, Louisiana, which increased our capacity to provide resin coated proppants to our customers in this region, which has a high concentration of shale and natural gas wells.

• As of September 30, 2014, we have realized cumulative savings of $63 as a result of the Shared Services Agreement with MPM and cumulative savings of $24 related to other cost reduction programs. As of September 30, 2014, we have approximately $1 of in-process cost savings in connection with the Shared Services Agreement and $3 of in-process cost savings in connection with other initiatives that we expect to achieve over the next 12 to 15 months.

• Future growth initiatives include:

• A joint venture to construct a phenolic specialty resins manufacturing facility in China, which is expected to be operational in the fourth quarter of 2014. The new facility will produce a full range of specialty novolac and resole phenolic resins used in a diverse range of applications, including refractories, friction and abrasives to support the growing auto and consumer markets in China.

• The expansion of our forest products resins manufacturing capacity in Brazil and construction of two new formaldehyde plants in North America.

Short-term Outlook

Our business is impacted by general economic and industrial conditions, including housing starts, automotive builds, oil and natural gas drilling activity and general industrial production. Our business has both geographic and end market diversity which often reduces the impact of any one of these factors on our overall performance.

Due to continued worldwide economic volatility and uncertainty, the short-term outlook for our business is difficult to predict. Although we expect certain global markets to begin to stabilize, a continued lack of consumer confidence could lead to stagnant demand for many of our products within both of our reportable segments during the remainder of 2014 and into 2015; however, we expect overall volumes to be moderately higher during the remainder of 2014 as compared to same period in 2013.

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We expect moderate increases in volumes within our oil field business during the remainder of 2014 and into 2015 due to key innovations in new product development and strategic acquisitions; however, the use of alternative products by our customers can cause volatility in volumes in this business. We anticipate moderate general economic growth in the North American automobile and industrial markets to positively impact our Epoxy, Phenolic and Coating Resins segment during the remainder of 2014; however, we expect the European automobile and construction industries to remain weak due to the continuing economic concerns in this region. We anticipate continued increases in volumes within our epoxy specialty business during the remainder of 2014 and into 2015 due to strong global demand for wind energy. We also expect continued pressures in our base epoxy business during the remainder of 2014 and into 2015 as a result of overcapacity in the market and increased competition from Asian imports. Additionally, we expect an unfavorable impact to Segment EBITDA of approximately $13 to $18 in the fourth quarter of 2014 due to force majeure declarations from certain suppliers in our European versatic acid and base epoxy businesses. We expect these events to continue into early 2015; however, the related impact cannot be determined at this time. We expect to file claims with our insurance carriers to recover a portion of the expected losses; however, the timing and amount of any such recoveries is indeterminable at this time.

We anticipate volumes in our North American forest products resins business will continue to grow during the remainder of 2014 and into 2015, reflecting recovering U.S. housing starts; however, we anticipate some volatility in this market, and such growth could be uneven. We also anticipate moderate growth in volumes in our Latin American forest products business due to continued growth in the furniture, housing construction and industrial markets within this region. Due to our past and present cost reduction efforts, we expect this volume growth to have a significant positive impact on our future results.

In response to the uncertain economic outlook, we continue to execute cost reduction programs, with $3 of in-process cost savings. We continue to evaluate additional actions, as well as productivity measures, that could lead to further savings. We are currently finalizing plans for a new $25 to $30 cost reduction program that will be implemented in the fourth quarter of 2014 and into the first half of 2015.

An additional economic recession or further postponement of the modest economic recovery could have an adverse impact on our business and results of operations. If global economic growth remains slow for an extended period of time, or another economic recession occurs, the fair value of our reporting units and long-lived assets could be more adversely affected than we estimated in earlier periods. This may result in goodwill or other additional asset impairments beyond amounts that have already been recognized.

We expect long-term raw material cost volatility to continue because of price movements of key feedstocks. To help mitigate raw material volatility, we have purchase and sale contracts and commercial arrangements with many of our vendors and customers that contain periodic price adjustment mechanisms. Due to differences in timing of the pricing trigger points between our sales and purchase contracts, there is often a “lead-lag” impact. In many cases this “lead-lag” impact can negatively impact our margins in the short term in periods of rising raw material prices and positively impact them in the short term in periods of falling raw material prices. We continue to implement pricing actions to compensate for the increase in raw material prices experienced during 2013, and expected to continue into the last quarter of 2014, which should benefit our operating cash flows in 2014.

We remain optimistic about our position in the global markets when they do recover to more stable conditions.

Matters Impacting Comparability of Results

Raw Material Prices

Raw materials comprise approximately 70% of our cost of sales. The three largest raw materials used in our production processes are phenol, methanol and urea. These materials represent about half of our total raw material costs. Fluctuations in energy costs, such as volatility in the price of crude oil and related petrochemical products, as well as the cost of natural gas have historically caused volatility in our raw material and utility costs. The average prices of phenol, methanol and urea increased (decreased) by approximately 9%, (13)% and 13%, respectively, in the first nine months of 2014 compared to the first nine months of 2013. The impact of passing through raw material price changes to customers can result in significant variances in sales comparisons from year to year.

Other Comprehensive Income

Our other comprehensive income is significantly impacted by foreign currency translation and defined benefit pension and postretirement benefit adjustments. The impact of foreign currency translation is driven by the translation of assets and liabilities of our foreign subsidiaries which are denominated in functional currencies other than the U.S. dollar. The primary assets and liabilities driving the adjustments are cash and cash equivalents; accounts receivable; inventory; property, plant and equipment; accounts payable; pension and other postretirement benefit obligations and certain intercompany loans payable and receivable. The primary currencies in which these assets and liabilities are denominated are the euro, Brazilian real, Canadian dollar and Australian dollar. The impact of defined benefit pension and postretirement benefit adjustments is primarily driven by unrecognized actuarial gains and losses related to our defined benefit and other postretirement benefit plans, as well as the subsequent amortization of gains and losses from accumulated other comprehensive income in periods following the initial recording of such items. These actuarial gains and losses are determined using various assumptions, the most significant of which are (i) the weighted average rate used for discounting the liability, (ii) the weighted average expected long-term rate of return on pension plan assets, (iii) the method used to determine market-related value of pension plan assets, (iv) the weighted average rate of future salary increases and (v) the anticipated mortality rate tables.

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Results of Operations

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended September 30,
	2014					2013
	$			% of Net Sales		$			% of Net Sales
Net sales	$	1,347		100	%	$	1,249		100	%
Cost of sales	1,188			88	%	1,092			87	%
Gross profit	159			12	%	157			13	%
Selling, general and administrative expense	84			6	%	93			7	%
Business realignment costs	6			—	%	4			—	%
Other operating expense, net	4			—	%	2			—	%
Operating income	65			6	%	58			6	%
Interest expense, net	77			6	%	77			6	%
Other non-operating expense (income), net	18			1	%	(2		)	—	%
Total non-operating expense	95			7	%	75			6	%
Loss before income tax and earnings (losses) from unconsolidated entities	(30		)	(1	)%	(17		)	—	%
Income tax expense	2			—	%	57			5	%
Loss before earnings (losses) from unconsolidated entities	(32		)	(1	)%	(74		)	(5	)%
Earnings (losses) from unconsolidated entities, net of taxes	4			—	%	(2		)	—	%
Net loss	$	(28	)	(1	)%	$	(76	)	(5	)%
Other comprehensive (loss) income	$	(39	)			$	28

Three Months Ended September 30, 2014 vs. Three Months Ended September 30, 2013

Net Sales

In the third quarter of 2014, net sales increased by $98, or 8%, compared to the third quarter of2013. Volume increases positively impacted net sales by $102, and were primarily driven by our oil field, epoxy specialty, North American formaldehyde and Latin American forest products resins businesses. Volume increases in our oil field business were a result of key customer wins and new product development, and volume increases in our epoxy specialty business were driven by improving demand in the Asian wind energy market. Increases in volumes in our North American formaldehyde business were driven by customer wins and market expansion. Volume increases in our Latin American forest products business were driven by increases in the furniture, housing construction and industrial markets in this region. Pricing had a negative impact of $11 primarily due to pricing decreases in our oil field and base epoxy businesses, which were driven by unfavorable product mix and competitive pricing pressures, respectively. In addition, foreign currency translation positively impacted net sales by $7, primarily as a result of the weakening of the U.S. dollar against the Australian dollar, Brazilian real and the euro, partially offset by the strengthening of the U.S. dollar against the Canadian dollar, in the third quarter of 2014 compared to the third quarter of 2013.

Gross Profit

In the third quarter of 2014, gross profit increased by $2 compared to the third quarter of 2013. As a percentage of sales, gross profit decreased by 1%, as raw material productivity initiatives were offset by the impact of the competitive pricing pressures discussed above.

Operating Income

In the third quarter of 2014, operating income increased by $7 compared to the third quarter of 2013. The increase was partially due to the $2 increase in gross profit as discussed above as well as a decrease in selling, general and administrative expense of $9 compared to the third quarter of 2013. The decrease in selling, general and administrative expense was due primarily to decreased incentive compensation expense, as well as a decrease in pension and postretirement benefit expense driven by increases in the discount rates used to calculate our pension liabilities. Other operating expense, net increased by $2 compared to the third quarter of 2013. Business realignment costs increased by $2 due primarily to an increase in costs related to environmental remediation at certain formerly owned locations.

Non-Operating Expense

In the third quarter of 2014, total non-operating expense increased by $20 compared to the third quarter of 2013, primarily due to higher unrealized foreign currency transaction losses. Interest expense in the third quarter of 2014 remained flat compared to the third quarter of 2013.

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Income Tax Expense

The effective tax rate was (7)% and (335)% for the third quarter of 2014 and 2013, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating losses generated in jurisdictions where no tax benefit was recognized due to the maintenance of a full valuation allowance.

For the third quarter of 2014, income tax expense relates primarily to income from certain foreign operations. Losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance. For the third quarter of 2013, income tax expense relates primarily to income from certain foreign operations.

Other Comprehensive (Loss) Income

For the third quarter of 2014, foreign currency translation negatively impacted other comprehensive income by $40, primarily due to the strengthening of the U.S. dollar against the Australian dollar, Brazilian real, Canadian dollar and the euro. For the third quarter of 2014, pension and postretirement benefit adjustments positively impacted other comprehensive income by $1, primarily due to the amortization of unrecognized actuarial losses recorded in prior periods.

For the third quarter of 2013, foreign currency translation positively impacted other comprehensive income by $24, primarily due to the weakening of the U.S. dollar against the Australian dollar, Canadian dollar and euro, partially offset by the strengthening of the U.S. dollar against the Brazilian real. For the third quarter of 2013, pension and postretirement benefit adjustments positively impacted other comprehensive income by $4, primarily due to the amortization of unrecognized actuarial losses recorded in prior periods.

	Nine Months Ended September 30,
	2014					2013
	$			% of Net Sales		$			% of Net Sales
Net sales	$	3,977		100	%	$	3,691		100	%
Cost of sales	3,491			88	%	3,239			88	%
Gross profit	486			12	%	452			12	%
Selling, general and administrative expense	275			7	%	274			7	%
Asset impairments	—			—	%	7			—	%
Business realignment costs	24			1	%	15			—	%
Other operating expense, net	7			—	%	4			—	%
Operating income	180			4	%	152			5	%
Interest expense, net	230			6	%	227			6	%
Loss on extinguishment of debt	—			—	%	6			—	%
Other non-operating expense, net	23			1	%	1			—	%
Total non-operating expense	253			7	%	234			6	%
Loss before income tax and earnings from unconsolidated entities	(73		)	(3	)%	(82		)	(1	)%
Income tax expense	23			1	%	31			1	%
Loss before earnings from unconsolidated entities	(96		)	(4	)%	(113		)	(2	)%
Earnings from unconsolidated entities, net of taxes	14			—	%	5			—	%
Net loss	$	(82	)	(4	)%	$	(108	)	(2	)%
Other comprehensive loss	$	(35	)			$	—

Nine Months Ended September 30, 2014 vs Nine Months Ended September 30, 2013

Net Sales

In the first nine months of 2014, net sales increased by $286, or 8%, compared to the first nine months of2013. Volume increases positively impacted net sales by $266, and were primarily driven by our oil field, epoxy specialty, North American formaldehyde and Latin American forest products resins businesses. Volume increases in our oil field business were a result of key customer wins and new product development, and volume increases in our epoxy specialty business were driven by improving demand in the Asian wind energy market. Increases in volumes in our North American formaldehyde business were driven by customer wins and major customer outages in the first nine months of 2013 which did not recur in the first nine months of 2014, and increases in our Latin American forest products resins business were driven by increases in the furniture, housing construction and industrial markets in this region. Pricing had a positive impact of $14 due to raw material price increases passed through to customers in our North American formaldehyde and Latin American forest products resins businesses, which were partially offset by pricing decreases in our oil field and base epoxy businesses driven by unfavorable product mix and competitive pricing pressures, respectively. In addition, foreign currency translation positively impacted net sales by $6, primarily as a result of the weakening U.S. dollar against the euro, partially offset by the strengthening of the U.S. dollar against the Australian dollar, Brazilian real and Canadian dollar, in the first nine months of 2014 compared to the first nine months of 2013.

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Gross Profit

In the first nine months of 2014, gross profit increased by $34 compared to the first nine months of 2013. As a percentage of sales, gross profit remained flat, as raw material productivity initiatives were offset by the impact of the competitive pricing pressures discussed above.

Operating Income

In the first nine months of 2014, operating income increased by $28 compared to the first nine months of 2013. The increase was partially due to the $34 increase in gross profit as discussed above, and was slightly offset by an increase in selling, general and administrative expense of $1 compared to the first nine months of 2013. The increase in selling, general and administrative expense was due primarily to increased compensation and project costs, which was partially offset by a decrease in pension and postretirement benefit expense driven by increases in the discount rates used to calculate our pension liabilities. In the first nine months of 2013, we recorded asset impairments of $7 as a result of the likelihood that certain assets would be disposed of before the end of their estimated useful lives, which did not recur in the first nine months of 2014. Other operating expense, net increased by $3 compared to the first nine months of 2013 due to increased foreign currency losses, which were partially offset by a decrease in losses recognized on the disposal of certain assets. Business realignment costs increased by $9 compared to the first nine months of 2013 due primarily to an increase in costs related to environmental remediation at certain formerly owned locations.

Non-Operating Expense

In the first nine months of 2014, total non-operating expense increased by $19 compared to the first nine months of 2013, primarily due to higher realized and unrealized foreign currency transaction losses, partially offset by the loss on extinguishment of debt recognized in the first nine months of 2013 as a result of the refinancing transactions in early 2013, which did not recur in the first nine months of 2014. Interest expense increased slightly in the first nine months of 2014 compared to the first nine months of 2013 due primarily to higher average outstanding debt balances.

Income Tax Expense

The effective tax rate was (32)% and (38)% for the first nine months of 2014 and 2013, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating losses generated in jurisdictions where no tax benefit was recognized due to the maintenance of a full valuation allowance.

For the first nine months of 2014, income tax expense relates primarily to income from certain foreign operations. Losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance. For the first nine months of 2013, income tax benefit relates primarily to a discrete tax benefit of $29 related to the signing of the American Taxpayer Relief Act of 2012 during the first quarter of 2013, which provided for the exclusion of certain foreign earnings from U.S. federal taxation from January 1, 2012 through December 31, 2013.

Other Comprehensive Loss

For the first nine months of 2014, foreign currency translation negatively impacted other comprehensive income by $41, primarily due to the strengthening of the U.S. dollar against the Australian dollar, Brazilian real, Canadian dollar and the euro. For the first nine months of 2014, pension and postretirement benefit adjustments positively impacted other comprehensive income by $6, primarily due to the amortization of unrecognized actuarial losses recorded in prior periods.

For the first nine months of 2013, foreign currency translation negatively impacted other comprehensive income by $8, primarily due to the strengthening of the U.S. dollar against the Australian dollar, Canadian dollar and Brazilian real, partially offset by the weakening of the U.S. dollar against the euro. For the first nine months of 2013, pension and postretirement benefit adjustments positively impacted other comprehensive income by $7, primarily due to the amortization of unrecognized actuarial losses recorded in prior periods, partially offset by a loss recognized related to certain postretirement benefit obligations. Additionally, for the first nine months of 2013, the reclassification of net losses on cash flow hedges positively impacted other comprehensive income by $1.

Results of Operations by Segment

Following are net sales and Segment EBITDA (earnings before interest, income taxes, depreciation and amortization) by reportable segment. Segment EBITDA is defined as EBITDA adjusted for certain non-cash items and other income and expenses. Segment EBITDA is the primary performance measure used by our senior management, the chief operating decision-maker and the board of directors to evaluate operating results and allocate capital resources among segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals.

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net Sales (1):
Epoxy, Phenolic and Coating Resins	$	878		$	806		$	2,557		$	2,370
Forest Products Resins	469			443			1,420			1,321
Total	$	1,347		$	1,249		$	3,977		$	3,691
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	79		$	77		$	227		$	218
Forest Products Resins	63			58			188			172
Corporate and Other	(17		)	(15		)	(53		)	(47		)

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

Three Months Ended September 30, 2014 vs. Three Months Ended September 30, 2013 Segment Results

Following is an analysis of the percentage change in sales by segment from the three months ended September 30, 2013 to the three months ended September 30, 2014:

	Volume		Price/Mix		Currency Translation		Total
Epoxy, Phenolic and Coating Resins	10	%	(1	)%	—	%	9	%
Forest Products Resins	6	%	(1	)%	1	%	6	%

Epoxy, Phenolic and Coating Resins

Net sales in the third quarter of 2014 increased by $72, or 9%, when compared to the third quarter of 2013. Higher volumes positively impacted net sales by $77, which were primarily driven by increased demand within our oil field and epoxy specialty businesses. Volume increases in our oil field business were a result of key customer wins and new product development, and increases in volumes in our epoxy specialty business were driven by improving demand in the Asian wind energy market. Pricing had a negative impact of $9, which was primarily due to pricing decreases in our oil field and base epoxy businesses, which were driven by unfavorable product mix and competitive pricing pressures, respectively. Foreign exchange translation positively impacted net sales by $4, primarily due to the weakening of the U.S. dollar against the euro in the third quarter of 2014 compared to the third quarter of 2013.

Segment EBITDA in the third quarter of 2014 increased by $2 to $79 compared to the third quarter of 2013. The positive impact of the volume increases discussed above was partially offset by margin compression in certain businesses due to competitive pricing pressures.

Forest Products Resins

Net sales in the third quarter of 2014 increased by $26, or 6%, when compared to the third quarter of 2013. Higher volumes positively impacted sales by $25, and were primarily driven by increases in our North American formaldehyde and Latin American forest products resins businesses. Volume increases in our North American formaldehyde business were due to customer wins and market expansion, and increases in our Latin American forest products business were driven by increases in the furniture, housing construction and industrial markets in this region. Raw material price increases which outpaced our ability to increase pricing to customers led to pricing decreases of $2. Foreign exchange translation positively impacted net sales by $3, primarily due to the weakening of the U.S. dollar against the Australian dollar, Brazilian real and the euro, partially offset by the strengthening of the U.S. dollar against the Canadian dollar, in the third quarter of 2014 compared to the third quarter of 2013.

Segment EBITDA in the third quarter of 2014 increased by $5 to $63 compared to the third quarter of 2013. Segment EBITDA increases were primarily driven by the increase in net sales discussed above, which were partially offset by unfavorable product mix.

Corporate and Other

Corporate and Other is primarily corporate, general and administrative expenses that are not allocated to the segments, such as shared service and administrative functions, unallocated foreign exchange gains and losses and legacy company costs not allocated to continuing segments. Corporate and Other charges increased by $2 to $17 compared to the third quarter of 2013 primarily due to higher costs to support initiatives in our information technology, human resources and environmental, health and safety functions.

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Nine Months Ended September 30, 2014 vs Nine Months Ended September 30, 2013 Segment Results

Following is an analysis of the percentage change in sales by segment from the nine months ended September 30, 2013 to the nine months ended September 30, 2014:

	Volume		Price/Mix		Currency Translation		Total
Epoxy, Phenolic and Coating Resins	9	%	(2	)%	1	%	8	%
Forest Products Resins	4	%	5	%	(2	)%	7	%

Epoxy, Phenolic and Coating Resins

Net sales in the first nine months of 2014 increased by $187, or 8%, when compared to the first nine months of 2013. Higher volumes positively impacted net sales by $208, which were primarily driven by increased demand within our oil field and epoxy specialty businesses. Volume increases in our oil field business were a result of key customer wins and new product development, and increases in volumes in our epoxy specialty business were driven by improving demand in the Asian wind energy market. Pricing had a negative impact of $51, which was primarily due to pricing decreases in our oil field and base epoxy businesses, which were driven by unfavorable product mix and competitive pricing pressures, respectively. Foreign exchange translation positively impacted net sales by $30, primarily due to the weakening of the U.S. dollar against the euro, partially offset by the strengthening of the U.S. dollar against the Australian dollar, Brazilian real and Canadian dollar, in the first nine months of 2014 compared to the first nine months of 2013.

Segment EBITDA in the first nine months of 2014 increased by $9 to $227 compared to the first nine months of 2013. The positive impact of the volume increases discussed above was partially offset by margin compression in certain businesses due to competitive pricing pressures.

Forest Products Resins

Net sales in the first nine months of 2014 increased by $99, or 7%, when compared to the first nine months of 2013. Higher volumes positively impacted sales by $58, and were primarily driven by increases in our North American formaldehyde and Latin American forest products businesses. Volume increases in our North American formaldehyde business were primarily due to customer wins and major customer outages in the first nine months of 2013 that did not recur in the first nine months of 2014, and increases in our Latin American forest products resins business were driven by increases in the furniture, housing construction and industrial markets in this region. Raw material price increases passed through to customers led to pricing increases of $65. Foreign exchange translation negatively impacted net sales by $24, primarily due to the strengthening of the U.S. dollar against the Australian dollar, Brazilian real and Canadian dollar in the first nine months of 2014 compared to the first nine months of 2013.

Segment EBITDA in the first nine months of 2014 increased by $16 to $188 compared to the first nine months of 2013. Segment EBITDA increases were primarily driven by the increase in net sales discussed above, cost control and productivity initiatives, as well as favorable product mix.

Corporate and Other

Corporate and Other is primarily corporate, general and administrative expenses that are not allocated to the segments, such as shared service and administrative functions, unallocated foreign exchange gains and losses and legacy company costs not allocated to continuing segments. Corporate and Other charges increased by $6 to $53 compared to the first nine months of 2013 primarily due to higher costs to support initiatives in our information technology, human resources and environmental, health and safety functions.

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Reconciliation of Segment EBITDA to Net Loss:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	79		$	77		$	227		$	218
Forest Products Resins	63			58			188			172
Corporate and Other	(17		)	(15		)	(53		)	(47		)
Reconciliation:
Items not included in Segment EBITDA
Asset Impairments	—			—			—			(7		)
Business realignment costs	(6		)	(4		)	(24		)	(15		)
Integration costs	(1		)	(4		)	(6		)	(9		)
Other	(29		)	(17		)	(52		)	(43		)
Total adjustments	(36		)	(25		)	(82		)	(74		)
Interest expense, net	(77		)	(77		)	(230		)	(227		)
Loss on extinguishment of debt	—			—			—			(6		)
Income tax expense	(2		)	(57		)	(23		)	(31		)
Depreciation and amortization	(38		)	(37		)	(109		)	(113		)
Net loss	$	(28	)	$	(76	)	$	(82	)	$	(108	)

Items Not Included in Segment EBITDA

Not included in Segment EBITDA are certain non-cash items and other income and expenses. For the three and nine months ended September 30, 2014, these items primarily include expenses from retention programs, losses on the disposal of assets and unrealized foreign exchange transaction gains and losses. For the three and nine months ended September 30, 2013, these items primarily include expenses from retention programs and unrealized foreign exchange losses. Business realignment costs for the three and nine months ended September 30, 2014 and September 30, 2013 primarily relate to costs for environmental remediation at certain formerly owned locations and expenses from minor restructuring programs. Integration costs for the three and nine months ended September 30, 2014 and 2013 primarily represent integration costs associated with the previous integration of MSC and MPM.

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Liquidity and Capital Resources

We are a highly leveraged company. Our primary sources of liquidity are cash flows generated from operations and availability under our asset-based revolving loan facility (the “ABL Facility”). Our primary liquidity requirements are interest, working capital and capital expenditures.

At September 30, 2014, we had $3,834 of outstanding debt, including $128 of short-term debt and capital lease maturities. In addition, at September 30, 2014, we had $456 in liquidity consisting of the following:

•$101 of unrestricted cash and cash equivalents (of which $90 is maintained in foreign jurisdictions);

• $10 of short-term investments;

• $300 of borrowings available under our ABL Facility ($400 borrowing base, less $65 of outstanding borrowings and $35 of outstanding letters of credit); and

• $45 of borrowings available under credit facilities at certain international subsidiaries

We do not believe there is any risk to funding our liquidity requirements in any particular jurisdiction for the next twelve months.

Our net working capital (defined as accounts receivable and inventories less accounts payable) at September 30, 2014 and December 31, 2013 was $657 and $478, respectively. A summary of the components of our net working capital as of September 30, 2014 and December 31, 2013 is as follows:

	September 30, 2014			% of LTM Net Sales		December 31, 2013			% of LTM Net Sales
Accounts receivable	$	725		14	%	$	601		12	%
Inventories	436			9	%	360			8	%
Accounts payable	(504		)	(10	)%	(483		)	(10	)%
Net working capital	$	657		13	%	$	478		10	%

The increase in net working capital of $179 from December 31, 2013 was a result of the increase in sequential quarter volumes due primarily to the impacts of seasonality, which drove increases in accounts receivable and inventory, and was partially offset by increases in accounts payable, driven by the same factors. To minimize the impact of net working capital on cash flows, we continue to review inventory safety stock levels, focus on receivable collections by offering incentives to customers to encourage early payment or accelerating receipts through the sale of receivables and negotiate with vendors to contractually extend payment terms whenever possible. We expect net working capital to decrease in the fourth quarter of 2014, primarily due to seasonality-driven sales volume decreases.

During the first nine months of 2014, gross borrowings under the ABL Facility were $210, and as of September 30, 2014, there was $65 outstanding under the ABL Facility.

Short-term Outlook

Capital spending in 2014 is expected to be approximately $200. The increase in capital spending over 2013 will be primarily driven by investment in our growth and specialty businesses by increasing capacity to meet customer demand. We anticipate a slight increase in working capital in 2014, reflecting moderate expected volume increases. Working capital trends are expected to be consistent with 2013, with increases in the first half of the year and decreases in the second half. Additionally, we expect the following significant cash outflows in 2014: interest payments on our fixed rate First-Priority Senior Secured Notes, Senior Secured Notes, Second-Priority Senior Secured Notes and Debentures (due semi-annually) of approximately $286 in total (with first quarter and third quarter payments of approximately $128, and second and fourth quarter payments of approximately $158); and income tax payments estimated at $29. We plan to fund these significant outflows with available cash and cash equivalents, cash from operations and, if necessary, through available borrowings under our ABL Facility. Based on our liquidity position as of September 30, 2014, and projections of operating cash flows in 2014, we feel that we are favorably positioned to maintain adequate liquidity throughout the remainder of 2014 and the foreseeable future to fund our ongoing operations, cash debt service obligations and any additional investment in net working capital.

We continue to review possible sales of certain non-core assets, which would further increase our liquidity. Opportunities for these sales could depend to some degree on conditions in the credit markets. If the global economic environment begins to weaken again or remains slow for an extended period of time our liquidity, future results of operations and flexibility to execute liquidity enhancing actions could be negatively impacted.

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Sources and Uses of Cash

Following are highlights from our unaudited Condensed Consolidated Statements of Cash Flows:

	Nine Months Ended September 30,
	2014			2013
Sources (uses) of cash:
Operating activities	$	(132	)	$	(23	)
Investing activities	(205		)	(106		)
Financing activities	64			62
Effect of exchange rates on cash flow	(5		)	(2		)
Net decrease in cash and cash equivalents	$	(278	)	$	(69	)

Operating Activities

In the first nine months of 2014, operations used $132 of cash. Net loss of $82 included $136 of net non-cash expense items, of which $109 was for depreciation and amortization and $32 was for unrealized foreign currency losses. Working capital used $192, which was driven by increases in accounts receivable of $142 and inventory of $90 due to seasonality-driven sequential sales volume increases, which were partially offset by an increase in accounts payable of $40, driven by the same factors. Changes in other assets and liabilities and income taxes payable provided $6 due to the timing of when items were expensed versus paid, which primarily included interest expense, employee retention programs, pension plan contributions and taxes.

In the first nine months of 2013, operations used $23 of cash. Net loss of $108 included $128 of net non-cash expense items, of which $113 was for depreciation and amortization, $30 was for deferred tax expense, $6 was for loss on extinguishment of debt and $7 was for non-cash asset impairments. These items were partially offset by $28 of unrealized foreign currency gains and other non-cash adjustments. Working capital used $114 which was driven by increases in accounts receivable and inventory due to sequential sales volume increases, which were partially offset by increases in accounts payable, driven by the same factors. Changes in other assets and liabilities and income taxes payable provided $71 due to the timing of when items were expensed versus paid, which primarily included interest expense, employee retention programs, pension plan contributions and taxes.

Investing Activities

In the first nine months of 2014, investing activities used $205 of cash. We spent $133 for capital expenditures, which primarily related to plant expansions, improvements and maintenance related capital expenditures. We also used cash of $52 for the acquisition of a manufacturing facility in Shreveport, Louisiana and $12 of cash to purchase a subsidiary of MPM. The loan extended to Finco resulted in a $50 decrease in cash, which was offset by the subsequent $50 repayment of the loan by Finco. Additionally, we used net cash of $4 to purchase debt securities, and the change in restricted cash used $2.

In the first nine months of 2013, investing activities used $106. We spent $97 for capital expenditures (including capitalized interest), which primarily related to plant expansions, improvements and maintenance related capital expenditures. The decrease in restricted cash provided $4, and was driven by the usage of $15 of restricted cash to purchase an interest in an unconsolidated joint venture, and was partially offset by $11 of cash which was put on deposit as collateral for a loan that was extended by a third party to one of our unconsolidated joint ventures.

Financing Activities

In the first nine months of 2014, financing activities provided $64 of cash. Net short-term debt borrowings were $25, and net long-term debt borrowings were $39, which primarily consisted of net borrowings under the ABL Facility.

In the first nine months of 2013, financing activities provided $62. Net short-term debt borrowings were $16. Net long-term debt borrowings of $83 primarily consisted of proceeds of $1,108 ($1,100 plus a premium of $8) from the issuance of 6.625% First-Priority Senior Secured Notes due 2020, which was partially offset by the paydown of approximately $910 of term loans under our senior secured credit facilities and the purchase and discharge of $120 of our Floating Rate Second-Priority Senior Secured Notes due 2014, all as a result of the refinancing transactions in early 2013. We also paid $37 of financing fees related to these transactions.

There are certain restrictions on the ability of certain of our subsidiaries to transfer funds to the parent in the form of cash dividends, loans or otherwise, which primarily arise as a result of certain foreign government regulations or as a result of restrictions within certain subsidiaries’ financing agreements limiting such transfers to the amounts of available earnings and profits or otherwise limit the amount of dividends that can be distributed. In either case, we have alternative methods to obtain cash from these subsidiaries in the form of intercompany loans and/or returns of capital in such instances where payment of dividends is limited to the extent of earnings and profits.

Debt Repurchases and Other Financing Transactions

From time to time, depending upon market, pricing and other conditions, as well as our cash balances and liquidity, we or our affiliates, may seek to acquire notes or other indebtedness of the Company through open market purchases, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we or our affiliates may determine (or as may be provided for in the indentures governing the notes), for cash or other consideration. In addition, we have considered and will continue to evaluate potential transactions to reduce net debt, such as debt for debt exchanges or other transactions. There can be no assurance as to which, if any, of these alternatives or

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combinations thereof we or our affiliates may choose to pursue in the future, as the pursuit of any alternative will depend upon numerous factors such as market conditions, our financial performance and the limitations applicable to such transactions under our financing documents.

Covenant Compliance

The instruments that govern our indebtedness contain, among other provisions, restrictive covenants (and incurrence tests in certain cases) regarding indebtedness, dividends and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and, in one case, the maintenance of a financial ratio (depending on certain conditions). Payment of borrowings under the ABL Facility and our notes may be accelerated if there is an event of default as determined under the governing debt instrument. Events of default under the credit agreement governing our ABL Facility includes the failure to pay principal and interest when due, a material breach of representations or warranties, most covenant defaults, events of bankruptcy and a change of control. Events of default under the indentures governing our notes include the failure to pay principal and interest, a failure to comply with covenants, subject to a 30-day grace period in certain instances, and certain events of bankruptcy.

The indentures that govern our 6.625% First-Priority Senior Secured Notes, 8.875% Senior Secured Notes and 9.00% Second-Priority Senior Secured Notes (the “Secured Indentures”) contain an Adjusted EBITDA to Fixed Charges ratio incurrence test which restricts our ability to take certain actions such as incurring additional debt or making acquisitions if we are unable to meet this ratio (measured on a last twelve months, or LTM, basis) of at least 2.0:1. The Adjusted EBITDA to Fixed Charges Ratio under the Secured Indentures is generally defined as the ratio of (a) Adjusted EBITDA to (b) net interest expense excluding the amortization or write-off of deferred financing costs, each measured on an LTM basis.

Our ABL Facility, which is subject to a borrowing base, replaced our senior secured credit facilities in March 2013. The ABL Facility does not have any financial maintenance covenant other than a minimum fixed charge coverage ratio of 1.0 to 1.0 that would only apply if our availability under the ABL Facility at any time is less than the greater of (a) $40 and (b) 12.5% of the lesser of the borrowing base and the total ABL Facility commitments at such time. The fixed charge coverage ratio under the credit agreement governing the ABL Facility is generally defined as the ratio of (a) Adjusted EBITDA minus non-financed capital expenditures and cash taxes to (b) debt service plus cash interest expense plus certain restricted payments, each measured on an LTM basis. At September 30, 2014, our availability under the ABL Facility exceeded such levels; therefore, the minimum fixed charge covenant ratio did not apply. As of September 30, 2014, we were in compliance with all covenants that govern the ABL Facility. We do not believe that a covenant default under the ABL Facility is reasonably likely to occur in the foreseeable future.

Adjusted EBITDA is defined as EBITDA adjusted for certain non-cash and certain non-recurring items and other adjustments calculated on a pro-forma basis, including the expected future cost savings from business optimization programs or other programs and the expected future impact of acquisitions, in each case as determined under the governing debt instrument. As we are highly leveraged, we believe that including the supplemental adjustments that are made to calculate Adjusted EBITDA provides additional information to investors about our ability to comply with our financial covenants and to obtain additional debt in the future. Adjusted EBITDA and Fixed Charges are not defined terms under U.S. GAAP. Adjusted EBITDA is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to net income (loss) determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense (because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue), working capital needs, tax payments (because the payment of taxes is part of our operations, it is a necessary element of our costs and ability to operate), non-recurring expenses and capital expenditures. Fixed Charges under the Secured Indentures should not be considered an alternative to interest expense.

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Reconciliation of Net Loss to Adjusted EBITDA

The following table reconciles net loss to EBITDA and Adjusted EBITDA, and calculates the ratio of Adjusted EBITDA to Fixed Charges as calculated under certain of our indentures for the period presented:

	September 30, 2014
	LTM Period
Net loss	$	(608	)
Income tax expense	341
Interest expense, net	306
Depreciation and amortization	143
EBITDA	182
Adjustments to EBITDA:
Asset impairments	174
Business realignments (1)	30
Integration costs (2)	7
Other (3)	63
Savings from Shared Services Agreement (4)	1
Cost reduction programs savings (5)	3
Pro forma EBITDA adjustment for acquisition and new plant expansions (6)	45
Adjusted EBITDA	$	505
Pro forma fixed charges (7)	$	295
Ratio of Adjusted EBITDA to Fixed Charges (8)	1.71

(1) Represents headcount reduction expenses and plant rationalization costs related to cost reduction programs and other costs associated with business realignments.

(2) Primarily represents integration costs associated with the previous integration of MSC and MPM.

(3) Primarily includes pension expense related to formerly owned businesses, business optimization expenses, management fees, retention program costs, stock-based compensation and realized and unrealized foreign exchange and derivative activity.

(4) Primarily represents pro forma impact of expected savings from the Shared Services Agreement with MPM. Savings from the Shared Services Agreement represent the unrealized savings from shared services and logistics optimization, best-of-source contractual terms, procurement savings, and regional site rationalization as a result of the previous integration of MSC and MPM, and represent our estimate of the unrealized savings from such initiatives that would have been realized had the related actions been completed at the beginning of the LTM period. Best of source contractual terms, procurement and logistics savings relate to cost savings as a result of lower cost contracts for raw materials and logistics as a result of better leverage with vendors.

(5) Represents pro forma impact of in-process cost reduction programs savings. Cost reduction program savings represent the unrealized headcount reduction savings and plant rationalization savings related to cost reduction programs and other unrealized savings associated with the Company’s business realignments activities, and represent our estimate of the unrealized savings from such initiatives that would have been realized had the related actions been completed at the beginning of the LTM period. The savings are calculated based on actual costs of exiting headcount and elimination or reduction of site costs.

(6) Reflects pro forma impact of the acquisition of a manufacturing facility in Shreveport, Louisiana in early 2014, and represents our estimate of incremental annualized EBITDA when the facility is operating at full capacity, as well as related synergies. Also reflects the pro forma impact of new plant expansion, and represents our estimate of incremental annualized EBITDA when the facilities are fully constructed and operating at capacity.

(7) Reflects pro forma interest expense based on interest rates at September 30, 2014.

(8) The Company’s ability to incur additional indebtedness, among other actions, is restricted under the indentures governing certain notes, unless the Company has an Adjusted EBITDA to Fixed Charges ratio of 2.0 to 1.0. As of September 30, 2014, we did not satisfy this test. As a result, we are subject to restrictions on our ability to incur additional indebtedness and to make investments; however, there are exceptions to these restrictions, including exceptions that permit indebtedness under our ABL Facility (available borrowings of which were $300 at September 30, 2014).

Recently Issued Accounting Standards

In May, 2014, the FASB issued Accounting Standards Board Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes the existing revenue recognition guidance and most industry-specific guidance applicable to revenue recognition. According to the new guidance, an entity will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period and early application is not permitted. We are currently assessing the potential impact of ASU 2014-09 on our financial statements.

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In August 2014, the FASB issued Accounting Standards Board Update No. 2014-15: Presentation of Financial Statements - Going Concern - Disclosures of Uncertainties about an entity's Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides new guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards and to provide related footnote disclosures. This new guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The requirements of ASU 2014-15 are not expected to have a significant impact on our financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material developments during the first nine months of 2014 on the matters we have previously disclosed about quantitative and qualitative market risk in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures    

Our management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, performed an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2014. Based upon that evaluation, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective at September 30, 2014.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II

Item 1. Legal Proceedings

There have been no other material developments during the third quarter of 2014 in any of the ongoing legal proceedings that are included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 1A. Risk Factors

Except as noted below, the risk factors that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “10-K”) and in the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2014 and June 30, 2014 (the “10-Qs”) have not materially changed since we filed the 10-K and the 10-Qs. See Item 1A to Part I of the 10-K and Item 1A to Part II of the 10-Qs for a complete discussion of these risk factors.

We have achieved significant cost savings as a result of the Shared Services Agreement with MPM, and expect additional cost savings from our other strategic initiatives. If the Shared Services Agreement is terminated or materially amended, or we are unable to achieve cost savings from our other strategic initiatives, it could have a material adverse effect on our business operations, results of operations, and financial condition.

In October 2010, we entered into the Shared Services Agreement with MPM (which, from October 1, 2010 through October 24, 2014, was a subsidiary of Momentive Holdings) (the “Shared Services Agreement”). Under this agreement, we provide to MPM, and MPM provides to us, certain services, including, but not limited to, executive and senior management, administrative support, human resources, information technology support, accounting, finance, technology development, legal and procurement services. We have realized significant cost savings under the Shared Service Agreement, including savings related to shared services and logistics optimization, best-of-source contractual terms, procurement savings, regional site rationalization, administrative and overhead savings. The Shared Services Agreement is subject to termination by MPM (or us), without cause, on not less than thirty days prior written notice, and expires in October 2015 (subject to one-year renewals every year thereafter, absent contrary notice from either party). On April 13, 2014, Momentive Performance Materials Holdings Inc., MPM and certain of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11. Subsequently, in conjunction with the consummation of MPM’s plan of reorganization and emergence from Chapter 11, on October 24, 2014, the Shared Services Agreement was amended to, among other things, (i) exclude the services of certain executive officers, (ii) provide for a transition assistance period at the election of the recipient following termination of the Shared Services Agreement of up to 12 months, subject to one successive renewal period of an additional 60 days and (iii) provide for the use of an independent third-party audit firm to assist the Steering Committee with its annual review of billings and allocations. If the Shared Services Agreement is terminated, it could have a material adverse effect on our business operations, results of operations and financial condition, as we would need to replace the services no longer being provided by MPM, and would lose a portion of the benefits being generated under the agreement at the time.

Furthermore, we have not yet realized all of the cost savings and synergies we expect to achieve from our other strategic initiatives. A variety of risks could cause us not to realize the expected cost savings and synergies, including but not limited to, higher than expected severance costs related to staff reductions; higher than expected retention costs for employees that will be retained; higher than expected stand-alone overhead expenses; delays in the anticipated timing of activities related to our cost-saving plan; and other unexpected costs associated with operating our business.

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In addition, while we have been successful in reducing costs and generating savings, factors may arise that may not allow us to sustain our current cost structure. As market and economic conditions change, we may also launch other cost savings initiatives. To the extent we are permitted to include the pro forma impact of cost savings initiatives in the calculation of financial covenant ratios or incurrence tests under our ABL Facility or our indentures, our failure to realize such savings could impact our compliance with such covenants or tests.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

This item is not applicable to the registrant.

Item 5. Other Information

On November 6, 2014, the Compensation Committees of the Board of Directors of the Company and of the Board of Managers of Momentive Holdings, our indirect parent company, each approved the form of a 2014 Cash-Based Long-Term Incentive Award Agreement (the “Award Agreement”) for awards to be made to employees of the Company, including our named executive officers, pursuant to the Momentive Performance Materials Holdings LLC Long-Term Cash Incentive Plan, as amended November 6, 2014 (the “Plan”) for the benefit of the Company’s employees. The Plan is a long-term cash incentive plan that rewards employees with additional cash compensation for the achievement of performance-based targets or for continued employment with the Company or one of the Company’s subsidiaries.

Item 6.    Exhibits

10.1†	Momentive Performance Materials Holdings LLC Long-Term Cash Incentive Plan
10.2†	Form of 2014 Cash-Based Long-Term Incentive Award Agreement
31.1	Rule 13a-14 Certifications:
	(a) Certificate of the Chief Executive Officer
	(b) Certificate of the Chief Financial Officer
32.1	Section 1350 Certifications
101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Label Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

† Represents a management contract or compensatory plan or arrangement.

* Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information in the XBRL-related documents is “unaudited” or “unreviewed.”

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MOMENTIVE SPECIALTY CHEMICALS INC.
Date:	November 10, 2014	/s/ William H. Carter
		William H. Carter
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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Exhibit 10.1

Momentive Performance Materials Holdings LLC

Long-Term Cash Incentive Plan (the “Plan”)

I. Purpose of the Plan

To provide key associates employed by subsidiaries of Momentive Performance Materials Holdings LLC (the “Company”) with a performance-based incentive program to drive the achievement of long-term business success.

II. Definition of Terms

Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Company’s 2011 Equity Incentive Plan.

III. Eligibility to Participate

Awards under the Plan may be granted only to employees of the Company’s subsidiaries. Each person to whom an award is granted under the Plan is referred to as a “Participant”. Participants are selected based on the scope of their responsibility and contribution in building value for the total enterprise. Participants are nominated by their employer and approved by the employer’s Board of Directors or Compensation Committee (the “Committee”).

IV. Individual Awards

Awards may be granted under the Plan at any time and from time to time on or prior to the termination of the Plan. The award agreement for each participant will set forth the Participant’s target award and the conditions for payment of such award.

V. No Right to Award or Grant

The Plan is strictly a voluntary undertaking on the part of the Company and is subject to modification and termination by the Committee at any time, with or without notification to participants. All determinations made by the Company in respect of the Plan will be conclusive and binding on all participants, and shall be given the maximum deference permitted by law.

All payments are subject to applicable restrictions contained in the Company’s and its subsidiaries’ debt and equity financing agreements. If any such restrictions prohibit or otherwise delay payments due to participants in the Plan, then the employer shall have the option to make such payments within thirty (30) days of the date that it is first permitted to make such payments.

Participants and their beneficiaries or heirs shall have no legal or equitable rights, claims or interest in any specific property or assets of the Company. The payment obligations under the Plan shall constitute merely an unfunded and unsecured promise of the Company’s subsidiaries to pay compensation in the future to those Participants to whom there is an obligation under the Plan in accordance with its terms. The rights of the Participants and any beneficiaries or heirs shall be no greater than those of the Company’s and its subsidiaries’ unsecured general creditors.

The Company values its reputation for integrity and honesty. Achieving business results at the expense of violation of the law, regulations, or business ethics or allowing individuals under one’s supervision to behave in this manner is never in the best interest of the Company or its subsidiaries. Accordingly, if ethical or honesty standards of behavior are violated or if any such behavior of personnel under a Participant’s supervision is knowingly condoned, any award to a Participant under the Plan is subject to forfeiture.

VI. No Evidence or Right of Employment or Service

Nothing contained in the Plan or any other document related to the Plan constitutes an employment or service commitment by the Company or its subsidiaries; affects the employment status of the Participant who is subject to termination without cause; confers upon the Participant any right to remain employed by or in the service of the Company or its subsidiaries; interferes in any way with the right of the Company or its subsidiaries to terminate the Participant’s employment; or to change the Participant’s compensation or other terms of employment at any time.

VII. Termination

The Plan will terminate on December 31, 2020, unless earlier terminated (the “Termination Date”). No awards may be granted after the Termination Date. Any awards outstanding on the Termination Date shall remain in effect until such award terminates as provided in the applicable award agreement.

VIII. Code Section 409A Compliance

If any payment of an award pursuant to this Plan or an award agreement would subject the Participant to tax under Section 409A of the Code, the Plan or award agreement shall be modified in the least restrictive manner necessary in order to comply with the provisions of Section 409A, other applicable provisions(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and, in each case, without any material diminution in the value of the payments to an affected Participant.

***

Adopted: November 25, 2013

Amended: November 6, 2014

Exhibit 10.2

FORM OF 2014 CASH-BASED LONG-TERM INCENTIVE AWARD AGREEMENT

THIS AGREEMENT (the “Agreement”) is between MOMENTIVE SPECIALTY CHEMICALS INC., a New Jersey corporation (the “Company”), and the Participant set forth on the signature page to this Agreement (the “Participant”).

WHEREAS, the Company’s indirect parent, Momentive Performance Materials Holdings LLC, (“MPMH LLC”) maintains the Momentive Performance Materials Holdings LLC Long-Term Cash Incentive Plan adopted November 25, 2013 (the “Plan”) for the benefit of employees of its subsidiaries, including the Company; and

WHEREAS, the Company has agreed to grant to the Participant, a cash-based long-term incentive award (the “Award”) pursuant to the Plan on the terms and subject to the conditions set forth in this Agreement and the Plan;

NOW, THEREFORE, in consideration of the promises and of the mutual agreements contained in this Agreement, the parties hereto hereby agree as follows:

Section 1.The Plan.

The terms and provisions of the Plan are hereby incorporated into this Agreement as if set forth herein in their entirety. In the event of a conflict between any provision of this Agreement and the Plan, the provisions of this Agreement shall control. A copy of the Plan may be obtained from the Company by the Participant upon request. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Plan.

Section 2.Grant of Cash-Based Award.

Subject to the conditions of the Plan and this Agreement, the Company hereby grants to the Participant a cash-based long-term incentive award in the amount and currency set forth on the signature page hereto (the “Target Award”), payable based upon the Participant’s continued employment with the Company or one of the Company’s subsidiaries.

Section 3.Conditions to Payment of Award.

Participant’s right to any payment of the award is subject to the requirements described below.

(a)    Subject to Participant not having a prior Termination of Relationship, {$/%} of the Target Award will be payable on [DATE].

(b)    Subject to Participant not having a prior Termination of Relationship, {$/%} of the Target Award will be payable on [DATE].

(c)    In order to be eligible to receive any payment of an award, Participant must be actively employed with the Company or one of the Company’s subsidiaries on the date that payment occurs.

(d)    All payments made under the Plan will be subject to any and all applicable income, employment and other tax withholding requirements.

Section 4.Construction.

It is intended that any amounts payable under this Agreement and the Company’s and the Participant’s exercise of authority or discretion hereunder shall comply with and avoid the imputation of any tax, penalty or interest under Section 409A of the Code. This Agreement shall be construed and interpreted consistent with that intent.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the first date specified below.

THE COMPANY:

MOMENTIVE SPECIALTY CHEMICALS INC.

By:    _____________________________

Name:    _____________________________

Title:    _____________________________

Date:    _____________________________

FORFEITURE OF PRIOR AWARD UNDER 2012 LTIP

By signing below and accepting this Award, you agree to forfeit any and all payments that could arise from awards granted to you under the 2012 Long-Term Cash Incentive Plan, other than the award scheduled to be paid in April 2015, which is 50% of your target award.

By signing below, you acknowledge having received the Plan document and you further agree to be bound by the terms and conditions of the Plan and this Agreement.

Your participation is contingent upon your acknowledgement and agreement to the provisions of this Plan and Agreement, and to the forfeiture of awards described above, both as indicated by your signing below and returning the signed Agreement by email to equityadmin@momentive.com by the close of business on {RETURN DATE}.

THE PARTICIPANT:

By:    _____________________________

Name:    _____________________________

Title:    _____________________________

Date:    _____________________________

Last address on the records of the Company:

Target Award: {AMOUNT} {CURR}

Exhibit 31.1 (A)

Certification of Financial Statements and Internal Controls

I, Craig O. Morrison, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Momentive Specialty Chemicals Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 10, 2014

/s/ Craig O. Morrison

Craig O. Morrison

Chief Executive Officer

Exhibit 31.1 (B)

Certification of Financial Statements and Internal Controls

I, William H. Carter, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Momentive Specialty Chemicals Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 10, 2014

/s/ William H. Carter

William H. Carter

Chief Financial Officer

Exhibit 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 Of The Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Momentive Specialty Chemicals Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Craig O. Morrison	/s/ William H. Carter
Craig O. Morrison	William H. Carter
Chief Executive Officer	Chief Financial Officer
November 10, 2014	November 10, 2014

A signed original of this statement required by Section 906 has been provided to Momentive Specialty Chemicals Inc. and will be retained by Momentive Specialty Chemicals Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

MOMENTIVE INTERNATIONAL HOLDINGS COOPERATIEF U.A.

INDEX

	Page
Momentive International Holdings Cooperatief U.A. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013	2
Condensed Consolidated Statements of Operations for the nine months ended September 30, 2014 and 2013	3
Condensed Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2014 and 2013	4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	5
Condensed Consolidated Statement of Deficit for the nine months ended September 30, 2014	6
Notes to Condensed Consolidated Financial Statements	7

1

MOMENTIVE INTERNATIONAL HOLDINGS COOPERATIEF U.A.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions)	September 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $5 and $3, respectively)	$	70		$	180
Short-term investments	10			7
Accounts receivable (net of allowance for doubtful accounts of $12 and $13, respectively)	368			325
Accounts receivable from affiliates	135			88
Loans receivable from affiliates	23			33
Inventories:
Finished and in-process goods	162			137
Raw materials and supplies	70			60
Other current assets	49			45
Total current assets	887			875
Long-term loans receivable from affiliates	15			19
Investment in unconsolidated entities	18			19
Other long-term assets	68			64
Property and equipment
Land	52			55
Buildings	172			186
Machinery and equipment	1,238			1,285
	1,462			1,526
Less accumulated depreciation	(955		)	(990		)
	507			536
Goodwill	107			115
Other intangibles assets, net	54			67
Total assets	$	1,656		$	1,695
Liabilities and Deficit
Current liabilities:
Accounts payable	$	277		$	277
Accounts payable to affiliates	53			158
Debt payable within one year	79			85
Affiliated debt payable within one year	260			284
Income taxes payable	12			6
Other current liabilities	84			86
Total current liabilities	765			896
Long-term liabilities:
Long-term debt	18			22
Affiliated long-term debt	1,028			1,156
Deferred income taxes	9			11
Long-term pension and post employment benefit obligations	170			184
Other long-term liabilities	74			65
Total liabilities	2,064			2,334
Commitments and contingencies (see Note 8)
Deficit
Paid-in capital	114			22
Loans receivable from parent	(4		)	(140		)
Accumulated other comprehensive loss	(57		)	(21		)
Accumulated deficit	(460		)	(499		)
Total Momentive International Holdings Cooperatief U.A. shareholder’s deficit	(407		)	(638		)
Noncontrolling interest	(1		)	(1		)
Total deficit	(408		)	(639		)
Total liabilities and deficit	$	1,656		$	1,695

See Notes to Condensed Consolidated Financial Statements

2

MOMENTIVE INTERNATIONAL HOLDINGS COOPERATIEF U.A.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Nine Months Ended September 30,
(In millions)	2014			2013
Net sales	$	2,246		$	2,084
Cost of sales	1,976			1,869
Gross profit	270			215
Selling, general and administrative expense	200			196
Asset impairments	—			7
Business realignment costs	6			6
Other operating expense, net	2			1
Operating income	62			5
Interest expense, net	5			7
Affiliated interest expense, net	67			61
Other non-operating (income) expense, net	(67		)	38
Income (loss) before income taxes and earnings from unconsolidated entities	57			(101		)
Income tax expense	18			15
Income (loss) before earnings from unconsolidated entities	39			(116		)
Earnings from unconsolidated entities, net of taxes	—			1
Net income (loss)	$	39		$	(115	)

See Notes to Condensed Consolidated Financial Statements

3

MOMENTIVE INTERNATIONAL HOLDINGS COOPERATIEF U.A.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

	Nine Months Ended September 30,
(In millions)	2014			2013
Net income (loss)	$	39		$	(115	)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments	(39		)	(4		)
Gain recognized from pension and postretirement benefits	3			4
Other comprehensive loss	(36		)	—
Comprehensive income (loss)	$	3		$	(115	)

See Notes to Condensed Consolidated Financial Statements

4

MOMENTIVE INTERNATIONAL HOLDINGS COOPERATIEF U.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended September 30,
(In millions)	2014			2013
Cash flows (used in) provided by operating activities
Net income (loss)	$	39		$	(115	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	56			65
Allocations of corporate overhead, net (see Note 3)	11			5
(Gain) loss on foreign exchange guarantee agreement with parent (see Note 3)	(66		)	20
Loss on cash pooling guarantee agreement with parent (see Note 3)	4			11
Non-cash asset impairments	—			7
Deferred tax expense	1			31
Unrealized foreign exchange loss (gain)	4			(23		)
Other non-cash adjustments	—			2
Net change in assets and liabilities:
Accounts receivable	(119		)	(101		)
Inventories	(53		)	(36		)
Accounts payable	47			92
Income taxes payable	2			13
Other assets, current and non-current	(4		)	(14		)
Other liabilities, current and non-current	28			56
Net cash (used in) provided by operating activities	(50		)	13
Cash flows used in investing activities
Capital expenditures	(58		)	(39		)
Purchase of business	(12		)	—
Funds remitted to unconsolidated affiliates, net	—			(16		)
Change in restricted cash	(2		)	15
Proceeds from sale of assets	—			1
Purchases of securities, net	(4		)	(1		)
Net cash used in investing activities	(76		)	(40		)
Cash flows provided by financing activities
Net short-term debt borrowings	—			7
Borrowings of long-term debt	58			19
Repayments of long-term debt	(64		)	(381		)
Affiliated loan borrowings, net	10			442
Capital contribution from parent	15			15
Return of capital to parent	—			(48		)
Net cash provided by financing activities	19			54
Effect of exchange rates on cash and cash equivalents	(5		)	(2		)
(Decrease) increase in cash and cash equivalents	(112		)	25
Cash and cash equivalents (unrestricted) at beginning of period	177			103
Cash and cash equivalents (unrestricted) at end of period	$	65		$	128
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net	$	71		$	67
Income taxes paid (refunded)	20			(5		)
Non-cash financing activity:
Contribution from parent - settlement of intercompany guarantee agreements (see Note 3)	$	63		$	—
Assignment of note receivable from parent (see Note 7)	56			—

See Notes to Condensed Consolidated Financial Statements

5

MOMENTIVE INTERNATIONAL HOLDINGS COOPERATIEF U.A.

CONDENSED CONSOLIDATED STATEMENTS OF DEFICIT (Unaudited)

(In millions)	Paid-in Capital		Loans Receivable from Parent			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Momentive International Holdings Cooperatief U.A. Shareholders’ Deficit			Noncontrolling Interest			Total
Balance at December 31, 2013	$	22	$	(140	)	$	(21	)	$	(499	)	$	(638	)	$	(1	)	$	(639	)
Net income	—		—			—			39			39			—			39
Other comprehensive loss	—		—			(36		)	—			(36		)	—			(36		)
Net repayments from parent	—		80			—			—			80			—			80
Translation adjustment and other non-cash changes in principal			56			—			—			56			—			56
Capital contribution from parent	15		—			—			—			15			—			15
Capital contribution from parent - settlement of intercompany guarantee agreements (see Note 3)	63		—			—			—			63			—			63
Purchase of business from related party (see Note 3)	3		—			—			—			3			—			3
Allocations of corporate overhead (see Note 3)	11		—			—			—			11			—			11
Balance at September 30, 2014	$	114	$	(4	)	$	(57	)	$	(460	)	$	(407	)	$	(1	)	$	(408	)

See Notes to Condensed Consolidated Financial Statements

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In millions)

1. Background and Basis of Presentation

Momentive International Holdings Cooperatief U.A. (“CO-OP”) is a holding company whose primary assets are its investments in Momentive Specialty Chemicals B.V. (“MSC B.V.”) and Momentive Specialty Chemicals Canada, Inc. (“MSC Canada”), and their respective subsidiaries. Together, CO-OP, through its investments in MSC Canada and MSC B.V. and their respective subsidiaries, (collectively referred to as the “Company”), is engaged in the manufacture and marketing of urea, phenolic, epoxy and epoxy specialty resins and coatings applications primarily used in forest and industrial and construction products and other specialty and industrial chemicals worldwide. The Company is a wholly owned subsidiary of Momentive Specialty Chemicals Inc. (“MSC”) and has significant related party transactions with MSC, as discussed in Note 3. CO-OP operates as a business under the direction and with support of its parent, MSC. All entities are under the common control of MSC.

MSC serves global industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries.

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries, all of which are under the common control and management of MSC, and for which no substantive participating rights are held by minority shareholders. Intercompany transactions and balances have been eliminated. Noncontrolling interests exist for the equity interests in subsidiaries that are not 100% owned by the Company. However, due to common ownership, the full interest in these subsidiaries are included within the unaudited Condensed Consolidated Financial Statements presented herein. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement have been included. Results for the interim periods are not necessarily indicative of results for the entire year.

Prior to the formation of the Company on June 4, 2010, and for all financial statement periods presented, all subsidiaries of the Company were considered entities under the common control of MSC, as defined in the accounting guidance for business combinations. In addition, as all entities are under the common control of MSC, all entities have been accounted for on an historical cost basis consistent with the basis of MSC, and as such, the acquisition method of accounting has not been applied.

Year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited financial statements should be read in conjunction with the Company’s most recent audited financial statements and the accompanying notes included elsewhere in this prospectus.

2. Summary of Significant Accounting Policies

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and also the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, it requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Subsequent Events—The Company has evaluated events and transactions subsequent to September 30, 2014 through November 11, 2014, the date of issuance of its unaudited Condensed Consolidated Financial Statements.

Recently Issued Accounting Standards

In May, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes the existing revenue recognition guidance and most industry-specific guidance applicable to revenue recognition. According to the new guidance, an entity will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period and early application is not permitted. The Company is currently assessing the potential impact of ASU 2014-09 on its financial statements.

In August 2014, the FASB issued Accounting Standards Board Update No. 2014-15: Presentation of Financial Statements - Going Concern - Disclosures of Uncertainties about an entity's Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides new guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards and to provide related footnote disclosures. This new guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The requirements of ASU 2014-15 are not expected to have a significant impact on the Company’s financial statements.

7

3. Related Party Transactions

Product Sales and Purchases

The Company sells finished goods and certain raw materials to MSC and certain of its subsidiaries. Total sales were $183 and $136 for the nine months ended September 30, 2014 and 2013, respectively. The Company also purchases raw materials and finished goods from MSC and certain of its subsidiaries. Total purchases were $60 and $54 for the nine months ended September 30, 2014 and 2013, respectively. These transactions are included in “Net sales” and “Cost of sales” in the unaudited Condensed Consolidated Statements of Operations, accordingly.

The Company sells products to certain affiliates and other related parties. These sales were $11 and $9 for the nine months ended September 30, 2014 and 2013, respectively. Accounts receivable from these affiliates were $2 and $1 at September 30, 2014 and December 31, 2013, respectively. The Company also purchases raw materials and services from certain Apollo affiliates and other related parties. These purchases were $2 and $8 for the nine months ended September 30, 2014 and 2013, respectively. The Company had accounts payable to these affiliates of less than $1 at both September 30, 2014 and December 31, 2013.

Billed Allocated Expenses

MSC incurs various administrative and operating costs on behalf of the Company that are reimbursed by the Company. These costs include engineering and technical support, purchasing, quality assurance, sales and customer service, information systems, research and development and certain administrative services. These service costs have been allocated to the Company generally based on sales or sales volumes and when determinable, based on the actual usage of resources. These costs were $29 and $39 for the nine months ended September 30, 2014 and 2013, respectively, and are primarily included within “Selling, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations.

MSC provides global services related to procurement to the Company. These types of services are a raw materials based charge as a result of the global services being primarily related to procurement. The Company’s expense relating to these services totaled $17 and $15 for the nine months ended September 30, 2014 and 2013, respectively, and is classified in “Selling, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations.

The Company also has various technology and royalty agreements with MSC. Charges under these agreements are based on revenue or profits generated. The Company’s total expense related to these agreements was $17 for both the nine months ended September 30, 2014 and 2013, and is classified in “Selling, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations.

In addition, MSC maintains certain insurance policies that benefit the Company. Expenses related to these policies are allocated to the Company based upon sales, and were $5 for both the nine months ended September 30, 2014 and 2013. These expenses are included in “Selling, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations.

Foreign Exchange Gain/Loss Agreement

In January 2011, the Company entered into a foreign exchange gain/loss guarantee agreement with MSC whereby MSC agreed to hold the Company neutral for any foreign exchange gains or losses incurred by the Company for statutory purposes associated with certain of its affiliated loans. The agreement was effective for all of 2011, and was renewed in each of 2012, 2013 and 2014. The Company recorded an unrealized gain (loss) of $66 and ($20) for the nine months ended September 30, 2014 and 2013, respectively, to offset the related statutory foreign exchange gains and losses. These amounts have been recorded within “Other non-operating expense, net” in the unaudited Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2014, MSC contributed its outstanding receivable of $41 related to the agreement to the Company as a capital contribution and permanent investment in the Company, which is recorded in “Paid-in-capital” in the unaudited Condensed Consolidated Balance Sheets.

Cash Pooling Agreement Guarantee

In March 2012, the Company entered into a guarantee agreement with MSC whereby MSC agreed to hold the Company neutral for any interest income or expense exposure incurred by the Company for income tax purposes associated with certain of its affiliated loans that were entered into under an internal cash management agreement. In connection with this agreement, the Company recorded expense of $4 and $11 for the nine months ended September 30, 2014 and 2013, respectively, to offset the related interest income. These amounts have been recorded within “Other non-operating expense, net” in the unaudited Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2014, MSC contributed its outstanding receivable of $21 related to the agreement to the Company as a capital contribution and permanent investment in the Company, which is recorded in “Paid-in-capital” in the unaudited Condensed Consolidated Balance Sheets.

Accounts Receivable Factoring Agreement Guarantee

In December 2013, the Company entered into a guarantee agreement with MSC whereby MSC agreed to hold the Company neutral for any foreign exchange or bad debt exposure incurred by the Company for income tax purposes associated with purchases and sales of accounts receivable under an internal accounts receivable purchase and sale agreement. In connection with this agreement, the Company recorded expense of less than $1 for the the nine months ended September 30, 2014, to offset the related foreign exchange gains. This amount have been recorded within “Other non-operating expense, net” in the unaudited Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2014, MSC contributed its outstanding receivable of $1 related to the agreement to the Company as a capital contribution and permanent investment in the Company, which is recorded in “Paid-in-capital” in the unaudited Condensed Consolidated Balance Sheets.

8

At September 30, 2014 and December 31, 2013, the Company had affiliated receivables of $135 and $88, respectively, and affiliated payables of $53 and $158, respectively, pertaining to all of the billed related party transactions described above.

Unbilled Allocated Corporate Controlled Expenses

In addition to direct charges, MSC provides certain administrative services that are not reimbursed by the Company. These costs include corporate controlled expenses such as executive management, legal, health and safety, accounting, tax and credit, and have been allocated herein to the Company on the basis of net sales. Management believes that the amounts are allocated in a manner that is reasonable and consistent, and that these allocations are necessary in order to properly depict the financial results of the Company on a stand-alone basis. However, the amounts are not necessarily indicative of the costs that would have been incurred if the Company had operated independently. These charges are included in “Selling, general and administrative expense” in the unaudited Condensed Consolidated Statements of Operations, with the offsetting credit recorded in “Paid-in capital.” There is no income tax benefit recorded related to these amounts because they are not deductible for tax purposes.

The following table summarizes the corporate controlled expense allocations for the nine months ended September 30:

	2014		2013
Executive group	$	3	$	1
Environmental, health and safety services	2		—
Finance	6		4
Total	$	11	$	5

Other Transactions

In March 2014, the Company entered into a ground lease with a Brazilian subsidiary of Momentive Performance Materials Inc. (“MPM”), an affiliate of the Company’s parent, to lease a portion of MPM’s manufacturing site in Itatiba, Brazil for purposes of constructing and operating an epoxy production facility. In conjunction with the ground lease, the Company also entered into a site services agreement whereby MPM’s subsidiary will provide to the Company various services such as environmental, health and safety, security, maintenance and accounting, amongst others, to support the operation of this new facility. The Company paid less than $1 to MPM under this agreement during the nine months ended September 30, 2014.

In April 2014, the Company purchased 100% of the interests in MPM’s Canadian subsidiary for a purchase price of approximately $12. As a part of the transaction the Company also entered into a non-exclusive distribution agreement with a subsidiary of MPM, whereby the Company will act as a distributor of certain of MPM’s products in Canada. The agreement has a term of 10 years, and is cancelable by either party with 180 days’ notice. The Company is compensated for acting as distributor at a rate of 2% of the net selling price of the related products sold. Additionally, MPM is providing transitional services to the Company for a period of 6 months subsequent to the transaction date. During the nine months ended September 30, 2014, the Company purchased approximately $20 of products from MPM under this distribution agreement, and earned less than $1 from MPM as compensation for acting as distributor of the products. As of September 30, 2014, the Company had $3 of accounts payable to MPM related to the distribution agreement.

As both the Company and MPM shared a common ultimate parent at the time of the transaction, this purchase was accounted for as a transaction under common control as defined in the accounting guidance for business combinations, resulting in the Company recording the net assets of the acquired entity at carrying value. Additionally, the gain on the purchase of $3 was accounted for as a capital contribution, and is reflected in “Paid-in-Capital” in the unaudited Condensed Consolidated Balance Sheets. In addition, the Company has recasted its prior period financial statements on a combined basis to reflect the release of the valuation allowance related to the expected realization of deferred tax benefits attributable to MPM’s Canadian subsidiary during the year ended December 31, 2011. This retrospective adjustment to the Company’s unaudited Condensed Consolidated Financial Statements resulted in a $12 decrease in “Accumulated deficit” as of December 31, 2013.

4. Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement provisions establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This guidance describes three levels of inputs that may be used to measure fair value:

• Level 1: Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date.

• Level 3: Unobservable inputs that are supported by little or no market activity and are developed based on the best information available in the circumstances. For example, inputs derived through extrapolation or interpolation that cannot be corroborated by observable market data.

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Recurring Fair Value Measurements

Following is a summary of assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013:

	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)		Total
September 30, 2014
Derivative assets	$	—	$	66		$	—	$	66
December 31, 2013
Derivative liabilities	$	—	$	(39	)	$	—	$	(39	)

Level 2 derivative assets and liabilities consist of derivative instruments transacted predominately in over-the-counter markets, and primarily consists of amounts related to the foreign exchange gain/loss guarantee agreement with the Company's parent (see Note 5).

There were no transfers between Level 1, Level 2 or Level 3 measurements during the nine months ended September 30, 2014 or 2013.

The Company calculates the fair value of its Level 2 derivative liabilities using standard pricing models with market-based inputs, adjusted for nonperformance risk. When its financial instruments are in a liability position, the Company evaluates its credit risk as a component of fair value. At September 30, 2014 and December 31, 2013, no adjustment was made by the Company to reduce its derivative liabilities for nonperformance risk.

When its financial instruments are in an asset position, the Company is exposed to credit loss in the event of nonperformance by other parties to these contracts and evaluates their credit risk as a component of fair value.

Non-recurring Fair Value Measurements

The Company recorded losses of $7 as a result of measuring assets at fair value on a non-recurring basis during the nine months ended September 30, 2013, which were valued using Level 3 inputs.

During the nine months ended September 30, 2013, as a result of the likelihood that certain long-lived assets would be disposed of before the end of their estimated useful lives, resulting in lower future cash flows associated with these assets, the Company wrote down long-lived assets with a carrying value of $8 to fair value of $1, resulting in an impairment charge of $7. These assets were valued by using a discounted cash flow analysis based on assumptions that market participants would use. Significant unobservable inputs in the model included projected short-term future cash flows associated with these long-lived assets through the projected disposal date. Future projected short-term cash flows were derived from forecast models based upon budgets prepared by the Company’s management.

Non-derivative Financial Instruments

The following table summarizes the carrying amount and fair value of the Company’s non-derivative financial instruments:

	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
September 30, 2014
Debt	$	97	$	—	$	94	$	3	$	97
December 31, 2013
Debt	$	107	$	—	$	103	$	4	$	107

Fair values of debt classified as Level 2 are determined based on other similar financial instruments, or based upon interest rates that are currently available to the Company for the issuance of debt with similar terms and maturities. Level 3 amounts represent capital leases whose fair value is determined through the use of present value and specific contract terms. The carrying amounts of cash and cash equivalents, short term investments, accounts receivable, accounts payable and other accrued liabilities are considered reasonable estimates of their fair values due to the short-term maturity of these financial instruments.

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5. Derivative Instruments and Hedging Activities

Derivative Financial Instruments

The Company is exposed to certain risks related to its ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange risk and interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes.

Foreign Exchange Gain/Loss Agreement

The Company entered into a foreign exchange gain/loss guarantee agreement in 2011 (which was renewed in each of 2012, 2013 and 2014) with MSC whereby MSC agreed to hold the Company neutral for any foreign exchange gains or losses incurred by the Company for income tax purposes associated with certain of its affiliated loans. This arrangement qualifies as a derivative and is recorded at fair value in the unaudited Condensed Consolidated Balance Sheets. The Company does not apply hedge accounting to this derivative instrument.

Foreign Exchange Rate Swaps

The Company periodically uses foreign exchange rate swaps to hedge foreign currency exposure on certain assets and liabilities of its foreign subsidiaries which are denominated in currencies other than the respective functional currency.

The Company is party to various foreign exchange rate swaps in Brazil in order to reduce the foreign currency risk associated with certain assets and liabilities of its Brazilian subsidiary that are denominated in U.S. dollars. The counter-parties to the foreign exchange rate swap agreements are financial institutions with investment grade ratings. The Company does not apply hedge accounting to these derivative instruments.

Interest Rate Swaps

The Company periodically uses interest rate swaps to alter interest rate exposures between fixed and floating rates on certain long-term debt. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated using an agreed-upon notional principal amount. The counter-parties to the interest rate swap agreements are financial institutions with investment grade ratings.

In December 2011, the Company entered into a three-year interest rate swap agreement with a notional amount of AUD $6, which became effective on January 3, 2012 and will mature on December 5, 2014. The Company pays a fixed rate of 4.140% and receives a variable rate based on the 3 month Australian Bank Bill Rate. The Company has not applied hedge accounting to this derivative instrument.

The following table summarizes the Company’s asset and liability derivative financial instruments as of December 31:

	September 30, 2014						December 31, 2013
Derivatives not designated as hedging instruments	Average Days to Maturity	Average Contract Rate	Notional Amount		Fair Value Asset (Liability)		Average Days to Maturity	Average Contract Rate	Notional Amount		Fair Value Asset (Liability)			Location of Derivative Asset (Liability)
Foreign Exchange Gain/Loss Agreement
Foreign exchange gain/loss agreement with affiliate	365	—	$	782	$	66	365	—	$	681	$	(39	)	Accounts receivable from (payable to) affiliates
Foreign Exchange Rate Swaps
Brazil foreign exchange rate swaps - asset	—	—	2		—		—	—	7		—			Other current assets
Brazil foreign exchange rate swaps - liability	—	—	13		—		—	—	13		—			Other current liabilities
Interest Rate Swap
Australian dollar interest swap	66	—	6		—		339	—	6		—			Other current liabilities
Total					$	66					$	(39	)

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The following table summarizes gains and losses recognized on the Company’s derivative financial instruments, which are recorded in “Other non-operating expense, net” in the unaudited Condensed Consolidated Statements of Operations:

Derivatives not designated as hedging instruments	Amount of Gain (Loss) Recognized in Income for the Nine Months Ended September 30:
	2014		2013
Foreign Exchange Gain/Loss Agreement
Foreign exchange gain/loss agreement with affiliate	$	66	$	(20	)
Foreign Exchange Rate Swaps
Brazil foreign exchange rate swaps	—		—
Interest Rate Swap
Australian dollar interest swap	—		—
Total	$	66	$	(20	)

6. Debt and Lease Obligations

Debt outstanding at September 30, 2014 and December 31, 2013 is as follows: 

	September 30, 2014				December 31, 2013
	Long-Term		Due Within One Year		Long-Term		Due Within One Year
ABL Facility	$	—	$	—	$	—	$	—
Other Borrowings:
Australia Facility due 2014	—		32		—		35
Brazilian bank loans	10		45		13		46
Capital leases and other	8		2		9		4
Total	$	18	$	79	$	22	$	85

7. Affiliated Financing

During the nine months ended September 30, 2014, approximately $80 was repaid to the Company under the 2.0% note receivable from MSC due January 2015, with the remaining $56 being assigned to another subsidiary of the Company. This loan was classified as a reduction of equity as of December 31, 2013 in the unaudited Condensed Consolidated Balance Sheets.

Balance Sheet Classification

Of the outstanding loans receivable as of September 30, 2014 and December 31, 2013, $4 and $140, respectively, represent amounts receivable from MSC that are not expected to be repaid for the foreseeable future. As MSC is the Company’s parent, these amounts have been recorded as a reduction of equity in the unaudited Condensed Consolidated Balance Sheets.

The remaining outstanding loans receivable balances are included in “Loans receivable from affiliates” and “Long-term loans receivable from affiliates” in the unaudited Condensed Consolidated Balance Sheets.

8. Commitments and Contingencies

Environmental Matters

The Company’s operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials. The Company is subject to extensive environmental regulation at the federal, state and local levels as well as foreign laws and regulations, and is therefore exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Environmental Institution of Paraná IAP—On August 10, 2005, the Environmental Institute of Paraná (IAP), an environmental agency in the State of Paraná, provided Hexion Quimica Industria, the Company’s Brazilian subsidiary, with notice of an environmental assessment in the amount of 12 Brazilian reais. The assessment related to alleged environmental damages to the Paranagua Bay caused in November 2004 from an explosion on a shipping vessel carrying methanol purchased by the Company. The investigations performed by the public authorities have not identified any actions of the Company that contributed to or caused the accident. The Company responded to the assessment by filing a request to have it cancelled and by obtaining an injunction precluding execution of the assessment pending adjudication of the issue. In November 2010, the Court denied the Company’s request to cancel the assessment and lifted the injunction that had been issued. The Company

responded to the ruling by filing an appeal in the State of Paraná Court of Appeals. In March 2012, the Company was informed that the Court of Appeals had denied the Company’s appeal, and on June 4, 2012 the Company filed appeals to the Superior Court of Justice and the Supreme Court of Brazil. The Company continues to believe it has strong defenses against the validity of the assessment, and does not believe that a loss

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is probable. At September 30, 2014, the amount of the assessment, including tax, penalties, monetary correction and interest, is 36 Brazilian reais, or approximately $15.

The following table summarizes all probable environmental remediation, indemnification and restoration liabilities, including related legal expenses, at September 30, 2014 and December 31, 2013.

	Number of Sites		Liability				Range of Reasonably Possible Costs
Site Description	September 30, 2014	December 31, 2013	September 30, 2014		December 31, 2013		Low		High
Currently-owned	9	9	$	5	$	5	$	3	$	12
Formerly-owned:
Remediation	1	1	—		—		—		—
Monitoring only	1	1	—		—		—		1
Total	11	11	$	5	$	5	$	3	$	13

These amounts include estimates for unasserted claims that the Company believes are probable of loss and reasonably estimable. The estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based. To establish the upper end of a range, assumptions less favorable to the Company among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates. At September 30, 2014 and December 31, 2013, $4 and $5, respectively, have been included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets.

Non-Environmental Legal Matters

The Company is involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings that are considered to be in the ordinary course of business. The Company has reserves of $2 at both September 30, 2014 and December 31, 2013, for all non-environmental legal defense costs incurred and settlement costs that it believes are probable and estimable. The following legal claim are not in the ordinary course of business:

Brazil Tax Claim— On October 15, 2012, the Appellate Court for the State of Sao Paulo rendered a unanimous decision in favor of the Company on this claim, which has been pending since 1992. In 1992, the State of Sao Paulo Administrative Tax Bureau issued an assessment against the Company’s Brazilian subsidiary claiming that excise taxes were owed on certain intercompany loans made for centralized cash management purposes. These loans and other internal flows of funds were characterized by the Tax Bureau as intercompany sales. Since that time, management and the Tax Bureau have held discussions and the Company filed an administrative appeal seeking cancellation of the assessment. The Administrative Court upheld the assessment in December 2001. In 2002, the Company filed a second appeal with the highest-level Administrative Court, again seeking cancellation of the assessment. In February 2007, the highest-level Administrative Court upheld the assessment. The Company requested a review of this decision. On April 23, 2008, the Brazilian Administrative Tax Tribunal issued its final decision upholding the assessment against the Company. The Company filed an Annulment action in the Brazilian Judicial Courts in May 2008 along with a request for an injunction to suspend the tax collection. The injunction was granted upon the Company pledging certain properties and assets in Brazil during the pendency of the Annulment action in lieu of depositing an amount equivalent to the assessment with the Court. In September 2010, in the Company’s favor, the Court adopted its appointed expert’s report finding that the transactions in question were intercompany loans and other legal transactions. The State Tax Bureau appealed this decision in December 2010, and the Appellate Court ruled in the Company’s favor on October 15, 2012. On January 7, 2013, the State Tax Bureau appealed the decision to the Superior Court of Justice. The Company has replied to the appeal, and on August 06, 2014, the Superior Court of Justice ruled in favor of the Company. With no additional appeals left to the State of Sao Paulo Tax Authority, on August 21, 2014, the above decision in favor of the Company was declared “res judicata” (final decision which ended the claim).

Other Legal Matters—The Company is involved in various other product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings in addition to those described above, including actions that allege harm caused by products the Company has allegedly made or used, containing silica, vinyl chloride monomer and asbestos. The Company believes it has adequate reserves and that it is not reasonably possible that a loss exceeding amounts already reserved would be material. Furthermore, the Company has insurance to cover claims of these types.

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9. Pension and Non-Pension Postretirement Benefit Plans

Following are the components of net pension and postretirement expense recognized by the Company for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended September 30,
	Pension Benefits						Non-Pension Postretirement Benefits
	2014			2013			2014		2013
Service cost	$	11		$	11		$	—	$	—
Interest cost on projected benefit obligation	13			13			1		—
Expected return on assets	(11		)	(9		)	—		—
Amortization of prior service cost	—			1			—		1
Amortization of net losses	3			7			—		—
Net expense	$	16		$	23		$	1	$	1

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10. Changes in Accumulated Other Comprehensive Loss

Following is a summary of changes in “Accumulated other comprehensive loss” for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended September 30, 2014									Nine Months Ended September 30, 2013
	Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total
Beginning balance	$	(60	)	$	39		$	(21	)	$	(103	)	$	41		$	(62	)
Other comprehensive loss before reclassifications, net of tax	—			(39		)	(39		)	(5		)	(4		)	(9		)
Amounts reclassified from Accumulated other comprehensive loss, net of tax	3			—			3			9			—			9
Net other comprehensive income (loss)	3			(39		)	(36		)	4			(4		)	—
Ending balance	$	(57	)	$	—		$	(57	)	$	(99	)	$	37		$	(62	)

	Amount Reclassified From Accumulated Other Comprehensive Loss for the Nine Months Ended:
Amount Reclassified From Accumulated Other Comprehensive Loss	September 30, 2014		September 30, 2013		Location of Reclassified Amount in Income
Amortization of defined benefit pension and other postretirement benefit items:
Prior service costs	$	—	$	2	(1)
Actuarial losses	3		7		(1)
Total before income tax	3		9
Income tax benefit	—		—		Income tax expense
Total	$	3	$	9

(1) These accumulated other comprehensive income components are included in the computation of net pension and postretirement benefit expense (see Note 9).

11. Income Taxes

The effective tax rate was 32% and (15)% for the nine months ended September 30, 2014 and 2013, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which the Company operates. The effective tax rates were also impacted by operating losses generated in jurisdictions where no tax benefit was recognized due to the maintenance of a full valuation allowance.

For both the nine months ended September 30, 2014 and September 30, 2013, income tax expense relates primarily to income from certain foreign operations, which were higher in certain foreign jurisdictions for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013.

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